ANZ National Bank Limited
General Disclosure Statement
FOR THE YEAR ENDED 30 SEPTEMBER 2010 | NUMBER 59 ISSUED NOVEMBER 2010

ANZ National Bank Limited

General Disclosures

For the year ended 30 September 2010

General Matters

Contents
General Disclosures
Summary of Financial Statements
Income Statements and Statementsof Comprehensive Income
Statements of Changes in Equity
Balance Sheets
Cash Flow Statements
Notes to the Financial Statements
Directorate and Auditors
Conditions of Registration
Directors’ Statement
Auditors’ Report
Index

1
4
5
6
7
8
9
104
106
109
110
112

Glossary of Terms
This General Disclosure Statement has been issued inaccordance with the Registered Bank Disclosure Statement(Full and Half-Year – New Zealand Incorporated Registered
Banks) Order 2008 (“the Order”).
In this General Disclosure Statement unless the context
otherwise requires:(a) “Bank” means ANZ National Bank Limited;(b) “Banking Group” means ANZ National Bank and all its
controlled entities;(c) “Immediate Parent Company” means ANZ Holdings(New Zealand) Limited;(d) “NZ Branch” means the New Zealand branch officeof Australia and New Zealand Banking Group Limited;(e) “ANZ New Zealand” means the combined New Zealandoperations of Australia and New Zealand Banking Group
Limited;(f ) “Ultimate Parent Bank” means Australia and New Zealand
Banking Group Limited;(g) “Overseas Banking Group” means the worldwide
operations of Australia and New Zealand Banking Group
Limited including its controlled entities;(h) “RBNZ” means the Reserve Bank of New Zealand;(i) “APRA” means the Australian Prudential Regulation
Authority; and(j) Any term or expression which is defined in, or in themanner prescribed by, the Order shall have the meaning
given in or prescribed by the Order.

The address for service for the Bank is Level 6, 1 Victoria
Street, Wellington, New Zealand. The Bank was incorporated
under the Companies Act 1955 by virtue of the ANZ Banking
Group (New Zealand) Act 1979 on 23 October 1979, and was
reregistered under the Companies Act 1993 on 13 June 1997.
The Bank is wholly owned by its immediate parent company
and ultimately by the Ultimate Parent Bank. The Immediate
Parent Company of the Bank is incorporated in New Zealandand owned by ANZ Funds Pty Limited and the Ultimate
Parent Bank (both incorporated in Australia). The addressfor service for the Ultimate Parent Bank is ANZ Centre
Melbourne, Level 9, 833 Collins Street, Docklands,
Victoria 3008, Australia.
The Immediate Parent Company has the power under the
Bank’s Constitution to appoint any person as a Director of
the Bank either to fill a casual vacancy or as an additional
Director or to remove any person from the office of Director,
from time to time by giving written notice to the Bank.
No appointment of a new Director may occur unless the
RBNZ confirms that it does not object to the appointment.
The NZ Branch was established on 5 January 2009. Its addressfor service is Level 6, 1 Victoria Street, Wellington, New Zealand.
On 30 November 2009, the Banking Group purchased ING
Groep’s 51% interest in ING (NZ) Holdings Limited (“ING NZ”),
which was the holding company for the ANZ-ING wealthmanagement and life insurance joint venture in New Zealand.
As a result of the change in ownership, the name of thesebusinesses was changed to OnePath in November 2010.

Nature Of Business
The Banking Group provides a broad range of banking andfinancial products and services to retail, small business,rural, commercial and institutional clients.

Material Financial Support
In accordance with the requirements issued by APRA
pursuant to its Prudential Standards, the Ultimate Parent
Bank may not provide material financial support to the Bank
contrary to the following:•••

the Ultimate Parent Bank should not undertake any
third party dealings with the prime purpose of
supporting the business of the Bank;
the Ultimate Parent Bank should not hold unlimited
exposures (should be limited as to specified time andamount) in the Bank (e.g. not provide a generalguarantee covering any of the Bank’s obligations);
the Ultimate Parent Bank should not enter into crossdefault clauses whereby a default by the Bank on an
obligation (whether financial or otherwise) is deemed
to trigger a default of the Ultimate Parent Bank in
its obligations;1

General Disclosure Statement

ANZ National Bank Limited

General Disclosures (continued)

Other Material Matters•

There are no matters relating to the business or affairsof the Bank and the Banking Group which are notcontained elsewhere in the General Disclosure Statement
and which would, if disclosed, materially adversely
affect the decision of a person to subscribe for debt
securities of which the Bank or any member of the Banking
Group is the issuer .

•the Board of the Ultimate Parent Bank in determining
limits on acceptable levels of exposure to the Bank
should have regard to:– the level of exposure that would be approved tothird parties of broadly equivalent credit status. In
this regard, prior consultation (and in some cases
approval) is required before entering exceptionallylarge exposures;– the impact on the Ultimate Parent Bank’s capital andliquidity position and its ability to continue
operating in the event of a failure by the Bank; andthe level of exposure to the Bank not exceeding:– 50% on an individual exposure basis; and– 150% in aggregate (being exposures to all similar
regulated entities related to the Ultimate ParentBank)of the Ultimate Parent Bank’s capital base.

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

Pending Proceedings or Arbitration

Credit Rating Information
Credit ratings are assigned to sovereigns and businesses by
the international credit rating agencies. Credit ratings
provide investors with an indication of the credit-worthinessof an entity in which they are considering investing. There
are three major internationally recognised credit rating
agencies: Standard & Poor’s, Moody’s Investors Service andFitch Ratings.
As at 22 November 2010 the Bank has three credit ratings,
which are applicable to its long-term senior unsecured
obligations which are payable in New Zealand in
New Zealand dollars. On 20 May 2010 Fitch changed theoutlook on the Bank from Stable to Positive. During thetwo years ended 30 September 2010 there were no otherchanges to the Bank’s credit ratings or qualifications.
The Bank’s Credit Ratings are:Rating Agency

Current
Credit Rating

Qualification

Standard & Poor’s

AA

Outlook Stable

Moody’s
Investors Service

Aa2

Outlook Stable

Fitch Ratings

AA-

Outlook Positive

Other than disclosed in the General Disclosure Statement,
there are no pending proceedings or arbitration concerning
any member of the Banking Group that may have a material
adverse effect on the Bank or the Banking Group as at thedate of the General Disclosure Statement.
Further details on pending proceedings or arbitration are
set out in Note 37.
The following table describes the credit rating grades available:
Standard &Poor'sMoody's
Investors Service

Fitch Ratings

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

AAA

Aaa

AAA

Very strong ability to repay principal and interest.

AA

Aa

AA

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

A

A

A

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

BBB

Baa

BBB

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

BB

Ba

BB

Greater vulnerability and therefore greater likelihood of default.

B

B

BB

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

CCC

Caa

CCC

Highest risk of default.

CC to CCa to CCC to CD-

RD & DThe following grades display investment grade characteristics:

The following grades have predominantly speculative characteristics:

Obligations currently in default.

ANZ National Bank Limited

Summary of Financial Statements
Banking Group$ millions

Year to30/09/2010

Year to30/09/2009

Year to30/09/2008

Year to1
30/09/2007

Year to1
30/09/2006

Continuing operations
Interest income

5,876

7,345

9,857

8,309

7,206

Interest expense

3,457

4,892

7,568

6,059

5,077

Net interest income

2,419

2,453

2,289

2,250

2,129

744

663

1,124

861

802

Operating income

3,163

3,116

3,413

3,111

2,931

Operating expenses

1,565

1,477

1,444

1,331

1,323

Profit before provision for credit impairment and income tax

1,598

1,639

1,969

1,780

1,608

Other operating income

(5)

264

112

20

(10)

Individual provision charge

441

610

190

54

28

Provision for credit impairment

436

874

302

74

18

Profit before income tax

1,162

765

1,667

1,706

1,590

Income tax expense

335

467

504

614

523

Profit after income tax from continuing operations

827

298

1,163

1,092

1,067

-

-

-

76

5

Collective provision charge / (credit)

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

827

298

1,163

1,168

1,072

Dividends paid

(600)

(1,000)

-

(728)

(900)

Banking Group$ millions

Total impaired assets

As at
30/09/2009

As at
30/09/2008

As at1
30/09/2007

As at 1
30/09/2006

2,004

1,178

327

115

151

Total assets

116,458

117,891

122,915

107,787

95,814

Total liabilities

106,012

107,803

113,108

99,08487,581

1

-

-

-

-

10,446

10,088

9,807

8,703

8,233

Non-controlling interests
Equity1

As at
30/09/2010

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

The amounts included in this summary have been taken from the audited financial statements of the Banking Group.

ANZ National Bank Limited
4–5

Income Statements
Banking Group$ millions

Note

Year to30/09/2010

Bank

Year to30/09/2009

Year to30/09/2010

Year to30/09/2009

Interest income

4

5,876

7,345

5,963

7,528

Interest expense

5

3,457

4,892

3,904

5,538

2,419

2,453

2,059

1,990

Net trading gains

4

39

187

22

185

Funds management and insurance income

4

218

97

65

78

Other operating income

4

445

366

954

1,393

Share of profit of equity accounted associates
and jointly controlled entities

16

Net interest income

Operating income
5

Operating expenses
Profit before provision for credit impairment
Provision for credit impairment

15

Profit before income tax
6

42

13

-

-

3,163

3,116

3,100

3,646

1,565

1,477

1,401

1,410

1,598

1,639

1,699

2,236

436

874

417

840

1,162

765

1,282

1,396

335

467

227

386

827

298

1,055

1,010

Year to30/09/2010

Year to30/09/2009

Year to30/09/2010

Year to30/09/2009

827

298

1,055

1,010

Valuation gain before tax

53

2

15

2

Cumulative gain transferred to the income statement on saleof financial assets

(12)

-

-

-

Income tax expense
Profit after income tax

Statements of Comprehensive Income
Banking Group$ millions

Note

Profit after income tax

Bank

Available-for-sale revaluation reserve

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

11

89

(1)

89

(1)

Transferred to income statement

11

21

(3)

21

(3)

Other items recognised directly in equity
Actuarial gain / (loss) on defined benefit schemes

40

27

(25)

27

(25)

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

6

(48)

10

(41)

10

Net income / (expense) recognised directly in equity

130

(17)

111

(17)

Total comprehensive income for the year

957

281

1,166

993

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

ANZ National Bank Limited

Statements of Changes in Equity
Banking Group$ millions

Note

Bank

Year to30/09/2010

Year to30/09/2009

Year to30/09/2010

Year to30/09/2009

6,943

5,943

6,943

5,943

Ordinary share capital
Balance at beginning of the year

-

1,000

-

1,000

6,943

6,943

6,943

6,943

Balance at beginning of the year

25

23

25

23

Valuation gain recognised after tax

42

2

14

2

Ordinary share capital issued during the year
Balance at end of the year

30

Available-for-sale revaluation reserve

Transferred to income statement after tax

(9)

-

-

-

Balance at end of the year

58

25

39

25

Balance at beginning of the year

23

24

23

24

Valuation gain recognised after tax

64

-

64

-

Transferred to income statement after tax

15

(1)

15

(1)

Cash flow hedging reserve

Balance at end of the year

11

Total reserves

102

23

102

23

160

48

141

48

3,097

3,817

2,314

2,322

827

298

1,055

1,010

3,924

4,115

3,369

3,332

18

(18)

18

(18)

(600)

(1,000)(600)(1,000)

3,342

3,097

2,787

2,314

-

-

-

-

Retained earnings
Balance at beginning of the year
Profit after income tax attributable to parent
Total available for appropriation
Actuarial gain / (loss) on defined benefit schemes after tax
Dividend paid

30

Balance at end of the year
Non-controlling interests
Balance at beginning of the year
Acquired in a business combination

41

Balance at end of the year

1

-

-

-

1

-

-

-

10,088

9,807

9,305

8,312

957

281

1,166

993

(600)

-

(600)

-

1

-

-

-

10,446

10,088

9,871

9,305

Total equity
Balance at beginning of the year
Total comprehensive income for the year
Transactions with shareholders
Non-controlling interests
Balance at end of the year

41

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

ANZ National Bank Limited
6–7

Balance Sheets
Banking Group

Bank

Note

30/09/2010

30/09/2009

30/09/2010

30/09/2009

8

2,238

2,762

2,223

2,758

Due from other financial institutions

9

3,496

4,514

1,926

4,361

Trading securities

10

6,757

4,166

6,757

4,166

Derivative financial instruments

11

10,367

11,408

10,382

11,449$ millions

AssetsLiquid assets

Available-for-sale assets

12

2,210

1,513

2,040

1,511

Net loans and advances

13

85,91388,25983,522

85,952

Due from subsidiary companies

27

-

-

9,043

7,703

Investments relating to insurance business

28

-

-

-

Insurance policy assets

138

-

-

-

Due from Immediate Parent Company

27

6

-

6

-

Shares in controlled entities, associates and jointly controlled entities

16

144

464

7,428

7,702

25

65

73

168

Current tax assets
Other assets

17

965

1,137

929

1,081

Deferred tax assets

18

312

-

293

-

Premises and equipment

19

311

278

83

63

Goodwill and other intangible assets

20

3,548

3,325

3,292

3,274

116,458

117,891

127,997

130,188

Total assets
Liabilities
Due to other financial institutions

21

1,819

3,725

1,819

3,239

Deposits and other borrowings

22

70,29571,764

61,68062,835Due to subsidiary companies

27

-

-

37,45836,793Due to Immediate Parent Company

27

-

930

-

930

Derivative financial instruments

11

10,715

10,762

10,715

10,769

Payables and other liabilities

23

1,700

1,809

1,668

1,847

Deferred tax liabilities

18

-

17

-

83

Provisions

24

315

283

217

275

Bonds and notes

25

18,761

15,917

2,157

1,516

Loan capital

26

2,407

2,596

2,412

2,596

Total liabilities

106,012

107,803

118,126

120,883

Net assets

10,446

10,088

9,871

9,305

6,943

6,943

6,943

6,943

160

48

141

48

Retained earnings

3,342

3,097

2,787

2,314

Parent shareholder's equity

10,445

10,088

9,871

9,305

1

-

-

-

10,446

10,088

9,871

9,305

Equity30

Ordinary share capital
Reserves

Non-controlling interest
Total equity
For and on behalf of the Board of Directors:

Sir Dryden Spring
Chairman
22 November 2010David Hisco
Executive Director
22 November 2010

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

ANZ National Bank Limited

Cash Flow Statements
Banking Group$ millions

Note

Bank

Year to30/09/2010

Year to30/09/2009

Year to30/09/2010

Year to30/09/2009

5,636

7,230

5,723

7,369
1,100

Cash flows from operating activities
Interest received

2

3

435

Net funds management & insurance income

137

97

65

78

Fees and other income received

771

821

802

749

Interest paid

(3,412)(4,884)(3,860)(5,465)

Operating expenses paid

(1,476)(1,480)(1,345)(1,452)

Dividends received

Income taxes paid

(629)

(425)

(521)

(245)

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

1,029

1,362

1,299

2,134

Net changes in operating assets and liabilities:
Change in due from other financial institutions – term

1,967

(246)

1,755

(596)

Change in trading securities(2,613)(1,505)(2,613)(1,505)

Change in derivative financial instruments

1,571(3,936)

1,947(3,842)

Change in available-for-sale assets(435)(1,388)(466)(1,390)

22

-

-

-

Change in loans and advances(1,950)(1,108)(1,847)(1,206)

Proceeds from sale of loans and advances to NZ Branch

3,494

9,863

3,494

9,863
(5,711)

Change in insurance investment assets

Change in due from subsidiary companies--(1,333)

Change in due to subsidiary companies

-

-

(346)

409

145

(164)

104

(174)

Change in due to other financial institutions(1,963)509(1,420)1,299

Change in deposits(1,493)672(1,264)

(268)

(417)

(4,637)--

Change in other assets

Change in other borrowings
Change in payables and other liabilities
Net cash flows used in operating activities

35

(103)

165

(138)

471

(746)

(413)

(828)

(516)

Cash flows from investing activities
Proceeds from sale of shares in associates and jointly controlled entities

7

-

2

-

Proceeds from sale of premises and equipment

1

33

-

2

Proceeds from sale of software

-

1

-

1

Purchase of shares in associates and jointly controlled entities

-

(92)

-

(29)

(247)

-

(272)

-

Purchase of intangible assets

(43)

(20)

(37)

(18)

Purchase of premises and equipment

(80)

(95)

(44)

(32)

Net cash flows used in investing activities

(362)

(173)

(351)

(76)

Proceeds from bonds and notes

5,481

5,012

746

500

Redemptions of bonds and notes(3,825)(7,751)

(240)

(270)

(200)

(225)

(200)

(225)

-

-

1,150

(2,964)

(936)

526

(936)

526

-

1,000

-

1,000

(600)

(1,000)(600)(1,000)Net cash flows used in financing activities(80)(2,438)(80)(2,433)

Net cash flows used in operating activities

(746)

(413)

(828)

(516)

Net cash flows used in investing activities

(362)

(173)

(351)

(76)

Net cash flows used in financing activities(80)(2,438)(80)(2,433)Net decrease in cash and cash equivalents(1,188)(3,024)(1,259)(3,025)Purchase of shares in subsidiary entities

Cash flows from financing activities

Redemptions of loan capital
Change in due to subsidiary companies – term
Change in funding from Immediate Parent Company
Proceeds from share issue
Dividends paid

Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year

35

4,765

7,789

4,761

7,786

3,577

4,765

3,502

4,761

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

ANZ National Bank Limited
8–9

Notes to the Financial Statements
1. Significant Accounting Policies(a) Basis of Preparation(i) Statement of compliance
These financial statements have been prepared inaccordance with the requirements of the Companies
Act 1993, the Financial Reporting Act 1993 and theOrder. The Bank’s financial statements are for ANZ
National Bank Limited as a separate entity and the
Banking Group’s financial statements are for the Bank’s
consolidated group, which includes subsidiaries,
associate companies and jointly controlled entities.
These financial statements have also been prepared inaccordance with New Zealand Generally Accepted
Accounting Principles. They comply with New Zealandequivalents to International Financial ReportingStandards (“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
all members of the Banking Group and all controlled
entities and to all periods presented in these financial
statements.
These financial statements were authorised for issue by
the Board of Directors on 22 November 2010(ii) Use of estimates and assumptions
The preparation of the financial statements requires theuse of management judgement, estimates andassumptions that affect reported amounts and theapplication of policies. The estimates and associatedassumptions are based on historical experience andvarious 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 agoing 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 thecase 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 throughprofit and loss; anddefined benefit scheme asset or liability.

(iv) Changes in accounting policies and application of
new accounting statements
The accounting policies adopted by the Banking Groupare consistent with those adopted and disclosed in theprior 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 Banking Group effective fromthe required date of application. The initial applicationof these standards and interpretations have only
resulted in changes to disclosures in the financial
statements of the Banking Group.
NZ IFRS 8 Operating Segments (“NZ IFRS 8”), NZ IAS 1
Presentation of Financial Statements (revised) (“NZ IAS 1”),NZ IAS 27 Consolidated and Separate Financial Statements
and NZ IFRS 3 Business Combinations (revised) have been
applied by the Banking Group for the year ended
30 September 2010.
NZ IFRS 8 replaces NZ IAS 14 Segment Reporting andrequires the use of a “management approach” to segment
reporting. Segment information is therefore presented
on the same basis as that used for internal reporting
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 ofcomprehensive income” has been disclosed showing
net profit or loss and revenues and expenses recognised
directly in equity. In addition the revised “statement ofchanges in equity” shows all changes in equity.
There have been no other changes in accounting
policies since the authorisation date of the previous
annual financial statements on 13 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
In prior years some fee income integral to the effective
interest rate of financial assets was presented in otheroperating income. For the year ended 30 September
2010 this income has been classified to interest
income, to more accurately reflect the nature of theincome. Also for the year ended 30 September 2010
income from insurance and funds management
activities has been presented as a separate category in
the income statement.
Comparative data has been restated accordingly.
For the year ended 30 September 2009 thesereclassifications have, for the Banking Group, increased
interest income by $99 million, increased net funds
management and insurance income by $97 million andreduced other operating income by $196 million. There
was no impact on total operating income or net profit
after taxation.
Certain other amounts in the comparative information
have also been reclassified to ensure consistency withthe current year’s presentation.

ANZ National Bank Limited

Notes to the Financial Statements(vii) Principles of consolidation
Subsidiaries
The financial statements consolidate the financial
statements of the Bank and all its subsidiaries where it isdetermined that there is capacity to control.
Where subsidiaries have been sold or acquired during
the period, their operating results have been included
to the date of disposal or from the date of acquisition.
Control means the power to govern, directly or
indirectly, the financial and operating policies of anentity so as to obtain benefits from its activities. All of
the facts of a particular situation are considered when
determining whether control exists. Control is usuallypresent when an entity has:
•
•
•

•

power over more than one-half of the voting rightsof the other entity;
power to govern the financial and operating policiesof the other entity;
power to appoint or remove the majority of themembers of the board of directors or equivalent
governing body; or
power to cast the majority of votes at meetings ofthe 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.
In relation to special purpose entities control is deemed
to exist where:

Foreign currency transactions
Foreign currency transactions are translated into thefunctional currency using the exchange rates prevailingat 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 ofmonetary items or on translating monetary items at
rates different to those at which they were initiallyrecognised or included in a previous financial report,
are recognised in the income statement in the period inwhich they arise.
Translation differences on non-monetary items, such asderivatives, measured at fair value through profit or loss
are reported as part of the fair value gain or loss onthese items.
Translation differences on non-monetary items measured
at fair value through equity, such as equities classified asavailable-for-sale financial assets, are included in theavailable-for-sale revaluation reserve in equity.
(b) Income recognition
Income is recognised to the extent that it is probablethat economic benefits will flow to the Banking Groupand that revenue can be reliably measured.
(i) Interest income
Interest income is recognised as it accrues, using theeffective interest method.

in substance, the majority of the residual risks andrewards from the activities accrue to the Banking
Group; orin substance, the Banking Group controls decision
making powers so as to obtain the majority of therisks and rewards of these activities.

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 toachieve a constant yield on the financial asset or liability.

Associates and joint ventures
The Banking Group adopts the equity method of
accounting for associates and the Banking Group’s
interest in joint venture entities.

For assets subject to prepayment, expected life isdetermined on the basis of the historical behaviour ofthe particular asset portfolio, taking into accountcontractual obligations and prepayment experienceassessed on a regular basis.

••

The 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 consolidated balance
sheet at cost plus the Banking Group’s share of postacquisition 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, including a multiples of
earning methodology, to determine the reasonablenessof the valuation.
(viii) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the
Banking Group’s entities are measured using thecurrency of the primary economic environment inwhich the entity operates (the functional currency). The
Banking Group’s financial statements are presented in
New Zealand dollars, which is the Banking Group’sfunctional and presentation currency.

(ii) Fee and commission income
Fees and commissions received that are integral to theeffective interest rate of a financial asset are recognised
using the effective interest method. For example, loan
commitment fees, together with related direct costs,
are deferred and recognised as an adjustment to theeffective interest rate on a loan once drawn.
Commitment fees to originate a loan which is unlikely tobe drawn down are recognised as fee income as theservice is provided.
Fees and commissions that relate to the execution of asignificant act (for example, advisory services orarrangement services, placement fees and underwritingfees) are recognised when the significant act has
been completed.
Fees charged for providing ongoing services (forexample, maintaining and administering existing
facilities) are recognised as income over the period theservice is provided.

ANZ National Bank Limited
10 – 11

Notes to the Financial Statements(iii) Dividend income
Dividends are recognised as revenue when the right toreceive payment is established.
(iv) Leasing income
Finance income on finance leases is recognised on abasis that reflects a constant periodic return on the net
investment in the finance lease.
(v) Gain or loss on sale of plant and equipment
The gain or loss on the disposal of premises andequipment is determined as the difference between the
carrying amount of the assets at the time of disposal andthe proceeds of disposal, and is recognised as an item ofother income in the period in which the significant risks
and rewards of ownership are transferred to the buyer.
(c) Expense recognition
Expenses are recognised in the income statement on an
accruals basis.
(i) Interest expense
Interest expense on financial liabilities measured atamortised cost is recognised in the income statement
as it accrues using the effective interest method.
(ii) Loan origination expenses
Certain loan origination expenses are an integral part ofthe effective interest rate of a financial asset measured atamortised cost. These loan origination expenses include:••

fees and commissions payable to brokers in respectof originating lending business; andother 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 recognisedas part of the cost of acquiring the financial asset
and amortised as part of the expected yield of thefinancial asset over its expected life using the effective
interest method.
(iii) Share-based compensation expense
The Banking Group has various equity settled sharebased compensation plans. These are described in Note
39 and largely comprise the Employee Share Acquisition
Plan and the ANZ Share Option Plan.
Shares
The fair value of the Ultimate Parent Bank’s shares
granted under the Employee Share Acquisition Plan ismeasured at grant date, using a volume weighted
average market price of the Ultimate Parent Bank’s
shares. The fair value is expensed immediately whenshares vest immediately or on a straight-line basis over
the relevant vesting period.
Share options
The fair value of share options over the Ultimate Parent
Bank’s shares is measured at grant date, using an option
pricing model. The fair value is expensed on a straightline basis over the relevant vesting period. This is
recognised as an employee compensation expensewith a corresponding increase in the share options
liability account.

The option pricing model takes into account theexercise price of the option, the risk free interest rate,
the expected volatility of the Ultimate Parent Bank’s
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
share in the Ultimate Parent Bank. The fair value of
Performance Rights is determined at grant date using
an option pricing model, taking into account market
conditions. The fair value is expensed over the relevant
vesting period with a corresponding increase in theshare options liability account.
Other adjustments
Subsequent to the grant of an equity-based award, theamount recognised as an expense is adjusted forvesting conditions other than market conditions sothat, ultimately, the amount recognised as an expense isbased on the number of equity instruments thateventually vest.
(iv) Lease payments
Leases entered into by the Banking Group as lessee are
predominantly operating leases, and the operatinglease payments are recognised as an expense on astraight-line basis over the lease term.
(d) Income tax(i) 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 toitems credited directly to equity, in which case it isrecorded in equity, or where it arises from the initialaccounting for a business combination, in which case it
is included in the determination of goodwill.
(ii) Current tax
Current tax is the expected tax payable on taxable
income for the period, based on tax rates (and tax laws)
which are enacted or substantively enacted by thereporting date and including any adjustment for tax
payable in previous periods. Current tax for current andprior periods is recognised as a liability (or asset) to theextent 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.

ANZ National Bank Limited

Notes to the Financial Statements
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 itis probable that future taxable profits will be available
against which the deductible temporary differences orunused tax losses and credit can be utilised.
Deferred tax liabilities are recognised for all taxable
temporary differences, other than those relating totaxable temporary differences arising from goodwill.
They are also recognised for taxable temporary
differences arising on investments in controlled entities,
branches, associates and joint ventures, except where
the Banking Group is able to control the reversal of thetemporary differences and it is probable that thetemporary differences will not reverse in the foreseeable
future. Deferred tax assets associated with theseinterests are recognised only to the extent that it isprobable that the temporary difference will reverse in
the foreseeable future and there will be sufficienttaxable profits against which to utilise the benefits ofthe 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 arerealised or settled, based on tax rates (and tax laws) thathave been enacted or substantively enacted by thereporting date. The measurement reflects the tax
consequences that would follow from the manner inwhich the 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 assets(i) Financial assets and liabilities at fair value throughprofit or loss
Trading securities are financial instruments acquired
principally for the purpose of selling in the short-termor which are a part of a portfolio which is managed forshort-term profit-taking. Trading securities are initiallyrecognised and subsequently measured in the balance
sheet at their fair value.
Derivatives that are neither financial guarantee
contracts nor effective hedging instruments are carriedat fair value through profit or loss. In addition, certain
financial assets and liabilities are designated andmeasured at fair value through profit or loss where thefollowing applies:•

doing so eliminates or significantly reduces ameasurement or recognition inconsistency thatwould otherwise arise from measuring assets andliabilities, or recognising the gains or losses thereon,on different bases;••a group of financial assets or financial liabilities orboth is managed and its performance evaluated ona fair value basis; orthe 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 thesesecurities are recognised in the income statement in the
period in which they occur.
Purchases and sales of trading securities are recognisedon 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, require little or no initial
net investment and are settled at a later date. They
include swaps, forward rate agreements, futures,
options and combinations of these instruments.
Derivative financial instruments are entered into
for trading purposes (including customer-related
reasons) or for hedging purposes (where thederivative instruments are used to hedge the Banking
Group’s exposures to interest rate risk, currency risk,
price risk, credit risk and other exposures relating to
non-trading positions).
Derivative financial instruments are recognised initiallyat fair value with gains or losses from subsequent
measurement at fair value being recognised in theincome statement. Included in the determination of fairvalue of derivatives is a credit valuation adjustment toreflect 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 incredit spreads.
Where the derivative is designated and is effective as ahedging instrument, the timing of the recognition of
any resultant gain or loss in the income statement isdependent on the hedging designation. These hedging
designations and associated accounting are as follows:
Fair value hedge
Where the Banking Group hedges the fair value of arecognised asset or liability or firm commitment,changes in the fair value of the derivative designated asa 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, exercisedor no longer qualifies for hedge accounting. The
resulting adjustment to the carrying amount of thehedged 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.

ANZ National Bank Limited
12 – 13

Notes to the Financial Statements
Cash flow hedge
The Banking Group designates derivatives as cash flow
hedges where the instrument hedges the variability incash flows of a recognised asset or liability, a foreignexchange component of a firm commitment, or a highly
probable forecast transaction. The effective portion ofchanges in the fair value of derivatives qualifying anddesignated as cash flow hedges is deferred to thehedging reserve, which forms part of shareholders’equity. Any ineffective portion is recognised
immediately in the income statement. Amounts
deferred in equity are recognised in the income
statement in the period during which the hedged
forecast transactions take place.
When the hedge expires, is sold, terminated, exercised,or no longer qualifies for hedge accounting, thecumulative amount deferred in equity remains in thehedging reserve, and is subsequently transferred to theincome statement when the hedged item is recognisedin the income statement.
When a forecast hedged transaction is no longer
expected to occur, the amount deferred in equity isrecognised immediately in the income statement.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value ofderivatives that are not designated in a hedging
relationship but are entered into to manage the interest
rate and foreign exchange risk of 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 inother 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 andthere is an intention to settle net.
For contracts subject to master netting agreementsthat 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 arerecognised as part 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 Banking Group designates
as available-for-sale but which are not deemed to beheld principally for trading purposes, and include
equity investments, certain loans and advances anddebt securities.
They are initially recognised at fair value plustransaction costs. Subsequent gains or losses arisingfrom changes in fair value are included as a separate
component of equity in the available-for-salerevaluation reserve. When the asset is sold, thecumulative gain or loss relating to the asset is transferredto the income statement.

Where there is objective evidence of impairment on anavailable-for-sale asset, the cumulative loss related tothat asset is removed from equity and recognised in theincome statement, as an impairment expense for debt
instruments or as non-interest income for equity
instruments. If, in a subsequent period, the amount of
an impairment loss relating to an available-for-sale debt
instrument decreases and the decrease can be linked
objectively to an event occurring after the impairment
event, the loss is reversed through the income statement
through the impairment expense.
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 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 notquoted in an active market. They arise when the Banking
Group provides money to a debtor with no intention of
trading the loans and advances. The loans and advances
are initially recognised at fair value plus transaction
costs that are directly attributable to the issue of theloan or advance. They are subsequently measured atamortised cost using the effective interest method,
unless specifically designated on initial recognition atfair value through profit or loss.
Loans and advances include direct finance provided tocustomers 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.
Impaired assets include loans where there is doubt as tofull recovery, and loans that have been restructured. An
individual provision is raised to cover the expected loss
where full recovery of principal is doubtful.
Impairment of loans and advances
Loans and advances are reviewed at least at eachreporting date for impairment.
Credit impairment provisions are raised for exposuresthat are known to be impaired. Exposures are impaired
and impairment losses are recorded if, and only if, there is
objective evidence of impairment as a result of one ormore loss events, that occurred after the initialrecognition of the loan and prior to the reporting date,
and that loss event, or events, has had an impact on theestimated future cash flows of the individual loan or thecollective portfolio of loans that can be reliably estimated.
Impairment is assessed for assets that are individuallysignificant (or on a portfolio basis for small value loans)and then on a collective basis for those exposures notindividually known to be impaired.
Exposures that are assessed collectively are placed inpools of similar assets with similar risk characteristics. The
required provision is estimated on the basis of historicalloss experience for assets with credit risk characteristics
similar to those in the collective pool. The historical loss
experience is adjusted based on current observable datasuch as changed economic conditions. The provision also
takes account of the impact of inherent risk of large
concentrated losses within the portfolio.

ANZ National Bank Limited

Notes to the Financial Statements
The estimated impairment losses are measured as thedifference between the asset’s carrying amount andthe estimated future cash flows discounted to theirpresent value. As this discount unwinds during theperiod between recognition of impairment andrecovery of the cash flow, it is recognised in interest
income. The process of estimating the amount andtiming of cash flows involves considerable management
judgement. These judgements are reviewed regularly
to reduce any differences between loss estimates andactual loss experience.
Impairment of capitalised acquisition expenses isassessed through comparing the actual behaviour ofthe portfolio against initial expected life assumptions.
The provision for impairment loss (individual andcollective) is deducted from loans and advances in thebalance sheet and the movement for the reporting
period is reflected in the income statement.
When a loan is uncollectible, either partially or in full, it
is written off against the related provision for loan
impairment. 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 theevent of the customer’s bankruptcy or similar legal
release from the obligation. However, a certain level ofrecoveries is expected after the write-off, which isreflected in the amount of the provision for credit
losses. In the case of secured facilities, remainingbalances are written-off after proceeds from therealisation of collateral have been received, if there isa shortfall.
Where impairment losses recognised in previous
periods have subsequently decreased or no longer
exist, such impairment losses are reversed in theincome statement.
A provision is also raised for off-balance sheet items
such as commitments that are considered likely to resultin an expected loss.
(v) Lease receivables
Contracts to lease assets and hire purchase agreements
are classified as finance leases if they transfer
substantially all the risks and rewards of ownership of
the asset to 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 the risks and rewards of ownership remain with the
Banking Group, and a counterparty liability is disclosed
under the classifications of due to other financial
institutions or payables and other liabilities. The
difference between the sale price and the repurchaseprice is accrued over the life of the repurchaseagreement and charged to interest expense in theincome statement.

