General Disclosure Statement
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED- NEW ZEALAND BRANCH
For the year ended 30 September 2009
No 4. Issued November 2009

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHGENERAL DISCLOSURE STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2009

CONTENTS

Page

General Disclosures

2-6

Summary of Financial Statements

7

Income Statements

8Statements of Recognised Income and Expense

9

Balance Sheets

10

Cash Flow Statement s

11

Notes to the Financial Statements

12 - 114

Directorate and Auditors

115 – 117

Conditions of Registration

118 – 119

Credit Rating Information120

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

Index

124

1

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHGENERAL DISCLOSURESThis Disclosure Statement has been issued in accordance with the Registered Bank Disclosure Statement (Fulland Half Year - Overseas Incorporated Registered Banks) Order 2008 ("the Order").
In this Disclosure Statement unless the context otherwise requires:(a) "Overseas Banking Group" means the worldwide operations of Australia and New Zealand Banking
Group Limited including its controlled entities;(b) "Overseas Bank" or "Ultimate Parent Bank" means the worldwide operations of Australia and New
Zealand Banking Group Limited excluding its controlled entities;(c) "NZ Banking Group" means the aggregated NZ operations of Australia and New Zealand Banking Group
Limited, including those operations conducted through the New Zealand Branch and controlled entitiesof the Overseas Bank registered in New Zealand;(d) "NZ Branch" or "Registered Bank" means the New Zealand operations of Australia and New Zealand
Banking Group Limited, as conducted through the NZ Branch;(e) "Bank" means ANZ National Bank Limited;(f) Any term or expression which is defined in, or in the manner prescribed by, the Registered Bank
Disclosure Statement (Full and Half Year - Overseas Incorporated Registered Banks) Order 2008 shallhave the meaning given in or prescribed by that Order.
GENERAL MATTERS
Australia and New Zealand Banking Group Limited - New Zealand Branch ("NZ Branch") was registered as abank on 5 January 2009. The full name of the NZ Branch is Australia and New Zealand Banking Group Limited New Zealand Branch and its address for service is Level 14, ANZ Tower, 215-229 Lambton Quay, Wellington,
New Zealand.
The full name of the Overseas Bank is Australia and New Zealand Banking Group Limited and its address forservice is Level 14, 100 Queen Street, Melbourne, Australia.
NATURE OF BUSINESSThe principal activities of the NZ Banking Group during the period were retail, corporate and rural banking,mortgage lending, asset and general finance, international and investment banking, and nominee and custodian
services. Life insurance and funds management activities are carried out through the ING New Zealand joint
venture.
RANKING OF LOCAL CREDITORS IN LIQUIDATION
There are material legislative restrictions in the Overseas Bank's country of incorporation which subordinate theclaims of a class of unsecured creditors of the Registered Bank on the assets of the Overseas Bank to those ofanother class of unsecured creditors of the Overseas Bank, in liquidation of the Overseas Bank.
The Banking Act 1959 of the Commonwealth of Australia (the "Banking Act") gives priority over Australianassets of the Overseas Bank to Australian depositors if the Overseas Bank is unable to meet its obligations orsuspends payment. Accordingly, New Zealand depositors (together with all other senior unsecured creditors of
the Overseas Bank) will rank after Australian depositors of the Overseas Bank in relation to claims against
Australian assets.
Specifically, pursuant to section 13A(3) of the Banking Act, if an Authorised Deposit-Taking Institution (definedin that Act to include a Bank like the Overseas Bank) (an "ADI") becomes unable to meet its obligations orsuspends payment, the assets of the ADI in Australia are to be available to meet the ADI's liabilities in thefollowing order:(a) first, the ADI's liabilities to the Australian Prudential Regulation Authority ("APRA") (if any), because of
the rights APRA has against the ADI because APRA has made, or is required to make, payments todepositors under the Financial Claims Scheme (defined below);(b) second, the ADI's debts to APRA for costs incurred by APRA in administration of the Financial Claims
Scheme in respect of the ADI;(c) third, in payment of the ADI's deposit liabilities in Australia (other than liabilities covered underparagraph (a)); and(d) fourth, the ADI's other liabilities (in order of priority apart from section 13A(3)).
Under section 13A(1) of the Banking Act, in certain circumstances APRA may take control of an ADI or appoint
an administrator (defined in the Banking Act) to take control of its business. Section 16(1) and (2) of the
Banking Act provide that, despite anything contained in any law relating to the winding up of companies, but
subject to section 13A(3) of the Banking Act, the debts of an ADI to APRA in respect of APRA's costs (including
costs in the nature of remuneration and expenses) of being in control of the ADI's business or of having an
administrator in control of the ADI's business have priority in a winding up of the ADI over all other unsecured
debts.
2

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

3

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHGENERAL DISCLOSURES (CONTINUED)
Wholesale Funding Guarantee
The Wholesale Funding Guarantee is a deed governed by the laws of the State of New South Wales and has
been executed by the Australian Treasurer on behalf of the Australian Government. Australian institutions
which are ADIs under the Banking Act, which includes the Overseas Bank, are entitled to apply for the
Wholesale Funding Guarantee to apply to deposit accounts over A$1 million and certain funding liabilities.
Foreign banks authorised to carry on banking business in Australia may also apply to have certain deposits andfunding liabilities held by Australian residents guaranteed by the Australian Government. The Reserve Bank ofAustralia administers the Wholesale Funding Guarantee.
Under the Wholesale Funding Guarantee, the Commonwealth of Australia irrevocably guarantees the payment ofliabilities covered by an eligibility certificate issued by the Australian Government in response to an application
made by the ADI, and irrevocably undertakes that whenever the ADI does not pay a liability on the date on
which it becomes due or payable, it shall, upon a claim by a person to whom a guaranteed liability is owed, andfollowing the expiry of any applicable grace period, pay the guaranteed liability in accordance with the scheme
rules. A claim must be made in the form provided in the scheme rules. In the case of a liability of an Australian
ADI, such as the Overseas Bank, the claimant need not be a resident of Australia.
In order to have the Wholesale Funding Guarantee apply, an ADI must apply to the Reserve Bank of Australia
for an eligibility certificate. Fees will also be payable, calculated by reference to the term and amount of theliabilities guaranteed and the credit rating of the ADI (as at the date of this document, the fee which will apply
to the Overseas Bank based on its rating by Standard and Poor’s of AA, is 70 basis points per annum applied in
respect of its guaranteed liabilities in accordance with the Wholesale Funding Guarantee). The fees will belevied on a monthly or quarterly basis depending on the liability. An ADI may apply for an eligibility certificate inrespect of a programme under which it issues debt instruments from time to time or on a series-by-series basis.
A person to whom a guaranteed liability is owed may rely on the eligibility certificate issued by the AustralianGovernment as conclusive evidence that the liability satisfies the criteria for eligibility to be guaranteed under
the Wholesale Funding Guarantee.
An application must set out details of the liabilities to be guaranteed and be accompanied by an executedcounter indemnity in favour of the Australian Government, external legal opinions in a prescribed form, an
executed fee letter and a letter of prudential compliance. Further information with respect to the application
procedure
and
fees
can
be
found
at
the
AustralianGovernment
Guarantee
websiteatwww.guaranteescheme.gov.au.
If the ADI is an Australian ADI (such as the Overseas Bank) or an Australian subsidiary of a bank incorporated
overseas, it may apply for the guarantee to apply to:•
Deposit liabilities for amounts over A$1 million: The deposit can be at call or with maturity of up to
60 months in excess of $1 million per customer per ADI, be in any currency and may pre-date theWholesale Funding Guarantee. There are no restrictions on the types of depositors;•
Deposits held in overseas branches: Deposits held in overseas branches of Australian-owned ADIs
can be covered by the Wholesale Funding Guarantee. There are no restrictions on the types ofdepositors;•
Short Term Wholesale Funding Liabilities: The liability (which may be in any currency) must be asenior and unsecured debt instrument with a maturity not exceeding 15 months. In addition, theinstrument must be "not complex" and be either a bank bill, a certificate of deposit or transferable
deposit, a debenture or commercial paper; and•Term Wholesale Funding Liabilities: The liability (which may be in any currency) must be a senior
and unsecured debt instrument with a maturity not exceeding 60 months but greater than 15 months.
The instrument must also be "not complex" and be either a bond, a note or a debenture.
In the case of all instruments, they may be issued in bearer, registered or dematerialised form. An instrument
will not be granted an eligibility certificate unless it is "not complex". The Government has published a list of thefeatures that are likely to be regarded by the Government as "complex".
If the Australian Government does not perform its obligations under the Wholesale Funding Guarantee, abeneficiary of the guarantee could sue the Commonwealth of Australia under the Judiciary Act 1903 of Australia.
In such a suit, the rights of parties are as nearly as possible the same as in a suit between subjects of theCommonwealth of Australia. Jurisdiction to hear claims against the Commonwealth of Australia in contract isvested in certain Australian courts under the Judiciary Act 1903 of Australia. If a judgment is obtained against
the Australian Government, no execution or attachment can be issued against the property or revenues of theCommonwealth of Australia. However, if any judgment is given against the Australian Government, the Ministerfor Finance is obliged to satisfy the judgment out of money legally available, on receipt of a certificate of thejudgment issued by an officer of a court in which such judgment has been obtained.
4

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHGENERAL DISCLOSURES (CONTINUED)
Wholesale Funding Guarantee (Continued)
In order to render money legally available, specific appropriation by legislation passed by the Parliament of theCommonwealth of Australia would be necessary before any payment is made, unless the amount involved issuch that it could be paid out of funds available under an existing standing appropriation. The AustralianGovernment has enacted legislation which appropriates funds from consolidated revenue for the purposes ofpaying claims under the Wholesale Funding Guarantee. The Wholesale Funding Guarantee does not contain any
submission to the courts of a foreign jurisdiction or any waiver of any immunity which might be available to the
Commonwealth of Australia under the law of any foreign jurisdiction.
The Wholesale Funding Guarantee is subject to being withdrawn or changed, which may have a negative impact
on the availability of funding in the markets in which the Overseas Bank operates.
The Australian Government has announced the Wholesale Funding Guarantee will be reviewed on an ongoingbasis and revised if necessary.
The Australian Government shall not be liable to perform its obligations under the Wholesale Funding Guarantee
in respect of liabilities which have been varied, amended, waived, released, novated, supplemented, extended
or restated in any material respect without the written consent of the Australian Government.
The Australian Government may also amend the terms of the Wholesale Funding Guarantee at any time at its
discretion, provided that (except insofar as such amendment is required by law) such amendment does not
reduce the Australian Government’s obligations to the beneficiaries under the Wholesale Funding Guarantee in amanner which is prejudicial to the interests of the beneficiaries in respect of any subsisting liability of theOverseas Bank guaranteed under the Wholesale Funding Guarantee.
Further information on the Wholesale Funding Guarantee including the Wholesale Deed of Guarantee is available
in the most recent Supplemental Disclosure Statement.
Copies of eligibility certificates issued by the Reserve Bank of Australia under the Wholesale Funding Guarantee
are available at www.guaranteescheme.gov.au.
The name of the Guarantor and address for service is: The Scheme Administrator, Australian Government
Guarantee Scheme for Large Deposits and Wholesale Funding, c/- The Secretary, Reserve Bank of Australia, 65
Martin Place, Sydney, New South Wales 2001, Australia.
Further details of the arrangements, together with relevant legislation, regulations and other documents settingout the terms and conditions of the current guarantee arrangements, are available at the Treasury website
www.treasury.gov.au, www.apra.gov.au and www.guaranteescheme.gov.au.
The most recent audited financial statements of the Commonwealth of Australia can be obtained at theTreasury's Budget website www.budget.gov.au. As at the date of signing of the General Disclosure Statement,
the following ratings were assigned to the Commonwealth of Australia's long term, AUD denomination debt: AAA
Outlook Stable (Standard & Poor's), Aaa Outlook Stable (Moody's) and AAA Outlook Stable (Fitch). These
ratings have remained unchanged in the two preceding years. Refer to 'Credit Rating Information' for a fulldescription of credit rating scales.
New Zealand Guarantee Arrangements
The Crown guarantees retail deposits and wholesale funding of participating New Zealand financial institutions
under the New Zealand Deposit Guarantee Scheme and New Zealand Wholesale Funding Guarantee Facility
respectively. The Registered Bank does not have a guarantee under either Scheme.

5

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHGENERAL DISCLOSURES (CONTINUED)PENDING PROCEEDINGS OR ARBITRATIONOther than disclosed in the Disclosure Statement, there are no pending proceedings or arbitration concerning
any member of the NZ Banking Group that may have a material adverse effect on the NZ Banking Group as at
the date of the General Disclosure Statement.
Further details on pending proceedings or arbitration are set out in Note 41 Contingent Liabilities and Credit
Related Commitments.
OTHER MATERIAL MATTERS
There are no matters relating to the business or affairs of the NZ Branch and the NZ Banking Group which are
not contained elsewhere in the General Disclosure Statement and which would, if disclosed, materially adversely
affect the decision of a person to subscribe for debt securities of which the NZ Branch or any member of the NZ
Banking Group is the issuer.
SUPPLEMENTAL DISCLOSURE STATEMENT
A copy of the most recent Supplemental Disclosure Statement for the year ended 30 September 2009 can beobtained immediately where request is made within normal banking hours at the NZ Branch head office, Level
14, ANZ Tower, 215-229 Lambton Quay, Wellington. It is also available at no charge:(a) on the NZ Banking Group's website at www.anz.co.nz and www.anz.com;(b) immediately if request is made at the NZ Banking Group's head office; and(c) within five working days of a request, if a request is made at any branch of ANZ or The National Bank of
New Zealand.
The NZ Banking Group's most recent Supplemental Disclosure Statement contains a copy of the 30 September
2009 Annual Report for the Overseas Banking Group and a copy of the Deed of Guarantee for the Guarantee
Scheme.
FINANCIAL STATEMENTS OF THE OVERSEAS BANK AND OVERSEAS BANKING GROUP
Copies of the most recent publicly available financial statements of the Overseas Bank and Overseas Banking
Group will be provided immediately, free of charge, to any person requesting a copy where the request is madeat the NZ Branch's head office, Level 14, ANZ Tower, 215-229 Lambton Quay, Wellington. The most recent
publicly available financial statements for the Overseas Bank and Overseas Banking Group can also be accessedat the internet address www.anz.com.
DIRECTORATE
Since the authorisation date of the previous General Short Form Disclosure Statement on 31 August 2009, there
have been no changes to the Directors of the Overseas Banking Group.

6

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHSUMMARY OF FINANCIAL STATEMENTS
NZ Banking GroupYear to30/09/2009$mYear to30/09/2008$mYear to30/09/2007$m

1

Year to30/09/2006$m

1

Year to30/09/2005$m

1

Continuing operations
Interest income
Interest expense

7,479
5,181

9,858
7,829

8,296
6,239

7,195
5,246

6,023
4,325

Net interest income
Other operating income

2,298
680

2,029
1,126

2,057
864

1,949
801

1,698
794

Operating income
Operating expenses

2,978
1,479

3,155
1,445

2,921
1,331

2,750
1,323

2,492
1,312

Profit before provision for credit impairment and income tax
Collective provision charge (credit)
Individual provision charge

1,499
270
613

1,710
112
190

1,590
20
54

1,427
(10)
28

1,180
121
-

Provision for credit impairment

883

302

74

18

121

Profit before income tax
Income tax expense

616
422

1,408
418

1,516
551

1,409
463

1,059
318

Profit after income tax from continuing operations

194

990

965

946

741

Discontinued operations
Profit from discontinued operations (net of income tax)
Profit after income tax
Retained profits at beginning of the year
Adjustment on adoption of NZ IFRS on 1 October 2004
Adjustment on adoption of NZ IAS 39 on 1 October 2005
Total available for appropriation
Actuarial (loss) gain on defined benefit schemes after tax
Foreign exchange (loss) gain on redemption of redeemable preference
sharesInterim ordinary dividends paid
Retained profits at end of the year

-

-

76

5

14

194

990

1,041

951

755

1,667

1,869

1,580

1,350

746

-

-

-

60

4
-

1,861
(18)

2,859
(23)

2,621
2

2,361
(1)

1,505
4

(1,000)(1,169)

(154)
(600)

(780)

41
(200)

843

1,667

1,869

1,580

1,350

As at1
30/09/2006$m

As at1
30/09/2005$m

NZ Banking GroupAs at
30/09/2009$m
Total impaired assets (on-balance sheet and off-balance sheet)

As at
30/09/2008$m

As at1
30/09/2007
$m

1,220

333

121

159

220

Total assets

126,314123,078

107,606

95,92985,491

Total liabilities

118,999

115,951

100,751

89,54379,390

7,315

7,127

6,855

6,386

6,101

EquityThe amounts included in this summary have been taken from the audited financial statements of the NZ
Banking Group.
1.

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

7

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHINCOME STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2009
NZ Banking GroupYear toYear to30/09/2009
30/09/2008
$m
$m

Note

NZ Branch
Year toYear to30/09/2009
30/09/2008$m$m

Interest income

4

7,479

9,858

241

-

Interest expense

5

5,181

7,829

171

-

2,298

2,029

70

-

Net interest income
Net trading gains

4

187

272

-

-

Other operating income

4

480

743

(10)

-

15

13

111

-

-

2,978

3,155

60

-

5

1,479

1,445

11

-

Share of profit of equity accounted associates
and jointly controlled entities
Operating income
Operating expenses
Profit before provision for credit impairment
and income tax
Provision for credit impairment

1,499

1,710

49

-

14

883

302

9

-

616

1,408

40

-

6

422

418

12

-

194

990

28

-

Profit before income tax
Income tax expense
Profit after income tax

The notes on pages 12 to 114 form part of and should be read in conjunction with these financial statements.

8

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHSTATEMENTS OF RECOGNISED INCOME AND EXPENSEFOR THE YEAR ENDED 30 SEPTEMBER 2009
NZ Banking GroupYear toYear to30/09/2009
30/09/2008

Note

Available-for-sale revaluation reserve:- Valuation gain taken to equity

$m

$m

2

26

NZ Branch
Year toYear to30/09/2009
30/09/2008
$m
$m

-

-

-

-

Cash flow hedging reserve:- Valuation loss taken to equity

(1)

(47)

-

-

- Transferred to income statement

(3)

(37)

-

-

Actuarial loss on defined benefit schemes

(25)

(33)

-

-

Income tax credit on items recognised directly in equity

10

34

-

-

Net expense recognised directly in equity

(17)

(57)

-

-

Profit after income tax

194

990

28

-

Total recognised income and expense for the year

177

933

28

-

The notes on pages 12 to 114 form part of and should be read in conjunction with these financial statements.

9

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHCASH FLOW STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2009

Note

NZ Banking GroupYear toYear to30/09/2009
30/09/2008$m$m

NZ Branch
Year toYear to30/09/2009
30/09/2008$m$m

CASH FLOWS FROM OPERATING ACTIVITIESInterest received
Dividends received
Fees and other income received
Interest paid
Operating expenses paid
Income taxes paid

7,368
3
945
(5,137)(1,483)
(338)

9,503
4
1,062
(7,216)(1,313)
(461)

241
4
(130)
(9)
-

-

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

1,358

1,579

106

-

Net changes in operating assets and liabilities:
Increase in due from other financial institutions - term
Increase in trading securities(Increase) decrease in derivative financial instruments
Increase in available-for-sale assets
Decrease (increase) in loans and advances
Decrease (increase) in due from related entities
Decrease in due to related entities(Increase) decrease in other assets
Increase in due to other financial institutions
Increase in customer deposits(Decrease) increase in other borrowings and certificates of deposit(Decrease) increase in payables and other liabilities(246)(1,505)(3,494)(1,388)
43
(165)
9,630
672
(4,637)
(167)

(630)
(617)
1,361
(36)
(9,522)
28
141
3,373
2,044
159

237
(9,144)
(11)
8,801
-

-

101

(2,120)

(11)

-

33
3
(92)
(21)
(95)

2
(48)
(30)
(51)

-

-

Net cash flows used in investing activities

(172)

(127)

-

-

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bonds and notes
Redemptions of bonds and notes
Proceeds from loan capital
Redemptions of loan capital
Increase (decrease) in due to parent company
Issue of redeemable preference shares
Dividends paid
Proceeds from Head Office

5,012(7,751)(225)
1,000(1,000)11

9,263(6,433)
835
(100)
510
(1,169)-11-

Net cash flows (used in) provided by financing activities(2,953)

2,906

11

-

Net cash flows provided by (used in) operating activities
Net cash flows used in investing activities
Net cash flows (used in) provided by financing activities

101
(172)
(2,953)(2,120)
(127)
2,906

(11)
11

-

Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year

(3,024)
7,790

659
7,131

-

-

Cash and cash equivalents at end of the year1

4,766

7,790

-

-

Net cash flows provided by (used in) operating activities

36

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of shares in associates and jointly controlled entities
Proceeds from sale of premises and equipment
Proceeds from sale of software
Purchase of shares in associates and jointly controlled entities
Purchase of intangible assets
Purchase of premises and equipment

1.

A reconciliation of cash and cash equivalents to the NZ Banking Group’s core liquidity portfolio is included in Note 36 Notes to the Cash Flow Statements.

The notes on pages 12 to 114 form part of and should be read in conjunction with these financial statements.

11

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIESA) BASIS OF PREPARATIONi)
Statement of compliance
These financial statements have been prepared in accordance with the requirements of the Companies Act
1993, the Financial Reporting Act 1993 and the Registered Bank Disclosure Statement (Full and Half-Year Overseas Incorporated Registered Banks) Order 2008 (the "Order"). The parent company’s financial statements
are for the New Zealand operations of Australia and New Zealand Banking Group Limited as conducted throughthe NZ Branch (the "Registered Bank" or "NZ Branch") and the aggregated financial statements are for the New
Zealand operations of Australia and New Zealand Banking Group Limited (the "NZ Banking Group"), which
includes the NZ Branch and all New Zealand geographic operations, subsidiaries, associate companies andjointly controlled entities as disclosed in Note 37.
These financial statements are for the period from 1 October 2008 to 30 September 2009.
The Reserve Bank of New Zealand granted the NZ Branch registration as a registered bank in New Zealand from5 January 2009.
These financial statements have also been prepared in accordance with New Zealand Generally Accepted
Accounting Principles. They comply with New Zealand equivalents to International Financial Reporting Standards("NZ IFRS") and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. The
financial statements comply with International Financial Reporting Standards ("IFRS").
The principal accounting policies adopted in the preparation of these financial statements are set out below.
These policies have been consistently applied by the NZ Banking Group for all periods presented.
These financial statements were authorised for issue by the Overseas Banking Group’s Board of Directors on 24
November 2009.
ii)
Use of estimates and assumptions
The preparation of the financial statements requires the use of management judgement, estimates andassumptions that affect reported amounts and the application of policies. The estimates and associatedassumptions are based on historical experience and various other factors that are believed to be reasonable.
Actual results may differ from these estimates.
Discussion of the critical accounting treatments, which include complex or subjective decisions or assessments,
are covered in Note 2. Such estimates may require review in future periods.
iii)
Basis of measurement
The financial statements have been prepared on a going concern basis in accordance with the historical costbasis except that the following assets and liabilities are stated at their fair value:•
derivative financial instruments, including in the case of fair value hedging, the fair value of any
applicable underlying exposure;•
assets treated as available-for-sale;•financial instruments held for trading;•assets and liabilities designated at fair value through profit or loss; and•defined benefit plan asset or liability.
iv)
Changes in accounting policies and early adoption of new accounting statements
The NZ Banking Group has chosen to early adopt the amendments to NZ IFRS 7 Financial Instruments:
Disclosures. The amendments require expanded fair value measurement disclosures and enhanced disclosuresabout the nature and extent of liquidity risk arising from financial instruments. Adoption of these amendments
did not result in any measurement or recognition differences.
There have been no material changes in accounting policies in the preparation or presentation of this financial
report.
v)
Rounding
The amounts contained in the financial statements have been rounded to the nearest million dollars, except
where otherwise stated.

12

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

SIGNIFICANT ACCOUNTING POLICIES (Continued)vi)Comparatives
Certain amounts in the comparative information have been reclassified to conform with current period financial
statement presentations.
vii)
Basis of aggregation
These financial statements aggregate the financial statements of the New Zealand geographic activities ofAustralia and New Zealand Banking Group Limited as conducted through the NZ Banking Group.
Inter-company transactions, balances and unrealised gains on transactions between group companies are
eliminated on aggregation. Unrealised losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred.
Subsidiaries
Where subsidiaries have been sold or acquired during the year, their operating results have been included to thedate of disposal or from the date of acquisition.
Control means the power to govern, directly or indirectly, decision making in relation to the financial andoperating policies of an entity so as to obtain benefits from its activities. Control is usually present when an
entity has:•power over more than one-half of the voting rights of the other entity;•
power to govern the financial and operating policies of the other entity;•
power to appoint or remove the majority of the members of the board of directors or equivalent
governing body;•
power to cast the majority of votes at meetings of the board of directors or equivalent governing bodyof the entity.
In addition, potential voting rights that are presently exercisable or convertible are taken into account indetermining whether control exists. However, all the facts of a particular situation are considered when
determining whether control exists.
The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of acquisition
is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed
at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired andliabilities and contingent liabilities assumed in a business combination are measured initially at their fair values
at acquisition date. The excess of the cost of acquisition over the fair value of the NZ Banking Group’s share of
the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair valueof the NZ Banking Group’s share of the net assets of the subsidiary acquired, the difference is recognised
directly in the income statement.
Associates and joint ventures
The NZ Banking Group adopts the equity method of accounting for associates and the Group's interest in joint
venture entities.
Associates are all entities over which the NZ Banking Group has significant influence but not control, which
generally accompany a shareholding of between 20% and 50% of the voting rights.
Joint ventures are entities over which the NZ Banking Group has joint control. Joint control is the contractuallyagreed sharing of control and exists only when the strategic financial and operating decisions relating to theactivities of the joint venture require the unanimous consent of the parties sharing control.
The NZ Banking Group’s share of the results of associates and joint venture entities is included in theaggregated income statement and its share of post-acquisition movements in reserves recognised in reserves.
Shares in associates and joint venture entities are carried in the aggregated balance sheet at cost plus the NZ
Banking Group’s share of post acquisition net assets.

13

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interests in associates and joint ventures are reviewed for any indication of impairment at least at eachreporting date. This impairment review may use a discounted cash flow methodology and other methodologies
to determine the reasonableness of the valuation, including the multiples of earnings methodology.
Special purpose and off-balance sheet entities
The NZ Banking Group may invest in or establish special purpose entities ("SPEs") to enable it to undertake
specific types of transactions. The main types of these SPEs are securitisation vehicles and structured financeentities.
Where the NZ Banking Group has established SPEs which are controlled by the NZ Banking Group to facilitatetransactions undertaken for NZ Banking Group purposes, these are aggregated in the NZ Banking Group's
financial statements.
The NZ Banking Group does not aggregate SPEs that it does not control. As it can sometimes be difficult todetermine whether the NZ Banking Group has control of an SPE, it makes judgements about its exposure to therisks and rewards, as well as about its ability to make operational decisions for the SPE in question.
The table below summarises the main types of SPEs with which the NZ Banking Group is involved, the reason
for their establishment, and the control factors associated with the NZ Banking Group's interest in them.
Although there may be some indications of control, the NZ Banking Group does not bear the majority of residual
risks and rewards of the SPEs which are not aggregated.
Type of SPE

Reason for establishment

Control factors

Securitisation
vehiclesSecuritisation is a financing technique whereby assets
are transferred to an SPE which funds the purchase byissuing securities. This enables the NZ Banking Group
(in the case where transferred assets originate within
the NZ Banking Group) or customers to increase
diversity of funding sources.

The NZ Banking Group may manage these securitisation
vehicles, service assets in the vehicle or provide liquidity
or other support. The NZ Banking Group retains the risks
associated with the provision of these services. For any
SPE which is not consolidated, credit and market risks
associated with the underlying assets are not retained orassumed by the NZ Banking Group except to the limited
extent that the NZ Banking Group provides arm's length
services and facilities.

Structured
finance entities

These entities are set up to assist the NZ Banking
Group's Corporate Finance function with thestructuring of client financing. The resulting lending
arrangements are at arm's length and the NZ Banking
Group typically has limited ongoing involvement withthe entity.

The NZ Banking Group may manage these vehicles, holdminor amounts of capital, provide financing orderivatives.

viii)
Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the NZ Banking Group’s entities are measured using thecurrency of the primary economic environment in which the entity operates (the functional currency). The NZ
Banking Group’s financial statements are presented in New Zealand dollars, which is the Registered Bank’s
functional and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Monetary assets and liabilities resulting from foreign currency transactions aresubsequently translated at the spot rate at reporting date.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates
different to those at which they were initially recognised or included in a previous financial report, arerecognised in the income statement in the period in which they arise.

14

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Translation differences on non-monetary items, such as derivatives, measured at fair value through profit orloss, are reported as part of the fair value gain or loss on these items. Translation differences on non-monetary
items measured at fair value through equity, such as equities classified as available-for-sale financial assets, areincluded in the available-for-sale revaluation reserve in equity.
B)

INCOME RECOGNITION

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

EXPENSE RECOGNITION

Expenses are recognised in the income statement on an accruals basis.
i)Interest expense
Interest expense on financial liabilities measured at amortised cost is recognised in the income statement as it
accrues using the effective interest method as described in Note 1(B)(i).

15

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

INCOME TAXi)
Income tax expense
Income tax on earnings for the year comprises current and deferred tax and is based on the applicable tax law
in each jurisdiction. It is recognised in the income statement as tax expense, except when it relates to items
credited directly to equity, in which case it is recorded in equity, or where it arises from the initial accounting fora business combination, in which case it is included in the determination of goodwill.
ii)
Current tax
Current tax is the expected tax payable on taxable income for the period, based on tax rates (and tax laws)
which are enacted or substantively enacted by the reporting date and including any adjustment for tax payablein previous periods. Current tax for current and prior periods is recognised as a liability (or asset) to the extent
that it is unpaid (or refundable).

