For personal use only

A N Z N AT I O N A L B A N K L I M I T E D G R O U P

GEN ER A L DISCLOSURE STATEM E NT

For the six months ended 31 March 2008
Number 49 Issued June 2008

For personal use only

A N Z N AT I O N A L B A N K L I M I T E D G R O U P

GENERAL DISCLOSURE STATEMENTFOR THE SIX MONTHSENDED 31 MARCH 2008

CONTENTS
General Disclosures

2-3

Summary of Financial Statements

4

Income Statements

5Statements of Recognised Income and Expense

6

Balance Sheets

7

Cash Flow Statements

8-9

Notes to the Financial Statements

10 - 110

Directorate and Auditors

111 - 112

Conditions of Registration

113 - 115

Credit Rating Information

116

Directors’ Statement

117

Independent Review Report

118

Index

119

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

GENERAL DISCLOSURESThis Disclosure Statement has been issued in accordance with theRegistered Bank Disclosure Statement (Full and Half-Year - New
Zealand Incorporated Registered Banks) Order 2008 (‘the Order’).
In this Disclosure Statement unless the context otherwise requires:a) “Banking Group” means ANZ National Bank Limited and all its
subsidiaries; andb) any term or expression which is defined in, or in the mannerprescribed by, the Registered Bank Disclosure Statement (Full andHalf-Year - New Zealand Incorporated Registered Banks) Order2008 shall have the meaning given in or prescribed by that Order.
G eneral M atters

The full name of the registered bank is ANZ National Bank Limited(‘the Bank’) and its address for service is Level 14, ANZ Tower, 215-229
Lambton Quay, Wellington, New Zealand.
The Bank was incorporated under the Companies Act 1955 by virtueof the ANZ Banking Group (New Zealand) Act 1979 on 23 October
1979, and was reregistered under the Companies Act 1993 on
13 June 1997.

M aterial Financial S upport

In accordance with the requirements issued by the Australian
Prudential Regulatory Authority (‘APRA’) pursuant to the Prudential
Standards, Australia and New Zealand Banking Group Limited, as the
Ultimate Parent Bank, may not provide material financial support to
the Bank1 contrary to the following:• the Ultimate Parent Bank should not undertake any third party
dealings with the prime purpose of supporting the business of
the Bank;• the Ultimate Parent Bank should not hold unlimited exposures(should be limited as to specified time and amount) in the Bank(e.g. not provide a general guarantee covering any of the Bank’s
obligations);• the Ultimate Parent Bank should not enter into cross default clauses
whereby a default by the Bank on an obligation (whether financial
or otherwise) is deemed to trigger a default of the Ultimate Parent
Bank in its obligations;• the Board of the Ultimate Parent Bank in determining limits on
acceptable levels of exposure to the Bank should have regard to:

The immediate parent company of the Bank is ANZ Holdings (New
Zealand) Limited (incorporated in New Zealand). The immediate parent
company is owned by ANZ Funds Pty Limited and Australia and New
Zealand Banking Group Limited (both incorporated in Australia).

• the level of exposure that would be approved to third parties ofbroadly equivalent credit status. In this regard, prior consultation(and in cases approval) is required before entering exceptionallylarge exposures; andThe Ultimate Parent Bank is Australia and New Zealand Banking Group
Limited (‘ANZ’), which is incorporated in Australia, and its address forservice is Level 14, 100 Queen Street, Melbourne, Australia.

• the impact on the Ultimate Parent Bank’s capital and liquidity
position and its ability to continue operating in the event of a failure
by the Bank.

The Bank is wholly owned by its immediate parent company andultimately the Ultimate Parent Bank. The immediate parent company
has the power under the Bank’s Constitution to appoint any person asa Director of the Bank either to fill a casual vacancy or as an additional
Director or to remove any person from the office of Director, fromtime to time by giving written notice to the Bank. No appointmentof a new Director may occur unless the Reserve Bank of New Zealand(‘RBNZ’) confirms that it does not object to the appointment.
N ature o f B usiness

The principal activities of the Banking Group during the period wereretail, corporate and rural banking, mortgage lending, asset andgeneral finance, international and investment banking, nominee andcustodian services. Life insurance and funds management activities
are carried out through the ING New Zealand joint venture.

• the level of exposure to the Bank not exceeding:• 60% on an individual exposure basis2; 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.
Additionally, the Ultimate Parent Bank may not provide material
financial support in breach of the Australian Banking Act (1959). Thisrequires APRA to exercise its powers and functions for the protectionof a bank’s depositors and in the event of a bank becoming unable tomeet its obligations or suspending payment, the assets of the bankin Australia shall be available to meet that bank’s deposit liabilities inAustralia in priority to all other liabilities of the bank.
The Ultimate Parent Bank has not provided material financial support
to the Bank contrary to any of the above requirements.

With the sale of Truck Leasing Limited, the Banking Group no longer
has significant operating lease activities.

1. Note that for material financial support purposes, the APRA requirements include any exposures to the Bank’s parent company, ANZ Holdings (New Zealand) Limited.
2. For the period 1 January 2008 to 31 December 2008, APRA have approved a 60% individual exposure limit to the Bank. Otherwise, the individual exposure limit is 50%.

P A G E

2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

GENERAL DISCLOSURESFor personal use only

( continued )P ending P roceedings or A rbitration

Other than disclosed in the Disclosure Statement, there are no pending
proceedings or arbitration concerning any member of the Banking
Group that may have a material adverse effect on the Bank or the
Banking Group as at the date of the General Disclosure Statement.
The Banking Group has received amended tax assessments from the
New Zealand Inland Revenue Department (‘IRD’) in respect of its
review of certain structured finance transactions. The Banking Groupis confident, based on independent tax and legal advice obtained, thatits tax treatment of these transactions is correct and disagrees with
the IRD’s position.
The Commerce Commission has brought proceedings under theCommerce Act 1986 against Visa, MasterCard and all New Zealandissuers of Visa and MasterCard credit cards, including the Bank.
Several major New Zealand retailers have also issued proceedings.
The Bank is defending the proceedings. At this stage any potential
liabilities cannot be assessed.
The Bank markets and distributes a range of wealth management
products which are managed by ING (NZ) Limited (of which the Bankholds 49%). Trading in the ING Diversified Yield Fund and the ING
Regular Income Fund was suspended on 13 March 2008 by the fundmanager, ING (NZ) Limited, due to the deterioration in liquidity incredit markets.
The matter is being reviewed by both the Bank and ING (NZ) Limited
and it is too early to assess the nature or quantum of any, if any,potential liability.
Further details on pending proceedings or arbitration are set out in
Note 43 Contingent Liabilities and Credit Related Commitments.
Ot h er M aterial M atters

There are no matters relating to the business or affairs of the
Bank and the Banking Group which are not contained elsewherein the General Disclosure Statement and which would, if disclosed,materially adversely affect the decision of a person to subscribe fordebt securities of which the Bank or any member of the Banking
Group is the issuer.
G uarantors

The material obligations of the Bank are not guaranteed.

P A G E

3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

SUMMARY OF FINANCIAL STATEMENTS		Consolidated					Previous
Previous
NZ IFRSNZ IFRS1NZ IFRS1, 2
NZ IFRS1, 2
GAAP3
GAAP
Unaudited
Audited
Audited
Audited
Audited
Audited
6 months toYear toYear toYear toYear toYear to31/03/2008 30/09/2007 30/09/2006 30/09/2005 30/09/2004 30/09/2003
$m
$m
$m
$m
$m
$m

C ontinuing operations

Interest income		Interest expense		

4,794
3,656

8,309
6,059

7,206
5,077

6,009
4,069

4,481
2,797

1,980
1,220

Net interest income		
Other operating income		

1,138
589

2,250
861

2,129
802

1,940
794

1,684
751

760
453

Operating income		Operating expenses		

1,727
672

3,111
1,331

2,931
1,323

2,734
1,312

2,435
1,265

1,213
559

Profit before provision for credit impairment and income tax		
Collective provision charge (credit)		
Individual provision charge4		

1,055
46
47

1,780
20
54

1,608
(10)
28

1,422
121
-

1,170
133
-

654
61
-

Provision for credit impairment		

93

74

18

121

133

61

Profit before income tax		
Income tax expense		

962
270

1,706
614

1,590
523

1,301
398

1,037
357

593
176

Profit after income tax from continuing operations

692

1,092

1,067

903

680

417

D iscontinued operations

Profit from discontinued operations (net of income tax)		

-

76

5

14

-

-

Profit after income tax		
Retained profits at beginning of the period		
Adjustment on adoption of NZ IFRS on 1 October 2004		
Adjustment on adoption of NZ IAS 39 on 1 October 2005		

692
2,677
-

1,168
2,235
-

1,072
2,003
61

917
1,438
4
-

680
958
-

417
841
-

Total available for appropriation		
Actuarial (loss) gain on defined benefit schemes after tax
Interim ordinary dividends paid		

3,369
(8)
-

3,403
2
(728)

3,136
(1)
(900)

2,359
4
(360)

1,638
(200)

1,258
(300)

Retained profits at end of the period		

3,361

2,677

2,235

2,003

1,438

958

Total impaired assets (on-balance sheet and off-balance sheet)		
Total assets		
Total liabilities		
Equity		177
112,514103,133
9,381

121
107,787
99,084
8,703

159
95,81487,5818,233

220
85,501
77,555
7,946

123
74,212
66,8317,381

25
29,362
27,998
1,364

The amounts included in this summary have been taken from the audited financial statements of the Banking Group with the exception of theamounts for the six months ended 31 March 2008 which have been taken from unaudited financial statements.
1. Truck Leasing Limited has been classified as a discontinued operation for the comparative years ending 30 September 2007, 30 September 2006 and 30 September 2005. For further details,
refer to Note 10 Discontinued Operations.
2. On 1 October 2005, the Banking Group adopted New Zealand equivalents to International Financial Reporting Standards (‘NZ IFRS’). In accordance with NZ IFRS, comparative information
was restated using the new accounting standards from 1 October 2004. As permitted by the transitional provisions set out in NZ IFRS 1: First-time Adoption of New Zealand Equivalents
to International Financial Reporting Standards, management has elected not to restate comparative information for the adoption of NZ IAS 32 Financial Instruments: Disclosure andPresentation (‘NZ IAS 32’) and NZ IAS 39 Financial Instruments: Recognition and Measurement (‘NZ IAS 39’). Refer to Note 52 Explanation of Transition to NZ IFRS in the 30 September
2006 General Disclosure Statement for an explanation of the Banking Group’s transition to NZ IFRS and the adjustments required to comply with NZ IFRS.
3. On 1 December 2003, the Banking Group acquired all of the shares of NBNZ Holdings Limited (‘NBNZ Group’). The results and financial position of NBNZ Group have been included in
the Banking Group since that date. For further details, refer to Note 14 Acquisition of Subsidiaries in the 30 September 2004 General Disclosure Statement.
4. The RBNZ’s guidelines require the Banking Group to show the individual provision charge to profit as the ‘impaired asset expense’. Prior to adopting NZ IFRS on 1 October 2005, under the
Banking Group’s Bad and Doubtful Debts policy, the required individual provision was not charged to profit, but was transferred from the collective provision balance. The Banking Group’s
provision for credit impairment, which represented the expected average annual loss on principal over the economic cycle for the lending portfolio, was credited to the collective provision.
Under NZ IFRS, there is no longer a transfer between the collective and individual provisions. Further detail on the provision for credit impairment is set out in Note 15 Provision for Credit
Impairment.

P A G E

4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

INCOME STATEMENTS
for the six months ended 31 March 2008

Consolidated		

Note

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

C ontinuing operations

Interest income
Interest expense

4
5

4,794
3,656

3,923
2,816

8,309
6,059

4,689
3,903

3,777
2,995

8,038
6,542

Net interest income		
Other operating income
4
Share of profit of equity accounted associates
and jointly controlled entities
16

1,138
493

1,107
411

2,250
837

786
472

782
485

1,496
1,995

96

11

24

96

11

22

Operating income		Operating expenses
5

1,727
672

1,529
653

3,111
1,331

1,354
648

1,278
629

3,513
1,283

Profit before provision for credit impairment
and income tax		
Provision for credit impairment
15

1,055
93

876
30

1,780
74

706
86

649
29

2,230
75

Profit before income tax		
Income tax expense
6

962
270

846
287

1,706
614

620
161

620
195

2,155
379

Profit after income tax from continuing operations		

692

559

1,092

459

425

1,776

D iscontinued operations

Profit from discontinued operations (net of income tax)

10

-

76

76

-

-

-

Profit after income tax		

692

635

1,168

459

425

1,776

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

P A G E

5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

STATEMENTS OF RECOGNISED INCOME AND E XPENSE
for the six months ended 31 March 2008

Consolidated		

Note

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

6

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Available-for-sale re valuation reserve:- Valuation gain (loss) taken to equity- Cumulative gain transferred to the income
statement on sale of financial assets

30

16

-

(1)

16

-

(1)

30

-

(3)

(3)

-

(3)

(3)

11, 3011, 3030, 45

(17)
(16)
(12)

50
(19)
9

78
(35)
3

(17)
(16)
(12)

50
(19)
9

78
(35)
3

C as h f low h edging reserv e :- Valuation (loss) gain taken to equity- Transferred to income statement
Actuarial (loss) gain on defined benefit schemes
Income tax credit (expense) on items
recognised directly in equity

30

15

(13)

(12)

15

(13)

(12)

Net (expense) income recognised directly in equity		
Profit after income tax		

(14)
692

24
635

30
1,168

(14)
459

24
425

30
1,776

Total recognised income and expense for the period		

678

659

1,198

445

449

1,806

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

P A G E

ParentA N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

BALANCE SHEETS
as at 31 M arch 2008

Consolidated		

Note

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

A ssets

Liquid assets
7
Due from other financial institutions
8
Trading securities
9
Derivative financial instruments
11
Available-for-sale assets
12
Net loans and advances
13, 14, 15
Due from subsidiary companies		
Shares in controlled entities, associates
and jointly controlled entities
16
Current tax assets		
Other assets
17
Deferred tax assets
18
Premises and equipment
19
Goodwill and other intangible assets
20

3,863
3,890
2,149
4,865
96
92,579
-

5,741
3,067
1,917
3,041
45
82,258
-

4,807
3,563
1,877
4,711
48
87,878
-

3,863
3,455
2,149
4,865
86
90,171
1,506

5,740
2,580
1,916
3,066
35
78,570
1,543

4,807
3,101
1,877
4,705
38
84,044
1,585

350
134
995
56
238
3,299

190
28
800
91
225
3,293

206
112
1,045
11
232
3,297

7,769
338
906
43
54
3,249

7,669
208
686
68
54
3,243

7,683
248
920
54
3,247

Total assets		

112,514100,696

107,787

118,454

105,378

112,309

Due to other financial institutions
21
Deposits and other borrowings
22
Due to subsidiary companies		
Derivative financial instruments
11
Payables and other liabilities
23
Deferred tax liabilities
24
Provisions
25
Bonds and notes26
Due to parent company
27
Loan capital
28

2,384
74,080
4,472
1,646
154
16,586
1,758
2,053

4,178
64,758
3,168
1,401
156
13,340
2,764
2,039

3,170
70,030
4,924
1,351
165
14,607
2,775
2,062

1,432
61,37937,078
4,445
1,414
144
579
1,758
2,053

1,741
56,61830,185
3,165
1,120
139
509
2,764
2,039

1,686
58,51432,942
4,896
988
7
151
561
2,775
2,062

Total liabilities		

103,133

91,804

99,084110,282

98,280104,582

9,381

8,892

8,703

8,172

7,098

7,727

29
30
30

5,943
77
3,361

5,943
73
2,876

5,943
83
2,677

5,943
77
2,152

5,943
73
1,082

5,943
83
1,701

Total equity		

9,381

8,892

8,703

8,172

7,098

7,727

L iabilities

Net assets
E q uity

Ordinary share capital
Reserves
Retained earnings

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

P A G E

7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

CASH FLOW STATEMENTS
for the six months ended 31 March 2008 1

Consolidated		

Note

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

8

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

C as h f low s f rom operating acti v ities

Interest received		Dividends received		
Fees and other income received		Interest paid		
Operating expenses paid		
Income taxes paid		

4,643
516
(3,446)
(661)
(322)

3,738
1
453
(2,587)
(664)
(176)

7,892
3
926
(5,486)(1,254)
(513)

4,509
7
486
(3,649)
(645)
(286)

3,602
101
414
(2,762)
(650)
(137)

7,739
1,217
715
(6,027)(1,226)(285)

Cash flows from operating profits before changes inoperating assets and liabilities		

730

765

1,568

422

568

2,133

Net changes in operating assets and liabilities:(Increase) decrease in due from other financial institutions - term
Increase in trading securities		
Increase in derivative financial instruments		
(Increase) decrease in available-for-sale assets		
Increase in loans and advances		
Decrease (increase) in due from subsidiary companies		
Increase in due to subsidiary companies		Decrease (increase) in other assets		
(Decrease) increase in due to other financial institutions		
Increase in deposits and other borrowings		
Increase (decrease) in payables and other liabilities		

(861)
(206)
(1,323)(28)(4,669)
16
(786)
4,013
276

893
(227)
(497)
315
(4,381)
130
191
1,416
137

469
(73)
(1,136)
312(10,149)
(69)
(817)
6,857
(125)

(887)
(206)
(1,316)(28)(6,087)
79
2,331
10
(254)
2,672
362

894
(226)
(500)
315
(4,380)
(38)
699
144
(1,087)
2,863
87

446
(73)
(1,114)312(9,993)
(80)
2,593
(27)
(1,142)
4,573
(194)

Net cash flows used in operating activities

38(2,838)(1,258)(3,163)(2,902)(661)(2,566)

Proceeds from sale of shares in associates
and jointly controlled entities		
Proceeds from sale of subsidiary companies2
10
Proceeds from sale of premises and equipment		
Purchase of shares in associates and jointly controlled entities		
Purchase of shares in subsidiary companies		
Purchase of intangible assets		
Purchase of premises and equipment		

1
(46)
(6)
(26)

585
16
(2)
(8)
(25)

5
585
17
(8)
(17)
(51)

1
(5)
(8)

2
(7)
(7)

6
2
(25)
(16)
(13)

Net cash flows (used in) provided by investing activities

(77)

566

531

(12)

(12)

(46)

C as h f low s f rom in v esting acti v ities

1. The comparative cash flow statements have not been restated for the classification of Truck Leasing Limited as a discontinued operation. For a detailed explanation of the financial impacts ofthe sale of Truck Leasing Limited refer to Note 10 Discontinued Operations in the consolidated financial statements for the year ended 30 September 2007.
2. The cash proceeds from the sale of controlled entities includes $438 million relating to the repayment of TLL’s unsecured bank borrowings with UDC Finance Limited (‘UDC’) by theacquiree.

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

P A G E

ParentA N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SCASH FLOW STATEMENTS
for the six months ended 31 March 2008

For personal use only

( continued )Consolidated		

Note

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

C as h f low s f rom f inancing acti v ities

Proceeds from bonds and notes		Redemptions of bonds and notes		Proceeds from loan capital		
Redemptions of loan capital		
Increase in due to subsidiary companies - term		(Decrease) increase in due to parent company		
Dividends paid		

3,553(1,201)(1,017)
-

2,251
(503)
250
44
-

4,173
(684)
800
(550)
55
(728)

70
(81)
2,363
(1,017)
-

27
250
1,721
44
-

86
800
(550)
3,403
55
(728)

Net cash flows provided by financing activities		

1,335

2,042

3,066

1,335

2,042

3,066

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

(2,838)(77)
1,335(1,258)566
2,042(3,163)531
3,066(2,902)
(12)
1,335

(661)
(12)
2,042

(2,566)(46)
3,066

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

(1,580)
7,130

1,350
6,696

434
6,696

(1,579)
7,128

1,369
6,674

454
6,674

Cash and cash equivalents at end of the period		

5,550

8,046

7,130

5,549

8,043

7,128

Liquid assets		Due from other financial institutions - less than 90 days		

3,863
1,687

5,741
2,305

4,807
2,323

3,863
1,686

5,740
2,303

4,807
2,321

Total cash and cash equivalents

5,550

8,046

7,130

5,549

8,043

7,128

R econciliation o f cas h and cas he q ui valents to t h e balance s h eets 338

3. Cash and cash equivalents have been restated to align with the Banking Group’s core liquid assets held for managing liquid risk by removing due to other financial institutions - less than
90 days from the definition of cash and cash equivalents. A reconciliation of cash and cash equivalents to the Banking Group’s core liquidity portfolio is included in Note 38 Notes to the
Cash Flow Statements. An analysis of the balance sheet items that make up the Banking Group’s core liquidity portfolio is included in Note 32 Financial Risk Management.

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

P A G E

9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

NOTES TO THE FINANCIAL STATEMENTS

1.