Securities purchased under agreements to resell, where
the Banking Group does not acquire the risks andrewards of ownership, are recorded as receivables inliquid assets, net loans and advances, or due from otherfinancial institutions, depending on the term of theagreement and the counterparty. The security is notincluded in the balance sheet. Interest income isaccrued 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 afinancial liability at fair value with fair value movements
included in the income statement.
(vii) Derecognition
The Banking Group enters into transactions where it
transfers financial assets recognised on its balance
sheet yet retains either all the risks and rewards of thetransferred assets or a portion of them. If all, or
substantially all, the risks and rewards are retained, thetransferred assets are not derecognised from thebalance sheet.
In transactions where substantially all the risks andrewards of ownership of a financial asset are neither
retained nor transferred, the Banking Groupderecognises the asset if control over the asset is lost. In
transfers where control over the asset is retained, theBanking 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 valueof the 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 purchaseconsideration over the fair value of the identifiable net
assets of a controlled entity at the date of gaining
control. Goodwill is recognised as an asset and notamortised, but is assessed for impairment at least
annually or more frequently if there is an indicationthat the goodwill may be impaired. This involves
using the discounted cash flow (“DCF”) or thecapitalisation of earnings methodology (“CEM”) to
determine the expected future benefits of the cash
generating units. Where the assessment results in the
goodwill balance exceeding the value of expected
future benefits, the difference is charged to the income
statement. Any impairment of goodwill may not be
subsequently reversed.
(x) Other intangible assets
Other intangible assets include costs incurred inacquiring and building software and computer systems(“software”) and management rights and customer
relationships acquired in business combinations.

ANZ National Bank Limited
14 – 15

Notes to the Financial Statements
Software is amortised using the straight-line method
over its expected useful life to the Banking Group. The
period of amortisation is between 3 and 5 years, 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, areinitially measured at fair value. Management rights andcustomer relationships with a definite useful life areamortised over the expected useful life. Where
management rights and customer relationships do nothave finite terms and the cash flows associated withthese management rights are expected to continue
indefinitely, the intangible assets associated with these
items are treated as having an indefinite useful life.
Management rights and customer relationships with anindefinite useful life are not amortised.
At each reporting date, the software assets and otherintangible assets are reviewed for impairment. If any
such indication exists, the recoverable amount of theassets is estimated and compared against the existing
carrying value. Where the existing carrying value
exceeds the recoverable amount, the difference ischarged to the income statement.
Costs incurred in planning or evaluating software
proposals, or in maintaining systems after
implementation, are not capitalised.
(xi) Premises and equipment
Premises and equipment are carried at cost lessaccumulated depreciation and impairment.
Borrowing costs incurred for the construction ofqualifying assets are capitalised during the period oftime that is required to complete and prepare the asset
for its intended use. The calculation of borrowing
costs is based upon the Banking Group’s internal costof capital.
Assets other than freehold land are depreciated at rates
based upon their expected useful lives to the 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 straightline basis over the shorter of their useful lives orremaining terms of the lease.
At each reporting date, the carrying amounts ofpremises and equipment are reviewed for impairment.
If any such indication exists, the recoverable amount of
the assets is estimated and compared against theexisting carrying value. Where the existing carrying
value exceeds the recoverable amount, the difference ischarged to the income statement. If it is not possible toestimate the recoverable amount of an individual asset,
the Banking Group estimates the recoverable amountof 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 aremeasured 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 netpresent value of fees, in respect of the investment
management service, discounted at the risk free rate.
Life insurance contract assets / liabilities are determinedusing either a projection method or an accumulation
method. Using a projection method, expected policy cash
flows are projected into the future. The asset / liability isdetermined 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) Liabilities
Financial liabilities(i) Deposits and other borrowings
Deposits and other borrowings include certificates ofdeposit, interest bearing deposits, debentures,commercial paper and other related interest and noninterest bearing financial instruments. Deposits andother borrowings, excluding commercial paper, areinitially recognised at fair value plus transaction costs
and subsequently measured at amortised cost. Theinterest expense is recognised using the effective
interest method. Commercial paper is designated at fairvalue through profit or loss, with fair value movements
recorded directly in the income statement, whichreflects the basis on which it is managed.
(ii) Bonds, notes and loan capital
Bonds, notes and loan capital are accounted for in thesame way as deposits and other borrowings, except for
those bonds and notes which are designated at fairvalue through profit or loss on initial recognition, withfair value movements recorded in the income statement.
(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 areissued in the ordinary course of business, consisting ofletters of credit, guarantees and acceptances. Financial
guarantees are initially recognised in the financial
statements at fair value on the date the guarantee wasgiven; typically this is the premium received.
Subsequent to initial recognition, the Banking Group’s
liabilities under such guarantees are measured at thehigher of their amortised amount and the best estimateof the expenditure required to settle any financial
obligation arising at the balance sheet date. Theseestimates are determined based on experience ofsimilar transactions and history of past losses.

ANZ National Bank Limited

Notes to the Financial Statements(iv) Derecognition
Financial liabilities are derecognised when the obligation
specified in the contract is discharged, cancelled
or expires.
Non-financial liabilities(v) Employee benefits
Leave benefits
The amounts expected to be paid in respect of
employees’ entitlements to annual leave are accrued at
expected salary rates including on-costs. Expected
future payments for long service leave are discounted
using market yields at the reporting date on national
government bonds with terms to maturity that match,as closely as possible, the estimated future cash
outflows. Liability for long service leave is calculated
and accrued for in respect of all applicable employees(including on-costs) using an actuarial valuation.
Superannuation schemes
The Banking Group operates a number of defined
contribution schemes and also contributes, according
to local law, to government and other plans that havethe characteristics of defined contribution schemes.
The Banking Group’s contributions to these schemes
are recognised as an expense in the income statement
when incurred.

(vi) Provisions
The Banking Group recognises provisions when there isa present obligation, the future sacrifice of economic
benefits is probable, and the amount of the provision
can be measured reliably.
The amount recognised is the best estimate of theconsideration required to settle the present obligation
at the reporting date, taking into account the risks anduncertainties surrounding the obligation at thereporting date. Where a provision is measured using the
cash flows estimated to settle the present obligation, its
carrying amount is the present value of those cash
flows. Any expected third party recoveries arerecognised as an asset if it is virtually certain thatrecovery will be received and the amount of thereceivable can be measured reliably.
(g) Equity(i) Shares
Issued shares are recognised at the amount paid pershare net of directly attributable issue costs.
(ii) 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.
(iii) Reserves
Available-for-sale revaluation reserve

The Banking Group operates two defined benefit
superannuation schemes. The liability and expense
related to providing benefits to employees under eachof the defined benefit schemes are calculated byindependent actuaries. A defined benefit liability isrecognised to the extent that the present value of thedefined benefit obligation of each scheme, calculatedusing the Projected Unit Credit Method, is greater than
the fair value of each scheme’s assets. Where thiscalculation results in a benefit to the Banking Group, adefined benefit asset is recognised which is capped at
the recoverable amount.

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

In each subsequent reporting period, ongoing
movements in the carrying value of the defined benefit
liability or asset are treated as follows:This reserve includes the fair value gains and losses
associated with the effective portion of designatedcash flow hedging instruments.

•••

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 andsettlements), is recognised as an employee expensein the income statement;
movements relating to actuarial gains and losses
are recognised directly in retained earnings; andcontributions incurred are recognised directlyagainst 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 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
Banking Group, and from income earned by the assetsof the schemes. Members’ contributions are at varying
rates. Actuarial valuations are carried out at a minimumof every three years in accordance with the schemes’
Trust Deeds and superannuation legislation.

Cash flow hedging reserve(h) Presentation(i) Offsetting of income and expenses
Income and expenses are not offset unless required or
permitted by an accounting standard. This generally
arises in the following circumstances:•••where transaction costs form an integral part of theeffective interest rate of a financial instrument
which is measured at amortised cost, these areoffset against the interest income generated by thefinancial instrument;
where gains and losses relating to fair value hedges
are assessed as being effective; orwhere gains and losses arise from a group of similartransactions, such as foreign exchange gains
and losses.

ANZ National Bank Limited
16 – 17

Notes to the Financial Statements(ii) Offsetting of financial assets and liabilities
Assets and liabilities are offset and the net amountreported in the balance sheet only where there is:

Liabilities are no longer contingent, and are recognisedon the balance sheet, when the following requirements
are met:•••a current enforceable legal right to offset the asset
and liability; andan intention to settle on a net basis, or to realise theasset 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
held at call with other financial institutions, other shortterm, highly liquid investments with original terms of
maturity of three months or less that are readily
convertible to cash and which are subject to an
insignificant risk of changes in value.
Certain cash flows have been netted in order to provide
more meaningful disclosure, as many of the cash flows
are received and disbursed on behalf of customers andreflect the activities of the customers rather than thoseof the 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 Banking Group that provide products or services
that are subject to risks and rewards that are different tothose of other business segments. The Banking Group
operates predominately in the banking industry within
New Zealand. The Banking Group has very limited
exposure to risk associated with operating in different
economic environments or political conditions. On thisbasis no geographical segment information is provided.
For reporting purposes the three major businesssegments are Retail, Commercial and Institutional.
(v) Goods and services tax
Income, expenses and assets are recognised net of theamount of goods and services tax (“GST”) except where
the amount of GST incurred is not recoverable from theInland Revenue Department (“IRD”). In thesecircumstances, the GST is recognised as part of the costof 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 orother liabilities in the balance sheet.
Cash flows are included in the cash flow statement on agross basis. The GST components of cash flows arisingfrom investing and financing activities, which arerecoverable 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.

•

the transaction is probable in that the contingency
is likely to occur; andthe contingency can be reasonably estimated.

Further disclosure is made within Note 37, 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, a statement
to that effect is provided.
(ii) Securitisation, funds under management andother fiduciary activities
Certain entities within the Banking Group act as trustees
and/or managers for a number of unit trusts andsuperannuation investment funds. The Banking Group
provides private banking services to customers
including portfolio management. The assets of the
managed funds and private banking clients are notincluded in these financial statements, as direct orindirect control of the assets is not held by the Banking
Group. Commissions and fees earned in respect of the
Banking Group’s funds under management are included
in net operating income.
Financial services provided by any member of the
Banking Group to discretionary private banking
activities or entities conducting funds management,
and assets purchased from discretionary privatebanking activities or entities conducting funds
management are on arm’s length terms and conditions,and at fair value.
Securitised assets are derecognised when the right toreceive cash flows have expired or the Banking Group
has transferred substantially all the risks and rewardsof ownership.
(iii) Discontinued operations
A discontinued operation is a component of the Banking
Group’s business that represents a separate major lineof business or geographical area of operations that has
been disposed of or is classified as held for sale, or is a
subsidiary that has been disposed of or is classified asheld for sale.
When an operation is classified as a discontinued
operation the comparative income statement isrestated as if the operation had been discontinued fromthe start of the comparative period.
(iv) Accounting Standards not early adopted
The following standards and amendments wereavailable for early adoption but have not been appliedby the Banking Group in these financial statements. The
Banking Group currently does not intend to apply anyof these pronouncements until their effective date.
NZ IFRS 9 Financial Instruments (effective periods
commencing after 1 January 2013) – specifies a simpler
methodology for classifying and measuring financial
assets. The Bank is currently assessing the impact ofapplying this standard to its financial statements.

ANZ National Bank Limited

Notes to the Financial Statements
The following amendments to accounting standards
are not expected to have a material impact on thefinancial 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 – Classificationof rights issues (effective periods commencing after 1 February2010) – 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) –are the International Accounting Standards Board’s
annual omnibus updates of standards.

2. Critical Estimates and Judgement Used in
Applying Accounting Policies
These financial statements are prepared in accordancewith NZ IFRS. However, 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 andother factors, including expectations of future events thatare believed to be reasonable under the circumstances.
An explanation of the judgements and estimates madeby the Banking Group in the process of applying its
accounting policies, that have the most significant
effect on the amounts recognised in the financial
statements are set out below.
Critical accounting estimates and assumptions
Credit provisioning
The accounting policy relating to measuring theimpairment of loans and advances requires the 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 ofhistorical 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 assessmentof the impact of model risk. The provision also takes into
account the impact of large concentrated losses within
the portfolio.

Management regularly reviews and adjusts theestimates and methodologies as improved analysis
becomes available. Changes in these assumptions andmethodologies could have a direct impact on the levelof provision and impairment charge recorded in thefinancial statements.
Critical judgements in applying the Banking Group’s
accounting policies
Derivatives and hedging
The Banking Group buys and sells derivatives as part ofits trading operations and to hedge its interest rate risk,
currency risk, price risk, credit risk and other exposuresrelating to non-trading positions.
A hedging instrument is a designated derivative whose
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
Banking Group to the risk of changes in fair value 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 Banking Group adopts the
hypothetical derivative approach to determine hedge
effectiveness in line with current risk management
strategies. Hedge ineffectiveness can arise for a numberof reasons, and whilst a hedge may pass the effectivenesstests above it may not be perfectly effective, thus
creating volatility within the income statement throughrecognition 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 thebalance sheet date. Any excess of carrying value overrecoverable amount is taken to the income statement
as an impairment write down. Refer to Note 20 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 ofthese cash generating units is represented by anindividual reporting segment – Retail, Commercial andInstitutional. Refer to Note 7.

The use of such judgements and reasonable estimatesis considered by management to be an essential part ofthe process and does not impact on reliability.

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 the current carrying amount of its net assets,
including goodwill.

Individual provisioning is applied when the fullcollectibility of one of the 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.

The recoverable amount is based on value-in-use
calculations. These calculations use cash flow projections
based on a number of financial budgets within eachsegment approved by management covering a threeyear period. Cash flow projections are based on a rangeof readily available economic assumptions including
GDP and CPI. Cash flows beyond the three year period
are extrapolated using a 3% growth rate.

Refer to Note 15 for details of credit impairment provisions.

ANZ National Bank Limited
18 – 19

Notes to the Financial Statements
These cash flow projections are discounted using acapital asset pricing model. As at 31 March 2010, when
the last valuation was prepared, a discount rate of
11.66% was applied to each segment. The main variablesin 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 and comparative market
rates applied in the regional banking sector. Market
observable information is not readily available at thesegment level therefore management performed stresstests for key sensitivities in each segment.
Management believes any reasonable possible change
in the key assumptions on which the recoverable
amount is based would not cause the Banking Group’s
carrying amount to exceed its recoverable amount.

3. Risk Management Policies
The Banking Group recognises the importance ofeffective risk management to its business success.
Management is committed to achieving strong control
and a distinctive risk management capability thatenables the Banking Group business units to meet theirperformance objectives.
The 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 management division (“Risk Management”) is
independent of the business with clear delegations
from the Board and operates within a comprehensive
framework comprising:
•
•

•

•

•

The Board providing leadership, setting risk
appetite/strategy and monitoring progress;
A strong framework for development and maintenanceof Banking Group-wide risk management policies,
procedures and systems, overseen by an independent
team of risk professionals;
The use of sophisticated risk tools, applications andprocesses to execute the global risk management
strategy across the Banking Group;
Business unit level accountability, as the “first line ofdefence”, and for the management of risks inalignment with the Banking Group’s strategy; andIndependent oversight to ensure business unit levelcompliance with policies, regulations and laws, andto provide regular risk evaluation and reporting.

The Banking Group manages risk through an approval,delegation and limits structure. Regular reviews of thepolicies, systems and risk reports, including theeffectiveness of the risk management systems,
discussions covering the Banking Group’s response to
emerging risk issues and trends, and that the requisite
culture and practices are in place across the Banking
Group, are conducted within the Banking Group and also
by the Ultimate Parent Bank. The Board has responsibility
for reviewing all aspects of risk management.

The Board has ultimate responsibility for overseeing theeffective deployment of risk management frameworks,
policies and processes within New Zealand. The Bank’s
Risk Committee assists the Board in this function. The
role of the Risk Committee is to assist the Board in theeffective discharge of its responsibilities for business,market, credit, operational, compliance, liquidity,
product and reputational risk management, and toliaise and consult with the Ultimate Parent Bank Risk
Committee as required. The Banking Group has anindependent Risk Management function which, via theChief Risk Officer, coordinates risk management directly
between Business Unit risk functions and Ultimate
Parent Bank Group Risk Management functions.
The risk management process is subject to oversight by
the Risk Committee of the Ultimate Parent Bank Board.
This includes the review of risk portfolios and theestablishment of prudential policies and controls.
The Banking Group’s risk management policies are
essentially the same as the Ultimate Parent Bank, but
are tailored where required to suit the local New
Zealand regulatory and business environment.
The Audit Committee, which is a sub-committee of theBoard, has responsibility for reviewing all aspects ofpublished financial statements and internal andexternal audit processes. The Committee has a quorumof two directors, both of whom must be non-executive
directors. It meets at least four times a year, and reports
directly to the Board.
A number of new and existing types of risk have beenrecognised following the consolidation of ING NZ(now known as OnePath) into the Banking Group.
The new risks relate to OnePath’s insurance, realestate management and funds management businesses.
The new risks identified are not considered material
to the Banking Group.
Financial risk management
Refer to Note 32 for detailed disclosures on the Banking
Group’s financial risk management policies.
Operational Risk
Operational risk is the risk arising from day to day
operational activities which may result in direct orindirect loss. These losses may result from failure tocomply 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 to the Banking Group’s reputation.
Examples include failure to comply with policy andlegislation, human error, natural disasters, fraud andother malicious acts. Where appropriate, risks are
mitigated by insurance.
Risk Management is responsible for establishing the
Banking Group’s operational risk framework andassociated Banking Group-wide policies. Business units
are responsible for the identification, analysis,
assessment and treatment of operational risks on a dayto-day basis.

ANZ National Bank Limited

Notes to the Financial Statements
Business units have primary responsibility for theidentification and management of operational risk withexecutive oversight provided by the relevant Retail andWholesale Risk Committees. The Bank’s Operational
Risk Executive Committee (“OREC”) undertakes thegovernance function through the monthly monitoringof operational risk performance across the Banking
Group. The Board and Risk Management conduct
effective oversight through the approval of operationalrisk policies and frameworks and monitoring key
operational risk metrics.
Compliance
The Banking Group conducts its business in accordancewith all relevant compliance requirements in eachpoint of representation. In order to assist the Banking
Group identify, manage, monitor and measure its
compliance obligations, the Banking Group has acomprehensive regulatory compliance framework inplace, which addresses both external (regulatory) andinternal compliance.
Risk Management, in conjunction with business unit
staff ensure the Banking Group operates within acompliance infrastructure and framework thatincorporates new and changing business obligations
and processes.
The compliance policies and their supporting
framework seek to minimise material risks to the
Banking Group’s reputation and value that could arise
from non-compliance with laws, regulations, industry
codes and internal standards and policies. Business
units have primary responsibility for the identificationand management of compliance. Risk Management
provides policy and framework, measurement,
monitoring and reporting, as well as leadership in areas
such as anti-money laundering procedures and mattersof prudential compliance. The Bank’s OREC, the Chief
Risk Officer, the Board and the Risk Committee of the
Ultimate Parent Bank Board conduct Board andExecutive oversight.

Internal audit
The Banking Group’s internal audit function conducts
independent reviews that assist the Board of Directors
and management to meet their statutory andother obligations.
Internal Audit reports directly to the Chairman of theBank’s Audit Committee. Under its Charter, Internal
Audit conducts independent appraisals of:
•

•
•
•
•

The continued operation and effectiveness of theinternal controls in place to safeguard and monitor
all material risks to the Banking Group;
Compliance with Board policies and management
directives;
Compliance with the requirements of supervisory
regulatory authorities;
The economic and efficient management of
resources; andThe effectiveness of operations undertaken by the
Banking Group.

In planning audit activities, Internal Audit adopts a riskbased approach that directs and concentrates resources
to those areas of greatest significance, strategic concern
and risk to the business. This encompasses reviews ofmajor credit, market, technology and operating risks
within the Banking Group. Significant findings arereported quarterly to the Audit Committee.
The Internal Audit Plan is approved by the
Audit Committee and endorsed by the ANZ Group
Audit Committee.
All issues and recommendations reported to
management are tracked and monitored internally toensure completion and agreed actions are undertaken
where appropriate.

ANZ National Bank Limited
20 – 21

Notes to the Financial Statements
4. Income
Banking GroupBank

Year to30/09/2010

Year to30/09/2009

Year to30/09/2010

346

187

346

187

-

-

266

380

346

187

612

567

66

118

65

118

Other financial institutions

67

259

57

230

Available-for-sale assets

69

16

51

16

Lending on productive loans

5,103

6,662

4,910

6,453

Lending on impaired assets

59

8

56

8

-

-

52

46

10

-

10

-

$ millions

Note

Year to30/09/2009

Interest income
Financial assets at fair value through profit or loss
Trading securities
Due from controlled entities
Financial assets not at fair value through profit or loss
Liquid assets

Controlled entities
Immediate Parent Company
Other
Total interest income

156

95

150

90

5,530

7,158

5,351

6,961

5,876

7,345

5,963

7,528

123

201

121

199

Net trading gains
Net gain on foreign exchange trading
Net gain on trading securities

174

43

161

43

Net loss on trading derivatives

(258)

(57)

(260)

(57)

39

187

22

185

Net trading gains
Funds management and insurance income
Fee income on trust and other fiduciary activities

62

52

21

32

Other funds management and insurance income

156

45

44

46

Total funds management and insurance income

218

97

65

78

Other operating income
Lending and credit facility fee income

45

62

45

63

Other fee income

587

590

590

585

Total fee income

632

652

635

648

Direct fee expense

181

172

181

172

Net fee income

451

480

454

475

2

1

381

1,100

Dividends received
Gain recognised on winding up of subsidiaries

16

Net gain / (loss) on financial assets designated at fair value

-

-

54

-

-

-

80

(2)

50

3

22

43

Net ineffectiveness on qualifying fair value hedges

11

22

71

22

71

Net cash flow hedge gain / (loss) transferred to income statement

11

(21)

3

(21)

3

Net gain / (loss) on hedges not qualifying for hedge accounting

1

(21)

12

(59)

ING NZ Funds

37

-

(211)

-

(211)

Loss on re-measuring existing equity interests to fair value

41

(82)

-

(61)

-

Net gain / (loss) on financial liabilities designated at fair value

Other income

22

40

11

(27)

Total other operating income

445

366

954

1,393

ANZ National Bank Limited

Notes to the Financial Statements
5. Expenses
Banking Group$ millions

Bank

Year to30/09/2010

Year to30/09/2009

Year to30/09/2010

265

561

-

-

-

-

412

503

265

561

412

503

39

167

34

115

Year to30/09/2009

Interest expense
Financial liabilities at fair value through profit or loss
Commercial paper
Due to controlled entities
Financial liabilities not at fair value through profit or loss
Other financial institutions

2,150

2,959

2,193

3,203

Controlled entities

-

-

925

1,301

Bonds and notes

748

894

134

108

Deposits and other borrowings

5

28

5

28

Loan capital

180

207

180

207

Other

70

76

21

73

Related party funding

3,192

4,331

3,492

5,035

3,457

4,892

3,904

5,538

Personnel costs

735

718

661

684

Employee entitlements

71

72

69

71

– Defined contribution schemes

36

36

35

35

– Defined benefit schemes

7

8

7

8

Total interest expense
Operating expenses

Pension costs

Share-based payments expense

21

18

21

18

Building occupancy costs

44

42

8

10

Depreciation of premises and equipment

47

39

21

16

Leasing and rental costs

82

80

15

14

Related parties (Note 27)

86

91

199

200

Computer expenses

131

120

122

114

Administrative expenses

209

177

185

173

Other costs

96

76

58

67

1,565

1,477

1,401

1,410

Year to30/09/2010

Year to30/09/2009

Year to30/09/2010

Year to30/09/2009

Audit or review of financial statements

2,194

1,994

1,422

1,508

Other audit-related services

668

369

575

448

Total auditors' remuneration

2,862

2,363

1,997

1,956

140

-

-

-

Total operating expenses$ thousands

Fees paid to principal auditors

Audit fees paid to other audit firms

It is the Banking Group’s policy that, subject to the approval of the Ultimate Parent Bank Audit Committee, KPMG can provide
assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent with the role ofauditor. 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 the role of auditor include consulting advice and subcontracting of operational activities normally
undertaken by management, and engagements where the auditor may ultimately be required to express an opinion on its
own work.
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.

ANZ National Bank Limited
22 – 23

Notes to the Financial Statements
6. Income Tax Expense
Banking GroupBank

Year to30/09/2010

Year to30/09/2009

Year to30/09/2010

Year to30/09/2009

Profit before income tax

1,162

765

1,282

1,396

Prima facie income tax at 30%

349

230

385

419

(6)

(8)

(131)

(329)

$ millions

Reconciliation of the prima facie income tax payable on profit

Rebateable and non-assessable dividends
Effect of changes in tax legislation

45

-

29

-

Change in tax provisions

(54)

240

(54)

240

1

6

(2)

56

335

468

227

386

-

(1)

-

-

335

467

227

386

Effective tax rate (%) before change in tax provisions and the effectof changes in tax legislation

29.6%

29.6%

19.6%

10.4%

Effective tax rate (%)

28.8%

61.0%

17.7%

27.6%

634

426

608

299

-

(1)

-

-

186

Non-deductible expenses / (non-assessable income)
Income tax under provided in prior years
Total income tax expense

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 years
Deferred income tax
Deferred tax expense / (income) relating to the origination and reversalof temporary differences

(326)

141

(408)

Other (including indemnity)

27

(99)

27

(99)

Total income tax expense recognised in the income statement

335

467

227

386

Actuarial gain / (loss) on defined benefit schemes

8

(7)

8

(7)

Net gain on revaluation of financial instruments

8

-

1

-

Net gain / (loss) on revaluation of financial instruments

32

(3)

32

(3)

Total income tax charge / (benefit) recognised directly in equity

48

(10)

41

(10)

Balance at beginning of the year

645

696

528

446

Imputation credits attached to dividends received

31

31

106

285

Taxation paid

375

138

270

55

Imputation credits attached to dividends paid

(125)

(252)

(125)

(282)

9

32

23

24

935

645

802

528

Amounts recognised directly in equity
Current income tax

Deferred income tax

Imputation Credit Account

Other
Balance at end of the year

The above amounts only include items that give rise to imputation credits that are available for use by the Banking Group and/or the Bank. The figures shown for the Bank include the imputation credits available for use by the Bank held by the Banking
Group imputation group.
Changes in tax legislation
In May 2010 legislation was passed to reduce the New Zealand corporate tax rate from 30% to 28% and to remove theability to claim tax depreciation on buildings with an estimated useful life greater than fifty years, effective for the 2011-2012
income tax year. The tax effect shown is the estimated impact on the value of deferred tax as a result of the changes from
1 October 2011.
Settlement with Inland Revenue Department
The New Zealand Inland Revenue Department (“IRD”) had been reviewing a number of structured finance transactions as partof 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 Group plc, was met from existing tax provisions.

ANZ National Bank Limited

Notes to the Financial Statements
7. Segmental Analysis
For segment reporting purposes, the Banking Group is organised into three major business segments – Retail, Commercial andInstitutional. Centralised back office and corporate functions support these segments. These segments are consistent withinternal reporting provided to the chief operating decision maker, being the Bank’s Chief Executive Officer.
As the composition of segments has changed over time, prior period comparatives have been adjusted to be consistent withthe 2010 segment definitions.
RetailRetail provides 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.
The Banking Group’s wealth businesses include private banking and investment services provided to high net worth individuals,
the OnePath wealth management and insurance businesses, and other investment products. This segment also includes otherprofit centres supporting the Retail Banking segment.
Commercial
Commercial provides services to Rural, Commercial and UDC customers. A full range of banking products and services areprovided to Rural customers. Commercial customers consist of primarily privately owned medium to large businesses withannual revenues of $2 million and greater. The Banking Group’s relationship with these businesses ranges from simple banking
requirements with revenue from deposit and transactional facilities, and cash flow lending, to more complex funding
arrangements with revenue sourced from a wider range of products. UDC is primarily involved in the financing and leasing ofplant, vehicles and equipment, primarily for small and medium sized businesses, as well as investment products.
Institutional
Institutional provides financial services to large multi-banked corporations, often global, who require sophisticated productand 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 and international payments;
Specialised Lending – provides origination, credit analysis, structuring and execution of specific customer transactions.

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

ANZ National Bank Limited
24 – 25

Notes to the Financial Statements
Business segment analysis1$ millions
30/09/2010

Banking Group
Retail3

Commercial

External interest income

3,142

2,321

405

8

5,876

External interest expense(1,422)

(345)

(414)

(1,276)(3,457)

Net intersegment interest(718)(1,118)

487

1,349

-

Net interest income

1,002

858

478

81

2,419

506

50

114

32

702

Other external operating income3
Share of profit of equity accounted associates and jointly
controlled entities

Institutional

Other

Total

35

-

5

2

42

1,543

908

597

115

3,163

Other external expenses

603

153

101

622

1,479

Net intersegment and related party expenses2

482

117

64

(577)

86

1,085

270

165

45

1,565

Profit before provision for credit impairment

458

638

432

70

1,598

Provision for credit impairment

204

292

(60)

-

436

Profit before income tax

254

346

492

70

1,162

Income tax expense

77

104

141

13

335

Profit after income tax

177

242

351

57

827

Operating income

Operating expenses

Other information
Depreciation and amortisation
Goodwill

22

3

1

45

71

1,141

1,052

1,072

-

3,265

Intangible assets – indefinite life

125

-

-

-

125

Intangible assets – definite life

146

8

-

4

158

-

-

56

88

144

Total external assets

46,02836,87330,426

3,131

116,458

Total external liabilities

39,924

9,623

32,44524,020106,01230/09/2009

Retail3

Commercial

Institutional

Other4

Total

External interest income

4,130

2,728

490

(3)

7,345
(4,892)

Shares in associates and jointly controlled entities

External interest expense(1,765)

(533)

(731)

(1,863)

Net intersegment interest(1,300)(1,397)

741

1,956

-

Net interest income

1,065

798

500

90

2,453

Other external operating income

268

65

259

58

650

Share of profit of equity accounted associates and jointly
controlled entities
Operating income

13

-

(2)

2

13

1,346

863

757

150

3,116
1,386

Other external expenses

486

160

111

629

Net intersegment and related party expenses2

465

113

56

(543)

91

Operating expenses

951

273

167

86

1,477

Profit before provision for credit impairment

395

590

590

64

1,639

Provision for credit impairment

359

419

96

-

874

Profit before income tax

36

171

494

64

765

Income tax expense

6

50

142

269

467

Profit after income tax

30

121

352

(205)

298

Other information
Depreciation and amortisation
Goodwill

13

2

2

35

52

1,141

1,052

1,072

-

3,265

Intangible assets – indefinite life

-

-

-

-

-

Intangible assets – definite life

44

9

2

5

60

Shares in associates and jointly controlled entities

329

-

61

74

464

Total external assets

46,43037,541

31,351

2,569

117,891

Total external liabilities

38,96010,51030,24828,085

107,803

Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
Net intersegment and related party expenses are eliminated at the Overseas Banking Group level.
3
Includes a loss of $82 million (30/9/2009 nil) on acquisition of ING NZ (refer Note 41) and a charge of $nil (30/9/2009 $211 million) in relation to ING NZ Funds (refer Note 37).
4This segment has negative external revenues as this segment incurs funding costs on behalf of the Banking Group and is reimbursed internally.
1
2

ANZ National Bank Limited

Notes to the Financial Statements
8. Liquid Assets
Banking Group$ millions

Bank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

1,829

2,373

1,829

2,373

Money at call

328

341

320

340

Bills receivable and remittances in transit

81

48

74

45

Cash and balances with central banks

Total liquid assets

2,238

2,762

2,223

2,758

Overnight balances with central banks included in liquid assets

1,670

2,207

1,670

2,207

30/09/2009

30/09/2010

9. Due from Other Financial Institutions
Banking Group$ millions

30/09/2010

Bank
30/09/2009

Able to be withdrawn without prior notice

457

172

448

172

Securities purchased under agreement to resell

176

1,083

176

1,083

170

-

170

-

Security settlements

1,535

117

108

117

Certificates of deposit

707

2,338

657

2,338
398

Securities purchased under agreement to resell with central banks

Reserve bank bills
Term loans and advances
Total due from other financial institutions

-

398

-

451

406

367

253

3,496

4,514

1,926

4,361

None of these assets were used to secure deposit obligations or were encumbered through repurchase agreements at
30 September 2010 (30/09/2009 $nil).

10. Trading Securities
Banking Group$ millions

Bank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

3,917

1,389

3,917

1,389

Certificates of deposit

32

191

32

191

Promissory notes

64

28

64

28

Other bank bonds

2,655

2,475

2,655

2,475

89

83

89

83

6,757

4,166

6,757

4,166

222

159

222

159

Government, Local Body stock and bonds

Other
Total trading securities
Assets encumbered through repurchase agreements included
in trading securities

11. Derivative Financial Instruments
The use of derivatives and their sale to customers as risk management products is an integral part of the Banking Group’s
trading activities. Derivatives are also used to manage the Banking Group’s own exposure to fluctuations in exchange andinterest 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 Banking Groupmanages these risks in a consistent manner.
Derivatives, except for those that are specifically designated as effective hedging instruments, are classified as held for trading.
The held for trading classification includes two categories of derivative instruments: those held as trading positions and thoseused for the Banking Group’s balance sheet risk management.
Trading positions
Trading positions consist of both sales to customers and market making activities. Sales to customers include the structuringand 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 from short-term fluctuations in price or
margins. Positions may be traded actively or held over a period of time to benefit from expected changes in market rates.

