ANZ Bank New Zealand Limited
Annual Report and Disclosure Statement
FOR THE YEAR ENDED 30 SEPTEMBER 2013 | NUMBER 71 ISSUED NOVEMBER 2013

ANZ Bank New Zealand Limited

Annual Report and Disclosure Statement
For the year ended 30 September 2013

Annual Report

Contents
General Disclosures

1

Summary of Financial Statements

3

Income Statement

4Statement of Comprehensive Income

4Statement of Changes in Equity

5

Balance Sheet

6

Cash Flow Statement

7

Notes to the Financial Statements

8

Directorate and Auditors

71

Conditions of Registration73

Directors’ Statement

77

Independent Auditor’s Report

78

Index

80

Pursuant to section 211(3) of the Companies Act 1993
(the “Act”), the shareholder of the Bank has agreed that
the Annual Report of the Bank and the Banking Groupneed not comply with any of the paragraphs (a), and (e)to (j) of subsection (1) and subsection (2) of section
211.
Accordingly, there is no information to be provided inthis Annual Report other than the financial statements
for the year ended 30 September 2013 and the audit
report on those financial statements.

For and on behalf of the Board of Directors:

John Judge
Chairman18 November 2013

David Hisco
Executive Director
18 November 2013

Glossary of Terms

General Disclosures

In this Disclosure Statement unless the context
otherwise requires:(a) “Bank” means ANZ Bank New Zealand Limited;(b) “Banking Group” means ANZ Bank New Zealand
Limited and all its subsidiaries;(c) “Immediate Parent Company” means ANZ Holdings(New Zealand) Limited;(d) “Ultimate Parent Bank” means Australia and New
Zealand Banking Group Limited;(e) “Overseas Banking Group” means the worldwide
operations of Australia and New Zealand Banking
Group Limited including its subsidiaries;(f) “New Zealand business” means all business,
operations, or undertakings conducted in or fromNew Zealand identified and treated as if it wereconducted by a company formed and registered in
New Zealand;(g) “NZ Branch” means the New Zealand business of
the Ultimate Parent Bank;(h) “ANZ New Zealand” means the New Zealandbusiness of the Overseas Banking Group;(i) “Registered Office” is, from 22 November 2013,
Ground Floor, ANZ Centre, 23-29 Albert Street,
Auckland, 1010, New Zealand, which is also the
Banking Group’s address for Service;(j) “RBNZ” means the Reserve Bank of New Zealand;(k) “APRA” means the Australian Prudential Regulation
Authority;(l) “the Order” means the Registered Bank DisclosureStatements (New Zealand Incorporated Registered
Banks) Order (No 2) 2013; and(m) Any term or expression which is defined in, or in themanner prescribed by, the Order shall have themeaning given in or prescribed by the Order.

General Matters
The Disclosure Statement has been issued in accordancewith the Order.
The Bank is incorporated under the Companies Act
1993. The Bank is wholly owned by its Immediate
Parent Company and ultimately by the Ultimate Parent
Bank. The Immediate Parent Company of the Bank isincorporated in New Zealand and owned by ANZ Funds
Pty Limited and the Ultimate Parent Bank (bothincorporated in Australia). The address for 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 underthe 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 theoffice 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.

Credit Rating Information
As at 18 November 2013 the Bank has three credit
ratings, which are applicable to its long-term seniorunsecured obligations which are payable in New Zealandin New Zealand dollars.
The Bank’s Credit Ratings are:Rating Agency
Standard & Poor’s

Current Credit
Rating
Qualification
AAOutlook Stable

Moody’s Investors Service

Aa3

Outlook Stable

Fitch Ratings

AA-

Outlook Stable

ANZ Bank New Zealand Limited

2

General Disclosures
Changes in credit ratings over the last two years

Material Financial Support

On 1 December 2011, Standard and Poor’s downgraded
the Bank’s long-term senior unsecured debt and deposit
ratings from AA outlook stable to AA- outlook stable.
This followed a similar one notch downgrade on the
Ultimate Parent Bank and other major Australian banks.

In accordance with 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 timeand amount) 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) isdeemed to trigger a default of the Ultimate Parent
Bank in its obligations;•
the Board of the Ultimate Parent Bank indetermining 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 somecases approval) is required before entering
exceptionally large exposures;•the impact on the Ultimate Parent Bank’s
capital and liquidity position and its ability tocontinue operating in the event of a failure by
the Bank; and•the 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 Parent Bank)of the Ultimate Parent Bank’s capital base.

On 30 January 2012, Fitch changed the outlook on the
Bank’s long-term senior unsecured debt and deposit
ratings from positive to negative.
This occurred
simultaneously to a similar change in the outlook ofratings of the Ultimate Parent Bank and other major
Australian banks. This was followed by a change inoutlook from negative to stable on 24 February 2012.
There were no other changes to the Bank’s credit ratingsor qualifications during the two years ended 30
September 2013.
The following table describes the credit rating grades
available:
Standard & Moody's
Poor'sInvestors
Service

Fitch
Ratings

The following grades display investment grade
characteristics:
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 adversechanges in economic,
business or financial
conditions.

A

A

A

Adequate ability to repay
principal and interest. Morevulnerable to adversechanges.

BBB

Baa

BBB

The following grades have predominantly
speculative characteristics:
Significant uncertainties
exist which could affect thepayment of principal andinterest on a timely basis.

BB

Ba

BB

Greater vulnerability andtherefore greater likelihoodof default.

B

B

B

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

CCC

Caa

CCC

Highest risk of default.

CC to CCa to CCC to C

Obligations currently indefault.

D-

RD & D

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 and in the event of a bank becoming unable
to meet its obligations or suspending payment, theassets of the bank in Australia shall be available to meetthat bank’s deposit liabilities in Australia in priority to allother liabilities of the bank.
The Ultimate Parent Bank has not provided material
financial support to the Bank contrary to any of theabove requirements.

Guarantors
No material obligations of the Bank are guaranteed as at
18 November 2013.
ANZNZ Covered Bond Trust

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

Certain debt securities (“Covered Bonds”) issued by the
Bank’s wholly owned subsidiary, ANZ New Zealand(Int’l) Limited, are guaranteed by ANZNZ Covered Bond
Trust Limited (the “Covered Bond Guarantor”), solely in
its capacity as trustee of ANZNZ Covered Bond Trust.
The Covered Bond Guarantor has guaranteed thepayment of interest and principal of Covered Bonds witha carrying value as at 30 September 2013 of $3,925
million, pursuant to a guarantee which is secured over apool of assets. The Covered Bond Guarantor’s addressfor service is Level 10, 141 Willis Street, Wellington,
New Zealand. The Covered Bond Guarantor is not amember of the Banking Group and has no credit ratings
applicable to its long term senior unsecured obligations
payable in New Zealand dollars. The Covered Bonds
have been assigned a long term rating of Aaa and AAA
by Moody’s Investors Service and Fitch Ratings
respectively. Details of the pool of assets that secure
this guarantee are provided in Note 36.

ANZ Bank New Zealand Limited

3

Summary of Financial Statements
Banking GroupYear toYear toYear toYear toYear to30/09/2013

30/09/2012

30/09/2011

30/09/2010

30/09/2009

Interest income

5,957

6,017

6,179

5,876

7,345

Interest expense

3,344

3,335

3,620

3,457

4,892

Net interest income

2,613

2,682

2,559

2,419

2,453

Non-interest income

823

1,006

856

744

663

Operating income

3,436

3,688

3,415

3,163

3,116

Operating expenses

1,507

1,742

1,686

1,565

1,477

63

193

178

436

874

1,866

1,753

1,551

1,162

765

492

428

452

335

467

1,374

1,325

1,099

827

298

(1,065)(1,150)

(700)

(600)

(1,000)$ millions

Provision for credit impairment
Profit before income tax
Income tax expense
Profit after income tax

Dividends paid

$ millions

Total impaired assets

As at

As at

As at

As at

As at

30/09/2013

30/09/2012

30/09/2011

30/09/2010

30/09/2009

894

1,366

1,726

2,004

1,178

Total assets

120,438

121,556

121,440

116,458

117,891

Total liabilities

108,971

110,624

110,615106,012

107,803

-

-

-

1

-

11,467

10,932

10,825

10,446

10,088Non-controlling interests
EquityThe amounts included in this summary have been taken from the audited financial statements of the Banking Group.

ANZ Bank New Zealand Limited

4

Income Statement
Banking Group$ millions

Note

Bank

Year toYear toYear toYear to30/09/2013

30/09/2012

30/09/2013

30/09/2012

Interest income

4

5,957

6,017

6,272

6,292

Interest expense

5

3,344

3,335

4,021

3,964

Net interest income

2,613

2,682

2,251

2,328

Net trading gains

4

163

131

162

129

Net funds management and insurance income

4

234

298

73

69

Other operating income

4

419

573

778

839

7

4

-

-

3,436

3,688

3,264

3,365

1,507

1,742

1,211

1,611

1,929

1,946

2,053

1,754

63

193

56

187

1,866

1,753

1,997

1,567

492

428

418

347

1,374

1,325

1,579

1,220

Share of associates' profit
Operating income
Operating expenses

5

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

14

Profit before income tax
Income tax expense

6

Profit after income tax

Statement of Comprehensive Income
Banking
Banking
Group41547 Group41182 Bank41547 Bank41182
Banking Group$ millions

Profit after income tax

Bank

Year toYear toYear toYear to30/09/2013

30/09/2012

30/09/2013

30/09/2012

1,374

1,325

1,579

1,220

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

55

(25)

55

(25)

(15)

6

(15)

6

40

(19)

40

(19)

(138)

46

(138)

49

(21)

(95)

(21)

(99)

45

-

45

-

Total items that may be reclassified subsequently to profit or loss

(114)

(49)

(114)

(50)

Total comprehensive income for the year

1,300

1,257

1,505

1,151

Income tax credit / (expense) relating to items not reclassified
Total items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss
Unrealised gains / (losses) recognised directly in equity
Realised gains transferred to the income statement
Income tax credit relating to items that may be reclassified

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

ANZ Bank New Zealand Limited

5

Statement of Changes in Equity
Banking Group

Share capital

Availablefor-salerevaluation
reserve

Cash flow
hedging
reserve

Retainedearnings

Total equity

As at 1 October 2011

6,943

46

141

3,695

10,825

Profit after income tax

-

-

-

1,325

1,325

Unrealised gains recognised directly in equity

-

34

12

-

46

Realised gains transferred to the income statement

-

(83)

(12)

-

(95)

Actuarial loss on defined benefit schemes
Income tax credit on items recognised directly inequity

-

-

-

(25)

(25)

-

-

-

6

6

Total comprehensive income for the year

-

(49)

-

1,306

1,257

Ordinary dividend paid

-

-

-

(1,150)(1,150)

6,943

(3)

141

3,851

10,932

Profit after income tax
Unrealised gains / (losses) recognised directly inequity

-

-

-

1,374

1,374

-

1

(139)

-

(138)

Realised gains transferred to the income statement

-

-

(21)

-

(21)

Actuarial gain on defined benefit schemes
Income tax credit / (expense) on items recognised
directly in equity

-

-

-

55

55

-

-

45

(15)

30

Total comprehensive income for the year

-

1

(115)

1,414

1,300

Ordinary dividend paid

-

-

-

(1,065)(1,065)

300

-

-

-

300

7,243

(2)

26

4,200

11,467

Share capital

Availablefor-salerevaluation
reserve

Cash flow
hedging
reserve

Retainedearnings

Total equity

As at 1 October 2011

6,943

47

141

3,073

10,204

Profit after income tax

-

-

-

1,220

1,220

Unrealised gains recognised directly in equity

-

37

12

-

49

Realised gains transferred to the income statement

-

(87)

(12)

-

(99)

Actuarial loss on defined benefit schemes
Income tax credit on items recognised directly inequity

-

-

-

(25)

(25)

-

-

-

6

6

Total comprehensive income for the year

-

(50)

-

1,201

1,151

Ordinary dividend paid

-

-

-

(1,150)(1,150)

6,943

(3)

141

3,124

10,205

Profit after income tax
Unrealised gains / (losses) recognised directly inequity

-

-

-

1,579

1,579

-

1

(139)

-

(138)

Realised gains transferred to the income statement

-

-

(21)

-

(21)

Actuarial gain on defined benefit schemes
Income tax credit / (expense) on items recognised
directly in equity

-

-

-

55

55

-

-

45

(15)

30

Total comprehensive income for the year

-

1

(115)

1,619

1,505

Ordinary dividend paid

-

-

-

(1,065)(1,065)

300

-

-

-

300

7,243

(2)

26

3,678

10,945$ millions

As at 30 September 2012

Preference shares issued (Note 27)
As at 30 September 2013

Bank$ millions

As at 30 September 2012

Preference shares issued (Note 27)
As at 30 September 2013

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

ANZ Bank New Zealand Limited

6

Balance Sheet
Banking Group$ millions

Note

Bank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

2,815

AssetsLiquid assets

8

2,496

2,831

2,495

Due from other financial institutions

9

1,570

1,722

1,570

1,722

Trading securities

10

10,32012,338

10,31912,338Derivative financial instruments

11

9,518

12,753

9,522

12,788

-

15

62

79

Current tax assets
Available-for-sale assets

12

782

57

780

54

Net loans and advances

13

90,48986,67888,22984,319Due from subsidiaries

25

-

-

12,206

11,619Investments backing insurance policy liabilities

172

142

-

-

Insurance policy assets

399

408

-

-

Investments in subsidiaries and associates

16

98

99

4,864

6,609

Other assets

17

731

592

760

611

Deferred tax assets

6

39

93

128

185

376

323

61

74

3,448

3,505

3,299

3,317

Total assets

120,438

121,556

134,295

136,530

Interest earning and discount bearing assets

105,866

104,095

115,614113,177

Premises and equipment
Goodwill and other intangible assets

18

Liabilities
Due to other financial institutions

19

1,517

1,759

1,517

1,555

Deposits and other borrowings

20

77,69773,652

71,44066,731

Due to subsidiaries

25

-

-

33,76837,940Due to Immediate Parent Company

25

939

740

939

740

Derivative financial instruments

11

10,243

13,930

10,252

13,930

Payables and other liabilities

21

1,705

1,792

1,416

1,469

3

-

-

-

Current tax liabilities
Provisions

22

229

339

187

292

Bonds and notes

23

15,494

17,244

2,687

2,500

Loan capital

24

1,144

1,168

1,144

1,168

108,971

110,624

123,350

126,325

11,467

10,932

10,945

10,205

7,243

6,943

7,243

6,943

24

138

24

138

4,200

3,851

3,678

3,124

Total equity

11,467

10,932

10,945

10,205Interest and discount bearing liabilities

91,06189,299105,764

105,017

Total liabilities
Net assets
EquityShare capital
Reserves
Retained earnings

27

For and on behalf of the Board of Directors:

John Judge
Chairman18 November 2013

David Hisco
Executive Director
18 November 2013

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

ANZ Bank New Zealand Limited

7

Cash Flow Statement
Banking GroupBank

Year toYear toYear toYear to30/09/2013

30/09/2012

30/09/2013

30/09/2012

5,916

5,991

6,226

6,262

4

4

254

205

Net funds management & insurance income

236

196

73

69

Fees and other income received

637

645

710

722

Interest paid

(3,368)(3,301)(4,020)(3,921)

Operating expenses paid

(1,550)(1,615)(1,493)(1,549)

(390)

(408)

(314)

(411)

1,485

1,512

1,436

1,377

$ millions

Note

Cash flows from operating activities
Interest received
Dividends received

Income taxes paid
Cash flows from operating profits before changes in operating
assets and liabilities

33

Net changes in operating assets and liabilities:
Change in due from other financial institutions - term
Change in trading securities
Change in derivative financial instruments
Change in available-for-sale assets
Change in insurance investment assets
Change in loans and advances
Proceeds from sale of loans and advances to NZ Branch

101

264

101

264

1,558

(3,761)

1,559(3,770)

555

2,000

608

1,723

(714)

391

(715)

361

(30)

(44)

-

-

(7,071)(5,777)(7,161)(5,714)

3,144

2,397

3,144

2,397

Change in due from subsidiaries

-

-

(587)

134

Change in due to subsidiaries--(4,982)

370

11

87

26

(16)

Change in due to other financial institutions(242)(1,952)(38)(2,156)

Change in deposits and other borrowings

3,781

3,813

4,648

3,647

99

37

98

37

Net changes in operating assets and liabilities

1,192(2,545)(3,299)(2,723)

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

2,677(1,033)(1,863)(1,346)

Change in other assets

Change in payables and other liabilities

Cash flows from investing activities
Proceeds from sale of shares in associates and joint venture

1

5

-

4

Proceeds from sale of intangible assets

-

11

-

-

68

-

1,977

-

(27)

(40)

(27)

(39)

(115)

(55)

(12)

(12)

(73)

(79)

1,938

(47)

2,167

5,678

200

800

12

-

12

-

300

-

300

-

(4,611)(5,445)

(100)

(290)
(816)

Proceeds from sale and redemption of shares in subsidiaries
Purchase of intangible assets
Purchase of premises and equipment
Net cash flows provided by / (used in) investing
activities
Cash flows from financing activities
Proceeds from issue of bonds and notes
Proceeds from issue of loan capital
Proceeds from issue of preference shares
Redemptions of bonds and notes
Redemptions of loan capital

-

(816)

-

199

566

199

566

Dividends paid

(1,065)(1,150)(1,065)(1,150)Net cash flows used in financing activities(2,998)(1,167)

(454)

(890)

Net decrease in cash and cash equivalents(394)(2,279)(379)(2,283)

Cash and cash equivalents at beginning of the year

3,255

5,534

3,239

5,522

2,861

3,255

2,860

3,239

Change in funding from Immediate Parent Company

Cash and cash equivalents at end of the year

33

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

ANZ Bank New Zealand Limited

8

Notes to the Financial Statements
1. Significant Accounting Policies(a) Basis of preparation(i)Statement of compliance

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

Use of estimates and assumptions

Preparation of the financial statements requires theuse of management judgement, estimates andassumptions that affect reported amounts and theapplication of policies. Actual results may differ fromthese estimates.
Discussion of the critical accounting estimates, which
includecomplexor
subjective
decisionsorassessments, are covered in note 2. Such estimates
will require review in future periods.
(iii) Basis of measurement
The financial statements have been prepared inaccordance with the historical cost basis except thatthe following assets and liabilities are stated at theirfair value:•
derivative financial instruments, including in thecase of fair value hedging, the fair value
adjustment on the underlying hedged exposure;•available-for sale financial assets;•financial instruments held for trading;•financial instruments designated at fair value
through profit and loss.

(vi) Comparatives
Certain amounts in the comparative information havebeen reclassified to ensure consistency with thecurrent year's presentation. The comparative figuresin the notes to the financial statements relating tothese items have been reclassified accordingly.
(vii)

Principles of consolidation

Subsidiaries
The consolidated financial statements of the Banking
Group comprise the financial statements of the Bankand all its subsidiaries where it is determined that
there is capacity to control.
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
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
rights of the other entity;•
power to govern the financial and operating
policies of the other entity;•
power to appoint or remove the majority of themembers of the board of directors or equivalent
governing body; or•
power to cast the majority of votes at meetingsof the board of directors or equivalent governing
body of 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 isdeemed to exist where:•in substance, the majority of the residual risks
and rewards from their activities accrue to the
Banking Group; or•in substance, the Banking Group controls
decision making powers so as to obtain the
majority of the risks and rewards from theiractivities.
The effect of all transactions between entities in the
Banking Group is eliminated.
Where subsidiaries have been sold or acquired during
the year, their operating results have been included
to the date of disposal or from the date of acquisition.
Associates(iv) Changes
inaccounting
policiesandapplication of new accounting standards

The Banking Group applies the equity method of
accounting for associates.

The accounting policies adopted by the Banking
Group are consistent with those adopted anddisclosed in the prior period. The Banking Group has
applied, where relevant, all new or revised NZ IFRSs
and NZ IFRS Interpretations applicable to annual
reporting periods commencing on or before 1 October
2012. The initial application of these standards andinterpretations has only resulted in changes todisclosures.

The Banking Group’s share of results of associates is
included in the consolidated income statement.
Shares in associates are carried in the consolidatedbalance sheet at cost plus the Banking Group’s shareof post acquisition net assets less accumulated
impairment. Interests in associates are reviewed forany indication of impairment at least at eachreporting date.
Where an indication of theimpairment exists, the recoverable amount of theassociate is determined as the higher of theassociate’s fair value less costs to sell and its value in
use. A discounted cash flow methodology and othermethodologies, such as the capitalisation of earnings
method, are used to determine the reasonableness ofthe valuation.

(v)

Rounding

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

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

ANZ Bank New Zealand Limited

9Notes to the Financial Statements(viii)

Foreign currency translation

Functional and presentation currency

underwriting fees) are recognised
significant act has been completed.

when

the

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 arepresented in New Zealand dollars, which is the
Banking
Group’sfunctionalandpresentation
currency.

Fees charged for providing ongoing services (forexample, maintaining and administering existing
facilities) are recognised as income over the period
the service is provided.

Foreign currency transactions(iv) Gain or loss on sale of assets

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

The gain or loss on the disposal of assets isdetermined as the difference between the carrying
amount of the assets at the time of disposal and theproceeds of disposal net of incremental disposal
costs. This is recognised as an item of other incomein the period in which the significant risks andrewards of ownership are transferred to the buyer.

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
in which they arise.

(iii) Dividend income
Dividends are recognised as revenue when the rightto receive payment is established.

(c) Expense recognition
Expenses are recognised in the income statement on
an accruals basis.
(i)Interest expense

Translation differences on non-monetary items
measured at fair value through profit or loss arereported as part of the fair value gain or loss on these
items.

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

Translation differences on non-monetary items
measured at fair value through equity, such as
equities classified as available-for-sale financial
assets, are included in the available-for-salerevaluation reserve in equity.

Certain loan origination expenses are an integral partof the effective interest rate of a financial asset
measured at amortised cost. These loan origination
expenses include:•
fees and commissions payable to brokers andcertain customer incentive payments in respectof originating lending business; and•other expenses of originating lending business,such as external legal costs and valuation fees,
provided these are direct and incremental costs
related to the issue of a financial asset.
Such loan origination expenses are initially recognisedas part of the cost of acquiring the financial asset andamortised as part of the effective yield of the financial
asset over its expected life using the effective interest
method.

(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.
The effective interest method calculates theamortised cost of a financial asset or financial liability
and allocates the interest income or interest expense,
including any fees and directly related transaction
costs that are an integral part of the effective interest
rate, over the expected life of the financial asset or
liability so as to achieve a constant yield on thefinancial asset or liability.
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.
(ii)

Fee and commission income

Fees and commissions received that are integral tothe effective interest rate of a financial asset arerecognised using the effective interest method. For
example, loan commitment fees, together withrelated direct costs, are deferred and recognised as
an adjustment to the effective interest rate on a loan
once drawn. Commitment fees to originate a loan
which is unlikely to be drawn down are recognised asfee income as the service is provided.
Fees and commissions that relate to the execution ofa significant act (for example, advisory or
arrangement
services,
placement
fees
and

(ii)

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

Income tax on earnings for the year comprises
current and deferred tax and is based on theapplicable tax law. 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 year, based on tax rates (and taxlaws) which are enacted or substantively enacted by
the reporting date and including any adjustment for
tax payable in previous periods. Current tax for
current and prior periods is recognised as a liability

ANZ Bank New Zealand Limited

10Notes to the Financial Statements(or asset) to the extent that it is unpaid (orrefundable).
(iii) Deferred tax
Deferredtax
isaccounted
for
using
the
comprehensive tax balance sheet method.
It isgenerated by temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and their tax base.
Deferred tax assets, including those related to the tax
effects of income tax losses and credits available tobe carried forward, are recognised only to the extent
that it is probable that future taxable profits will beavailable against which the deductible temporary
differences or unused tax losses and credit can beutilised.
Deferred tax liabilities are recognised for all taxable
temporary differences, other than those relating totaxable temporary differences arising from goodwill.
They are also recognised for taxable temporary
differences arising on investments in subsidiaries,
branches, associates and joint ventures, except
where the Banking Group is able to control thereversal of the temporary differences and it isprobable that temporary differences will not reversein the foreseeable future.
Deferred tax assets
associated with these interests are recognised only tothe extent that it is probable that the temporary
difference will reverse in the foreseeable future andthere will be sufficient taxable profits against which toutilise the benefits of the temporary difference.
Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply to the period(s)when the asset and liability giving rise to them arerealised or settled, based on tax rates and tax lawsthat have been enacted or substantively enacted by
the reporting 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 areoffset only to the extent that they relate to income
taxes imposed by the same taxation authority, there
is a legal right and intention to settle on a net basis
and it is allowed under the tax law of the relevant
jurisdiction.
(e) Assets
Financial assets(i)Financial assets and liabilities at fair value
through profit or loss

Trading securities are financial instruments acquired
principally for the purpose of selling in the short-termor which are a part of a portfolio which is managed
for short-term profit-taking. Trading securities are
initially recognised and subsequently measured in thebalance sheet at their fair value.
Derivatives that are not effective accounting hedging
instruments are carried at fair value through profit orloss.
In addition, certain financial assets andliabilities are designated and measured at fair value
through profit or loss where the following applies:•
the asset represents investments backing
insurance policy liabilities;•
doing so eliminates or significantly reduces ameasurement or recognition inconsistency thatwould otherwise arise from measuring assets••

and liabilities, or recognising the gains or losses
thereon, on different bases;a group of financial assets or financial liabilities
or both is managed and its performance
evaluated on a fair value basis; orthe financial instrument contains an embedded
derivative, unless the embedded derivative does
not significantly modify the cash flows or it isclear, with little or no analysis, that it would not
be separately recorded.