ACCOUNTING POLICIES(i) Basis of preparation
These financial statements have been prepared in accordance with the requirements of the Companies Act 1993, the Financial
Reporting Act 1993 and the Registered Bank Disclosure Statement (Full and Half-Year - New Zealand Incorporated Banks) Order 2008
(the ‘Order’). The parent company’s financial statements are for ANZ National Bank Limited (the ‘Bank’) as a separate entity and theconsolidated financial statements are for the ANZ National Bank Limited Group (the ‘Banking Group’ and reporting entity), which
includes subsidiaries, associate companies and jointly controlled entities as disclosed in Note 39 Controlled Entities, Associates andInterests in Jointly Controlled Entities.
These financial statements have also been prepared in accordance with New Zealand Generally Accepted Accounting Principles.
They comply with New Zealand equivalents to International Financial Reporting Standards and other applicable Financial ReportingStandards, as appropriate for profit-oriented entities. Compliance with NZ IFRS ensures that the financial statements also comply with
International Financial Reporting Standards (‘IFRS’).
These financial statements were authorised for issue by the Board of Directors on 19 June 2008.
(ii) Presentation currency and rounding
The amounts contained in the financial statements are presented in millions of New Zealand dollars, unless otherwise stated.
(iii) Changes in accounting policies / adoption of NZ IFRSThe Ultimate Parent Company, Australia and New Zealand Banking Group Limited, adopted the Australian equivalents to IFRS for thereporting period commencing 1 October 2005. Hence, from this date, the Banking Group elected to prepare financial statements using
the New Zealand equivalents to International Financial Reporting Standards.
The accounting policies set out below have been consistently applied to all periods presented in these financial statements.
The Banking Group has adopted NZ IFRS 7: Financial Instruments: Disclosures (‘NZ IFRS 7’) and amendments to NZ IAS 1 Presentationof Financial Statements - Capital Disclosures from 1 October 2007. Application of these standards has resulted in some changes toquantitative disclosures relating to risks arising from financial instruments and further qualitative disclosures on financial risk andcapital management policies, but does not have any impact on reported profits or financial position.
The Banking Group has not early adopted NZ IFRS 8: Operating Segments issued in December 2006. This standard is effective forannual accounting periods beginning on or after 1 January 2009.
The Banking Group has not early adopted NZ IAS 1 Presentation of Financial Statements (revised) issued in November 2007. This
standard is effective for annual accounting periods beginning on or after 1 January 2009 and will not result in any material changes tothe presentation of the financial statements.
(iv) Measurement base
The financial statements have been prepared on a going concern basis in accordance with historical cost concepts except that thefollowing assets and liabilities are stated at their fair value: derivative financial instruments including the fair value of any applicable
underlying exposure, assets treated as available for sale, financial instruments held for trading, certain financial liabilities designated atfair value through profit or loss, certain assets and liabilities designated as part of fair value hedging arrangements and defined benefit
scheme assets and liabilities.
(v) Accounting estimates
The preparation of the financial statements requires the use of management judgement, estimates and assumptions that affectreported amounts and the application of policies. The estimates and associated assumptions are based on historical experience andvarious other factors that are believed to be reasonable. Actual results may differ from these estimates.
For further discussion on the judgements and estimates made by the Banking Group, in the process of applying its accounting policies,that have the most effect on the amounts recognised in the financial statements refer to Note 2 Critical Estimates and Judgements
Used in Applying Accounting Policies. Such estimates may require reviewing in future periods.
(vi) Consolidation
These financial statements consolidate the financial statements of ANZ National Bank Limited (the ‘Bank’) and its subsidiaries (the‘Banking Group’).
Subsidiaries
Control means the power to govern, directly or indirectly, decision making in relation to the financial and operating policies of an entity
so as to obtain benefits from its activities.
Where subsidiaries have been sold or acquired during the period, their operating results have been included to the date control ceases
or from the date control is transferred to the Banking Group.

P A G E

1 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1.

A C C O U N T I N G P O L I C I E S ( continued )(vi) Consolidation (continued)
The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of acquisition is measured as thefair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly
attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination
are measured initially at their fair values at acquisition date. The excess of the cost of acquisition over the fair value of the Banking
Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the
Banking Group’s share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The accounting
policies of the subsidiary have been changed where necessary to ensure consistency with the policies adopted by the Banking Group.
Associates and joint ventures
Associates are all entities over which the Banking Group has significant influence but not control, generally accompanying a shareholdingof between 20% and 50% of the voting rights. Joint ventures are entities over which the Banking Group has joint control. Joint control
is the contractually agreed sharing of control and exists only when the strategic financial and operating decisions relating to theactivities of the joint venture require the unanimous consent of the parties sharing control. The Banking Group adopts the equity
method of accounting for associates and jointly controlled entities. The Banking Group’s investment in equity accounted associates
and jointly controlled entities is initially recognised at cost and includes any attributable goodwill (net of accumulated impairment
losses) identified on acquisition.
The Banking Group’s share of the post acquisition results of associates and jointly controlled entities is included in the consolidated
income statement and its share of post-acquisition movements in reserves recognised in reserves. Shares in associates and jointly
controlled entities are stated in the consolidated balance sheet at cost plus the Banking Group’s share of post acquisition net assets.
Unrealised gains on transactions between the Banking Group and its associates and jointly controlled entities are eliminated to theextent of the Banking Group’s interest in the entity. Unrealised losses are also eliminated unless the transaction provides evidence ofan impairment of the asset transferred. If an associate or jointly controlled entity uses accounting policies other than those used by
the Banking Group for like transactions and similar events, adjustments are made to conform the associate or jointly controlled entity’s
policy to those of the Banking Group in applying the equity method.
Interests in associates and jointly controlled entities are reviewed at each reporting date for impairment. Any impairment is recognisedin the income statement.
All significant activities of the Banking Group, with the exception of the ING New Zealand joint venture, are operated through wholly
owned and controlled entities.
The Banking Group may invest in or establish special purpose entities to enable it to undertake specific types of transactions. Where
the Banking Group controls such vehicles, they are consolidated into the Banking Group’s financial results.
(vii) Foreign currency
Functional and presentation currency
Items included in the financial statements of each of the Banking Group’s entities are measured using the currency of the primaryeconomic environment in which the entity operates (the functional currency). The Banking Group’s financial statements are presented
in New Zealand dollars, which is the Bank’s functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the date of thetransaction. Foreign exchange gains and losses resulting from (i) the settlement of such transactions, and (ii) the translation at yearend exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement,
except when deferred in equity as qualifying cash flow hedges.
Translation differences on non-monetary items held at fair value through profit or loss, are reported as part of the fair value gain orloss in the income statement.
(viii) Revenue and expense recognition
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Banking Group and that revenue can bereliably measured. Expenses are recognised in the income statement on an accruals basis.

P A G E

1 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1.

A C C O U N T I N G P O L I C I E S ( continued )(ix) Interest income and interest expense
Interest income and interest expense are recognised in the income statement as they accrue, using the effective interest method.
The effective interest method calculates the amortised 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, overthe expected life of the financial asset or liability. Income and expense on the financial asset or financial liability is recognised on an
effective yield basis in proportion to the amount outstanding over the period to maturity or repayment.
Loan commitment fees (together with related direct costs), are deferred and recognised as an adjustment to the effective yield on theloan once drawn or immediately to the income statement for expired commitments.
Fees and commissions payable to brokers in respect of originating lending business, where these are direct and incremental costs
related to the issue of a financial instrument, are deferred and recognised in interest income as part of the effective interest rate.
(x) Fee and commission income
Fees and commissions that are integral to the effective rate of a financial asset or liability are included in the determination of theeffective interest rate.
Fees and commissions that relate to the execution of a significant act (for example, advisory services, placement fees and underwritingfees) are recognised when the significant act has been completed.
Fees charged for providing ongoing services that represent the recoupment of the costs of providing service (for example, maintaining
and administering existing facilities) are recognised as revenue over the period the service is provided.
(xi) Offsetting of income and expenses
Income and expenses are not offset unless required or permitted by an accounting standard. This generally arises in the following
circumstances:• where transaction costs form an integral part of the effective interest rate of a financial instrument which is measured at 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;• where gains and losses from a group of similar transactions are reported on a net basis such as foreign exchange gains and losses;• where amounts are collected on behalf of third parties, where the Banking Group is, in substance, acting as an agent only; or• where costs are incurred on behalf of customers from whom the Banking Group is reimbursed.
(xii)		Recognition and derecognition of financial assets and financial liabilities
The Banking Group recognises a financial asset or liability on its balance sheet when, and only when, the Banking Group becomes aparty to the contractual provisions of the financial asset or liability. The Banking Group derecognises a financial asset from its balance
sheet when, and only when, (i) the contractual rights to the cash flows from the financial asset expire, or (ii) the Banking Group has
transferred all or substantially all of the risks and rewards of ownership of the financial asset and no longer controls the financial asset.
The Banking Group derecognises a financial liability from its balance sheet, when and only when, it is extinguished.
(xiii) Trading securities
Trading securities are those financial assets classified as held for trading and comprise debt and equity securities and treasury notes
purchased with the intent of being actively traded. Trading securities are initially recognised at fair value on trade date with transaction
costs taken to the income statement. Changes in the fair value (gains or losses) of these securities are recognised in the income
statement in the period in which they occur. The assets are derecognised when the rights to receive cash flows have expired, or the
Banking Group has transferred substantially all of the risks and rewards of ownership. Fair value for listed and unlisted securities isdetermined by the price displayed by a willing buyer in a liquid market at the reporting date. Where a market price in a liquid market is
not readily available, the fair value is determined by reference to the market price available for a security with similar credit, maturity
and yield characteristics or by using industry standard pricing models.
(xiv) Derivative financial instruments
Derivative financial instruments are contracts whose value is derived from changes in one or more underlying financial instruments orindices. They include swaps, forward rate agreements, futures, options and combinations of these instruments.
Derivative financial instruments are entered into for trading purposes (including customer-related reasons) or for hedging purposes(where the derivative 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 and subsequently remeasured at fair value. Fair values are obtained
from quoted prices in active markets (including recent transactions) and valuation techniques including discounted cash flow models
and option pricing models, as appropriate. Movements in the fair value of derivative financial instruments are recognised in the income
statement, unless the derivative financial instrument meets the requirement for hedge accounting.
Where the derivative financial instrument is designated as, and effective as, a hedging instrument the timing of the recognition of any
resultant gain or loss in the income statement is dependent on the hedging designation. These hedging designations and associatedaccounting are as follows:

P A G E

1 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1.

A C C O U N T I N G P O L I C I E S ( continued )(xiv) Derivative financial instruments (continued)(a) Fair value hedge
Where the Banking Group hedges the change in fair value of a recognised asset or liability or firm commitment, any change in the fairvalue of derivatives designated as fair value hedges are recognised in the income statement. Changes in the fair value of the hedged
item attributable to the hedged risk are reflected in adjustments to the carrying value of the hedged item, which are also recognisedin the income statement.
Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised or no longer qualifies for hedge
accounting. The resulting adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to theincome statement over a period to maturity. If the hedged item is sold or repaid, the balance of the adjustment to the carrying valueof the hedged item is recognised in the income statement.
(b) Cash flow hedge
The Banking Group designates derivatives as cash flow hedges where the instrument hedges the variability in cash flows of a recognised
asset or liability, or a highly probable forecast transaction. The effective portion of changes in the fair value of derivatives qualifying anddesignated as cash flow hedges are deferred to the cash flow hedging reserve, which forms part of shareholders’ equity. Any ineffective
portion is immediately recognised in the income statement. Amounts deferred in equity are recognised in the income statement in
the period during which the hedged forecast transactions take place. Where the forecast transaction that is hedged results in therecognition of a non-financial asset or non-financial liability, the gain or loss previously deferred in equity is transferred from equity
and included in the initial measurement of the cost of the asset or liability.
When the hedge expires, is sold, terminated, exercised, or no longer qualifies for hedge accounting, the cumulative amount deferredin equity remains in the cash flow hedging reserve, and is subsequently transferred to the income statement when the hedged item isrecognised in the income statement.
When a forecast transaction is no longer expected to occur, the amount deferred in equity is immediately recognised in the income
statement.
Derivatives that do not qualify for hedge accounting
Changes in the fair value of derivative instruments that do not qualify for hedge accounting are recognised in the income statement.
Embedded derivatives
Derivatives embedded in financial instruments or other host contracts are treated as separate derivatives when their economic
characteristics and risks are not closely related to those of the host contracts, and the host contracts are not measured at fair value.
The embedded derivative is reported at fair value with changes in fair value immediately recognised in the income statement.
(xv) Available-for-sale assets
Available-for-sale assets comprise those non-derivative financial assets which the Banking Group designates as available-for-sale but
which are not deemed to be held principally for trading purposes, and include equity investments and fixed term securities. They are
initially recorded at fair value plus transaction costs. Subsequent gains or losses arising from changes in fair value are included as aseparate component of equity called the ‘available-for-sale revaluation reserve’. When the asset is sold the cumulative gain or loss
related to the asset is transferred to the income statement.
Where there is objective evidence of impairment, the cumulative loss related to that asset is removed from equity and recognised in
the income statement. If, in a subsequent period, the amount of an impairment loss relating to an available-for-sale asset decreases
and the decrease can be linked objectively to an event occurring after the impairment event, the loss previously recognised in theincome statement is reversed through the income statement.
Premiums and discounts are included within the calculation of the fair value of the security. Interest is accrued and recognised inaccordance with the effective yield basis.
(xvi) Net loans and advances
Net 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 has no intention of trading on the loans and advances. The loans and advances are initiallyrecognised at fair value 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, less any impairment loss, or when in an effective hedging relationship,changes in the fair value of the hedged item attributable to the hedged risk are reflected in adjustments to the carrying value of thehedged item, and also recognised in the income statement. Loans and advances are derecognised when the rights to receive cash flows
have expired or the Banking Group has transferred substantially all the risks and rewards of ownership.
Net loans and advances include direct finance provided to customers such as bank overdrafts, credit cards, term loans, finance leasereceivables and commercial bills. Overdrafts, credit cards and term loans are carried at amortised cost. Customer financing throughredeemable preference shares is included within net loans and advances. Dividends received on redeemable preference shares are taken
to the income statement as part of interest income.

P A G E

1 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1.

A C C O U N T I N G P O L I C I E S ( continued )(xvi) Net loans and advances (continued)
Finance lease receivables
Finance lease receivables include amounts due from lessees in relation to finance leases and hire purchase contracts.
The gross amount of contractual payments regarding lease finance to business customers that have a fixed rate and a fixed term arerecorded as gross lease receivables and the unearned interest component is recognised as income yet to mature.
The finance lease receivables are initially recognised at amounts equal to the present value of the minimum lease payments, plus thepresent value of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease payments are allocatedbetween interest revenue and reduction in the lease receivable over the term of the finance lease, reflecting a constant periodic rateof return on the net investment outstanding in respect of the lease.
Credit assessment
All loans are subject to regular scrutiny and graded according to the level of credit risk. Loans are classified as either productive
or impaired.
Impaired assets include other impaired assets, restructured assets and assets acquired through the enforcement of security.
Other impaired assets include loans where there is doubt as to full recovery, and loans that have been restructured. An individual
provision is raised to cover the expected loss, where full recovery of principal is doubtful.
Restructured assets are those assets where the counterparty had difficulty complying with the original terms of the contract and theoriginal terms have been modified to grant the counterparty concessional terms where the yield of the loan is equal to or greater thanthe Banking Group’s average cost of funds and below the yield applicable to a customer of equal credit standing.
Assets acquired through enforcement of security are those assets which are legally owned by the Banking Group as a result of enforcing
security, other than any buildings occupied by the Banking Group.
Cash receipts on other impaired assets are initially applied as a reduction in principal.
A past due asset is any loan where the counterparty has failed to make a payment when contractually due, and which is not an
impaired asset. A 90 day past due asset is any past due asset which has not been operated by the counterparty within its key terms
for at least 90 days.
Other assets under administration are any loans, not being impaired or 90 days past due, where the customer is in any form ofvoluntary or involuntary administration, including receivership, liquidation, bankruptcy or statutory management.
A renegotiated asset is any loan that would otherwise be past due or impaired whose terms have been renegotiated.
Impairment of loans and advances
Loans and advances are regularly reviewed for impairment loss. Credit impairment provisions are raised for exposures that are known
to be impaired. Loans are impaired and impairment losses incurred if there is objective evidence of impairment as a result of one ormore loss events that occurred after the initial recognition of the loan and that loss event (or events) has had a reliably measurable
impact on the estimated future cash flows of the individual loan or the collective portfolio of loans.
Impairment is assessed initially for assets that are individually significant (or on a portfolio basis for small value loans), and then on acollective basis for those exposures not individually known to be impaired.
For those exposures that are assessed collectively, these are placed in pools of similar assets with similar risk characteristics. The
required provision is estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in thecollective pool. The historical loss experience is adjusted based on current observable data.
The estimated individual impairment loss is measured as the difference between the asset’s carrying amount and the estimatedfuture cash flows discounted to their present value at the original effective interest rate. As this discount unwinds during the period
between recognition of impairment and recovery of the written down amount, it is recognised in the income statement. The processof estimating the amount and timing of cash flows involves considerable management judgement. These judgements are reviewed
regularly to reduce any differences between loss estimates and actual loss experience.
The provision for credit impairment (individual and collective) is deducted from loans and advances in the balance sheet and the
movement in the provision for the reporting period is reflected in the income statement as a provision for credit impairment.
When a loan is uncollectible, it is written off against the related provision for loan impairment. Subsequent recoveries of amounts
previously written off are taken to the income statement.
Where impairment losses recognised in previous periods are subsequently decreased or no longer exist, such impairments are reversedin the income statement.
A provision is raised for off balance sheet items such as commitments and guarantees that are considered to be onerous.

P A G E

1 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1.

A C C O U N T I N G P O L I C I E S ( continued )(xvii) Operating leases
Leases as lessee
Operating lease payments are recognised as an expense on a straight-line basis over the lease term.
(xviii) Repurchase agreements
Securities sold under repurchase agreements are retained in the financial statements where substantially all the risks and rewards ofownership remain with the Banking Group, and a counterparty liability is disclosed under the classifications of due to other financial
institutions or payables and other liabilities, depending on the term of the agreement and the counterparty.
The difference between the sale price and the repurchase price is amortised over the life of the repurchase agreement and charged tointerest expense in the income statement.
Securities purchased under agreements to resell, where the Banking Group does not acquire the risks and rewards of ownership, arerecorded as liquid assets, net loans and advances, or due from other financial institutions, depending on the term of the agreement andthe counterparty. The security is not included in the balance sheet.
(xix) Goodwill and other intangible assets
Goodwill
Goodwill, representing the excess of the purchase consideration over the fair value of the identifiable net assets of a controlled entity
at the date of gaining control, is recognised as an asset. Goodwill has an indefinite life. The carrying value of goodwill is reviewed for
impairment at each reporting period and tested for impairment annually, or more frequently if there is an indication that the goodwill
may be impaired. This involves, where required, using discounted cash flow or capitalisation of earnings methodology to determine
the expected future benefits of the cash generating unit to which goodwill has been allocated. Where the assessment results in thecurrent carrying value of goodwill exceeding the value of expected future benefits, the difference is charged to the income statement.
Any impairment writedown of goodwill is not reversed in subsequent periods.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Other intangible assets
Other intangible assets include costs incurred in acquiring and building software and computer systems (referred to as software) andan intangible asset relating to the ING New Zealand Joint Venture acquisition.
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 the branch front-end applications where 7 years is used.
At each reporting date, the software assets and other intangible assets are reviewed for impairment against impairment indicators. If
any indication of impairment exists, the recoverable amount of the assets are estimated and compared against the existing carrying
value. Where the existing carrying value exceeds the recoverable amount, the difference is charged to the income statement.
Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation, are not capitalised.
(xx) Premises and equipment
Premises and equipment are carried at cost less accumulated depreciation and impairment.
The gain or loss on the disposal of premises and equipment is determined as the difference between the carrying amount of the assets
at the time of disposal and the proceeds of disposal, and is included in the income statement in the period of disposal.
Assets other than freehold land are depreciated at rates based upon their expected useful lives to the Banking Group, using thestraight-line method. The depreciation rates used for each class of asset are:
Buildings
Building integrals
Furniture & equipment
Computer & office equipment
Motor vehicles

1%
10%
10%
12.5% - 33%
20%

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

P A G E

1 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1.