16

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)iii)
Deferred tax
Deferred tax is accounted for using the comprehensive tax balance sheet method. It is generated by providing
for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and their tax base.
Deferred tax liabilities are recognised for all taxable temporary differences, other than those relating to taxable
temporary differences arising from goodwill. They are also recognised for taxable temporary differences arisingon investments in controlled entities, branches, associates and joint ventures, except where the NZ Banking
Group is able to control the reversal of the temporary differences and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets associated with these interests are recognised only to the extent that it is probable that thetemporary difference will reverse in the foreseeable future and there will be sufficient taxable profits against
which to utilise the benefits of the temporary difference.
Deferred tax related to fair value re-measurement of available-for-sale financial assets and cash flow hedges,
which are charged or credited directly to equity, is also charged or credited directly to equity and subsequently
recognised in the income statement together with the deferred gain or loss on the related asset or liability.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s)when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) thathave been enacted or substantively enacted by the reporting date. The measurement reflects the tax
consequences that would follow from the manner in which the NZ Banking Group, at the reporting date,recovers or settles the carrying amount of its assets and liabilities.
iv)
Offsetting
Current and deferred tax assets and liabilities are offset only to the extent that they relate to income taxes
imposed by the same taxation authority, there is a legal right and intention to settle on a net basis and it isallowed under the tax law of the relevant jurisdiction.
E)

ASSETS

Financial assetsi)Financial assets and liabilities at fair value through profit or loss
Trading securities are financial instruments acquired principally for the purpose of selling in the short-term or
which are a part of a portfolio which is managed for short-term profit-taking. They comprise debt and equity
securities and treasury notes purchased with the intent of being actively traded. Trading securities are initiallyrecognised and subsequently measured in the balance sheet at their fair value. Changes in the fair value (gains
or losses) of these securities are recognised in the income statement in the period in which they occur.
Derivatives that are neither financial guarantee contracts nor effective hedging instruments are carried at fairvalue through profit or loss. In addition, certain financial assets and liabilities are designated and measured atfair value through profit or loss where the following applies:•
doing so eliminates or significantly reduces a measurement or recognition inconsistency that would
otherwise arise from measuring assets and liabilities, or recognising the gains or losses thereon, on
different bases;•a group of financial assets or financial liabilities or both is managed and its performance evaluated on afair value basis; or•the financial instrument contains an embedded derivative, unless the embedded derivative does not
significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately
recorded.

17

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
The designation of a financial asset or liability at fair value through profit or loss is irrevocable. Changes in thefair value (gains or losses) of these financial instruments are recognised in the income statement in the period
in which they occur.
Purchases and sales of trading securities are recognised on trade date.
ii)
Derivative financial instruments
Derivative financial instruments are contracts whose value is derived from changes in one or more underlying
price index or other variables. They include swaps, forward rate agreements, futures, options and combinationsof these instruments.
Derivative financial instruments are entered into for trading purposes (including customer-related reasons) orfor hedging purposes (where the derivative instruments are used to hedge the NZ Banking Group’s exposures tointerest rate risk, currency risk, price risk, credit risk and other exposures relating to non-trading positions).
Derivative financial instruments are recognised initially at fair value with gains or losses from subsequent
measurement at fair value being recognised in the income statement. Included in the determination of fairvalue of derivatives is a credit valuation adjustment to reflect the credit worthiness of the counterparty,
modelled using the counterparty's credit spreads. The valuation adjustment is influenced by the mark-tomarket of the derivative trades and by the movement in credit spreads.
Where the derivative is designated, and is effective as a hedging instrument, the timing of the recognition of
any resultant gain or loss in the income statement is dependent on the hedging designation. These hedging
designations and associated accounting are as follows:
Fair value hedge
Where the NZ Banking Group hedges the fair value of a recognised asset or liability or firm commitment,changes in the fair value of the derivative designated as a fair value hedge are recognised in the income
statement. Changes in the fair value of the hedged item attributable to the hedged risk are reflected inadjustments to the carrying value of the hedged item, which are also recognised in the income statement.
Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised or nolonger qualifies for hedge accounting. The resulting adjustment to the carrying amount of the hedged item
arising from the hedged risk is amortised to the income statement over a period to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised adjustment is recognised immediately in the income
statement.
Cash flow hedge
The NZ Banking Group designates derivatives as cash flow hedges where the instrument hedges the variability
in cash flows of a recognised asset or liability, a foreign exchange component of a firm commitment, or a highly
probable forecast transaction. The effective portion of changes in the fair value of derivatives qualifying anddesignated as cash flow hedges is deferred to the hedging reserve, which forms part of shareholders’ equity.
Any ineffective portion is recognised immediately in the income statement. Amounts deferred in equity arerecognised in the income statement in the period during which the hedged forecast transactions take place.
When the hedge expires, is sold, terminated, exercised, or no longer qualifies for hedge accounting, thecumulative amount deferred in equity remains in the hedging reserve, and is subsequently transferred to theincome statement when the hedged item is recognised in the income statement.
When a forecast hedged transaction is no longer expected to occur, the amount deferred in equity is recognised
immediately in the income statement.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value of derivatives that are not designated in a hedging
relationship but are entered into to manage the interest rate and foreign exchange risk of funding instruments
are recognised in the income statement. Under certain circumstances, the component of the fair value change
in the derivative which relates to current period realised and accrued interest is included in net interest income.
The remainder of the fair value movement is included in other income.

18

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Set-off arrangements
Fair value gains/losses arising from trading derivatives are not offset against fair value gains/losses on thebalance sheet unless a legal right of set-off exists and there is an intention to settle net.
For contracts subject to master netting agreements that create a legal right of set-off for which only the net
revaluation amount is recognised in the income statement, net unrealised gains on derivatives are recognised aspart of other assets and net unrealised losses are recognised as part of other liabilities.
iii)
Available-for-sale assets
Available-for-sale assets comprise non-derivative financial assets which the NZ Banking Group designates asavailable-for-sale but which are not deemed to be held principally for trading purposes, and include equity
investments, certain loans and advances, and quoted debt securities. They are initially recognised at fair value
plus transaction costs. Subsequent gains or losses arising from changes in fair value are included as a separate
component of equity in the available-for-sale revaluation reserve. When the asset is sold, the cumulative gainor loss relating to the asset is transferred to the income statement.
Where there is objective evidence of impairment on an available-for-sale asset, the cumulative loss related tothat asset is removed from equity and recognised in the income statement, as an impairment expense for debt
instruments or as non-interest income for equity instruments. If, in a subsequent period, the amount of an
impairment loss relating to an available-for-sale debt instrument decreases and the decrease can be linked
objectively to an event occurring after the impairment event, the loss is reversed through the income statement
through the impairment expense line.
Purchases and sales of available-for-sale financial assets are recognised on trade date as with all regular way
assets, being the date on which the NZ Banking Group commits to purchase or sell the asset.
iv)
Net loans and advances
Net loans and advances are non-derivative financial assets with fixed or determinable payments that are notquoted in an active market. They arise when the NZ Banking Group provides money to a debtor with nointention of trading the loans and advances. The loans and advances are initially recognised at fair value plustransaction 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 specifically designated on initialrecognition at fair value through profit or loss.
Net loans and advances include direct finance provided to customers such as bank overdrafts, credit cards, termloans, finance lease receivables and commercial bills.
Credit assessment
All loans are graded according to the level of credit risk. Loans are classified as either productive or impaired.
Impaired assets include loans where there is doubt as to full recovery, and loans that have been restructured.
An individual provision is raised to cover the expected loss where full recovery of principal is doubtful.
A restructured asset is an impaired asset for which the terms have been changed to grant the counterparty aconcession that would not otherwise have been available, due to the counterparty’s difficulty in complying withthe original terms, and where the yield on the asset following restructuring is still above the NZ Banking Group’s
cost of funds. An asset is classified as an other individually impaired asset if following the restructure the yieldon the asset is below the NZ Banking Group’s cost of funds.
Assets acquired through enforcement of security are those assets which are legally owned by the NZ Banking
Group as a result of enforcing security, other than any buildings occupied by the NZ Banking Group.
A past due asset is any loan where the counterparty has failed to make a payment when contractually due, andwhich is not an impaired asset. A 90 days past due asset is any past due asset which has not been operated by
the counterparty within its key terms for at least 90 days.
Other assets under administration are any loans, not being impaired or 90 days past due, where the customer isin any form of voluntary or involuntary administration, including receivership, liquidation, bankruptcy or
statutory management.

19

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of loans and advances
Loans and advances are reviewed at least at each reporting date for impairment. Credit impairment provisions
are raised for exposures that are known to be impaired. Exposures are impaired and impairment losses arerecorded if, and only if, there is objective evidence of impairment as a result of one or more loss events that
occurred after the initial recognition of the loan and prior to the reporting date, and that loss event, or events,
has had an impact on the estimated future cash flows of the individual loan or the collective portfolio of loansthat can be reliably estimated.
Impairment is assessed for assets that are individually significant (or on a portfolio basis for small value loans),
and then on a collective basis for those exposures not individually known to be impaired.
Exposures that are assessed collectively are placed in pools of similar assets with similar risk characteristics.
The required provision is estimated on the basis of historical loss experience for assets with credit risk
characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current
observable data such as changed economic conditions. The provision also takes account of the impact ofinherent risk of large concentrated losses within the portfolio.
The estimated impairment losses are measured as the difference between the asset’s carrying amount and theestimated future cash flows discounted to their present value. As this discount unwinds during the period
between recognition of impairment and recovery of the cash flow, it is recognised in interest income. The
process of estimating the amount and timing of cash flows involves considerable management judgement.
These judgements are reviewed regularly to reduce any differences between loss estimates and actual loss
experience.
Impairment of capitalised acquisition expenses is assessed through comparing the actual behaviour of theportfolio against initial expected life assumptions.
The provision for impairment loss (individual and collective) is deducted from loans and advances in the balance
sheet and the movement for the reporting period is reflected in the income statement.
When a loan is uncollectible, either partially or in full, it is written off against the related provision for loan
impairment. Subsequent recoveries of amounts previously written off are taken to the income statement.
Unsecured facilities are normally written-off when they become 180 days past due or earlier in the event of thecustomer's bankruptcy or similar legal release from the obligation. However, a certain level of recoveries is
expected after the write-off, which is reflected in the amount of the provision for credit losses. In the case of
secured facilities, remaining balances are written-off after proceeds from the realisation of collateral have been
received, if there is a shortfall.
Where impairment losses recognised in previous periods have subsequently decreased or no longer exist, such
impairment losses are reversed in the income statement.
A provision is also raised for off-balance sheet items such as commitments that are considered likely to result inan expected loss.
v)
Lease receivables
Finance leases
Contracts to lease assets and hire purchase agreements are classified as finance leases if they transfer
substantially all the risks and rewards of ownership of the asset to the customer or an unrelated third party. Allother lease contracts are classified as operating leases.
Finance lease receivables include amounts due from lessees in relation to finance leases and hire purchase
contracts.

20

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
The gross amount of contractual payments regarding lease finance to business customers that have a fixed rate
and a fixed term are recorded as gross lease receivables and the unearned interest component is recognised asincome yet to mature.
The finance lease receivables are initially recognised at amounts equal to the present value of the minimum
lease payments, plus the present value of any unguaranteed residual value expected to accrue at the end of thelease term. Finance lease payments are allocated between interest revenue and reduction in the leasereceivable over the term of the finance lease, reflecting a constant periodic rate of return on the net investment
outstanding in respect of the lease.
Operating leases
Operating lease payments are recognised as an expense on a straight-line basis over the lease term as lessee.
vi)
Repurchase agreements
Securities sold under repurchase agreements are retained in the financial statements where substantially all therisks and rewards of ownership remain with the NZ Banking Group, and a counterparty liability is disclosed
under the classifications of due to other financial institutions or payables and other liabilities.
The difference between the sale price and the repurchase price is accrued over the life of the repurchaseagreement and charged to interest expense in the income statement.
Securities purchased under agreements to resell, where the NZ Banking Group does not acquire the risks andrewards of ownership, are recorded as receivables in liquid assets, net loans and advances, or due from otherfinancial institutions, depending on the term of the agreement and the counterparty. The security is not includedin the balance sheet. Interest income is accrued on the underlying loan amount.
Securities borrowed are not recognised in the balance sheet, unless these are sold to third parties, at which
point the obligation to repurchase is recorded as a financial liability at fair value with fair value movements
included in the income statement.
vii)
Derecognition
The NZ Banking Group enters into transactions where it transfers financial assets recognised on its balance
sheet yet retains either all the risks and rewards of the transferred assets or a portion of them. If all, or
substantially all, the risks and rewards are retained, the transferred assets are not derecognised from thebalance sheet.
In transactions where substantially all the risks and rewards of ownership of a financial asset are neither
retained nor transferred, the NZ Banking Group derecognises the asset if control over the asset is lost. In
transfers where control over the asset is retained, the NZ Banking Group continues to recognise the asset to theextent of its continuing involvement, determined by the extent to which it is exposed to changes in the value ofthe transferred asset. The rights and obligations retained or created in the transfer are recognised separately
as assets and liabilities as appropriate.
Non-financial assets
viii)
Goodwill
Goodwill represents the excess of the purchase consideration over the fair value of the identifiable net assets ofa controlled entity at the date of gaining control. Goodwill is recognised as an asset and not amortised, but
assessed for impairment at least annually or more frequently if there is an indication that the goodwill may be
impaired. This involves using the discounted cash flow ("DCF") or the capitalisation of earnings methodology("CEM") to determine the expected future benefits of the cash generating units. Where the assessment resultsin the goodwill balance exceeding the value of expected future benefits, the difference is charged to the income
statement. Any impairment of goodwill may not be subsequently reversed.

21

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)ix)
Other intangible assets
Other intangible assets include costs incurred in acquiring and building software and computer systems("software").
Software is amortised using the straight-line method over its expected useful life to the NZ Banking Group. The
period of amortisation is between 3 and 5 years, except for certain core infrastructure projects where the usefullife has been determined to be 7 years.
At each reporting date, the software assets and other intangible assets are reviewed for impairment. If any
such indication exists, the recoverable amount of the assets are estimated and compared against the existing
carrying value. Where the existing carrying value exceeds the recoverable amount, the difference is charged tothe income statement.
Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation, arenot capitalised.
x)
Premises and equipment
Premises and equipment are carried at cost less accumulated depreciation and impairment.
Borrowing costs incurred for the construction of qualifying assets are capitalised during the period of time that isrequired to complete and prepare the asset for its intended use. The calculation of borrowing costs is based
upon the NZ Banking Group's internal cost of capital.
Assets other than freehold land are depreciated at rates based upon their expected useful lives to the NZ
Banking Group, using the straight-line method. The depreciation rates used for each class of asset are:
Buildings
Building integrals
Furniture & equipment
Computer & office equipment

1 – 1.5%
10%
10%
12.5 % - 33%

Leasehold improvements are amortised on a straight-line basis over the shorter of their useful lives orremaining terms of the lease.
At each reporting date, the carrying amounts of premises and equipment are reviewed for impairment. If any
such indication exists, the recoverable amount of the assets is estimated and compared against the existing
carrying value. Where the existing carrying value exceeds the recoverable amount, the difference is charged tothe income statement. If it is not possible to estimate the recoverable amount of an individual asset, the NZ
Banking Group estimates the recoverable amount of the cash generating unit to which the asset belongs.
A previously recognised impairment loss is reversed if there has been a change in the estimates used todetermine the recoverable amount.
F)

LIABILITIESFinancial liabilitiesi)
Deposits and other borrowings
Deposits and other borrowings include certificates of deposit, interest bearing deposits, debentures, commercial
paper and other related interest bearing financial instruments. Deposits and other borrowings, excludingcommercial paper, are initially recognised at fair value plus transaction costs and subsequently measured atamortised cost. The interest expense is recognised using the effective interest method as explained in Note
1B(i). Commercial paper is designated at fair value through profit or loss, with fair value movements recorded
directly in the income statement, which reflects the basis on which it is managed.

22

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)ii)
Bonds, notes and loan capital
Bonds, notes and loan capital are accounted for in the same way as deposits and other borrowings, except for
those bonds and notes which are designated at fair value through profit or loss on initial recognition, with fairvalue movements recorded in the income statement.
iii)
Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse theholder for a loss it incurs because a specified debtor fails to make payments when due. Financial guarantees
are issued in the ordinary course of business, consisting of letters of credit, guarantees and acceptances.
Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee
was given; typically this is the premium received.
Subsequent to initial recognition, the NZ Banking Group's liabilities under such guarantees are measured at thehigher of their amortised amount and the best estimate of the expenditure required to settle any financial
obligation arising at the balance sheet date. These estimates are determined based on experience of similartransactions and history of past losses.
iv)
Derecognition
Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or
expires.
Non-financial liabilitiesv)
Employee benefits
Leave benefits
The amounts expected to be paid in respect of employees’ entitlements to annual leave are accrued at expectedsalary rates including on-costs. Expected future payments for long service leave are discounted using market
yields at the reporting date on national government bonds with terms to maturity that match, as closely as
possible, the estimated future cash outflows. Liability for long service leave is calculated and accrued for in
respect of all applicable employees (including on-costs) using an actuarial valuation.
Superannuation schemes
The NZ Banking Group operates a number of defined contribution schemes and also contributes, according tolocal law, in the various countries in which it operates, to government and other plans that have thecharacteristics of defined contribution schemes. The NZ Banking Group’s contributions to these schemes arerecognised as an expense in the income statement when incurred.
The NZ Banking Group operates two defined benefit superannuation schemes. The liability and expense related
to providing benefits to employees under each of the defined benefit schemes are calculated by independentactuaries. A defined benefit liability is recognised to the extent that the present value of the defined benefit
obligation of each scheme, calculated using the Projected Unit Credit Method, is greater than the fair value ofeach scheme’s assets. Where this calculation results in a benefit to the NZ Banking Group, a defined benefit
asset is recognised which is capped at the recoverable amount. The present value of the defined benefit
obligation is determined by discounting the estimated future outflows by reference to New Zealand 10-year
government bond rates.
In each subsequent reporting period, ongoing movements in the carrying value of the defined benefit liability orasset are treated as follows:•
the net movement relating to the current period’s service cost, interest cost, expected return on scheme
assets, past service costs and other costs (such as the effects of any curtailments and settlements), is
recognised as an employee expense in the income statement;•
movements relating to actuarial gains and losses are recognised directly in retained earnings; and•contributions incurred are recognised directly against the net defined benefit position.
The assets of the defined benefit and cash accumulation superannuation schemes are held in trust and are notincluded in these financial statements as the NZ Banking Group does not have direct or indirect control of theseschemes. The benefits under the schemes are provided from contributions by employee members and by the
NZ Banking Group, and from income earned by the assets of the schemes. Members’ contributions are atvarying rates. Actuarial valuations are carried out at minimum of every three years in accordance with theschemes’ Trust Deeds and superannuation legislation.

23

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
vi)
Provisions
The NZ Banking Group recognises provisions when there is a present obligation, the future sacrifice of economic
benefits is probable, and the amount of the provision can be measured reliably. The amount recognised is thebest estimate of the consideration required to settle the present obligation at the reporting date, taking into
account the risks and uncertainties surrounding the obligation at the reporting date. Where a provision ismeasured using the cash flows estimated to settle the present obligation, its carrying amount is the present
value of those cash flows. Any expected third party recoveries are recognised as an asset if it is virtually certainthat recovery will be received and the amount of the receivable can be measured reliably.
G)

EQUITY AND HEAD OFFICE ACCOUNTi)
Ordinary shares
Ordinary shares in the Bank are recognised at the amount paid per ordinary share net of directly attributableissue costs.
ii)
Head office accountHead office account comprises funds provided by the Ultimate Parent Bank. It is non-interest bearing and there
is no fixed date of repayment.
iii)
Reserves
Available-for-sale revaluation reserve
This reserve includes changes in the fair value of available-for-sale financial assets, net of tax. These changes
are transferred to the income statement (in non-interest income) when the asset is derecognised. Where theasset is impaired, the changes are transferred to the impairment expense line in the income statement for debt
instruments and in the case of equity instruments to non-interest income.
Cash flow hedging reserve
This reserve includes the fair value gains and losses associated with the effective portion of designated cash flow
hedging instruments.
H)

PRESENTATIONi)
Offsetting of income and expenses
Income and expenses are not offset unless required or permitted by an accounting standard. This generally
arises in the following circumstances:•where transaction costs form an integral part of the effective interest rate of a financial instrument
which is measured at amortised cost, these are offset against the interest income generated by thefinancial instrument;•
where gains and losses relating to fair value hedges are assessed as being effective; or•where gains and losses arise from a group of similar transactions, such as foreign exchange gains andlosses.
ii)
Offsetting of assets and liabilities
Assets and liabilities are offset and the net amount reported in the balance sheet only where there is:•a current enforceable legal right to offset the asset and liability; and•an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
iii)
Statement of cash flows
For cash flow statement presentation purposes the statement of cash flows has been prepared using the direct
approach modified by the netting of the certain items as disclosed below.
Cash and cash equivalents include liquid assets, amounts due from other financial institutions, trading securities
and available-for-sale assets held for the purpose of meeting short-term cash commitments that are readily
convertible to cash and subject to insignificant risk of changes in value.
Certain cash flows have been netted in order to provide more meaningful disclosure, as many of the cash flows
are received and disbursed on behalf of customers and reflect the activities of the customers rather than thoseof the NZ Banking Group. These include customer loans and advances, customer deposits, certificates ofdeposit, related party balances and trading securities.

24

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
iv)
Segment reporting
Business segments are distinguishable components of the NZ Banking Group that provide products or services
that are subject to risks and rewards that are different to those of other business segments. Geographicalsegments provide products or services within a particular economic environment that is subject to risks andrewards that are different to those components operating in other economic environments.
Business segments are the NZ Banking Group’s primary reporting segments. For reporting purposes the threemajor business segments are Retail Banking, Commercial Banking and Institutional. The NZ Banking Group
operates primarily in one geographic segment, New Zealand.
v)
Goods and services tax
Income, expenses and assets are recognised net of the amount of goods and services tax ("GST") except where
the amount of GST incurred is not recoverable from the Inland Revenue Department ("IRD"). In thesecircumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from,or payable to, the IRD is included as other assets or other liabilities in the balance sheet.
Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arisingfrom investing and financing activities, which are recoverable from, or payable to, the IRD are classified as
operating cash flows.
I)

OTHER

i)
Contingent liabilities
A contingent liability is a possible or present obligation where it is less than probable there will be an outflow ofresources or it is not possible to measure the amount of the obligation with sufficient reliability.
Liabilities are no longer contingent, and are recognised on the balance sheet, when the following requirements
are met:•the transaction is probable in that the contingency is likely to occur; and•the contingency can be reasonably estimated.
Further disclosure is made within Note 41 Contingent Liabilities and Credit Related Commitments, where theabove requirements are not met, but there is a possible obligation that is higher than remote. Specific details of
the nature of the contingent liability are provided and, where practicable, an estimate of its financial effect.
Alternatively, where no disclosure is made of its financial effect because it is not practicable to do so, astatement to that effect is provided.
ii)
Securitisation, funds under management and other fiduciary activities
Certain entities within the NZ Banking Group act as trustees and/or managers for a number of unit trusts andsuperannuation investment funds. The NZ Banking Group provides private banking services to customers
including portfolio management. The assets of the managed funds and private banking clients are not includedin these financial statements, as direct or indirect control of the assets is not held by the NZ Banking Group.
Commissions and fees earned in respect of the NZ Banking Group’s funds under management are included in
net operating income.
Financial services provided by any member of the NZ Banking Group to discretionary private banking activities
or entities conducting funds management, and assets purchased from discretionary private banking activities orentities conducting funds management are on arm’s length terms and conditions, and at fair value.
Securitised assets are derecognised when the right to receive cash flows have expired or the NZ Banking Group
has transferred substantially all the risks and rewards of ownership.
iii)
Discontinued operations
A discontinued operation is a component of the NZ Banking Group’s business that represents a separate majorline of business or geographical area of operations that has been disposed of or is classified as held for sale, oris a subsidiary that has been disposed of or is classified as held for sale.
When an operation is classified as a discontinued operation the comparative income statement is restated as if
the operation had been discontinued from the start of the comparative period.

25

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

Accounting Standards not early adopted

The following standards and amendments were available for early adoption but have not been applied by the NZ
Banking Group in these financial statements. The NZ Banking Group does not intend to apply any of thesepronouncements until their effective date which is 1 October 2009 in all instances.
The following standards/amendments are concerned with disclosure only and will have no impact on thefinancial results of the NZ Branch or the NZ Banking Group:
NZ IFRS 8 Operating Segments – requires the 'management approach' to identifying and disclosing information
about reportable segments.
NZ IAS 1 Presentation of Financial Statements (revised) - requires the presentation of a Statement ofComprehensive Income and a Statement of Changes in Equity.
The following amendments to accounting standards are not expected to have a material impact on the financial
results of the NZ Branch or the NZ Banking Group:
NZ IAS 23 Borrowing Costs (revised) - requires all borrowing costs to be capitalised if they are directly
attributable to the acquisition, construction or production of a qualifying asset.
NZ IAS 27 Consolidated and Separate Financial Statements (amended) - changes aspects of accounting for noncontrolling interests and clarifies the accounting for changes in a parent’s ownership interest in a subsidiary.
NZ IAS 32 Financial Instruments: Presentation - defines puttable instruments and requires puttable instrumentswith certain characteristics to be classified as equity.
NZ IAS 39 Financial Instruments: Recognition and Measurement - clarifies the effect of using options as hedging
instruments and the circumstances in which inflation risks can be hedged.
NZ IFRS 2 Share-based Payment - clarifies that vesting conditions only include service and performance
conditions.
NZ IFRS 3 Business Combinations (revised) - changes certain aspects of accounting for business combinations
occurring after the application date including the treatment of transaction costs and contingent consideration.
These amendments apply prospectively so the initial application is expected to have no impact on the financial
results of the NZ Branch or the NZ Banking Group.

26

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2. CRITICAL ESTIMATES AND JUDGEMENTS USED IN APPLYING ACCOUNTING POLICIES
These financial statements are prepared in accordance with New Zealand equivalents to International Financial
Reporting Standards and other authoritative accounting pronouncements. Notwithstanding the existence of
relevant accounting standards, there are a number of critical accounting treatments which include complex or
subjective judgements and estimates that may affect the reported amounts of assets and liabilities in thefinancial statements.
Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that are believed to be reasonable under
the circumstances.
An explanation of the judgements and estimates made by the NZ Banking Group in the process of applying its
accounting policies, that have the most significant effect on the amounts recognised in the financial statements
are set out below.
Critical accounting estimates and assumptions
Credit provisioning
The accounting policy, as explained in Note 1(E)(iv), relating to measuring the impairment of loans andadvances, requires the NZ Banking Group to assess impairment at least at each reporting date. The credit
provisions raised (individual and collective) represent management's best estimate of the losses incurred in theloan portfolio at balance date based on their experienced judgement.
The collective provision is estimated on the basis of historical loss experience for assets with credit
characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current
observable data and events and an assessment of the impact of model risk. The provision also takes into
account the impact of large concentrated losses within the portfolio.
The use of such judgements and reasonable estimates is considered by management to be an essential part ofthe process and does not impact on reliability.
Individual provisioning is applied when the full collectibility of one of the NZ Banking Group's loans is identified
as being doubtful. Individual and collective provisioning is calculated using discounted expected future cash
flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows
are revised regularly to reduce any differences between loss estimates and actual loss experience.
As at 30 September 2009 for the NZ Banking Group, total provision for credit impairment was $1,281 million
representing 1.32% of total net loans and advances (30/09/2008 $666 million or 0.68%). Of the total provision
for 30 September 2009, $804 million represented collective provisions and $477 million represented individual
provisions (30/09/2008 $534 million and $132 million respectively).
As at 30 September 2009 for the NZ Branch, total provision for credit impairment was $9 million representing
0.10% of total net loans and advances (30/09/2008 $nil or 0.00%). Of the total provision for 30 September
2009, $6 million represented collective provisions and $3 million represented individual provisions (30/09/2008$nil and $nil respectively).
Management regularly reviews and adjusts the estimates and methodologies as improved analysis becomes
available. Changes in these assumptions and methodologies could have a direct impact on the level of provisionand impairment charge recorded in the financial statements.
Critical judgements in applying the NZ Banking Group’s accounting policies
Derivatives and hedging
The NZ Banking Group buys and sells derivatives as part of its trading operations and to hedge its interest raterisk, currency risk, price risk, credit risk and other exposures relating to non-trading positions. The derivative
instruments used to hedge the NZ Banking Group’s exposures include:•
Swaps;•
Foreign exchange contracts;•
Forward rate agreements;•
Futures;•
Options; and•Combinations of the above instruments.