ANZ National Bank Limited
26 – 27

Notes to the Financial Statements
Balance sheet risk management
The Banking Group designates balance sheet risk management derivatives into hedging relationships in order to minimise
income statement volatility. This volatility is created by differences in the timing of recognition of gains and losses between thederivative and the hedged item. Hedge accounting is not applied to all balance sheet risk management positions.
The following tables provide an overview of the Banking Group’s and the Bank’s foreign exchange rate, interest rate andcommodity derivatives.
Banking Group

30/09/2010$ millions

Notional
Principal
AmountBank

Fair values
AssetsLiabilities

Notional
Principal
AmountFair values
AssetsLiabilities

Derivatives held for trading
Foreign exchange derivatives
Spot and forward contracts

36,249465

925

36,298464

925

Swap agreements

101,489

1,788

3,155

101,572

1,791

3,155

Options purchased

1,563

48

-

1,563

48

-

Options sold

1,505

1

58

1,505

1

58

n/a

(361)

(1,242)

n/a

(361)

(1,242)140,806

1,941

2,896

140,938

1,943

2,896

Forward rate agreements

46,7367

7

46,736

7

7

Collateral received / paid
Interest rate derivatives
Swap agreements

410,238

7,766

7,340

416,881

7,779

7,340

Futures contracts

25,4943

22

25,494

3

22

Options purchased

524

21

-

524

21

-

Options sold

2,630

-

15

2,630

-

15

485,622

7,797

7,384

492,265

7,810

7,384

Commodity derivatives
Fuel derivatives

62

1

1

62

1

1

Electricity derivatives

6

1

1

6

1

1

626,496

9,740

10,282

633,271

9,755

10,282

Swap agreements

9,082

227

80

9,082

227

80

Futures contracts

6,226

-

13

6,226

-

13

Total derivatives designated as cash flow hedges

15,308227

93

15,308

227

93

53

3

-

53

3

-

Swap agreements

18,656397

340

18,656397

340

Total derivatives designated as fair value hedges

18,709400

340

18,709400

340

Total derivatives held for hedging

34,017627

433

34,017627

433

Total derivative financial instruments

660,513

10,367

10,715667,288

10,382

10,715

Total derivatives held for trading
Derivatives held for hedging(a) Designated as cash flow hedges
Interest rate derivatives(b) Designated as fair value hedges
Foreign exchange derivatives
Swap agreements
Interest rate derivatives

ANZ National Bank Limited

Notes to the Financial Statements
Banking Group

30/09/2009$ millions

Notional
Principal
AmountBank

Fair values
AssetsLiabilities

Notional
Principal
AmountFair values
AssetsLiabilities

Derivatives held for trading
Foreign exchange derivatives
Spot and forward contracts

30,475687

1,582

30,475687

1,582

Swap agreements

69,971

2,900

3,831

70,062

2,900

3,838

Options purchased

1,018

42

-

1,018

42

-

Options sold

953

-

52

953

-

52

Collateral received / paid

n/a

(115)

(2,908)

n/a

(115)

(2,908)102,417

3,514

2,557

102,508

3,514

2,564

Forward rate agreements

32,4982

332,4982

3

Swap agreements

390,183

7,400

7,275

396,033

7,441

7,275

Futures contracts

20,64745

220,64745

2

Options purchased

2,026

23

-

2,026

23

-

Options sold

2,034

-

23

2,034

-

23

447,388

7,470

7,303

453,238

7,511

7,303

Interest rate derivatives

Commodity derivatives
Fuel derivatives

23

1

1

23

1

1

Electricity derivatives

13

1

1

13

1

1

549,841

10,986

9,862

555,782

11,027

9,869

Swap agreements

15,910140

111

15,910140111

Total derivatives designated as cash flow hedges

15,910140

111

15,910

140

111

18

-

-

18

-

-

Swap agreements

22,366282

789

22,366282

789

Total derivatives held for trading
Derivatives held for hedging(a) Designated as cash flow hedges
Interest rate derivatives(b) Designated as fair value hedges
Foreign exchange derivatives
Swap agreements
Interest rate derivatives
Total derivatives designated as fair value hedges

22,384282

789

22,384282

789

Total derivatives held for hedging

38,294422

900

38,294422

900

Total derivative financial instruments

588,135

11,408

10,762594,076

11,44910,769Hedging relationships
The Banking Group has entered into two types of allowable hedging: fair value hedges and cash flow hedges. For details on
the accounting treatment of each type of hedging relationship refer to Note 1.
Fair value hedges
The Banking Group’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in thefair value of fixed-rate long-term financial instruments due to movements in market interest rates.
Gain / (loss) on fair value hedges attributable to the hedged risk
Banking Group$ millions

30/09/2010

Bank

30/09/2009

30/09/2010

30/09/2009

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

(478)

263

(478)

263

– hedging instrument

500

(192)

500

(192)

Net ineffectiveness on qualifying fair value hedges

22

71

22

71

ANZ National Bank Limited
28 – 29

Notes to the Financial Statements
Cash flow hedges
The Banking Group’s cash flow hedges consist principally of interest rate swaps that are used to protect against exposures tovariability in future interest cash flows on non-trading assets and liabilities which bear interest at variable rates or which are
expected to be refunded or reinvested in the future. The Banking Group primarily applies cash flow hedge accounting, where
necessary, to its variable rate loan assets, variable rate liabilities and short term re-issuances of fixed rate customer andwholesale deposit liabilities. The amounts and timing of future cash flows, representing both principal and interest flows, areprojected for each portfolio of financial assets and liabilities on the basis of their forecast repricing profile. This forms the basis
for identifying gains and losses on the effective portions of derivatives designated as cash flow hedges.
Analysis of the cash flow hedging reserve
Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

Balance at beginning of the year

23

24

23

24

Valuation gain / (loss) taken to equity

89

(1)

89

(1)

Tax effect of valuation loss / (gain) taken to equity

(25)

1

(25)

1

Transferred to income statement

21

(3)

21

(3)

Tax effect of items transferred to income statement

(6)

2

(6)

2

102

23

102

23

200

149

200

149

$ millions

Balance at end of the year
Attributable to:
Variable rate loan assets
Variable rate liabilities

(34)

(29)

(34)

(29)

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

(64)

(97)

(64)

(97)

Total cash flow hedging reserve

102

23

102

23

All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur,
which is anticipated to take place over the next 0-10 years (30/09/2009 0-10 years).
Ineffectiveness recognised in the income statement in respect of cash flow hedges was less than $1 million in the Banking
Group and Bank (30/09/2009 less than $1 million).
There were no transactions where cash flow hedge accounting ceased in the year ended 30 September 2010 as a result ofhighly probable cash flows that were no longer expected to occur (30/09/2009 no transactions).

12. Available-for-sale Assets
Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

1,939

1,394

1,916

1,394

Other debt securities

193

48

46

48

Equity securities

78

71

78

69

2,210

1,513

2,040

1,511

$ millions

Government, Local Body stock and bonds

Total available-for-sale assets

ANZ National Bank Limited

Notes to the Financial Statements
13. Net Loans and Advances
Banking Group$ millions

Bank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

Overdrafts

2,131

2,087

2,131

2,087

Credit card outstandings

1,388

1,402

1,388

1,402

Term loans – housing

43,88744,76343,88744,763

Term loans – non-housing

39,17940,231

37,15338,251

Finance lease receivables

726

683

24

30

Gross loans and advances

87,311

89,166

84,58386,533

Provision for credit impairment (Note 15)(1,398)(1,272)(1,339)(1,212)

Unearned finance income

(273)

(262)

-

-

Fair value hedge adjustment

279

615

279

615

Deferred fee revenue and expenses

(49)

(51)

(44)

(47)

43

63

43

63

85,91388,25983,522

85,952

Capitalised brokerage/mortgage origination fees
Total net loans and advances

As at 30 September 2010 the Banking Group has not entered into any repurchase agreements for residential mortgage-backed
securities with the RBNZ (30/09/2009 repurchase agreements of $1,806 million). Therefore no underlying collateral has
been accepted by the RBNZ under this transaction (30/09/2009 mortgages to the value of $2,250 million were held by the 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. Sales,
repurchases and repayments have resulted in the NZ Branch holding mortgages with a carrying value of $10,029 million as at
30 September 2010 (30/09/2009 $8,795 million). These assets qualify for derecognition as the Bank does not retain a continuing
involvement in the transferred assets. Net loans and advances have decreased as a result of selling these assets.

14. Impaired Assets, Past Due Assets and Other Assets Under Administration
Banking Group
Individually impaired assets$ millions

Retailmortgages

Otherretailexposures

Bank

Corporate
exposures

Total

Retailmortgages

Otherretailexposures

Corporate
exposures

Total

30/09/2010
Balance at beginning of the year

377

59

740

1,176

377

51

689

1,117

Transfers from productive

532

258

1,282

2,072

532

251

1,207

1,990

Transfers to productive

(20)

(2)

(73)

(95)

(20)

(2)

(71)

(93)

Assets realised or loans repaid

(321)

(111)

(454)

(886)

(321)

(107)

(424)

(852)

Write offs

(57)

(123)

(92)

(272)

(57)

(120)

(76)

(253)

Individually impaired asset balanceat end of the year

511

81

1,403

1,995

511

73

1,325

1,909

Restructured items

9

-

-

9

9

-

-

9

Total impaired assets

520

81

1,403

2,004

520

73

1,325

1,918

30/09/2009
Balance at beginning of the year

83

30

214

327

83

14

191

288

Transfers from productive

576

243

882

1,701

576

235

802

1,613

Transfers to productive

(22)

(20)

(25)

(67)

(22)

(20)

(17)

(59)

Assets realised or loans repaid

(232)

(45)

(230)

(507)

(232)

(37)

(206)

(475)

Write offs

(28)

(149)

(101)

(278)

(28)

(141)

(81)

(250)

Individually impaired asset balanceat end of the year

377

59

740

1,176

377

51

689

1,117

Restructured items

2

-

-

2

2

-

-

2

Total impaired assets

379

59

740

1,178

379

51

689

1,119

ANZ National Bank Limited
30 – 31

Notes to the Financial Statements
Restructured assets
A restructured asset is an impaired asset for which the terms have been changed to grant the counterparty a concession thatwould not otherwise have been available, due to the counterparty’s difficulty in complying with the 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 otherindividually impaired asset if, following the restructure, the yield on the asset is below the Banking Group’s cost of funds.
Banking GroupBank

Retailmortgages

Otherretailexposures

Corporate
exposures

Total

2

-

-

2

Transfers to restructured items

9

-

-

Transfers from restructured items

(2)

-

-

Balance at end of the year

9

-

-

Balance at beginning of the year

-

-

-

Transfers to restructured items

2-

Transfers from restructured items--

Balance at end of the year

2

-

-

Restructured assets$ millions

Retailmortgages

Otherretailexposures

Corporate
exposures

Total

2

-

-

2

9

9

-

-

9

(2)

(2)

-

-

(2)

9

9

-

-

9

-

-

-

-

-

18

20

2

-

-

2

(18)

(18)

-

-

-

-

2

2

-

-

2

30/09/2010
Balance at beginning of the year

30/09/2009

Renegotiated loans
Renegotiated loans are loans that would otherwise be past due or impaired had their terms not been renegotiated. At
30 September 2010, loans and advances of $621 million were renegotiated in the Banking Group (30/09/2009 $266 million)
and $565 million were renegotiated in the Bank (30/09/2009 $196 million).
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 Banking Group. The Banking Group held no material assets
acquired through enforcement of security (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, and which is
not an impaired asset. A 90 days past due asset is any past due asset which has not been operated by the counterparty within
its key terms for at least 90 days. 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 is in any form ofvoluntary 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 to loans ofsimilar risk and maturity.

ANZ National Bank Limited

Notes to the Financial Statements
Banking Group

30/09/2010$ millions

Retailmortgages

Otherretailexposures

Bank

Corporate
exposures

Total

Retailmortgages

Otherretailexposures

Corporate
exposures

Total

Past due assets (90 days past
due assets)1
Balance at beginning of the year

265

59

111

435

265

51

100

416

Transfers to past due assets

450

127

510

1,087

450

102

500

1,052

Transfers from past due assets

(583)

(153)

(494)

(1,230)

(583)

(127)

(478)

(1,188)

Balance at end of the year

132

33

127

292

132

26

122

280

Balance at beginning of the year

-

-

-

-

-

-

-

-

Transfers to other assets underadministration

-

-

4

4

-

-

4

4

Other assets under administration

Transfers from other assets underadministration

-

-

-

-

-

-

-

-

Balance at end of the year

-

-

4

4

-

-

4

4

Undrawn facilities with
impaired customers
Balance at beginning of the year

-

-

32

32

-

-

32

32

Net transfers to / (from) undrawn
facilities with impaired customers

-

-

-

-

-

-

-

-

Balance at end of the year

-

-

32

32

-

-

32

32

Gross interest receivable on
impaired loans

44

7

68

119

44

6

63

113

Interest recognised

(16)

(3)

(40)

(59)

(16)

(2)

(38)

(56)

Net interest forgone on impaired loans

28

4

28

60

28

4

25

57

244

54

11

309

244

47

5

296

Interest forgone on impaired assets

30/09/2009
Past due assets (90 days past
due assets)1
Balance at beginning of the year
Transfers to past due assets

852

149

448

1,449

852

104

399

1,355

Transfers from past due assets

(831)

(144)

(348)

(1,323)

(831)

(100)

(304)

(1,235)

Balance at end of the year

265

59

111

435

265

51

100

416

Balance at beginning of the year

-

-

1

1

-

-

1

1

Transfers to other assets underadministration

-

-

42

42

-

-

42

42

Transfers from other assets underadministration

-

-

(43)

(43)

-

-

(43)

(43)

Balance at end of the year

-

-

-

-

-

-

-

-

Balance at beginning of the year

-

-

6

6

-

-

6

6

Net transfers to / (from) undrawn
facilities with impaired customers

-

-

26

26

-

-

26

26

Balance at end of the year

-

-

32

32

-

-

32

32

22

4

42

68

22

4

42

68

Interest recognised

(4)

(1)

(3)

(8)

(4)

(1)

(3)

(8)

Net interest forgone on impaired loans

18

3

39

60

18

3

39

60

Other assets under administration

Undrawn facilities with
impaired customers

Interest forgone on impaired assets
Gross interest receivableon impaired loans

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.

ANZ National Bank Limited
32 – 33

Notes to the Financial Statements
15. Provision for Credit Impairment
Banking GroupBank

Retailmortgages

Otherretailexposures

Corporate
exposures

Balance at beginning of the year

121

159

Charge / (credit) to income statement

(10)

(10)

Balance at end of the year111

$ millions

Total

Retailmortgages

Otherretailexposures

Corporate
exposures

Total

518

798

121

140

501

762

15

(5)

(10)

(5)

17

2

149

533

793

111

135

518

764

30/09/2010
Collective provision

Individual provision (individually
impaired assets)
Balance at beginning of the year

153

40

281

474

153

23

274

450

Charge to income statement

125

120

196

441

125

112

178

415

2

17

2

21

2

16

1

19

(57)

(123)

(92)

(272)

(57)

(120)

(76)

(253)

Recoveries of amounts previously
written off
Bad debts written off
Discount unwind

(16)

(3)

(40)

(59)

(16)

(2)

(38)

(56)

Balance at end of the year

207

51

347

605

207

29

339

575

Total provision for
credit impairment

318

200

880

1,398

318

164

857

1,339

81

164

289

534

81

146

270

497

1

30/09/2009
Collective provision
Balance at beginning of the year
Charge to income statement

40

(5)

229

264

40

(6)

231

265

Balance at end of the year

121

159

518

798

121

140

501

762

Balance at beginning of the year

28

10

94

132

28

4

83

115

Charge to income statement

152

161

297

610

152

142

281

575

1

18

1

20

1

18

1

20

(28)

(149)

(101)

(278)

(28)

(141)

(81)

(250)

-

-

(10)

(10)

-

-

(10)

(10)

Balance at end of the year

153

40

281

474

153

23

274

450

Total provision for
credit impairment

274

199

799

1,272

274

163

775

1,212

Individual provision (individually
impaired assets)

Recoveries of amounts previously
written off
Bad debts written off
Discount unwind1

1

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

ANZ National Bank Limited

Notes to the Financial Statements
Banking Group
Provision movement analysis$ millions

Bank

Retailmortgages

Otherretailexposures

Corporate
exposures

Total

Retailmortgages

Otherretailexposures

Corporate
exposures

Total

187

160

337

684

187

151

313

651

(60)
127

(23)

(139)

(222)

(60)

(23)

(134)

(217)

137

198

462

127

128

179

434

30/09/2010
New and increased provisions
Provision releases
Recoveries of amounts previously
written off

(2)

(17)

(2)

(21)

(2)

(16)

(1)

(19)

Individual provision charge

125

120

196

441

125

112

178

415

Collective provision charge / (credit)

(10)

(10)

15

(5)

(10)

(5)

17

2

Total charge to income statement

115

110

211

436

115

107

195

417

162

182

316

660

162

162

299

623

(9)

(3)

(18)

(30)

(9)

(2)

(17)

(28)

153

179

298

630

153

160

282

595

30/09/2009
New and increased provisions
Provision releases
Recoveries of amounts previously
written off

(1)

(18)

(1)

(20)

(1)

(18)

(1)

(20)

Individual provision charge

152

161

297

610

152

142

281

575

Collective provision charge

40

(5)

229

264

40

(6)

231

265

Total charge to income statement

192

156

526

874

192

136

512

840

16. Controlled Entities, Associates and Jointly Controlled Entities
Banking Group$ millions

Shares in controlled entities
Shares in associates
Shares in jointly controlled entities
Total shares in controlled entities, associates and jointly controlled entities

Bank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

-

-

7,343

7,377

143

211

85

94

1

253

-

231

144

464

7,428

7,702

ANZ National Bank Limited
34 – 35

Notes to the Financial Statements
Controlled Entities

Ownership
Interest %Balance
Date

Alos Holdings Limited
ANZ Capital NZ Limited
ANZ Investment Services (New Zealand) Limited
ANZ National (Int’l) Limited
ANZ National Staff Superannuation Limited

100
100
100
100
100

30 September
30 September
30 September
30 September
30 September

APAC Investments Limited3
65
Arawata Assets Limited
100
Arawata Capital Limited
100
Arawata Finance Limited
100
Arawata Holdings Limited
100
Arawata Securities Limited2
100
Arawata Trust
Arawata Trust Company
100
Argosy Property Management Limited (formerly ING Property
Trust Management Limited)1100
Australian Properties Ltd1100
AUT Investments Limited (formerly ING NZ AUT Investments Limited)1
100
BHI Limited
100
CBC Finance Limited (registered in British Virgin Islands)
100
Control Nominees Limited
100
Direct Broking Limited
100
Direct Nominees Limited
100
Diversified Yield Fund (formerly ING Diversified Yield Fund,registered in Australia)199
Eastern Specialists Consulting Ltd1100
EFTPOS New Zealand Limited
100
Endeavour Finance Limited
100
General Finance Custodians Limited
Harcourt Corporation Limited
100
Karapiro Investments Limited
100
Kingfisher NZ Trust 2008-1
National Bank of New Zealand Custodians Limited
100
NBNZ Holdings Hong Kong Limited (registered in Hong Kong)
100
NBNZ Holdings Limited
100
OneAnswer Nominees Limited1
100
OnePath (NZ) Limited (formerly ING (NZ) Limited)1
100
OnePath Holdings (NZ) Limited (formerly ING (NZ) Holdings Limited)1
100
OnePath Insurance Holdings (NZ) Limited (formerly ING Insurance
Holdings Limited)1
100
OnePath Insurance Services (NZ) Limited (formerly ING Insurance
Services (NZ) Limited)1
100
OnePath Life (NZ) Limited (formerly ING Life (NZ) Limited)1
100
OnePath Nominees (NZ) Limited (formerly ING (NZ) Nominees Limited)1100
Origin Mortgage Management Services Limited
Origin Mortgage Management Services (2008) Limited
Private Nominees Limited
100
Radiola Corporation Limited
100
Regular Income Fund (formerly ING Regular Income Fund,registered in Australia)1
99
Rural Growth Fund Limited
100
Silver Fern Life Brokers Limited1
100
South Pacific Merchant Finance Limited
100
Southpac Corporation Limited
100
Trillium Holdings Limited2
100
Tui Securities Limited2100
UDC Finance Limited
100
Vital Healthcare Australian Property Proprietary Limited (formerly ING
Medical Australian Properties Proprietary Limited, registered in Australia)1 100
Vital Healthcare Management Limited (formerly ING Medical
Properties Limited)1100

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

Investment company
Investment company
Funds management company
Finance company
Staff superannuation
scheme trustee
Finance company
Property company
Investment company
Investment company
Investment company
Non operative
Finance entity
Investment company

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

Management company
Management company
Holding company
Investment company
Non operative
Finance company
On-line share broker
Nominee company

30 June30 September
30 September
30 September
31 March
30 September
30 September
30 September
30 September
31 December
30 September
30 September
30 September
30 September

Fixed income fund
Holding company
EFTPOS service provider
Investment company
Mortgage finance
Investment company
Non operative
Finance entity
Nominee company
Non operative
Finance company
Finance company
Finance company
Holding company

30 September

Holding company

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

Insurance company
Insurance company
Finance company
Mortgage financeMortgage financeNominee company
Non operative

30 June30 September
30 September
30 September
30 September
30 September
30 September
30 September

Fixed income fundInvestment company
Insurance company
Investment company
Investment company
Non operative
Non operative
Finance company

30 September

Holding company

31 March

Management company

Controlling stake acquired on 30 November 2009.
Currently being wound up.
3
Sold on 1 October 2010.
1
2

All controlled entities are incorporated in New Zealand, unless stated.

Nature of business

ANZ National Bank Limited

Notes to the Financial Statements
For all controlled entities, with the exception of General Finance Custodians Limited, Origin Mortgage Management Services
Limited and Origin Mortgage Management Services 2008 Limited, the ownership interest percentage equates to the voting
power held. In relation to these companies, control exists through the Banking Group having 100% of the voting rights.
In relation to Arawata Trust control exists through the Bank being trustee of the Trusts. In relation to Kingfisher NZ Trust
2008-1 control exists as the Banking Group retains substantially all the risks and rewards 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 Banking Group 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 Banking Group acquired control over ING NZ and its subsidiary companies, which had previously
been treated as jointly controlled entities, and of the Diversified Yield Fund and the Regular Income Fund, which had beenpreviously treated as investments in associates.
In June 2010 Airlie Investments Limited, Endeavour Securities Limited and Sefton Finance Limited were deregistered.
In August 2010 the following companies were amalgamated:••••

Harcourt Investments Limited and Corvine Investments Limited into their direct parent company, Harcourt
Corporation Limited;
NBNZ Finance Limited into its direct parent company, Alos Holdings Limited,
Tui Endeavour Limited into its direct parent company, Endeavour Finance Limited; andArawata Funding Limited, Culver Finance Limited and Cortland Finance Limited into their direct parent company, Arawata
Finance Limited.

In September 2010 all the assets of three subsidiaries, Arawata Securities Limited, Trillium Holdings Limited and Tui Securities
Limited, were distributed up to their direct parent company, the Bank, as part of the process of winding them up.
The calculation of the gain recognised on the distributions received from these three subsidiaries is shown below:Bank
30/09/2010

30/09/2009

Total distribution received from subsidiaries

538-

Less: Investment in subsidiaries at cost

(484)

-

54

-

$ millions

Gain recognised on winding up of subsidiaries
Banking Group$ millions

Balance at beginning of the year
Acquisitions

Bank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

211

144

94

88

-

67

-

6

Transfers to subsidiary company

(96)

-

(7)

-

Impairment

(4)

(2)

(2)

-

Share of profit of equity accounted associates

34

2

-

-

Dividends received from associates

(2)

-

-

-

143

211

85

94

Balance at end of the year

In August 2009, the Banking Group acquired an interest in the ING Diversified Yield Field and ING Regular Income Fund, giving
it significant influence over these entities.
In September 2009, Electronic Transactions Services Limited changed its name to Paymark Limited.
On 30 November 2009 the Banking Group acquired control over the Diversified Yield Fund and the Regular Income Fund,which had been previously treated as investments in associates.
Shares in associates at 30 September 2010 includes goodwill of $56 million (30/09/2009 $57 million) for the Banking Group and$nil (30/09/2009 $nil) for the Bank.
All of the following associates are incorporated in New Zealand, except for the Diversified Yield Fund and the Regular Income
Fund which are incorporated in Australia.

ANZ National Bank Limited
36 – 37

Notes to the Financial Statements
30/09/2010
Book Value$m

30/09/2009
Book Value$m

Bennetts Financial Services Limited

1

Cards NZ Limited

Associates

VotingInterest %Ownership
Interest %Balance Date

Nature of business

-

20

20

31 March

Financial services

85

85

30

15

30 September

Card services

ING Diversified Yield Fund

-

46

49

49

30 JuneFixed income fund

ING Regular Income Fund

-

21

49

49

30 JuneFixed income fund

NZ Poultry Enterprises Limited

43

41

20

20

30 April

Poultry processor

Paymark Limited

2

2

25

25

31 March

EFTPOS settlements

UCG Investments Limited

10

13

40

40

31 March

Rest home operator

Wyma Engineering (NZ) Limited

2

3

31

31

31 March

Agricultural machinery supplier

Total investment in associates

143

211

Jointly Controlled Entities
Banking Group$ millions

Bank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

253

219

231

208

-

23

-

23

Balance at beginning of the year
Acquisitions
Disposals
Transfers to subsidiary company

(2)

-

-

-

(255)

-

(231)

-

-

Impairment(3)-

Share of profit of equity accounted jointly controlled entities

8

11

-

-

Balance at end of the year

1

253

-

231

30/09/2010
Book Value$m

30/09/2009
Book Value$m

Argenta Limited

1

BCS Group Limited

VotingInterest %Ownership
Interest %

2

21

-

2

ING (NZ) Holdings Limited-

JMI Aerospace Limited
Total investment in jointly
controlled entities

Jointly controlled entities

Balance Date

Nature of business21

31 July

Manufacture and marketingof animal remedies

4040

30 JuneManufacturer of baggage
handling systems

248

50

49

31 December

Funds management andinsurance

-

1

33

33

31 March

Airline maintenance1

253

Shares in jointly controlled entities at 30 September 2010 includes goodwill of $nil million (30/09/2009 $94 million) for the
Banking Group and $nil million (30/09/2009 $90 million) for Bank.
On 30 November 2009 the Banking Group acquired control over ING NZ and its subsidiary companies which had previously
been treated as jointly controlled entities.
In December 2009 the Banking Group sold its interest in JMI Aerospace Limited and in September 2010 the Banking Group soldits interest in BCS Group Limited.
There are no unrecognised losses in respect of any of the Banking Group’s jointly controlled entities. The 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
37, there were no material contingent liabilities as at 30 September 2010 (30/09/2009 $nil).

ANZ National Bank Limited

Notes to the Financial Statements
The summarised financial information relating to the Banking Group’s investment in ING (NZ) Holdings Limited prior to it
becoming a subsidiary is as follows:
Bank
30/09/2010$ millions

30/09/2009

Share of assets and liabilities
Investments-

91

Other assets-

171

Total assets-

262Life insurance policy liabilities

-

(46)

Other liabilities-

63

Total liabilities-

17

Net assets-

245

Net underwriting result

16

84

Other revenue

4

32

Total revenue

20

116

Expenses

15

108

Profit before income tax

5

8

Income tax credit

(1)

(5)

Profit after tax

6

13

-

17

Share of revenue, expenses and results

Share of commitments
Lease commitments

17. Other Assets
Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

Accrued interest and prepaid discounts

391

397

423

425

Accrued commission

25

19

18

16

Share-based payments asset

57

52

57

52

Prepaid expenses

60

86

59

78
291

$ millions

Security settlements

81

291

81

Other assets

351

292

291

219

Total other assets

965

1,137

929

1,081

ANZ National Bank Limited
38 – 39

Notes to the Financial Statements
18. Deferred Tax Assets and Liabilities
Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

(17)

121

(83)

100

Credited / (charged) to income statement

326

(141)

408

(186)

Credited / (charged) directly to equity

(32)

3

(32)

3

Acquired as part of a business combination

35

-

-

-

Balance at end of the year

312

(17)

293

(83)

Provision for credit impairment

391

381

375

363

Premises and equipment, software and intangibles

(20)

7

(3)

1
148

$ millions

Deferred tax assets / (liabilities)
Balance at beginning of the year
1

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

Provisions and accruals

149

191

137

Deferred acquisition costs and policy holder liabilities

(72)

-

-

-

Financial instruments

(39)

(6)

(39)

(7)

82

-

-

-

(126)

(112)

(122)

(110)

Other deferred tax assets and liabilities (including provisions)

(53)

(478)

(55)

(478)

Net deferred tax assets / (liabilities)

312

(17)

293

(83)

Provision for credit impairment

10

181

12

179

Premises and equipment, software and intangibles

(5)

5

(4)

2

Provisions and accruals

(73)

66

(11)

30

Deferred acquisition costs and policy holder liabilities

(21)

-

-

-

Financial instruments

(8)

(2)

-

-

Carried forward losses
Lease finance2

Deferred tax credited / (charged) to the income statement comprises thefollowing temporary differences:

5

-

-

-

Lease finance

(14)

(22)

(12)

(25)

Other deferred tax assets and liabilities (including provisions)

432

(369)

423

(372)

Total deferred tax charged / (credited) to the income statement

326

(141)

408

(186)

Financial instruments

(32)

3

(32)

3

Total deferred tax credited directly to equity

(32)

3

(32)

3

Carried forward losses

Deferred tax credited / (charged) to equity comprises the following
temporary differences:

Amounts charged / credited to the income statement include deferred tax assets / liabilities which have crystallised and have been transferred to current tax
assets / liabilities. These transfers are accounted for by charging / crediting deferred income tax expense and crediting / charging current tax expense.
2
Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same income tax authority on either the same taxable entity or
different taxable entities within the same taxable group.
1

ANZ National Bank Limited

Notes to the Financial Statements
19. Premises and Equipment
Banking Group$ millions

30/09/2010

Bank

30/09/2009

30/09/2010

30/09/2009

Freehold and leasehold land and buildings
At cost

63

69

-

-

Accumulated depreciation

(11)

(12)

-

-

Balance at beginning of year

52

57

-

-

Additions

22

10

-

-

Disposals

-

(15)

-

-

Depreciation

(1)

-

-

-

At cost

85

63

-

-

Accumulated depreciation

(12)

(11)

-

-

Balance at end of year

73

52

-

-

Leasehold improvements
At cost

99

98

2

2

Accumulated depreciation

(78)

(75)

(1)

(1)

Balance at beginning of year

21

23

1

1
-

Additions3

3-

Depreciation

(5)

(5)

-

-

At cost

101

99

2

2

Accumulated depreciation

(82)

(78)

(1)

(1)

Balance at end of year

19

21

1

1

Furniture and equipment
At cost

265

255

18

20

Accumulated depreciation

(191)

(176)

(11)

(12)

Balance at beginning of year

74

79

7

8

Additions

38

10

2

2

Acquired as part of business combination

2

-

-

-

-

(1)

-

(1)

Depreciation

(17)

(14)

(3)

(2)

At cost

302

265

17

18

Accumulated depreciation

(205)

(191)

(11)

(11)

97

74

6

7

Disposals

Balance at end of year
Computer and office equipment
At cost

251

246

212

207

Accumulated depreciation

(200)

(196)

(170)

(169)

Balance at beginning of year

51

50

42

38

Additions

62

24

52

23

Acquired as part of business combination

2

-

-

-

Disposals

(1)

(4)

(1)

(4)

Depreciation

(24)

(19)

(18)

(15)

At cost

291

251

249

212

Accumulated depreciation

(201)

(200)

(174)

(170)

90

51

75

42

Balance at beginning of year

80

33

13

6

Net additions / (capitalisations)

(48)

47

(12)

7

Balance at end of year
Work in progress

Balance at end of year

32

80

1

13

Total premises and equipment

311

278

83

63

ANZ National Bank Limited
40 – 41

Notes to the Financial Statements
20. Goodwill and Other Intangible Assets
Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

Balance at beginning of year

3,265

3,265

3,217

3,217

Balance at end of year

3,265

3,265

3,217

3,217

At cost

115

96

110

93

Accumulated amortisation

(58)

(47)

(56)

(45)

Balance at beginning of year

57

49

54

48

Additions from internal developments

42

19

37

17

Acquired in a business combination

1

-

-

-

(16)

(11)

(14)

(11)

$ millions

Goodwill

SoftwareAmortisation expense1
Net book value of software impaired / written off

(2)

-

(2)

-

At cost

147

115

136

110

Accumulated amortisation

(65)

(58)

(61)

(56)

Balance at end of year

82

57

75

54

At cost

6

4

6

4

Accumulated amortisation

(3)

(1)

(3)

(1)

Balance at beginning of year

3

3

3

3
9

Other intangible assets

Additions from purchases
Acquired in a business combination
Amortisation expense1
Net book value of other intangible assets impaired / written off
At costAccumulated amortisation
Balance at end of year
Total goodwill and other intangible assets
1

-

9

-

209

-

-

-

(8)

(2)

-

(2)
(7)

(3)

(7)

(3)

209

6

-

6

(8)

(3)

-

(3)

201

3

-

3

3,548

3,325

3,292

3,274

Software and other intangibles amortisation expense is included in ‘other costs’ in the Income Statement.

The goodwill balance above largely comprises the goodwill purchased on acquisition by the Banking Group and Bank of
NBNZ Holdings Limited in December 2003 and the subsequent acquisition and amalgamation by the Bank of The National
Bank of New Zealand Limited from NBNZ Holdings Limited in June 2004. Refer Note 2 for discussion of impairment testing forthis goodwill.

21. Due to Other Financial Institutions
Banking Group$ millions

Due to other financial institutions
Securities sold under agreements to repurchase from other financial institutions
Securities sold under agreements to repurchase from central banks

1

Total due to other financial institutions
1

Bank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

1,597

1,760

1,597

1,274

222

159

222

159

-

1,806

-

1,806

1,819

3,725

1,819

3,239

As at 30 September 2010 the Banking Group had entered into no repurchase agreements for residential mortgage-backed securities with the RBNZ (30/09/2009$1,806 million). Therefore no underlying collateral had been accepted by the RBNZ in relation to repurchase agreements (30/09/2009 residential mortgages tothe value of $2,250 million were held by RBNZ as collateral).