A C C O U N T I N G P O L I C I E S ( continued )(xxi) Deposits and other borrowings
Deposits and other borrowings include certificates of deposit, interest bearing deposits, debentures, commercial paper and otherrelated interest bearing financial instruments. Deposits and other borrowings, excluding commercial paper, are initially recognised atfair value plus transaction costs and subsequently measured at amortised cost. The interest expense is recognised using the effective
interest method as explained in Accounting Policy (ix). Commercial paper is designated at fair value through profit or loss, with fairvalue movements recorded directly in the income statement.
(xxii) Bonds, notes and loan capital
Bonds, notes and loan capital are initially recognised at fair value plus transaction costs and subsequently stated at amortised cost.
Interest expense is recognised in the income statement using the effective interest method.
(xxiii) Income tax
Income tax expense
Income tax on profits for the period comprises current and deferred tax. It is recognised in the income statement as tax expense, except
when it relates to items credited directly to equity, in which case it is recorded in equity, or where it arises from the initial accounting
for a business combination, in which case it is included in the determination of goodwill.
Current tax
Current tax is the expected tax payable on taxable income for the period, based on tax rates (and tax laws) which are enacted or
substantively enacted by the reporting date and including any adjustment for tax 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 (or refundable).
Deferred tax
Deferred tax is accounted for using the comprehensive tax base balance sheet liability method. Deferred tax arises by providing for
temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for tax purposes.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability
giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by thereporting date. The measurement reflects the tax consequences that would follow from the manner in which the Banking Group, at thereporting date, recovers or settles the carrying amount of its assets and liabilities.
Deferred tax liabilities are recognised for all taxable temporary differences, other than those in relation to taxable temporary differences
arising from goodwill. In addition deferred tax liabilities are recognised for taxable temporary differences arising on investments incontrolled entities, branches, associates and joint ventures, except where the Banking Group is able to control the reversal of thetemporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets
associated with these interests are recognised only to the extent that it is probable that the temporary difference will reverse in theforeseeable future and there will be sufficient taxable profits against which to utilise the benefits of the temporary difference.
Deferred tax assets, including those related to the tax effects of income tax losses and credits available to be carried forward, arerecognised only to the extent that it is probable that future taxable profits will be available against which the deductible temporary
differences or unused tax losses and credits can be utilised.
Deferred tax related to fair value re-measurement of available-for-sale financial assets and cash flow hedges, which are charged or
credited directly to equity, is also charged or credited directly to equity and subsequently recognised in the income statement together
with the deferred gain or loss on the related asset or liability.
Offsetting
Current and deferred tax assets and liabilities are offset only to the extent that they relate to income taxes imposed by the same
taxation authority and there is a legal right and intention to settle on a net basis and it is allowed under the tax law.
(xxiv) Employee benefits
Leave benefits
The amounts expected to be paid in respect of employees’ entitlements to annual leave are accrued at expected salary rates including
on-costs. Liability for long service leave is calculated and accrued for in respect of all applicable employees (including on-costs) using
an actuarial valuation.
Superannuation schemes
The Banking Group’s contributions to its defined contribution cash accumulation scheme are recognised as an expense in the income
statement when incurred.
The Banking Group operates two defined benefit superannuation schemes. The liability and expense related to providing benefits toemployees under each of the defined benefit schemes are calculated by independent actuaries. A defined benefit liability is recognised
to the extent that the present value of the defined benefit obligation of each scheme, calculated using the Projected Unit Credit
Method, is greater than the fair value of each scheme’s assets. Where this calculation results in a benefit to the Banking Group, adefined benefit asset is recognised. The present value of the defined benefit obligation is determined by discounting the estimatedfuture outflows by reference to New Zealand 10-year government bond rates.

P A G E

1 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1.

A C C O U N T I N G P O L I C I E S ( continued )(xxiv) Employee benefits (continued)
In each subsequent reporting period, ongoing movements in the carrying value of the defined benefit liability or asset are treatedas follows:• the net movement relating to the current period’s service cost, interest cost, expected return on scheme assets, past service costs andother costs (such as the effects of any curtailments and settlements), is recognised as an employee expense in the income statement;• movements relating to actuarial gains and losses are recognised directly in retained profits; and• contributions incurred are recognised directly against the net defined benefit position.
The assets of the defined benefit and cash accumulation superannuation schemes are held in trust and are not included in thesefinancial statements as the Banking Group does not have direct or indirect control of these schemes. The benefits under the schemes
are provided from contributions by employee members and by the Banking Group, and from income earned by the assets of theschemes. Members’ contributions are at varying rates. Actuarial valuations are carried out at a minimum of every three years inaccordance with the schemes’ Trust Deed and superannuation legislation.
Share-based compensation
The Banking Group’s employees participate in various equity-settled share-based compensation plans operated by the ANZ and largely
comprise the Employee Share Acquisition Plan and the ANZ Share Option Plan. The Banking Group purchases ANZ shares and shareoptions for the benefit of its employees from the ANZ, and as such accounts for share-based compensation plans as cash-settled.
ANZ ordinary shares
The fair value of ANZ ordinary shares granted under the Employee Share Acquisition Plan is measured at grant date, using the one-day
volume weighted average market price of ANZ shares. The fair value is expensed immediately when shares vest immediately. Where shares
are subject to a vesting period, the Banking Group initially recognises a net share compensation asset reflecting the fair value of unvested
shares issued to employees of the Banking Group. The fair value of unvested shares is amortised to profit and loss on a straight-line basis
over the vesting period (normally three years) as employee services are received.
Share Options
The fair value of ANZ share options is measured at grant date, using an option pricing model. The fair value is expensed on a straightline basis over the relevant vesting period. This is recognised as an employee compensation expense with a corresponding increase in
the share options liability account.
The option pricing model takes into account the exercise price of the option, the risk free interest rate, the expected volatility of the
ANZ ordinary share price and other factors. Market vesting conditions are taken into account in estimating the fair value.
Other adjustments
The amount of expense recognised during the vesting period is adjusted for the number of shares or options expected to vest. Nonmarket vesting conditions (e.g. service conditions) are taken into account, so that ultimately the expense recognised in the income
statement reflects the number of shares or share options that actually vest.
(xxv) Capitalised expenses
Direct external expenses, comprising direct and incremental costs related to the acquisition of interest earning assets, including
structured institutional lending, mortgages and finance leases, are initially recognised as part of the cost of acquiring the asset andwritten off as an adjustment to its expected yield over its expected life using the effective interest method. The write-off is to interest
income as part of the effective interest rate.
For assets subject to prepayment, expected life is determined on the basis of the historical behaviour of the particular asset portfolio,
taking into account contractual obligations and prepayment experience assessed on a regular basis. Impairment is assessed throughcomparing the actual behaviour of the portfolio against initial expected life assumptions.
(xxvi) Provisions
The Banking Group recognises provisions when there is a present obligation, the future sacrifice of economic benefits is probable, andthe amount of the provision can be measured reliably. The amount recognised is the best estimate of the consideration required tosettle the present obligation, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured
using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. Any
expected third party recoveries are recognised as an asset if it is virtually certain that recovery will be received and the amount of thereceivable can be measured reliably.
(xxvii) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (‘GST’) except where the amount of GST
incurred is not recoverable from the Inland Revenue Department (‘IRD’). In these circumstances, the GST is recognised as part of thecost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the IRD
is included as ‘other assets’ or ‘other liabilities’ in the balance sheet.
Cash flows are included in the cash flow statement on a net basis. The GST components of cash flows arising from investing andfinancing activities, which are recoverable from, or payable to, the IRD are classified as operating cash flows.

P A G E

1 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

1.

A C C O U N T I N G P O L I C I E S ( continued )(xxviii) Offsetting of assets and liabilities
Assets and liabilities are offset and the net amount reported in the balance sheet only where:• There is a current enforceable legal right to offset the asset and liability; and• There is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
(xxix) Contingent liabilities
Liabilities are no longer contingent, and are recognised on the balance sheet, when the following requirements are met:
• the transaction is probable in that the contingency is likely to occur; and• the contingency can be reasonably estimated.
Further disclosure is made within Note 43 Contingent Liabilities and Credit Related Commitments, where the above requirements are
not met, but there is a possible obligation that is higher than remote. Specific details are provided together with an estimate of therange or a statement that such an estimate is not possible.
(xxx) Segment reporting
Business segments are distinguished components of the Banking Group that provide products or services that are subject to risks and rewards
that are different to those of other business segments. Geographical segments provide products or services within a particular economic
environment that is subject to risks and rewards that are different to those components operating in other economic environments.
Business segments are the Banking Group’s primary reporting segments. For reporting purposes the three major business segments are
Retail Banking, Relationship Banking and Institutional. The Banking Group operates primarily in one geographic segment, New Zealand.
(xxxi) Statement of cash flows
Basis of preparation
The statement of cash flows has been prepared using the direct approach modified by the netting of the certain items as disclosed below.
Cash and cash equivalents
Cash and cash equivalents include liquid assets, amounts due from other financial institutions, trading securities and available-for-saleassets held for the purpose of meeting short-term cash commitments that are readily convertible to cash and subject to insignificant
risk of changes in value.
Netting of cash flows
Certain cash flows have been netted in order to provide more meaningful disclosure, as many of the cash flows are received anddisbursed on behalf of customers 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.
(xxxii) Securitisation, funds under management, and other fiduciary activities
Certain subsidiaries of the Bank act as trustees and/or managers for a number of unit trusts and superannuation investment funds.
The Bank provides private banking services to customers including portfolio management. The assets of the managed funds andprivate banking clients are not included in these financial statements, as direct or indirect control of the assets is not held by
the Banking Group. Commissions and fees earned in respect of the Banking Group’s funds under management are included in net
operating income.
Financial services provided by any member of the Banking Group to discretionary private banking activities or entities conducting
funds management, and assets purchased from discretionary private banking activities or entities conducting funds management are
on arm’s length terms and conditions, and at fair value.
Securitised assets are derecognised when the right to receive cashflows have expired or the Banking Group has transferred substantially
all the risks and rewards of ownership.
(xxxiii) Discontinued operations
A discontinued operation is a component of the Banking Group’s business that represents a separate major line of business orgeographical area of operations that has been disposed of or is classified as held for sale, or is a subsidiary that has been disposed ofor is classified as held for sale.
When an operation is classified as a discontinued operation the comparative income statement is restated as if the operation had been
discontinued from the start of the comparative period.
(xxxiv) Comparatives
To ensure consistency with the current period, comparative figures have been restated where appropriate.

1 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

2.

C R I T I C A L E S T I M AT E S A N D J U D G E M E N T S U S E D I N A P P LY I N G A C C O U N T I N G P O L I C I E S

These financial statements are prepared in accordance with New Zealand Financial Reporting Standards and other authoritative accounting
pronouncements. Notwithstanding the existence of relevant accounting standards, there are a number of critical accounting treatments
which include complex or subjective judgements and estimates that may affect the reported amounts of assets and liabilities in the financial
statements. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectationsof future events that are believed to be reasonable under the circumstances.
An explanation of the judgements and estimates made by the Banking Group in the process of applying its accounting policies, that have themost significant effect on the amounts recognised in the financial statements are set out below.
Critical accounting estimates and assumptions
Credit provisioning
Provisions for impairment in customer loans and advances are raised by management to cover incurred losses arising from past events. Losses
for impaired loans are recognised when there is objective evidence that impairment of a loan or portfolio of loans has occurred. Impairment
losses are calculated on individual loans and on loans assessed collectively. Losses expected from future events, no matter how likely, are notrecognised. The amount of the impairment loss is recognised as an expense in the income statement.
The calculation of impairment provisions includes consideration of all expected cash flows associated with the loan. This includes any expectedcash flows from realisation of security and interest and takes into account any costs expected to be incurred, including security realisation
costs, legal and administration costs.
Individual provisions
An individual provision is raised where there is an expectation of a loss of principal, interest and/or fees and there is objective evidence ofimpairment.
At each balance date, the Banking Group reviews individually significant loans for evidence of impairment. All relevant information, including
the economic situation, solvency of the customer/guarantor, enforceability of guarantees, current security values and the time value of future
cash flows are taken into account in determining individual provisions. At a minimum, individual provisions are reassessed on a quarterly basis,upon receipt of a significant asset realisation or when there is a change in customer circumstances/business strategy.
Collective provisions
A collective provision is calculated for:• Loans subject to individual assessment to cover losses which have been incurred but not yet identified; and• For homogenous portfolios of loans that are not considered individually significant (e.g. retail portfolios such as mortgages, credit cards andsome small business loans).
The collective provision is estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in thecollective pool. The historical loss experience is then adjusted for the impact of current observable data.
For individually significant loans, historical loss experience used to calculate the collective provision is determined by taking into accounthistorical information on probability of default and loss given default by risk grade. The collective provision on homogeneous or portfolio
managed exposures is calculated by applying an expected loss factor to the outstanding drawn and undrawn balances in each loan portfolio.
The expected loss factor is determined from internal historical loss data.
The long-term historical loss experience is reviewed by management and adjustments made to reflect current economic and credit conditions
as well as taking into account such factors as concentration risk in an individual portfolio. In addition, management recognise that a certain
level of imprecision exists in any model used to generate risk grading and provisioning levels. As such an adjustment is applied for model risk.
As at 31 March 2008 for the Banking Group, total provision for credit impairment was $522 million representing 0.56% of total net loans andadvances (31/03/2007 $457 million or 0.56%; 30/09/2007 $466 million or 0.53%). Of the total provision for 31 March 2008, $471 million
represented collective provisions and $51 million represented individual provisions.
As at 31 March 2008 for the Bank, total provision for credit impairment was $479 million representing 0.53% of total net loans and advances(31/03/2007 $413 million or 0.53%; 30/09/2007 $426 million or 0.51%). Of the total provision for 31 March 2008, $438 million represented
collective provisions and $41 million represented individual provisions.
Management regularly reviews and adjusts the estimates and methodologies as improved analysis becomes available. Changes in these assumptions
and methodologies could have a direct impact on the level of provision and impairment charge recorded in the financial statements.

P A G E

1 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E2.

C R I T I C A L E S T I M AT E S A N D J U D G E M E N T S U S E D I N A P P LY I N G A C C O U N T I N G P O L I C I E S ( continued )Critical judgements in applying the Banking Group’s accounting policies
Derivatives and hedging
The Banking Group buys and sells derivatives as part of its trading operations and to hedge its interest rate risk, currency risk, price risk, credit
risk and other exposures relating to non-trading positions. The derivative instruments used to hedge the Banking Group’s exposures include:• Swaps• Foreign exchange contracts• Forward rate agreements• Futures• Options, and• Combinations of the above instruments.
The Banking Group enters into derivatives for trading (including transactions entered into on behalf of customers) or for hedging purposes.
Hedging
A hedging instrument is a designated derivative whose fair value or cash flows are expected to offset changes in the fair value or cash flows ofa designated hedged item. A hedged item is an asset, liability, firm commitment or highly probable forecast transaction that (a) exposes the
Banking Group to the risk of changes in fair value or future cash flows and (b) is designated as being hedged.
For a relationship to qualify for hedge accounting, the following criteria must be met:
• Designation and Documentation: The hedging relationship must be formally designated and documented at the inception of the hedge.
• Prospective Effectiveness: This is a forward-looking test of whether a hedging relationship is expected to be highly effective in future periods.
The hedge must be expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk,
consistently with the originally documented risk management strategy for that particular hedging relationship for hedge accounting to beachievable.
The effectiveness of the hedge must be capable of being reliably measured, that is, the fair value or cash flows of the hedged item that are
attributable to the hedged risk and the fair value of the hedging instrument can be reliably measured. Prospective hedge effectiveness testingis required at least quarterly.
• Retrospective Effectiveness: This is a backward-looking test of whether a hedging relationship has actually been highly effective throughout
the reporting periods for which the hedge was designated (i.e. retrospectively). The actual results of the hedge must be within a range of
80 - 125 per cent.
Hedge accounting is only achieved where both prospective and retrospective effectiveness is achieved.
• External Counterparty: For hedge accounting purposes, only instruments that involve a party external to the Banking Group can be designatedas hedging instruments.
Judgement is required by management in selecting and designating hedging relationships and assessing hedge effectiveness. NZ IAS 39 does not
specify a single method for assessing hedge effectiveness prospectively or retrospectively. The Banking Group adopts the hypothetical derivative
approach to determine hedge effectiveness in line with current risk management strategies. Hedge ineffectiveness can arise for a number ofreasons, and whilst a hedge may pass the effectiveness tests above it may not be perfectly effective, thus creating volatility within the income
statement through recognition of this ineffectiveness.
Fair value of derivatives
Derivatives which are entered into as part of the Banking Group’s trading operations and those derivatives which are part of fair value hedges aremeasured at fair value, with any changes in fair value recognised in the income statement. Where liquid markets exist, fair value is based on quoted
market prices. Where there is no active market fair value is determined by the use of various valuation techniques including discounted cash flow
models and option pricing models. To the extent possible models use only observable data, however such areas as counterparty risk, volatilities andcorrelations require management to make judgements and estimates. Changes in assumptions used in these models and projections of future cash
flows could affect the reported fair value of derivative financial instruments.

2 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

2.

C R I T I C A L E S T I M AT E S A N D J U D G E M E N T S U S E D I N A P P LY I N G A C C O U N T I N G P O L I C I E S ( continued )Critical judgements in applying the Banking Group’s accounting policies (continued)
Goodwill
The carrying value of goodwill is subject to an impairment test to ensure that the current carrying value does not exceed its recoverable value at thebalance sheet date. Any excess of carrying value over recoverable amount is taken to the income statement as an impairment writedown.
As at 31 March 2008, the balance of goodwill recorded as an asset on the Banking Group’s consolidated balance sheet as a result of acquisitions
was $3,265 million (31/03/2007 $3,265 million; 30/09/2007 $3,265 million) of which $3,230 million relates to the acquisition of NBNZ Groupin December 2003 (31/03/2007 $3,230 million; 30/09/2007 $3,230 million).
As at 31 March 2008, the balance of goodwill recorded as an asset on the Bank’s balance sheet as a result of acquisitions was $3,217 million,
which relates to the amalgamation of The National Bank of New Zealand Limited in June 2004 (31/03/2007 $3,217 million; 30/09/2007$3,217 million).
Goodwill is allocated to cash-generating units for the purpose of impairment testing, which is undertaken at the lowest level at which goodwill
is monitored for internal management reporting purposes. The cash-generating unit to which goodwill related to the National Bank Group is
the NZ Geographic segment being ANZ National Bank Limited Group.
Impairment testing of purchased goodwill is performed annually, or more frequently where there is an indication that the goodwill may be
impaired, by comparing the recoverable value of the Banking Group, being the smallest cash-generating unit to which the goodwill is allocated,with the current carrying amount of its net assets, including goodwill. The recoverable amount is based on fair value less costs to sell. Where thecurrent carrying value is greater than the recoverable amount a charge for impairment of goodwill will be recorded in the income statement.
In determining the fair value of the Banking Group, an independent valuation based on fair value less costs to sell using a capitalisation of
earnings approach.			
In determining an appropriate price multiple under the capitalisation of earnings approach, judgement is applied in assessing comparability ofsimilar companies or transactions, particularly with respect to the mix of business, geographic location, growth prospects, riskiness of future
earnings and size of the overall business.		
The Banking Group obtained an independent valuation of the ANZ National Bank Limited Group as at 31 March 2008. The results of the
independent valuation resulted in a fair value less costs to sell in excess of current carrying value.
Changes in the assumptions upon which the valuation is based, together with changes in future cash flows could materially impact thevaluation obtained. Based on this independent valuation, the current carrying value of the Banking Group’s goodwill arising from acquisitions
is considered recoverable and no impairment write-down is required.
Valuation of investment in ING (NZ) Holdings Ltd (ING NZ)
The Banking Group adopts the equity method of accounting for its 49% interest in its jointly controlled entity, ING NZ. As at 31 March 2008, thecarrying value of the Banking Group’s investment in ING NZ was $201 million (31/03/2007 $177 million; 30/09/2007 $189 million). The carrying
value of the Bank’s investment in ING NZ was $220 million (31/03/2007 $196 million; 30/09/2007 $208 million).
The carrying value of the investment in ING NZ differs between the Banking Group and the Parent due to an unrecognised gain on the Banking
Group’s share of the net gain on sale recognised when the Banking Group sold its Life Insurance and Funds Management businesses to ING NZ.
The carrying value of this investment is subject to an impairment test to ensure that the current carrying value does not exceed its
recoverable value at the balance sheet date. Any excess of carrying value over recoverable amount is taken to the income statement as an
impairment writedown.
The Banking Group obtained an independent valuation of ING NZ as at 31 March 2008. The valuation was based on a value-in-use methodology
using a discounted cash flow approach. The results of the independent valuation resulted in a value-in-use in excess of current carrying value.
Changes in the assumptions upon which the valuation is based, together with changes in future cash flows could materially impact thevaluation obtained. Based on this independent valuation, the current carrying value of the Banking Group’s investment in ING NZ is considered
recoverable and no impairment write-down is required.

P A G E

2 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3.

RISK MANAGEMENT POLICIESThe Banking Group recognises the importance of effective risk management to its business success. Management is committed to achieving strong
control and a distinctive risk management capability that enables the Banking Group business units to meet their performance objectives.
The Banking Group approaches risk through managing the various elements of the system as a whole rather than viewing them as independentand unrelated parts. The Risk function is independent of the business with clear delegations from the Board and operates within a comprehensive
framework comprising:• The Board, providing leadership, setting risk appetite/strategy and monitoring progress;• A strong framework for development and maintenance 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 “first line of defence”, and for the management of risks in alignment with the Banking Group’s
strategy; and• Independent oversight to ensure Business Unit level compliance with policies, regulations and laws, and to provide regular risk evaluation
and reporting.
The Banking Group manages risk through an approval, delegation and limits structure. Regular reviews of the policies, systems and risk reports,
including the effectiveness of the risk management systems, discussions covering the Banking Group’s response to emerging risk issues andtrends, and that the requisite culture and practices are in place across the Banking Group, are conducted within the Banking Group and also by
the Ultimate Parent Bank. The Board has responsibility for reviewing all aspects of risk management.
The Board has ultimate responsibility for overseeing the effective deployment of risk management frameworks, policies and processes within
New Zealand. The Banking Group’s Risk Committee assists the Board in this function. The role of the Committee is to assist the Board in theeffective discharge of its responsibilities for business, market, credit, operational, compliance, liquidity and reputational risk management, andto liaise and consult with the Ultimate Parent Bank Risk Committee to assist it to discharge its responsibilities. The Banking Group has anindependent Risk Management function, which via the Chief Risk Officer, coordinates risk management directly between Business Unit riskfunctions and Ultimate Parent Bank Group Risk Management functions.
The risk management process is subject to oversight by the Risk Committee of the Ultimate Parent Bank Board. This includes the review of risk
portfolios and the 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 aspects of published financial statements andinternal and external audit processes. The Committee has a quorum of two directors, both of whom must be non-executive directors. It meetsat least four times a year, and reports directly to the Board.
Financial risk management
Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations.
Market risk is the risk to the Banking Group’s earnings arising from changes in interest rates, currency exchange rates, credit spreads, or fromfluctuations in bond, commodity or equity prices.
Liquidity risk is the risk that the Banking Group has insufficient capacity to fund increases in assets, or is unable to meet its payment obligations
as they fall due, including repaying depositors or maturing wholesale debt.
Refer to Note 32 Financial Risk Management for detailed disclosures on the Banking Group’s financial risk management policies.