27

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

AND

JUDGEMENTS

USED

IN

APPLYING

ACCOUNTINGPOLICIES

Hedging
A hedging instrument is a designated derivative whose fair value or cash flows are expected to offset changes in
the fair value or cash flows of a designated hedged item. A hedged item is an asset, liability, firm commitment
or highly probable forecast transaction that (a) exposes the NZ Banking Group to the risk of changes in fairvalue or future cash flows and (b) is designated as being hedged.
For a relationship to qualify for hedge accounting, the following criteria must be met:•
Designation and Documentation: The hedging relationship must be formally designated and documented
at the inception of the hedge.
•
Prospective Effectiveness: This is a forward-looking test of whether a hedging relationship is expected tobe highly effective in future periods. The hedge must be expected to be highly effective in achieving
offsetting changes in fair value or cash flows attributable to the hedged risk, consistently with theoriginally documented risk management strategy for that particular hedging relationship for hedge
accounting to be achievable.
The effectiveness of the hedge must be capable of being reliably measured, that is, the fair value orcash flows of the hedged item that are attributable to the hedged risk and the fair value of the hedging
instrument can be reliably measured. Prospective hedge effectiveness testing is required at least
quarterly.
•
Retrospective Effectiveness: This is a backward-looking test of whether a hedging relationship has
actually been highly effective throughout the reporting periods for which the hedge was designated (i.e.
retrospectively). The actual results of the hedge must be within a range of 80 - 125 per cent.
Hedge accounting is only achieved where both prospective and retrospective effectiveness is achieved.
•
External Counterparty: For hedge accounting purposes, only instruments that involve a party external to
the NZ Banking Group can be designated as hedging instruments.
Judgement is required by management in selecting and designating hedging relationships and assessing hedge
effectiveness. NZ IAS 39 does not specify a single method for assessing hedge effectiveness prospectively or
retrospectively. The NZ Banking Group adopts the hypothetical derivative approach to determine hedge
effectiveness in line with current risk management strategies. Hedge ineffectiveness can arise for a number ofreasons, and whilst a hedge may pass the effectiveness tests above it may not be perfectly effective, thus
creating volatility within the income statement through recognition of this ineffectiveness.
Fair values of financial instruments including derivatives
A significant portion of financial instruments, including derivatives which are entered into for trading andhedging purposes, are measured at fair value. Where liquid markets exist, fair value is based on quoted market
prices. Where there is no active market, fair value is determined by the use of various valuation techniques
including discounted cash flow models and option pricing models. To the extent possible models use only
observable data, however such areas as counterparty risk, volatilities and correlations require management tomake judgements and estimates. Changes in assumptions used in these models and projections of future cash
flows could affect the reported fair value of financial instruments and have an impact on the income statement.
The extent of usage of valuation techniques for financial instruments carried at fair value is disclosed in Note 34.
Goodwill
The carrying value of goodwill is subject to an impairment test to ensure that the current carrying value does
not exceed its recoverable value at the balance sheet date. Any excess of carrying value over recoverable
amount is taken to the income statement as an impairment writedown.
As at 30 September 2009, the balance of goodwill recorded as an asset on the NZ Banking Group’s balance
sheet as a result of acquisitions was $3,262 million (30/09/2008 $3,262 million) of which $3,230 million relates
to the acquisition of NBNZ Group in December 2003 (30/09/2008 $3,230 million).
As at 30 September 2009, there was no goodwill recorded as an asset on the Registered Bank’s balance sheet(30/09/2008 $nil).
Goodwill is allocated to cash-generating units for the purpose of impairment testing, which is undertaken at thelowest level at which goodwill is monitored for internal management reporting purposes. The cash-generating
unit to which goodwill related to the NBNZ Group is the ANZ National Bank Limited Group.

28

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

AND

JUDGEMENTS

USED

IN

APPLYING

ACCOUNTINGPOLICIES

Impairment testing of purchased goodwill is performed annually, or more frequently where there is an indicationthat the goodwill may be impaired, by comparing the recoverable value of the ANZ National Bank Limited, being
the smallest cash-generating unit to which the goodwill is allocated, with the current carrying amount of its net
assets, including goodwill. The recoverable amount is based on the higher of fair value less costs to sell and its
value in use. Where the current carrying value is greater than the recoverable amount a charge for impairmentof goodwill will be recorded in the income statement.
The NZ Banking Group obtained an independent valuation of the ANZ National Bank Limited Group as at 31
March 2009. The recoverable amount was based on a value in use calculation using forecasts covering a 4 year
period. Forecast cash flows beyond 4 years are based on the expected nominal growth in cash flows inperpetuity at the valuation date.
The results of the independent valuation indicated a recoverable amount in excess of current carrying value.
Changes in the assumptions upon which the valuation is based, together with changes in future cash flows could
materially impact the valuation obtained. Based on this independent valuation, the current carrying value of the
NZ Banking Group’s goodwill arising from acquisitions is considered recoverable and no impairment write-down
is required.
Valuation of investment in ING (NZ) Holdings Ltd ("ING NZ")
The NZ Banking Group adopts the equity method of accounting for its 49% interest in its jointly controlled
entity, ING NZ. As at 30 September 2009, the carrying value of the NZ Banking Group’s investment in ING NZ
was $248 million (30/09/2008 $212 million).
The carrying value of this investment is subject to an impairment test to ensure that the current carrying value
does not exceed its recoverable value at the balance sheet date. Any excess of carrying value over recoverable
amount is taken to the income statement as an impairment writedown.
The NZ Banking Group obtained an independent valuation of ING NZ as at 31 March 2009. The valuation was
based on a value-in-use methodology using a discounted cash flow approach. The results of the independentvaluation resulted in a value-in-use in excess of current carrying value.
Changes in the assumptions upon which the valuation is based, together with changes in future cash flows could
materially impact the valuation obtained. Based on this independent valuation, the current carrying value of the
NZ Banking Group’s investment in ING NZ is considered recoverable and no impairment write-down is required.

29

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. RISK MANAGEMENT POLICIESThe NZ Banking Group recognises the importance of effective risk management to its business success.
Management is committed to achieving strong control and a distinctive risk management capability that enables
the NZ Banking Group business units to meet their performance objectives.
The NZ Banking Group approaches risk through managing the various elements of the system as a whole rather
than viewing them as independent and unrelated parts. The Risk function is independent of the business withclear delegations ultimately from the Board of the Ultimate Parent Bank and operates within a comprehensive
framework comprising:•
The Boards of the entities making up the NZ Banking Group ("the Boards"), providing leadership, setting
risk appetite/strategy and monitoring progress;•
A strong framework for development and maintenance of risk management policies, procedures andsystems, overseen by an independent team of risk professionals;•
The use of sophisticated risk tools, applications and processes to execute the global risk management
strategies as they are deemed to apply to each entity across the NZ Banking Group;•
Where applicable Business Unit level accountability, as the "first line of defence", and for the
management of risks in alignment with the strategy set by the relevant Board; and•Independent oversight to ensure each entity across the NZ Banking Group, and the Business Units
within those entities, comply with policies, regulations and laws, and to provide regular risk evaluation
and reporting.
The NZ Banking Group manages risk through an approval, delegation and limits structure. Regular reviews of
the policies, systems and risk reports, including the effectiveness of the risk management systems are
conducted within the NZ Banking Group and also by the Ultimate Parent Bank. The Boards have responsibility
for reviewing all aspects of risk management.
The Boards have ultimate responsibility for overseeing the effective deployment of risk management
frameworks, policies and processes within New Zealand.
The NZ Banking Group’s risk management policies are essentially the same as the Ultimate Parent Bank, but are
tailored where required to suit the local New Zealand regulatory and business environment.
Financial risk management
Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations.
Market risk is the risk to the NZ Banking Group's earnings arising from changes in interest rates, currency
exchange rates, credit spreads, or from fluctuations in bond, commodity or equity prices.
Liquidity risk is the risk that the NZ Banking Group has insufficient capacity to fund increases in assets, or isunable to meet its payment obligations as they fall due, including repaying depositors or maturing wholesale
debt.
Refer to Note 31 Financial Risk Management for detailed disclosures on the NZ Banking Group's financial risk
management policies.
Operational Risk
Operational risk is the risk arising from day to day operational activities which may result in direct or indirect
loss. These losses may result from failure to comply with policies, procedures, laws and regulations, from fraud
or forgery, from a breakdown in the availability or integrity of services, systems and information, or damage tothe reputation of entities making up the NZ Banking Group.
Examples include failure to comply with policy and legislation, human error, natural disasters, fraud and othermalicious acts. Where appropriate, risks are mitigated by insurance.
Group Risk Management is responsible for establishing the ANZ Group-wide operational risk framework andassociated Group-level policies.
The entities across the NZ Banking Group are responsible for the
implementation of the operational risk framework and associated policies along with the identification, analysis,
assessment and treatment of operational risks on a day-to-day basis as applicable.

30

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

31

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4. INCOME
NZ Banking GroupYear toYear to30/09/2009
30/09/2008$m$m
Interest income
Financial assets at fair value through profit or loss
Trading securities

Financial assets not at fair value through profit or loss
Liquid assets
Other financial institutions
Available-for-sale assets
Lending on productive loans
Lending on impaired assets
Related parties
Other

Total interest income

NZ Branch
Year toYear to30/09/2009 30/09/2008
$m
$m

187

220

-

-

187

220

-

-

118
259
16
6,857

313
321
3
8,979

241

-

8
34

6
16

-

-

7,292

9,638

241

-

7,479

9,858

241

-

Other operating income
Net fee income1
Dividends received
Associate investments
Net gain on foreign exchange trading
Net gain on trading securities
Net (loss) gain on trading derivatives
Net gain on available-for-sale assets
Net gain (loss) on hedges not qualifying for hedge accounting
Net ineffectiveness on qualifying cash flow hedges
Net ineffectiveness on qualifying fair value hedges
Net cash flow hedge gains transferred to income statement
Net (loss) gain on financial liabilities designated at fairvalue through profit or loss
ING New Zealand Funds2
Other income

664
1
201
43
(57)
(16)
7
3

646
4
166
45
60
70
(67)
37

(18)
8
-

(20)
(211)
52

15
39

-

-

Total other operating income

667

1,015

(10)

-

Net fee income comprises:
Lending and credit facility fee income
Fee income on trust and other fiduciary activities
Other fee income

161
53
592

134
47
632

-

-

Total fee income

806

813

-

-

Direct fee expense

142

167

-

-

Net fee income

664

646

-

-

1

2.

Refer to Note 41 Credit Related Commitments and Contingent Liabilities for further information on ING New Zealand Funds.

32

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. EXPENSES
NZ Banking GroupYear toYear to30/09/2009
30/09/2008$m$m
Interest expense
Financial liabilities at fair value through profit or loss
Commercial paper

NZ Branch
Year toYear to30/09/2009
30/09/2008
$m
$m

561

997

-

-

561

997

-

-

434
2,959
835
101
207
84

195
4,397
1,781
159
207
93

146
16
9

-

4,620

6,832

171

-

5,181

7,829

171

-

718
73

724
75

-

36
8
18
42
39
80
91
120
178
76

37
7
13
38
38
80
82
117
180
54

1
10

-

1,479

1,445

11

-

Year to30/09/2009$'000

Year to30/09/2008$'000

Year to30/09/2009$'000

Year to30/09/2008$'000

Auditors' remuneration to KPMG comprises:
Audit or review of financial statements
Other audit-related services

2,097
369

1,942
500

80
-

-

Total auditors' remuneration

2,466

2,442

80

-

Deposits at amortised cost
Other financial institutions
Deposits and other borrowings
Bonds and notes
Term funding
Loan capital
Other

Total interest expense
Operating expenses
Personnel costs
Employee entitlements
Pension costs- Defined contribution schemes- Defined benefit schemes
Share-based payments expense
Building occupancy costs
Depreciation of premises and equipment
Leasing and rental costs
Related parties (Note 44)
Computer expenses
Administrative expenses
Other costs
Total operating expenses

It is NZ Banking Group policy that KPMG can provide assurance and other audit-related services that, while
outside the scope of the statutory audit, are consistent with the role of auditor. KPMG may not provide services
that are perceived to be in conflict with the role of auditor. These include consulting advice and subcontractingof operational activities normally undertaken by management, and engagements where the auditor may
ultimately be required to express an opinion on its own work. However, non-audit services that are notperceived to be in conflict with the role of auditor may be provided by KPMG subject to the approval of the
Ultimate Parent Bank Audit Committee.
Other audit-related services include services for the audit or review of financial information other than financial
reports including prudential supervision reviews, prospectus reviews and other audits required for local
regulatory purposes.

33

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAX EXPENSENZ Banking GroupYear toYear to30/09/2009
30/09/2008$m$m

NZ Branch
Year toYear to30/09/2009
30/09/2008$m$m

RECONCILIATION OF THE PRIMA FACIE INCOME TAX PAYABLE ON
PROFIT WITH THE INCOME TAX EXPENSE CHARGED IN THE INCOME
STATEMENT
Profit before income tax

616

1,408

40

-

Prima facie income tax at 30%1

185

465

12

-

(8)

(10)

-

-

240

-

-

-

6

(36)

-

-

423

419

12

-

(1)

(1)
-

-

-

Total income tax expense

422

418

12

-

Effective tax rate (%)

68.5%

29.7%

30.0%

0.0%

386

505

15

-

Rebateable and non-assessable dividends
Additional tax provisionNon-deductible expenses (non-assessable income)Tax effect of change in domestic tax rate1
Income tax under provided in prior years

The major components of the income tax expense comprise:Amounts recognised in the income statement
Current income tax charge
Current income tax charge
Adjustments recognised in the current year in relation to
current tax of prior periods

(1)

-

-

-

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

136
(99)

(87)
-

(3)
-

-

Total income tax expense recognised in income statement

422

418

12

-

The following amounts were credited
directly to equity:
Current income tax
Actuarial loss on defined benefit schemes

(7)

(10)

-

-

Deferred income tax
Net loss on revaluation of financial instruments

(3)

(24)

-

-

Total income tax credit recognised directly in equity

(10)

(34)

-

-

Imputation Credit AccountBalance at beginning of the year
Imputation credits attached to dividends received
Taxation paid
Imputation credits attached to dividends paid
Other

696
31
138
(252)
32

831
33
211
(370)
(9)

-

-

Balance at end of the year

645

696

-

-

The above amounts only include items that give rise to imputation credits that are available for use by the NZ
Banking Group.
The companies forming the NZ Banking Group are members of an Imputation Group.
1

In May 2007, legislation was passed to reduce the New Zealand corporate tax rate from 33% to 30%, effective for the 2009 income tax year. The tax effect shownis the impact on the value of deferred tax assets and liabilities as a result of the reduction in the corporate tax rate from 1 October 2008.

34

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
7. LIQUID ASSETSNZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

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

2,373
341
48

3,950
807
82

-

-

Total liquid assets

2,762

4,839

-

-

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

2,207

3,779

-

-

11,077

8,736

-

-

The NZ Banking Group's core liquidity portfolio held for
managing liquidity risk (Note 36)

8. DUE FROM OTHER FINANCIAL INSTITUTIONSNZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

Able to be withdrawn without prior notice
Securities purchased under agreement to resell
Securities purchased under agreement to resell with central banks
Security settlements
Certificates of deposit
Reserve bank bills
Term loans and advances

172
1,083
370
2,338
398
153

437
304
1,328
2,447
516

-

-

Total due from other financial institutions

4,514

5,032

-

-

-

1,328

-

-

Included within due from other financial institutions
is the following related party balance:
Subsidiary of the Ultimate Parent Bank

There are no assets used to secure deposit obligations or assets encumbered through repurchase agreements at
30 September 2009 (30/09/2008 $nil).

9. TRADING SECURITIESNZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

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

1,389
191
28
2,475
83

252
926
39
1,331
76

-

-

Total trading securities

4,166

2,624

-

-

159

97

-

-

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

35

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

36

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

30/09/2009
Derivatives held for trading
Foreign exchange derivatives
Spot and forward contracts
Swap agreements
Options purchased
Options sold
Collateral received / paid

Notional
Principal
Amount$m

NZ Branch

Fair values
AssetsLiabilities$m$m

Notional
Principal
Amount$m

Fair values
AssetsLiabilities$m$m

29,91876,468
1,018
953
n/a

684
2,398
42
(115)

1,581
4,076
52
(2,908)

557
8,519
n/a

1
-

3
245
-

108,357

3,009

2,801

9,076

1

248

30,526375,488
20,647
2,026
2,034

2
7,387
45
23
-

3
6,986
2
23

1,972
2,058
-

2
-

4
-

430,721

7,457

7,014

4,030

2

4

23
13

1
1

1
1

-

-

-

539,114

10,468

9,817

13,106

3

252

-

-

-

-

-

-

Interest rate derivatives
Swap agreements

15,902

140

111

-

-

-

Total derivatives designated as cash flow hedges

15,902

140

111

-

-

-

18

-

-

-

-

-

Interest rate derivatives
Swap agreements

30,051

407

1,046

6,485

31

2

Total derivatives designated as fair value hedges

30,069

407

1,046

6,485

31

2

Total derivatives held for hedging

45,971

547

1,157

6,485

31

2

585,085

11,015

10,974

19,591

34

254

Interest rate derivatives
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options soldCommodity derivatives
Fuel derivatives
Electricity derivatives
Total derivatives held for trading
Derivatives held for hedging(a) Designated as cash flow hedges
Foreign exchange derivatives
Spot and forward contracts(b) Designated as fair value hedges
Foreign exchange derivatives
Swap agreements

Total derivative financial instruments

37

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

30/09/2008

Notional
Principal
Amount$m

Fair values
Assets$m

Derivatives held for trading
Foreign exchange derivatives
Spot and forward contracts
Swap agreements
Options purchased
Options sold
Collateral received / paid

37,91466,759
1,828
1,813
n/a

Interest rate derivatives
Forward rate agreements1
Swap agreements
Futures contracts
Options purchased
Options soldCommodity derivatives
Fuel derivatives
Electricity derivatives
Total derivatives held for trading
Derivatives held for hedging(a) Designated as cash flow hedges
Foreign exchange derivatives
Spot and forward contracts

NZ Branch

Liabilities$m

Notional
Principal
Amount
$m

1,079
3,129
58
(586)

684
1,564
61
(270)

-

-

-

108,314

3,680

2,039

-

-

-

40,536347,394
20,328
2,158
2,164

22
3,565
15
11
-

17
3,631
6
11

-

-

-

412,580

3,613

3,665

-

-

-

36

4

4

-

-

-

520,930

7,297

5,708

-

-

-

-

-

-

-

-

-

Fair values
Assets$m

Liabilities$mInterest rate derivatives
Swap agreements

12,160

161

142

-

-

-

Total derivatives designated as cash flow hedges

12,160

161

142

-

-

-

58

1

-

-

-

-

Interest rate derivatives
Swap agreements

32,941

144

622

-

-

-

Total derivatives designated as fair value hedges

32,999

145

622

-

-

-

(b) Designated as fair value hedges
Foreign exchange derivatives
Swap agreements

Total derivatives held for hedging

45,159

306

764

-

-

-

Total derivative financial instruments

566,089

7,603

6,472

-

-

-

1.

Restated to be comparable with current year treatment.

38

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
Hedging relationships
The NZ Banking Group has two types of allowable hedging relationships entered into by the NZ Banking Group:
fair value hedges and cash flow hedges. Each has specific requirements when accounting for the fair valuechanges in the hedging relationship. For details on the accounting treatment of each type of hedging
relationship refer to Note 1E(ii).
Fair value hedges
The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or unrecognised
firm commitment that may affect the income statement. Changes in fair value might arise through changes ininterest rates or foreign exchange rates. The NZ Banking Group’s fair value hedges principally consist of interest
rate swaps that are used to protect against changes in the fair value of fixed-rate long-term financial
instruments due to movements in market interest rates.
The application of fair value hedge accounting results in the fair value adjustment on the hedged item
attributable to the hedged risk being recognised in the income statement at the same time the hedging
instrument impacts the income statement. If a hedging relationship is terminated, the fair value adjustment to
the hedged item continues to be recognised as part of the carrying amount of the item or group of items and isamortised to the income statement as a part of the effective yield over the period to maturity. The table below
shows the gain or loss on fair value hedges by hedging instrument and hedge item attributable to the hedgedrisk:
NZ Banking Group
30/09/2009
30/09/2008$m$m
Gain or (loss) arising from fair value hedges:- hedged item- hedging instrument
Net ineffectiveness on qualifying fair value hedges

NZ Branch
30/09/2009
30/09/2008
$m
$m

115
(108)

661
(728)

(27)
35

-

7

(67)

8

-

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

39

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10. DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
The table below shows the movements in the cash flow hedging reserve:
NZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

Balance at beginning of the year
Transferred to income statement
Tax effect of items transferred to income statement
Valuation loss taken to equity
Tax effect of valuation loss taken to equity

24
(3)
2
(1)
1

84
(37)
11
(47)
13

-

-

Balance at end of the year

23

24

-

-

The mechanics of hedge accounting results in the gain or loss in the cash flow hedging reserve above being
released into the income statement at the same time that the corresponding loss or gain attributable to thehedged item impacts the income statement. It will not necessarily be released to the income statement
uniformly over the period of the hedging relationship as the fair value of the derivative is driven by changes inmarket rates over the term of the instrument. As market rates do not always move uniformly across all time
periods, a change in market rates may drive more value in one forecast period than another, which impacts
when the hedging reserve is released to the income statement.
The table below shows the breakdown of the cash flow hedging reserve attributable to each type of cash flow
hedging relationship:
NZ Banking Group
30/09/2009
30/09/2008$m$m
Variable rate loan assets
Variable rate liabilities
Short term re-issuances of fixed rate customer
and wholesale deposit liabilities
Total cash flow hedging reserve

149
(29)
(97)
23

70
(1)

NZ Branch
30/09/2009
30/09/2008
$m
$m
-

(45)

-

24

-

-

-

All underlying hedged cash flows are expected to be recognised in the income statement in the year in which
they occur which is anticipated to take place over the next 0 - 10 years (30/09/2008 0-10 years).
All gains and losses associated with the ineffective portion of the hedging derivatives are recognised
immediately as other operating income in the income statement. The ineffectiveness recognised in the income
statement in respect of cash flow hedges was less than $1 million in the NZ Banking Group (30/09/2008 lessthan $1 million) and less than $nil in the NZ Branch (30/09/2008 $nil).
There were no transactions where cash flow hedge accounting ceased in the year ended 30 September 2009 asa result of highly probable cash flows that were no longer expected to occur (30/09/2008 no transactions).

40

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
11. AVAILABLE-FOR-SALE ASSETSNZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

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

1,394
48
71

3
41
65

-

-

Total available-for-sale assets

1,513

109

-

-

12. NET LOANS AND ADVANCESNZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

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

2,087
1,402
53,45840,231
683

2,140
1,434
53,35040,583
777

8,795
-

-

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

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

98,284
(666)
(346)
353
(55)
109

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

-

Total net loans and advances

97,024

97,679

8,774

-

1.

The NZ Banking Group has entered into repurchase agreements for residential mortgage-backed securities with the Reserve Bank of New Zealand ("RBNZ") with abook value of $1,806 million (30/09/2008 $nil). The underlying collateral accepted by the RBNZ under this transaction are mortgages to the value of $2,250
million (30/09/2008 $nil). These loans have not been derecognised.
On 27 February 2009, ANZ National Bank Limited sold $4,877 million of residential mortgages to the Australia and New Zealand Banking Group Limited – New
Zealand Branch. On 28 July 2009 a second tranche of $4,986 million of residential mortgages was sold to the NZ Branch.

41

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

30/09/2009

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

Total
$m

Balance at beginning of the year
Transfers from productive
Transfers to productive
Assets realised or loans repaid
Write offs

83
586
(22)
(232)
(28)

30
243
(20)
(45)
(149)

214
882
(25)
(230)
(101)

327
1,711
(67)
(507)
(278)

Individually impaired asset balance at end of the year

387

59

740

1,186

-

2

-

2

387

61

740

1,188

Balance at beginning of the year
Transfers from productive
Transfers to productive
Assets realised or loans repaid
Write offs

7
103
(2)
(18)
(7)

20
122
(14)
(98)

88
228
(8)
(86)
(8)

115
453
(10)
(118)
(113)

Individually impaired asset balance at end of the year

Restructured items
Total impaired assets
30/09/2008

83

30

214

327

Restructured items

-

-

-

-

Total impaired assets

83

30

214

327

NZ Branch
Other retail
Corporate
exposures
exposures
$m
$m

Total
$m

Individually impaired assets
Retailmortgages$m

30/09/2009
Balance at beginning of the year
Transfers from productive
Transfers to productive
Assets realised or loans repaid
Write offs

10
-

-

-

10
-

Individually impaired asset balance at end of the year

10

-

-

10

Restructured items

-

-

-

-

Total impaired assets

10

-

-

10

-

-

-

-

Individually impaired asset balance at end of the year

-

-

-

-

Restructured items

-

-

-

-

Total impaired assets

-

-

-

-

30/09/2008
Balance at beginning of the year
Transfers from productive
Transfers to productive
Assets realised or loans repaid
Write offs

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

42

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

30/09/2009
Balance at beginning of the year
Transfers to restructured items
Transfers from restructured items

NZ Banking Group
Other retail
Corporate
exposures
exposures
$m
$m
2
18
(18)

Total
$m
20
(18)

Balance at end of the year

-

2

-

2

30/09/2008
Balance at beginning of the year
Transfers to restructured items
Transfers from restructured items

-

-

-

-

Balance at end of the year

-

-

-

-

Restructured assets
Retailmortgages$m-

30/09/2009
Balance at beginning of the year
Transfers to restructured items
Transfers from restructured items

NZ Branch
Other retail
Corporate
exposures
exposures
$m
$m
-

Total
$m
-

Balance at end of the year

-

-

-

-

30/09/2008
Balance at beginning of the year
Transfers to restructured items
Transfers from restructured items

-

-

-

-

Balance at end of the year

-

-

-

-

Renegotiated loans are loans that would otherwise be past due or impaired had their terms not beenrenegotiated. At 30 September 2009, loans and advances of $266 million were renegotiated in the Banking
Group (30/09/2008 $9 million). There were no renegotiated loans in the NZ Branch at 30 September 2009
(30/09/2008 $nil).

43

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

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

Total
$m

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

244
864
(832)

54
149
(144)

11
448
(348)

309
1,461
(1,324)

Balance at end of the year

276

59

111

446

Other assets under administration
Balance at beginning of the year
Transfers to other assets under administration
Transfers from other assets under administration

-

-

1
42
(43)

1
42
(43)

Balance at end of the year

-

-

-

-

Undrawn facilities with impaired customers
Balance at beginning of the year
Transfers to (from) undrawn facilities with impaired customers

-

-

6
26

6
26

Balance at end of the year

-

-

32

32

Interest foregone on impaired assets
Gross interest receivable on impaired loans
Interest recognised

22
(4)

4
(1)

42
(7)

68
(12)

Net interest foregone on impaired loans

18

3

35

56

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

Total
$m

Retailmortgages$m
30/09/2008
Past due assets (90 days past due assets)1
Balance at beginning of the year
Transfers to past due assets
Transfers from past due assets

57
696
(509)

19
146
(111)

26
14
(29)

102
856
(649)

Balance at end of the year

244

54

11

309

Other assets under administration
Balance at beginning of the year
Transfers to other assets under administration
Transfers from other assets under administration

-

-

1
-

1
-

Balance at end of the year

-

-

1

1

Undrawn facilities with impaired customers
Balance at beginning of the year
Transfers to (from) undrawn facilities with impaired customers

-

-

6
-

6
-

Balance at end of the year

-

-

6

6

Interest foregone on impaired assets
Gross interest receivable on impaired loans
Interest recognised

8
(2)

2
-

14
(4)

24
(6)

Net interest foregone on impaired loans

6

2

10

18

1

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

44

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

NZ Branch
Other retail
Corporate
exposures
exposures
$m
$m

Total
$m

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

12
(1)

-

-

12
(1)

Balance at end of the year

11

-

-

11

Other assets under administration
Balance at beginning of the year
Transfers to other assets under administration
Transfers from other assets under administration

-

-

-

-

Balance at end of the year

-

-

-

-

Undrawn facilities with impaired customers
Balance at beginning of the year
Transfers to (from) undrawn facilities with impaired customers

-

-

-

-

Balance at end of the year

-

-

-

-

Interest foregone on impaired assets
Gross interest receivable on impaired loans
Interest recognised

-

-

-

-

Net interest foregone on impaired loans

-

-

-

-

NZ Branch
Other retail
Corporate
exposures
exposures
$m
$m

Total
$m

Retailmortgages$m
30/09/2008
Past due assets (90 days past due assets)1
Balance at beginning of the year
Transfers to past due assets
Transfers from past due assets

-

-

-

-

Balance at end of the year

-

-

-

-

Other assets under administration
Balance at beginning of the year
Transfers to other assets under administration
Transfers from other assets under administration

-

-

-

-

Balance at end of the year

-

-

-

-

Undrawn facilities with impaired customers
Balance at beginning of the year
Transfers to (from) undrawn facilities with impaired customers

-

-

-

-

Balance at end of the year

-

-

-

-

Interest foregone on impaired assets
Gross interest receivable on impaired loans
Interest recognised

-

-

-

-

Net interest foregone on impaired loans

-

-

-

-

Further analysis of past due assets can be found in Note 31 Financial Risk Management, including an ageing
analysis of all past due assets 1 day and over where the counterparty has failed to make a payment whencontractually due.
The NZ Banking Group held no material assets acquired through enforcement of security (30/09/2008 $nil).
1

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

45

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

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

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

Total
$m

81
46

164
(5)

289
229

534
270

Balance at end of the year

127

159

518

804

Individual provision (individually impaired assets)
Balance at beginning of the year
Charge to income statement
Recoveries of amounts previously written off
Bad debts written off
Discount unwind1

28
155
1
(28)
-

10
161
18
(149)
-

94
297
1
(101)
(10)

132
613
20
(278)
(10)

Balance at end of the year

156

40

281

477

Total provision for credit impairment

283

199

799

1,281

Collective provision
Balance at beginning of the year
Charge to income statement

58
23

130
34

234
55

422
112

Balance at end of the year

81

164

289

534

Individual provision (individually impaired assets)
Balance at beginning of the year
Charge to income statement
Recoveries of amounts previously written off
Bad debts written off
Discount unwind1

4
31
(7)
-

13
80
15
(98)
-

27
79
2
(8)
(6)

44
190
17
(113)
(6)

Balance at end of the year

28

10

94

132

Total provision for credit impairment

109

174

383

666

30/09/2008

1.

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

46

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

30/09/2009

NZ Branch
Other retail
Corporate
exposures
exposures
$m
$m

Total
$m

Collective provision
Balance at beginning of the year
Charge to income statement

6

-

-

6

Balance at end of the year

6

-

-

6

Individual provision (individually impaired assets)
Balance at beginning of the year
Charge to income statement
Recoveries of amounts previously written off
Bad debts written off
Discount unwind1

3
-

-

-

3
-

Balance at end of the year

3

-

-

3

Total provision for credit impairment

9

-

-

9

Collective provision
Balance at beginning of the year
Charge to income statement

-

-

-

-

Balance at end of the year

-

-

-

-

Individual provision (individually impaired assets)
Balance at beginning of the year
Charge to income statement
Recoveries of amounts previously written off
Bad debts written off
Discount unwind1

-

-

-

-

Balance at end of the year

-

-

-

-

Total provision for credit impairment

-

-

-

-

30/09/2008

1.

