AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED- ANZ NEW ZEALAND
REGISTERED BANK DISCLOSURE STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2018
NUMBER 39 | ISSUED NOVEMBER 2018

CONTENTS
Glossary of Terms

2

DISCLOSURE STATEMENT

SUPPLEMENTARY INFORMATION

Financial Statements
Consolidated Financial Statements
Notes to the Financial Statements
Registered Bank Disclosures
Directors’ and New Zealand Chief Executive
Officer’s Statement

4
8
58
74

Bank Financial Strength Dashboard
Other Information

Independent Auditor’s Report75

GLOSSARY OF TERMS
In this Registered Bank Disclosure Statement (Disclosure Statement) unless the context otherwise requires:
Bank means ANZ Bank New Zealand Limited.
Banking Group means the Bank and all its controlled entities.
Immediate Parent Company means ANZ Funds Pty Limited, which is the immediate parent company of ANZ Holdings (New Zealand)
Limited.
Ultimate Parent Bank means Australia and New Zealand Banking Group Limited.
Overseas Banking Group means the worldwide operations of Australia and New Zealand Banking Group Limited including its controlled
entities.
New Zealand business means all business, operations, or undertakings conducted in or from New Zealand identified and treated as if itwere conducted by a company formed and registered in New Zealand.
NZ Branch means the New Zealand business of the Ultimate Parent Bank.
ANZ New Zealand, We or Our means the New Zealand business of the Overseas Banking Group.
OnePath means OnePath Life (NZ) Limited.
UDC means UDC Finance Limited.
Registered Office is Level 10, 171 Featherston Street, Wellington, New Zealand, which is also ANZ New Zealand’s address for service.
RBNZ means the Reserve Bank of New Zealand.
APRA means the Australian Prudential Regulation Authority.
the Order means the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order 2014.
Any term or expression which is defined in, or in the manner prescribed by, the Order shall have the meaning given in or prescribed by
the Order.

2

81
83

FINANCIAL
STATEMENTS
In 2018, we have redesigned our Financial
Statements to better communicate our performance
to stakeholders by reducing complexity
and simplifying our financial note disclosures.

Consolidated Financial Statements
Income Statement

4Statement of Comprehensive Income

4

Balance Sheet

5

Cash Flow Statement

6

Statement of Changes in Equity

7

Notes to the Consolidated Financial Statements
Basis of Preparation
1. About our Financial Statements

Financial Instrument Disclosures
8

Financial Performance

15. Financial Risk Management28

16. Fair Value of Financial Assets and Financial Liabilities

40

17. Assets Charged as Security for Liabilities

43

2. Operating Income

10

3. Operating Expenses

12

4. Income Tax

13

5. Dividends

14

Non-Financial Assets

6. Segment Reporting

14

19. Goodwill and Other Intangible Assets

Financial Assets

and Collateral Accepted as Security for Assets
18. Offsetting

44

45

Equity7. Cash and Cash Equivalents

16

20. Shareholders' Equity

47

8. Trading Securities

17

21. Capital Management48

9. Derivative Financial Instruments

18

10. Available-for-sale Assets

21

Consolidation and Presentation

11. Net Loans and Advances

22

22. Controlled Entities

49

12. Provision for Credit Impairment

23

23. Structured Entities

50

24. Transfers of Financial Assets

51

25. Assets and Liabilities Held for Sale

52

Financial Liabilities
13. Deposits and Other Borrowings

25

14. Debt Issuances

26

Other Disclosures
26. Related Party Disclosures

53

27. Commitments and Contingent Liabilities

54

28. Compensation of Auditors

56

3

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTFINANCIAL STATEMENTS
INCOME STATEMENT
For the year ended 30 September

NoteInterest income
Interest expense

2018
NZ$m

2017
NZ$m

6,550
(3,373)6,434(3,356)

Net interest income

2

3,177

3,078

Other operating income

2

733

582

Net funds management and insurance income

2

405

329

Share of associates' profit

2

5

5

4,320

3,994

3

(1,517)(1,469)

2,803

2,525

(53)

(60)

2,750

2,465

(764)

(685)

1,986

1,780

For the year ended 30 September

2018
NZ$m

2017
NZ$m

Profit for the year

1,986

1,780

2

15

(27)

(32)

Realised losses transferred to the income statement

5

12

Income tax attributable to the above items

7

6

Operating income
Operating expenses
Profit before credit impairment and income tax
Credit impairment charge

12

Profit before income tax
Income tax expense
Profit for the year

4

STATEMENT OF COMPREHENSIVE INCOME

Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit or loss
Reserve movements:
Unrealised losses recognised directly in equity

Other comprehensive income after tax

(13)

1

Total comprehensive income for the year

1,973

1,781

The notes appearing on pages 8 to 56 form an integral part of these financial statements

4

FINANCIAL STATEMENTS

BALANCE SHEETAs at 30 September
AssetsCash and cash equivalents

Note

2018
NZ$m

2017
NZ$m

7

2,407

2,338

656

536

Settlement balances owed to ANZ New ZealandCollateral paid

1,919

1,415

Trading securities

8

8,024

7,663

Derivative financial instruments

9

8,072

9,749

Available-for-sale assets

10

6,502

6,360

Net loans and advances

11

128,677

121,968

Assets held for sale

25

897

3,065

-

636

Life insurance contract assets

6

7

3,289

3,275

-

123

Premises and equipment

325

367

Other assets

642

683

Total assets

161,416

158,185

2,066

1,687

845

613

Investments in associates
Goodwill and other intangible assets

19

Investments backing insurance contract liabilities

Liabilities
Settlement balances owed by ANZ New ZealandCollateral received
Deposits and other borrowings

13

112,920

108,013

Derivative financial instruments

9

8,133

9,894

174

45

Current tax liabilities
Deferred tax liabilities

23

189

334

1,088

Payables and other liabilities

955

1,161

Employee entitlements

120

119

Liabilities held for sale

25

76

66

24,53423,997

Total liabilities (excluding head office account)

150,180

146,872

Net assets (excluding head office account)

11,236

11,313

11,055

8,055

33

48

Other provisions
Debt issuances

14

EquityShare capital and initial head office accountReserves
Retained earnings
Total equity & head office account

20

148

3,210

11,236

11,313The notes appearing on pages 8 to 56 form an integral part of these financial statements

5

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTFINANCIAL STATEMENTS
CASH FLOW STATEMENT
For the year ended 30 September

2018
NZ$m

2017
NZ$m

Profit after income tax

1,986

1,780

Depreciation and amortisation

88

80

Loss on sale of premises and equipment

42

Impairment of goodwill

-

3

1,050

(1,613)(19)

92

Adjustments to reconcile to net cash provided by/(used in) operating activities:

Net derivatives/foreign exchange adjustment
Other non-cash movements
Net (increase)/decrease in operating assets:
Collateral paid

(504)

895

Trading securities

(361)

4,316

(3,797)(4,229)

(266)

(27)

5,345

3,586

Settlement balances owed by ANZ New Zealand

448

68

Collateral received

232

84

Other liabilities

53

117

Total adjustments

2,273

3,374

Net cash flows provided by operating activities1

4,259

5,154

Purchases(4,368)(10,803)

Proceeds from sale or maturity

4,246

7,266

3

(49)

(119)

(3,586)

Issue proceeds

3,385

4,922

Redemptions(3,991)(3,899)

603

1,831

Net loans and advances
Other assets
Net increase in operating liabilities:
Deposits and other borrowings (excluding borrowings from Immediate Parent and Ultimate Parent Bank)

Cash flows from investing activities
Available-for-sale assets:2

Other assets
Net cash flows used in investing activities
Cash flows from financing activities
Debt issuances3

Borrowings from Immediate Parent and Ultimate Parent Bank:2,4
Loans drawn down

(2,119)(2,663)

Proceeds from issue of preference shares

Repayments

3,000

-

Dividends paid

(4,600)(1,635)NZ Branch retained earnings repatriated

(450)

-

Net cash flows used in financing activities(4,172)(1,444)(32)

124

Cash and cash equivalents at beginning of year

2,439

2,315

Cash and cash equivalents at end of year

2,407

2,439

Net increase / (decrease) in cash and cash equivalents

1
2

3

4

Net cash provided by operating activities includes income taxes paid of NZ$619 million (2017: NZ$605 million).
We have reassessed the composition of operating, investing and financing cash flows. Cash flows from these items were previously included in operating activities, and comparative
amounts have been reclassified.
Movement in debt issuances (Note 14) also includes an NZ$1,371 million increase (2017: NZ$557 million increase) from the effect of foreign exchange rates, a NZ$246 million decrease(2017: NZ$247 million decrease) from changes in fair value hedging instruments and an NZ$18 million increase (2017: NZ$26 million increase) of other changes.
Movement in borrowings from Immediate Parent and Ultimate Parent Bank (Note 13) also includes a NZ$95 million increase (2017: NZ$550 million decrease) from the effect of foreignexchange rates, a NZ$56 million decrease (2017: NZ$62 million decrease) from changes in fair value hedging instruments and no movement in other changes (2017: NZ$2 million increase).

The notes appearing on pages 8 to 56 form an integral part of these financial statements

6

FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN EQUITY

Note

Share
capitaland initial Availableheadfor-sale
office revaluationaccount
reserve
NZ$m
NZ$m

Cash flow
hedging
reserve
NZ$m

Retainedearnings
NZ$m

Total
equity
NZ$m

8,055

-

62

3,050

11,167

-

-

-

1,780

1,780

Unrealised gains / (losses) recognised directly in equity

-

7

(39)

-

(32)

Realised losses transferred to the income statement

-

-

12

-

12

Actuarial gain on defined benefit schemes

-

-

-

21

21

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

-

(2)

8

(6)

-

Total comprehensive income for the year

-

5

(19)

1,795

1,781

-

-

-

(1,635)(1,635)---(1,635)(1,635)As at 1 October 2016
Profit or loss

Transactions with Immediate Parent Company in its capacity as owner:
Ordinary dividends paid

5

Transactions with Immediate Parent Company in its capacity as owner

8,055

5

43

3,210

11,313

Profit or loss

-

-

-

1,986

1,986

Unrealised gains / (losses) recognised directly in equity

-

8

(35)

-

(27)

Realised losses transferred to the income statement

-

-

5

-

5

Actuarial gain on defined benefit schemes

-

-

-

3

3

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

-

(2)

9

(1)

6

Total comprehensive income for the year

-

6

(21)

1,988

1,973

As at 30 September 2017

Transactions with Immediate Parent Company in its capacity as owner:
Preference shares issued

20

3,000

-

-

-

3,000

Ordinary dividends paid

5

-

-

-

(4,600)(4,600)Transactions with Immediate Parent Company in its capacity as owner
NZ Branch retained earnings repatriated

3,000

-

-

(4,600)(1,600)

-

-

-

(450)

(450)

As at 30 September 2018

11,055

11

22

148

11,236

The notes appearing on pages 8 to 56 form an integral part of these financial statements

7

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
1.

ABOUT OUR FINANCIAL STATEMENTS

These are the financial statements for ANZ New Zealand for the year ended 30 September 2018. The Ultimate Parent Bank is incorporated in Australia
and is also registered in New Zealand (NZ Branch). The NZ Branch is domiciled in New Zealand, and the address of the NZ Branch’s registered office
and its principal place of business is Level 10, 171 Featherston Street, Wellington, New Zealand.
On 15 November 2018, the Directors resolved to authorise the issue of these financial statements.
In 2018, we reviewed the content and structure of the financial statements with the aim of increasing their relevance to stakeholders. This review has
resulted in a number of changes to the financial statements from previous years, including:• moving disclosures required by the Order to a separate ‘Registered Bank Disclosures’ section of the Disclosure Statement;• information about ANZ New Zealand’s recognition and measurement policies and key judgements and estimates has been relocated and is
now disclosed within the relevant notes to the financial statements;• removing immaterial disclosures; and• aggregating prior year numbers in certain disclosures.
Information in the financial statements is included only to the extent we consider it material and relevant to the understanding of the financial
statements. A disclosure is considered material and relevant if, for example:• the dollar amount is significant in size (quantitative factor);• the dollar amount is significant by nature (qualitative factor);• the user cannot understand ANZ New Zealand’s results without the specific disclosure (qualitative factor);• the information is critical to a user’s understanding of the impact of significant changes in ANZ New Zealand’s business during the period – forexample: business acquisitions or disposals (qualitative factor);• the information relates to an aspect of ANZ New Zealand’s operations that is important to its future performance (qualitative factor); and• the information is required under legislative requirements of the Financial Markets Conduct Act 2013 or by ANZ New Zealand’s principal
regulator, RBNZ.
This section of the financial statements:• outlines the basis upon which ANZ New Zealand’s financial statements have been prepared; and• discusses any new accounting standards or regulations that directly impact financial statement disclosure requirements.

BASIS OF PREPARATION
These financial statements are general purpose (Tier 1) financial statements prepared by a ‘for profit’ entity, in accordance with the requirements of
the Financial Markets Conduct Act 2013. These financial statements comply with:• New Zealand Generally Accepted Accounting Practice, as defined in the Financial Reporting Act 2013;• New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as
appropriate for publicly accountable for-profit entities; and• International Financial Reporting Standards (IFRS).
We present the financial statements of ANZ New Zealand in New Zealand dollars, which is ANZ New Zealand’s functional and presentation currency.
We have rounded values to the nearest million dollars (NZ$m), unless otherwise stated.

BASIS OF MEASUREMENT
We have prepared the financial information in accordance with the historical cost basis - except the following assets and liabilities which we havestated at their fair value:• derivative financial instruments;• available-for-sale financial assets;• financial instruments held for trading; and• financial instruments designated at fair value through profit and loss.

BASIS OF CONSOLIDATIONThe consolidated financial statements of ANZ New Zealand comprise the financial statements of the NZ Branch and all of the New Zealand businessesof all the subsidiaries of the Ultimate Parent Bank. An entity, including a structured entity, is considered a subsidiary of the group when we determinethat the Bank has control over the entity. Control exists when ANZ New Zealand is exposed to, or has rights to, variable returns from its involvementwith the entity and has the ability to affect those returns through its power over the entity. We assess power by examining existing rights that give
ANZ New Zealand the current ability to direct the relevant activities of the entity. We have eliminated, on consolidation, the effect of all transactions
between entities in ANZ New Zealand.

FOREIGN CURRENCY TRANSLATION
TRANSACTIONS AND BALANCES
Foreign currency transactions are translated into the relevant functional currency at the exchange rate prevailing at the date of the transaction. At thereporting date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the relevant spot rate.
Any foreign currency translation gains or losses that arise are included in profit or loss in the period they arise.
We measure translation differences on non-monetary items at fair value through profit or loss and report them as part of the fair value gain or loss onthese items. We include any translation differences on non-monetary items classified as available-for-sale financial assets in the available-for-salerevaluation reserve in equity.

8

NOTES TO THE FINANCIAL STATEMENTS

1.

ABOUT OUR FINANCIAL STATEMENTS (continued)

In the process of applying ANZ New Zealand’s accounting policies, management has made a number of judgements and applied
estimates and assumptions about future events. Further information on the key judgements and estimates that we consider
material to the financial statements are contained within the notes to the financial statements.

ACCOUNTING STANDARDS NOT EARLY ADOPTED
A number of new standards, amendments to standards and interpretations have been published but are not mandatory for the financial statements
for the year ended 30 September 2018, and have not been applied by ANZ New Zealand in preparing these financial statements.
ANZ New Zealand has identified three standards where this applies to ANZ New Zealand and further details are set out below.
NZ IFRS 9 Financial Instruments (NZ IFRS 9)NZ IFRS 9 is effective for ANZ New Zealand from 1 October 2018. NZ IFRS 9 stipulates new requirements for the impairment of financial assets,
classification and measurement of financial assets and financial liabilities and general hedge accounting. Details of the key requirements andestimated impacts on ANZ New Zealand are outlined below.
Impairment
NZ IFRS 9 replaces the incurred loss impairment model under NZ IAS 39: Financial Instruments: Recognition and Measurement (NZ IAS 39) with an
expected credit loss (ECL) model incorporating forward looking information. The ECL model will be applied to all financial assets measured atamortised cost, debt instruments measured at fair value through other comprehensive income, lease receivables, certain loan commitments andfinancial guarantees. Under the ECL model, the following three-stage approach is applied to measuring ECL based on credit migration between thestages since origination:• Stage 1: At the origination of a financial asset, a provision equivalent to 12 months ECL is recognised.
• Stage 2: Where there has been a significant increase in credit risk since origination, a provision equivalent to lifetime ECL is recognised.
• Stage 3: Similar to the current NZ IAS 39 requirements for individual impairment provisions, lifetime ECL is recognised for loans where there is
objective evidence of impairment.
Expected credit losses are probability weighted and determined by evaluating a range of possible outcomes, taking into account the time value ofmoney, past events, current conditions and forecasts of future economic conditions.
Classification and measurement
There are three measurement classifications under NZ IFRS 9: Amortised cost, Fair Value through Profit or Loss and Fair Value through Other
Comprehensive Income. Financial assets are classified into these measurement classifications taking into account the business model within which
they are managed, and their contractual cash flow characteristics.
The classification and measurement requirements for financial liabilities under NZ IFRS 9 are largely consistent with NZ IAS 39 with the exception thatfor financial liabilities designated as measured at fair value, gains or losses relating to changes in the entity’s own credit risk are included in othercomprehensive income. This part of the standard was early adopted by ANZ New Zealand on 1 October 2013.
General hedge accounting
NZ IFRS 9 introduces new hedge accounting requirements which more closely align accounting with risk management activities undertaken when
hedging financial and non-financial risks.
NZ IFRS 9 provides ANZ New Zealand with an accounting policy choice to continue to apply the NZ IAS 39 hedge accounting requirements until theInternational Accounting Standards Board’s ongoing project on macro hedge accounting is completed. ANZ New Zealand’s current expectation isthat it will continue to apply the hedge accounting requirements of NZ IAS 39.
Transition to NZ IFRS 9
Other than as noted above under classification and measurement of financial liabilities, NZ IFRS 9 has a date of initial application for ANZ New Zealandof 1 October 2018. The classification and measurement, and impairment requirements, will be applied retrospectively by adjusting opening retained
earnings at 1 October 2018. ANZ New Zealand does not intend to restate comparatives.
ImpactImpairment
Based on the portfolio of in-scope financial assets held as at 30 September 2018, economic conditions prevailing at that time and management’s
judgements and estimates, the application of NZ IFRS 9 as at 1 October 2018 has resulted in higher aggregate impairment provisions of approximately
NZ$72 million, with an associated decrease in deferred tax liabilities of approximately NZ$20 million. The net impact on total equity is a reduction of
approximately NZ$52 million. These estimates remain subject to change until ANZ New Zealand finalises its financial statements for the year ending
30 September 2019.
Classification and measurement of financial assets
There have been no changes in classification and measurement as a result of the application of the business model and contractual cash flow
characteristics tests.

9

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
1.

ABOUT OUR FINANCIAL STATEMENTS (continued)

NZ IFRS 15 Revenue from Contracts with Customers (NZ IFRS 15)
NZ IFRS 15 is effective for ANZ New Zealand from 1 October 2018 and replaces existing guidance on the recognition of revenue from contracts withcustomers. The standard requires identification of distinct performance obligations within a contract, and allocation of the transaction price of thecontract to those performance obligations. Revenue is then recognised as each performance obligation is satisfied. The standard also provides
guidance on whether an entity is acting as a principal or an agent which impacts the presentation of revenue on a gross or net basis.
ANZ New Zealand has assessed all revenue streams existing at the date of transition to the new standard and determined that the impact of NZIFRS
15 is immaterial given the majority of ANZ New Zealand revenues are outside the scope of the standard. ANZ New Zealand will adopt IFRS 15
retrospectively including restatement of prior period comparatives.
NZ IFRS 16 Leases (NZ IFRS 16)
The final version of NZ IFRS 16 was issued in February 2016 and is not effective for ANZ New Zealand until 1 October 2019. NZ IFRS 16 requires a lessee
to recognise its right to use the underlying leased asset, as a right-of-use asset; and its obligation to make lease payments as a lease liability. NZ IFRS 16
substantially carries forward the lessor accounting requirements in NZ IAS 17 Leases.
ANZ New Zealand is in the process of assessing the impact of the application of NZ IFRS 16 and is not yet able to reasonably estimate the impact on its
financial statements.

2.

OPERATING INCOME

Net Interest income
Interest income by type of financial asset
Financial assets at amortised cost
Trading securities
Available-for-sale assets
Financial assets at fair value through profit or loss
Interest income
Interest expense by type of financial liability
Financial liabilities at amortised cost
Financial liabilities designated at fair value through profit or loss
Interest expense
Net interest income
Other operating income(i) Fee and commission income
Lending and credit facility fees
Non-lending fees and commissions
Fee and commission income
Fee and commission expense
Net fee and commission income(ii) Other income
Net foreign exchange earnings and other financial instruments income
Derivative valuation adjustments
Gain on UDC terminated transaction
Insurance proceeds
Other
Other income
Other operating income
Net funds management and insurance income
Net funds management income
Net insurance income
Net funds management and insurance income
Share of associates' profit
Operating income

10

2018
NZ$m

2017
NZ$m

6,146
240
159
5
6,550

5,972
351
106
5
6,434

(3,301)(72)(3,373)
3,177(3,218)(138)(3,356)
3,078

32
716
748
(363)
385

35
688
723
(328)
395

264
13
20
20
31
348
733

119
34
34
187
582

217
188
405
5
4,320

199
130
329
5
3,994

NOTES TO THE FINANCIAL STATEMENTS

2.

OPERATING INCOME (continued)

RECOGNITION AND MEASUREMENTNET INTEREST INCOME
Interest Income and Expense
We recognise interest income and expense for all financial instruments, including those classified as held for trading, available-for-saleassets or designated at fair value, in profit or loss using the effective interest rate method. This method uses the effective interest rate of afinancial asset or financial liability to calculate amortised cost. The effective interest rate is the rate that discounts the stream of estimatedfuture cash receipts or payments over the expected life of the financial instrument or, when appropriate, a shorter period, to the net
carrying amount of the financial asset or liability. For assets subject to prepayment, we determine their expected life on the basis ofhistorical behaviour of the particular asset portfolio - taking into account contractual obligations and prepayment experience.
OTHER OPERATING INCOME
Fee and Commission Income
We recognise fees or commissions:• that relate to the execution of a significant act (for example, advisory or arrangement services, placement fees and underwriting fees)
when the significant act has been completed; and• charged for providing ongoing services (for example, maintaining and administering existing facilities) as income over the period theservice is provided.
Net Foreign Exchange Earnings and Other Financial Instruments Income
We recognise the following as net foreign exchange earnings and other financial instruments income:• exchange rate differences arising on the settlement of monetary items and translation differences on monetary items translated at rates
different to those at which they were initially recognised;• fair value movements (excluding realised and accrued interest) on derivatives not designated as accounting hedges that we use to
manage interest rate and foreign exchange risk on funding instruments;• the ineffective portions of fair value hedges and cash flow hedges;• fair value movements on financial assets and financial liabilities designated at fair value through profit or loss or held for trading; and• immediately upon sale or repayment of a hedged item, the unamortised fair value adjustments in items designated as fair value hedges
and amounts accumulated in equity related to designated cash flow hedges.
NET FUNDS MANAGEMENT AND INSURANCE INCOME
Net Funds Management Income
We recognise the fees we charge to managed investment schemes and other customers when we have provided the service.
Net Insurance Income
We recognise:• premiums with a regular due date as income on an accruals basis;• claims on an accruals basis once our liability to the policyholder has been confirmed under the terms of the contract; and• change in life insurance contract asset, net of liability for reinsurance, under the Margin of Service (MoS) model.
SHARE OF ASSOCIATES’ PROFITThe equity method is applied to accounting for associates in the consolidated financial statements. Under the equity method, ANZ New
Zealand’s share of the after tax results of associates is included in the Income Statement and the Statement of Comprehensive Income.

11

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
3.

OPERATING EXPENSES

Personnel
Salaries and related costs
Superannuation costs
Other
Personnel expenses
Premises
Leasing and rental costs
Other
Premises expenses
Technology
Licences and outsourced services
Other
Technology expenses
Other
Advertising and public relations
Professional fees
Freight, stationery, postage and telephone
Charges from Ultimate Parent Bank
Other
Other expenses
Operating expenses

2018
NZ$m

2017
NZ$m

820
29
42
891

801
29
26
856

82
71
153

80
73
153

126
99
225

125
93
218

43
45
44
52
64
248
1,517

41
43
45
46
67
242
1,469

RECOGNITION AND MEASUREMENTOPERATING EXPENSES
Operating expenses are recognised as services are provided to ANZ New Zealand over the period in which an asset is consumed or once a
liability is created.
SALARIES AND RELATED COSTS – ANNUAL LEAVE, LONG SERVICE LEAVE AND OTHER EMPLOYEE BENEFITS
Wages and salaries, annual leave, and other employee entitlements expected to be paid or settled within twelve months of employees
rendering service are measured at their nominal amounts using remuneration rates that ANZ New Zealand expects to pay when the liabilities
are settled.
We accrue employee entitlements relating to long service leave using an actuarial calculation. It includes assumptions regarding staff
departures, leave utilisation and future salary increases. The result is then discounted using market yields at the reporting date. The market yields
are determined from a blended rate of high quality corporate bonds with terms to maturity that closely match the estimated future cash
outflows.
If we expect to pay short term cash bonuses, then a liability is recognised when ANZ New Zealand has a present legal or constructive obligation
to pay this amount (as a result of past service provided by the employee) and the obligation can be reliably measured.