2 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3.

R I S K M A N A G E M E N T P O L I C I E S ( continued )Operational risk
Operational risk is the risk arising from day to day operational activities which may result in direct or indirect loss. These losses may result
from failure to comply with policies, procedures, laws and regulations, from fraud or forgery, from a breakdown in the availability or integrityof services, systems and information, or damage to the Bank’s reputation.
Examples include failure to comply with policy and legislation, human error, natural disasters, fraud and other malicious acts. Where appropriate,risks are mitigated by insurance.
Risk Management is responsible for establishing the Banking Group’s operational risk framework and associated Banking Group-level policies.
Business Units are responsible for the identification, analysis, assessment and treatment of operational risks on a day-to-day basis.
A Risk Drivers and Controls (or “Scorecards”) Approach to operational risk measurement is used to measure the operational risk profile ofindividual business units, and to allocate operational risk economic capital. This approach gives business managers a strong and clear incentive
to reduce operational risk.
Business Units have primary responsibility for the identification and management of operational risk with executive oversight provided by therelevant Retail and Wholesale Risk Committees. The Banking Group’s Operational Risk Executive Committee (OREC) undertakes the governancefunction through the monthly monitoring of operational risk performance across the Banking Group. The Board and Risk Management conduct
effective oversight through the approval of operational risk policies and frameworks and monitoring key operational risk metrics.
Compliance
The Banking Group conducts its business in accordance with all relevant compliance requirements in each point of representation. In order toassist the Banking Group identify, manage, monitor and measure its compliance obligations, the Banking Group has a comprehensive regulatorycompliance framework in place, which addresses both external (regulatory) and internal compliance.
Risk Management, in conjunction with Business Unit staff ensure the Banking Group operates within a compliance infrastructure and frameworkthat incorporates new and changing business obligations and processes.
The compliance policies and their supporting framework seeks 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 identification and management of compliance. The Banking Group’s Risk Management division provides policy andframework, measurement, monitoring and reporting, as well as leadership in areas such as anti-money laundering procedures and matters ofprudential compliance. The Banking Group’s OREC, the Chief Risk Officer, the Board and the Risk Committee of the Ultimate Parent Bank Board
conduct Board and Executive oversight.
Internal audit
The Banking Group’s internal audit function, conducts independent reviews that assist the Board of Directors and management to meet theirstatutory and other obligations.
Internal Audit reports directly to the Chairman of the ANZ National Audit Committee and through to the ANZ Group General Manager Internal
Audit. Under its Charter, Internal Audit conducts independent appraisals of:• The continued operation and effectiveness of the internal controls in place to safeguard and monitor all material risks to the Banking Group;• Compliance with Board policies and management directives;• Compliance with the requirements of supervisory regulatory authorities;• The economic and efficient management of resources; and• The effectiveness of operations undertaken by the Banking Group.
In planning the audit activities, Internal Audit adopts a risk-based approach that directs and concentrates resources to those areas of greatest
significance, strategic concern and risk to the business. This encompasses reviews of major credit, market, technology and operating risks within
the wider Banking Group. Significant findings are reported quarterly to the Audit Committee.
The Internal Audit Plan is approved by the Audit Committee and endorsed by the ANZ Group Audit Committee.
All issues and recommendations reported to management are tracked and monitored internally to ensure completion and agreed actions areundertaken where appropriate.

P A G E

2 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

4.

INCOME

Consolidated				

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

C ontinuing operations

Interest income
Financial assets at fair value through profit or loss
Trading securities		
Derivative financial instruments		

104
271

110
112

233
278

104
310

110
116

233
288

			

375

222

511

414

226

521

Financial assets not at fair value through profit or loss
Liquid assets		
Other financial institutions		
Available-for-sale assets		
Lending on productive loans		
Lending on impaired assets (Note 14)		
Subsidiary companies		
Related parties		
Other		

165
155
1
4,086
3
9

168
105
6
3,405
2
9
6

345
220
7
7,190
4
13
19

165
133
1
3,941
3
25
7

168
85
5
3,250
2
29
9
3

345
178
6
6,873
4
84
13
14

			

4,419

3,701

7,798

4,275

3,551

7,517

Total interest income		

4,794

3,923

8,309

4,689

3,777

8,038

323
69
4
72
(5)
(1)
16

290
1
61
2
10
19
4
19

594
3
128
2
39
10
20
(1)
35

298
7
69
4
72
(5)
(1)
16

269
101
60
2
10
19
4
19

552
1,217
126
2
39
10
20
(1)
35

(7)
22

1
4

(2)
9

(7)
19

1
-

(2)
(3)

Total other operating income		

493

411

837

472

485

1,995

1
Net fee income comprises:
Lending and credit facility fee income		Fee income on trust and other fiduciary activities		
Other fee income		

64
23
321

51
22
294

110
46
592

64
10
309

51
13
282

110
27
569

Total fee income		Direct fee expense		

408
85

367
77

748
154

383
85

346
77

706
154

Net fee income		

323

290

594

298

269

552

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

2 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

5.

EXPENSES

Consolidated				

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

C ontinuing operations

Interest expense
Financial liabilities at fair value through profit or loss
Commercial paper		

493

263

595

-

-

-

			

493

263

595

-

-

-

Deposits at amortised cost
Other financial institutions		
Deposits and other borrowings		
Subsidiary companies		
Bonds and notes		
Related party funding		
Loan capital		
Other		

108
2,136
707
90
86
36

111
1,765
472
100
74
31

206
3,740
1,076
211
157
74

52
2,309
1,315
19
90
86
32

43
1,784
956
15
100
74
23

100
3,774
2,210
32
211
157
58

			

3,163

2,553

5,464

3,903

2,995

6,542

Total interest expense		

3,656

2,816

6,059

3,903

2,995

6,542

335
37

323
28

650
67

320
36

306
28

620
65

18
3
7
20
18
39
39
53
103

17
3
7
18
21
37
34
55
110

35
6
12
38
39
72
71
112
229

18
3
7
5
7
8
90
51
103

17
3
7
7
10
7
81
53
110

34
6
12
13
17
13
167
107
229

672

653

1,331

648

629

1,283

Operating expenses
Personnel costs		
Employee entitlements		
Pension costs- Defined contribution schemes		
- Defined benefit schemes		
Share-based payments expense		
Building occupancy costs		
Depreciation of premises and equipment		
Leasing and rental costs		
Related parties (Note 46)		
Computer expenses		
Other costs		
Total operating expenses		Consolidated				

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$’000
$’000
$’000

ParentUnaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$’000
$’000
$’000

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

931
216

808
57

1,549
357

830
185

597
56

1,314
333

Total auditors’ remuneration		

1,147

865

1,906

1,015

653

1,647

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

P A G E

2 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

6.

I N C O M E TA X E X P E N S E

Consolidated				

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

R econciliation o f t h e prima facie income tax payable on pro f it w it h t h e income tax expense c h arged int h e income statement

Continuing operations
Profit before income tax		
Prima facie income tax at 33%		
Rebateable and non-assessable dividends		
Other permanent items		

962
317
(4)
(35)

846
279
(7)
14

1,706
563
(12)
34

620
205
(2)
(34)

620
205
(33)
23

2,155
711
(401)
43

			
Tax effect of change in domestic tax rate1		
Income tax under provided in prior periods		

278
(8)
-

286
1

585
27
2

169
(8)
-

195
-

353
25
1

Total income tax expense from continuing operations		

270

287

614

161

195

379

Discontinued operations
Income tax expense from discontinued operations		

-

-

-

-

-

-

28.1%

33.9%

36.0%

26.0%

31.5%

17.6%

304

265

512

200

168

277

-

1

2

-

-

1

(34)

21

100

(39)

27

101

270

287

614

161

195

379

Current income tax
Actuarial (loss) gain on defined benefit schemes		

(4)

3

1

(4)

3

1

Deferred income tax
Net (loss) gain on revaluation of cash flow hedges		

(11)

10

11

(11)

10

11

Total income tax (credit) expense recognised directly in equity

(15)

13

12

(15)

13

12

Imputation Credit AccountBalance at beginning of the period		
Imputation credits attached to dividends received		
Taxation paid		
Imputation credits attached to dividends paid		
Additions from companies joining the Imputation Group		
Other		

831
22
101
(369)
(2)

642
17
174
-

642
14
371
(196)
-

595
4
73
(464)
105
(2)

483
8
126
-

483
91
217
(196)
-

Balance at end of the period		

583

833

831

311

617

595

Effective tax rate (%)
The major components of the income tax expense comprise:Amounts recognised in the income statement
Current income tax charge
Current income tax charge		
Adjustments recognised in the current period in relation to
current tax of prior periods		
Deferred income tax
Deferred tax (income) expense relating to the origination andreversal of temporary differences		Total income tax expense recognised in income
statement - continuing operations		
The following amounts were (credited) charged
directly to equity:

The above amounts only include items that give rise to imputation credits that are available for use by the Banking Group and/or the Bank.
The parent is a member of an Imputation Group with other members of the Banking Group. The figures shown for the Parent above include theimputation credits available for use by the Parent held by the Imputation Group.
1
In May 2007, legislation was passed to reduce the New Zealand corporate tax rate from 33% to 30%, effective for the 2009 income tax year.
The tax effect shown is the impact on the value of deferred tax assets and liabilities as a result of the reduction in the corporate tax rate from
1 October 2008.

P A G E

2 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

7.

LIQUID ASSETS

Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

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

2,386
1,390
87

4,286
25
1,358
72

3,010
197
1,467
133

2,386
1,390
87

4,286
25
1,357
72

3,010
197
1,467
133

Total liquid assets		

3,863

5,741

4,807

3,863

5,740

4,807

2,171

4,041

2,809

2,171

4,041

2,809

6,591

6,052

6,168

6,591

6,052

6,168

Able to be withdrawn without prior notice		
Securities purchased under agreement to resell		Certificates of deposit		Term loans and advances		

418
377
2,609
486

776
604
737
950

952
512
1,634
465

417
377
2,609
52

774
604
737
465

950
512
1,634
5

Total due from other financial institutions		

3,890

3,067

3,563

3,455

2,580

3,101

Included within due from other financial institutions
are the following balances:
Assets used to secure deposit obligations		
Assets encumbered through repurchase agreements		

-

208
25

-

-

208
25

-

Included within due from other financial institutions
is the following related party balance:
Australia and New Zealand Banking Group Limited(Ultimate Parent Company)		

-

208

-

-

208

-

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

134
728
177
1,039
71

209
1,430
178
35
65

144
866
177
638
52

134
728
177
1,039
71

208
1,430
178
35
65

144
866
177
638
52

Total trading securities		

2,149

1,917

1,877

2,149

1,916

1,877

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

198

208

300

198

208

300

Included within liquid assets is the following balance:
Overnight balances with central banks		
The Banking Group’s core liquidity portfolio held for
managing liquidity risk (Note 32)		

8.

9.

D U E F RO M OT H E R F I N A N C I A L I N S T I T U T I O N S

TRADING SECURITIES

1 0 . D I S C O N T I N U E D O P E R AT I O N S

On 31 October 2006, UDC Finance Limited sold Truck Leasing Limited to Nikko Principal Investments Australia Limited, a private equity
business of Nikko Cordial Corporation, for consideration of $147 million. A gain of $76 million was realised.
The comparative income statements of the Banking Group have been restated to show the discontinued operation separately fromcontinuing operations.
For a detailed explanation of the financial impacts of the sale of TLL refer to Note 10 Discontinued Operations in the consolidated financial
statements for the year ended 30 September 2007.

P A G E

2 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

1 1 . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S

Derivative instruments are contracts whose value is derived from one or more underlying variables or indices, require little or no initial net investment
and are settled at a future date. Derivatives include contracts traded on registered exchanges and contracts agreed between counterparties, called“Over the Counter” or “OTCs”. The use of derivatives and their sale to customers as risk management products is an integral part of the Banking
Group’s trading activities. Derivatives are also used to manage the Banking Group’s own exposure to fluctuations in exchange and interest rates aspart of its asset and liability management activities (i.e. balance sheet risk management).
Derivatives are subject to the same types of credit and market risk as other financial instruments, and the Banking Group manages these risks
in a consistent manner.
Types of derivative instruments
The principal foreign exchange rate contracts used by the Banking Group are forward foreign exchange contracts, currency swaps and currency
options. Forward foreign exchange contracts are agreements to buy or sell a specified quantity of foreign currency on a specified future dateat an agreed rate. A currency swap generally involves the exchange, or notional exchange, of equivalent amounts of two currencies and acommitment to exchange interest periodically until the principal amounts are re-exchanged on a future date. Currency options provide thebuyer with the right, but not the obligation, either to purchase or sell a fixed amount of a currency at a specified rate on or before a future date.
As compensation for assuming the option risk, the option writer generally receives a premium at the start of the option period.
The principal interest rate contracts used by the Banking Group are forward rate agreements, interest rate futures, interest rate swaps andoptions. Forward rate agreements are contracts for the payment of the difference between a specified interest rate and a reference rate ona notional deposit at a future settlement date. There is no exchange of principal. An interest rate future is an exchange traded contract forthe delivery of a standardised amount of a fixed income security or time deposit at a future date. Interest rate swap transactions generally
involve the exchange of fixed and floating interest payment obligations without the exchange of the underlying principal amounts. Interest rate
options provide the buyer with the right but not the obligation either to receive or pay interest at a specified rate on or before a future date. As
compensation for assuming the option risk, the option writer generally receives a premium at the start of the option period.
Equity related contracts are transacted by the Banking Group to offset the equity risk associated with financial instruments priced against
various share indices.
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’sbalance sheet risk management.
Trading positions
Trading positions consist of both sales to customers and market making activities. Sales to customers include the structuring and marketingof 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 overa period of time to benefit from expected changes in market rates.
Gains or losses, including any current period interest, from the change in fair value of trading positions are recognised in the income statementas ‘other operating income’ in the period in which they occur.
Balance sheet risk management
The Banking Group designates balance sheet risk management derivatives into hedging relationships in order to minimise income statement
volatility. This volatility is created by differences in the timing of recognition of gains and losses between the derivative and the hedged item.
Hedge accounting is not applied to all balance sheet risk management positions.
Gains or losses from the change in fair value of balance sheet risk management derivatives that form part of an effective hedging relationshipare recognised in the income statement based on the hedging relationship. Any ineffectiveness is recognised in the income statement as ‘otheroperating income’ in the period in which it occurs.
Gains or losses, excluding any current period interest, from the change in fair value of balance sheet risk management positions that are notdesignated into hedging relationships are recognised in the income statement as ‘other operating income’ in the period in which they occur.
Current period interest is included in interest income and expense.
The following tables provide an overview of the Banking Group’s and the Bank’s foreign exchange rate, interest rate and equity derivatives.
They include all trading and balance sheet risk management contracts. Notional principal amounts measure the amount of the underlying
financial commodity and represent the volume of outstanding transactions. They are not a measure of the risk associated with a derivative. The
derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market rates relative to their terms.
The aggregate contractual or notional amount of derivative financial instruments on hand, the extent to which instruments are favourable orunfavourable, and as a consequence the aggregate fair values of derivative financial assets and liabilities, can fluctuate significantly from time
to time. The fair values of derivative instruments held and notional principal amounts are set out as follows.

2 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 1 . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S ( continued )Consolidated		
Notional			Fair values
Principal

ParentAmount$m

Assets$m

Liabilities$m

Notional
Principal
Amount$m

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

42,232
59,385
1,806
1,761
-

645
1,412
70
(95)

567
1,648
66
(528)

42,232
59,385
1,806
1,761
-

645
1,412
70
(95)

567
1,648
66
(528)

			

105,184

2,032

1,753

105,184

2,032

1,753

Interest rate derivatives
Forward rate agreements		
Swap agreements		
Futures contracts		
Options purchased		
Options sold		

96,661
342,053
17,463
1,687
1,645

1
2,422
5
11
-

3
2,420
36
11

96,661
341,473
17,463
1,687
1,645

1
2,422
5
11
-

3
2,393
36
11

			

459,509

2,439

2,470

458,929

2,439

2,443

		

Fair values
Assets$m

Liabilities$m

Unaudited 31/03/2008

Derivatives held for trading

Equity derivatives
Options purchased

-

-

-

-

-

-

564,693

4,471

4,223

564,113

4,471

4,196

Foreign exchange derivatives
Spot and forward contracts		

38

1

-

38

1

-

Interest rate derivatives
Swap agreements		

13,940114

41

13,940114

41

Total derivatives designated as cash flow hedges		

13,978115

41

13,978115

41

Foreign exchange derivatives
Swap agreements		

49

3

-

49

3

-

Interest rate derivatives
Swap agreements		

33,277276

208

33,277276

208

Total derivatives designated as fair value hedges		

33,326279

208

33,326279

208

Total derivatives held for hedging		

47,304394

249

47,304394

249

Total derivative financial instruments		

611,997

4,865

4,472

611,417

4,865

4,445

Total derivatives held for trading		
Derivatives held for hedging(a) Designated as cash flow hedges(b) Designated as fair value hedges

P A G E

2 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

1 1 . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S ( continued )Consolidated		
Notional			Fair values
Principal

ParentAmount$m

Assets$m

Liabilities$m

Notional
Principal
Amount$m

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

24,67942,476
3,135
2,837
-

445
799
89
(52)

632
912
86
(161)

24,67942,476
3,135
2,837
-

445
799
89
(52)

632
912
86
(161)

			

73,127

1,281

1,469

73,127

1,281

1,469

Interest rate derivatives
Forward rate agreements		
Swap agreements		
Futures contracts		
Options purchased		
Options sold		

36,217
259,843
19,742
1,260
1,179

1
1,406
3
7
-

5
1,494
28
6

36,217
261,126
19,742
1,260
1,179

1
1,431
3
7
-

5
1,519
28
6

			

318,241

1,417

1,533

319,524

1,442

1,558

		

Fair values
Assets$m

Liabilities$m

Unaudited 31/03/2007

Derivatives held for trading

Equity derivatives
Options purchased		

20

20

-

20

20

-

Total derivatives held for trading		

391,388

2,718

3,002

392,671

2,743

3,027

Interest rate derivatives
Swap agreements		

10,11340

46

10,11340

46

Total derivatives designated as cash flow hedges		

10,11340

46

10,11340

46

Foreign exchange derivatives
Swap agreements		

82

2

10

82

2

10

Interest rate derivatives
Swap agreements		

31,889281

110

30,789281

82

Total derivatives designated as fair value hedges		

31,971283

120

30,871283

92

Total derivatives held for hedging		

42,084323

166

40,984323

138

Total derivative financial instruments		

433,472

3,041

3,168

433,655

3,066

3,165

Derivatives held for hedging(a) Designated as cash flow hedges(b) Designated as fair value hedges

3 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 1 . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S ( continued )Consolidated		
Notional			Fair values
Principal

ParentAmount$m

Assets$m

Liabilities$m

Notional
Principal
Amount$m

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

37,15551,253
2,890
2,866
-

750
1,601
113
(530)

1,023
1,360
108
(115)

37,15551,253
2,890
2,866
-

750
1,601
113
(530)

1,023
1,360
108
(115)

			

94,164

1,934

2,376

94,164

1,934

2,376

Interest rate derivatives
Forward rate agreements		
Swap agreements		
Futures contracts		
Options purchased		
Options sold		

74,574
318,899
17,761
1,703
1,651

3
2,240
4
13
-

4
2,321
34
13

74,574
318,965
17,761
1,703
1,651

3
2,241
4
13
-

4
2,321
34
13

			

414,588

2,260

2,372

414,654

2,261

2,372

		

Fair values
Assets$m

Liabilities$m

Audited 30/09/2007

Derivatives held for trading

Equity derivatives
Options purchased		

20

20

-

20

20

-

Total derivatives held for trading		

508,772

4,214

4,748

508,838

4,215

4,748

Foreign exchange derivatives
Spot and forward contracts		

49

2

-

49

2

-

Interest rate derivatives
Swap agreements		

12,568108

50

12,568108

50

Total derivatives designated as cash flow hedges		

12,617110

50

12,61711050

Foreign exchange derivatives
Swap agreements		

74

1

7

74

1

7

Interest rate derivatives
Swap agreements		

35,635386

119

35,735379

91

Total derivatives designated as fair value hedges		

35,709387

12635,809380

98

Total derivatives held for hedging		

48,326497

176

48,426490

148

Total derivative financial instruments		

557,098

4,711

4,924

557,264

4,705

4,896

Derivatives held for hedging(a) Designated as cash flow hedges(b) Designated as fair value hedges

P A G E

3 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 1 . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S ( continued )Hedging relationships
The Banking Group has two types of allowable hedging relationships entered into by the Banking Group: fair value hedges and cash flow hedges.
Each has specific requirements when accounting for the fair value changes in the hedging relationship. For details on the accounting treatmentof each type of hedging relationship refer to Note 1 Accounting Policy (xiv).
Fair value hedges
The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or unrecognised firm commitment that may affectthe income statement. Changes in fair value might arise through changes in interest rates or foreign exchange rates. The Banking Group’s fairvalue hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate long-term financial
instruments due to movements in market interest rates.
The application of fair value hedge accounting results in the fair value adjustment on the hedged item attributable to the hedged risk being
recognised in the income statement at the same time the hedging instrument impacts the income statement. If a hedging relationship isterminated, the fair value adjustment to the hedged item continues to be recognised as part of the carrying amount of the item or groupof items and is amortised to the income statement as a part of the effective yield over the period to maturity. Where the hedged item isderecognised from the Banking Group’s balance sheet, the fair value adjustment is included in the income statement as ‘other operating
income’ as a part of the gain or loss on disposal. The table below shows the gain or loss on fair value hedges by hedging instrument and hedge
item attributable to the hedged risk:
Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Gain or (loss) arising from fair value hedges:- hedged item		- hedging instrument		

134
(135)

(364)
368

(259)
258

134
(135)

(364)
368

(259)
258

Net ineffectiveness on qualifying fair value hedges		

(1)

4

(1)

(1)

4

(1)

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

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Balance at beginning of the period		
Transferred to income statement		
Tax effect of items transferred to income statement		Valuation (loss) gain taken to equity		Tax effect of net loss (gain) taken to equity		

84
(16)
5
(17)
6

52
(19)
6
50
(16)

52
(35)
12
78
(23)

84
(16)
5
(17)
6

52
(19)
6
50
(16)

52
(35)
12
78
(23)

Balance at end of the period		

62

73

84

62

73

84

The mechanics of hedge accounting results in the gain or loss in the cash flow hedging reserve above being released into the income statement
at the same time that the corresponding loss or gain attributable to the hedged item impacts the income statement. It will not necessarily bereleased to the income statement uniformly over the period of the hedging relationship as the fair value of the derivative is driven by changes
in market rates over the term of the instrument. As market rates do not always move uniformly across all time periods, a change in market rates
may drive more value in one forecast period than another, which impacts when the hedging reserve is released to the income statement.

