ANZ Bank New Zealand Limited(formerly ANZ National Bank Limited)

Disclosure Statement
FOR THE YEAR ENDED 30 SEPTEMBER 2012 | NUMBER 67 ISSUED NOVEMBER 2012

ANZ Bank New Zealand Limited

Disclosure Statement
For the year ended 30 September 2012

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

General Disclosures
1
4
5
5
6
7
8
9
75
76
79
80
82

Glossary of Terms
In this Disclosure Statement unless the context
otherwise requires:(a) “Bank” means ANZ Bank New Zealand Limited;(b) “Banking Group” means ANZ Bank New Zealand
Limited and all its subsidiaries;(c) “Immediate Parent Company” means ANZ Holdings(New Zealand) Limited;(d) “Ultimate Parent Bank” means Australia and New
Zealand Banking Group Limited;(e) “Overseas Banking Group” means the worldwide
operations of Australia and New Zealand Banking
Group Limited including its subsidiaries;(f) “New Zealand business” means all business,
operations, or undertakings conducted in or fromNew Zealand identified and treated as if it wereconducted by a company formed and registered in
New Zealand;(g) “NZ Branch” means the New Zealand business of
the Ultimate Parent Bank;(h) “ANZ New Zealand” means the New Zealandbusiness of the Overseas Banking Group;(i) “Registered
Office”
is
Level
10,
170-186
Featherston Street, Wellington, New Zealand, whichis also the Banking Group’s address for Service;(j) “RBNZ” means the Reserve Bank of New Zealand;(k) “APRA” means the Australian Prudential Regulation
Authority;(l) “the Order” means the Registered Bank DisclosureStatements (New Zealand Incorporated Registered
Banks) Order (No 2) 2012; and(m) Any term or expression which is defined in, or in themanner prescribed by, the Order shall have themeaning given in or prescribed by the Order.

General Matters
The Disclosure Statement has been issued in accordancewith the Order.
The Bank is incorporated under the Companies Act
1993. The Bank changed its name to ANZ Bank New
Zealand Limited from ANZ National Bank Limited on 29
October 2012.
The Bank is wholly owned by its Immediate Parent
Company and ultimately by the Ultimate Parent Bank.
The Immediate Parent Company of the Bank isincorporated in New Zealand and owned by ANZ Funds
Pty Limited and the Ultimate Parent Bank (bothincorporated in Australia). The address for service for
the Ultimate Parent Bank is ANZ Centre Melbourne,
Level 9, 833 Collins Street, Docklands, Victoria 3008,
Australia.
The Immediate Parent Company has the power underthe Bank’s Constitution to appoint any person as a
Director of the Bank either to fill a casual vacancy or as
an additional Director or to remove any person from theoffice of Director, from time to time by giving written
notice to the Bank. No appointment of a new Director
may occur unless the RBNZ confirms that it does not
object to the appointment.

Material Financial Support
In accordance with requirements issued by APRA
pursuant to its Prudential Standards, the Ultimate
Parent Bank may not provide material financial support
to the Bank contrary to the following:•
the Ultimate Parent Bank should not undertake any
third party dealings with the prime purpose of
supporting the business of the Bank;•
the Ultimate Parent Bank should not hold unlimited
exposures (should be limited as to specified timeand amount) in the Bank (e.g. not provide a generalguarantee covering any of the Bank’s obligations);•
the Ultimate Parent Bank should not enter into crossdefault clauses whereby a default by the Bank on an
obligation (whether financial or otherwise) isdeemed to trigger a default of the Ultimate Parent
Bank in its obligations;•
the Board of the Ultimate Parent Bank indetermining limits on acceptable levels of exposure
to the Bank should have regard to:•
the level of exposure that would be approved tothird parties of broadly equivalent credit status.
In this regard, prior consultation (and in somecases approval) is required before entering
exceptionally large exposures;•the impact on the Ultimate Parent Bank’s
capital and liquidity position and its ability tocontinue operating in the event of a failure by
the Bank; and•the level of exposure to the Bank not exceeding:•
50% on an individual exposure basis; and•150% in aggregate (being exposures to all
similar regulated entities related to the
Ultimate Parent Bank)of the Ultimate Parent Bank’s capital base.

ANZ Bank New Zealand Limited

2

General Disclosures
Changes in credit ratings over the last two years

Additionally, the Ultimate Parent Bank may not provide
material financial support in breach of the Australian
Banking Act (1959). This requires APRA to exercise its
powers and functions for the protection of a bank’s
depositors and in the event of a bank becoming unable
to meet its obligations or suspending payment, theassets of the bank in Australia shall be available to meetthat bank’s deposit liabilities in Australia in priority to allother liabilities of the bank.

On 27 May 2011, Moody’s downgraded the Bank’s longterm senior unsecured debt and deposit ratings fromAa2 outlook negative to Aa3 outlook stable. This
followed a similar one notch downgrade on the Ultimate
Parent Bank and other major Australian banks.
On 1 December 2011, Standard and Poor’s downgraded
the Bank’s long-term senior unsecured debt and deposit
ratings from AA outlook stable to AA- outlook stable.
This followed a similar one notch downgrade on the
Ultimate Parent Bank and other major Australian banks.

The Ultimate Parent Bank has not provided material
financial support to the Bank contrary to any of theabove requirements.

On 30 January 2012, Fitch changed the outlook on the
Bank’s long-term senior unsecured debt and deposit
ratings from positive to negative.
This occurred
simultaneously to a similar change in the outlook ofratings of the Ultimate Parent Bank and other major
Australian banks. This was followed by a change inoutlook from negative to stable on 24 February 2012.

Credit Rating Information
As at 21 November 2012 the Bank has three credit
ratings, which are applicable to its long-term seniorunsecured obligations which are payable in New Zealandin New Zealand dollars.
The Bank’s Credit Ratings are:Rating Agency
Standard & Poor’s

Current Credit
Rating
Qualification
AAOutlook Stable

Moody’s Investors Service

Aa3

Outlook Stable

Fitch Ratings

AA-

Outlook Stable

There were no other changes to the Bank’s credit ratingsor qualifications during the two years ended 30
September 2012.

The following table describes the credit rating grades available:
Standard & Poor's

Moody's InvestorsService

Fitch Ratings

The following grades display investment grade characteristics:
Ability to repay principal and interest is extremely strong. Thisis 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 althoughsomewhat susceptible to adverse changes in economic,
business or financial conditions.

A

A

A

Adequate ability to repay principal and interest. Morevulnerable to adverse changes.

BBB

Baa

BBB

The following grades have predominantly speculative characteristics:
Significant uncertainties exist which could affect the paymentof principal and interest on a timely basis.

BB

Ba

BB

Greater vulnerability and therefore greater likelihood of
default.

B

B

B

CCC

Caa

CCC

CC to CCa to CCC to CD-

RD & D

Likelihood of default now considered high. Timely repayment ofprincipal and interest is dependent on favourable financial
conditions.
Highest risk of default.
Obligations currently in default.

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

ANZ Bank New Zealand Limited

3

General Disclosures
Guarantors
Crown Wholesale Guarantee
As at the date of signing this Disclosure Statement the
Banking Group has debt securities with a carrying value
at 30 September 2012 of $205 million for which the
Crown has issued a Guarantee Eligibility Certificate
under the New Zealand Wholesale Funding Guarantee
Facility (“Crown Wholesale Guarantee”), copies of which
are available on the Treasury website treasury.govt.nz.
The Treasury’s address for service is Level 5, 1 The
Terrace, Wellington. New Zealand.
The Crown Wholesale Guarantee was provided under the
Crown Wholesale Funding Guarantee Deed entered intoby the Crown and the Bank on 23 December 2008 andsupplemented on 19 February 2009 (“Wholesale Deed”).
The Government closed the Crown Wholesale Guarantee
to new debt securities on 30 April 2010. The closure did
not affect debt securities previously issued with thebenefit of the Crown Wholesale Guarantee.
If a Guarantee Eligibility Certificate was issued in
respect of debt securities, the Crown (subject to any
special conditions specified in a Guarantee Eligibility
Certificate and provided the debt securities are notvaried,amended,waived,released,novated,supplemented, extended or restated in any respect
without the prior written consent of the Crown) has
irrevocably:a)b)guaranteed the payment by the Bank of any liabilityof the Bank to pay principal and interest (excluding
any penalty interest or other amount only payable
following a default) in respect of the debt securities;
andundertaken that if the Bank does not pay any suchliability on the date on which it becomes due andpayable, the Crown shall, within five Business Daysof a demand being made in accordance with the
Wholesale Deed and following the expiry of any
applicable grace period, pay such liability.

The Crown Wholesale Guarantee does not extend to
debt securities held by a Related Party (as defined in the
Wholesale Deed) of the Bank.
In the event of a claim made on the Crown, the Crown
will only pay the interest and principal due to theholders of debt securities on the originally scheduled
dates for payment of interest and principal.
The Crown’s obligations in respect of any debt security
terminate on the date falling 30 days after the earlier of:a)the scheduled maturity date for the debt security
under which the guaranteed liability arises; andb)the date falling five years after the date of issue ofthe debt security under which the guaranteed
liability arises,

unless valid demand has been made on the Crown prior
to that time.
Any demand on the Crown in respect of debt securities
for which the Crown has issued a Guarantee Eligibility
Certificate must be made in the prescribed form anddelivered by hand to the Minister of Finance, Parliament
Buildings, Wellington, New Zealand or to one of theother addresses specified in the Wholesale Deed.

Further Information about the Crown Wholesale
Guarantee
Further information about the Crown Wholesale
Guarantee, including a copy of the Wholesale Deed, andany Guarantee Eligibility Certificate issued by the Crown
in respect of the Bank, is available on The Treasury
website at treasury.govt.nz.
Further information about the Crown, including a copy ofits most recent audited financial statements can beobtained at treasury.govt.nz.
The Crown's foreign currency credit ratings are:Rating Agency
Standard & Poor’s

Current Credit
Rating
Qualification
AA
Outlook Stable

Moody’s Investors Service

Aaa

Outlook Stable

Fitch Ratings

AA

Outlook Stable

The Crown's domestic currency credit ratings are:Rating Agency
Standard & Poor’s

Current Credit
Rating
Qualification
AA+
Outlook Stable

Moody’s Investors Service

Aaa

Outlook Stable

Fitch Ratings

AA+

Outlook Stable

The Crown’s credit ratings are available on the New
Zealand
Debt
Management
Officewebsitenzdmo.govt.nz. On 22 November 2010 Standard &Poor’s changed the outlook on the Crown’s foreign
currency credit rating from stable to negative. On 29
and 30 September 2011 Fitch and Standard & Poor’s,
respectively, downgraded the Crown’s long term foreign
currency ratings from AA+ (Outlook Negative) to AA(Outlook Stable) and its local currency ratings from AAA(Outlook Negative) to AA+ (Outlook Stable). There
have been no other changes to the Crown’s long-term
foreign-currency and domestic debt credit ratings in the
two years immediately before the date of signing thisDisclosure Statement.
ANZNZ Covered Bond Trust
Certain debt securities (“Covered Bonds”) issued by the
Bank or its wholly owned subsidiary, ANZ New Zealand(Int’l) Limited, are guaranteed by ANZNZ Covered Bond
Trust Limited (the “Covered Bond Guarantor”), solely in
its capacity as trustee of ANZNZ Covered Bond Trust.
The Covered Bond Guarantor has guaranteed thepayment of interest and principal of Covered Bonds witha carrying value as at 30 September 2012 of $2,962
million, pursuant to a guarantee which is secured over apool of assets. The Covered Bond Guarantor’s addressfor service is Level 10, 141 Willis Street, Wellington,
New Zealand. The Covered Bond Guarantor is not amember of the Banking Group and has no credit ratings
applicable to its long term senior unsecured obligations
payable in New Zealand dollars. The Covered Bonds
have been assigned a long term rating of Aaa and AAA
by Moody’s Investors Service and Fitch Ratings
respectively. Details of the pool of assets that secure
this guarantee are provided in Note 37.

ANZ Bank New Zealand Limited

4

Summary of Financial Statements
Banking Group$ millions

Year toYear toYear toYear toYear to30/09/2012

30/09/2011

30/09/2010

30/09/2009

30/09/2008

Interest income

6,017

6,179

5,876

7,345

9,857

Interest expense

3,335

3,620

3,457

4,892

7,568

Net interest income

2,682

2,559

2,419

2,453

2,289

Other operating income

1,006

856

744

663

1,124

Operating income

3,688

3,415

3,163

3,116

3,413

Operating expenses

1,742

1,686

1,565

1,477

1,444

193

178

436

874

302

1,753

1,551

1,162

765

1,667

428

452

335

467

504

1,325

1,099

827

298

1,163

(1,150)

(700)

(600)

(1,000)

-

As at

As at

As at

As at

As at

30/09/2012

30/09/2011

30/09/2010

30/09/2009

30/09/2008

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

Dividends paid

Banking Group$ millions

Total impaired assets

1,366

1,726

2,004

1,178

327

Total assets

121,449

121,440

116,458

117,891

122,915

Total liabilities

110,517

110,615106,012

107,803

113,108

-

-

1

-

-

10,932

10,825

10,446

10,0889,807

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

ANZ Bank New Zealand Limited

5

Income Statements
Banking Group$ millions
Note

Bank

Year toYear toYear toYear to30/09/2012

30/09/2011

30/09/2012

30/09/2011

Interest income

4

6,017

6,179

6,292

6,393

Interest expense

5

3,335

3,620

3,964

4,194

Net interest income

2,682

2,559

2,328

2,199

Net trading gains

4

131

228

129

175

Net funds management and insurance income

4

298

265

69

69

Other operating income

4

573

359

839

620

4

4

-

-

3,688

3,415

3,365

3,063

1,742

1,686

1,611

1,528

1,946

1,729

1,754

1,535

193

178

187

174

1,753

1,551

1,567

1,361

428

452

347

329

1,325

1,099

1,220

1,032

Year toYear toYear toYear to30/09/2012

30/09/2011

30/09/2012

30/09/2011

1,325

1,099

1,220

1,032

46

72

49

58

Realised losses / (gains) transferred to the income statement

(95)

(38)

(99)

4

Actuarial loss on defined benefit schemes

(25)

(64)

(25)

(64)

6

11

6

3

1,257

1,080

1,151

1,033

Share of associates' profit
Operating income
Operating expenses

5

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

15

Profit before income tax
Income tax expense
Profit after income tax

6

Statements of Comprehensive Income
Banking Group$ millions

Profit after income tax
Unrealised gains recognised directly in equity

Income tax credit on items recognised directly in equity
Total comprehensive income for the year

Bank

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

ANZ Bank New Zealand Limited

6

Statements of Changes in Equity
Banking Group$ millions

As at 1 October 2010

Available-forOrdinary share sale revaluation
capitalreserve

Cash flow
hedging
reserve

Retainedearnings

Total equity
attributable toowners of the Non-controllingBankinterests

Total equity

6,943

58

102

3,342

10,445

1

10,446

Profit after income tax
Unrealised gains recognised directly inequityRealised losses / (gains) transferred to theincome statement

-

-

-

1,099

1,099

-

1,099

-

21

51

-

72

-

72

-

(42)

4

-

(38)

-

(38)

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

-

-

-

(64)

(64)

-

(64)

-

9

(16)

18

11

-

11

Total comprehensive income for the year

-

(12)

39

1,053

1,080

-

1,080

Ordinary dividend paid

-

-

-

(700)

(700)

-

(700)

Movement in non-controlling interests

-

-

-

-

-

(1)

(1)

6,943

46

141

3,695

10,825-

10,825

Profit after income tax
Unrealised gains recognised directly inequityRealised gains transferred to the income
statement

-

-

-

1,325

1,325

-

1,325

-

34

12

-

46

-

46

-

(83)

(12)

-

(95)

-

(95)

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

-

-

-

(25)

(25)

-

(25)

-

-

-

6

6

-

6

Total comprehensive income for the year

-

(49)

-

1,306

1,257

-

1,257

Ordinary dividend paid

-

-

-

(1,150)(1,150)-(1,150)

6,943

(3)

141

3,851

10,932-

10,932

Total equity
attributable to
Retained owners of the Non-controlling
earnings
Bank
interests

Total equity

As at 30 September 2011

As at 30 September 2012

Bank$ millions

As at 1 October 2010

Available-forOrdinary share sale revaluation
capitalreserve

Cash flow
hedging
reserve

6,943

39

102

2,787

9,871

-

9,871

Profit after income tax
Unrealised gains recognised directly inequityRealised losses transferred to the income
statement

-

-

-

1,032

1,032

-

1,032

-

7

51

-

58

-

58

-

-

4

-

4

-

4

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

-

-

-

(64)

(64)

-

(64)

-

1

(16)

18

3

-

3

Total comprehensive income for the year

-

8

39

986

1,033

-

1,033

Ordinary dividend paid

-

-

-

(700)

(700)

-

(700)

6,943

47

141

3,073

10,204-

10,204

Profit after income tax
Unrealised gains recognised directly inequityRealised gains transferred to the income
statement

-

-

-

1,220

1,220

-

1,220

-

37

12

-

49

-

49

-

(87)

(12)

-

(99)

-

(99)

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

-

-

-

(25)

(25)

-

(25)

-

-

-

6

6

-

6

Total comprehensive income for the year

-

(50)

-

1,201

1,151

-

1,151

Ordinary dividend paid

-

-

-

(1,150)(1,150)-(1,150)

6,943

(3)

141

3,124

10,205-

10,205As at 30 September 2011

As at 30 September 2012

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

ANZ Bank New Zealand Limited

7

Balance Sheets
Banking Group$ millions

Note

Bank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

AssetsLiquid assets

8

2,831

2,455

2,815

2,443

Due from other financial institutions

9

1,722

4,629

1,722

4,629

Trading securities

10

12,3389,466

12,3389,466

Derivative financial instruments

11

12,753

15,635

12,78815,678Current tax assets

15

-

79

-

Available-for-sale assets

12

57

411

54

375

Net loans and advances

13

86,67883,61084,31981,306Due from subsidiaries

26

-

-

11,61911,753

Investments backing insurance policy liabilities

142

97

-

-

Insurance policy assets

301

200

-

-

Investments in subsidiaries and associates

16

99

100

6,609

6,609

Other assets

17

592

863

611

883

Deferred tax assets

18

93

139

185

230

323

325

74

89

3,505

3,510

3,317

3,298

Total assets

121,449

121,440

136,530

136,759

Interest earning and discount bearing assets

103,341

99,158112,461

107,607

Premises and equipment
Goodwill and other intangible assets

19

Liabilities
Due to other financial institutions

20

1,759

3,711

1,555

3,711

Deposits and other borrowings

21

73,652

69,23866,731

63,007

Due to subsidiaries

26

-

-

37,94037,716

Due to Immediate Parent Company

26

740

174

740

174

Derivative financial instruments

11

13,93015,11813,93015,118

Payables and other liabilities

22

1,685

2,654

1,469

2,461

-

17

-

36

Current tax liabilities
Provisions

23

339

309

292

271

Bonds and notes

24

17,244

17,406

2,500

2,073

Loan capital

25

1,168

1,988

1,168

1,988

110,517

110,615

126,325

126,555

10,932

10,825

10,205

10,204

6,943

6,943

6,943

6,943

138

187

138

188

3,851

3,695

3,124

3,073

Total equity

10,932

10,825

10,205

10,204

Interest and discount bearing liabilities

89,29987,844

105,017

103,916

Total liabilities
Net assets
EquityOrdinary share capital

28

Reserves
Retained earnings

For and on behalf of the Board of Directors:

John Judge
Chairman21 November 2012

David Hisco
Executive Director
21 November 2012

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

ANZ Bank New Zealand Limited

8

Cash Flow Statements
Banking Group
Note

Bank

Year toYear toYear toYear to30/09/2012

30/09/2011

30/09/2012

30/09/2011

5,991

6,074

6,262

6,231

4

4

205

183

Net funds management & insurance income

196

203

69

69

Fees and other income received

645

671

722

751

Interest paid

(3,301)(3,573)(3,921)(4,158)Operating expenses paid

(1,615)(1,631)(1,549)(1,439)

Income taxes paid

(408)

(226)

(411)

(155)

Cash flows from operating activities before changes inoperating assets and liabilities

1,512

1,522

1,377

1,482

$ millions

Cash flows from operating activities
Interest received
Dividends received

Net changes in operating assets and liabilities:
Change in due from other financial institutions - term
Change in trading securities
Change in derivative financial instruments

264

447

264

359

(3,761)(1,695)(3,770)(1,751)2,000(1,329)1,723(1,635)

Change in available-for-sale assets

391

1,745

361

1,697

Change in insurance investment assets

(44)

(10)

-

-

(5,777)(39)(5,714)

(122)

2,397

1,915

2,397

1,915

-

-

134

(2,710)Change in loans and advances
Proceeds from sale of loans and advances to NZ Branch
Change in due from subsidiaries
Change in due to subsidiaries
Change in other assets

-

-

370

(79)

87

166

(16)

167

Change in due to other financial institutions(1,952)

1,531(2,156)

1,531

Change in deposits and other borrowings

3,813(1,570)

3,647

1,260

37

(55)

37

(236)

(2,545)1,106(2,723)396(1,033)

2,628(1,346)

1,878

3Change in payables and other liabilities
Net changes in operating assets and liabilities
Net cash flows provided by / (used in) operating
activities

34

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

5

49

4

11

20

-

-

-

-

-

819

Purchase of intangible assets

(40)

(54)

(39)

(52)

Purchase of premises and equipment

(55)

(65)

(12)

(24)

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

(79)

(50)

(47)

746

Proceeds from sale of intangible assets
Proceeds from redemption of shares in subsidiaries

Cash flows from financing activities
Proceeds from issue of bonds and notes
Redemptions of bonds and notes
Redemptions of loan capital
Change in due to subsidiaries - term
Change in funding from Immediate Parent Company
Distributions to non-controlling interests

5,678

3,992

800

800

(5,445)(3,687)

(290)

(490)

(816)

(405)

(816)

(405)

-

-

-

11

566

180

566

180

-

(1)

-

-

Dividends paid

(1,150)(700)(1,150)(700)

Net cash flows used in financing activities(1,167)

(621)

(890)

(604)

Net increase / (decrease) in cash and cash equivalents(2,279)1,957(2,283)

2,020

5,534

3,577

5,522

3,502

3,255

5,534

3,239

5,522

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

34

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

ANZ Bank New Zealand Limited

9Notes to the Financial Statements
1. Significant Accounting Policies(a) Basis of preparation(i)Statement of compliance

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

Use of estimates and assumptions

Preparation of the financial statements requires theuse of management judgement, estimates andassumptions that affect reported amounts and theapplication of policies. The estimates and associatedassumptions are based on historical experience andvarious other factors that are believed to bereasonable. Actual results may differ from theseestimates.
Discussion of the critical accounting estimates, which
includecomplexor
subjective
decisionsorassessments, are covered in Note 2. Such estimates
will require review in future periods.

(v)

The amounts contained in the financial statements
have been rounded to the nearest million dollars,
except where otherwise stated.
(vi) Comparatives
Certain amounts in the comparative information havebeen reclassified to ensure consistency with thecurrent
year'spresentation.
This
includesreclassifying:•collateral received of $1,475 million fromderivative financial instruments asset to due toother financial institutions;•collateral paid of $944 million from derivative
financial instruments liability to due from otherfinancial institutions.

The comparative figures in the cash flow statements
and notes to the financial statements relating to these
items have reclassified accordingly.
(vii)

•

derivative financial instruments, including in thecase of fair value hedging, the fair value
adjustment on the underlying hedged exposure;•available-for sale financial assets;•financial instruments held for trading;•financial instruments designated at fair value
through profit and loss.

Insurance policy assets are measured using the
Margin on Services model, and defined benefit
obligations are measured using the Projected Unit
Credit method.
(iv) Changes
inaccounting
policiesandapplication of new accounting standards
The accounting policies adopted by the Banking
Group are consistent with those adopted anddisclosed in the prior period. The Banking Group has
applied, where relevant, all new or revised NZ IFRSs
and NZ IFRS Interpretations applicable to the year
ended 30 September 2012. The initial application ofthese standards and interpretations has only resulted
in changes to disclosures.

Principles of consolidation

Subsidiaries
The consolidated financial statements of the Banking
Group comprise the financial statements of the Bankand all its subsidiaries where it is determined that
there is capacity to control.
Control means the power to govern, directly or
indirectly, the financial and operating policies of anentity so as to obtain benefits from its activities. Allof the facts of a particular situation are consideredwhen determining whether control exists. Control isusually present when an entity has:•power over more than one-half of the voting
rights of the other entity;•

power to govern the financial and operating
policies of the other entity;•

power to appoint or remove the majority of themembers of the board of directors or equivalent
governing body; or•

power to cast the majority of votes at meetingsof the board of directors or equivalent governing
body of the entity.

(iii) Basis of measurement
The financial statements have been prepared inaccordance with the historical cost basis except thatthe following assets and liabilities are stated at theirfair value:

Rounding

In addition, potential voting rights that are presently
exercisable or convertible are taken into account indetermining whether control exists.
In relation to special purpose entities control isdeemed to exist where:•in substance, the majority of the residual risks
and rewards from their activities accrue to the
Banking Group; or•in substance, the Banking Group controls
decision making powers so as to obtain the
majority of the risks and rewards from theiractivities.

Where subsidiaries have been sold or acquired during
the year, their operating results have been included
to the date of disposal or from the date of acquisition.

ANZ Bank New Zealand Limited

10Notes to the Financial Statements
Associates and joint ventures
The Banking Group adopts the equity method of
accounting for associates and the Banking Group's
interest in joint ventures.
The Banking Group’s share of results of associates
and joint ventures is included in the consolidated
income statement. Shares in associates and joint
venture entities are carried in the consolidatedbalance sheet at cost plus the Banking Group’s shareof post acquisition net assets. Interests in associates
and joint ventures are reviewed for any indication of
impairment at least at each reporting date. This
impairment review may use a discounted cash flow
methodology and other methodologies to determine
the reasonableness of the valuation.
In the Bank’s financial statements investments in
subsidiaries, associates and joint ventures are carriedat cost less accumulated impairment losses.
(viii)

Foreign currency translation

Functional and presentation currency
Items included in the financial statements of each of
the Banking Group’s entities are measured using thecurrency of the primary economic environment inwhich the entity operates (the functional currency).
The Banking Group’s financial statements arepresented in New Zealand dollars, which is the
Banking
Group’sfunctionalandpresentation
currency.
Foreign currency transactions
Foreign currency transactions are translated into thefunctional currency using the exchange rates
prevailing at the dates of the transactions. Monetary
assets and liabilities resulting from foreign currencytransactions are subsequently translated at the spot
rate at reporting date.
Exchange differences arising on the settlement ofmonetary items or on translating monetary items at
rates different to those at which they were initiallyrecognised or included in a previous financial report,
are recognised in the income statement in the period
in which they arise.
Translation differences on non-monetary items
measured at fair value through profit or loss arereported as part of the fair value gain or loss on these
items.
Translation differences on non-monetary items
measured at fair value through equity, such as
equities classified as available-for-sale financial
assets, are included in the available-for-salerevaluation reserve in equity.