ANZ National Bank Limited

Notes to the Financial Statements
22. Deposits and Other Borrowings
Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

Certificates of deposit

3,245

4,441

3,245

4,441

$ millions

Amortised cost
Term deposits

34,68732,997

34,68732,997

Demand deposits bearing interest

18,71421,024

18,78421,024

Deposits not bearing interest

4,964

4,373

4,964

4,373

Secured debenture stock

1,378

1,537

-

-

Total deposits and other borrowings recognised at amortised cost

62,98864,372

61,68062,835

Commercial paper

7,307

7,392

-

-

Total deposits and other borrowings recognised at fair value

7,307

7,392

-

-

Total deposits and other borrowings

70,29571,764

61,68062,835

7,305

7,388

-

-

2,111

1,877

-

-

Fair value through profit or loss

Amortised cost of balances included within deposits and otherborrowings recognised at fair value:
Commercial paper issued by ANZ National (Int'l) Limited guaranteedby ANZ National Bank Limited
Secured debenture stock are secured over:Carrying value of total tangible assets of UDC Finance Limited

The Banking Group has not defaulted on any principal, interest or redemption amounts on its borrowed funds during theyear ended 30 September 2010 (30/09/2009 $nil). Deposits from customers are unsecured and rank equally with otherunsecured liabilities of the Banking Group. In the unlikely event that the Bank was put into liquidation or ceased to trade,secured creditors and those creditors set out in the Seventh Schedule of the Companies Act 1993 would rank ahead of theclaims 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 the assets, primarily loans
and advances, of UDC Finance Limited.

23. Payables and Other Liabilities
Banking Group$ millions

30/09/2010

30/09/2009

30/09/2010

30/09/2009

Creditors

98

81

54

38

Accrued interest and unearned discounts

623

687

494

559

Defined benefit schemes deficit

26

55

26

55

Share-based payments liability

28

28

28

28

Accrued charges

308

257

289

239

Security settlements

195

205

188

201

Equitable assignment of mortgages

16

19

16

19

Other liabilities

406

477

573

708

1,700

1,809

1,668

1,847

1

Total payables and other liabilities
1

Bank

The ANZ FlexiMortgage Income Trust holds mortgages under an equitable assignment with the Bank. The ANZ FlexiMortgage Income Trust can at any
time require the Bank to repurchase any mortgage. The Bank may also require repurchase in certain circumstances. The mortgages are included in thesefinancial statements.

ANZ National Bank Limited
42 – 43

Notes to the Financial Statements
24. Provisions
Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

3

4

3

4

Balance at beginning of the year

119

117

117

115

Provisions made during the year

59

60

58

59

Payments made during the year

(58)

(58)

(54)

(57)

$ millions

Non-lending losses, frauds and forgeries
Employee entitlements

7

-

-

-

127

119

121

117

Balance at beginning of the year

6

32

6

32

Provisions made during the year

-

17

-

17

Payments made during the year

(4)

(43)

(4)

(43)

Balance at end of the year

2

6

2

6

Acquired as part of business combination
Balance at end of the year
Personnel restructuring costs

Redundant assets restructuring costs
Balance at beginning of the year

18

1

14

1

Provisions made during the year

13

17

5

17

Payments made during the year

(9)

-

(6)

-

Transfer/release of provision

-

-

-

(4)

Balance at end of the year

22

18

13

14

Other provisions
Balance at beginning of the year

136

29

134

27

Provisions made during the year

11

257

11

257

Payments made during the year

(68)

(150)

(63)

(150)

Transfer/release of provision

(6)

-

(4)

-

Acquired as part of business combination

88

-

-

-

Balance at end of the year

161

136

78

134

Total provisions

315

283

217

275

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.

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 businessundertaken by the Banking Group and includes termination benefits. Provisions are made when the Banking Group isdemonstrably committed, it is probable that the costs will be incurred, though their timing is uncertain, and the costs can bereliably estimated. The majority of provisions recognised at 30 September 2010 are expected to be settled over the coming
financial year, with the exception that provisions for losses arising from rental commitments on leased premises which havebecome vacant as a result of restructuring will be settled over the remaining term of the leases.

Other provisions
Other provisions includes provisions relating to the ING New Zealand Funds (refer to Note 37 for further information) and thefair value of other contingent liabilities and provisions acquired as part of the acquisition of ING NZ.

ANZ National Bank Limited

Notes to the Financial Statements
25. Bonds and Notes
Banking Group$ millions
Currency

Face value

Type of note

Maturity

Interest rate %70m

floating rate notes2010

3 month BKBM + 0.35%

30/09/2010

30/09/2009

70

70
100

Issued by the Bank
NZD
NZD

100m

fixed rate notes

2010

8.50%

-

NZD

75m

fixed rate notes

2010

8.50%

-

75

NZD

65m

fixed rate notes2010

3 month BKBM + 0.80%

-

65

NZD

50m

floating rate notes

2011

3 month BKBM + 1.24%

50

50

NZD

150m

fixed rate notes

2011

6.80%

150

150
170

NZD

170m

floating rate notes

2011

3 month BKBM + 0.90%

170

NZD

50m

fixed rate notes

2011

8.25%

50

50

NZD

100m

floating rate notes

2012

3 month BKBM + 1.025%

100

100
150

NZD

150m

fixed rate notes

2012

5.63%

150

NZD

40m

floating rate notes

2012

3 month BKBM + 0.90%

40

-

NZD

100m

fixed rate notes

2013

6.32%

100

-

NZD

175m

fixed rate notes

2014

8.50%

175

175

NZD

60m

fixed rate notes

2014

8.50%

60

60

NZD

250m

fixed rate notes

2015

6.60%

250

-

NZD

350m

fixed rate notes

2015

6.51%

350

-

Index linked notes

100

78

Fair value hedge adjustment

365

223

Less Bond instruments held by the Bank

(23)

-

2,157

1,516

150

Issued by ANZ National (Int’l) Limited
NZD

150m

floating rate notes

2009

3 month BKBM + 0.10%

-

USD

300m

floating rate notes

2009

1 month LIBOR + 0.04%

-

416

USD

789m

floating rate notes2

2009

3 month LIBOR + 0.24%

-

1,093

JPY

6,000mfloating rate notes

2009

3 month JPY LIBOR

-

92

USD

8m

1

floating rate notes2010

1 month LIBOR + 0.03%

-

11

USD

750m

floating rate notes2010

3 month LIBOR + 0.11%

-

1,039

NZD

100m

floating rate notes2010

3 month BKBM + 0.05%

-

100

CHF

275m

floating rate notes2010

3 month CHF LIBOR + 0.75%

-

369

SGD

200m

fixed rate notes

2010

3.22%

-

196
139

USD

100m

floating rate notes2010

3 month LIBOR + 0.55%

-

AUD

50m

floating rate notes2010

3 month BBSW + 0.61%

-

61

USD

890m

floating rate notes32010

3 month LIBOR + 1.03%

1,210

1,234

USD

300m

fixed rate notes

2011

5.50%

407

416

GBP

435m

floating rate notes

2011

3 month GBP LIBOR + 0.05%

935

966
233

GBP

105m

floating rate notes

2011

3 month GBP LIBOR + 0.05%

226

USD

500m

floating rate notes4

2011

3 month LIBOR + 0.18%

679

693

USD

250m

floating rate notes

2011

3 month LIBOR + 0.70%

340

346

USD

100m

floating rate notes4

2011

3 month LIBOR + 0.32%

136

139

USD

20m

floating rate notes4

2011

3 month LIBOR + 0.20%

27

28

USD

100m

floating rate notes

2011

3 month LIBOR + 0.65%

136

139

HKD

155m

floating rate notes

2011

3 month HIBOR + 0.51%

27

28

GBP

450m

floating rate notes3

2012

6 month GBP LIBOR + 0.08%

968

999

USD

1,000mfixed rate notes4

2012

3.25%

1,359

1,386

ANZ National Bank Limited
44 – 45

Notes to the Financial Statements
USD

500m

fixed rate notes4

2012

3.25%

679

693

USD

100m

floating rate notes4

2012

3 month LIBOR + 0.25%

136

139

20

21

USD

15m

floating rate notes

2012

3 month LIBOR + 0.80%

USD

1250m

fixed rate notes

2012

2.38%

HKD

300m

floating rate notes

2012

3 month HIBOR + 0.71%

1,698

-

53

-

USD

2,000mfixed rate notes

2013

6.20%

2,717

2,772

JPY

500m

fixed rate notes

2014

1.40%

8

-

JPY

3,000mfixed rate notes

2014

1.50%

49

-

USD

100m

floating rate notes 4

2014

3 month LIBOR + 0.44%

136

139

HKD

100m

fixed rate notes

2014

3.40%

18

18

HKD

100m

fixed rate notes

2014

3.03%

18

-

CHF

300m

fixed rate notes

2014

2.01%

417

-

CHF

250m

fixed rate notes

2014

2.01%

347

-

USD

71m

floating rate notes

2014

3 month LIBOR + 0.28%

96

-

USD

20m

floating rate notes

2014

3 month LIBOR + 1.10%

27

-

4

USD

50m

floating rate notes

2014

3 month LIBOR + 1.15%

68

USD

1,050mfloating rate notes3

2014

3 month LIBOR + 1.16%

1,427

-

HKD

105m

fixed rate notes

2015

3.30%

18

-

JPY

500m

floating rate notes

2015

3 month JPY LIBOR + 0.50%

8

-

JPY

11,800m

fixed rate notes

2015

1.54%

192

-

JPY

7,200mfloating rate notes

2015

3 month JPY LIBOR + 1.00%

117

-

SGD

200m

fixed rate notes

2015

2.95%

206

-

USD

250m

floating rate notes

2015

3 month LIBOR + 0.90%

340

346

USD

1,000mfixed rate notes

2015

3.13%

1,359

-

16,604

14,401

18,761

15,917

Total bonds and notes

Bonds and notes issued by ANZ National (Int’l) Limited are guaranteed by the Bank.
Bonds and notes are unsecured and rank equally with other unsecured liabilities of the Banking Group.
On 6 March 2009, investors elected not to extend these bonds. As a result these bonds carry a fixed maturity of 5 March 2010.
On 10 December 2008, investors elected not to extend which has resulted in these bonds carrying a fixed maturity of 9 October 2009.
3
These notes were issued to subsidiaries of the Overseas Banking Group.
4
As well as being guaranteed by the Banking Group these notes also benefit from a supporting guarantee from the NZ Crown.
1
2

26. Loan Capital
Banking Group$ millions

AUD 265,740,000 perpetual subordinated floating rate loan
AUD 186,100,000 term subordinated floating rate loanBank

30/09/2010

30/09/2009

30/09/2010

349

324

349

324

-

227

-

227

30/09/2009

AUD 43,767,507 term subordinated floating rate loan

58

53

58

53

AUD 169,520,000 term subordinated floating rate loan

223

207

223

207

Term subordinated fixed rate bonds

950

950

950

950

Perpetual subordinated bondTotal loan capital issued
Less loan capital instruments held by the Banking Group
Total loan capital

835

835

835

835

2,415

2,596

2,415

2,596

(8)

-

(3)

-

2,407

2,596

2,412

2,596

ANZ National Bank Limited

Notes to the Financial Statements
AUD 265,740,000 loan
This loan was drawn down on 27 September 1996 and has no fixed maturity. Interest is payable half yearly in arrears based on
BBSW + 0.95% p.a., with interest payments due 15 March and 15 September.

AUD 186,100,000 loan
This loan was drawn down on 19 April 2005 with an ultimate maturity date of 20 April 2015. On 19 April 2010 the Bank repaid
the loan. All interest was payable half yearly in arrears, with interest payments due 19 April and 19 October. Interest was basedon 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 torepay the loan on 15 September each year commencing from 2011 through to 2015. All interest is payable half yearly in arrears,
with interest payments due 15 March and 15 September. Interest is based on BBSW + 0.29% p.a. to 15 September 2011 andincreases 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 18 September 2017. The Bank may elect torepay the loan on 17 September each year commencing from 2012 through to 2016. All interest is payable half yearly in arrears,
with interest payments due 17 March and 17 September. Interest is based on BBSW + 0.68% p.a. to 17 September 2012 andincreases to BBSW + 1.18% p.a. thereafter.

NZD subordinated bonds
Term subordinated fixed rate bonds
Issue dateAmount $m
15 September 2006
350
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 30 September 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. for the 15 September 2006; 2 March
2007 and 23 July 2007 bonds respectively. Interest is payable half yearly in arrears based on the fixed coupon rate.
Perpetual subordinated bonds
Issue date
18 April 2008

Amount $m
835

Coupon rate
9.66%

1st call date
18 April 2013

2nd call date
18 April 2018

The Bank may elect to redeem the 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 andincluding the Second Call Date and then quarterly thereafter. If the bond 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 Ratefrom the Second Call Date onwards will be set on a quarterly basis to the three month FRA rate plus 3.00%.
As at 30 September 2010, this bond carried an A+ rating by Standard and Poor’s and an A1 by Moody’s.
Interest may not necessarily be paid on each interest payment date as under the terms of the bonds, the Bank has a generalright 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 New Zealand Exchange (“NZX”). The Market Surveillance Panel of the NZX
granted the Bank a waiver from the requirements of Listing Rules 10.4 (relating to the provision of preliminary announcementsof half yearly and annual results to the NZX) and 10.5 (relating to preparing and providing a copy of half yearly and annual
reports to the NZX). The Bank has been granted a waiver from these rules on the conditions that the Bank’s General DisclosureStatement (“GDS”) is available on the Bank’s website, at any branch and at the NZX; that bondholders 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 asentence included on the notification of interest payments, that the latest GDS is available for review at the above locations;and that a copy of the GDS is sent to the NZX on an ongoing basis.
Loan capital is subordinated in right of payment in the event of liquidation or wind up to the claims of depositors and all
creditors of the Bank.
All subordinated debt qualifies as Lower Level Tier Two Capital for capital adequacy purposes except for the perpetual
subordinated debt which qualifies as Upper Level Tier Two Capital.

ANZ National Bank Limited
46 – 47

Notes to the Financial Statements
27. Related Party Transactions
Banking Group$ thousands
Key management personnel

BankYear to30/09/2010

Year to30/09/2009

Year to30/09/2010

Year to30/09/2009

11,282

10,748

11,282

10,748Key management personnel compensation
Salaries and short-term employee benefits
Post-employment benefits

352

373

352

373

Other long-term benefits

1,581

782

1,581

782

931

58

931

58

Termination benefits
Share-based payments

3,911

4,339

3,911

4,339

Total compensation of key management personnel

18,057

16,30018,057

16,300Loans to key management personnel

4,056

4,424

4,056

4,424

Deposits from key management personnel

7,539

5,543

7,539

5,543

Key management personnel are defined as being Directors and senior management of the Banking Group, those persons
having authority and responsibility for planning, directing and controlling the activities of the entity. The information above
relating to key management personnel includes transactions with those individuals, their close family members and theircontrolled entities.
Loans made to and deposits held by key management personnel are made in the course of ordinary business on normal
commercial terms and conditions no more favourable than those given to other employees or customers. Loans are on termsof repayment that range between fixed, variable and interest only, all of which have been made in accordance with the Bank’s
lending policies. No provision for credit impairment has been recognised for loans made to key management personnel(30/09/2009 $nil).
All 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. These transactions principally consist of theprovision of financial and investment services.

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

ANZ National Bank Limited

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

Bank

Year to30/09/2010

Year to30/09/2009

Year to30/09/2010

Year to30/09/2009

10

-

10

426

Interest income
Received from Immediate Parent Company
Received from controlled entities

-

-

328

Received from associates

7

2

7

2

Received from joint ventures

2

3

2

3

Paid to Ultimate Parent Bank and subsidiaries not part of the Banking Group

65

176

37

58

Paid to Immediate Parent Company

5

28

5

28

Interest expense

Paid to controlled entities

-

-

1,337

1,804

Paid to associates

2

4

2

4

26

10

26

10

-

-

379

1,099
30

Other operating income
Fees received from NZ Branch
Dividends received from controlled entities
Fees & commission received from controlled entities

-

-

66

Dividends received from associates

2

2

2

2

Commission received from joint ventures

6

39

6

39

Operating expenses
86

91

86

91

Operating expenses paid to controlled entities

-

-

113

109

Costs recovered from joint ventures

-

(1)

-

(1)

Paid to Ultimate Parent Bank and subsidiaries not part of the Banking GroupANZ National Bank Limited
48 – 49

Notes to the Financial Statements
Balances with related parties$ millions

Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

1,507

-

80

-

2,060

2,969

2,077

3,010

Due from associates

151

161

151

161

Due from joint ventures

36

36

36

36

-

-

9,043

7,703

Due from other financial institutions
Due from Ultimate Parent Bank and subsidiaries not part of ANZ New ZealandDerivative financial assets
Due from related entities
Net loans and advances

Due from controlled entities
Due from Immediate Parent Company
Shares in controlled entities, associates and joint ventures

6

-

6

-

144

464

7,428

7,702

Other assets
Due from Ultimate Parent Bank

37

37

36

37

Total due from related parties

4,024

3,809

18,93818,791

8

497

8

12

Due to other financial institutions
Due to Ultimate Parent Bank
Deposits and other borrowings
85

85

85

85

Due to controlled entities--

37,45836,793Due to Immediate Parent Company

-

930

-

930

2,646

2,338

2,648

2,345

Due to NZ Branch

302

357

302

341

Due to Ultimate Parent Bank

38

28

38

28

3,605

2,233

-

-

Due to associates

Derivative financial liabilities
Due to related entities
Payables and other liabilities

Bonds and notes
Due to subsidiaries of the Ultimate Parent Bank not part of ANZ New Zealand
Loan capitalDue to Ultimate Parent Bank

630

811

630

811

Total due to related parties

7,363

7,253

41,21641,319Balances due from / to related parties are unsecured other than that the Banking Group and the Bank have provided guarantees
and commitments to related parties as follows:
Banking Group$ millions

Balances due to subsidiaries of the Ultimate Parent Bank not part of
ANZ New Zealand from ANZ National (Int’l) Limited guaranteed by the Bank
Financial guarantees provided to the Ultimate Parent Bank
Undrawn credit commitments provided to controlled entities

Bank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

-

-

3,605

2,233

1,660

1,617

1,660

1,617

-

-

400

500

A provision for credit impairment of $10 million has been recognised for amounts due from associates as at 30 September 2010
(30/09/2009 $10 million). No credit impairment loss was charged during the year ended 30 September 2010 (30/09/2009 $5
million). No other provisions have been recognised on related party balances.

Kingfisher NZ Trust 2008-1 (“the Kingfisher Trust”)
Included within the tables above are transactions with the Kingfisher Trust. The Bank has purchased securities issued by theKingfisher Trust as part of the securitisation detailed in Note 38. These are in exchange for the transfer of residential mortgages
to the Kingfisher Trust and forms part of the due from and due to subsidiary company balances. These assets, the associatedliabilities and items recognised in operating income are eliminated on consolidation as they are part of an in-house residential
mortgage-backed securities facility.

ANZ National Bank Limited

Notes to the Financial Statements
Residential mortgage-backed securities
Bank$ millions

As at
30/09/2010

As at
30/09/2009

6,641

5,838

6,531

5,687

110

151

-

-

Year to30/09/2010

Year to30/09/2009

266

379

Carrying amount of securitised assets
Due from subsidiary companies
Carrying amount of associated liabilities
Due to subsidiary companies
Other$ millions

Associated items recognised in operating income
Interest received
Fees received

18

17

Gains from hedging activity

123

110

Interest paid

(412)

(503)

(5)

3

28. Interest Earning and Discount Bearing Assets and Liabilities
Banking GroupBank

30/09/2010

30/09/2009

Interest earning and discount bearing assets

98,250100,935

104,575

105,557

Interest and discount bearing liabilities

86,95690,491

100,627

104,038$ millions

30/09/2010

30/09/2009

ANZ National Bank Limited
50 – 51

Notes to the Financial Statements
29. Current and Non-current Assets and Liabilities
Banking Group
30/09/2010$ millions

Bank
30/09/2010

30/09/2009

Current Non-current

30/09/2009

Current Non-current

Current Non-current

Current Non-current

AssetsLiquid assets

2,238

-

2,762

-

2,223

-

2,758

-

Due from other financial institutions

3,496

-

4,451

63

1,926

-

4,361

-

Trading securities

6,757

4,166

-

6,757

-

4,166

-

Derivative financial instruments

10,367-

11,408-

10,382-

11,449-Available-for-sale assets

1,941

269

1,435

78

1,915

125

1,433

78

Net loans and advances

25,16060,753

20,45067,80924,79458,72819,93066,022

Due from subsidiary companies

-

-

-

-

2,064

6,979

1,595

6,108

Investments relating toinsurance business

11

17

-

-

-

-

-

-

Insurance policy assets

-

138

-

-

-

-

-

-

Due from immediate parent company

6

-

-

-

6

-

-

-

Shares in controlled entities, associates

-

144

-

464

-

7,428

-

7,702

Current tax assets

25

-

65

-

73

-

168

-

Other assets

908

57

1,085

52

872

57

1,029

52

Deferred tax assets

325

(13)

-

-

261

32

-

-

-

311

-

278

-

83

-

63

Premises and equipment
Goodwill and other intangible assets
Total assets

-

3,548

-

3,325

-

3,292

-

3,274

51,23465,22445,822

72,06951,27376,72446,88983,299Liabilities
Due to other financial institutions

1,791

28

3,703

22

1,790

29

3,217

22

Deposits and other borrowings

68,314

1,981

68,9892,775

60,013

1,667

60,2662,569

Due to subsidiary companies

-

-

-

-

18,97718,481

19,587

17,206

Due to immediate parent company

-

-

930

-

-

-

930

-

Derivative financial instruments

10,715-

10,762-

10,715-

10,769-

Payables and other liabilities

1,646

54

1,726

83

1,614

54

1,764

83

-

-

134

(117)

-

-

183

(100)

228

87

197

86

130

87

190

85

3,628

15,133

4,205

11,712

832

1,325

541

975

-

2,407

811

1,785

-

2,412

811

1,785

86,322

19,69091,457

16,346

94,071

24,05598,25822,625

Deferred tax liabilities
Provisions
Bonds and notes
Loan capital
Total liabilities

Assets and liabilities are classified as current if:••••

it is expected they will be realised, consumed or settled in the normal operating cycle or within twelve months after the endof the reporting date; orthey are held primarily for trading; orthey are assets that are cash or a cash equivalent; orthey are liabilities where there is no unconditional right to defer settlement for at least twelve months.

Non-current assets include premises and equipment and intangible assets as well as financial assets of a long-term nature.
Non-current liabilities include financial and non-financial liabilities which are expected to be settled after twelve months frombalance date.
For the purposes of this disclosure, the fair value of both trading and hedging derivatives has been classified as current. For more
information on the contractual timing of expected outflows and inflows in relation to hedging derivatives refer to Note 32.

ANZ National Bank Limited

Notes to the Financial Statements
30. Ordinary Share Capital
Banking Group
Issued share capitalBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

1,700,755,498

700,755,498

1,700,755,498

700,755,498

Number of shares
Ordinary shares at beginning of the year
Ordinary shares issued during the year
Ordinary shares at end of the year-

1,000,000,000-

1,000,000,000

1,700,755,498

1,700,755,498

1,700,755,498

1,700,755,498

6,943

5,943

6,943

5,943

-

1,000

-

1,000

6,943

6,943

6,943

6,943

$ millions

Ordinary share capital at beginning of the year
Ordinary share capital issued during the year
Ordinary share capital at end of the year

The issued capital of the Bank comprises 1,700,755,498 ordinary shares, of which 650,712 shares are uncalled (30/09/2009
650,712 shares uncalled).
During the year ended 30 September 2010 the Bank paid an ordinary dividend of $600 million to the Immediate Parent
Company (equivalent to $0.35 per share). There were no changes to issued capital. (30/09/2009 the Bank paid an ordinary
dividend of $1 billion to the Immediate Parent Company (equivalent to $1.43 per share). On the same day the Bank issued 1
billion ordinary shares to the value of $1 billion).
All shares share equally in dividends and any proceeds available to ordinary shareholders on winding up of the Bank. On ashow of hands every member who is present at a meeting in person or by proxy or by representative is entitled to one vote,and upon a poll every member shall have one vote for each share held.

31. Capital Adequacy
Adoption of Basel II Accord
The Bank received accreditation from the RBNZ to adopt the internal ratings based approach under the Basel II Accord for
calculating capital adequacy ratios on 10 December 2007, effective from 31 March 2008. The objective of the Basel II Accord is
to develop capital adequacy guidelines that are more accurately aligned with the individual risk profiles of banks. Basel II
consists of three pillars: Pillar I covers the capital requirements for banks for credit, operational and market risks; Pillar II covers
all other material risks not already included in Pillar I; and Pillar III relates to market disclosure. These market disclosure
requirements are set out below.
Capital management policies
The Bank is subject to regulation by the RBNZ. The RBNZ specifies, in the Bank’s Conditions of Registration, minimum capitalrequirements that the Bank must comply with. The Bank’s Conditions of Registration require capital adequacy ratios for the
Banking Group to be calculated under the Basel II framework, in accordance with the RBNZ document entitled ‘Capital
Adequacy Framework (Internal Models Based Approach)’ (“BS2B”), dated October 2010.
The RBNZ defines total regulatory capital as tier one capital plus tier two capital less deductions from total capital. Tier one
capital consists of equity less prescribed deductions such as goodwill. Tier two capital consists of subordinated loan capitalless any prescribed deductions.
The Bank has an Internal Capital Adequacy Assessment Process (“ICAAP”) which complies with the requirements under the
Bank’s Conditions of Registration, set out in the RBNZ document entitled ‘Guidelines on a Bank’s Internal Capital Adequacy
Assessment Process (“ICAAP”)’ (“BS12”), dated December 2007. The Bank’s ICAAP incorporates: overall capital policies andobjectives; capital management policies and plans; allocation of capital to business units; and stress testing of both risk andcapital positions.
The Bank’s ICAAP policy outlines the core capital management principles that must be maintained to demonstrate that its
capital levels: consider all material risks; are consistent with its overall risk appetite and profile; take account of the current
operating environment and stage in the business cycle; and that forward-looking stress testing of capital requirements
is performed.
The Bank’s core capital objectives are to:•••Protect the interests of depositors, creditors and the shareholder;
Ensure the safety and soundness of the Bank’s capital position; andEnsure that the capital base supports the Bank’s risk appetite, and strategic business objectives, in an efficient andeffective manner.

ANZ National Bank Limited
52 – 53

Notes to the Financial Statements
The Board holds ultimate responsibility for ensuring that capital adequacy is maintained. This includes: setting, monitoringand obtaining assurance for the Bank’s ICAAP policy and framework; standardised risk definitions for all material risks;materiality thresholds; capital adequacy targets; internal economic risk capital principles; and risk appetite.
The Board has set capital minimum, trigger and operating range targets for both tier one and total capital that ensure sufficient
capital is maintained to:•••

Meet minimum prudential requirements, as defined in the Bank’s Conditions of Registration;
Ensure consistency with the Bank’s overall risk profile and financial positions, taking into account its strategic focus andbusiness plan; andSupport the economic risk capital requirements of the business.

The Bank aims to maintain capital consistent with a long-term Standard & Poor’s AA credit rating and equivalent ratings fromother rating agencies.
The Bank’s Asset & Liability Committee and its related Capital Management sub-committee are responsible for developing,
implementing and maintaining the Bank’s ICAAP framework, including ongoing monitoring, reporting and compliance. The
Bank’s ICAAP is subject to independent and periodic review conducted by internal audit.
The Bank has complied with all externally imposed capital requirements to which it is subject during the current andcomparative periods.
Capital ratios of the Banking Group under the Basel II internal models based approach (Unaudited)
Banking Group
30/09/2010

30/09/2009

Tier One Capital

9.68%

9.03%

RBNZ minimum Tier One Capital ratio

4.00%

4.00%

Total Capital

13.11%

12.67%

RBNZ minimum Total Capital ratio

8.00%

8.00%

Capital of the Banking Group as at 30 September 2010 (Unaudited)$mTier One Capital
Ordinary share capital

6,943

Revenue and similar reserves

2,675

Current year's profit after tax

827

Non-controlling interests

1

Less deductions from Tier One Capital
Goodwill
Software and other intangible assets

3,265
283

Future income tax benefits

87

Cash flow hedging reserve

102

50% of expected loss to the extent higher than total eligible allowances for impairment
Total Tier One Capital

49
6,660

Tier Two Capital – Upper Level
Perpetual subordinated debt

1,184

Tier Two Capital – Lower Level
Term subordinated debt

1,223

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

49

Total Tier Two Capital

2,358

Total Capital

9,018

ANZ National Bank Limited

Notes to the Financial Statements
Total required capital of the Banking Group as at 30 September 2010 (Unaudited)
Risk weighted
exposure or
implied risk
Exposure atweighted Total capitaldefault
exposure2 requirement$ millions

Exposures subject to internal ratings based approach
Specialised lending exposures subject to slotting approach
Exposures subject to standardised approach

119,767

49,522

3,963

6,647

6,429

515

444

375

31

Equity exposures

224

950

76

Other exposures

2,685

907

73

Total credit risk

129,767

58,183

4,658

Operational risk

n/a

5,178

414

Market risk

n/a

3,900

312

Supervisory adjustment

1

Total capital requirement

n/a

1,518

121

129,767

68,7795,505

The supervisory adjustment includes an adjustment of 15% of risk-weighted retail mortgages and an adjustment, if required, in order to maintain the Basel II
minimum capital requirement at no less than 90% of the Basel I minimum capital requirement, in accordance with the Bank’s Conditions of Registration.
No adjustment was required to maintain the Basel II minimum capital requirement at no less than 90% of the Basel I minimum capital requirement as at
30 September 2010.
2
Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.
1

Capital adequacy ratios under the Basel I approach (Unaudited)
Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

Tier One Capital

9.01%

8.43%

9.20%

8.34%

Total Capital

12.24%

11.82%

11.46%

11.66%

Total risk-weighted exposures ($million)

74,45576,46772,48774,66530/09/2009

RBNZ minimum ratios:Tier One Capital

4.00%

4.00%

4.00%

4.00%

Total Capital

8.00%

8.00%

8.00%

8.00%

Basel I capital adequacy in respect of the Banking Group and Bank has been derived in accordance with the RBNZ document
entitled Capital Adequacy Framework (Basel I Approach) (“BS2”), dated October 2010.

Implementation of the advanced internal ratings based approach to credit risk measurement
The Banking Group adheres to the standards of risk grading and risk quantification as set out for Internal Ratings Based (“IRB”)
banks in the RBNZ document BS2B.
Under this IRB Framework banks use their own measures for calculating the level of credit risk associated with customers andexposures, by way of the primary components of:
Probability of Default (“PD”) – an estimate of the level of risk of borrower default graded by way of rating models used bothat loan origination and for ongoing monitoring. For Retail Mortgage exposures the Banking Group is required to use the RBNZ
prescribed exposure weighted minimum PD of 1.25%;
Exposure at Default (“EAD”) – the expected facility exposure at default. Total credit risk-weighted exposures include a scalarof 1.06 in accordance with the Bank’s Conditions of Registration; andLoss Given Default (“LGD”) – an estimate of the potential economic loss on a credit exposure, incurred as a consequence ofobligor default and expressed as a percentage of the facility’s EAD. For Retail Mortgage exposures the Bank is required to apply
the downturn LGDs according to loan to value (“LVR”) bands as set out in BS2B. For Rural Banking exposures the Banking Groupis required to adopt RBNZ prescribed downturn LGDs which are more conservative than internal estimates.
For exposures classified under Specialised Lending, the Banking Group uses slotting tables supplied by the RBNZ rather thaninternal estimates.
The exceptions to IRB treatment are six minor portfolios where, due to systems constraints or other reasons, determining these
IRB risk estimates is not currently feasible or appropriate. Risk weights for these exposures are calculated under a separate
treatment as set out in the RBNZ document entitled ‘Capital Adequacy Framework (Standardised Approach)’ (“BS2A”), dated
October 2010.