Changes in the fair value (gains or losses) of thesefinancial instruments are recognised in the income
statement in the period in which they occur.
Purchases and sales ofrecognised on trade date.
(ii)

tradingsecurities

areDerivative financial instruments

Derivative financial instruments are contracts whose
value is derived from one or more underlying priceindex or other variables. They include swaps, forward
rate agreements, futures, options and combinationsof these instruments.
Derivative financial instruments are entered into for
trading
purposes(including
customer-related
reasons) 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
initially at fair value with gains or losses from
subsequent measurement at fair value being
recognised in the income statement. Valuation
adjustments are integral in determining the fair valueof derivatives. This includes a credit valuation
adjustment (CVA) to reflect the credit worthiness ofthe counterparty and funding valuation adjustment(FVA) to account for the funding cost inherent in theportfolio.
Where the derivative is designated and is effective asa hedging 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 designatedas a fair value hedge are recognised in the income
statement. Changes in the fair value of the hedged
item attributable to the hedged risk are reflected inadjustments to the carrying value of the hedged item,
which are also recognised in the income statement.
Hedge accounting is discontinued when the hedge
instrument expires or is sold, terminated, 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 the period to maturityof the hedged item. If the hedged item is sold or
repaid, the unamortised fair value adjustment isrecognised immediately in the income statement.

ANZ Bank New Zealand Limited

11

Notes to the Financial Statements
Cash flow hedge(iv) Net loans and advances

The Banking Group designates derivatives as cash
flow hedges where the instrument hedges thevariability in cash flows of a recognised asset or
liability, a foreign exchange component of a firm
commitment,orahighlyprobable
forecasttransaction. The effective portion of changes in thefair value of derivatives qualifying and designated as
cash flow hedges is deferred to the hedging reserve,
which forms part of shareholders’ equity.
Anyineffective portion is recognised immediately in theincome statement. Amounts deferred in equity arerecognised in the income statement in the period
during which the hedged forecast transactions takeplace.

Loans and advances are non-derivative financial
assets with fixed or determinable payments that are
not quoted in an active market. They arise when the
Banking Group provides money to a debtor with nointention of trading the loans and advances. The
loans and advances are initially recognised at fairvalue plus transaction costs that are directly
attributable to the issue of the loan or advance. They
are subsequently measured at amortised cost using
the effective interest method, unless specificallydesignated on initial recognition at fair value throughprofit or loss.

When the hedge expires, is sold, terminated,
exercised, or no longer qualifies for hedge accounting,the cumulative amount deferred in equity remains in
the hedging reserve, and is subsequently transferredto the income statement when the hedged item isrecognised in 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
accounting

that

do

not

qualify

for

hedge

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 theinterest rate and foreign exchange risk of the Banking
Group are recognised in the income statement.
Under certain circumstances, the component of thefair value change in the derivative which relates tocurrent period realised and accrued interest is
included in net interest income. The remainder of thefair value movement is included in other income.
(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 and quoted debt 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 istransferred to the income statement.
Where there is objective evidence of impairment on
an available-for-sale asset, the cumulative loss
related to that asset is removed from equity andrecognised in the income statement, as an
impairment expense for debt instruments or as noninterest 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, theloss is reversed through the income statement
through the impairment expense line.
Purchases and sales of available-for-sale financial
assets are recognised on trade date, being the dateon which the Banking Group commits to purchase or
sell the asset.

All loans are graded according to the level of credit
risk.
Net loans and advances include direct financeprovided to customers such as bank overdrafts, credit
cards, term loans, finance lease receivables andcommercial bills.
Impairment of loans and advances
Loans and advances are reviewed at least at eachreporting date for impairment. Credit impairment
provisions are raised for exposures that are known to
be impaired. Exposures are impaired and impairment
losses are recorded if, and only if, there is objective
evidence of impairment as a result of one or more
loss events, that occurred after the initial recognitionof the loan and prior to the reporting date, and thatloss event, or events, has had an impact on theestimated future cash flows of the individual loan or
the collective portfolio of loans that can be reliably
estimated.
Impairment is assessed for assets that are
individually significant (or on a portfolio basis forsmall value loans) and then on a collective basis for
those exposures not individually 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 ofhistorical loss experience for assets with credit risk
characteristics similar to those in the collective pool.
The historical loss experience is adjusted based on
current observable data such as changed economic
conditions. The provision also takes account of the
impact of inherent risk of large concentrated losses
within the portfolio and an assessment of theeconomic cycle.
The estimated impairment losses are measured as
the difference between the asset’s carrying amountand the estimated future cash flows discounted totheir present value. As this discount unwinds during
the period 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
involvesconsiderable
management judgement.
These judgements arereviewed regularly to reduce any differences between
loss estimates and actual 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

ANZ Bank New Zealand Limited

12

Notes to the Financial Statements
impairment.
Unsecured facilities are normally
written-off when they become 180 days past due or
earlier in the event of the customer's bankruptcy orsimilar legal release from the obligation. However, acertain level of recoveries is expected after the writeoff, which is reflected in the amount of the provision
for credit losses. In the case of secured facilities,
remaining balances are written-off after proceedsfrom the realisation of collateral have been received,
if there is a shortfall.

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

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

Lease receivables

Contracts to lease assets and hire purchaseagreements are classified as finance leases if theytransfer substantially all the risks and rewards ofownership of the asset to the customer or an
unrelated third party. All other lease contracts areclassified as operating leases.
(vi) Repurchase agreements
Securities sold under repurchase agreements are
retainedinthefinancialstatements
wheresubstantially all the risks and rewards of ownership
remain with the Banking Group, and a counterparty
liability is disclosed under the classifications of due toother financial institutions or payables and otherliabilities. The difference between the sale price andthe repurchase price is accrued over the life of the
repurchase agreement and charged to interest
expense in the income statement.
Securities purchased under agreements to resell,
where the Banking Group does not acquire the risks
and rewards of ownership, are recorded asreceivables in liquid assets, net loans and advances,or due from other financial institutions, depending on
the term of the agreement and the counterparty. The
security is not included in the balance sheet. Interest
income is accrued on the underlying loan amount.
Securities borrowed are not recognised in the balance
sheet, unless these are sold to third parties, at which
point the obligation to repurchase is recorded as 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 ofthe transferred assets or a portion of them. If all, or
substantially all, the risks and rewards are retained,
the transferred assets are not derecognised from thebalance sheet.
In transactions where substantially all the risks andrewards of ownership of a financial asset are neither
retained nor transferred, the Banking Groupderecognises the asset if control over the asset islost. In transfers where control over the asset isretained, the Banking Group continues to recognise
the asset to the extent of its continuing involvement,
determined by the extent to which it is exposed tochanges in the value of the transferred asset. The
rights and obligations retained or created in thetransfer are recognised separately as assets andliabilities as appropriate.

(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 atfair value through profit or loss, with fair value
movements recorded directly in the income
statement, which reflects the basis on which it ismanaged.
(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 atfair value through profit or loss on initial recognition,with fair value movements recorded in the income
statement.
(iii) Financial guarantee contracts
Financial guarantee contracts are contracts that
require the issuer to make specified payments toreimburse the holder for a loss it incurs because a
specified debtor fails to make payments when due.
Financial guarantees are issued in the ordinary courseof business, consisting of letters of credit, guarantees
and acceptances. Financial guarantees are initiallyrecognised in the financial statements at fair value on
the date the guarantee was given; typically this is thepremium received. Subsequent to initial recognition,
the Banking Group's liabilities under such guarantees
are measured at the higher of their amortised amountand the best estimate of the expenditure required tosettle any financial obligation arising at the balance
sheet date. These estimates are determined basedon experience of similar transactions and history of
past losses.
(iv) Derecognition
Financial liabilities are derecognised when the
obligation specified in the contract is discharged,
cancelled or expires.
(g) Equity(i)

SharesIssued shares are recognised at the amount paid pershare net of directly attributable issue costs.

ANZ Bank New Zealand Limited

13

Notes to the Financial Statements(ii)

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

Reserves

Available-for-sale revaluation reserve
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 aretransferred to the impairment expense line in theincome statement for debt instruments and in thecase of equity instruments to non-interest income.

(v)

Operating segments are distinguishable componentsof the Banking Group that provide products orservices that are subject to risks and rewards that are
different to those of other operating segments. The
Banking Group operates predominately in the banking
industry within New Zealand. The Banking Group hasvery limited exposure to risk associated with
operating in different economic environments orpolitical conditions. On this basis no geographicalsegment information is provided.

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

Offsetting of income and expenses

Segment reporting

(i)

Other

Income and expenses are not offset unless requiredor permitted by an accounting standard.
This
generally arises in the following circumstances:•where transaction costs form an integral part ofthe effective interest rate of a financial
instrument which is measured at amortisedcost, these are offset against the interest
income generated by the financial instrument;•
where gains and losses relating to fair value
hedges are assessed as being effective; or•where gains and losses arise from a group ofsimilar transactions, such as foreign exchange
gains and losses.

(i)

(ii)

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
any of these pronouncements until their effective
date.

Offsetting of financial assets and liabilities

Assets and liabilities are offset and the net amountreported in the balance sheet only where there is:•a current enforceable legal right to offset theasset and liability; and•an intention to settle on a net basis, or to
realise the asset and settle the liability
simultaneously.
(iii) Statement of cash flows
For cash flow statement presentation purposes, cash
and cash equivalents includes: cash on hand;deposits held at call with other financial institutions;and other short term, highly liquid, investments withoriginal terms of maturity of three months or less thatare readily convertible to cash and which are subject
to an insignificant risk of changes in value.
Certain cash flows have been netted in order toprovide more meaningful disclosure, as many of the
cash flows are received and disbursed on behalf ofcustomers and reflect the activities of the customers
rather than those of the Banking Group.
These
include customer loans and advances, customer
deposits, certificates of deposit, related party
balances and trading securities.
(iv) Goods and services tax
Income, expenses and assets are recognised net ofthe amount of goods and services tax (“GST”) except
where the amount of GST incurred is not recoverablefrom the Inland Revenue Department (“IRD”). In
these circumstances, the GST is recognised as part ofthe cost of acquisition of the asset or as part of theexpense.
Receivables and payables are stated with the amountof GST included. The net amount of GST recoverable
from, or payable to, the IRD is included as otherassets or other liabilities in the balance sheet.

Contingent liabilities

Contingent liabilities acquired in a businesscombination are individually measured at fair value atthe acquisition date. At subsequent reporting dates
the value of such contingent liabilities is reassessed
based on the estimate of expenditure required tosettle the contingent liability.
Other contingent liabilities are not recognised in thebalance sheet but disclosed in Note 35 unless it isconsidered remote that the Banking Group will be
liable to settle the possible obligation.
(ii)

Accounting Standards not early adopted

Standards and amendments effective
periods commencing after 1 January 2013

for

The Banking Group does not expect any significant
impact on the financial statements from theapplication of the following standards.
NZ IFRS 10 Consolidated Financial Statements
Establishes a new approach to determining whichinvestees should be consolidated and provides asingle model to be applied in the control analysis for
all investors.
NZ IAS 27 (2011) Separate Financial Statements
Carries forward the existing accounting and disclosure
requirements for separate financial statements.
The Banking Group is still assessing the impact of thefollowing standards on the financial statements.
Amendments to NZ IFRS 7: Disclosures – Offsetting
Financial Assets and Financial Liabilities
Requires additional disclosures for financial assets
and liabilities that are set off, and recognised financial
instruments that are subject to an enforceable masternetting agreement.
NZ IFRS 13 Fair Value Measurement
Provides a single source of guidance on fair value
measurement and requires certain disclosures
regarding fair value.

ANZ Bank New Zealand Limited

14

Notes to the Financial Statements
NZ IFRS 12 Disclosure of Interests in Other Entities
Provides a single, consistent approach for disclosuresof all interests in subsidiaries, joint arrangements,
associates and structured entities.
Standards and amendments effective
periods commencing after 1 January 2015

Critical judgements in applying the Banking
Group’s accounting policies

for

NZ IFRS 9 Financial Instruments
Specifies a simpler methodology for classifying andmeasuring financial assets, with two primarymeasurement categories: amortised cost and fairvalue. Requires the amount of change in the fairvalue attributable to changes in credit risk of certain
liabilities designated under the fair value option to bepresented in other comprehensive income.
The
Banking Group is assessing the impact on thefinancial statements.

2.

Refer to Note 14 for details of credit impairment
provisions.

Critical Estimates and Judgement Usedin Applying Accounting Policies
There are a number of critical accounting treatments
which include complex or subjective judgements andestimates that may affect the reported amounts ofassets and liabilities in the financial statements.
Estimates and judgements are continually evaluatedand are based on historical experience and otherfactors, including expectations of future events thatarebelievedtobereasonable
under
the
circumstances.
An explanation of the judgements and estimates
made by the Banking Group, in the process ofapplying its accounting policies, that have the mostsignificant effect on the amounts recognised in thefinancial 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 eachreporting date.
The credit provisions raised(collective and individual) represent management's
best estimate of the losses incurred in the loan
portfolio at balance date based 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 anassessment of the impact of model risk.
Theprovision also takes into account the impact of large
concentrated losses within the portfolio and theeconomic cycle.
The use of such judgements and reasonableestimates is considered by management to be an
essential part of the process and does not impact on
the reliability of the provision.
Individual and collective provisioning involves the useof assumptions for estimating the amounts and timingof expected future cash flows.
The process of
estimating the amount and timing of cash flows
involvesconsiderable
management
judgement.
These judgements are revised regularly to reduce any
differences between loss estimates and actual loss
experience.

Financial instruments at fair value
The Banking Group’s financial instruments measured
at fair value are stated in note 1(a)(iii). In estimating
fair value the Banking Group uses, wherever possible,
quoted market prices in an active market for thefinancial instrument.
In the event that there is no active market for the
instrument, fair value is based on present value
estimates or other market accepted valuation
techniques. The valuation models incorporate theimpact of bid/ask spread, counterparty credit spreads
and other factors that would influence the fair value
determined by a market participant. The selection of
appropriate valuation techniques, methodology andinputs requires judgement. These are reviewed andupdated as market practice evolves.
Derivatives and hedging
The Banking Group buys and sells derivatives as partof its trading operations and to hedge its interest raterisk, currency risk, price risk, credit risk and otherexposures relating 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 adesignated 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 in selecting and designating
hedging
relationships
andassessinghedge
effectiveness.
NZ IAS 39 Financial Instruments:
Recognition and Measurement does not specify asingle method for assessing hedge effectivenessprospectively or retrospectively. The Banking Group
adopts the hypothetical derivative approach todetermine hedge effectiveness in line with current
risk management strategies. Hedge ineffectivenesscan arise for a number of reasons and whilst a hedge
may pass the effectiveness tests above it may not be
perfectly effective, leaving some volatility in theincome statement.
The majority of outstanding derivative positions aretransacted over-the-counter and therefore need to bevalued using valuation techniques. Included in thedetermination of the fair value of derivatives is acredit valuation adjustment (CVA) to reflect thecreditworthiness of the counterparty. This is
influenced by the mark-to-market of the derivativetrades and by the movement in the market cost of
credit. Further adjustments are made to account for
the funding costs inherent in the derivative. Judgment
is required to determine the appropriate cost offunding and the future expected cashflows used inthis funding valuation adjustment (FVA).
Goodwill
Refer to Note 18 for details of goodwill held by the
Banking Group.
The carrying value of goodwill is subject to an
impairment test to ensure that the current carrying
value does not exceed its recoverable value at thebalance sheet date. Any excess of carrying value

ANZ Bank New Zealand Limited

15

Notes to the Financial Statements
over recoverable amount is taken to the income
statement as an impairment write down.
Goodwill has been allocated for impairment purposes
to the cash generating units at which the goodwill ismonitored
forinternal
reportingpurposes.
Impairment testing of purchased goodwill is
performed by comparing the recoverable value ofeach cash generating unit with the current carrying
amount of its net assets, including goodwill.
Judgement is required in identifying the cashgenerating units to which goodwill and other assets
are allocated for the purpose of impairment testing.
The recoverable amount is based on value-in-use
calculations.
These calculations use cash flow
projections based on a number of financial budgets
within each segment approved by management
covering a three year period. Cash flow projections
are based on a range of readily available economic
assumptions including GDP and CPI.
Cash flows
beyond the three year period are extrapolated using a
3% growth rate.
These cash flow projections are discounted using acapital asset pricing model. As at 28 February 2013
when the last valuation was prepared, a discount rateof 11.61% was applied to each cash generating unit.
The main variables in the calculation of the discountrate used are the risk free rate, the beta rate and themarket 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 withobservable and comparative market rates applied in
the regional banking sector.
Market observable
information is not readily available at the segmentlevel therefore management performed stress tests
for key sensitivities in each segment.
Management believes any reasonable possible change
in the key assumptions on which the recoverable
amount is based would not cause the Banking Group’s
carrying amount 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 meettheir performance objectives.
The Banking Group approaches risk throughmanaging the various elements of the system as awhole rather than viewing them as independent andunrelated parts. The risk management division (“RiskManagement”) is independent of the business, withclear 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 andmaintenance of Banking Group-wide risk
management policies, procedures and systems,
overseen by an independent team of risk
professionals;•
The use of sophisticated risk tools, applications
and processes to execute the global risk
management strategy across the Banking
Group;•
Business unit level accountability, as the “firstline of defence”, for the management of risks inalignment with the Banking Group’s strategy;
and•Independent oversight to ensure business unit
level compliance with policies, regulations andlaws, and to provide regular risk evaluation andreporting.

The Banking Group manages risk through anapproval, delegation and limits structure. Regularreviews of the policies, systems and risk reports,
including the effectiveness of the risk management
systems, discussions covering the Banking Group’s
response to emerging risk issues and trends, and thatthe requisite culture and practices are in place acrossthe Banking Group, are conducted within the Banking
Group and also by the Ultimate Parent Bank. The
Board has responsibility for reviewing all aspects ofrisk management.
The Board has ultimate responsibility for overseeing
the effective deployment of risk management
frameworks, policies and processes within New
Zealand.
The Bank’s Risk Committee assists theBoard in this function.
The role of the Risk
Committee is to assist the Board in the effective
discharge of its responsibilities for business, market,
credit, operational, compliance, liquidity, product andreputational risk management, and to liaise andconsult with the Ultimate Parent Bank Risk Committee
as required. Risk Management, via the Chief Risk
Officer, coordinates risk management activities
directly between Business Unit risk functions andUltimate Parent Bank Group Risk Management
functions.
The risk management process is subject to oversightby the Risk Committee of the Ultimate Parent Bank
Board. This includes the review of risk portfolios andthe establishment 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
the Board, has responsibility for ensuring the integrityof the Banking Group's financial controls, reporting
systems and internal audit standards. It meets atleast four times a year and reports directly to theBoard. All members of the Audit Committee are nonexecutive directors.
Financial risk management
Refer to Note 29 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 tocomplywithpolicies,
procedures,laws
andregulations, from fraud or forgery, from a breakdown
in the availability or integrity of services, systems andinformation, 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
day-to-day basis.

ANZ Bank New Zealand Limited

Notes to the Financial Statements
Business units have primary responsibility for theidentification and management of operational risk
with executive oversight provided by the relevant
Retail and Wholesale Risk Forums.
The Bank’s
Operational Risk Executive Committee (“OREC”)
undertakes the governance function through the bimonthly monitoring of operational risk performanceacross the Banking Group.
The Board and Risk
Management conduct effective oversight through theapproval of operational risk policies and frameworks
and monitoring key operational risk metrics.
Compliance
The Banking Group conducts its business inaccordancewithallrelevant
compliancerequirements. In order to assist the Banking Groupidentify,
manage,monitorandmeasureits
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 inareas such as anti-money laundering procedures andmatters of prudential compliance. The Bank’s OREC,
the Chief Risk Officer, the Board and the Risk
Committee of the Ultimate Parent Bank Board
conduct board and executive oversight.
Global Internal Audit
Global Internal Audit is a function independent ofmanagement whose role is to provide the Board andmanagement with an effective and independent
appraisal of the internal controls established bymanagement. Operating under a Board approved
Charter, the reporting line for the outcomes of work
conducted by Global Internal Audit is direct to the
Chair of the Audit Committee, with a directcommunication line to the Chief Executive Officer andthe external auditor.
The Global Internal Audit Plan is developed utilising arisk based approach and is refreshed on a quarterly
basis. The Audit Committee approves the plan, theassociated budget and any changes thereto.
All audit activities are conducted in accordance withlocal and international auditing standards, and theresults thereof are reported to the Audit Committee,
Risk Committee and management. These results
influence the performance assessment of businessheads.
Furthermore, Global Internal Audit monitors theremediation of audit issues and highlights the current
status of any outstanding audits.