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

Fees and commissions received that are integral tothe effective interest rate of a financial asset arerecognised using the effective interest method. For
example, loan commitment fees, together withrelated direct costs, are deferred and recognised as
an adjustment to the effective interest rate on a loan
once drawn. Commitment fees to originate a loan
which is unlikely to be drawn down are recognised asfee income as the service is provided.
Fees and commissions that relate to the execution ofa significant act (for example, advisory services orarrangement
services,
placementfeesandunderwriting fees) are recognised when thesignificant act has been completed.
Fees charged for providing ongoing services (forexample, maintaining and administering existing
facilities) are recognised as income over the period
the service is provided.
(iii) Dividend income
Dividends are recognised as revenue when the rightto receive payment is established.
(iv) Gain or loss on sale of assets
The gain or loss on the disposal of assets isdetermined as the difference between the carrying
amount of the assets at the time of disposal and theproceeds of disposal, and is recognised as an item ofother income in the period in which the significant
risks and rewards of ownership are transferred to thebuyer.
(c) Expense recognition
Expenses are recognised in the income statement on
an accruals basis.
(i)

(i)

Interest income

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

Interest expense

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

Loan origination expenses

Certain loan origination expenses are an integral partof the effective interest rate of a financial asset
measured at amortised cost. These loan origination
expenses include:•

fees and commissions payable to brokers andcertain customer incentive payments in respectof originating lending business; and•other expenses of originating lending business,such as external legal costs and valuation fees,
provided these are direct and incremental costs
related to the issue of a financial asset.

(b) Income recognition
Income is recognised to the extent that it is probablethat economic benefits will flow to the Banking Groupand that revenue can be reliably measured.

Fee and commission income

Such loan origination expenses are initially recognisedas part of the cost of acquiring the financial asset andamortised as part of the expected yield of thefinancial asset over its expected life using theeffective interest method.
(iii) Lease payments
Leases entered into by the Banking Group as lessee
are predominantly operating leases, and the

ANZ Bank New Zealand Limited

11

Notes to the Financial Statements
operating lease payments are recognised as an
expense on a straight-line basis over the lease term.
(d) Income tax(i)Financial assets(i)

Income tax expense

Income tax on earnings for the year comprises
current and deferred tax and is based on theapplicable tax law. It is recognised in the income
statement as tax expense, except when it relates toitems credited directly to equity, in which case it isrecorded in equity, or where it arises from the initialaccounting for a business combination, in which case
it is included in the determination of goodwill.
(ii)(e) Assets

Current tax

Current tax is the expected tax payable on taxable
income for the year, based on tax rates (and taxlaws) which are enacted or substantively enacted by
the reporting date and including any adjustment for
tax payable in previous periods. Current tax for
current and prior periods is recognised as a liability(or asset) to the extent that it is unpaid (orrefundable).

Financial assets and liabilities at fair value
through profit or loss

Trading securities are financial instruments acquired
principally for the purpose of selling in the short-termor which are a part of a portfolio which is managed
for short-term profit-taking. Trading securities are
initially recognised and subsequently measured in thebalance sheet at their fair value.
Derivatives that are neither financial guarantee
contracts nor effective hedging instruments arecarried at fair value through profit or loss.
In
addition, certain financial assets and liabilities aredesignated and measured at fair value through profit
or loss where the following applies:•

investments backing insurance policy liabilities;•

doing so eliminates or significantly reduces ameasurement or recognition inconsistency thatwould otherwise arise from measuring assets
and liabilities, or recognising the gains or losses
thereon, on different bases;(iii) Deferred tax
Deferredtax
isaccounted
for
using
the
comprehensive tax balance sheet method.
It isgenerated by providing for temporary differences
between the carrying amounts of assets and liabilities
for financial reporting purposes and their tax base.

•a group of financial assets or financial liabilities
or both is managed and its performance
evaluated on a fair value basis; or•Deferred tax assets, including those related to the tax
effects of income tax losses and credits available tobe carried forward, are recognised only to the extent
that it is probable that future taxable profits will beavailable against which the deductible temporary
differences or unused tax losses and credit can beutilised.

the financial instrument contains an embedded
derivative, unless the embedded derivative does
not significantly modify the cash flows or it isclear, with little or no analysis, that it would not
be separately recorded.

Changes in the fair value (gains or losses) of thesefinancial instruments are recognised in the income
statement in the period in which they occur.

Deferred tax liabilities are recognised for all taxable
temporary differences, other than those relating totaxable temporary differences arising from goodwill.
They are also recognised for taxable temporary
differences arising on investments in subsidiaries,
branches, associates and joint ventures, except
where the Banking Group is able to control thereversal of the temporary differences and it isprobable that the temporary differences will notreverse in the foreseeable future. Deferred tax assets
associated with these interests are recognised only tothe extent that it is probable that the temporary
difference will reverse in the foreseeable future andthere will be sufficient taxable profits against which toutilise the benefits of the temporary difference.
Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply to the period(s)when the asset and liability giving rise to them arerealised or settled, based on tax rates and tax lawsthat have been enacted or substantively enacted by
the reporting date. The measurement reflects the tax
consequences that would follow from the manner inwhich the Banking Group, at the reporting date,recovers or settles the carrying amount of its assets
and liabilities.
(iv) Offsetting
Current and deferred tax assets and liabilities areoffset only to the extent that they relate to income
taxes imposed by the same taxation authority, there
is a legal right and intention to settle on a net basis
and it is allowed under the tax law of the relevant
jurisdiction.

Purchases and sales ofrecognised on trade date.
(ii)

tradingsecurities

areDerivative financial instruments

Derivative financial instruments are contracts whose
value is derived from changes in one or more
underlying price index or other variable, require little
or no initial net investment and are settled at a later
date. They include swaps, forward rate agreements,
futures,
options
andcombinationsof
these
instruments.
Derivative financial instruments are entered into for
trading
purposes(including
customer-related
reasons) or for hedging purposes (where thederivative instruments are used to hedge the Banking
Group’s exposures to interest rate risk, currency risk,
price risk, credit risk and other exposures relating to
non-trading positions).
Derivative financial instruments are recognised
initially at fair value with gains or losses from
subsequent measurement at fair value being
recognised in the income statement. Included in thedetermination of fair value of derivatives is a credit
valuation adjustment to reflect the credit worthinessof the counterparty. The valuation adjustment is
influenced by the mark-to-market of the derivativetrades and by the movement in credit spreads.
Where the derivative is designated and is effective asa hedging instrument, the timing of the recognition of
any resultant gain or loss in the income statement isdependent on the hedging designation.
These
hedging designations and associated accounting are
as follows:ANZ Bank New Zealand Limited

12

Notes to the Financial Statements
Fair value hedge
Where the Banking Group hedges the fair value of arecognised asset or liability or firm commitment,changes in the fair value of the derivative designatedas a fair value hedge are recognised in the income
statement. Changes in the fair value of the hedged
item attributable to the hedged risk are reflected inadjustments to the carrying value of the hedged item,
which are also recognised in the income statement.
Hedge accounting is discontinued when the hedge
instrument expires or is sold, terminated, exercisedor no longer qualifies for hedge accounting. The
resulting adjustment to the carrying amount of thehedged item arising from the hedged risk is amortised
to the income statement over the period to maturityof the hedged item. If the hedged item is sold or
repaid, the unamortised fair value adjustment isrecognised immediately in the income statement.
Cash flow hedge
The Banking Group designates derivatives as cash
flow hedges where the instrument hedges thevariability in cash flows of a recognised asset or
liability, a foreign exchange component of a firm
commitment,orahighlyprobable
forecasttransaction. The effective portion of changes in thefair value of derivatives qualifying and designated as
cash flow hedges is deferred to the hedging reserve,
which forms part of shareholders’ equity.
Anyineffective portion is recognised immediately in theincome statement. Amounts deferred in equity arerecognised in the income statement in the period
during which the hedged forecast transactions takeplace.
When the hedge expires, is sold, terminated,
exercised, or no longer qualifies for hedge accounting,the cumulative amount deferred in equity remains in
the hedging reserve, and is subsequently transferredto the income statement when the hedged item isrecognised in the income statement.
When a forecast hedged transaction is no longer
expected to occur, the amount deferred in equity isrecognised immediately in the income statement.
Derivatives
accounting

that

do

not

qualify

for

hedge

All gains and losses from changes in the fair value ofderivatives that are not designated in a hedging
relationship but are entered into to manage theinterest rate and foreign exchange risk of funding
instruments are recognised in the income statement.
Under certain circumstances, the component of thefair value change in the derivative which relates tocurrent period realised and accrued interest is
included in net interest income. The remainder of thefair value movement is included in other income.
(iii) Available-for-sale assets
Available-for-sale assets comprise non-derivative
financial assets which the Banking Group designates
as available-for-sale but which are not deemed to beheld principally for trading purposes, and include
equity investments, certain loans and advances andquoted debt securities.
They are initially recognised at fair value plustransaction costs. Subsequent gains or losses arisingfrom changes in fair value are included as a separate
component of equity in the available-for-salerevaluation reserve. When the asset is sold, thecumulative gain or loss relating to the asset istransferred to the income statement.

Where there is objective evidence of impairment on
an available-for-sale asset, the cumulative loss
related to that asset is removed from equity andrecognised in the income statement, as an
impairment expense for debt instruments or as noninterest income for equity instruments.
If, in a
subsequent period, the amount of an impairment loss
relating to an available-for-sale debt instrument
decreases and the decrease can be linked objectively
to an event occurring after the impairment event, theloss is reversed through the income statement
through the impairment expense line.
Purchases and sales of available-for-sale financial
assets are recognised on trade date, being the dateon which the Banking Group commits to purchase or
sell the asset.
(iv) Net loans and advances
Loans and advances are non-derivative financial
assets with fixed or determinable payments that are
not quoted in an active market. They arise when the
Banking Group provides money to a debtor with nointention of trading the loans and advances. The
loans and advances are initially recognised at fairvalue plus transaction costs that are directly
attributable to the issue of the loan or advance. They
are subsequently measured at amortised cost using
the effective interest method, unless specificallydesignated on initial recognition at fair value throughprofit or loss.
All loans are graded according to the level of credit
risk.
Net loans and advances include direct financeprovided to customers such as bank overdrafts, credit
cards, term loans, finance lease receivables andcommercial bills.
Impairment of loans and advances
Loans and advances are reviewed at least at eachreporting date for impairment. Credit impairment
provisions are raised for exposures that are known to
be impaired. Exposures are impaired and impairment
losses are recorded if, and only if, there is objective
evidence of impairment as a result of one or more
loss events, that occurred after the initial recognitionof the loan and prior to the reporting date, and thatloss event, or events, has had an impact on theestimated future cash flows of the individual loan or
the collective portfolio of loans that can be reliably
estimated.
Impairment is assessed for assets that are
individually significant (or on a portfolio basis forsmall value loans) and then on a collective basis for
those exposures not individually known to be
impaired.
Exposures that are assessed collectively are placed inpools of similar assets with similar risk characteristics.
The required provision is estimated on the basis ofhistorical loss experience for assets with credit risk
characteristics similar to those in the collective pool.
The historical loss experience is adjusted based on
current observable data such as changed economic
conditions. The provision also takes account of the
impact of inherent risk of large concentrated losses
within the portfolio and an assessment of theeconomic cycle.
The estimated impairment losses are measured as thedifference between the asset’s carrying amount andthe estimated future cash flows discounted to theirpresent value. As this discount unwinds during theANZ Bank New Zealand Limited

13

Notes to the Financial Statements
period between recognition of impairment andrecovery of the cash flow, it is recognised in interest
income. The process of estimating the amount andtiming
of
cash
flows
involvesconsiderable
management judgement.
These judgements arereviewed regularly to reduce any differences between
loss estimates and actual loss experience.
Impairment of capitalised acquisition expenses isassessed through comparing the actual behaviour ofthe portfolio against initial expected life assumptions.
The provision for impairment loss (individual andcollective) is deducted from loans and advances in thebalance sheet and the movement for the reporting
period is reflected in the income statement.
When a loan is uncollectible, either partially or in full,
it is written off against the related provision for loan
impairment.
Unsecured facilities are normally
written-off when they become 180 days past due or
earlier in the event of the customer's bankruptcy orsimilar legal release from the obligation. However, acertain level of recoveries is expected after the writeoff, which is reflected in the amount of the provision
for credit losses. In the case of secured facilities,
remaining balances are written-off after proceedsfrom the realisation of collateral have been received,
if there is a shortfall.
Where impairment losses recognised in previous
periods have subsequently decreased or no longer
exist, such impairment losses are reversed in theincome statement.
A provision is also raised for off-balance sheet items
such as commitments that are considered likely toresult in an expected loss.
(v)

Lease receivables

Contracts to lease assets and hire purchaseagreements are classified as finance leases if theytransfer substantially all the risks and rewards ofownership of the asset to the customer or an
unrelated third party. All other lease contracts areclassified as operating leases.
(vi) Repurchase agreements
Securities sold under repurchase agreements are
retainedinthefinancialstatements
wheresubstantially all the risks and rewards of ownership
remain with the Banking Group, and a counterparty
liability is disclosed under the classifications of due toother financial institutions or payables and otherliabilities. The difference between the sale price andthe repurchase price is accrued over the life of the
repurchase agreement and charged to interest
expense in the income statement.
Securities purchased under agreements to resell,
where the Banking Group does not acquire the risks
and rewards of ownership, are recorded asreceivables in liquid assets, net loans and advances,or due from other financial institutions, depending on
the term of the agreement and the counterparty. The
security is not included in the balance sheet. Interest
income is accrued on the underlying loan amount.
Securities borrowed are not recognised in the balance
sheet, unless these are sold to third parties, at which
point the obligation to repurchase is recorded as afinancial liability at fair value with fair value
movements included in the income statement.
(vii) Derecognition
The Banking Group enters into transactions where it
transfers financial assets recognised on its balance

sheet yet retains either all the risks and rewards ofthe transferred assets or a portion of them. If all, or
substantially all, the risks and rewards are retained,
the transferred assets are not derecognised from thebalance sheet.
In transactions where substantially all the risks andrewards of ownership of a financial asset are neither
retained nor transferred, the Banking Groupderecognises the asset if control over the asset islost. In transfers where control over the asset isretained, the Banking Group continues to recognise
the asset to the extent of its continuing involvement,
determined by the extent to which it is exposed tochanges in the value of the transferred asset. The
rights and obligations retained or created in thetransfer are recognised separately as assets andliabilities as appropriate.
(viii) Investments
liabilities

backing

insurance

policySecurities held to back insurance and investment
contract liabilities are classified as insurance policy
assets. These insurance policy assets are designatedat fair value through profit or loss.
Non-financial assets(ix) Goodwill
Goodwill represents the excess of the purchaseconsideration over the fair value of the identifiable
net assets of a controlled entity at the date of gaining
control. Goodwill is recognised as an asset and notamortised, but is assessed for impairment at least
annually or more frequently if there is an indicationthat the goodwill may be impaired.
Where theassessment results in the goodwill balance exceeding
the value of expected future benefits, the difference ischarged to the income statement. Any impairment of
goodwill is not subsequently reversed.
(x)

Other intangible assets

Other intangible assets include costs incurred inacquiring and building software and computer
systems (“software”) and management rights andcustomer
relationships
acquiredinbusiness
combinations.
Software is amortised using the straight-line method
over its expected useful life to the Banking Group.
The period of amortisation is between 3 and 5 years,
except for certain core infrastructure projects where
the useful life has been determined to be 7 or 10
years.
Management rights and customer relationships,
including the value of in force insurance contracts,
are initially measured at fair value. Management
rights and customer relationships with a definite
useful life are amortised over the expected useful life.
Where management rights and customer relationships
do not have finite terms and the cash flows
associated with these management rights are
expected to continue indefinitely, the intangible
assets associated with these items are treated ashaving an indefinite useful life. Management rights
and customer relationships with an indefinite usefullife are not amortised.
At each reporting date, the software assets and otherintangible assets are reviewed for impairment. If any
such indication exists, the recoverable amount of theassets is estimated and compared against the existing
carrying value. Where the existing carrying value
exceeds the recoverable amount, the difference ischarged to the income statement.

ANZ Bank New Zealand Limited

14

Notes to the Financial Statements
Costs incurred in planning or evaluating software
proposals,orinmaintaining
systems
after
implementation, are not capitalised.
(xi) Premises and equipment
Premises and equipment are carried at cost lessaccumulated depreciation and impairment.
Borrowing costs incurred for the construction ofqualifying assets are capitalised during the period oftime that is required to complete and prepare theasset for its intended use.
The calculation ofborrowing costs is based on an internal measure of
the costs associated with the borrowing of funds.
Assets other than freehold land are depreciated at
rates based upon their expected useful lives to the
Banking Group, using the straight-line method. The
depreciation rates used for each class of asset are:
Buildings
Building integrals
Furniture & equipment
Computer & office equipment

1.5%
10%
10%
12.5 % - 33%

Leasehold improvements are amortised on a straightline basis over the shorter of their useful lives orremaining terms of the lease.
At each reporting date, the carrying amounts ofpremisesandequipment
arereviewedfor
impairment. If any such indication exists, therecoverable amount of the assets is estimated andcompared against the existing carrying value. Wherethe existing carrying value exceeds the recoverable
amount, the difference is charged to the income
statement.
If it is not possible to estimate therecoverable amount of an individual asset, theBanking Group estimates the recoverable amount of
the cash generating unit to which the asset belongs.
A previously recognised impairment loss is reversed if
there has been a change in the estimates used todetermine the recoverable amount.
(xii) Insurance policy assets / liabilities
Net insurance policy assets / liabilities include
liabilities arising from life investment contracts andassets / liabilities arising from life insurance
contracts.
Provisions for liabilities under life investment
contracts are measured at fair value. The provisionconsists of a deposit component, being a financial
instrument, which is recognised as an increase ininvestment contract liabilities, and an investment
management services element.
Fair value isdetermined as the net present value of fees, inrespect of the investment management service,discounted at the risk free rate.
Life insurance contract assets / liabilities are
determined using either a projection method or an
accumulation method. Using a projection method,
expected policy cash flows are projected into the
future. The asset / liability is determined as the netpresent value of the expected cash flows.
An
accumulation method is used where the policy assets/ liabilities determined are not materially different
from those determined under the projection method.
Profits from life insurance contracts are brought toaccount using the Margin on Services model, underwhich profit is recognised as premiums are received
and services are provided to policyholders. Where
premiums are received but the service has not been

provided, the profit is deferred. Losses are expensed
when identified.
(f)Liabilities
Financial liabilities(i)

Deposits and other borrowings

Deposits and other borrowings include certificates ofdeposit, interest bearing deposits, debentures,commercial paper and other related interest and noninterest bearing financial instruments. Deposits andother borrowings, excluding commercial paper, areinitially recognised at fair value plus transaction costs
and subsequently measured at amortised cost. Theinterest expense is recognised using the effective
interest method. Commercial paper is designated atfair value through profit or loss, with fair value
movements recorded directly in the income
statement, which reflects the basis on which it ismanaged.
(ii)

Bonds, notes and loan capital

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

Employee leave benefits

The amounts expected to be paid in respect of
employees’ entitlements to annual leave are accrued
at expected salary rates including on-costs. Liability
for long service leave is calculated and accrued for in
respect of all applicable employees (including oncosts) using an actuarial valuation. Expected future
payments for long service leave are discounted using
market yields at the reporting date on national
government bonds with terms to maturity that match,as closely as possible, the estimated future cash
outflows.
(vi) Provisions
The Banking Group recognises provisions when there
is a present obligation, the future sacrifice ofeconomic benefits is probable, and the amount of theprovision can be measured reliably.

ANZ Bank New Zealand Limited

15

Notes to the Financial Statements
The amount recognised is the best estimate of theconsideration required to settle the present obligation
at the reporting date, taking into account the risks
and uncertainties surrounding the obligation at thereporting date. Where a provision is measured using
the cash flows estimated to settle the present
obligation, its carrying amount is the present value of
those cash flows.

Certain cash flows have been netted in order toprovide more meaningful disclosure, as many of the
cash flows are received and disbursed on behalf ofcustomers and reflect the activities of the customers
rather than those of the Banking Group.
These
include customer loans and advances, customer
deposits, certificates of deposit, related party
balances and trading securities.

(g) Equity(iv) Segment reporting(iii) Reserves

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

Available-for-sale revaluation reserve(v)

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

Income, expenses and assets are recognised net ofthe amount of goods and services tax (“GST”) except
where the amount of GST incurred is not recoverablefrom the Inland Revenue Department (“IRD”). In
these circumstances, the GST is recognised as part ofthe cost of acquisition of the asset or as part of theexpense.

(i)

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

Non-controlling interests

Non-controlling interests represent the share in the
net assets of subsidiaries attributable to equity
interests not owned directly or indirectly by the Bank.

Receivables and payables are stated with the amountof GST included. The net amount of GST recoverable
from, or payable to, the IRD is included as otherassets or other liabilities in the balance sheet.

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

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

(h) Presentation(i)

Offsetting of income and expenses

Income and expenses are not offset unless requiredor permitted by an accounting standard.
This
generally arises in the following circumstances:

Goods and services tax

(i)

Other
(i)

Contingent liabilities•

where transaction costs form an integral part ofthe effective interest rate of a financial
instrument which is measured at amortisedcost, these are offset against the interest
income generated by the financial instrument;•

where gains and losses relating to fair value
hedges are assessed as being effective; or•where gains and losses arise from a group ofsimilar transactions, such as foreign exchange
gains and losses.

Other contingent liabilities are not recognised in thebalance sheet but disclosed in Note 36 unless it isconsidered remote that the Banking Group will be
liable to settle the possible obligation.

(ii)

Offsetting of financial assets and liabilities(ii)

Assets and liabilities are offset and the net amountreported in the balance sheet only where there is:•a current enforceable legal right to offset theasset and liability; and•an intention to settle on a net basis, or to
realise the asset and settle the liability
simultaneously.

(iii) Statement of cash flows
For cash flow statement presentation purposes, cash
and cash equivalents includes: cash on hand;deposits held at call with other financial institutions;and other short term, highly liquid, investments withoriginal terms of maturity of three months or less thatare readily convertible to cash and which are subject
to an insignificant risk of changes in value.

Contingent liabilities acquired in a businesscombination are individually measured at fair value atthe acquisition date. At subsequent reporting dates
the value of such contingent liabilities is reassessed
based on the estimate of expenditure required tosettle the contingent liability.

Accounting Standards not early adopted

The following standards and amendments wereavailable for early adoption but have not been appliedby the Banking Group in these financial statements.
The Banking Group currently does not intend to apply
any of these pronouncements until their effective dateand is assessing their impact on its financial
statements.
Standards and amendments effective
periods commencing after 1 January 2013for

NZ IFRS 10 Consolidated Financial Statements
Establishes a new approach to determining whichinvestees should be consolidated and provides asingle model to be applied in the control analysis for
all investors.
NZ IFRS 11 Joint Arrangements
Introduces a new approach to joint arrangements,
which focuses on the rights and obligations of the

ANZ Bank New Zealand Limited

16

Notes to the Financial Statements
arrangement rather than its legal form, and requires
the equity method of accounting for joint ventures.
NZ IFRS 12 Disclosure of Interests in Other Entities
Provides a single, consistent approach for disclosuresof all interests in subsidiaries, joint arrangements,
associates and unconsolidated structured entities.
NZ IFRS 13 Fair Value Measurement
Provides a single source of guidance on fair value
measurement and requires certain disclosures
regarding fair value.

Refer to Note 15 for details of credit impairment
provisions.

NZ IAS 27 (2011) Separate Financial Statements
Carries forward the existing accounting and disclosure
requirements for separate financial statements.

Management regularly reviews and adjusts theestimates and methodologies as improved analysis
becomes available. Changes in these assumptions
and methodologies could have a direct impact on thelevel of provision and impairment charge recorded in
the financial statements.

Standards and amendments effective
periods commencing after 1 January 2015

Critical judgements in applying the Banking
Group’s accounting policies

for

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

2.

provisioning is calculated using estimated future cash
flows discounted to their present value.
Themethodology and assumptions used for estimating
both the amount and timing of future cash flows arerevised regularly to reduce any differences between
loss estimates and actual loss experience.

Critical Estimates and Judgement Usedin Applying Accounting Policies
There are a number of critical accounting treatments
which include complex or subjective judgements andestimates that may affect the reported amounts ofassets and liabilities in the financial statements.
Estimates and judgements are continually evaluatedand are based on historical experience and otherfactors, including expectations of future events thatarebelievedtobereasonable
under
the
circumstances.
An explanation of the judgements and estimates
made by the Banking Group, in the process ofapplying its accounting policies, that have the mostsignificant effect on the amounts recognised in thefinancial statements are set out below.
Critical accounting estimates and assumptions
Credit provisioning
The accounting policy relating to measuring theimpairment of loans and advances requires the
Banking Group to assess impairment at least at eachreporting date.
The credit provisions raised(collective and individual) represent management's
best estimate of the losses incurred in the loan
portfolio at balance date based on their experienced
judgement.
The collective provision is estimated on the basis ofhistorical loss experience for assets with credit
characteristics similar to those in the collective pool.
The historical loss experience is adjusted based on
current observable data and events and anassessment of the impact of model risk.
Theprovision also takes into account the impact of large
concentrated losses within the portfolio.
The use of such judgements and reasonableestimates is considered by management to be an
essential part of the process and does not impact onreliability.
Individual provisioning is applied when the fullcollectability of one of the Banking Group's loans is
identified as being doubtful. Individual and collective

Financial instruments at fair value
The Banking Group’s financial instruments measured
at fair value are stated in note 1(a)(iii). In estimating
fair value the Banking Group uses, wherever possible,
quoted market prices in an active market for thefinancial instrument.
In the event that there is no active market for the
instrument, fair value is based on present value
estimates or other market accepted valuation
techniques. The valuation models incorporate theimpact of bid/ask spread, counterparty credit spreads
and other factors that would influence the fair value
determined by a market participant. The selection of
appropriate valuation techniques, methodology andinputs requires judgement. These are reviewed andupdated as market practice evolves.
The majority of valuation techniques employ only
observable market data. However, for certain
financial instruments, the fair value cannot be
determined with reference to current market
transactions or valuation techniques whose variables
only include data from observable markets. In respectof the valuation component where market observabledata is not available, the fair value is determinedusing data derived and extrapolated from market
data and tested against historic transactions andobserved market trends. These valuations are based
upon assumptions established by application of
professional judgement to analyse the data available
tosupporteach
assumption.
Changing
theassumptions changes the resulting estimate of fairvalue.
Derivatives and hedging
The Banking Group buys and sells derivatives as partof its trading operations and to hedge its interest raterisk, currency risk, price risk, credit risk and otherexposures relating to non-trading positions.
A hedging instrument is a designated derivative
whose fair value or cash flows are expected to offset
changes in the fair value or cash flows of adesignated hedged item. A hedged item is an asset,
liability, firm commitment or highly probable forecast
transaction that: (a) exposes the Banking Group to
the risk of changes in fair value or future cash flows;and (b) is designated as being hedged.
Judgement is required in selecting and designating
hedging
relationships
andassessinghedge
effectiveness.
NZ IAS 39 Financial Instruments:
Recognition and Measurement does not specify asingle method for assessing hedge effectivenessprospectively or retrospectively. The Banking GroupANZ Bank New Zealand Limited

17

Notes to the Financial Statements
adopts the hypothetical derivative approach todetermine hedge effectiveness in line with current
risk management strategies. Hedge ineffectivenesscan arise for a number of reasons and whilst a hedge
may pass the effectiveness tests above it may not be
perfectly effective, leaving some volatility in theincome statement.

personnel on the basis of recognised actuarial
methods, with due regard to relevant actuarial
principles and standards. Deferred policy acquisition
costs are connected with the measurement basis of
the policy liabilities and are equally sensitive to thefactors that are considered in the liability
measurement.