ANZ National Bank Limited

Notes to the Financial Statements
Capital requirements by asset class under the IRB approach

Exposure atdefault$m

Exposureweighted
LGD used forthe capital
calculation%

Exposureweighted risk
weight%Risk weighted
exposure$m

Total capitalrequirement$m

35,28735,28736

66

24,644

1,972

7,948

7,948

5

1

70

6

Total
exposureor principal
amount$m

Corporate
Sovereign

Banking GroupAs at 30/09/2010 (Unaudited)On-balance sheet exposures

Bank

5,055

3,322

60

15

511

41

Retail mortgages

40,96340,963

20

22

9,613

769

Other retail

4,344

4,344

61

80

3,703

296

Total on-balance sheet exposures

93,59791,86428

40

38,541

3,084

12,010

10,209

48

47

5,114

409

Off-balance sheet exposures
Corporate
Sovereign

56

56

5

-

-

-

Bank

702

606

50

17

108

9

5,252

4,891

20

21

1,114

89

Retail mortgages
Other retail

4,568

4,599

75

50

2,434

195

Total off-balance sheet exposures

22,58820,361

47

41

8,770

702

Corporate

58,616

1,838

56

53

1,035

83

Sovereign

9,000

492

5

1

5

-

Market related contracts

Bank591,156

5,212

65

21

1,171

94

Total market related contracts

658,772

7,542

59

28

2,211

177

Total credit risk exposures subject to the
IRB approach

774,957

119,767

33

39

49,522

3,963

ANZ National Bank Limited
54 – 55

Notes to the Financial Statements
Classification of Banking Group exposures according to rating approach
Internal ratings based approach
IRB Asset Class

Borrower Type

Rating Approach

SovereignCrown

IRB - Advanced

RBNZ

IRB - Advanced

Any other sovereign and its central bank

IRB - Advanced

Bank

Registered banks

IRB - Advanced

Corporate

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

IRB - Advanced

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

IRB - Advanced

Retail Mortgages

Individuals' borrowings against residential property

IRB - Advanced

Other Retail

Other lending to individuals (including credit cards)

IRB - Advanced

SME Business borrowers

IRB - Advanced

Project Finance

IRB - Slotting

Income-Producing Real Estate

IRB - Slotting

Corporate sub-class –Specialised lending
EquityOther assets

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

IRB

Standardised approach
Exposure class

Exposure Type

Reason for Standardised Approach

Future Treatment

Residential mortgages

ANZ Retail residential investment loans

System constraints

Move to IRB

Corporate

Purchased receivables

Nature of productRemain Standardised

Merchant card prepayment exposures

System constraints

Move to IRB

Corporate credit cards

System constraints

Move to IRB

Bank, Corporate & Sovereign

Exposures held by ING

Nature of productMove to IRB

Other Retail

Personal Credit Cards

System constraints

Move to IRB

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

ANZ National Bank Limited
56 – 57

Notes to the Financial Statements
IRB exposures by customer credit rating

Banking GroupAs at 30/09/2010 (Unaudited)

Probability ofdefault%

Exposure atdefault$m

Exposureweighted
LGD used forthe capital
calculation%

Exposureweighted risk
weight%Risk weighted
exposure$m

Total capitalrequirement$m

Corporate
0-2

0.06%

5,464

61

23

1,316

105

3-4

0.35%

18,486

36

35

6,794

544
534

5

1.01%

10,554

36

60

6,681

6

2.29%

6,371

37

79

5,332

427

7-8

7.25%

5,073

40

116

6,236

499

Default

100.00%

1,386

45

302

4,434

355

4.38%

47,33440

61

30,793

2,464

0

0.01%

8,496

5

1

75

6

Total sovereign exposures

0.01%

8,496

5

1

75

6

Total corporate exposures
Sovereign

Bank
0

0.01%

5,324

65

18

1,002

81

1

0.02%

3,355

58

17

617

49

2-4

0.10%

426

59

32

146

12

5-6

1.03%

20

65

104

22

2

7-8

6.55%

1

65

283

3

-

Default

100.00%

14

65

-

-

-

0.17%

9,140

62

18

1,790

144

0-3

0.19%

17,596

19

7

1,383

111

4

0.44%

9,088

20

14

1,337

107

5

0.94%

12,421

21

25

3,261

260

Total bank exposures
Retail mortgages

6

2.33%

3,425

21

45

1,639

131

7-8

11.72%

2,503

23

103

2,732

219

Default

100.00%

821

29

43

375

30

3.02%

45,85420

22

10,727858

Total residential mortgages exposures
Other retail
0-2

0.10%

21

76

18

4

-

3-4

0.30%

4,330

73

36

1,671

135

5

1.12%

1,698

66

69

1,241

99

6

2.57%

1,589

60

81

1,362

109

7-8

11.23%

1,150

68

119

1,455

116

Default

100.00%

155

63

246

404

32

3.99%

8,943

69

65

6,137

491

Total other retail exposures

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

ANZ National Bank Limited

Notes to the Financial Statements
Specialised lending subject to the slotting approach
Exposureamount$m

Banking GroupAs at 30/09/2010 (Unaudited)

Risk Risk weighted
weightexposure%$m

Total capitalrequirement$mOn-balance sheet exposures
Strong

1,525

70

1,132

91

Good

2,870

90

2,738

219

Satisfactory

1,179

115

1,437

115

Weak

230

250

610

49

Default

331

-

-

-

6,135

91

5,917

474

Average risk Risk weighted
weightexposure%$m

Total capitalrequirement$m

Total on-balance sheet exposures
Exposureamount$m

Exposure atdefault
$m

458

406

96

411

Market related contracts

1,741

106

90

101

8

Total off-balance sheet exposures

2,199

512

94

512

41

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

33

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

Banking GroupAs at 30/09/2010 (Unaudited)

Risk Risk weighted
weightexposure%$m

Total capitalrequirement$mOn-balance sheet exposures
Corporates

171

100

182

15

Banks

9

20

2

-

Residential mortgages

83

39

34

3

Other retail

8

100

9

1

2

150

3

-

273

79

230

19

Average risk Risk weighted
weightexposure%$m

Total capitalrequirement$m

Default
Total on-balance sheet exposures

Exposureamount$m

Average credit
conversion
factor%Creditequivalentamount
$m

477

36

171

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

80

145

12

Risk Risk weighted
weightexposure%$m

Total capitalrequirement$m

Credit exposures subject to the Standardised Approach have been calculated in accordance with BS2A.
Equity Exposures
Banking GroupAs at 30/09/2010 (Unaudited)

All other equity holdings not deducted from capital

Equity exposures have been calculated in accordance with BS2B.

Exposureamount
$m

224

400

950

76

ANZ National Bank Limited
58 – 59

Notes to the Financial Statements
Other Exposures
Exposureamount$m

Banking GroupAs at 30/09/2010 (Unaudited)

Cash and gold bullion
New Zealand dollar denominated claims on the Crown and the RBNZ
Other assets
Total other IRB credit risk exposures

Risk Risk weighted
weightexposure%$m

Total capitalrequirement
$m

159

-

-

1,670

-

-

-

856

100

907

73

2,685

32

907

73

Other exposures have been calculated in accordance with BS2B.
A risk weight of 100% applies to premises and equipment and all other exposures not otherwise defined in BS2B, except for
cash, gold, New Zealand dollar denominated claims on the Crown and the RBNZ, which receive a 0% risk weight.
Operational risk
As at 30 September 2010 the Banking Group had an implied risk weighted exposure of $5,178 million for operational risk andan operational risk capital requirement of $414 million. The Banking Group uses the Advanced Measurement Approach for
determining its regulatory capital requirement for operational risk calculated in accordance with BS2B.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems or from external
events. Operational risk incorporates legal risk which includes, but is not limited to, exposures to fines, penalties, or punitive
damages resulting from regulatory actions, as well as private settlements.
Operational risk capital is modelled at a New Zealand divisional level and then distributed and adjusted for the businessenvironment and internal controls down to the business units using the Risk Scenario Methodology. The Risk Scenario
Methodology is a risk based methodology that ensures that there is sufficient operational risk capital held as a buffer for rare
and severe unexpected operational loss events that may impact the New Zealand business. The Methodology applies a
combination of expert judgement, business unit risk profiles, audit findings, and internal and external loss events to derive aseries of business specific Risk Scenarios that are applied to the capital model. The Risk Scenario approach:•••assesses the level of the Bank’s exposure to specified risk scenarios;
assesses the scope and quality of the Bank’s internal control environment, key operational processes and risk mitigants; anddirectly links the risk scenarios to operational risk capital.

The Banking Group’s operating risk capital is calculated using the Ultimate Parent Bank’s methodology, but with standalone
New Zealand inputs to ensure there are no diversification benefits.
The Banking Group does not incorporate any insurance mitigation impact into its capital number. Accordingly, there are no
insurance related questions contained within the Risk Scenario Methodology.
Market risk
The aggregate market risk exposures below have been calculated in accordance with BS2B.
The peak end-of-day market risk exposures for the quarter are measured over 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.
Implied risk weighted
exposure
Banking Group (Unaudited)
As at 30/09/2010

Aggregate capitalcharge as apercentage of the
Banking Group's
EquityAggregate capitalcharge

As at
$m

Peak
$m

As at
$m

Peak
$m

As at
%

Peak
%

3,797

3,797

304

304

2.9%

2.9%

25

101

2

8

0.0%

0.1%

78

81

6

6

0.1%

0.1%

30/09/2010
Interest rate risk
Foreign currency risk
Equity risk

3,900

312

30/09/2009
3,824

3,824

306

306

3.0%

3.0%

Foreign currency risk

Interest rate risk

5

301

-

24

0.0%

0.2%

Equity risk

69

82

6

7

0.1%

0.1%

3,898

312

ANZ National Bank Limited

Notes to the Financial Statements
Credit risk mitigation
The Banking Group assesses the integrity and ability of counterparties to meet their contractual financial obligations for
repayment. The Banking Group generally takes collateral security in the form of real property or a security interest in personal
property, except for major government, bank and corporate counterparties of strong financial standing. Longer term consumer
finance, in the form of housing loans, is generally secured against real estate while short term revolving consumer credit isgenerally unsecured.
Netting is defined as the set-off of two or more cash flows, assets or liabilities. The types of netting used by the Banking Groupare payment or settlement, close-out, bilateral or multilateral. The Banking Group establishes its netting rights through various
means including legally binding set-off agreements, collateral agreements, facility agreements, security agreements and theterms and conditions of trading (including International Swaps and Derivatives Association (“ISDA”) Master Agreements when
considered appropriate). Where documented rights to net have been established, a net limit may be used for exposure
assessment and monitoring.
Guarantees used for credit risk mitigation may be provided by bank, sovereign, corporate or individual counterparties.
Guarantors are separately rated, and their capacity to honour their commitments under the guarantee is also assessed. The
obligor is also separately rated on a stand-alone basis, and then the rating of the obligor is adjusted to take into account thestrength of the guarantor. The size of the adjustment reflects the Banking Group’s assessment of the strength of the guarantor,
but is capped at the guarantor’s rating so there is no recognition of “double default”. Guaranteed exposures are subject toBanking Group policy covering market and credit risk concentrations.
As at 30 September 2010, under the IRB approach, the Banking Group had $1,234 million of Corporate exposures covered byguarantees and $nil of Corporate exposures covered by credit derivatives, where the presence of the guarantees or credit
derivatives was judged to reduce the underlying credit risk of the exposures. Information on the total value of exposurescovered by financial guarantees and eligible financial collateral is not disclosed, as the effect of these guarantees and collateralon the underlying credit risk exposures is not considered to be material.
Retail mortgages by loan-to-valuation ratio (“LVR”)
As required by the RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided by the Bank’svaluation of the security property at origination of the exposure. The exposure amount used to calculate LVR excludes
commitments to lend.
Banking GroupAs at 30/09/2010 (Unaudited)

Exposure amount$m

LVR range
21,4530% - 59%
60% - 69%6,872

70% - 79%

8,482

80% - 89%

3,942

Over 90%

3,954

Total retail mortgage exposures subject to the internal ratings based approach

44,703

Pillar II capital for other material risks
The Banking Group has an Internal Capital Adequacy Assessment Process (“ICAAP”) which complies with the requirements of
the Bank’s Conditions of Registration.
Under the Banking Group’s ICAAP it identifies and measures all “other material risks”, which are those material risks that are notexplicitly captured in the calculation of the Banking Group’s tier one and total capital ratios. The other material risks identified
by the Banking Group include premises and equipment risk and capitalised origination fees risk.
The Banking Group’s internal capital allocation for these other material risks is $120 million (30/09/2009: $148 million)
Capital adequacy of the Ultimate Parent Bank under the Basel II approach
Overseas Banking Group

Ultimate Parent Bank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

Tier One Capital

10.1%

10.6%

11.0%

11.6%

Total Capital

11.9%

13.7%

12.3%

14.2%

ANZ National Bank Limited

Notes to the Financial Statements
The credit risk review function within Internal Audit also provides a further independent check mechanism to ensure thequality of credit decisions. This includes providing independent periodic checks on asset quality and compliance with theagreed standards and policies across the 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 offunds from one country to another or involve transactions in a currency other than the domestic currency of the relevant
country.
Country ratings are assigned to each country where the Banking Group incurs country risk and have a direct bearing on the
Banking Group’s risk appetite for each country. The country rating is determined through a defined methodology basedaround external ratings agencies’ ratings and internal specialist opinion. It is also a key risk consideration in the Banking Group’s
capital pricing model for cross border flows.
The recording of country limits provides the Banking Group with a means to identify and control country risk. Country limits
ensure that there is a country-by-country ceiling on exposures that involve country risk. They are recorded by time to maturity
and purpose of exposure, e.g. trade, markets, project finance. Country limits are managed centrally by the Ultimate Parent
Bank, through a global country risk exposure management system managed by a specialist unit within Institutional Risk.
Portfolio stress testing
Stress testing is integral to strengthening the predictive approach to Risk Management and is a key component to managing
risk appetite and business writing strategies. It creates greater understanding of impacts on financial performance throughmodelling relationships and sensitivities between geographic, industry and business unit exposures under a range of macro
economic scenarios.
The Ultimate Parent Bank has a dedicated stress testing team that assists business and risk executives in the Banking Group tomodel and report periodically to management and the Board Risk Committee 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 is quickly detected andmitigated 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 a series of reports including
monthly ‘asset quality’ reporting. This process is undertaken by or overseen by Banking Group Risk Management ensuring anefficient and independent conduit exists to quickly identify and communicate emerging credit issues to Banking Group
executives and the Board.
Collateral management
Banking Group credit principles specify to lend only what the counterparty has the capacity and ability to repay and the
Banking Group sets limits on the acceptable level of credit risk. Acceptance of credit risk is firstly based on the counterparty’s
assessed capacity to meet contractual obligations (i.e. interest and capital repayments). Obtaining collateral is only used tomitigate credit risk. Procedures are designed to ensure collateral is managed, legally enforceable, conservatively valued andadequately insured where appropriate. Banking Group policy sets 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; andFinancial guarantees.

In the event of customer default, any loan security is usually held as mortgagee in possession while action is taken to realise it.
Therefore the Banking Group does not usually hold any real estate or other assets acquired through the enforcement of
security.
The Banking Group uses ISDA Master Agreements to document derivatives’ activities to limit exposure to credit losses. The
credit risk is reduced by a master agreement to the extent that, if an event of default occurs, all contracts with the counterparty
are terminated and settled on a net basis. Further, it is the Banking Group’s preferred practice to include all products coveredby the ISDA in the Credit Support Annex (“CSA”), in order to achieve further credit exposure reduction. Under a CSA, collateralis 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.

ANZ National Bank Limited
62 – 63

Notes to the Financial Statements
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.
The Banking Group monitors its portfolios to identify and assess risk concentrations. Concentration limits are used to guard
against large single customer or correlated credit risks. Risk Management, Business Unit Executives and Senior Managementmonitor large exposure concentrations through a monthly list of the Banking Group’s 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 and customers’ adherence to these limits.
Analyses of financial assets by industry sector are based on Australian and New Zealand Standard Industrial Classification(“ANZSIC”) codes.
Concentrations of credit risk analysis
Banking Group
Liquidassets anddue fromotherfinancial
institutions$ millions
30/09/2010

Tradingsecurities
andavailablefor-saleassetsDerivative
financial Net loans andinstruments
advancesOtherfinancialassetsCredit related
commitments3

Total

Industry
Agriculture, forestry, fishing

48

1

127

19,012

192

1,503

20,883Business & property services

32

1

80

8,354

84

1,944

10,495Construction

-

-

2

999

10

823

1,834

Entertainment, leisure and tourism

-

-

39

1,099

11

500

1,649

3,755

3,132

9,102

1,793

18

1,236

19,036

Finance and insurance

1,677

5,582

317

1,425

14

805

9,820

Manufacturing

55

20

123

3,093

31

3,264

6,586

Personal lending

-

-

1

45,535461

8,796

54,793Government and local authority

1

105

2

70

1,438

15

958

2,588

Transport and storage

6

21

150

1,791

18

576

2,562

Wholesale trade

56

-

19

1,218

12

1,296

2,601

-

208

337

1,554

16

1,822

3,937

5,734

8,967

10,36787,311

882

23,523

136,784

Provisions for credit impairment

-

-

-

(1,398)--(1,398)Fair value hedge adjustment

-

-

-

279

-

-

279

Unearned finance income
and deferred fees

-

-

-

(279)

-

-

(279)

5,734

8,967

10,36785,913882

23,523

135,386

Retail trade

Other

Total financial assets
Geography
New Zealand

3,130

6,676

3,145

84,325882

23,523

121,681Overseas

2,604

2,291

7,222

1,588

-

-

13,705

Total financial assets

5,734

8,967

10,36785,913882

23,523

135,386

ANZ National Bank Limited

Notes to the Financial Statements
Banking Group
Liquidassets anddue fromotherfinancial
institutions

Tradingsecurities
andavailablefor-saleassetsAgriculture, forestry, fishing

48

-

261

Business and property services

5-

Construction--

Entertainment, leisure and tourism-$ millions
30/09/2009

Derivative
financial Net loans andinstruments
advancesOtherfinancialassetsCredit related
commitments3

Total

20,360228

1,555

22,452

49

9,104

102

2,361

11,621

3

871

10

853

1,737

48

28

1,015

11

487

1,589

Industry

Finance and insurance

4,606

4,191

10,457

1,312

15

1,371

21,952Government and local authority1

2,412

1,392

175

1,432

16

802

6,229

83

1

96

2,807

31

3,835

6,853

Personal lending

-

-

1

45,956516

10,46156,934Retail trade

91

-

74

1,607

18

1,206

2,996
2,400

Manufacturing

Transport and storage

6

8

80

1,602

18

686

Wholesale trade

19

-

6

1,713

19

1,036

2,793

Other2

6

39

178

1,387

15

1,341

2,966

7,276

5,679

11,40889,166

999

25,994

140,522

Provisions for credit impairment

-

-

-

(1,272)--(1,272)

Fair value hedge adjustment

-

-

-

615

-

-

615

Unearned finance income
and deferred fees

-

-

-

(250)

-

-

(250)

7,276

5,679

11,40888,259999

25,994

139,615

New Zealand

6,213

3,272

2,951

86,784

999

25,994

126,213

Overseas

1,063

2,407

8,457

1,475

-

-

13,402

Total financial assets

7,276

5,679

11,40888,259999

25,994

139,615

Total financial assets
Geography

ANZ National Bank Limited
64 – 65

Notes to the Financial Statements
Bank
Liquidassets anddue fromotherfinancial
institutions

Tradingsecurities
andavailablefor-saleassetsDerivative
financial
instruments

Net loansandadvances

Due from
subsidiarycompanies

Other
financialassetsCredit related
commitments3

Total

Agriculture, forestry, fishing

48

-

127

18,579

-

180

1,487

20,421Business andproperty services$ millions
30/09/2010

Industry

32

-

80

8,179

-

79

1,927

10,297

Construction

-

-

2

779

-

8

791

1,580

Entertainment, leisureand tourism

-

-

39

1,052

-

10

498

1,599

Finance and insurance

2,170

2,993

9,118

1,780

9,043

17

1,636

26,758Government andlocal authority1

1,677

5,555

317

1,183

-

11

805

9,548

Manufacturing

55

20

123

2,900

-

28

3,242

6,368

Personal lending

-

-

1

44,981

-

436

8,793

54,210

105

2

70

1,272

-

12

895

2,356

Transport and storage

6

21

150

1,326

-

13

535

2,050

Wholesale trade

56

-

19

1,164

-

11

1,278

2,529

Retail trade

Other

2

-

206

337

1,388

-

13

1,813

3,757

4,149

8,797

10,382

84,5839,043

819

23,700141,473

Provisions for
credit impairment

-

-

-

(1,339)---(1,339)Fair value hedge adjustment

-

-

-

279

-

-

-

279

Unearned finance income
and deferred fees

-

-

-

(1)

-

-

-

(1)

4,149

8,797

10,382

83,522

9,043

819

23,700140,412New Zealand

2,981

6,631

3,160

81,9349,043

819

23,700128,268

Overseas

1,168

2,166

7,222

1,588

-

-

-

12,144

Total financial assets

4,149

8,797

10,382

83,522

9,043

819

23,700140,412

Total financial assets
Geography

ANZ National Bank Limited

Notes to the Financial Statements
Bank
Liquidassets anddue fromotherfinancial
institutions

Tradingsecurities
andavailablefor-saleassetsDerivative
financial
instruments

Net loansandadvances

Due from
subsidiarycompanies

Other
financialassetsCredit related
commitments3

Total

Agriculture, forestry, fishing

48

-

261

19,992

-

219

1,499

22,019Business and property
services

5

-

49

8,930

-

98

2,287

11,369Construction

-

-

3

642

-

7

806

1,458

Entertainment, leisureand tourism

-

48

28

971

-

11

469

1,527

Finance and insurance

4,449

4,189

10,498

1,166

7,703

13

1,336

29,354Government andlocal authority1

2,412

1,392

175

1,238

-

14

780

6,011

$ millions
30/09/2009

Industry

Manufacturing

83

1

96

2,599

-

29

4,561

7,369

Personal lending

-

-

1

45,609-501

10,461

56,572Retail trade

91

-

74

1,457

-

16

1,073

2,711

Transport and storage

6

8

80

1,194

-

13

632

1,933

Wholesale trade

19

-

6

1,644

-

18

993

2,680

Other2

6

39

178

1,091

-

12

1,302

2,628

7,119

5,677

11,44986,533

7,703

951

26,199145,631

Provisions for
credit impairment

-

-

-

(1,212)---(1,212)

Fair value hedge adjustment

-

-

-

615

-

-

-

615

Unearned finance income
and deferred fees
Total financial assets

-

-

-

16

-

-

-

16

7,119

5,677

11,44985,952

7,703

951

26,199145,050

Geography
New Zealand

6,056

3,270

2,992

84,477

7,703

951

26,199131,648

Overseas

1,063

2,407

8,457

1,475

-

-

-

13,402

Total financial assets

7,119

5,677

11,44985,952

7,703

951

26,199145,050Government 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.
3
Credit related commitments comprise undrawn facilities, customer contingent liabilities and letters of offer.
1
2

Maximum exposure to credit risk
For 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 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 thecommitted 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 collateral meets the offsetting criteria
in NZ IAS 32 Financial Instruments: Presentation and after deductions such as provisions for credit impairment. The exposure isclassified into summarised Basel II asset classes.

ANZ National Bank Limited
66 – 67

Notes to the Financial Statements
Banking GroupBank

Retailmortgages

Other retail
exposures

Corporate
exposures1

Total
maximum
exposure tocredit risk

Liquid assets

-

-

2,238

2,238

-

-

Due from otherfinancial institutions

-

-

3,496

3,496

-

-

1,926

1,926

Trading securities

-

-

6,757

6,757

-

-

6,757

6,757

Derivative financial
instruments--

10,367

10,367--

10,382

10,382Available-for-sale assets

-

-

2,210

2,210

-

-

2,040

2,040

Net loans and advances

40,878

4,087

40,94885,91340,881

3,399

39,242

83,522

Due from subsidiarycompanies

-

-

-

-

-

-

9,043

9,043

Other financial assets

-

-

882

882

-

-

819

819

$ millions
30/09/2010

Retailmortgages

Other retail
exposures

Corporate
exposures1

Total
maximum
exposure tocredit risk

2,223

2,223

On and off-balance
sheet positions

Credit related commitments

5,261

4,575

13,687

23,523

5,261

4,573

13,866

23,700Total exposure to credit risk

46,1398,662

80,585

135,386

46,142

7,972

86,298140,412Liquid assets

-

-

2,762

2,762

-

-

2,758

2,758

Due from otherfinancial institutions

-

-

4,514

4,514

-

-

4,361

4,361

Trading securities

-

-

4,166

4,166

-

-

4,166

4,166

Derivative financial
instruments--

11,408

11,408--

11,44911,44930/09/2009
On and off-balance
sheet positions

1

Available-for-sale assets

-

-

1,513

1,513

-

-

1,511

1,511

Net loans and advances

42,141

4,006

42,112

88,25942,152

3,374

40,42685,952

Due from subsidiarycompanies

-

-

-

-

-

-

7,703

7,703

Other financial assets

-

-

999

999

-

-

951

951

Credit related commitments

5,692

4,769

15,53325,994

5,692

4,769

15,73826,199Total exposure to credit risk

47,833

8,775

82,998

139,615

47,8448,143

89,063145,050

Includes corporates, sovereigns and banks.

ANZ National Bank Limited

Notes to the Financial Statements
Credit quality
A core component of the Banking Group’s credit risk management capability is the risk grading framework used across all
major Business Units. A set of risk grading principles and policies is supported by a complementary risk grading methodology.
Pronouncements by the International Basel Committee on Banking Supervision have been encapsulated in these principles
and policies including governance, validation and modelling requirements.
The Banking Group’s risk grade profile changes 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 andbehavioural reviews in consumer and small business segments, and individual counterparty reviews in segments with larger
single name borrowers.
Impairment and provisioning of financial assets
The Banking Group’s policy relating to the recognition and measurement of impaired assets conforms to the RBNZ’s guidelines.
Loans are classified as either performing or impaired. Impaired assets are credit exposures where: there is doubt as to whether
the full contractual amount (including interest) will be received; a material credit obligation is 90 days past due but not wellsecured; they are portfolio managed and can be held for up to 180 days past due; concessional terms have been provided dueto the financial difficulties of the customer.
An exposure is classified as past due but not impaired (less than 90 days) where the value of collateral is sufficient to repay boththe principal debt and all other potential interest and there is no concern as to the creditworthiness 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 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 atbalance 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 grossloans and advances by summarised Basel II asset class into exposures neither past due nor impaired, past due but not impaired
and impaired.
Distribution of gross loans and advances by credit quality
Banking Group$ millions

Bank
Total

Retailmortgages

Other retail
exposures

Corporate
exposures1

Total

39,49482,72739,266

3,247

37,69680,209

1,025

2,288

1,002

217

957

2,176

Retailmortgages

Other retail
exposures

Corporate
exposures1

39,266

3,967

1,002

261

30/09/2010
Neither past due
nor impaired
Past due but not impaired:
1 to 89 days

132

33

127

292

132

26

122

280

520

81

1,403

2,004

520

73

1,325

1,918

40,9204,342

42,04987,31140,9203,563

40,10084,58339,9483,822

41,59385,36339,948

3,166

39,77082,884

1 to 89 days

1,213

315

662

2,190

1,213

266

635

2,114

over 90 days

265

59

111

435

265

51

100

416

over 90 days
Impaired
30/09/2009
Neither past due
nor impaired
Past due but not impaired:Impaired

1

379

59

740

1,178

377

53

689

1,119

41,805

4,255

43,106

89,16641,803

3,536

41,19486,533

Includes corporates, sovereigns and banks.

ANZ National Bank Limited
68 – 69

Notes to the Financial Statements
Credit quality of gross loans and advances neither past due nor impaired
The credit quality of financial assets is assessed by the Banking Group using internal ratings which aim to reflect the relative
ability of counterparties to fulfil, on time, their credit-related obligations, and is based on their current probability of default.
Internal ratings
Strong risk rating – Corporate customers demonstrating superior stability in their operating and financial performance overthe long-term, and whose debt servicing capacity is not significantly vulnerable to foreseeable events. Retail customers withlow expected loss. This rating band broadly corresponds to ratings “Aaa” to “Ba1” and “AAA” to “BB+” of Moody’s InvestorsService and Standard & Poor’s respectively.
Satisfactory risk rating – Corporate customers consistently demonstrating sound operational and financial stability over the
medium to long term, even though some may be susceptible to cyclical trends or variability in earnings. Retail customers withmoderate expected loss. This rating band broadly corresponds to ratings “Ba2” to “Ba3” and “BB” to “BB-” of Moody’s InvestorsService and Standard & Poor’s respectively.
Substandard but not past due or impaired – Corporate customers demonstrating some operational and financial instability,with variability and uncertainty in profitability and liquidity projected to continue over the short and possibly medium term.
Retail customers with higher 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.
The rating bands presented below differ from the Capital Adequacy note credit risk exposures subject to the internal ratings
based approach disclosures as RBNZ credit risk estimates are not used for these internal ratings. The exposures recorded inthese rating bands in the table below also differ from the Capital Adequacy note tables as off-balance sheet exposures are
excluded. Movements in the rating categories between balance dates are due to both changes in the underlying internalratings 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:
Credit quality of gross loans and advances neither past due nor impaired
Banking GroupBank

Retailmortgages1

Other retail
exposures

Corporate
exposures2

Total

Retailmortgages1

Other retail
exposures

Corporate
exposures2

Total

Strong risk rating

29,787976

16,60047,36329,787976

15,66946,432

Satisfactory risk rating

7,835

2,349

18,30028,484

7,835

1,646

17,52527,006$ millions

30/09/2010

Substandard but notpast due or impaired

1,644

642

4,594

6,880

1,644

625

4,502

6,771

39,266

3,967

39,49482,72739,266

3,247

37,69680,20930/09/2009
Strong risk rating

36,726

1,459

18,09356,27836,726

1,382

17,16955,277

Satisfactory risk rating

2,646

2,010

19,07823,734

2,646

1,446

18,34622,438Substandard but notpast due or impaired

576

353

4,422

5,351

576

338

4,255

5,169

39,9483,822

41,59385,36339,948

3,166

39,77082,884Since September 2009, the Banking Group has agreed new mortgage pooling methodologies with RBNZ and has 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.
2
Includes corporates, sovereigns and banks.
1

Credit quality of financial assets that are past due but not impaired
Ageing analysis of past due loans is used by the Banking Group to measure and manage 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 andpersonal loans);
Held on a productive basis until they are 180 days past due; andManaged on an individual basis.

A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the fair value of
associated security is sufficient to ensure that the Banking Group will recover the entire amount owing over the life of the
facility and there is reasonable assurance that collection efforts will result in payment of the amounts due in a timely manner.

ANZ National Bank Limited

Notes to the Financial Statements
Ageing analysis of loans that are past due but not impaired
Banking Group

Bank
Total

Retailmortgages

Other retail
exposures

Corporate
exposures1

Total

881

224

92

525

841

Retailmortgages

Other retail
exposures

Corporate
exposures1

224

92

565

6 to 29 days

512

113

235

860

512

83

216

811

30 to 59 days

209

38

159

406

209

28

150

387

60 to 89 days

57

18

66

141

57

14

66

137

$ millions

30/09/2010
1 to 5 days

90 days or over

132

33

127

292

132

26

122

280

1,134

294

1,152

2,580

1,134

243

1,079

2,456

30/09/2009

1

1 to 5 days

270

104

397

771

270

104

397

771

6 to 29 days

586

136

122

844

586

104

106

796

30 to 59 days

237

49

71

357

237

38

64

339

60 to 89 days

120

26

72

218

120

20

68

208

90 days or over

265

59

111

435

265

51

100

416

1,478

374

773

2,625

1,478

317

735

2,530

Includes corporates, sovereigns and banks.

Credit quality of financial assets that are individually impaired
The Banking Group regularly reviews its portfolio and monitors adherence to contractual terms. When doubt arises as to thecollectability 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:Banking Group$ millions

Bank

Retailmortgages

Other retail
exposures

Corporate
exposures1

Total

Retailmortgages

Other retail
exposures

Corporate
exposures1

Total

520

81

1,403

2,004

520

73

1,325

1,918

30/09/2010
Impaired financial assets
Undrawn facilities with
impaired customers

-

-

32

32

-

-

32

32

Individual provision balance

207

51

347

605

207

29

339

575

Net impaired financial assets

313

30

1,088

1,431

313

44

1,018

1,375

Collective provision balance

111

149

533

793

111

135

518

764

379

59

740

1,178

377

53

689

1,119

30/09/2009
Impaired financial assets
Undrawn facilities with
impaired customers

1

-

-

32

32

-

-

32

32

Individual provision balance

153

40

281

474

153

23

274

450

Net impaired financial assets

226

19

491

736

224

30

447

701

Collective provision balance

121

159

518

798

121

140

501

762

Includes corporates, sovereigns and banks.

ANZ National Bank Limited
70 – 71

Notes to the Financial Statements
Estimated value of collateral related to financial assets that are individually impaired
For the purposes of this disclosure, where security held is valued at more than the corresponding credit exposure, coverage iscapped at the value of the credit exposure.
Banking Group$ millions

Net
Loans andadvances1

Credit related
commitments2

Bank

Total

Net
Loans andadvances1

Credit related
commitments2

Total

30/09/2010
Real estate

945

-

945

971

-

971

Other

462

24

486

384

24

408

Total value of collateral

1,407

24

1,431

1,355

24

1,379

Credit exposure

2,004

32

2,036

1,918

32

1,950

597

8

605

563

8

571

488

-

488

488

-

488

Other

216

32

248

181

32

213

Total value of collateral

704

32

736

669

32

701

Credit exposure

1,178

32

1,210

1,119

32

1,151

Unsecured portion of credit

474

-

474

450

-

450

Unsecured portion of credit
30/09/2009
Real estate1
2

All individually impaired financial assets are classified as loans and advances.
Credit related commitments comprise undrawn facilities, customer contingent liabilities and letters of offer.

Market risk
Market risk is the risk to the Banking Group’s earnings arising from changes in interest rates, currency exchange rates, credit
spreads, or from fluctuations in bond, commodity or equity prices. Market risk arises when changes in market rates, prices andvolatilities lead to a decline in the value of assets and liabilities, including financial derivatives. Market risk is generated throughboth trading activities and the interest rate risk inherent in the banking book.
The Banking Group conducts trading operations in interest rates, foreign exchange, commodities and debt securities. Trading
operations largely focus on supporting customer hedging and investing activities, rather than outright proprietary trading.
Consequently, the Board has set a medium market risk appetite for the Markets business which is reflected in the low/moderatemarket risk limit framework.
The Banking Group has a detailed risk management and control framework to support its trading and balance sheet activities.
The framework incorporates a risk measurement approach to quantify the magnitude of market risk within trading and balance
sheet portfolios. This approach and related analysis identifies the range of possible outcomes that can be expected over agiven period of time, establishes the relative likelihood of those outcomes and allocates an appropriate amount of capital tosupport these activities.
The market risk management and policy control framework applicable to the entities comprising the Banking Group has been
set by the Board and Risk Committee of the Bank or the Ultimate Parent Bank, as appropriate. Likewise oversight and monitoringof material market risk exposures of the Banking Group is undertaken by the Market Risk functions of the Bank and also the
Ultimate Parent Bank. Throughout this document, references to the risk management of the operations within the entities
comprising the Banking Group, implicitly involves oversight by both related entities.
Market risk management and control responsibilities
Banking Group-wide responsibility for the strategies and policies relating to the management of market risk lies with each
Board Risk Committee. Responsibility for day to day management of both market risks and compliance with market risk policy
is delegated by the Risk Committee to the ANZ Credit and Market Risk Committee (“CMRC”) and the Bank’s 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 and Risk Management,with the delegation of market risk limits from each Board and CMRC allocated to both Risk Management and theBusiness Units.