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

47

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

Provision movement analysis

Retailmortgages$m

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

Total
$m

30/09/2009
New and increased provisions
Provision releases

165
(9)

182
(3)

316
(18)

663
(30)

Recoveries of amounts previously written off

156
(1)

179
(18)

298
(1)

633
(20)

Individual provision charge
Collective provision charge (credit)

155
46

161
(5)

297
229

613
270

Charge to income statement

201

156

526

883

30/09/2008
New and increased provisions
Provision releases

31
-

95
-

97
(16)

223
(16)

Recoveries of amounts previously written off

31
-

95
(15)

81
(2)

207
(17)

Individual provision charge
Collective provision charge

31
23

80
34

79
55

190
112

Charge to income statement

54

114

134

302

NZ Branch
Other retail
Corporate
exposures
exposures
$m
$m

Total
$m

Retailmortgages$m

30/09/2009
New and increased provisions
Provision releases

3
-

-

-

3
-

Recoveries of amounts previously written off

3
-

-

-

3
-

Individual provision charge
Collective provision charge

3
6

-

-

3
6

Charge to income statement

9

-

-

9

30/09/2008
New and increased provisions
Provision releases

-

-

-

-

Recoveries of amounts previously written off

-

-

-

-

Individual provision charge
Collective provision charge

-

-

-

-

Charge to income statement

-

-

-

-

48

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
15. SHARES IN ASSOCIATES AND JOINTLY CONTROLLED ENTITIESNZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

Shares in associates
Shares in jointly controlled entities

211
253

144
219

-

-

Total shares in associates andjointly controlled entities

464

363

-

-

Shares in associates comprise:
Balance at beginning of the year
Acquisitions
Disposals
Transfers to subsidiary company
Other
Share of profit of equity accounted associates1

144
67
(2)
2

10
48
(2)
88

-

-

Balance at end of the year

211

144

-

-

Shares in associates at 30 September 2009 includes goodwill of $57 million (30/09/2008 $57 million) for the NZ
Banking Group and $nil (30/09/2008 $nil) for the NZ Branch.
NZ Banking Group
30/09/2009
30/09/2008$m$m
Shares in jointly controlled entities comprise:
Balance at beginning of the year
Acquisitions
Disposals
Transfers to subsidiary company
Share of profit of equity accounted jointly
controlled entities

219
23
-

Balance at end of the year

NZ Branch
30/09/2009
30/09/2008
$m
$m

196
-

-

-

11

23

-

-

253

219

-

-

Shares in jointly controlled entities at 30 September 2009 includes goodwill of $94 million (30/09/2008 $97
million) for the NZ Banking Group and $nil (30/09/2008 $nil) for the NZ Branch.
1.

The NZ Banking Group, via its associate, Cards NZ Limited, acquired shares in Visa in March 2008, resulting in an equity accounted profit of $88 million being
recognised on the sale of the shares at fair value by Cards NZ Limited. Visa shares not sold into the initital public offering are held as an available-for-sale asseton the balance sheet.

16. OTHER ASSETSNZ Banking Group
30/09/2009
30/09/2008$m$m
Accrued interest and prepaid discounts
Accrued commission
Defined benefit schemes surplus
Share-based payments asset
Prepaid expenses
Security settlements
Other assets
Total other assets

NZ Branch
30/09/2009
30/09/2008
$m
$m

397
19
52
86
291
296

535
20
50
57
85
253

-

-

1,141

1,000

-

-

49

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
17. DEFERRED TAX ASSETS

Deferred tax assets

NZ Banking Group
30/09/2009
30/09/2008$m$m

Balance at beginning of the year
Credited to income statement
Set-off of deferred tax liabilities pursuant to set-off provisions1

NZ Branch
30/09/2009
30/09/2008
$m
$m

118
254
(372)

7
59
52

3
-

-

-

118

3

-

384
4
2
5
191
17
4

200
3
11
125
3
8
3

3
-

-

607

353

3

-

(607)

(235)

-

-

-

118

3

-

The deferred tax credited (charged) to the income statement
comprises the following temporary differences:
Provision for credit impairment
Deferred fee revenue and expenses
Premises and equipment
SoftwareProvisions and accruals
Derivative financial instruments
Defined benefit schemes
Other

184
1
2
(6)
66
(3)
9
1

60
(2)
(21)
22
8
(8)

3
-

-

Total deferred tax credited to the income statement

254

59

3

-

Balance at end of the year
Deferred tax assets comprise the following temporary differences:
Provision for credit impairment
Deferred fee revenue and expenses
Premises and equipment
SoftwareProvisions and accruals
Derivative financial instruments
Defined benefit schemes
Other

Set-off of deferred tax liabilities pursuant to set-off provisions1
Net deferred tax assets

There was no deferred tax asset charged or credited to equity as at 30 September 2009 (30/09/2008 $nil).
There were no unrecognised deferred tax assets as at 30 September 2009 (30/09/2008 $nil).
The reduction in the corporate tax rate from 33% to 30% from the 2009 tax year has been taken into accountin calculating the value of deferred tax assets as at 30 September 2008.
1.

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

50

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
18. PREMISES AND EQUIPMENTNZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

Freehold and leasehold land and buildings
At costAccumulated depreciation

63
(11)

69
(12)

-

-

Total carrying amount

52

57

-

-

Leasehold improvements
At costAccumulated depreciation

99
(78)

98
(75)

-

-

Total carrying amount

21

23

-

-

265
(191)

255
(176)

-

-

74

79

-

-

251
(200)

246
(196)

-

-

Total carrying amount

51

50

-

-

Work in progress

80

33

-

-

278

242

-

-

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

Total premises and equipment

Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Freehold and leasehold land and buildings
Balance at beginning of the year
Additions
Disposals
Depreciation

57
10
(15)
-

57
1
(1)

-

-

Balance at end of the year

52

57

-

-

Leasehold improvements
Balance at beginning of the year
Additions
Disposals
Depreciation

23
3
(5)

24
3
(4)

-

-

Balance at end of the year

21

23

-

-

Furniture and equipment
Balance at beginning of the year
Additions
Disposals
Depreciation

79
10
(1)
(14)

78
16
(15)

-

-

Balance at end of the year

74

79

-

-

Computer and office equipment
Balance at beginning of the year
Additions
Disposals
Depreciation

50
24
(4)
(19)

50
18
(1)
(17)

-

-

Balance at end of the year

51

50

-

-

Work in progress
Balance at beginning of the year
Net additions

33
47

23
10

-

-

Balance at end of the year

80

33

-

-

278

242

-

-

Total premises and equipment

51

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
19. GOODWILL AND OTHER INTANGIBLE ASSETSNZ Banking Group
30/09/2009
30/09/2008$m$m
Goodwill
Gross carrying amount
Balance at beginning and end of the year

NZ Branch
30/09/2009
30/09/2008
$m
$m

3,262

3,262

-

-

96
19

68
28

-

-

Balance at end of the year

115

96

-

-

Accumulated amortisation
Balance at beginning of the year
Amortisation expense1

(47)
(11)

(39)
(8)

-

-

Balance at end of the year

(58)

(47)

-

-

Total software

57

49

-

-

3

3

-

-

3,322

3,314

-

-

SoftwareGross carrying amount
Balance at beginning of the year
Additions from internal developments

Other intangible assets
Total goodwill and other intangible assets

No impairment losses have been recognised against the gross carrying amount of goodwill for the year ended 30
September 2009 (30/09/2008 $nil).
During the year additions were made to other intangible assets of $9
million (30/09/2008 $nil) but subsequently a write-off was made for $7 million (30/09/2008 $nil).
1.

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

20. DUE TO OTHER FINANCIAL INSTITUTIONSNZ Banking Group
30/09/2009
30/09/2008$m$m
Australia and New Zealand Banking Group Limited(Ultimate Parent Bank)
Securities sold under agreements to repurchasefrom other financial institutions
Securities sold under agreements to repurchasefrom central banks1
Other financial institutions

NZ Branch
30/09/2009
30/09/2008
$m
$m

9,286

1,001

8,801

-

159

97

-

-

1,806
1,263

2,213

-

-

12,514

3,311

8,801

-

Included within due to other financial institutions is the following balance:
Balances owing to the Ultimate Parent Bank by
ANZ National (Int'l) Limited guaranteed by the Bank
485
Australia and New Zealand Banking Group Limited - NZ Branch
8,801

1,001
-

8,801

-

Total due to other financial institutions

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

The NZ Banking Group has entered into repurchase agreements for residential mortgage-backed securities with the RBNZ with a book value of $1,806 million(30/09/2008 $nil). The underlying collateral accepted by RBNZ under this transaction are mortgages to the value of $2,250 million (30/09/2008 $nil).
These assets do not qualify for derecognition as the NZ Banking Group retains a continuing involvement in the transferred assets and therefore the NZ Banking
Group’s financial statements do not change as a result of establishing these facilities. The net effect on the NZ Banking Group is to reflect additional cash or liquid
assets and a liability being Securities sold under agreements to repurchase from central banks (refer Note 39 for further details).

52

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
21. DEPOSITS AND OTHER BORROWINGSNZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

Amortised cost
Certificates of deposit
Term deposits
Demand deposits bearing interest
Deposits not bearing interest
Secured debenture stock

4,441
32,99721,024
4,373
1,537

5,527
31,26022,085
3,928
1,683

-

-

Total deposits and other borrowings recognised at amortised cost

64,37264,483--

Fair value through the profit or loss
Commercial paper

7,392

12,653--

Total deposits and other borrowings recognised at fair value

7,392

12,653--

71,764

77,136--

Total deposits and other borrowings

The principal at maturity of commercial paper at fair value through the profit and loss is $7,399 million(30/09/2008 $12,755 million).
The NZ Banking Group has not defaulted on any principal, interest or redemption amounts on its borrowed
funds during the year ended 30 September 2009 (30/09/2008 $nil). Deposits from customers are unsecured
and rank equally with other unsecured liabilities of the NZ Banking Group. In the unlikely event that an entity
within the NZ Banking Group was put into liquidation or ceased to trade, secured creditors and those creditors
set out in the Seventh Schedule of the Companies Act 1993 would rank ahead of the claims of unsecured
creditors.
Included within deposits and other borrowings are the following balances:
Commercial paper issued by ANZ National (Int'l) Limited
guaranteed by ANZ National Bank Limited at amortised cost

7,388

12,670--Registered secured debenture stock is constituted and secured by a trust deed between UDC Finance Limited
and its independent trustee, Trustees Executors Limited. The trust deed creates floating charges over all theassets, primarily loans and advances, of UDC Finance Limited.
UDC Finance Limited secured debentures
Carrying value of total tangible assets

1,877

2,032

-

-

22. PAYABLES AND OTHER LIABILITIESNZ Banking Group
30/09/2009
30/09/2008$m$m
Creditors
Accrued interest and unearned discounts
Defined benefit schemes deficit
Share-based payments liability
Accrued charges
Security settlements
Equitable assignment of mortgages1
Other liabilities
Total payables and other liabilities
1.

NZ Branch
30/09/2009
30/09/2008
$m
$m

81
732
55
28
257
205
19
170

77
991
27
29
216
235
25
274

41
2
-

-

1,547

1,874

43

-

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

53

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
23. DEFERRED TAX LIABILITIESNZ Banking Group
30/09/2009
30/09/2008$m$m

Provision for deferred income tax
Balance at beginning of the year
Charged (credited) to income statement
Credited directly to equity
Set-off of deferred tax liabilities pursuant to set-off provisions1

NZ Branch
30/09/2009
30/09/2008
$m
$m

390
(3)
(372)

(28)
(24)
52

-

-

15

-

-

-

Deferred tax liabilities comprise the following temporary differences:
Lease finance
Other (including provisions)

113
509

90
145

-

-

622

235

-

-

Set-off of deferred tax liabilities pursuant to set-off provisions1

(607)

(235)

-

-

15

-

-

-

The deferred tax charged (credited) to the income statement
comprises the following temporary differences:
Lease financeDefined benefit schemes
Other (including provisions)

23
367

(20)
(2)
(6)

-

-

Total deferred tax charged (credited) to the income statement

390

(28)

-

-

The deferred tax credited to equity comprises
the following temporary differences:
Financial instruments

(3)

(24)

-

-

Total deferred tax credited directly to equity

(3)

(24)

-

-

Balance at end of the year

Net deferred tax liabilities

The reduction in the corporate tax rate from 33% to 30% from the 2009 tax year has been taken into accountin calculating the value of deferred tax liabilities as at 30 September 2008.
1.

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

54

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
24. PROVISIONSNZ Banking Group
30/09/2009
30/09/2008$m$m
Non-lending losses, frauds and forgeries

NZ Branch
30/09/2009
30/09/2008
$m
$m

4

11

-

-

Employee entitlements1
Balance at beginning of the year
New provisions
Provisions utilised

117
60
(58)

110
62
(55)

-

-

Balance at end of the year

119

117

-

-

Personnel restructuring costs2
Balance at beginning of the year
New provisions
Provisions utilised

32
17
(43)

2
30
-

-

-

6

32

-

-

Redundant assets restructuring costs2
Balance at beginning of the year
New provisions
Transfers from subsidiary companies
Provisions utilised

1
17
-

2
(1)

-

-

Balance at end of the year

18

1

-

-

Other provisions3
Balance at beginning of the year
New provisions
Provisions utilised

29
257
(150)

48
11
(30)

-

-

Balance at end of the year

136

29

-

-

Total provisions

283

190

-

-

Balance at end of the year

1.

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

2.

Personnel restructuring costs and redundant assets restructuring costs
Restructuring cost provisions arise from exit activities relating to material changes in the scope or manner of business undertaken by the NZ Banking Group andincludes termination benefits. Provisions are made when the NZ Banking Group is demonstrably committed, it is probable that the costs will be incurred, though
their timing is uncertain, and the costs can be reliably estimated. The majority of provisions recognised at 30 September 2009 are expected to be settled over the2010 financial year, with the exception that provisions for losses arising from rental commitments on leased premises which have become vacant as a result of
restructuring will be settled over the remaining term of the leases.

3.

ING New Zealand Funds
Refer to Note 41 Contingent Liabilities and Credit Related Commitments for further information on ING New Zealand Funds.

55

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

25. BONDS AND NOTESNZ Banking Group

Issued by ANZ National Bank Limited
Denomination Face value
NZD
150m
fixed rate notes
NZD
50m
floating rate notes
NZD
70m
floating rate notes
NZD
100m
fixed rate notes
NZD
75m
fixed rate notes
NZD
65m
fixed rate notes
NZD
50m
floating rate notes
NZD
150m
fixed rate notes
NZD
170m
floating rate notes
NZD
50m
fixed rate notes
NZD
100m
floating rate notes
NZD
150m
fixed rate notes
NZD
175m
fixed rate notes
NZD
60m
fixed rate notes
Index linked notes
Fair value hedge adjustment

Issued by ANZ National (Int'l) Limited
Denomination Face value
GBP
300m
floating rate notes
USD
120m
floating rate notes
floating rate notes2
USD
170m
NZD
200m
fixed rate notes
JPY
15,000m floating rate notes
EUR
750m
floating rate notes
HKD
1,000mfixed rate notes
NZD
150m
floating rate notes
HKD
300m
fixed rate notes
HKD
280m
fixed rate notes
USD
750m
floating rate notes
USD
250m
floating rate notes
USD
300m
floating rate notes
NZD
20m
floating rate notes
EUR
300m
floating rate notes
JPY
17,770m fixed rate notes
JPY
17,500m floating rate notes
floating rate notes1
USD
1m

Maturity
2009
2009
2010
2010
2010
2010
2011
2011
2011
2011
2012
2012
2014
2014

Interest rate %6.82%
3 month BKBM + 0.30%
3 month BKBM + 0.35%
8.50%
8.50%
3 month BKBM + 0.80%
3 month BKBM + 1.24%
6.80%
3 month BKBM + 0.90%
8.25%
3 month BKBM + 1.025%
5.63%
8.50%
8.50%

30/09/2009$m

30/09/2008
$m

70
100
75
65
50
150
170
50
100
150
175
60
78
223

150
50
70
100
150
170
50
175
146
62

1,516

1,123

Maturity
2008
2008

Interest rate %3 month GBP LIBOR + 0.01%
3 month LIBOR - 0.06%

-

806
179

2008
2008
2008
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009

1 month LIBOR + 0.01%
9.20%
3 month JPY LIBOR
3 month EURIBOR + 0.12%
4.40%
3 month BKBM + 0.10%
4.93%
4.44%
3 month LIBOR + 0.04%
3 month Prime - 2.9125%
1 month LIBOR + 0.04%
3 month BKBM + 0.05%
3 month EUR LIBOR + 0.15%
0.055%
3 month JPY LIBOR

150
416
-

254
200
215
1,607
193
150
58
54
1,120
373
448
20
643
254
250

2009

1 month LIBOR + 0.01%

-

1

USD

1,211mfloating rate notes2

2009

3 month LIBOR + 0.22%

-

1,807

USD
JPY
JPY
JPY

789m
8,640m
1,000m6,000m

2009
2009
2009
2009

3 month LIBOR + 0.22%
0.114%
0.01%
3 month JPY LIBOR

1,093
92

1,178
124
14
86

USD
USD
NZD
CHF
SGD

8m
750m
100m
275m
200m

floating rate notes2
fixed rate notes
fixed rate notes
floating rate notes
floating rate notes1
floating rate notes
floating rate notes
floating rate notes
fixed rate notes

2010
2010
2010
2010
2010

1 month LIBOR + 0.01%
3 month LIBOR + 0.11%
3 month BKBM + 0.05%
3 month CHF LIBOR + 0.75%
3.22%

11
1,039
100
369
196

12
1,120
100
375
209

56

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
25.BONDS AND NOTES (Continued)
NZ Banking Group

USD
AUD

100m
50m

USD
USD
GBP
GBP

890m
300m
435m
105m

USD
USD

500m
250m

USD

100m

USD
USD
HKD

20m
100m
155m

floating rate notes
floating rate notes
floating rate notes3
fixed rate notes
floating rate notes
floating rate notes
floating rate notes4
floating rate notes
floating rate notes4

30/09/2009$m

30/09/2008
$m

139
61

149
60

1,234
416
966
233

1,328
448
1,169
-

2010
2010

3 month LIBOR + 0.55%
3 month BBSW + 0.61%

2010
2011
2011
2011

3 month LIBOR + 1.03%
5.50%
3 month GBP LIBOR + 0.05%
3 month GBP LIBOR + 0.05%

2011
2011

3 month LIBOR + 0.18%
3 month LIBOR + 0.70%

693
346

2011

3 month LIBOR + 0.32%

139

-

2011
2011
2011

3 month LIBOR + 0.20%
3 month LIBOR + 0.65%
3 month HIBOR + 0.51%

28
139
28

-

GBP

450m

floating rate notes4
floating rate notes
floating rate notes
floating rate notes3

2012

6 month GBP LIBOR + 0.08%

999

1,210

USD

1,500mfixed rate notes4

2012

3.25%

2,079

-

USD
USD
USD

100m
15m
2,000m

2012
2012
2013

3 month LIBOR + 0.25%
3 month LIBOR + 0.80%
6.20%

139
21
2,772

2,985

USD
HKD
USD

100m
100m
250m

floating rate notes4
floating rate notes
fixed rate notes
floating rate notes4
fixed rate notes
floating rate notes

2014
2014
2015

3 month LIBOR + 0.44%
3.40%
3 month LIBOR + 0.90%

139
18
346

373

14,401

19,572

Issued by Samson Funding Limited
Denomination Face value
fixed rate notes5
USD
350m

Maturity

Interest rate %2010

4.484%

516

527

fixed rate notes5

2053

5.36%

1,107

1,160

1,623

1,687

17,54022,382

2,233

2,538

USD

750m

Total bonds and notes
Included within bonds and notes is the following related party balance:
Subsidiaries of the Australia and New Zealand Banking Group Limited

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

2.

3.
4.
5.

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

57

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
26. TERM FUNDING
NZ Banking Group
30/09/2009
30/09/2008$m$m
ANZ Funds Pty Limited

1,766

NZ Branch
30/09/2009
30/09/2008
$m
$m

1,766

-

-

ANZ Funds Pty Limited (Related Company)
This New Zealand dollar loan was made on 1 December 2003 and is repayable upon demand being made by
ANZ Funds Pty Limited, where 12 months prior written notice is given, unless a shorter notice period is agreed
upon. Interest is currently payable quarterly in arrears based on 3 month BKBM + 1.525% p.a., with interest
payments due 1 March, 1 June, 1 September and 1 December. As part of the annual review of terms andconditions of the loan, the margin was increased from 0.32% p.a. to 1.525% p.a., effective from 1 December
2008.

27. LOAN CAPITALNZ Banking Group
30/09/2009
30/09/2008$m$m
AUD 207,450,000 term subordinated floating rate loan
AUD 265,740,000 perpetual subordinated floating rate loan
AUD 186,100,000 term subordinated floating rate loan
AUD 43,767,507 term subordinated floating rate loan
AUD 169,520,000 term subordinated floating rate loan
Term subordinated fixed rate bonds
Perpetual subordinated bond

NZ Branch
30/09/2009
30/09/2008
$m
$m

324
227
53
207
950
835

248
317
222
52
202
950
835

-

-

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

2,596
-

2,826
(6)

-

-

Total loan capital

2,596

2,820

-

-

811

1,041

-

-

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

AUD 207,450,000 loan
This loan was drawn down on 31 August 2004 and had an ultimate maturity date of 31 August 2014. On 31
August 2009 the Bank repaid the loan. All interest was payable half yearly in arrears, with interest payments
due 28 February and 31 August. Interest was based on BBSW + 0.40% p.a. up until, and including, 31 August
2009.
AUD 265,740,000 loan
This loan was drawn down on 27 September 1996 and has no fixed maturity. Interest is payable half yearly inarrears based on BBSW + 0.95% p.a., with interest payments due 15 March and 15 September.
AUD 186,100,000 loan
This loan was drawn down on 19 April 2005 with an ultimate maturity date of 20 April 2015. The NZ Banking
Group may elect to repay the loan on 19 April each year commencing from 2010 through to 2015. All interest is
payable half yearly in arrears, with interest payments due 19 April and 19 October. Interest is based on BBSW +
0.32% p.a. to 19 April 2010 and increases to BBSW + 0.82% p.a. thereafter.
AUD 43,767,507 loan
This loan was drawn down on 15 September 2006 with an ultimate maturity date of 15 September 2016. The
Bank may elect to repay the loan on 15 September each year commencing from 2011 through to 2016. Allinterest is payable half yearly in arrears, with interest payments due 15 March and 15 September. Interest isbased on BBSW + 0.29% p.a. to 15 September 2011 and increases to BBSW + 0.79% p.a. thereafter.
AUD 169,520,000 loan
This loan was drawn down on 17 September 2007 with an ultimate maturity date of 17 September 2017. The
NZ Banking Group may elect to repay the loan on 17 September each year commencing from 2012 through to2016. All interest is payable half yearly in arrears, with interest payments due 17 March and 17 September.
Interest is based on BBSW + 0.68% p.a. to 17 September 2012 and increases to BBSW + 1.18% p.a.
thereafter.

58

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
27. LOAN CAPITAL (Continued)
NZD subordinated bonds
The terms and conditions of the term subordinated fixed rate bonds are as follows:
Term subordinated fixed rate bonds
Issue dateAmount $m
350
15 September 2006
2 March 2007
250
23 July 2007
350

Coupon rate
7.16%
7.60%
8.23%

Call date
15 September 2011
2 March 201223 July 2012

Maturity date
15 September 2016
2 March 201723 July 2017

As at 30 September 2009, these bonds carried an AA- rating by Standard & Poor's.
The Bank may elect to redeem the bonds on their call date. If the bonds are not called the Bank will continue to
pay interest to maturity at the five year interest rate swap rate plus 0.75% p.a., 0.76% p.a. and 0.62% p.a. forthe 15 September 2006; 2 March 2007 and 23 July 2007 bonds respectively. Interest is payable half yearly inarrears based on the fixed coupon rate.
The terms and conditions of the perpetual subordinated bond are as follows:
Perpetual subordinated bondIssue dateAmount $m835
18 April 2008

Coupon rate
9.66%

1st Call date
18 April 2013

2nd Call date
18 April 2018

The Bank may elect to redeem the bonds on 18 April 2013, 18 April 2018 or any interest payment date
subsequent to 18 April 2018. Interest is payable half yearly in arrears on 18 April and 18 October each year,
beginning on 18 October 2008, up to and including the Second Call Date and then quarterly thereafter. If thebonds are not called at the First Call Date, the coupon rate will reset to the five year interest swap rate plus
2.00%. Should the bonds not be called at the Second Call Date, the Coupon Rate from the Second Call Dateonwards will be set on a quarterly basis to the three month FRA rate plus 3.00%.
As at 30 September 2009, these bonds carried an A+ rating by Standard and Poor's.
Interest may not necessarily be paid on each interest payment date as under the terms of the Bonds, ANZ
National Bank Limited has a general right and in certain specified circumstances an obligation, to defer payment
of interest on the Bonds.
All of the NZD subordinated bonds are listed on the NZX. The Market Surveillance Panel of the NZX granted
ANZ National Bank Limited a waiver from the requirements of Listing Rules 10.4 and 10.5. Rule 10.4 relates tothe provision of preliminary announcements of half yearly and annual results to the NZX. Rule 10.5 relates topreparing and providing a copy of half yearly and annual reports to the NZX. ANZ National Bank Limited has
been granted a waiver from these rules on the conditions that the Bank's quarterly General DisclosureStatement ("GDS") is available on the NZ Banking Group's website, at any branch and at the NZX; thatbondholders are advised by letter that copies of the GDS are available at the above locations; that all
bondholders are notified on an ongoing basis, by way of a sentence included on the notification of interest
payments, that the latest GDS is available for review at the above locations; and that a copy of the GDS is sent
to the NZX on an ongoing basis.
Loan capital is subordinated in right of payment in the event of liquidation or wind up to the claims of depositors
and all creditors of the NZ Banking Group.
All subordinated debt qualifies as Lower Level Tier Two Capital for capital adequacy purposes except for theperpetual subordinated debt which qualifies as Upper Level Tier Two Capital.

59

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

Issued share capital

NZ Banking Group
30/09/2009
30/09/2008
Number of
Number ofIssued Shares
Issued Shares

Ordinary shares at beginning and end of the year

382,238,236

382,238,236--

Redeemable preference shares at beginning of the year

3,210,066,601

2,700,066,601--

Issue of redeemable preference shares during year
Redemption of redeemable preference shares during year

795,228,628-

510,000,000---

4,005,295,229

3,210,066,601--

4,387,533,465

3,592,304,837--

Redeemable preference shares at end of the year

Paid in share capital & Head Office Account

NZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008
Number of
Number ofIssued Shares
Issued Shares

NZ Branch
30/09/2009
30/09/2008$m$m

Ordinary share capital at beginning and end of the year

1,453

1,453

-

-

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

3,960
1,000

3,450
510

-

-

4,960

3,960

-

-

Paid in share capital at end of year
Head Office Account

6,413
11

5,413
-

11

-

Total Capital & Head Office Account at end of year

6,424

5,413

11

-

On 24 March 2009, the NZ Banking Group paid a $1 billion dividend to its parent company. On the same day,the NZ Banking Group issued 795,228,628 redeemable preference shares to the value of $1 billion.
Voting rights
At a meeting: on a show of hands or vote by voice every member who is present in person or by proxy or byrepresentative shall have one vote.
On a poll: every member who is present in person or by proxy or by representative shall have one vote forevery share of which such member is the holder.

29. RESERVES AND RETAINED EARNINGSNZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

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

23
2

(1)
24

-

-

Balance at end of the year

25

23

-

-

Cash flow hedging reserve
Balance at beginning of the year
Valuation loss recognised after tax
Transferred to income statement

24
(1)

84
(34)
(26)

-

-

Balance at end of the year

23

24

-

-

Total reserves

48

47

-

-

1,667

1,869

-

-

194

990

28

-

Total available for appropriation

1,861

2,859

28

-

Actuarial loss on defined benefit schemes after tax
Interim ordinary dividend paid

(18)
(1,000)(23)(1,169)

-

-

843

1,667

28

-

Retained earnings
Balance at beginning of the year
Profit after income tax

Balance at end of the year

The paid dividend on ordinary shares was $2.64 per share (30/09/2008 $3.06 per share).

60

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
30. CAPITAL ADEQUACYOVERSEAS BANKING GROUP CAPITAL ADEQUACY RATIO
Overseas Bank
(Extended Licensed Entity)
Unaudited
Unaudited
30/09/2009
30/09/2008
Basel II
Basel II

Overseas Banking Group
Unaudited
Unaudited
30/09/2009
30/09/2008
Basel II
Basel II
Tier One Capital

10.6%

7.7%

11.6%

8.4%

Total Capital

13.7%

11.1%

14.2%

11.6%

Basel II came into force on 1 January 2008. The Overseas Banking Group received accreditation from APRA to
apply the Advanced Internal Ratings Based ("Advanced IRB") methodology for credit risk weighted assets andthe Advanced Measurement Approach ("AMA") for operational risk weighted asset equivalents.
The Overseas Banking Group has Advanced IRB accreditation under Basel II rules. The Overseas Banking Groupmet the requirements imposed by APRA as at 30 September 2009.
Further details of the Overseas Banking Group's capital adequacy requirements and credit risk management
processes can be found in its 2009 Annual Report. This report can be accessed at the following website
address: www.anz.com.
RISK WEIGHTED CREDIT RISK EXPOSURES
Risk weighted exposures for the NZ Banking Group and NZ Branch have been derived in accordance with the
RBNZ document entitled 'Capital Adequacy Framework (Basel I Approach)' ("BS2") dated March 2008.
Total Risk Weighted Exposures of the NZ Banking Group as at 30 September 2009 (unaudited):On-balance sheet exposures

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

1.