12

NOTES TO THE FINANCIAL STATEMENTS

4. INCOME TAX
INCOME TAX EXPENSE
Reconciliation of the prima facie income tax expense on pre-tax profit with the income tax expense recognised in profit or loss:

Profit before income tax
Prima facie income tax expense at 28%
Tax effect of permanent differences:
Imputed and non-assessable dividends
Tax provisions no longer required
Non assessable income and non deductible expenditure
Subtotal
Income tax over provided in previous years
Income tax expense
Current tax expense
Adjustments recognised in the current year in relation to the current tax of previous years
Deferred tax expense/(income) relating to the origination and reversal of temporary differences
Income tax expense
Effective tax rate

2018
NZ$m
2,750
770

2017
NZ$m
2,465
690

(1)
(3)
(1)
765
(1)
764
923
(1)
(158)
764
27.8%

(1)
(5)
2
686
(1)
685
646
(1)
40
685
27.8%

RECOGNITION AND MEASUREMENT
INCOME TAX EXPENSE
Income tax expense comprises both current and deferred taxes and is based on the accounting profit adjusted for differences in the accounting
and tax treatments of income and expenses (that is, taxable income). We recognise tax expense in profit or loss except to the extent to which it
relates to items recognised directly in equity and other comprehensive income, in which case we recognise directly in equity or othercomprehensive income respectively.
CURRENT TAX EXPENSE
Current tax is the tax we expect to pay on taxable income for the year, based on tax rates (and tax laws) which are enacted at the reporting date.
We recognise current tax as a liability (or asset) to the extent that it is unpaid (or refundable).
DEFERRED TAX ASSETS AND LIABILITIESWe account for deferred tax using the balance sheet method. Deferred tax arises because the accounting income is not always the same as thetaxable income. This creates temporary differences, which usually reverse over time. Until they reverse, we recognise a deferred tax asset, or
liability, on the balance sheet. We measure deferred taxes at the tax rates that we expect will apply to the period(s) when the asset is realised, or
the liability settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date.
We offset current and deferred tax assets and liabilities only to the extent that: they relate to income taxes imposed by the same taxation
authority; there is a legal right and intention to settle on a net basis; and it is allowed under the tax law of the relevant jurisdiction.

13

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
5.

DIVIDENDS

ORDINARY SHARE DIVIDENDSDividends
Financial Year 2017
Dividend paid in March 2017
Dividend paid in September 2017
Dividends paid during the year ended 30 September 2017
Financial Year 2018
Dividend paid in March 2018
Dividend paid in April 2018
Dividend paid in September 2018
Dividends paid during the year ended 30 September 2018

Amountper share

Total
Dividend
NZ$m

202.3 cents
230.1 cents

765
870
1,635

211.6 cents
793.3 cents
211.6 cents

800
3,000
800
4,600

2018
NZ$m
4,919

2017
NZ$m
4,196

IMPUTATION CREDIT ACCOUNT

Imputation credits available

A number of companies within ANZ New Zealand are members of the New Zealand Resident imputation group. The imputation credit balance for
ANZ New Zealand includes the imputation credit balance in relation to both the New Zealand Resident imputation group and other companies
within ANZ New Zealand that are not in the New Zealand Resident imputation group. The imputation credit balance available includes imputationcredits that will arise from the payment of the amount of provision for income tax as at the reporting date.

6. SEGMENT REPORTING
OPERATING SEGMENTS
ANZ New Zealand is organised into three major business segments for segment reporting purposes - Retail, Commercial and Institutional. Centralised
back office and corporate functions support these segments. These segments are consistent with internal reporting provided to the chief operating
decision maker, being the Bank’s Chief Executive Officer.
Segment reporting has been updated to reflect minor changes to ANZ New Zealand’s structure. Comparative data has been adjusted to be consistent
with the current year’s segment definitions.
RetailRetail provides a full range of banking and wealth management services to consumer, private banking and small business banking customers. We
deliver our services via our internet and app-based digital solutions and network of branches, mortgage specialists, relationship managers and contact
centres.
Commercial
Commercial provides a full range of banking services including traditional relationship banking and sophisticated financial solutions throughdedicated managers focusing on privately owned medium to large enterprises and the agricultural business segment.
Institutional
The Institutional division services global institutional and corporate customers across three product sets: Transaction Banking, Loans & Specialised
Finance and Markets.
•

Transaction Banking provides working capital and liquidity solutions including documentary trade, supply chain financing as well as cash
management solutions, deposits, payments and clearing.

•

Loans & Specialised Finance provides loan products, loan syndication, specialised loan structuring and execution, project and export finance,
debt structuring and acquisition finance and corporate advisory.

•

Markets provide risk management services on foreign exchange, interest rates, credit, commodities, debt capital markets in addition to
managing ANZ New Zealand’s interest rate exposure and liquidity position.

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

14

NOTES TO THE FINANCIAL STATEMENTS

6.

SEGMENT REPORTING (continued)

Operating segment analysis

Year ended 30 September 2018
Interest income
Interest expense
Net interest income
Other operating income
Share of associates' profit
Operating income
Operating expenses
Profit before credit impairment and income tax
Credit impairment (charge) / release
Profit before income tax
Income tax expense
Profit after income tax
Other information
Goodwill1
Net loans and advances
Customer deposits
Year ended 30 September 2017
Interest income
Interest expense
Net interest income
Other operating income
Share of associates' profit
Operating income
Operating expenses
Profit before credit impairment and income tax
Credit impairment (charge) / release
Profit before income tax
Income tax expense
Profit after income tax
Other information
Goodwill1
Net loans and advances1
Customer deposits1
1

Retail Commercial Institutional
NZ$m
NZ$m
NZ$m
3,701
2,139
710
(1,868)(1,169)
(383)
1,833
970
327
679
21
265
5
2,517
991
592
(1,036)
(258)
(182)
1,481
733
410
(48)
41
(46)
1,433
774
364
(400)
(217)
(102)
1,033
557
262

Other
NZ$m
47
47
173
220
(41)
179
179
(45)
134

Total
NZ$m
6,550
(3,373)
3,177
1,138
5
4,320
(1,517)
2,803
(53)
2,750
(764)
1,986

1,109
79,05270,2591,052
42,446
16,842

1,069
7,166
16,95413-

3,230
128,677
104,055

3,683(1,911)
1,772
675
5
2,452
(1,005)
1,447
(33)
1,414
(395)
1,019

2,070
(1,170)
900
21
921
(259)
662
(51)
611
(172)
439

676
(314)
362
302
664
(189)
475
24
499
(141)
358

5
39
44
(87)
(43)
(16)
(59)
(59)
23
(36)

6,434
(3,356)
3,078
911
5
3,994
(1,469)
2,525
(60)
2,465
(685)
1,780

1,109
76,27867,796

1,052
40,963
14,0591,069
7,590
14,97449-

3,230
124,880
96,829Including items reclassified as held for sale.

15

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
6.

SEGMENT REPORTING (continued)

OTHER SEGMENTThe Other segment profit/(loss) after income tax comprises:

Central functions1
Technology and Group Centre
Economic hedges
Revaluation of insurance policies from changes in interest rates
Total
1

7.

2018
NZ$m
15
37
67
15
134

2017
NZ$m
1
38
(50)
(25)
(36)

Central functions’ external revenues for the year ended 30 September 2018 includes the $20 million insurance proceeds (Note 2 Operating Income) that were received from a member of
the Overseas Banking Group.

CASH AND CASH EQUIVALENTS

Coins, notes and cash at bankSecurities purchased under agreements to resell in less than 3 months
Balances with central banks
Settlement balances owed to ANZ New Zealand within 3 months1
Cash and cash equivalents

2018
NZ$m
411
136
1,734
126
2,407

2017
NZ$m
202
360
1,776
2,338

2018
NZ$m
2,407

2017
NZ$m
2,338

2,407

170
(69)
2,439

Reconciliation of cash and cash equivalents to the balance sheet

Cash and cash equivalents per the balance sheet
Amounts included in settlement balances receivable / (payable):
Nostro accounts1
Overdrawn nostro accounts
Cash and cash equivalents as per the cash flow statement
1

16

Settlement balances due within 3 months have been recognised in cash and cash equivalents on the balance sheet from 30 September 2018.

NOTES TO THE FINANCIAL STATEMENTS

8.

TRADING SECURITIES

Government securities
Corporate and financial institution securities
Trading securities

2018
NZ$m
4,696
3,328
8,024

2017
NZ$m
3,299
4,364
7,663

RECOGNITION AND MEASUREMENT
Trading securities are financial instruments we either:• acquire principally for the purpose of selling in the short-term; or• hold as part of a portfolio we manage for short-term profit making.
We recognise purchases and sales of trading securities on trade date:• initially, we measure them at fair value; and• subsequently, we measure them in the balance sheet at their fair value with any revaluation recognised in the profit or loss.

Judgement is required when applying the valuation techniques used to measure the fair value of trading securities not valued using
quoted market prices. Refer to Note 16 Fair Value of Financial Assets and Financial Liabilities for further details.

17

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
9. DERIVATIVE FINANCIAL INSTRUMENTS

Fair value
Derivative financial instruments - held for trading
Derivative financial instruments - designated in hedging relationships
Derivative financial instruments

Assets
2018
NZ$m
7,732
340
8,072

Liabilities
2018
NZ$m
(6,978)(1,155)(8,133)

Assets
2017
NZ$m
9,361
388
9,749

Liabilities
2017
NZ$m
(9,043)(851)(9,894)FEATURES
Derivative financial instruments are contracts:•

whose value is derived from an underlying price index (or other variable) defined in the contract – sometimes the value is derived from morethan one variable;•that require little or no initial net investment; and•that are settled at a future date.

Movements in the price of the underlying variables, which cause the value of the contract to fluctuate, are reflected in the fair value of the derivative.

PURPOSEANZ New Zealand’s derivative financial instruments have been categorised as follows:
Trading

Derivatives held in order to:•

Designated in Hedging
Relationships

meet customer needs for managing their own risks.

•manage risk in ANZ New Zealand’s positions that are not part of a designated hedge accounting relationship.

•

undertake market making and positioning activities to generate profits from short-term fluctuations in prices or
margins.

Derivatives designated into hedge accounting relationships in order to minimise profit or loss volatility by matching
movements to underlying positions relating to:•hedges of ANZ New Zealand’s exposures to interest rate risk and currency risk.

•hedges of other exposures relating to non-trading positions.

TYPES
ANZ New Zealand offers and uses four different types of derivative financial instruments:
Forwards

A contract documenting the rate of interest, or the currency exchange rate, to be paid or received on a notional
principal obligation at a future date.

Futures

An exchange traded contract in which the parties agree to buy and sell an asset in the future for a price agreed on
the transaction date, with a net settlement in cash paid on the future date without physical delivery of the asset.

Swaps

A contract in which one party exchanges one series of cash flows for another.

Options

A contract in which the buyer of the contract has the right - but not the obligation - to buy (known as a “call option”)
or to sell (known as a “put option”) an asset or instrument at a set price on a future date. The seller has thecorresponding obligation to fulfil the transaction to sell or buy the asset or instrument if the buyer exercises theoption.

RISKS MANAGED
ANZ New Zealand offers and uses the instruments described above to manage fluctuations in the following market factors:
Foreign Exchange

Currencies at current or determined rates of exchange.

Interest Rate

Fixed or variable interest rates applying to money lent, deposited or borrowed.

Commodity

Soft commodities (that is, agricultural products such as wheat, coffee, cocoa, and sugar) and hard commodities (thatis, mined products such as gold, oil and gas).

CreditCounterparty risk in the event of default.

18

NOTES TO THE FINANCIAL STATEMENTS

9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

DERIVATIVE FINANCIAL INSTRUMENTS – HELD FOR TRADINGThe majority of ANZ New Zealand’s derivative financial instruments are held for trading. The fair value of derivative financial instruments held for
trading are:

Fair value
Interest rate contracts
Forward rate agreements
Futures contracts
Swap agreements
Options purchased
Options sold
Total
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Options purchased
Options sold
Total
Commodity contracts and credit default swaps
Derivative financial instruments - held for trading

Assets2018
NZ$m

Liabilities
2018
NZ$m

Assets2017
NZ$m

Liabilities
2017
NZ$m

5
7
4,227
3
4,242

(4)
(10)
(3,887)(1)(3,902)

5
7,037
3
7,045

(24)
(6,322)(1)(6,347)

1,166
2,262
34
2
3,464
26
7,732

(888)
(2,135)(3)(24)(3,050)(26)(6,978)

605
1,679
17
2
2,303
13
9,361

(696)
(1,959)(27)(2,682)(14)(9,043)

DERIVATIVE FINANCIAL INSTRUMENTS – DESIGNATED IN HEDGING RELATIONSHIPSANZ New Zealand utilises two types of hedge accounting relationships:
Fair value hedge

Cash flow hedge

Objective of thishedgingarrangement

To hedge our exposure to changes to the fair value of arecognised asset or liability or unrecognised firm
commitment caused by interest rate or foreign currency
movements.

To hedge our exposure to variability in cash flows of arecognised asset or liability, a foreign exchange
component of a firm commitment or a highly probable
forecast transaction caused by interest rate, foreign
currency and other price movements.

Recognition ofeffective hedge
portionThe following are recognised in profit or loss at the sametime:
• all changes in the fair value of the underlying item
relating to the hedged risk; and• the change in the fair value of derivatives.

We recognise the effective portion of changes in thefair value of derivatives designated as a cash flow
hedge in the cash flow hedge reserve.

Recognition of ineffective
hedge portion

Recognised immediately in other operating income.

If a hedging instrument
expires, or is sold,terminated, or exercised;or no longer qualifies forhedge accounting

When we recognise the hedged item in profit or loss, werecognise the related unamortised fair value adjustmentin profit or loss. This may occur over time if the hedged
item is amortised to profit or loss as part of the effective
yield over the period to maturity.

Only when we recognise the hedged item in profit orloss is the amount previously deferred in the cash flow
hedge reserve transferred to profit or loss.

Hedged item sold or
repaidWe recognise the unamortised fair value adjustment
immediately in profit or loss.

Amounts accumulated in equity are transferred
immediately to profit or loss.

The fair value of derivative financial instruments designated in hedging relationships are:

Fair value
Interest rate swap agreements
Interest rate swap agreements
Derivative financial instruments - designated in hedging relationships

Hedge
accounting
type
Fair value
Cash flow

Assets
2018
NZ$m
54
286
340

Liabilities
2018
NZ$m
(902)
(253)
(1,155)

Assets
2017
NZ$m
86
302
388

Liabilities
2017
NZ$m
(635)
(216)
(851)

19

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The impact recognised in profit or loss arising from derivative financial instruments designated in hedge accounting relationships, is as follows:

Gain/(loss) recognised in other operating income
Hedged item
Hedging instrument

Hedge
accounting type

2018
NZ$m

2017
NZ$m

Fair value
Fair Value

265
(270)

203
(209)

RECOGNITION AND MEASUREMENT
Recognition

Initially and at each reporting date, we recognise all derivatives at fair value. If the fair value of a derivative is:positive, then we carry it as an asset, but if its value is negative, then we carry it as a liability.
Valuation adjustments are integral in determining the fair value of derivatives. This includes:• a credit valuation adjustment (CVA) to reflect the counterparty risk and/or event of default; and• a funding valuation adjustment (FVA) to account for funding costs and benefits in the derivatives portfolio.

Derecognition ofassets and liabilities

We remove derivative assets from our balance sheet when the contracts expire or we have transferred
substantially all the risks and rewards of ownership. We remove derivative liabilities from our balance sheet
when ANZ New Zealand’s contractual obligations are discharged, cancelled or expired.

Impact on the
Income Statement

How we recognise gains or losses on derivative financial instruments depends on whether the derivative isheld for trading or is designated into a hedging relationship. For derivative financial instruments held for
trading, gains or losses from changes in the fair value are recognised in profit or loss.
For an instrument designated into a hedging relationship the recognition of gains or losses depends on thenature of the item being hedged. Refer to the previous table on page 19 for profit or loss treatment dependingon the hedge type.

Hedge effectivenessTo qualify for hedge accounting a hedge is expected to be highly effective. A hedge is highly effective only if
the following conditions are met:
• the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows
attributable to the hedged risk during the period for which the hedge is designated (prospective
effectiveness); and• the actual results of the hedge are within the range of 80-125% (retrospective effectiveness).
ANZ New Zealand monitors hedge effectiveness on a regular basis but at a minimum at least at each reporting
date.

Judgement is required when we select the valuation techniques used to measure the fair value of derivatives, particularly the selectionof valuation inputs that are not readily observable, and the application of valuation adjustments to certain derivatives. Refer to Note 16
Fair Value of Financial Assets and Financial Liabilities for further details.

20

NOTES TO THE FINANCIAL STATEMENTS

10. AVAILABLE-FOR-SALE ASSETS
2018
Corporate
and financial
Security Government institution
EquityPeriodtype
securities
securities
securities
NZ$m
NZ$m
NZ$m
Less than 3 months
11019
Between 3 and 12 months
616
162
Between 1 and 5 years
3,134
1,831
Greater than 5 years
458
171
No maturity
1
Available-for-sale assets
4,318
2,183
1

Total
NZ$m
129
778
4,965
629
1
6,502

2017
Corporate
and financial
Government institution
Equitysecurities
securities
securities
NZ$m
NZ$m
NZ$m
277
270
695
158
2,609
1,578
657
115
1
4,238
2,121
1

Total
NZ$m
547
853
4,187
772
1
6,360

RECOGNITION AND MEASUREMENT
Available-for-sale (AFS) assets comprise non-derivative financial assets which we designate as AFS since we do not hold them principally fortrading purposes. They include both equity and debt securities. AFS assets are initially recognised at fair value plus transaction costs and arerevalued at least bi-annually. On revaluation, we include movements in fair value within the available-for-sale revaluation reserve in equity,
except for certain items which are recognised directly in profit or loss, being interest on debt securities, dividends received, foreign exchange on
debt securities and impairment charges.
When we sell the asset, any cumulative gain or loss from the available-for-sale revaluation reserve is recognised in profit or loss.
At each reporting date, we assess whether any AFS assets are impaired. We assess the impairment of any debt securities if an event has occurred
which will have a negative impact on the asset’s estimated cash flows. For equity securities, we assess if there is a significant or prolonged
decline in fair value below cost.
If an AFS asset is impaired, then we remove the cumulative loss related to that asset from the available-for-sale revaluation reserve. We thenrecognise it in profit or loss for:• debt instruments, as a credit impairment expense; and• equity instruments, as a negative impact in other operating income.
We recognise any later reversals of impairment on debt securities in the profit or loss through the credit impairment charge line. However, we
do not make any reversals of impairment for equity securities. To the extent previously impaired equity securities recover in value, gains arerecognised directly in equity.

Judgement is required when we select valuation techniques used to measure the fair value of AFS assets not valued using quoted
market prices, particularly the selection of valuation inputs that are not readily observable. Refer to Note 16 Fair Value of Financial Assets
and Financial Liabilities for further details.

21

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
11. NET LOANS AND ADVANCES
The following table provides details of net loans and advances for ANZ New Zealand:

Note
Overdrafts
Credit cards
Term loans - housing
Term loans - non-housing
Finance lease and hire purchase receivables
Subtotal
Unearned income
Capitalised brokerage/mortgage origination fees
Gross loans and advances (including assets reclassified as held for sale)
Provision for credit impairment
Net loans and advances (including assets reclassified as held for sale)Less: Net loans and advances reclassified as held for sale
Net loans and advances
Residual contractual maturity:- within one year
- after more than one year
Net loans and advances

12
25

2018
NZ$m
905
1,644
80,60944,1691,791
129,118(239)
314
129,193(516)
128,677
128,677

2017
NZ$m
1,040
1,638
76,87044,227
1,577
125,352(222)
336
125,466(586)
124,880(2,912)
121,968

26,937
101,740
128,677

28,195
93,773
121,968

RECOGNITION AND MEASUREMENT
Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are
facilities ANZ New Zealand provides directly to customers or through third party channels.
Loans and advances are initially recognised at fair value plus transaction costs directly attributable to the issue of the loan or advance, which areprimarily brokerage/mortgage origination fees which we amortise over the estimated life of the loan. Subsequently, we then measure loans andadvances at amortised cost using the effective interest rate method, net of any provision for credit impairment.
We classify contracts to lease assets and hire purchase agreements as finance leases if they transfer substantially all the risks and rewards ofownership of the asset to the customer or an unrelated third party.
ANZ New Zealand enters into transactions in which it transfers financial assets that are recognised on its balance sheet. When ANZ New Zealandretains substantially all of the risks and rewards of the transferred assets, the transferred assets remain on ANZ New Zealand’s balance sheet,however if substantially all the risks and rewards are transferred, ANZ New Zealand derecognises the asset.
If the risks and rewards are partially retained and control over the asset is lost, then ANZ New Zealand derecognises the asset. If control over theasset is not lost, ANZ New Zealand continues to recognise the asset to the extent of its continuing involvement.
We separately recognise the rights and obligations retained, or created, in the transfer as assets and liabilities as appropriate.

22

NOTES TO THE FINANCIAL STATEMENTS

12. PROVISION FOR CREDIT IMPAIRMENTPROVISION FOR CREDIT IMPAIRMENT – BALANCE SHEET

Provision for credit impairment
Individual provision
Balance at start of year
New and increased provisions
Write-backs
Bad debts written off (excluding recoveries)
Discount unwind
Total individual provisionCollective provision
Balance at start of year
Release to profit or loss
Total collective provision
Total provision for credit impairment

Net loans andadvances
2018
2017
NZ$m
NZ$m

Off-balance sheet credit
related commitments
2018
2017
NZ$m
NZ$m

Total
2018
NZ$m

2017
NZ$m

154
214
(83)
(149)
(4)
132

154
234
(97)
(133)
(4)
154

-

-

154
214
(83)
(149)
(4)
132

154
234
(97)
(133)
(4)
154

348
(36)
312
444

374
(26)
348
502

84
(12)
72
72

104
(20)
84
84

432
(48)
384
516

478
(46)
432
586

2018
NZ$m
214
(83)
(30)
101
(48)
53

2017
NZ$m
234
(97)
(31)
106
(46)
60

CREDIT IMPAIRMENT CHARGE – INCOME STATEMENT
Credit impairment charge
New and increased provisions
Write-backs
Recoveries of amounts previously written-off
Individual credit impairment charge
Collective credit impairment release
Total credit impairment charge

23

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
12. PROVISION FOR CREDIT IMPAIRMENT (continued)

RECOGNITION AND MEASUREMENTANZ New Zealand recognises two types of impairment provisions for its loans and advances:• individual provisions for significant assets that are assessed to be impaired; and• collective provisions for portfolios of similar assets that are assessed collectively for impairment.
The accounting treatment for each of them is detailed below:
IndividuallyCollectively

Assessment

If any impaired loans and advances exceed specified
thresholds and an impairment event has been
identified, then we assess the need for a provisionindividually.

To allow for any small value loans and advances where
losses may have been incurred but not yet identified, andindividually significant loans and advances that we do notassess as impaired, we assess them collectively in pools ofassets with similar risk characteristics.

Impairment

Loans and advances are assessed as impaired if wehave objective evidence that we may not recoverprincipal or interest payments (that is, a loss event
has been incurred).

We estimate the provision on the basis of historical loss
experience for assets with similar credit risk characteristics
to others in the respective collective pool. We adjust thehistorical loss experience based on current observabledata – such as: changing economic conditions, the impactof the inherent risk of large concentrated losses within theportfolio and an assessment of the economic cycle.

Measurement

We measure impairment loss as the difference between the asset’s carrying amount and estimated future cash
flows discounted to their present value at the asset’s original effective interest rate. We record the result as an
expense in profit or loss in the period we identify the impairment and recognise a corresponding reduction in the
carrying amount of loans and advances through an offsetting provision.

Uncollectableamounts

If a loan or advance is uncollectable (whether partially or in full), then we write off the balance (and also any related
provision for credit impairment).
We write off unsecured retail facilities at the earlier of the facility becoming 180 days past due, or the customer’sbankruptcy or similar legal release from the obligation to repay the loan or advance. For secured facilities, write offs
occur net of the proceeds determined to be recoverable from the realisation of collateral.

Recoveries

If we recover any cash flows from loans and advances we have previously written off, then we recognise therecovery in profit or loss in the period the cash flows are received.

Off-balance sheet
amounts

Any off-balance sheet items, such as loan commitments, are considered for impairment both on an individual andcollective basis.