ANZ National Bank Limited

Notes to the Financial Statements
The management of market risk is supported by a comprehensive limit and policy framework to control the amount of risk thatthe Banking Group will accept. Market risk limits are allocated at various levels and are reported 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 profit and loss limits (to monitor and manage the performanceof the trading portfolios).
These risks are monitored daily against a comprehensive limit framework that includes VaR, aggregate market position andsensitivity, product and geographic thresholds. To facilitate the management, control, measurements and reporting of market
risk, the Banking Group has grouped market risk into two broad categories:
a. Traded market riskThis is the risk of loss from changes in the value of financial instruments due to movements in price factors for both physicaland derivative trading positions. They arise in trading transactions where the Banking Group acts as principal with clients orwith the market. The principal risk categories monitored are:•••

Currency risk is the potential loss arising from the decline in the value of a financial instrument due to changes in foreignexchange rates or their implied volatilities.
Interest rate risk is the potential loss arising from the change in the value of a financial instrument due to changes in market
interest rates or their implied volatilities.
Credit spread risk is the potential loss arising from a change in value of an instrument due to a movement of its margin or
spread relative to a bench mark.

b. Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest rate risk, liquidity, and the risk to capital and earnings as a result of
foreign exchange rate movements.
Some instruments do not fall into either category but also expose the Banking Group to market risk. These include equity
securities classified as available-for-sale. Regular reviews are performed to substantiate valuation of the investments within
this portfolio.
The traded market risk function provides specific oversight of each of the main trading areas and is responsible for theestablishment of a Value at Risk (“VaR”) framework and detailed control limits. In all trading areas the Banking Group has
implemented models that calculate VaR exposures, monitor risk exposures against defined limits on a daily basis, and ‘stresstest’ trading portfolios. The Banking Group has an ALCO, comprising executive management to provide monthly oversight ofmarket risk.
The Bank’s Chief Risk Officer is responsible for daily review and oversight of traded market risk reports. The Chief Risk Officer
has the authority for instructing the business to close exposures and withdraw limits where appropriate.
Value at Risk (“VaR”) measure
A key measure of market risk is Value at Risk. VaR is a statistical estimate of the likely daily loss and is based on historical market
movements.
The confidence level is such that there is 97.5% or 99% probability that the loss will not exceed the VaR estimate on any givenday. 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 of potential outcomes.
The Banking Group’s standard VaR approach for both traded and non-traded risk is historical simulation. The Banking Groupcalculates VaR using historical changes in market rates and prices over the previous 500 business days. Traded and Non-TradedVaR 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 thatthe Banking Group could experience from an extreme market event. As a result of this limitation, the Banking Group utilises anumber of other risk measures (e.g. stress testing) and associated detailed control limits to measure and manage market risk.
Traded and non-traded market risks are considered separately.

ANZ National Bank Limited
72 – 73

Notes to the Financial Statements
Traded market risks
Trading activities are focused on customer trading, distribution and underwriting of a range of securities and derivative
instruments. The principal activities include foreign exchange, interest rate, and debt markets. These activities are managed
on a global product basis.
Below are aggregate VaR exposures covering both derivative and non-derivative trading positions for the Banking Group.
Banking Group

Banking Group

Value at risk at 97.5% confidence$ millions

As atValue at risk at 99% confidenceHighfor yearLow
for year

Averagefor year

As at

High
for yearLow
for year

Averagefor year

30/09/2010
Foreign exchange risk

0.5

1.3

0.2

0.5

0.7

1.9

0.3

0.8

Interest rate risk

2.8

5.0

1.5

2.9

4.1

6.6

2.0

4.1

Credit spread risk

0.6

1.2

0.3

0.6

0.8

2.7

0.4

0.8

Diversification benefit

(1.1)

n/a

n/a

(1.1)

(1.5)

n/a

n/a

(1.5)

Total VaR

2.8

5.2

1.5

2.9

4.1

7.2

2.1

4.2

Foreign exchange risk

0.4

1.4

0.2

0.5

0.6

1.9

0.3

0.7

30/09/2009
Interest rate risk

2.6

3.0

1.1

2.0

3.5

4.9

1.7

3.0

Credit spread risk

0.4

0.5

0.2

0.3

0.6

0.8

0.2

0.5

Diversification benefit

(0.8)

n/a

n/a

(0.8)

(1.2)

n/a

n/a

(1.2)

Total VaR

2.6

3.4

1.1

2.0

3.5

4.6

1.7

3.0

VaR is calculated separately for foreign exchange and for interest rate/debt markets businesses as well as for the Banking
Group. The diversification benefit reflects the historical correlation between Foreign Exchange, Interest Rate and Debt Markets.
To supplement the VaR methodology, the Banking Group applies a wide range of stress tests, both on individual portfolios andat the Banking Group level. The Banking Group’s stress-testing regime provides senior management with an assessment of thefinancial impact of identified extreme events on market risk exposures of the Banking Group.
Non-traded market risks (balance sheet risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptablelevels of interest rate and liquidity risk and to manage the market value of the Banking Group’s capital. Liquidity risk is dealt
with in the next section.
Interest rate risk
The objective of balance sheet interest rate risk management is to mitigate the negative impact of movements in wholesaleinterest rates on the earnings of the Banking Group’s banking book. Non-traded interest rate risk 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 noninterest bearing liabilities in interest bearing assets.
As part of normal business activity the Banking Group has additional risks from fixed rate mortgage prepayments and basis
risk where:••

Prepayment risk is the potential risk to earnings or market value from when a customer prepays all or part of a fixed rate
mortgage and where any customer fee charged is not sufficient to offset the loss in value to the Banking Group of thisfinancial asset due to movements in interest rates and other pricing factors. As far as possible the true economic cost ispassed through to customers in line with their terms and conditions and relevant legislation.
Basis risk is the potential risk to earnings or market value from differences between customer pricing and wholesale market
pricing. This is managed through active review of product margins.

Non-traded interest rate risk is managed to both value and earnings at risk limits. Interest rate risk is reported using threemeasures: VaR; scenario analysis (to a 1% shock); and interest rate sensitivity gap. This treatment excludes the effect of
prepayment and basis risk.

ANZ National Bank Limited

Notes to the Financial Statementsa) VaR non-traded interest rate risk
Below are aggregate VaR figures covering non-traded interest rate risk.
Banking Group$ millions

As atHigh for year

Low for year

Average for
year

18.6

25.2

18.6

21.8

22.4

22.8

18.9

20.8

30/09/2010
Value at risk at 97.5% confidence
30/09/2009
Value at risk at 97.5% confidenceb) Scenario analysis – A 1% shock on the next 12 months’ net interest income
A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income
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 12 months. Conversely, a negative number
signifies that a rate increase is negative for the next 12 months’ net interest income.
Banking Group
30/09/2010

30/09/2009

As at

1.8%

0.2%

Maximum exposure

1.8%

0.7%

Minimum exposure

0.3%(0.1)%

Average exposure (in absolute terms)

1.3%

0.3%

Impact of 1% rate shock

The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any
point has implications for future net interest income. The Banking Group quantifies the potential variation in future net interest
income as a result of these repricing mismatches each month using a static gap model.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets andliabilities where the contractual term to repricing is not considered to be reflective of the actual interest rate sensitivity (forexample, products priced at the Banking Group’s discretion), a profile based on historically observed and/or anticipated ratesensitivity is used. This treatment excludes the effect of basis risk between customer pricing and wholesale market pricing.
The majority of the Banking Group’s non-traded interest exposure exists in New Zealand. 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 and future balance sheet structures – to be identified. This better
enables the Banking Group to quantify the interest rate risks associated with the balance sheet and to formulate strategies tomanage current and future risk profiles.
Interest rate sensitivity gap
The interest rate sensitivity gap analysis provides information about the Banking Group’s exposure to interest rate risk.
Repricing gaps are based upon contractual repricing information except where the contractual terms are not considered to bereflective of actual interest rate sensitivity, for example, those assets and liabilities priced at the 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 and wholesale market pricing.
Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the corresponding liability
funding. These mismatches are managed within policy guidelines for mismatch positions.
The majority of the Banking Group’s loan business is conducted domestically in New Zealand. The majority of 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 Banking Group’s offshore operations are wholesale in nature and are able to minimise interest rate sensitivity throughclosely matching the maturities of loans and deposits. Given both the size and nature of this business, the interest ratesensitivity of this balance sheet contributes little to the aggregate risk exposure, which is primarily a reflection of the positions
in New Zealand.

ANZ National Bank Limited
74 – 75

Notes to the Financial Statements
A combination of off-balance sheet instruments and pricing initiatives is used in the management of interest rate risk. For
example, where a strong medium to long term rate view is held, hedging and pricing strategies are used to modify the profile’s
interest rate sensitivity so that it is positioned to take advantage of the expected movement in interest rates. However, such
positions are taken within the overall risk limits specified by Banking Group policy.
The following tables represent the interest rate sensitivity of the Banking Group’s assets, liabilities and off balance sheet
instruments repricing (that is, when interest rates applicable to each asset or liability can be changed) in the periods shown.
Banking Group
Total

Less than
3 months

3 to 6months6 to 12months1 to 5years

Beyond5 years

Liquid assets

2,238

2,079

-

-

-

-

159

Due from other financial institutions

3,496

1,932

-

-

-

-

1,564

30/09/2010$ millions

Not bearing
interest

AssetsTrading securities

6,757

836

26

133

5,618

144

-

Derivative financial instruments

10,367

-

-

-

-

-

10,367Available-for-sale assets

2,210

762

1,061

246

33

30

78

Net loans and advances

85,91356,780

4,694

8,654

15,16424

597

Other financial assets

882

34

-

-

-

-

848

Total financial assets

111,863

62,423

5,781

9,033

20,815

198

13,613

Non-financial assets
Total assets

4,595

-

-

-

-

-

4,595

116,458

62,423

5,781

9,033

20,815

198

18,208

Liabilities
Due to other financial institutions

1,819

1,762

-

-

25

-

32

Deposits and other borrowings

70,295

43,696

13,223

6,414

1,998

-

4,964

Derivative financial instruments

10,715

-

-

-

-

-

10,715

Payables and other financial liabilities

1,282

97

-

-

-

-

1,185

Bonds and notes

18,761

7,982

150

457

10,172

-

-

2,407

-

630

350

1,427

-

-

Total financial liabilities

105,279

53,537

14,003

7,221

13,622-

16,896

Non-financial liabilities

733

-

-

-

-

-

733

Loan capital

Equity10,446

-

-

-

-

-

10,446

Total liabilities and equity

116,458

53,537

14,003

7,221

13,622-

28,075On-balance sheet interest sensitivity gap

-

8,886

(8,222)

1,812

7,193

198

(9,867)

Hedging instruments

-

5,222

(2,208)(992)(1,873)(149)-

Interest sensitivity gap – net-

14,108(10,430)

820

5,320

49

(9,867)

Interest sensitivity gap – cumulative-

14,108

3,678

4,498

9,818

9,867

-

ANZ National Bank Limited

Notes to the Financial Statements
Banking Group
Total

Less than
3 months

3 to 6months6 to 12months1 to 5years

Beyond5 years

Not bearing
interest

Liquid assets

2,762

2,596

-

-

-

-

166

Due from other financial institutions

4,514

4,013

300

-

63

-

138

Trading securities

4,166

429

66

418

2,575

678

-

Derivative financial instruments

11,408

-

-

-

-

-

11,40830/09/2009$ millions

AssetsAvailable-for-sale assets

1,513

149

1,286

-

9

-

69

Net loans and advances

88,25948,408

6,503

12,26921,11855(94)

Other financial assets

999

-

-

-

-

-

999

Total financial assets

113,62155,595

8,155

12,687

23,765733

12,686

Non-financial assets

4,270

-

-

-

-

-

4,270

117,891

55,595

8,155

12,687

23,765733

16,956

Due to other financial institutions

3,725

2,866

428

277

22

-

132

Deposits and other borrowings

71,76445,087

14,019

5,497

2,788

-

4,373

930

930

-

-

-

-

-

10,762

-

-

-

-

-

10,762

Total assets
Liabilities

Due to parent company
Derivative financial instruments
Payables and other financial liabilities

1,414

64

-

-

-

-

1,350

Bonds and notes

15,917

9,488

187

371

5,871

-

-

Loan capital

2,596

227

584

-

1,785

-

-

Total financial liabilities

107,108

58,662

15,218

6,145

10,466-

16,617

Non-financial liabilities

695

-

-

-

-

-

695
10,088Equity10,088

-

-

-

-

-

Total liabilities and equity

117,891

58,662

15,218

6,145

10,466-

27,400On-balance sheet interest sensitivity gap-(3,067)(7,063)

6,542

13,299733(10,444)

Hedging instruments

-

6,075

6,419

(9,673)(1,781)(1,040)-Interest sensitivity gap – net

-

3,008

(644)

(3,131)

11,518(307)(10,444)

Interest sensitivity gap – cumulative

-

3,008

2,364

(767)

10,751

10,444-

ANZ National Bank Limited
76 – 77

Notes to the Financial Statements
Bank
Total

Less than
3 months

3 to 6months6 to 12months1 to 5years

Beyond5 years

Not bearing
interest

2,223

2,064

-

-

-

-

159

Due from other financial institutions

1,926

1,790

-

-

-

-

136

Trading securities

6,757

836

26

133

5,618

144

-

Derivative financial instruments

10,382

-

-

-

-

-

10,382

30/09/2010$ millions

AssetsLiquid assets

Available-for-sale assets

2,040

609

1,066

246

11

30

78

Net loans and advances

83,522

55,690

4,574

8,424

14,24718569

Due from subsidiary companies

9,043

9,043

-

-

-

-

-

6

6

-

-

-

-

-

Other financial assets

813

-

-

-

-

-

813

Due from parent company
Total financial assets

116,71270,038

5,666

8,803

19,876

192

12,137

Non-financial assets

11,285

-

-

-

-

-

11,285

Total assets

127,997

70,038

5,666

8,803

19,876

192

23,422

Liabilities
Due to other financial institutions

1,819

1,762

-

-

25

-

32

Deposits and other borrowings

61,68037,666

11,346

6,021

1,683

-

4,964

Due to subsidiary companies

37,45822,792

2,213

1,588

10,865--Derivative financial instruments

10,715

-

-

-

-

-

10,715

Payables and other financial liabilities

1,278

97

-

-

-

-

1,181

Bonds and notes

2,157

872

150

50

1,085

-

-

Loan capital

2,412

-

630

350

1,432

-

-

Total financial liabilities

117,519

63,18914,3398,009

15,090-16,892

Non-financial liabilities

607

-

-

-

-

-

607

9,871

-

-

-

-

-

9,871

Equity127,997

63,18914,3398,009

15,090-27,370On-balance sheet interest sensitivity gap

-

6,849

(8,673)

794

4,786

192

(3,948)

Hedging instruments

-

1,803

(1,649)

92

(97)

(149)

-

Total liabilities and equity

Interest sensitivity gap – net

-

8,652

(10,322)

886

4,689

43

(3,948)Interest sensitivity gap – cumulative

-

8,652

(1,670)

(784)

3,905

3,948

-

ANZ National Bank Limited

Notes to the Financial Statements
Bank
Total

Less than
3 months

3 to 6months6 to 12months1 to 5years

Beyond5 years

Not bearing
interest

Liquid assets

2,758

2,592

-

-

-

-

166

Due from other financial institutions

4,361

3,923

300

-

-

-

138

Trading securities

4,166

429

66

418

2,575

678

-

Derivative financial instruments

11,449

-

-

-

-

-

11,44930/09/2009$ millions

AssetsAvailable-for-sale assets

1,511

150

1,283

-

9

-

69

Net loans and advances

85,95247,426

6,378

11,91520,28145(93)

Due from subsidiary companies

7,703

6,736

-

128

225

-

614

Other financial assets

951

-

-

-

-

-

951

Total financial assets

118,851

61,256

8,027

12,461

23,090723

13,294Non-financial assets

11,337

-

-

-

-

-

11,337

Total assets

130,188

61,256

8,027

12,461

23,090723

24,631

Liabilities
Due to other financial institutions

3,239

2,865

220

-

22

-

132

Deposits and other borrowings

62,83541,414

9,813

4,653

2,582

-

4,373

Due to subsidiary companies

36,79322,928

4,892

2,017

6,956

-

-

Due to parent company

930

930

-

-

-

-

-

Derivative financial instruments

10,769

-

-

-

-

-

10,769

Payables and other financial liabilities

1,478

634

-

-

-

-

844

Bonds and notes

1,516

756

-

175

585

-

-

Loan capital

2,596

227

584

-

1,785

-

-

Total financial liabilities

120,156

69,754

15,5096,845

11,930-

16,118Non-financial liabilities

727

-

-

-

-

-

727

9,305

-

-

-

-

-

9,305

EquityTotal liabilities and equity

130,188

69,754

15,5096,845

11,930-26,150On-balance sheet interest sensitivity gap-(8,498)(7,482)

5,616

11,160723(1,519)Hedging instruments

-

6,065

6,419

(9,673)(1,771)(1,040)-Interest sensitivity gap – net-(2,433)(1,063)(4,057)

9,389

(317)

(1,519)Interest sensitivity gap – cumulative-(2,433)(3,496)(7,553)

1,836

1,519

-

ANZ National Bank Limited
78 – 79

Notes to the Financial Statements
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 non-traded market risks. The fair value of these securities as at
30 September 2010 was $78 million (30/09/2009 $71 million). Regular reviews are performed to substantiate valuation of theinvestments within the portfolio. The fair value of the equity securities classified as available-for-sale can fluctuate considerably.
A 10 per cent reduction in the value of the available-for-sale equity securities at 30 September 2010 would have reduced equity
by $8 million (30/09/2009 $7 million).
Foreign currency related risksThis risk relates to the potential loss arising from the decline in the value of foreign currency positions due to changes in foreignexchange rates.
For non-traded instruments in foreign currencies, the risk is monitored and is hedged in accordance with policy. Risk arisingfrom individual funding and other transactions is actively managed. The total amounts of unmatched foreign currency assets
and liabilities and consequent foreign currency exposures, arising from each class of financial asset and liability, whether
recognised or unrecognised, within each currency are not material.
The net open position in each foreign currency, detailed in the table below, represents the net on-balance sheet assets andliabilities in that foreign currency aggregated with the net expected future cash flows from off-balance sheet purchases andsales 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.
Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

Australian dollar

20

1

20

1

Euro

2

(1)

2

(1)

Japanese yen

2

-

2

-

Pound sterling

(1)

-

(1)

-

US dollar

37

2

37

2

Other

2

(1)

2

(1)

Total net open position

62

1

62

1

$ millions

Net open position

Liquidity risk
Liquidity risk is the risk that the Banking Group has insufficient capacity to fund increases in assets or is unable to meet its
payment obligations as they fall due, including repaying depositors or maturing wholesale debt. The timing mismatch of cash
flows and the related liquidity risk is inherent in all banking operations and is closely monitored by the Banking Group.
The Banking Group’s liquidity and funding risks are governed by a detailed policy framework which is approved by the Risk
Committee of the Board of Directors. The core objective of the 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, theframework has been reviewed and updated.
Central to the Banking Group’s liquidity risk management approach is the establishment of a liquidity risk appetite framework
to which the Banking Group must conform at all times. The risk appetite for liquidity has been set as low, and this objective isachieved by the Banking Group managing liquidity risks within the boundaries 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 Banking Group’s balance sheet structure to ensure long term resilience in the Banking Group’s
liquidity and funding risk profile.
Limiting the potential earnings at risk implications associated with unexpected increases in funding costs or the liquidationof assets under stress.
Ensuring the liquidity management framework is compatible with regulatory requirements.
Daily liquidity reporting and scenario analysis, quantifying the Banking Group’s positions.
Targeting a diversified funding base, avoiding undue concentrations by investor type, maturity, market source and currency.
Holding a portfolio of high quality liquid assets 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 ALCO.

ANZ National Bank Limited

Notes to the Financial Statements
Supervision and Regulation
The RBNZ requires the Banking Group to have a comprehensive Board approved liquidity strategy defining: policy, systems
and procedures for measuring, assessing, reporting and managing domestic and foreign currency liquidity. This also includes
a formal contingency plan for dealing with a liquidity crisis. From 22 October 2009, the Reserve Bank has modified the Bank’s
conditions of registration with respect to liquidity policy. These revised conditions became effective from 30 March 2010. The
Banking Group has systems and process in place to comply with these regulations. Refer to condition 13 of the Conditions ofRegistration.
Scenario Modelling
A key component of the Banking Group’s liquidity management framework is scenario modelling. Liquidity is assessed under
different scenarios, including “going-concern”, “name-crisis” and various “survival horizons”.
“Going-concern”: reflects the normal behaviour of cash flows in the ordinary course of business. The Banking Group must beable to meet all commitments and obligations under a going concern scenario, within the Banking Group normal funding
capacity (‘available to fund’ limit), over at least the following 30 calendar days.
In estimating the funding requirement, the Banking Group models expected cash flows by reference to historical behaviour
and contractual maturity data.
“Name-crisis”: refers to a potential name-specific liquidity crisis scenario which models the behaviour of cash flows where
there is a problem (real or perceived) which may include, but is not limited to, operational issues, doubts about the solvency of
the Banking Group or adverse rating changes.
Under this scenario the Banking Group may have significant difficulty rolling over or replacing funding. Under the liquidity
policy the Banking Group must be cash flow positive over an eight calendar day period.
“Survival horizons”: The global financial crisis has highlighted the importance of differentiating between stressed and 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. The Banking Group has linked its liquidity risk appetite to defined liquidity “survival
horizons” (i.e. the time period under which the Banking Group must maintain a positive cash flow position). The following
stressed scenarios are modelled:••••

Extreme Short Term Crisis Scenario (“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 closure of domestic
and offshore markets.
Offshore Funding Market Disruption (“OFMD”): Stressed global wholesale funding markets leading to a closure of offshore
markets only.

As of 30 September 2010 the Banking Group was in compliance with all of the above scenarios.

ANZ National Bank Limited
80 – 81

Notes to the Financial Statements
Funding Composition
The Banking Group actively uses balance sheet disciplines to prudently manage the funding mix. The Banking Group employs
funding metrics to ensure that an appropriate proportion of its assets are funded from stable sources, including customer
liabilities, longer-dated wholesale debt (with remaining term exceeding one year) and equity. This approach recognises that
long-term wholesale debt and other sticky liabilities have favourable liquidity characteristics.
Banking Group$ millions

Bank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

50,640Funding composition
Customer deposits1
New Zealand

52,18352,06550,981

Overseas

7,560

7,866

7,454

7,754

Total customer deposits

59,74359,93158,43558,394

Bonds and notes

18,761

15,917

2,157

1,516

Loan capital

2,407

2,596

2,412

2,596

Certificates of deposit

3,245

4,441

3,245

4,441

Commercial paper

7,307

7,392

-

-

-

-

22,601

22,378Wholesale funding

Due to subsidiary companies – ANZ National (Int'l) Limited
Due to subsidiary companies – other--

14,857

14,415Due to parent company

-

930

-

930

Due to other financial institutions

1,819

3,725

1,819

3,239

Total wholesale funding

33,53935,00147,09149,515

Total funding

93,282

94,932

105,526

107,909

Households

37,96837,73836,59036,208Agriculture, forestry and fishing

2,520

3,872

2,520

3,872

Manufacturing

2,772

1,354

2,772

1,354

596

573

596

573

40,01742,22053,63856,727

Concentrations of funding by industry

Entertainment, leisure and tourism
Finance and insurance
Retail trade

670

753

670

753

Wholesale trade

677

602

677

602
3,960

3,754

3,960

3,754

Transport and storage

620

614

620

614

Construction

731

736

731

736

1,967

1,548

1,967

1,548

991

962

991

962

93,282

94,932

105,526

107,909

59,99062,456

72,34075,545Business and property services

Government and local authority
Other2
Total funding
Concentrations of funding by geography3
New ZealandAustralia

1,978

2,404

1,964

2,390

United States

17,325

17,031

17,31517,019Europe

8,708

7,511

8,684

7,486

Other countries

5,281

5,530

5,223

5,469

Total funding

93,282

94,932

105,526

107,909

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.
3
Funding of the 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.
12Analysis of funding liabilities by industry sector is based on Australian and New Zealand Standard Industrial Classification(“ANZSIC”) codes.

ANZ National Bank Limited

Notes to the Financial Statements
Wholesale funding
The Banking Group’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances
cost efficiency while targeting diversification by markets, investors, currencies, maturities and funding structures. Short-term
wholesale funding requirements, with a contractual maturity of less than one year, are managed through the Treasury andMarkets operations. Long-term wholesale funding is managed and executed through Treasury operations.
The Banking Group also uses maturity concentration limits under the wholesale funding and liquidity management framework.
Maturity concentration limits ensure that the Banking Group does not become reliant on issuing large volumes of newwholesale funding within a short time period. Funding instruments used to meet the wholesale borrowing requirement must
be on a pre-established list of approved products.
Funding capacity and debt issuance planning
Under the normal business conditions scenario, borrowing capacity is an estimate of the amount of funding that can be raisedin the wholesale markets in normal market conditions. The Banking Group adopts a conservative approach to determine its
funding capacity. Funding capacity limits are determined at the Ultimate Parent Bank level and allocated to individual sites
based on their requirements.
Annually, a Funding Plan is ratified by the Banking Group’s Senior Management. The plan is supplemented by monthly updates,
and is linked to the Banking Group’s three year strategic planning cycle.
Liquidity portfolio management
The Banking Group holds a diversified portfolio of cash and high-quality highly-liquid securities to support liquidity risk
management.
The size of the Banking Group’s liquidity portfolio is based on the amount required to meet its liquidity policy.
Total liquidity portfolio$ millions

Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

Cash and balances with central banks

1,015

2,207

1,015

2,207

Securities purchased under agreement to resell

266

1,075

266

1,075

Certificates of deposit

687

2,736

687

2,736

3,631

1,102

3,631

1,102

Government, Local Body stock and bonds
Available-for-sale assets

1,915

1,435

1,915

1,435

Other bonds

2,698

2,522

2,698

2,522

Total liquidity portfolio

10,212

11,077

10,212

11,077

Assets held for managing liquidity risk include short term cash held with the RBNZ, New Zealand government securities,
securities issued by supranational agencies, securities issued by highly rated banks and securities issued by State Owned
Enterprises, Local Authorities and highly rated NZ domestic corporates. These assets are accepted as collateral by the RBNZ in
repurchase transactions. The post-”haircut” value of these assets at 30 September 2010 was $10,199 million. The Banking Groupalso held unencumbered Internal RMBS with a post-”haircut” value of $5,011 million (from 1 April 2010 the RBNZ has imposeda cap limiting the amount of RMBS deemed as eligible in the liquidity portfolio to 4% of total assets).
Liquidity crisis contingency planning
The Banking Group maintains liquidity crisis contingency plans defining an approach for analysing and responding to aliquidity-threatening event on a group wide basis. The framework includes:
•
•
•
•
•
•
•

the establishment of crisis severity/stress levels;
clearly assigned crisis roles and responsibilities;
early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals;
outlined action plans, and courses of action for altering asset and liability behaviour;
procedures for crisis management reporting, and covering cash-flow shortfalls;
guidelines determining the priority of customer relationships in the event of liquidity problems; andassigned responsibilities for internal and external communications.

ANZ National Bank Limited
82 – 83

Notes to the Financial Statements
Contractual maturity analysis of financial assets and liabilities
The tables below present the Banking Group’s financial assets and liabilities within relevant contractual maturity groupings,
based on the earliest date on which the Bank or the Banking Group may be required to realise an asset or settle a liability. The
amounts disclosed in the tables represent undiscounted future principal and interest cash flows and may differ to the amounts
reported on the balance sheet.
The contractual maturity analysis for off-balance sheet commitments and contingent liabilities has been prepared using theearliest date at which the Banking Group or the Bank can be called upon to pay. The liquidity risk of credit related commitments
and contingent liabilities may be less than the contract amount, and does not necessarily represent future cash requirements
as many of these facilities are expected to be only partially used or to expire unused.
The Banking Group does not manage its liquidity risk on the basis of the information following.
Banking GroupTotal

At callLess than
3 months

Liquid assets

2,238

2,238

-

Due from other financial institutions

3,499

457

2,959

83

-

-

-

Trading securities

7,991

-

924

396

6,501

170

-

Derivative financial assets (trading)

8,705

-

8,705

-

-

-

-

Available-for-sale assets

2,221

-

634

1,309

54

146

78

Net loans and advances

119,551-

9,822

19,22934,20355,706

591

6

6

-

-

-

-

-

$ millions
30/09/2010

3 to 12months1 to 5years

Beyond5 years

No maturity
specified

-

-

-

-

Financial assets

Due from immediate parent company
Other financial assets

876

-

855

4

11

6

-

Total financial assets

145,087

2,701

23,89921,021

40,76956,028669

Financial liabilities
Due to other financial institutions

2,016

690

1,277

5

44

-

-

Deposits and other borrowings

71,974

23,67823,64922,326

2,280

41

-

Derivative financial liabilities (trading)

9,028

-

9,028

-

-

-

-

Other financial liabilities

1,282

-

1,282

-

-

-

-

Bonds and notes

20,364

-

1,711

2,426

16,118

109

-

3,781

-

48

144

960

1,445

1,184

Total financial liabilities

108,445

24,36836,99524,901

19,402

1,595

1,184

Net financial assets

36,642(21,667)(13,096)(3,880)21,36754,433(515)

Loan capital

Derivative financial instruments used
for balance sheet management– gross inflows

23,111

-

845

6,080

16,16124-– gross outflows(22,606)-(820)(5,891)(15,869)(26)-

Net financial assets after balance
sheet management

37,147(21,667)(13,070)(3,690)21,65954,431(515)

Contractual maturity of off-balance sheet commitments and contingent liabilities
Banking Group$ millions
30/09/2010

Total

Less than
1 yearBeyond1 yearNon-credit related commitments

303

303

-

Credit related commitments

20,782

20,782-

Contingent liabilities

2,741

2,741

-

Total

23,82623,826-

ANZ National Bank Limited

Notes to the Financial Statements
Banking GroupTotal

At callLess than
3 months

2,762

2,762

-

-

Due from other financial institutions

4,530

172

3,891

400

67

-

-

Trading securities

5,080

-

403

688

3,248

741

-

Derivative financial assets (trading)

9,578

-

9,578

-

-

-

-

$ millions
30/09/2009

3 to 12months1 to 5years

Beyond5 years

No maturity
specified---Financial assets
Liquid assets

Available-for-sale assets

1,526

-

121

1,295

16

25

69

Net loans and advances

133,716-

8,016

17,89339,972

67,929(94)

Other financial assets

999

-

999

-

-

-

-

Total financial assets

158,191

2,934

23,00820,27643,303

68,695(25)

Liabilities
Due to other financial institutions

3,995

1,139

2,101

714

37

4

-

Deposits and other borrowings

73,15525,397

23,17821,408

3,116

56

-

Derivative financial liabilities (trading)

8,049

-

8,049

-

-

-

-

Other financial liabilities

1,414

-

1,414

-

-

-

-

Bonds and notes

16,078

-

2,073

2,204

11,454

347

-

938

930

8

-

-

-

-

Due to parent company
Loan capital

4,029

-

51

154

1,023

1,642

1,159

Total financial liabilities

107,658

27,46636,87424,48015,630

2,049

1,159

Net financial assets / (liabilities)

50,533(24,532)(13,866)(4,204)

27,67366,646(1,184)– gross inflows

24,861

-

2,234

6,645

15,500482-– gross outflows(25,222)-(2,341)(7,026)(15,419)(436)-

Net financial assets after balance
sheet management

50,172(24,532)(13,973)(4,585)27,754

66,692(1,184)

Derivative financial instruments used
for balance sheet management

Contractual maturity of off-balance sheet commitments and contingent liabilities
Banking Group$ millions
30/09/2009

Non-credit related commitments

Total

Less than
1 yearBeyond1 year

287

287

-

Credit related commitments

22,82922,829-Contingent liabilities

3,165

3,165

-

Total

26,281

26,281-

ANZ National Bank Limited
84 – 85

Notes to the Financial Statements
Bank
Total

At callLess than
3 months

Liquid assets

2,223

2,223

-

Due from other financial institutions

1,926

448

1,478

-

-

-

-

Trading securities

7,991

-

924

396

6,501

170

-

Derivative financial assets (trading)

8,709

-

8,709

-

-

-

-

Available-for-sale assets

2,052

-

610

1,308

18

38

78

Net loans and advances

116,727-

9,592

18,92632,16955,478

562

9,155

-

1,474

630

337

6,714

-

$ millions
30/09/2010

3 to 12months1 to 5years

Beyond5 years

No maturity
specified

-

-

-

-

Financial assets

Due from subsidiary companies

6

6

-

-

-

-

-

Other financial assets

813

-

813

-

-

-

-

Total financial assets

149,602

2,677

23,60021,26039,02562,400

640

1,819

690

1,101

-

28

-

-

Deposits and other borrowings

80,61023,74836,215

18,677

1,929

41

-

Due to subsidiary companies

42,423-14,3695,415

15,7596,880-

Derivative financial liabilities (trading)

9,030

-

9,030

-

-

-

-

Other financial liabilities

1,279

-

1,279

-

-

-

-

Bonds and notes

2,513

-

434

498

1,472

109

-

Due from immediate parent company

Financial liabilities
Due to other financial institutions

Loan capital

3,677

-

43

131

867

1,452

1,184

141,351

24,43962,471

24,721

20,055

8,482

1,184

8,250

(21,762)(38,871)(3,461)

18,97053,918(544)– gross inflows

26,950

-

952

6,379

17,4682,150-– gross outflows(34,881)-(909)(6,156)(17,291)(10,525)-319(21,762)(38,827)(3,238)19,14845,542(544)

Total financial liabilities
Net financial assets / (liabilities)
Derivative financial instruments
used for balance sheet management

Net financial assets after balance
sheet management

Contractual maturity of off-balance sheet commitments and contingent liabilities
Bank$ millions
30/09/2010

Total

Less than
1 yearBeyond1 yearNon-credit related commitments

255

255

-

Credit related commitments

20,96020,960-Contingent liabilities

2,740

2,740

-

Total

23,95523,955-ANZ National Bank Limited

Notes to the Financial Statements
Bank
Total

At callLess than
3 months

2,758

2,758

-

Due from other financial institutions

4,361

172

3,889

300

-

-

-

Trading securities

5,080

-

403

688

3,248

741

-

Derivative financial instruments (trading)

9,578

-

9,578

-

-

-

-

Available-for-sale assets

1,512

-

119

1,295

9

20

69

Net loans and advances

131,034-

7,710

17,48038,18367,754(93)

Due from subsidiary companies

16,857

-

1,474

385

1,309

13,689-$ millions
30/09/2009

3 to 12months1 to 5years

Beyond5 years

No maturity
specified

-

-

-

-

AssetsLiquid assets

Other financial assets
Total financial assets (inclusive of interest)

951

-

951

-

-

-

-

172,1312,930

24,124

20,14842,74982,204(24)

Liabilities
Due to other financial institutions

3,324

1,116

1,959

227

22

-

-

Deposits and other borrowings

64,14025,397

19,481

16,326

2,936

-

-

Due to subsidiary companies

43,899-12,833

7,398

13,002

10,666-

Derivative financial instruments (trading)

8,049

-

8,049

-

-

-

-

Other financial liabilities

1,478

-

1,478

-

-

-

-

Bonds and notes

1,705

-

324

289

1,092

-

-

951

-

951

-

-

-

1,159

Due to parent company
Loan capital

4,498

-

45

274

1,378

1,642

Total financial liabilities (inclusive of interest)

128,044

26,51345,12024,514

18,43012,3081,159

Net finanical assets

44,087(23,583)(20,996)(4,366)24,31969,896(1,183)– gross inflows

28,475

-

2,335

6,919

16,6802,540-– gross outflows(34,628)-(2,408)(7,224)(16,477)(8,519)-Net financial assets after balance
sheet management

37,934(23,583)(21,068)(4,671)

24,522

63,917(1,183)

Derivative financial instruments
used for balance sheet management

Contractual maturity of off-balance sheet commitments and contingent liabilities
Bank$ millions
30/09/2009

Total

Less than
1 yearBeyond1 yearNon-credit related commitments

266

266

-

Credit related commitments

23,037

23,037-

Contingent liabilities

3,162

3,162

-

Total

26,465

26,465-ANZ National Bank Limited
86 – 87

Notes to the Financial Statements
33. Concentrations of Credit Risk
Concentrations of credit risk to individual counterparties
The number of individual counterparties (excluding OECD Governments and connected persons), where the Banking Group’s
quarter end and peak end-of-day credit exposure over the quarter equals or exceeds 10% of equity (as at the end of thequarter) in ranges of 10% of equity, on the basis of exposures, are:
Banking Group
30/09/2010

30/09/2009

As at

Peak forthe quarter

10% to 20% of equity

2

3

3

2

20% to 30% of equity

-

-

1

2

1

1

1

1

Number of counterparties

As at

Peak forthe quarter

Concentrations of credit risk to bank counterparties

Concentrations of credit risk to non bank counterparties
10% to 20% of equity

The number of individual counterparties disclosed within the various equity ranges and the total exposure as at the end of thequarter are gross exposures. No account is taken of collateral, security and/or netting agreements which the Banking Groupmay hold in respect of the various counterparty exposures.
The peak number is calculated separately for each individual counterparty and the peak for all counterparties may not haveoccurred at the same time.
Total period end exposures to counterparties where the individual counterparty’s exposure is greater than 10% of equity
Banking Group
30/09/2010

30/09/2009

Banks

2,603

6,201

Non banks

1,260

1,194

$ millions

As at

Credit ratings of counterparties
All of the counterparties included in the preceding tables have an investment grade credit rating (30/09/2009 100%). An investment
grade credit rating means a credit rating of BBB or Baa3 or above, or its equivalent. In the case of a group of closely related
counterparties, the credit rating applicable is that of the entity heading the group of closely related counterparties. The credit
rating is applicable to an entity’s long term senior unsecured obligations payable in New Zealand, in New Zealand dollars, or to anentity’s long term senior unsecured foreign currency obligations.