Risk weight

exposure

$m
3,765
2,284
6,381
751
53,89744,993
14,245

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

$m
228
1,276
150
26,94944,993-

126,316

73,596

100%
100%
50%
20%

Creditequivalentamount
$m
2,094
735
491
18

Averagecounterparty Risk weighted
risk weight
exposure
$m
34%
712
60%
440
71%
347
45%
8

5,139

50%

2,570

100%

2,570

16,989

0%

-

n/a

-

108,375
476,674
36

5,982
9,329
6

22%
23%
67%

1,341
2,163
4

611,113

21,225

Principal
amount
$m
2,094
735
982
89

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

Risk weighted

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

61

7,585

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
30. CAPITAL ADEQUACY (Continued)
Total Risk Weighted Exposures of the NZ Branch as at 30 September 2009 (unaudited):
Principal
amount
$m
11
8,746
355
40

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

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

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

exposure
$m
2
4,373
355
-

9,152

4,730

100%
100%
50%
20%

Creditequivalentamount$m-

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

34

50%

17

100%

17

-

0%

-

n/a

-

9,076
10,515
-

42
46
-

20%
20%
0%

8
9
-

19,625105

Principal
amount$m-

Off-balance sheet exposures

Risk weighted
Risk weight

Creditconversion
factor34

RETAIL MORTGAGES BY LOAN-TO-VALUATION ("LVR") RATIOAs required by the RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided
by the Bank’s valuation of the security property at origination of the exposure. The exposure amount used to
calculate LVR excludes commitments to lend.
Retail mortgages by LVR for the NZ Banking Group as at 30 September 2009 (unaudited):
ExposureAmount$m
LVR range
0% - 80%
80% - 90%
Over 90%

41,5576,827
5,940
54,324

1.

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

62

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

30. CAPITAL ADEQUACY (Continued)
MARKET RISK
The aggregate market risk exposures below have been calculated in accordance with the RBNZ document BS2B.
The peak end-of-day market risk exposures for the quarter are measured over the Overseas Banking Group’s
equity at the end of the quarter and are calculated separately for each category of exposure. The peak for all
categories of exposure may not have occurred at the same time.
NZ Banking Group
Implied risk weighted

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

Aggregate capital charge

As at
$m

Peak
$m

As at
$m

3,990
5
69
4,064

4,321
301
82

320

3,736
35
64
3,835

3,984
160
75

Audited 30/09/2009
Interest rate risk
Foreign currency risk
Equity risk

6

346
24
7

1.0%
0.0%
0.0%

1.1%
0.1%
0.0%

319
13
6

1.1%
0.0%
0.0%

1.2%
0.0%
0.0%

326

Audited 30/09/2008
Interest rate risk
Foreign currency risk
Equity risk

63

299
3
5
307

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT
Strategy in using financial instruments
Financial instruments are fundamental to the NZ Banking Group’s business, constituting the core element of its
operations. Accordingly, the risks associated with financial instruments are a significant component of the risks
faced by the NZ Banking Group. Financial instruments create, modify or reduce the credit, market (including
traded or fair value risks and non-traded or interest and foreign currency related risks) and liquidity risks of the
NZ Banking Group’s balance sheet. These risks and the NZ Banking Group’s policies and objectives for managing
such risks are outlined below. The NZ Banking Group’s overall risk management programme focuses on theunpredictability of financial markets and seeks to minimise potential adverse effects on the financial
performance of the NZ Banking Group.
CREDIT RISK
Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations. The
NZ Banking Group assumes credit risk in a wide range of lending and other activities in diverse markets andmany jurisdictions. The credit risks arise not only from traditional lending to customers, but also from interbank, treasury, international trade and capital market activities around the world.
The NZ Banking Group has an overall lending objective of sound growth for appropriate returns. The credit risk
objectives of the entities within the NZ Banking Group are set by each Board and are implemented andmonitored within a tiered structure of delegated authority, designed to oversee multiple facets of credit risk,
including asset writing strategies, credit policies/controls, single exposures, portfolio monitoring and risk
concentrations.
A credit risk management framework exists to provide a structured and disciplined process to support thoseobjectives. The integrity of the credit risk function is maintained by independent credit chains and is supported
by comprehensive risk analysis, risk tools, monitoring processes and policies.
CREDIT RISK MANAGEMENT
Where appropriate the Group-wide credit risk management framework is applied to each entity across the NZ
Banking Group with the aim of ensuring a structured and disciplined approach is maintained in achieving theobjectives set by each Board. The framework focuses on policies, people, skills, vision, values, controls, risk
concentrations and portfolio balance. It is supported by portfolio analysis and asset-writing strategies, which
guide lending decisions and identify segments of the portfolio requiring attention. The effectiveness of theframework is monitored through a series of compliance and reporting processes.
An independent Risk Management function staffed by risk specialists assists with credit risk management acrosseach entity as required. In addition to providing independent credit assessment on lending decisions, Risk
Management also performs key roles in portfolio management by development and validation of credit risk
measurement systems, loan asset quality reporting, and development of credit standards and policies.
The credit risk management framework is top down. Where required, the framework is defined firstly by theOverseas Banking Group Board establishing Vision and Values and secondly, by Credit Principles and Policies.
The effectiveness of the credit risk management framework is validated through the compliance and monitoringprocesses.
Risk Management's responsibilities for credit risk policy and management are executed through dedicateddepartments, which support the entities and Business Units within the NZ Banking Group. All major Business
Unit credit decisions require approval from both business writers and independent risk personnel.
Credit Risk is controlled through a combination of approvals, limits, reviews and monitoring procedures that are
carried out on a regular basis, the frequency of which is dependent upon the level of risk. For the key operating
entities within the NZ Banking Group credit risk policy and management is executed through the Chief Risk
Officer who has various dedicated areas within the Risk Management division. A formal outsourcing agreement
provides for credit risk functions to be provided to a number of NZ Banking Group entities by staff of ANZ
National Bank Limited.
The credit risk review function within Internal Audit, either within Australia or New Zealand, also provides afurther independent check mechanism to ensure the quality of credit decisions. This may include providing
independent periodic checks on asset quality and compliance with the agreed standards and policies across the
NZ Banking Group.

64

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT (Continued)
Country risk management
Some customer credit risks involve country risk, whereby actions or events at a national or international level
could disrupt servicing of commitments. Country risk arises when payment or discharge of an obligation will, or
could, involve the flow of funds from one country to another or involve transactions in a currency other than thedomestic currency of the relevant country.
Country ratings are assigned to each country where the NZ Banking Group incurs country risk and have a direct
bearing on the NZ Banking Group's risk appetite for each country. The country rating is determined through adefined methodology based around external ratings agencies’ ratings and internal specialist opinion. It is also a
key risk consideration in the use of capital pricing model for cross border flows.
The recording of country limits provides the NZ Banking Group with a means to identify and control country risk.
Country limits ensure that there is a country-by-country ceiling on exposures that involve country risk. They arerecorded by time to maturity and purpose of exposure, e.g. trade, markets, project finance. Country limits aremanaged centrally by the Overseas Bank, through a global country risk exposure management system managed
by a specialist unit within Institutional Risk.
Portfolio stress testing
Stress testing is integral to strengthening the predictive approach to Risk Management and is a key component
to managing risk appetite, asset writing strategies and business strategies. It creates greater understanding of
impacts on financial performance through modelling relationships and sensitivities between geographic, industry
and business unit exposures under a range of macro economic scenarios. Stress testing programmes have been
implemented within the key operating business of the NZ Banking Group.
The Overseas Bank has a dedicated stress testing team within Risk Management that assists business and risk
executives in the NZ Banking Group to model and report on a range of scenarios and stress tests.
Portfolio analysis and reporting
Credit portfolios are actively monitored at each layer of the risk structure to ensure credit deterioration isquickly detected and mitigated through the implementation of remediation strategies.
Businesses incurring credit risk undertake regular and comprehensive analysis of their credit portfolios. Issue
identification and adherence to performance benchmarks are reported to risk and business executives through aseries of reporting processes, which include a monthly ‘asset quality’ reporting function closely supported andoverseen by the NZ Banking Group Risk function ensuring an efficient and independent conduit exists to quickly
identify and communicate emerging credit issues to NZ Banking Group executives and each Board.
Collateral management
ANZ Group-wide credit principles specify to lend only what the counterparty has the capacity and ability to
repay. The entities within the NZ Banking Group set limits on the acceptable level of credit risk. Acceptance ofcredit risk is firstly based on the counterparty’s assessed capacity to meet contractual obligations (i.e. interest
and capital repayments). Obtaining collateral is only used to mitigate credit risk. Procedures are designed toensure collateral is managed, legally enforceable, conservatively valued and adequately insured. Credit policies
for each entity set out the types of acceptable collateral, including:
•
Cash;
•
Mortgages over property;•
Charges over business assets, e.g. premises, stock and debtors;•
Charges over financial instruments, e.g. debt securities and equities in support of trading facilities; and•Financial guarantees.
In the event of customer default, any loan security is usually held as mortgagee in possession while action istaken to realise it. Therefore the NZ Banking Group does not usually hold any real estate or other assets
acquired through the enforcement of security.
The key operating entities within the NZ Banking Group use International Swaps and Derivatives Association("ISDA") Master Agreements to document derivatives activities to limit exposure to credit losses. The credit risk
is reduced by a master agreement to the extent that, if an event of default occurs, all contracts with thecounterparty are terminated and settled on a net basis. Further, it is preferred practice to include all products
covered by the ISDA in the Credit Support Annex ("CSA"), in order to achieve further credit exposure reduction.
Under a CSA, collateral is passed between the parties, depending on the aggregate mark-to-market (positive or
negative) of derivative trades between the two entities, to mitigate the market contingent counterparty risk
inherent in the outstanding positions.

65

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT (Continued)
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or
activities within the same geographic region, or when they have similar risk characteristics that would cause
their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
Where applicable, entities within the NZ Banking Group monitor lending portfolios to identify and assess risk
concentrations. Concentration limits are used to guard against large single customer or correlated credit risks.
Risk Management, Business Unit Executives and Senior Management monitor large exposure concentrations
through a monthly list of top Corporate exposures. The ANZ Credit and Market Risk Committee (six monthly)and Board Risk Committee (annually) review a comprehensive list of single customer concentration limits andcustomers’ adherence to these limits.
Analyses of financial assets by industry sector are based on Australian and New Zealand Standard Industrial
Classification ("ANZSIC") codes.
Concentrations of credit risk analysis:
The composition of financial instruments, that give rise to credit risk, by industry and geography:
NZ Banking Group

30/09/2009
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and availablefor-sale assets$m

Derivative
financial
instruments$m

Net loans
and advances
$m

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

48
4,191
1,392
1
8
39

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

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

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

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

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

Other
Creditfinancialrelatedassets commitments3
$m
$m

Total
$m

7,276

5,679

11,01597,624

1,003

26,028

148,625

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(477)
(804)

-

-

(477)
(804)

Fair value hedge adjustment

-

-

-

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

Total financial assets

7,276

5,679

11,01597,024

1,003

26,028148,025

Geography
New ZealandOverseas

6,213
1,063

3,272
2,407

2,951
8,064

95,549
1,475

1,003
-

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

7,276

5,679

11,01597,024

1,003

26,028148,025

1.
2.
3.

Government and local authority includes exposures to government administration and defence, education and health and community services.
Other includes exposures to electricity, gas and water, communications, and personal services.
Credit related commitments comprise undrawn facilities, customer contingent liabilities, and letters of offer. Credit related commitments for 2008 have been
restated to be consistent with current year treatment.

66

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

30/09/2008
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and availablefor-sale assets$m

Derivative
financial
instruments$m

Net loans
and advances
$m

105
5,105
3,966
209
392
31
23
40

28
2,423
255
8
4
15

74
9
1
7
6,879
277
208
20
13
20
11
84

17,925
1,201
921
1,051
1,817
642
3,129
54,831
9,271
1,903
1,392
1,849
2,060

163
11
8
10
17
6
29
499
84
17
13
17
19

2,169
426
510
132
1,737
1,238
3,993
10,704
1,570
808
858
1,265
2,025

20,436
1,647
1,440
1,228
17,9786,384
7,576
66,034
10,945
3,133
2,318
3,165
4,243

Other
Creditfinancialrelatedassets commitments3
$m
$m

Total
$m

9,871

2,733

7,603

97,992893

27,435

146,527

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(132)
(534)

-

-

(132)
(534)

Fair value hedge adjustment

-

-

-

(666)
353

-

-

(666)
353

Total financial assets

9,871

2,733

7,603

97,679893

27,435

146,214

Geography
New ZealandOverseas

7,582
2,289

1,229
1,504

1,839
5,764

96,452
1,227

893
-

27,435-

135,430
10,784

Total financial assets

9,871

2,733

7,603

97,679893

27,435

146,21430/09/2009

Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and availablefor-sale assets$mIndustry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2

-

-

34
-

8,810
-

341
-

-

-

34

8,810

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(3)
(6)

Fair value hedge adjustment

-

-

-

Total financial assets--

Geography
New ZealandOverseas-

Total financial assets-

NZ Branch

1.
2.
3.

Derivative
financial
Net loans
instruments and advances$m$m

Due from
relatedentities$m

Other
Creditfinancialrelatedassets commitments3
$m
$m

Total
$m

-

34
-

375
8,844
-

341

-

34

9,219

-

-

-

(3)
(6)

(9)
(27)

-

-

-

(9)
(27)

34

8,774

341

-

34

9,183

-

34

8,774
-

341
-

-

34
-

9,149
34

-

34

8,774

341

-

34

9,183

Government and local authority includes exposures to government administration and defence, education and health and community services.
Other includes exposures to electricity, gas and water, communications, and personal services.
Credit related commitments comprise undrawn facilities, customer contingent liabilities, and letters of offer. Credit related commitments for 2008 have been
restated to be consistent with current year treatment.

67

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

30/09/2008

Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and availablefor-sale assets$m

Derivative
financial
instruments$m

Net loans
and advances$m

Due from
relatedentities
$m

-

-

-

-

-

-

-

-

Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2

Other
Creditfinancialrelatedassets commitments3
$m
$m

Total
$m

-

-

-

-

-

-

-

-

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

-

-

-

-

-

Fair value hedge adjustment

-

-

-

-

-

-

-

-

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. Credit related commitments for 2008 have been
restated to be consistent with current year treatment.

MAXIMUM EXPOSURE TO CREDIT RISKFor financial assets recognised on the balance sheet, the maximum exposure to credit risk equals their carrying
amount. For contingent exposures, the maximum exposure to credit risk is the maximum amount that the NZ
Banking Group would have to pay if the contingency is called upon. For undrawn facilities, the maximum
exposure to credit risk is the full amount of the committed facilities.
The following table presents the maximum exposure to credit risk of on and off-balance sheet financial
instruments before taking account of any collateral held or other credit enhancements and after deductions suchas provision for credit impairment. The exposure is classified into summarised Basel II asset classes.
NZ Banking GroupNZ Branch

Retailmortgages$mOther retail
exposures$m

Corporate
exposures4$m

Total maximum
exposure tocredit risk$mRetailmortgages$mOther retail
exposures$m

Corporate
exposures4$m

Total maximum
exposure tocredit risk$m

On and off-balance sheet positions
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets
Credit related commitments

51,562
5,726

4,456
4,769

2,762
4,514
4,166
11,015
1,513
41,006
1,003
15,533

2,762
4,514
4,166
11,015
1,513
97,024
1,003
26,028

8,774
34

-

341
34
-

341
34
8,774
34

Total exposure to credit risk

57,2889,225

81,512148,025

8,808

-

375

9,183

On and off-balance sheet positions
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets
Credit related commitments

49,867
5,397

5,207
5,307

4,839
5,032
2,624
7,603
109
42,605893
16,731

4,839
5,032
2,624
7,603
109
97,679893
27,435----

Total exposure to credit risk

55,264

10,51480,436146,214

-

-

-

-

30/09/2009

30/09/2008

4.

Includes corporates, sovereigns and banks.

68

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

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

Retailmortgages$m

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

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

48,490
1,445
276
387

3,822
315
59
61

41,256662
111
740

93,568
2,422
446
1,188

8,557
232
11
10

-

-

8,557
232
11
10

50,5984,257

42,76997,624

8,810

-

-

8,810

47,520
1,776
244
83

4,912
385
54
30

41,886877
11
214

94,318
3,038
309
327

-

-

-

-

49,623

5,381

42,98897,992----

30/09/2008
Neither past due nor impaired
Past due but not impaired (1 to 89 days)
Past due but not impaired (over 90 days)
Impaired4.

Includes corporates, sovereigns and banks.

69

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

30/09/2009

Retailmortgages$mStrong risk rating
Satisfactory risk rating
Substandard but not past due or impaired

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

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

44,650
3,156
684

1,459
2,010
353

17,756
19,078
4,422

63,86524,244
5,459

7,939
510
108

-

-

7,939
510
108

48,4903,822

41,256

93,568

8,557

-

-

8,557

43,866
3,041
613

1,849
2,800
263

19,827
19,9872,072

65,54225,828
2,948

-

-

-

-

47,5204,912

41,886

94,318----30/09/2008
Strong risk rating
Satisfactory risk rating
Substandard but not past due or impaired

Credit quality of financial assets that are past due but not impaired
Ageing analysis of past due loans is used by the NZ Banking Group to measure and manage the retail portfolio's
credit quality. Financial assets that are past due but not impaired include those:•
Assessed, approved and managed on a portfolio basis within a centralised environment (for example, credit
cards and personal loans);•
Held on a productive basis until they are 180 days past due; and•Managed on an individual basis.
A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, thefair value of associated security is sufficient to ensure that the NZ Banking Group will recover the entire amountowing over the life of the facility and there is reasonable assurance that collection efforts will result in paymentof the amounts due in a timely manner.
4.

Includes corporates, sovereigns and banks.

70

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT (Continued)
The following table presents an ageing analysis of past due loans that are not impaired:30/09/2009

Retailmortgages$m

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

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

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

310
740
264
131
276

104
136
49
26
59

397
122
71
72
111

811
998
384
229
446

40
154
27
11
11

-

-

40
154
27
11
11

1,721

374

773

2,868

243

-

-

243

544
798
304
130
244

137
155
63
30
54

534
193
106
44
11

1,215
1,146
473
204
309

-

-

-

-

2,020

439

888

3,347

-

-

-

-

30/09/2008
1 to 5 days
6 to 29 days
30 to 59 days
60 to 89 days
90 days or overCredit quality of financial assets that are individually impaired
The key operating entities within the NZ Banking Group regularly review their portfolios and monitors adherence
to contractual terms. When doubt arises as to the collectability of a credit facility, the financial asset is classified
and reported as individually impaired and an individual provision is allocated against it. The following table
presents an analysis of individually impaired assets, undrawn facilities with impaired customers and provision for
credit impairment by summarised Basel II asset class:

30/09/2009

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

387
156

Net impaired financial assets
Collective provision balance

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

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate
exposures
exposures4
$m
$m

Total
$m

61
40

740
32
281

1,188
32
477

10
3

-

-

10
3

231

21

491

743

7

-

-

7

127

159

518

804

6

-

-

6

Impaired financial assets
Undrawn facilities with impaired customers
Individual provision balance

83
28

30
10

214
6
94

327
6
132

-

-

-

-

Net impaired financial assets

55

20

126

201

-

-

-

-

Collective provision balance

81

164

289

534

-

-

-

-

30/09/2008

Security held by the NZ Banking Group in respect of individually impaired financial assets, both drawn andundrawn, in the analysis above has an estimated fair value of $743 million (30/09/2008 $201 million).
Security held by the NZ Branch in respect of individually impaired financial assets, both drawn and undrawn, in
the analysis above has an estimated fair value of $7 million (30/09/2008 $nil).
4.

Includes corporates, sovereigns and banks.

71

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT (Continued)
Restructured and other individually impaired assets
A restructured asset is an impaired asset for which the terms have been changed to grant the counterparty aconcession that would not otherwise have been available, due to the counterparty’s difficulty in complying withthe original terms, and where the yield on the asset following restructuring is still above the NZ Banking Group’s
cost of funds. An asset is classified as an other individually impaired asset if following the restructure the yieldon the asset is below the NZ Banking Group’s cost of funds.
Estimated value of collateral
The table below discloses the estimated value of collateral and other charges related to financial assets that are
individually impaired. For the purposes of this disclosure, where security held is valued at more than thecorresponding credit exposure, coverage is capped at the value of the credit exposure.

30/09/2009

Liquid assets
and due fromother financial
institutions$m

NZ Banking Group
Tradingsecurities
Derivative
and availablefinancial
Net loansfor-sale assets instruments
and advances
$m
$m
$m

Cash and securities
Real estate
Other

-

-

-

Total value of collateral--

Credit exposure--

Unsecured portion of credit

Other
Creditfinancialrelatedassets commitments5
$m
$m

Total
$m

488
223

-

32

488
255

-

711

-

32

743

-

1,188

-

32

1,220

-

-

-

477

-

-

477

Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and availablefor-sale assets$m

Derivative
financial
instruments$m

Net loans
and advances
$m

Other
financialassets$m

Creditrelatedcommitments5
$m

Total
$m

Cash and securities
Real estate
Other

-

-

-

112
83

-

6

112
89

Total value of collateral

-

-

-

195

-

6

201

Credit exposure

-

-

-

327

-

6

333

Unsecured portion of credit

-

-

-

132

-

-

132

Other
Creditfinancialrelatedassets commitments5
$m
$m

Total
$m

30/09/2008

NZ Branch

30/09/2009

Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
Derivative
and availablefinancial
for-sale assets instruments$m$mCash and securities
Real estate
Other

-

-

-

Total value of collateral--

Credit exposure--

Unsecured portion of credit

Net loans
and advances
$m
7
-

-

-

7
-

-

7

-

-

7

-

10

-

-

10

-

-

-

3

-

-

3

Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and availablefor-sale assets$m

Derivative
financial
instruments$m

Net loans
and advances
$m

Other
financialassets$m

Creditrelatedcommitments5
$m

Total
$m

Cash and securities
Real estate
Other

-

-

-

-

-

-

-

Total value of collateral

-

-

-

-

-

-

-

Credit exposure

-

-

-

-

-

-

-

Unsecured portion of credit

-

-

-

-

-

-

-

30/09/2008

5.

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

72

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

73

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT (Continued)
These risks are monitored daily against a comprehensive limit framework that includes Value at Risk ("VAR"),aggregate market position and sensitivity, product and geographic thresholds. To facilitate the management,
control, measurements and reporting of market risk, the NZ Banking Group has grouped market risk into two
broad categories:
a. Traded market riskThis is the risk of loss from changes in the value of financial instruments due to movements in price factors
for both physical and derivative trading positions. They arise in trading transactions where the NZ Banking
Group acts as principal with customers, financial exchanges or interbank counterparties. The principal risk
categories monitored are:• Currency risk is the potential loss arising from the decline in the value of a financial instrument due tochanges in foreign exchange rates or their implied volatilities.
• Interest rate risk is the potential loss arising from the change in the value of a financial instrument due tochanges in market interest rates or their implied volatilities.
• Credit spread risk is the potential loss arising from a change in value of an instrument due to a movementof its margin or spread relative to a bench mark.
b. Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest rate risk, liquidity, and the risk to capital andearnings as a result of foreign exchange rate movements.
Some instruments do not fall into either category but also expose the NZ Banking Group to market risk. These
include equity securities classified as available-for-sale. Regular reviews are performed to substantiate valuationof the investments within this portfolio.
The traded market risk function provides specific oversight of each of the main trading areas and is responsible
for the establishment of a VaR framework and detailed control limits. In all trading areas the NZ Banking Grouphas implemented models that calculate VaR exposures, monitor risk exposures against defined limits on a daily
basis, and ‘stress test’ trading portfolios. The Asset and Liability Committees of both the ANZ National Bank
Limited and the ANZ Banking Group provide monthly oversight of market risk.
The ANZ National Bank Limited Chief Risk Officer is responsible for daily review and oversight of traded market
risk reports via a service level agreement with the Ultimate Parent Bank. The Chief Risk Officers have theauthority for instructing the business to close exposures and withdraw limits where appropriate.
Value at Risk ("VaR") measure
A key measure of market risk is VaR. VaR is a statistical estimate of the likely daily loss and is based on
historical market movements. VaR calculations and limits are prepared separately for ANZ National Bank
Limited and the NZ Branch.
The confidence level is such that there is 97.5% or 99% probability that the loss will not exceed the VaR
estimate on any given day. Conversely there is a 2.5% or 1% probability of the decrease in market value
exceeding the VaR estimate on any given day. The 99% confidence level encompasses a wider range ofpotential outcomes.
The NZ Banking Group's standard VaR approach for both traded and non-traded risk is historical simulation.
The NZ Banking Group calculates VaR using historical changes in market rates and prices over the previous 500
business days. Traded and Non-Traded VaR is calculated using a one-day holding period.
It should be noted that because VaR is driven by actual historical observations, it is not an estimate of the
maximum loss that the NZ Banking Group could experience from an extreme market event. As a result of thislimitation, the NZ Banking Group utilises a number of other risk measures (e.g. stress testing) and associateddetailed control limits to measure and manage market risk.
Traded and non-traded market risks are considered separately below.

74

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

30/09/2009

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

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

0.4
2.6
0.4
(0.8)

1.4
3.0
0.5
n/a

0.2
1.1
0.2
n/a

0.5
2.0
0.3
(0.8)

0.6
3.5
0.6
(1.2)

1.9
4.9
0.8
n/a

0.3
1.7
0.2
n/a

0.7
3.0
0.5
(1.2)

Total VaR

2.6

3.4

1.1

2.0

3.5

4.6

1.7

3.0

Foreign exchange risk
Interest rate risk
Credit spread risk
Diversification benefit

0.2
1.6
0.2
(0.3)

1.3
1.9
0.3
n/a

0.1
0.5
0.1
n/a

0.3
0.9
0.1
(0.5)

0.2
2.7
0.4
(0.6)

1.6
2.7
0.4
n/a

0.2
0.6
0.2
n/a

0.5
1.3
0.2
(0.7)

Total VaR

1.7

2.0

0.3

0.8

2.7

2.8

0.5

1.3

Average for
period$m

30/09/2008

VaR is calculated separately for foreign exchange and for interest rate/debt markets businesses as well as forthe overall trading activities of each relevant entity within the NZ Banking Group. The diversification benefit
reflects the historical correlation between these products.
To supplement the VaR methodology, the NZ Banking Group applies a wide range of stress tests, both onindividual portfolios and for the overall trading activities of each relevant entity within the NZ Banking Group.
The NZ Banking Group's stress-testing regime provides senior management with an assessment of the financial
impact of identified extreme events on market risk exposures of the NZ Banking Group.
Non-traded market risks (balance sheet risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while
maintaining acceptable levels of interest rate and liquidity risk and to manage the market value of the NZ
Banking Group’s capital. Liquidity risk is dealt with later in the next section.
Interest rate risk
The objective of balance sheet interest rate risk management is to mitigate the negative impact of movements
in wholesale interest rates on the earnings of the NZ Banking Group's banking book. Non-traded interest raterisk relates to the potential adverse impact to earnings principally from changes in swap market interest rates.
This risk arises from two principal sources: mismatches between the repricing dates of interest bearing assets
and liabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets.
As part of normal business activity the NZ Banking Group has additional risks from fixed rate mortgage
prepayments and basis risk where:•
Prepayment risk is the potential risk to earnings or market value from when a customer prepays all or partof a fixed rate mortgage and where any customer fee charged is not sufficient to offset the loss in value to
the NZ Banking Group of this financial asset due to movements in interest rates and other pricing factors.
As far as possible the true economic cost is passed through to customers in line with their terms andconditions and relevant legislation.
•
Basis risk is the potential risk to earnings or market value from differences between customer pricing andwholesale market pricing. This is managed through active review of product margins.
Non-traded interest rate risk is managed to both value and earnings at risk limits. Interest rate risk is reported
using three measures: VaR; scenario analysis (to a 1% shock); and interest rate sensitivity gap. This treatment
excludes the effect of prepayment and basis risk.