When we measure impairment of loans and advances, we use management’s judgement of the extent of losses at reporting date.
IndividuallyCollectively
Key Judgements• estimated future cash flows• business prospects for the customer• realisable value of any collateral• ANZ New Zealand’s position relative to otherclaimants• reliability of customer information• likely cost and duration of recovering loans• estimated future cash flows• historical loss experience of assets with similar risk
characteristics• impact of large concentrated losses inherent in theportfolio• assessment of the economic cycle

We regularly review our key judgements and update them to reflect actual loss experience.

24

NOTES TO THE FINANCIAL STATEMENTS

13. DEPOSITS AND OTHER BORROWINGS
Note
Term deposits
On demand and short term deposits
Deposits not bearing interest
UDC secured investments
Total customer deposits
Certificates of deposit
Commercial paper
Securities sold under repurchase agreements
Borrowings from Ultimate Parent Bank and Immediate Parent Company
Deposits and other borrowings (including liabilities reclassified as held for sale)Less: Deposits and other borrowings reclassified as held for sale
Deposits and other borrowings
Residual contractual maturity:- to be settled within 1 year
- to be settled after 1 year
Deposits and other borrowings
Carried on Balance Sheet at:
Amortised cost
Fair value through profit or loss (designated on initial recognition)
Deposits and other borrowings

17

26
25

2018
NZ$m
51,29841,602
10,224931
104,055
910
2,486
517
4,952
112,920
112,9202017
NZ$m
45,45741,4518,882
1,039
96,829
1,916
3,721
157
6,429
109,052(1,039)108,013

107,692
5,228
112,920

101,360
6,653
108,013

110,434
2,486
112,920

104,292
3,721
108,013

Deposits from customers, except UDC secured investments, are unsecured and rank equally with other unsecured liabilities of ANZ New Zealand. In
the unlikely event that the Bank was put into liquidation or ceased to trade, secured creditors and those creditors set out in Schedule 7 of theCompanies Act 1993 would rank ahead of the claims of unsecured creditors.

RECOGNITION AND MEASUREMENT
For deposits and other borrowings that:• are not designated at fair value through profit or loss on initial recognition, we measure them at amortised cost and recognise their interest
expense using the effective interest rate method; and• are managed on a fair value basis, reduce or eliminate an accounting mismatch or contain an embedded derivative, we designate them asfair value through profit or loss.
Refer to Note 16 Fair Value of Financial Assets and Financial Liabilities for details of the split between amortised cost and fair value.
For deposits and other borrowings designated at fair value we recognise the amount of fair value gain or loss attributable to changes in ANZ
New Zealand’s own credit risk in other comprehensive income in retained earnings. Any remaining amount of fair value gain or loss werecognise directly in profit or loss. Once we have recognised an amount in other comprehensive income, we do not later reclassify it to profit or
loss.
Securities sold under repurchase agreements represent a liability to repurchase the financial assets that remain on our balance sheet since therisks and rewards of ownership remain with ANZ New Zealand. Over the life of the repurchase agreement, we recognise the difference
between the sale price and the repurchase price and charge it to interest expense in the Income Statement.

25

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
14. DEBT ISSUANCESANZ New Zealand uses a variety of funding programmes to issue unsubordinated debt (including senior debt and covered bonds) and subordinateddebt. The difference between unsubordinated debt and subordinated debt is that holders of unsubordinated debt take priority over holders ofsubordinated debt owed by the relevant issuer and subordinated debt will be repaid by the relevant issuer only after the repayment of claims ofdepositors, other creditors and the senior debt holders.
2018
2017
NZ$m
NZ$m
Senior debt
18,767
16,008Covered bonds
3,929
5,315
21,323
Total unsubordinated debt
22,696
Subordinated debt
- ANZ Capital Notes
1,541
1,549
- Other
1,133
289
2,674
Total subordinated debt
1,838
Total debt issued
24,53423,997TOTAL DEBT ISSUED BY CURRENCY
The table below shows ANZ New Zealand’s issued debt by currency of issue, which broadly represents the debt holders’ base location.

AUD Australian Dollars
EUR Euro
JPY Japanese Yen
NZD New Zealand Dollars
CHF Swiss Francs
USD United States Dollars
Total debt issued
Residual contractual maturity:- to be settled within 1 year
- to be settled after 1 year
Total debt issued

2018
NZ$m
1,385
6,740
36
4,713
1,658
10,002
24,534

2017
NZ$m
1,386
6,676
38
5,206
1,672
9,019
23,997

4,124
20,41024,534

4,302
19,69523,997

Covered bonds are guaranteed by ANZNZ Covered Bond Trust Limited (the Covered Bond Guarantor), solely in its capacity as trustee of ANZNZ
Covered Bond Trust (the Covered Bond Trust). The Covered Bond Trust is a member of the Banking Group, whereas the Covered Bond Guarantor is nota member of the Banking Group.
NZX Regulation has granted the Bank a waiver from NZX Debt Market Listing Rule (Rule) 7.12.1 to the extent that this Rule requires the Bank to releaseto the market details of any acquisition of the Bank’s domestic bonds as a result of its market-making activities or trading on behalf of its clients. The
Bank will notify the NZX if any such domestic bonds are subsequently cancelled. Rule 7.12.1 does not extend to the Bank’s subsidiaries in this context.
The Bank will continue to comply with Rule 7.12.1 in respect of any domestic bonds that are issued, redeemed or purchased by the Bank in any othercapacity.
Senior debt includes a series of bonds quoted on the NZX Debt Market that matures on 22 March 2019 (the Bonds). NZX Regulation has granted the
Bank a waiver from the requirement in Rule 5.2.3 (as modified by NZX Regulation’s Ruling on Rule 5.2.3 issued on 29 September 2015) for the Bonds tobe held by at least 100 members of the public holding at least 25% of the Bonds issued (Spread). The effect of this waiver is that the Bonds may not be
widely held and there may be reduced liquidity in the Bonds. If there is a material reduction in the Spread of the Bonds, the Bank will notify NZX as
appropriate.

26

NOTES TO THE FINANCIAL STATEMENTS

14. DEBT ISSUANCES (continued)
ANZ Capital Notes
ANZ Capital Notes are fully paid mandatorily convertible non-cumulative perpetual subordinated notes. ANZ Capital Notes 3 (ANZ CN3) rank equallywith other additional tier 1 capital instruments issued by the Ultimate Parent Bank. ANZ New Zealand Capital Notes (ANZ NZ CN) rank equally with theBank’s other additional tier 1 capital instruments, including preference shares. Holders of ANZ Capital Notes do not have any right to vote in general
meetings of the Ultimate Parent Bank or the Bank.
As at 30 September 2018, ANZ NZ CN carried a BB+ credit rating from S&P Global Ratings.
ANZ Capital Notes are classified as debt given there are circumstances beyond ANZ New Zealand’s control where the principal is converted into avariable number of ordinary shares of the Ultimate Parent Bank.
Distributions on ANZ CN3 and interest payments on ANZ NZ CN are non-cumulative and subject to the issuer’s absolute discretion and certain
payment conditions (including regulatory requirements). Distributions on ANZ CN3 are franked in line with the franking applied to the Ultimate Parent
Bank’s ordinary shares.
ANZ Capital Notes provide the issuer with an early redemption or conversion option on a specified date and in certain other circumstances (such as a
tax or regulatory event). This option is subject to APRA’s and, in respect of the ANZ NZ CN, RBNZ’s prior written approval.
ANZ Capital Notes will immediately convert into a variable number of ordinary shares of the Ultimate Parent Bank (based on the average market priceof the Ultimate Parent Bank’s ordinary shares immediately prior to conversion less a 1% discount, subject to a maximum conversion number of
Ultimate Parent Bank ordinary shares) if:• the Overseas Banking Group’s Level 1 (ANZ CN3 only) or Level 2 common equity tier 1 capital ratio is equal to or less than 5.125% or, in the caseof the ANZ NZ CN, the Banking Group’s common equity tier 1 capital ratio is equal to or less than 5.125% - known as a Common Equity Capital
Trigger Event; or• APRA notifies the Ultimate Parent Bank that, without the conversion or write-off of certain securities or a public injection of capital (or equivalent
support), it considers that the Ultimate Parent Bank would become non-viable or, in the case of the ANZ NZ CN, the RBNZ directs the Bank toconvert or write-off the notes or a statutory manager is appointed to the Bank and decides that the Bank must convert or write-off the notes –known as a Non-Viability Trigger Event.
ANZ Capital Notes mandatorily convert into a variable number of ordinary shares of the Ultimate Parent Bank (based on the average market price ofthe shares immediately prior to conversion less a 1% discount):• on a specified mandatory conversion date; or• on an earlier date under certain circumstances as set out in the terms.
However, the mandatory conversion is deferred for a specified period if certain conversion tests are not met.
The table below show the key details of the ANZ Capital Notes on issue at 30 September in both the current and the prior year:
IssuerIssue dateIssue amount
Face value
Distribution/interest frequency
Distribution/interest rate
Issuer's early redemption or conversion option
Mandatory conversion dateCommon equity capital trigger event
Non-viability trigger event
Carrying value as at 30 September 2018 (net of issue costs)

ANZ CN 3
NZ Branch
5 March 2015
AU$970 million
AU$100Semi-annually in arrears

ANZ NZ CN
The Bank
31 March 2015
NZ$500 million
NZ$1
Quarterly in arrears
Fixed at 7.2% p.a. until 25
Floating rate: (Australian 180
May 2020. Resets in May 2020
day Bank Bill rate + 3.6%)
to a floating rate: (Newx (1-Australian corporate
Zealand 3 month Bank Billtax rate)
rate + 3.5%)
24 March 2023
25 May 2020
24 March 2025
25 May 2022
Yes
Yes
Yes
Yes
NZ$1,051 million
NZ$498 million

RECOGNITION AND MEASUREMENT
Debt issuances are measured at amortised cost. Where ANZ New Zealand enters into a hedge accounting relationship, the fair value
attributable to the hedge risk is reflected in adjustments to the carrying value of the debt. Interest expense is recognised using the effective
interest rate method.
Subordinated debt with capital-based conversion features (i.e. Common Equity Capital Trigger Event or Non-Viability Trigger Events) areconsidered to contain embedded derivatives that we account for separately at fair value through profit and loss. The embedded derivatives arise
because the amount of shares issued on conversion following any of those trigger events is subject to the maximum conversion number,
however they have no value as of the reporting date given the remote nature of those triggering events.
27

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENTRISK MANAGEMENT FRAMEWORK AND MODELINTRODUCTION
The use of financial instruments is fundamental to ANZ New Zealand’s businesses of providing banking and other financial services to our customers.
The associated financial risks (primarily credit, market, and liquidity risks) are a significant portion of ANZ New Zealand’s principal risks.
This note details ANZ New Zealand’s financial risk management policies, processes and quantitative disclosures in relation to the key financial risks:
Principal financial risks

Key sections applicable to this risk

Overview• An overview of our Risk Management Framework

Credit risk

•
•
•
•
•

Credit risk overview, management and control responsibilities
Maximum exposure to credit risk
Credit quality
Concentrations of credit risk
Collateral management

•
•
•
•

Market risk overview, management and control responsibilities
Measurement of market risk
Traded and non-traded market risk
Foreign currency risk – structural exposure

•
•
•
•
•

Liquidity risk overview, management and control responsibilities
Key areas of measurement for liquidity risk
Liquidity portfolio management
Funding position
Residual contractual maturity analysis of ANZ New Zealand’s liabilities

Credit risk is the risk of financial loss from a customer, or counterparty,
failing to meet their financial obligations – including the whole andtimely payment of principal, interest, collateral, and other receivables.
Market risk
Market risk is the risk of loss arising from potential adverse changes inthe value of ANZ New Zealand’s assets and liabilities and other trading
positions from fluctuations in market variables. These variables include,
but are not limited to interest rates, foreign exchange, equity prices,
commodity prices, credit spreads, implied volatilities, and asset
correlations.
Liquidity and funding risk
Liquidity risk is the risk that ANZ New Zealand is unable to meet its
payment obligations when they fall due; or does not have theappropriate amount, tenor and composition of funding and liquidity tofund increases in its assets.

OVERVIEWAN OVERVIEW OF OUR RISK MANAGEMENT FRAMEWORKThis overview is provided to aid the users of the financial statements to understand the context of the financial disclosures required under NZ IFRS 7
Financial Instruments: Disclosures.
The Board is responsible for establishing and overseeing ANZ New Zealand’s Risk Management Framework (RMF). The Board has delegated authority
to the Bank’s Board Risk Committee (BRC) to develop and monitor compliance with ANZ New Zealand’s financial risk management policies. The BRC
reports regularly to the Board on its activities.
The Board approves the strategic objectives of ANZ New Zealand including:• the Risk Appetite Statement (RAS), which sets out the Board’s expectations regarding the degree of risk that ANZ New Zealand is prepared toaccept in pursuit of its strategic objectives and business plan; and• the Risk Management Strategy (RMS), which describes ANZ New Zealand’s strategy for managing risks and the key elements of the RMF thatgives effect to this strategy. This includes a description of each material risk, and an overview of how the RMF addresses each risk, with reference
to the relevant policies, standards and procedures. It also includes information on how ANZ New Zealand identifies measures, evaluates,
monitors, reports and controls or mitigates material risks.
ANZ New Zealand, through its training and management standards and procedures, aims to maintain a disciplined and robust control environment inwhich all employees understand their roles and obligations. At ANZ New Zealand, risk is everyone’s responsibility.
ANZ New Zealand has an independent risk management function, headed by the Chief Risk Officer who:
• is responsible for overseeing the risk profile and the risk management framework;• can effectively challenge activities and decisions that materially affect ANZ New Zealand’s risk profile; and• has an independent reporting line to the BRC to enable the appropriate escalation of issues of concern.
The Internal Audit Function reports directly to the Bank’s Board Audit Committee (BAC). Internal Audit provides:• an independent evaluation of ANZ New Zealand’s RMF annually and undertakes a comprehensive review every three years;• assurance on the appropriateness, effectiveness and adequacy of the risk management framework, which includes assurance the framework is
operating effectively; and• recommendations to improve the framework and/or work practices to strengthen the effectiveness of day to day operations.

28

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISKCREDIT RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Granting credit facilities to customers is one of ANZ New Zealand’s major sources of income. As this activity is also a principal risk, ANZ New Zealanddedicates considerable resources to its management. ANZ New Zealand assumes credit risk in a wide range of lending and other activities in diverse
markets and in many jurisdictions. Credit risks arise from traditional lending to customers as well as from inter-bank, treasury, trade finance and capital
markets activities around the world.
Our credit risk management framework ensures we apply a consistent approach across ANZ New Zealand when we measure, monitor and manage
the credit risk appetite set by the Board. The Board is assisted and advised by the BRC in discharging its duty to oversee credit risk. The BRC:
• sets the credit risk appetite and credit strategies; and• approves credit transactions beyond the discretion of executive management.
We quantify credit risk through an internal credit rating system (masterscales) to ensure consistency across exposure types and to provide a consistentframework for reporting and analysis. The system uses models and other tools to measure the following for customer exposures:
Probability of Default (PD)Expressed by a Customer Credit Rating (CCR), reflecting ANZ New Zealand’s assessment of a customer’sability to service and repay debt.

Exposure at Default (EAD)

The expected amount of loan outstanding at the time of default.

Loss Given Default (LGD)

Expressed by a Security Indicator (SI) ranging from A to G. The SI is calculated by reference to thepercentage of loan covered by security which ANZ New Zealand can realise if a customer defaults. The
A-G scale is supplemented by a range of other SIs which cover such factors as cash cover and sovereign
backing. For retail and some small business lending, we group exposures into large homogenous pools– and the LGD is assigned at the pool level.

Our specialist credit risk teams develop and validate ANZ New Zealand’s PD and LGD rating models. The outputs from these models drive our day-today credit risk management decisions including origination, pricing, approval levels, regulatory capital adequacy, economic capital allocation, andcredit provisioning.
All customers with whom ANZ New Zealand has a credit relationship are assigned a CCR at origination via either of the following assessment
approaches:
Large and more complex lending

Retail and some small business lending

Rating models provide a consistent and structured assessment, withjudgement required around the use of out-of-model factors. We
handle credit approval on a dual approval basis, jointly with thebusiness writer and an independent credit officer.

Automated assessment of credit applications using a combination ofscoring (application and behavioural), policy rules and external credit
reporting information. If the application does not meet the automatedassessment criteria, then it is referred out for manual assessment.

We use ANZ New Zealand’s internal CCRs to manage the credit quality of financial assets neither past due nor impaired. To enable wider comparisons,
ANZ New Zealand’s CCRs are mapped to external rating agency scales as follows:
Internal Rating

ANZ New Zealand Customer Requirements

Moody’s Rating

S&P Global Ratings

Strong credit profile

Demonstrated superior stability in their operating and financial
performance over the long-term, and whose earnings capacity is not
significantly vulnerable to foreseeable events.

Aaa – Baa3

AAA – BBB-

Satisfactory risk

Demonstrated sound operational and financial stability over the
medium to long-term — even though some may be susceptible tocyclical trends or variability in earnings.

Ba1 – B1

BB+ – B+

Sub-standard but notpast due nor impaired

Demonstrated some operational and financial instability, withvariability and uncertainty in profitability and liquidity projected tocontinue over the short and possibly medium term.

B2 – Caa

B - CCC

29

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
MAXIMUM EXPOSURE TO CREDIT RISKFor financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances there may
be differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below. Principally, thesedifferences arise in respect of financial assets that are subject to risks other than credit risk, such as equity instruments which are primarily subject tomarket risk, or bank notes and coins.
For undrawn facilities, this maximum exposure to credit risk is the full amount of the committed facilities. For contingent exposures, the maximum
exposure to credit risk is the maximum amount ANZ New Zealand would have to pay if the instrument is called upon.
For the purpose of this note, assets presented as assets held for sale in the Balance Sheet have been reallocated to their respective Balance Sheet
categories.
The table below shows our maximum exposure to credit risk of on-balance sheet and off-balance sheet positions before taking account of any
collateral held or other credit enhancements.

ReportedOn-balance sheet positions
Net loans and advances2,3
Other financial assets:
Cash and cash equivalents
Settlement balances owed to ANZ New ZealandCollateral paid
Trading securities
Derivative financial instruments
Available-for-sale assets
Other financial assets4
Total other financial assets
Subtotal
Off-balance sheet positions
Undrawn and contingent facilities2,5
Total
1
2
3
4
5

30

Maximum exposure tocredit risk

Excluded1 / Other2

2018
NZ$m

2017
NZ$m

2018
NZ$m

2017
NZ$m

2018
NZ$m

2017
NZ$m

128,677

124,880

(72)

(84)

128,749

124,964

2,407
656
1,919
8,024
8,072
6,502
719
28,299156,976

2,338
536
1,415
7,663
9,749
6,360
744
28,805
153,685

204
204
132

198
198
114

2,203
656
1,919
8,024
8,072
6,502
719
28,095
156,844

2,140
536
1,415
7,663
9,749
6,360
744
28,607
153,571

29,855
186,831

29,128
182,813

72
204

84
198

29,783
186,627

29,044
182,615

Excluded comprises bank notes and coins and cash at bank within cash and cash equivalents.
Other relates to the transfer of individual and collective provisions related to off-balance sheet facilities held in net loans and advances. The provisions are transferred for the purposes ofshowing the maximum exposure to credit risk by relevant facility type in this and the following tables.
Including items reclassified as held for sale.
Other financial assets mainly comprise accrued interest, insurance receivables and acceptances.
Undrawn facilities and contingent facilities include guarantees, letters of credit and performance related contingencies.

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT QUALITY
The table below provides an analysis of the credit quality of the maximum exposure to credit risk split by:• neither past due nor impaired financial assets by credit quality;• past due but not impaired assets by ageing; and• impaired assets presented as gross amounts and net of provision for credit impairment.
Off-balance sheet
credit related
commitments

Loans
and advances

Other financial
assets

2018
NZ$m

2017
NZ$m

2018
NZ$m

2017
NZ$m

2018
NZ$m

2017
NZ$m

2018
NZ$m

2017
NZ$m

Neither past due nor impaired
Strong credit profile

94,747

85,26027,561

27,89523,224

22,673

145,532

135,828

Satisfactory risk

29,50634,810

521

702

6,186

6,016

36,213

41,528Sub-standard but not past due or impaired

2,314

2,602

13

10

359

349

2,686

2,961

126,567

122,672

28,09528,607

29,76929,038

184,431180,317≥ 1 < 30 days

1,441

1,431

-

-

-

-

1,441

1,431

≥ 30 < 60 days

190

305

-

-

-

-

190

305

≥ 60 < 90 days

139

144

-

-

-

-

139

144

≥ 90 days

221

205

-

-

-

-

221

205

1,991

2,085

-

-

-

-

1,991

2,085

323

361

-

-

-

-

323

361

-

-

-

-

14

6

14

6

Gross impaired financial assets

323

361

-

-

14

6

337

367

Individual provisions

(132)

(154)

-

-

-

-

(132)

(154)

Subtotal net impaired

191

207

-

-

14

6

205

213

128,749

124,964

28,09528,60729,78329,044

186,627

182,615

Subtotal

Total

Past due but not impaired

Subtotal
Impaired
Impaired loans
Non-performing commitments
and contingencies

Total

31

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
CONCENTRATIONS OF CREDIT RISK
Credit risk becomes concentrated when a number of customers are engaged in similar activities, have similar economic characteristics, or have similar
activities within the same geographic region – therefore, they may be similarly affected by changes in economic or other conditions. ANZ New
Zealand monitors its credit portfolio to manage risk concentration and rebalance the portfolio. ANZ New Zealand also applies single customer
counterparty limits to protect against unacceptably large exposures to one single customer.
Analysis of financial assets by industry sector is based on Australian and New Zealand Standard Industrial Classification (ANZSIC) codes. The significant
categories shown are the level one New Zealand Standard Industry Output Categories (NZSIOC), except that Agriculture is shown separately as
required by the Order.
Composition of financial instruments that give rise to credit risk by industry group are presented below:
Loans
and advances3,4

Other financial
assets4

Off-balance sheet
credit related
commitments5

2018
NZ$m

2017
NZ$m

2018
NZ$m

2017
NZ$m

2018
NZ$m

2017
NZ$m

2018
NZ$m

2017
NZ$m

17,845
1,379
2,687
1,403
1,714
1,404
3,214
1,224
871
364
32,293

17,689
1,277
2,730
1,602
1,640
1,630
3,065
1,442
905
412
31,649

82
9
284
330
21
63
27
121
5,480
9,654
235

83
5
169
457
18
54
28
69
5,239
8,099
218

1,373
249
1,793
1,576
1,358
1,521
969
783
1,317
1,043
3,461

1,436
240
1,798
1,522
1,119
1,357
1,133
894
1,010
794
3,699

19,300
1,637
4,764
3,309
3,093
2,988
4,210
2,128
7,668
11,061
35,98919,208
1,522
4,697
3,581
2,777
3,041
4,226
2,405
7,154
9,305
35,566

1,179

1,290

9

10

633

619

1,821

1,919

58,4252,574

54,765
2,636

192
167

180
142

11,977
1,663

11,8781,474

70,594
4,404

66,823
4,252

Subtotal
Overseas
Finance and insurance services
Households
All other non-NZ residents

126,576

122,732

16,674

14,771

29,71628,973

172,966

166,476

128
1,563
851

123
1,529
968

11,3315
85

13,137
5
694

139
-

155
-

11,598
1,568
936

13,415
1,534
1,662

Subtotal
Gross subtotal
Provision for credit impairment
Subtotal
Unearned income
Capitalised brokerage / mortgage
origination fees
Maximum exposure to credit risk

2,542
129,118(444)
128,674
(239)

2,620
125,352(502)
124,850(222)

11,421
28,09528,095-

13,83628,60728,607-

139
29,855(72)
29,783-

155
29,128(84)
29,044-

14,102
187,068(516)
186,552(239)

16,611
183,087(586)
182,501
(222)

314

336

-

-

-

-

314

336

128,749

124,964

28,09528,60729,78329,044

186,627

182,615

New Zealand residents
Agriculture
Forestry and fishing, agriculture services
Manufacturing
Electricity, gas, water and waste services
Construction
Wholesale trade
Retail trade and accommodation
Transport, postal and warehousing
Finance and insurance services
Public administration and safety1
Rental, hiring & real estate services
Professional, scientific, technical,
administrative and support services
Households
All other New Zealand residents2

1
2
3
4
5

32

Total

Public administration and safety includes exposures to local government administration and central government administration, defence and public safety.
Other includes exposures to mining, information media and telecommunications, education and training, health care and social assistance and arts, recreation and other services.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
Including items classified as held for sale.
Credit related commitments comprise undrawn facilities, customer contingent liabilities and letters of offer.