16

ANZ Bank New Zealand Limited

17

Notes to the Financial Statements
4. Income
Banking GroupBank

Year toYear toYear toYear to30/09/2013

30/09/2012

30/09/2013

30/09/2012

418

446

418

446

-

-

242

262

418

446

660

708

Liquid assets

71

67

71

66

Other financial institutions

26

38

27

32

Available-for-sale assets

12

8

8

5

Lending on productive loans

5,359

5,367

5,174

5,178

Lending on impaired assets

28

51

30

49

-

-

264

215

43

40

38

39

5,539

5,571

5,612

5,584

5,957

6,017

6,272

6,292

Net gain on foreign exchange trading

154

144

153

142

Net gain / (loss) on trading securities

(197)

101

(197)

101

Net gain / (loss) on trading derivatives

206

(114)

206

(114)

Net trading gains

163

131

162

129

Net funds management income

124

115

34

27

Net insurance income

110

183

39

42

Total funds management and insurance income

234

298

73

69

$ millions

Note

Interest income
Financial assets at fair value through profit or loss
Trading securities
Due from subsidiaries

Financial assets not at fair value through profit or loss

Due from subsidiaries
Other

Total interest income
Net trading gains

Net funds management and insurance income

Other operating income
Lending and credit facility fee income
Other fee income

57

51

57

53

582

590

679

658

Total fee income

639

641

736

711

Direct fee expense

(200)

(186)

(200)

(186)

Net fee income

439

455

536

525

Dividends received

-

-

256

205

Net loss on financial assets designated at fair value

-

-

-

(7)

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

-

(1)

-

1

-

(4)

-

(4)

(56)

7

(61)

16

21

12

21

12
87

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

11

Net cash flow hedge gain transferred to income statement
Net gain on available for sale equity securities transferred toincome statement
Gain on sale of subsidiary, associates and joint venture
Loss on sale of mortgages to NZ Branch
Other income
Total other operating income

16

-

83

-

13

4

37

-

(14)

(1)

(14)

(1)

16

18

3

5

419

573

778

839

ANZ Bank New Zealand Limited

18

Notes to the Financial Statements
5. Expenses
Banking GroupBank

Year toYear toYear toYear to30/09/2013

30/09/2012

30/09/2013

30/09/2012

Commercial paper

170

174

-

-

Due to subsidiaries

-

-

346

359

170

174

346

359

$ millions

Interest expense
Financial liabilities at fair value through profit or loss

Financial liabilities not at fair value through profit or loss
Other financial institutions
Deposits and other borrowings
Due to subsidiaries

38

45

37

43

2,239

2,184

2,106

2,040

-

-

1,273

1,231

791

782

153

142

Immediate parent company

19

7

19

7

Loan capital

79

134

79

134

8

9

8

8

3,174

3,161

3,675

3,605

3,344

3,335

4,021

3,964

702

804

646

739

71

77

66

72

34

35

33

34

4

6

4

6

Share-based payments expense

22

20

22

20

Building occupancy costs

41

66

(14)

14

Depreciation of premises and equipment

46

55

23

26

Leasing and rental costs

84

85

11

14

Related parties (Note 25)

84

118

222

264

Bonds and notes

Other

Total interest expense
Operating expenses
Personnel costs
Employee entitlements
Pension costs- Defined contribution schemes- Defined benefit schemes

Technology expenses

114

144

97

128

Impairment of intangibles and other assets

-

11

-

1

Reversal of impairment of investment in subsidiary

-

-

(181)

-

Amortisation of software and other intangible assets

52

34

45

19

188

204

176

193

65

83

61

81

1,507

1,742

1,211

1,611

2,362

3,023

1,468

1,677

582

573

48

89

2,944

3,596

1,516

1,766

Administrative expenses
Other costs
Total operating expenses$ thousands

Fees paid to principal auditors (KPMG New Zealand)
Audit or review of financial statements
Other services
Total auditors' remuneration

It is the Banking Group’s policy that, subject to the approval of the Ultimate Parent Bank’s Audit Committee, KPMG canprovide assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent withthe role of auditor. KPMG may not provide services that are perceived to be in conflict with the role of auditor. Services
that are perceived to be in conflict with 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 toexpress an opinion on its own work.
Other services include taxation services and 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 Bank New Zealand Limited

19

Notes to the Financial Statements
6. Income Tax
Banking Group$ millions

Bank

Year toYear toYear toYear to30/09/2013

30/09/2012

30/09/2013

30/09/2012

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

1,866

1,753

1,997

1,567

Prima facie income tax at 28%

522

491

559

439

Imputed and non-assessable dividends

(5)

(6)

(72)

(57)

Change in tax provisions

(10)

(12)

(10)

(12)

Non assessable income and non deductible expenditure

(16)

(35)

(59)

(17)

1

(10)

-

(6)

492

428

418

347

26.4%

24.4%

20.9%

22.1%

Current tax

408

376

331

296

Deferred tax

84

52

87

51

492

428

418

347

1,852

1,457

1,725

1,336

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

Total income tax expense recognised in the income statement

Imputation credits available

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

Banking Group$ millions

30/09/2013

Bank

30/09/2012

30/09/2013

30/09/2012

231

295

221

284

8

(2)

13

5

72

108

57

91

(108)

(112)

-

-

(10)

(55)

(10)

(55)

Deferred tax assets / (liabilities) comprise the following temporary differences:
Provision for credit impairment
Premises and equipment, software and intangibles
Provisions and accruals
Deferred acquisition costs and insurance policy assets
Financial instruments
Carried forward losses

15

16

-

-

(179)

(165)

(174)

(158)

Other deferred tax assets and liabilities (including tax provisions)

10

8

21

18

Net deferred tax assets1

39

93

128

185

Lease finance1

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

ANZ Bank New Zealand Limited

20

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

ANZ Bank New Zealand Limited

21

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

RetailCommercial

WealthExternal interest income

1,722

3,156

88

985

6

5,957

External interest expense(1,056)

(607)

(200)

(420)

(1,061)(3,344)

Net intersegment interest

173(1,250)

148

(214)

1,143

-

Net interest income

839

1,299

36

351

88

2,613

Other external operating income

331

127

157

253

(52)

816

-

-

-

-

7

7

Operating income

1,170

1,426

193

604

43

3,436

Operating expenses

650

488

136

199

34

1,507

Profit before provision for credit impairment

520

938

57

405

9

1,929

55

(12)

(1)

21

-

63

Profit before income tax

465

950

58

384

9

1,866

Income tax expense

130

262

4

103

(7)

492

Profit after income tax

335

688

54

281

16

1,374

Institutional

Other

Total

30/09/2013

Share of associates' profit

Provision for credit impairment

Other information
Depreciation and amortisation

19

4

4

-

71

98

547

1,434

180

1,072

-

3,233

Other intangible assets

27

2

130

-

56

215

Investment in associates

-

-

-

9

89

98

Total external assets

29,38555,455

1,864

31,616

2,118

120,438

Total external liabilities

32,385

20,401

4,443

28,14523,597

108,971

External interest income

1,729

3,201

79

995

13

6,017

External interest expense(1,033)

(581)

(196)

(419)

(1,106)(3,335)

Net intersegment interest

126(1,293)

143

(168)

1,192

-

Net interest income

822

1,327

26

408

99

2,682

Other external operating income

323

124

228

228

99

1,002

-

-

-

-

4

4

Operating income

1,145

1,451

254

636

202

3,688

Operating expenses

670

505

145

200

222

1,742

Profit before provision for credit impairment

475

946

109

436

(20)

1,946

Provision for credit impairment

54

128

1

11

(1)

193

Profit before income tax

421

818

108

425

(19)

1,753

Income tax expense

117

227

18

112

(46)

428

Profit after income tax

304

591

90

313

27

1,325

Goodwill

30/09/2012

Share of associates' profit

Other information
Depreciation and amortisation

19

8

12

-

50

89

Goodwill

547

1,466

180

1,072

-

3,265

Other intangible assets

38

3

136

1

62

240

Investment in associates

-

-

-

12

87

99

Total external assets

28,31053,648

1,819

36,123

1,656

121,556

Total external liabilities

31,132

19,246

4,530

28,27027,446110,624

1

Intersegment transfers are accounted for and determined on an arm's length or cost recovery basis.

ANZ Bank New Zealand Limited

22

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

Bank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

1,907

2,177

1,907

2,177

55

325

55

325

Money at call

348

237

347

236

Bills receivable and remittances in transit

186

92

186

77

2,496

2,831

2,495

2,815

30/09/2013

30/09/2012

30/09/2013

30/09/2012

228

Cash and balances with central banks
Securities purchased under agreement to resell

Total liquid assets

9. Due From Other Financial Institutions
Banking Group$ millions

Securities purchased under agreement to resell

Bank

254

228

254

Security settlements

94

42

94

42

Certificates of deposit

160

100

160

100

1,002

1,256

1,002

1,256

60

96

60

96

1,570

1,722

1,570

1,722

255

229

255

229

30/09/2013

30/09/2012

30/09/2013

30/09/2012

5,404

8,600

5,403

8,600

551

455

551

455

Promissory notes

36

41

36

41

Other bank bonds

4,300

3,202

4,300

3,202

29

40

29

40

10,32012,338

10,31912,338Cash collateral given on derivative financial instruments
Other
Total due from other financial institutions
Fair value of securities purchased under agreements to resell

10. Trading Securities
Banking Group$ millions

Government, local body stock and bonds
Certificates of deposit

Other
Total trading securities

BankANZ Bank New Zealand Limited

23

Notes to the Financial Statements
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 own asset and liability management activities.
Derivatives are subject to the same types of credit and market risk as other financial instruments and the Banking 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.

Banking GroupBank

Notional

Notional

30/09/2013

Principal

Fair values$ millions

AmountAssetsLiabilities

Principal

Fair values

AmountAssetsLiabilities

Derivatives held for trading
Spot and forward contracts

54,152568

987

54,152

568

987

Swap agreements

132,066

3,189

4,113

132,066

3,189

4,113

Options purchased

2,982

52

-

2,982

52

-

Options sold

2,973

1

70

2,973

1

70

192,173

3,810

5,170

192,173

3,810

5,170

Foreign exchange derivatives
Forward rate agreements

15,877-2

15,877-

2

Swap agreements

530,909

5,441

4,888

535,791

5,445

4,897

Futures contracts

24,8572

624,857

2

6

Options purchased

1,098

4

-

1,098

4

-

Options sold

1,010

-

5

1,010

-

5

Interest rate derivatives

573,751

5,447

4,901

578,633

5,451

4,910

Commodity derivatives

366

32

32

366

32

32

766,290

9,289

10,103771,172

9,293

10,112

Total derivatives held for trading
Derivatives in hedging relationships
Foreign exchange swap agreements

55

2

-

55

2

-

Interest rate swap agreements

17,056137

41

17,056

137

41

Total fair value hedges

17,111

139

41

17,111

139

41

Interest rate swap agreements

15,24090

99

15,24090

99

Total cash flow hedges

15,24090

99

15,24090

99

Total derivatives in hedging
relationships

32,351229

140

32,351229

140

798,641

9,518

10,243

803,523

9,522

10,252

Total derivative financial instruments

ANZ Bank New Zealand Limited

24

Notes to the Financial Statements
Banking Group
30/09/2012$ millions

Notional
Principal
AmountBank

Fair values
Assets

Notional
Principal
AmountLiabilities

Fair values
AssetsLiabilities

Derivatives held for trading
Spot and forward contracts

59,862647

1,240

59,862647

1,240

Swap agreements

124,674

2,860

4,278

124,674

2,860

4,278

Options purchased

1,798

22

-

1,798

22

-

Options sold

1,651

1

39

1,651

1

39

187,985

3,530

5,557

187,985

3,530

5,557

Foreign exchange derivatives
Forward rate agreements

46,6513

2

46,651

3

2

Swap agreements

522,387

8,682

8,147

527,517

8,717

8,147

Futures contracts

29,8182

429,8182

4

Options purchased

2,237

15

-

2,237

15

-

Options sold

1,833

-

14

1,833

-

14

Interest rate derivatives

602,926

8,702

8,167

608,056

8,737

8,167

Commodity derivatives

281

44

42

281

44

42

791,192

12,276

13,766796,322

12,311

13,766

Total derivatives held for trading
Derivatives in hedging relationships
Foreign exchange swap agreements

70

3

-

70

3

-

Interest rate swap agreements

15,752234

92

15,752234

92

Total fair value hedges

15,822237

92

15,822237

92

Interest rate swap agreements

13,524240

72

13,524240

72

Total cash flow hedges

13,524240

72

13,524240

72

Total derivatives in hedging
relationships

29,346477

164

29,346477

164

Total derivative financial instruments

820,538

12,753

13,930825,668

12,78813,930Derivatives held for trading
The held for trading classification includes two categories of derivative instruments: those held as trading positions andthose used for the Banking Group’s balance sheet risk management.
Trading positions
Trading positions consist of both sales to customers and market making activities. Sales to customers include thestructuring and marketing of derivative products to customers which enable them to take or mitigate risks. Market
making activities consist of derivatives entered into principally for the purpose of generating profits from short-term
fluctuations in price or margins. Positions may be traded actively or held over a period of time to benefit from expectedchanges in market rates.
Balance sheet risk management
The Banking Group designates certain balance sheet risk management derivatives into hedging relationships in order tominimise income statement volatility. This volatility is created by differences in the timing of recognition of gains andlosses between the derivative and the hedged item. Hedge accounting is not applied to all balance sheet risk
management positions as some balance sheet risk management derivatives are classified as held for trading.

Derivatives in hedging relationships
Fair value hedges
The Banking Group’s fair value hedges principally consist of interest rate swaps that are used to protect against changes
in the fair 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

30/09/2013

Bank

30/09/2012

30/09/2013

30/09/2012

Gain / (loss) arising from fair value hedges:- hedged item- hedging instrument
Net ineffectiveness on qualifying fair value hedges

72

41

72

41

(72)

(45)

(72)

(45)

-

(4)

-

(4)

ANZ Bank New Zealand Limited

25

Notes to the Financial Statements
Cash flow hedges
The Banking Group’s cash flow hedges comprise interest rate swaps that are used to protect against exposures 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 amounts and timing of future cash flows, representing bothprincipal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their forecast
repricing profile. This forms the basis for identifying gains and losses on the effective portions of derivatives designatedas cash flow hedges.
Analysis of the cash flow hedging reserve

Banking GroupBank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

Deferred gain / (loss) attributable to hedges of:
Variable rate loan assets

(18)

208

(18)

208

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

15

(29)

15

(29)

29

(38)

29

(38)

Total cash flow hedging reserve

26

141

26

141

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 (30/09/2012 0-10 years).

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

Bank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

742

13

742

13

38

41

38

41

2

3

-

-

782

57

780

54

30/09/2013

30/09/2012

30/09/2013

30/09/2012

Overdrafts

1,841

1,881

1,841

1,881

Credit card outstandings

1,458

1,395

1,458

1,395

Term loans - housing

49,563

46,12349,563

46,123

Term loans - non-housing

37,83237,74936,09835,894

Finance lease receivables

849

806

-

-

91,543

87,95488,96085,293(826)(1,054)(789)(1,016)

(278)

(258)

-

-

Fair value hedge adjustment

(42)

(2)

(42)

(2)

Deferred fee revenue and expenses

(64)

(60)

(56)

(54)

Capitalised brokerage / mortgage origination fees

156

98

156

98

90,48986,67888,22984,319Government, local body stock and bonds
Other debt securities
Equity securities
Total available-for-sale assets

13. Net Loans and Advances
Banking Group$ millions

Note

Gross loans and advances
Provision for credit impairment
Unearned finance income

Total net loans and advances

14

Bank

The Bank has sold residential mortgages to the NZ Branch with a net carrying value of $9,256 million as at 30 September
2013 (30/09/2012 $9,396 million). These assets qualify for derecognition as the Bank does not retain a continuing
involvement in the transferred assets.

ANZ Bank New Zealand Limited

26

Notes to the Financial Statements
14.

Provision for Credit Impairment

Provision movement analysis$ millions

Banking Group
Retail Other retailmortgages
exposuresBank

Non-retail
exposures

Total

Retail Other retailmortgages
exposures

Non-retail
exposures

Total

30/09/2013

New and increased provisions
Write-backs
Recoveries of amounts written off
previously

87

113

157

357

87

113

149

349

(75)

(30)

(104)

(209)

(75)

(30)

(101)

(206)

(2)

(16)

(5)

(23)

(2)

(16)

(3)

(21)

Individual provision charge

10

67

48

125

10

67

45

122

Collective provision credit

(3)

(8)

(51)

(62)

(3)

(12)

(51)

(66)

7

59

(3)

63

7

55

(6)

56

Total charge / (credit) to income
statement
30/09/2012

New and increased provisions

110

87

267

464

110

87

254

451

Write-backs
Recoveries of amounts written off
previously

(73)

(15)

(100)

(188)

(73)

(15)

(99)

(187)

(1)

(17)

(7)

(25)

(1)

(17)

(5)

(23)

Individual provision charge

36

55

160

251

36

55

150

241

Collective provision credit

(16)

(22)

(20)

(58)

(16)

(23)

(15)

(54)

Total charge to income statement

20

33

140

193

20

32

135

187

Non retail
exposures

Total

Movement in provision for credit impairment
Banking Group$ millions

Retail Other retailmortgages
exposuresBank

Non retail
exposures

Total

Retail Other retailmortgages
exposures

30/09/2013

Collective provision
Balance at beginning of the year

104

125

375

604

104

113

367

584

Credit to income statement

(3)

(8)

(51)

(62)

(3)

(12)

(51)

(66)

Balance at end of the year

101

117

324

542

101

101

316

518

Balance at beginning of the year
New and increased provisions net ofwrite-backs

119

26

305

450

119

26

287

432

12

83

53

148

12

83

48

143

Bad debts written off

(49)

(87)

(150)

(286)

(49)

(87)

(138)

(274)

Discount unwind1

(8)

-

(20)

(28)

(8)

-

(22)

(30)

Balance at end of the year

74

22

188

284

74

22

175

271

175

139

512

826

175

123

491

789

Balance at beginning of the year

120

147

395

662

120

136

382

638

Credit to income statement

(16)

(22)

(20)

(58)

(16)

(23)

(15)

(54)

Balance at end of the year

104

125

375

604

104

113

367

584

Balance at beginning of the year
New and increased provisions net ofwrite-backs

148

37

309

494

148

37

289

474

37

72

167

276

37

72

155

264

Bad debts written off

(55)

(83)

(131)

(269)

(55)

(83)

(119)

(257)

Discount unwind1

(11)

-

(40)

(51)

(11)

-

(38)

(49)

Balance at end of the year

119

26

305

450

119

26

287

432

Total provision for credit impairment

223

151

680

1,054

223

139

654

1,016

Individual provision

Total provision for credit impairment
30/09/2012

Collective provision

Individual provision1

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

ANZ Bank New Zealand Limited

27

Notes to the Financial Statements
15. Impaired Assets
Banking Group$ millions

Retail Other retailmortgages
exposuresBank

Non-retail
exposures

Total

Retail Other retailmortgages
exposures

Non-retail
exposures

Total

1,312

30/09/2013

Balance at beginning of the year

313

44

1,009

1,366

313

44

955

Transfers from productive

268

134

401

803

268

134

378

780

Transfers to productive

(91)

(5)

(194)

(290)

(91)

(5)

(189)

(285)

Assets realised or loans repaid

(262)

(37)

(400)

(699)

(262)

(37)

(364)

(663)

Write offs

(49)

(87)

(150)

(286)

(49)

(87)

(138)

(274)

Total impaired assets

179

49

666

894

179

49

642

870

-

1

24

25

-

1

24

25

1,663

Undrawn facilities with impaired
customers
30/09/2012

Balance at beginning of the year

471

61

1,194

1,726

471

61

1,131

Transfers from productive

285

110

572

967

285

110

550

945

Transfers to productive

(61)

(1)

(111)

(173)

(61)

(1)

(110)

(172)

Assets realised or loans repaid

(327)

(43)

(515)

(885)

(327)

(43)

(497)

(867)

Write offs

(55)

(83)

(131)

(269)

(55)

(83)

(119)

(257)

Total impaired assets

313

44

1,009

1,366

313

44

955

1,312

-

-

24

24

-

-

24

24

Undrawn facilities with impaired
customers

ANZ Bank New Zealand Limited

28

Notes to the Financial Statements
16. Investments in Subsidiaries and Associates
Banking Group$ millions

30/09/2013

Bank

30/09/2012

30/09/2013

30/09/2012

Investments in subsidiaries

-

-

4,779

6,524

Investments in associates

98

99

85

85

Total investments in subsidiaries and associates

98

99

4,864

6,609

Subsidiaries

Ownership Balanceinterest % date

Nature of business

Members of the Banking GroupANZ Capital NZ Limited

100

30 September

Investment

ANZ Investment Services (New Zealand) Limited

100

30 September

Funds management

ANZ National Staff Superannuation Limited

100

30 September

Staff superannuation scheme trustee

ANZ New Zealand (Int'l) Limited

100

30 September

Finance

ANZ New Zealand Investments Limited 1

100

30 September

Funds management

ANZ New Zealand Investments Nominees Limited 2

100

30 September

Nominee

ANZ New Zealand Securities Limited

100

30 September

On-line share broker

ANZ Wealth New Zealand Limited 3

100

30 September

Holding company-

30 September

Securitisation entity

Arawata Assets Limited

100

30 September

Property

Arawata Finance Limited

100

30 September

Investment

Arawata Holdings Limited

100

30 September

Holding company

AUT Investments Limited

100

30 September

Investment

Control Nominees Limited

100

30 September

Non-operating

Direct Nominees Limited

100

30 September

NomineeEndeavour Finance Limited

100

30 September

Investment

Harcourt Corporation Limited

100

30 September

Investment

Karapiro Investments Limited

100

30 September

Investment

Kingfisher NZ Trust 2008-1-

30 September

Securitisation entity

Medical Properties Holding Company No.1 Limited

100

30 September

Non-operating

OneAnswer Nominees Limited

100

30 September

Nominee

OnePath Insurance Holdings (NZ) Limited

100

30 September

Holding company

OnePath Insurance Services (NZ) Limited

100

30 September

Insurance

OnePath Life (NZ) Limited

100

30 September

Insurance

Private Nominees Limited

100

30 September

Nominee

Rural Growth Fund Limited

100

30 September

Investment

South Pacific Merchant Finance Limited

100

30 September

Holding company

UDC Finance Limited

100

30 September

Asset finance

Cards NZ Limited

19

30 September

Card services

Paymark Limited

25

31 March

EFTPOS settlements

UCG Investments Limited

40

31 March

Rest home operator

ANZNZ Covered Bond Trust

Associates

1

Previously known as OnePath (NZ) Limited
Previously known as OnePath Nominees (NZ) Limited
3
Previously known as OnePath Holdings (NZ) Limited
2

All subsidiaries and associates are incorporated in New Zealand, unless stated otherwise. The ownership interest
percentage equates to the voting power held for all companies. Control of Kingfisher NZ Trust 2008-1 and ANZNZ
Covered Bond Trust exists as the Banking Group retains substantially all the risks and rewards of the operations.
Movements in subsidiaries and associates
In December 2012 ANZ Capital NZ Limited sold its interest in Wyma Engineering (NZ) Limited.
In January 2013 NBNZ Holdings Hong Kong Limited was wound up.
In May 2013 the Bank sold its interest in EFTPOS New Zealand Limited. Control Nominees Limited acquired 100% of theshare capital and subsequently amalgamated with Origin Mortgage Management Services (2011) Limited.
In July 2013 Silver Fern Life Brokers Limited amalgamated with Alos Holdings Limited.
In August 2013 Alos Holdings Limited amalgamated with National Bank of New Zealand Custodians Limited. Arawata
Trust Company, NBNZ Holdings Limited and National Bank of New Zealand Custodians Limited amalgamated with Control
Nominees Limited. Arawata Trust was wound up.
These transactions did not have a material impact on the financial statements of the Banking Group.

ANZ Bank New Zealand Limited

29

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

Accrued interest and prepaid discounts

Bank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

367

356

454

433

Accrued commission

25

25

15

15

Share-based payments asset

62

60

62

60

Prepaid expenses

15

23

14

16

Security settlements

160

29

160

29

Other assets

102

99

55

58

Total other assets

731

592

760

611

18. Goodwill and Other Intangible Assets
Banking GroupBank$ millions

30/09/2013

30/09/2012

30/09/2013

30/09/2012

Goodwill

3,233

3,265

3,217

3,217

Software

84

103

82

100

131

137

-

-

3,448

3,505

3,299

3,317

30/09/2013

30/09/2012

30/09/2013

30/09/2012

Securities sold under agreements to repurchase

107

246

107

246

Cash collateral received on derivative financial instruments

438

257

438

257

Other

972

1,256

972

1,052

1,517

1,759

1,517

1,555

30/09/2012

30/09/2013

Other intangibles

Refer to note 2 for discussion of impairment testing for goodwill.

19. Due to Other Financial Institutions
Banking Group$ millions

Total due to other financial institutions

Bank

20. Deposits and Other Borrowings
Banking Group$ millions

Note

Certificates of deposit

30/09/2013

Bank
30/09/2012

2,364

2,156

2,364

2,156

Term deposits

33,86233,92233,86233,922

Demand deposits bearing interest

29,68825,81529,68825,815

5,526

4,838

5,526

4,838

1,492

1,476

-

-

4,765

5,445

-

-

77,69773,652

71,44066,731

Deposits not bearing interest
Secured debenture stock
Commercial paper
Total deposits and other borrowings

30

Deposits from customers are unsecured and rank equally with other unsecured liabilities of the Banking Group. In theunlikely 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 the claims of unsecured creditors.

ANZ Bank New Zealand Limited

30

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

30/09/2013

Creditors

Bank

30/09/2012

30/09/2013

30/09/2012

61

73

26

42

456

542

367

429

Defined benefit schemes deficit

41

103

41

103

Share-based payments liability

39

36

39

36

Accrued charges

252

257

206

229

Security settlements and short sales

218

290

218

276

Life insurance contract liabilities - reinsurance

100

107

-

-

Other liabilities

538

384

519

354

1,705

1,792

1,416

1,469

30/09/2013

30/09/2012

30/09/2013

30/09/2012

120

135

116

130

22

111

9

109

2

1

2

1

85

92

60

52

229

339

187

292

Accrued interest and unearned discounts

Total payables and other liabilities

22. Provisions
Banking Group$ millions

Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries
Other3
Total provisions

1
2

3

Bank

The aggregate liability for employee entitlements largely comprises provisions for annual leave and long service leave.
Restructuring costs and surplus leased space provisions arise from activities related to material changes in the scope of business undertaken by the Banking
Group or the manner in which that business is undertaken and includes termination benefits. Costs relating to on-going activities are not provided for.
Provision is made when the Banking Group is demonstrably committed, it is probable that the costs will be incurred, though their timing is uncertain, and thecosts can be reliably estimated. The 2012 balance includes provisions related to the New Zealand Simplification programme, including implementation of acore banking system, a single bank brand and an optimised branch network.
Other provisions include provisions relating to make-good of leased premises, seismic obligations and the deferred settlement of obligations arising frommanaged funds.

23. Bonds and notes
Banking Group$ millions

Note

Bank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

Domestic bonds

2,635

2,535

2,635

2,535

U.S. medium term notes1

4,464

7,423

-

-

Euro medium term notes1

4,349

4,179

-

-

3,925

2,962

-

-

84

81

84

81

Total bonds and notes issued

15,457

17,180

2,719

2,616

Fair value hedge adjustment

69

180

-

-

(32)

(116)

(32)

(116)

15,494

17,244

2,687

2,500

Covered bonds1
Index linked notes

Less bonds and notes held by the Bank
Total bonds and notes

36

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

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

ANZ Bank New Zealand Limited

31

Notes to the Financial Statements
24. Loan Capital
Banking Group$ millions

Bank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

NZD 835,000,000 perpetual subordinated bond 1

835

835

835

835

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

299

333

299

333

AUD 10,000,000 perpetual subordinated floating rate loan

11

-

11

-

1,145

1,168

1,145

1,168

(1)

-

(1)

-

1,144

1,168

1,144

1,168

Total loan capital issued
Less loan capital instruments held by the Bank
Total loan capital
1

These instruments qualify as tier two capital under RBNZ’s transitional rules. Refer to Note 28 for further details.