Goodwill

The key factors that affect the estimation of theseliabilities and related assets are: the cost of providing
the benefits and administering the contracts;
mortality and morbidity experience; discontinuance
rates; for life investment contracts, the amounts
credited to policyholders' accounts compared to thereturns on invested assets; interest rates; inflation;
rates of taxation; and general market and economic
conditions.

Refer to Note 19 for details of goodwill held by the
Banking Group.
The carrying value of goodwill is subject to an
impairment test to ensure that the current carrying
value does not exceed its recoverable value at thebalance sheet date. Any excess of carrying value
over recoverable amount is taken to the income
statement as an impairment write down.
Goodwill has been allocated for impairment purposes
to the cash generating units at which the goodwill ismonitored for internal reporting purposes. Each ofthese cash generating units is represented by anindividual reporting segment – Retail, Commercial,
Wealth and Institutional. Refer to Note 7.
Impairment testing of purchased goodwill is
performed annually, or more frequently where there
is an indication that the goodwill may be impaired, bycomparing the recoverable value of each cash
generating unit with the current carrying amount of
its net assets, including goodwill.
Judgement isrequired in identifying the cash-generating units towhich goodwill and other assets are allocated for the
purpose of impairment testing.
The recoverable amount is based on value-in-use
calculations.
These calculations use cash flow
projections based on a number of financial budgets
within each segment approved by management
covering a three year period. Cash flow projections
are based on a range of readily available economic
assumptions including GDP and CPI.
Cash flows
beyond the three year period are extrapolated using a
3% growth rate.
These cash flow projections are discounted using acapital asset pricing model. As at 31 March 2012
when the last valuation was prepared, a discount rateof 10.63% was applied to each segment. The main
variables in the calculation of the discount rate used
are the risk free rate, the beta rate and the market
risk premium. The risk free rate is based on the 10
year Government Bond Rate. The beta rate and themarket risk premium are consistent with observableand comparative market rates applied in the regionalbanking 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 the Banking Group’s
carrying amount to exceed its recoverable amount.
Insurance policy assets
Insurance policy assets represent deferred policy
acquisition costs less policy liabilities for life
investment contracts and life insurance contracts.
Policy liabilities are computed using statistical ormathematicalmethods,
expected
togive
approximately the same results as if an individual
liability was calculated for each contract.
The
computations are made by suitably qualified

3.

Risk Management Policies
The Banking Group recognises the importance ofeffective risk management to its business success.
Management is committed to achieving strong control
and a distinctive risk management capability thatenables the Banking Group business units to meettheir performance objectives.
The Banking Group approaches risk throughmanaging the various elements of the system as awhole rather than viewing them as independent andunrelated parts. The risk management division (“RiskManagement”) is independent of the business, withclear delegations from the Board, and operates within
a comprehensive framework comprising:•

The Board providing leadership, setting risk
appetite/strategy and monitoring progress;•

A strong framework for development andmaintenance of Banking Group-wide risk
management policies, procedures and systems,
overseen by an independent team of risk
professionals;•

The use of sophisticated risk tools, applications
and processes to execute the global risk
management strategy across the Banking
Group;•

Business unit level accountability, as the “firstline of defence”, for the management of risks inalignment with the Banking Group’s strategy;
and•Independent oversight to ensure business unit
level compliance with policies, regulations andlaws, and to provide regular risk evaluation andreporting.

The Banking Group manages risk through anapproval, delegation and limits structure. Regularreviews of the policies, systems and risk reports,
including the effectiveness of the risk management
systems, discussions covering the Banking Group’s
response to emerging risk issues and trends, and thatthe requisite culture and practices are in place acrossthe Banking Group, are conducted within the Banking
Group and also by the Ultimate Parent Bank. The
Board has responsibility for reviewing all aspects ofrisk management.
The Board has ultimate responsibility for overseeing
the effective deployment of risk management
frameworks, policies and processes within New
Zealand.
The Bank’s Risk Committee assists theBoard in this function.
The role of the Risk

ANZ Bank New Zealand Limited

18

Notes to the Financial Statements
Committee is to assist the Board in the effective
discharge of its responsibilities for business, market,
credit, operational, compliance, liquidity, product andreputational risk management, and to liaise andconsult with the Ultimate Parent Bank Risk Committee
as required. Risk Management, via the Chief Risk
Officer, coordinates risk management activities
directly between Business Unit risk functions andUltimate Parent Bank Group Risk Management
functions.
The risk management process is subject to oversightby the Risk Committee of the Ultimate Parent Bank
Board. This includes the review of risk portfolios andthe establishment of prudential policies and controls.
The Banking Group’s risk management policies are
essentially the same as the Ultimate Parent Bank, but
are tailored where required to suit the local New
Zealand regulatory and business environment.
The Audit Committee, which is a sub-committee of
the Board, has responsibility for reviewing all aspectsof published financial statements and internal andexternal audit processes. The Audit Committee has aquorum of two directors, both of whom must be nonexecutive directors. It meets at least four times ayear and reports directly to the Board.
Financial risk management
Refer to Note 30 for detailed disclosures on the
Banking Group's financial risk management policies.
Operational Risk
Operational risk is the risk arising from day to day
operational activities which may result in direct orindirect loss. These losses may result from failure tocomplywithpolicies,
procedures,laws
andregulations, from fraud or forgery, from a breakdown
in the availability or integrity of services, systems andinformation, or damage to the Banking Group’s
reputation.
Examples include failure to comply with policy andlegislation, human error, natural disasters, fraud andother malicious acts. Where appropriate, risks are
mitigated by insurance.
Risk Management is responsible for establishing the
Banking Group’s operational risk framework andassociated Banking Group-wide policies.
Business
units are responsible for the identification, analysis,
assessment and treatment of operational risks on a
day-to-day basis.
Business units have primary responsibility for theidentification and management of operational risk
with executive oversight provided by the relevant
Retail and Wholesale Risk Committees. The Bank’s
Operational Risk Executive Committee (“OREC”)
undertakes the governance function through the bimonthly monitoring of operational risk performanceacross the Banking Group.
The Board and Risk

Management conduct effective oversight through theapproval of operational risk policies and frameworks
and monitoring key operational risk metrics.
Compliance
The Banking Group conducts its business inaccordancewithallrelevant
compliancerequirements. In order to assist the Banking Groupidentify,
manage,monitorandmeasureits
compliance obligations, the Banking Group has acomprehensive regulatory compliance framework inplace, which addresses both external (regulatory) andinternal compliance.
Risk Management, in conjunction with business unit
staff ensure the Banking Group operates within acompliance infrastructure and framework thatincorporates new and changing business obligations
and processes.
The compliance policies and their supporting
framework seek to minimise material risks to the
Banking Group’s reputation and value that could arise
from non-compliance with laws, regulations, industry
codes and internal standards and policies. Business
units have primary responsibility for the identificationand management of compliance. Risk Management
provides policy and framework, measurement,
monitoring and reporting, as well as leadership inareas such as anti-money laundering procedures andmatters of prudential compliance. The Bank’s OREC,
the Chief Risk Officer, the Board and the Risk
Committee of the Ultimate Parent Bank Board conduct
board and executive oversight.
Global Internal Audit
Global Internal Audit is a function independent ofmanagement whose role is to provide the Board andmanagement with an effective and independent
appraisal of the internal controls established bymanagement. Operating under a Board approved
Charter, the reporting line for the outcomes of work
conducted by Global Internal Audit is direct to the
Chair of the Audit Committee, with a directcommunication line to the Chief Executive Officer andthe external auditor.
The Global Internal Audit Plan is developed utilising arisk based approach and is refreshed on a quarterly
basis. The Audit Committee approves the plan, theassociated budget and any changes thereto.
All audit activities are conducted in accordance withlocal and international auditing standards, and theresults thereof are reported to the Audit Committee,
Risk Committee and management. These results
influence the performance assessment of businessheads.
Furthermore, Global Internal Audit monitors theremediation of audit issues and highlights the current
status of any outstanding audits.

ANZ Bank New Zealand Limited

19

Notes to the Financial Statements
4. Income
Banking GroupBank

Year toYear toYear toYear to30/09/2012

30/09/2011

30/09/2012

30/09/2011

446

404

446

404

-

-

262

280

446

404

708

684

Liquid assets

67

64

66

63

Other financial institutions

38

43

32

43

Available-for-sale assets

8

34

5

29

Lending on productive loans

5,305

5,410

5,120

5,235

Lending on impaired assets

51

76

49

73

-

-

215

122

$ millions

Note

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

Financial assets not at fair value through profit or loss

Due from subsidiaries
Due from Immediate Parent Company

-

19

-

19

102

129

97

125

5,571

5,775

5,584

5,709

6,017

6,179

6,292

6,393

Net gain on foreign exchange trading

144

137

142

165

Net gain on trading securities

101

204

101

123

Net loss on trading derivatives

(114)

(113)

(114)

(113)

131

228

129

175

Other

Total interest income
Net trading gains

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

63

61

27

25

Other funds management and insurance income

235

204

42

44

Total funds management and insurance income

298

265

69

69

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

51

41

53

42

590

593

658

629

Total fee income

641

634

711

671

Direct fee expense

(186)

(185)

(186)

(185)

Net fee income

455

449

525

486

Dividends received

-

-

205

185

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

-

-

(7)

53

Net gain / (loss) on financial liabilities designated at fair value
Net gain / (loss) on hedges not qualifying for hedge
accounting

(1)

2

1

2

Net ineffectiveness on qualifying fair value hedges
Net cash flow hedge gain / (loss) transferred to income
statement
Net gain on available for sale equity securities transferred toincome statement
Other income
Total other operating income

11

7

(106)

16

(112)

(4)

6

(4)

6

12

(4)

12

(4)

83

-

87

-

21

12

4

4

573

359

839

620

ANZ Bank New Zealand Limited

20

Notes to the Financial Statements
5. Expenses
Banking GroupBank

Year toYear toYear toYear to30/09/2012

30/09/2011

30/09/2012

30/09/2011

Commercial paper

174

158

-

-

Due to subsidiaries

-

-

359

401

174

158

359

401

$ millions

Interest expense
Financial liabilities at fair value through profit or loss

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

45

29

43

29

2,184

2,347

2,040

2,171

-

-

1,231

1,248

782

884

142

141

7

1

7

1

134

177

134

177

9

24

8

26

3,161

3,462

3,605

3,793

3,335

3,620

3,964

4,194

804

794

739

717

77

75

72

72

35

36

34

34

6

6

6

6

Share-based payments expense

20

22

20

22

Building occupancy costs

66

41

14

4

Depreciation of premises and equipment

55

49

26

18

Leasing and rental costs

85

84

14

16

Related parties (Note 26)

118

93

264

210

Technology expenses

Bonds and notes
Immediate parent company
Loan capital
Other

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

144

141

128

130

Impairment of intangibles and other assets

11

41

1

26

Amortisation of software and other intangible assets

34

25

19

13

204

216

193

190

83

63

81

70

1,742

1,686

1,611

1,528

Administrative expenses
Other costs
Total operating expenses

Operating expenses for the Bank and the Banking Group include costs of $192 million (30/09/2011 $162 million) incurredin relation to the New Zealand Simplification programme, including implementation of a single core banking system, asingle bank brand and an optimised branch network.
$ thousands

Year toYear toYear toYear to30/09/2012

30/09/2011

30/09/2012

30/09/2011

3,023

2,522

1,677

1,375

573

297

89

25

3,596

2,819

1,766

1,400

-

55

-

-

Fees paid to principal auditors (KPMG New Zealand)
Audit or review of financial statements
Other services
Total auditors' remuneration
Audit fees paid to Ernst & Young for subsidiary company
financial statement audits

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

ANZ Bank New Zealand Limited

21

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

Bank

Year toYear toYear toYear to30/09/2012

30/09/2011

30/09/2012

30/09/2011

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

1,753

1,551

1,567

1,361

Prima facie income tax at 28% (2011: 30%)

491

465

439

408

Imputed and non-assessable dividends

(6)

(6)

(57)

(55)

-

(5)

-

(3)

Change in tax provisions

(12)

(11)

(12)

(11)

Non-deductible expenses / (non-assessable income)

(35)

7

(17)

(27)

Income tax under / (over) provided in prior years

(10)

2

(6)

17

Total income tax expense

428

452

347

329

24.4%

29.1%

22.1%

24.2%

Current tax

376

277

296

264

Deferred tax

52

175

51

65

428

452

347

329

-

(9)

-

(1)

Effect of changes in tax legislation

Effective tax rate (%)
Amounts recognised in the income statement

Total income tax expense recognised in the income statement
Amounts recognised directly in equity
Current income tax
Net loss on revaluation of financial instruments
Deferred income tax
Net gain on revaluation of financial instruments

-

16

-

16

Actuarial loss on defined benefit schemes

(6)

(18)

(6)

(18)

Total income tax benefit recognised directly in equity

(6)

(11)

(6)

(3)

1,457

1,062

1,336

928

Imputation credits available

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

ANZ Bank New Zealand Limited

22

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

ANZ Bank New Zealand Limited

23

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

RetailCommercial

External interest income

1,729

3,198

79

997

14

6,017

External interest expense(1,033)

(581)

(196)

(419)

(1,106)(3,335)

Net intersegment interest

111(1,284)

138

(171)

1,206

-

Net interest income

807

1,333

21

407

114

2,682

Other external operating income

324

135

228

216

99

1,002

-

-

-

-

4

4

Operating income

1,131

1,468

249

623

217

3,688

Operating expenses

683

501

145

184

229

1,742

Profit before provision for credit impairment

448

967

104

439

(12)

1,946

54

128

1

11

(1)

193

Profit before income tax

394

839

103

428

(11)

1,753

Income tax expense

110

233

17

113

(45)

428

Profit after income tax

284

606

86

315

34

1,325

30/09/2012

Share of associates' profit

Provision for credit impairment

WealthInstitutional

Other

Total

Other information
Depreciation and amortisation

19

8

14

-

48

89

547

1,466

180

1,072

-

3,265

Other intangible assets

38

3

137

1

61

240

Investment in associates

-

-

-

12

87

99

Total external assets

27,92753,516

1,457

36,612

1,937

121,449

Total external liabilities

31,136

19,2704,318

28,28027,513

110,517

RetailCommercial

WealthInstitutional

Other

Total

External interest income

1,852

3,392

86

831

18

6,179

External interest expense(1,085)

(625)

(223)

(457)

(1,230)(3,620)Net intersegment interest(42)(1,430)

154

27

1,291

-

Net interest income

725

1,337

17

401

79

2,559

Other external operating income

319

129

274

239

(109)

852

-

-

-

-

4

4

Operating income

1,044

1,466

291

640

(26)

3,415

Operating expenses

685

495

154

177

175

1,686

Profit before provision for credit impairment

359

971

137

463

(201)

1,729

Provision for credit impairment

66

138

-

(26)

-

178

Profit before income tax

293

833

137

489

(201)

1,551

Income tax expense

88

250

37

144

(67)

452

Profit after income tax

205

583

100

345

(134)

1,099

Goodwill

30/09/2011

Share of associates' profit

Other information
Depreciation and amortisation

18

8

11

-

37

74

Goodwill

547

1,466

180

1,072

-

3,265

Other intangible assets

46

7

161

1

30

245

Investment in associates

-

-

-

12

88

100

Total external assets

27,09551,543

1,528

36,803

4,471

121,440

Total external liabilities

28,53917,956

4,322

35,342

24,456110,615

1

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

ANZ Bank New Zealand Limited

24

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

Cash and balances with central banksBank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

1,954

2,177

1,954

2,177

Securities purchased under agreement to resell

325

50

325

50

Money at call

237

330

236

330

92

121

77

109

2,831

2,455

2,815

2,443

30/09/2011

30/09/2012

Bills receivable and remittances in transit
Total liquid assets

9. Due from Other Financial Institutions
Banking Group$ millions

Able to be withdrawn without prior notice
Securities purchased under agreement to resell

30/09/2012

Bank
30/09/2011

96

380

96

380

228

1,086

228

1,086

Security settlements

42

606

42

606

Certificates of deposit

100

1,562

100

1,562

Term loans and advances

-

51

-

51

Cash collateral given on derivative financial instruments

1,256

944

1,256

944

Total due from other financial institutions

1,722

4,629

1,722

4,629

229

1,133

229

1,133

30/09/2012

30/09/2011

30/09/2012

30/09/2011

8,600

5,961

8,600

5,961

455

334

455

334

Promissory notes

41

59

41

59

Other bank bonds

3,202

3,047

3,202

3,047

40

65

40

65

12,3389,466

12,3389,466

Fair value of securities purchased under agreement to resell

10. Trading Securities
Banking Group$ millions

Government, local body stock and bonds
Certificates of deposit

Other
Total trading securities

BankANZ Bank New Zealand Limited

25

Notes to the Financial Statements
11. Derivative Financial Instruments
The use of derivatives and their sale to customers as risk management products is an integral part of the Banking Group’s
trading activities. Derivatives are also used to manage the Banking Group’s own exposure to fluctuations in exchange andinterest rates as part of its own asset and liability management activities.
Derivatives are subject to the same types of credit and market risk as other financial instruments and the Banking Groupmanages these risks in a consistent manner.
Derivatives, except for those that are specifically designated as effective hedging instruments, are classified as held for
trading. The held for trading classification includes two categories of derivative instruments: those held as trading
positions and those used for the Banking Group’s balance sheet risk management.
Trading positions
Trading positions consist of both sales to customers and market making activities. Sales to customers include thestructuring and marketing of derivative products to customers which enable them to take or mitigate risks. Market
making activities consist of derivatives entered into principally for the purpose of generating profits from short-term
fluctuations in price or margins. Positions may be traded actively or held over a period of time to benefit from expectedchanges in market rates.
Balance sheet risk management
The Banking Group designates certain balance sheet risk management derivatives into hedging relationships in order tominimise income statement volatility. This volatility is created by differences in the timing of recognition of gains andlosses between the derivative and the hedged item. Hedge accounting is not applied to all balance sheet risk
management positions as other balance sheet risk management derivatives are classified as held for trading.
Banking GroupBank

Notional

Notional

30/09/2012

Principal

Fair values$ millions

AmountAssetsLiabilities

Principal

Fair values

AmountAssetsLiabilities

Derivatives held for trading
Spot and forward contracts

59,862647

1,240

59,862647

1,240

Swap agreements

124,674

2,860

4,278

124,674

2,860

4,278

Options purchased

1,798

22

-

1,798

22

-

Options sold

1,651

1

39

1,651

1

39

187,985

3,530

5,557

187,985

3,530

5,557

Foreign exchange derivatives
Forward rate agreements

46,6513

2

46,651

3

2

Swap agreements

522,387

8,682

8,147

527,517

8,717

8,147

Futures contracts

29,8182

429,8182

4

Options purchased

2,237

15

-

2,237

15

-

Options sold

1,833

-

14

1,833

-

14

Interest rate derivatives

602,926

8,702

8,167

608,056

8,737

8,167

Commodity derivatives

281

44

42

281

44

42

791,192

12,276

13,766796,322

12,311

13,766

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

70

3

-

70

3

-

Interest rate swap agreements

15,752234

92

15,752234

92

Total fair value hedges

15,822237

92

15,822237

92

Interest rate swap agreements

13,524240

72

13,524240

72

Total cash flow hedges

13,524240

72

13,524240

72

Total derivatives in hedging
relationships

29,346477

164

29,346477

164820,538

12,753

13,930825,668

12,78813,930Total derivative financial instruments

ANZ Bank New Zealand Limited

26

Notes to the Financial Statements
Banking GroupBank

Notional

Notional

30/09/2011

Principal

Fair values$ millions

AmountAssetsLiabilities

Principal

Fair values

AmountAssetsLiabilities

Spot and forward contracts

62,832

2,111

Swap agreements

117,442

4,607

1,440

62,832

2,111

1,440

5,578

117,442

4,607

Options purchased

2,271

5,578

66

1

2,271

66

Options sold

1

2,280

-

69

2,280

-

69

184,825

6,784

7,088

184,825

6,784

7,088

Derivatives held for trading

Foreign exchange derivatives
Forward rate agreements

73,64113

1273,641

13

12

Swap agreements

629,986

8,224

7,637

636,630

8,267

7,637

Futures contracts

12,84118

8

12,841

18

8

Options purchased

4,623

24

-

4,623

24

-

Options sold

6,446

-

26

6,446

-

26

Interest rate derivatives

727,537

8,279

7,683

734,181

8,322

7,683

Commodity derivatives

182

13

12

182

13

12

912,544

15,076

14,783

919,188

15,11914,783

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

76

3

-

76

3

-

Interest rate swap agreements

17,652281

256

17,652281

256

Total fair value hedges

17,728284

256

17,728284

256Interest rate swap agreements

11,090275

69

11,090275

69Interest rate futures contracts

13,431-

10

13,431-

10

Total cash flow hedges

24,521275

79

24,521275

79

Total derivatives in hedging
relationships

42,249559

335

42,249559

335

Total derivative financial instruments

954,793

15,635

15,118961,437

15,678

15,118Fair value hedges
The Banking Group’s fair value hedges principally consist of interest rate swaps that are used to protect against changes
in the fair value of fixed-rate long-term financial instruments due to movements in market interest rates.
Gain / (loss) on fair value hedges attributable to the hedged risk
Banking Group$ millions

Bank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

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

41

(138)

41

(138)

(45)

144

(45)

144

(4)

6

(4)

6

ANZ Bank New Zealand Limited

27

Notes to the Financial Statements
Cash flow hedges
The Banking Group’s cash flow hedges consist principally of interest rate swaps that are used to protect against exposures
to variability in future interest cash flows on non-trading assets and liabilities which bear interest at variable rates or
which are expected to be refunded or reinvested in the future. The amounts and timing of future cash flows, representing
both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of theirforecast repricing profile. This forms the basis for identifying gains and losses on the effective portions of derivatives
designated as cash flow hedges.
Analysis of the cash flow hedging reserve
Banking GroupBank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

Variable rate loan assets

208

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

(29)

219

208

219

(33)

(29)

(33)

(38)

(45)

(38)

(45)

Total cash flow hedging reserve

141

141

141

141

Deferred gain / (loss) attributable to hedges of:

All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur,
which is anticipated to take place over the next 0-10 years (30/09/2011 0-10 years).

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

Bank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

Government, local body stock and bonds

13

247

13

246

Other debt securities

41

42

41

42

3

122

-

87

57

411

54

375

30/09/2012

30/09/2011

30/09/2012

30/09/2011

Overdrafts

1,881

1,847

1,881

1,847

Credit card outstandings

1,395

1,367

1,395

1,367

Term loans - housing

46,123

43,636

46,123

43,636

Term loans - non-housing

37,74937,39835,89435,538Finance lease receivables

806

768

-

19

Gross loans and advances

87,95485,01685,29382,407

Provision for credit impairment (Note 15)(1,054)(1,156)(1,016)(1,112)

(258)

(256)

-

-

(2)

22

(2)

22

(60)

(51)

(54)

(46)

98

35

98

35

86,67883,61084,31981,306Equity securities
Total available-for-sale assets

13. Net Loans and Advances
Banking Group$ millions

Unearned finance income
Fair value hedge adjustment
Deferred fee revenue and expenses
Capitalised brokerage / mortgage origination fees
Total net loans and advancesBank

The Bank has sold residential mortgages to the NZ Branch with a net carrying value of $9,396 million as at 30 September
2012 (30/09/2011 $9,931 million). These assets qualify for derecognition as the Bank does not retain a continuing
involvement in the transferred assets.

ANZ Bank New Zealand Limited

28

Notes to the Financial Statements
14. Impaired Assets and Other Assets Under Administration
Banking Group$ millions

Retail Other retailmortgagesBank

Non-retail

Retail Other retail

exposures

exposuresTotal

mortgages

Non-retail

exposures

exposures

Total

1,643

30/09/2012
Balance at beginning of the year

451

61

1,194

1,706

451

61

1,131

Transfers from productive

277

110

572

959

277

110

550

937

Transfers to productive

(61)

(1)

(246)

(308)

(61)

(1)

(245)

(307)

Assets realised or loans repaid

(327)

(43)

(515)

(885)

(327)

(43)

(497)

(867)

Write offs

(55)

(83)

(131)

(269)

(55)

(83)

(119)

(257)

Individually impaired assets

285

44

874

1,203

285

44

820

1,149

Restructured items

28

-

135

163

28

-

135

163

Total impaired assets

313

44

1,009

1,366

313

44

955

1,312

-

-

-

-

-

-

-

-

-

-

24

24

-

-

24

24

Other assets under administration
Undrawn facilities with impaired
customers
30/09/2011
Balance at beginning of the year

511

81

1,403

1,995

511

81

1,317

1,909

Transfers from productive

442

158

774

1,374

442

158

756

1,356

Transfers to productive

(77)

(1)

(101)

(179)

(77)

(1)

(99)

(177)

Assets realised or loans repaid

(356)

(71)

(691)

(1,118)

(356)

(71)

(666)

(1,093)

Write offs

(69)

(106)

(191)

(366)

(69)

(106)

(177)

(352)

Individually impaired assets

451

61

1,194

1,706

451

61

1,131

1,643

Restructured items

20

-

-

20

20

-

-

20

Total impaired assets

471

61

1,194

1,726

471

61

1,131

1,663

-

-

6

6

-

-

6

6

-

-

26

26

-

-

26

26

Other assets under administration
Undrawn facilities with impaired
customers

Other assets under administration
Other assets under administration are any loans, not being impaired or 90 days past due, where the customer is in any
form of voluntary or involuntary administration, including receivership, liquidation, bankruptcy or statutory management.