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
COLLATERAL MANAGEMENT
We use collateral for on and off-balance sheet exposures to mitigate credit risk if a counterparty cannot meet its repayment obligations from its
expected cashflows. For some products, the collateral provided by customers is fundamental to the product’s structuring, so it is not strictly thesecondary source of repayment - for example, lending secured by trade receivables is typically repaid by the collection of those receivables.
The nature of collateral or security held for the relevant classes of financial assets is as follows:
Net loans and advances
Loans – housing and personal

Housing loans are secured by mortgage(s) over property and additional security may take the form ofguarantees and deposits.
Personal lending (including credit cards and overdrafts) is predominantly unsecured. If we takesecurity, then it is restricted to eligible vehicles, motor homes and other assets.

Loans – businessBusiness loans may be secured, partially secured or unsecured. Typically, we take security by way of amortgage over property and/or a charge over the business or other assets.
If appropriate, we may take other security to mitigate the credit risk, for example: guarantees, standby
letters of credit or derivative protection.

Other financial assets
For trading securities, we do not seek collateral directly from the issuer or counterparty. However, theTrading securities, Available-for-saleassets, Derivatives and Other financial collateral may be implicit in the terms of the instrument (for example, with an asset-backed security).
The terms of debt securities may include collateralisation.
assetsFor derivatives, we typically terminate all contracts with the counterparty and settle on a net basis atmarket levels current at the time of a counterparty default under International Swaps and Derivatives
Association (ISDA) Master Agreements.
Our preferred practice is to use a Credit Support Annex (CSA) to the ISDA so that open derivative
positions with the counterparty are aggregated and cash collateral (or other forms of eligible collateral)is exchanged daily. The collateral is provided by the counterparty when their position is out of themoney (or provided to the counterparty by ANZ New Zealand when our position is out of the money).
Off-balance sheet positions
Undrawn and contingent liabilities

Collateral for off balance sheet positions is mainly held against undrawn facilities, and they are typically
performance bonds on guarantees. Undrawn facilities that are secured include housing loans securedby mortgages over residential property and business lending secured by commercial real estate and/or
charges over business assets.

The table below shows the estimated value of collateral we hold and the net unsecured portion of credit exposures:
Credit exposure

Total value of collateral

Unsecured portion of
credit exposure

2018
NZ$m

2017
NZ$m

2018
NZ$m

2017
NZ$m

2018
NZ$m

2017
NZ$m

Net loans and advances1

128,749

124,964

119,539

115,225

9,210

9,739

Other financial assets

28,09528,607

2,029

1,617

26,06626,990Off-balance sheet positions

29,78329,044

15,124

14,526

14,65914,518

Total

186,627

182,615

136,692

131,368

49,93551,2471

1Including items reclassified as held for sale.

33

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISKMARKET RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIESMarket risk stems from ANZ New Zealand’s trading and balance sheet management activities, the impact of changes and correlation between interest
rates, foreign exchange rates, credit spreads and volatility in bond, commodity or equity prices.
The BRC delegates responsibility for day-to-day management of both market risks and compliance with market risk policies to the Bank’s Asset &Liability Committee (ALCO).
Within overall strategies and policies established by the BRC, business units and risk management have joint responsibility for the control of market
risk at the ANZ New Zealand level. The Market Risk team (a specialist risk management unit independent of the business) allocates market risk limits at
various levels and monitors and reports on them daily. This detailed framework allocates individual limits to manage and control exposures using risk
factors and profit and loss limits.
Management, measurement and reporting of market risk is undertaken in two broad categories:
Traded Market Risk

Non-Traded Market Risk

Risk of loss from changes in the value of financial instruments due
to movements in price factors for both physical and derivative
trading positions. Principal risk categories monitored are:Risk of loss associated with the management of non-traded interest rate risk,
liquidity risk and foreign exchange exposures. This includes interest rate riskin the banking book. This risk of loss arises from adverse changes in theoverall and relative level of interest rates for different tenors, differences in
the actual versus expected net interest margin, and the potential valuation
risk associated with embedded options in financial instruments and bankproducts.

1. Currency risk – potential loss arising from changes in foreignexchange rates or their implied volatilities.
2. Interest rate risk – potential loss from changes in market
interest rates or their implied volatilities.
3. Credit spread risk – potential loss arising from a movement inmargin or spread relative to a benchmark.
4. Commodity risk – potential loss arising from changes incommodity prices or their implied volatilities.
5. Equity risk – potential loss arising from changes in equity
prices.

MEASUREMENT OF MARKET RISKWe primarily manage and control market risk using Value at Risk (VaR), sensitivity analysis and stress testing.
VaR gauges ANZ New Zealand’s possible daily loss based on historical market movements.
ANZ New Zealand’s VaR approach for both traded and non-traded risk is historical simulation. We use historical changes in market rates, prices andvolatilities over:•the previous 500 business days, to calculate standard VaR, and•a 1-year stressed period, to calculate stressed VaR.

We calculate traded and non-traded VaR using one-day and ten-day holding periods. For stressed VaR, we use a ten-day period. Back testing is used toensure our VaR models remain accurate.
ANZ New Zealand measures VaR at a 99% confidence interval which means there is a 99% chance that a loss will not exceed the VaR on any given day.

34

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
TRADED AND NON-TRADED MARKET RISK
Traded market risk
The table below shows the traded market risk VaR on a diversified basis by risk categories:

As at
NZ$m
Traded value at risk 99% confidence
Foreign exchange risk
Interest rate risk
Credit spread risk
Diversification benefit1
Total VaR
1.

0.5
1.4
0.5
(1.0)
1.4

30 September 2018
High forLow for
year
year
NZ$m
NZ$m
1.6
3.6
0.8
n/a
4.0

0.2
0.8
0.3
n/a
1.0

Averagefor year
NZ$m

As at
NZ$m

0.7
1.9
0.5
(0.9)
2.2

0.1
3.0
0.6
(0.9)
2.8

30 September 2017High forLow for
year
year
NZ$m
NZ$m
1.2
5.8
0.8
n/a
5.3

Averagefor year
NZ$m

0.1
1.3
0.4
n/a
1.4

0.4
2.5
0.6
(0.9)
2.6

The diversification benefit reflects risks that offset across categories. The high and low VaR figures reported for each factor did not necessarily occur on the same day as the high and low VaR reported for
ANZ New Zealand as a whole. Consequently, a diversification benefit for high and low would not be meaningful and is therefore omitted from the table.

Non-traded market risk
Balance sheet risk management
The principal objectives of balance sheet risk management are to maintain acceptable levels of interest rate and liquidity risk to mitigate the negative
impact of movements in interest rates on the earnings and market value of ANZ New Zealand’s banking book, while ensuring ANZ New Zealandmaintains sufficient liquidity to meet its obligations as they fall due.
Interest rate risk management
Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on ANZ New Zealand’s future net interest
income. This risk arises from two principal sources, namely mismatches between the repricing dates of interest bearing assets and liabilities; and theinvestment of capital and other non-interest bearing liabilities in interest bearing assets. Interest rate risk is reported using VaR and scenario analysis(based on the impact of a 1% rate shock). The table below shows VaR figures for non-traded interest rate risk for ANZ New Zealand.

As at
NZ$m
Non-traded value at risk 99% confidence
Total VaR

8.0

30 September 2018
High forLow for
year
year
NZ$m
NZ$m
10.2

6.4

Averagefor year
NZ$m

As at
NZ$m

7.8

8.3

30 September 2017High forLow for
year
year
NZ$m
NZ$m
10.2

Averagefor year
NZ$m

7.3

8.2

We undertake scenario analysis to stress test the impact of extreme events on ANZ New Zealand’s market risk exposures. We model a 1% overnight
parallel positive shift in the yield curve to determine the potential impact on our net interest income over the next 12 months. This is a standard risk
measure which assumes the parallel shift is reflected in all wholesale and customer rates.
The table below shows the outcome of this risk measure for the current and previous financial years, expressed as a percentage of reported net
interest income. A positive number signifies that a rate increase is positive for net interest income over the next 12 months.

Impact of 1% rate shock
As at period end

2018

2017

-0.4%

0.6%

Maximum exposure

0.9%

0.9%

Minimum exposure

-1.2%

-0.3%

Average exposure (in absolute terms)

-0.1%

0.4%

FOREIGN CURRENCY RISK – STRUCTURAL EXPOSURES
Where it is considered appropriate, ANZ New Zealand takes out economic hedges against larger foreign exchange denominated revenue streams(primarily Australian Dollar, US Dollar and US Dollar correlated). The primary objective of hedging is to ensure that, if practical, the consolidated capitalratios are neutral to the effect of changes in exchange rates. During the current and prior years, we had selective hedges in place. Further detail on
ANZ New Zealand’s hedging relationships is disclosed in Note 9 Derivative Financial Instruments.

35

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISKLIQUIDITY RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Liquidity risk is the risk that ANZ New Zealand is either:• unable to meet its payment obligations (including repaying depositors or maturing wholesale debt) when they fall due; or• does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets.
Management of liquidity and funding is overseen by ALCO. ANZ New Zealand’s liquidity and funding risks are governed by a set of principles
approved by the Risk Committees of the Bank’s and Ultimate Parent Bank’s Boards and include:• maintaining the ability to meet all payment obligations in the immediate term;• ensuring that ANZ New Zealand has the ability to meet ‘survival horizons’ under ANZ New Zealand specific and general market liquidity stressscenarios to meet cash flow obligations over the short to medium term;• maintaining strength in ANZ New Zealand’s balance sheet structure to ensure long term resilience in the liquidity and funding risk profile;• ensuring the liquidity management framework is compatible with local regulatory requirements;• preparing daily liquidity reports and scenario analysis to quantify ANZ New Zealand’s positions;• targeting a diversified funding base to avoid 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; and• establishing a detailed contingency plan to cover different liquidity crisis events.
KEY AREAS OF MEASUREMENT FOR LIQUIDITY RISKSupervision and regulation
RBNZ requires the Bank to have a comprehensive Board approved liquidity strategy defining: policy, systems and procedures for measuring, assessing,reporting and managing liquidity. This also includes a formal contingency plan for dealing with a liquidity crisis. The Banking Group is required to meet
one week and one month liquidity mismatch ratios and a one year core funding ratio each day.
Scenario modelling
A key component of ANZ New Zealand’s liquidity management framework is scenario modelling.
Potential severe liquidity crisis scenarios which model the behaviour of cash flows where there is a problem (real or perceived) may include, but are
not limited to, operational issues, doubts about the solvency of ANZ New Zealand, or adverse rating changes. Under these scenarios ANZ New
Zealand may have significant difficulty rolling over or replacing funding. ANZ New Zealand’s liquidity policy requires sufficient high quality liquid
assets to be held to meet its liquidity needs for the following 30 calendar days under the modelled scenarios.
As of 30 September 2018 ANZ New Zealand was in compliance with the above scenarios.
Structural balance sheet metrics
ANZ New Zealand’s liquidity management framework also encompasses structural balance sheet metrics such as the RBNZ core funding ratio. These
metrics are designed to limit the amount of funding required to be rolled over within a 1 year timeframe and so interact with the liquidity scenarios tomaintain ANZ New Zealand‘s liquidity position.
Wholesale funding
ANZ New Zealand’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency whiletargeting diversification by markets, investors, currencies, maturities and funding structures. Short-term wholesale funding requirements, with acontractual maturity of less than one year, are managed through Treasury and Markets operations. Long-term wholesale funding is managed andexecuted through Treasury operations.
ANZ New Zealand also uses maturity concentration limits under the wholesale funding and liquidity management framework. Maturity concentration
limits ensure that ANZ New Zealand is not required to issue large volumes of new wholesale funding within a short time period to replace maturingwholesale funding. Funding instruments used to meet the wholesale borrowing requirement must be on a pre-established list of approved products.
Funding capacity and debt issuance planning
ANZ New Zealand adopts a conservative approach to determine its funding capacity. Annually, a funding plan is approved by the Bank’s Board. The
plan is supplemented by regular updates and is linked to ANZ New Zealand’s three year strategic planning cycle.

36

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY PORTFOLIO MANAGEMENTANZ New Zealand holds a diversified portfolio of cash and high quality highly liquid securities to support liquidity risk management. The size of ANZ
New Zealand’s liquidity portfolio is based on the amount required to meet the requirements of its internal and regulatory liquidity scenario metrics.
Total liquidity portfolio
2018
NZ$m

2017
NZ$m

2,026
179

2,102

Certificates of deposit
Central and local government bonds

7,528

6,609

794

775

Cash and balances with central banks

Government treasury bills

59

50

-

Other bonds

5,493

6,390

Total liquidity portfolio

16,07015,935Reserve Bank bills

Assets held for managing liquidity risk include short term cash held with RBNZ, New Zealand Government securities, securities issued by supranational
agencies, securities issued by highly rated banks and securities issued by State Owned Enterprises, Local Authorities and highly rated NZ domestic
corporates. These assets would be accepted as collateral by RBNZ in repurchase transactions. At 30 September 2018 ANZ New Zealand would be
eligible to enter into repurchase transactions with a value of NZ$14,044 million. The Banking Group also held unencumbered internal residential
mortgage backed securities (RMBS) which would entitle ANZ New Zealand to enter into repurchase transactions with a value of NZ$7,060 million at 30
September 2018.
Liquidity crisis contingency planning
ANZ New Zealand maintains a liquidity crisis contingency plan to define an approach for analysing and responding to a liquidity-threatening event ona group wide basis. The framework includes:• the establishment of crisis severity/stress levels;• clearly assigned crisis roles and responsibilities;• early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals;• outlined action plans, and courses of action for altering asset and liability behaviour;• procedures for crisis management reporting, and covering cash-flow shortfalls; and• assigned responsibilities for internal and external communications.

37

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
FUNDING POSITIONANZ New Zealand actively uses balance sheet disciplines to prudently manage the funding mix. ANZ New Zealand employs funding metrics to ensurethat an appropriate proportion of its assets are funded from stable sources, including customer liabilities, longer-dated wholesale debt (withremaining term exceeding one year) and equity.
Analysis of funding liabilities by industry is based on ANZSIC codes. The significant categories shown are the level one New Zealand Standard Industry
Output Categories (NZSIOC).
2018
2017
Note
NZ$m
NZ$m
Funding composition
Customer deposits1

13

104,055

96,829Debt issuances

24,53423,997

Certificates of deposit and commercial paper

3,396

5,637

Other borrowings

5,469

6,586

Wholesale funding

Total wholesale funding

33,39936,220Total funding

137,454

133,049

Agriculture, forestry and fishing

3,763

3,487

Manufacturing

2,335

2,024

Construction

2,050

1,851

Wholesale trade

1,571

1,433

Retail trade and accommodation

1,484

1,516

Financial and insurance services

10,661

8,996

Rental, hiring and real estate services

2,878

2,596

Professional, scientific, technical, administrative and support services

5,126

5,034

Public administration and safety

1,572

1,261

Arts, recreation and other services

2,027

1,928

Households

56,64053,222Customer deposits by industry - New Zealand residents

All other New Zealand residents

2

3,556

3,483

93,66386,831

9,876

9,461

Customer deposits by industry - overseas
Households
All other non-NZ residents

516

537

10,392

9,998

104,055

96,829New Zealand

7,084

7,120

Overseas

26,315

29,100Total wholesale funding

33,39936,220Total funding

137,454

133,049

100,747

93,951

Total customer deposits
Wholesale funding (financial and insurance services industry)

Concentrations of funding by geography
New ZealandAustralia

6,040

7,649

United States

13,671

13,471

Europe9,625

10,692Other countries

7,371

7,286

Total funding

137,454

133,049

1
2

38

Including items reclassified as held for sale.
Other includes mining; electricity, gas, water and waste services; transport, postal and warehousing; information media and telecommunications; education and training; health care andsocial assistance.

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
RESIDUAL CONTRACTUAL MATURITY ANALYSIS OF FINANCIAL OF ANZ NEW ZEALAND’S LIABILITIESThe table below provides residual contractual maturity analysis of financial liabilities at 30 September 2018 within relevant maturity groupings. All
outstanding debt issuances are profiled on the earliest date on which ANZ New Zealand may be required to pay. The amounts represent principal andinterest cash flows – so they may differ from equivalent amounts reported on the balance sheet.
It should be noted that this is not how ANZ New Zealand manages its liquidity risk.

2018
Settlement balances owed by ANZ New ZealandCollateral received
Deposits and other borrowings

On demand
NZ$mLess than
3 months
NZ$m

3 to 12months
NZ$m

1 to 5
years
NZ$m

After
5 years
NZ$m

Total
NZ$m

1,338

742

-

-

-

2,080

-

845

-

-

-

845

52,016

26,06330,010

5,843

1,186

115,118

Derivative financial liabilities (trading)

-

6,074

-

-

-

6,074

Debt issuances

-

957

3,968

17,8503,658

26,433

Other financial liabilities1

-

119

7

44

76

246

- gross inflows

-

2,245

3,221

10,0491,446

16,961- gross outflows-(2,462)(3,414)(10,377)(1,376)(17,629)

On demand
NZ$mLess than
3 months
NZ$m

3 to 12months
NZ$m

1 to 5
years
NZ$m

After
5 years
NZ$m

Total
NZ$m

1

2

Derivative financial instruments(balance sheet management)

2017
Settlement balances owed by ANZ New ZealandCollateral received
Deposits and other borrowings

1,165

532

-

-

-

1,697

-

613

-

-

-

613

58,28725,31827,148

7,078

1,126

118,957

Derivative financial liabilities (trading)

-

7,999

-

-

-

7,999

Debt issuances

-

1,608

3,247

16,496

4,537

25,888

-

188

6

56

144

394

- gross inflows

-

2,557

3,286

10,6693,093

19,605- gross outflows-(2,739)(3,417)(10,711)(2,785)(19,652)

1

2

Other financial liabilities

1

Derivative financial instruments(balance sheet management)

1²Including items reclassified as held for sale.
Any callable wholesale debt instruments have been included at their next call date. Refer to Note 14 Debt Issuances for subordinated debt call dates.

At 30 September 2018, NZ$93 million (2017: NZ$88 million) of ANZ New Zealand’s non-credit related commitments and NZ$29,855 million (2017:
NZ$29,128 million) of its credit related commitments and contingent liabilities mature in less than 1 year, based on the earliest date on which ANZ
New Zealand may be required to pay.

39

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESANZ New Zealand carries a significant number of financial instruments on the balance sheet at fair value. The fair value of a financial instrument is theprice that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement
date.
VALUATION OF FINANCIAL INSTRUMENTS
ANZ New Zealand has an established control framework, including an appropriate segregation of duties, to ensure that fair values are accurately
determined, reported and controlled. The framework includes the following features:• products are approved for transacting with external customers and counterparties only where fair values can be appropriately determined;• quoted market prices used to value financial instruments are independently verified with information from external pricing providers;• fair value methodologies and inputs are evaluated and approved by a function independent of the party that undertakes the transaction;• movements in fair values are independently monitored and explained by reference to underlying factors relevant to the fair value; and• valuation adjustments (such as FVA, CVA and bid-offer) are independently validated and monitored.
If ANZ New Zealand holds offsetting risk positions, then ANZ New Zealand uses the portfolio exemption in NZ IFRS 13 Fair Value Measurement (NZ IFRS
13) to measure the fair value of such groups of financial assets and financial liabilities. We measure the portfolio based on the price that would bereceived to sell a net long position (an asset) for a particular risk exposure, or to transfer a net short position (a liability) for a particular risk exposure.
FAIR VALUE APPROACH AND VALUATION TECHNIQUESWe use valuation techniques to estimate the fair value of financial assets and liabilities for recognition, measurement and disclosure purposes where
no quoted price in an active market exists for that asset or liability. This includes the following:
Asset or Liability

Fair Value Approach

Financial instruments classified as:- Trading securities- Derivative financial assets and liabilities- Available-for-sale assets

Valuation techniques are used that incorporate observable market inputs for financial instrumentswith similar credit risk, maturity and yield characteristics.

Financial instruments classified as:- Net loans and advances- Deposits and other borrowings- Debt issuances

Discounted cash flow techniques in which contractual future cash flows of the instrument are
discounted using discount rates incorporating wholesale market rates, or market borrowing rates,for debt with similar maturities or with a yield curve appropriate for the remaining term to maturity.

CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIESThe following tables set out the classification of financial asset and liability categories according to measurement bases together with the carrying
amounts as reported on the balance sheet.
2018
2017
At
At
Fair value amortised
At fair
amortised
At fair
details refer
cost
value
Total
cost
value
Total
to Note
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
Financial assets
Cash and cash equivalents
2,338
2,338
2,407
2,407
Settlement balances owed to ANZ New Zealand
536
536
656
656
Collateral paid
1,415
1,415
1,919
1,919
Trading securities
8
7,663
7,663
8,024
8,024
Derivative financial instruments
9
8,072
8,072
9,749
9,749
Available-for-sale assets
10
6,502
6,502
6,360
6,360
Net loans and advances1
124,880
124,880
128,677
128,677
Other financial assets1
621
123
744
592
127
719
129,790
23,895
153,685
Total
134,251
22,725
156,976
Financial liabilities
Settlement balances owed by ANZ New Zealand
1,687
1,687
2,066
2,066
Collateral received
613
613
845
845
Deposits and other borrowings1
13
110,434
2,486
112,920
105,3313,721
109,052
Derivative financial instruments
9
8,133
8,133
9,894
9,894
Debt issuances
23,99723,997
24,53424,534
Other financial liabilities1
617
151
768
584
110
694
132,245
13,766
146,011
Total
138,463
10,729149,192
1

40

Including items reclassified as held for sale.

NOTES TO THE FINANCIAL STATEMENTS

16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FINANCIAL ASSETS AND LIABILITIES CARRIED AT FAIR VALUE ON THE BALANCE SHEETANZ New Zealand categorises financial assets and liabilities carried at fair value into a fair value hierarchy as required by NZ IFRS 13 based on theobservability of inputs used to measure fair value:•

Level 1 – valuations based on quoted prices (unadjusted) in active markets for identical financial instruments;•

Level 2 – valuations using inputs other than quoted prices included within Level 1 that are observable for a similar financial asset or liability,
either directly or indirectly; and•Level 3 – valuations using inputs for the assets or liability that are not based on observable market data (unobservable inputs).

The table below summarises the attribution of financial instruments carried at fair value to the fair value hierarchy:

Quoted market price(Level 1)

AssetsTrading securities
Derivative financial instruments
Available-for-sale assets
Investments backing insurance contract liabilities1
Total
Liabilities
Deposits and other borrowings1
Derivative financial instruments
Other financial liabilities
Total
1

Fair value measurements
Using observable
Using unobservable
inputsinputs (Level 3)(Level 2)
2018
2017
2018
2017
NZ$m
NZ$m
NZ$m
NZ$m

2018
NZ$m

2017
NZ$m

6,795
7
6,457
13,259

7,276
5
5,336
12,617

1,229
8,062
44
127
9,462

387
9,741
1,023
123
11,274

3
1
4

10
110
120

24
151
175

2,486
8,122
10,6083,721
9,869
13,590

1
1

Total
2018
NZ$m

2017
NZ$m

3
1
4

8,024
8,072
6,502
127
22,725

7,663
9,749
6,360
123
23,895

1
1

2,486
8,133
110
10,729

3,721
9,894
151
13,766

Including items reclassified as held for sale.

Fair value designation
We designate commercial paper (included in deposits and other borrowings) as fair value through profit or loss where they are managed on a fairvalue basis to align the measurement with how the instruments are managed.

41

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE
The following sets out ANZ New Zealand’s basis of estimating fair values of the above financial instruments carried at amortised cost:
Financial Asset and Liability

Fair Value Approach

Net loans and advances to banks

Discounted cash flows using prevailing market rates for loans with similar credit quality.

Net loans and advances to customers

Present value of future cash flows, discounted using a curve that incorporates changes inwholesale market rates, ANZ New Zealand cost of wholesale funding and the customer margin, as
appropriate.

Deposit liability without a specified maturity or
at call

The amount payable on demand at the reporting date. We do not adjust the fair value for any
value we expect ANZ New Zealand to derive from retaining the deposit for a future period.

Interest bearing fixed maturity deposits andother borrowings and acceptances withquoted market rates

Market borrowing rates of interest for debt with a similar maturity are used to discount contractual
cash flows to derive the fair value.

Debt issuances

Calculated based on quoted market prices or observable inputs as applicable. If quoted market
prices are not available, we use a discounted cash flow model using a yield curve appropriate forthe remaining term to maturity of the debt instrument. The fair value reflects adjustments to credit
spreads applicable to ANZ New Zealand for that instrument.

The financial assets and financial liabilities listed in the table below are carried at amortised cost on ANZ New Zealand’s Balance Sheet. While this is thevalue at which we expect the assets will be realised and the liabilities settled, ANZ New Zealand provides an estimate of the fair value of the financial
assets and financial liabilities at balance date in the table below.