75

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

Average for
period$m

30/09/2009

As at
$m

Value at risk at 97.5% confidence

22.4

22.9

18.9

20.9

12.8

13.0

10.4

11.9

30/09/2008
Value at risk at 97.5% confidence

To supplement the VaR methodology, the NZ Banking Group applies a wide range of stress tests, both onindividual portfolios and for the overall trading activities of each material entity within the NZ Banking Grouplevel. The NZ Banking Group’s stress-testing regime provides senior management with an assessment of thefinancial impact of identified extreme events on market risk exposures of the NZ Banking Group.
b) Scenario analysis – A 1% shock on the next 12 months’ net interest income
A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net
interest income over the succeeding 12 months. This is a standard risk quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and comparative periods– expressed as a percentage of reported net interest income. The sign indicates the nature of the rate sensitivity
with a positive number signifying that a rate increase is positive for net interest income over the next 12months. Conversely, a negative number signifies that a rate increase is negative for the next 12 months’ netinterest income.
NZ Banking Group
30/09/2009
30/09/2008
Impact of 1% Rate Shock
As at
Maximum exposure
Minimum exposure
Average exposure (in absolute terms)

0.2%
0.6%
-0.1%
0.3%

0.0%
1.8%
0.0%
0.8%

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

76

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT (Continued)
Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of thecorresponding liability funding. These mismatches are managed within policy guidelines for mismatch positions.
The majority of the NZ Banking Group's loan business is conducted domestically in New Zealand. The majorityof retail deposits are also raised in New Zealand but are either fixed or floating in nature. The mix of repricing
maturities in this book is influenced by the underlying financial needs of customers.
The NZ Banking Group's offshore operations are wholesale in nature and are able to minimise interest ratesensitivity through closely matching the maturities of loans and deposits. Given both the size and nature of thisbusiness, the interest rate sensitivity of this balance sheet contributes little to the aggregate risk exposure,which is primarily a reflection of the positions in New Zealand.
A combination of off-balance sheet instruments and pricing initiatives is used in the management of interest raterisk. For example, where a strong medium to long term rate view is held, hedging and pricing strategies areused to modify the profile's interest rate sensitivity so that it is positioned to take advantage of the expectedmovement in interest rates. However, such positions are taken within the overall risk limits specified by NZ
Banking Group policy.
The following tables represent the interest rate sensitivity of the NZ Banking Group's assets, liabilities and offbalance sheet instruments repricing (that is, when interest rates applicable to each asset or liability can bechanged) in the periods shown.
NZ Banking Group
3 to 6
6 to 12monthsmonths
$m
$m

Total
$m

Less than
3 months$m

1 to 5years$mBeyond5 years$m

Not bearing
interest
$m

2,762
4,514
4,166
11,015
1,513
97,024
1,003

2,596
4,013
429
149
50,539
-

300
66
1,286
7,668
-

418
14,024
-

63
2,575
9
24,831
-

678
55
-

166
138
11,015
69
(93)
1,003

Total financial assets

121,997

57,726

Non-financial assets

4,317

-

9,320

14,442

27,478733

12,298----126,314

4,317

57,726

9,320

14,442

27,478733

16,615

12,514
71,764
10,974
1,149
17,5401,766
2,596

11,53345,087
66
9,586
1,766
227

550
14,019
672
584

277
5,497
371
-

22
2,788
6,911
1,785

-

132
4,373
10,974
1,083-

Total financial liabilities

118,303

68,265

15,825

6,145

11,506-

16,562

Non-financial liabilities
Equity

696
7,315

-

-

-

-

-

696
7,315

30/09/2009
AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets

Total assets
Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Payables and other financial liabilities
Bonds and notes
Term funding
Loan capital

Total liabilities and equity

126,314

68,265

15,825

6,145

11,506-

24,573On-balance sheet interest sensitivity gap
Hedging instruments-(10,539)
11,589(6,505)
5,630

8,297
(11,762)

15,972(4,417)733(1,040)(7,958)-Interest sensitivity gap - net
Interest sensitivity gap - cumulative

-

1,050
1,050

(875)
175

(3,465)(3,290)11,555
8,265

(307)
7,958

(7,958)-77

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT (Continued)
NZ Banking Group
3 to 6
6 to 12monthsmonths
$m
$m

Total
$m

Less than
3 months$m

1 to 5years$mBeyond5 years$m

Not bearing
interest$m

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

4,839
5,032
2,624
7,603
109
97,679
893

4,668
3,080
1,043
30
44,105
-

450
10
6,682
-

13,308
-

134
1,332
14
33,877
-

239
46
-

171
1,368
7,603
65
(339)
893

Total financial assets

118,779

52,926

Non-financial assets

4,299

-

7,142

13,30835,357

285

9,761

-

-

-

-

Total assets

123,078

4,299

52,926

7,142

13,30835,357285

14,060Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Payables and other financial liabilities
Bonds and notes
Term funding
Loan capital

3,311
77,1366,472
1,499
22,382
1,766
2,820

2,379
54,82793
15,732
1,766
216

114
10,671
472
819

378
6,813
374
-

381
896
60
4,464
1,785

40
1
7
1,295
-

19
3,928
6,472
1,339
45
-

Total financial liabilities

115,386

75,013

12,076

7,565

7,586

1,343

11,803

Non-financial liabilities
Equity

565
7,127

-

-

-

-

-

565
7,127

30/09/2008

Total liabilities and equity

123,078

75,013

12,076

7,565

7,586

1,343

19,495On-balance sheet interest sensitivity gap
Hedging instruments-(22,087)
18,597(4,934)
5,578

5,743
(6,078)27,771(18,964)(1,058)867(5,435)-Interest sensitivity gap - net
Interest sensitivity gap - cumulative-(3,490)(3,490)644(2,846)(335)(3,181)

8,807
5,626

(191)
5,435

(5,435)
-

Total
$m

Less than
3 months$m

3 to 6months$m

NZ Branch
6 to 12months$m

1 to 5years$mBeyond5 years$m

Not bearing
interest$m

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

34
8,774
341
-

2,125
341
-

1,165
-

1,757
-

3,726
-

-

34
1
-

Total financial assets

9,149

2,466

1,165

1,757

3,726

-

35

Non-financial assets

3

-

-

-

-

-

3

Total assets

9,152

2,466

1,165

1,757

3,726

-

38

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

8,801
254
41
-

8,679
-

122
-

-

-

-

254
41
-

Total financial liabilities

9,096

8,679

122

-

-

-

295

Non-financial liabilities
Equity

17
39

-

-

-

-

-

17
39

30/09/2009

Total liabilities and equity

9,152

8,679

122

-

-

-

351

On-balance sheet interest sensitivity gap-(6,213)

1,043

1,757

3,726

-

(313)

Hedging instruments

-

6,553

(789)

(2,088)(3,676)--

Interest sensitivity gap - net
Interest sensitivity gap - cumulative

-

340
340

254
594

(331)
263

50
313

313

(313)
-

78

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

Total
$m

Less than
3 months$m

3 to 6months$m

NZ Branch
6 to 12months$m

1 to 5years$mBeyond5 years$m

Not bearing
interest$m

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

-

-

-

-

-

-

-

Total financial assets

-

-

-

-

-

-

-

Non-financial assets

-

-

-

-

-

-

-

Total assets

-

-

-

-

-

-

-

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

-

-

-

-

-

-

-

Total financial liabilities

-

-

-

-

-

-

-

Non-financial liabilities
Equity

-

-

-

-

-

-

-

Total liabilities and equity

-

-

-

-

-

-

-

On-balance sheet interest sensitivity gap
Hedging instruments

-

-

-

-

-

-

-

Interest sensitivity gap - net
Interest sensitivity gap - cumulative

-

-

-

-

-

-

-

30/09/2008

79

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT (Continued)
Equity securities classified as available-for-sale
The portfolio of financial assets, classified as available-for-sale for measurement and financial reporting
purposes, also contains equity investment holdings which predominantly comprise investments 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
2009 was $69 million (30/09/2008 $65 million). Regular reviews are performed to substantiate valuation of theinvestments within the portfolio. The fair value of the equity securities classified as available-for-sale canfluctuate considerably. A 10 per cent reduction in the value of the available-for-sale equity securities at 30
September 2009 would have reduced equity by $6.9 million (30/09/2008 $6.5 million).
Foreign currency related risksThis risk relates to the potential loss arising from the decline in the value of foreign currency positions due tochanges in foreign exchange rates.
For non-traded instruments in foreign currencies, the risk is monitored and is hedged in accordance with policy.
Risk arising from individual funding and other transactions is actively managed. The total amounts of unmatchedforeign currency assets and liabilities and consequent foreign currency exposures, arising from each class offinancial asset and liability, whether recognised or unrecognised, within each currency are not material.
The net open position in each foreign currency, detailed in the table below, represents the net on-balance sheet
assets and liabilities in that foreign currency aggregated with the net expected future cash flows from offbalance sheet purchases and sales from foreign exchange transactions in that foreign currency. The amounts
are stated in New Zealand dollar equivalents translated using the spot exchange rates as at balance sheet date.

Net open position

NZ Banking Group
30/09/2009 30/09/2008$m$m

NZ Branch
30/09/2009 30/09/2008$m$m

Australian dollar
Canadian dollar
Swiss FrancEuro
Pound sterling
US dollar
Other

2
(1)
2
(1)

9
(2)
9
14
2

1
-

-

Total net open position

2

32

1

-

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

Maintaining the ability to meet all payment obligations in the immediate term.
Ensuring the ability to meet "survival horizons" under a range of ANZ specific and general market liquidity
stress scenarios.
Maintaining strength in the NZ Banking Group’s balance sheet structure to ensure long term resilience in the
NZ Banking Group’s liquidity and funding risk profile.

80

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

Limiting the potential earnings at risk implications associated with unexpected increases in funding costs or
the liquidation of assets under stress.
Ensuring the liquidity management framework is compatible with regulatory requirements.
Daily liquidity reporting and scenario analysis, quantifying the Banking Group’s positions.
Targeting a diversified funding base, avoiding undue concentrations by investor type, maturity, market
source and currency.
Holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support
day-to-day operations.
Establishing detailed contingency plans to cover different liquidity crisis events.

Management of liquidity and funding risks are overseen by the Asset and Liability Committee ("ALCO").
Scenario Modelling
A key component of the NZ Banking Group’s liquidity management framework is scenario modelling. Liquidity isassessed under different scenarios, including "going-concern" and "name-crisis" and various "survival horizons".
"Going-concern": reflects the normal behaviour of cash flows in the ordinary course of business. The NZ
Banking Group must be able to meet all commitments and obligations under a going concern scenario, within
the NZ Banking Group normal funding capacity (‘available to fund’ limit), over at least the following 30 calendardays.
In estimating the funding requirement, the NZ Banking Group models expected cash flows by reference tohistorical behaviour and contractual maturity data. As of 30 September 2009 the NZ Banking Group was incompliance with this scenario.
"Name-crisis": refers to a potential name-specific liquidity crisis scenario which models the behaviour of cash
flows where there is a problem (real or perceived) which may include, but is not limited to, operational issues,
doubts about the solvency of the NZ Banking Group or adverse rating changes.
Under this scenario the NZ Banking Group may have significant difficulty rolling over or replacing funding. Under
the liquidity policy the NZ Banking Group must be cash flow positive over an eight calendar day period. As of 30
September 2009 the NZ Banking Group was in compliance with this scenario.
"Survival horizons": The global financial crisis has highlighted the importance of differentiating between stressedand normal market conditions in a name-specific crisis and the different behaviour that offshore and domestic
wholesale funding markets can exhibit during market stress events. As a result, the NZ Banking Group has
recently enhanced its liquidity risk scenario modelling.
The NZ Banking Group has linked its liquidity risk
appetite to defined liquidity "survival horizons" (i.e. the time period under which the NZ Banking Group must
maintain a positive cash flow position). The following stressed scenarios are modelled:••••

Extreme Short Term Crisis Scenario ("ESTC"): A name-specific stress during a period of market stress.
Short Term Crisis Scenario ("NSTC"): A name-specific stress during a period of normal markets conditions.
Global Funding Market Disruption ("GFMD"): Stressed global wholesale funding markets leading to a closureof domestic and offshore markets.
Offshore Funding Market Disruption ("OFMD"): Stressed global wholesale funding markets leading to a
closure of offshore markets only.

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

81

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

NZ Banking Group
30/09/2009 30/09/2008$m$m

NZ Branch
30/09/2009 30/09/2008$m$m

Customer deposits1
New ZealandOverseas

52,065
7,866

52,1996,757--

Total customer deposits

59,931

58,956--Wholesale funding
Bonds and notes
Loan capital
Certificates of deposit
Commercial paper
Term funding
Due to other financial institutions

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

22,382
2,820
5,527
12,653
1,766
3,311

8,801

-

Total wholesale funding

46,24948,4598,801-

Total funding

106,180

107,415

8,801-

Concentrations of funding by industry
Households
Agriculture, forestry and fishing
ManufacturingEntertainment, leisure and tourism
Finance and insurance
Retail trade
Wholesale trade
Business and property services
Transport and storage
Construction
Government and local authority
Other2

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

36,239
4,517
1,465
611
54,546
752
626
4,686
594
722
1,585
1,072

8,801
-

-

Total concentrations of funding by industry

106,180

107,415

8,801-

Concentrations of funding by geography3
New ZealandUnited States
EuropeOther countries

61,612
17,031
7,511
20,026

60,66024,178
11,484
11,093

8,801-

Total concentrations of funding by geography

106,180

107,415

8,801-

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

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

82

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT (Continued)
Wholesale funding
The NZ Banking Group’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale
funds that balances cost efficiency while targeting diversification by markets, investors, currencies, maturities
and funding structures. Short-term wholesale funding requirements, with a contractual maturity of less than one
year, are managed through the Treasury and Markets operations. Long-term wholesale funding is managed andexecuted through Treasury operations.
The NZ Banking Group also uses maturity concentration limits under the wholesale funding and liquidity
management framework. Funding instruments used to meet the wholesale borrowing requirement must be on apre-established list of approved products.
Funding capacity and debt issuance planning
Under the normal business conditions scenario, borrowing capacity is an estimate of the amount of funding thatcan be raised in the wholesale markets in normal market conditions. The NZ Banking Group adopts a
conservative approach to determine its funding capacity. Funding capacity limits are determined at the Ultimate
Parent Bank level and allocated to individual sites based on their requirements.
Annually, a Funding Plan is ratified by the NZ Banking Group’s Senior Management. The plan is supplemented
by monthly updates, and is linked to the NZ Banking Group’s three year strategic planning cycle.
Liquidity portfolio management
The NZ Banking Group holds a diversified portfolio of cash and high-quality highly-liquid securities that may besold or pledged to provide same day liquidity.
The size of the NZ Banking Group’s liquidity portfolio is based on the amount of liquidity required to meet theliquidity policy outlined on pages 80 to 83.
Assets held for managing liquidity risk include short term cash held with the RBNZ, New Zealand government
securities, securities issued by supranational agencies and securities issued by highly rated banks. These assets
are accepted as collateral by the RBNZ in repurchase transactions. The post-"haircut" value of these assets at
30 September 2009 was $10,690 million. The NZ Banking Group also held unencumbered Internal RMBS (seeNote 39 for detail on Internal RMBS) with a post-"haircut" value of $2,538 million.
Liquidity crisis contingency planning
The NZ Banking Group maintains liquidity crisis contingency plans defining an approach for analysing andresponding to a liquidity-threatening event at a NZ Banking Group-wide basis. The framework includes:•
the establishment of crisis severity/stress levels;•
clearly assigned crisis roles and responsibilities;•
early warning signals indicative of an approaching crisis, and mechanisms to monitor and report thesesignals;•
outlined action plans, and courses of action for altering asset and liability behaviour.
•
procedures for crisis management reporting, and covering cash-flow shortfalls;•
guidelines determining the priority of customer relationships in the event of liquidity problems; and•assigned responsibilities for internal and external communications.
Contractual maturity analysis of financial assets and liabilities
The tables below analyse the NZ Banking Group's financial assets and liabilities, within relevant maturity
groupings based on the earliest date on which the NZ Banking Group may be required to pay. The amounts
represent principal and interest cash flows and may differ compared to the amounts reported on the balance
sheet.
The management of liquidity risk is detailed on pages 80 to 85. The analysis presented below has been made on
an undiscounted basis.

83

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT (Continued)
The analysis, by remaining contractual maturities at balance date, of financial assets and liabilities represents
the estimated obligation date expected for the asset and liability to be recovered or settled within one year, andgreater than one year.
Contractual maturity analysis for financial assets and financial liabilities, including expected interest to maturity:
NZ Banking GroupLess than
3 to 123 months
months$m$m

At call$m

30/09/2009
AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets
Interest

2,762
4,514
4,166
11,015
1,513
97,024
1,003
46,411

2,762
172
-

3,888
361
119
7,534
1,003
1,594

391
507
1,294
14,101
4,019

63
2,620
9
26,542
14,423678
22
48,94026,375

11,015
69(93)-

Total financial assets (inclusive of interest)

168,408

2,934

14,49920,31243,65776,015

10,991

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

12,514
71,764
10,974
1,149
17,540
1,766
2,596
5,646

1,039
25,397-

2,838
22,757
1,149
2,149
721

1,948
20,835
2,640
1,766
1,444

6,246
2,775
12,404
3,224

443
347
1,437
257

10,974
1,159-

Total financial liabilities (inclusive of interest)

123,949

26,436

29,614

28,63324,6492,484

12,133

NZ Banking GroupLess than
3 to 123 months
months$m$m

1 to 5 years$m

30/09/2008

1 to 5 years$mBeyond No maturity
5 years
specified
$m
$m

Total
$m

Beyond No maturity
5 years
specified
$m
$m

Total
$m

At call$m

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

4,839
5,032
2,624
7,603
109
97,679893
66,834

4,839
435
-

3,629
1,009
8,822
893
2,340

462
12,849
5,951

506
1,376
14
27,57920,137239
30
48,76238,406

7,603
65
(333)
-

Total financial assets (inclusive of interest)

185,613

5,274

16,693

19,262

49,61287,437

7,335

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

3,311
77,1366,472
1,499
22,382
1,766
2,820
8,895

1,713
27,058-685
31,736
1,432
1,862
1,813

492
17,444
6,719
1,766
1,915

381
898
60
12,088
4,438

40
7
1,668
1,668
729

6,472
45
1,152
-

Total financial liabilities (inclusive of interest)

124,281

28,771

37,52828,336

17,865

4,112

7,669

84

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
31. FINANCIAL RISK MANAGEMENT (Continued)
NZ BranchLess than
3 to 123 months
months$m$m

Beyond No maturity
5 years
specified
$m
$m

Total
$m

At call$m

1 to 5 years$m

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

34
8,774
341
793

-

1,241
341
178

36
299

7,496
316

-

34
1
-

Total financial assets (inclusive of interest)

9,942

-

1,760

335

7,812

-

35

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

8,801
254
41
1,232

-

679
41
66

1,272
278

6,400
882

450
6

254
-

10,328

-

786

1,550

7,282

456

254

30/09/2009

Total financial liabilities (inclusive of interest)

30/09/2008

NZ BranchLess than
3 to 123 months
months$m$m

At call$m

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

-

-

-

-

-

-

-

Total financial assets (inclusive of interest)

-

-

-

-

-

-

-

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

-

-

-

-

-

-

-

Total financial liabilities (inclusive of interest)

-

-

-

-

-

-

-

85

1 to 5 years$mBeyond No maturity
5 years
specified
$m
$m

Total
$m

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
32. CONCENTRATIONS OF CREDIT RISKThe NZ Banking Group has no credit exposures, on the basis of limits, to individual counterparties or groups ofclosely related counterparties (whether bank or non-bank exposures) which equal or exceed 10% of theOverseas Banking Group's equity as at 30 September 2009 or 30 September 2008, or in respect of peak end-ofday aggregate credit exposures for the quarter ended 30 September 2009. The peak end-of-day exposures
have been calculated using the Overseas Banking Group equity as at 30 September 2009. These calculations
exclude credit exposures to the central government of any country with a long term credit rating of A- or A3 orabove, or its equivalent.

33. INTEREST EARNING AND DISCOUNT BEARING ASSETS AND LIABILITIESNZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

Interest earning and discount bearing assets

109,699

109,017

9,114-

Interest and discount bearing liabilities

101,741

103,583

8,801

-

86

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

87

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
34. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
Net loans and advances
The carrying value of loans and advances includes deferred fees and expenses, and is net of provision for credit
impairment and income yet to mature.
Fair value has been determined through discounting future cash flows. For fixed rate loans and advances, thediscount rate applied incorporates changes in wholesale market rates, the NZ Banking Group’s cost of wholesalefunding and movements in customer margin. For floating rate loans, only changes in wholesale market rates
and the NZ Banking Group’s cost of wholesale funding are incorporated in the discount rate. For variable rateloans where the NZ Banking Group sets the applicable rate at its discretion, the fair value is set equal to thecarrying value.
The difference between estimated fair values for loans and advances and their carrying value reflects changes ininterest rates and the credit worthiness of borrowers since loan origination.
Other financial assets
Included in this category are accrued interest and fees receivable. The carrying values of accrued interest andfees receivable are considered to approximate their net fair values as they are short term in nature or are
receivable on demand.
Financial assets designated at fair value through profit or loss
The NZ Banking Group has not reclassified any financial assets previously measured at amortised cost to fairvalue, or previously measured at fair value to amortised cost, during the year ended 30 September 2009
(30/09/2008 $nil).
FINANCIAL LIABILITIESDue to other financial institutions
The carrying value of short term financial instruments is their net fair value, or when longer term in nature, fairvalue is based on quoted market prices, or for those debt issues where quoted market prices were not available,
a discounted cash flow model using a yield curve appropriate for the remaining term to maturity of the debt
instrument is used.
Deposits and other borrowings
For interest bearing fixed maturity deposits and other borrowings with quoted market prices, market borrowing
rates of interest for debt with a similar maturity are used to discount contractual cash flows. The fair value of adeposit liability without a specified maturity or at call is deemed to be the amount payable on demand at thereporting date. The fair value is not adjusted for any value expected to be derived from retaining the deposit
for a future period of time.
Certain deposits and other borrowings have been designated at fair value through profit or loss and are carriedat fair value.
At balance date, the carrying amount of deposits and other borrowings designated by the NZ Banking Group at
fair value through profit or loss was $7,392 million (30/09/2008 $12,653 million). This is $4 million higher(30/09/2008 $17 million lower) than their amortised cost.
The accumulated amount of the change in fair value attributable to changes in credit risk on these liabilities wasless than $3 million (30/09/2008 less than $3 million).The change in fair value attributable to changes in credit
risk has been determined as the amount of change in fair value that is not attributable to changes in market
conditions that give rise to market risks (benchmark interest rate, and foreign exchange rates).
Bonds and notes, term funding and loan capital
The aggregate fair value of bonds and notes and loan capital is calculated based on quoted market prices. For
those debt issues where quoted market prices were not available, a discounted cash flow model using a yield
curve appropriate for the remaining term to maturity of the debt instrument is used.
Payables and other financial liabilities
This category includes accrued interest and fees payable for which the carrying amount is considered toapproximate the fair value.

88

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
34. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
Commitments and contingencies
As outlined in Note 41 Contingent Liabilities and Credit Related Commitments , the NZ Banking Group hasvarious credit related commitments. Based upon the level of fees currently charged for granting suchcommitments, taking into account maturity and interest rates, together with any changes in thecreditworthiness of counterparties since origination of the commitments, their estimated replacement or net fairvalue is not material.
Financial liabilities designated at fair value through profit or loss
Certain items included in deposits and other borrowings have been designated as financial liabilities at fair value
through profit or loss in order to eliminate an accounting mismatch which would arise if the liabilities wereotherwise carried at amortised cost. This mismatch arises where a derivative, which is required to be measured
at fair value through profit or loss, has been acquired to mitigate a financial risk within the financial liability.
VALUATION METHODOLOGY
A significant number of financial instruments are carried on the balance sheet at fair value. The NZ Banking
Group has implemented controls that ensure that the fair value is either determined, or validated, by a function
independent of the party that undertakes the transaction.
The best evidence of fair value is a quoted price in an active market. Accordingly, wherever possible fair value
is based on quoted market prices for the financial instrument. The net position of non-derivative financial
instruments with offsetting market risks and all derivative portfolios, are valued at the quoted bid price forassets and the quoted ask price for liabilities. The quoted market price is not adjusted for any potential impactthat may be attributed to a large holding of the financial instrument.
Where quoted market prices are used, independent price determination or validation is utilised. The results of
independent validation processes are reported to senior management, and adjustments to the fair values are
made as appropriate.
In the event that there is no quoted market price for the instrument, fair values are based on present value
estimates or other market accepted valuation techniques which include data from observable markets wherever
possible. The majority of valuation techniques employ only observable market data however, for certain
financial instruments the fair value cannot be determined in whole with reference to current market transactions
or valuation techniques whose variables only include data from observable markets. In respect of the valuation
component where market observable data is not available, the fair value is determined using valuation
techniques based on data derived and extrapolated from market data and tested against historic transactions
and observed market trends.
The valuation models incorporate the impact of the bid/ask spread, counterparty credit spreads and otherfactors that would influence the fair value determined by a market participant.
For fair values determined using a valuation model, the control framework may include, as applicable,
independent development or validation of: (i) valuation models; (ii) any inputs to those models; and (iii) any
adjustments required outside of the valuation model, and, where possible, independent validation of model
outputs.

89

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

Carrying amountFinancial assets
30/09/2009

At amortised cost
Otherfinancialassets at
amortised
Loans andcost
receivables$m$m

NZ Banking GroupAt fair value
thoughprofit or loss

Hedging

Availablefor-saleassetsSub-total$mHeld fortrading
$m

$m

$m

Total
$m

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

97,024
-

2,762
1,778
1,003

2,762
1,778
97,024
1,003

4,166
10,468
-

547
-

2,736
1,513
-

2,762
4,514
4,166
11,015
1,513
97,024
1,003

Total financial assets

97,024

5,543

102,567

14,634547

4,249

121,997

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

97,679
-

4,839
2,585
893

4,839
2,585
97,679
893

2,624
7,297
-

306
-

2,447
109
-

4,839
5,032
2,624
7,603
109
97,679893

Total financial assets

97,6798,317

105,996

9,921

306

2,556

118,779

30/09/2008

The following table summarises the carrying amounts and fair values of those financial assets not presented in
the NZ Banking Group’s balance sheet at their fair value:
NZ Banking Group
30/09/2009
Carrying
amountFair value$m$m
Liquid assets
Due from other financial institutions
Net loans and advances2
Other financial assets
Total financial assets at amortised cost
1.
2.

30/09/2008
Carrying
amountFair value
$m
$m

2,762
1,778
97,024
1,003

2,762
1,778
96,798
1,003

4,839
2,585
97,679
893

4,839
2,585
97,429893

102,567

102,341

105,996

105,746

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

90

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
34. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
At amortised cost
Carrying amountFinancial liabilities
30/09/2009$m

NZ Banking GroupAt fair value through profit or loss
Designatedon initial
Held forrecognition
trading
Sub-total$m$m$m

Hedging

$m

Total
$m

Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments1
Other financial liabilities
Bonds and notes2
Term funding
Loan capital

12,51464,372
1,149
17,540
1,766
2,596

7,392
-

9,817
-

7,392
9,817
-

1,157
-

12,514
71,764
10,974
1,149
17,5401,766
2,596

Total financial liabilities

99,937

7,392

9,817

17,2091,157

118,303

Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments1
Other financial liabilities
Bonds and notes2
Term funding
Loan capital

3,311
64,483
1,499
22,382
1,766
2,820

12,653-

5,708-

12,653
5,708
-

764
-

3,311
77,1366,472
1,499
22,382
1,766
2,820

Total financial liabilities

96,261

12,653

5,708

18,361

764

115,386

30/09/2008

The following table summarises the carrying amounts and fair values of those financial liabilities not presented
in the NZ Banking Group’s balance sheet at their fair value:
NZ Banking Group
30/09/09
Carrying
amountFair value$m$m

30/09/2008
Carrying
amountFair value$m$m

Due to other financial institutions
Deposits and other borrowings
Other financial liabilities
Bonds and notes2
Term funding
Loan capital

12,51464,372
1,149
17,5401,766
2,596

12,73264,404
1,149
17,502
1,766
2,516

3,311
64,483
1,499
22,382
1,766
2,820

3,295
64,532
1,499
21,8971,764
2,687

Total financial liabilities at amortised cost

99,937100,069

96,261

95,674

1.
2.

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

91

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

Carrying amountFinancial assets
30/09/2009

At amortised cost
Otherfinancialassets at
amortised
Loans andcost
receivables$m$m

NZ Branch
At fair value
thoughprofit or loss

Hedging

Availablefor-saleassetsSub-total$mHeld fortrading
$m

$m

$m

Total
$m

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

8,774
-

341
-

8,774
341
-

3
-

31
-

-

34
8,774
341
-

Total financial assets

8,774

341

9,115

3

31

-

9,149

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

-

-

-

-

-

-

-

Total financial assets

-

-

-

-

-

-

-

30/09/2008

The following table summarises the carrying amounts and fair values of those financial assets not presented in
the NZ Branch’s balance sheet at their fair value:
NZ Branch
30/09/09
Carrying
amountFair value$m$m

30/09/2008
Carrying
amountFair value$m$m

Liquid assets
Due from other financial institutions
Net loans and advances2
Due from related entities
Other financial assets

8,774
341
-

8,797
341
-

-

-

Total financial assets at amortised cost

9,115

9,138

-

-

1.
2.

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

92

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

At amortised cost
Carrying amountFinancial liabilities
30/09/2009$m

NZ Branch
At fair value through profit or loss
Designatedon initial
Held fortrading
Sub-total
recognition
$m
$m
$m

Hedging

$m

Total
$m

Due to other financial institutions
Deposits and other borrowings
Due to subsidiary companies
Derivative financial instruments1
Other financial liabilities
Bonds and notes2
Term funding
Loan capital

8,801
41
-

-

252
-

252
-

2
-

8,801
254
41
-

Total financial liabilities

8,842

-

252

252

2

9,096

30/09/2008
Due to other financial institutions
Deposits and other borrowings
Due to subsidiary companies
Derivative financial instruments1
Other financial liabilities
Bonds and notes2
Term funding
Loan capital

-

-

-

-

-

-

Total financial liabilities

-

-

-

-

-

-

The following table summarises the carrying amounts and fair values of those financial liabilities not presented
in the NZ Branch’s balance sheet at their fair value:
NZ Branch
30/09/09
Carrying
amountFair value$m$m

30/09/2008
Carrying
amountFair value$m$m

Due to other financial institutions
Deposits and other borrowings
Due to subsidiary companies
Other financial liabilities
Bonds and notes2
Term funding
Loan capital

8,801
41
-

9,019
41
-

-

-

Total financial liabilities at amortised cost

8,842

9,060

-

-

1.
2.

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

93

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
34. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Continued)
The table below provides an analysis of the methodology used for valuing financial assets and financial liabilities
that are required to be remeasured at fair value. The fair value of the financial instrument has been allocated infull to the category which most accurately reflects the determination of the fair value.
Valuation technique

Quoted market
price
$m

Using
observable
inputs$m

Using significant
non-observable
inputs
$m

Total
$m

2,736
1,261
1,413
45

2,905
100
11,015

-

2,736
4,166
1,513
11,0605,455

14,020-19,475

Financial liabilities
Derivative financial instruments
Commercial paper

2-10,974
7,392-

10,976
7,392

Total financial liabilities

2

18,366-

18,36830/09/2009
NZ Banking Group
Financial assets
Due from other financial institutions
Trading securities
Available-for-sale assets
Derivative financial instruments
Total financial assets

Valuation technique

Quoted market
price
$m

Using
observable
inputs$m

Using significant
non-observable
inputs
$m

Total
$m

Trading securities
Available-for-sale assets
Derivative financial instruments

-

34

-

34

Total financial assets

-

34

-

34

Derivative financial instruments

-

254

-

254

Total financial liabilities

-

254

-

254

30/09/2009
NZ Branch
Financial assets

Financial liabilities

94

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

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

Other
Includes Treasury and back office support functions, none of which constitutes a separately reportable segment.
As the composition of segments has changed over time, prior period comparatives have been adjusted to beconsistent with the 2009 segment definitions.