ANZ Bank New Zealand Limited

29

Notes to the Financial Statements
15. Provision for Credit Impairment
Banking Group$ millions

Retail Other retailmortgages

exposuresBank

Non-retail
exposures

Retail Other retailTotal

mortgages

exposures

Non-retail
exposures

Total

30/09/2012
Collective provision
Balance at beginning of the year

120

147

395

662

120

136

382

638

Credit to income statement

(16)

(22)

(20)

(58)

(16)

(23)

(15)

(54)

Balance at end of the year

104

125

375

604

104

113

367

584

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

148

37

309

494

148

37

289

474

Charge to income statement
Recoveries of amounts previously
written off

36

55

160

251

36

55

150

241

1

17

7

25

1

17

5

23

Bad debts written off

(55)

(83)

(131)

(269)

(55)

(83)

(119)

(257)

Discount unwind1

(11)

-

(40)

(51)

(11)

-

(38)

(49)

Balance at end of the year

119

26

305

450

119

26

287

432

Total provision for credit impairment

223

151

680

1,054

223

139

654

1,016

111

149

533

793

111

135

518

764

9

(2)

(138)

(131)

9

1

(136)

(126)

120

147

395

662

120

136

382

638

30/09/2011
Collective provision
Balance at beginning of the year
Charge / (credit) to income statement
Balance at end of the year

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

207

51

347

605

207

51

317

575

Charge to income statement
Recoveries of amounts previously
written off

24

79

206

309

24

77

199

300

2

17

3

22

2

17

1

20

Bad debts written off

(69)

(106)

(191)

(366)

(69)

(106)

(177)

(352)

Discount unwind1

(16)

(4)

(56)

(76)

(16)

(2)

(51)

(69)

Balance at end of the year

148

37

309

494

148

37

289

474

Total provision for credit impairment

268

184

704

1,156

268

173

671

1,112

1

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

Provision movement analysis$ millions

Banking Group
Retail Other retailmortgages

exposuresBank

Non-retail
exposures

Retail Other retailTotal

mortgages

exposures

Non-retail
exposures

Total

30/09/2012
New and increased provisions

110

87

267

464

110

87

254

451

Provision releases
Recoveries of amounts previously
written off

(73)

(15)

(100)

(188)

(73)

(15)

(99)

(187)

(1)

(17)

(7)

(25)

(1)

(17)

(5)

(23)

Individual provision charge

36

55

160

251

36

55

150

241

Collective provision credit

(16)

(22)

(20)

(58)

(16)

(23)

(15)

(54)

20

33

140

193

20

32

135

187

New and increased provisions

146

115

319

580

146

113

306

565

Provision releases
Recoveries of amounts previously
written off

(120)

(19)

(110)

(249)

(120)

(19)

(106)

(245)

(2)

(17)

(3)

(22)

(2)

(17)

(1)

(20)

Individual provision charge

24

79

206

309

24

77

199

300

Collective provision charge / (credit)

9

(2)

(138)

(131)

9

1

(136)

(126)

Total charge to income statement

33

77

68

178

33

78

63

174

Total charge to income statement
30/09/2011

30

ANZ Bank New Zealand Limited

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

30/09/2012

Bank

30/09/2011

30/09/2012

30/09/2011

Investments in subsidiaries

-

-

6,524

6,524

Investments in associates

99

99

85

85

Investment in joint venture

-

1

-

-

99

100

6,609

6,609

Total investments in subsidiaries and associates

Subsidiaries

Ownership

Balance

Interest %DateNature of business

Alos Holdings Limited

100

30 September

Investment company

ANZ Capital NZ Limited

100

30 September

Investment company

ANZ Investment Services (New Zealand) Limited

100

30 September

Funds management company

ANZ National Staff Superannuation Limited

100

30 September

Staff superannuation scheme trustee

ANZ New Zealand (Int'l) Limited1

100

30 September

Investment company

ANZ New Zealand Securities Limited2

100

30 September

On-line share broker-

30 September

Securitisation entity

Arawata Assets Limited

100

30 September

Property company

Arawata Finance Limited

100

30 September

Investment company

Arawata Holdings Limited

100

30 September

Investment company-

30 September

Investment entity

Arawata Trust Company

100

30 September

Investment company

AUT Investments Limited

100

30 September

Investment company

Control Nominees Limited

100

30 September

Investment company

Direct Nominees Limited

100

30 September

Nominee company

EFTPOS New Zealand Limited

100

30 September

EFTPOS service provider

Endeavour Finance Limited

100

30 September

Investment company

Harcourt Corporation Limited

100

30 September

Investment company

Karapiro Investments Limited

100

30 September

Investment company

Kingfisher NZ Trust 2008-1-

30 September

Securitisation entity

Medical Properties Holding Company No.1 Limited

100

30 September

Holding company

National Bank of New Zealand Custodians Limited

100

30 September

Nominee company

NBNZ Holdings Hong Kong Limited (registered in Hong Kong)100

31 December

Non operative

NBNZ Holdings Limited

100

30 September

Investment company

OneAnswer Nominees Limited

100

30 September

Nominee company

OnePath (NZ) Limited

100

30 September

Funds management company

OnePath Holdings (NZ) Limited

100

30 September

Holding company

OnePath Insurance Holdings (NZ) Limited

100

30 September

Holding company

OnePath Insurance Services (NZ) Limited

100

30 September

Insurance company

OnePath Life (NZ) Limited

100

30 September

Insurance company

OnePath Nominees (NZ) Limited

100

30 September

Nominee company

31 March

Mortgage finance (non-operative)

ANZNZ Covered Bond Trust

Arawata Trust

Origin Mortgage Management Services (2011) Limited-

Private Nominees Limited

100

30 September

Nominee company

Rural Growth Fund Limited

100

30 September

Investment company

Silver Fern Life Brokers Limited

100

30 September

Non operative

South Pacific Merchant Finance Limited

100

30 September

Investment company

UDC Finance Limited

100

30 September

Finance company

1

Previously known as ANZ National (Int’l) Limited
2
Previously known as Direct Broking Limited

All subsidiaries are incorporated in New Zealand, unless stated.
For all companies, with the exception of Origin Mortgage Management Services (2011) Limited, the ownership interest
percentage equates to the voting power held. In relation to this company, control exists through the Banking Group
having 100% of the voting rights.
In relation to Arawata Trust control exists through the Bank being trustee of the Trust. In relation to Kingfisher NZ Trust
2008-1 and ANZNZ Covered Bond Trust control exists as the Banking Group retains substantially all the risks and rewardsof the operations.

ANZ Bank New Zealand Limited

31

Notes to the Financial Statements
Associates
30/09/2012

30/09/2011

Ownership BalanceBook ValueBook Value

Interest Date

$m

$m

%

Cards NZ Limited

85

85

19 30 September

Card services

Paymark Limited

2

2

25 31 March

EFTPOS settlements

10

10

40 31 MarchRest home operator

Wyma Engineering (NZ) Limited

2

2

30 31 March

Agricultural machinery

Total investment in associates

99

99

UCG Investments Limited

Nature of businessAll associates are incorporated in New Zealand.
Movements in subsidiaries, associates and joint venture
In November 2011 the Banking Group sold its interest in Argenta Limited, which was a joint venture.
In December 2011 the Diversified Yield Fund and Regular Income Fund were wound up.
In January 2012 the Banking Group sold its interests in Vital Healthcare Management Limited, Australian Properties
Limited and their subsidiaries Eastern Specialists Consulting Limited and Vital Healthcare Australian Properties Proprietary
Limited.
In February 2012 BHI Limited amalgamated with its immediate parent company NBNZ Holdings Limited.
In August 2012 Southpac Corporation Limited and Radiola Corporation Limited amalgamated with their immediate parent
company South Pacific Merchant Finance Limited.
In September 2012 the Banking Group ceased to hold the voting rights for Origin Mortgage Management Services Limited
and Origin Mortgages Management Services (2008) Limited.

17. Other Assets
Banking Group$ millions

Accrued interest and prepaid discounts

Bank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

356

343

433

412

Accrued commission

25

22

15

13

Share-based payments asset

60

66

60

66

Prepaid expenses

23

29

16

21

Security settlements

29

250

29

250

Other assets

99

153

58

121

592

863

611

883

30/09/2011

30/09/2012

30/09/2011

311

Total other assets

18. Deferred Tax Assets and Liabilities
Banking Group$ millions

30/09/2012

Bank

Deferred tax assets / (liabilities) comprise the following temporary differences:
Provision for credit impairment

295

324

284

Premises and equipment, software and intangibles

(2)

(17)

5

(5)

Provisions and accruals

108

126

91

122

(112)

(90)

-

-

(55)

(55)

(55)

(55)

Deferred acquisition costs and insurance policy assets
Financial instruments
Carried forward losses
Lease finance
Other deferred tax assets and liabilities (including tax provisions)
Net deferred tax assets1
1

16

16

-

-

(165)

(148)

(158)

(142)

8

(17)

18

(1)

93

139

185

230

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

ANZ Bank New Zealand Limited

32

Notes to the Financial Statements
19. Goodwill and Other Intangible Assets
Banking GroupBank$ millions

30/09/2012

30/09/2011

30/09/2012

30/09/2011

Goodwill

3,265

3,265

3,217

3,217

Software

103

85

100

81

Other intangibles

137

160

-

-

3,505

3,510

3,317

3,298

30/09/2012

30/09/2011

30/09/2012

30/09/2011

Other due to other financial institutions
Securities sold under agreements to repurchase from other financial
institutions

1,256

1,022

1,052

1,022

46

1,164

46

1,164

Securities sold under agreements to repurchase from central banks

200

50

200

50

Cash collateral received on derivative financial instruments

257

1,475

257

1,475

1,759

3,711

1,555

3,711

30/09/2011

30/09/2012

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

20. Due to Other Financial Institutions
Banking Group$ millions

Total due to other financial institutions

Bank

21. Deposits and Other Borrowings
Banking Group$ millions

Note

30/09/2012

Bank
30/09/2011

Amortised cost
Certificates of deposit

2,156

2,454

2,156

2,461

Term deposits

33,922

33,79933,922

33,799Demand deposits bearing interest

25,81522,23025,81522,270

4,838

4,477

4,838

4,477

1,476

1,488

-

-

68,20764,44866,731

63,007

5,445

4,790

-

-

73,652

69,23866,731

63,007--

Deposits not bearing interest
Secured debenture stock
Total deposits and other borrowings recognised at amortised cost

31

Fair value through profit or loss
Commercial paper
Total deposits and other borrowings

Amortised cost of balances included within deposits and other borrowings recognised at fair value:
Commercial paper

5,444

4,790

Deposits from customers are unsecured and rank equally with other unsecured liabilities of the Banking Group. In theunlikely event that the Bank was put into liquidation or ceased to trade, secured creditors and those creditors set out in
the Seventh Schedule of the Companies Act 1993 would rank ahead of the claims of unsecured creditors.

ANZ Bank New Zealand Limited

33

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

30/09/2012

Creditors

Bank

30/09/2011

30/09/2012

30/09/2011

73

78

42

54

Accrued interest and unearned discounts

542

585

429

463

Defined benefit schemes deficit

103

84

103

84

Share-based payments liability

36

39

36

39

Accrued charges

257

253

229

225

Security settlements and short sales

290

1,242

276

1,237

Other liabilities

384

373

354

359

1,685

2,654

1,469

2,461

30/09/2012

30/09/2011

30/09/2012

30/09/2011

Employee entitlements1

135

135

130

129

Restructuring costs and surplus leased space2

111

71

109

67

1

1

1

1

92

102

52

74

339

309

292

271

Total payables and other liabilities

23. Provisions
Banking Group$ millions

Non-lending losses, frauds and forgeries
Other3
Total provisions
1
2

3

Bank

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

24. Bonds and notes
Banking Group$ millions

Note

Bank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

Domestic bonds

2,535

2,025

2,535

2,025

U.S. medium term notes1

7,423

9,088

-

-

Euro medium term notes1

4,179

5,999

-

-

2,962

-

-

-

81

78

81

78

Covered bonds1
Index linked notes
Fair value hedge adjustment
Less bonds and notes held by the Bank
Total bonds and notes

37

180

246

-

-

(116)

(30)

(116)

(30)

17,244

17,406

2,500

2,073

Bonds and notes, other than covered bonds, are unsecured and rank equally with other unsecured liabilities of the
Banking Group. Refer to note 37 for guarantee arrangements and other details about the covered bonds.
1

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

ANZ Bank New Zealand Limited

34

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

AUD 265,740,000 perpetual subordinated floating rate loanBank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

333

338

333

338

AUD 169,520,000 term subordinated floating rate loan 1

-

216

-

216

NZD 350,000,000 term subordinated fixed rate bond 2

-

350

-

350

NZD 250,000,000 term subordinated fixed rate bond 3

-

250

-

250

835

835

835

835

1,168

1,989

1,168

1,989

-

(1)

-

(1)

1,168

1,988

1,168

1,988

NZD 835,000,000 perpetual subordinated bondTotal loan capital issued
Less loan capital instruments held by the Banking Group
Total loan capital
1
2
3

The Bank elected to repay this loan on 17 September 2012. Interest was based on BBSW +0.68%.
The Bank elected to redeem this bond on 2 March 2012. The coupon rate was 7.60%.
The Bank elected to redeem this bond on 23 July 2012. The coupon rate was 8.23%.

Loan capital is subordinated in right of payment in the event of liquidation or wind up to the claims of depositors and all
creditors of the Bank.
The perpetual subordinated debt qualifies as Upper Level Tier Two Capital for capital adequacy purposes.
AUD 265,740,000 loan
This loan has no fixed maturity. Interest is payable half yearly in arrears based on BBSW + 0.95% p.a., with interest
payments due 15 March and 15 September.
NZD 835,000,000 bond
The Bank may elect to redeem the bond on 18 April 2013, 18 April 2018 or any interest payment date subsequent to 18
April 2018. Interest is payable half yearly in arrears on 18 April and 18 October each year, up to and including theSecond Call Date and then quarterly thereafter. If the bond is not called at the First Call Date, the coupon rate will resetto the five year interest swap rate plus 2.00%. Should the bond not be called at the Second Call Date, the Coupon Ratefrom the Second Call Date onwards will be set on a quarterly basis to the three month FRA rate plus 3.00%.
As at 30 September 2012, this bond carried a BBB rating by Standard and Poor's and an A3 rating by Moody’s. On 5
October 2012, Standard and Poor’s upgraded this bond to BBB+.
The current coupon interest on the bond is 9.66%. The Bank has a general right and in certain specified circumstances anobligation, to defer payment of interest on the bond.
This bond is listed on the New Zealand Exchange (“NZX”). The Market Surveillance Panel of the NZX granted the Bank awaiver from the requirements of Listing Rules 10.4 (relating to the provision of preliminary announcements of half yearly
and annual results to the NZX) and 10.5 (relating to preparing and providing a copy of half yearly and annual reports to
the NZX).

ANZ Bank New Zealand Limited

35

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

Bank

Year toYear toYear toYear to30/09/2012

30/09/2011

30/09/2012

30/09/2011

Key management personnel compensation
Salaries and short-term employee benefits

11,605

13,557

11,605

13,557

Post-employment benefits

201

344

201

344

Other long-term benefits

87

153

87

153

-

2,656

-

2,656

4,537

2,929

4,537

2,929

16,43019,63916,43019,639Loans to key management personnel

2,726

3,300

2,726

3,300

Deposits from key management personnel

7,055

6,387

7,055

6,387

Termination benefits
Share-based payments expense
Total compensation of key management personnel

Key management personnel are defined as the Directors and senior management of the Banking Group - those persons
having the authority and responsibility for planning, directing and controlling the activities of the entity. The information
above includes transactions with those individuals, their close family members and their subsidiaries.
Loans made to and deposits held by key management personnel are made in the course of ordinary business on normal
commercial terms and conditions no more favourable than those given to other employees or customers. Loans are on
terms of repayment that range between fixed, variable and interest only, all of which have been made in accordance with
the Bank's lending policies.
All transactions with key management personnel (including personally related parties) are conducted on an arm's length
basis in the ordinary course of business and on commercial terms and conditions. These transactions principally consist of
the provision of financial and investment services.
Transactions with other related parties
The Bank and Banking Group undertake transactions with the Immediate Parent Company, Ultimate Parent Bank, othermembers of the Overseas Banking Group, associates and joint ventures.
These transactions principally consist of funding and hedging transactions, the provision of other financial and investment
services, technology and process support, and compensation for share based payments made to Banking Group
employees. Transactions with related parties outside of the Banking Group are conducted on an arm’s length basis and on
normal commercial terms.
In addition the Bank undertakes similar transactions with subsidiaries, which are eliminated in the consolidated Banking
Group financial statements. Included within the Bank’s transactions with subsidiaries is the provision of administrative
functions to some subsidiaries for which no payments have been made.
Transactions with related parties

Banking GroupBank

Year toYear toYear toYear to30/09/2012

30/09/2011

30/09/2012

30/09/2011

Received from the Immediate Parent Company

-

19

-

19

Received from subsidiaries

-

-

477

402

Received from associates

-

6

-

6

35

$ millions

Interest income

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

58

65

28

Paid to the Immediate Parent Company

7

1

7

1

Paid to subsidiaries

-

-

1,590

1,505

Paid to associates

2

2

2

2

Fees received from the NZ Branch

26

29

26

29

Dividends received from subsidiaries

-

-

201

181

Other operating income

Fees & commission received from subsidiaries

-

-

70

66

Dividends received from associates

4

4

4

4

118

93

118

93

-

-

146

117

Operating expenses
Paid to the Ultimate Parent Bank and subsidiaries not part of the
Banking GroupOperating expenses paid to subsidiaries

ANZ Bank New Zealand Limited

36

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

Bank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

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

-

51

-

51

264

134

264

134

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

2,615

2,596

2,615

2,596

88

25

88

25

-

-

35

43

Due from Immediate Parent Company
Due from subsidiaries
Net loans and advances
Due from associates

4

4

4

4

Due from joint ventures

-

33

-

33

Due from subsidiaries--

11,61911,753

Shares in subsidiaries and associates

99

100

6,609

6,609

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

61

66

61

66

3,131

3,009

21,29521,314

Total due from related parties
Due to other financial institutions
Due to NZ Branch

20

-

20

-

205

775

1

775

85

85

85

85

-

-

37,94037,716

740

174

740

174

3,050

4,206

3,050

4,206

284

338

284

338

15

10

14

-

1

-

1

-

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

1,257

2,290

-

-

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

333

554

333

554

5,990

8,432

42,46843,848Due to Ultimate Parent Bank
Deposits and other borrowings
Due to associates
Due to subsidiaries
Due to Immediate Parent Company
Derivative financial liabilities
Due to Ultimate Parent Bank and subsidiaries not part of the Banking
Group
Payables and other liabilities
Due to NZ Branch
Due to Ultimate Parent Bank and subsidiaries not part of the Banking
Group
Due to Immediate Parent Company

Total due to related parties

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

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

30/09/2012

Bank

30/09/2011

30/09/2012

30/09/2011

-

-

1,257

2,290

256

1,296

256

1,296

250

250

250

250

-

-

643

2,863

ANZ Bank New Zealand Limited

37

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

30/09/2012

Noncurrent

Current

Bank

30/09/2011

Current

30/09/2012

Non-current

30/09/2011

Noncurrent

Current

Current

Non-current

AssetsLiquid assets
Due from other financial institutions

2,831

-

2,455

-

2,815

-

2,443

-

1,722

-

4,629

-

1,666

-

4,629

-

Trading securities

12,338

-

9,466

-

12,338

-

9,466

-

Derivative financial instruments

12,753-

15,635-

12,788-15,678-Current tax assets

15

-

-

-

79

-

-

-

Available-for-sale assets

16

41

393

18

13

41

357

18

Net loans and advances

27,98058,69827,83455,776

26,932

57,38727,48953,817

-

-

-

-

3,507

8,168

2,382

9,371

140

2

71

26

-

-

-

-

-

301

-

200

-

-

-

-

-

99

-

100

-

6,609

-

6,609

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

532

60

806

57

551

60

826

57

Deferred tax assets

-

93

-

139

-

185

-

230

Premises and equipment

-

323

-

325

-

74

-

89

Goodwill and other intangible assets

-

3,505

-

3,510

-

3,317

-

3,298

58,327

63,122

61,28960,15160,68975,841

63,27073,489Total assets
Liabilities
Due to other financial institutions

1,605

154

3,649

62

1,401

154

3,649

62

Deposits and other borrowings

70,7932,859

66,6592,579

64,1242,607

60,4532,554

Due to subsidiaries
Due to the Immediate Parent
Company

-

-

-

-

14,94322,997

17,594

20,122-Derivative financial instruments
Payables and other liabilities
Current tax liability
Provisions
Bonds and notes
Loan capital
Total liabilities

740

-

174

-

740

-

174

13,930-15,118-13,930-15,118

-

1,546

139

2,540

114

1,330

139

2,347

114

-

-

17

-

-

-

36

-

240

99

211

98

196

96

176

95

4,043

13,201

4,798

12,608

100

2,400

288

1,785

-

1,168

-

1,988

-

1,168

-

1,988

92,897

17,62093,166

17,44996,76429,561

99,83526,720Assets and liabilities are classified as current if:• it is expected they will be realised, consumed or settled in the normal operating cycle or within twelve months after theend of the reporting date; or• they are held primarily for trading; or• they are assets that are cash or a cash equivalent; or• they are liabilities where there is no unconditional right to defer settlement for at least twelve months.
Non-current assets include premises and equipment and intangible assets as well as financial assets of a long-term
nature. Non-current liabilities include financial and non-financial liabilities which are expected to be settled after twelve
months from balance date.
For the purposes of this disclosure, the fair value of both trading and hedging derivatives has been classified as current.
For more information on the contractual timing of expected outflows and inflows in relation to hedging derivatives refer toNote 30.

ANZ Bank New Zealand Limited

38

Notes to the Financial Statements
28. Ordinary Share Capital
The issued capital of the Bank comprises 1,700,755,498 (30/09/2011 1,700,755,498) ordinary shares, of which 650,712
shares are uncalled (30/09/2011 650,712 shares uncalled).
During the year ended 30 September 2012 the Bank paid an ordinary dividend of $1,150 million to the Immediate Parent
Company (equivalent to $0.68 per share). (30/09/2011 the Bank paid an ordinary dividend of $700 million to the
Immediate Parent Company (equivalent to $0.41 per share)). There were no changes to issued capital during the year
ended 30 September 2012 (30/09/2011 $nil).
All ordinary shares share equally in dividends and any proceeds available to ordinary shareholders on winding up of theBank. On a show of hands every member who is present at a meeting in person or by proxy or by representative isentitled to one vote, and upon a poll every member shall have one vote for each share held.

29. Capital Adequacy
Capital management policies
The Banking Group’s core capital objectives are to:• Protect the interests of depositors, creditors and shareholders;• Ensure the safety and soundness of the Banking Group’s capital position; and• Ensure that the capital base supports the Banking Group’s risk appetite, and strategic business objectives, in an
efficient and effective manner.
The Board holds ultimate responsibility for ensuring that capital adequacy is maintained. This includes: setting,monitoring and obtaining assurance for the Banking Group’s Internal Capital Adequacy Assessment Process (“ICAAP”)
policy and framework; standardised risk definitions for all material risks; materiality thresholds; capital adequacy targets;internal economic risk capital principles; and risk appetite.
The Banking Group has minimum and trigger levels for both tier one and total capital that ensure sufficient capital ismaintained to:• Meet minimum prudential requirements imposed by regulators;• Ensure consistency with the Banking Group’s overall risk profile and financial positions, taking into account its
strategic focus and business plan; and• Support the economic risk capital requirements of the business.
The Banking Group’s Asset & Liability Committee and its related Capital Management Forum are responsible fordeveloping, implementing and maintaining the Banking Group's ICAAP framework, including ongoing monitoring, reportingand compliance. The Banking Group’s ICAAP is subject to independent and periodic review conducted by Internal Audit.
The Banking Group has complied with all externally imposed capital requirements to which it is subject during the current
and comparative periods.

ANZ Bank New Zealand Limited

39

Notes to the Financial Statements
Capital ratios of the Banking Group under the Basel II internal models based approach (Unaudited)
Banking Group

30/09/2012

30/09/2011

Tier One Capital

10.80%

10.02%

4.00%

4.00%

12.48%

12.74%

8.00%

8.00%

RBNZ minimum Tier One Capital ratio
Total Capital
RBNZ minimum Total Capital ratio

Capital of the Banking Group as at 30 September 2012 (Unaudited)$mTier One Capital
Ordinary share capital

6,943

Audited retained earnings and reserves

3,848

Less deductions from Tier One Capital
Goodwill

3,265

Software and other intangible assets

240

50% of expected loss to the extent higher than total eligible allowances for impairment

39

Total Tier One Capital

7,247

Tier Two Capital - Upper Level
Perpetual subordinated debt

1,168

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

39

Total Tier Two Capital

1,129

Total Capital

8,376

Total required capital of the Banking Group as at 30 September 2012 (Unaudited)$ millions

Exposures subject to internal ratings based approach

Exposure at Risk weighted
default
exposure1

Total capitalrequirement

124,41447,594

3,808

8,034

7,820

626

Exposures subject to standardised approach

276

258

21

Equity exposures

102

431

35

Other exposures

3,038

913

73

Total credit risk

135,864

57,016

4,563

Operational risk

n/a

5,401

432

Market risk

n/a

4,713

377

135,864

67,1305,372Specialised lending exposures subject to slotting approach

Total capital requirement
1

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

Capital adequacy ratios under the Basel I approach (Unaudited)Bank
30/09/2012
Tier One Capital

30/09/2011

9.46%

9.64%

Total Capital

10.29%

11.60%

Total risk-weighted exposures ($ millions)

74,131

72,923Tier One Capital

4.00%

4.00%

Total Capital

8.00%

8.00%

RBNZ minimum ratios:Basel I ratios have been derived in accordance with the RBNZ document entitled ‘Capital Adequacy Framework (Basel I
Approach)’ (“BS2”), dated October 2010.

ANZ Bank New Zealand Limited

40

Notes to the Financial Statements
Implementation of the advanced internal ratings based approach to credit risk measurement
The Banking Group adheres to the standards of risk grading and risk quantification as set out for Internal Ratings Based(“IRB”) banks in the RBNZ document BS2B.
Under this IRB Framework banks use their own measures for calculating the level of credit risk associated with customers
and exposures, by way of the primary components of:
Probability of Default (“PD”): An estimate of the level of risk of borrower default graded by way of rating models usedboth at loan origination and for ongoing monitoring;
Exposure at Default (“EAD”): The expected facility exposure at default. Total credit risk-weighted exposures include a
scalar of 1.06 in accordance with the Bank’s Conditions of Registration; andLoss Given Default (“LGD”): An estimate of the potential economic loss on a credit exposure, incurred as a consequenceof obligor default and expressed as a percentage of the facility’s EAD. For Retail Mortgage exposures the Bank is required
to apply the downturn LGDs according to loan to value (“LVR”) bands as set out in BS2B. For farm lending exposures the
Banking Group is required to adopt RBNZ prescribed downturn LVR based LGDs, along with a minimum maturity of 2.5
years and the removal of the firm-size adjustment.
For exposures classified under Specialised Lending, the Banking Group uses slotting tables supplied by the RBNZ rather
than internal estimates.
The exceptions to IRB treatment are two minor portfolios where, due to systems constraints, determining these IRB risk
estimates is not currently feasible or appropriate. Risk weights for these exposures are calculated under a separate
treatment as set out in the RBNZ document entitled ‘Capital Adequacy Framework (Standardised Approach)’ (“BS2A”),
dated October 2010.