Financial assets
Net loans and advances1, 2
Total
Financial liabilities
Deposits and otherborrowings1
Debt issuances
Total
1
2

Carrying amount

Fair value (total)

2018
NZ$m

Categorised into fair value hierarchy
Using observable
With significant nonQuoted market priceinputsobservable inputs(Level 1)(Level 2)(Level 3)
2017
2018
2017
2018
2017
2018
2017
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m

2018
NZ$m

2017
NZ$m

128,677
128,677

124,880
124,880

-

-

131
131

136
136

128,828
128,828

124,794
124,794

128,959
128,959

124,930
124,930

110,434

105,331--

110,643

105,564--

110,643

105,564

24,534
134,968

23,997
129,328

3,606
3,606

3,927
3,927

21,118
131,761

20,333125,897--

24,724
135,367

24,260129,824

Including items reclassified as held for sale.
We have reviewed the fair value of Net Loans and advances previously presented as Level 2. In line with broader industry practice Net loans and advances other than Loans to Banks are
now presented as Level 3.

ANZ New Zealand evaluates the material accuracy of the valuations incorporated in the financial statements as they can involve a high degreeof judgement and estimation in determining the carrying values of financial assets and financial liabilities at the balance sheet date.
The majority of valuation models ANZ New Zealand uses employ only observable market data as inputs. However, for certain financial
instruments, we may use data that is not readily observable in current markets. If we use unobservable market data, then we need to exercise
more judgement to determine fair value depending on the significance of the unobservable input to the overall valuation. Generally, wederive unobservable inputs from other relevant market data and compare them to observed transaction prices where available.
When establishing the fair value of a financial instrument using a valuation technique, ANZ New Zealand considers valuation adjustments indetermining the fair value. We may apply adjustments (such as bid/offer spreads, credit valuation adjustments and funding valuation
adjustments – refer Note 9 Derivative Financial Instruments) to the techniques used to reflect ANZ New Zealand’s assessment of factors thatmarket participants would consider in setting fair value.

42

NOTES TO THE FINANCIAL STATEMENTS

17. ASSETS CHARGED AS SECURITY FOR LIABILITIES AND COLLATERAL ACCEPTED AS
SECURITY FOR ASSETS
The following disclosure excludes the amounts presented as collateral paid and received in the Balance Sheet that relate to derivative liabilities andderivative assets respectively. The terms and conditions of those collateral agreements are included in the standard Credit Support Annex that forms
part of the International Swaps and Derivatives Association Master Agreement.
ASSETS CHARGED AS SECURITY FOR LIABILITIESAssets charged as security for liabilities include the following types of instruments:•

Securities provided as collateral for repurchase transactions. These transactions are governed by standard industry agreements.

•

UDC Secured Investments are secured by a security interest granted under a trust deed over all of UDC’s present and future assets andundertakings, to Trustees Executors Limited, as supervisor. The assets subject to the security interest comprise mainly loans to UDC's customers
and certain plant and equipment. The security interest secures all amounts payable by UDC on the UDC Secured Investments and all othermonies payable by UDC under the trust deed.

•Specified residential mortgages provided as security for notes and bonds issued to investors as part of ANZ New Zealand’s covered bondprogrammes.

The carrying amounts of assets pledged as security are as follows:

Securities sold under agreements to repurchase1
Assets pledged as collateral for UDC secured investments
Residential mortgages pledged as security for covered bonds
1

2018
NZ$m
517
3,296
10,747

2017
NZ$m
157
2,985
10,595The amounts disclosed as securities sold under arrangements to repurchase include both:•
assets pledged as security which continue to be recognised on ANZ New Zealand’s balance sheet; and•assets repledged, which are included in the disclosure below.

COLLATERAL ACCEPTED AS SECURITY FOR ASSETSANZ New Zealand has received collateral associated with various financial instruments. Under certain transactions ANZ New Zealand has the right tosell, or to repledge, the collateral received. These transactions are governed by standard industry agreements.
The fair value of collateral we have received and that we have sold or repledged is as follows:

Fair value of assets which can be sold or repledged
Fair value of assets sold or repledged

2018
NZ$m
139
34

2017
NZ$m
361
218

43

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
18. OFFSETTING
We offset financial assets and financial liabilities in the balance sheet (in accordance with NZ IAS 32 Financial Instruments: Presentation) when there is:••a current legally enforceable right to set off the recognised amounts in all circumstances; andan intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.

If the above conditions are not met, the financial assets and financial liabilities are presented on a gross basis.
ANZ New Zealand does not have any arrangements that satisfy the conditions necessary to offset financial assets and financial liabilities within thebalance sheet. The following table identifies financial assets and financial liabilities which have not been offset but are subject to enforceable masternetting agreements (or similar arrangements) and the related amounts not offset in the balance sheet. We have not taken into account the effect ofover collateralisation.
Amount subject to master netting agreement or similar
Amounts not
subject toTotal amounts
masterFinancialrecognised
nettingcollateralin the agreement or
Financial(received)/
Balance Sheetsimilar
Total
instruments
pledgedNet amount
2018
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
Derivative financial instruments
8,072(1,043)
7,029(5,637)(527)
865
Reverse repurchase agreements1
136
136
(136)
Total financial assets
8,208(1,043)
7,165(5,637)(663)
865
Derivative financial instruments(8,133)806(7,327)
5,637
563(1,127)2
Repurchase agreements
(517)
(517)
517
Total financial liabilities(8,650)806(7,844)
5,637
1,080(1,127)
Amount subject to master netting agreement or similar

2017
Derivative financial instruments
Reverse repurchase agreements1
Total financial assets
Derivative financial instruments
Repurchase agreements2
Total financial liabilities
1
2

44

Amounts not
subject toTotal amounts
masterrecognised
nettingin the agreement orBalance Sheetsimilar
NZ$m
NZ$m
9,749
(1,940)360
10,109(1,940)(9,894)
1,514(157)(10,051)
1,514

Reverse repurchase agreements are presented in the Balance Sheet within cash and cash equivalents.
Repurchase agreements are presented in the Balance Sheet within deposits and other borrowings.

Total
NZ$m
7,809
360
8,169
(8,380)(157)(8,537)

Financial
instruments
NZ$m(7,411)(7,411)
7,411
7,411

Financialcollateral(received)/pledged
NZ$m
(245)
(360)
(605)
348
157
505

Net amount
NZ$m
153
153
(621)
(621)

NOTES TO THE FINANCIAL STATEMENTS

19. GOODWILL AND OTHER INTANGIBLE ASSETS
Note
Goodwill
Software
Other intangibles
Goodwill and other intangible assets (including assets reclassified as held for sale)Less: Goodwill and other intangible assets reclassified as held for sale
Goodwill and other intangible assets

25

2018
NZ$m
3,230
53
107
3,390
(101)
3,289

2017
NZ$m
3,230
67
111
3,408
(133)
3,275

GOODWILL ALLOCATED TO CASH-GENERATING UNITS (CGUs)
An annual assessment is made as to whether the current carrying value of goodwill is impaired. For the purposes of impairment testing, goodwill isallocated at the date of acquisition to a CGU. Goodwill is considered to be impaired if the carrying amount of the relevant CGU exceeds its recoverable
amount.
To estimate the recoverable amount of the CGU to which each goodwill component is allocated, we use a value-in-use approach.
VALUE-IN-USE
These calculations use cash flow projections based on a number of financial budgets within each segment approved by management covering athree year period. Cash flow projections are based on a range of readily available economic assumptions including Gross Domestic Product (GDP) andthe Consumer Price Index (CPI). Cash flows beyond the three year period are extrapolated using a 3% growth rate.
These cash flow projections are discounted using a capital asset pricing model. As at 28 February 2018 when the last valuation was prepared, adiscount rate of 11.4% was applied to each cash generating unit. The main variables in the calculation of the discount rate used are the risk free rate,
the beta rate and the market risk premium. The risk free rate is based on the 10 year Government Bond Rate. The beta rate and the market risk
premium are consistent with observable and comparative market rates applied in the regional banking sector. Market observable information is notreadily available at the segment level therefore management performed stress tests for key sensitivities in each segment.
Management believes any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause thecarrying amount of goodwill for any CGU to exceed its recoverable amount.

45

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
19. GOODWILL AND OTHER INTANGIBLE ASSETS (continued)

RECOGNITION AND MEASUREMENT
The table below details how we recognise and measure different intangible assets:
Intangible

Goodwill

Software

Other Intangible Assets

Definition

Excess amount ANZ New
Zealand has paid in acquiring abusiness over the fair value lesscosts of disposal of theidentifiable assets and liabilities
acquired.

Purchases of off the shelf software
assets are capitalised as assets.

Acquired portfolios of insurance
and investment business andmanagement fee rights.

Cost less any accumulated
impairment losses.

Initially, measured at cost.

Carrying value

Allocated to the cash
generating unit to which theacquisition relates.

Useful life

Indefinite.
Goodwill is reviewed for
impairment at least annually or
when there is an indication of
impairment.

Depreciation method

Not applicable.

Internal and external costs incurredin building software and computer
systems costing greater than
NZ$20 million are capitalised asassets. Those less than NZ$20
million are expensed in the year inwhich the costs are incurred.
Subsequently, carried at cost lessaccumulated amortisation andimpairment losses.
Costs incurred in planning or
evaluating software proposals or inmaintaining systems after
implementation are not capitalised.

Initially, measured at fair value atacquisition.
Subsequently, carried at fair valueless accumulated amortisation andimpairment losses.

Except for major core
infrastructure, amortised overperiods between 3-5 years.

Acquired portfolios of insurance
and investment business areamortised over 20 years.

Major core infrastructure amortisedover periods between 7 or 10 years.

Management fee rights have an
indefinite life and are reviewed for
impairment at least annually or
when there is an indication of
impairment.

Straight-line method.

Actuarial methods consistent withthe calculation of life insurance
contract assets.

Management judgement is used to assess the recoverable value of goodwill, and other intangible assets, and the useful economic life ofan asset (or if an asset has an indefinite life). We reassess the recoverability of the carrying value at each reporting date.
The carrying amount of goodwill is based on judgements including the basis of assumptions and forecasts used for determining earnings
for CGUs, headroom availability, and sensitivities of the forecasts to reasonably possible changes in assumptions. Goodwill is assessed forindicators of impairment quarterly and tested for impairment annually. The level at which goodwill is allocated, the estimation of future cash
flows and the selection of discount rates or earnings multiples applied requires significant judgement.
At each balance date, software and other intangible assets are assessed for indicators of impairment. In addition, software and intangible
assets not ready for use are tested annually for impairment. In the event that an asset’s carrying amount is determined to be greater than
its recoverable amount, the carrying value of the asset is written down immediately.
In addition, the expected useful life of intangible assets, including software assets, are assessed on an annual basis. The assessment
requires management judgement, and in relation to our software assets, a number of factors can influence the expected economic useful
lives. These factors include changes to business strategy, significant divestments and the underlying pace of technological change.

46

NOTES TO THE FINANCIAL STATEMENTS

20. SHAREHOLDERS' EQUITY

Ordinary shares
Redeemable preference shares:
Redeemable preference shares at beginning of the year
Redeemable preference shares issued
Redeemable preference shares at end of the year
Total share capital
NZ Branch initial head office accountTotal share capital & initial head office accountNumber of issued shares
2018
2017
378,155,112
378,155,112
5,504,884,529
2,849,679,411
8,354,563,940
8,732,719,052
8,732,719,052

5,504,884,529
5,504,884,529
5,883,039,641
5,883,039,641

NZ$ millions
2018
2017
1,450
1,450
6,594
3,000
9,594
11,044
11
11,055

6,594
6,594
8,044
11
8,055

Redeemable preference shares
All redeemable preference shares (RPS) were issued by ANZ Holdings (New Zealand) Limited to the Immediate Parent Company.
There are eight classes of RPS, relating to issues in 1988, 2005, 2007, 2008, 2009, 2014, 2015 and 2018. ANZ Holdings (New Zealand) Limited did not
pay any dividends on RPS during the years ended 30 September 2018 and 30 September 2017.

RECOGNITION AND MEASUREMENT
Ordinary shares

Ordinary shares have no par value. They entitle holders to receive dividends, or proceeds available on winding
up of the Company, in proportion to the number of fully paid ordinary shares held. They are recognised at theamount paid per ordinary share net of directly attributable costs. Every holder of fully paid ordinary sharespresent at a meeting in person, or by proxy, is entitled to:• on a show of hands, one vote; and• on a poll, one vote, for each share held.

Redeemable
Preference shares

Redeemable preference shares do not carry any voting rights and are redeemable by ANZ Holdings (New
Zealand) Limited providing notice in writing to holders of the redeemable preference shares. Dividends arepayable at the discretion of the Directors of ANZ Holdings (New Zealand) Limited and are non-cumulative.
In the event of liquidation, holders of redeemable preference shares are entitled to available subscribed capitalper share, pari passu with all holders of existing redeemable preference shares but in priority to all holders ofordinary shares. They have no entitlement to participate in further distribution of profits or assets.

Reserves:

Cash flow hedge
reserve

Includes fair value gains and losses associated with the effective portion of designated cash flow hedging
instruments, net of deferred taxes to be realised when the position is settled.

Available-for-salereserve

Includes the changes in fair value and exchange differences on our revaluation of available-for-sale financial
assets, net of deferred taxes to be realised upon disposal of the asset.

47

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
21. CAPITAL MANAGEMENTCAPITAL MANAGEMENT STRATEGYANZ New Zealand’s core capital objectives are to:• protect the interests of depositors, creditors and shareholders;• ensure the safety and soundness of ANZ New Zealand’s capital position; and• ensure that the capital base supports ANZ New Zealand’s risk appetite, and strategic business objectives, in an efficient and effective manner.
Most of ANZ New Zealand’s capital is held in, and managed by, the Banking Group. The Bank’s Board holds ultimate responsibility for ensuring that
capital adequacy of the Banking Group is maintained. This includes: setting, monitoring and obtaining assurance for the Banking Group’s Internal
Capital Adequacy Assessment Process (ICAAP) policy and framework; standardised risk definitions for all material risks; materiality thresholds; capital
adequacy targets; internal economic risk capital principles; and risk appetite.
The Banking Group has minimum and trigger levels for capital that ensure sufficient capital is maintained to:• meet minimum prudential requirements imposed by the Bank’s regulators;• ensure consistency with the Banking Group’s overall risk profile and financial positions, taking into account its strategic focus and business plan;and• support the economic risk capital requirements of the business.
ALCO and its related Capital Management Forum are responsible for developing, implementing and maintaining the Banking Group's ICAAP
framework, including ongoing monitoring, reporting and compliance. The Banking Group’s ICAAP is subject to independent and periodic review
conducted by Internal Audit.

REGULATORY ENVIRONMENTThe Ultimate Parent Bank is a registered bank in New Zealand, and conducts business in New Zealand through the NZ Branch. While RBNZ requires
the Ultimate Parent Bank to comply with the minimum capital adequacy requirements as administered by APRA, there are no regulatory capitalrequirements that apply specifically to the NZ Branch or ANZ New Zealand.

MANAGED CAPITALThe Banking Group is subject to its own regulatory capital requirements as administered by RBNZ. The following table provides details of the capital of
ANZ New Zealand which is managed outside the Banking Group.

ANZ New Zealand shareholder's equity
Subordinated loan from the Ultimate Parent Bank used to purchase preference shares issued by the Bank
Borrowings from the Immediate Parent Company used to purchase ordinary shares issued by the Bank
less: Banking Group shareholder's equity
Capital of ANZ New Zealand managed outside the Banking Group
Total assets of ANZ New Zealand held outside the Banking Group
Ratio

48

2018
NZ$m
11,236289
1,766(13,109)
182
2,433
7.5%

2017
NZ$m
11,313288
1,766(12,781)
586
4,353
13.5%

NOTES TO THE FINANCIAL STATEMENTS

22. CONTROLLED ENTITIESNature of business
Australia and New Zealand Banking Group Limited (New Zealand Branch)
Registered bankPrincipal subsidiaries
ANZ Bank New Zealand Limited
Registered bank
ANZ Investment Services (New Zealand) Limited
Funds management
ANZ New Zealand (Int'l) Limited
Finance
ANZ New Zealand Investments Limited
Funds management
ANZ New Zealand Securities Limited
On-line share broker
ANZNZ Covered Bond Trust1
Securitisation entity
Arawata Assets Limited
Property
Karapiro Investments Limited
Asset finance
Kingfisher NZ Trust 2008-11
Securitisation entity
OnePath Life (NZ) Limited
Insurance
UDC Finance Limited
Asset finance
Other operating members of ANZ New Zealand (together with the NZ Branch, the "Relevant Members")
ANZ Capel Court Limited (New Zealand Branch)2
Securitisation services
ANZ Holdings (New Zealand) Limited
Holding company
1

2

ANZ New Zealand does not own ANZNZ Covered Bond Trust and Kingfisher NZ Trust 2008-1. Control exists as ANZ New Zealand retains substantially all the risks and rewards of theoperations. Details of ANZ New Zealand’s interest in consolidated structured entities is included in Note 23 Structured Entities.
Incorporated in Australia and registered in New Zealand as an Overseas ASIC Company.

RECOGNITION AND MEASUREMENTANZ New Zealand subsidiaries are those entities it controls through:• being exposed to, or having rights to, variable returns from the entity; and• being able to affect those returns through its power over the entity.
ANZ New Zealand assesses whether it has power over those entities by examining ANZ New Zealand’s existing rights to direct the relevant
activities of the entity.

49

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
23. STRUCTURED ENTITIESA Structured Entity (SE) is an entity that has been designed such that voting or similar rights are not the dominant factor in deciding who controls theentity, such as when any voting rights relate to administrative tasks only and the relevant activities (being those that significantly affect the entity’s
returns) are directed by means of contractual arrangement. A SE often has some or all of the following features or attributes:•

restricted activities;•

a narrow and well defined objective;•

insufficient equity to permit the SE to finance its activities without subordinated financial support; and•financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).

ANZ New Zealand is involved with both consolidated and unconsolidated SEs which may be established by ANZ New Zealand or by a third party. SEs
are classified as subsidiaries and consolidated when control exists. If ANZ New Zealand does not control a SE, then it will not be consolidated (anunconsolidated SE). This note provides information on both consolidated and unconsolidated SEs.
ANZ New Zealand’s involvement with SEs is as follows:Type

Details

Securitisation

ANZ New Zealand uses the Kingfisher NZ Trust 2008-1 (the Kingfisher Trust) to securitise residential mortgages thatit has originated, in order to diversify sources of funding for liquidity management. The Kingfisher Trust is aninternal securitisation (bankruptcy remote) vehicle we created for the purpose of structuring assets that are eligible
for repurchase under agreements with RBNZ (these are known as ‘Repo eligible’).
ANZ New Zealand is exposed to variable returns from its involvement with the Kingfisher Trust and has the ability
to affect those returns through its power over the Kingfisher Trust’s activities. The Kingfisher Trust is therefore
consolidated.
As at 30 September 2018 and 30 September 2017 ANZ New Zealand had not entered into any repurchaseagreements with RBNZ for residential mortgage backed securities issued and therefore no collateral had been
accepted by RBNZ under this facility.
Additionally, ANZ New Zealand may acquire interests in securitisation vehicles set up by third parties throughproviding lending facilities to, or holding securities issued by, such entities.

ANZNZ Covered Bond Trust(the Covered Bond Trust)

Substantially all of the assets of the Covered Bond Trust are made up of certain housing loans and related
securities originated by the Bank which are security for the guarantee by ANZNZ Covered Bond Trust Limited astrustee of the Covered Bond Trust of issuances of covered bonds by the Bank, or its wholly owned subsidiary ANZ
New Zealand (Int’l) Limited, from time to time. The assets of the Covered Bond Trust are not available to creditorsof the Bank, although the Bank (or its liquidator or statutory manager) may have a claim against the residual assetsof the Covered Bond Trust (if any) after all prior ranking creditors of the Covered Bond Trust have been satisfied.
ANZ New Zealand is exposed to variable returns from its involvement with the Covered Bond Trust and has theability to affect those returns through its power over the Covered Bond Trust’s activities. The Covered Bond Trust istherefore consolidated.

Structured financearrangements

ANZ New Zealand is involved with SEs established:• in connection with structured lending transactions to facilitate debt syndication and/or to ring-fencecollateral; and• to own assets that are leased to customers in structured leasing transactions.
ANZ New Zealand may provide risk management products (derivatives) to the SE.
In all instances, ANZ New Zealand does not control these SEs. Further, ANZ New Zealand’s involvement does notestablish more than a passive interest in decisions about the relevant activities of the SE, and accordingly we do
not consider that interest disclosable.

Funds management activities ANZ New Zealand is the scheme manager for a number of Managed Investment Schemes (MIS). These MIS include
the ANZ and OneAnswer branded KiwiSaver, retail and wholesale schemes and the Bonus Bonds Scheme, and areconsidered to be SEs.
CONSOLIDATED STRUCTURED ENTITIESFinancial or Other Support Provided to Consolidated Structured Entities
The Bank provides lending facilities, derivatives and commitments to the Kingfisher Trust and the Covered Bond Trust and/or holds debt instrumentsthat they have issued. The Bank did not provide any non-contractual support to consolidated SEs during the year (2017: nil).

50

NOTES TO THE FINANCIAL STATEMENTS

23. STRUCTURED ENTITIES (continued)
UNCONSOLIDATED STRUCTURED ENTITIESANZ New Zealand’s Interest in Unconsolidated Structured Entities
An ‘interest’ in an unconsolidated SE is any form of contractual or non-contractual involvement with an SE that exposes ANZ New Zealand tovariability of returns from the performance of that SE. These interests include, but are not limited to: holdings of debt or equity securities; derivatives
that pass on risks specific to the performance of the SE; lending; loan commitments; financial guarantees; and fees from funds management activities.
For the purpose of disclosing interests in unconsolidated SEs:
• no disclosure is made if ANZ New Zealand’s involvement is not more than a passive interest - for example: when ANZ New Zealand’s
involvement constitutes a typical customer-supplier relationship. On this basis, exposures to unconsolidated SEs that arise from lending, trading
and investing activities are not considered disclosable interests - unless the design of the structured entity allows ANZ New Zealand toparticipate in decisions about the relevant activities (being those that significantly affect the entity’s returns).
• ‘interests’ do not include derivatives intended to expose ANZ New Zealand to market risk (rather than performance risk specific to the SE) or
derivatives through which ANZ New Zealand creates, rather than absorbs, variability of the unconsolidated SE (such as purchase of credit
protection under a credit default swap).
ANZ New Zealand earned funds management fees from its MIS of NZ$191 million (2017: NZ$170 million) during the year. Size of these MIS is indicatedby Funds Under Management which varies by fund, with a maximum value of approximately NZ$3.3 billion (2017: NZ$3.4 billion).
ANZ New Zealand did not provide any non-contractual support to unconsolidated SEs during the year (2017: nil): nor does it have any current
intention to provide financial or other support to unconsolidated SEs.
SPONSORED UNCONSOLIDATED STRUCTURED ENTITIESANZ New Zealand may also sponsor unconsolidated SEs in which it has no disclosable interest.
For the purposes of this disclosure, ANZ New Zealand considers itself the ‘sponsor’ of an unconsolidated SE if it is the primary party involved in thedesign and establishment of that SE and:• ANZ New Zealand is the major user of that SE; or• ANZ New Zealand’s name appears in the name of that SE, or on its products; or• ANZ New Zealand provides implicit or explicit guarantees of that SE’s performance.
The Bank has sponsored the ANZ PIE Fund, which invests only in deposits with the Bank. ANZ New Zealand does not provide any implicit or explicit
guarantees of the capital value or performance of investments in the ANZ PIE Fund. There was no income received from, nor assets transferred to, thisentity during the year.

Significant judgement is required in assessing whether control exists over Structured Entities involved in securitisation activities,
structured finance transactions and investment funds. Judgement is required in relation to the existence of:• power over the relevant activities (being those that significantly affect the entity’s returns); and• exposure to variable returns of that entity.

24. TRANSFERS OF FINANCIAL ASSETSIn the normal course of business ANZ New Zealand enters into transactions where it transfers financial assets directly to third parties. These transfers
may give rise to ANZ New Zealand fully, or partially, derecognising those financial assets - depending on ANZ New Zealand’s exposure to the risks andrewards or control over the transferred assets. If ANZ New Zealand retains substantially all of the risk and rewards of a transferred asset, the transfer
does not qualify for derecognition and the asset remains on ANZ New Zealand’s balance sheet in its entirety.
Covered bonds
ANZ New Zealand operates a covered bond programme to raise funding. Refer to Note 23 Structured Entities for further details. The covered bonds
issued externally are included within debt issuances.

51

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
24. TRANSFERS OF FINANCIAL ASSETS (continued)
Repurchase agreements
If ANZ New Zealand sells securities subject to repurchase agreements under which substantially all the risks and rewards of ownership remain with
ANZ New Zealand, then those assets are considered to be transferred assets that do not qualify for derecognition. An associated liability is recognised
for the consideration received from the counterparty.
The table below sets out the balance of assets transferred that do not qualify for derecognition, along with the associated liabilities:

Current carrying amount of assets transferred
Carrying amount of associated liabilities

Covered bonds
2018
2017
NZ$m
NZ$m
10,747
10,5953,929
5,315

Repurchase agreements
2018
2017
NZ$m
NZ$m
517
157
517
157

25. ASSETS AND LIABILITIES HELD FOR SALE
UDC
On 11 January 2017, the Bank announced that it had entered into a conditional agreement to sell UDC to HNA Group (HNA). On 21 December 2017,
the Bank announced that it had been informed that the New Zealand Overseas Investment Office had declined HNA's application to acquire UDC andthe agreement with HNA was terminated in January 2018. The assets and liabilities of UDC are no longer classified as held for sale as at 30 September
2018.
OnePath
On 30 May 2018, the Bank announced that it had agreed to sell OnePath to Cigna Corporation and the final regulatory approval was obtained on 29
October 2018. The transaction is subject to closing conditions and the Bank expects it to close in the 2019 financial year.