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

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

ANZ Bank New Zealand Limited

32

Notes to the Financial Statements
Banking Group$ thousands

Bank

Year toYear toYear toYear to30/09/2013

30/09/2012

30/09/2013

30/09/2012

Key management personnel compensation
Salaries and short-term employee benefits

13,21012,19813,21011,605

Post-employment benefits

258

201

258

201

Other long-term benefits

76

87

76

87

123

-

123

-

5,693

4,537

5,693

4,537

19,36017,02319,36016,430Loans to key management personnel

5,741

2,726

5,741

2,726

Deposits from key management personnel

8,001

7,055

8,001

7,055

Termination benefits
Share-based payments expense
Total compensation of key management personnel
Loans to and deposits held by key management personnel

Transactions with other related parties
The Bank and Banking Group undertake transactions with the Immediate Parent Company, 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 subsidiaries, which are eliminated in the consolidated Banking
Group financial statements. Included within the Bank’s transactions with subsidiaries is the provision of administrative
functions to some subsidiaries for which no payments have been made.

Transactions with related parties$ millions

Banking GroupBank

Year toYear toYear toYear to30/09/2013

30/09/2012

30/09/2013

30/09/2012

-

-

506

477

2

5

2

5

19

7

19

7

-

-

1,619

1,590

97

58

77

28

2

2

2

2
26

Interest income
Received from subsidiaries
Received from the Ultimate Parent Bank and subsidiaries not part of the
Banking GroupInterest expense
Paid to the Immediate Parent Company
Paid to subsidiaries
Paid to the Ultimate Parent Bank and subsidiaries not part of the
Banking Group
Paid to associates
Other operating income
Fees received from the NZ Branch

25

26

25

Fees & commission received from subsidiaries

-

-

28

70

Dividends received from subsidiaries

-

-

252

201

Dividends received from associates
Received from the Ultimate Parent Bank and subsidiaries notpart of the Banking Group

-

-

4

4

Loss on sale of mortgages to the NZ Branch
Share of associates' profit

16

51

16

51

(14)

(1)

(14)

(1)

7

4

-

-

-

-

139

146

84

118

83

118
-

Operating expenses
Paid to subsidiaries
Paid to the Ultimate Parent Bank and subsidiaries not part of the
Banking Group
Other transactions
Repayments of share capital received from subsidiaries
Preference shares issued to immediate parent
Mortgages sold to the NZ Branch

-

-

1,907

300

-

300

-

3,144

2,397

3,144

2,397

ANZ Bank New Zealand Limited

33

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

Bank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

Liquid Assets
Due from Ultimate Parent Bank and subsidiaries not part of the Banking
Group

22

85

22

85

Due from other financial institutions
Due from Ultimate Parent Bank and subsidiaries not part of the Banking
Group

95

179

95

179

30

54

30

54

Derivative financial assets
Due from NZ Branch
Due from Ultimate Parent Bank and subsidiaries not part of the Banking
Group

1,881

2,561

1,881

2,561

Due from Immediate Parent Company

2

88

2

88

Due from subsidiaries

-

-

4

35

Due from associates

-

4

-

4

Due from subsidiaries--

12,206

11,619

Shares in subsidiaries and associates

98

99

4,864

6,609

Other assets
Due from Ultimate Parent Bank and subsidiaries not part of the Banking
Group

65

61

65

61

2,193

3,131

19,16921,295

18

20

18

20

37

205

-

1

85

85

85

85

-

-

33,76837,940

939

740

939

740

12

13

12

13

2,142

3,037

2,142

3,037

14

-

14

-

-

-

9

-

296

284

296

284

11

15

9

14

1

1

1

1

Bonds and notes
Due to Ultimate Parent Bank and subsidiaries not part of the Banking
Group

1,267

1,257

-

-

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

310

333

310

333

5,132

5,990

37,60342,468Net loans and advances

Total due from related parties
Due to other financial institutions
Due to NZ Branch
Due from Ultimate Parent Bank and subsidiaries not part of the Banking
Group
Deposits and other borrowings
Due to associates
Due to subsidiaries
Due to Immediate Parent Company
Derivative financial liabilities
Due to NZ Branch
Due to Ultimate Parent Bank and subsidiaries not part of the Banking
Group
Due to Immediate Parent Company
Due to subsidiaries
Payables and other liabilities
Due to NZ Branch
Due to Ultimate Parent Bank and subsidiaries not part of the Banking
Group
Due to Immediate Parent Company

Total due to related parties

Balances 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

Bonds and notes issued by ANZ New Zealand (Int'l) Limited tosubsidiaries of the Ultimate Parent Bank not part of ANZ New Zealandand guaranteed by the Bank
Financial guarantees provided to the Ultimate Parent Bank
Undrawn credit commitments provided to the Immediate Parent
Company
Undrawn credit commitments provided to subsidiaries

30/09/2013

Bank

30/09/2012

30/09/2013

30/09/2012

-

-

1,267

1,257

181

256

181

256

250

250

250

250

-

-

2,566

643

ANZ Bank New Zealand Limited

34

Notes to the Financial Statements
26. Current and Non-current Assets and Liabilities
Banking Group$ millions

30/09/2013

Noncurrent

Current

Bank

30/09/2012

Current

30/09/2013

Non-current

30/09/2012

Noncurrent

Current

Current

Non-current

AssetsLiquid assets
Due from other financial institutions

2,496

-

2,831

-

2,495

-

2,815

-

1,570

-

1,722

-

1,570

-

1,666

-

10,320-12,338-

10,319-12,338

-

9,518

-

12,753

-

9,522

-

12,788

-

-

-

15

-

62

-

79

-

Available-for-sale assets

407

375

16

41

405

375

13

41

Net loans and advances

28,87861,611

27,98058,69827,98460,24526,932

57,387

-

-

-

-

2,523

9,683

3,507

8,168

169

3

140

2

-

-

-

-

-

399

-

408

-

-

-

-

-

98

-

99

-

4,864

-

6,609

Trading securities
Derivative financial instruments
Current tax assets

Due from subsidiaries
Investments backing insurance policy
liabilities
Insurance policy assets
Investments in subsidiaries andassociates
Other assets

669

62

532

60

698

62

551

60

Deferred tax assets

-

39

-

93

-

128

-

185

Premises and equipment

-

376

-

323

-

61

-

74

Goodwill and other intangible assets

-

3,448

-

3,505

-

3,299

-

3,317

54,02766,411

58,32763,22955,57878,71760,68975,841

Total assets
Liabilities
Due to other financial institutions

1,517

-

1,605

154

1,517

-

1,401

154

Deposits and other borrowings

75,143

2,554

70,793

2,859

69,211

2,229

64,124

2,607

-

-

-

-

9,227

24,541

14,94322,997-

Due to subsidiaries
Due to the Immediate Parent
Company
Derivative financial instruments
Payables and other liabilities
Current tax liabilities
Provisions
Bonds and notes
Loan capital
Total liabilities

939

-

740

-

939

-

740

10,243-

13,930-

10,252-

13,930

-

1,625

80

1,546

246

1,336

80

1,330

139

3

-

-

-

-

-

-

-

137

92

240

99

99

88

196

96

3,338

12,156

4,043

13,201

402

2,285

100

2,400

-

1,144

-

1,168

-

1,144

-

1,168

92,94516,02692,897

17,727

92,98330,367

96,76429,561

Assets and liabilities are classified as current if:•
it is expected they will be realised, consumed or settled in the normal operating cycle or within twelve months after
the end of the reporting date; or•they are held primarily for trading; or•they are assets that are cash or a cash equivalent; or•they are liabilities where there is no unconditional right to defer settlement for at least twelve months.
Non-current assets include premises and equipment and intangible assets as well as financial assets of a long-term
nature. Non-current liabilities include financial and non-financial liabilities which are expected to be settled after twelve
months from balance 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 toNote 29.

ANZ Bank New Zealand Limited

35

Notes to the Financial Statements
27. Share Capital
Banking Group
Number of issued sharesBank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

1,700,755,498

1,700,755,498

1,700,755,498

1,700,755,498

Ordinary shares
Ordinary shares at beginning and end of the year
Preference shares
At beginning of the year

-

-

-

-

Issued on 25 September 2013

300,000,000-

300,000,000-

Preference shares at end of the year

300,000,000-

300,000,000-

2,000,755,498

1,700,755,498

2,000,755,498

1,700,755,498

6,943

6,943

6,943

6,943

Total number of issued shares$ millions

Ordinary shares
Ordinary shares fully paid at beginning and end of theyear
Preference shares
At beginning of the year

-

-

-

-

Issued on 25 September 2013

300

-

300

-

Preference share capital at end of the year

300

-

300

-

7,243

6,943

7,243

6,943

Total paid in share capital

Ordinary shares
650,712 of the ordinary shares are uncalled (30/09/2012 650,712 shares uncalled).
During the year ended 30 September 2013 the Bank paid ordinary dividends of $1,065 million to the Immediate Parent
Company (equivalent to $0.63 per share) (30/09/2012 the Bank paid ordinary dividends of $1,150 million to the
Immediate Parent Company (equivalent to $0.68 per share)). There were no changes to ordinary share capital during theyear ended 30 September 2013 (30/09/2012 $nil).
All ordinary shares share equally in dividends and any proceeds available to ordinary shareholders on winding up of theBank. On a show of hands every member who is present at a meeting in person or by proxy or by representative isentitled to one vote, and upon a poll every member shall have one vote for each share held.
Preference shares
All preference shares were issued by the Bank to the Immediate Parent and do not carry any voting rights. The
preference shares are wholly classified as equity instruments as there is no contractual obligation for the Bank to eitherdeliver cash or another financial instrument or to exchange financial instruments on a potentially unfavourable basis. The
key terms of the preference shares are as follows:
Dividends
Dividends are payable at the discretion of the directors of the Bank and are non-cumulative. The Bank must not resolve
to pay any dividend or make any other distribution on its ordinary shares until the next preference dividend payment date
if the Directors elect to not pay a dividend on the preference shares.
Should the Bank elect to pay a dividend, the dividend is payable at 72% of BKBM + 3.25% p.a., with dividend payments
due on 1 March and 1 September each year, beginning on 1 March 2014.
Redemption features
The preference shares are redeemable, subject to prior written approval of the RBNZ, by the Bank providing notice inwriting to holders of the preference shares:•
on any date on or after a change to laws or regulations that adversely affects the regulatory capital or tax treatmentof the preference shares; or•on any dividend payment date on or after 1 March 2019; or•on any date after 1 March 2019 if the Bank has ceased to be a wholly owned subsidiary of the Ultimate Parent Bank.
The preference shares may be redeemed for nil consideration should a non-viability trigger event occur.
Rights of holders in event of liquidation
In the event of liquidation, holders of preference shares are entitled to available subscribed capital per share, pari passu
with all holders of existing preference shares but in priority to all holders of ordinary shares. They have no entitlement toparticipate in further distribution of profits or assets.
The preference shares qualify as “additional tier one capital” for capital adequacy purposes.

ANZ Bank New Zealand Limited

36

Notes to the Financial Statements
28. Capital Adequacy
Capital management policies
The Banking Group’s core capital objectives are to:•Protect the interests of depositors, creditors and shareholders;•
Ensure the safety and soundness of the Banking Group’s capital position; and•Ensure that the capital base supports the Banking Group’s risk appetite, and strategic business objectives, in an
efficient and effective manner.
The Board holds ultimate responsibility for ensuring that capital adequacy is maintained. This includes: setting,monitoring and obtaining assurance for the Banking Group’s Internal Capital Adequacy Assessment Process (“ICAAP”)
policy and framework; standardised risk definitions for all material risks; materiality thresholds; capital adequacy targets;internal economic risk capital principles; and risk appetite.
The Banking Group has minimum and trigger levels for common equity tier one, tier one and total capital that ensuresufficient capital is maintained to:•
Meet minimum prudential requirements imposed by regulators;•
Ensure consistency with the Banking Group’s overall risk profile and financial positions, taking into account its
strategic focus and business plan; and•Support the economic risk capital requirements of the business.
The Banking Group’s Asset & Liability Committee and its related Capital Management Forum are responsible fordeveloping, implementing and maintaining the Banking Group's ICAAP framework, including ongoing monitoring, reportingand compliance. The Banking Group’s ICAAP is subject to independent and periodic review conducted by Internal Audit.
The Banking Group has complied with all externally imposed capital requirements to which it is subject during the current
and comparative periods.
Adoption of Basel III capital framework
Effective 1 January 2013, RBNZ and APRA have adopted the majority of Basel III capital reforms in New Zealand andAustralia respectively. The Basel III reforms include: increased capital deductions from common equity tier one capital,
an increase in capitalisation rates (including prescribed minimum capital buffers, fully effective 1 January 2014 in New
Zealand and 1 January 2016 in Australia), tighter requirements around new tier one and tier two securities andtransitional arrangements for existing tier one and tier two securities that do not conform to the new regulations. Otherchanges include capital requirements for counterparty credit risk and an increase in the asset value correlation withrespect to exposures to large and unregulated financial institutions.
Capital ratios (unaudited)
Banking GroupBank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

Basel III

Basel II

Basel III

Basel I

Common equity tier one capital

10.4%

n/a

9.2%

n/a

Tier one capital

10.8%

10.8%

9.7%

9.5%

Total capital

12.4%

12.5%

11.3%

10.3%

Buffer ratio

4.4%

n/a

RBNZ minimum ratios:
Common equity tier one capital

4.5%

n/a

Tier one capital

6.0%

4.0%

Total capital

8.0%

8.0%

ANZ Bank New Zealand Limited

37

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

30/09/2013

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

6,943

Retained earnings (net of appropriations)

4,200

Accumulated other comprehensive income and other disclosed reserves

24

Less deductions from common equity tier one capital
Goodwill and intangible assets, net of associated deferred tax liabilities(3,448)Deferred tax assets less deferred tax liabilities relating to temporary differences(97)

Cash flow hedge reserve(26)

Expected losses to extent greater than total eligible allowances for impairment(73)

Common equity tier one capital

7,523

Additional tier one capital - preference shares

300

Total tier one capital

7,823

Tier two capital
NZD 835,000,000 perpetual subordinated bond

835

AUD 265,740,000 perpetual subordinated loan299

Total tier two capital

1,134

Total capital

8,957

Tier two capital instruments
The amount of the tier two loan capital instruments eligible to be included in regulatory capital will reduce by 20% peryear from 1 January 2014 and will not be included in regulatory capital from 1 January 2018.

Capital requirements of the Banking Group (unaudited)$ millions

Exposures subject to internal ratings based approach

Exposure atdefault

Risk weighted
exposure or
implied risk
weighted
exposure1

Total capitalrequirement

125,679

52,9194,233

Specialised lending exposures subject to slotting approach

7,868

7,531

603

Exposures subject to standardised approach

1,208

301

23

Equity exposures

99

418

33

Other exposures

3,056

1,218

97

Total credit risk

137,91062,387

4,989

Operational risk

n/a

5,526

442

Market risk

n/a

4,280

342

137,910

72,193

5,773

Total
1

Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank's Conditions of Registration.

ANZ Bank New Zealand Limited

38

Notes to the Financial Statements
Implementation of the advanced internal ratings based approach to credit risk measurement
The Banking Group adheres to the standards of risk grading and risk quantification as set out for Internal Ratings Based(“IRB”) banks in the RBNZ document BS2B.
Under this IRB Framework banks use their own measures for calculating the level of credit risk associated with customers
and exposures, by way of the primary components of:
Probability of Default (“PD”): An estimate of the level of risk of borrower default graded by way of rating models usedboth at loan origination and for ongoing monitoring;
Exposure at Default (“EAD”): The expected facility exposure at default. Total credit risk-weighted exposures include a
scalar of 1.06 in accordance with the Bank’s Conditions of Registration; andLoss Given Default (“LGD”): An estimate of the potential economic loss on a credit exposure, incurred as a consequenceof obligor default and expressed as a percentage of the facility’s EAD. For Retail Mortgage exposures the Bank is required
to apply the downturn LGDs according to loan to value (“LVR”) bands as set out in BS2B. For farm lending exposures the
Banking Group is required to adopt RBNZ prescribed downturn LVR based LGDs, along with a minimum maturity of 2.5
years and the removal of the firm-size adjustment.
For exposures classified under Specialised Lending, the Banking Group uses slotting tables supplied by the RBNZ rather
than internal estimates.
The exceptions to IRB treatment are three minor portfolios where 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 September 2013.

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

Corporate sub-class Project finance- Specialised lending
Income producing real estate

IRB - Slotting

EquityIRB

Other assets

IRB - Slotting

All other assets not falling within any of the above classes

IRB

Standardised approach

Exposure class

Exposure Type

Reason for Standardised
Approach

Future Treatment

Corporate

Merchant card prepayment exposures

System constraints

Move to IRB

Corporate credit cards

System constraints

Move to IRB

Qualifying Central Counterparty (QCCP)

Required by Basel III

Standardised

ANZ Bank New Zealand Limited

39

Notes to the Financial Statements
Controls surrounding credit risk rating systems
The term “Rating Systems” covers all of the methods, processes, controls, data collection and technology that support theassessment of credit risk, the assignment of internal credit risk ratings and the quantification of associated default andloss estimates.
All material aspects of the Rating Systems and risk estimate processes are governed by the Banking Group’s Risk
Committee. Risk grades are an integral part of reporting to senior management and executives. Management and staff
of credit risk functions, in conjunction with the relevant Retail and Wholesale Risk Committees, regularly assess theperformance of the rating systems, identify any areas for improvement and monitor progress on previously identified
development work needed.
The Banking Group's Rating Systems are governed by a comprehensive framework of controls that operate at thebusiness 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 of credit risk models within New Zealand. The annual review of models used across the Banking Group is afunction undertaken by the ANZ Decision Model Validation Unit, which is also independent of credit risk operational
functions and is responsible for overseeing the design, implementation and performance of all rating models in the
Banking Group.
The target approach to modelling for the Banking Group is to deploy the model most suitable for the environment. At
present this involves an approach to modelling that combines models developed in New Zealand and models developed by
the Ultimate Parent Bank, tested and validated for use in New Zealand, as appropriate.
Capital requirements by asset class under the IRB approach

Total exposure or
principal amount$m

Exposure atdefault$m

Exposureweighted LGD
used for thecapitalcalculation%

Corporate

32,26732,47535

58

19,884

Sovereign

8,750

8,665

5

1

88

6

Bank

3,742

3,514

59

25

915

73

47,382

47,61722

29

14,886

1,191

4,466

4,573

64

82

3,981

319

96,607

96,84428

39

39,7543,180

Corporate

12,393

9,337

52

50

4,948

396

Sovereign

67

36

5

1

-

-

Bank

1,277

1,091

50

18

212

17

Retail mortgages

5,648

5,938

18

17

1,075

86

Other retail

4,962

4,776

75

51

2,596

207

24,347

21,178

47

39

8,831

706

Corporate

75,161

2,031

60

88

1,888

151

Sovereign

11,960

359

5

2

6

1

Bank

633,565

5,267

64

44

2,440

195

Total market related contracts

720,686

7,657

60

53

4,334

347

Total credit risk exposures subject tothe IRB approach

841,640

125,679

33

40

52,9194,233

Banking GroupAs at 30/09/2013 (Unaudited)

Exposureweighted risk
weight%Risk weighted
exposure$m

Total capitalrequirement
$m

1,591

On-balance sheet exposures

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

Total off-balance sheet exposures
Market related contracts

ANZ Bank New Zealand Limited

40

Notes to the Financial Statements
IRB exposures by customer credit rating

Banking GroupAs at 30/09/2013 (Unaudited)

Probability ofdefault

Exposure atdefault

Exposureweighted LGD
used for thecapitalcalculation

%

$m

%

%

$m

$m

Exposureweighted risk
weightRisk weighted
exposure

Total capitalrequirement

Corporate
0-2

0.05

4,656

63

35

1,725

138

3-4

0.30

22,889

37

40

9,727

778

5

1.00

9,602

36

65

6,596

528

6

2.23

4,099

39

87

3,772

302

7-8

7.40

1,713

43

148

2,689

215

100.00

884

44

236

2,211

177

2.89

43,84340

57

26,720

2,138

0

0.01

8,939

5

1

91

7

1-8

0.01

121

5

2

3

-

Total sovereign exposures

0.01

9,060

5

1

94

7

0

0.03

3,947

65

32

1,330

106

1

0.03

5,241

58

34

1,909

153

2-4

0.16

674

59

44

314

25

5-8

1.45

10

65

121

14

1

Total bank exposures

0.04

9,872

61

34

3,567

285

0-3

0.20

11,193

12

5

573

46

4

0.46

17,412

19

15

2,807

225

5

0.93

18,375

27

37

7,173

574

6

2.11

5,456

30

75

4,318

345

7-8

5.40

616

31

123

801

64

100.00

503

28

54

289

23

1.73

53,55521

28

15,961

1,277

Default
Total corporate exposures
SovereignBank

Retail mortgages

Default
Total retail mortgages exposures
Other retail
0-2

0.10

673

77

48

344

27

3-4

0.29

4,466

72

51

2,415

193

5

1.12

1,446

62

65

992

79

6

2.67

1,659

66

85

1,491

119

7-8

11.25

991

72

112

1,177

94

Default

100.00

114

70

131

158

14

Total other retail exposures

3.20

9,349

70

66

6,577

526

Total credit risk exposures subject tothe IRB approach

1.99

125,679

33

40

52,9194,233

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

ANZ Bank New Zealand Limited

41

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

Risk weight

Risk weighted
exposure

Total capitalrequirement

$m

%

$m

$m

Strong

2,145

70

1,591

127

Good

3,742

90

3,570

286

Satisfactory

789

115

962

77

Weak

222

250

589

48

Default

159

-

-

-

7,057

90

6,712

538

Exposure amountExposure atdefault

Average risk
weightRisk weighted
exposure

Total capitalrequirement

$m

$m

%

$m

$m

Banking GroupAs at 30/09/2013 (Unaudited)On-balance sheet exposures

Total on-balance sheet exposures

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

939

680

90

650

52

Market related contracts

1,590

131

121

169

13

Total off-balance sheet exposures

2,529

811

95

819

65

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

Banking GroupAs at 30/09/2013 (Unaudited)

Exposure atdefault$m

Risk weight%

Risk weighted
exposure$m

Total capitalrequirement
$m

53

100

56

4

1

150

1

-

54

101

57

4

Exposure atdefault$m

Average risk
weight%Risk weighted
exposure$m

Total capitalrequirement$mOn-balance sheet exposures
Corporates
Default
Total on-balance sheet exposures

Average credit
Exposure amount conversion factor$m%Off-balance sheet exposures
Undrawn commitments and other offbalance sheet exposures

493

47

233

87

216

17

Market related contracts

76,776

1

921

3

28

2

Total off balance sheet

77,269

n/a

1,154

20

244

19

Credit exposures subject to the Standardised Approach have been calculated in accordance with BS2A.
Equity exposures
Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

As at 30/09/2013 (Unaudited)

$m

%

$m

$m

All equity holdings not deducted from capital

99

400

418

33

Banking Group

Equity exposures have been calculated in accordance with BS2B.

ANZ Bank New Zealand Limited

42

Notes to the Financial Statements
Other exposures

Banking GroupAs at 30/09/2013 (Unaudited)

Cash

Exposure atdefault$m

Risk weight%

Risk weighted
exposure$m

Total capitalrequirement
$m

-

198

-

-

New Zealand dollar denominated claims on the Crown and the RBNZ

1,709

-

-

-

Other assets

1,149

100

1,218

97

Total other IRB credit risk exposures

3,056

38

1,218

97

Other exposures have been calculated in accordance with BS2B.