95

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

4

Retail Banking$m

NZ Banking Group
Commercial
Banking Institutional
$m
$m

Other
$m

Total
$m

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

4,405(1,775)(1,468)

2,696
(533)
(1,398)

439
(731)
758

(61)
(2,142)
2,108

7,479
(5,181)-

Net interest income

1,162

765

466

(95)

2,298

280

98

309

(20)

667

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

13

-

(2)

2

13

1,455

863

773

(113)

2,978

623
333

160
114

111
60

494
(416)

1,388
91

Operating expenses

956

274

171

78

1,479

Profit before provision for credit impairment and income tax

499

589

602

(191)

1,499

Provision for credit impairment

359

419

95

10

883

Profit before income tax

140

170

507

(201)

616

Operating income4
Other external expenses
Net intersegment and related party expenses3

Income tax expense

37

50

145

190

422

Profit after income tax

103

120

362

(391)

194

Non-cash expenses
Depreciation and amortisation

17

2

2

29

50

54,340327
38,98136,506
10,50929,966
38,6605,502
13730,849126,314464
118,999

Other
$m

Total
$m

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

Retail Banking$m

NZ Banking Group
Commercial
Banking Institutional$m$m

30/09/2008
External interest income
External interest expense
Net intersegment interest

4,729(2,498)
(951)

3,219
(819)
(1,618)

1,873(1,247)(472)

37(3,265)
3,041

9,858
(7,829)-Net interest income

1,280

782

154

(187)

2,029

506

82

413

14

1,015

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

23

-

-

88

111

1,809

864

567

(85)

3,155

Other external expenses
Net intersegment and related party expenses3

632
337

155
114

102
55

474
(424)

1,363
82

Operating expenses

969

269

157

50

1,445
1,710

Operating income

Profit before provision for credit impairment and income tax

840

595

410

(135)

Provision for credit impairment

179

108

13

2

302

Profit before income tax

661

487

397

(137)

1,408

Income tax expense

211

158

118

(69)

418

Profit after income tax

450

329

279

(68)

990

Non-cash expenses
Depreciation and amortisation

16

1

2

27

46

55,779212
39,17236,153
11,717

26,56428,786

4,582
151
36,276

123,078363
115,951

Balance sheet
Total external assets
Share in associates and jointly controlled entities
Total external liabilities
1.
2.
3.
4.

Results are equity standardised.
Intersegment transfers are accounted for and determined on an arm's length or cost recovery basis.
Net intersegment expenses are eliminated at the Overseas Bank level.
Includes $211 million charge in relation to ING New Zealand Funds. Refer to Note 41 Contingent Liabilities and Credit Related Commitments for further details.

96

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
36. NOTES TO THE CASH FLOW STATEMENTS
NZ Banking GroupYear toYear to30/09/2009
30/09/2008$m$m

NZ Branch
Year toYear to30/09/2009
30/09/2008$m$m

Reconciliation of profit after income tax to net cash flows
provided by (used in) operating activities
Profit after income tax

194

990

28

-

Non-cash items:
Depreciation and amortisation
Provision for credit impairment
Deferred fee revenue and expenses
MtM derivatives through profit or loss
Share-based payments expense
Amortisation of capitalised brokerage/ mortgage origination fees

50
883
(8)
10
18
54

46
302
(3)
13
57

9
10
4

-

(1,356)
138
(259)
1
41
100
76
183

(3,699)
2
206
(8)
46
25
56
(43)

(117)
41
2
12

-

(11)

(111)

-

-

Deferrals or accruals of past or future operating
cash receipts or payments:
Increase in operating assets and liabilities
Decrease in interest receivable(Decrease) increase in interest payable
Decrease (increase) in accrued income
Increase in accrued expenses
Increase in provisions
Amortisation of premiums and discounts
Decrease (increase) in income tax assets
Items classified as investing/financing:
Share of profit of equity accounted associates andjointly controlled entities
Loss on disposal of premises and equipment

(13)

1

-

-

Net cash flows used in operating activities

101(2,120)(11)-

NZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009$m

30/09/2008$m

Reconciliation of core liquidity portfolio to cash and cash equivalents
The NZ Banking Group's core liquidity portfolio held for managing liquidity risk comprises:

Cash and balances with central banks
Securities purchased under agreement to resell
Certificates of deposit
Government, Local Body stock and bonds
Available-for-sale assets
Other bank bonds

2,207
1,075
2,736
1,102
1,435
2,522

3,779
134
3,343
180
1,300

-

-

11,077

8,736

-

-

556
550

1,060
1,948

-

-

Non-cash items included within liquidity portfolio
Trading securities
Available-for-sale assets
Due from other financial institutions - greater than 90 days

(3,624)(1,435)(2,358)(2,376)(1,578)--

Total cash and cash equivalents

4,766

7,790

-

-

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

2,763
2,003

4,839
2,951

-

-

Total cash and cash equivalents

4,766

7,790

-

-

Total liquidity portfolio1
Reconciliation to cash and cash equivalents:
Other cash items not included within liquidity portfolio:
Liquid assets not with central banks
Due from other financial institutions - less than 90 days

1.

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

97

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
37. SIGNIFICANT CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED
ENTITIES AS AT 30 SEPTEMBER 2009
Controlled entities
Airlie Investments Limited
Alos Holdings Limited
ANZ Capel Court Limited (New Zealand Branch)
ANZ Capital NZ Limited
ANZ Holdings (New Zealand) Limited
ANZ Investment Services (New Zealand) Limited
ANZ National Bank Limited
ANZ National (Int'l) Limited
ANZ National Staff Superannuation Limited
ANZ Nominees Limited (New Zealand Branch)
ANZ Securities (NZ) Limited
ANZMAC Securities (NZ) Nominees Limited
APAC Investments Limited
Arawata Assets Limited
Arawata Capital Limited
Arawata Finance Limited
Arawata Funding Limited
Arawata Holdings Limited
Arawata Securities Limited
Arawata Trust
Arawata Trust Company
BHI Limited
CBC Finance Limited (incorporated in United Kingdom)
Control Nominees Limited
Cortland Finance Limited
Corvine Investments Limited
Culver Finance Limited
Direct Broking Limited
Direct Nominees Limited
EFTPOS New Zealand Limited
Endeavour Finance Limited
Endeavour Securities Limited
General Finance Custodians Limited
Harcourt Corporation Limited
Harcourt Investments Limited
Karapiro Investments Limited
Kingfisher NZ Trust 2008-1
National Bank of New Zealand Custodians Limited
NBNZ Finance Limited
NBNZ Holdings Hong Kong Limited (incorporated in Hong Kong)
NBNZ Holdings Limited
Origin Mortgage Management Services Limited
Origin Mortgage Management Services (2008) Limited
Private Nominees Limited
Radiola Corporation Limited
Rural Growth Fund Limited
Samson Funding Limited
Sefton Finance Limited
South Pacific Merchant Finance Limited
Southpac Corporation Limited
Trillium Holdings Limited
Tui Endeavour Limited
Tui Securities Limited
UDC Finance Limited

Ownership
Interest %
100
100
100
100
100
100
100
100
100
100
100
100
65
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

98

Balance
Date
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
31 December
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
31 March
30 September
30 September
30 September
30 September
30 September
30 September
31 December
30 September
31 March
31 March
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September

Nature of business
Investment company
Investment company
Securitisation services company
Investment company
Investment company
Funds management company
Registered bankFinance company
Staff superannuation scheme trustee
Nominee company
Nominee company
Nominee company
Finance company
Property company
Investment company
Investment company
Investment company
Investment company
Finance company
Finance entity
Investment company
Investment company
Finance company
Finance company
Investment company
Investment company
Investment company
On-line share broker
Nominee company
Eftpos service provider
Investment company
Investment company
Mortgage finance
Investment company
Investment company
Non operative
Finance entity
Nominee and custody services
Finance company
Non operative
Finance company
Mortgage financeMortgage financeNominee company
Distribution company
Investment company
Finance company
Investment company
Investment company
Investment company
Finance company
Investment company
Investment company
Finance company

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
37. SIGNIFICANT CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED
ENTITIES AS AT 30 SEPTEMBER 2009 (Continued)
All controlled entities are incorporated in New Zealand, unless stated.
The ownership interest percentage may be held either directly or through other controlled entities of the
Ultimate Parent Bank.
For all controlled entities, with the exception of General Finance Custodians Limited, Origin Mortgage
Management Services Limited and Origin Mortgage Management Services (2008) Limited, the ownershipinterest percentage equates to the voting power held. In relation to these companies, control exists through the
NZ Banking Group having 100% of the voting rights.
In relation to Arawata Trust and Kingfisher NZ Trust 2008-1, control exists through ANZ National Bank Limited
being trustee of the Trusts.
Movements in controlled entities
On 7 November 2007, the NZ Banking Group exited its controlling interest in Amberley Investments (50%ownership).
On 7 November 2007, the NZ Banking Group exited its controlling interest in Endeavour Caterpillar New ZealandFinance Company (50% ownership).
On 3 December 2007, Radiola NZ Limited was incorporated as a subsidiary of the NZ Banking Group, and on 23
May 2008 changed its name to Radiola Corporation Limited.
On 8 January 2008, the NZ Banking Group exited its controlling interest in Nerine Finance No. 2 (65%
ownership).
On 23 January 2008, ANZ Commodity Trading (New Zealand Branch) was deregistered as an overseas company
in New Zealand.
On 5 March 2008, the NZ Banking Group purchased a 100% interest in Technical Solutions Limited. On 9 April
2009, Technical Solutions Limited was amalgamated with Direct Broking Limited.
On 11 April 2008, Pioneer First Limited changed its name to Origin Mortgage Management Services (2008)
Limited.
On 17 October 2008, ETRADE New Zealand Limited, ETRADE New Zealand Securities Limited and ETRADE New
Zealand Securities Nominees Limited were deregistered.
On 2 April 2009, the Bank ceased to control Marmion Trust. Control previously existed through the undertakingof the majority of risks and rewards relating to a particular transaction. This transaction was unwound on 2
April 2009.
Associates
30/09/2009
Book Value$m

30/09/2008
Book Value$m

Cards NZ Limited
Paymark Limited
EXCCL Limited (in receivership)
ING Diversified Yield Fund
ING Regular Income Fund
Mondex New Zealand Limited
NZ Poultry Enterprises Limited
UCG Investments Limited
Wyma Engineering (NZ) Limited

85
2
46
21
41
13

86
2
40
13

3

3

Total investment in associates

211

144

Associates

VotingInterest %Ownership
Interest %Balance
Date

30
25
45
49
49
40
20
40
31

15
25
81
49
49
40
20
40
31

30 September
31 March
30 September
30 June30 June31 December
30 April
31 March
31 March

Nature of business
Card services
Eftpos settlements
Plastics manufacturing and recycling
Fixed income fundFixed income fund
Card services
Poultry processor
Rest home operator
Agricultural machinery supplier

All associates are incorporated in New Zealand, excluding the ING Diversified Yield Fund and ING Regular
Income Fund which are incorporated in Australia.

99

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
37. SIGNIFICANT CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED
ENTITIES AS AT 30 SEPTEMBER 2009 (Continued)
Movements in associates
On 25 February 2008, ANZ Capital NZ Limited acquired a 20% ownership interest in NZ Poultry Enterprises
Limited.
From 28 November 2007, ANZ Capital NZ Limited purchased five further tranches of UCG Investments Limited.
On 28 August 2009, the Banking Group acquired an interest in the ING Diversified Yield Field and ING Regular
Income Fund.
On 21 September 2009, Electronic Transactions Services Limited changed its name to Paymark Limited.
Jointly controlled entities
30/09/2009
Book Value$m

30/09/2008
Book Value$m

Argenta Limited
BCS Group Limited
ING (NZ) Holdings Limited
JMI Aerospace Limited

2
2
248
1

2
4
212
1

Total investment in jointly controlled entities

253

219

Jointly controlled entities

VotingInterest %Ownership
Interest %

21
40
50
33

21
40
49
33

BalanceDate
31 July
30 June31 December
31 March

Nature of business
Manufacture and marketing of animal remedies
Manufacturer of baggage handling systems
Funds management and insurance
Airline maintenance and service provider

All jointly controlled entities are incorporated in New Zealand.
The NZ Banking Group has joint control of all these entities due to a combination of control factors, none ofwhich gives either party overall control.
The summarised financial information relating to the NZ Banking Group's investment in ING (NZ) Holdings
Limited is as follows:
NZ Banking Group
30/09/2009 30/09/2008$m$m
Share of assets and liabilities
Investments
Other assets

91
171

78
160

Total assets

262

238

Life insurance policy liabilities
Other liabilities

(46)
63

(3)
11

Total liabilities

17

8

245

230

84
32

66
25

Total revenue

116

91

Expenses

108

75

Profit before income tax

8

16

Income tax expense

(5)

(6)

Profit after tax

13

22

Share of commitments
Lease commitments

17

8

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

There are no unrecognised losses in respect of any of the NZ Banking Group's jointly controlled entities. The NZ
Banking Group's share of the contingent liabilities of its joint ventures are incurred jointly with other investors.
Other than as referred to in Note 41, there were no material contingent liabilities as at 30 September 2009
(30/09/2008 $nil).

100

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
38. ULTIMATE PARENT BANKThe Ultimate Parent Bank is Australia and New Zealand Banking Group Limited which is incorporated inAustralia.

39. SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIES AND THE MARKETINGAND DISTRIBUTION OF INSURANCE PRODUCTS
Securitisation
The NZ Banking Group enters into transactions in the normal course of business by which it transfers financial
assets directly to third parties or to special purpose entities. These transfers may give rise to the full or partial
derecognition of those financial assets.
••

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

In May 2008, the RBNZ expanded the range of acceptable collateral that banks can pledge and borrow against
as part of changes to its liquidity management arrangement designed to help ensure adequate liquidity for New
Zealand financial institutions in the event that global market disruption was to intensify. From 31 July 2008,
acceptable collateral includes residential mortgage backed securities ("RMBS") that satisfy RBNZ criteria.
On 10 October 2008, the NZ Banking Group established an in-house RMBS facility that could issue securities
meeting the RBNZ criteria. The establishment of the facility resulted in the ANZ National Bank Limited financial
statements recognising a payable and receivable of equal amount totalling $3,721 million to Kingfisher NZ Trust
2008-1 ("the Trust"), a newly established consolidated entity. On 12 December 2008, a further tranche totalling$5,521 million was also sold to the Trust, creating a second payable and receivable of equal amount. Theseassets do not qualify for derecognition as the NZ Banking Group retains a continuing involvement in thetransferred assets, therefore the NZ Banking Group’s financial statements do not change as a result of
establishing these facilities.
The RMBS facility is dynamic in nature reflecting the underlying movement in loan balances. To the extent thatany loans are found to be ineligible in terms of the RBNZ criteria, they are automatically removed from thefacility. Additional lending to existing RMBS customers is added into the facility on a quarterly basis.
The establishment of this facility increases the NZ Banking Group’s contingent funding ability from the RBNZ.
Funds management
Certain subsidiaries of the NZ Banking Group act as trustee and/or manager for a number of unit trusts andinvestment and superannuation funds. ANZ National Bank Limited provides private banking services to anumber of clients, including investment advice and portfolio management. The Group is not responsible for any
decline in performance of the underlying assets of the investors due to market forces.
As funds under management are not controlled by the NZ Banking Group, they are not included in thesefinancial statements. The NZ Banking Group derives fee and commission income from the sale and managementof investment funds and superannuation bonds, unit trusts and the provision of private banking services to anumber of clients. The NZ Banking Group derives commission income from the sale of third party funds
management products.
Some funds under management are invested in products owned or securities issued by the NZ Banking Groupand are recorded as liabilities in the balance sheet. At 30 September 2009, $2,664 million of funds undermanagement were invested in the NZ Banking Group's own products or securities (30/09/2008 $2,229 million).
Funds management activities conducted by the ING New Zealand joint venture are not included in the funds
managed by the NZ Banking Group, as the NZ Banking Group does not have control of the ING New Zealandjoint venture.
101

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
39. SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIES AND THE MARKETINGAND DISTRIBUTION OF INSURANCE PRODUCTS (Continued)
The aggregate value of funds managed by the NZ Banking Group at balance date was:NZ Banking Group
30/09/2009 30/09/2008$m$m
Bonus Bonds
Discretionary funds

2,889
4,360

2,417
3,440

Totals funds under management

7,249

5,857

On 1 October 2007, the Direct Broking Call Account was registered as a portfolio investment entity ("PIE").
On 25 March 2008, the UDC Superbonds Superannuation Scheme managed by UDC Finance Limited was woundup.
On 1 April 2008, the National Bank Call Fund, Private Banking Portfolio Call Fund and National Bank Private
Banking Call Fund, all managed by ANZ Investments Services (New Zealand) Limited, commenced as PIEs. The
funds invest in call deposits with the Bank.
On 9 April 2008, the Term Maximiser Fund and Call Maximiser Fund managed by UDC Finance Limited
commenced as PIEs. The funds invest in secured debentures issued by UDC Finance Limited.
On 1 October 2008, the ANZ Call Fund and ANZ Term Fund, managed by UDC Finance Limited, commenced as
PIEs. The funds invest in New Zealand dollar call and term deposits with the Bank.
Custodial services
The NZ Banking Group provides custodial services to customers in respect of assets that are beneficially ownedby those customers.
Marketing and distribution of insurance products
The NZ Banking Group markets and distributes a range of insurance products which are underwritten by several
insurance companies. These activities are managed in association with the ING New Zealand joint venture.
Insurance business
The NZ Banking Group does not conduct any insurance business directly, although the NZ Banking Group holds
a 49% share in the ING NZ joint venture which does conduct insurance business.
Provision of financial services
Financial services provided by the NZ Banking Group to entities which are involved in trust, custodial, funds
management and other fiduciary activities, and to affiliated insurance companies which conduct marketing or
distribution of insurance products, or on whose behalf the marketing or distribution of insurance products are
conducted, are provided on arm’s length terms and conditions and at fair value. Any assets purchased from such
entities have been purchased on an arm’s length basis and at fair value.
The NZ Banking Group has not provided any funding to entities except standard lending facilities provided in thenormal course of business on arm’s length terms which conduct any of the following activities: trust, custodial,funds management or other fiduciary activities established, marketed and/or sponsored by a member of the NZ
Banking Group (30/09/2008 $nil).
Risk management
The entities of the NZ Banking Group participating in the activities identified above have in place policies andprocedures to ensure that those activities are conducted in an appropriate manner. Should adverse conditions
arise, it is considered that these policies and procedures will minimise the possibility that these conditions will
adversely impact the Registered Bank. The policies and procedures include comprehensive and prominent
disclosure of information regarding products, and formal and regular review of operations and policies bymanagement.

102

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

Application forms for insurance products contain acknowledgements to be signed by a purchaser which areconsistent with the disclosures for insurance products noted above.
In addition, the following measures have been taken to manage any risk to the entities within the NZ Banking
Group of marketing and distributing fund management products:
Prospectuses, investment statements and brochures for funds management products include disclosures
that:
•
•
•

the securities do not represent deposits or other liabilities of the entities within the NZ Banking Group;
the securities are subject to investment risk including possible loss of income and principal invested; andthe entities within the NZ Banking Group does not guarantee the capital value or performance of the
securities.

Application forms for funds management products contain acknowledgements to be signed by a purchaser which
are consistent with the disclosures for funds management products noted above.

40. COMMITMENTS
NZ Banking Group
30/09/2009
30/09/2008$m$m

NZ Branch
30/09/2009
30/09/2008$m$m

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

19

26

-

-

Total capital expenditure commitments

19

26

-

-

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

82
155
31

86
167
27

-

-

Total lease rental commitments

268

280

-

-

Total commitments

287

306

-

-

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

103

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
41. CONTINGENT LIABILITIES AND CREDIT RELATED COMMITMENTS
For contingent exposures, the maximum exposure to credit risk is the maximum amount that the NZ Banking
Group would have to pay if the contingent exposure is called upon. For undrawn facilities, the maximum
exposure to credit risk is the full amount of the committed facilities.
NZ Banking Group
Face or contract value
30/09/2009
30/09/2008$m$m

NZ Branch
Face or contract value
30/09/2009 30/09/2008$m$m

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

735
22,128659
23,15034-

Total credit related commitments

22,86323,80934-

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

1,753
341
982
89

2,017
401
1,090
118

-

-

Total contingent liabilities

3,165

3,626

-

-

The NZ Banking Group guarantees the performance of customers by issuing standby letters of credit andguarantees to third parties, including its Ultimate Parent Bank. The risk involved is essentially the same as thecredit risk involved in extending loan facilities to customers, therefore these transactions are subjected to thesame credit origination, portfolio management and collateral requirements for customers applying for loans. As
the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash
requirements.
A summary of contingent liabilities is set out below.
Contingent tax liability
The New Zealand Inland Revenue Department ("IRD") is reviewing a number of structured finance transactions
as part of an audit of the 2000 to 2005 tax years. A number of cases are before the courts and two decisions
have been issued in the High Court, on 16 July 2009 and 7 October 2009, in favour of the IRD in respect ofproceedings taken against other Banks.
The NZ Banking Group has a provision which covers its exposure to primary tax and interest (tax–effected), netof an amount receivable from Lloyds Banking Group plc (“Lloyds”) reflecting an indemnity given by Lloyds under
the agreement by which the NZ Banking Group acquired the NBNZ Holdings Limited Group.
The possible application of penalties has yet to be considered by the IRD. Having regard to the circumstances
and advice received, the Bank considers the application of penalties to be both inappropriate and unlikely.
All of these transactions have now either matured or been terminated.
Other audits and risk reviews are being undertaken by the IRD and by revenue authorities in other jurisdictions,as part of normal revenue authority activity in those countries.
The NZ Banking Group has assessed these and other taxation claims arising in New Zealand, including seeking
independent advice where appropriate, and considers that it holds appropriate provisions.

104

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
41. CONTINGENT LIABILITIES AND CREDIT RELATED COMMITMENTS (Continued)
Commerce Commission
In November 2006, the Commerce Commission brought proceedings under the Commerce Act 1986 against
Visa, MasterCard and all New Zealand issuers of Visa and MasterCard credit cards, including ANZ National Bank
Limited. The Commerce Commission alleged price fixing and substantially lessening competition in relation to
the setting of credit card interchange fees.
Subsequently, several major New Zealand retailers issued proceedings against ANZ National Bank Limited andthe other abovementioned defendants seeking unquantified damages, based on allegations similar to thosecontained in the Commerce Commission proceedings.
ANZ National Bank Limited settled the claims with the Commission and the retailers without any admission of
liability. Similar settlements were reached by the other parties. The proceedings against all parties werediscontinued in October 2009.
In addition, ANZ National Bank Limited is aware that the Commerce Commission is looking closely at credit
contract fees under the Credit Contracts and Consumer Finance Act 2003 ("CCCFA"). In its 2008-2011
Statement of Intent the Commission stated that:“The Commission is turning more to litigation under the Credit Contracts and Consumer Finance Act to ensure
credit contract fees are reasonable and disclosed. Currently the credit industry is not fully compliant with thelegislation and taking more action through the courts will encourage better compliance and clarify any areas ofthe law that may be uncertain.”In particular ANZ National Bank Limited is aware that the Commerce Commission is investigating the level ofdefault fees charged on credit cards and the level of currency conversion charges on overseas transactions using
credit cards under the CCCFA. The Commission is also investigating early repayment charges on fixed rate
mortgages. At this stage the possible outcome of these investigations and any liability or impact on fees cannot
be determined with any certainty.
ING New Zealand Funds
ANZ National Bank Limited ("the Bank") markets and distributes a range of wealth management products in
New Zealand, which are managed by ING (NZ) Limited. Trading in the ING Diversified Yield Fund and the ING
Regular Income Fund ("the Funds") was suspended on 13 March 2008, due to deterioration in the liquidity andcredit markets. Units in these Funds were sold by the Bank to Bank customers.
On 5 June 2009, ING NZ AUT Investments Limited, a subsidiary of ING (NZ) Limited, made an offer to investors
in the Funds. The offer closed on 13 July 2009. Investors holding approximately 99% of the funds accepted theoffer and have received a payment of 60 cents per unit in the ING Diversified Yield Fund or 62 cents per unit in
the ING Regular Income Fund, as applicable, either (i) in cash, or (ii) by way of deposit in an on-call accountwith the Bank, paying 8.30% per annum fixed for up to five years.
Although acceptance of this offer includes a waiver of claims, Bank customers were offered an additional
opportunity to access the Bank customer complaints team (and, where still unsatisfied, the New Zealand
Banking Ombudsman) even where the investors have accepted the offer. This opportunity was available until 31
July 2009 and approximately 1,300 customers asked for their circumstances to be considered.
The Commerce Commission has sought information regarding the Funds and the sale of units in the Funds andis investigating this matter. At this stage it is not possible to predict the outcome of any investigation.
The Bank considers it has adequately provided for these obligations at this time. Allowance for the cost to the
Bank is recognised as a reduction in other operating income in the income statement for the year ended 30
September 2009 with a corresponding provision in the balance sheet.
The ultimate cost to the Bank will depend on the final value of units in the Funds, any recoveries underinsurance, the assessment and outcome of the customer complaints and the results of any litigation andregulatory proceedings that may be brought in connection with the Funds or their sale.

105

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
41. CONTINGENT LIABILITIES AND CREDIT RELATED COMMITMENTS (Continued)
Other contingent liabilities
The NZ Banking Group has other contingent liabilities in respect of actual and potential claims and proceedings.
An assessment of the NZ Banking Group’s likely loss in respect of these matters has been made on a case-bycase basis and provision made where appropriate. As at 30 September 2009, there were no other contingent
assets or liabilities required to be disclosed (30/09/2008 $nil).

42. EMPLOYEE SHARE AND OPTION PLANS
The NZ Banking Group participates in the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan
operated by the ANZ Banking Group. Any shares or options granted under these plans are shares in Australia
and New Zealand Banking Group Limited.
The closing market price of one ordinary share of ANZ quoted on the Australian Stock Exchange ("ASX") at 30
September 2009 was A$24.39 (30/09/2008 A$18.75).
ANZ EMPLOYEE SHARE ACQUISITION PLAN
The ANZ Employee Share Acquisition Plan includes the A$1,000 Share Plan, the Deferred Share Plan and the
Restricted Share Plan.
A$1,000 share plan
Each permanent employee who has had continuous service for one year with the NZ Banking Group is eligible toparticipate in a scheme enabling the issue of up to A$1,000 of shares of ANZ in each financial year, subject tothe approval of the Ultimate Parent Bank Board. The shares vest subject to satisfaction of a three year service
period but may be forfeited in the event of resignation or termination for serious misconduct. On expiration ofthat period, an employee may sell the shares, transfer them into their name, or have them retained in trust.
The issue price is based on the one-day volume weighted average price ("VWAP") of the shares traded on the
ASX on the date of issue.
The NZ Banking Group's employees are required to pay NZ 1 cent per share at the time the shares aretransferred to them. During the year to 30 September 2009, 540,305 shares with an average issue price of
A$14.94 were issued under the A$1,000 Share Plan (30/09/2008 267,523 shares with an average issue price of
A$27.96 were issued).
Deferred share plan
The NZ Banking Group's last issue of shares under this plan was in November 2004. Selected employees were
issued deferred shares, which vest subject to satisfaction of a minimum three year service period from the dateof issue. Ordinary shares issued under this plan may be held in trust for up to 10 years, and may be required tomeet performance hurdles before being able to be traded after the restriction period has expired. The issue
price is based on the VWAP of the shares traded on the ASX in the five trading days leading up to and including
the date of issue. Unvested shares are forfeited on resignation or dismissal, or if a performance condition has
not been met.
Restricted share plan
Restricted Shares are available to selected employees and are issued under the ANZ Employee Share Acquisition
Plan. Selected employees have the option to take some (or all) of their incentive payment as Restricted Shares.
The shares are held in trust and may not be traded until the conclusion of the one-year restriction period, after
which they may be transferred into the employee's name. Until they are transferred into the employee's name,they continue to be subject to forfeiture on termination for serious misconduct.
Shares valuations
The fair value of services received in return for shares in the ANZ Employee Share Acquisition Plan aremeasured by referring to the fair value of ANZ shares granted. The fair value of shares granted in the current
period, measured at the date of grant of the shares, is NZ $9.8 million based on 540,305 shares at a weighted
average price of A$14.94 converted at the exchange rate of 0.8232 (30/09/2008 NZ $8.5 million based on
267,523 shares at a weighted average price of A$27.96 converted at the exchange rate of 0.8809 were issued).
The average issue price of shares granted and the number of shares that are expected to ultimately vest to theemployees at the end of the vesting period are used to calculate the fair value of shares. No dividends areincorporated into the measurement of the fair value of shares.