Net loans and advances
Life insurance contract assets
Goodwill and other intangible assets
Investments backing insurance contract liabilities
Other assets
Total assets held for sale
Deposits and other borrowings
Current tax liabilities
Deferred tax liabilities
Payables and other liabilities
Employee entitlements
Total liabilities held for sale

2018
OnePath
NZ$m
662
101
127
7
897
16
175
143
334

2017
UDC
NZ$m
2,912
133
20
3,065
1,039
24
(9)
33
1
1,088

A significant level of judgement is used by ANZ New Zealand to determine:• whether an asset or group of assets is classified and presented as held for sale or as a discontinued operation; and• the fair value of the assets and liabilities classified as being held for sale.
Any impairment we record is based on the best available evidence of the fair value compared to the carrying value before the impairment.
The final sale price ANZ New Zealand may achieve will depend on a number of factors and may be different to the fair value we estimate
when recording the impairment. We expect that the sales will complete within 12 months after balance date, subject to the relevant
regulatory approvals and customary terms of sale for such assets.

52

NOTES TO THE FINANCIAL STATEMENTS

26. RELATED PARTY DISCLOSURES
Key management personnel
Key management personnel (KMP) are defined as directors and those executives who report directly to the Bank’s Chief Executive Officer withresponsibility for the strategic direction and management of a major revenue generating division or who control material revenue and expenses.
Loans made to directors and other KMP are made in the ordinary course of business on normal commercial terms and conditions no more favourable
than those given to other employees or customers, including the term of the loan, security required and the interest rate.
All other transactions with KMP and their related parties are made on terms equivalent to those that prevail in arm’s length transactions. Thesetransactions generally involve the provision of financial and investment services. All such transactions that have occurred with KMP and their relatedparties have been trivial or domestic in nature. In this context, transactions are only disclosed when they are considered of interest to the users of thefinancial statements in making and evaluating decisions about the allocation of scarce resources.

Key management personnel compensation
Salaries and short-term employee benefits
Post-employment benefits
Other long-term benefits
Share-based payments
Total
Loans to, and securities held by, key management personnel and their related parties
Loans
Unsubordinated debt
Subordinated debt

2018
NZ$0002017
NZ$00011,677655
38
3,308
15,678

11,430480
60
3,515
15,485

19,381
125

15,326520
195

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

Ultimate Parent Bank and subsidiaries not part of ANZ New ZealandInterest income
Interest expense
Other operating income
Operating expenses
NZ Branch retained earnings repatriated
Immediate Parent Company
Interest expense
Preference shares issued
Dividends paid
Associates
Direct fee expense
Dividends received
Share of associates' profit

2018
NZ$m

2017
NZ$m

3
180
43
52
450

2
225
23
46
-

45
3,000
4,600

49
1,635

10
6
5

10
5
5

53

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
26. RELATED PARTY DISCLOSURES (continued)
Balances with related parties

Ultimate Parent Bank and subsidiaries not part of ANZ New Zealand
Cash and cash equivalents
Settlement balances owed to ANZ New ZealandDerivative financial instruments
Other assets
Associates
Investments in associates
Total due from related parties
Ultimate Parent Bank and subsidiaries not part of ANZ New Zealand
Settlement balances owed by ANZ New ZealandCollateral received
Deposits and other borrowings
Derivative financial instruments
Payables and other liabilities
Subordinated debt
Immediate Parent Company
Deposits and other borrowings
Payables and other liabilities
Associates
Payables and other liabilities
Total due to related parties

2018
NZ$m

2017
NZ$m

240
2,416
39

64
111
2,498
42

6
2,701

7
2,722

30
257
3,186
2,285
33
289

67
198
4,663
2,553
36
299

1,766
4

1,766
4

1
7,851

1
9,587

Balances due from / to related parties are unsecured. The Bank has provided guarantees and commitments to related parties as follows:

Financial guarantees provided to the Ultimate Parent Bank

2018
NZ$m
138

2017
NZ$m
155

2018
NZ$m

2017
NZ$m

7
7

4
4

331
86
8
425
86
224
115
425

370
105
9
484
84
256
144
484

27. COMMITMENTS AND CONTINGENT LIABILITIESPROPERTY RELATED COMMITMENTS

Property capital expenditure
Contracts for outstanding capital expenditure (not later than 1 year)
Total capital expenditure commitments for property
Lease rentals
Land and Buildings
Furniture and equipment
Motor vehicles
Total lease rental commitments
Due within 1 year
Due later than 1 year but not later than 5 years
Due later than 5 years
Total lease rental commitments

54

NOTES TO THE FINANCIAL STATEMENTS

27. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
CREDIT RELATED COMMITMENTS AND CONTINGENCIES

Contract amount of:
Undrawn facilities
Guarantees and letters of credit
Performance related contingencies
Total

2018
NZ$m

2017
NZ$m

26,995
1,531
1,329
29,855

26,5201,010
1,598
29,128UNDRAWN FACILITIESThe majority of undrawn facilities are subject to customers maintaining specific credit and other requirements or conditions. Many of these facilities
are expected to be only partially used, and others may never be used at all. As such, the total of the nominal principal amounts is not necessarily
representative of future liquidity risks or future cash requirements. Based on the earliest date on which ANZ New Zealand may be required to pay, thetotal undrawn facilities of NZ$26,995 million (2017: NZ$26,520 million) mature within 12 months.
GUARANTEES, LETTERS OF CREDIT AND PERFORMANCE RELATED CONTINGENCIES
Guarantees, letters of credit and performance related contingencies relate to transactions that ANZ New Zealand has entered into as principal –including: guarantees, standby letters of credit and documentary letters of credit.
Documentary letters of credit involve ANZ New Zealand issuing letters of credit guaranteeing payment in favour of an exporter. They are secured
against an underlying shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige ANZ New Zealand to make payments to a third party if the customer fails to fulfil its nonmonetary obligations under the contract.
To reflect the risk associated with these transactions, we apply the same credit origination, portfolio management and collateral requirements that weapply to loans. The contract amount represents the maximum potential amount that we could lose if the counterparty fails to meet its financial
obligations. As the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements. Basedon the earliest date on which ANZ New Zealand may be required to pay, the total guarantees and letters of credit of NZ$1,531 million (2017: NZ$1,010
million) and total performance related contingencies of NZ$1,329 million (2017: NZ$1,598 million) mature within 12 months.
OTHER CONTINGENT LIABILITIESThere are outstanding court proceedings, claims and possible claims for and against ANZ New Zealand. Where relevant, expert legal advice has beenobtained and, in the light of such advice, provisions and/or disclosures as deemed appropriate have been made. In some instances we have notdisclosed the estimated financial impact of the individual items either because it is not practicable to do so or because such disclosure may prejudice
the interests of ANZ New Zealand.
In recent years there has been an increase in the number of matters on which ANZ New Zealand engages with its regulators. Globally there have beensignificant increases in the nature and scale of regulatory investigations and reviews, enforcement actions (whether by court action or otherwise) andthe quantum of fines issued by regulators and customer claims. ANZ New Zealand also instigates engagement with its regulators. The nature of theseinvestigations and reviews can be wide-ranging and, for example, may include a range of matters including responsible lending practices, productsuitability, wealth advice and adequacy of product disclosure documentation. ANZ New Zealand has received various notices and requests for
information from its regulators as part of both industry-wide and ANZ New Zealand specific reviews, and has also made disclosures to its regulators at
its own instigation. There may be exposures to customers which are additional to any regulatory exposures. These could include class actions,individual claims or customer remediation or compensation activities. The outcomes and total costs associated with such reviews and possible
exposures remain uncertain.

55

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
28. COMPENSATION OF AUDITORSKPMG New ZealandAudit or review of financial statements1
Audit related services:
Prudential and regulatory services2
Offer documents assurance or review
Other assurance services3
Total audit related services
Total compensation of auditors relating to ANZ New ZealandFees relating to certain managed funds and not recharged4
Total compensation of auditors
1
2
3
4

2018
NZ$0002017
NZ$000

2,273

2,309

212
104
36
352
2,625

225
146
95
466
2,775

45
2,670

46
2,821

Includes fees for both the audit of the annual financial statements and reviews of interim financial statements.
Includes fees for reviews and controls reports required by regulations.
Includes fees for Trustee reporting, reviews and other agreed upon procedures engagements.
Amounts relate to the ANZ PIE Fund and certain other funds, and include fees for audits of annual financial statements, controls report and other agreed upon procedures engagements.

ANZ New Zealand’s Policy allows KPMG to provide assurance and other audit related services that, while outside the scope of the statutory audit, areconsistent with the role of an external auditor. The Policy allows certain non-audit services to be provided where the service would not contravene
auditor independence requirements. KPMG may not provide services that are perceived to be in conflict with the role of the external auditor or breach
auditor independence. These include consulting advice and subcontracting of operational activities normally undertaken by management, andengagements where the external auditor may ultimately be required to express an opinion on its own work.

56

NOTES TO THE FINANCIAL STATEMENTS

This page has been left blank intentionally

57

REGISTERED BANKDISCLOSURESThis section contains the additional disclosures required by theRegistered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order 2014.

58

Section

Order reference

Page

B1.

General Disclosures

Schedule 2

59

B2.

Additional Financial Disclosures

Schedule 4

66

B3.

Asset Quality

Schedule 7

67

B4.

Credit and Market Risk Exposures and Capital Adequacy

Schedule 9

68

B5.

Insurance Business, Securitisation, Funds Management, other Fiduciary Activities,
and marketing and distribution of Insurance Products

Schedule 11

69

B6.

Risk Management Policies

Schedule 13

71

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES
Details of registered bank, ultimate parent bank and ultimate holding company
The registered bank, which is also the ultimate parent bank and ultimate parent holding company, is Australia and New Zealand Banking Group
Limited (Ultimate Parent Bank). The principal office and place of business outside New Zealand, and address for service of the Ultimate Parent Bank, is
ANZ Centre, Melbourne, Level 9, 833 Collins Street, Docklands, Victoria 3008, Australia.
Subordination of claims of creditors
Certain creditors of the Ultimate Parent Bank are given a statutory priority under Australian law. Unsecured creditors of the NZ Branch could be
expected to rank behind such claims.
Specifically, pursuant to section 13A(3) of the Banking Act of the Commonwealth of Australia (the Banking Act), if an Authorised Deposit-Taking
Institution (ADI) (which includes the Ultimate Parent Bank) becomes unable to meet its obligations or suspends payment, the assets of the ADI inAustralia are available to meet the ADI's liabilities in the following order:(a) first, the ADI's liabilities (if any) to APRA because of the rights APRA has against the ADI because of section 16AI or 16AIC of the Banking Act(b) second, the ADI's debts (if any) to APRA under section 16AO of the Banking Act(c) third, the ADI's liabilities (if any) in Australia in relation to protected accounts that account-holders keep with the ADI. Broadly, this means
accounts (including deposit accounts) kept with the Ultimate Parent Bank that are situated in Australia and recorded in Australian dollars(d) fourth, the ADI’s debts (if any) to the Reserve Bank of Australia(e) fifth, the ADI’s liabilities (if any) under an industry support contract that is certified by APRA under section 11CB of the Banking Act(f) sixth, the ADI's other liabilities in the order of their priority (apart from section 13A(3)).
Unsecured creditors of the NZ Branch could be expected to rank as a creditor pursuant to the sixth paragraph, together with other unsecured
creditors of the Ultimate Parent Bank that do not otherwise have a priority claim under preceding paragraphs.
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 tosection 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, are a debt due to APRA and have priority in awinding-up of the ADI over all other unsecured debts.
Section 86 of the Reserve Bank Act 1959 of the Commonwealth of Australia provides that notwithstanding anything contained in any law relating to
the winding-up of companies, but subject to section 13A(3) of the Banking Act, debts due to the Reserve Bank of Australia by any ADI shall, in awinding-up, have priority over all other debts.
This description of the liabilities which are mandatorily preferred by law is not exhaustive.
These provisions affect all of the unsecured liabilities of the NZ Branch, which as at 30 September 2018, amounted to NZ$1,082m (2017: NZ$1,069m).
Requirement to maintain sufficient assets to cover ongoing obligation to pay deposit liabilities
Section 13A(4) of the Banking Act states that it is an offence for an ADI not to hold assets (excluding goodwill and any assets or other amountexcluded by the prudential standards for the purposes of that subsection) in Australia of a value that is equal to or greater than the total amount of its
deposit liabilities in Australia, unless APRA has authorised the ADI to hold assets of a lesser value. This requirement has the potential to impact on the
management of the liquidity of the NZ Branch.
APRA’s powers
The Ultimate Parent Bank is subject to extensive prudential regulation by APRA.
The Banking Act requires APRA to exercise its powers and functions for the protection of the depositors of Australian ADIs and for the promotion offinancial system stability in Australia.
Where APRA considers that an ADI may become unable to meet its obligations or suspends payment (among other circumstances), APRA can takecontrol of the ADI's business (including by appointment of an ADI statutory manager). APRA also has power to direct the ADI not to make payments in
respect of its indebtedness and to compulsorily transfer some or all of the ADI’s assets and liabilities to another ADI in certain circumstances and toincrease its capital in specified circumstances. A counterparty to a contract with an ADI cannot rely solely on the fact that an ADI statutory manager isin control of the ADI's business or on the making of a direction or compulsory transfer order as a basis for denying any obligations to the ADI or for
accelerating any debt under that contract or closing out any transaction relating to that contract.
On 5 March 2018, the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 (the Crisis Management Act)came into effect. The Crisis Management Act amends the Banking Act (among other statutes applicable to financial institutions in Australia) and isintended to enhance APRA’s powers. Specifically, the Crisis Management Act enhances APRA’s powers to facilitate resolution of the entities it
regulates (and their subsidiaries) in times of distress. Additional powers which could impact the Overseas Banking Group include greater oversight,
management and directions powers in relation to the Ultimate Parent Bank and other Overseas Banking Group entities which were previously not
regulated by APRA, increased statutory management powers over regulated entities within the Overseas Banking Group and changes which aredesigned to give statutory recognition to the conversion or write-off of regulatory capital instruments.
The requirements of the Banking Act and the exercise by APRA of its powers have the potential to impact the management of the liquidity of ANZ
New Zealand.

59

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (continued)
Restrictions on the Ultimate Parent Bank’s ability to provide financial support
Effect of APRA’s Prudential Standards
APRA Prudential Standard APS 222 Associations with Related Entities (APS222) sets minimum requirements for ADIs, including the Ultimate Parent Bank,in relation to the monitoring, management and control of risks which arise from associations with related entities and also includes prudential limits
on intra-group exposures.
Under APS222, the Ultimate Parent Bank’s ability to provide financial support to the Bank is subject to certain restrictions:• the Ultimate Parent Bank should not undertake any third party dealings with the prime purpose of supporting the business of the Bank.
• the Ultimate Parent Bank must not hold unlimited exposures (i.e. should be limited as to specified time and amount) in the Bank (e.g. notprovide a general guarantee covering any of the Bank’s obligations).
• the Ultimate Parent Bank must not enter into cross-default clauses whereby a default by the Bank on an obligation (whether financial orotherwise) is deemed to trigger a default by the Ultimate Parent Bank on its obligations.
• the level of exposure of the Ultimate Parent Bank’s Level 1 total capital base to the Bank should not exceed: (A) 50% on an individual exposurebasis; or (B) 150% in aggregate (being exposures to all similar regulated entities related to the Ultimate Parent Bank).
In addition, APRA confirmed that by 1 January 2021, no more than 5% of the Ultimate Parent Bank’s Level 1 Tier 1 capital base can comprise nonequity exposures to its New Zealand operations (its New Zealand branch and the Bank) during ordinary times. This limit does not include holdings ofcapital instruments or eligible secured contingent funding support provided to the Bank during times of financial stress.
APRA also confirmed that contingent funding support by the Ultimate Parent Bank to the Bank during times of financial stress must be provided onterms that are acceptable to APRA and that the Ultimate Parent Bank’s exposures to its New Zealand operations must not exceed 50% of the Ultimate
Parent Bank’s Level 1 Tier 1 capital base. At present, only covered bonds meet APRA’s criteria for contingent funding.
In July 2018, APRA released a consultation paper and draft prudential standards on proposed revisions to APS222, which also incorporated changes to
its large exposures framework published in December 2017. APRA’s proposals include revisions to the prudential limits on exposures to related
entities. APRA is proposing to align the capital base used in limit calculations to Level 1 Tier 1 Capital (capital base used in the revised large exposures
framework) and to reduce the individual and aggregate limits of exposures to individual related ADIs. APRA is currently consulting on the proposedchanges, taking into account submissions already received from the Ultimate Parent Bank and the industry. The impact on the Overseas Banking
Group (including ANZ New Zealand) arising from the above consultation will not be known until APRA finalises its review. APRA intends to have therevised APS222 framework implemented by 1 January 2020.
Effect of the Level 3 framework
Under APRA’s Level 3 Conglomerates regulations, the Ultimate Parent Bank must limit its financial and operational exposures to its subsidiaries(including the Bank). These requirements are not expected to place additional restrictions on the Ultimate Parent Bank’s ability to provide financial or
operational support to the Bank.
Other APRA powers
The Ultimate Parent Bank may not provide financial support in breach of the Banking Act, as described under ‘APRA’s powers’ above.
Guarantees
No material obligations of the NZ Branch are guaranteed as at 15 November 2018.

60

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (continued)
Directors, New Zealand Chief Executive Officer and Responsible Person
Any document or communication may be sent to any Director or the Chief Executive Officer – NZ Branch at the Registered Office. The document orcommunication should be marked for the attention of that Director or the Chief Executive Officer – NZ Branch as applicable.

David Gonski, AC

Shayne Elliott

Ilana Atlas

Position

Chairman and Director

Chief Executive Officer and Director

Director

Occupation

Company Director

Chief Executive Officer – Australia and
New Zealand Banking Group

Company Director

Qualifications

BCom, LLB, FAICD(Life), FCPA

BCom

BJuris (Hons), LLB (Hons), LLM

Resides

Sydney, Australia

Melbourne, Australia

Sydney, Australia

Executive

No

Yes

No

Independent

Yes

No

Yes

Other company The University of New South Wales
Foundation Ltd, Sydney Airport
directorships
Corporation Ltd, Lowy Institute forInternational Policy, AustralianPhilanthropic Services Ltd

Financial Markets Foundation for Children Coca-Cola Amatil Ltd, OneMarket Ltd

Paula Dwyer

Jane Halton, AO, PSM

Lee Hsien Yang

Position

Director

Director

Director

Occupation

Company Director

Company Director

Company Director

Qualifications

BCom, FCA, SF Fin, FAICD

BA (Hons) Psychology, FIML, FIPAA, NAM,
Hon. FAAHMS, Hons. FACHSE, Hon. DLitt(UNSW)

MSc, BA

Resides

Melbourne, Australia

Canberra, Australia

Singapore

Executive

No

No

No

Independent

Yes

Yes

Yes

Other company Tabcorp Holdings Ltd, Healthscope Ltd,
Lion Pty Ltd
directorships

Vault Systems, Clayton Utz, Crown Resorts The Islamic Bank of Asia Ltd, Cluny Lodge
Ltd
Pte Ltd, Caldecott Inc., Rolls-Royce
Holdings plc

61

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (continued)

Rt Hon Sir John Key, GNZM AC

Graeme Liebelt

John Macfarlane

Position

Director

Director

Director

Occupation

Company Director

Company Director

Company Director

Qualifications

BCom, DCom (Honoris Causa)

BEc (Hons), FAICD, FTSE, FIML

BCom, MCom (Hons)

Resides

Auckland, New Zealand

Melbourne, Australia

Melbourne, Australia

Executive

No

No

No

Independent

Yes

Yes

Yes

Other company
directorships

Air New Zealand Ltd, Thirty Eight JK
LtdAmcor Ltd, Australian Foundation
Craigs Investment Partners Ltd, Colmac Group
Investment Company Ltd, Carey Baptist Pty Ltd, AGInvest Holdings Ltd (MyFarm Ltd),
Grammar School, DuluxGroup Ltd
Aikenhead Centre for Medical Discovery Ltd,
Collins Farms Ltd, Collins Farms No 2 Ltd,
Dumbarton Land Company Ltd, Deer
Improvement Ltd, The Boundary Ltd, The
Kowhais Ltd, Balmoral Pastoral Investments
Pty Ltd, L1 Long Short Fund

Penny Dell

David Hisco

Position

Chief Executive Officer – NZ Branch

Responsible Person1

Occupation

Chief Executive Officer, Australia and
New Zealand Banking Group – New
Zealand Branch

Chief Executive Officer New Zealandand Group Executive

Qualifications

BCA

BBus, MBA

Resides

Wellington, New Zealand

Auckland, New Zealand

Other company None
directorships
1n/aAuthorised in writing by the directors to sign the Disclosure Statement in accordance with section 82 of the Reserve Bank Act 1989.

Transactions with Directors
There are no transactions entered into by any Director, the Chief Executive Officer – NZ Branch, or any immediate relative or close business associateof any Director or the Chief Executive Officer – NZ Branch, with any part of ANZ New Zealand which has been either entered into on terms other thanthose which would in the ordinary course of business be given to any other person of like circumstances or means or which could otherwise bereasonably likely to influence materially the exercise of the Directors' or Chief Executive Officer – NZ Branch duties in respect of the NZ Branch and
ANZ New Zealand.
Board Audit Committee
There is a board Audit Committee which covers audit matters. The committee comprises five directors, all of whom are independent directors.

62

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (continued)
Policy of the board of directors for avoiding or dealing with conflicts of interest
The Board of the Ultimate Parent Bank has adopted procedures to ensure that conflicts and potential conflicts of interest between a Director’s duties
to the Ultimate Parent Bank and their own interests are avoided or dealt with. Pursuant to these procedures:• each Director should disclose to all Directors any material personal interest they have in any matter which relates to the affairs of the Ultimate
Parent Bank and any other interest which the Director believes is appropriate to disclose in order to avoid an actual conflict of interest or theperception of a conflict of interest. This disclosure should be made as soon as practicable after the Director becomes aware of their interest or
the need to make a disclosure.
• Director who has an interest of the type referred to above in a matter that is to be considered at a Directors' meeting, must not vote on thematter nor be present while the matter is considered at the meeting, unless a majority of Directors who do not have such an interest in thematter agree that the interest should not disqualify such Director from being present while the matter is being considered and from 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 interests change, the Director shall disclose the change
as soon as practicable and an updated Standing Notice shall be tabled at the next Board meeting and recorded in the minutes of that meeting.
Auditors
KPMG, 18 Viaduct Harbour Avenue, Auckland, New Zealand.
Conditions of registration
The following conditions of registration were applicable as at 30 September 2018, and have applied from 1 November 2015.
The registration of Australia and New Zealand Banking Group Limited (the registered bank) in New Zealand is subject to the following conditions:1.

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

2.

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

If the business of an entity predominately consists of insurance business and the entity is not a subsidiary of another entity in the banking group whosebusiness predominantly consists of insurance business, the amount of the insurance business to sum is the total consolidated assets of the group headed by
the entity; andb)

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

In determining the total amount of the banking group’s insurance businessa)

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

if products or assets of which an insurance business is comprised also contain a non-insurance component, the whole of such products or assets must
be considered part of the insurance business.

For the purposes of this condition of registration,“insurance business” means the undertaking or assumption of liability as an insurer under a contract of insurance:“insurer” and “contract of insurance” have the same meaning as provided in sections 6 and 7 of the Insurance (Prudential Supervision) Act 2010.
3.
4.

That the business of the registered bank in New Zealand does not constitute a predominant proportion of the total business of the registered bank.
That no appointment to the position of the New Zealand chief executive officer of the registered bank shall be made unless:a)the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; andb)

the Reserve Bank has advised that it has no objection to that appointment.

5.

That Australia and New Zealand Banking Group Limited complies with the requirements imposed on it by the Australian 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:
a)

7.

8.

Common Equity Tier 1 capital of the Australia and New Zealand Banking Group Limited is not less than 4.5 percent of risk weighted exposures;b)

Tier 1 capital of the Australia and New Zealand Banking Group Limited is not less than 6 percent of risk weighted exposures;c)

Total capital of Australia and New Zealand Banking Group Limited is not less than 8 percent of risk weighted exposures.

That the business of the registered bank in New Zealand is restricted to:a)acquiring for fair value, and holding, mortgages originated by ANZ Bank New Zealand Limited; andb)

any other business for which the prior written approval of the Reserve Bank of New Zealand has been obtained; andc)activities that are necessarily incidental to the business specified in paragraphs (a) and (b).