ANZ National Bank Limited

Notes to the Financial Statements
Concentrations of credit risk to connected persons
Credit exposures to connected persons reported in the table below have been calculated partially on a bilateral net basis, andpartially on a gross basis. Netting has occurred in respect of certain transactions which are the subject of a bilateral netting
agreement disclosed in the Bank’s most recent Supplemental Disclosure Statement for the year ended 30 September 2010.
Banking Group
30/09/2010
Amount$m

30/09/2009% of Tier
One Capital

Amount$m% of Tier
One Capital

Aggregate at end of period
Other connected persons (on gross basis, before netting)1

3,925

58.9%

4,503

69.9%

Other connected persons (amount netted off)1

3,229

48.4%

3,010

46.7%

696

10.5%

1,493

23.2%

-

0.0%

-

0.0%

Other connected persons (on partial bilateral net basis)1
Non-bank connected persons2Peak end-of-day for the period3
Other connected persons (on gross basis, before netting)

4,981

74.8%

5,490

85.2%

Other connected persons (amount netted off)

3,126

46.9%

2,693

41.8%

Other connected persons (on partial bilateral net basis)

1,855

27.9%

2,797

43.4%

Other connected persons (on partial bilateral net basis)

n/a

70.0%

n/a

70.0%

Non-bank connected persons

n/a

15.0%

n/a

15.0%

Rating-contingent limit4

The Banking Group has amounts due from the Immediate Parent Company and the Ultimate Parent Bank and other entities within the Overseas Banking Grouparising in the ordinary course of business. These balances arise primarily from unrealised gains on trading and hedging derivative financial instruments with
the Ultimate Parent Bank. As at 30 September 2010, the gross exposures to the Immediate Parent Company were $34 million (30/09/2009 $522 million). As at
30 September 2010, the gross exposures to the Ultimate Parent Bank were $3,891 million (30/09/2009 $3,981 million).
2
Non-bank connected persons exposures consist of loans to directors of the Bank. Any loans are made in the ordinary course of business of the Bank, on an arm’s
length basis and on normal commercial terms and conditions.
3
The Banking Group has complied with the limits on aggregate credit exposure (of a non-capital nature and net of individual provisions) to connected persons
and non-bank connected persons, as set out in the Conditions of Registration, at all times during the quarter. The peak end-of-day credit exposures for thequarter to connected persons are measured over Tier One Capital as at the end of the quarter.
4
Represents the maximum peak end-of-day aggregate credit exposures limit (of a non-capital nature and net of individual provisions) to all connected persons.
This limit is based on the ratings applicable to the Bank’s long term senior unsecured obligations payable in New Zealand in New Zealand dollars. Within theoverall limit a sub-limit of 15% of Tier One Capital applies to aggregate credit exposures (exclusive of exposures of a capital nature and net of individual
provisions) to non-bank connected persons.
1

The credit exposure concentrations disclosed for connected persons are on the basis of actual gross exposures and exclusiveof exposures of a capital nature. There were no individual provisions provided against credit exposures to connected persons
as at 30 September 2010 (30/09/2009 $nil). The Banking Group had no contingent exposures arising from risk lay-off
arrangements to connected persons as at 30 September 2010 (30/09/2009 $nil).

34. Fair Value of Financial Assets and Financial Liabilities
Fair 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.
A significant number of financial instruments are carried at fair value in the balance sheet. Below is a comparison of the carrying
amounts, as reported in the balance sheet, and fair values of all financial assets and liabilities.
In the tables below, financial instruments have been allocated by their accounting treatment. The accounting policies note
describes how the categories of financial assets and liabilities are measured and how income and expenses, including fairvalue gains and losses, are recognised.

ANZ National Bank Limited
88 – 89

Notes to the Financial Statements
Banking GroupAt fair value throughprofit or lossAt
amortised
cost

Designatedon initialrecognition

Held fortrading

Hedging

Liquid assets

2,238

-

-

Due from other financial institutions

2,789

-

-

-

-

$ millions
Carrying amount

Availablefor-saleassets

Total

Fair value

-

-

2,238

2,238

-

707

3,496

3,496

6,757

-

-

6,757

6,757

30/09/2010

Trading securities
Derivative financial instruments

-

-

9,740

627

-

10,367

10,367Available-for-sale assets

-

-

-

-

2,210

2,210

2,210

Net loans and advances

85,9001

85,913----85,913

Other financial assets

854

28

-

-

-

882

882

Total financial assets

91,79428

16,497627

2,917

111,863

111,8502

Due to other financial institutions

1,819

-

-

-

-

1,819

1,819

Deposits and other borrowings

62,988

7,307

-

-

-

70,29570,362Derivative financial instruments1--

10,282433-

10,715

10,715

Other financial liabilities

1,282

-

-

-

-

1,282

1,282

Bonds and notes2

18,761----

18,761

18,902

Loan capital

2,407

-

-

-

-

2,407

2,361

Total financial liabilities

87,257

7,307

10,282

433-

105,279

105,441

Liquid assets

2,762

-

-

-

-

2,762

2,762

Due from other financial institutions

1,778

-

-

-

2,736

4,514

4,514

-

-

4,166

-

-

4,166

4,166
11,40830/09/2009

Trading securities
Derivative financial instruments--

10,986422-

11,408Available-for-sale assets

-

-

-

-

1,513

1,513

1,513

Net loans and advances2

88,259----88,25987,996

Other financial assets

999

-

-

-

-

999

999

Total financial assets

93,798-15,152

422

4,249

113,621

113,358

1

Due to other financial institutions

3,725

-

-

-

-

3,725

3,725

Deposits and other borrowings

64,372

7,392

-

-

-

71,764

71,796

Derivative financial instruments1

-

-

9,862

900

-

10,762

10,762Other financial liabilities

1,414

-

-

-

-

1,414

1,414

Bonds and notes2

15,917----

15,917

16,051

930

-

-

-

-

930

930

Due to Immediate Parent Company
Loan capital

2,596

-

-

-

-

2,596

2,516

Total financial liabilities

88,954

7,392

9,862

900

-

107,108

107,195

ANZ National Bank Limited

Notes to the Financial Statements
Bank
At fair value throughprofit or lossAt
amortised
cost

Designatedon initialrecognition

Held fortrading

Hedging

Liquid assets

2,223

-

-

Due from other financial institutions

1,269

-

-

Trading securities--

Derivative financial instruments1-

Available-for-sale assets-

Net loans and advances

Due from subsidiary companies

Availablefor-saleassets

Total

Fair value

-

-

2,223

2,223

-

657

1,926

1,926

6,757

-

-

6,757

6,757

-

9,755

627

-

10,382

10,382

-

-

-

2,040

2,040

2,040

83,522----

83,522

83,496

2,402

6,641

-

-

-

9,043

9,043

Other financial assets

819

-

-

-

-

819

819
116,686$ millions
Carrying amount

30/09/2010

2

Total financial assets

90,235

6,641

16,512627

2,697

116,712Due to other financial institutions

1,819

-

-

-

-

1,819

1,819

Deposits and other borrowings

61,680----61,68061,740Due to subsidiary companies

30,927

6,531

-

-

-

37,45837,548--

10,282433-

10,715

10,715Derivative financial instruments1
Other financial liabilities

1,278

-

-

-

-

1,278

1,278

Bonds and notes2

2,157

-

-

-

-

2,157

2,208

Loan capital

2,412

-

-

-

-

2,412

2,366

100,273

6,531

10,282

433-

117,519

117,674

Liquid assets

2,758

-

-

-

-

2,758

2,758

Due from other financial institutions

4,361

Total financial liabilities
30/09/2009

1,625

-

-

-

2,736

4,361

Trading securities

-

-

4,166

-

-

4,166

4,166

Derivative financial instruments1--

11,027422-

11,44911,449Available-for-sale assets

-

-

-

-

1,511

1,511

1,511

Net loans and advances2

85,952----

85,952

85,672

Due from subsidiary companies

7,703

1,865

5,838

-

-

-

7,703

Other financial assets

951

-

-

-

-

951

951

Total financial assets

93,151

5,838

15,193422

4,247

118,851

118,571

Due to other financial institutions

3,239

-

-

-

-

3,239

3,239

Deposits and other borrowings

62,835----62,83562,86031,106

5,687

-

-

-

36,793

37,115Due to subsidiary companies
Derivative financial instruments

-

-

9,869

900

-

10,769900

Other financial liabilities

1,478

-

-

-

-

1,478

1,478

Bonds and notes2

1,516

-

-

-

-

1,516

1,545

Due to Immediate Parent Company

930

-

-

-

-

930

930

2,596

-

-

-

-

2,596

2,516

103,700

5,687

9,869

900

-

120,156

110,5831

Loan capital
Total financial liabilities

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

ANZ National Bank Limited

Estimation of fair value
Liquid assets and due from / to other financial institutions
Where these financial instruments are short-term in nature, defined as those that reprice or mature in 90 days or less, or are
receivable on demand, the carrying values is considered to approximate the fair values. When longer term in nature, fair value
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 that debt instrument.
Trading securities
Fair value is based on quoted market prices, broker or dealer price quotations, or modelled valuations using prices for securities
with similar credit risk, maturity and yield characteristics.
Derivative financial instruments
The fair values of derivative financial instruments are determined using market prices and market accepted valuation models
as appropriate (including discounted cash flow models) based on current market yields for similar types of instruments and thematurity of each instrument.
Available-for-sale assets
Fair value is based on quoted market prices or broker or dealer price quotations. If this information is not available, fair value isestimated using quoted market prices for securities with similar credit, maturity and yield characteristics, or market acceptedvaluation models as appropriate (including discounted cash flow models) based on current market yields for similar types of
instruments and the maturity of each instrument.
Net loans and advances
Fair value has been estimated through discounting future cash flows. For fixed rate loans and advances, the discount rateapplied incorporates changes in wholesale market rates, the Banking Group’s cost of wholesale funding and movements incustomer margin. For floating rate loans, only changes in wholesale market rates and the Banking Group’s cost of wholesalefunding are incorporated in the discount rate. For variable rate loans where the Banking Group sets the applicable rate at its
discretion, the carrying value is considered to approximate the fair value.
Other financial assets / liabilities
Included in this category are accrued interest and fees receivable / payable. For these balances the carrying value is considered
to approximate the fair values, as they are short term in nature or are receivable / payable on demand.
Deposits and other borrowings
For interest bearing fixed maturity deposits and other borrowings without quoted market prices, market borrowing rates ofinterest for debt with a similar maturity are used to discount contractual cash flows. The fair value of a deposit liability without
a specified maturity or at call is deemed to be the amount payable on demand at the reporting date. The fair value is not
adjusted for any value expected to be derived from retaining the deposit for a future period of time.
Certain items included in deposits and other borrowings have been designated as financial liabilities at fair value throughprofit or loss and are carried at fair value.
At balance date, the carrying amount of deposits and other borrowings designated by the Banking Group at fair value throughprofit or loss was $2 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 was 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 foreign exchange rates).
Bonds and notes, due to parent company and loan capital
The aggregate fair value of bonds and notes and loan capital is calculated based on quoted market prices. For those debt issues
where quoted market prices are not available, a discounted cash flow model using a yield curve appropriate for the remaining
term to maturity of the debt instrument is used.
Commitments and contingencies
Adjustments to fair value for commitments and contingencies that are not financial instruments recognised in the balance
sheet are not included in this note.

90 – 91

Notes to the Financial Statements

ANZ National Bank Limited

Notes to the Financial Statements
Valuation hierarchy
In determining the carrying amount of financial instruments held at fair value the Banking Group uses a valuation method
within the following hierarchy:“Level 1” – Quoted market price
Where an active market exists fair value is based on quoted market prices for identical financial instruments. The quoted
market price is not adjusted for any potential impact that may be attributed to a large holding of the financial instrument.
“Level 2” – Valuation technique using observable inputs
In the event that there is no quoted market price for the instruments, fair values are based on present value estimates or othermarket accepted valuation techniques which include data from observable markets wherever possible.
“Level 3” – Valuation technique with significant non observable inputs
The majority of valuation techniques employ only observable market data. However, the Banking Group holds someinvestments in unlisted collateralised debt obligations and other similar assets which do not trade in an active market. For
these 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. Where observable market data is not available, the fairvalue is determined using broker quotes or valuation techniques based on data derived and extrapolated from market data
and tested against historic transactions and observed market trends.
Valuation technique$ millions

Banking Group
Level 1

Level 2

Bank

Level 3

Total

Level 1

Level 2

Level 3Total

30/09/2010
Due from otherfinancial institutions

707

-

-

707

657

-

-

657

Trading securities

3,630

3,127

-

6,757

3,630

3,127

-

6,757

Available-for-sale assets

1,990

101

119

2,210

1,990

50

-

2,040

Derivative financial instruments

3

10,364-

10,367

3

10,379-10,382

Investments relating to insurance
business

-

28

-

28

-

-

-

-

Due from subsidiary companies

-

-

-

-

-

6,641

-

6,641

6,330

13,620119

20,0696,280

20,197-

26,477

-

7,307

-

7,307

-

-

-

-

35

10,680-10,71535

10,680-10,715

-

-

-

-

-

6,531

-

6,531

35

17,987-18,022

35

17,211-

17,246

Total financial assets held at fair value
Commercial paper
Derivative financial instruments
Due to subsidiary companies
Total financial liabilities held at fair value
30/09/2009
Due from other financial institutions

2,736

-

-

2,736

2,736

-

-

2,736

Trading securities

1,261

2,905

-

4,166

1,261

2,905

-

4,166

Available-for-sale assets

1,413

100

-

1,513

1,413

98

-

1,511

Derivative financial instruments

45

11,363-

11,40845

11,404-

11,449Due from subsidiary companies

-

-

-

-

-

5,838

-

5,838
25,700Total financial assets held at fair value

5,455

14,368-19,823

5,455

20,245-

Commercial paper

-

7,392

-

7,392

-

-

-

-

Derivative financial instruments

2

10,760-10,762

2

10,767-

10,769Due to subsidiary companies

-

-

-

-

-

5,687

-

5,687

Total financial liabilities held at fair value

218,152-

18,1542

16,454-

16,456

Movements in level 3 valuations
Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

-

-

-

-

Acquired in a business combination

127

-

-

-

Revaluations

38

-

-

-

Foreign exchange movements

(8)

-

-

-

Sales

(38)

-

-

-

Closing balance

119

-

-

-

$ millions

Opening balance

ANZ National Bank Limited
92 – 93

Notes to the Financial Statements
35. Notes to the Cash Flow Statements
Banking GroupBank

Year to30/09/2010

Year to30/09/2009

Year to30/09/2010

Year to30/09/2009

827

298

1,055

1,010

Depreciation and amortisation

71

50

35

27

Provision for credit impairment

840$ millions

Reconciliation of profit after income tax to net cash flows provided
by / (used in) operating activities
Profit after income tax
Non-cash items:
436

874

417

Deferred fee revenue and expenses

(5)

(8)

(5)

(7)

Share-based payments expense

21

18

21

18

Amortisation of capitalised brokerage/ mortgage origination fees

35

50

35

50
(2,749)Deferrals or accruals of past or future operating cash receipts or payments:(1,789)(1,874)(2,127)

Change in interest receivable

6

138

2

90

Change in interest payable

(64)

(295)

(65)

(252)

Change in net operating assets less liabilities

Change in accrued income

(6)

1

(2)

-

Change in accrued expenses

51

42

50

41

Change in provisions

(63)

100

(58)

96

Amortisation of premiums and discounts

39

76

39

76

Change in insurance policy assets

(49)

-

-

-

Change in insurance investment assets

(10)

-

-

-

Change in income tax assets

(302)

141

(294)

240

Items classified as investing/financing:
(42)

(11)

-

-

Impairment of associates

7

-

-

-

Re-measuring existing equity interest to fair value

82

-

61

-

Share of profit of equity accounted associates and jointly controlled entities

9

(13)

8

4

(746)

(413)

(828)

(516)

30/09/2010

30/09/2009

30/09/2010

30/09/2009

2,238

2,762

2,223

2,758

Due from other financial institutions – less than 90 days

1,339

2,003

1,279

2,003

Total cash and cash equivalents

3,577

4,765

3,502

4,761

Loss / (Gain) on disposal of premises and equipment and intangibles
Net cash flows used in operating activities

Banking Group$ millions

Bank

Reconciliation of cash and cash equivalents to the balance sheets
Liquid assets

ANZ National Bank Limited

Notes to the Financial Statements
36. Commitments
Banking GroupBank

30/09/2010

30/09/2009

30/09/2010

30/09/2009

Not later than 1 year

17

19

4

-

Total capital expenditure commitments

17

19

4

-

$ millions

Contracts for outstanding capital expenditurePremises and equipment

Future minimum lease payments under non-cancellable operating leases
Premises and equipment
Not later than 1 year

91

82

83

81

Later than 1 year but not later than 5 years

166

155

147

154

Later than 5 years

29

31

21

31

Total lease rental commitments

286

268

251

266

Total commitments

303

287

255

266

37. Credit Related Commitments and Contingent Liabilities
Banking GroupBank

Face or contract value$ millions

30/09/2010

Face or contract value

30/09/2009

30/09/2010

30/09/2009

Credit related commitments
493

735

493

735

Commitments to provide financial services

20,28922,094

20,46722,302

Total credit related commitments

20,782

22,82920,96023,037
1,753

Commitments with certain drawdown due within one year

Contingent liabilities
1,686

1,753

1,686

Standby letters of credit

60

341

60

341

Transaction related contingent items

898

982

898

982

Financial guarantees

Trade related contingent liabilities
Total contingent liabilities

97

89

96

86

2,741

3,165

2,740

3,162

The Banking Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third
parties, including its Ultimate Parent Bank. The risk involved is essentially the same as the credit risk involved in extending loan
facilities to customers, therefore these transactions are subjected to the same credit origination, portfolio management andcollateral requirements for customers applying for loans. As the facilities may expire without being drawn upon, the notionalamounts do not necessarily reflect future cash requirements.

ANZ National Bank Limited

Commerce Commission
The Banking Group is aware that the Commerce Commission is looking at credit contract fees under the Credit Contracts andConsumer Finance Act 2003 (“CCCFA”). In its 2010-2013 Statement of Intent the Commission stated that:“In CCCFA enforcement, the Commission will continue to focus on unreasonable credit fees, while still being mindful of
disclosure issues.”
In particular the Banking Group is aware that the 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 informal excess arrangements on
credit cards under the CCCFA. At this stage the possible outcome of these investigations and any liability or impact on feescannot be determined with any certainty.
ING NZ Funds
The Banking Group 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.
Some of the 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 the Funds. Investors
holding approximately 99% of the Funds accepted the offer to purchase their units.
In June 2010, the Bank and ING NZ reached settlements with the Commerce Commission and the Securities Commission in
relation to the Commerce Commission’s investigation into the Bank and ING NZ’s marketing and promotion of the Funds.
As part of the settlement with the Commerce Commission, $45 million has been or will be paid to eligible investors in theFunds, and $1 million has been paid to the Commerce Commission towards their investigation costs.
As part of the settlement with the Securities Commission, ING NZ has undertaken to engage an external party to complete, by
1 February 2011, an audit and review of its procedures and processes to the extent they relate to ING NZ’s business of developing
and offering investment products to the public and to subsequently implement any recommendations of that review. The
Bank has undertaken to facilitate and assist with the ING NZ audit, review and implementation.
The Commerce Commission and the Securities Commission have agreed they will not take any further action against the Bank,ING NZ or their affiliates in relation to the Funds.
The ultimate cost to the Banking Group will depend on the final value of units in the Funds, any recoveries under insurance, theassessment and outcome of customer complaints and the results of any litigation that may be brought in connection with theFunds or their sale. The Banking Group considers that it has adequately provided for these matters.
Other contingent liabilities
The Banking Group has other contingent liabilities in respect of actual and potential claims and proceedings. An assessmentof the Banking Group’s likely loss in respect of these matters has been made on a case-by-case basis and provision madewhereappropriate. As at 30 September 2010, there were no other contingent assets or liabilities required to be disclosed(30/09/2009 nil).

38. Securitisations, Funds Management, Other Fiduciary Activities and Insurance
Securitisation
In October 2008, the Banking Group established an in-house residential mortgage backed securities facility that could issue
securities meeting the RBNZ criteria for use as collateral in repurchase transactions with the RBNZ. As at 30 September 2010
the rights to cash flows associated with residential mortgages with a carrying value of $6,531 million (30/09/2009 $5,687
million) were held in the facility. These assets do not qualify for derecognition as the Bank retains a continuing involvementin the transferred assets, therefore the Banking Group’s financial statements do not change as a result of establishingthese facilities.

94 – 95

Notes to the Financial Statements

ANZ National Bank Limited

Notes to the Financial Statements
Funds management
Certain subsidiaries of the Bank act as trustee and/or manager for a number of unit trusts and investment and superannuation
funds. The Banking Group provides private banking services to a number of clients, including investment advice and portfolio
management. The Banking Group is not responsible for any decline in performance of the underlying assets of the investors
due to market forces.
As funds under management are not controlled by the Banking Group, they are not included in these financial statements. The
Banking Group derives fee and commission income from the sale and management of investment funds and superannuation
bonds, unit trusts and the provision of private banking services to a number of clients. The Banking Group derives commission
income from the sale of third party funds management products.
Some funds under management are invested in products owned or securities issued by the Banking Group and are recorded
as liabilities in the balance sheet. At 30 September 2010, $2,888 million of funds under management were invested in the
Banking Group’s own products or securities (30/09/2009 $2,664 million).
Aggregate value of funds managed by the Banking Group
Banking Group$ millions

30/09/2010

30/09/2009

Funds managed by OnePath

7,430

-

The Bonus Bonds Trust

2,973

2,889

Other discretionary funds

4,760

4,360

Totals funds under management

15,163

7,249

Custodial services
The Banking Group provides custodial services to customers in respect of assets that are beneficially owned by those customers.
Provision of financial services
Financial services provided by the Banking Group to entities which are involved in trust, custodial, funds management and otherfiduciary activities, 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.
Except for standard lending facilities provided in the normal course of business on arm’s length terms, the Banking Group has
not provided any funding to entities which conduct any of the following activities: trust, custodial, funds management or otherfiduciary activities established, marketed and/or sponsored by a member of the Banking Group (30/09/2009 $nil).
Insurance business
The Banking Group conducts an insurance business through OnePath Insurance Holdings (NZ) Limited and its subsidiaries(“OnePath Insurance”), the assets, liabilities and operations of which are fully consolidated into the Banking Group. OnePath
Insurance provides risk transfer and investment contract life insurance products. In addition, other entities within the Banking
Group market and distribute a range of insurance products which are underwritten by OnePath Insurance, or by third party
insurance companies.
The aggregate insurance business conducted by OnePath Insurance comprises assets totalling $337 million (30/09/2009: $nil),which is 0.3% (30/09/2009: 0.0%) of the total consolidated assets of the Banking Group.
Risk management
The Bank and subsidiaries of the Bank participating in the activities identified above have in place policies and procedures toensure that those activities are conducted in an appropriate manner. Should adverse conditions arise, it is considered thatthese policies and procedures will minimise the possibility that these conditions will adversely impact the Bank or the Banking
Group. The policies and procedures include comprehensive and prominent disclosure of information regarding products, andformal and regular review of operations and policies by management.
In addition, the following measures have been taken to manage any risk to the Banking Group of marketing and distributing
insurance and fund management products:•••

Investment statements, prospectuses and brochures for insurance products include disclosures that neither the Bank nor
any member of the Banking Group guarantees the insurer, the insurer’s subsidiaries, or any of the products issued by the
insurer or the insurer’s subsidiaries.
Investment statements, prospectuses and brochures of fund management products and insurance products subject to the
Securities Act 1978 additionally include disclosures that:– the products do not represent deposits or other liabilities of the entities within the Banking Group;– the products are subject to investment risk, including possible loss of income and principal; and– entities within the Banking Group do not guarantee the capital value or performance of the products.
Application forms for insurance and fund management products contain acknowledgements to be signed by a purchaser
which are consistent with the disclosures noted above.

ANZ National Bank Limited

39. Employee Share and Option Plans
The Banking Group participates in the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan operated by theOverseas Banking Group. Any shares or options granted under these plans are shares in the Ultimate Parent Bank.
The closing market price of one ordinary share of the Ultimate Parent Bank quoted on the ASX (Australian Stock Exchange) at
30 September 2010 was A$23.68 (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 Banking Group is eligible to participate in ascheme enabling the issue of up to A$1,000 of shares of the Ultimate Parent Bank in each financial year, subject to the approvalof the Ultimate Parent Bank’s Board. The shares vest subject to satisfaction of a three year service period but will be forfeitedin the event of resignation or termination for serious misconduct. On expiration of that period, an employee may sell theshares, transfer them into their name, or have them retained in trust. The issue price is based on the Volume Weighted Average
Price (VWAP) of ANZ shares traded in the one week up to and including the allocation date. All eligible employees wereallocated shares under the Employee $1,000 Share Plan at no cost on 7 December 2009, based on an allocation price of $22.06(the Volume Weighted Average Price (VWAP) of ANZ traded in the one week up to and including the allocation date).
The Banking Group’s employees are required to pay NZ 1 cent per share at the time the shares are issued to them. During theyear to 30 September 2010, 358,313 shares with an average issue price of A$22.02 were issued under the A$1,000 Share Plan
(30/09/2009 540,305 shares with an average issue price of A$14.94 were issued).
Deferred share plan
The Banking Group’s last issue of shares under this plan was in November 2004. Selected employees were issued deferredshares, which vest subject to satisfaction of a minimum three year service period from the date of issue. Ordinary shares issued
under this plan may be held in trust for up to 10 years, and may be required to meet performance hurdles before being able tobe traded after the restriction period has expired. The issue price is based on the VWAP of the shares traded on the ASX in thefive 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 – no longer available
From 2007, the Banking Group will no longer be offering the option to take a portion of any incentive payment received as
Restricted Shares. 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 toforfeiture on termination for serious misconduct.
Shares valuations
The fair value of services received in return for shares in the ANZ Employee Share Acquisition Plan are measured by referring to
the fair value of shares granted. The fair value of shares granted in the current period, measured at the date of grant of theshares, 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(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 the employees atthe end of the vesting period are used to calculate the fair value of shares. No dividends are incorporated into the measurementof 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 the Ultimate Parent
Bank at a price fixed at the time when the options were issued. Voting and dividend rights will be attached to the unissued
ordinary shares when the options have been exercised. Each option entitles a holder to purchase one ordinary share subject toany terms and conditions imposed on issue. The exercise price of the options (excluding zero-priced options) is determined inaccordance with the rules of the plan, and is based on the weighted average price of the Ultimate Parent Bank’s shares traded
during the five business days preceding the date of granting the options.
The main schemes of the ANZ Share Option Plan are as follows:

96 – 97

Notes to the Financial Statements

ANZ National Bank Limited

Notes to the Financial Statements
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 cost subject tosatisfactorily meeting the time based hurdle. The Special Retention Deferred Share Rights can only be exercised between thethird 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. Allother 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.
Performance rights planThis scheme is a long term incentive program available to certain 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 the Ultimate Parent Bank
relative to the companies in the comparator group, which consists of selected major financial services companies in theStandard & Poor’s and ASX 100 Index. Performance equal to the median TSR of the comparator group will result in half therights 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 the Ultimate Parent Bank’s TSR is at or above
the 75th percentile in the comparator group.
The TSR hurdle will only be tested once at the end of the three-year vesting period. If the rights do not pass the hurdle
on testing date, or 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 to exercise the rights. All other rights will lapse. In thecase of retrenchment or retirement, performance rights will be performance tested at the date of termination andwhere performance hurdles have been met, performance rights will be pro-rated and a grace period provided in which toexercise the rights. In case of death or total and permanent disablement, a grace period is provided in which to exercise all
performance rights.
LTI Deferred Share Rights
This scheme is a long term incentive program available to certain Banking Group employees and grants the right to acquire ashare 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 the Ultimate Parent Bank, all unvested LTI Deferred Share Rights as at the time notice oftermination 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 andbe delivered as shares. In case of death or total and permanent disablement, all LTI Deferred Share Rights will vest and bedelivered as shares.
Deferred share rights
This scheme is a short term incentive program available to certain Banking Group employees since November 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 the case of resignation, all unvested deferred share rights andany vested unexercised share rights will be forfeited. In the case of termination on notice, all unvested share rights will be
forfeited and any vested unexercised share rights will be delivered as shares. In the case of retrenchment, death or total andpermanent disablement, all share rights will be available and delivered as shares.
Deferred share options
This scheme is a part of the short term incentive program available whereby certain Banking Group employees receive amandatory deferred bonus under the Ultimate Parent Bank’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 and fifth anniversary(two-year deferred options) of the grant date (exercise period) and subject to the requirement that the share price is greaterthan the exercise price. In the case of resignation or dismissal for serious misconduct, all unvested STI deferred options and any
vested unexercised options, as at the time notice of resignation is given or upon dismissal, will be forfeited. In the case oftermination on notice, all deferred options will be forfeited and a grace period is provided in which to exercise any vested
unexercised deferred options. In the case of redundancy, retrenchment, death or total and permanent disablement, all STI
deferred options will vest and a grace period is provided in which to exercise all deferred share options.

ANZ National Bank Limited
98 – 99

Notes to the Financial Statements
Legacy Option Plans
Performance options planThis scheme is a long term incentive program available to certain Banking Group employees. The options can only be exercised
after a 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 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, allunvested options will become available for exercise. No further performance options have been granted to Banking Group
employees after November 2005.
Zero-price options (“ZPO”)
A ZPO is a right to acquire a share at nil cost and is granted to certain employees as part of their employment contracts. The
ZPO’s have no time based vesting criteria, so can be exercised at any time during employment and within 6 months oftermination of employment. ZPO’s must be exercised within two years of grant date or they lapse.
Other past option plans which are no longer available to the Banking Group’s employees, but continue to be amortised during
their appropriate vesting periods are hurdled options and index linked options (“ILOs”).
Details of the options over unissued Ultimate Parent Bank ordinary shares and their related weighted average exercise prices
as at the beginning and end of the year and movements during the year are set out below:
Banking Group / Bank
30/09/2010$ millions

Share options at beginning of the year
Share options granted

Number of shares

Number of shares

Weighted average
exercise price1

2,067,345

8.32

1,741,771

10.86

495,193

1.39

709,805

2.51

Share options exercised(471,831)

9.30(109,936)

5.73

Share options forfeited and expired(139,323)

3.26(274,295)

10.44

Share options at end of the year

1,951,384

6.40

2,067,345

8.32

22.80

16.53

Range of exercise prices on share options at end of the year

0.00 - 23.49

0.00 - 23.49

Weighted average remaining contractual life on share options
at end of the year

32 months

35 months

Weighted average share price during the year1

30/09/2009

Weighted average
exercise price1

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

ANZ National Bank Limited

Notes to the Financial Statements
Options valuations
The fair value of services received in return for share options are measured by referring to the fair value of share options
granted. The fair value of options granted in the current year, measured at the date of grant are calculated using one of thefollowing models:a.

Monte-Carlo simulation model utilising the assumptions underlying Black-Scholes. In terms of factoring in early exercise,the model assumes that deferred share rights and performance rights are exercised as soon as they vest so that the option
holder can benefit 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, the model assumes
that the expected life of vanilla options is 5 years, performance rights is 4 years and that deferred share rights are exercised
immediately to account for lack of marketability.
In addition, both models are designed such that they take into account as appropriate, any performance hurdles and nontransferability of the options.
The following inputs are used to measure the fair value of instruments granted during the year. All prices are quoted inAustralian dollars:
Option type

STI deferredshare rights

STI deferredshare rights

LTI deferredshare rights

PerformancerightsShareoptions

Shareoptions

Grant date

13/11/2009

13/11/2009

13/11/2009

13/11/2009

13/11/2009

13/11/2009
15,044

Number of options

79,646

83,635

259,71341,084

15,046

Option value$21.41$20.39$19.42$12.17

$4.83

$5.09

$nil

$nil

$nil

$nil

$22.80$22.80$22.48$22.48$22.48$22.48$22.48$22.48

35%

35%

35%

35%

35%

35%
5 years

Exercise price (5 day VWAP)
Share price at grant ($A)
Expected volatility22

Option term

5 years

5 years

5 years

5 years

5 years

Vesting period

1 year

2 years

3 years

3 years

1 year

2 years

Expected life

1 year

2 years

3 years

3 years

3 years

4 years

Expected dividends

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

Risk free interest rate

4.3%

4.7%

5.0%

5.0%

5.0%

5.2%

Expected volatility is based on the Ultimate Parent Bank’s historical volatility.