Classification of Banking Group exposures according to rating approach
Internal ratings based approach
IRB Asset Class

Borrower Type

Rating Approach

SovereignCrown

IRB - Advanced

RBNZ

IRB - Advanced

Any other sovereign and its central bank

IRB - Advanced

Bank

Registered banks

IRB - Advanced

Corporate

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

IRB - Advanced

Corporate Small to Medium Enterprises ("SME") with turnover of less than $50 million IRB - Advanced
Retail Mortgages

Individuals' borrowings against residential property

IRB - Advanced

Other Retail

Other lending to individuals (including credit cards)

IRB - Advanced

SME business borrowers

IRB - Advanced

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

IRB - Slotting

EquityIRB

Other assets

IRB - Slotting

All other assets not falling within any of the above classes

IRB

Standardised approach

Exposure class

Exposure Type

Reason for Standardised
Approach

Future Treatment

Corporate

Merchant card prepayment exposures

System constraints

Move to IRB

Corporate credit cards

System constraints

Move to IRBANZ Bank New Zealand Limited

41

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

Banking GroupAs at 30/09/2012 (Unaudited)

Total exposure
or principal
amountExposureweighted LGD
Exposureused for the
Exposure at
capital weighted risk Risk weighted
default
weightexposurecalculation

Total capitalrequirement

$m

$m

%

%

$m

$m

Corporate

32,16732,15736

59

20,207

1,617

Sovereign

10,227

10,067

5

1

90

8

3,574

3,336

56

18

634

50

44,11844,27821

26

12,197

976

4,278

4,363

60

73

3,396

271

94,364

94,20127

37

36,5242,922

Corporate

12,747

9,951

52

50

5,272

422

Sovereign

75

75

5

1

1

-

Bank

1,219

1,114

47

14

164

13

Retail mortgages

7,081

5,881

18

16

969

77

Other retail

4,967

4,649

72

49

2,431

195

26,08921,670

47

38

8,837

707

Corporate

71,611

2,287

60

46

1,117

89

Sovereign

8,631

381

5

1

4

-

Bank

738,529

5,875

64

18

1,112

90

Total market related contracts

818,771

8,543

60

25

2,233

179

Total credit risk exposures subject tothe IRB approach

939,224

124,41433

36

47,594

3,808

On-balance sheet exposures

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

Total off-balance sheet exposures
Market related contracts

ANZ Bank New Zealand Limited

42

Notes to the Financial Statements
IRB exposures by customer credit rating

Banking GroupAs at 30/09/2012 (Unaudited)

Probability ofdefault%

Exposureweighted LGD
Exposureused for the
Exposure at
capital weighted risk Risk weighted
default
weightexposurecalculation
$m

%

%

$m

Total capitalrequirement$m

Corporate
0-2

0.05

4,975

61

24

1,243

99

3-4

0.32

22,580

38

41

9,827

786

5

1.01

8,891

37

65

6,160

493

6

2.26

4,840

39

87

4,485

359

7-8

8.41

1,959

39

140

2,904

232

100.00

1,150

41

162

1,977

159

3.58

44,39541

57

26,596

2,128

0

0.01

10,476

5

1

95

8

1-8

0.05

47

5

1

-

-

Total sovereign exposures

0.01

10,523

5

1

95

8

0

0.03

4,190

65

15

688

55

1

0.03

5,633

56

18

1,064

85

2-4

0.13

493

52

28

144

12

5-8

2.50

9

65

140

14

1

Total bank exposures

0.04

10,325

59

17

1,910

153

0-3

0.20

10,136

11

5

500

40

4

0.46

16,108

18

13

2,305

184

5

0.93

17,058

26

30

5,489

439

6

2.12

5,643

30

60

3,617

289

7-8

5.35

691

31

105

766

61

100.00

523

33

88

489

40

1.86

50,15921

25

13,166

1,053

Default
Total corporate exposures
SovereignBank

Retail mortgages

Default
Total residential mortgages exposures
Other retail
0-2

0.10

647

77

49

333

27

3-4

0.29

4,118

70

49

2,159

173

5

1.10

1,720

62

65

1,182

95

6

2.50

1,502

58

71

1,133

91

7-8

10.07

926

62

94

920

74

Default

100.00

99

61

95

100

6

Total other retail exposures

2.90

9,012

66

61

5,827

466

Total credit risk exposures subject tothe IRB approach

2.24

124,41433

36

47,594

3,808

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

ANZ Bank New Zealand Limited

43

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

Risk weight

Risk weighted
exposure

Total capitalrequirement

$m

%

$m

$m

Strong

1,989

70

1,476

118

Good

3,671

90

3,502

280

Satisfactory

1,189

115

1,449

116

Weak

252

250

671

54

Default

188

-

-

-

7,289

92

7,098

568

Average risk Risk weighted
weightexposure

Total capitalrequirement

Banking GroupAs at 30/09/2012 (Unaudited)On-balance sheet exposures

Total on-balance sheet exposures

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

ExposureamountExposure atdefault

$m

$m

%

$m

$m

653

646

91

621

50

Market related contracts

1,767

99

97

101

8

Total off-balance sheet exposures

2,420

745

97

722

58

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

Banking GroupAs at 30/09/2012 (Unaudited)

Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

$m

%

$m

$m

55

100

58

5

1

150

1

-

56

100

59

5

Average risk Risk weighted
weightexposure

Total capitalrequirement

On-balance sheet exposures
Corporates
Default
Total on-balance sheet exposures

ExposureamountAverage credit
conversion
factorExposure atdefault

$m

%

$m

%

$m

$m

502

44

220

85

199

16

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

Credit exposures subject to the Standardised Approach have been calculated in accordance with BS2A.
Equity exposures
Banking GroupAs at 30/09/2012 (Unaudited)All equity holdings not deducted from capital

Equity exposures have been calculated in accordance with BS2B.

Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

$m

%

$m

$m

102

400

431

35

ANZ Bank New Zealand Limited

44

Notes to the Financial Statements
Other exposures

Banking GroupAs at 30/09/2012 (Unaudited)Cash
New Zealand dollar denominated claims on the Crown and the RBNZ
Other assets
Total other IRB credit risk exposures

Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

$m

%

$m

$m
-

204

-

-

1,973

-

-

-

861

100

913

73

3,038

28

913

73

Other exposures have been calculated in accordance with BS2B.
Credit risk mitigation
The Banking Group assesses the integrity and ability of counterparties to meet their contractual financial obligations for
repayment. The Banking Group generally takes collateral security in the form of real property or a security interest in
personal property, except for major government, bank and corporate counterparties of strong financial standing. Longer
term consumer finance, in the form of housing loans, is generally secured against real estate while short term revolving
consumer credit is generally unsecured.
As at 30 September 2012, under the IRB approach, the Banking Group had $1,525 million of Corporate exposures coveredby guarantees where the presence of the guarantees was judged to reduce the underlying credit risk of the exposures.
Information on the total value of exposures covered by financial guarantees and eligible financial collateral is notdisclosed, as the effect of these guarantees and collateral on the underlying credit risk exposures is not considered to bematerial.
Operational risk
The Banking Group uses the Advanced Measurement Approach for determining its regulatory capital requirement for
operational risk calculated in accordance with BS2B. As at 30 September 2012 the Banking Group had an implied risk
weighted exposure of $5,401 million for operational risk and an operational risk capital requirement of $432 million.
Operational risk capital is modelled at a New Zealand divisional level and then distributed and adjusted for the businessenvironment and internal controls down to the business units using the Risk Scenario Methodology. This methodology
ensures that there is sufficient operational risk capital held as a buffer for rare and severe unexpected operational loss
events that may impact the New Zealand business. The Methodology applies a combination of expert judgement,
business unit risk profiles, audit findings, and internal and external loss events to derive a series of business specific Risk
Scenarios that are applied to the capital model. The Risk Scenario approach:• Assesses the level of the Bank's exposure to specified risk scenarios;• Assesses the scope and quality of the Bank's internal control environment, key operational processes and risk
mitigants; and• Directly links the risk scenarios to operational risk capital.
The Banking Group's operating risk capital is calculated using the Ultimate Parent Bank’s methodology, but withstandalone New Zealand inputs to ensure there are no diversification benefits.
The Banking Group does not incorporate any insurance mitigation impact into its capital number. Accordingly, there are
no insurance related questions contained within the Risk Scenario Methodology.
Market risk
The aggregate market risk exposures below have been calculated in accordance with BS2B.
The peak end-of-day market risk exposures are for the half-year ended 30 September 2012.

Banking Group

Implied risk weighted
exposure

30/09/2012 (Unaudited)

Period end

Peak

Period end

Peak

$m

$m

$m

$m

Interest rate risk

Aggregate capital chargePeakoccurred on

4,704

5,323

377

426

4/09/2012

Foreign currency risk

6

93

-

7

21/08/2012

Equity risk

3

130

-

10

15/08/2012

4,713

377

ANZ Bank New Zealand Limited

45

Notes to the Financial Statements
Pillar II capital for other material risks
The Banking Group has an ICAAP which complies with the requirements of the Bank's Conditions of Registration.
Under the Banking Group's ICAAP it identifies and measures all “other material risks”, which are those material risks thatare not explicitly captured in the calculation of the Banking Group's tier one and total capital ratios. The other material
risks identified by the Banking Group include business risk, pension risk, insurance risk, funds management risk, lapse
risk, premises and equipment risk and capitalised origination fees risk.
The Banking Group's internal capital allocation for these other material risks is $502 million (30/09/2011: $457 million).
The Banking Group regularly reviews the methodologies used to calculate the economic capital allocated to other material
risks. Updated capital methodologies (particularly relating to insurance and funds management risks) were applied in
February 2012 and the prior period restated accordingly.
Capital adequacy of the Ultimate Parent Bank under the Basel II approach
Overseas Banking Group

Ultimate Parent Bank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

Tier One Capital

10.8%

10.9%

11.4%

11.5%

Total Capital

12.2%

12.1%

12.7%

12.3%

For calculation of minimum capital requirements under Pillar I of the Basel II Accord, APRA has accredited the Overseas
Banking Group to use the Advanced Internal Ratings Based methodology for calculation of credit risk weighted assets andthe Advanced Measurement Approach for the operational risk weighted asset equivalent.
Under prudential regulations, the Ultimate Parent Bank is required to hold a minimum Prudential Capital Ratio as
determined by APRA. The Overseas Banking Group exceeded the minimum capital adequacy requirements set by APRA as
at 30 September 2012 and for the comparative prior period.
The Overseas Banking Group is required to publicly disclose Pillar III financial information as at 30 September 2012. The
Overseas Banking Group's Basel II Pillar 3 Disclosure document for the year ended to 30 September 2012, prepared inaccordance with APS 330, discloses capital adequacy ratios calculated under the Basel II methodology. These documents
can be accessed at the website anz.com.
Retail mortgages by loan-to-valuation ratio (“LVR”)
As required by the RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided by the
Banking Group's valuation of the security property at origination of the exposure. Off-balance sheet exposures include
undrawn and partially undrawn residential mortgage loans as well as commitments to lend. Commitments to lend areformal offers for housing lending which may or may not be accepted by the customer.
Unaudited 30/09/2012

On-balancesheet

Off-balance
sheet

Total

0% - 59%

16,736

3,315

20,051

60% - 69%

7,328

977

8,305

70% - 79%

10,557

1,275

11,832Less than 80%$ millions

LVR range

34,621

5,567

40,18880% - 89%

6,034

1,094

7,128

Over 90%

3,463

420

3,883

44,118

7,081

51,199Total

Reconciliation of mortgage related amounts
Banking Group
Unaudited$ millions

Note

30/09/2012

Term loans - housing

13

46,123

Plus: short-term housing loans classified as overdrafts

514

Less: housing loans made to corporate customers
Gross retail mortgage loans(2,585)30

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

66
29

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

44,052

44,1187,081

29

51,199ANZ Bank New Zealand Limited

46

Notes to the Financial Statements
30. Financial Risk Management
Strategy in using financial instruments
Financial instruments are fundamental to the Banking Group’s business, constituting the core element of its operations.
Accordingly, the risks associated with financial instruments are a significant component of the risks faced by the Banking
Group. Financial instruments create, modify or reduce the credit, market and liquidity risks of the Banking Group’sbalance sheet. The Banking Group’s overall risk management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the financial performance of the Banking Group.
The risk management and policy control framework applicable to the entities comprising the Banking Group has been set
by the Board and Risk Committee of the Bank or the Ultimate Parent Bank, as appropriate. Likewise oversight andmonitoring of material risk exposures of the Banking Group is undertaken by the Risk Management functions of the Bankand also the Ultimate Parent Bank. Throughout this document, references to the Risk Management of the operations
within the entities comprising the Banking Group, implicitly involves oversight by both related entities.

Credit risk
Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations. The Banking
Group assumes credit risk in a wide range of lending and other activities in diverse markets and many jurisdictions.
Credit risks arise not only from traditional lending to customers, but also from inter-bank, treasury, international tradeand capital market activities around the world.
The Banking Group has an overall lending objective of sound growth for appropriate returns. The credit risk objectives of
the Banking Group are set by the Board and are implemented and monitored within a tiered structure of delegatedauthority, designed to oversee multiple facets of credit risk, including business writing strategies, credit policies/controls,
single exposures, portfolio monitoring and risk concentrations.
Credit risk management
A credit risk management framework is in place across the Banking Group with the aim of ensuring a structured anddisciplined approach is maintained in achieving the objectives set by the Board. The framework focuses on policies,
people, skills, controls, risk concentrations and portfolio balance. It is supported by portfolio analysis and businesswriting strategies, which guide lending decisions and identify segments of the portfolio requiring attention. The
effectiveness of the framework is monitored through a series of compliance and reporting processes.
An independent Risk Management function is staffed by risk specialists. In regard to credit risk management, theobjective is for Risk Management to provide robust credit policies, to make independent credit decisions, and to provide
strong support to front line staff in the application of sound credit practices. In addition to providing independent credit
assessment on lending decisions, Risk Management also performs key roles in portfolio management by development andvalidation of credit risk measurement systems, loan asset quality reporting, and development of credit standards andpolicies.
The credit risk management framework is top down. The framework is defined by the Banking Group's credit principles
and policies. The effectiveness of the credit risk management framework is validated through the compliance andmonitoring processes.
Risk Management's responsibilities for credit risk policy and management are executed through dedicated departments,
which support the business units. All major business unit credit decisions require approval from both business writers andindependent risk personnel.
Credit risk is controlled through a combination of approvals, limits, reviews and monitoring procedures that are carried out
on a regular basis, the frequency of which is dependent upon the level of risk. Credit risk policy and management is
executed through the Chief Risk Officer, who is responsible for various dedicated areas within the Risk Management
division. Wholesale Risk services the Banking Group's commercial, investment banking and rural lending activities
through dedicated teams. Retail Risk services the Banking Group's small business and consumer customers. The Credit
Reporting team within Risk Management provides an independent overview of credit risk across the Bank at a portfolio
level. The Banking Group allows sole discretion for transaction approvals at the business unit level in both the retail andwholesale lending sectors, with larger transactions approved by Retail Risk and Wholesale Risk.
The credit risk review function within Global Internal Audit also provides a further independent check mechanism toensure the quality of credit decisions. This includes providing independent periodic checks on asset quality andcompliance with the agreed standards and policies across the Banking Group.

ANZ Bank New Zealand Limited

47

Notes to the Financial Statements
Country risk management
Some customer credit risks involve country risk, whereby actions or events at a national or international level could
disrupt servicing of commitments. Country risk arises when payment or discharge of an obligation will, or could, involvethe flow of funds from one country to another or involve transactions in a currency other than the domestic currency of
the relevant country.
Country ratings are assigned to each country where the Banking Group incurs country risk and have a direct bearing on
the Banking Group's risk appetite for each country. The country rating is determined through a defined methodology
based around external ratings agencies’ ratings and internal specialist opinion. It is also a key risk consideration in the
Banking Group's capital pricing model for cross border flows.
The recording of country limits provides the Banking Group with a means to identify and control country risk. Country
limits ensure that there is a country-by-country ceiling on exposures that involve country risk. They are recorded by time
to maturity and purpose of exposure, e.g., trade, markets and project finance. Country limits are managed centrally by
the Ultimate Parent Bank, through a global country risk exposure management system managed by a specialist unit within
Institutional Risk.
Portfolio stress testing
Stress testing is integral to strengthening the predictive approach to Risk Management and is a key component tomanaging risk appetite and business writing strategies. It creates greater understanding of impacts on financial
performance through modelling relationships and sensitivities between geographic, industry and business unit exposures
under a range of macro economic scenarios.
The Ultimate Parent Bank has a dedicated stress testing team that assists business and risk executives in the Banking
Group to model and report periodically to management and the Board Risk Committee on a range of scenarios and stresstests.
Portfolio analysis and reporting
Credit portfolios are actively monitored at each layer of the risk structure to ensure credit deterioration is quickly detected
and mitigated through the implementation of remediation strategies.
Businesses incurring credit risk undertake regular and comprehensive analysis of their credit portfolios.
Issue
identification and adherence to performance benchmarks are reported to Risk Management and business executives
through a series of reports including monthly ‘asset quality’ reporting. This process is undertaken by or overseen by Risk
Management ensuring an efficient and independent conduit exists to identify and communicate emerging credit issues to
Banking Group executives and the Board.
Collateral management
Banking Group credit principles specify lending only what the counterparty has the capacity and ability to repay and the
Banking Group sets limits on the acceptable level of credit risk. Acceptance of credit risk is firstly based on the
counterparty’s assessed capacity to meet contractual obligations (i.e., interest and capital repayments). Obtaining
collateral is only used to mitigate credit risk. Procedures are designed to ensure collateral is managed, legally
enforceable, conservatively valued and adequately insured where appropriate. Banking Group policy sets out the types of
acceptable collateral, including:
•
•
•
•
•

Cash;
Mortgages over property;
Charges over business assets, e.g., premises, stock and debtors;
Charges over financial instruments, e.g., debt securities and equities in support of trading facilities; andFinancial guarantees.

In the event of customer default, any loan security is usually held as mortgagee in possession while action is taken to
realise it. Therefore the Banking Group does not usually hold any real estate or other assets acquired through theenforcement of security.
The Banking Group uses ISDA Master Agreements to document derivatives' activities to limit exposure to credit losses.
The credit risk is reduced by a master agreement to the extent that, if an event of default occurs, all contracts with thecounterparty are terminated and settled on a net basis. Further, it is the Banking Group's preferred practice to include all
products covered by the ISDA in the Credit Support Annex (“CSA”) in order to achieve further credit exposure reduction.
Under a CSA, collateral is passed between the parties, depending on the aggregate mark-to-market (positive or negative)of derivative trades between the two entities, to mitigate the market contingent counterparty risk inherent in theoutstanding positions.
Concentrations of credit risk
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities
within the same geographic region, or when they have similar risk characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other conditions.
The Banking Group monitors its portfolios to identify and assess risk concentrations. Concentration limits are used toguard against large single customer or correlated credit risks. Risk Management, Business Unit executives and senior
management monitor large exposure concentrations through a monthly list of the Banking Group's top corporate
exposures. The ANZ Credit and Market Risk Committee and Board Risk Committee regularly review a comprehensive listof single customer concentration limits and customers’ adherence to these limits.
Analyses of financial assets by industry sector are based on Australian and New Zealand Standard Industrial Classification(“ANZSIC”) codes.

ANZ Bank New Zealand Limited

48

Notes to the Financial Statements
Concentrations of credit risk analysis
Banking Group$ millions

30/09/2012

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

Derivative
financial
instruments

Net loans and Other financial
advances
assetsCredit related
commitments
3

Total

19,071

Industry
Agriculture

-

-

60

17,342

123

1,546

Forestry, fishing and mining

24

-

14

894

6

322

1,260

Business and property services

19

-

51

9,030

64

2,542

11,706

Construction

-

-

2

1,015

7

1,035

2,059

Entertainment, leisure and tourism

-

-

41

1,165

8

483

1,697

Finance and insurance

2,345

3,696

11,322

501

32

1,349

19,245Government and local authority 1

13,433

2,002

8,574

405

1,332

9

1,111

Manufacturing

43

6

98

2,914

21

2,509

5,591

Personal lending

-

-

-

47,339335

10,99058,664Retail trade

28

6

43

1,772

13

1,102

2,964

Transport and storage

25

50

93

1,657

12

579

2,416

Wholesale trade

54

-

21

1,195

8

1,375

2,653

Other2

13

63

603

1,798

13

2,302

4,792

4,553

12,39512,753

87,954651

27,245145,551

Provision for credit impairment

-

-

-

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

Fair value hedge adjustment
Unearned finance income anddeferred / capitalised fees

-

-

-

(2)

-

-

(2)

-

-

-

(220)

-

-

(220)

4,553

12,39512,75386,678651

27,245144,275

3,873

10,524

3,582

85,070639

27,245130,933

680

1,871

9,171

1,608

12

-

13,342

4,553

12,39512,75386,678651

27,245144,275

Total financial assets
Geography
New ZealandOverseas
Total financial assets

ANZ Bank New Zealand Limited

49

Notes to the Financial Statements
Concentrations of credit risk analysis
Banking Group$ millions

30/09/2011

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

Derivative
financial
instruments

Net loans and Other financial
advances
assetsCredit related
commitments
3

Total

19,416

Industry
Agriculture

38

-

95

17,681125

1,477

Forestry, fishing and mining

9

-

12

498

4

326

849

Business & property services

24

-

19

8,847

62

2,054

11,006

Construction

-

-

4

1,073

7

863

1,947

Entertainment, leisure and tourism

-

-

43

1,238

8

419

1,708

Finance and insurance

4,904

3,501

14,159

1,041

258

1,755

25,618Government and local authority1

11,262

1,887

6,253

537

1,505

10

1,070

Manufacturing

41

10

197

2,640

19

3,304

6,211

Personal lending

-

-

-

43,962329

9,489

53,780Retail trade

75

2

32

1,778

11

878

2,776

Transport and storage

19

57

42

1,630

11

639

2,398

Wholesale trade

51

-

106

1,218

8

1,306

2,689

Other2

36

54

389

1,905

13

2,278

4,675

7,084

9,877

15,63585,016865

25,858144,335

Provision for credit impairment

-

-

-

(1,156)--(1,156)

Fair value hedge adjustment
Unearned finance income anddeferred / capitalised fees

-

-

-

22

-

-

22

-

-

-

(272)

-

-

(272)

7,084

9,877

15,63583,610865

25,858142,929

New Zealand

5,657

8,017

4,080

82,202865

25,858

126,679

Overseas

1,427

1,860

11,555

1,408

-

-

16,250Total financial assets

7,084

9,877

15,63583,610865

25,858142,929

Total financial assets
Geography

ANZ Bank New Zealand Limited

50

Notes to the Financial StatementsBank$ millions

30/09/2012

Liquid assets
and duefrom otherfinancial
institutions

Tradingsecurities
andavailableDerivative
for-salefinancialassets instruments

Net loansandDue from
advances subsidiaries

Other Credit related
financial commitments
3
assets

Total

Industry
Agriculture

-

-

60

17,043

-

101

1,511

Forestry, fishing and mining

24

-

14

754

-

4

320

18,715
1,116

Business and property services

19

-

51

8,894

-

53

2,524

11,541

Construction

-

-

2

766

-

5

993

1,766

Entertainment, leisure and tourism

-

-

41

1,128

-

7

478

1,654

Finance and insurance

2,329

3,693

11,357494

11,61932

1,991

31,515Government and local authority1

13,202

2,002

8,574

405

1,103

-

7

1,111

Manufacturing

43

6

98

2,773

-

16

2,491

5,427

Personal lending

-

-

-

46,741-

277

10,98258,000Retail trade

28

6

43

1,594

-

9

1,013

2,693

Transport and storage

25

50

93

1,303

-

8

521

2,000

Wholesale trade

54

-

21

1,135

-

7

1,356

2,573

Other2

13

63

603

1,565

-

9

2,294

4,547

4,537

12,392

12,78885,293

11,619535

27,585

154,749

Provision for credit impairment

-

-

-

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

Fair value hedge adjustment
Unearned finance income anddeferred / capitalised fees

-

-

-

(2)

-

-

-

(2)

-

-

-

44

-

-

-

44

4,537

12,392

12,78884,31911,619535

27,585

153,775

3,857

10,521

3,617

82,711

11,619525

27,585

140,435

680

1,871

9,171

1,608

-

10

-

13,3404,537

12,392

12,78884,31911,619535

27,585

153,775

Total financial assets
Geography
New ZealandOverseas
Total financial assets

ANZ Bank New Zealand Limited

51

Notes to the Financial StatementsBank$ millions

30/09/2011

Liquid assets
and duefrom otherfinancial
institutions

Tradingsecurities
andavailableDerivative
for-salefinancialassets instruments

Net loansandDue from
advances subsidiaries

Other Credit related
financial commitments
3
assets

Total

Industry
Agriculture

38

-

95

17,378

-

96

1,477

Forestry, fishing and mining

9

-

12

354

-

2

326

19,084703

Business and property services

24

-

51

8,700

-

48

2,054

10,877

Construction

-

-

4

872

-

4

863

1,743

Entertainment, leisure and tourism

-

-

43

1,198

-

6

419

1,666

Finance and insurance

4,892

3,465

14,181

1,034

11,753335

4,467

40,127

Government and local authority1

11,020

1,887

6,253

537

1,266

-

7

1,070

Manufacturing

41

10

197

2,473

-

14

3,304

6,039

Personal lending

-

-

-

43,417

-

254

9,489

53,160Retail trade

75

2

42

1,614

-

8

838

2,579

Transport and storage

19

57

106

1,272

-

7

599

2,060

Wholesale trade

51

-

21

1,164

-

6

1,306

2,548

Other2

36

54

389

1,665

-

9

2,278

4,431

7,072

9,841

15,67882,407

11,753796

28,490156,037

Provision for credit impairment

-

-

-

(1,112)---(1,112)

Fair value hedge adjustment
Unearned finance income anddeferred / capitalised fees

-

-

-

22

-

-

-

22

-

-

-

(11)

-

-

-

(11)

7,072

9,841

15,67881,306

11,753796

28,490154,936

New Zealand

5,645

7,987

4,106

79,942

11,753796

28,490138,719

Overseas

1,427

1,854

11,572

1,364

-

-

-

16,217

Total financial assets

7,072

9,841

15,67881,306

11,753796

28,490154,936

Total financial assets
Geography

1
2
3

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

Maximum exposure to credit risk
The following table presents the maximum exposure to credit risk for on and off balance sheet financial instruments
before taking account of the financial effect of any collateral held or other credit enhancements, unless such collateralmeets the offsetting criteria in NZ IAS 32 Financial Instruments: Presentation.
The table also provides a quantification of the value of the financial charges the Banking Group holds over a borrower’s
specific asset (or assets) where the Banking Group is able to enforce the collateral in satisfying a debt in the event of theborrower failing to meet its contractual obligations. For the purposes of this disclosure, where the collateral held is valued
at more than the corresponding credit exposure, the financial effect is capped at the value of the credit exposure. In
respect of derivative financial instruments, the assessed collateral is the amount of cash collateral received and does notinclude the effect of any netting arrangements under ISDAs.
The most common types of collateral include:•••

Security over real estate including residential, commercial, industrial and rural property
Cash deposits
Other security over business assets including specific plant and equipment, inventory and accounts receivables.