P A G E

3 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 1 . D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S ( continued )The table below shows the breakdown of the cash flow hedging reserve attributable to each type of cash flow hedging relationship:
Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

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

(5)
51

(11)
58

(19)
69

(5)
51

(11)
58

(19)
69

16

26

34

16

26

34

Total cash flow hedging reserve		

62

73

84

62

73

84

All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur which is anticipatedto take place over the next 0 - 10 years (31/03/2007 0 -10 years; 30/09/2007 0 -10 years).
All gains and losses associated with the ineffective portion of the hedging derivatives are recognised immediately as ‘other operating income’in the income statement. The ineffectiveness recognised in the income statement in respect of cash flow hedges was less than $1 million in the
Banking Group (31/03/2007 less than $1 million; 30/09/2007 less than $1 million) and less than $1 million in the Bank (31/03/2007 less than
$1 million; 30/09/2007 less than $1 million).
There were no transactions where cash flow hedge accounting ceased in the period ended 31 March 2008 as a result of highly probable cash
flows that were no longer expected to occur (31/03/2007 no transactions; 30/09/2007 no transactions).

1 2 . AVA I L A B L E - F O R - S A L E A S S E T S

Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

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

3
38
55

3
42
-

4
43
1

3
28
55

3
32
-

4
33
1

Total available-for-sale assets		

96

45

48

86

35

38

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

2,238
1,412
52,70036,503
786

2,061
1,303
46,56432,605
752

2,012
1,338
49,75135,156
752

2,238
1,412
52,70034,462
34

2,061
1,303
46,56429,318
40

2,012
1,338
49,751
31,70337

Gross loans and advances		Provision for credit impairment (Note 15)		
Unearned finance income		
Fair value hedge adjustment		Deferred fee revenue and expenses		
Capitalised brokerage/ mortgage origination fees		

93,639
(522)
(337)
(263)
(58)
120

83,285
(457)
(264)
(364)
(50)
108

89,009
(466)
(290)
(442)
(53)
120

90,846
(479)
(263)
(53)
120

79,286
(413)
(364)
(47)
108

84,841
(426)
(442)
(49)
120

Total net loans and advances		

92,57982,25887,87890,171

78,57084,044

Included within net loans and advances is thefollowing related party balance:
ANZ Holdings (New Zealand) Limited (Parent Company)		

-

230

89

-

234

89

1 3 . N E T L O A N S A N D A D VA N C E S

The balance owing by the Parent Company is due within the next twelve months. Interest is received at variable bank rates.

P A G E

3 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 4 . I M PA I R E D A S S E T S , PA S T D U E A S S E T S A N D OT H E R A S S E T S U N D E R A D M I N I S T R AT I O NConsolidated
Retail Other retailmortgages exposures$m$m

ParentCorporate		
exposures
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures
$m

Total
$m

Individually impaired assets
Unaudited 31/03/2008
Balance at beginning of the period
Transfers from productive
Transfers to productive
Assets realised or loans repaid
Write offs

7
8
(1)
-

20
45
(44)

88
68
(5)
(26)
(1)

115
121
(5)
(27)
(45)

7
8
(1)
-

7
41
(40)

79
57
(3)
(19)
(1)

93
106
(3)
(20)
(41)

Balance at end of the period

14

21

124

159

14

8

113

135

Unaudited 31/03/2007
Balance at beginning of the period
Transfers from productive
Transfers to productive
Assets realised or loans repaid
Write offs

9
(3)
-

19
40
(8)
(34)

123
44
(8)
(56)
(7)

151
84
(8)
(67)
(41)

9
(3)
-

12
37
(8)
(31)

108
29
(5)
(45)
(7)

129
66
(5)
(56)
(38)

Balance at end of the period

6

17

96

119

6

10

80

96

Audited 30/09/2007
Balance at beginning of the period
Transfers from productive
Transfers to productive
Assets realised or loans repaid
Write offs

9
3
(5)
-

19
85
(9)
(75)

123
81
(15)
(92)
(9)

151
169
(15)
(106)
(84)

9
3
(5)
-

12
73
(9)
(69)

108
62
(11)
(71)
(9)

129
138
(11)
(85)
(78)

Balance at end of the period

7

20

88

115

7

7

79

93

Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Past due assets (90 days past due assets)1
Balance at beginning of the period		
Transfers to past due assets		
Transfers from past due assets		

102
350
(226)

86
190
(157)

86
360
(344)

95
323
(202)

78
169
(141)

78
326
(309)

Balance at end of the period		

226

119

102

216

106

95

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

-

3
-

3
(3)

-

3
-

3
(3)

Balance at end of the period		

-

3

-

-

3

-

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

6
12

8
(3)

8
(2)

6
12

8
(3)

8
(2)

Balance at end of the period		

18

5

6

18

5

6

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

7
(3)

7
(2)

12
(4)

6
(3)

7
(2)

11
(4)

Net interest foregone on impaired loans

4

5

8

3

5

7

1. 90 day past due assets are not classified as impaired assets as they are either 90 days or more past due and well secured, or are portfolio managed facilities that can be held for up to
180 days past due.

P A G E

3 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 4 . I M PA I R E D A S S E T S , PA S T D U E A S S E T S A N D OT H E R A S S E T S U N D E R A D M I N I S T R AT I O N ( continued )Further analysis of past due assets can be found in Note 32 Financial Risk Management, including an ageing analysis of all past due assets
30 days and over where the counterparty has failed to make a payment when contractually due.
Other assets under administration and undrawn facilities with impaired customers are predominantly corporate exposures.
There are no undrawn facilities with 90 day past due customers or customers within the other assets under administration category as at
31 March 2008 (31 March 2007 nil; 30 September 2007 nil).
As at 31 March 2008, the Banking Group did not have any restructured assets or material assets acquired through enforcement of security(31 March 2007 nil; 30 September 2007 nil).

1 5 . P ROV I S I O N F O R C R E D I T I M PA I R M E N T

Consolidated
Retail Other retailmortgages exposures$m$m

ParentCorporate		
exposures
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures
$m

Total
$m

Unaudited 31/03/2008
Collective provision
Balance at beginning of the period
Transfer of credit valuation adjustment onderivative financial instruments
Charge to income statement

58

130

234

422

58

117

217

392

4

15

3
27

3
46

4

14

3
25

3
43

Balance at end of the period

62

145

264

471

62

131

245

438

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

4
(2)
-

13
34
7
(44)
-

27
15
1
(1)
(3)

44
47
8
(45)
(3)

4
(2)
-

5
32
7
(40)
-

25
13
1
(1)
(3)

34
43
8
(41)
(3)

Balance at end of the period

2

10

39

51

2

4

35

41

Total provision for credit impairment

64

155

303

522

64

135

280

479

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

51
3

132
2

219
3

402
8

51
3

115
3

198
5

364
11

Balance at end of the period

54

134

222

410

54

118

203

375

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

3
-

16
23
9
(34)
-

39
(1)
1
(7)
(2)

58
22
10
(41)
(2)

3
-

9
20
9
(31)
-

39
(2)
(7)
(2)

51
18
9
(38)
(2)

Unaudited 31/03/2007

Balance at end of the period

3

14

30

47

3

7

28

38

Total provision for credit impairment

57

148

252

457

57

125

231

413

1. The impairment loss on an impaired asset is calculated as the difference between the asset’s carrying amount and the estimated future cashflows discounted to their present value. As this
discount unwinds during the period it is recognised as interest income.

P A G E

3 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

1 5 . P ROV I S I O N F O R C R E D I T I M PA I R M E N T ( continued )Consolidated
Retail Other retailmortgages exposures$m$m

ParentCorporate		
exposures
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures
$m

Total
$m

Audited 30/09/2007
Collective provision
Balance at beginning of the period
Charge to income statement

51
7

132
(2)

219
15

402
20

51
7

115
2

198
19

364
28

Balance at end of the period

58

130

234

422

58

117

217

392

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

3
1
-

16
55
17
(75)
-

39
(2)
3
(9)
(4)

58
54
20
(84)
(4)

3
1
-

9
48
17
(69)
-

39
(2)
1
(9)
(4)

51
47
18
(78)
(4)

Balance at end of the period

4

13

27

44

4

5

25

34

Total provision for credit impairment

62

143

261

466

62

122

242

426

Provision movement analysis
Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

New and increased provisions		
Provision releases		

62
(7)

43
(11)

92
(18)

56
(5)

38
(11)

82
(17)

			
Recoveries of amounts previously written off		

55
(8)

32
(10)

74
(20)

51
(8)

27
(9)

65
(18)

Individual provision charge		
Collective provision charge		

47
46

22
8

54
20

43
43

18
11

47
28

Charge to income statement		

93

30

74

86

29

75

1. The impairment loss on an impaired asset is calculated as the difference between the asset’s carrying amount and the estimated future cashflows discounted to their present value. As this
discount unwinds during the period it is recognised as interest income.

3 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

1 6 . S H A R E S I N C O N T RO L L E D E N T I T I E S , A S S O C I AT E S A N D J O I N T LY C O N T RO L L E D E N T I T I E SConsolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Shares in controlled entities
Unquoted at cost		

-

-

-

7,461

7,464

7,473

Shares in associates
Unquoted at cost plus equity accounted adjustments		

142

5

10

88

3

2

Shares in jointly controlled entities
Unquoted at cost plus equity accounted adjustments		

208

185

196

220

202

208

Total shares in controlled entities, associates andjointly controlled entities		

350

190

206

7,769

7,669

7,683

Shares in associates comprise:
Balance at beginning of the period		
Acquisitions		
Disposals
Transfers to subsidiary company		
Fair value adjustment		Share of profit of equity accounted associates1

10
46
2
84

3
2
-

3
8
(1)
-

2
2
84

3
-

3
(1)
-

Balance at end of the period		

142

5

10

88

3

2

Shares in associates at 31 March 2008 includes goodwill of $54 million (31/03/2007 $2 million; 30/09/2007 $8 million) for the Banking Groupand $nil million (31/03/2007 $nil; 30/09/2007 $nil) for the Parent.
Shares in jointly controlled entities comprise:
Balance at beginning of the period		Disposals		
Transfers to subsidiary company		
Share of profit of equity accounted jointly controlled entities

196
12

174
11

174
(2)
24

208
12

191
11

191
(5)
22

Balance at end of the period		

208

185

196

220

202

208

Shares in jointly controlled entities at 31 March 2008 includes goodwill of $97 million (31/03/2007 $99 million; 30/09/2007 $97 million) for
the Banking Group and $90 million (31/03/2007 $90 million; 30/09/2007 $90 million) for the Parent.
1
The Banking Group, via its associate, Cards NZ Limited, acquired shares in Visa in March 2008, resulting in an equity accounted profit of$84 million being recognised on the sale of the shares at fair value by Cards NZ Limited. Visa shares not sold into the initial public offering areheld as an available-for-sale asset on the balance sheet.

1 7 . OT H E R A S S E T S

Accrued interest and prepaid discounts		
Accrued commission		
Defined benefit schemes surplus		
Share-based payments asset		Prepaid expenses		
Security settlements		
Other assets		

526
18
51
53
9
338

481
11
14
38
34
44
178

537
12
8
37
30
137
284

494
15
51
47
9
290

414
8
14
38
28
44
140

487
9
8
37
23
137
219

Total other assets		

995

800

1,045

906

686

920

P A G E

3 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

1 8 . D E F E R R E D TA X A S S E T S

Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Deferred tax assets
Balance at beginning of the period		Credited (charged) to income statement		Set-off of deferred tax liabilities pursuant to set-off provisions1

11
2
43

122
21
(52)

122
(38)
(73)

7
36

105
17
(54)

105
(37)
(68)

Balance at end of the period		

56

91

11

43

68

-

Deferred tax assets comprise the following temporary differences:
Provision for credit impairment		Deferred fee revenue and expenses		Premises and equipment		
Software		
Provisions and accruals		
Derivative financial instruments		
Defined benefit schemes		
Other		

158
3
(1)
31
98
4
2
1

151
4
4
33
93
47
21

140
3
2
32
103
3
11

146
3
(3)
32
91
5
2
1

137
4
(1)
32
84
47
21

129
3
(2)
32
95
4
9

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

296
(240)

353
(262)

294
(283)

277
(234)

324
(256)

270
(270)

Net deferred tax assets		

56

91

11

43

68

-

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

18
(3)
(1)
(5)
1
2
(10)

(1)
(1)
1
(6)
38
(10)

(12)
(2)
(2)
4
(6)
(20)

17
(1)
(4)
1
2
(8)

(1)
1
(11)
38
(10)

(8)
(2)
(1)
1
(5)
(22)

Total deferred tax credited (charged) to the income statement

2

21

(38)

7

17

(37)

There was no deferred tax asset charged or credited to equity as at 31 March 2008 (31/03/2007 $nil; 30/09/2007 $nil). There were no
unrecognised deferred tax assets as at 31 March 2008 (31/03/2007 $nil; 30/09/2007 $nil).
The reduction in the corporate tax rate from 33% to 30% from the 2009 tax year has been taken into account in calculating the value ofdeferred tax assets as at 31 March 2008 and 30 September 2007. As the legislation was passed in May 2007, the value of deferred tax assets
as at 31 March 2007 has not been effected by this change.
1. Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within
the same taxable group.

3 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

19. PREMISES AND EQUIPMENT

Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Freehold and leasehold land and buildings
At cost		Accumulated depreciation		

69
(12)

68
(11)

69
(12)

-

-

-

Total carrying amount		

57

57

57

-

-

-

Leasehold improvements
At cost		Accumulated depreciation		

97
(75)

94
(71)

97
(73)

1
-

1
-

1
-

Total carrying amount		

22

23

24

1

1

1

Furniture and equipment
At cost		Accumulated depreciation		

244
(172)

236
(159)

244
(166)

17
(10)

17
(9)

17
(10)

Total carrying amount		

72

77

78

7

8

7

Computer and office equipment
At cost		Accumulated depreciation		

245
(193)

236
(184)

239
(189)

203
(164)

198
(155)

200
(161)

Total carrying amount		

52

52

50

39

43

39

Work in progress		

35

16

23

7

2

7

Total premises and equipment		

238

225

232

54

54

54

3,265

3,265

3,265

3,217

3,217

3,217

Gross carrying amount
Balance at beginning of the period		
Additions from internal developments		

68
6

51
8

51
17

66
5

50
7

50
16

Balance at end of the period		

74

59

68

71

57

66

Accumulated amortisation
Balance at beginning of the period		
Amortisation expense1		

(39)
(4)

(32)
(3)

(32)
(7)

(39)
(3)

(32)
(3)

(32)
(7)

Balance at end of the period		

(43)

(35)

(39)

(42)

(35)

(39)

Total software		

31

24

29

29

22

27

Other intangible assets		

3

4

3

3

4

3

Total goodwill and other intangible assets		

3,299

3,293

3,297

3,249

3,243

3,247

2 0 . G O O D W I L L A N D OT H E R I N TA N G I B L E A S S E T S

Goodwill
Gross carrying amount
Balance at beginning and end of the period		
SoftwareNo impairment losses have been recognised against the gross carrying amount of goodwill, software and other intangible assets for the six
months ended 31 March 2008 (31/03/2007 $nil; 30/09/2007 $nil).
1. Software amortisation expense is included in ‘other costs’ in the income statement.

P A G E

3 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E2 1 . D U E TO OT H E R F I N A N C I A L I N S T I T U T I O N S

Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Australia and New Zealand Banking Group Limited(Ultimate Parent Company)		
Securities sold under agreements to repurchase		
Other financial institutions		

593
198
1,593

2,106
233
1,839

1,140
300
1,730

198
1,234

233
1,508

300
1,386

Total due to other financial institutions		

2,384

4,178

3,170

1,432

1,741

1,686

2,106

1,140

-

-

-

Included within due to other financial institutions is the following balance:
Balances owing to the Ultimate Parent Company by
ANZ National (Int’l) Limited guaranteed by the Bank		
593

Balances owing to the Ultimate Parent Company are due within twelve months. Interest is paid at variable bank rates.

2 2 . D E P O S I T S A N D OT H E R B O R ROW I N G S

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

5,517
30,34821,209
4,305
1,763
-

5,190
25,88221,803
4,158
1,960
200

4,447
28,99821,128
4,354
1,786
-

5,517
30,34821,209
4,305
-

5,190
25,882
21,388
4,158
-

4,447
28,99820,715
4,354-

Total deposits and other borrowings recognised at amortised cost

63,142

59,19360,713

61,37956,61858,514

Fair value through the profit or loss
Commercial paper		

10,938

5,565

9,317

-

-

-

Total deposits and other borrowings recognised at fair value		

10,938

5,565

9,317

-

-

-

Total deposits and other borrowings		

74,08064,75870,03061,37956,61858,514The principal at maturity of commercial paper at fair value through the profit and loss is $11,014 million (31/03/2007 $5,645 million;
30/09/2007 $9,404 million).
The Banking Group has not defaulted on any principal, interest or redemption amounts on its borrowed funds during the period ended 31
March 2008 (31/03/2007 nil; 30/09/2007 nil). Deposits from customers are unsecured and rank equally with other unsecured liabilities of the
Banking Group. In the unlikely event that the Bank was put into liquidation or ceased to trade, secured creditors and those creditors set out in
the Seventh Schedule of the Companies Act 1993 would rank ahead of the claims of unsecured creditors.
Included within deposits and other borrowings are
the following balances:
Commercial paper issued by ANZ National (Int’l) Limited
guaranteed by the Bank at amortised cost		

10,933

5,570

9,319

-

-

-

UDC Finance Limited secured debentures
Carrying value of total tangible assets		

2,064

2,248

2,065

-

-

-

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

4 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

2 3 . PAYA B L E S A N D OT H E R L I A B I L I T I E SConsolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Creditors		
Accrued interest and unearned discounts		
Defined benefit schemes deficit		
Share-based payments liability		Accrued charges		
Security settlements		
Equitable assignment of mortgages1		
Other liabilities		

42
787
5
24
162
270
28
328

57
609
15
119
312
37
252

55
770
20
170
37
32
267

27
643
5
24
154
270
28
263

35
483
15
111
312
37
127

28
582
20
161
37
32
128

Total payables and other liabilities		

1,646

1,401

1,351

1,414

1,120

988

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

2 4 . D E F E R R E D TA X L I A B I L I T I E SProvision for deferred income tax
Balance at beginning of the period		
(Credited) charged to income statement		
(Credited) charged directly to equity		Set-off of deferred tax liabilities pursuant to set-off provisions1

(32)
(11)
43

42
10
(52)

62
11
(73)

7
(32)
(11)
36

44
10
(54)

64
11
(68)

Balance at end of the period		

-

-

-

-

-

7

Deferred tax liabilities comprise thefollowing temporary differences:
Lease finance		Share compensation		
Defined benefit schemes		
Other		

76
164

104
8
5
145

110
2
171

71
163

98
8
5
145

104
2
171

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

240
(240)

262
(262)

283
(283)

234
(234)

256
(256)

277
(270)

Net deferred tax liabilities		

-

-

-

-

-

7

The deferred tax (credited) charged to the income statement
comprises the following temporary differences:
Lease finance		Share compensation		
Defined benefit schemes		
Other		

(34)
(2)
4

14
4
3
21

20
(4)
46

(33)
(2)
3

16
4
3
21

22
(4)
46

Total deferred tax (credited) charged to the income statement

(32)

42

62

(32)

44

64

The deferred tax (credited) charged to equity comprises
the following temporary differences:
Cash flow hedges		

(11)

10

11

(11)

10

11

Total deferred tax (credited) charged directly to equity		

(11)

10

11

(11)

10

11

The reduction in the corporate tax rate from 33% to 30% from the 2009 tax year has been taken into account in calculating the value ofdeferred tax liabilities as at 31 March 2008 and 30 September 2007. As the legislation was passed in May 2007, the value of deferred tax
liabilities as at 31 March 2007 has not been effected by this change.
1. Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within
the same taxable group.