Credit risk mitigation
The Banking Group assesses the integrity and ability of counterparties to meet their contractual financial obligations for
repayment. The Banking Group generally takes collateral security in the form of real property or a security interest in
personal property, except for major government, bank and corporate counterparties of strong financial standing. Longer
term consumer finance, in the form of housing loans, is generally secured against real estate while short term revolving
consumer credit is generally unsecured.
As at 30 September 2013, under the IRB approach, the Banking Group had $1,917 million of Corporate exposurescovered by guarantees where the presence of the guarantees was judged to reduce the underlying credit risk of the
exposures. Information on the total value of exposures covered by financial guarantees and eligible financial collateral is
not disclosed, as the effect of these guarantees and collateral on the underlying credit risk exposures is not considered tobe material.
Operational risk
The Banking Group uses the Advanced Measurement Approach for determining its regulatory capital requirement for
operational risk calculated in accordance with BS2B. As at 30 September 2013 the Banking Group had an implied risk
weighted exposure of $5,526 million for operational risk and an operational risk capital requirement of $442 million.
Operational risk capital is modelled at a New Zealand geographic level and then distributed and adjusted for the businessenvironment and internal controls down to the business units using the Risk Scenario Methodology. This methodology
ensures that there is sufficient operational risk capital held as a buffer for rare and severe unexpected operational loss
events that may impact the New Zealand business. The Methodology applies a combination of expert judgement,
business unit risk profiles, audit findings, and internal and external loss events to derive a series of business specific Risk
Scenarios that are applied to the capital model. The Risk Scenario approach:• Assesses the level of the Bank's exposure to specified risk scenarios;• Assesses the scope and quality of the Bank's internal control environment, key operational processes and risk
mitigants; and• Directly links the risk scenarios to operational risk capital.
The Banking Group's operating risk capital is calculated using the Ultimate Parent Bank’s methodology, but withstandalone New Zealand inputs to ensure there are no diversification benefits.
The Banking Group does not incorporate any insurance mitigation impact into its capital number. Accordingly, there are
no insurance related questions contained within the Risk Scenario Methodology.
Market risk
The aggregate market risk exposures below have been calculated in accordance with BS2B. The peak end-of-day market
risk exposures are for the half-year ended 30 September 2013.
Banking Group
30/09/2013 (Unaudited)

Interest rate risk
Foreign currency risk
Equity risk

Implied risk weighted exposure
Period end
Peak
$m
$m

Aggregate capital charge
Period end
Peak
$m
$m

Peak
occurred on

4,241

5,346

339

428

1/07/2013

37

98

3

8

16/08/2013

2

2

-

-

1/04/2013

4,280

342

43

ANZ Bank New Zealand Limited

Notes to the Financial Statements
Pillar II capital for other material risks
The Banking Group’s ICAAP complies with the requirements of the Bank's Conditions of Registration. It identifies andmeasures all “other material risks”, which are those material risks that are not explicitly 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
business risk, pension risk, insurance risk, funds management risk, lapse risk, premises and equipment risk andcapitalised origination fees risk.
The Banking Group's internal capital allocation for these other material risks is $365 million (30/09/2012: $338 million).
The Banking Group regularly reviews the methodologies used to calculate the economic capital allocated to other material
risks. Updated capital methodologies (particularly relating to fixed asset risk and business risk) were applied in November
2012 and the prior period restated accordingly.
Capital adequacy of the Ultimate Parent Bank
Overseas Banking Group

Ultimate Parent Bank
(Extended Licensed Entity)

30/09/2013

30/09/2012

30/09/2013

30/09/2012

Basel III

Basel III

Basel III

Basel II

Common equity tier one capital

8.5%

8.0%

8.5%

n/a

Tier one capital

10.4%

9.7%

10.6%

11.4%

Total capital

12.2%

11.7%

12.5%

12.7%

For calculation of minimum capital requirements under Pillar 1 (Capital Requirements) of the Basel Accord, APRA has
accredited the Overseas Banking Group to use the Advanced Internal Ratings Based methodology for calculation of credit
risk weighted assets and the Advanced Measurement Approach for the operational risk weighted asset equivalent.
Under prudential regulations, the Overseas Banking Group is required to maintain Prudential Capital Requirements("PCRs"), which are at least equal to that specified under Basel III (previously Basel II), as determined by APRA. The
Overseas Banking Group exceeded the PCRs set by APRA as at 30 September 2013 and for the comparative prior periods.
The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 30 September 2013. The
Overseas Banking Group’s Pillar 3 disclosure document for the year ended 30 September 2013, in accordance with APS
330: Public Disclosure of Prudential Information, discloses capital adequacy ratios and other prudential information. This
document can be accessed at the website anz.com.
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
Banking Group's valuation of the security property at origination of the exposure. Off-balance sheet exposures include
undrawn and partially undrawn residential mortgage loans as well as commitments to lend. Commitments to lend areformal offers for housing lending which have been accepted by the customer.
Unaudited 30/09/2013

On-balancesheet

Off-balance
sheet

Total

0% - 59%

16,745

3,059

19,80460% - 69%

7,973

775

8,748

70% - 79%

11,974970

12,944

Less than 80%$ millions

LVR range

36,692

4,804

41,49680% - 89%

6,751

480

7,231

Over 90%

3,939

364

4,303

47,382

5,648

53,030Total

Reconciliation of mortgage related amounts
Banking Group
Unaudited$ millions

Note

30/09/2013

Term loans - housing

13

49,563

Plus: short-term housing loans classified as overdrafts

499

Less: housing loans made to corporate customers
Gross retail mortgage loans(2,716)29

Plus: Unsettled re-purchases of mortgages from the NZ BranchOn-balance sheet retail mortgage exposures subject to the IRB approach

36
28

Plus: off-balance sheet retail mortgage exposures subject to the IRB approach
Total retail mortgage exposures subject to the IRB approach (as per LVR analysis)

47,34647,3825,648

28

53,030ANZ Bank New Zealand Limited

44

Notes to the Financial Statements
29. Financial Risk Management
Strategy in using financial instruments
Financial instruments are fundamental to the Banking
Group’s business, constituting the core element of its
operations.
Accordingly, the risks associated withfinancial instruments are a significant component of therisks faced by the Banking Group. Financial instruments
create, modify or reduce the credit, market and liquidity
risks of the Banking Group’s balance sheet.
The
Banking Group’s overall risk management programme
focuses on the unpredictability of financial markets andseeks to minimise potential adverse effects on thefinancial performance of the Banking Group.
The risk management and policy control framework
applicable to the entities comprising the Banking Grouphas been set by the Board and Risk Committee of the
Bank or the Ultimate Parent Bank, as appropriate.
Likewise oversight and monitoring of material risk
exposures of the Banking Group is undertaken by the
Risk Management 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.

Credit risk
Credit risk is the risk of financial loss fromcounterparties being unable to fulfil their contractual
obligations. The Banking Group assumes credit risk in awide range of lending and other activities in diverse
markets and many jurisdictions. Credit risks arise not
only from traditional lending to customers, but also frominter-bank, treasury, international trade and capital
market activities around the world.
The Banking Group has an overall lending objective ofsound growth for appropriate returns. The credit risk
objectives of the Banking Group are set by the Boardand are implemented and monitored within a tiered
structure of delegated authority, designed to oversee
multiple facets of credit risk, including business writing
strategies, credit policies/controls, single exposures,
portfolio monitoring and risk concentrations.
Credit risk management
A credit risk management framework is in place acrossthe Banking Group with the aim of ensuring a structured
and disciplined approach is maintained in achieving theobjectives set by the Board. The framework focuses onpolicies, people, skills, controls, risk concentrations andportfolio balance. It is supported by portfolio analysis
and business-writing strategies, which guide lending
decisions and identify segments of the portfolio requiring
attention.
The effectiveness of the framework ismonitored through a series of compliance and reporting
processes.
An independent Risk Management function is staffed byrisk specialists. In regard to credit risk management,
the objective is for Risk Management to provide robust
credit policies, to make independent credit decisions,and to provide strong support to front line staff in theapplication of sound credit practices. In addition toproviding independent credit assessment on lending
decisions, Risk Management also performs key roles in
portfolio management by development and validation of
credit risk measurement systems, loan asset quality
reporting, and development of credit standards andpolicies.
The credit risk management framework is top down. The
framework is defined by the Banking Group's credit

principles and policies. The effectiveness of the credit
risk management framework is validated through thecompliance and monitoring processes.
Risk Management's responsibilities for credit risk policy
and management are executed through dedicateddepartments, which support the business units.
Allmajor business unit credit decisions require approval
from both business writers and independent risk
personnel.
Credit risk is controlled through a combination of
approvals, limits, reviews and monitoring proceduresthat are carried out on a regular basis, the frequency ofwhich is dependent upon the level of risk. Credit risk
policy and management is executed through the Chief
Risk Officer, who is responsible for various dedicatedareas within the Risk Management division. Wholesale
Risk services the Banking Group's commercial,investment banking and rural lending activities throughdedicated teams.
Retail Risk services the Banking
Group's small business and consumer customers. The
Credit Reporting team within Risk Management provides
an independent overview of credit risk across the Bankat a portfolio level. The Banking Group allows sole
discretion for transaction approvals at the business unit
level in both the retail and wholesale lending sectors,
with larger transactions approved by Retail Risk andWholesale Risk.
The credit risk review function within Global Internal
Audit also provides a further independent checkmechanism to ensure the quality of credit decisions.
This includes providing independent periodic checks on
asset quality and compliance with the agreed 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 of funds from one country
to another or involve transactions in a currency otherthan 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 eachcountry. The country rating is determined through adefined methodology based around external ratings
agencies’ ratings and internal specialist opinion. It isalso 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 arerecorded by time to maturity and purpose of exposure,e.g., trade, markets and project finance. Country limits
are managed centrally by the Ultimate Parent Bank,
through a global country risk exposure management
system managed by 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 through modelling relationships
and sensitivities between geographic, industry andbusiness unit exposures under a range of macro
economic scenarios.

ANZ Bank New Zealand Limited

45

Notes to the Financial Statements
The Ultimate Parent Bank has a dedicated stress testingteam that assists business and risk executives in the
Banking Group to model and report periodically to
management and the Board Risk Committee on a rangeof scenarios and stress tests.
Portfolio analysis and reporting
Credit portfolios are actively monitored at each layer ofthe risk structure to ensure credit deterioration isquicklydetected
andmitigatedthroughtheimplementation of remediation strategies.
Businesses incurring credit risk undertake regular andcomprehensive analysis of their credit portfolios. Issue
identification
andadherence
toperformancebenchmarks are reported to Risk Management andbusiness executives through a series of reports including
monthly ‘asset quality’ reporting.
This process isundertaken by or overseen by Risk Management
ensuring an efficient and independent conduit exists to
identify and communicate emerging credit issues to
Banking Group executives and the Board.
Collateral management
Banking Group credit principles specify lending only
what the counterparty has the capacity and ability to
repay and the Banking Group sets limits on theacceptable 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 ensurecollateralismanaged,legally
enforceable,
conservatively valued and adequately insured whereappropriate. 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; and•Financial guarantees.
In the event of customer default, any loan security is
usually held as mortgagee in possession while action istaken to realise it. Therefore the 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 tocredit losses. The credit risk is reduced by a masteragreement 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 covered by the ISDA in the Credit Support
Annex (“CSA”) in order to achieve further credit
exposure reduction. Under a CSA, collateral is passed
between the parties, depending on the aggregate markto-market (positive or negative) of derivative trades
between the two entities, to mitigate the market
contingent counterparty risk inherent in the outstanding
positions.
Concentrations of credit risk
Concentrations of credit risk arise when a number ofcustomers are engaged in similar business activities or
activities within the same geographic region, or when
they have similar risk characteristics that would cause
their ability to meet contractual obligations to be
similarly affected by changes in economic or otherconditions.

The Banking Group monitors its portfolios to identify andassess risk concentrations.
Concentration limits areused to guard against large single customer orcorrelated credit risks. Risk Management, Business Unit
executives and senior management monitor large
exposure concentrations through a monthly list of the
Banking Group's top corporate exposures. The ANZ
Credit and Market Risk Committee and Board Risk
Committee regularly review a comprehensive list of
single customer concentration limits and customers’
adherence to these limits.
Analyses of financial assets by industry sector are basedon Australian and New Zealand Standard Industrial
Classification (“ANZSIC”) codes.

ANZ Bank New Zealand Limited

46

Notes to the Financial Statements
Concentrations of credit risk analysis
Banking Group$ millions
30/09/2013

Liquid assets
Tradingand due from securities andother financial available-forinstitutions
sale assets

Derivative
financial
instruments

Net loans andadvancesOtherfinancialassetsCredit related
commitments
3

Total

18,842

Industry
Agriculture

1

29

22

17,46893

1,229

Forestry, fishing and mining

14

-

11

926

5

894

1,850

Business and property services

23

1

24

8,876

47

2,363

11,334

Construction

-

-

-

1,033

6

709

1,748

Entertainment, leisure and tourism

-

-

27

1,031

5

326

1,389

Finance and insurance

2,015

5,120

8,586

839

335

1,517

18,412Government and local authority 1

9,910

1,533

5,872

248

1,228

7

1,022

Manufacturing

54

-

69

2,916

16

1,996

5,051

Personal lending

-

-

-

51,407274

11,811

63,492Retail trade

102

-

40

1,717

9

991

2,859

Transport and storage

19

3

54

1,453

8

610

2,147

Wholesale trade

88

-

13

1,227

7

1,369

2,704

Other2

19

77

424

1,422

8

2,627

4,577

3,868

11,102

9,518

91,543820

27,464

144,315

Provision for credit impairment

-

-

-

(826)

-

-

(826)

Fair value hedge adjustment
Unearned finance income anddeferred / capitalised fees

-

-

-

(42)

-

-

(42)

-

-

-

(186)

-

-

(186)

3,868

11,102

9,518

90,489820

27,464

143,261

3,857

7,683

2,523

88,504809

27,283

130,659

11

3,419

6,995

1,985

11

181

12,602

3,868

11,102

9,518

90,489820

27,464

143,261

19,071

Total financial assets
Geography
New ZealandOverseas
Total financial assets

30/09/2012

Industry
Agriculture

-

-

60

17,342

123

1,546

Forestry, fishing and mining

24

-

14

894

6

322

1,260

Business and property services

19

-

51

9,030

64

2,542

11,706

Construction

-

-

2

1,015

7

1,035

2,059

Entertainment, leisure and tourism

-

-

41

1,165

8

483

1,697

Finance and insurance

2,345

3,696

11,322

501

32

1,349

19,245Government and local authority1

13,229

1,798

8,574

405

1,332

9

1,111

Manufacturing

43

6

98

2,914

21

2,509

5,591

Personal lending

-

-

-

47,339335

10,99058,664Retail trade

28

6

43

1,772

13

1,102

2,964

Transport and storage

25

50

93

1,657

12

579

2,416

Wholesale trade

54

-

21

1,195

8

1,375

2,653

Other2

13

63

603

1,798

13

2,302

4,792

4,349

12,39512,753

87,954651

27,245

145,347

Provision for credit impairment

-

-

-

(1,054)--(1,054)

Fair value hedge adjustment
Unearned finance income anddeferred / capitalised fees

-

-

-

(2)

-

-

(2)

-

-

-

(220)

-

-

(220)

4,349

12,39512,75386,678651

27,245144,071

3,873

10,524

3,582

85,070639

26,989130,677

680

1,871

9,171

1,608

12

256

13,598

4,553

12,39512,75386,678651

27,245144,275

Total financial assets
Geography
New ZealandOverseas
Total financial assets

ANZ Bank New Zealand Limited

47

Notes to the Financial StatementsBank$ millions
30/09/2013

Liquid assets
and duefrom otherfinancial
institutions

Tradingsecurities
andavailableDerivative
for-salefinancialassets instruments

Net loans
Due fromandadvances subsidiaries

Other Credit related
financial commitments
3
assets

Total

Industry
Agriculture

1

29

22

17,161

-

100

1,204

Forestry, fishing and mining

14

-

11

779

-

5

871

18,517
1,680

Business and property services

23

1

24

8,755

-

51

2,340

11,194

Construction

-

-

-

738

-

4

658

1,400

Entertainment, leisure and tourism

-

-

27

1,005

-

6

324

1,362

Finance and insurance

2,014

5,118

8,590

834

12,206165

4,242

33,169Government and local authority1

9,733

1,533

5,871

248

1,053

-

6

1,022

Manufacturing

54

-

69

2,802

-

16

1,987

4,928

Personal lending

-

-

-

50,734-297

11,801

62,832Retail trade

102

-

40

1,528

-

9

934

2,613

Transport and storage

19

3

54

1,062

-

6

546

1,690

Wholesale trade

88

-

13

1,165

-

7

1,351

2,624

Other2

19

77

424

1,344

-

8

2,623

4,495

3,867

11,0999,522

88,96012,206680

29,903

156,237

Provision for credit impairment

-

-

-

(789)

-

-

-

(789)

Fair value hedge adjustment
Unearned finance income anddeferred / capitalised fees

-

-

-

(42)

-

-

-

(42)

-

-

-

100

-

-

-

100

3,867

11,0999,522

88,22912,206680

29,903

155,506

3,856

7,680

2,527

86,244

12,206665

29,722

142,900

11

3,419

6,995

1,985

-

15

181

12,606

3,867

11,0999,522

88,22912,206680

29,903

155,506

18,715

Total financial assets
Geography
New ZealandOverseas
Total financial assets
30/09/2012

Industry
Agriculture

-

-

60

17,043

-

101

1,511

Forestry, fishing and mining

24

-

14

754

-

4

320

1,116

Business and property services

19

-

51

8,894

-

53

2,524

11,541

Construction

-

-

2

766

-

5

993

1,766

Entertainment, leisure and tourism

-

-

41

1,128

-

7

478

1,654

Finance and insurance

2,329

3,693

11,357494

11,61932

1,991

31,515Government and local authority1

12,998

1,798

8,574

405

1,103

-

7

1,111

Manufacturing

43

6

98

2,773

-

16

2,491

5,427

Personal lending

-

-

-

46,741-

277

10,98258,000Retail trade

28

6

43

1,594

-

9

1,013

2,693

Transport and storage

25

50

93

1,303

-

8

521

2,000

Wholesale trade

54

-

21

1,135

-

7

1,356

2,573

Other2

13

63

603

1,565

-

9

2,294

4,547

4,333

12,392

12,78885,293

11,619535

27,585

154,545

Provision for credit impairment

-

-

-

(1,016)---(1,016)

Fair value hedge adjustment
Unearned finance income anddeferred / capitalised fees

-

-

-

(2)

-

-

-

(2)

-

-

-

44

-

-

-

44

4,333

12,392

12,78884,31911,619535

27,585

153,571

3,857

10,521

3,617

82,711

11,619525

27,329140,179

680

1,871

9,171

1,608

-

10

256

13,596

4,537

12,392

12,78884,31911,619535

27,585

153,775

Total financial assets
Geography
New ZealandOverseas
Total financial assets

1
2
3

Government and local authority includes exposures to government administration and defence, education and health and community services.
Other includes exposures to electricity, gas and water, communications and personal services.
Credit related commitments comprise undrawn facilities, customer contingent liabilities and letters of offer.

ANZ Bank New Zealand Limited

48

Notes to the Financial Statements
Maximum exposure to credit risk
The following table presents the maximum exposure to credit risk for on and off balance sheet financial instruments
before taking account of the financial effect of any collateral held or other credit enhancements, unless such collateralmeets the offsetting criteria in NZ IAS 32 Financial Instruments: Presentation.
The table also provides a quantification of the value of the financial charges the Banking Group holds over a borrower’s
specific asset (or assets) where the Banking Group is able to enforce the collateral in satisfying a debt in the event of theborrower failing to meet its contractual obligations. For the purposes of this disclosure, where the collateral held is valued
at more than the corresponding credit exposure, the financial effect is capped at the value of the credit exposure. In
respect of derivative financial instruments, the assessed collateral is the amount of cash collateral received and does notinclude the effect of any netting arrangements under ISDAs.
The most common types of collateral include:•
Security over real estate including residential, commercial, industrial and rural property;•
Cash deposits; and•Other security over business assets including specific plant and equipment, inventory and accounts receivables.
The Banking Group also manages its credit risk by accepting other types of collateral such as guarantees and security
interests over the assets of a customer’s business. The assignable value of such credit mitigants is less certain and theirfinancial effect has not been quantified for disclosure purposes. Credit exposures shown as not fully secured may benefit
from such credit mitigants.
Banking Group$ millions
30/09/2013

Maximum
exposure tocredit risk

Bank

UnsecuredFinancial effect portion of creditof collateralexposure

Maximum
exposure tocredit risk

UnsecuredFinancial effect portion of creditof collateralexposure

On and off-balance sheet positions
Liquid assets

2,298

55

2,243

2,297

55

Due from other financial institutions

1,570

348

1,222

1,570

348

1,222

10,320-

10,320

10,319-10,3199,084

Trading securities
Derivative financial instruments

2,242

9,518

438

9,080

9,522

438

Available-for-sale assets

782

-

782

780

-

780

Net loans and advances

90,48981,3859,104

88,22979,317

8,912
12,206Due from subsidiaries

-

-

-

12,206-

Other financial assets

820

490

330

680

490

190

Credit related commitments

27,464

12,76914,69529,903

14,71915,184

Total exposure to credit risk

143,261

95,48547,776

155,506

95,36760,139Liquid assets

2,627

325

2,302

2,611

325

2,286

Due from other financial institutions

1,722

270

1,452

1,722

270

1,452

Trading securities

12,338-12,33812,338-12,338Derivative financial instruments

12,531

30/09/2012

On and off-balance sheet positions

12,753257

12,496

12,788257

Available-for-sale assets

54

-

54

54

-

54

Net loans and advances

86,67878,4608,218

84,31976,468

7,851
11,619Due from subsidiaries

-

-

-

11,619-Other financial assets

651

351

300

535

351

184

Credit related commitments

27,24512,307

14,93827,585

12,055

15,530Total exposure to credit risk

144,068

91,97052,098

153,571

89,726

63,845Credit quality
A core component of the Banking Group’s credit risk
management capability is the risk grading frameworkused across all major business units. A set of risk
grading principles and policies is supported by acomplementaryrisk
grading
methodology.
Pronouncements by the International Basel Committeeon Banking Supervision have been encapsulated in theseprinciples and policies including governance, validationand modelling requirements.
The Banking Group’s risk grade profile changes
dynamically through new counterparty lending andexisting counterparty movements in either risk orvolume. All counterparty risk grades are subject tofrequent review, including statistical and behaviouralreviews in consumer and small business segments, andindividual 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 isdoubt as to whether the full contractual amount(including interest) will be received; a material credit
obligation is 90 days past due but not well secured; they
are portfolio managed and can be held for up to 180
days past due; or concessional terms have been
provided due to the financial difficulties of the customer.

ANZ Bank New Zealand Limited

49

Notes to the Financial Statements
An exposure is classified as past due but not impaired(less than 90 days) where the value of collateral issufficient to repay both the principal debt and all otherpotential interest and there is no concern as to thecreditworthiness of the counterparty in question.

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

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 thelevel of security/collateral available, or the facility is
portfolio managed.

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 acomplementary risk grading methodology.

Distribution by asset class of gross loans and advances by credit quality
Banking Group$ millions

Retail Other retailmortgages
exposuresBank

Non-retail
exposures

Total

Retail Other retailmortgages
exposures

Non-retail
exposures

Total

30/09/2013

Strong risk rating

38,1401,342

20,64660,12838,1401,342

20,01159,493

7,550

2,519

15,75725,826

7,550

1,562

14,92524,037

721

326

1,792

2,839

721

307

1,724

2,752

46,411

4,187

38,19588,793

46,411

3,211

36,66086,282

1 to 5 days

327

138

477

942

327

131

472

930

6 to 29 days

177

94

148

419

177

78

145

400

1 to 29 days

504

232

625

1,361

504

209

617

1,330

30 to 59 days

111

38

57

206

111

32

56

199

60 to 89 days

49

19

13

81

49

17

12

78

90 days and over

92

40

76

208

92

35

74

201

Total past due but not impaired

756

329

771

1,856

756

293

759

1,808

Total impaired assets

179

49

666

894

179

49

642

870

47,346

4,565

39,632

91,54347,346

3,553

38,061

88,960Strong risk rating

33,2581,140

19,99454,39233,2581,140

19,36253,760Satisfactory risk rating
Substandard but not past due or
impaired

8,635

2,466

15,59026,691

8,635

1,590

14,641

24,866

891

408

2,118

3,417

891

387

2,042

3,320

Total neither past due nor impaired

42,784

4,014

37,70284,50042,784

3,117

36,04581,946

1 to 5 days

326

139

458

923

326

132

456

914

6 to 29 days

363

92

181

636

363

77

171

611

1 to 29 days

689

231

639

1,559

689

209

627

1,525

30 to 59 days

127

32

67

226

127

27

66

220

60 to 89 days

48

17

28

93

48

15

25

88

90 days and over

91

33

86

210

91

30

81

202

Total past due but not impaired

955

313

820

2,088

955

281

799

2,035

Total impaired assets

313

44

1,009

1,366

313

44

955

1,312

44,052

4,371

39,531

87,95444,052

3,442

37,79985,293

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

Gross loans and advances
30/09/2012

Past due but not impaired:

Gross loans and advances

ANZ Bank New Zealand Limited

50

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 toreflect the relative ability of counterparties to fulfil, on
time, their credit-related obligations, and is based on
their current probability of default.
Internal ratings
Strongrisk
rating
Corporate
customers
demonstrating superior stability in their operating andfinancial performance over the long-term, and whosedebt servicing capacity is not significantly vulnerable toforeseeable events. Retail customers with low 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 andfinancial stability over the medium to long term, eventhough some may be susceptible to cyclical trends orvariability in earnings. Retail customers with moderate
expected loss. This rating band broadly corresponds toratings “Ba2” to “B1” and “BB” to “B+” of Moody's
Investors Service and Standard & Poor's respectively.
Substandard but not past due or impaired Corporate customers demonstrating some operationaland financial instability, with variability and uncertainty
in profitability and liquidity projected to continue overthe short and possibly medium term. Retail customers
with higher expected loss. This rating band broadly
corresponds to ratings “B2” to “Caa” and “B” to “CCC” of
Moody's Investors Service and Standard & Poor's
respectively.
Movements in the rating categories between balancedates are due to both changes in the underlying internalratings applied to customers and to new loans written orloans rolling off.
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 (forexample, credit cards and personal loans);•
Held on a productive basis until they are 180 days
past due; and•Managed on an individual basis.
A large portion of retail credit exposures, such as
residential mortgages, are generally well secured. Thatis, the fair value of associated security is sufficient toensure that the Banking Group will recover the entire
amount owing over the life of the facility and there isreasonable assurance that collection efforts will result inpayment of the amounts due in a timely manner.