That the value of the mortgages held by the registered bank in New Zealand must not exceed $15 billion in aggregate.

63

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (continued)
9.

That the registered bank in New Zealand does not incur any liabilities except:a)to the government of New Zealand in respect of taxation and other charges;b)

to other branches or the head office of the registered bank;c)to trade creditors and staff;d)to ANZ Bank New Zealand Bank Limited in respect of activities, other than borrowing, that are necessarily incidental to the business specified in paragraphs (a)and (b) of condition 7; ande)any other liabilities for which the prior written approval of the Reserve Bank has been obtained.

In these conditions of registration:“banking group” means the New Zealand business of the registered bank and its subsidiaries as required to be reported in group financial statements for thegroup’s New Zealand business under section 461B(2) of the Financial Markets Conduct Act 2013.
“business of the registered bank in New Zealand” means the New Zealand business of the registered bank as defined in the requirement for financial statements for
New Zealand business in section 461B(1) of the Financial Markets Conduct Act 2013.
“generally accepted accounting practice” has the same meaning as in section 8 of the Financial Reporting Act 2013.

Pending proceedings or arbitration
A description of any pending legal proceedings or arbitration concerning any member of ANZ New Zealand that may have a material adverse effecton the NZ Branch or ANZ New Zealand is included in Note 27 Commitments and Contingent Liabilities.
Credit rating
As at 15 November 2018 the Ultimate Parent Bank has three credit ratings, which are applicable to its long-term senior unsecured obligations which
are payable in New Zealand in New Zealand dollars. On 19 June 2017, Moody’s Investors Service changed the Ultimate Parent Bank’s credit rating from
Aa2 to Aa3 and changed the outlook from Negative to Stable.
The Ultimate Parent Bank’s credit ratings are:Rating Agency
S&P Global Ratings
Fitch Ratings
Moody’s Investors Service

Credit Rating
AAAAAa3

Qualification
Outlook Negative
Outlook Stable
Outlook Stable

The following table describes the credit rating grades available:
S&P Global
Ratings

Moody's
Investors
Service

Fitch
Ratings

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

AAA

Aaa

AAA

Very strong ability to repay principal and interest.

AA

Aa

AA

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

A

A

A

Adequate ability to repay principal and interest. More vulnerable to adverse changes.

BBB

Baa

BBB

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

BB

Ba

BB

Greater vulnerability and therefore greater likelihood of default.

B

B

B

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

CCC

Caa

CCC

Highest risk of default.

CC to CCa to CCC to CD-

RD & DThe following grades display investment grade characteristics:

The following grades have predominantly speculative characteristics:

Obligations currently in default.

Credit ratings from S&P Global Ratings 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 the rating category.

64

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (continued)
Historical summary of financial statements

Income Statement
Interest income
Interest expense
Net interest income
Non-interest income
Operating income
Operating expenses
Credit impairment (charge) / release
Profit before income tax
Income tax expense
Profit after income tax
Dividends paid
NZ Branch retained earnings repatriatedShare capital issued
Balance Sheet
Total assets
Total individually impaired assets
Total liabilities
Equity & head office account

2018
NZ$m
6,550
(3,373)
3,177
1,143
4,320
(1,517)
(53)
2,750
(764)
1,986

2017
NZ$m
6,434
(3,356)
3,078
916
3,994
(1,469)
(60)
2,465
(685)
1,780

2016
NZ$m
6,770
(3,741)
3,029
832
3,861
(1,600)
(147)
2,114
(572)
1,542

2015
NZ$m
7,417
(4,537)
2,880
1,157
4,037
(1,513)
(76)
2,448
(677)
1,771

2014
NZ$m
6,799
(4,034)
2,765
1,063
3,828
(1,490)
9
2,347
(636)
1,711

(4,600)
(450)
3,000

(1,635)-(1,320)-(1,630)665(2,335)969

161,416323
150,180
11,236

158,185361
146,872
11,313

166,706433
155,539
11,167

155,530
404
144,670
10,860138,528
668
128,447
10,081

The amounts included in this summary have been taken from the audited financial statements of ANZ New Zealand.
Directors’ and New Zealand Chief Executive Officer’s statements
The Directors' and New Zealand Chief Executive Officer's statement is included on page 74.
Financial statements of the Ultimate Parent Bank and Overseas Banking Group
Copies of the most recent publicly available financial statements of the Ultimate Parent Bank and Overseas Banking Group will be provided
immediately, free of charge, to any person requesting a copy where request is made at the Registered Office. The most recent publicly available
financial statements for the Ultimate Parent Bank and Overseas Banking Group can also be accessed at the website shareholder.anz.com.
Auditor’s report
The auditor’s report is included on page 75.
Index
The index to the contents of the Disclosure Statement is included on page 2, and an index to the contents of the Financial Statements is included on
page 3.

65

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B2. ADDITIONAL FINANCIAL DISCLOSURES
Additional information on the balance sheet
2018
NZ$m
147,740
128,934
1,082

Total interest earning and discount bearing assets
Total interest and discount bearing liabilities
Total liabilities of the NZ Branch less amounts due to related entities

2017
NZ$m
143,141
125,561
1,069

Additional information on interest rate sensitivity
The following tables represent the interest rate sensitivity of ANZ New Zealand's assets, liabilities and off balance sheet instruments by showing theperiods in which these instruments may reprice, that is, when interest rates applicable to each asset or liability can be changed.
Total
NZ$m

Up to
3 months
NZ$m

Over 3 to
6 months
NZ$m

Over 6 to
12 months
NZ$m

Over 1 to
2 years
NZ$m

2,407

2,120

-

-

-

-

287

656

-

-

-

-

-

656

Collateral paid
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances1
Other financial assets1
Total financial assets
Liabilities
Settlement balances owed by ANZ New
Zealand

1,919
8,024
8,072
6,502
128,677719
156,976

1,919
873
338
63,847
62
69,159405
699
10,67355
11,832492
42
24,404
8
24,946

1,373
1,351
21,253
23,977

4,881
4,071
8,872
2
17,826

8,072
1
(372)
592
9,236

2,066

750

-

-

-

-

1,316

Collateral received
Deposits and other borrowings1
Derivative financial instruments
Debt issuances
Other financial liabilities1
Total financial liabilities
Hedging instruments
Interest sensitivity gap

845
112,920
8,133
24,534694
149,192
7,784

845
71,9863,041
109
76,731
14,822
7,250

12,924
3,383
16,307
1,228(3,247)

12,444757
13,201(14,697)(2,952)

3,043
3,782
6,825
(9,559)
7,593

2,299
13,571
15,8708,206
10,162

10,224
8,133
585
20,258(11,022)

2018
AssetsCash and cash equivalents
Settlement balances owed to ANZ New
Zealand

1

Over Not bearing
2 years
interest
NZ$m
NZ$m

Including items reclassified as held for sale

Overseas Banking Group Profitability and Size
2018
6,416
0.68%
942,624
5.05%

Net Profit for the year ended 30 September 2018 (AUDm)1
Net profit after tax for the year ended 30 September 2018 as a percentage of average total assets
Total assets (AUDm)
Percentage change in total assets in the 12 months to 30 September 20181

Net profit after tax for the year includes AUD 16 million of profit attributable to non-controlling interests.

Reconciliation of mortgage related amounts
As at 30 September 2018
Term loans - housing1
Less: fair value hedging adjustment
Less: housing loans made to corporate customers
On-balance sheet residential mortgage exposures
Add: off-balance sheet residential mortgage exposures
Total residential mortgage exposures as per LVR analysis
1

66

Term loans – housing includes loans secured over residential property for owner-occupier, residential property investment and business purposes.

Note
11

B4
B4
B4

NZ$m
80,609(13)(2,226)78,3708,232
86,602

REGISTERED BANK DISCLOSURES

B3. ASSET QUALITY
Past due assets
Amounts of assets past due but not impaired are included on page 31.
Movement in individually impaired assets

Balance at beginning of the period
Additions
Amounts written off
Deletions
Balance at end of the period
Individual provision

2018
NZ$m
361
398
(149)
(287)
323
132

2017
NZ$m
433
573
(133)
(512)
361
154

2018
NZ$m
154

2017
NZ$m
154

214
(83)
(30)
101
(149)

234
(97)
(31)
106
(133)

30

31

(4)
132

(4)
154

Movement in balances of individual credit impairment allowances

Balance at beginning of the period
Individual credit impairment charge / (release)
New and increased provisions
Write-backs
Recoveries of amounts previously written off
Individual credit impairment charge / (release)
Bad debts written off
Add back recoveries of amounts previously
written off
Discount unwind
Balance at end of the period
Movements in balance of collective credit impairment allowance

Information on movements in the balance of the collective credit impairment allowance over the full year accounting period is included on page 23.
Asset quality for financial assets designated at fair value
ANZ New Zealand does not have any loans and advances designated at fair value through profit or loss.
Other asset quality information

Undrawn facilities with impaired customers
Other assets under administration

2018
NZ$m
14
10

2017
NZ$m
6
11

Overseas Banking Group asset quality
As at 30 September 2018
Gross impaired assets (AUDm)
Gross impaired assets as a percentage of total assets
Individual provision (AUDm)
Individual provision as a percentage of gross impaired assets
Collective provision (AUDm)

2,013
0.2%
920
45.7%
2,523

67

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B4. CREDIT AND MARKET RISK EXPOSURES AND CAPITAL ADEQUACY (UNAUDITED)APRA Basel III capital ratios
Unaudited
Common equity tier 1 capital
Tier 1 capital
Total capital

Ultimate Parent Bank
Overseas Banking Group (Extended Licensed Entity)
2018
2017
2018
2017
10.6%
10.5%
11.4%
11.6%
12.6%
12.7%
13.4%
13.6%
14.8%
14.8%
15.2%
15.6%

For calculation of minimum capital requirements under Pillar 1 (Capital Requirements) of the Basel Accord, APRA has accredited the Overseas Banking
Group to use the Advanced Internal Ratings Based (AIRB) methodology for calculation of credit risk weighted assets and the Advanced Measurement
Approach (AMA) for the operational risk weighted asset equivalent.
Under prudential regulations, the Overseas Banking Group is required to maintain a Prudential Capital Ratio (PCR) as determined by APRA. The
Overseas Banking Group exceeded the PCR set by APRA as at 30 September 2018 and for the comparative prior periods.
The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 30 September 2018. The Overseas Banking Group’s Pillar
3 disclosure document for the quarter ended 30 September 2018, in accordance with APS 330: Public Disclosure of Prudential Information, discloses
capital adequacy ratios and other prudential information. This document can be accessed at the website anz.com.
Market risk
ANZ New Zealand’s aggregate market risk exposures below have been calculated in accordance with the RBNZ document BS2A. The peak end-of-day
market risk exposures are for the six months ended 30 September 2018.

As at 30 September 2018
Interest rate risk
Foreign currency risk
Equity risk

Implied risk weighted
exposure
Period end
Peak
NZ$m
NZ$m
4,670
5,782
43
153
1
1
4,714

Notional capital charge
Period end
Peak
NZ$m
NZ$m
374
463
3
12
377

Additional mortgage information
As required by RBNZ, loan-to-valuation-ratios (LVR) are calculated as the current exposure secured by a residential mortgage divided by ANZ New
Zealand's valuation of the security property at origination of the exposure. Off balance sheet exposures include undrawn and partially drawn
residential mortgage loans as well as commitments to lend. Commitments to lend are formal offers for housing lending which have been accepted by
the customer.
On-balance Off-balance
sheet
sheet
Total
As at 30 September 2018
NZ$m
NZ$m
NZ$m
LVR range
Does not exceed 60%
38,841
5,565
44,406
Exceeds 60% and not 70%
17,748
1,320
19,068
Exceeds 70% and not 80%
17,754
1,035
18,789Does not exceed 80%
74,343
7,920
82,263
Exceeds 80% and not 90%
2,745
131
2,876
Exceeds 90%
1,282
181
1,463
Total
78,3708,232
86,602

68

REGISTERED BANK DISCLOSURES

B5. INSURANCE BUSINESS, SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITESAND MARKETING AND DISTRIBUTION OF INSURANCE PRODUCTS
Insurance business
ANZ New Zealand conducts insurance business through its subsidiary OnePath. ANZ New Zealand’s aggregate amount of insurance businesscomprises the total consolidated assets of OnePath of NZ$940 million (2017: NZ$921 million), which is 0.6% (2017: 0.6%) of the total consolidated
assets of ANZ New Zealand.
Non-consolidated insurance and non-financial activities
The Ultimate Parent Bank does not carry on any insurance business or non-financial activities in New Zealand that are outside ANZ New Zealand.
ANZ New Zealand’s involvement in securitisation, funds management, other fiduciary activities, and marketing and distribution of insurance
productsa)

ANZ New Zealand’s involvement in the establishment, marketing, or sponsorship of trust, custodial, funds management, and other fiduciary activities

Activity

Details

Custodial

ANZ New Zealand operates three custodians:• ANZ Custodial Services New Zealand Limited, which is the appointed custodian for private banking’s (ANZ Private)
Discretionary Investment Management Service, Wholesale Investment Services and Trading Service;• ANZ New Zealand Investments Nominees Limited, which is the appointed custodian in respect of direct holdings of
securities by various wholesale customer portfolios managed by ANZ New Zealand Investments Limited (ANZ
Investments); and• ANZ New Zealand Securities Nominees Limited, which is the appointed custodian for the ANZ Securities share and bondtrading service.

Funds
management

The Banking Group provides the following funds management services:• Managed Investment Schemes (MIS): ANZ New Zealand’s subsidiaries ANZ Investments and ANZ Investment Services (New
Zealand) Limited (ANZIS) act as manager for a number of managed investment schemes. ANZ Investments holds a MIS
Manager licence, with ANZIS being an authorised body under that licence. ANZ Investments is the issuer and manager of
ANZ and OneAnswer-branded KiwiSaver schemes, retail and wholesale schemes. ANZIS is the issuer and manager of theBonus Bonds Scheme and the ANZ PIE Fund.
• Discretionary Investment Management Service (DIMS): The Bank is a licensed DIMS provider. This service is offered to ANZ
Private customers.
• Other investment portfolios: ANZ Investments also manages investment portfolios for a number of schemes where thescheme manager or trustee has outsourced investment management services to ANZ Investments. These schemes are
typically corporate superannuation schemes.

Other fiduciary
activities

ANZ Investments, through its subsidiary OneAnswer Nominees Limited, offers the OneAnswer Portfolio Service. The associatedadministration and custody services are provided by FNZ Limited and FNZ Custodians Limited respectively (together FNZ).
FNZ is not a member or related party of ANZ New Zealand.

b)

ANZ New Zealand’s involvement in the origination of securitised assets, and the marketing or servicing of securitisation schemes

ANZ New Zealand originates securitised assets in the form of residential mortgage backed securities held for potential repurchase transactions with
the RBNZ, and covered bonds. Refer to Note 23 Structured Entities for further details on these programmes. Other than these activities, ANZ New
Zealand is not involved in the marketing or servicing of securitisation schemes.
c)

ANZ New Zealand’s involvement in marketing and distribution of insurance products

ANZ New Zealand markets and distributes life insurance products provided by OnePath.
ANZ New Zealand also markets and distributes other personal and business insurance products provided by or arranged through a number of otherinsurance partners. None of these other insurance partners are affiliated insurance entities or affiliated insurance groups.
Arrangements to ensure no adverse impacts arising from the above activities
Arrangements have been put in place to ensure that difficulties arising from the activities in a), b) and c) above would not impact adversely on ANZ
New Zealand. The policies and procedures in place include comprehensive and prominent disclosure of information regarding products, and formal
and regular review of operations and policies by management.

69

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B5. INSURANCE BUSINESS, SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITES AND
MARKETING AND DISTRIBUTION OF INSURANCE PRODUCTS (continued)
Amounts represented by funds management and securitisation activities

Funds under management:
KiwiSaver1
Bonus Bonds Scheme2
Other managed funds1
ANZ PIE Fund2
Discretionary Investment Management Service (DIMS)3Other investment portfolios1
Total funds under management
Funds under custodial arrangements4
Other funds held or managed subject to fiduciary responsibilities5
Outstanding securitised assets originated by ANZ New Zealand - carrying amount of Covered Bonds
1
2
3
4

5

70

2018
NZ$m

2017
NZ$m

12,923
3,300
2,261
1,656
7,678
2,847
30,665
7,970
1,270
3,929

11,047
3,405
1,984
1,381
7,193
3,480
28,490
7,951
1,325
5,315

Managed by ANZ New Zealand Investments Limited.
Managed by ANZ Investment Services (New Zealand) Limited.
Managed by the Bank.
Includes NZ$60 million (2017: NZ$370 million) held in custody by ANZ New Zealand Securities Nominees Limited which are not included in funds under management. All other funds heldin custody are included in funds under management.
Not included in funds under management.

REGISTERED BANK DISCLOSURES

B6. RISK MANAGEMENT POLICIESInformation about risk

The success of ANZ New Zealand’s strategy is underpinned by our sound management of ANZ New Zealand’s risks. All of ANZ New
Zealand’s activities involve - to varying degrees - the analysis, evaluation, acceptance and management of risks or combinations of risks.

The material risks facing per ANZ New Zealand’s RMS, and how these risks are managed are summarised below:

Key material risks
Risk Type

Description

Management of Risks

Capital Adequacy
Risk

The risk of loss arising from ANZ New Zealand failing tomaintain the level of capital required by prudential regulatorsand other key stakeholders (shareholders, debt investors,
depositors, rating agencies, etc.) to support ANZ New
Zealand’s consolidated operations and risk appetite.

ANZ New Zealand pursues an active approach to CapitalManagement through ongoing review, and Board
approval, of the level and composition of ANZ New
Zealand’s capital base against key policy objectives.

Compliance Risk

The probability and impact of an event that results in a breachof any of the following that apply to ANZ New Zealand’s
businesses: laws, regulations, industry standards, codes,
internal policies, internal procedures, or principles of good
governance.

Key features of our Compliance Risk framework include
centralised management of key obligations, and emphasis
on identifying changes in regulations and the businessenvironment, so as to enable us to:• proactively assess emerging compliance risks; and• implement robust reporting and certification
processes.

CreditRisk

The risk of financial loss resulting from:• a counterparty failing to fulfil its obligations; or• a decrease in credit quality of a counterparty resulting ina financial loss.

Our Credit Risk framework is top down, being defined bycredit principles and policies. Credit policies, requirements
and procedures cover all aspects of the credit life cycle for example: transaction structuring, risk grading, initialapproval, ongoing management and problem debt
management, as well as specialist policy topics.

Credit Risk incorporates the risks associated with us lending tocustomers who could be impacted by climate change or bychanges to laws, regulations, or other policies adopted bygovernments or regulatory authorities, including carbon
pricing and climate change adaptation or mitigation policies.
Liquidity andFunding Risk

The risk that ANZ New Zealand is unable to meet its payment
obligations as they fall due, including:• repaying depositors or maturing wholesale debt; or• ANZ New Zealand having insufficient capacity to fundincreases in assets.

Key principles in managing our Liquidity and Funding Risk
include:•maintaining ANZ New Zealand’s ability to meetliquidity ‘survival horizons’ under a range of stressscenarios to meet cash flow obligations over a short
to medium term horizon;• maintaining a strong structural funding profile; and• maintaining a portfolio of high-quality liquid assets
to act as a source of liquidity in times of stress.

71

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B6. RISK MANAGEMENT POLICIES (continued)
Risk Type

Description

Management of Risks

MarketRisk

The risk to ANZ New Zealand’s earnings arising from:• changes in any interest rates, foreign exchange rates,
credit spreads, volatility, and correlations; or• from fluctuations in bond, commodity or equity prices.

Our risk management and control framework for Market
Risk involves us quantifying the magnitude of market risk
within the trading and balance sheet portfolios throughindependent risk measurement. First, we identify therange of possible outcomes, the likely timeframe, and thelikelihood of the outcome occurring. Then we allocate an
appropriate amount of capital to support these activities.

Operational Risk

The risk of loss resulting from inadequate or failed internal
processes, people and systems, or from external events.
Operational Risk:• includes technology risk, cyber risk, legal risk andconduct risk, and damage arising from inadequate or
failed internal processes, people and systems; but• excludes Strategic Risk.

ANZ New Zealand operates a three-lines-of-defence
model to manage Operational Risk, with each line ofdefence having defined roles, responsibilities andescalation paths to support effective two-way
communication and effective management of ouroperational risk. Also, we have ongoing review
mechanisms to ensure our Operational Risk framework
continues to meet organisational needs and regulatory
requirements.

Reputation Risk

The risk of loss that directly or indirectly impacts earnings,
capital adequacy or value, that is caused by:• adverse perceptions of ANZ New Zealand held by any ofcustomers, the community, shareholders, investors,
regulators, or rating agencies;• conduct risk associated with ANZ New Zealand’s
employees or contractors (or both); or• the social or environmental (or both) impacts of ourlending decisions.

We manage Reputation Risk by maintaining a positive anddynamic culture that:• ensures we act with integrity; and• enables us to build strong and trusted relationships
with customers and clients, with colleagues, andwith the broader society.

The risk that ANZ New Zealand’s business strategy andstrategic objectives may lead to an increase in other key
Material Risks - for example: Credit Risk, Market Risk andOperational Risk.

We consider and manage Strategic Risks through ourannual strategic planning process, managed by the
Executive Committee and approved by the Board. Any
increase to our key Material Risks is managed inaccordance with the risk management practices specified
above.

Strategic Risk

We have well established decision-making frameworks
and policies to ensure our business decisions are guided
by sound social and environmental standards that take
into account Reputation Risk.

Refer to Note 15 Financial Risk Management for the disclosures required under NZ IFRS 7 Financial Instruments: Disclosures.
Reviews of ANZ New Zealand’s risk management systems
Refer to Note 15 Financial Risk Management for details of the Internal audit Functions reviews of ANZ New Zealand’s RMF. These reviews are notconducted by a party external to ANZ New Zealand, the Overseas Banking Group, or the Ultimate Parent Bank.

72

REGISTERED BANK DISCLOSURES

B6. RISK MANAGEMENT POLICIES (continued)
Internal Audit Function of ANZ New ZealandRefer to Note 15 Financial Risk Management for details of the Internal Audit Function.
The nature and scope of the responsibilities of the Bank’s Audit Committee responsibilities, to which Internal Audit reports, are to assist the Bank’s
Board of Directors by providing oversight and review of:• ANZ New Zealand's financial reporting principles and policies, controls, systems and procedures;• the effectiveness of ANZ New Zealand’s internal control and risk management framework;• the work and internal audit standards of Internal Audit which reports directly and solely to the Chair of the Bank’s Audit Committee;• the integrity of ANZ New Zealand's financial statements and the independent audit thereof, and ANZ New Zealand’s compliance with legal andregulatory requirements in relation thereto;• any due diligence procedures;• prudential supervision procedures and other regulatory requirements to the extent relating to financial reporting; and• any other matters referred to it by the Bank’s Board.
The Bank’s Audit Committee is also responsible for:• the appointment, annual evaluation and oversight of the external auditor;• annual review of the independence, fitness and propriety, and qualifications of the external auditor;• compensation of the external auditor; and• where deemed appropriate, replacement of the external auditor.
In carrying out its responsibilities and duties, the Bank’s Audit Committee will aim to seek fair customer outcomes and financial market integrity in its
deliberations.
Access to parental disclosures
Disclosures made by the Ultimate Parent Bank in relation to capital adequacy requirements and risk management processes implemented by the
Ultimate Parent Bank are included in the Ultimate Parent Bank’s Annual Report and APS 330 Basel III Pillar 3 Capital Disclosures documents which canbe accessed at the website shareholder.anz.com.

73

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTDIRECTORS' AND NEW ZEALAND CHIEF EXECUTIVE OFFICER'S STATEMENT
As at the date on which this Disclosure Statement is signed, after due enquiry, each Director of the Ultimate Parent Bank and the Chief Executive
Officer – NZ Branch believes that:•

The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (Overseas Incorporated
Registered Banks) Order 2014; and•The Disclosure Statement is not false or misleading.

Over the year ended 30 September 2018, after due enquiry, each Director of the Ultimate Parent Bank and the Chief Executive Officer – NZ Branchbelieves that:•

The Ultimate Parent Bank has complied with all Conditions of Registration that applied during that period; and•The NZ Branch and the Bank had systems in place to monitor and control adequately the material risks of Relevant Members of ANZ New
Zealand including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk and other business risks, and thatthose systems were being properly applied.