P A G E

4 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

2 5 . P ROV I S I O N S

Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Non-lending losses, frauds and forgeries		

3

3

3

3

3

3

Employee entitlements
Balance at beginning of the period		New provisions		
Provisions utilised		

110
32
(30)

107
28
(29)

107
56
(53)

108
31
(29)

106
28
(29)

106
54
(52)

Balance at end of the period		

112

106

110

110

105

108

Personnel restructuring costs
Balance at beginning of the period		
Provisions utilised		

2
(1)

9
(3)

9
(7)

2
(1)

9
(3)

9
(7)

Balance at end of the period

1

6

2

1

6

2

2
(1)

5
(2)

5
(3)

2
(1)

2
1
(1)

2
1
(1)

1

2

Redundant assets restructuring costs
Balance at beginning of the period		
Transfers from subsidiary companies		
Provisions utilised		2

Balance at end of the period		

1

3

2

1

2

2

Other provisions		

37

38

48

29

23

36

Total provisions		

154

156

165

144

139

151

1. The provision for employee entitlements provides mainly for the cost of employee entitlements to annual leave, long service leave and retirement leave. The majority of employees utilise
their annual leave in the year the entitlement accrues.
2. Restructuring cost provisions arise from exit activities relating to material changes in the scope or manner of business undertaken by the Banking Group and includes termination benefits.
Provisions are made when the Banking Group is demonstrably committed, it is probable that the costs will be incurred, though their timing is uncertain, and the costs can be reliably
estimated. The majority of provisions recognised at 31 March 2008 are expected to be settled over the 2008 financial year, with the exception that provisions for losses arising from rental
commitments on leased premises which have become vacant as a result of restructuring will be settled over the remaining term of the leases.

4 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

2 6 . B O N D S A N D N OT E S

			
		
		
		

		

Consolidated
Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Issued by ANZ National Bank Limited (Parent)
Denomination Face value		
Maturity
Interest rate %NZD
150m
fixed rate notes
2009
6.82%
NZD
150m
fixed rate notes
2011
6.80%
NZD
70m
floating rate notes2010
3 month BKBM + 0.35%
Other bonds and notes1					

150
150
70
209

150
150
209

150
150
261

					

579

509

561

199
755
13
34
151
315
946
1,881
200
189
1,495
162
150
49
45
946
315
378
20
598
224
221
11
2,523
24
31
946
100
378
1,095
1,133

140
47
688
150
107
110
187
825
14
38
168
350
1,050
2,088
1,401
179
150
54
50
1,050
350
420
20
13
27
34
36
1,050
100
420
963
36
36
-

668
150
103
107
187
802
14
36
158
330
991
1,969
1,403
170
150
51
48
991
330
396
20
561
12
26
32
34
991
100
396
1,069
34
34
1,203

15,527

12,351

13,566

Issued by ANZ National (Int’l) Limited
Denomination
USD
EUR
GBP
NZD
JPY
GBP
EUR
GBP
HKD
USD
USD
USD
USD
USD
NZD
JPY
EUR
HKD
NZD
HKD
HKD
USD
USD
USD
NZD
EUR
JPY
JPY
USD
USD
HKD
HKD
HKD
USD
NZD
USD
GBP
HKD
HKD
GBP

Face value		
100m
floating rate notes
25m
floating rate notes
250m
floating rate notes2
150m
fixed rate notes
9,000mfloating rate notes
40m
floating rate notes
100m
floating rate notes
300m
floating rate notes
80m
fixed rate notes
27m
fixed rate notes3
120m
floating rate notes
250m
fixed rate notes
750m
floating rate notes
1,491mfloating rate notes4
200m
fixed rate notes
15,000m
floating rate notes
750m
floating rate notes
1,000mfixed rate notes
150m
floating rate notes
300m
fixed rate notes
280m
fixed rate notes
750m
floating rate notes
250m
floating rate notes
300m
floating rate notes
20m
floating rate notes
300m
floating rate notes
17,770m
fixed rate notes
17,500m
floating rate notes
9m
floating rate notes4
2,000mfloating rate notes5
150m
floating rate notes6
190m
floating rate notes7
200m
floating rate notes8
750m
floating rate notes
100m
floating rate notes
300m
fixed rate notes
435m
floating rate notes
200m
fixed rate notes9200m
fixed rate notes10
450m
floating rate notes2

Maturity
2007
2007
2007
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2008
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2010
2010
2010
2010
2010
2011
2011
2011
2011
2012

Interest rate %3 month LIBOR - 0.10%
3 month EURIBOR - 0.08%
3 month LIBOR - 0.01%
6.50%
3 month JPY LIBOR
3 month GBP LIBOR - 0.065%
3 month EURIBOR + 0.02%
3 month GBP LIBOR + 0.01%
3.93%
5.00%
3 month LIBOR - 0.06%
4.265%
3 month LIBOR + 0.07%
1 month LIBOR + 0.01%
9.20%
3 month JPY LIBOR
3 month EURIBOR + 0.12%
4.40%
3 month BKBM + 0.10%
4.93%
4.44%
3 month LIBOR + 0.04%
3 month Prime - 2.9125%
1 month LIBOR + 0.04%
3 month BKBM + 0.05%
3 month EUR LIBOR + 0.15%
0.055%
3 month JPY LIBOR
1 month LIBOR + 0.01%
3 month LIBOR + 0.22%
6 month HIBOR + 0.60%
6 month HIBOR + 0.60%
6 month HIBOR + 0.60%
3 month LIBOR + 0.11%
3 month BKBM + 0.05%
5.50%
3 month LIBOR + 0.05%
5.10%
4.90%
6 month GBP LIBOR + 0.08%

					

P A G E

4 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

2 6 . B O N D S A N D N OT E S ( C ontinued )			Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

		
		
		

		

Consolidated

Issued by NBNZ Holdings Limited
Denomination Face value		
NZD
480m
floating rate notes11

Maturity
2008

Interest rate %3 month BKBM

480

480

480

Total bonds and notes					16,586

13,34014,607

Included within bonds and notes is the following related party balance:
Australia and New Zealand Banking Group Limited (Ultimate Parent Company)

1,133

688

1,871

1.
2.
3.

Other bonds and notes includes index linked notes, equity linked notes and other fixed rate and fixed term bonds.
These notes were issued to Australia and New Zealand Banking Group Limited.
The interest rate payable on these notes is stepped as follows: Year 1 3.00%, Year 2 3.25%, Year 3 3.50%, Year 4 4.25% and Year 5 5.00%. The issuer may elect to redeem the notes annuallyfrom May 2004.
4. The interest rate payable on these notes is stepped as follows: Year 1 1 month LIBOR - 0.02%, Year 2 1 month LIBOR, Year 3 1 month LIBOR + 0.01%, Year 4 1 month LIBOR + 0.02% andYear 5 1 month LIBOR + 0.03%. The investor may elect to extend the maturity of the notes for a year on a monthly basis. Between 7 August 2007 and 7 December 2007, investors elected
not to extend USD 1,491 million of bonds which has resulted in these bonds carrying a fixed maturity as follows: 7 August 2008 USD 89 million; 5 September 2008 USD 1,232 million; 7October 2008 USD 164 million; 5 December 2008 USD 6 million.
5. The interest rate payable on these notes is stepped as follows: Year 1 3 month LIBOR + 0.22%, Year 2 3 month LIBOR + 0.24% Year 3 3 month LIBOR + 0.26%, Year 4 3 month LIBOR +0.28% and Year 5 3 month LIBOR + 0.29%. The investor may elect to extend the maturity of the notes for a year on a 3 monthly basis.
6. The interest rate payable on these notes is stepped as follows: Year 1 3.77%, Years 2 - 5 HIBOR + 0.60%. For each 6 month period after Year 1, there is a maximum interest rate payable,
starting at 3.75% after Year 1 and stepping up 0.25% every 6 months. The issuer has the right to redeem the notes on every semi-annual coupon date from 28 April 2006. The issuer
exercised their option to call the note on 28 April 2008.
7. The interest rate payable on these notes is stepped as follows: Year 1 3.77%, Years 2 - 5 HIBOR + 0.60%. For each 6 month period after Year 1, there is a maximum interest rate payable,
starting at 3.75% after Year 1 and stepping up 0.25% every 6 months. The issuer has the right to redeem the notes on every semi-annual coupon date from 28 April 2006. The issuer
exercised their option to call the note on 28 April 2008.
8. The interest rate payable on these notes is stepped as follows: Year 1 HIBOR + 1.26%, Years 2 - 5 HIBOR + 0.60%. For each 6 month period after Year 1, there is a maximum interest rate
payable, starting at 4.00% after Year 1 and stepping up 0.25% every 6 months. The issuer exercised their option to call the note on 26 November 2007.
9. The interest rate payable on these notes is stepped as follows: Year 1 5.10% per annum, Year 2 4.65% per annum, Years 3, 4 and 5 4.40% per annum. The issuer exercised their option tocall the note on 5 December 2007.
10. The interest rate payable on these notes is stepped as follows: Year 1 4.90% per annum, Year 2 4.65% per annum, Years 3, 4 and 5 4.40% per annum. The issuer exercised their option tocall the note on 6 December 2007.
11. These notes can be redeemed by the noteholder giving not less than 30 days notice.

Bonds and notes issued by ANZ National (Int’l) Limited are guaranteed by the Bank.

2 7 . D U E TO PA R E N T C O M PA N Y

Consolidated				

ANZ Holdings (New Zealand) Limited (Parent Company)		

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

1,758

2,764

2,775

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

1,758

2,764

2,775

These funds have been borrowed in New Zealand dollars on an overnight basis and are at call. Interest is payable monthly, based on New
Zealand overnight deposit rates.

2 8 . L O A N C A P I TA L

Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

AUD 207,450,000 term subordinated floating rate loan		
AUD 265,740,000 perpetual subordinated floating rate loan		
AUD 186,100,000 term subordinated floating rate loan		
AUD 43,767,507 term subordinated floating rate loan		
AUD 169,520,000 term subordinated floating rate loan		
NZD term subordinated fixed rate bonds		

239
307
215
51
196
1,045

234
301
211
50
1,243

242
309
217
51
197
1,046

239
307
215
51
196
1,045

234
301
211
50
1,243

242
309
217
51
197
1,046

Total loan capital		

2,053

2,039

2,062

2,053

2,039

2,062

4 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

2 8 . L O A N C A P I TA L ( continued )Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Included within loan capital is the following related party balance:
Australia and New Zealand Banking Group Limited(Ultimate Parent Company)		
1,008

796

1,016

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

1,008

796

1,016

AUD 207,450,000 loan
This loan was drawn down on 31 August 2004 and has an ultimate maturity date of 31 August 2014. The Bank may elect to repay the loan on 31
August each year commencing from 2009 through to 2013. All interest is payable half yearly in arrears, with interest payments due 28 Februaryand 31 August. Interest is based on BBSW + 0.40% p.a. up until, and including, 31 August 2009 and increases to BBSW + 0.90% p.a. thereafter.
AUD 265,740,000 loan
This loan was drawn down on 27 September 1996 and has no fixed maturity. Interest is payable half yearly in arrears based on BBSW + 0.95%
p.a., with interest payments due 15 March and 15 September.
AUD 186,100,000 loan
This loan was drawn down on 19 April 2005 with an ultimate maturity date of 20 April 2015. The Bank may elect to repay the loan on 19 April
each year commencing from 2010 through to 2015. All interest is payable half yearly in arrears, with interest payments due 19 April and 19
October. Interest is based on BBSW + 0.32% p.a. to 19 April 2010 and increases to BBSW + 0.82% p.a. thereafter.
AUD 43,767,507 loan
This loan was drawn down on 15 September 2006 with an ultimate maturity date of 15 September 2016. The Bank may elect to repay the loanon 15 September each year commencing from 2011 through to 2016. All interest is payable half yearly in arrears, with interest payments due
15 March and 15 September. Interest is based on BBSW + 0.29% p.a. to 15 September 2011 and increases to BBSW + 0.79% p.a. thereafter.
AUD 169,520,000 loan
This loan was drawn down on 17 September 2007 with an ultimate maturity date of 17 September 2017. The Bank may elect to repay the loan
on 17 September each year commencing from 2012 through to 2016. All interest is payable half yearly in arrears, with interest payments due
17 March and 17 September. Interest is based on BBSW + 0.68% p.a. to 17 September 2012 and increases to BBSW + 1.18% p.a. thereafter.
NZD term subordinated fixed rate bonds
The terms and conditions of these fixed rate and fixed term bonds are as follows:
New Zealand Exchange listed bonds
Issue date
15 September 2006
2 March 2007
23 July 2007

Amount $m
350
250
350

Coupon rate
7.16%
7.60%
8.23%

Call date
15 September 2011
2 March 201223 July 2012

Maturity date
15 September 2016
2 March 201723 July 2017

The Bank may elect to redeem the bonds on their call date. If the bonds are not called the Bank will continue to pay interest to maturity
at the five year interest rate swap rate plus 0.75% p.a., 0.76% p.a. and 0.62% p.a. for the 15/09/2006; 02/03/2007 and 23/07/2007 bonds
respectively. Interest is payable half yearly in arrears based on the fixed coupon rate.
These bonds are listed on the NZX. The Market Surveillance Panel of the NZX granted the Bank a waiver from the requirements of Listing
Rules 10.4 and 10.5. Rule 10.4 relates to the provision of preliminary announcements of half yearly and annual results to the NZX. Rule10.5 relates to preparing and providing a copy of half yearly and annual reports to the NZX. The Bank has been granted a waiver from theserules on the conditions that the Bank’s quarterly General Disclosure Statement (‘GDS’) is available on the Bank’s website, at any branch
and at the NZX; that bondholders are advised by letter that copies of the GDS are available at the above locations; that all bondholders arenotified on an ongoing basis, by way of a sentence included on the notification of interest payments, that the latest GDS is available forreview at the above locations; and that a copy of the GDS is sent to the NZX on an ongoing basis.
As at 31 March 2008, these bonds carried an AA- rating by Standard & Poor’s.
Non listed bondIssue date
20 February 2003

Amount $m100

Coupon rate
6.46%

Call date
20 August 2008

Maturity date
20 August 2013

The Bank may elect to redeem this bond on its call date. If the bonds are not called the Bank will continue to pay interest to maturity at
the five year interest rate swap rate plus 0.97% p.a. Interest is payable half yearly in arrears based on the fixed coupon rate.
As at 31 March 2008, these bonds carried an AA- rating by Standard & Poor’s.
Loan capital is subordinated in right of payment in the event of liquidation or wind up to the claims of depositors and all creditors of the Bank.
All subordinated debt qualifies as Lower Level Tier Two Capital for capital adequacy purposes except for the perpetual subordinated debt which
qualifies as Upper Level Tier Two Capital.

P A G E

4 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

2 9 . O R D I N A RY S H A R E C A P I TA L

Unaudited
31/03/2008
Number ofIssued Shares

Ordinary shares at beginning and end of the period

Consolidated		ParentUnaudited
31/03/2007
Number ofIssued Shares

Unaudited
31/03/2007
Number ofIssued Shares

Audited30/09/2007
Number ofIssued Shares

700,755,498 700,755,498 700,755,498

Unaudited
31/03/2008
Number ofIssued Shares

700,755,498 700,755,498 700,755,498

Consolidated		ParentUnaudited
31/03/2008
		$mUnaudited
31/03/2007$m

Audited30/09/2007$m

Unaudited
31/03/2008$m

Unaudited
31/03/2007$m

Audited30/09/2007$m

Ordinary share capital at beginning and end of the period 		 5,943

5,943

5,943

5,943

5,943

5,943

The authorised share capital of the Bank comprises 700,755,498 ordinary shares. At beginning and end of the period, 650,712 ordinary shareswere uncalled (31/03/2007 650,712 shares; 30/09/2007 650,712 shares).
Voting rights
At a meeting: on a show of hands or vote by voice every member who is present in person or by proxy or by representative shall have one vote.
On a poll: every member who is present in person or by proxy or by representative shall have one vote for every share of which such member
is the holder.

3 0 . R E S E RV E S A N D R E TA I N E D E A R N I N G S

Consolidated				

Available-for-sale revaluation reserve
Balance at beginning of the period		
Valuation gain (loss) recognised after tax		
Cumulative gain transferred to the income
statement on sale of financial assets		

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

(1)
16

3
-

3
(1)

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

(1)
16

3
-

3
(1)

-

(3)

(3)

-

(3)

(3)

Balance at end of the period		

15

-

(1)

15

-

(1)

Cash flow hedging reserve
Balance at beginning of the period		
Valuation (loss) gain recognised after tax		
Transferred to income statement		

84
(11)
(11)

52
34
(13)

52
55
(23)

84
(11)
(11)

52
34
(13)

52
55
(23)

Balance at end of the period		

62

73

84

62

73

84

Total reserves		

77

73

83

77

73

83

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

2,677
692

2,235
635

2,235
1,168

1,701
459

651
425

651
1,776

Total available for appropriation		
Actuarial (loss) gain on defined benefit schemes after tax		
Interim ordinary dividends paid		

3,369
(8)
-

2,870
6
-

3,403
2
(728)

2,160
(8)
-

1,076
6
-

2,427
2
(728)

Balance at end of the period		

3,361

2,876

2,677

2,152

1,082

1,701

The paid dividend on ordinary shares was $nil per share (31/03/2007 $nil per share; 30/09/2007 $1.04 per share).

P A G E

Audited30/09/2007
Number ofIssued Shares

4 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 1 . C A P I TA L A D E Q UA C Y

Adoption of Basel II Accord
The Bank received accreditation from the RBNZ to adopt the internal ratings based approach under the Basel II Accord on 10 December 2007
for calculating capital adequacy ratios, effective 31 March 2008. The objective of the Basel II Accord is to develop capital adequacy guidelinesthat are more accurately aligned with the individual risk profile of banks. Basel II consists of three pillars - Pillar I covers the capital requirements
for banks for credit, operational and market risks, Pillar II covers all other material risks not already included in Pillar I, and Pillar III relates tomarket disclosure. Pillar III has resulted in increased disclosures since the previous General Disclosure Statement.
CAPITAL MANAGEMENT POLICIESThe Bank is subject to regulation by the RBNZ. The RBNZ sets minimum capital requirements that the Bank must comply with that are specified in
the Bank’s conditions of registration. The Bank’s updated Conditions of Registration, effective 31 March 2008, now require capital adequacy ratios
for the Banking Group to be calculated under the Basel II framework in accordance with the RBNZ document entitled ‘Capital Adequacy Framework(Internal Models Based Approach)’ (BS2B) dated March 2008. In prior periods, risk weighted exposures for the Banking Group were calculated underthe Basel I framework in accordance with the RBNZ document entitled ‘Capital Adequacy Framework’ (BS2) dated March 2007.
The RBNZ defines total regulatory capital as tier one capital plus tier two capital less deductions from total capital. Currently, tier one capital consistsof equity less prescribed deductions such as goodwill. Tier two capital consists of subordinated loan capital less any prescribed deductions.
Additional deductions from tier one and tier two capital are now required where total expected loss (using RBNZ credit risk assumptions)exceeds the total eligible allowances for impairment following the implementation of the Basel II framework effective 31 March 2008.
The Bank has an Internal Capital Adequacy Assessment Process (‘ICAAP’) in place which is being revised to comply with the requirements set
out in the RBNZ document entitled ‘Guidelines on a bank’s internal capital adequacy assessment process (‘ICAAP’)’ (BS12) from 31 August
2008, under the Bank’s Conditions of Registration. The Bank’s ICAAP incorporates overall capital policies and objectives, capital management
policies and plans, allocation of capital to business units and stress testing of both risk and capital positions.
The Bank’s ICAAP policy outlines the core capital management principles that must be maintained to demonstrate that its capital levels:
consider all material risks; are consistent with its overall risk appetite and profile, current operating environment and stage in business cycle;
and that forward-looking stress testing of capital requirements is performed.
The Bank’s core capital objectives are to:• Protect the interests of depositors, creditors and the shareholder.
• Ensure the safety and soundness of the Bank’s capital position.
• Ensure that the capital base supports the Bank’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 Bank’s ICAAP policy and framework, standardised risk definitions for all material risks, materiality thresholds, capital adequacy
targets, internal economic risk capital principles and risk appetite.
The Board has set capital minimum, trigger and operating range targets for both tier one and total capital that ensure sufficient capital ismaintained to:• Meet minimum prudential requirements as defined in the Bank’s Conditions of Registration.
• Ensure consistency with the Bank’s overall risk profile and financial positions, taking into account its strategic focus and business plan.
• Support the economic risk capital requirements of the business. The Bank aims to maintain capital consistent with a AA credit rating.
These targets were revised during April 2008 to reflect the implementation of Basel II capital methodologies effective 31 March 2008.
The Bank’s Asset & Liability Committee and its related Capital Management sub-committee are responsible for developing, implementing andmaintaining the Bank’s ICAAP framework including ongoing monitoring, reporting and compliance.
The Bank’s ICAAP will be subject to independent and periodic review. This will take the form of a phased review approach that will be conductedby internal/external audit as appropriate.
The Bank has complied with all externally imposed capital requirements to which it is subject during the period.