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 inbond, commodity or equity prices.
Market risk isgenerated through both trading activities and theinterest rate risk inherent in the banking book.
The Banking Group conducts trading operations ininterest rates, foreign exchange, commodities and debt
securities.
Trading operations largely focus on

supporting customer hedging and investing activities,
rather than outright proprietary trading. A medium
market risk appetite has been set for the Banking
Group, which is reflected in its low/moderate market
risk limit framework.
The Banking Group has a detailed risk management andcontrol framework to support its trading and balance
sheet management activities.
The framework
incorporates a risk measurement approach to quantify
the magnitude of market risk within trading and balance
sheet portfolios. This approach, and related analysis,
identifies the range of possible outcomes that can be
expected over a given period of time, establishes therelative likelihood of those outcomes and allocates anappropriate amount of capital to support these activities.
Marketrisk
responsibilities

management

andcontrol

The Board Risk Committee has delegated responsibility
for the oversight of market risk to the Asset & Liability
Committee (“ALCO”), chaired by the Chief Financial
Officer of the Bank. ALCO are required to ensure thatmarket risk exposure across Traded and Non-Traded
portfolios remains within the risk appetite specified by
the Board Risk Committee.
ALCO receive regular
reporting on a range of trading and balance sheet
market risk exposures.
The Risk Management division of the Banking Group,
through the Chief Risk Officer, is responsible for the
day-to-day oversight of market risk. This includes theimplementation of a comprehensive limit and policy
framework to control the amount of risk that the
Banking Group will accept.
Market risk limits areallocated at various levels and are reported andmonitored on a daily basis.
The detailed limit
framework allocates individual limits to manage andcontrol asset classes (e.g., interest rates, foreignexchange), risk factors (e.g., interest rates, volatilities)
and profit and loss limits (to monitor and manage theperformance of the trading portfolios).
Additional oversight and monitoring of material risk
exposures of the Banking Group is undertaken by the
Risk Management functions of the Ultimate Parent Bank.
Within overall strategies and policies, the control ofmarket risk is the joint responsibility of business units
and Risk Management, with the delegation of market
risk limits from the Board Risk Committee to both Risk
Management and the business units.
These risks are monitored daily against a comprehensive
limit framework that includes Value at Risk, aggregate
market position and sensitivity, product and geographic
thresholds.
To facilitate the management, control,
measurements and reporting of market risk, theBanking Group has grouped market risk into two broad
categories:a.

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

Currency risk is the potential loss arising from thedecline in the value of a financial instrument due
to changes in foreign exchange rates or theirimplied volatilities.

•

Interest rate risk is the potential loss arising fromthe change in the value of a financial instrument

ANZ Bank New Zealand Limited

51

Notes to the Financial Statements
due to changes in market interest rates or theirimplied volatilities.
•b.

Credit spread risk is the potential loss arising froma change in value of an instrument due to amovement of its margin or spread relative to abench mark.
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 movements in market rates.
Some instruments do not fall into either category but
also expose the Banking Group to market risk. These
include equity securities classified as available-for-sale.
Regular reviews are performed to substantiate thevaluation of these types of instruments.
In all trading areas the Banking Group has implemented
models that calculate Value at Risk (“VaR”) exposures,monitor risk exposures against defined limits on a daily
basis, and “stress test” trading portfolios.
VaR measure
A key measure of market risk is VaR. VaR is a statisticalestimate of the likely daily loss and is based on historicalmarket movements.

estimate on any given day. Conversely there is 1%
probability of the decrease in market value exceeding
the VaR estimate on any given day.
The Banking Group’s standard VaR approach for bothtraded and non-traded risk is historical simulation. The
Banking Group calculates VaR using historical changes inmarket rates and prices over the previous 500 businessdays. Traded and Non-Traded VaR is calculated using a
one-day holding period.
It should be noted that because VaR is driven by actual
historical observations, it is not an estimate of the
maximum loss that the Banking Group could experiencefrom an extreme market event. As a result of thislimitation, the Banking Group utilises a number of otherrisk measures (e.g. stress testing) and associateddetailed control limits to measure and manage market
risk.
During the 2012 financial year, the Banking Group
moved to monitoring Traded and Non-Traded VaR at the
99% confidence level only, having previously also used
a 97.5% confidence level, as the 99% confidence levelencompasses a wider range of potential outcomes.
Non-Traded VaR at the 99% confidence level was notdisclosed previously, so the comparative figures havebeen restated accordingly.

The confidence level is such that there is a 99%
probability that the loss will not exceed the VaR
Traded market risks
Banking Group$ millions

Value at risk at 99% confidenceHigh forLow for
Period end
year
year

Average foryear

30/09/2013

Foreign exchange risk
Interest rate risk

0.3
2.1

1.4
3.7

1.1

0.3
2.3

Credit spread risk
Diversification benefit

0.4
(0.8)

1.0
n/a

0.2
n/a

0.4
(0.7)

2.0

4.1

1.2

2.3

Foreign exchange risk
Interest rate risk

0.2
2.7

1.4
6.4

0.2
1.6

0.4
3.6

Credit spread risk
Diversification benefit

0.4
(0.7)

1.2
n/a

0.2
n/a

0.7
(1.2)

Total VaR

2.6

6.3

1.5

3.5

Total VaR
30/09/2012

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

ANZ Bank New Zealand Limited

52

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

Non-traded interest rate risk VaR
Banking Group$ millions

High forLow for

Average for

Period end

year

year

year

9.2

14.3

7.7

11.1

10.7

15.5

8.8

11.2

30/09/2013

Value at risk at 99% confidence
30/09/2012

Value at risk at 99% confidenceb.

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

A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest
income 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 apositive number signifying that a rate increase is positive for net interest income over the next 12 months. Conversely, anegative number signifies that a rate increase is negative for the next 12 months’ net interest income.

Banking Group
30/09/2013

30/09/2012

Period end

1.1%

1.1%

Maximum exposure

2.0%

2.3%

Minimum exposure

0.6%

0.9%

Average exposure (in absolute terms)

1.3%

1.7%

Impact of 1% rate shock

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

ANZ Bank New Zealand Limited

53

Notes to the Financial Statements
Banking Group$ millions
30/09/2013

Total

Less than
3 months

3 to 6months6 to 12months1 to 2years

Beyond2 years

Not bearing
interest

Liquid assets

2,496

2,136

-

-

-

-

360

Due from other financial institutions

1,570

1,426

-

-

-

-

144

10,320

1,235

455

606

3,105

4,919

-

9,518

-

-

-

-

-

9,518

AssetsTrading securities
Derivative financial instruments
Available-for-sale assets

782

177

234

23

250

96

2

Net loans and advances

90,48958,412

5,116

10,828

10,917

5,759

(543)

Other financial assets

820

103

30

36

3

-

648

Total financial assets

115,995

63,4895,835

11,493

14,275

10,774

10,129Liabilities
Due to other financial institutions

1,517

1,143

-

-

-

-

374

Deposits and other borrowings

77,69751,967

9,419

8,231

1,437

1,117

5,526

Due to Immediate Parent Company

939

939

-

-

-

-

-

Derivative financial instruments

10,243

-

-

-

-

-

10,243

Bonds and notes-

15,494

4,867

47

266

2,933

7,381

Loan capital

1,144

-

309

-

-

835

-

Other financial liabilities

1,232

44

-

-

-

126

1,062

Total financial liabilities

108,266

58,960

9,775

8,497

4,370

9,459

17,205

Hedging instruments-(5,695)

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

7,729(1,166)

10,965

(62)

339

4,729

(7,076)

Liquid assets

2,831

2,626

-

-

-

-

205

Due from other financial institutions

1,722

1,653

-

-

-

-

69

Trading securities

12,338

1,465

161

3,042

1,121

6,549

-

Derivative financial instruments

12,753

-

-

-

-

-

12,75330/09/2012

AssetsAvailable-for-sale assets

57

46

5

3

-

-

3

Net loans and advances

86,67863,922

3,144

6,818

8,967

4,431

(604)

Other financial assets

651

104

11

27

-

-

509

Total financial assets

117,030

69,816

3,321

9,890

10,088

10,98012,935

Liabilities
Due to other financial institutions

1,759

1,073

-

-

-

154

532

Deposits and other borrowings

73,65247,398

11,939

6,694

1,641

1,142

4,838

Due to Immediate Parent Company

740

740

-

-

-

-

-

Derivative financial instruments

13,930

-

-

-

-

-

13,930Bonds and notes

17,244

6,266

-

2,495

253

8,230

-

Loan capital

1,168

-

333

835

-

-

-

Other financial liabilities

1,248

14

3

1

-

88

1,142

Total financial liabilities

109,741

55,491

12,275

10,025

1,894

9,614

20,442

Hedging instruments

-

2,206

2,867

(9,177)

2,490

1,614

-

Interest sensitivity gap

7,289

16,531(6,087)(9,312)

10,6842,980(7,507)

ANZ Bank New Zealand Limited

54

Notes to the Financial StatementsBank
30/09/2013$ millions

Total

Less than
3 months

3 to 6months6 to 12months1 to 2years

Beyond2 years

Not bearing
interest

Liquid assets

2,495

2,135

-

-

-

-

360

Due from other financial institutions

1,570

1,426

-

-

-

-

144

10,319

1,234

455

606

3,105

4,919

-

9,522

-

-

-

-

-

9,522

AssetsTrading securities
Derivative financial instruments
Available-for-sale assets

780

177

234

23

250

96

-

Net loans and advances

88,22957,108

5,007

10,63010,496

5,507

(519)

Due from subsidiaries

12,206

12,206

-

-

-

-

-

Other financial assets

680

-

-

-

-

-

680

Total financial assets

125,801

74,286

5,696

11,25913,851

10,522

10,187

Liabilities
Due to other financial institutions

1,517

1,143

-

-

-

-

374

Deposits and other borrowings

71,44047,657

8,576

7,452

1,216

1,013

5,526

Due to subsidiaries

33,76817,616

1,937

2,634

4,645

6,936

-

939

939

-

-

-

-

-

10,252

-

-

-

-

-

10,252

Bonds and notes

2,687

847

-

235

596

1,009

-

Loan capital

1,144

-

309

-

-

835

-

Other financial liabilities

1,091

43

-

-

-

126

922

Total financial liabilities

122,838

68,245

10,822

10,321

6,457

9,919

17,074

Hedging instruments-(12,096)

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

2,963(6,055)

11,067

122

136

4,580

(6,887)

Liquid assets

2,815

2,610

-

-

-

-

205

Due from other financial institutions

1,722

1,653

-

-

-

-

69

Trading securities

12,338

1,465

161

3,042

1,121

6,549

-

Derivative financial instruments

12,788

-

-

-

-

-

12,788Due to Immediate Parent Company
Derivative financial instruments

30/09/2012

AssetsAvailable-for-sale assets

54

46

5

3

-

-

-

Net loans and advances

84,31962,767

3,031

6,463

8,653

3,989

(584)

Due from subsidiaries

11,61911,619

-

-

-

-

-

Other financial assets

535

-

-

-

-

-

535

Total financial assets

126,190

80,160

3,197

9,508

9,774

10,53813,013Liabilities
Due to other financial institutions

1,555

869

-

-

-

154

532

Deposits and other borrowings

66,731

43,647

9,630

6,089

1,522

1,009

4,834

Due to subsidiaries

37,94022,221

2,615

3,868

1,775

7,104

357

740

740

-

-

-

-

-

Derivative financial instruments

13,930

-

-

-

-

-

13,930Bonds and notes

2,500

637

-

100

176

1,587

-

Loan capital

1,168

-

333

835

-

-

-

Other financial liabilities

1,065

14

3

1

-

88

959

Total financial liabilities

125,629

68,128

12,581

10,893

3,473

9,942

20,612

Hedging instruments-(1,803)

3,429(7,878)

4,188

2,064

-

Interest sensitivity gap

561

10,229(5,955)(9,263)

10,4892,660(7,599)Due to Immediate Parent Company

Equity price risk
The portfolio of financial assets classified as available-for-sale contains equity investment holdings held for longer term
strategic intentions. These equity investments are also subject to market risk which is not captured by the VaR measures
for traded and non-traded market risks. The fair value of these securities as at 30 September 2013 was $2 million(30/09/2012 $3 million). A 10 per cent reduction in the value of the available-for-sale equity securities would not bematerial.

ANZ Bank New Zealand Limited

55

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

Banking Group$ millions

Bank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

32

1

32

1

1

1

1

1

Japanese yen

(1)

1

(1)

1

Pound sterling

-

1

-

1

(1)

1

(1)

1

1

1

1

1

32

6

32

6

Net open position
Australian dollar
Euro

US dollar
Other
Total net open position

ANZ Bank New Zealand Limited

56

Notes to the Financial Statements
Liquidity risk
Liquidity risk is the risk that the Banking Group is unable
to meet its payment obligations as they fall due. 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 aregoverned by a detailed policy framework which isapproved by the Risk Committees of the Bank’s andUltimate Parent Bank’s Boards. The core objective of
the Banking Group’s framework is to manage liquidity tomeet obligations as they fall due, without incurring
unacceptable losses.
Central to the Banking Group’s liquidity risk
management approach is the establishment of a liquidity
risk appetite framework to which the Banking Group
must conform at all times. The risk appetite for liquidity
has been set as low, and this objective is achieved by
the Banking Group managing liquidity risks within theboundaries of the following requirements and principles:•
Maintaining the ability to meet all payment
obligations in the immediate term.
•
Ensuring the ability to meet “survival horizons”
under a range of the Banking Group specific andgeneral 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 associatedwith unexpected increases in funding costs or theliquidation of assets under stress.
•
Ensuring the liquidity management framework is
compatible with regulatory requirements.
•
Daily liquidity reporting and scenario analysis,
quantifying the Banking Group’s positions.
•Targeting a diversified funding base, avoiding undue
concentrations by investor type, maturity, market
source and currency.
•
Holding a portfolio of high quality liquid assets toprotect against adverse funding conditions and tosupport day-to-day operations.
•
Establishing detailed contingency plans to coverdifferent liquidity crisis events.
Management of liquidity and funding risks are overseen
by ALCO.
Supervision and Regulation
The RBNZ requires the Bank to have a comprehensive
Board approved liquidity strategy defining: policy,
systems and procedures for measuring, assessing,reporting and managing domestic and foreign currency
liquidity. This also includes a formal contingency planfor dealing with a liquidity crisis. The Banking Group isrequired to meet one week and one month liquidity
mismatch ratios and a one year core funding ratio eachday.
Scenario Modelling
A key component of the Banking Group’s liquidity
management framework is scenario modelling. Liquidity
is assessed under different scenarios, including “goingconcern”, “name-crisis” and various “survival horizons”.
“Going-concern”: reflects the normal behaviour ofcash flows in the ordinary course of business.
The
Banking Group must be able to meet all commitments
and obligations under a going concern scenario, within
the Banking Group’s normal funding capacity (‘available
to fund’ limit), over at least the following 30 calendardays.
In estimating the funding requirement, theBanking Group models expected cash flows by reference
to historical behaviour and contractual maturity data.

“Name-crisis”: refers to a potential name-specificliquidity crisis scenario which models the behaviour ofcash 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 rollingover 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 namespecific crisis and the different behaviour that offshoreand 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 aremodelled:•
Extreme Short Term Crisis Scenario: A namespecific stress during a period of market stress.
•
Short Term Crisis Scenario: A name-specific stressduring a period of normal markets conditions.
•Global Funding Market Disruption: Stressed global
wholesale funding markets leading to a closure ofdomestic and offshore markets.
•
Offshore Funding Market Disruption: Stressed global
wholesale funding markets leading to a closure ofoffshore markets only.
As of 30 September 2013 the Banking Group was incompliance with all of the above scenarios.
Wholesale funding
The Banking Group’s wholesale funding strategy isdesigned 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 throughthe Treasury and Markets operations.
Long-termwholesale funding is managed and executed throughTreasury operations.
The Banking Group also uses maturity concentration
limits under the wholesale funding and liquidity
management framework. Maturity concentration limits
ensure that the Banking Group does not become reliant
on issuing large volumes of new wholesale funding
within a short time period. Funding instruments used tomeet the wholesale borrowing requirement must be on apre-established list of approved products.
Funding capacity and debt issuance planning
The Banking Group adopts a conservative approach todetermine its funding capacity. Funding capacity limits
are determined at the Ultimate Parent Bank level andallocated to individual sites based on their requirements.
Annually, a funding plan is approved by the Bank’s
Board. The plan is supplemented by monthly updates
and is linked to the Banking Group’s three year strategicplanning cycle.

ANZ Bank New Zealand Limited

57

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

30/09/2013

30/09/2012

30/09/2013

30/09/2012

62,31058,38360,92757,029

8,258

7,668

8,149

7,546

70,56866,051

69,07664,575

Funding composition
Customer deposits1
New ZealandOverseas
Total customer deposits
Wholesale funding
Bonds and notes

15,494

17,244

2,687

2,500

Loan capital

1,144

1,168

1,144

1,168

Certificates of deposit

2,364

2,156

2,364

2,156

Commercial paper

4,765

5,445

-

-

Due to subsidiaries--

33,76837,940Due to Immediate Parent Company

939

740

939

740

Due to other financial institutions

1,517

1,759

1,517

1,555

Total wholesale funding

26,22328,512

42,41946,059Total funding

96,791

94,563

111,495

110,634

Households

44,972

42,761

43,481

41,285Agriculture

2,439

2,259

2,439

2,259

617

488

617

488

1,413

1,595

1,413

1,595

Concentrations of funding by industry

Forestry, fishing and mining
ManufacturingEntertainment, leisure and tourism
Finance and insurance
Retail trade

601

585

601

585

35,817

37,23352,01254,780
718

955

718

955

Wholesale trade

1,085

975

1,085

975

Business and property services

3,785

3,616

3,785

3,616

Transport and storage

637

672

637

672

Construction

882

753

882

753

Government and local authority

2,168

1,754

2,168

1,754

Other2

1,420

1,154

1,420

1,154

96,791

94,563

111,495

110,634

69,33964,934

101,722

99,976

1,296

1,370

1,280

1,353

10,122

13,231846

800Europe

9,918

9,291

1,587

2,833

Other countries

6,116

5,737

6,060

5,672

Total funding

96,791

94,563

111,495

110,634

Total funding
Concentrations of funding by geography
New ZealandAustralia
United States

1
2
3

3

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

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

ANZ Bank New Zealand Limited

58

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

Total liquidity portfolio$ millions

Balances with central banks
Securities purchased under agreement to resell
Certificates of deposit
Government, local body stock and bonds
Government treasury bills
Other bonds
Total liquidity portfolio

Banking GroupBank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

1,709

1,973

1,709

1,973

41

105

41

105

159

100

159

100

5,522

8,220

5,522

8,220

387

17

387

17

5,069

3,768

5,069

3,768

12,887

14,183

12,887

14,183

Assets held for managing liquidity risk include short term cash held with the RBNZ, New Zealand Government securities,
securities issued by supranational agencies, securities issued by highly rated banks and securities issued by State Owned
Enterprises, Local Authorities and highly rated NZ domestic corporates. These assets would be accepted as collateral by
the RBNZ in repurchase transactions. At 30 September 2013 the Banking Group would be eligible to enter into
repurchase transactions with a value of $10,759 million. The Banking Group also held unencumbered internal residential
mortgage backed securities (“RMBS”) which would entitle the Banking Group to enter into repurchase transactions with avalue of $4,200 million at 30 September 2013 (the RBNZ has imposed a cap limiting the amount of RMBS deemed as
eligible in the liquidity portfolio to 4% of total assets).
Liquidity crisis contingency planning
The Banking Group maintains liquidity crisis contingency plans defining an approach for analysing and responding to 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; and•assigned responsibilities for internal and external communications.

ANZ Bank New Zealand Limited

59

Notes to the Financial Statements
Contractual maturity analysis of financial assets and liabilities
The following tables present the Banking Group's financial assets and liabilities within relevant contractual maturity
groupings, based on the earliest date on which the Bank or the Banking Group may be required to realise an asset or
settle a liability. The amounts disclosed in the tables represent undiscounted future principal and interest cash flows,
except for derivatives held for trading where the full mart-to-market amount has been included in the less than threemonths category. As a result, the amounts in the tables below may differ to the amounts reported on the balance sheet.
The contractual maturity analysis for off-balance sheet commitments and contingent liabilities has been prepared using
the earliest date at which the Banking Group or the Bank can be called upon to pay. The liquidity risk of credit related
commitments 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 this basis.