Signed by the Chief Executive Officer – NZ Branch

Penny Dell
Chief Executive Officer – NZ Branch
15 November 2018
Signed on behalf of all the Directors of the Ultimate Parent BankDavid Hisco
Responsible Person
15 November 2018
on behalf of the Directors of the Ultimate Parent Bank:
Ilana Atlas
Paula Dwyer
Shayne ElliottDavid Gonski, AC
Jane Halton, AO, PSM
Lee Hsien Yang
Rt Hon Sir John Key, GNZM AC
Graeme Liebelt
John Macfarlane

74

INDEPENDENT AUDITOR’S REPORTTO THE DIRECTORS OF AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDREPORT ON THE ANZ NEW ZEALAND DISCLOSURE STATEMENTOPINION
In our opinion, the accompanying consolidated financial statements of Australia and New Zealand Banking Group Limited - ANZ Bank New
Zealand and its related entities (ANZ New Zealand) on pages 4 to 56:••

give a true and fair view of ANZ New Zealand’s financial position as at 30 September 2018 and its financial performance and cash flows forthe year ended on that date; andcomply with New Zealand Generally Accepted Accounting Practice, which in this instance means New Zealand Equivalents to International
Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards.

In our opinion, the Registered Bank disclosures that are required to be disclosed in accordance with Schedules 4, 7, 11 and 13 of the Registered
Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order 2014 (as amended) (the Order) and is included in section, B2, B3, B5,
B6 of the Disclosure Statement:•••

have been prepared, in all material respects, in accordance with the guidelines issued pursuant to section 78(3) of the Reserve Bank of New
Zealand Act 1989 and any conditions of registration;
are in accordance with the books and records of ANZ New Zealand in all material respects; andfairly states the matters to which it relates in accordance with those schedules.

We have audited the accompanying consolidated financial statements and registered bank disclosures in section B2, B3, B5 and B6 which
comprise:••••the consolidated statement of financial position as at 30 September 2018;
the consolidated income statement, statements of comprehensive income, changes in equity and cash flows for the year then ended;
notes, including a summary of significant accounting policies and other explanatory information; andthe information that is required to be disclosed in accordance with Schedules 4, 7, 11 and 13 of the Order.

BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISA’s (NZ)). We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of ANZ New Zealand in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners
issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ Code of Ethics forProfessional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA
Code.
Our responsibilities under ISA (NZ) are further described in the Auditor’s Responsibilities for the audit of the consolidated financial statements andregistered bank disclosures in section B2, B3, B5 and B6 of our report.
Our firm has also provided other services to ANZ New Zealand in relation to review of regulatory returns, internal controls reports, prospectus
assurance or reviews and agreed upon procedures engagements. Subject to certain restrictions, partners and employees of our firm may also deal
with ANZ New Zealand on normal terms within the ordinary course of trading activities of the business of ANZ New Zealand. These matters have not
impaired our independence as auditor of ANZ New Zealand. The firm has no other relationship with, or interest in, ANZ New Zealand.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial
statements in the current period. We summarise below those matters and our key audit procedures to address those matters in order that theshareholder as a body may better understand the process by which we arrived at our audit opinion. Our procedures were undertaken in the context
of and solely for the purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not express discrete
opinions on separate elements of the consolidated financial statements.
PROVISION FOR CREDIT IMPAIRMENT AND DISCLOSURES FOR THE EXPECTED IMPACT OF NZ IFRS 9 FINANCIAL INSTRUMENTS
The Key Audit Matter
The provision for credit impairment is a key audit matter as ANZ New Zealand has significant credit risk exposure to a large number of counterparties
across a wide range of lending and industries. The value of loans and advances on the balance sheet is significant and there is a high degree ofcomplexity and judgement involved for ANZ New Zealand in estimating individual and collective credit impairment provisions against these loans.
These features resulted in significant audit effort to address the risks around loan recoverability and the determination of related provisions.

75

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTINDEPENDENT AUDITOR’S REPORTIn preparation for adoption of NZ IFRS 9 Financial Instruments on 1 October 2018, ANZ New Zealand disclosed the expected impact of adoption. Thisadded effort to our audit due to the complexity of the accounting standard and its expected pervasive impact on the industry. We focused on ANZ
New Zealand’s disclosure of the expected impact of measuring expected credit losses (ECLs) on loans and advances and the significant judgement
exercised by ANZ New Zealand. ANZ New Zealand’s models to calculate ECLs are inherently complex, and judgement is applied in determining thecorrect construct of the models. There are also a number of key assumptions made by ANZ New Zealand in applying the accounting standard
requirements to the models, including the selection and input of forward-looking information.
How the matter was addressed in our audit
Our audit procedures for the individual and collective provision for credit impairment and disclosures for the expected impact of NZ IFRS 9 Financial
Instruments applicable on 1 October 2018 included:
Provisions against specific individual loans (individual provision)• Testing the key controls over counterparty risk grading for wholesale loans (larger customer exposures that are monitored individually). We
tested the approval of new lending facilities against ANZ New Zealand’s lending policies, the performance of annual loan assessments, andcontrols over the monitoring of counterparty credit quality. This included testing controls over the identification of exposures showing signs ofstress, either due to internal factors specific to the counterparty or external macroeconomic factors, and testing the timeliness of and theaccuracy of counterparty risk assessments and risk grading against the requirements of ANZ New Zealand’s lending policies;• Performing credit assessments of a sample of wholesale loans managed by ANZ New Zealand’s specialist workout and recovery team assessedas higher risk or impaired, and a sample of other loans, focusing on larger exposures assessed by ANZ New Zealand as showing signs ofdeterioration, or in areas of emerging risk (assessed against external market conditions). We challenged ANZ New Zealand’s risk grading of theloan, their assessment of loan recoverability and the impact on the credit provision. To do this, we reviewed the information on ANZ New
Zealand’s loan file, discussed the case with the loan officer and management, and performed our own assessment of recoverability. This
involved using our understanding of relevant industries and the macroeconomic environment, and comparing assumptions of inputs used by
ANZ New Zealand in recoverability assessments to externally sourced evidence, such as commodity prices, publicly available audited financial
statements, and comparable external valuations of collateral held; and• Evaluating ANZ New Zealand’s oversight of retail loan portfolios (smaller customer exposures not monitored individually), with a focus oncontrols over delinquency statistics monitoring. We tested a sample of provisions held against different loan products, based on theirdelinquency profile, and challenged assumptions made in respect of expected recoveries, primarily from collateral held.
Provisions estimated across loan portfolios (collective provision)• Testing ANZ New Zealand’s processes to validate the models used to calculate collective provisions, and evaluating ANZ New Zealand’s model
methodologies against established market practices and criteria in the accounting standards;• Testing the key controls within IT systems used to calculate the collective provision, specifically those relating to data management and thecompleteness and accuracy of data transfer from underlying source systems to the collective provision models;• Testing the accuracy of key inputs into models by checking a sample of balances to the general ledger and risk ratings to source systems;• Challenging the key assumptions in the models such as emergence periods, probability of default and loss given default for a sample of retail
and wholesale portfolios. We compared modelled estimates against actual losses incurred by ANZ New Zealand; and• Re-performing the calculation of collective provisions, for a sample of retail and wholesale portfolios and using a KPMG-constructed calculation
tool to determine the accuracy of model output.
We also challenged key assumptions in the components of ANZ New Zealand’s collective provision balance held above modelled provision estimates.
This included:•••

Evaluating inputs to the concentration risk and economic cycle provisions by comparing underlying portfolio characteristics to loss experience,current market conditions and specific risks inherent in ANZ New Zealand’s loan portfolios;
Assessing the requirement for other additional provisions by considering model or data deficiencies identified by ANZ New Zealand’s model
validation processes; andAssessing the completeness of additional provisions by checking the consistency of risks identified in the portfolios to their inclusion in ANZ
New Zealand’s assessment.

NZ IFRS 9 Financial Instruments
We assessed ANZ New Zealand’s disclosures for the expected impact of NZ IFRS 9 Financial Instruments which is applicable on 1 October 2018.
Together with KPMG credit risk and economics specialists, our procedures included:
•
•
•
•
•
•

Assessing ANZ New Zealand’s significant accounting policies against the requirements of the accounting standard;
Assessing ANZ New Zealand’s ECL modelling methodology and for a sample of models testing key credit modelling assumptions incorporated
in the ECL models against the requirements of the standard and underlying accounting records;
Assessing forward-looking economic assumptions and the development of economic scenarios against external economic information, and theapplication into the ECL models;Testing data reconciliation controls between the ECL models and source systems;
Testing the accuracy of the modelled calculations by re-performing the ECL calculations on a sample basis;
Assessing the disclosures in the financial statements against the requirements of NZ IFRS.

VALUATION OF FINANCIAL INSTRUMENTS
The Key Audit Matter
Financial instruments held at fair value on ANZ New Zealand’s balance sheet include available-for-sale assets, trading securities, derivative assets andliabilities, investments backing insurance contract liabilities, certain debt securities, and other assets and liabilities designated as measured at fair value
through profit or loss.

76

INDEPENDENT AUDITOR’S REPORTThe instruments are mainly risk management products sold to customers and used by ANZ New Zealand to manage its own interest rate and foreignexchange risk.
The valuation of financial instruments held at fair value is considered a Key Audit Matter due to:••••

Financial instruments held at fair value are significant (14% of assets and 7% of liabilities);
The significant volume and range of products transacted, increases the risk of inconsistencies in transaction management processes that could
lead to inaccurate valuation;
Determining the fair value of trading securities and derivatives involves a significant level of judgement by ANZ New Zealand, increasing the riskof error, and adding complexity to our audit. The level of judgement increases where internal models, as opposed to quoted market prices, areused to determine fair value of an instrument; andThe valuation of certain derivatives held by ANZ New Zealand is sensitive to inputs including credit risk, funding rates, probabilities of default
and loss given default, and industry practice is evolving as to how the impact of both funding and credit risk is incorporated within the valuationof certain derivative instruments. This increased our audit effort in this area and necessitated the involvement of valuation specialists.

How the matter was addressed in our audit
Our audit procedures for the valuation of financial instruments held at fair value included:
•
•
•
•
•
•

Testing access rights and change management controls for key valuation systems;
Testing interface controls, notably the completeness and accuracy of data transfers between transaction processing systems, key systems used
to generate valuations and any related valuation adjustments, and ANZ New Zealand’s market risk management and finance systems to identify
inconsistencies in transaction management and valuation processes across products;
Testing the governance and approval controls such as management review and approval of the valuation models and approval of new products
against policies and procedures;
Testing the front office management review and approval of the daily financial instrument trading profit and loss reconciliations prepared by
ANZ New Zealand’s independent product control function;
Testing the management review and approval of model construction and validation, aimed at assessing the validity and robustness ofunderlying valuation models; andTesting ANZ New Zealand’s data validation controls, such as those over key inputs in generating the fair value to market data where fair values
were determined by front office teams.

We tested the valuation of financial instruments with both observable and unobservable inputs. Our specific testing involved valuation specialists andincluded:••••Re-performing the valuation of ‘level 1’ and ‘level 2’ available for sale assets and trading securities, which are primarily government, semigovernment and corporate debt securities, by comparing the observable inputs, including quoted prices, to independently sourced market
data;
Using independent models, re-calculating the valuation of a sample of derivative assets and liabilities where the fair value was determined using
observable inputs. This included comparing a sample of observable inputs used in ANZ New Zealand’s derivative valuations to independentlysourced market data, such as interest rates, foreign exchange rates and volatilities;
Where the fair value of derivatives and other financial assets and liabilities were determined using unobservable inputs (‘level 3’ instruments),
challenging ANZ New Zealand’s valuation model by testing the key inputs used to comparable data in the market, including the use of proxy
instruments and available alternatives. We compared ANZ New Zealand’s valuation methodology to industry practice and the criteria in theaccounting standards; andEvaluating the appropriateness of ANZ New Zealand’s valuation methodology for derivative financial instruments, having regard to current andemerging derivative valuation practices across a range of peer institutions and against the required criteria in the accounting standards. We
tested adjustments made to valuations, particularly funding and credit valuation adjustments on un-collateralised derivatives. In particular, for asample of individual counterparties, we tested key inputs to the credit valuation adjustment calculation, including the probability of default,
against observable market data. Where proxies were used, we assessed the proxy against available alternatives across a number of locations.

IT SYSTEMS AND CONTROLSThe Key Audit Matter
As a major New Zealand bank, ANZ New Zealand’s businesses utilise a large number of complex, interdependent Information Technology (IT) systems
to process and record a high volume of transactions. Controls over access and changes to IT systems are critical to the recording of financial
information and the preparation of a financial report which provides a true and fair view of ANZ New Zealand’s financial position and performance.
The IT systems and controls, as they impact the financial recording and reporting of transactions, is a key audit matter and our audit approach could
significantly differ depending on the effective operation of ANZ New Zealand’s IT controls. KPMG IT specialists were used throughout the engagement
as a core part of our audit team.
How the matter was addressed in our audit
We tested the control environment for key IT applications (systems) used in processing significant transactions and recording balances in the generalledger. We also tested automated controls embedded within these systems. Our audit procedures included:••••

Testing the governance controls used by ANZ New Zealand’s technology teams and third party suppliers to monitor system integrity, by
checking matters impacting the operational integrity of core systems for escalation and action in accordance with ANZ New Zealand’s policies;
Testing the access rights given to staff by checking them to approved records, and inspecting the reports over the granting and removal ofaccess rights. We also looked for evidence of escalation of breaches;
Testing preventative controls designed to enforce segregation of duties between users within particular systems;
Testing the operating effectiveness of automated controls, principally relating to the automated calculation of financial transactions. We tested

77

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENTINDEPENDENT AUDITOR’S REPORT•

the inputs used within automated calculations to source data and also tested the accuracy of the calculation logic for a sample of transactions
within each identified control; andTesting the operating effectiveness of automated reconciliation controls, both between systems and intra-system. For a sample of identified
breaks, in reconciliations, we checked that these were recorded on exception reports, and subsequently investigated and cleared by ANZ New
Zealand.

OTHER INFORMATIONThe Directors, on behalf of ANZ New Zealand, are responsible for the General Disclosures required to be included in ANZ New Zealand’s DisclosureStatement in accordance with Schedule 2 of the Order (section B1).
Our opinion on the consolidated financial statements does not cover section B1 or the Supplementary Information relating to the Bank Financial
Strength Dashboard and other information included on pages 81-83 (collectively referred to as ‘other information’) and we do not express any form ofassurance conclusion thereon.
In connection with our audit of the consolidated financial statements our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit orotherwise appears materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this otherinformation, we are required to report that fact. We have nothing to report in this regard.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
In accordance with the requirements of clauses 2(1)(d) and 2(1)(e) of Schedule 1 of the Order, we report that:••

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

RESPONSIBILITIES OF DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND REGISTERED BANKDISCLOSURES IN SECTION B2, B3, B5 AND B6The Directors, on behalf of ANZ New Zealand, are responsible for:••••the preparation and fair presentation of the consolidated financial statements in accordance with Clause 22 of the Order, NZ IFRS andInternational Financial Reporting Standards;
the preparation and fair presentation of supplementary information, in accordance with Schedules 4, 7, 11 and 13 of the Order;
implementing necessary internal controls to enable the preparation of consolidated financial statements that are fairly presented and free frommaterial misstatement, whether due to fraud or error; andassessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using thegoing concern basis of accounting unless they either intend to liquidate or to cease operations, or have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND
REGISTERED BANK DISCLOSURES IN SECTION B2, B3, B5 AND B6
Our objective is:••

to obtain reasonable assurance about whether the Disclosure Statement, including the consolidated financial statements prepared inaccordance with Clause 22 of the Order, and registered bank disclosures in section B2, B3, B5 and B6, prepared in accordance with Schedules 4,7, 11 and 13 of the Order as a whole is free from material misstatement, whether due to fraud or error; andto issue an Independent Auditor’s Report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on
Auditing (New Zealand) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of this consolidated financial statements.
A further description of our responsibilities for the audit of these consolidated financial statements is located at the External Reporting Board (XRB)
website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our independent auditor’s report.

78

INDEPENDENT AUDITOR’S REPORTREVIEW CONCLUSION ON THE REGISTERED BANK DISCLOSURES IN SECTION B4 RELATING TO CREDIT AND
MARKET RISK EXPOSURES AND CAPITAL ADEQUACY (B4)
Based on our review, nothing has come to our attention that causes us to believe that the registered bank disclosures relating to credit andmarket risk exposures and capital adequacy as disclosed in section B4 of the Disclosure Statement, is not, in all material respects disclosed inaccordance with Schedule 9 of the Order.
We have reviewed the registered bank disclosures as disclosed in section B4 of the Disclosure Statement for the year ended 30 September 2018.
The registered bank disclosures that is required to be disclosed in accordance with Schedule 9 of the Order.

BASIS FOR CONCLUSION ON THE REGISTERED BANK DISCLOSURES IN SECTION B4
A review of the registered bank disclosures in section B4 in accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent
Auditor of the Entity (NZ SRE 2410) is a limited assurance engagement. The auditor performs procedures, primarily consisting of making enquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. Our responsibilities underthat standard are further described in the Auditor’s Responsibilities for the review of the registered bank disclosures in section B4 of our report.
As the auditor of ANZ New Zealand, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial
statements.
RESPONSIBILITIES OF DIRECTORS FOR THE REGISTERED BANK DISCLOSURES IN SECTION B4
The Directors are responsible for the preparation of registered bank disclosures in section B4 that is required to be prepared and disclosed inaccordance with Schedule 9 of the Order and described in section B4 to the Disclosure Statement.
AUDITOR’S RESPONSIBILITIES FOR THE REVIEW OF THE REGISTERED BANK DISCLOSURES IN SECTION B4
Our responsibility is to express a conclusion on the registered bank disclosures in section B4 based on our review. We conducted our review inaccordance with NZ SRE 2410 issued by the New Zealand External Reporting Board. As the auditor of ANZ New Zealand, NZ SRE 2410 requires that wecomply with the ethical requirements relevant to the audit of the annual financial statements, and plan and perform the review to obtain limited
assurance about whether the registered bank disclosures in section B4 is, in all material respects, disclosed in accordance with Schedule 9 of the Order.
A review of the registered bank disclosures in section B4 in accordance with NZ SRE 2410 is a limited assurance engagement. The auditor performs
procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analyticaland other review procedures.
The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards
on Auditing (New Zealand). Accordingly we do not express an audit opinion on the registered bank disclosures in section B4.
USE OF THE INDEPENDENT AUDITOR’S REPORTThis Independent Auditor’s Report is made solely to the Directors as a body. Our work has been undertaken so that we might state to the Directors
those matters we are required to state to them in the Independent Auditor’s Report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the shareholder as a body for our work, this report, or any of the opinions or
conclusions we have formed.
The engagement partner on the audit resulting in this independent auditor's report is Matthew Prichard.
For and on behalf of

KPMG
Auckland
15 November 2018

79

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENT

This page has been left blank intentionally80

BANK FINANCIAL
STRENGTH DASHBOARD
This section does not form part of the Disclosure Statement. It contains information in respectof ANZ New Zealand included on the Bank Financial Strength Dashboard (Dashboard)published on RBNZ’s website. There is no requirement for the Directors to review or approve
this information.
Amounts below may differ slightly from those published by RBNZ due to rounding differences.
The tables include reconciliations to amounts included in the Disclosure Statement where there
are classification differences between the financial statements and the Dashboard.

Dashboard
D1.

Asset Quality

82

D2.

Profitability / Performance

82

D3.

Financial Position

83

Other information
Reconciliation of total loans by industry and sector

83

81

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2018 DISCLOSURE STATEMENT

Unaudited

BANK FINANCIAL STRENGTH DASHBOARD
D1. ASSET QUALITY
As at 30 September 2018
Total loans

Housing
NZ$m

Consumer
NZ$mBusiness
NZ$m

Agriculture
NZ$m

All other
NZ$m

Total
NZ$m

78,057

3,574

28,823

17,4271,388

129,269

Impaired loans

37

11

76

154

45

323

Loans 90 days past due but not impaired

167

24

27

3

-

221

Total non-performing loans

204

35

103

157

45

544

Non-performing loans ratio (%)

0.26%

0.98%

0.36%

0.90%

3.24%

0.42%

Individual provisions

10

6

45

35

36

132

Collective provisions

75

64

92

43

110

384

On-balance sheet residential mortgage exposures with LVRs that:
Exceeds 80% and not 90%

3.5%

Exceeds 90%

1.6%

A reconciliation of the amounts in this table to the financial statements is included in the Other Information on page 83.

D2. PROFITABILITY / PERFORMANCE
Financial statements
For the12 months ended
30 September 2018

Classification differences

Less: For the
6 months ended
31 March 2018

Funds management
income and othercommissions

Dashboard
Less: For the
3 months ended
30 June 2018

For the3 months ended
30 September 2018

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Interest income

6,550(3,248)-(1,641)

1,661

Interest expense

3,373(1,676)

-

(839)

858

Net interest income

3,177(1,572)

-

(802)

803

Gains/losses on trading and hedging

277

(118)

-

(56)

103

Fee and commission income

385

(198)

139

(165)

161

All other income

481

(261)

(139)

(37)

44

Operating expenses

1,517

(747)

-

(374)

396

Impaired asset expense

53

(70)

-

(6)

(23)

2,750

(1,332)

-

(680)

738

Tax expense

764

(368)

-

(188)

208

Profit after tax

1,986

(964)

-

(492)

Profit before tax

530

Return on assets (%)

1.3%

Return on equity (%)

17.6%

Net interest margin (%)

2.1%

The Supplementary Information does not form part of the Disclosure Statement

82

BANK FINANCIAL STRENGTH DASHBOARD

D3. FINANCIAL POSITION

Financialstatements
NZ$m

As at 30 September 2018

Classification differences
Securities
Other bankpurchased underagreements
deposits andother assets
to re-sell
NZ$m
NZ$m

Subordinatedloan from
related party
NZ$m

Dashboard
NZ$m

Cash and bank deposits1

4,326

41

(136)

-

4,231

Debt securities held2

14,653(78)--

14,575Net loans and advances

128,677---

128,677

Derivatives in an asset position

8,072

-

-

-

8,072

All other assets

5,688

37

136

-

5,861

Total assets
Deposits

161,416---

161,416

104,055---

104,055

Debt securities issued3

27,930

-

-

(289)

27,641Other borrowings

6,314

1,336

-

289

7,939

Derivatives in a liability position

8,133

-

-

-

8,133

Total liabilities (excluding head office account)

3,748
150,180(1,336)
-

-

-

2,412
150,180

Equity11,236---

11,236

4

All other liabilities

1
2
3
4

Comprises cash and collateral paid
Comprises trading securities, investments backing insurance contract liabilities and available-for-sale assets
Comprises debt issuances plus certificates of deposit and commercial paper from deposits and other borrowings
Comprises collateral received and the remaining items of deposits and other borrowings

OTHER INFORMATION
Reconciliation of total loans by industry and sector
The financial statements and Dashboard include amounts for total loans which are based on different definitions. The table below reconciles thevarious amounts. This information does not form part of the Disclosure Statement.
Housing loans and residential mortgage definitions
Housing loans comprise loans for owner occupier property use and residential investor property use. Owner occupiers are borrowers who own or arein the process of buying or building the house or flat they will live in as their principal place of residence. An owner can occupy more than one
property e.g. a family home and a holiday home. Only households can have owner occupier property use loans. Investors are entities or persons
borrowing for the purpose of building or purchasing residential property to rent. This includes ‘Mum and dad’ investor loans and any person(s) thathave a separate residential investor property use loan which is not for their normal business purpose.
Residential mortgage exposures used in the loan-to-valuation ratio analysis are based on the definition of residential mortgage loans as defined in the
Banking Supervision Handbook document Capital Adequacy Framework (internal models based approach) (BS2B). This metric is based on a collateraldefinition and may include some other lending that is not defined as Housing lending in the asset quality section of the Dashboard. See the Banking
Supervision Handbook for a more detailed definition.

As at 30 September 2018

Note

Housing
NZ$m

Consumer
NZ$mBusiness
NZ$m

Agriculture
NZ$m

All other1
NZ$m

Total
NZ$m

Total loans per Balance Sheet

1180,609

n/a

n/a

n/a

48,509129,118

(13)

-

-

-

13

-

Business loans secured by residential property(2,539)

-

-

317

2,222

-

Residential investor property(21,643)--

51

21,592

-

-

3,574

-

17,477(21,051)

129,118

Fair value hedge adjustment

Other household and agriculture industry loans
256,414

3,574-

17,84551,285

Fair value hedge adjustments

-

-

-

-

(13)

(13)

Unearned income on finance leases

-

-

-

-

(204)

(204)

Deposit components of overdraft product

-

-

-

-

368

368

21,643--(51)(21,592)---

28,463(50)(28,413)-78,0573,574

28,463

17,7441,431

129,269

-

-

360

(317)

(43)

-

78,057

3,574

28,823

17,4271,388

129,269

Concentration of loans by industry

15

Residential investor property
Business lending
Loans by purpose (RBNZ series S31)
Other business loans secured by residential property
Total loans per Dashboard
1
2

D1

All other in RBNZ series S31 and the Dashboard comprises: Depository and other financial institutions, Central and Local Government, Non-profit institutions serving households.
Household exposures (resident and non-resident) in Note 15 Financial Risk Management (Concentrations of Credit Risk) on page 32 comprise Housing and Consumer.

The Supplementary Information does not form part of the Disclosure Statement83