The Banking Group also manages its credit risk by accepting other types of collateral such as guarantees and security
interests over the assets of a customer’s business. The assignable value of such credit mitigants is less certain and theirfinancial effect has not been quantified for disclosure purposes. Credit exposures shown as not fully secured may benefit
from such credit mitigants.

ANZ Bank New Zealand Limited

52

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

Maximum
exposure tocredit risk

Bank

UnsecuredFinancial effect portion of creditof collateralexposure

Maximum
exposure tocredit risk

UnsecuredFinancial effect portion of creditof collateralexposure

On and off-balance sheet
positions
Liquid assets

2,627

325

2,302

2,611

325

Due from other financial institutions

1,722

270

1,452

1,722

270

2,286
1,452

Trading securities

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

12,531

12,753257

12,496

12,788257

Available-for-sale assets

54

-

54

54

-

54

Net loans and advances

86,67878,4608,218

84,31976,468

7,851
11,619Due from subsidiaries

-

-

-

11,619-Other financial assets

651

351

300

535

351

184

Credit related commitments

27,24512,307

14,93827,585

12,055

15,530Total exposure to credit risk

144,068

91,97052,098

153,571

89,726

63,84530/09/2011

On and off-balance sheet
positions
Liquid assets

2,266

50

2,216

2,254

50

2,204

Due from other financial institutions

4,629

1,692

2,937

4,629

1,692

2,937

Trading securities

9,466

-

9,466

9,466

-

9,466

Derivative financial instruments

15,635

1,475

14,16015,678

1,475

14,203Available-for-sale assets

289

-

289

288

-

288

Net loans and advances

83,61075,511

8,099

81,30673,5897,717
11,753Due from subsidiaries

-

-

-

11,753-

Other financial assets

865

560

305

796

560

236

Credit related commitments

25,858

11,43914,41928,49013,425

15,065

Total exposure to credit risk

142,618

90,72751,891

154,660

90,791

63,869Credit quality
A core component of the Banking Group’s credit risk management capability is the risk grading framework used across all
major business units. A set of risk grading principles and policies is supported by a complementary risk grading
methodology. Pronouncements by the International Basel Committee on Banking Supervision have been encapsulated inthese principles and policies including governance, validation and modelling requirements.
The Banking Group’s risk grade profile changes dynamically through new counterparty lending and existing counterparty
movements in either risk or volume. All counterparty risk grades are subject to frequent review, including statistical andbehavioural reviews in consumer and small business segments, and individual counterparty reviews in segments withlarger single name borrowers.
Impairment and provisioning of financial assets
The Banking Group's policy relating to the recognition and measurement of impaired assets conforms to the RBNZ'sguidelines.
Loans are classified as either performing or impaired. Impaired assets are credit exposures where: there is doubt as towhether the full contractual amount (including interest) will be received; a material credit obligation is 90 days past due
but not well secured; they are portfolio managed and can be held for up to 180 days past due; or concessional terms havebeen provided due to the financial difficulties of the customer.
An exposure is classified as past due but not impaired (less than 90 days) where the value of collateral is sufficient to
repay both the principal debt and all other potential interest and there is no concern as to the creditworthiness of thecounterparty in question.
The past due but not impaired (over 90 days) classification applies where contractual payments are past due by 90 daysor more, or where the facility remains outside of contractual arrangements for 90 or more consecutive days, but the
Banking Group believes that impairment is not appropriate on the basis of the level of security/collateral available, or thefacility is portfolio managed.
The provision for credit impairment represents management’s best estimate of the losses incurred in the loan portfolio atbalance date based on its experienced judgement.
Distribution of gross loans and advances assets by credit quality
The credit quality of the portfolio of loans and advances is assessed by reference to the Banking Group’s risk grading
principles and policies supported by a complementary risk grading methodology.

ANZ Bank New Zealand Limited

53

Notes to the Financial Statements
Distribution by asset class of gross loans and advances by credit quality
Banking Group$ millions

Retail Other retailmortgages
exposuresBank

Non-retail
exposures

Total

Retail Other retailmortgages
exposures

Non-retail
exposures

Total

30/09/2012

Strong risk rating

33,2581,140

19,99454,39233,2581,140

19,36253,760

8,635

2,466

15,59026,691

8,635

1,590

14,641

24,866

891

408

2,118

3,417

891

387

2,042

3,320

42,784

4,014

37,70284,50042,784

3,117

36,04581,946

1 to 5 days

326

139

458

923

326

132

456

914

6 to 29 days

363

92

181

636

363

77

171

611

1 to 29 days

689

231

639

1,559

689

209

627

1,525

30 to 59 days

127

32

67

226

127

27

66

220

60 to 89 days

48

17

28

93

48

15

25

88

90 days and over

91

33

86

210

91

30

81

202

Total past due but not impaired

955

313

820

2,088

955

281

799

2,035

Total impaired assets

313

44

1,009

1,366

313

44

955

1,312

44,052

4,371

39,531

87,95444,052

3,442

37,79985,293

Strong risk rating

30,966

1,071

17,29749,33430,966

1,071

16,401

48,438Satisfactory risk rating
Substandard but not past due or
impaired

7,277

2,312

16,561

26,150

7,277

1,590

15,73924,606

1,484

557

3,489

5,530

1,484

546

3,459

5,489

Total neither past due nor impaired

39,7273,940

37,34781,01439,7273,207

35,59978,533

1 to 5 days

336

126

545

1,007

336

126

536

998

6 to 29 days

365

94

119

578

365

70

116

551

1 to 29 days

701

220

664

1,585

701

196

652

1,549

30 to 59 days

167

35

99

301

167

27

97

291

60 to 89 days

60

18

24

102

60

15

24

99

90 days and over

133

38

117

288

133

32

107

272

1,061

311

904

2,276

1,061

270

880

2,211

471

61

1,194

1,726

471

61

1,131

1,663

41,2594,312

39,44585,016

41,2593,538

37,61082,407

Satisfactory risk rating
Substandard but not past due or
impaired
Total neither past due nor impaired
Past due but not impaired:30/09/2011

Past due but not impaired:

Total past due but not impaired
Total impaired assets

Credit quality of gross loans and advances neither past due nor impaired
The credit quality of financial assets is assessed by the Banking Group using internal ratings which aim to reflect therelative ability of counterparties to fulfil, on time, their credit-related obligations, and is based on their current probabilityof default.
Internal ratings
Strong risk rating - Corporate customers demonstrating superior stability in their operating and financial performanceover the long-term, and whose debt servicing capacity is not significantly vulnerable to foreseeable events. Retailcustomers with low expected loss. This rating band broadly corresponds to ratings “Aaa” to “Ba1” and “AAA” to “BB+” of
Moody's Investors Service and Standard & Poor's respectively.
Satisfactory risk rating - Corporate customers consistently demonstrating sound operational and financial stability overthe medium to long term, even though some may be susceptible to cyclical trends or variability in earnings. Retailcustomers with moderate expected loss. This rating band broadly corresponds to ratings “Ba2” to “B1” and “BB” to “B+”of Moody's Investors Service and Standard & Poor's respectively.
Substandard but not past due or impaired - Corporate customers demonstrating some operational and financial
instability, with variability and uncertainty in profitability and liquidity projected to continue over the short and possibly
medium term. Retail customers with higher expected loss. This rating band broadly corresponds to ratings “B2” to “Caa”
and “B” to “CCC” of Moody's Investors Service and Standard & Poor's respectively.
Movements in the rating categories between balance dates are due to both changes in the underlying internal ratings
applied to customers and to new loans written or loans rolling off.

ANZ Bank New Zealand Limited

54

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

Market risk
Market risk is the risk to the Banking Group’s earnings arising from changes in interest rates, currency exchange rates,
credit spreads, or from fluctuations in bond, commodity or equity prices. Market risk is generated through both trading
activities and the interest rate risk inherent in the banking book.
The Banking Group conducts trading operations in interest rates, foreign exchange, commodities and debt securities.
Trading operations largely focus on supporting customer hedging and investing activities, rather than outright proprietary
trading. A medium market risk appetite has been set for the Banking Group, which is reflected in its low/moderatemarket risk limit framework.
The Banking Group has a detailed risk management and control framework to support its trading and balance sheet
management activities. The framework incorporates a risk measurement approach to quantify the magnitude of market
risk within trading and balance sheet portfolios. This approach, and related analysis, identifies the range of possible
outcomes that can be expected over a given period of time, establishes the relative likelihood of those outcomes andallocates an appropriate amount of capital to support these activities.
Market risk management and control responsibilities
The Board Risk Committee has delegated responsibility for the oversight of market risk to the Asset & Liability Committee(“ALCO”), chaired by the Chief Executive Officer of the Banking Group. ALCO are required to ensure that market risk
exposure across Traded and Non-Traded portfolios remains within the risk appetite specified by the Board Risk
Committee. ALCO receive regular reporting on a range of trading and balance sheet market risk exposures.
The Risk Management division of the Banking Group, through the Chief Risk Officer, is responsible for the day-to-day
oversight of market risk. This includes the implementation of a comprehensive limit and policy framework to control theamount of risk that the Banking Group will accept. Market risk limits are allocated at various levels and are reported andmonitored on a daily basis. The detailed limit framework allocates individual limits to manage and control asset classes(e.g., interest rates, foreign exchange), risk factors (e.g., interest rates, volatilities) and profit and loss limits (to monitor
and manage the performance of the trading portfolios).
Additional oversight and monitoring of material risk exposures of the Banking Group is undertaken by the Risk
Management functions of the Ultimate Parent Bank.
Within overall strategies and policies, the control of market risk is the joint responsibility of business units and Risk
Management, with the delegation of market risk limits from the Board Risk Committee to both Risk Management and thebusiness units.
These risks are monitored daily against a comprehensive limit framework that includes Value at Risk, aggregate market
position and sensitivity, product and geographic thresholds. To facilitate the management, control, measurements andreporting of market risk, the Banking Group has grouped market risk into two broad categories:a.

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

Currency risk is the potential loss arising from the decline in the value of a financial instrument due to changes inforeign exchange rates or their implied volatilities.

•

Interest rate risk is the potential loss arising from the change in the value of a financial instrument due to changes
in market interest rates or their implied volatilities.

•

Credit spread risk is the potential loss arising from a change in value of an instrument due to a movement of its
margin or spread relative to a bench mark.

ANZ Bank New Zealand Limited

55

Notes to the Financial Statementsb.

Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest rate risk, liquidity, and the risk to capital and earnings as aresult of movements in market rates.
Some instruments do not fall into either category but also expose the Banking Group to market risk. These include
equity securities classified as available-for-sale. Regular reviews are performed to substantiate the valuation of thesetypes of instruments.

In all trading areas the Banking Group has implemented models that calculate Value at Risk (“VaR”) exposures, monitor
risk exposures against defined limits on a daily basis, and “stress test” trading portfolios.
VaR measure
A key measure of market risk is VaR. VaR is a statistical estimate of the likely daily loss and is based on historical market
movements.
The confidence level is such that there is 97.5% or 99% probability that the loss will not exceed the VaR estimate on any
given day. Conversely there is a 2.5% or 1% probability of the decrease in market value exceeding the VaR estimate on
any given day. The 99% confidence level encompasses a wider range of potential outcomes.
The Banking Group’s standard VaR approach for both traded and non-traded risk is historical simulation. The Banking
Group calculates VaR using historical changes in market rates and prices over the previous 500 business days. Tradedand Non-Traded VaR is calculated using a one-day holding period.
It should be noted that because VaR is driven by actual historical observations, it is not an estimate of the maximum loss
that the Banking Group could experience from an extreme market event. As a result of this limitation, the Banking Grouputilises a number of other risk measures (e.g. stress testing) and associated detailed control limits to measure andmanage market risk.
Traded market risks
Banking Group$ millions

30/09/2012
Foreign exchange
riskInterest rate risk
Credit spread risk
Diversification
benefit
Total VaR
30/09/2011
Foreign exchange
riskInterest rate risk

Banking Group

Value at risk at 97.5% confidenceHigh forLow for Average for

Value at risk at 99% confidenceHigh forLow for Average for

Period end

year

year

year

Period end

year

year

year

0.1

1.0

0.1

0.3

0.2

1.4

0.2

0.4

1.9
0.3

4.4
1.1

1.3
0.2

2.6
0.6

2.7
0.4

6.4
1.2

1.6
0.2

3.6
0.7

(0.4)

n/a

n/a

(0.9)

(0.7)

n/a

n/a

(1.2)

1.9

4.4

1.2

2.6

2.6

6.3

1.5

3.5

0.4
1.9

0.9
4.3

0.2
1.2

0.4
2.8

0.4
2.3

1.3
7.2

0.3
1.6

0.5
3.9

Credit spread risk
Diversification
benefit

0.8

1.0

0.3

0.6

0.9

1.1

0.4

0.7

(1.1)

n/a

n/a

(1.0)

(1.4)

n/a

n/a

(1.3)

Total VaR

2.0

4.4

1.4

2.8

2.2

6.7

1.8

3.8

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

ANZ Bank New Zealand Limited

56

Notes to the Financial Statements
Interest rate risk
The objective of balance sheet interest rate risk management is to mitigate the negative impact of movements inwholesale interest rates on the earnings of the Banking Group's banking book. Non-traded interest rate risk relates to thepotential adverse impact to earnings from changes in market interest rates. This risk arises from two principal sources:
mismatches between the repricing dates of interest bearing assets and liabilities; and the investment of capital and othernon-interest bearing liabilities in interest bearing assets.
As part of normal business activity the Banking Group has additional risks from fixed rate mortgage prepayments andbasis risk:•

Prepayment risk is the potential risk to earnings or market value from when a customer prepays all or part of a fixed
rate mortgage and where any customer fee charged is not sufficient to offset the loss in value to the Banking Groupof this financial asset due to movements in interest rates and other pricing factors. As far as possible the true
economic cost is passed through to customers in line with their terms and conditions and relevant legislation.

•

Basis risk is the potential risk to earnings or market value from differences between customer pricing and wholesalemarket pricing. This is managed through active review of product margins.

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

Non-traded interest rate risk VaR
Banking GroupHigh forLow for

Average for

Period end

year

year

year

8.7

10.9

7.2

8.8

7.9

13.5

7.3

9.3

$ millions

30/09/2012

Value at risk at 97.5% confidence
30/09/2011

Value at risk at 97.5% confidenceb.

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

A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest
income over the succeeding 12 months. This is a standard risk quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and comparative periods –expressed as a percentage of reported net interest income. The sign indicates the nature of the rate sensitivity with apositive number signifying that a rate increase is positive for net interest income over the next 12 months. Conversely, anegative number signifies that a rate increase is negative for the next 12 months’ net interest income.
Banking Group
30/09/2012

30/09/2011

Period end

1.1%

1.4%

Maximum exposure

2.3%

1.5%

Minimum exposure

0.9%

-0.1%

Average exposure (in absolute terms)

1.7%

0.7%

Impact of 1% rate shock

The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any
point has implications for future net interest income. The Banking Group quantifies the potential variation in future netinterest income as a result of these repricing mismatches each month using a static gap model.
The majority of the Banking Group’s non-traded interest exposure exists in New Zealand. A separate balance sheet
simulation process supplements the static gap information. This allows the net interest income outcomes of a number ofdifferent scenarios, with different market interest rate environments and future balance sheet structures, to be identified.
This better enables the Banking Group to quantify the interest rate risks associated with the balance sheet and toformulate strategies to manage current and future risk profiles.

ANZ Bank New Zealand Limited

57

Notes to the Financial Statements
Interest rate sensitivity gap
The interest rate sensitivity gap analysis provides information about the Banking Group's exposure to interest rate risk.
Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the corresponding
liability funding. These mismatches are managed within policy guidelines for mismatch positions.
The following tables represent the interest rate sensitivity of the Banking Group's assets, liabilities and off balance sheet
instruments by showing the periods in which these instruments may reprice (that is, when interest rates applicable toeach asset or liability can be changed).
The repricing gaps are based upon contractual repricing information except where the contractual terms are notconsidered to be reflective of actual interest rate sensitivity, for example, those assets and liabilities priced at the Banking
Group’s discretion. In such cases, the rate sensitivity is based upon historically observed and/or anticipated ratesensitivity. This treatment excludes the effect of basis risk between customer pricing and wholesale market pricing.
Banking Group
30/09/2012

Less than

3 to 6

6 to 12

1 to 2

Beyond Not bearing

Total

3 months

monthsmonthsyears

2 years

interest

Liquid assets

2,831

2,626

-

-

-

-

205

Due from other financial institutions

1,722

1,653

-

-

-

-

69

Trading securities

12,338

1,465

161

3,042

1,121

6,549

-

Derivative financial instruments

12,753

-

-

-

-

-

12,753$ millions

AssetsAvailable-for-sale assets

57

46

5

3

-

-

3

Net loans and advances

86,67863,168

3,144

6,818

8,967

4,431

150

Other financial assets

651

104

11

27

-

-

509

Total financial assets

117,030

69,062

3,321

9,890

10,088

10,98013,689Liabilities
Due to other financial institutions

1,759

1,073

-

-

-

154

532

Deposits and other borrowings

73,65247,398

11,939

6,694

1,641

1,142

4,838

Due to Immediate Parent Company

740

740

-

-

-

-

-

Derivative financial instruments

13,930

-

-

-

-

-

13,930Bonds and notes-

17,244

6,266

-

2,495

253

8,230

Loan capital

1,168

-

333

835

-

-

-

Other financial liabilities

1,248

14

3

1

-

88

1,142

Total financial liabilities

109,741

55,491

12,275

10,025

1,894

9,614

20,442

Hedging instruments

-

2,206

2,867

(9,177)

2,490

1,614

-

Interest sensitivity gap

7,289

15,777(6,087)(9,312)

10,6842,980(6,753)

ANZ Bank New Zealand Limited

58

Notes to the Financial Statements
Banking Group
30/09/2011

Less than

3 to 6

6 to 12

1 to 2

Beyond Not bearing

Total

3 months

monthsmonthsyears

2 years

interest

Liquid assets

2,455

2,266

-

-

-

-

189

Due from other financial institutions

4,629

3,981

-

-

-

-

648

Trading securities

9,466

2,684

18

496

2,218

4,050

-

Derivative financial instruments

15,635

-

-

-

-

-

15,635$ millions

AssetsAvailable-for-sale assets

411

94

72

122

-

-

123

Net loans and advances

83,61062,082

4,353

6,676

6,436

3,513

550

Other financial assets

865

66

4

7

14

6

768

Total financial assets

117,071

71,173

4,447

7,301

8,668

7,569

17,913Liabilities
Due to other financial institutions

3,711

3,238

-

-

-

62

411

Deposits and other borrowings

69,23846,510

11,227

4,427

1,080

1,517

4,477

Due to Immediate Parent Company

174

174

-

-

-

-

-

Derivative financial instruments

15,118

-

-

-

-

-

15,118

Bonds and notes

17,406

6,875

-

2,110

4,348

4,073

-

Loan capital

1,988

-

250

903

835

-

-

Other financial liabilities

2,237

24

-

-

2

189

2,022

Total financial liabilities

109,872

56,821

11,477

7,440

6,265

5,841

22,028

Hedging instruments-(6,788)

8,598(3,634)

1,624

200

-

Interest sensitivity gap

7,199

7,564

1,568

(3,773)

4,027

1,928

(4,115)Less than

3 to 6

6 to 12

1 to 2

Beyond Not bearing

Total

3 months

monthsmonthsyears

2 years

interest

Liquid assets

2,815

2,610

-

-

-

-

205

Due from other financial institutions

1,722

1,653

-

-

-

-

69

Trading securities

12,338

1,465

161

3,042

1,121

6,549

-

Derivative financial instruments

12,788

-

-

-

-

-

12,788Bank
30/09/2012$ millions

AssetsAvailable-for-sale assets

54

46

5

3

-

-

-

Net loans and advances

84,31962,051

3,031

6,463

8,653

3,989

132

Due from subsidiaries

11,61911,619

-

-

-

-

-

Other financial assets

535

-

-

-

-

-

535

Total financial assets

126,190

79,444

3,197

9,508

9,774

10,53813,729Liabilities
Due to other financial institutions

1,555

869

-

-

-

154

532

Deposits and other borrowings

66,731

43,647

9,630

6,089

1,522

1,009

4,834

Due to subsidiaries

37,94022,221

2,615

3,868

1,775

7,104

357

740

740

-

-

-

-

-

13,930

-

-

-

-

-

13,930Bonds and notes

2,500

637

-

100

176

1,587

-

Loan capital

1,168

-

333

835

-

-

-

Other financial liabilities

1,065

14

3

1

-

88

959

Total financial liabilities

125,629

68,128

12,581

10,893

3,473

9,942

20,612

Hedging instruments-(1,803)

3,429(7,878)

4,188

2,064

-

Interest sensitivity gap

561

9,513

(5,955)(9,263)

10,4892,660(6,883)Due to Immediate Parent Company
Derivative financial instruments

ANZ Bank New Zealand Limited

59

Notes to the Financial StatementsBank
30/09/2011

Less than

3 to 6

6 to 12

1 to 2

Beyond Not bearing

Total

3 months

monthsmonthsyears

2 years

interest

Liquid assets

2,443

2,254

-

-

-

-

189

Due from other financial institutions

4,629

3,981

-

-

-

-

648

Trading securities

9,466

2,684

18

496

2,218

4,050

-

Derivative financial instruments

15,678

-

-

-

-

-

15,678$ millions

AssetsAvailable-for-sale assets

375

94

72

122

-

-

87

Net loans and advances

81,30660,977

4,207

6,459

5,952

3,182

529

Due from subsidiaries

11,753

10,841

-

-

-

-

912

Other financial assets

796

-

-

-

-

-

796

Total financial assets

126,446

80,831

4,297

7,077

8,170

7,232

18,839Liabilities
Due to other financial institutions

3,711

3,238

-

-

-

62

411

Deposits and other borrowings

63,00742,302

9,781

4,089

951

1,407

4,477

Due to subsidiaries

37,71623,851

1,924

3,233

5,285

3,343

80

174

174

-

-

-

-

-

Derivative financial instruments

15,118

-

-

-

-

-

15,118

Bonds and notes

2,073

642

-

148

98

1,185

-

Loan capital

1,988

-

250

903

835

-

-

Other financial liabilities

2,075

24

-

-

2

189

1,860

Total financial liabilities

125,862

70,231

11,955

8,373

7,171

6,186

21,946

Hedging instruments-(5,989)7,043(3,446)

1,848

544

-

Interest sensitivity gap

584

4,611

(615)

(4,742)

2,847

1,590

(3,107)

Due to Immediate Parent Company

Equity price risk
The portfolio of financial assets classified as available-for-sale contains equity investment holdings held for longer term
strategic intentions. These equity investments are also subject to market risk which is not captured by the VaR measures
for traded and non-traded market risks. The fair value of these securities as at 30 September 2012 was $3 million(30/09/2011 $122 million). A 10 per cent reduction in the value of the available-for-sale equity securities would not bematerial.
Foreign currency related risksThis risk relates to the potential loss arising from the decline in the value of foreign currency positions due to changes inforeign exchange rates.
For non-traded instruments in foreign currencies, the risk is monitored and is hedged in accordance with policy. Risk
arising from individual funding and other transactions is actively managed. The total amounts of unmatched foreign
currency assets and liabilities, and consequent foreign currency exposures arising from each class of financial asset andliability, whether recognised or unrecognised, within each currency are not material.
The net open position in each foreign currency represents the net on-balance sheet assets and liabilities in that foreign
currency aggregated with the net expected future cash flows from off-balance sheet purchases and sales from foreignexchange transactions in that foreign currency. The amounts are stated in New Zealand dollar equivalents translatedusing the spot exchange rates as at balance sheet date.
Banking Group$ millions

Bank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

Australian dollar

1

(4)

1

(4)

Euro

1

-

1

-

Japanese yen

1

-

1

-

Pound sterling

1

-

1

-

US dollar

1

2

1

2

Other

1

-

1

-

Total net open position

6

(2)

6

(2)

Net open position

ANZ Bank New Zealand Limited

60

Notes to the Financial Statements
Liquidity risk
Liquidity risk is the risk that the Banking Group is unable to meet its payment obligations as they fall due. The timing
mismatch of cash flows and the related liquidity risk is inherent in all banking operations and is closely monitored by the
Banking Group.
The Banking Group’s liquidity and funding risks are governed by a detailed policy framework which is approved by the
Risk Committees of the Bank’s and Ultimate Parent Bank’s Boards. The core objective of the Banking Group’s framework
is to manage liquidity to meet obligations as they fall due, without incurring unacceptable losses.
Central to the Banking Group’s liquidity risk management approach is the establishment of a liquidity risk appetite
framework to which the Banking Group must conform at all times. The risk appetite for liquidity has been set as low, andthis objective is achieved by the Banking Group managing liquidity risks within the boundaries of the following
requirements and principles:
•
•
•
•
•
•
•
•
•

Maintaining the ability to meet all payment obligations in the immediate term.
Ensuring the ability to meet “survival horizons” under a range of the Banking Group specific and general market
liquidity stress scenarios.
Maintaining strength in the Banking Group’s balance sheet structure to ensure long term resilience in the Banking
Group’s liquidity and funding risk profile.
Limiting the potential earnings at risk associated with unexpected increases in funding costs or the liquidation ofassets under stress.
Ensuring the liquidity management framework is compatible with regulatory requirements.
Daily liquidity reporting and scenario analysis, quantifying the Banking Group’s positions.
Targeting a diversified funding base, avoiding undue concentrations by investor type, maturity, market source andcurrency.
Holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-today operations.
Establishing detailed contingency plans to cover different liquidity crisis events.

Management of liquidity and funding risks are overseen by ALCO.
Supervision and Regulation
The RBNZ requires the Bank to have a comprehensive Board approved liquidity strategy defining: policy, systems andprocedures for measuring, assessing, reporting and managing domestic and foreign currency 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 the Banking Group’s liquidity management framework is scenario modelling. Liquidity is assessed
under different scenarios, including “going-concern”, “name-crisis” and various “survival horizons”.
“Going-concern”: reflects the normal behaviour of cash flows in the ordinary course of business. The Banking Group
must be able to meet all commitments and obligations under a going concern scenario, within the Banking Group normal
funding capacity (‘available to fund’ limit), over at least the following 30 calendar days. In estimating the funding
requirement, the Banking Group models expected cash flows by reference to historical behaviour and contractual maturity
data.
“Name-crisis”: refers to a potential name-specific liquidity crisis scenario which models the behaviour of cash flows
where there is a problem (real or perceived) which may include, but is not limited to, operational issues, doubts about thesolvency of the Banking Group, or adverse rating changes. Under this scenario the Banking Group may have significant
difficulty rolling over or replacing funding. Under the liquidity policy the Banking Group must be cash flow positive overan eight calendar day period.
“Survival horizons”: The global financial crisis has highlighted the importance of differentiating between stressed andnormal market conditions in a name-specific crisis and the different behaviour that offshore and domestic wholesalefunding markets can exhibit during market stress events.
The Banking Group has linked its liquidity risk appetite todefined liquidity “survival horizons” (i.e. the time period under which the Banking Group must maintain a positive cash
flow position). The following stressed scenarios are modelled:••••

Extreme Short Term Crisis Scenario: A name-specific stress during a period of market stress.
Short Term Crisis Scenario: A name-specific stress during a period of normal markets conditions.
Global Funding Market Disruption: Stressed global wholesale funding markets leading to a closure of domestic andoffshore markets.
Offshore Funding Market Disruption: Stressed global wholesale funding markets leading to a closure of offshore
markets only.