P A G E

4 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 1 . C A P I TA L A D E Q UA C Y ( continued )CAPITAL ADEQUACY RATIOS UNDER THE BASEL II INTERNAL MODELS BASED APPROACH1				 RBNZ minimum		Consolidated				
ratios		 Unaudited						 31/03/2008		 31/03/2008

Tier One Capital					Total Capital					4.00%		8.00%		

7.36%
9.84%

							$m

Tier One Capital
Ordinary share capital							Revenue and similar reserves							Current period’s profit after tax							

5,943
2,746
692

Less deductions from Tier One Capital- Goodwill							- Other intangible assets							- Equity investment in ING NZ							- Cash flow hedging reserve							- 50% of total expected loss to the extent greater than total eligible allowances for impairment				

3,265
34
201
62
140

Total Tier One Capital							5,679Tier Two Capital - Upper Level Tier Two Capital
Perpetual subordinated debt							

307Tier Two Capital - Lower Level Tier Two Capital
Term subordinated debt							1,746								2,053Capital of the Banking Group as at 31 March 2008 (Unaudited)

Less deductions from Tier Two Capital- 50% of total expected loss to the extent greater than total eligible allowances for impairment				140

Total Tier Two Capital							1,913Total Capital							7,592					Risk weighted					 exposure or					 implied risk				Exposure atweighted Total capital				
default
exposure requirement
					
$m
$m
$m

Total required capital of the Banking Group as at 31 March 2008 (Unaudited)
Internal ratings based approach					Specialised lending subject to the slotting approach					Other internal ratings based exposures					Equity exposures					Standardised approach					129,706
8,921
3,115
219
1,272

54,902
8,719
772
929
510

4,392
698
62
74
40

Total credit risk					Operational risk					Market risk					Supervisory adjustment2					143,233
n/a
n/a
n/a

65,832
5,593
3,573
2,131

5,266
447
286
170

Total capital requirement					143,233

77,1296,169

1. Basel II capital ratios for the 31 March 2007 and 30 September 2007 comparative periods have not been provided as the information is not readily available. The Bank was only accredited
to adopt the internal models based approach under Basel II on 10 December 2007.
2. The supervisory adjustment includes an adjustment of 15% of risk-weighted retail mortgages and an adjustment, if required, in order to maintain the Basel II minimum capital requirement at no lessthan 90% of the Basel I minimum capital requirement, in accordance with the Bank’s Conditions of Registration. No adjustment was required to maintain the Basel II minimum capital requirement
at no less than 90% of the Basel I minimum capital requirement at 31 March 2008.

P A G E

4 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 1 . C A P I TA L A D E Q UA C Y ( continued )CAPITAL ADEQUACY RATIOS UNDER THE BASEL I APPROACH
Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007

Registered Bank
Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007

Tier One Capital		
Total Capital		
Total risk-weighted exposures		

7.59%
10.27%
76,620

7.98%
11.03%
66,866

7.19%
10.08%
71,311

7.34%
9.23%
74,836

7.68%
9.82%
65,2676.98%
9.02%
69,489RBNZ minimum ratios:Tier One Capital		
Total Capital		

4.00%
8.00%

4.00%
8.00%

4.00%
8.00%

4.00%
8.00%

4.00%
8.00%

4.00%
8.00%

Basel I capital adequacy in respect of the Banking Group and Registered Bank has been derived in accordance with the RBNZ document entitled‘Capital Adequacy Framework (Basel I Approach)’ (BS2) dated March 2008.
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 entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008 to measure capital requirements.
The IRB approach is more sophisticated than Basel I, in that it offers a number of dimensions to build a risk-weighted exposure profile that moreaccurately reflects the Banking Group’s actual risk position. Under this framework, banks use their own measures for calculating the level ofcredit risk associated with customers and exposures, by way of the primary components of Probability of Default, Exposure at Default and Loss
Given Default. For exposures classified under Specialised Lending, specifically Project Finance and Income-Producing Real Estate, the Banking
Group uses slotting tables supplied by the RBNZ rather than internal estimates.
The exceptions to IRB treatment are five minor portfolios where, due to systems constraints or other reasons, determining these IRB risk
estimates is not currently feasible or appropriate. Risk weights for these exposures are calculated under a separate treatment as set out in the
RBNZ document entitled ‘Capital Adequacy Framework (Standardised Approach)’ (BS2A).
Set out below is a schedule showing the 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

Project Finance

IRB - Slotting

Income-Producing Real Estate

IRB - SlottingSpecialised lending
EquityIRBRetail Mortgages

Individuals’ borrowings against residential property

IRB

Other Retail

Other lending to individuals (including credit cards)

IRB

SME business borrowers

IRB

All other assets not falling within any of the above classes

IRB

Other assets

A risk weight of 100% applies to premises and equipment and all other exposures not otherwise defined in the BS2B document, except for
cash, gold, New Zealand dollar denominated claims on the Crown and the RBNZ, and other sovereign claims with an internal obligor rating of
1, which receive a 0% risk weight.

P A G E

4 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 1 . C A P I TA L A D E Q UA C Y ( continued )Standardised Approach
Asset Class

Exposure Type

Reason for Standardised Approach

Future treatment

Corporate

ANZ Retail residential investment loans

System constraints

Move to IRB

Purchased receivables

Nature of productRemain Standardised

Merchant card prepayment exposures

System constraints

Move to IRB

Corporate credit cards

System constraints

Move to IRB

Mondex

Immaterial

Remain Standardised

Bank

The Banking Group’s internal models are used to generate the three key risk components that serve as inputs to the IRB approach to credit
risk are:• Probability of default (PD).
• Exposure at default (EAD).
• Loss given default (LGD).
Effective maturity (M) is also calculated as an input to the risk weighted exposure calculation for exposures other than Retail Mortgages andOther Retail.
Probability of default (PD)PD is an estimate of the level of the risk of borrower default. Customers are graded by way of automated rating models used both at loan
origination and for ongoing monitoring. Specific rating models are designed for each type of exposure and/or customer within the asset
classification framework. Further, Retail Mortgage and Other Retail exposures are allocated to specific pools of exposures that are homogeneousin nature, but differentiate risk characteristics.
For some asset classes, the Bank’s internal PD ratings have been modified in the Pillar 1 calculation to reflect RBNZ prescribed credit risk
estimates.
Exposure at default (EAD)
EAD is defined as the expected facility exposure at the date of default, including post-default drawings for facilities where the drawings werelegally committed to prior to default. This reflects the possibility of additional drawings by the borrower up to and after the time a default event
is triggered for some product types. Uncommitted post default drawings are netted against cash recoveries and included in the LGD estimatesas negative recovery cash flows.
Loss given default (LGD)
LGD is an estimate of the potential economic loss on a credit exposure, incurred as a consequence of obligor default and expressed as apercentage of the facility’s EAD. The definition of loss to be used for LGD estimates is economic loss. When measuring economic loss, allrelevant factors are taken into account, including material discount effects and material direct and indirect costs associated with collecting on
the exposure, including realisation of collateral.
Internal ratings (PD), loss estimates (LGD) and default estimates (EAD) are principal elements in determining the risk weighted exposure
calculations for both on and off-balance sheet exposures, including undrawn portions of credit facilities, committed and contingent exposures.
These ratings also play an essential role in the credit approval, risk management, internal capital allocation and corporate governance functionsof the Banking Group.
For IRB asset classes, all risk grades are initially assessed by the relevant Bank approved rating system. A framework exists for further judgement
to be applied where appropriate.
For some asset classes, the Bank’s LGD ratings have been modified in the Pillar 1 calculation to reflect RBNZ prescribed credit risk estimates.
Methodologies used to calculate credit risk estimates (PD, EAD, LGD) are in accordance with the RBNZ document BS2B and the Bank’s
Conditions of Registration. For credit risk estimates on some portfolios, the RBNZ has set prescribed estimates it requires the Bank to use
when calculating its risk weighted assets and capital against the BS2B approach. These estimates are greater than those calculated by the Bank
according to its own methodologies.
The prescribed estimates apply to the following:
1. Exposures classified under the Retail Mortgages asset class:(a) an exposure weighted minimum PD of 1.25%; and(b) downturn LGDs according to set loan-to-value bands (see disclosure below titled “Retail Mortgages by Loan-To-Valuation Ratio”
		for details of what these prescribed bands are).
2. Rural banking exposures classified under the Corporate asset class - prescribed downturn LGDs must be used.
The Bank continues to work with the RBNZ in the development of PDs and LGDs based on the Bank’s own methodologies and internal data.

P A G E

5 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 1 . C A P I TA L A D E Q UA C Y ( continued )CONTROLS SURROUNDING CREDIT RISK RATING SYSTEMSThe term Rating System covers all of the methods, processes, controls, data collection and technology that support the assessment of credit
risk, the assignment of internal credit risk ratings and the quantification of associated default and loss estimates.
All material aspects of the rating systems and risk estimate processes are governed by the Risk Management Committee of the Banking
Group. Risk grades are an integral part of reporting to senior management and executive. Management and staff of credit risk functions, inconjunction with the relevant Retail and Wholesale risk committees, regularly assess the performance 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 the business unit and back-officelevels, 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 independentof operational lending activities and are responsible for the ratings strategies and ongoing management of credit risk models within New
Zealand. The annual validation of models used across the Banking Group is a function 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 a
combined approach to modelling, utilising models developed in New Zealand and ANZ-developed models tested and validated for use in New
Zealand as appropriate.
CREDIT RISK EXPOSURES SUBJECT TO THE INTERNAL RATINGS BASED APPROACH
The following tables analyse the capital requirements under the internal rating based approach exposures by asset class:		Consolidated					
Exposure					weighted LGD					 used for the
Exposure			Total exposure or Exposure at
capital weighted risk Risk weighted Total capital			principal amountdefault calculation
weightexposure1 requirement
Unaudited 31/03/2008			
$m
%
%
$m
$m

On-balance sheet exposures
Corporate
Sovereign
Bank		
Retail mortgages		
Other retail		

32,552
737
5,035
49,111
5,404

32,552
737
5,035
49,111
5,404

40
5
69
23
52

64
1
16
24
51

22,20910875
12,677
2,918

1,777
1
70
1,014
233

Total on-balance sheet exposures		

92,83992,83933

39

38,6893,095

Off-balance sheet exposures
Corporate		
Sovereign		
Bank		
Retail mortgages		
Other retail

15,129
65
437
5,839
5,553

14,741
59
437
6,492
5,939

49
5
54
23
61

59
39
35
37

9,267
179
2,382
2,334

741
14
191
187

Total off-balance sheet exposures		

27,023

27,66845

48

14,162

1,133

Market related contracts
Corporate		
Sovereign		
Bank		

79,002
5,538
524,361

1,305
95
7,799

65
5
53

48
1
17

669
1
1,381

54
110

Total market related contracts		

608,901

9,199

54

21

2,051

164

Total credit risk exposures subject to theinternal ratings based approach		

728,763

129,706

37

40

54,902

4,392

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

P A G E

5 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 1 . C A P I TA L A D E Q UA C Y ( continued )		Consolidated					
Exposure					 weighted LGD					 used for the
Exposure			
Probability
Exposure at
capital weighted risk Risk weighted Total capital			of default
default
calculation
weightexposure1 requirement
Unaudited 31/03/2008		
%
$m
%
%
$m
$m

Corporate
CCR rating
0-2
0.05%
3 - 4		 0.34%
5		
1.02%
6		
2.25%
7 - 8		 7.63%
Default		 100.00%

6,933
19,696
12,535
7,108
2,104
222

62
41
39
40
41
55

24
44
76
97
142
276

1,747
9,157
10,094
7,339
3,158
650

140
733
808
587
253
52

Total corporate credit risk exposures			

48,598436232,145

2,573

0.01%
0.02%
0.06%
n/a
n/a
n/a

865
1
25
-

5
5
5
-

1
4
4
-

10
1
-

1
-

Total sovereign credit risk exposures			

891

5

1

11

1

0.02%
0.02%
0.17%
1.89%
7.80%
n/a

9,995
2,983
246
33
14
-

69
26
64
70
70
-

19
9
40
163
243
-

1,969
269
104
57
36
-

158
22
8
5
3
-

Sovereign
CCR rating
0			
1		
2			
3			
4 - 8		Default		Bank
CCR rating
0		
1			
2-4
5 - 6		7 - 8		Default		

Total bank credit risk exposures			

13,271

59

17

2,435

196

Retail mortgages
CCR rating
0 - 3		 0.22%
4			 0.34%
5			 0.95%
6			 2.47%
7-8
10.84%
Default		 100.00%

12,84521,039
11,166
7,565
2,727
261

21
22
23
25
25
28

9
13
28
56
103
13

1,233
2,954
3,338
4,524
2,975
35

99
236
267
362
238
3

Total residential mortgage credit risk exposures			

55,60323

26

15,059

1,205

Other retail
CCR rating
0-2
0.09%
3 - 4		 0.26%
5			 1.10%
6			 2.10%
7 - 8		 11.24%
Default		 100.00%

1,175
4,446
2,910
2,020
696
96

80
54
56
52
52
51

20
23
59
68
85
5

244
1,089
1,830
1,455
629
5

20
87
146
116
50
-

Total other retail credit risk exposures			

11,343

57

44

5,252

419

Credit risk exposures subject to the internal ratings based approach have been derived in accordance with the Reserve Bank of New Zealanddocument entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008 and other relevant correspondence
from the RBNZ setting out prescribed credit risk estimates.
1. Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.

P A G E

5 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 1 . C A P I TA L A D E Q UA C Y ( continued )SPECIALISED LENDING SUBJECT TO THE SLOTTING APPROACH
		
			
			
Unaudited 31/03/2008				

Consolidated
Exposure		 Risk weighted Total capitalamountRisk weight
exposure1 requirement
$m
%
$m
$m

On-balance sheet exposures2Strong			Good			Satisfactory			
Weak			Default			

2,915
2,693
1,643
231
36

70
90
115
250
-

2,163
2,569
2,003
612
-

173
206
160
49
-

Total on-balance sheet exposures subject to the slotting approach			

7,518

92

7,347

588

		
		
			

Exposure		
amountEAD$m$m

Average risk Risk weighted Total capitalweightexposure1 requirement%$m$m

Off-balance sheet exposures
Undrawn commitments and other off balance sheet exposures		
Market related contracts		

1,412
3,096

1,380
23

92
103

1,347
25

108
2

Total off-balance sheet exposures subject to the slotting approach

4,508

1,403

92

1,372

110

Specialised lending subject to the slotting approach have been derived in accordance with the Reserve Bank of New Zealand document entitled‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008.
OTHER IRB EXPOSURES
		
			
			
Unaudited 31/03/2008				

Consolidated
Exposure		 Risk weighted Total capitalamountRisk weight
exposure1 requirement
$m
%
$m
$m

Cash and gold bullion			
New Zealand dollar denominated claims on the Crown and the RBNZ		
Other assets			

215
2,171
729

100

772

62

Total other IRB credit risk exposures			

3,115

23

772

62

Other IRB exposures have been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework(Internal Models Based Approach)’ (BS2B) dated March 2008.
A risk weight of 100% applies to premises and equipment and all other exposures not otherwise defined in the BS2B document, except for
cash, gold, New Zealand dollar denominated claims on the Crown and the RBNZ, and other sovereign claims with an internal obligor rating of
1, which receive a 0% risk weight.
EQUITY EXPOSURES
		
			
			
Unaudited 31/03/2008				

All other equity holdings (not deducted from capital)				

Consolidated
Exposure		Risk weighted Total capitalamountRisk weight
exposure1 requirement
$m
%
$m
$m

219

400

929

74

Equity exposures have been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework(Internal Models Based Approach)’ (BS2B) dated March 2008.
1. Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.
2. The supervisory categories of specialised lending above are associated with a specific risk-weight. These categories broadly correspond to the following external credit assessments using
the Standard & Poor’s rating scale: Strong BBB- or better, Good BB+ or BB, Satisfactory BB- or B+ and Weak B to C-.

P A G E

5 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 1 . C A P I TA L A D E Q UA C Y ( continued )CREDIT RISK EXPOSURES SUBJECT TO THE STANDARDISED APPROACH
		

Consolidated

Unaudited 31/03/2008			
			
				

Exposure		Risk weighted Total capitalamountRisk weight
exposure1 requirement
$m
%
$m
$m

On-balance sheet exposures
Corporates			

373

93

368

29

Total on-balance sheet exposures subject to the standardised approach		

373

93

368

29

		Average credit
Exposure conversion
amountfactor		$m%

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

899

Creditequivalentamount$m

15

135

Average risk Risk weighted Total capitalweightexposure1 requirement
%
$m
$m

99

142

11

Credit risk exposures subject to the standardised approach have been calculated in accordance with the Reserve Bank of New Zealand document
entitled ‘Capital Adequacy Framework (Standardised Approach)’ (BS2A) dated November 2007.
OPERATIONAL RISK						
Total					 Implied risk operational					weighted risk capital					
exposure requirement						
$m$m

Operational risk capital requirement as at 31 March 2008 (Unaudited)
Advanced Measurement Approach for operational risk					

5,593

447

The operational risk capital requirement has been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital
Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. Operationalrisk includes legal risk but not strategic or reputational risk. Legal risk includes, but is not limited to, exposures to fines, penalties, or punitive
damages resulting from regulatory actions, as well as private settlements.
The Banking Group uses the Advanced Measurement Approach for determining its regulatory capital requirement for operational risk.
The Banking Group has implemented an organisational-wide (‘top of house’) Loss Distribution Approach (LDA) calculation to determine theinitial Operational Risk Capital. The data inputs into the LDA process include:• Internal Loss Data;• External Loss Data; and• Scenario Analysis.
The initial capital number is calculated at the group-wide level and then distributed and adjusted for business environment and internal controls
down to the business units (and completion points) using a Risk Drivers and Controls Approach (RDCA) Methodology. The RDCA is a risk andcontrol self assessment system which:• assesses the level of the Banking Group’s exposure to specified drivers of risk;• assesses the scope and quality of the Banking Group’s internal control environment, key operational processes and risk mitigants; and• directly links these assessments to operational risk capital.
This process consists of sending business units a series of risk-based questions categorised by risk type in a risk and control self assessment
questionnaire for completion. The response to the questions along with business unit sizing information allocate the overall capital calculated in
the LDA. This process will also reallocate the capital pool (and amount allocated to the business) depending upon improvement or deteriorationin risk and control indicators and business growth.
The scorecard process is undertaken half-yearly, with the LDA calculation conducted annually.
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 drivers and control assessment (scorecard) methodology.
1. Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.

P A G E

5 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 1 . C A P I TA L A D E Q UA C Y ( continued )MARKET RISK							Implied risk							weighted							exposure							
$m

Aggregate
capital charge$mMarket risk capital requirement as at 31 March 2008 (Unaudited)
Interest rate risk						 3,495
Foreign currency risk						23Equity risk						
55

280
2
4

							 3,573

286

The market risk capital requirement has been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital
Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008.
CREDIT RISK MITIGATIONThe Banking Group assesses the integrity and ability of counterparties to meet their contractual financial obligations for repayment. Collateral
security in the form of real property or a security interest in personal property is generally taken for business credit 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.
Netting is defined as the set-off of two or more cash flows, assets, or liabilities. The types of netting used by the Banking Group are payments
or settlement, close-out, bilateral or multilateral. The Banking Group establishes its netting rights through various means including legallybinding set-off agreements, collateral agreements, facility agreements, security agreements and the terms and conditions of trading (including
ISDA Master Agreements when considered appropriate). Where documented rights to net have been established a net limit may be used for
exposure assessment and monitoring.
Guarantees used for credit risk mitigation may be provided by bank, sovereign, corporate or individual counterparties. Guarantors are separately
rated, and their capacity to honour their commitments under the guarantee is also assessed. The obligor is also separately rated on a standalone basis, and then the rating of the obligor is adjusted to take into account the strength of the guarantor. The size of the adjustment reflects
the Banking Group’s assessment of the strength of the guarantor, but is capped at the guarantor’s rating so there is no recognition of “double
default”. Guaranteed exposures are subject to Banking Group policy covering market and credit risk concentrations.
As at 31 March 2008, none of the credit risk exposures subject to the Standardised Approach were covered by eligible financial collateral.
The Banking Group is not engaged in any credit derivative activity. Information on the total value of exposures covered by guarantees is notdisclosed as the effect of these guarantees on the underlying credit risk exposures is not considered material.
RETAIL MORTGAGES BY LOAN-TO-VALUATION RATIOThe table below sets out retail mortgages as used to calculate the Banking Group’s Pillar One capital requirement as at the balance date by theloan-to-valuation ratio (‘LVR’). As required by the RBNZ, LVRs are calculated as the current loan balance divided by the Bank’s valuation of the
security property at origination of the exposure. The Bank’s collateral valuation will be a discount of the registered valuer’s assessment or thatprovided by an independent external valuation. The discount factor applied is dependent on the type of property concerned. Where the Bank isunable to calculate the LVR the exposure is placed in the over 90% band to maintain a conservative treatment.
The RBNZ also requires that the Bank applies downturn LGDs expressed in LVR bands for the retail mortgage asset class. The LGD bands are basedon a sliding scale where LGDs for exposures exceeding 90% LVR are set at 40%, reducing progressively to an LGD of 20% for LVRs under 60%.
						