Banking Group$ millions
30/09/2013

Less than
3 months

3 to 12months1 to 5 years

Beyond5 years

No maturity
specifiedTotal

At callLiquid assets

2,497

2,442

55

-

-

-

-

Due from other financial institutions

1,571

155

1,416

-

-

-

-

11,528

-

412

1,617

8,429

1,070

-

8,536

-

8,536

-

-

-

-

Available-for-sale assets

824

-

137

271

324

90

2

Net loans and advances

Financial assets

Trading securities
Derivative financial assets (trading)

123,149-

15,534

17,68538,271

51,659-Other financial assets

454

-

385

66

3

-

-

Total financial assets

148,5592,597

26,475

19,63947,02752,8192

Financial liabilities
Due to other financial institutions

1,530

853

677

-

-

-

-

Deposits and other borrowings

79,01334,81921,517

19,825

2,846

6

-

940

-

940

-

-

-

-

Due to Immediate Parent Company
Derivative financial liabilities(trading)

9,526

-

9,526

-

-

-

16,442

-

1,614

1,979

11,359

1,490

-

1,528

-

13

41

275

55

1,144

Other financial liabilities

819

-

638

4

32

145

-

Total financial liabilities

109,798

35,672

34,925

21,84914,512

1,696

1,144

38,761(33,075)(8,450)(2,210)32,515

51,123(1,142)

Bonds and notes
Loan capital

Net financial assets / (liabilities)

Derivative financial instruments used for balance sheet management- gross inflows

16,196

-

2,704

3,539

8,689

1,264

-

- gross outflows(15,370)-(2,647)(3,186)(8,288)(1,249)-39,587(33,075)(8,393)(1,857)32,916

51,138(1,142)

Net financial assets / (liabilities)
after balance sheet management

Contractual maturity of off-balance sheet commitments and contingent liabilities
Banking Group$ millions
30/09/2013

Non-credit related commitments
Credit related commitments
Contingent liabilities
Total

Total

Less than
1 yearBeyond1 year

429

97

332

25,26325,263

-

2,201

2,201

-

27,89327,561

332

ANZ Bank New Zealand Limited

60

Notes to the Financial Statements
Banking Group$ millions
30/09/2012

Less than
3 months

3 to 12months1 to 5 years

Beyond5 years

No maturity
specifiedTotal

At callLiquid assets

2,834

2,506

328

-

-

-

-

Due from other financial institutions

1,723

139

1,584

-

-

-

-

Trading securities

13,353

-

152

3,667

6,969

2,565

-

Derivative financial assets (trading)

11,395-

11,395----

Available-for-sale assets

65

-

1

13

48

-

3

Net loans and advances

Financial assets

117,600-

14,891

17,19436,31349,202-Other financial assets

294

-

216

76

2

-

-

Total financial assets

147,264

2,645

28,567

20,95043,332

51,767

3

Financial liabilities
Due to other financial institutions

1,791

932

628

5

37

189

-

Deposits and other borrowings

74,97730,272

22,682

18,840

3,183

-

-

-

-

-

-

Due to Immediate Parent Company
Derivative financial liabilities(trading)

741

-

741

13,104-

13,104---

Bonds and notes

18,399

-

1,636

2,872

11,731

2,160-

Loan capital

1,829

-

24

71

472

94

1,168

Other financial liabilities

723

-

600

10

65

48

-

Total financial liabilities

111,564

31,204

39,415

21,79815,488

2,491

1,168

Net financial assets / (liabilities)

35,700(28,559)(10,848)(848)

27,84449,276(1,165)Derivative financial instruments used for balance sheet management- gross inflows

16,700

-

1,277

3,710

10,0981,615-- gross outflows(15,932)-(1,182)(3,471)(9,674)(1,605)-

Net financial assets / (liabilities)
after balance sheet management

36,468(28,559)(10,753)(609)

28,26849,286(1,165)Contractual maturity of off-balance sheet commitments and contingent liabilities
Banking Group$ millions
30/09/2012

Non-credit related commitments

Total

Less than
1 yearBeyond1 year

355

124

231

Credit related commitments

25,44025,440-Contingent liabilities

1,805

1,805

-

Total

27,60027,369231

ANZ Bank New Zealand Limited

61

Notes to the Financial StatementsBank$ millions
30/09/2013

Less than
3 months

3 to 12months1 to 5 years

Beyond5 years

No maturity
specifiedTotal

At callLiquid assets

2,496

2,441

55

-

-

-

-

Due from other financial institutions

1,571

155

1,416

-

-

-

-

11,527

-

411

1,617

8,429

1,070

-

8,536

-

8,536

-

-

-

-

Available-for-sale assets

822

-

137

271

324

90

-

Net loans and advances

120,258-

14,96016,89236,86951,537-

Due from subsidiaries

21,085

-

2,638

326

4,622

13,499-Other financial assets

226

-

226

-

-

-

-

Total financial assets

166,5212,596

28,37919,10650,244

66,196-

Financial assets

Trading securities
Derivative financial assets (trading)Financial liabilities
Due to other financial institutions

1,513

853

660

-

-

-

-

Deposits and other borrowings

72,67934,82018,635

16,724

2,494

6

-

Due to subsidiaries

41,949

-

5,149

5,043

17,41914,338

-

-

-

-

-

Due to Immediate Parent Company
Derivative financial liabilities(trading)

940

-

940

9,526

-

9,526

-

-

-

Bonds and notes

3,046

-

117

356

2,111

462

-

Loan capital

1,528

-

13

41

275

55

1,144

Other financial liabilities

768

-

587

4

32

145

-

Total financial liabilities

131,949

35,67335,62722,16822,331

15,006

1,144

34,572(33,077)(7,248)(3,062)

27,913

51,190(1,144)

Net financial assets / (liabilities)

Derivative financial instruments used for balance sheet management- gross inflows

19,352

-

2,782

3,766

9,761

3,043

-

- gross outflows(23,600)-(2,713)(3,383)(9,337)(8,167)-30,324(33,077)(7,179)(2,679)28,33746,066(1,144)

Net financial assets / (liabilities)
after balance sheet management

Contractual maturity of off-balance sheet commitments and contingent liabilities
Bank$ millions
30/09/2013

Non-credit related commitments
Credit related commitments
Contingent liabilities
Total

Total

Less than
1 yearBeyond1 year

427

96

331

27,70327,703

-

2,200

2,200

-

30,33029,999331

ANZ Bank New Zealand Limited

62

Notes to the Financial StatementsBank$ millions
30/09/2012

Less than
3 months

3 to 12months1 to 5 years

Beyond5 years

No maturity
specifiedTotal

At callLiquid assets

2,818

2,490

328

-

-

-

-

Due from other financial institutions

1,722

37

1,685

-

-

-

-

Trading securities
Derivative financial instruments(trading)

13,353

-

152

3,667

6,969

2,565

-

Financial assets

11,404-

11,404----

Available-for-sale assets

62

-

1

13

48

-

-

Net loans and advances

114,645-

14,227

16,38834,94449,086-Due from subsidiaries

19,427

-

3,554

273

2,902

12,698-Other financial assets

102

-

102

-

-

-

-

Total financial assets

163,533

2,527

31,453

20,341

44,86364,349-Financial liabilities
Due to other financial institutions

1,587

932

424

5

37

189

-

Deposits and other borrowings

67,971

30,256

19,513

15,299

2,903

-

-

Due to subsidiaries

44,707

-

9,442

6,345

15,522

13,398

-

-

-

-

-

Due to Immediate Parent Company
Derivative financial instruments(trading)

741

-

741

13,104-

13,104---

Bonds and notes

3,020

-

19

220

2,188

593

-

Loan capital

1,829

-

24

71

472

94

1,168

Other financial liabilities

655

-

532

10

65

48

-

Total financial liabilities

133,614

31,18843,79921,95021,187

14,322

1,168

Net financial assets / (liabilities)

29,919(28,661)(12,346)(1,609)23,67650,027(1,168)Derivative financial instruments used for balance sheet management- gross inflows

19,240

-

1,347

3,911

10,991

2,991-- gross outflows(23,082)-(1,238)(3,636)(10,553)(7,655)-

Net financial assets / (liabilities)
after balance sheet management

26,077(28,661)(12,237)(1,334)

24,11445,363(1,168)Contractual maturity of off-balance sheet commitments and contingent liabilities
Bank$ millions
30/09/2012

Non-credit related commitments

Total

Less than
1 yearBeyond1 year

328

115

213

Credit related commitments

25,78125,781-

Contingent liabilities

1,804

1,804

-

Total

27,91327,700213

ANZ Bank New Zealand Limited

63

Notes to the Financial Statements
30. Financial Assets Pledged as Collateral
Banking Group$ millions

Note

30/09/2012

30/09/2013

30/09/2012

1,002

1,256

1,002

1,256

108

252

108

252

23, 36

5,857

4,977

5,857

4,977

20

2,162

2,103

-

-

9,129

8,588

6,967

6,485

Cash collateral given on derivative financial instruments

9

Trading securities encumbered through repurchase agreements
Residential mortgages pledged as security for covered bonds
Total tangible assets of UDC Finance Limited pledged ascollateral for secured stockBank

30/09/2013

Total financial assets pledged as collateral

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, primarilyloans and advances, of UDC Finance Limited.

31. Concentrations of Credit Risk to Individual Counterparties
The Banking Group measures its concentration of credit risk in respect to bank counterparties on the basis of approved
exposures and in respect to non bank counterparties on the basis of limits. No account is taken of collateral, security
and/or netting agreements which the Banking Group may hold in respect of the various counterparty exposures.
For the three month period ended 30 September 2013 there were no individual counterparties (excluding connectedparties, governments and banks with long term credit ratings of A- or above) where the Banking Group’s period end or
peak end-of-day credit exposure equalled or exceeded 10% of equity (as at the end of the period).
Concentrations of credit risk to connected persons
Credit exposures to connected persons reported in the table below have been calculated partially on a bilateral net basis
and partially on a gross basis. Netting has occurred (up to a limit of 125% of the Banking Group’s tier one capital) inrespect of certain transactions which are the subject of a bilateral netting agreement.

Banking Group

30/09/2013

30/09/2012

Amount% of Tier

Amount% of Tier$m

One Capital$m

One Capital

Bank connected persons (on gross basis, before netting)

4,065

52.0%

4,708

65.0%

Less: amount netted off

3,073

39.3%

3,621

50.0%

992

12.7%

1,087

15.0%

Bank connected persons (on gross basis, before netting)

5,696

72.8%

5,939

82.0%

Less: amount netted off

3,334

42.6%

4,221

58.3%

2,362

30.2%

1,718

23.7%

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

n/a

125.0%

Bank connected persons (on partial bilateral net basis)

n/a

70.0%

n/a

70.0%

Non-bank connected persons

n/a

15.0%

n/a

15.0%

Aggregate at end of year1

Bank connected persons (on partial bilateral net basis)
Peak end-of-day for the year

2

Bank connected persons (on partial bilateral net basis)
3

Rating-contingent limit

1

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 2013, the gross exposures to the Immediate Parent Company were $14 million (30/09/2012 $97 million). As at 30
September 2013, the gross exposures to the Ultimate Parent Bank were $4,051 million (30/09/2012 $4,611 million).

2

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 year. The peak end-of-day credit exposures for the year
to connected persons are measured over Tier One Capital as at the end of the year.

3

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. There have been no changes to these limits for the year ended 30 September 2013.

ANZ Bank New Zealand Limited

64

Notes to the Financial Statements
32. Fair Value of Financial Assets and Financial Liabilities
Banking Group$ millions

At amortised
cost

Carrying amountAt fair value through profit or
loss
Designated on
initialHeld forrecognition
trading

Hedging

Available-forsale assets

Total

Fair value

30/09/2013

Liquid assets

2,496

-

-

-

-

2,496

Due from other financial institutions

1,410

-

-

-

160

1,570

2,496
1,570

Trading securities--

10,320--

10,320

10,320Derivative financial instruments1

-

-

9,289

229

-

9,518

9,518

Available-for-sale assets

-

-

-

-

782

782

782

Net loans and advances2

90,489----90,48990,571Other financial assets

648

172

-

-

-

820

820

Total financial assets

95,043

172

19,609229

942

115,995

116,077

Due to other financial institutions

1,514

-

3

-

-

1,517

1,517

Deposits and other borrowings

72,932

4,765

-

-

-

77,69777,754

939

-

-

-

-

939

939

-

-

10,103140-

10,243

10,243Due to Immediate Parent Company
Derivative financial instruments1
Bonds and notes2

15,494----

15,494

15,721

Loan capital

1,144

-

-

-

-

1,144

1,044

Other financial liabilities

1,093

-

139

-

-

1,232

1,232

Total financial liabilities

93,116

4,765

10,245140-

108,266

108,450

Liquid assets

2,831

-

-

-

-

2,831

2,831

Due from other financial institutions

1,622

-

-

-

100

1,722

1,722

Trading securities--

12,338--12,33812,338Derivative financial instruments1--

12,276477-

12,75312,753Available-for-sale assets

-

-

-

-

57

57

57

Net loans and advances2

86,678----86,67886,869Other financial assets

509

142

-

-

-

651

651

Total financial assets

91,640142

24,614477

157

117,030

117,22130/09/2012

Due to other financial institutions

1,704

-

55

-

-

1,759

1,759

Deposits and other borrowings

68,207

5,445

-

-

-

73,65273,744

740

-

-

-

-

740

740

-

-

13,766

164-

13,93013,930Bonds and notes2

17,244----

17,244

17,482

Loan capital

1,168

-

-

-

-

1,168

1,030

Other financial liabilities

1,141

-

107

-

-

1,248

1,248

Total financial liabilities

90,204

5,445

13,928

164-

109,741

109,933

Due to Immediate Parent Company
Derivative financial instruments1

ANZ Bank New Zealand Limited

65

Notes to the Financial StatementsBank$ millions

At amortised
cost

Carrying amountAt fair value through profit or
loss
Designated on
initialrecognition

Held fortrading

Hedging

Available-forsale assets

Total

Fair Value

2,495

30/09/2013

Liquid assets

2,495

-

-

-

-

2,495

Due from other financial institutions

1,410

-

-

-

160

1,570

1,570

Trading securities--

10,319--10,31910,319Derivative financial instruments1

-

-

9,293

229

-

9,522

9,522

Available-for-sale assets

-

-

-

-

780

780

780

Net loans and advances2

88,229----88,22988,304Due from subsidiaries

6,428

5,778

-

-

-

12,206

12,216

Other financial assets

680

-

-

-

-

680

680

Total financial assets

99,242

5,778

19,612229

940

125,801

125,886

Due to other financial institutions

1,514

-

3

-

-

1,517

1,517

Deposits and other borrowings

71,440----71,44071,497

Due to subsidiaries

28,118

5,650

-

-

-

33,76833,933

939

-

-

-

-

939

939

Derivative financial instruments1
Bonds and notes

2,687

-

10,112-

140--

10,252
2,687

10,252
2,759

Loan capitalDue to Immediate Parent Company

1,144

-

-

-

-

1,144

1,044

Other financial liabilities

952

-

139

-

-

1,091

1,091

Total financial liabilities

106,794

5,650

10,254

140-

122,838

123,032

Liquid assets

2,815

-

-

-

-

2,815

2,815

Due from other financial institutions

1,622

-

-

-

100

1,722

1,722

Trading securities--

12,338--12,33812,338Derivative financial instruments1

30/09/2012--

12,311477-

12,78812,788Available-for-sale assets
Net loans and advances2

84,319

-

-

-

54
-

54
84,31954
84,501

Due from subsidiaries

6,552

5,067

-

-

-

11,619

11,632Other financial assets

535

-

-

-

-

535

535

Total financial assets

95,843

5,067

24,649477

154

126,190

126,385

Due to other financial institutions

1,500

-

55

-

-

1,555

1,555

Deposits and other borrowings

66,731----

66,731

66,815Due to subsidiaries2

32,966

4,974

-

-

-

37,94038,095

740

-

-

-

-

740

740

-

-

13,766

164-

13,93013,930Bonds and notes

2,500

-

-

-

-

2,500

2,596

Loan capital

1,168

-

-

-

-

1,168

1,030

Other financial liabilities

958

-

107

-

-

1,065

1,065

Total financial liabilities

106,563

4,974

13,928164-

125,629

125,826

Due to Immediate Parent Company
Derivative financial instruments1

1

2

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

ANZ Bank New Zealand Limited

66

Notes to the Financial Statements
Estimation of fair value
Liquid assets, due from / to other financial institutions and balances with related parties
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 are considered to approximate the fair values. When longer term innature, fair value is based on quoted market prices, or for those debt issues where quoted market prices are notavailable, a discounted cash flow model using a yield curve appropriate for the remaining term to maturity of that debt
instrument.
Trading securities, derivative financial instruments and available for sale assets
Fair value is based on quoted market prices, or broker or dealer price quotations. If this information is not available, fairvalue is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics, ormarket accepted valuation models as appropriate (including discounted cash flow models) based on current market yields
for similar types of instruments and the maturity of each instrument.
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 ofwholesale funding are incorporated in the discount rate. For variable rate loans where the Banking Group sets theapplicable 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 isconsidered 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
of interest 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 fairvalue 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.
Bonds and notes 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 theremaining term to maturity of the debt instrument is used.

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 orother market 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 funds or other investments which do not trade in an active market. For these instruments the fairvalue 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 fair value isdetermined using broker quotes or valuation techniques, including discounted cash flow analysis, using data derived andextrapolated from market data and tested against historic transactions and observed market trends.

ANZ Bank New Zealand Limited

67

Notes to the Financial Statements
Valuation hierarchy$millions

Banking Group
Level 1Bank

Level 2

Level 3

Total

Level 1

Level 2

Level 3Total

30/09/2013

Due from other financial institutions
Trading securities
Derivative financial instruments

160

-

-

160

160

-

-

160

10,208112-

10,320

10,207112-

10,319
9,522

2

9,516

-

9,518

2

9,520

-

780

-

2

782

780

-

-

780

Due from subsidiaries

-

-

-

-

-

5,778

-

5,778

Other financial assets

Available-for-sale assets

140

32

-

172

-

-

-

-

Total financial assets held at fairvalue

11,2909,660

220,952

11,14915,410-26,559Due to other financial institutions

3

-

-

3

3

-

-

3

Deposits and other borrowings

-

4,765

-

4,765

-

-

-

-

Due to subsidiaries

-

-

-

-

-

5,650

-

5,650

Derivative financial instruments

6

10,237-

10,243

6

10,246-

10,252Other financial liabilities

139

-

-

139

139

-

-

139

Total financial liabilities held at fair
value

148

15,002-15,150148

15,896-

16,04430/09/2012

Due from other financial institutions1

100

-

-

100

100

-

-

100

12,228110-

12,338

12,228110-

12,338Derivative financial instruments

2

12,751-

12,753

2

12,786-

12,788Available-for-sale assets

13

42

2

57

13

41

-

54

Due from subsidiaries

-

-

-

-

-

5,067

-

5,067

Other financial assets1

83

58

1

142

-

-

-

-

Total financial assets held at fairvalue

12,426

12,961

3

25,39012,34318,004-30,347

Due to other financial institutions

55

-

-

55

55

-

-

-

Deposits and other borrowings

-

5,445

-

5,445

-

-

-

-

Due to subsidiaries

-

-

-

-

-

4,974

-

4,974

Trading securities1

Derivative financial instruments

4

13,926-

13,930

4

13,926-

13,930

Other financial liabilities

107

-

-

107

107

-

-

107

Total financial liabilities held at fair
value

166

19,371-

19,537

166

18,900-19,011

1

Due from other financial institutions of $100 million, Trading securities of $4,629 million and Other financial assets of $80 million have been reclassified fromLevel 2 to Level 1 because they were valued using quoted market prices.

Movements in level 3 valuations
Banking GroupBank

30/09/2013

30/09/2012

30/09/2013

30/09/2012

Opening balance

3

6

-

-

Revaluations

-

(3)

-

-

(1)

-

-

-

2

3

-

-

$ millions

Sales
Closing balance

68

ANZ Bank New Zealand Limited

Notes to the Financial Statements
33. Notes to the Cash Flow Statement
Banking Group$ millions

Bank

Year toYear toYear toYear to30/09/2013

30/09/2012

30/09/2013

30/09/2012

1,374

1,325

1,579

1,220

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

98

89

68

45

Provision for credit impairment

63

193

56

187
12

Deferred fee revenue and expenses
Amortisation of capitalised brokerage / mortgage origination fees
Amortisation of premiums and discounts
Fair value gains and losses
Loss on disposal and impairment of premises and equipment andintangibles
Reversal of impairment of investment in subsidiary
Deferrals or accruals of past or future operating cash receipts or
payments:
Change in net operating assets less liabilities

4

14

2

43

25

43

25

181

235

181

235

(114)

(254)

(108)

(259)

6

13

2

2

-

-

(181)

-

1,192

(2,545)(3,299)(2,723)

Change in interest receivable

(11)

(13)

(21)

(21)

Change in interest payable

(86)

(43)

(62)

(34)

Change in accrued income

-

(3)

-

(2)

Change in accrued expenses

(5)

4

(23)

4

(110)

20

(105)

21

Change in provisions
Change in insurance policy assets

2

(101)

-

-

Change in other receivables and payables

(34)

(8)

(48)

10

Change in net income tax assets / liabilities

102

20

104

(64)

Items classified as investing / financing:
Gain on disposal of associates

-

(4)

-

(4)

(28)

-

(51)

-

2,677

(1,033)(1,863)(1,346)30/09/2013

30/09/2012

30/09/2013

30/09/2012

2,496

2,831

2,495

2,815

365

424

365

424

2,861

3,255

2,860

3,239

30/09/2013

30/09/2012

30/09/2013

30/09/2012

Not later than 1 year

24

43

24

42

Total capital expenditure commitments

24

43

24

42

Gain on disposal of subsidiaries (excluding disposal costs)
Net cash flows provided by / (used in) operating activities

Banking Group$ millions

Bank

Reconciliation of cash and cash equivalents to the balance sheet
Liquid assets
Due from other financial institutions - less than 90 days
Total cash and cash equivalents

34. Commitments
Banking Group$ millions

Bank

Contracts for outstanding capital expenditure

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

73

81

72

73

Later than 1 year but not later than 5 years

167

139

166

124

Later than 5 years

165

92

165

89

Total lease rental commitments

405

312

403

286

Total commitments

429

355

427

328

ANZ Bank New Zealand Limited

69

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

Banking GroupBank

Face or contract value

Face or contract value

30/09/2013

30/09/2013

30/09/2012

30/09/2012

Credit related commitments
Commitments with certain drawdown due within one year

817

742

817

742

Commitments to provide financial services

24,446

24,69826,88625,039Total credit related commitments

25,26325,44027,70325,781

997

731

997

731

32

44

32

44

Transaction related contingent items

1,059

913

1,059

913

Trade related contingent liabilities

113

117

112

116

2,201

1,805

2,200

1,804

Guarantees and contingent liabilities
Financial guarantees
Standby letters of credit

Total guarantees and contingent liabilities

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

36. Securitisation, Funds Management, Other Fiduciary Activities and Insurance
Securitisation
Kingfisher NZ Trust 2008-1 (“the Kingfisher Trust”)
The Banking Group has established the Kingfisher Trust as an in-house residential mortgage backed securities facility that
can issue securities meeting the RBNZ criteria to use as collateral in repurchase transactions with the RBNZ.
These assets do not qualify for derecognition as the Bank retains substantially all of the risks and rewards of thetransferred assets.
As at 30 September 2013 and 30 September 2012 the Banking Group had not entered into any repurchase agreementswith the RBNZ for residential mortgage backed securities and therefore no collateral had been accepted by the RBNZ
under this facility.
ANZNZ Covered Bond Trust (“the Covered Bond Trust”)
Substantially all of the assets of the Covered Bond Trust are made up of certain housing loans and related securities
originated by the Bank which are security for the guarantee by ANZNZ Covered Bond Trust Limited as trustee of the
Covered Bond Trust of issuances of covered bonds by the Bank, or its wholly owned subsidiary ANZ New Zealand (Int’l)Limited, from time to time. The assets of the Covered Bond Trust are not available to creditors of the Bank, although the
Bank (or its liquidator or statutory manager) may have a claim against the residual assets of the Covered Bond Trust (ifany) after all prior ranking creditors of the Covered Bond Trust have been satisfied.
The Banking Group continues to recognise the assets of the Covered Bond Trust on its balance sheet as, although they arepledged as security for covered bonds, the Bank retains substantially all the risks and rewards of ownership.
Assets transferred to the Kingfisher Trust and the Covered Bond Trust
The Bank has purchased securities issued by both the Kingfisher Trust and the Covered Bond Trust in exchange for thetransfer of the rights to the cash flows associated with the identified residential mortgages. The residential mortgages
continue to be recognised by the Bank because they do not qualify for derecognition. The following table sets out thecarrying values of the residential mortgages transferred by the Bank to these special purpose entities and the associatedliabilities to deliver the cashflows on those instruments.

ANZ Bank New Zealand Limited

70

Notes to the Financial Statements
Bank1$ millions

30/09/2013

30/09/2012

Carrying amount of assets transferred

5,823

5,102

Carrying amount of associated liabilities

5,823

5,127

Carrying amount of assets transferred

5,857

4,977

Carrying amount of associated liabilities

5,857

4,977

Securitisations2

Covered Bonds

1
2

There are no balances for the Banking Group as the balances for the Bank relate to transfers to internal special purpose entities.
The securitisation liabilities have recourse only to the pool of residential mortgages which have been securitised. The fair value of securitised assets is $5,823
million (30/09/2012 $5,127 million). The fair value of the associated liabilities is $5,823 million (30/09/2012 $5,127 million). The net position is nil (30/09/2012
nil).

Funds management and other fiduciary activities
Funds management
Certain subsidiaries of the Bank act as trustee and/or manager for a number of unit trusts and investment andsuperannuation 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 andsuperannuation 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 arerecorded as liabilities in the balance sheet. At 30 September 2013, $3,054 million of funds under management were
invested in the Banking Group's own products or securities (30/09/2012 $3,114 million).
Custodial services
The Banking Group provides custodial services to customers in respect of assets that are beneficially owned by thosecustomers.
Funds managed and held in custody by the Banking Group$ millions

Banking Group
30/09/2013

30/09/2012

Funds managed by ANZ New Zealand Investments Limited (formerly OnePath (NZ) Limited)

8,242

7,324

The Bonus Bonds Trust

3,259

3,188

Other discretionary funds

5,451

5,173

16,952

15,685

6,365

5,784

Total funds under management
Funds held in custody on behalf of customers

Provision of financial services
Financial services provided by the Banking Group to entities which are involved in trust, custodial, funds management andother fiduciary activities are provided on arm’s length terms and conditions and at fair value. Any assets purchased fromsuch entities have been purchased on an arm’s length basis and at fair value. The Banking Group does not have any
affiliated insurance entities or affiliated insurance groups that are not members of the Banking Group.
Except for standard lending facilities provided in the normal course of business on arm’s length terms, the Banking Group
has not provided any funding to entities where trust, custodial, funds management or other fiduciary activities are
established, marketed and/or sponsored by a member of the Banking Group (30/09/2012 $nil).

Insurance business
The Banking Group conducts an insurance business through its subsidiaries OnePath Life (NZ) Limited and its subsidiary
OnePath Insurance Services (NZ) Limited (together “OnePath Insurance”), the assets, liabilities and operations of which
are fully consolidated into the Banking Group. OnePath Insurance provides a range of risk transfer insurance products,
including life, lump sum trauma/disablement, income protection and medical cover. In addition, other entities within the
Banking Group market and distribute a range of insurance products which are underwritten by OnePath Insurance, or by
third party insurance companies.
The aggregate insurance business conducted by OnePath Insurance comprises assets totalling $779 million (30/09/2012:$766 million), which is 0.6% (30/09/2012: 0.6%) 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
to ensure that those activities are conducted in an appropriate manner. Should adverse conditions arise, it is consideredthat these policies and procedures will minimise the possibility that these conditions will adversely impact the Bank or the
Banking Group. The policies and procedures include comprehensive and prominent disclosure of information regarding
products, and formal and regular review of operations and policies by management.