As of 30 September 2012 the Banking Group was in compliance with all of the above scenarios.

ANZ Bank New Zealand Limited

61

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

Bank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

58,38355,04457,02953,719

7,668

6,950

7,546

6,827

66,051

61,99464,57560,546

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

17,244

17,406

2,500

2,073

Loan capital

1,168

1,988

1,168

1,988

Certificates of deposit

2,156

2,454

2,156

2,461

Commercial paper

5,445

4,790

-

-

Due to subsidiaries--

37,94037,716

Due to Immediate Parent Company

740

174

740

174

Due to other financial institutions

1,759

3,711

1,555

3,711

Total wholesale funding

28,51230,52346,05948,123

Total funding

94,56392,517

110,634

108,669

Households

42,761

40,59541,285

39,107

Agriculture

2,259

2,240

2,259

2,240

488

504

488

504

1,595

2,464

1,595

2,464

Concentrations of funding by industry

Forestry, fishing and mining
ManufacturingEntertainment, leisure and tourism

585

668

585

668

37,23337,60754,78055,246

Retail trade

718

690

718

690

Wholesale trade

975

873

975

873

3,616

3,281

3,616

3,281

Transport and storage

672

507

672

507

Construction

753

762

753

762

Government and local authority

1,754

1,347

1,754

1,348

Other2

1,154

979

1,154

979

94,56392,517

110,634

108,669

64,934

61,375

81,12777,650

1,370

2,899

1,353

2,879

13,231

14,635

13,221

14,625

Europe

9,291

8,552

9,261

8,527

Other countries

5,737

5,056

5,672

4,988

Total funding

94,56392,517

110,634

108,669

Finance and insurance

Business and property services

Total funding
Concentrations of funding by geography
New ZealandAustralia
United States

1
2
3

3

Represents term deposits, demand deposits bearing interest, deposits not bearing interest and secured debenture stock.
Other includes exposures to electricity, gas and water, communications and personal services.
Funding via ANZ New Zealand (Int’l) Limited is classified as either from the United States or Europe, as the company conducts overseas funding activities
through its London branch which is passed through to the Bank.

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

ANZ Bank New Zealand Limited

62

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

Balances with central banks

Banking GroupBank

30/09/2012

30/09/2011

30/09/2012

30/09/2011

1,765

1,973

1,765

1,973

Securities purchased under agreement to resell

105

992

105

992

Certificates of deposit

100

1,562

100

1,562

8,220

4,329

8,220

4,329

17

169

17

169

3,768

3,269

3,768

3,269

14,18312,08614,18312,086

Government, local body stock and bonds
Government treasury bills
Other bonds
Total liquidity portfolio

Assets held for managing liquidity risk include short term cash held with the RBNZ, New Zealand Government securities,
securities issued by supranational agencies, securities issued by highly rated banks and securities issued by State Owned
Enterprises, Local Authorities and highly rated NZ domestic corporates. These assets would be accepted as collateral by
the RBNZ in repurchase transactions. At 30 September 2012 the Banking Group would be eligible to enter into
repurchase transactions with a value of $13,770 million. The Banking Group also held unencumbered internal residential
mortgage backed securities (“RMBS”) which would entitle the Banking Group to enter into repurchase transactions with avalue of $3,735 million at 30 September 2012 (the RBNZ has imposed a cap limiting the amount of RMBS deemed as
eligible in the liquidity portfolio to 4% of total assets).
Liquidity crisis contingency planning
The Banking Group maintains liquidity crisis contingency plans defining an approach for analysing and responding to aliquidity-threatening event on a group wide basis. The framework includes:
•
•
•
•
•
•
•

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

ANZ Bank New Zealand Limited

63

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

Less than

3 to 12

Beyond No maturity

3 months

months 1 to 5 years

5 years

specifiedTotal

At callLiquid assets

2,834

2,506

328

-

-

-

-

Due from other financial institutions

1,723

139

1,584

-

-

-

-

Trading securities

13,353

-

152

3,667

6,969

2,565

-

Derivative financial assets (trading)

11,395-

11,395----

Available-for-sale assets

65

-

1

13

48

-

3

Net loans and advances

30/09/2012

Financial assets

117,600-

14,891

17,19436,31349,202-Other financial assets

294

-

216

76

2

-

-

Total financial assets

147,264

2,645

28,567

20,95043,332

51,767

3

Financial liabilities
Due to other financial institutions

1,791

932

628

5

37

189

-

Deposits and other borrowings

74,97730,272

22,682

18,840

3,183

-

-

-

-

-

-

Due to Immediate Parent Company
Derivative financial liabilities(trading)

741

-

741

13,104-

13,104---

Bonds and notes

18,399

-

1,636

2,872

11,731

2,160

-

1,829

-

24

71

472

94

1,168

Other financial liabilities

723

-

600

10

65

48

-

Total financial liabilities

111,564

31,204

39,415

21,79815,488

2,491

1,168

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

27,84449,276(1,165)

Loan capital

Net financial assets / (liabilities)

Derivative financial instruments used for balance sheet management- gross inflows

16,700

-

1,277

3,710

10,0981,615-- gross outflows(15,932)-(1,182)(3,471)(9,674)(1,605)-36,468(28,559)(10,753)(609)

28,26849,286(1,165)

Net financial assets / (liabilities)
after balance sheet management

Contractual maturity of off-balance sheet commitments and contingent liabilities
Banking GroupLess than

Beyond30/09/2012

Total

1 year

1 yearNon-credit related commitments

355

124

231

25,44025,440

-

1,805

1,805

-

27,60027,369231$ millions

Credit related commitments
Contingent liabilities
Total

ANZ Bank New Zealand Limited

64

Notes to the Financial Statements
Banking Group$ millions

Less than

3 to 12

Beyond No maturity

3 months

months 1 to 5 years

5 years

specifiedTotal

At callLiquid assets

2,455

2,455

-

-

-

-

-

Due from other financial institutions

4,637

972

3,665

-

-

-

-

Trading securities

10,220

-

1,797

851

6,984

588

-

Derivative financial assets (trading)

13,930-13,930----Available-for-sale assets

418

-

73

201

-

21

123

Net loans and advances

30/09/2011

Financial assets

113,431-

10,25821,631

32,07249,470-

Other financial assets

522

-

491

11

14

6

-

Total financial assets

145,613

3,427

30,214

22,69439,07050,085123

Financial liabilities
Due to other financial institutions

3,711

726

2,923

-

-

62

-

Deposits and other borrowings

70,611

26,34024,483

16,785

2,887

116

-

-

-

-

-

Due to Immediate Parent Company
Derivative financial liabilities(trading)

176

-

176

13,522-

13,522---

Bonds and notes

18,482

-

1,353

3,712

13,094323-

Loan capital

3,135

-

40

120

797

1,005

1,173

Other financial liabilities

1,681

-

1,440

6

198

37

-

Total financial liabilities

111,318

27,06643,937

20,623

16,976

1,543

1,173

Net financial assets / (liabilities)

34,295(23,639)(13,723)

2,071

22,09448,542(1,050)Derivative financial instruments used for balance sheet management- gross inflows

19,833

-

2,822

5,478

11,46370-- gross outflows(19,451)-(3,059)(5,475)(10,840)(77)-

Net financial assets / (liabilities)
after balance sheet management

34,677(23,639)(13,960)

2,074

22,71748,535(1,050)Contractual maturity of off-balance sheet commitments and contingent liabilities
Banking GroupLess than

Beyond30/09/2011

Total

1 year

1 yearNon-credit related commitments

257

93

164

Credit related commitments

23,05323,053-

Contingent liabilities

2,805

2,805

-

Total

26,11525,951164$ millions

ANZ Bank New Zealand Limited

65

Notes to the Financial StatementsBank$ millions

Less than

3 to 12

Beyond No maturity

3 months

months 1 to 5 years

5 years

specifiedTotal

At callLiquid assets

2,818

2,490

328

-

-

-

-

Due from other financial institutions

1,722

37

1,685

-

-

-

-

Trading securities

13,353

-

152

3,667

6,969

2,565

-

Derivative financial assets (trading)

11,404-

11,404----

Available-for-sale assets

62

-

1

13

48

-

-

Net loans and advances

114,645-

14,227

16,38834,94449,086-Due from subsidiaries

19,427

-

3,554

273

2,902

12,698-Other financial assets

102

-

102

-

-

-

-

Total financial assets

163,533

2,527

31,453

20,341

44,86364,349-30/09/2012

Financial assets

Financial liabilities
Due to other financial institutions

1,587

932

424

5

37

189

-

Deposits and other borrowings

67,971

30,256

19,513

15,299

2,903

-

-

Due to subsidiaries

44,707

-

9,442

6,345

15,522

13,398

-

741

-

741

-

-

-

-

Due to Immediate Parent Company
Derivative financial liabilities(trading)

13,104-

13,104---

Bonds and notes

3,020

-

19

220

2,188

593

-

Loan capital

1,829

-

24

71

472

94

1,168

Other financial liabilities

655

-

532

10

65

48

-

Total financial liabilities

133,614

31,18843,79921,95021,187

14,322

1,168

29,919(28,661)(12,346)(1,609)23,67650,027(1,168)

Net financial assets / (liabilities)

Derivative financial instruments used for balance sheet management- gross inflows

19,240

-

1,347

3,911

10,991

2,991-- gross outflows(23,082)-(1,238)(3,636)(10,553)(7,655)-26,077(28,661)(12,237)(1,334)

24,11445,363(1,168)

Net financial assets / (liabilities)
after balance sheet management

Contractual maturity of off-balance sheet commitments and contingent liabilities
Bank$ millions

Less than

Beyond30/09/2012

Total

1 year

1 yearNon-credit related commitments

328

115

213

25,78125,781

-

1,804

1,804

-

27,91327,700213

Credit related commitments
Contingent liabilities
Total

ANZ Bank New Zealand Limited

66

Notes to the Financial StatementsBank$ millions

Less than

3 to 12

Beyond No maturity

3 months

months 1 to 5 years

5 years

specifiedTotal

At callLiquid assets

2,443

2,443

-

-

-

-

-

Due from other financial institutions

4,637

972

3,665

-

-

-

-

Trading securities
Derivative financial instruments(trading)

10,220

-

1,797

851

6,984

588

-

30/09/2011

Financial assets

13,936-

13,936----

Available-for-sale assets

380

-

71

201

-

21

87

Net loans and advances

110,507-

9,804

21,32030,12949,254-Due from subsidiaries

11,772

-

2,401

-

-

9,371

-

Other financial assets

373

-

373

-

-

-

-

Total financial assets

154,268

3,415

32,047

22,372

37,113

59,23487

Financial liabilities
Due to other financial institutions

3,711

726

2,923

-

-

62

-

Deposits and other borrowings

64,174

26,16820,338

14,846

2,607

215

-

Due to subsidiaries
Derivative financial instruments(trading)

43,828-13,088

5,268

13,841

11,631-

13,522-

13,522----

Bonds and notes

2,512

-

20

387

1,782

323

-

Loan capital

3,135

-

40

120

797

1,005

1,173

Other financial liabilities

1,815

-

1,574

6

198

37

-

Total financial liabilities

132,697

26,89451,505

20,627

19,225

13,273

1,173

Net financial assets / (liabilities)

21,571(23,479)(19,458)

1,745

17,88845,961(1,086)

Derivative financial instruments used for balance sheet management- gross inflows

23,479

-

2,919

5,755

12,6952,110-- gross outflows(30,568)-(3,142)(5,723)(12,166)(9,537)-

Net financial assets / (liabilities)
after balance sheet management

14,482(23,479)(19,681)

1,777

18,41738,534(1,086)

Contractual maturity of off-balance sheet commitments and contingent liabilities
Bank$ millions

Less than

Beyond30/09/2011

Total

1 year

1 yearNon-credit related commitments

229

85

144

Credit related commitments

25,687

25,687-

Contingent liabilities

2,803

2,803

-

Total

28,71928,575

144

ANZ Bank New Zealand Limited

67

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

Note

Cash collateral given on derivative financial instruments

9

Trading securities encumbered through repurchase agreements
Residential mortgages pledged as security for covered bonds
Total tangible assets of UDC Finance Limited pledged ascollateral for secured stock
Total financial assets pledged as collateral37

30/09/2012

Bank

30/09/2011

30/09/2012

30/09/2011

1,256

944

1,256

944

252

1,219

252

1,219

4,977

-

4,977

-

2,103

2,007

-

-

8,588

4,170

6,485

2,163

Registered secured debenture stock is constituted and secured by a trust deed between UDC Finance Limited and its
independent trustee, Trustees Executors Limited. The trust deed creates floating charges over all the assets, primarilyloans and advances, of UDC Finance Limited.

32. Concentrations of Credit Risk to Individual Counterparties
The Banking Group measures its concentration of credit risk in respect to bank counterparties on the basis of approved
exposures and in respect to non bank counterparties on the basis of limits. No account is taken of collateral, security
and/or netting agreements which the Banking Group may hold in respect of the various counterparty exposures.
For the three month period ended 30 September 2012 there were no individual counterparties (excluding connectedparties, governments and banks with long term credit ratings of A- or above) where the Banking Group’s period end or
peak end-of-day credit exposure equalled or exceeded 10% of equity (as at the end of the period).
Concentrations of credit risk to connected persons
Credit exposures to connected persons reported in the table below have been calculated partially on a bilateral net basis
and partially on a gross basis. Netting has occurred (up to a limit of 125% of the Banking Group’s tier one capital) inrespect of certain transactions which are the subject of a bilateral netting agreement.
Banking Group

30/09/2012

30/09/2011

Amount% of Tier

Amount% of Tier$m

One Capital$m

One Capital

Bank connected persons (on gross basis, before netting)

4,708

65.0%

4,687

66.1%

Less: amount netted off

3,621

50.0%

4,221

59.5%

1,087

15.0%

466

6.6%

Bank connected persons (on gross basis, before netting)

5,939

82.0%

5,534

78.0%

Less: amount netted off

4,221

58.3%

3,221

45.4%

Bank connected persons (on partial bilateral net basis)

1,718

23.7%

2,313

32.6%

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

n/a

125.0%

Bank connected persons (on partial bilateral net basis)

n/a

70.0%

n/a

70.0%

Non-bank connected persons

n/a

15.0%

n/a

15.0%

Aggregate at end of year1

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

2

Rating-contingent limit3

1

The Banking Group has amounts due from the Immediate Parent Company and the Ultimate Parent Bank and other entities within the Overseas Banking Grouparising in the ordinary course of business. These balances arise primarily from unrealised gains on trading and hedging derivative financial instruments with the
Ultimate Parent Bank. As at 30 September 2012, the gross exposures to the Immediate Parent Company were $97 million (30/09/2011 $35 million). As at 30
September 2012, the gross exposures to the Ultimate Parent Bank were $4,611 million (30/09/2011 $4,652 million).

2

The Banking Group has complied with the limits on aggregate credit exposure (of a non-capital nature and net of individual provisions) to connected persons
and non-bank connected persons, as set out in the Conditions of Registration, at all times during the year. The peak end-of-day credit exposures for the year
to connected persons are measured over Tier One Capital as at the end of the year.

3

Represents the maximum peak end-of-day aggregate credit exposures limit (of a non-capital nature and net of individual provisions) to all connected persons.
This limit is based on the ratings applicable to the Bank’s long term senior unsecured obligations payable in New Zealand in New Zealand dollars. Within theoverall limit a sub-limit of 15% of Tier One Capital applies to aggregate credit exposures (exclusive of exposures of a capital nature and net of individual
provisions) to non-bank connected persons. There have been no changes to these limits for the year ended 30 September 2012.

ANZ Bank New Zealand Limited

68

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

At amortised
cost

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

Hedging

Available-forsale assets

Total

Fair value

30/09/2012
Liquid assets

2,831

-

-

-

-

2,831

Due from other financial institutions

1,622

-

-

-

100

1,722

2,831
1,722

Trading securities--

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

12,276477-

12,75312,753Available-for-sale assets

-

-

-

-

57

57

57

Net loans and advances2

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

509

142

-

-

-

651

651

Total financial assets

91,640142

24,614477

157

117,030

117,221

Due to other financial institutions

1,759

-

-

-

-

1,759

1,759

Deposits and other borrowings

68,207

5,445

-

-

-

73,65273,744

740

-

-

-

-

740

740

-

-

13,766

164-

13,93013,930Due to Immediate Parent Company
Derivative financial instruments1
Bonds and notes2

17,244----

17,244

17,482

Loan capital

1,168

-

-

-

-

1,168

1,030

Other financial liabilities

1,248

-

-

-

-

1,248

1,248

Total financial liabilities

90,366

5,445

13,766

164-

109,741

109,933

Liquid assets

2,455

-

-

-

-

2,455

2,455

Due from other financial institutions

3,067

-

-

-

1,562

4,629

4,629

Trading securities

-

-

9,466

-

-

9,466

9,466

Derivative financial instruments1--

15,076559-

15,635

15,635

Available-for-sale assets

-

-

-

-

411

411

411

Net loans and advances2

83,610----83,61083,828Other financial assets

768

97

-

-

-

865

865

Total financial assets

89,90097

24,542559

1,973

117,071

117,289

30/09/2011

Due to other financial institutions

3,711

-

-

-

-

3,711

3,711

Deposits and other borrowings

64,448

4,790

-

-

-

69,23869,343

174

-

-

-

-

174

174

-

-

14,783335-

15,118

15,118

Bonds and notes2

17,406----

17,406

17,390Loan capital

1,988

-

-

-

-

1,988

1,922

Other financial liabilities

2,237

-

-

-

-

2,237

2,237

Total financial liabilities

89,964

4,790

14,783335-

109,872

109,895

Due to Immediate Parent Company
Derivative financial instruments1

ANZ Bank New Zealand Limited

69

Notes to the Financial StatementsBank$ millions

At amortised
cost

Carrying amountAt fair value throughprofit or loss
Designatedon initial
Held forrecognition
trading

Availablefor-saleHedging
assets

Total

Fair Value

2,815

30/09/2012
Liquid assets

2,815

-

-

-

-

2,815

Due from other financial institutions

1,622

-

-

-

100

1,722

1,722

Trading securities--

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

12,311477-

12,78812,788Available-for-sale assets

-

-

-

-

54

54

54

Net loans and advances2

84,319----84,31984,501

Due from subsidiaries

6,552

5,067

-

-

-

11,619

11,632Other financial assets

535

-

-

-

-

535

535

Total financial assets

126,385

95,843

5,067

24,649477

154

126,190

Due to other financial institutions

1,555

-

-

-

-

1,555

1,555

Deposits and other borrowings

66,731----

66,731

66,815Due to subsidiaries

32,966

4,974

-

-

-

37,94038,095

740

-

-

-

-

740

740

Derivative financial instruments1
Bonds and notes2

2,500

-

13,766-

164--

13,9302,500

13,9302,596

Loan capital

1,168

-

-

-

-

1,168

1,030

Other financial liabilities

1,065

-

-

-

-

1,065

1,065

Total financial liabilities

106,725

4,974

13,766

164-

125,629

125,826

Liquid assets

2,443

-

-

-

-

2,443

2,443

Due from other financial institutions

3,067

-

-

-

1,562

4,629

4,629

Trading securities

-

-

9,466

-

-

9,466

9,466

Derivative financial instruments1--

15,119559-

15,67815,678Available-for-sale assets
Net loans and advances2

81,306

-

-

-

375
-

375
81,306375
81,510Due from subsidiaries

5,169

6,584

-

-

-

11,753

11,761Other financial assets

796

-

-

-

-

796

796

Total financial assets

92,781

6,584

24,585559

1,937

126,446

126,658

Due to other financial institutions

3,711

-

-

-

-

3,711

3,711

Deposits and other borrowings

63,007----63,007

63,102

Due to subsidiaries

31,049

6,667

-

-

-

37,716

37,636

174

-

-

-

-

174

174

-

-

14,783335-

15,118

15,118

Bonds and notes2

2,073

-

-

-

-

2,073

1,900

Loan capital

1,988

-

-

-

-

1,988

1,922

Other financial liabilities

2,075

-

-

-

-

2,075

2,075

Total financial liabilities

104,077

6,667

14,783335-

125,862

125,638

Due to Immediate Parent Company

30/09/2011

Due to Immediate Parent Company
Derivative financial instruments1

1

2

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

ANZ Bank New Zealand Limited

70

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

Valuation hierarchy
In determining the carrying amount of financial instruments held at fair value the Banking Group uses a valuation method
within the following hierarchy:“Level 1” - Quoted market price
Where an active market exists fair value is based on quoted market prices for identical financial instruments. The quoted
market price is not adjusted for any potential impact that may be attributed to a large holding of the financial instrument.
“Level 2” - Valuation technique using observable inputs
In the event that there is no quoted market price for the instruments, fair values are based on present value estimates orother market accepted valuation techniques which include data from observable markets wherever possible.
“Level 3” - Valuation technique with significant non observable inputs
The majority of valuation techniques employ only observable market data. However, the Banking Group holds someinvestments in unlisted funds or other investments which do not trade in an active market. For these instruments the fairvalue cannot be determined in whole with reference to current market transactions or valuation techniques whose
variables only include data from observable markets. Where observable market data is not available, the fair value isdetermined using broker quotes or valuation techniques, including discounted cash flow analysis, using data derived andextrapolated from market data and tested against historic transactions and observed market trends.

ANZ Bank New Zealand Limited

71

Notes to the Financial Statements
Valuation technique$millions

Banking Group
Level 1Bank

Level 2

Level 3

Total

Level 1

Level 2

Level 3Total

30/09/2012
Due from other financial institutions
Trading securities
Derivative financial instruments

-

100

-

100

-

100

-

100

7,599

4,739

-

12,338

7,599

4,739

-

12,33812,7882

12,751-

12,753

2

12,786-

Available-for-sale assets

13

42

2

57

13

41

-

54

Due from subsidiaries

-

-

-

-

-

5,067

-

5,067

Other financial assets

3

138

1

142

-

-

-

-

7,617

17,7703

25,3907,614

22,733-30,347

Deposits and other borrowings

-

5,445

-

5,445

-

-

-

-

Due to subsidiaries

-

-

-

-

-

4,974

-

4,974

Derivative financial instruments

4

13,926-

13,930

4

13,926-

13,930Total financial liabilities held at fair
value

4

19,371-

19,375

4

18,900-18,904

1,562

Total financial assets held at fairvalue

30/09/2011
Due from other financial institutions

-

1,562

-

1,562

-

1,562

-

5,565

3,901

-

9,466

5,565

3,901

-

9,466

Derivative financial instruments

18

15,616

1

15,63518

15,6591

15,678Available-for-sale assets

Trading securities

334

72

5

411

334

41

-

375

Due from subsidiaries

-

-

-

-

-

6,584

-

6,584

Other financial assets

27

70

-

97

-

-

-

-

5,944

21,221

6

27,171

5,917

27,747

1

33,665

Deposits and other borrowings

-

4,790

-

4,790

-

-

-

-

Due to subsidiaries

-

-

-

-

-

6,667

-

6,667

Derivative financial instruments

18

15,100-15,11818

15,100-15,118

Total financial liabilities held at fair
value

18

19,890-19,90818

21,767-

21,785

Total financial assets held at fairvalue

Movements in level 3 valuations
Banking Group$ millions

30/09/2012

Bank

30/09/2011

30/09/2012

30/09/2011

Opening balance

6

119

1

Purchases

-

11

-

-

Revaluations

(3)

38

(1)

1

Foreign exchange movements

-

4

-

-

Sales

-

(166)

-

-

Closing balance

3

6

-

1

ANZ Bank New Zealand Limited

72

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

Bank

Year toYear toYear toYear to30/09/2012

30/09/2011

30/09/2012

30/09/2011

1,325

1,099

1,220

1,032

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

89

74

45

31

Provision for credit impairment

193

178

187

174

Deferred fee revenue and expenses

14

4

12

4

Amortisation of capitalised brokerage / mortgage origination fees

25

33

25

33

Amortisation of premiums and discounts
Fair value gains and losses
Loss on disposal and impairment of premises and equipment andintangibles
Deferrals or accruals of past or future operating cash receipts or
payments:
Change in net operating assets less liabilities

235

109

235

69

(254)

(190)

(259)

(187)

13

49

2

33

396

(2,545)1,106(2,723)

Change in interest receivable

(13)

48

(21)

11

Change in interest payable

(43)

(38)

(34)

(31)

Change in accrued income

(3)

3

(2)

5

Change in accrued expenses

4

(55)

4

(64)
54

Change in provisions

20

(6)

21

(101)

(62)

-

-

Change in other receivables and payables

(8)

55

10

147

Change in net income tax assets / liabilities

20

226

(64)

174

(4)

(5)

(4)

(3)

(1,033)

2,628(1,346)

1,878

30/09/2012

30/09/2011

30/09/2012

30/09/2011

2,831

2,455

2,815

2,443

424

3,079

424

3,079

3,255

5,534

3,239

5,522

30/09/2012

30/09/2011

30/09/2012

30/09/2011

Not later than 1 year

43

13

42

13

Total capital expenditure commitments

43

13

42

13

Change in insurance policy assets

Items classified as investing / financing:
Gain on disposal of interests in associates
Net cash flows provided by / (used in) operating activities

Banking Group$ millions

Bank

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

35. Commitments
Banking Group$ millions

Bank

Contracts for outstanding capital expenditure

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

81

80

73

72

139

135

124

120

92

29

89

24

Total lease rental commitments

312

244

286

216

Total commitments

355

257

328

229

Later than 1 year but not later than 5 years
Later than 5 years

ANZ Bank New Zealand Limited

73

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

Banking GroupBank

Face or contract value

Face or contract value

30/09/2012

30/09/2012

30/09/2011

30/09/2011

Credit related commitments
Commitments with certain drawdown due within one year

742

527

742

527

Commitments to provide financial services

24,69822,52625,03925,160Total credit related commitments

25,44023,05325,781

25,687

731

1,753

731

1,753

44

60

44

60

Transaction related contingent items

913

882

913

882

Trade related contingent liabilities

117

110

116

108

1,805

2,805

1,804

2,803

Guarantees and contingent liabilities
Financial guarantees
Standby letters of credit

Total guarantees and contingent liabilities

The Banking Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third
parties, including its Ultimate Parent Bank. The risk involved is essentially the same as the credit risk involved inextending loan facilities to customers, therefore these transactions are subjected to the same credit origination, portfolio
management and collateral requirements for customers applying for loans. As the facilities may expire without being
drawn upon, the notional amounts do not necessarily reflect future cash requirements.
Other contingent liabilities
The Banking Group has other contingent liabilities in respect of actual and possible claims and court proceedings. An
assessment of the Banking Group’s likely loss in respect of these matters has been made on a case-by-case basis andprovision made where deemed necessary.