40. Retirement Benefit Obligations
The Banking Group has established a number of pension and superannuation schemes. The Banking Group may be obliged tocontribute 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
SchemeScheme type

Employee

Employer

ANZ National Bank Staff
Superannuation Scheme1

Defined Benefit SchemeorDefined Contribution Scheme

Nil

Balance of cost 4

2.5% minimum of salary

7.5% of salary5

The National Bank Staff
Superannuation Fund1

Defined Benefit SchemeorDefined Contribution Scheme

5% of salary

Balance of cost 4

2.0% minimum of salary

11.5% of salary62

2

These schemes provide for pension benefits and provide for lump sum benefits.
Closed to new members. Operates to make pension payments to retirees who were members of that section of the scheme or to dependents of the members.
3
30/09/2010: $nil (30/09/2009 $nil).
4
30/09/2010: 24.8% (30/09/2009 24.8%) of members’ salaries.
5
30/09/2010: 7.5% (30/09/2009 7.5%) of members’ salaries.
6
30/09/2010: 11.5% (30/09/2009 11.5%) of members’ salaries.
1
2

Actuarial valuations for financial reporting purposes are undertaken every six months. The latest valuations were carried out
as at 30 September 2010.

ANZ National Bank Limited
100 – 101

Notes to the Financial Statements
Amounts recognised in the balance sheet arising from the Banking Group’s obligation in respect of defined benefit schemes
Banking Group / Bank$ millions

Defined benefit obligation at beginning of the year

30/09/2010

30/09/2009

174

179

Current service cost

3

3

Interest cost

10

11

Contributions by scheme participants

1

1

Actuarial gains

(6)

(2)

Benefits paid

(17)

(18)

Present value of funded defined benefit obligations

165

174

Fair value of scheme assets at beginning of the year

119

152

Expected return on scheme assets net of tax

8

8

Actuarial gains / (losses)

21

(27)

Contributions by employer

7

3

Contributions by scheme participants11

Benefits paid

(17)

(18)

Fair value of scheme assets

139

119

Net defined benefit liability recognised on balance sheet

(26)

(55)

The fair value of scheme assets include cash deposits and fixed interest investments of $3 million with the Banking Group as at
30 September 2010 (30/09/2009 $4 million).
Amounts recognised in the income statement in respect of defined benefit schemes
Banking Group / Bank
30/09/2010$ millions

30/09/2009

Current service cost

3

3

Interest cost

10

11

Expected return on scheme assets net of tax

(8)

(8)

Contribution withholding tax

2

2

Total pension costs recognised in the income statement

78

Amounts recognised in equity in respect of defined benefit schemes
Banking Group / Bank
30/09/2010$ millions

30/09/2009

Actuarial gains / (losses) incurred during the year and recognised directly in retained earnings

18

(18)

Cumulative actuarial losses recognised directly in retained earnings

(16)

(34)

Principal actuarial assumptions
The National Bank
Staff Superannuation FundANZ National Bank
Staff Superannuation Scheme

30/09/2010

30/09/2009

30/09/2010

30/09/2009

Discount rate gross of tax

6.0%

6.0%

6.0%

6.0%

Future price inflation

2.5%

2.5%

2.5%

2.5%

Future pension increases

2.5%

2.5%

2.5%

2.5%

Future salary increases

3.0%

n/a

n/a

4.5%

4.5%

Defined benefits calculation– 2009 and 2010

2.5%

– Post 2010

3.0%

Scheme assets calculation
Expected return on scheme assets net of tax

5.5%

5.5%

ANZ National Bank Limited

Notes to the Financial Statements
The overall expected return on scheme assets is determined by reference to market expectations at the beginning of therelevant 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 6.9% for the year ended
30 September 2010 (30/09/2009 -0.7%). The actual return on scheme assets (net of tax) for the ANZ National Bank Staff
Superannuation Scheme was 6.2% for the year ended 30 September 2010 (30/09/2009 0.0%).
The investment return on scheme assets is taxed at 30% (30/09/2009 30%).
Major categories of scheme assets as a percentage of the fair value of scheme plan assets
The National Bank
Staff Superannuation Fund
30/09/2010

ANZ National Bank
Staff Superannuation Scheme

30/09/2009

30/09/2010

30/09/2009

Cash and short term debt instruments

7.3%

14.1%

8.7%

8.1%

New Zealand fixed interest

13.2%

12.6%

19.6%

22.4%

Overseas fixed interest

24.8%

24.3%

37.4%

30.6%

Australasian shares

19.8%

10.4%

9.9%

10.2%

Overseas shares

34.9%

38.6%

24.4%

24.2%

Property fund units

0.0%

0.0%

0.0%

4.5%

100.0%

100.0%

100.0%

100.0%The benchmark weightings of each asset class are determined by the Trustee in conjunction with the investment manager.
Historical summary
Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous actuarial
assumptions and what has actually occurred in the period) and the effects of changes in actuarial assumptions on valuation
date. The history of the schemes’ net position and experience adjustments is as follows:
Banking Group / Bank
30/09/2010

30/09/2009

30/09/2008

30/09/2007

30/09/2006

Defined benefit obligation

(165)

(174)

(179)

(181)

(190)

Fair value of scheme assets

139

119

152

189

196

Net benefit asset / (liability)$ millions

(26)

(55)

(27)

8

6

Experience adjustments on scheme liabilities

3

1

5

(1)

3

Experience adjustment on scheme assets

14

(20)

(21)

(7)

5

Employer contributions
To ensure the defined benefit schemes remain solvent, the schemes’ independent actuaries recommend an employer
contribution rate to the Banking Group annually for The National Bank Staff Superannuation Fund and every three years for the
ANZ National Bank Staff Superannuation Scheme.
The National Bank Staff Superannuation Fund deficit for funding purposes was valued at $20m in the most recent actuarial
review at 1 April 2010. The ANZ National Bank Staff Superannuation Scheme surplus was valued at less than $1 million in themost recent actuarial valuation at 31 December 2007.
The Banking Group contributed $7 million (net of contributions withholding tax) to its defined benefit schemes in the year to
30 September 2010 (30/09/2009 $3 million). Employer contributions are taxed at a maximum rate of 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 Banking Group would be required to pay the Trustee of theFund an amount sufficient to ensure members do not suffer a reduction in benefits to which they would otherwise be entitled.
ANZ National Bank Staff Superannuation Scheme
If the Scheme is wound up then its assets must be cashed up and applied to all members’ benefits. If Scheme funds are
insufficient to pay all members’ benefits then the Banking Group must pay to the Scheme such amounts as the Scheme Actuary
determines are necessary to pay those benefits.

ANZ National Bank Limited
102 – 103

Notes to the Financial Statements
41. Business Combinations
On 30 November 2009, the Banking Group purchased ING Groep’s 51% interest in ING NZ, which was the holding company for
the ANZ-ING wealth management and life insurance joint venture in New Zealand. The acquisition took the Banking Group’s
ownership interest in ING NZ to 100%. The transaction was undertaken to strengthen the Banking Group’s position in wealthmanagement and more closely integrate its retail banking and wealth businesses. As a result of the change in ownership, thename of these businesses was changed to OnePath in November 2010.
As part of the transaction the 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 ownership interest to over 99% of the Funds.
Banking Group$ millions

Fair values of assets acquired and liabilities assumed as at acquisition date
Due from financial institutions

142

Available-for-sale assets

173

Investments relating to insurance business40

Insurance policy assets

67

Shares in associates

1

Other assets1

24

Deferred tax assets

35

Premises and equipment

4

Intangible assets

210

Total assets

696

Due to financial institutions

30

Payables and other liabilities

27

Current tax liabilities

27

Provisions

2

95

Total liabilities

179

Net assets

517

Non-controlling interests in the Funds3

1

Net assets attributable to the Banking Group

516

Book value of existing equity interests

351

Loss on re-measuring existing equity interests to fair value4(82)

Acquisition date fair value of existing equity interests

269

Cash consideration transferred

247

Total consideration

516

Total consideration less net assets acquired-

Includes receivables with a fair value of $16m and a gross contractual amount receivable of $17m. The best estimate at the acquisition date of the contractual
cash flows not expected to be collected on these receivables is $1m.
2
Includes employee related provisions and the fair value of contingent liabilities, which related to possible claims by investors in the Funds, investigations byregulatory bodies and other actual and potential claims and proceedings (refer Note 37). The expected timing and ultimate cost of contingent liabilities to the
Banking Group depends on the assessment and outcome of customer complaints, and the results of any litigation and regulatory investigations or proceedingsthat may be brought.
3
Non-controlling interests are measured at their proportionate share of the identifiable net assets of the Funds.
4
The loss on re-measuring equity interests of $82 million has been recognised in Other Operating Income in the Income Statement.
1

Included in the Banking Group’s Income Statement and Statement of Comprehensive Income since 30 November 2009 is net
operating income of $147 million and a profit before tax of $57 million, excluding integration costs, contributed by ING NZ and
the Funds. Had ING NZ and the Funds been consolidated from 1 October 2009, the Banking Group’s Income Statement andStatement of Comprehensive Income would have included, for the year ended 30 September 2010, net operating income of$173 million and a profit before tax of $67 million. Acquisition costs were paid by the Ultimate Parent Bank.

42. Subsequent Events
There have been no material subsequent events.

ANZ National Bank Limited

Directorate and Auditors
The address to which any document or communication may be sent to any Director is ANZ National Bank Limited, Level 6,
1 Victoria Street, Wellington, New Zealand. The document or communication should be marked for the attention ofthat Director.

Directors’ interests
In order to ensure that members of the Board are reminded of their disclosure obligations under the Companies Act 1993, thefollowing procedures are adopted:a.

At least once in each year, Directors are requested to complete, in terms of section 140(1) of the Companies Act 1993,
a disclosure of any interests which they have with the Bank itself. Directors are reminded at this time of their obligation
under the Companies Act 1993 to disclose promptly any transaction or proposed transaction with the Bank in which they
have an interest.

b. Directors are also requested to make a general disclosure of their interest in other entities in terms of section 140(2) of theCompanies Act 1993. In addition, they are requested to initiate a review of that disclosure if there are any significant
alterations which occur subsequently during the period.
In addition to the written disclosures referred to in paragraphs (a) and (b) above, Directors disclose relevant interests which
they have before discussion of particular business items.
The Companies Act 1993 (subject to any different provision in the Bank’s Constitution) allows a Director with an interest in atransaction to participate in discussions and to vote on all matters relating to that particular transaction. The Bank’s Constitution
does not alter that situation. However, the Board has adopted a guideline whereby a Director with an interest in a transaction
should not be present during any discussions, and should not vote, on any matter pertaining to that particular transaction.

Transactions with Directors
No Director has disclosed that he/she or any immediate relative or professional associate has any dealing with the Banking
Group which has been either entered into on terms other than those which would in the ordinary course of business be given
to any other person of like circumstances or means or which could otherwise be reasonably likely to influence materially theexercise of the Director’s duties as a Director of the Bank.

Changes in Directors
Since the authorisation date of the previous General Short Form Disclosure Statement on 13 August 2010, Jennifer Anne Fagg
resigned as a Director of the Bank on 1 September 2010 and David Duncan Hisco was appointed a Director.

Board Members as at 22 November 2010
Independent Non-Executive Director and Chairman
Sir Dryden Spring
DSc
Company Director
Matamata, New Zealand
Sir Dryden is the Chair of the Remuneration Committee and a Member of the Audit Committee and the Risk Committee.
Other directorships: SkyCity Entertainment Group Limited, SkyCity Investments Australia Limited, Port of Tauranga Limited

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

Non-Executive Directors
Michael Roger Pearson Smith, OBE
BSc (Hons)
Chief Executive Officer, Australia and New Zealand Banking Group Limited
Melbourne, Australia
Mr Smith is a Member of the Remuneration Committee.
Other directorships: Australia and New Zealand Banking Group Limited, The Financial Markets Foundation for Children, The
Institute of International Finance Inc

ANZ National Bank LimitedPeter Ralph Marriott
BEc (Hons), FCA
Chief Financial Officer, Australia and New Zealand Banking Group Limited
Melbourne, Australia
Mr Marriott is a Member of the Audit Committee and the Risk Committee.
Other directorships: ANZ Capital Hedging Pty Limited, ANZ (Delaware) Inc., ANZ Holdings (New Zealand) Limited, ANZ Orchard
Investments Pty Ltd, Esanda Finance Corporation Limited, ANZEST Pty Limited, ANZ Funds Pty Limited, ANZ Investments Pty
Limited, ASX Limited, LFD Pty Limited, RFDL Pty Limited, ASX Clearing Corporation Limited, ASX Clear Pty Limited (previously
Australian Clearing House Pty Limited), ASX Clear (Futures) Pty Limited (previously SFE Clearing Corporation Pty Limited),
ASX Settlement Pty Limited (previously ASX Settlement & Transfer Corporation Pty Limited), Australia Limited, ASX Settlement
Pty Limited
Shayne Cary Elliott
B Com
Group Managing Director, Institutional, Australia and New Zealand Banking Group Limited
Melbourne, Australia
Other directorships: ANZ Securities Limited

Independent Non-Executive Directors
Norman Michael Thomas Geary, CBE
B Com, FACA, FNZIM, FCIT
Company Director
Auckland, New Zealand
Mr Geary is the Chair of the Risk Committee and a Member of the Audit Committee and the Remuneration Committee.
Other directorships: Otago Innovation Limited
John Frederick JudgeB Com, FICA
Company Director
Auckland, New Zealand
Mr Judge is the chair of the Audit Committee and a Member of the Risk Committee and the Remuneration Committee.
Other directorships: Fletcher Building Limited, Fletcher Building Finance Limited, Aquatx Holdings Limited, Aquatx Limited,
Janohn Limited, Sebca Limited, John Judge Limited, Health TV Limited, Sails Friday Limited, Crop Solutions 09 Limited, Formerly
Fuel Equipment Limited, Greentide Limited, Greentide K4B3 Limited
Dr Donald Thomas Brash
PhD, MA (Econ)
Company Director
Auckland, New Zealand
Dr Brash is a Member of the Audit Committee, Risk Committee and the Remuneration Committee.
Other directorships: Brash Forestry Limited, Eljeans Orchard Limited, Brash Consultancy Services Limited, Oceania Dairy Group
Limited, Oceania Milk Limited, Oceania Dairy Limited, Transpower New Zealand Limited, Troika Family Trust Nominees Limited

Auditors
KPMG
Chartered Accountants
10 Customhouse Quay
PO Box 996
Wellington, New Zealand

104 – 105

Directorate and Auditors

ANZ National Bank Limited

Conditions of Registration
Conditions of Registration, applicable as at 22 November 2010. These Conditions of Registration haveapplied from 15 October 2010.
There have been no changes in the Bank’s conditions of registration since the issuance of the last General Short Form DisclosureStatement dated 13 August 2010, other than changes to conditions 1 and 4 to update references to RBNZ documents.
The registration of ANZ National Bank Limited (“the Bank”) as a registered bank is subject to the following conditions:1.

That the Banking Group complies with the following requirements:(a) the total capital ratio of the Banking Group calculated in accordance with the Reserve Bank of New Zealand document“Capital adequacy framework (internal models based approach)” (BS2B) dated October 2010 is not less than 8%;(b) the tier one capital ratio of the Banking Group calculated in accordance with the Reserve Bank of New Zealanddocument “Capital adequacy framework (internal models based approach)” (BS2B) dated October 2010 is not less than4%; and(c) the capital of the Banking Group calculated in accordance with the Reserve Bank of New Zealand document “Capital
adequacy framework (internal models based approach)” (BS2B) dated October 2010 is not less than $30 million.
For the purposes of this condition of registration the scalar referred to in the Reserve Bank of New Zealand document“Capital adequacy framework (internal models based approach)” (BS2B) dated October 2010 is 1.06.
For the purposes of this condition of registration, the supervisory adjustment referred to in the Reserve Bank of
New Zealand document “Capital adequacy framework (internal models based approach)” (BS2B) dated October 2010 is thesum of:(a) 15% of risk-weighted exposures secured by residential mortgages as defined in the Reserve Bank of New Zealanddocument “Capital adequacy framework (internal models based approach)” (BS2B) dated October 2010; and(b) 12.5 times the greater of: zero; and 90% of adjusted Basel I capital, less adjusted Basel II capital; where(i) “adjusted Basel I capital” means 8% of total risk-weighted exposures, plus deductions from tier one capital, plus
deductions from total capital, all calculated in accordance with the Reserve Bank of New Zealand document “Capital
adequacy framework (Basel I approach)” (BS2) dated October 2010;(ii) “adjusted Basel II capital” means 8% of total Basel II risk-weighted exposures plus deductions from tier one capital,plus deductions from total capital, less any amount included in tier two capital arising from the excess of eligible
allowances for impairment over EL (expected losses), all calculated in accordance with the Reserve Bank of
New Zealand document “Capital adequacy framework (internal models based approach)” (BS2B) dated October
2010; and(iii) “total Basel II risk-weighted exposures” means scalar x (risk-weighted on and off balance sheet credit exposures) +12.5 x total capital charge for market risk exposure + 12.5 x total capital requirement for operational risk + 15% ofrisk-weighted exposures secured by residential mortgages as defined in the Reserve Bank of New Zealanddocument “Capital adequacy framework (internal models based approach)” (BS2B) dated October 2010.
1A. That(a) the Bank has an internal capital adequacy assessment process (“ICAAP”); that with effect from 31 August 2008 theBank’s ICAAP accords with the requirements set out in the document “Guidelines on a Bank’s internal capital adequacy
process (“ICAAP”)” (BS12) dated December 2007;(b) under its ICAAP the Bank identifies and measures its “other material risks” defined as all material risks of the Banking
Group that are not explicitly captured in the calculation of tier one and total capital ratios under the requirements set
out in the document “Capital adequacy framework (internal models based approach)” (BS2B) dated October 2010; and(c) the Bank determines an internal capital allocation for each identified and measured “other material risk”.
1B. That the Banking Group complies with all requirements set out in the Reserve Bank of New Zealand document “Capital
adequacy framework (internal models based approach)” (BS2B) dated October 2010.
1C. That the Bank complies with the following requirements:• The total capital ratio of the Bank is not less than 8%.
• The tier one capital ratio of the Bank is not less than 4%.
For the purposes of this condition of registration:•2.

the total capital ratio is defined as capital as a percentage of risk-weighted exposures where capital and risk-weighted
exposures are as defined in the Reserve Bank of New Zealand document “Capital adequacy framework (Basel I
approach)” (BS2) dated October 2010; and• the tier one capital ratio is defined as tier one capital as a percentage of risk-weighted exposures where tier one capitaland risk-weighted exposures are as defined in the Reserve Bank of New Zealand document “Capital adequacy framework(Basel I approach)” (BS2) dated October 2010.
That the Banking Group does not conduct any non-financial activities that in aggregate are material relative to its total
activities, where the term material is based on generally accepted accounting practice, as defined in the Financial ReportingAct 1993.

ANZ National Bank Limited

3.

4.

That the Banking Group’s insurance business is not greater than 1% of its total consolidated assets. For the purposes ofthis condition:(i) Insurance business means any business of the nature referred to in section 4 of the Insurance Companies (Ratings andInspections) Act 1994 (including those to which the Act is disapplied by sections 4(1)(a) and (b) and 9 of that Act), or any
business of the nature referred to in section 3(1) of the Life Insurance Act 1908;(ii) In measuring the size of the Banking Group’s insurance business:(a) where insurance business is conducted by any entity whose business predominantly consists of insurance business,the size of that insurance business shall be:• The total consolidated assets of the group headed by that entity;• Or if the entity is a subsidiary of another entity whose business predominantly consists of insurance business,
the total consolidated assets of the group headed by the latter entity;(b) otherwise, the size of each insurance business conducted by any entity within the Banking Group shall equal the
total liabilities relating to that insurance business, plus the equity retained by the entity to meet the solvency or
financial soundness needs of the insurance business;(c) the amounts measured in relation to parts a) and b) shall be summed and compared to the total consolidated
assets of the Banking Group. All amounts in parts a) and b) shall relate to on balance sheet items only, and shallbe determined in accordance with generally accepted accounting practice, as defined in the Financial ReportingAct 1993;(d) where products or assets of which an insurance business is comprised also contain a non-insurance component,
the whole of such products or assets shall be considered part of the insurance business.
That the aggregate credit exposures (of a non-capital nature and net of any allowances for impairment) of the Banking
Group to all connected persons do not exceed the rating-contingent limit outlined in the following matrix:
Credit Rating of theregistered bank1

1

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

AA/Aa2 and above

75

AA-/Aa3

70

A+/A1

60

A/A2

40

A-/A3

30

BBB+/Baa1 and below

15

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

Within the rating-contingent limit, credit exposures (of a non-capital nature and net of any allowances for impairment) to
non-bank connected persons shall not exceed 15 percent of the Banking Group’s Tier One capital.
For the purposes of this condition of registration, compliance with the rating-contingent connected exposure limit isdetermined in accordance with the Reserve Bank of New Zealand document entitled ‘Connected Exposures Policy’ (BS8)
dated October 2010.
5.

That exposures to connected persons are not on more favourable terms (e.g. as relates to such matters as credit assessment,
tenor, interest rates, amortisation schedules and requirement for collateral) than corresponding exposures to nonconnected persons.

6.

That the board of the Bank contains at least two independent directors and that alternates for those directors, if any, arealso independent. In this context an independent director (or alternate) is a director (or alternate) who is not an employeeof the Bank, and who is not a director, trustee, or employee of any holding company (as that term is defined in section 5 of
the Companies Act 1993) of the Bank, or any other entity capable of controlling or significantly influencing the Bank.

7.

That the chairperson of the Bank’s board is not an employee of the Bank.

8. That the Bank’s constitution does not include any provision permitting a director, when exercising powers or performing
duties as a director, to act other than in what he or she believes is the best interests of the company (i.e. the Bank).
9.

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

10. That no appointment of any director, chief executive officer, or executive who reports or is accountable directly to thechief executive officer, shall be made in respect of the Bank unless:(i) The Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee, and(ii) The Reserve Bank has advised that it has no objection to that appointment.

106 – 107

Conditions of Registration

ANZ National Bank Limited

Conditions of Registration
11. That the Bank has legal and practical ability to control and execute any business, and any functions relating to any business,of the Bank that are carried on by a person other than the Bank, sufficient to achieve, under normal business conditions
and in the event of stress or failure of the Bank or of a service provider to the Bank, the following outcomes:(a) that the Bank’s clearing and settlement obligations due on a day can be met on that day;(b) that the Bank’s financial risk positions on a day can be identified on that day;(c) that the Bank’s financial risk positions can be monitored and managed on the day following any failure and on
subsequent days; and(d) that the Bank’s existing customers can be given access to payments facilities on the day following any failure and on
subsequent days.
For the purposes of this condition of registration, the term “legal and practical ability to control and execute” is explainedin the Reserve Bank of New Zealand document entitled ‘Outsourcing Policy’ (BS11) dated January 2006.
12. (a) That the business and affairs of the Bank are managed by, or under the direction and supervision of, the board of
the Bank.
(b) That the employment contract of the chief executive officer of the Bank or person in an equivalent position (together“CEO”) is with the Bank, and the terms and conditions of the CEO’s employment agreement are determined by, and any
decision relating to the employment or termination of employment of the CEO are made by, the board of the Bank.
(c) That all staff employed by the Bank shall have their remuneration determined by (or under the delegated authority of )the board or the CEO of the Bank and be accountable (directly or indirectly) to the CEO of the Bank.
13. That the Banking Group complies with the following quantitative requirements for liquidity-risk management with effectfrom 1 April 2010:(a) the one-week mismatch ratio of the Banking Group is not less than zero percent at the end of each business day;(b) the one-month mismatch ratio of the Banking Group is not less than zero percent at the end of each business day; and(c) the one-year core funding ratio of the Banking Group is not less than 65 percent at the end of each business day.
For the purposes of this condition of registration, the ratios identified must be calculated in accordance with the Reserve
Bank of New Zealand documents entitled “Liquidity Policy” (BS13) dated March 2010 and “Liquidity Policy Annex: Liquid
Assets” (BS13A) dated March 2010.
14. That, with effect from 1 April 2010, the Registered Bank has an internal framework for liquidity risk management that is
adequate in the Registered Bank’s view for managing the Bank’s liquidity risk at a prudent level, and that, in particular:(a) is clearly documented and communicated to all those in the organisation with responsibility for managing liquidity
and liquidity risk;(b) identifies responsibility for approval, oversight and implementation of the framework and policies for liquidity risk
management;(c) identifies the principal methods that the Bank will use for measuring, monitoring and controlling liquidity risk; and(d) considers the material sources of stress that the Bank might face, and prepares the Bank to manage stress through acontingency funding plan.
For the purposes of these conditions of registration, the term “Banking Group” means ANZ National Bank Limited’s financial
reporting group (as defined in section 2(1) of the Financial Reporting Act 1993).

ANZ National Bank Limited

As at the date on which this Disclosure Statement is signed, after due enquiry, each Director believes that:(i) The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statement(Full and Half Year – New Zealand Incorporated Registered Banks) Order 2008;(ii) The Disclosure Statement is not false or misleading.
Over the year ended 30 September 2010, after due enquiry, each Director believes that:(i) ANZ National Bank Limited has complied with the Conditions of Registration;(ii) Credit exposures to connected persons were not contrary to the interests of the Banking Group;(iii) ANZ National Bank Limited had systems in place to monitor and control adequately the Banking Group’s material risks,
including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk, operationalrisk and other business risks, and that those systems were being properly applied.
This General Disclosure Statement is dated, and has been signed by or on behalf of all Directors of the Bank on 22 November
2010. On that date, the Directors of the Bank were:

Dr D T Brash

S C Elliott

N M T Geary, CBE

D D Hisco

J F Judge

P R Marriott

M R P Smith, OBE

Sir Dryden Spring

108 – 109

Directors’ Statement

ANZ National Bank Limited

Independent Auditor’s Report
To the Shareholder of ANZ National Bank Limited
Report on the Bank and Banking Group General Disclosure Statement
We have audited the accompanying General Disclosure Statement and supplementary information (excluding the
supplementary information relating to Capital Adequacy disclosed in note 31) of ANZ National Bank Limited (the “Bank’’) andits subsidiaries (the “Banking Group”) on pages 5 to 103. The General Disclosure Statement comprises the balance sheets as at
30 September 2010, the income statements and statements of comprehensive income, changes in equity and cash flows forthe year then ended, and a summary of significant accounting policies and other explanatory information of the Bank and the
Banking Group. The supplementary information comprises the information that is required to be disclosed under theRegistered Bank Disclosure Statement (Full and Half Year – New Zealand Incorporated Registered Banks) Order 2008, as
amended (the “Order”) and is presented in notes 28, 31, 33 and 38 of the General Disclosure Statement.

Directors’ Responsibility for the General Disclosure Statement
The directors are responsible for the preparation of the General Disclosure Statement in accordance with Clause 22 of theOrder, generally accepted accounting practice in New Zealand, and International Financial Reporting Standards and that gives
a true and fair view of the matters to which they relate. The directors are also responsible for such internal controls as they
determine are necessary to enable the preparation of the General Disclosure Statement that is free from material misstatement
whether due to fraud or error.
The directors are responsible for the preparation and fair presentation of supplementary information, in accordance with
Schedules 4 and 6 to 9 and Clause 17 of Schedule 3 of the Order, and which is prepared in accordance with the guidelines
issued pursuant to Section 78(3) of the Reserve Bank of New Zealand Act 1989 and any Conditions of Registration.

Auditor’s Responsibility
Our responsibility is to express an opinion on the General Disclosure Statement, including the supplementary information
presented in notes 28, 31, 33 and 38, based on our audit. We conducted our audit in accordance with International Standards on
Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and perform the audit toobtain reasonable assurance about whether the General Disclosure Statement is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the General DisclosureStatement. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the General Disclosure Statement, whether due to fraud or error. In making those risk assessments, the auditor
considers internal controls relevant to the Bank and Banking Group’s preparation of the General Disclosure Statement that gives
a true and fair view of the matters to which they relate in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Bank and Banking Group’s internal controls. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well
as evaluating the presentation of the General Disclosure Statement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Our firm has provided other services to the Bank and Banking Group in relation to audit related services. Partners and employees
of our firm may also deal with the Bank and Banking Group on normal terms within the ordinary course of trading activities of thebusiness of the Banking Group subject to certain restrictions on borrowings. These matters have not impaired our independence
as auditors of the Bank and Banking Group. The firm has no other relationship with, or interest in, the Bank or Banking Group.

OpinionIn our opinion the General Disclosure Statement of ANZ National Bank Limited and its subsidiaries (‘’the Bank and Banking
Group’’) on pages 5 to 103 (excluding the supplementary information included in notes 28, 31, 33 and 38):•••

complies with generally accepted accounting practice in New Zealand;
complies with International Financial Reporting Standards; andgives a true and fair view of the financial position as at 30 September 2010 and of their financial performance and cash flows
for the year ended on that date.

In our opinion, the supplementary information that is required to be disclosed under Schedules 4 and 6 to 9 and clause 17 of
Schedule 3 of the Order, and is included within notes 28, 31, 33 and 38 of the General Disclosure Statement:•••

has been prepared, in all material respects, in accordance with the guidelines issued pursuant to section 78(3) of the Reserve
Bank of New Zealand Act 1989 and any Conditions of Registration;is in accordance with the books and records of the Bank and Banking Group; andpresents fairly, in all material respects, the matters to which it relates, in accordance with those Schedules.

ANZ National Bank Limited

In accordance with the requirements of sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993, and clauses 2(d) and2(e) of Schedule 1 of the Order, we report that:••

we have obtained all the information and explanations we have required; andin our opinion, proper accounting records have been kept by the Bank and Banking Group, as far as appears from our
examination of those records.

Report on the Supplementary Information Relating to Capital Adequacy
We have reviewed the supplementary information relating to Capital Adequacy, as disclosed in note 31 of the General
Disclosure Statement.

Directors’ Responsibility for the Supplementary Information Relating to Capital Adequacy
The directors are responsible for the preparation of supplementary information relating to Capital Adequacy that is required
to be disclosed under Schedule 5B of the Order and prepared in accordance with the Bank’s Conditions of Registration andwith the Bank’s internal models for credit risk and operational risk, as accredited by the Reserve Bank of New Zealand anddescribed in note 31 of the General Disclosure Statement.

Auditor’s Responsibility
Our responsibility is to express an opinion on the supplementary information relating to Capital Adequacy based on our review.
We conducted our review in accordance with the Review Engagement Standards issued by the New Zealand Institute of Chartered
Accountants. Those standards require that we comply with ethical requirements and plan and perform the review to obtain
limited assurance about whether the supplementary information relating to Capital Adequacy is free from material misstatement.
A review is limited primarily to enquiries of Bank and Banking Group personnel and analytical review procedures applied to thefinancial data, and thus provides less assurance than an audit. We have not performed an audit in respect of the Capital Adequacy
disclosures, and accordingly, we do not express an audit opinion on these disclosures.

OpinionBased on our review, nothing has come to our attention that causes us to believe that the supplementary information relating
to Capital Adequacy, disclosed in note 31 of the General Disclosure Statement, is not prepared and disclosed, in all material
respects, in accordance with:•••

the Bank’s Conditions of Registration;
the Bank’s internal models for credit risk and operational risk as accredited by the Reserve Bank of New Zealand; andSchedule 5B of the Registered Bank Disclosure Statement (Full and Half Year – New Zealand Incorporated Registered Banks)
Order 2008, as amended.

22 November 2010
KPMG
Wellington

110 – 111

Report on Other Legal and Regulatory Requirements

ANZ National Bank Limited

Index
Contents and Glossary of Terms
General Disclosures
Summary of Financial Statements
Income Statements
Statements of Comprehensive Income
Statements of Changes in Equity
Balance Sheets
Cash Flow Statements
1.
Significant Accounting Policies
2. Critical Estimates and Judgement Used in Applying Accounting Policies
3. Risk Management Policies
4. Income5. Expenses
6. Income Tax Expense
7.
Segmental Analysis
8. Liquid Assets
9.
Due from Other Financial Institutions
10. Trading Securities
11. Derivative Financial Instruments
12. Available-for-sale Assets
13. Net Loans and Advances
14. Impaired Assets, Past Due Assets and Other Assets Under Administration
15. Provision for Credit Impairment
16. Shares in Controlled Entities, Associates and Jointly Controlled Entities
17. Other Assets
18. Deferred Tax Assets and Liabilities
19. Premises and Equipment
20. Goodwill and Other Intangible Assets
21. Due to Other Financial Institutions
22. Deposits and Other Borrowings
23. Payables and Other Liabilities
24. Provisions
25. Bonds and Notes
26. Loan Capital
27. Related Party Transactions
28. Interest Earning and Discount Bearing Assets and Liabilities
29. Current and Non-current Assets and Liabilities
30. Ordinary Share Capital
31. Capital Adequacy
32. Financial Risk Management
33. Concentrations of Credit Risk
34. Fair Value of Financial Assets and Liabilities
35. Notes to the Cash Flow Statements
36. Commitments
37. Credit Related Commitments and Contingent Liabilities
38. Securitisation, Funds Management, Other Fiduciary Activities and Insurance
39. Employee Share and Option Plans
40. Retirement Benefit Obligations
41. Business Combinations
42. Subsequent Events
Directorate and Auditors
Conditions of Registration
Directors’ Statement
Auditors’ Report
Index

1
1
4
5
5
6
7
8
9
18
19
21
22
23
24
26
26
26
26
29
30
30
33
34
38
39
40
41
41
42
42
43
44
45
47
50
51
52
52
61
87
88
93
94
94
95
97
100
103
103
104
108
109
110
112

ANZ National Bank Limited ANZACC1776 11/10

anz.co.nz