ANZ Bank New Zealand Limited

71

Directorate and Auditors
Any document or communication may be sent to any
Director at the Registered Office. The document orcommunication should be marked for the attention ofthat Director.

Board Members as at 18 November 2013

Directors’ interests

John Frederick JudgeB Com, FCA
Company Director
Auckland, New Zealand

In order to ensure that members of the Board arereminded of their disclosure obligations under theCompanies Act 1993, the following procedures are
adopted:a.

b.

At least once in each year, Directors are requested
to complete, in terms of section 140(1) of theCompanies Act 1993, a disclosure of any interests
which they have with the Bank itself. Directors arereminded at this time of their obligation under theCompanies Act 1993 to disclose promptly any
transaction or proposed transaction with the Bank inwhich they have an interest.
Directors are also requested to make a generaldisclosure of their interest in other entities in termsof section 140(2) of the Companies Act 1993. In
addition, they are requested to initiate a review ofthat disclosure if there are any significant
alterations which occur subsequently during theperiod.

In addition to the written disclosures referred to above,
Directors disclose relevant interests which they have
before discussion of particular business items.
The Companies Act 1993 allows a Director with aninterest in a transaction to participate in discussions andto vote on all matters relating to that particulartransaction.
However, the Board has adopted a
guideline whereby a Director with an interest in atransaction 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 intoon terms other than those which would in the ordinary
course of business be given to any other person of likecircumstances or means or which could otherwise bereasonably likely to influence materially the exercise of
the Director’s duties as a Director of the Bank.

Independent
Chairman

Non-Executive

DirectorandMr Judge is the Chair of the Remuneration Committee
and a member of the Audit Committee and the Risk
Committee.
Other directorships:
Aquatx Holdings Limited,
Biotelliga Limited, Biotelliga Holdings Limited, Biotelliga
Nominees Limited, CIC28 Biotech Limited, Fletcher
Building Limited, Fletcher Building Industries Limited,
Janohn Limited, Sebca Limited, John Judge Limited,
Health TV Limited, Sails Friday Limited.

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

ANZ Holdings (New Zealand)

Non-Executive Directors
Shayne Cary Elliott
B Com
Chief Financial Officer, Australia and New Zealand
Banking Group Limited
Melbourne, Australia
Mr Elliott is a member of the Risk Committee and the
Audit Committee.
Other directorships: ANZ Holdings (New Zealand)
Limited, AMMB Holdings Berhad.
Michael Roger Pearson Smith, OBE
BSc (Hons) (City Lond), Hon LLD (Monash)
Chief Executive Officer, Australia and New Zealand
Banking Group Limited
Melbourne, Australia
Mr Smith is a member of the Remuneration Committee.
Other directorships:
Australia and New Zealand
Banking Group Limited, The Financial Markets
Foundation for Children, The Institute of International
Finance Inc, Financial Literacy Australia Limited,
Financial Literacy Board, Chairman of the Australian
Bankers Association Incorporated.

ANZ Bank New Zealand Limited

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

Auditors
KPMG
Chartered Accountants
10 Customhouse Quay
P O Box 996
Wellington, New Zealand72

ANZ Bank New Zealand Limited

73

Conditions of Registration
Conditions of Registration, applicable as at 30
September 2013. These Conditions of Registration
have applied from 30 June 2013, except as provided
otherwise.
The registration of ANZ Bank New Zealand Limited (“thebank”) as a registered bank is subject to the following
conditions:
1.

That-

(b) the Tier 1 capital ratio of the banking group is notless than 6 percent;the scalar referred to in the Reserve Bank of New
Zealand document “Capital adequacy framework(Internal Models Based Approach)” (BS2B) dated May
2013 is 1.06.

For the purposes of this condition of registration,-(b) under its ICAAP the bank identifies and measures
its “other material risks” defined as all material
risks of the banking group that are not explicitly
captured in the calculation of the Common Equity
Tier 1 capital ratio, the Tier 1 capital ratio and the
Total capital ratio under the requirements set out
in the document “Capital adequacy framework(Internal Models Based Approach)” (BS2B) dated
May 2013; and60%“buffer ratio”, “distributions”, and “earnings” have thesame meaning as in Part 3 of the Reserve Bank of New
Zealand document: “Capital Adequacy Framework(Internal Models Based Approach)” (BS2B) dated May
2013.

(e) the process in Subpart 2H of the Reserve Bank of
New Zealand document: “Capital Adequacy
Framework (Internal Models Based Approach)”(BS2B) dated May 2013 is followed for therecognition and repayment of capital.

(a) the bank has an internal capital adequacy
assessment process (“ICAAP”) that accords withthe requirements set out in the document“Guidelines on a bank’s internal capital adequacy
assessment process (‘ICAAP’)” (BS12) dated
December 2007;40%>1.875% - 2.5%

For the purposes of this condition of registration,-(d) the Total capital of the banking group is not lessthan $30 million; and

1A. That-20%>1.25 - 1.875%(c) have the capital plan approved by the ReserveBank.

(c) the Common Equity Tier 1 capital ratio of thebanking group is not less than 4.5 percent; and“Total capital ratio”, “Tier 1 capital ratio”, “Common
Equity Tier 1 capital ratio”, and “Total capital” must be
calculated in accordance with the Reserve Bank of New
Zealand document “Capital adequacy framework(Internal Models Based Approach)” (BS2B) dated May
2013.

>0.625 - 1.25%(b) prepare a capital plan to restore the banking
group’s buffer ratio to above 2.5% within any
timeframe determined by the Reserve Bank forrestoring the buffer ratio; and(a) the Total capital ratio of the banking group is notless than 8 percent;the scalar referred to in the Reserve Bank of New
Zealand document “Capital adequacy framework(Internal Models Based Approach)” (BS2B) dated May
2013 is 1.06.

0% - 0.625%

Percentage limit to
distributions of the
bank's earnings
0%

Banking group's
buffer ratio

This condition of registration applies on and after 1
January 2014.
2.

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

3.

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

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

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

(c) the bank determines an internal capital allocationfor each identified and measured “other materialrisk”.
1B. That the banking group complies with all requirements
set out in the Reserve Bank of New Zealand document“Capital adequacy framework (Internal Models BasedApproach)” (BS2B) dated May 2013.
1C. That, if the buffer ratio of the banking group is 2.5%
or less, the bank must:(a) According to the following table, limit theaggregate distributions of the bank’s earnings to
the percentage limit to distributions that
corresponds to the banking group’s buffer ratio:

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

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

if products or assets of which an insurance
business is comprised also contain a noninsurance component, the whole of such

ANZ Bank New Zealand Limited

74

Conditions of Registration
powers or performing duties as a director, to act
other than in what he or she believes is the bestinterests of the company (i.e. the bank).

products or assets must be considered part ofthe insurance business.
For the purposes of this condition of registration;

For the purposes of this condition of registration, “nonexecutive” and “independent” have the same meaning
as in the Reserve Bank of New Zealand document
entitled “Corporate Governance” (BS14) dated March2011.

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

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

Credit Rating of the bank

1

AA/Aa2 and above

6.

Connected exposure limit(% of the banking group’s
Tier 1 capital)
75

AA-/Aa3

70

A+/A1

60

A/A2

40

A-/A3

30

BBB+/Baa1 and below

15

1

5.

7.

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

8.

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

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

9.

That the bank has a board audit committee, or otherseparate board committee covering audit matters, thatmeets the following requirements:

Within the rating-contingent limit, credit exposures (ofa 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 1
capital.

(a) the mandate of the committee must include:
ensuring the integrity of the bank’s financial
controls, reporting systems and internal audit
standards;

For the purposes of this condition of registration,compliance with the rating-contingent connected
exposure limit is determined in accordance with theReserve Bank of New Zealand document entitled“Connected Exposures Policy” (BS8) dated May 2013.

(c) every member of the committee must be a nonexecutive director of the bank;That exposures to connected persons are not on morefavourable terms (e.g. as relates to such matters as
credit assessment, tenor, interest rates, amortisation
schedules and requirement
for collateral) thancorresponding exposures to non-connected persons.

(e) the chairperson of the committee must be
independent and must not be the chairperson of
the bank.

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

for an independent
independent;

directormustbe(e) at least half of the independent directors of thebank must be ordinarily resident in New Zealand;(f) the chairperson of the board of the bank must be
independent; and(g) the bank’s constitution must not include any
provision permitting a director, when exercising(b) the committee must have at least three members;(d) the majority of the members of the committee
must be independent; andFor the purposes of this condition of registration, “nonexecutive” and “independent” have the same meaning
as in the Reserve Bank of New Zealand document
entitled “Corporate Governance” (BS14) dated March
2011.
10. That a substantial proportion of the bank’s business isconducted in and from New Zealand.
11. That the bank has legal and practical ability to control
and execute any business, and any functions relating
to any business, of the bank that are carried on by aperson other than the bank, sufficient to achieve,
under normal business conditions and in the event ofstress or failure of the bank or of a service provider tothe 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 bemonitored and managed on the day following any
failure and on subsequent days; andANZ Bank New Zealand Limited

75

Conditions of Registration(d) that the bank’s existing customers can be given
access to payments facilities on the day following
any failure and on subsequent days.

“total assets” means all assets of the banking groupplus any assets held by any SPV that are not includedin the banking group’s assets:

For the purposes of this condition of registration, theterm “legal and practical ability to control andexecute” is explained in the Reserve Bank of New
Zealand document entitled “Outsourcing Policy”(BS11) dated January 2006.

“SPV” means a person-

12. That:(a) the business and affairs of the bank are managedby, or under the direction and supervision of, theboard of the bank;(b) the employment contract of the chief executive
officer of the bank or person in an equivalent
position (together “CEO”) is with the bank, and theterms 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; and(c) all staff employed by the bank shall have theirremuneration determined by (or under thedelegated authority of) the board or the CEO ofthe bank and be accountable (directly or
indirectly) to the CEO of the bank.

(a) to whom any member of the banking group has
sold, assigned, or otherwise transferred any asset;(b) who has granted, or may grant, a security interest
in its assets for the benefit of any holder of any
covered bond; and(c) who carries on no other business except for thatnecessary or incidental to guarantee theobligations of any member of the banking group
under a covered bond:“covered bond” means a debt security issued by any
member of the banking group, for which repayment toholders is guaranteed by a SPV, and investors retain
an unsecured claim on the issuer.
16. That(a) no member of the banking group may give effectto a qualifying acquisition or business combinationthat meets the notification threshold, and does notmeet the non-objection threshold, unless:(i)

13. That the banking group complies with the following
quantitativerequirementsforliquidity-riskmanagement:(a) the one-week mismatch ratio of the banking groupis not less than zero per cent at the end of eachbusiness day;(b) the one-month mismatch ratio of the banking
group is not less than zero per cent at the end ofeach business day; and(c) the one-year core funding ratio of the banking
group is not less than 75 per cent at the end ofeach business day.
For the purposes of this condition of registration, theratios identified must be calculated in accordance with
the Reserve Bank of New Zealand documents entitled“Liquidity Policy” (BS13) dated March 2011 and“Liquidity Policy Annex: Liquid Assets” (BS13A) dated
December 2011.
14. That the bank has an internal framework for liquidity
risk management that is adequate in the bank’s viewfor 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 andimplementation of the framework and policies forliquidity 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 thebank might face, and prepares the bank tomanage stress through a contingency fundingplan.
15. That no more than 10% of total assets may bebeneficially owned by a SPV.
For the purposes of this condition,-

the bank has notified the Reserve Bank inwriting of the intended acquisition or businesscombination and at least 10 working days
have passed; and(ii) at the time of notifying the Reserve Bank oftheintendedacquisitionorbusiness
combination, the bank provided the Reserve
Bank with the information required under theReserve Bank of New Zealand Banking
Supervision Handbook document “Significant
Acquisitions Policy” (BS15) dated December
2011; and(b) no member of the banking group may give effectto a qualifying acquisition or business combinationthat meets the non-objection threshold unless:(i)the bank has notified the Reserve Bank inwriting of the intended acquisition or businesscombination;(ii) at the time of notifying the Reserve Bank oftheintendedacquisitionorbusiness
combination, the bank provided the Reserve
Bank with the information required under theReserve Bank of New Zealand Banking
Supervision Handbook document “Significant
Acquisitions Policy” (BS15) dated December
2011; and(iii) the Reserve Bank has given the bank a noticeof non-objection to the significant acquisitionor business combination.
For the purposes of this condition of registration,“qualifying acquisition or business combination”,“notification threshold” and “non-objection threshold”
have the same meaning as in the Reserve Bank of New
Zealand Banking Supervision Handbook document“Significant
Acquisitions
Policy”(BS15)
dated
December 2011.
17. That the registered bank is pre-positioned for OpenBank Resolution and in accordance with a direction
from the Reserve Bank, the registered bank can(a) close promptly at any time of the day and on any
day of the week and that effective upon theappointment of the statutory manager-

ANZ Bank New Zealand Limited

76

Conditions of Registration(i)all liabilities are frozen in full; and(ii) no further access by customers andcounterparties to their accounts (deposits,
liabilities or other obligations) is possible;(b) apply a de minimus to relevant customer liability
accounts;(c) apply a partial freeze to the customer liability
account balances;(d) reopen by no later than 9am the next business
day following the appointment of a statutory
manager and provide customers access to theirunfrozen funds;(e) maintain a full freeze on liabilities not prepositioned for open bank resolution; and(f) reinstate customers’ access to some or all of theirresidual frozen funds.
18. That the registered bank has an Implementation Planthat(a) is up-to-date; and(b) demonstrates
thattheregisteredbank’sprepositioning for Open Bank Resolution meets therequirements set out in the Reserve Bank
document: “Open Bank Resolution Pre-positioning
Requirements Policy” (BS17).
19. That the registered bank has a compendium ofliabilities that(a) at the product-classindicating which are(i)

level

lists

all

liabilities,

pre-positioned for Open Bank Resolution; and(ii) not pre-positioned for Open Bank Resolution;(b) is agreed to by the Reserve Bank; and(c) if the Reserve Bank’s agreement is conditional,
meets the Reserve Bank’s conditions.
20. That on an annual basis the registered bank tests all
the component parts of its OBR solution that
demonstrates the registered bank’s prepositioning forOpen Bank Resolution as specified in their
Implementation Plan.
For the purposes of this condition of registration, “deminimus”,“partial
freeze”,“customer
liability
account”,“frozenandunfrozenfunds”,“Implementation Plan”, “compendium of liabilities”,
and “pre-positioned and non pre-positioned liabilities”
have the same meaning as in the Reserve Bank
document entitled “Open Bank Resolution (OBR) Prepositioning Requirements Policy” (BS17) dated June
2013.

In these conditions of registration:“banking group” means ANZ Bank New Zealand
Limited’s financial reporting group (as defined in
section 2(1) of the Financial Reporting Act 1993):“generally accepted accounting practice” has the same
meaning as in section 2 of the Financial Reporting Act
1993.

Changes to conditions of registration effective 1
October 2013
The above conditions of registration have been
amended effective 1 October 2013 to update crossreferences to updated versions of the RBNZ
documents BS2B, BS8 and BS17 and to add thefollowing conditions restricting high loan-to-valuation
residential mortgage lending:
21. That, for a loan-to-valuation measurement period, thetotal of the bank’s qualifying new mortgage lending
amounts must not for residential properties with aloan-to-valuation ratio of more than 80%, exceed 10%of the total of the qualifying new mortgage lending
amounts arising in the loan-to-valuation measurement
period.
22. That the bank must not make a residential mortgage
loan unless the terms and conditions of the loan
contract or the terms and conditions for an associatedmortgage require that a borrower obtain the bank’s
agreement before the borrower can grant to anotherperson a charge over the residential property used as
security for the loan.
23. That the bank must not permit a borrower to grant acharge in favour of another person over a residential
property used as security for a residential mortgage
loan unless the sum of the lending secured by the
charge and the loan value for the residential mortgage
loan would not exceed 80% of the property value ofthe residential property when the lending secured by
the charge is drawn down.
24. That the bank must not provide a residential mortgage
loan if the residential property to be mortgaged to thebank as security for the residential mortgage loan issubject to a charge in favour of another person unlessthe total amount of credit secured by the residential
property would not exceed 80% of the property value
when the residential mortgage loan is drawn down.
25. That the bank must not act as broker or arrange for amember of its banking group to provide a residential
mortgage loan.

In conditions of registration 21 to 25,—
“loan-to-valuation ratio”, “loan value”, “property
value”, “qualifying new mortgage lending amount” and“residential mortgage loan” have the same meaning as
in the Reserve Bank of New Zealand document entitled“Framework for Restrictions on High-LVR Residential
Mortgage Lending” (BS19) dated September 2013:“loan-to-valuation measurement period” means—(a) the six calendar month period ending on the last
day of March 2014; and(b) thereafter a period of three calendar months
ending on the last day of the third calendar
month, the first of which ends on the last day ofApril 2014.

ANZ Bank New Zealand Limited

77

Directors’ Statement
As at the date on which this Disclosure Statement is signed, after due enquiry, each Director believes that:(i) The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements(New Zealand Incorporated Registered Banks) Order (No 2) 2013;(ii) The Disclosure Statement is not false or misleading.
Over the year ended 30 September 2013, after due enquiry, each Director believes that:(i) ANZ Bank New Zealand Limited has complied with all the Conditions of Registration;(ii) Credit exposures to connected persons were not contrary to the interests of the Banking Group;(iii) ANZ Bank New Zealand Limited had systems in place to monitor and control adequately the Banking Group’s material
risks, including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk,
operational risk and other business risks, and that those systems were being properly applied.
This Disclosure Statement is dated, and has been signed by or on behalf of all Directors of the Bank on 18
November 2013. On that date, the Directors of the Bank were:

Antony Carter

Shayne ElliottDavid Hisco

John Judge

Michael Smith, OBE

Mark Verbiest

Joan Withers

ANZ Bank New Zealand Limited

78

Independent Auditor’s Report
To the Shareholder of ANZ Bank New Zealand Limited
Report on the Bank and Banking Group Disclosure Statement
We have audited the accompanying financial statements and supplementary information of ANZ Bank New Zealand
Limited (“the Bank”) (formerly ANZ National Bank Limited) and its subsidiaries (“the Banking Group”) on pages 4 to 70 of
the Disclosure Statement. The financial statements comprise the balance sheets as at 30 September 2013, the statements
of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary ofsignificant accounting policies and other explanatory information of the Bank and the Banking Group. The supplementary
information comprises the information that is required to be disclosed under the Registered Bank Disclosure Statements(New Zealand Incorporated Registered Banks) Order (No 2) 2013 (the “Order”).
Directors' Responsibility for the Disclosure Statement
The Directors are responsible for the preparation of the Bank and Banking Group Disclosure Statement, including financial
statements prepared in accordance with Clause 24 of the Order and generally accepted accounting practice in New
Zealand, and that give a true and fair view of the matters to which they relate. The Directors are also responsible for suchinternal controls as they determine are necessary to enable the preparation of the Bank and Banking Group financial
statements that are free from material misstatement whether due to fraud or error.
The Directors are responsible for the preparation and fair presentation of supplementary information, in accordance with
Schedules 2, 4, 7, 13, 14, 15 and 17 of the Order.
Auditor’s Responsibility
Our responsibility is to express an opinion on the Disclosure Statement, including the financial statements prepared inaccordance with Clause 24 of the Order and the supplementary information disclosed in accordance with Schedules 4, 7,
13, 14, 15 and 17 of the Order. We conducted our audit in accordance with International Standards on Auditing (New
Zealand). Those standards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the Bank and Banking Group financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Bank andBanking Group financial statements. The procedures selected depend on the auditor’s judgement, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal controls relevant to the Bank and Banking Group’s preparation of
the financial statements that gives a true and 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 theeffectiveness of the Bank and Banking Group’s internal controls. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates, as well as evaluating the presentation of thefinancial statements.
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 andemployees of our firm may also deal with the Bank and Banking Group within the ordinary course of the business of the
Bank and Banking group. There are, however, certain restrictions on dealings which the partners and employees of ourfirm can have with the Bank and Banking Group. 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.
Opinion on the Disclosure Statement
In our opinion the Disclosure Statement of the Bank and the Banking Group on pages 4 to 70 (excluding the supplemental
information):complies with generally accepted accounting practice in New Zealand;
complies with International Financial Reporting Standards; andgives a true and fair view of the financial position as at 30 September 2013 and of their financial performance andcash flows for the year ended on that date.

ANZ Bank New Zealand Limited

79

Opinion on Supplementary Information
In our opinion, the supplementary information that is required to be disclosed in accordance with Schedules 4, 7, 13, 14,
15 and 17 of the Order, and is included within notes 14, 15, 28, 29, 31, and 36 of the Disclosure Statement:
has been prepared, in all material respects, in accordance with the guidelines issued pursuant to section 78(3) of theReserve 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; and
fairly states the matters to which it relates in accordance with those Schedules.
Report on Supplementary Information Relating to Capital Adequacy
We have reviewed the Supplementary Information relating to Capital Adequacy, as disclosed in note 28 of the DisclosureStatement for the year ended 30 September 2013.
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 isrequired to be disclosed under Schedule 11 of the Order.
Auditor’s Responsibility
Our responsibility is to express an opinion on the supplementary information relating to Capital Adequacy based on ourreview. We conducted our review in accordance with the Review Engagement Standards issued by the New ZealandInstitute of Chartered Accountants. Those standards require that we comply with ethical requirements and plan andperform the review to obtain limited assurance about whether the supplementary information relating to Capital Adequacy
is, in all material respects:
prepared in accordance with the Bank’s Conditions of Registration;
prepared in accordance with the Bank’s internal models for credit risk and operational risk as accredited by the
Reserve Bank of New Zealand; anddisclosed in accordance with Schedule 11 of the Order.
A review is limited primarily to enquiries of Bank and Banking Group personnel and analytical review procedures applied
to the financial data, and thus provides less assurance than an audit. We have not performed an audit in respect of theCapital Adequacy disclosures, and accordingly, we do not express an audit opinion on these disclosures.
Opinion on the Supplementary Information Relating to Capital Adequacy
Based on our review, nothing has come to our attention that causes us to believe that the supplementary information
relating to capital adequacy prescribed by Schedule 11 of the Order, and disclosed in note 28 of the Disclosure Statement,
is not, in all material respects:
prepared in accordance with the Bank’s Conditions of Registration;
prepared in accordance with the Bank’s internal models for credit risk and operational risk as accredited by the
Reserve Bank of New Zealand; anddisclosed in accordance with Schedule 11 of the Order.
Report on Other Legal and Regulatory Requirements
In accordance with the requirements of sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993, and clauses2(1)(d) and 2(1)(e) of Schedule 1 of the Order, we report that:
we have obtained all the information and explanations we have required; andin our opinion, proper accounting records have been kept by the Bank and Banking Group, as far as appears from our
examination of those records.

Wellington
18 November 2013

ANZ Bank New Zealand Limited

80

Index
Contents and Glossary of Terms

1

Annual Report

1

General Disclosures

1

Summary of Financial Statements

3

Income Statement

4Statement of Comprehensive Income

4Statement of Changes in Equity

5

Balance Sheet

6

Cash Flow Statement7

1. Significant Accounting Policies

8

2. Critical Estimates and Judgement Used in Applying Accounting Policies

14

3. Risk Management Policies

15

4. Income17

5. Expenses

18

6. Income Tax

19

7. Segmental Analysis

20

8. Liquid Assets

22

9. Due from Other Financial Institutions

22

10. Trading Securities

22

11. Derivative Financial Instruments

23

12. Available-for-sale Assets

25

13. Net Loans and Advances

25

14. Provision for Credit Impairment26

15. Impaired Assets

27

16. Investments in Subsidiaries and Associates

28

17. Other Assets

29

18. Goodwill and Other Intangible Assets

29

19. Due to Other Financial Institutions

29

20. Deposits and Other Borrowings

29

21. Payables and Other Liabilities

30

22. Provisions

30

23. Bonds and Notes

30

24. Loan Capital

31

25. Related Party Transactions

31

26. Current and Non-current Assets and Liabilities

34

27. Share Capital35

28. Capital Adequacy

36

29. Financial Risk Management44

30. Financial Assets Pledged as Collateral63

31. Concentrations of Credit Risk to Individual Counterparties

63

32. Fair Value of Financial Assets and Financial Liabilities

64

33. Notes to the Cash Flow Statements

68

34. Commitments

68

35. Credit Related Commitments and Contingent Liabilities

69

36. Securitisation, Funds Management, Other Fiduciary Activities and Insurance

69

Directorate and Auditors

71

Conditions of Registration73

Directors’ Statement

77

Independent Auditor’s Report

78

Index

80