37. Securitisation, Funds Management, Other Fiduciary Activities and Insurance
Kingfisher NZ Trust 2008-1 (“the Kingfisher Trust”)
The Banking Group has established the Kingfisher Trust as an in-house residential mortgage backed securities facility that
can issue securities meeting the RBNZ criteria to use as collateral in repurchase transactions with the RBNZ.
These assets do not qualify for derecognition as the Bank retains substantially all of the risks and rewards of thetransferred assets.
As at 30 September 2012 and 30 September 2011 the Banking Group had not entered into any repurchase agreementswith the RBNZ for residential mortgage backed securities and therefore no collateral had been accepted by the RBNZ
under this facility.
ANZNZ Covered Bond Trust (“the Covered Bond Trust”)
Substantially all of the assets of the Covered Bond Trust are made up of certain housing loans and related securities
originated by the Bank which are security for the guarantee by ANZNZ Covered Bond Trust Limited as trustee of the
Covered Bond Trust of issuances of covered bonds by the Bank, or its wholly owned subsidiary ANZ New Zealand (Int’l)Limited, from time to time. The assets of the Covered Bond Trust are not available to creditors of the Bank, although the
Bank (or its liquidator or statutory manager) may have a claim against the residual assets of the Covered Bond Trust (ifany) after all prior ranking creditors of the Covered Bond Trust have been satisfied.
The Banking Group continues to recognise the assets of the Covered Bond Trust on its balance sheet as, although they arepledged as security for covered bonds, the Bank retains substantially all the risks and rewards of ownership.
The Bank has purchased securities issued by both the Kingfisher Trust and the Covered Bond Trust in exchange for thetransfer of the rights to the cash flows associated with the identified residential mortgages. The residential mortgages
continue to be recognised by the Bank because they do not qualify for derecognition. The following table sets out thecarrying values of the residential mortgages transferred by the Bank to these special purpose entities and the associatedliabilities to deliver the cashflows on those instruments.
Bank1$ millions

30/09/2012

30/09/2011

Carrying amount of assets transferred

5,102

6,633

Carrying amount of associated liabilities

5,127

6,667

Carrying amount of assets transferred

4,977

2,825

Carrying amount of associated liabilities

4,977

2,825

Securitisations2

Covered Bonds

1
2

There are no balances for the Banking Group as the balances for the Bank relate to transfers to internal special purpose entities.
The securitisation liabilities have recourse only to the pool of residential mortgages which have been securitised. The fair value of securitised assets is $5,127
million (30/09/2011 $6,667 million). The fair value of the associated liabilities is $5,127 million (30/09/2011 $6,667 million). The net position is nil (30/09/2011
nil).

ANZ Bank New Zealand Limited

74

Notes to the Financial Statements
Funds management
Certain subsidiaries of the Bank act as trustee and/or manager for a number of unit trusts and investment andsuperannuation funds. The Banking Group provides private banking services to a number of clients, including investment
advice and portfolio management. The Banking Group is not responsible for any decline in performance of the underlying
assets of the investors due to market forces.
As funds under management are not controlled by the Banking Group, they are not included in these financial statements.
The Banking Group derives fee and commission income from the sale and management of investment funds andsuperannuation bonds, unit trusts and the provision of private banking services to a number of clients. The Banking
Group derives commission income from the sale of third party funds management products.
Some funds under management are invested in products owned or securities issued by the Banking Group and arerecorded as liabilities in the balance sheet. At 30 September 2012, $3,114 million of funds under management were
invested in the Banking Group's own products or securities (30/09/2011 $2,832 million).
Aggregate value of funds managed by the Banking Group
Banking Group$ millions

30/09/2012

30/09/2011

Funds managed by OnePath

7,324

6,709

The Bonus Bonds Trust

3,188

2,996

Other discretionary funds

5,173

5,016

15,685

14,721

Total funds under management

Custodial services
The Banking Group provides custodial services to customers in respect of assets that are beneficially owned by thosecustomers.
Provision of financial services
Financial services provided by the Banking Group to entities which are involved in trust, custodial, funds management andother fiduciary activities, and to affiliated insurance companies which conduct marketing or distribution of insurance
products, or on whose behalf the marketing or distribution of insurance products are conducted, are provided on arm’s
length terms and conditions and at fair value. Any assets purchased from such entities have been purchased on an arm’s
length basis and at fair value.
Except for standard lending facilities provided in the normal course of business on arm’s length terms, the Banking Group
has not provided any funding to entities which conduct any of the following activities: trust, custodial, funds management
or other fiduciary activities established, marketed and/or sponsored by a member of the Banking Group (30/09/2011$nil).
Insurance business
The Banking Group conducts an insurance business through OnePath Insurance Holdings (NZ) Limited and its subsidiaries(“OnePath Insurance”), the assets, liabilities and operations of which are fully consolidated into the Banking Group.
OnePath Insurance provides risk transfer and investment contract life insurance products. In addition, other entities
within the Banking Group market and distribute a range of insurance products which are underwritten by OnePath
Insurance, or by third party insurance companies.
The aggregate insurance business conducted by OnePath Insurance comprises assets totalling $564 million (30/09/2011:$438 million), which is 0.5% (30/09/2011: 0.4%) of the total consolidated assets of the Banking Group.
Risk management
The Bank and subsidiaries of the Bank participating in the activities identified above have in place policies and procedures
to ensure that those activities are conducted in an appropriate manner. Should adverse conditions arise, it is consideredthat these policies and procedures will minimise the possibility that these conditions will adversely impact the Bank or the
Banking Group. The policies and procedures include comprehensive and prominent disclosure of information regarding
products, and formal and regular review of operations and policies by management.

ANZ Bank New Zealand Limited

75

Directorate and Auditors
Any document or communication may be sent to any
Director at the Registered Office. The document orcommunication should be marked for the attention ofthat Director.
Directors’ interests
In order to ensure that members of the Board arereminded of their disclosure obligations under theCompanies Act 1993, the following procedures are
adopted:a.

b.

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

In addition to the written disclosures referred to above,
Directors disclose relevant interests which they have
before discussion of particular business items.
The Companies Act 1993 allows a Director with aninterest in a transaction to participate in discussions andto vote on all matters relating to that particulartransaction.
However, the Board has adopted a
guideline whereby a Director with an interest in atransaction should not be present during any
discussions, and should not vote, on any matter
pertaining to that particular transaction.
Transactions with Directors
No Director has disclosed that he/she or any immediate
relative or professional associate has any dealing with
the Banking Group which has been either entered intoon terms other than those which would in the ordinary
course of business be given to any other person of likecircumstances or means or which could otherwise bereasonably likely to influence materially the exercise of
the Director’s duties as a Director of the Bank.

Board Members as at 21 November 2012
Independent
Chairman

Non-Executive

DirectorandJohn Frederick JudgeB Com, FCA
Company Director
Auckland, New Zealand
Mr Judge is the Chair of the Remuneration Committee
and a Member of the Audit Committee and the Risk
Committee.
Other directorships:
Fletcher Building Limited,
Fletcher Building Finance Limited, Aquatx Holdings
Limited, Aquatx Limited, Janohn Limited, Sebca Limited,John Judge Limited, Health TV Limited, Sails Friday
Limited, Crop Solutions 09 Limited, Formerly Fuel
Equipment Limited, Greentide Limited, Greentide K4B3
Limited

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

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

Independent Non-Executive Directors
Norman Michael Thomas Geary, CBE
B Com, FACA, FNZIM, FCIT
Company Director
Auckland, New Zealand
Mr Geary is the Chair of the Audit Committee and a
Member of the Risk Committee and the Remuneration
Committee.
Other directorships: Otago Innovation Limited
Antony (Tony) John Carter
BE (Hons), ME, FNZIM
Company Director
Auckland, New Zealand
Mr Carter is the Chair of the Risk Committee and a
Member of the Audit Committee and the Remuneration
Committee.
Other directorships: Air New Zealand Limited, Fletcher
Building Limited, Fisher and Paykel Healthcare
Corporation, Fletcher Building Industries Limited,
Loughborough Investments Limited

Auditors
KPMG
Chartered Accountants
10 Customhouse Quay
P O Box 996
Wellington, New ZealandANZ Bank New Zealand Limited

76

Conditions of Registration
Conditions of Registration, applicable as at 30
September 2012. These Conditions of Registration
have applied from 31 August 2012.

the purposes of this condition of registration, theBanking Group’s insurance business is the sum of thefollowing amounts for entities in the banking group:

Since issuance of the last Disclosure Statement dated 16
August 2012 the Bank’s conditions of registration havebeen amended to update cross-references to refer to a
new version of the RBNZ document “Capital adequacy
framework (internal models based approach)” (BS2B)
dated August 2012.

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

if the entity conducts insurance business and its
business does not predominantly consist of
insurance business and the entity is not a
subsidiary of another entity in the Banking 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.

The registration of the Bank as a registered bank is subject
to the following conditions:1.

That the Banking Group complies with the following
requirements:(a) the total capital ratio of the Banking Groupcalculated in accordance with the Reserve Bank of
New Zealand document “Capital adequacy
framework (internal models based approach)”(BS2B) dated August 2012 is not less than 8%;(b) the tier one capital ratio of the Banking Groupcalculated in accordance with the Reserve Bank of
New Zealand document “Capital adequacy
framework (internal models based approach)”(BS2B) dated August 2012 is not less than 4%;
andIn determining the total amount of the Banking
Group’s insurance business(c) the capital of the Banking Group calculated inaccordance with the Reserve Bank of New
Zealand document “Capital adequacy framework(internal models based approach)” (BS2B) dated
August 2012 is not less than $30 million.
For the purposes of this condition of registration thescalar referred to in the Reserve Bank of New Zealanddocument “Capital adequacy framework (internal
models based approach)” (BS2B) dated August 2012 is
1.06.

(b) under its ICAAP the Bank identifies and measures
its “other material risks” defined as all material
risks of the Banking Group that are not explicitly
captured in the calculation of tier one and total
capital ratios under the requirements set out inthe document “Capital adequacy framework(internal models based approach)” (BS2B) dated
August 2012; and(c) the Bank determines an internal capital allocationfor each identified and measured “other materialrisk”.
1B. That the Banking Group complies with all
requirements set out in the Reserve Bank of New
Zealand document “Capital adequacy framework(internal models based approach)” (BS2B) dated
August 2012.
2.

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

3.

That the Banking Group’s insurance business is not
greater than 1% of its total consolidated assets. For

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

if products or assets of which an insurance
business is comprised also contain a noninsurance component, the whole of suchproducts or assets must be considered part ofthe insurance business.

For the purposes of this condition of registration:“insurance business” means the undertaking orassumption of liability as an insurer under a contractof insurance;

1A. That(a) the Bank has an internal capital adequacy
assessment process (“ICAAP”) that accords withthe requirements set out in the document“Guidelines on a bank’s internal capital adequacy
assessment process (“ICAAP”)” (BS12) dated
December 2007;(a)“insurer” and “contract of insurance” have the same
meaning as provided in sections 6 and 7 of the
Insurance (Prudential Supervision) Act 2010.
4.

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

Credit Rating of theregistered bank1
AA / Aa2 and above

Connected exposure limit(% of the Banking Group’s
Tier 1 capital)
75

AA- / Aa3

70

A+ / A1

60

A / A240

A- / A330

BBB+ / Baa1 and below

15

1This table uses the rating scales of Standard & Poor’s, Fitch Ratingsand Moody’s Investors Service. (Fitch Ratings’ scale is identical toStandard & Poor’s)

Within the rating-contingent limit, credit exposures (ofa non-capital nature and net of any allowances for
impairment) to non-bank connected persons shall not
exceed 15 percent of the Banking Group’s tier one
capital.
For the purposes of this condition of registration,compliance with the rating-contingent connected
exposure limit is determined in accordance with theReserve Bank of New Zealand document entitled“Connected Exposures Policy” (BS8) dated June 2011.

ANZ Bank New Zealand Limited

77

Conditions of Registration
5.

6.

That exposures to connected persons are not on morefavourable terms (e.g. as relates to such matters as
credit assessment, tenor, interest rates, amortisation
schedules and requirement
for collateral) thancorresponding exposures to non-connected persons.
That the Bank complies with the following corporate
governance requirements:(a) the board of the Bank must have at least five
directors;(b) the majority of the board members must be nonexecutive directors;(c) at least half of the board members must be
independent directors;(d) an alternate director,—(i)for a non-executive director must be nonexecutive; and(ii)

for an independent
independent;

directormustbe(e) at least half of the independent directors of the
Bank must be ordinarily resident in New Zealand;(f) the chairperson of the board of the Bank must be
independent; and(g) the Bank’s constitution must not include any
provision permitting a director, when exercising
powers or performing duties as a director, to act
other than in what he or she believes is the bestinterests of the company (ie the Bank).
For the purposes of this condition of registration, “nonexecutive” and “independent” have the same meaning
as in the Reserve Bank of New Zealand document
entitled “Corporate Governance” (BS14) dated March
2011.
7.

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

8.

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

9.

That the Bank has a board audit committee, or otherseparate board committee covering audit matters, thatmeets the following requirements:(a) the mandate of the committee must include:
ensuring the integrity of the Bank’s financial
controls, reporting systems and internal audit
standards;(b) the committee must have at least three members;(e) the chairperson of the committee must be
independent and must not be the chairperson of
the Bank.
For the purposes of this condition of registration, “nonexecutive” and “independent” have the same meaning
as in the Reserve Bank of New Zealand document
entitled “Corporate Governance” (BS14) dated March
2011.
10. That a substantial proportion of the Bank’s business isconducted in and from New Zealand.
11. That the Bank has legal and practical ability to control
and execute any business, and any functions relating
to any business, of the Bank that are carried on by aperson other than the Bank, sufficient to achieve,
under normal business conditions and in the event ofstress or failure of the Bank or of a service provider tothe Bank, the following outcomes:(a) that the Bank’s clearing and settlement obligations
due on a day can be met on that day;(b) that the Bank’s financial risk positions on a day
can be identified on that day;(c) that the Bank’s financial risk positions can bemonitored and managed on the day following any
failure and on subsequent days; and(d) that the Bank’s existing customers can be given
access to payments facilities on the day following
any failure and on subsequent days.
For the purposes of this condition of registration, theterm “legal and practical ability to control andexecute” is explained in the Reserve Bank of New
Zealand document entitled “Outsourcing Policy”(BS11) dated January 2006.
12. That:(a) the business and affairs of the Bank are managedby, or under the direction and supervision of, theboard of the Bank.
(b) the employment contract of the chief executive
officer of the Bank or person in an equivalent
position (together “CEO”) is with the Bank, andthe terms and conditions of the CEO’s employment
agreement are determined by, and any decision
relating to the employment or termination of
employment of the CEO are made by, the board of
the Bank.
(c) all staff employed by the Bank shall have theirremuneration determined by (or under thedelegated authority of) the board or the CEO of
the Bank and be accountable (directly or
indirectly) to the CEO of the Bank.
13. That the Banking Group complies with the following
quantitativerequirementsforliquidity-riskmanagement:(a) the one-week mismatch ratio of the Banking
Group is not less than zero per cent at the end ofeach business day;(b) the one-month mismatch ratio of the Banking
Group is not less than zero per cent at the end ofeach business day; and(c) every member of the committee must be a nonexecutive director of the Bank;(c) the one-year core funding ratio of the Banking
Group is not less than 70 per cent at the end ofeach business day.

(d) the majority of the members of the committee
must be independent; andFor the purposes of this condition of registration, theratios identified must be calculated in accordance with

ANZ Bank New Zealand Limited

78

Conditions of Registration
the Reserve Bank of New Zealand documents entitled“Liquidity Policy” (BS13) dated March 2011 and“Liquidity Policy Annex: Liquid Assets” (BS13A) dated
December 2011.
14. That the Bank has an internal framework for liquidity
risk management that is adequate in the Bank’s viewfor managing the Bank’s liquidity risk at a prudent
level, and that, in particular:(a) is clearly documented and communicated to all
those in the organisation with responsibility for
managing liquidity and liquidity risk;(b) identifies responsibility for approval, oversight andimplementation of the framework and policies forliquidity risk management;(c) identifies the principal methods that the Bank will
use for measuring, monitoring and controlling
liquidity risk; and(d) considers the material sources of stress that the
Bank might face, and prepares the Bank tomanage stress through a contingency funding
plan.

(i)

the bank has notified the Reserve Bank inwriting of the intended acquisition or businesscombination;(ii) at the time of notifying the Reserve Bank oftheintendedacquisitionorbusiness
combination, the bank provided the Reserve
Bank with the information required under theReserve Bank of New Zealand Banking
Supervision Handbook document “Significant
Acquisitions Policy” (BS15) dated December
2011; and(iii) the Reserve Bank has given the bank a noticeof non-objection to the significant acquisitionor business combination.
For the purposes of this condition of registration,“qualifying acquisition or business combination”,“notification threshold” and “non-objection threshold”
have the same meaning as in the Reserve Bank of New
Zealand Banking Supervision Handbook document“Significant
Acquisitions
Policy”(BS15)
dated
December 2011.
In these conditions of registration:

15. That no more than 10% of total assets may bebeneficially owned by a SPV. For the purposes of thiscondition,—“Banking Group” means ANZ Bank New Zealand
Limited’s financial reporting group (as defined in
section 2(1) of the Financial Reporting Act 1993);“total assets” means all assets of the Banking Groupplus any assets held by any SPV that are not includedin the Banking Group’s assets:“generally accepted accounting practice” has the same
meaning as in section 2 of the Financial Reporting Act
1993.

“SPV” means a person—(a) to whom any member of the Banking Group has
sold, assigned, or otherwise transferred any asset;(b) who has granted, or may grant, a security interest
in its assets for the benefit of any holder of any
covered bond; and(c) who carries on no other business except for thatnecessary or incidental to guarantee theobligations of any member of the Banking Group
under a covered bond:“covered bond” means a debt security issued by any
member of the Banking Group, for which repayment toholders is guaranteed by a SPV, and investors retain
an unsecured claim on the issuer.
16. That:(a) no member of the banking group may give effectto a qualifying acquisition or business combinationthat meets the notification threshold, and does notmeet the non-objection threshold, unless:(i)the bank has notified the Reserve Bank inwriting of the intended acquisition or businesscombination and at least 10 working days
have passed; and(ii) at the time of notifying the Reserve Bank oftheintendedacquisitionorbusiness
combination, the bank provided the Reserve
Bank with the information required under theReserve Bank of New Zealand Banking
Supervision Handbook document “Significant
Acquisitions Policy” (BS15) dated December
2011; and(b) no member of the banking group may give effectto a qualifying acquisition or business combinationthat meets the non-objection threshold unless:

ANZ Bank New Zealand Limited

79

Directors’ Statement
As at the date on which this Disclosure Statement is signed, after due enquiry, each Director believes that:(i) The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements(New Zealand Incorporated Registered Banks) Order (No 2) 2012;(ii) The Disclosure Statement is not false or misleading.
Over the year ended 30 September 2012, after due enquiry, each Director believes that:(i) ANZ Bank New Zealand Limited has complied with all the Conditions of Registration;(ii) Credit exposures to connected persons were not contrary to the interests of the Banking Group;(iii) ANZ Bank New Zealand Limited had systems in place to monitor and control adequately the Banking Group’s material
risks, including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk,
operational risk and other business risks, and that those systems were being properly applied.
This Disclosure Statement is dated, and has been signed by or on behalf of all Directors of the Bank on 21
November 2012. On that date, the Directors of the Bank were:A J Carter

S C Elliott

N M T Geary, CBE

D D Hisco

J F Judge

M R P Smith, OBEANZ Bank New Zealand Limited

80

Independent Auditor’s Report
To the Shareholder of ANZ Bank New Zealand Limited
Report on the Bank and Banking Group Disclosure Statement
We have audited the accompanying financial statements and supplementary information of ANZ Bank New Zealand
Limited (“the Bank”) (formerly ANZ National Bank Limited) and its subsidiaries (“the Banking Group”) on pages 5 to 74 of
the Disclosure Statement. The financial statements comprise the balance sheets as at 30 September 2012, the income
statement, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and asummary of significant accounting policies and other explanatory information of the Bank and the Banking Group. The
supplementary information comprises the information that is required to be disclosed under the Registered Bank
Disclosure Statements (New Zealand Incorporated Registered Banks) Order (No 2) 2012 (the “Order”).
Directors' Responsibility for the Disclosure Statement
The Directors are responsible for the preparation of the Bank and Banking Group Disclosure Statement, including financial
statements prepared in accordance with Clause 24 of the Order and generally accepted accounting practice in New
Zealand, and that give a true and fair view of the matters to which they relate. The Directors are also responsible for suchinternal controls as they determine are necessary to enable the preparation of the Bank and Banking Group financial
statements that are free from material misstatement whether due to fraud or error.
The Directors are responsible for the preparation and fair presentation of supplementary information, in accordance with
Schedules 4, 7, 13, 14, 15 and 17 of the Order.
Auditor’s Responsibility
Our responsibility is to express an opinion on the Disclosure Statement, including the financial statements prepared inaccordance with Clause 24 of the Order and the supplementary information disclosed in accordance with Schedules 4, 7,
13, 14, 15 and 17 of the Order. We conducted our audit in accordance with International Standards on Auditing (New
Zealand). Those standards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the Bank and Banking Group financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Bank andBanking Group financial statements. The procedures selected depend on the auditor’s judgement, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal controls relevant to the Bank and Banking Group’s preparation of
the financial statements that gives a true and fair view of the matters to which they relate in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Bank and Banking Group’s internal controls. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates, as well as evaluating the presentation of thefinancial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Our firm has provided other services to the Bank and Banking Group in relation to audit related services. Partners andemployees of our firm may also deal with the Bank and Banking Group on normal terms within the ordinary course of
trading activities of the business of the Bank and Banking group. There are, however, certain restrictions on dealings
which the partners and employees of our firm can have with the Bank and Banking Group. These matters have not
impaired our independence as auditors of the Bank and Banking Group. The firm has no other relationship with, orinterest in, the Bank or Banking Group.
Opinion on the Disclosure Statement
In our opinion the Disclosure Statement of the Bank and Banking Group on pages 5 to 74:•••

complies with generally accepted accounting practice in New Zealand;
complies with International Financial Reporting Standards; andgives a true and fair view of the financial position as at 30 September 2012 and of their financial performance andcash flows for the year ended on that date.

ANZ Bank New Zealand Limited

81

Opinion on Supplementary Information
In our opinion, the supplementary information that is required to be disclosed in accordance with Schedules 4, 7, 13, 14,
15 and 17 of the Order, and is included within notes 14, 30, 32, and 37 of the Disclosure Statement:•••

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

Report on Supplementary Information Relating to Capital Adequacy
We have reviewed the Supplementary Information relating to Capital Adequacy, as disclosed in note 29 of the DisclosureStatement for the year ended 30 September 2012.
Directors’ Responsibility for the Supplementary Information Relating to Capital Adequacy
The Directors are responsible for the preparation of Supplementary Information relating to Capital Adequacy that isrequired to be disclosed under Schedule 11.
Auditor’s Responsibility
Our responsibility is to express an opinion on the supplementary information relating to Capital Adequacy based on ourreview. We conducted our review in accordance with the Review Engagement Standards issued by the New ZealandInstitute of Chartered Accountants. Those standards require that we comply with ethical requirements and plan andperform the review to obtain limited assurance about whether the supplementary information relating to Capital Adequacy
is, in all material respects:••

prepared in accordance with the Bank’s Conditions of Registration;•

disclosed in accordance with Schedule 11 of the Order.

prepared in accordance with the Bank’s internal models for credit risk and operational risk as accredited by the
Reserve Bank of New Zealand; andA review is limited primarily to enquiries of Bank and Banking Group personnel and analytical review procedures applied
to the financial data, and thus provides less assurance than an audit. We have not performed an audit in respect of theCapital Adequacy disclosures, and accordingly, we do not express an audit opinion on these disclosures.
Opinion on the Supplementary Information Relating to Capital Adequacy
Based on our review, nothing has come to our attention that causes us to believe that the supplementary information
relating to capital adequacy, disclosed in note 29 of the Disclosure Statement, is not, in all material respects:••

prepared in accordance with the Bank’s Conditions of Registration;•

disclosed in accordance with Schedule 11 of the Order.

prepared in accordance with the Bank’s internal models for credit risk and operational risk as accredited by the
Reserve Bank of New Zealand; andReport on Other Legal and Regulatory Requirements
In accordance with the requirements of sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993, and clauses2(1)(d) and 2(1)(e) of Schedule 1 of the Order, we report that:••

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

Wellington
21 November 2012

ANZ Bank New Zealand Limited

82

Index
Contents and Glossary of Terms

1

General Disclosures2

Summary of Financial Statements

4

Income Statements

5Statements of Comprehensive Income

5Statements of Changes in Equity

6

Balance Sheets

7

Cash Flow Statements

8

1. Significant Accounting Policies

9

2. Critical Estimates and Judgement Used in Applying Accounting Policies

16

3. Risk Management Policies

17

4. Income19

5. Expenses

20

6. Income Tax Expense

21

7. Segmental Analysis

22

8. Liquid Assets

23

9. Due from Other Financial Institutions

24

10. Trading Securities

24

11. Derivative Financial Instruments

25

12. Available-for-sale Assets

27

13. Net Loans and Advances27

14. Impaired Assets and Assets Under Administration

27

15. Provision for Credit Impairment29

16. Investments in Subsidiaries and Associates

29

17. Other Assets

31

18. Deferred Tax Assets and Liabilities

31

19. Goodwill and Other Intangible Assets

31

31. Assets Pledged as Collateral67

20. Due to Other Financial Institutions32

21. Deposits and Other Borrowings

32

22. Payables and Other Liabilities

32

23. Provisions

33

24. Bonds and Notes

33

25. Loan Capital

33

26. Related Party Transactions

35

27. Current and Non-current Assets and Liabilities

36

28. Ordinary Share Capital38

29. Capital Adequacy

38

30. Financial Risk Management46

31. Financial Assets Pledged as Collateral67

32. Concentrations of Credit Risk to Individual Counterparties

67

33. Fair Value of Financial Assets and Financial Liabilities

67

34. Notes to the Cash Flow Statements

72

35. Commitments

72

36. Credit Related Commitments and Contingent Liabilities

72

37. Securitisation, Funds Management, Other Fiduciary Activities and Insurance73

Directorate and Auditors

75

Conditions of Registration76

Directors’ Statement

79

Independent Auditor’s Report

80

Index

82