106

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
42. EMPLOYEE SHARE AND OPTION PLANS (Continued)
ANZ SHARE OPTION PLAN
Selected employees may be granted options, which entitle them to purchase ordinary fully paid shares in ANZ ata price fixed at the time when the options were issued. Voting and dividend rights will be attached to theunissued ordinary shares when the options have been exercised. Each option entitles a holder to purchase one
ordinary share subject to any terms and conditions imposed on issue. The exercise price of the options(excluding zero-priced options) is determined in accordance with the rules of the plan, and is based on theweighted average price of the Ultimate Parent Bank's shares traded during the five business days preceding thedate of granting the options.
The main schemes of the ANZ Share Option Plan are as follows:
Current option plans
Special Retention Deferred Share Rights
This is a programme available to certain Banking Group employees. It grants the right to acquire ANZ shares atnil cost subject to satisfactorily meeting the time based hurdle. The Special Retention Deferred Share Rights
can only be exercised between the third and fifth anniversary of their allocation (the ‘Exercise Period’). In thecase of resignation, only rights that become exercisable by the end of the notice period may be exercised. A
grace period is provided in which to exercise the rights. All other rights will lapse. In the case of termination on
notice, retrenchment, retirement, death or total and permanent disablement, a grace period is provided in which
to exercise all deferred share rights.
Performance rights planThis scheme is a long term incentive programme available to certain NZ Banking Group employees sinceNovember 2005 and grants the right to acquire ANZ shares at nil cost, subject to a three year vesting period
and a Total Shareholder Return ("TSR") performance hurdle. The proportion of rights that will become
exercisable will depend upon the TSR achieved by ANZ relative to the companies in the comparator group,
which consists of selected major financial services companies in the Standard & Poor's and ASX 100 Index.
Performance equal to the median TSR of the comparator group will result in half the rights becoming
exercisable. Performance above the median will result in further performance rights becoming exercisable,
increasing on a straight line basis until all of the rights become exercisable where ANZ's TSR is at or above the75th percentile in the comparator group.
The TSR hurdle will only be tested once at the end of the three-year vesting period. If the rights do not pass thehurdle on testing date, or if they pass the hurdle on testing date and are not exercised by the end of five years
from the grant date, the rights will lapse. In the case of resignation or termination on notice, only rights that
become exercisable by the end of the notice period may be exercised. A grace period is provided in which toexercise the rights. All other rights will lapse. In the case of retrenchment or retirement, performance rights will
be performance tested at the date of termination and where performance hurdles have been met, performancerights will be pro-rated and a grace period provided in which to exercise the rights. In case of death or total andpermanent disablement, a grace period is provided in which to exercise all performance rights.
LTI Deferred Share Rights
This scheme is a long term incentive programme available to certain Banking Group employees and grants theright to acquire a share at nil cost, subject to satisfactorily meeting the time based hurdle. The LTI Deferred
Share Rights can only be exercised between the third and fifth anniversary of their allocation (their 'Exercise
Period').
In the case of resignation, all unvested LTI Deferred Share Rights (in addition to any vested
unexercised rights) as at the time notice of resignation is given, will be forfeited. In case of termination on
notice by ANZ, all unvested LTI Deferred Share Rights as at the time notice of termination of notice is received,
will be forfeited. Any vested unexercised LTI Deferred Share Rights will be delivered as shares. In case ofretrenchment (redundancy), any unvested LTI Deferred Share Rights as at the termination date will be prorated and be delivered as shares. In case of death or total and permanent disablement, all LTI Deferred Share
Rights will vest and be delivered as shares.
Deferred share rights
This scheme is a short term incentive programme available to certain NZ Banking Group employees sinceNovember 2004 and grants the right to acquire ANZ shares at nil cost after a specified vesting period ranging
from one to three years. Deferred share rights must be exercised by the seventh anniversary of grant date. In
the case of resignation, only rights that become exercisable by the end of the notice period may be exercised. A
grace period is provided in which to exercise the rights. All other rights will lapse. In the case of termination on
notice, retrenchment, retirement, death or total and permanent disablement, a grace period is provided in which
to exercise all deferred share rights.

107

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
42. EMPLOYEE SHARE AND OPTION PLANS (Continued)
Deferred share options
This scheme is a part of the short term incentive programme available whereby certain Banking Group
employees receive a mandatory deferred bonus under ANZ's Short Term Incentive ("STI") programme. The
options can only be exercised between the first and fifth anniversary (one-year deferred options) and between
the second and fifth anniversary (two-year deferred options) of the grant date (exercise period) and subject tothe requirement that the share price is greater than the exercise price. In the case of dismissal for serious
misconduct, irrespective of whether it is on notice or not, all unvested STI deferred options and any vested
unexercised options will be forfeited. In the case of resignation, all unvested STI deferred options and any
vested unexercised options as at the time notice of resignation is given will be forfeited. In the case of
redundancy, retrenchment, death or total and permanent disablement, all STI deferred options will vest and agrace period is provided in which to exercise all deferred share options.
Legacy option plans
Performance options planThis scheme is a long term incentive programme available to certain NZ Banking Group employees. The options
can only be exercised after a three year vesting period and before the seventh anniversary of the grant date.
There are no other performance conditions attached to these options. All unexercised options are generally
forfeited on resignation but any options to which the NZ Banking Group employee is entitled will need to be
exercised within a specified period of termination. On retrenchment, entitlements to options will be pro-rated
over the three year vesting period. On death or total and permanent disablement, all unvested options will
become available for exercise. No further performance options have been granted to NZ Banking Group
employees after November 2005.
Zero-price options ("ZPO")A ZPO is a right to acquire an ANZ share at nil cost and is granted to certain employees as part of theiremployment contracts. The ZPO's have no time based vesting criteria, so can be exercised at any time during
employment and within 6 months of termination of employment. ZPO's must be exercised within two years ofgrant date or they lapse.
Other past option plans which are no longer available to the NZ Banking Group's employees, but continue to beamortised during their appropriate vesting periods are hurdled options and index linked options ("ILOs").
Details of the options over unissued ANZ ordinary shares and their related weighted average exercise prices asat the beginning and end of the year and movements during the year are set out below:
NZ Banking Group
30/09/2009
Weighted
average
Number ofsharesexercise price1
A$

30/09/2008
Weighted average
Number ofsharesexercise price1
A$

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

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

10.86
2.51
5.73
10.44

1,616,716
376,715(130,988)(120,672)

13.93
16.13
12.27

Share options at end of the year

2,067,345

8.32

1,741,771

10.86

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

16.53
0.00 - 23.49

21.37
0.00 - 23.49

35 months

36 months

Options valuations
The fair value of services received in return for share options are measured by referring to the fair value of ANZshare options granted. The fair value of options granted in the current period, measured at the date of grant arecalculated using one of the following models:a. Monte-Carlo simulation model utilising the assumptions underlying Black-Scholes. In terms of factoring inearly exercise, the model assumes that deferred share rights and performance rights are exercised as soon
as they vest so that the option holder can benefit from the dividends. It assumes that the performance
options are exercised when the share price reaches twice the exercise price; orb. An adjusted form of the Binomial Option pricing model ("BOM"). In terms of factoring in early exercise, themodel assumes that the expected life of vanilla options is 5 years, performance rights is 4 years and thatdeferred share rights are exercised immediately to account for lack of marketability.
1.

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

108

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
42. EMPLOYEE SHARE AND OPTION PLANS (Continued)
In addition, both models are designed such that they take into account as appropriate, any performance hurdles
and non-transferability of the options.
The following inputs are used to measure the fair value of instruments granted during the period. All prices arequoted in Australian dollars:
Option typeSpecial retention
deferred sharerightsPerformancerightsLTI deferredshare rights

STI deferredshare rights

STI restricteddeferred sharerightsGrant date
Number of options
Option value
Exercise price (5 day VWAP)
Share price at grant ($A)
ANZ expected volatility 2
Option term
Vesting period
Expected life
Expected dividends
Risk free interest rate

9-Dec-2008
18,210$11.84$nil$14.1034%
5 years
3 years
3 years
6.00%
3.49%

31-Oct-2008
50,050$9.99$nil$17.3630%
5 years
3 years
3 years
6.00%
4.25%

31-Oct-2008
364,112$14.58$nil$17.3630%
5 years
3 years
3 years
6.00%
4.48%

31-Oct-2008
89,121$15.45$nil$17.3630%
5 years
2 years
2 years
6.00%
4.48%

31-Oct-2008
601$16.38$nil$17.3630%
5 years
1 year
1 year
6.00%
4.28%

Option type

STI deferredshare rights

STI restricted
share rights

STI deferredshare rights

STI deferredshare rights

Grant date
Number of options
Option value
Exercise price (5 day VWAP)
Share price at grant ($A)
ANZ expected volatility 2
Option term
Vesting period
Expected life
Expected dividends
Risk free interest rate

31-Oct-2008
84,058$16.38$nil$17.3630%
5 years
1 year
1 year
6.00%
4.28%

31-Oct-2008
28,851$2.80$17.18$17.3630%
5 years
1 year
1 year
6.00%
4.48%

31-Oct-2008
37,400$2.94$17.18$17.3630%
5 years
2 years
2 years
6.00%
4.64%

31-Oct-2008
37,402$2.80$17.18$17.3630%
5 years
1 year
1 year
6.00%
4.48%

2.

Expected volatility is based on ANZ's historic volatility.

109

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

SchemeScheme type

Employee

ANZ National Bank Staff Superannuation Scheme1

Defined Benefit Scheme2orDefined Contribution Scheme

Nil

Balance of cost4

2.5% minimum of salary

7.5% of salary6

5% of salary

Balance of cost5

2.0% minimum of salary

11.5% of salary7

1

The National Bank Staff Superannuation Fund

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

3

Defined Benefit SchemeorDefined Contribution Scheme

These schemes provide for pension benefits and provide for lump sum benefits.
Closed to new members on 31 March 1990. Operates to make pension payments to retirees who were members of that section of the scheme or to dependents ofthe members.
Closed to new members on 1 October 1991.
30/09/2009: $nil (30/09/2008 $nil).
30/09/2009: 24.8% (30/09/2008 24.8%) of members' salaries.
30/09/2009: 7.5% (30/09/2008 7.5%) of members' salaries.
30/09/2009: 11.5% (30/09/2008 11.5%) of members' salaries.

Details of the defined benefit schemes are as follows:
Actuarial valuations for financial reporting purposes are undertaken every six months.
were carried out as at 30 September 2009.

The latest valuations

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

30/09/2009$m

30/09/2008$m

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

179
3
11
1
(2)
(18)

181
3
12
1
3
(21)

Present value of funded defined benefit obligations

174

179

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

152
8
(27)
3
1
(18)

189
10
(30)
3
1
(21)

Fair value of scheme assets

119

152

Net defined benefit liability recognised on balance sheet

(55)

(27)

The fair value of scheme assets include cash deposits and fixed interest investments of $4 million with the NZ
Banking Group as at 30 September 2009 (30/09/2008 $5 million).
The amounts recognised in the income statement in respect of defined benefit schemes are as
follows:
Current service cost/contributions
Interest cost
Expected return on scheme assets (net of tax)
Contribution withholding tax
Total pension costs recognised in the income statement - defined benefit superannuation schemes

110

3
11
(8)
2

3
12
(10)
2

8

7

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
43. RETIREMENT BENEFIT OBLIGATIONS (Continued)
The actuarial gains and losses recognised directly in equity via the statement of recognised income and expense
are as follows:
NZ Banking Group
30/09/2009
30/09/2008$m$m
Actuarial (loss) gains (pre-tax) at beginning of the year
Actuarial loss (pre-tax) incurred during the year

(25)
(25)

8
(33)

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

(50)

(25)

Income tax credit recognised directly in equity

15

8

Balance of actuarial losses at end of the year

(35)

(17)

The principal actuarial assumptions used were as follows:
The National Bank
Staff Superannuation Fund
30/09/2009
30/09/2008

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

6.0%
2.5%
2.5%

ANZ National Bank
Staff Superannuation Scheme
30/09/2009
30/09/2008

6.0%
2.5%
2.5%
3.7%

6.0%
2.5%
2.5%
n/a

6.0%
2.5%
2.5%
n/a

5.5%

4.5%

4.5%

2.5%
3.0%
5.5%

The overall expected return on scheme assets is determined by reference to market expectations at the
beginning of the relevant period, of asset performance applicable to the period over which the defined benefit
obligation is to be settled. The overall expected return on scheme assets reflects an aggregation of the
expected returns on the underlying asset classes.
The actual return on scheme assets (net of tax) for The National Bank Staff Superannuation Fund was -0.7% for
the year ended 30 September 2009 (30/09/2008 -9.0%). The actual return on scheme assets (net of tax) for
the ANZ National Bank Staff Superannuation Scheme was 0.0% for the year ended 30 September 2009
(30/09/2008 -6.0%).
The investment return on scheme assets is taxed at 30% (30/09/2008 33%).
The major categories of scheme assets as a percentage of the fair value of scheme plan assets are as follows:
The National Bank
Staff Superannuation Fund
30/09/2009
30/09/2008
Cash and short term debt instruments
New Zealand fixed interest
Overseas fixed interest
Australasian shares
Overseas shares
Property fund units

ANZ National Bank
Staff Superannuation Scheme
30/09/2009
30/09/2008

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

19.9%
14.5%
16.1%
9.7%
39.8%
0.0%

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

17.1%
23.2%
20.8%
9.3%
23.9%
5.7%

100.0%

100.0%

100.0%

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

111

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
43. RETIREMENT BENEFIT OBLIGATIONS (Continued)
Historical summary
Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous
actuarial assumptions and what has actually occurred in the period) and the effects of changes in actuarial
assumptions on valuation date. The history of the schemes' net position and experience adjustments is asfollows:
30/09/2009$m

NZ Banking Group
30/09/2008 30/09/2007$m$m

30/09/2006$m

30/09/2005$m

Defined benefit obligation
Fair value of scheme assets

(174)
119

(179)
152

(181)
189

(190)
196

(187)
195

Net benefit (liability) asset

(55)

(27)

8

6

8

Experience adjustments on scheme liabilities
Experience adjustment on scheme assets

1
(20)

5
(21)

(1)
(7)

3
5

11

Employer contributions
To ensure the defined benefit schemes remain solvent, the schemes' independent actuaries recommend an
employer contribution rate to the Banking Group annually for The National Bank Staff Superannuation Fund andevery three years for the ANZ National Bank Staff Superannuation Scheme. The funding methods and current
contribution rates of the individual schemes are determined in accordance with NZ IAS 19 Employee Benefits('NZ IAS 19') for annual periods beginning on or after 1 January 2007.
The National Bank Staff Superannuation Fund deficit for funding purposes was valued at $18.8m in the mostrecent actuarial review at 1 April 2008 determined in accordance with NZ IAS 19. The ANZ National Bank Staff
Superannuation Scheme surplus was valued at $0.2 million in the most recent actuarial valuation at 31
December 2007 determined in accordance with NZ IAS 19.
The Banking Group contributed $3 million (net of contributions withholding tax) to its defined benefit schemes inthe year to 30 September 2009 (30/09/2008 $3 million). Employer contributions are taxed at a maximum rateof 33% (30/09/2008 33%).
Contingent liabilities
The National Bank Staff Superannuation Fund
Under the Fund's Trust Deed, if this scheme were wound up, the NZ Banking Group is required to pay theTrustee of the Fund an amount sufficient to ensure members do not suffer a reduction in benefits to which theywould otherwise be entitled.
ANZ National Bank Staff Superannuation Scheme
If the Scheme is wound up then its assets must be cashed up and applied to all members' benefits. If Scheme
funds are insufficient to pay all members' benefits then the NZ Banking Group must pay to the Scheme suchamounts as the Scheme Actuary determines are necessary to pay those benefits.

112

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
44. RELATED PARTY TRANSACTIONSNZ Banking GroupYear toYear to30/09/2009
30/09/2008
$'000
$'000

NZ Branch
Year toYear to30/09/2009
30/09/2008
$'000
$'000

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

10,748
373
782
58
4,339

11,919
786
127
2,665

-

-

Total compensation of key management personnel

16,30015,497--Loans to key management personnel

4,424

7,272

-

-

Deposits from key management personnel

5,543

3,594

-

-

Key management personnel are defined as being Directors and senior management of the NZ Banking Group,
those persons having authority and responsibility for planning, directing and controlling the activities of theentity.
The information above relating to key management personnel includes transactions with thoseindividuals, their close family members and their controlled entities.
Loans made to and deposits held by key management personnel are made in the course of ordinary business onnormal commercial terms and conditions no more favourable than those given to other employees or customers.
Loans are on terms of repayment that range between fixed, variable and interest only, all of which have been
made in accordance with the NZ Banking Group's lending policies. No provision for credit impairment has beenrecognised for loans made to key management personnel (30/09/2008 $nil).
All other transactions with key management personnel (including personally related parties) are conducted on
an arm's length basis in the ordinary course of business and on commercial terms and conditions. Thesetransactions principally consist of the provision of financial and investment services.
Transactions with the Ultimate Parent Bank and subsidiaries
Details of amounts provided by/to the Ultimate Parent Bank and entities within the NZ Banking Group during theordinary course of business are set out in the relevant notes to these financial statements. No provision for
credit impairment has been recognised during the year ended 30 September 2009 (30/09/2008 $nil).
On 27 February 2009, ANZ National Bank Limited sold $4,877 million of residential mortgage assets to the NZ
Branch. On 28 July 2009, a further $4,986 million of residential mortgage assets were sold. These assets
qualify for derecognition as the Bank does not retain the risks and rewards associated with these mortgages.
NZ Banking GroupYear toYear to30/09/2009
30/09/2008$m$m

NZ Branch
Year toYear to30/09/2009
30/09/2008$m$m

Interest income- Ultimate Parent Bank

48

4

-

-

Interest expense- ANZ Funds Pty Ltd- Ultimate Parent Bank

100
354

159
193

146

-

Operating expenses- Ultimate Parent Bank

91

82

-

-

113

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
44. RELATED PARTY TRANSACTIONS (Continued)
Transactions with associates and joint venture entities
During the period the NZ Banking Group conducted transactions with associates and joint venture entities on
normal commercial terms and conditions as shown below:
NZ Banking Group
As at
As at
30/09/2009
30/09/2008$m$m

NZ Branch
As at
As at
30/09/2009
30/09/2008$m$m

Amounts receivable- associates- joint venture entities

21
36

28
36

-

-

Amounts payable- associates

85

85

-

-

Year to30/09/2009$mYear to30/09/2008$mYear to30/09/2009$mYear to30/09/2008$m

Interest income- associates- joint venture entities

2
3

2
4

-

-

Interest expense- associates

4

4

-

-

39
1

23
1

-

-

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

The NZ Banking Group provides general administration, strategic and governance services to ING (NZ) Limited
under a Technical Services Agreement.
A provision for credit impairment of $10 million is recognised for amounts outstanding from associates as at 30
September 2009 (30/09/2008 $5 million). A credit impairment loss of $5 million was charged during the year
ended 30 September 2009 (30/09/2008 $nil charged).

45. SUBSEQUENT EVENTSOn 25 September 2009, the Overseas Bank announced it had reached agreement with ING Groep to acquire
ING Groep’s 51% shareholdings in the ANZ-ING wealth management and life insurance joint ventures inAustralia and New Zealand for AUD1,760 million, taking its ownership interest to 100%. As part of thisagreement the NZ Banking Group acquired ING Groep’s interests in the NZ joint venture, the Diversified Yield
Fund ("DYF") and the Regular Income Fund ("RIF") for $246 million. Completion is subject to various
conditions, including regulatory approval, and is expected to occur during the fourth quarter of calendar 2009.
Once completed, the acquisition will result in the NZ Banking Group fully consolidating the assets, liabilities andoperations of ING (NZ) Holdings Limited ("ING NZ") and its subsidiary companies and the DYF and the RIF into
the NZ Banking Group's results. At acquisition date, under the step acquisition provisions of NZ IFRS3, the NZ
Banking Group will remeasure its existing 49% interests in ING NZ, the DYF and the RIF, which are allaccounted for under the equity method, at their acquisition date fair values and will recognise the resulting gainor loss in the income statement.
The 49% interest in ING NZ, the DYF and the RIF were all equity accounted at 30 September 2009. Theinterest in ING NZ was assessed for impairment by comparing the carrying value to both the fair market value
and the value in use, which is based on a discounted cash flow analysis. The investment was not considered
impaired as the value in use exceeded the carrying value. The investment in DYF and RIF were not considered
impaired comparing the carrying value to fair value.
On 6 November 2009, ANZ National Bank Limited agreed to sell a further $1,528 million of residential mortgage
assets to the Australia and New Zealand Banking Group Limited – New Zealand Branch.

114

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHDIRECTORATE AND AUDITORS
Directorate and Auditors
The address to which any document or communication may be sent to any Director or the Chief Executive
Officer, NZ Branch is Australia and New Zealand Banking Group Limited – New Zealand Branch, Level 14, 215229 Lambton Quay, Wellington, New Zealand. The document or communication should be marked for theattention of that Director or the Chief Executive Officer.
Directors’ Interests
The Board of the Overseas Bank has adopted procedures to ensure that conflicts and potential conflicts ofinterest between the Directors' duties to the Overseas Bank and their own interests are avoided or dealt with.
Pursuant to these procedures:a.

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

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

In addition, Standing Notices about interests are maintained for each Director. If the Director's interestschange, the Director shall disclose the change as soon as practicable and an updated Standing Notice shall betabled at the next Board meeting and recorded in the minutes of that meeting.
Transactions with Directors and the Chief Executive Officer, NZ Branch
There are no transactions entered into by any Director, the Chief Executive Officer, NZ Branch or any immediate
relative or close business associate of any Director or the Chief Executive Officer, NZ Branch, with the NZ
Branch or any member of the NZ Banking Group which has been either entered into on terms other than thosewhich would in the ordinary course of business be given to any other person of like circumstances or means or
which could otherwise be reasonably likely to influence materially the exercise of the Directors' or Chief
Executive Officer, NZ Branch, duties as Director or Chief Executive Officer of the NZ Branch and NZ Banking
Group.
Changes in Directorships
Since the authorisation date of the previous General Short Form Disclosure Statement on 31 August 2009, there
have been no changes to Directors of the Bank.

Board Members as at 24 November 2009
The names, qualifications, occupation, country of residence and material external directorships of each directorof the Overseas Bank as at the date this General Disclosure Statement was signed were:
Independent Non-Executive Director, Chairman
Charles Barrington Goode, AC
BCom (Hons), MBA (Columbia), Hon LLD (Melb), Hon LLD (Monash)
Company Director
Melbourne, Australia
Mr Goode is an ex-officio member of all Board Committees.
External Directorships
Chairman: Australian United Investment Company Limited, Diversified United Investment Limited, Grosvenor
Australia Properties Pty Ltd, The Ian Potter Foundation Ltd
Member: International Council of the Asia Society, Asia Society Australasia Centre, AsiaLink Council, The Global
Foundation

115

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

Non-Executive Directors
Dr Gregory John Clark
BSc (Hons), PhD, FAPS, FTSE
Company Director
Based in New York, United States of America
and also resides in Sydney, Australia

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

Dr Clark is Chair of the Technology Committee and amember of the Governance Committee and the
Human Resources Committee.

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

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

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

Jeremy Kitson Ellis
MA Oxon, FAICD, Hon FIE AUST, FAus IMM, FTSE,
Hon LLD (Monash), Hon DR ENG (CQU)
Company Director
Melbourne, Australia

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

Mr Ellis is a member of the Audit Committee and theTechnology Committee.

Mr Meiklejohn is Chair of the Audit Committee
and a member of the Governance Committee
and the Risk Committee.

External Directorships
Chairman: MBD Energy Limited, Landcare Australia
Limited, Future Eye Pty Ltd Advisory Board, Pacific Road
Corporate Finance Pty Limited Advisory Board, Earth
Resources Development Council
Director: Future Directions International Pty Limited
Member: The Sentient Group Advisory Council, Anglo
American Plc’s Australian Advisory Board

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

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHDIRECTORATE AND AUDITORS (CONTINUED)
Peter Algernon Franc Hay
LLB (Melb)
Company Director
Melbourne, Australia

John Powell Morschel
DipQS, FAICD
Company Director
Sydney, Australia

Mr Hay is a member of the Risk Committee and
the Governance Committee.

Mr Morschel is Chair of the Risk Committee and amember of the Human Resources Committee.

External Directorships
Chairman: Advisory Board of Lazard Pty Ltd
Director: Alumina Limited, Landcare Australia Limited,
GUD Holdings Limited, NBN Co Limited
Part Time Member: Takeovers Panel

External Directorships
Director: Singapore Telecommunications Limited,
Tenix Pty Limited, Gifford Communications
Pty Limited

Lee Hsien Yang
MSc, BA
Company Director
Singapore

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

Mr Lee is a member of the Technology Committee.

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

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

External Directorships
Director: Bennelong Group & related entities,
Woolworths Limited, Yarra Capital Partners Pty
Ltd, AICD, The Nature Conservancy Australian
Advisory Board

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

117

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHCONDITIONS OF REGISTRATION
Conditions of Registration, applicable as at 24 November 2009.
The Conditions of Registration imposed on the NZ Branch, which apply from the date of registration are:
1. That the New Zealand Banking Group does not conduct any non-financial activities that in aggregate arematerial relative to its total activities, where the term material is based on generally accepted accounting
practice, as defined in the Financial Reporting Act 1993.
2. That the New Zealand Banking Group’s insurance business is not greater than 1% of its total consolidated
assets. For the purposes of this condition:i.

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

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

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

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

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

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

3. That the business of the registered bank in New Zealand does not constitute a predominant proportion of
the business of the Australia and New Zealand Banking Group Limited.
4. That no appointment to the position of the New Zealand chief executive officer of the registered bank shallbe made unless:i.
ii.

the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed
appointee; andthe Reserve Bank has advised that it has no objection to that appointment.

5. That Australia and New Zealand Banking Group Limited complies with the requirements imposed on it by theAustralian Prudential Regulation Authority.
6. That Australia and New Zealand Banking Group Limited complies with the following minimum capital
adequacy requirements, as administered by the Australian Prudential Regulation Authority:-tier one capital of the Australia and New Zealand Banking Group Limited is not less than 4
percent of risk weighted exposures;
capital of Australia and New Zealand Banking Group Limited is not less than 8 percent ofrisk weighted exposures.

118

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

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

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

119

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHCREDIT RATING INFORMATION
Credit Ratings applicable as at 24 November 2009
The Overseas Bank has three current credit ratings, which are applicable to its long-term senior unsecured
obligations, including obligations payable in New Zealand in New Zealand dollars. The credit ratings are:Rating Agency
Standard & Poor’s

Current Credit Rating

Qualification

AA

Outlook Stable

Moody’s Investors Service

Aa1

Outlook Negative

Fitch Ratings

AA-

Outlook Stable

During the two-year period ended 30 September 2009, the Standard and Poor's credit rating and qualification
remained at AA and Outlook Stable.
During the two-year period ended 30 September 2009, the Moody's Investors Service credit rating andqualification remained at Aa1. On 2 March 2009 the Outlook changed from Stable to Negative.
During the two-year period ended 30 September 2009, the Fitch Ratings credit rating and qualification remainedat AA- and Outlook Stable. Fitch Ratings were formally engaged by the Overseas Bank on 18 March 2008 toprovide credit rating services. Previously Fitch Ratings had rated the Overseas Bank on an unsolicited basis as
AA-.

The following grades display investment grade characteristics:
Ability to repay principal and interest is extremely strong. This is the highest investment
category.
Very strong ability to repay principal and interest.
Strong ability to repay principal and interest although somewhat susceptible to adversechanges in economic, business or financial conditions.
Adequate ability to repay principal and interest. More vulnerable to adverse changes.

Standard& Poor's

Moody's
Investors
Service

Fitch
Ratings

AAA

Aaa

AAA

AA

Aa

AA

A

A

A

BBB

Baa

BBB

BB

Ba

BB

B

B

BB

CCC

Caa

CCC

CC to CCa to CCC to CD-

RD & DThe following grades have predominantly speculative characteristics:
Significant uncertainties exist which could affect the payment of principal and interest on atimely basis.
Greater vulnerability and therefore greater likelihood of default.
Likelihood of default now considered high. Timely repayment of principal and interest isdependent on favourable financial conditions.
Highest risk of default.
Obligations currently in default.

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

FINANCIAL STATEMENTS OF THE OVERSEAS BANK AND OVERSEAS BANKING GROUP
Copies of the most recent publicly available financial statements of the Overseas Bank and Overseas Banking
Group, will be provided immediately, free of charge, to any person requesting a copy where the request is madeat the NZ Branch’s head office, Level 14, ANZ Tower, 215-229 Lambton Quay, Wellington. The most recent
publicly available financial statements for the Overseas Bank and Overseas Banking Group can also be accessedat the internet address www.anz.com.

120

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED – NEW ZEALAND BRANCHINDEXGeneral Disclosures
Summary of Financial Statements
Income Statements
Statements of Recognised Income and Expense
Balance Sheets
Cash Flow Statements
1.
Significant Accounting Policies
Critical Estimates and Judgements Used in2.
Applying Accounting Policies
3.
Risk Management Policies
Income4.
5.
Expenses
6.
Income Tax Expense
7.
Liquid Assets
8.
Due from Other Financial Institutions
9.
Trading Securities
10.
Derivative Financial Instruments
11.
Available-for-Sale Assets
12.
Net Loans and Advances
Impaired Assets, Past Due Assets and Other
13.
Assets Under Administration
Provision for Credit Impairment
14.
Shares in Associates and Jointly Controlled
15.
Entities
Other Assets
16.
Deferred Tax Assets
17.
Premises and Equipment
18.
Goodwill and Other Intangible Assets
19.
Due to Other Financial Institutions
20.
21.
Deposits and Other Borrowings
Payables and Other Liabilities
22.
Deferred Tax Liabilities
23.
24.
Provisions

2-6
7
8
9
10
11
12 - 26
27 - 29
30 - 31
32
33
34
35
35
35
36 - 4041
41
42 - 45
46 - 48
49
49
50
51
52
52
53
53
54
55

25.
26.
27.
28.

Bonds and Notes
Term Funding
Loan Capital

Ordinary Share Capital and Head Office AccountReserves and Retained Earnings
Capital Adequacy
Financial Risk Management
Concentrations of Credit Risk
Interest Earning and Discount Bearing Assets
and Liabilities
Fair Value of Financial Assets and Financial
34.
Liabilities
35.
Segmental Analysis
36.
Notes to the Cash Flow Statements
Significant Controlled Entities, Associates and37.
Interests in Jointly Controlled Entities
Ultimate Parent Bank
38
Securitisation, Funds Management, Other
39.
Fiduciary Activities and the Marketing andDistribution of Insurance Products
Commitments
40.
Contingent Liabilities and Credit Related
41.
Commitments
Employee Share and Option Plans
42.
43.
Retirement Benefit Obligations
Related Party Transactions
44.
Subsequent Events
45.
Directorate and Auditors
Conditions of Registration
Credit Rating Information
Directors' and New Zealand Chief Executive Officer's
Statement
Independent Audit Report
29.
30.
31.
32.
33.

56 - 57
58
58 - 59
60
60
61 - 63
64 - 8586
86
87 - 94
95 - 9697
98 - 100
101

101 - 103103
104 - 106
106 - 109
110 - 112113 - 114
114
115 - 117
118 - 119120
121
122 - 123