Unaudited 31/03/2008													

Exposureamount$m

LVR range
0% - 59%						60% - 69%							70% - 79%							80% - 89%						Over 90%						22,090
7,658
9,844
7,902
7,456

Total retail mortgage credit risk exposures subject to the internal ratings based approach				

54,950P A G E

5 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 1 . C A P I TA L A D E Q UA C Y ( continued )PILLAR II CAPITAL FOR OTHER MATERIAL RISKS1						 Total capital
Unaudited 31/03/2008						 requirement							$m

Internal capital allocation for other material risks							

134The internal capital allocation for other material risks has been derived in accordance with the Bank’s Conditions of Registration.
The Banking Group actively manages and measures all material risks affecting its operations. These risks go beyond the traditional banking risksof credit, operational and market risks. The measurement and management of any other material risk is covered in the Bank’s Economic Capitalmodel which is used within the Bank’s ICAAP. Economic capital is defined as the maximum loss in excess of that which is to be expected in thenormal course of business, assessed at a given confidence level. Losses in excess of those expected are termed ‘unexpected’. Economic capital is
unexpected loss measured to a 99.97% confidence level, which is consistent with the Bank’s risk appetite of maintaining its AA credit rating.
The Bank’s ICAAP incorporates overall capital policies and objectives, capital management policies and plans, allocation of capital to business
units and stress testing of both risk and capital positions. The ICAAP policy outlines the core capital management principles that must be
maintained to demonstrate that its capital levels: consider all material risks; are consistent with its overall risk appetite and profile, current
operating environment and stage in business cycle; and that forward-looking stress testing of capital requirements is performed.
The internal capital allocation for the Banking Group’s other material risks as at 31 March 2008 was $134 million, comprising premises andequipment risk and capitalised origination fees risk.
Other material risks outside of the credit, operational and market risks that the Banking Group measures and manages are:Liquidity and funding risk
Economic capital is not held for liquidity and funding risk. Instead a portfolio of cash, highly liquid and rated securities is held. This isconsistent with both the internal ‘view’ and the regulatory approach. Primarily it is the form in which assets are held which mitigatesliquidity and funding risks. Generally holding assets in the form of the Liquidity Portfolio mitigates the requirement to hold additional
capital for liquidity and funding related risks.
The size of the Banking Group’s Liquidity Portfolio is based on the amount of liquidity required to meet day-to-day operational requirements,
potential name crisis, and potential wholesale ‘funding stress’ requirements.
In addition, the Banking Group monitors the ratio of cover provided by the Liquidity Portfolio to fund both domestic and offshore wholesale
debt maturities.
Goodwill risk
Economic capital for goodwill is currently allocated at 100% of the carrying amount of goodwill. This recognises that in a severe deteriorationin trading conditions causing unexpected credit, operational and other losses, the goodwill value is likely to be close to zero. However, as
goodwill under regulatory capital rules is already deducted from Tier One Capital, the Banking Group has not included it in the internal
capital allocation for other material risks.
Software risk
Economic capital is allocated to software projects at 100% of the carrying amount, recognising the highly intangible and non-saleable
nature of these assets. However, as software capital under regulatory capital rules is already deducted from Tier One Capital, the Banking
Group has not included it in the internal capital allocation for other material risks.
Fixed asset risk
Economic capital allocated to premises and equipment risk covers the risk associated with the ownership or lease of premises and equipment.
It is the product of a weighted capital allocation factor, updated quarterly, and the total of fixed assets and net present value of leases.
The risk generated by the ownership or lease of premises and equipment depends on the type of underlying asset. Fixed assets are therefore
categorised into four distinct categories with a capital scalar representing the amount of capital required to support the type of asset. The
benchmark factors were drawn from First Manhattan Consulting Group (FMCG) experience with capital levels in the property industry.
While the economic capital allocated to premises and equipment risk has been included in the internal capital allocation for other material
risks, under regulatory capital rules premises and equipment are risk weighted at 100%, so there is already an 8% allocation against theseassets in the Banking Group’s regulatory capital calculations.
The economic capital allocated to fixed asset risk has been included in the internal capital allocation for other material risks for the
purposes of this disclosure.
Capitalised origination fees
Economic capital is allocated at 20% of the capitalised origination fees asset (costs relating to the acquisition of interest earnings assets).
Capitalised origination fees largely include brokerage and debt-raising expenses. The value of the capitalised expenses arises from theexpected cash flows on the underlying loans, with the principal risk being that the loans are repaid prior to the end of the amortisation
period of the capitalised expenses.
1. The internal capital allocation for other material risks for the 31 March 2007 and 30 September 2007 comparative periods has not been provided as the information is not readily available.
The Bank was only accredited to adopt the internal models based approach under Basel II on 10 December 2007.

P A G E

5 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

CAPITAL ADEQUACY OF ULTIMATE PARENT BANK
3 1 . C A P I TA L A D E Q UA C Y ( continued )			Consolidated

				
Unaudited
Unaudited
Audited				Basel II
Basel I
Basel I						 31/03/2008 31/03/2007 30/09/2007

Tier One Capital					Total Capital					6.84%10.09%

6.71%
10.26%

6.70%
10.08%

Australian Prudential Regulatory Authority minimum ratios:Tier One Capital					Total Capital					

4.00%
8.00%

4.00%
8.00%

4.00%
8.00%

For calculation of minimum capital requirements under Pillar I of the Basel II Accord, the Ultimate Parent Bank has been accredited by APRA
to use the Advanced Internal Ratings Based (AIRB) methodology for calculation of credit risk weighted assets and the Advanced Measurement
Approach (AMA) for the operational risk weighted asset equivalent. The Basel II Accord came into effect from 1 January 2008.
Under prudential regulations, the Ultimate Parent Bank is required to hold a prudential capital ratio (PCR) as determined by APRA. Subject to
APRA’s discretion, the minimum PCR is 8 per cent of its total risk weighted assets. Half of this capital must be held in the form of Tier One
Capital. Prior to 1 January 2008, the minimum capital ratio, subject to APRA’s discretion, was also 8 per cent of its total risk weighted assets
calculated under the Basel I methodology and at least half of this capital was held in the form of Tier One Capital.
The Ultimate Parent Bank met the minimum capital adequacy requirements set by APRA as at 31 March 2008 and for comparative prior periods.
The Ultimate Parent Bank is required to publicly disclose Pillar III financial information as at 30 September 2008. In the Ultimate Parent Bank’s
Consolidated Financial Report, Dividend Announcement and Appendix 4D for the Half Year to 31 March 2008, capital adequacy ratios calculated
under the Basel II methodology were disclosed. This report can be accessed at the following website address: www.anz.com.

P A G E

5 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T

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 (including traded or fair value risks and non-traded or interest and foreign currency related risks) and liquidity risksof the Banking Group’s balance sheet. These risks and the Banking Group’s policies and objectives for managing such risks are outlined below.
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.
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. The credit risks arise not only from traditional
lending to customers, but also from inter-bank, treasury, international trade and 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 delegated authority, designed to oversee multiple facets of credit risk,
including asset writing strategies, credit policies/controls, single exposures, portfolio monitoring and risk concentrations. The credit risk management
framework exists to provide a structured and disciplined process to support those objectives. The integrity of the credit risk function is maintained by
the independence of the credit chain and is supported by comprehensive risk analysis, risk tools, monitoring processes and policies.
CREDIT RISK MANAGEMENT
The credit risk management framework is in place across the Banking Group with the aim of ensuring a structured and disciplined approach
is maintained in achieving the objectives set by the Board. The framework focuses on policies, people, skills, vision, values, controls, risk
concentrations and portfolio balance. It is supported by portfolio analysis and asset-writing strategies which guide lending decisions andidentify segments of the portfolio requiring attention. The effectiveness of the framework is monitored through a series of compliance andreporting processes.
An independent Risk Management function, at Banking Group, Divisional and Business Unit levels, is staffed by risk specialists. In regards tocredit risk management, the objective is for Risk Management to provide robust credit policies, to make independent credit decisions, and toprovide 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 and validation of credit risk measurement
systems, loan asset quality reporting, and development of credit standards and policies.
The framework is top down, being defined firstly by the Banking Group’s Vision and Values and secondly, by Credit Principles and Policies. The
effectiveness of the credit risk management framework is validated through the compliance and monitoring processes.
Risk Management’s responsibilities for credit risk policy and management are executed through dedicated departments, which support the Banking
Group’s business units. All major Business Unit credit decisions require approval from both business writers and independent risk personnel.
Credit Risk is controlled through a combination of approvals, limits, reviews and monitoring procedures that are carried out on a regular basis,the frequency of which is dependent upon the level of risk. Credit risk policy and management is executed through the Chief Risk Officer who
has various dedicated areas within the Risk Management division. Wholesale Risk services the Banking Group’s corporate, investment banking
and rural lending activities through dedicated teams. Retail Risk services the Banking Group’s small business and consumer customers. The
Portfolio 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 and wholesale lending sectors, withlarger transactions approved by Retail Risk and Wholesale Risk.
The credit risk review function within Internal Audit also provides a further independent check mechanism to ensure the quality of credit
decisions. This includes providing independent periodic checks on asset quality and compliance with the agreed standards and policies acrossthe Banking Group.

5 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Country risk management
Some customer credit risks involve country risk whereby actions or events at a national or international level could disrupt servicing ofcommitments. Country risk arises when payment or discharge of an obligation will, or could, involve the flow of funds from one country toanother 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 andinternal specialist opinion. It is also a key risk consideration in the Banking Group’s capital pricing model for cross border flows.
The recording of country limits provides the Banking Group with a means to identify and control country risk. Country limits ensure that there
is a country by country ceiling on exposures that involve country risk. They are recorded by time to maturity and purpose of exposure e.g.
trade, markets, project and finance. Country limits are managed centrally by the Ultimate Parent Bank, through a global country risk exposure
management system managed by a specialist unit within Institutional Risk.
Portfolio stress testing
Stress testing is integral to strengthening the predictive approach to Risk Management and is a key component to managing risk appetite, asset
writing strategies and business strategies. It creates greater understanding of impacts on financial performance through modelling relationships
and sensitivities between geographic, industry and business unit exposures under a range of macro economic scenarios.
The Ultimate Parent Bank has a dedicated stress testing team within Risk Management that models and reports periodically to management
and the Board Risk Committee on a range of scenarios and stress tests.
Portfolio analysis and reporting
Global credit portfolios are analysed by the Risk Committees and Senior Business Executives. A central risk reporting department produces
credit portfolio analysis which is distributed to senior Risk and Business Executives through monthly, half yearly and ad hoc reporting, or as set
agenda reports to the various Risk Committees. This area provides an independent mechanism to ensure that significant and emerging credit
risks are proactively identified and communicated to Group, Risk and Business Executives, including the Board Risk Committee.
Collateral management
Banking Group credit principles specify to only lend 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 ensurecollateral is managed, legally enforceable, conservatively valued and adequately insured. Banking Group policy sets out the types of acceptable
collateral, including:• cash;• mortgages over property;• charges over business assets, e.g. premises, stock and debtors;• charges over financial instruments, e.g. debt securities and equities in support of trading facilities; and• financial guarantees.
In the event of customer default, any loan security is usually held as mortgage in possession while the Banking Group is actively seeking torealise it. Therefore the Banking Group does not usually hold any real estate or other assets acquired through the enforcement of security.
The Banking Group uses ISDA Master Agreements to document derivatives activities to limit exposure to credit losses. The credit risk is reduced
by a master agreement to the extent that if an event of default occurs, all contracts with the counterparty are terminated and settled on a net
basis. Further, it is the Banking Group’s preferred practice to include all products covered by the ISDA in the Credit Support Annex (“CSA”), in
order to achieve further credit exposure reduction. Under a CSA, collateral is passed between the parties, depending on the aggregate markto-market (positive or negative) of derivative trades between the two entities, to mitigate the market contingent counterparty risk inherent in
the outstanding positions.

P A G E

5 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities within the same geographic
region, or when they have similar risk characteristics that would cause their ability to meet contractual obligations to be similarly affected bychanges in economic or other conditions.
The Banking Group monitors its portfolios to identify and assess risk concentrations. Concentration limits are used to guard against large single
customer or correlated credit risks. Risk Management, Business Unit Executives and Senior Management monitor large exposure concentrations
through a monthly list of the Banking Group’s top Corporate exposures. The Credit and Trading Risk Committee (six monthly) and Board Risk
Committee (annually) review a comprehensive list of single customer concentration limits and customers’ adherence to these limits.
Analyses of financial assets by industry sector are based on Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.
Concentrations of credit risk analysis:
The composition of financial instruments, that give rise to credit risk, by industry and geography:
Consolidated
		 Liquid assets
Trading		 and due fromsecurities
Derivative				 other financial and available
financial
Net loans		
institutions for-sale assets instruments
and advances
		
$m
$m
$m
$m

Other
financialassets
$m

Total
$m

Unaudited 31/03/2008
Industry
Personal lending
Property services
Agriculture, forestry, fishing		
Manufacturing		
Finance and insurance		
Retail trade		
Wholesale trade		Business services		Transport and storage		Construction		
Government and local authority1		
Other2

310
286
4,057
410
36
44
2,513
97

104
1,896
14
142
89

19
126
4,423
46
16
10
37
1
50
137

54,262
9,126
15,431
2,673
1,531
1,632
1,506
931
1,410
977
1,081
2,804

891

54,262
9,126
15,7603,189
11,907
2,088
1,558
941
1,505
978
3,786
4,018

		

7,753

2,245

4,865

93,364891

109,118

Individual provision for credit impairment		Collective provision for credit impairment		

-

-

-

(51)
(471)

-

(51)
(471)

		
Fair value hedge adjustment		

-

-

-

(522)
(263)

-

(522)
(263)

Total financial assets		

7,753

2,245

4,865

92,579891

108,333

Geography
New Zealand		
Overseas		

6,881
872

1,310
935

1,141
3,724

90,908
1,671

891
-

101,131
7,202

Total financial assets		

7,753

2,245

4,865

92,579891

108,333

1. Government and local authority includes exposures to government administration and defence, education and health and community services.
2. Other includes exposures to mining, electricity, gas and water, entertainment, leisure and tourism, communications, and personal services.

6 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		Consolidated

		 Liquid assets
Trading		 and due fromsecurities
Derivative				 other financial and available
financial
Net loans		
institutions for-sale assets instruments
and advances
		
$m
$m
$m
$m

Other
financialassets
$m

Total
$m

Unaudited 31/03/2007
Industry
Personal lending		
Property services		
Agriculture, forestry, fishing		
Manufacturing		
Finance and insurance		
Retail trade		
Wholesale trade		Business services		Transport and storage		Construction		
Government and local authority1		
Other2		

131
296
3,355
480
26
93
4,311
116

27
1,537
8
70
212
108

14
144
2,632
54
8
9
24
35
121

47,314
7,370
13,129
2,521
3,254
1,361
1,091
1,213
1,359
895
1,199
2,373

714

47,314
7,370
13,274
2,988
10,778
1,903
1,125
1,222
1,546
895
5,757
3,432

		

8,808

1,962

3,041

83,079714

97,604

Individual provision for credit impairment		Collective provision for credit impairment		

-

-

-

(47)
(410)

-

(47)
(410)

		
Fair value hedge adjustment		

-

-

-

(457)
(364)

-

(457)
(364)

Total financial assets		

8,808

1,962

3,041

82,258714

96,783

Geography
New Zealand		
Overseas		

7,748
1,060

1,962
-

880
2,161

79,116
3,142

714
-

90,4206,363

Total financial assets		

8,808

1,962

3,041

82,258714

96,783

Audited 30/09/2007
Industry
Personal lending		
Property services		
Agriculture, forestry, fishing		
Manufacturing		
Finance and insurance		
Retail trade		
Wholesale trade		Business services		Transport and storage		Construction		
Government and local authority1		
Other2		

201
281
4,115
441
16
69
3,082
165

4
1,577
28
152
164

19
139
4,199
52
8
10
26
48
210

51,8197,432
14,344
2,809
2,560
1,556
1,218
1,141
1,233
812
1,334
2,528

970

51,8197,432
14,564
3,233
12,451
2,049
1,242
1,151
1,356
812
4,616
4,037

			

8,370

1,925

4,711

88,786970

104,762

Individual provision for credit impairment		Collective provision for credit impairment		

-

-

-

(44)
(422)

-

(44)
(422)

			
Fair value hedge adjustment		

-

-

-

(466)
(442)

-

(466)
(442)

Total financial assets		

8,370

1,925

4,711

87,878970

103,854

Geography
New Zealand		
Overseas		

7,108
1,262

1,329
596

1,367
3,344

84,701
3,177

970
-

95,475
8,379

Total financial assets		

8,370

1,925

4,711

87,878970

103,854

1. Government and local authority includes exposures to government administration and defence, education and health and community services.
2. Other includes exposures to mining, electricity, gas and water, entertainment, leisure and tourism, communications, and personal services.

P A G E

6 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )
		
		
		
		
		
		

ParentLiquid assets
Tradingand due fromsecurities Derivative		 Due fromother financial and available
financial
Net loans subsidiaryinstitutions for-sale assets instruments
and advances companies
$m
$m
$m
$m
$m

Total
$m

Unaudited 31/03/2008
Industry
Personal lending		
Property services		
Agriculture, forestry, fishing		
Manufacturing		
Finance and insurance		
Retail trade		
Wholesale trade		Business services		Transport and storage		Construction		
Government and local authority1		
Other2		

310
286
3,691
410
36
44
2,444
97

104
1,886
14
142
89

19
126
4,423
46
16
10
37
1
50
137

53,763
9,123
15,138
2,486
1,368
1,480
1,466
820
1,024
751
991
2,503

1,506
-

808

53,763
9,123
15,467
3,002
12,874
1,936
1,518
830
1,119
752
3,627
3,634

			

7,318

2,235

4,865

90,913

1,506

808

107,645

Individual provision for credit impairment		Collective provision for credit impairment		

-

-

-

(41)
(438)

-

-

(41)
(438)

			
Fair value hedge adjustment		

-

-

-

(479)
(263)

-

-

(479)
(263)

Total financial assets		

7,318

2,235

4,865

90,171

1,506

808

106,903

Geography
New Zealand		
Overseas		

6,708
610

1,300
935

1,049
3,816

88,500
1,671

1,506
-

808
-

99,871
7,032

Total financial assets		

7,318

2,235

4,865

90,171

1,506

808

106,903

Unaudited 31/03/2007
Industry
Personal lending		
Property services		
Agriculture, forestry, fishing		
Manufacturing		
Finance and insurance		
Retail trade		
Wholesale trade		Business services		Transport and storage		Construction		
Government and local authority1		
Other2		

131
296
2,867
480
26
93
4,311
116

27
1,527
8
70
212
107

14
144
2,657
54
8
9
24
35
121

46,815
7,366
12,890
2,161
1,711
1,318
1,060
1,114
997
731
1,108
2,076

1,543
-

606

46,815
7,366
13,035
2,628
10,305
1,860
1,094
1,123
1,184
731
5,666
3,026

			
Individual provision for credit impairment		Collective provision for credit impairment		

8,320
-

1,951
-

3,066
-

79,347
(38)
(375)

1,543
-

606
-

94,833
(38)
(375)

			
Fair value hedge adjustment		

-

-

-

(413)
(364)

-

-

(413)
(364)

Total financial assets		

8,320

1,951

3,066

78,5701,543

606

94,056

Geography
New Zealand		
Overseas		

7,522
798

1,951
-

905
2,161

76,956
1,614

1,543
-

606
-

89,483
4,573

Total financial assets		

8,320

1,951

3,066

78,5701,543

606

94,056

1. Government and local authority includes exposures to government administration and defence, education and health and community services.
2. Other includes exposures to mining, electricity, gas and water, entertainment, leisure and tourism, communications, and personal services.
P A G E

Other
financialassets$m

6 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )
		
		
		
		
		
		

ParentLiquid assets
Tradingand due fromsecurities Derivative		 Due fromother financial and available
financial
Net loans subsidiaryinstitutions for-sale assets instruments
and advances companies
$m
$m
$m
$m
$m

Other
financialassets
$m

Total
$m

Audited 30/09/2007
Industry
Personal lending		
Property services		
Agriculture, forestry, fishing		
Manufacturing		
Finance and insurance		
Retail trade		
Wholesale trade		Business services		Transport and storage		Construction		
Government and local authority1		
Other2		

201
281
3,653
441
16
69
3,082
165

4
1,567
28
152
164

19
139
4,193
52
8
10
26
48
210

51,325
7,427
14,069
2,469
1,008
1,422
1,184
1,037
871
628
1,244
2,228

1,585
-

852

51,325
7,427
14,2892,893
12,006
1,915
1,208
1,047
994
628
4,526
3,619

			

7,908

1,915

4,705

84,912

1,585

852

101,877

Individual provision for credit impairment		Collective provision for credit impairment		

-

-

-

(34)
(392)

-

-

(34)
(392)

			
Fair value hedge adjustment		

-

-

-

(426)
(442)

-

-

(426)
(442)

Total financial assets		

7,908

1,915

4,705

84,044

1,585

852

101,009

Geography
New Zealand		
Overseas		

6,727
1,181

1,319
596

1,361
3,344

80,786
3,258

1,585
-

852
-

92,6308,379

Total financial assets		

7,908

1,915

4,705

84,044

1,585

852

101,009

1. Government and local authority includes exposures to government administration and defence, education and health and community services.
2. Other includes exposures to mining, electricity, gas and water, entertainment, leisure and tourism, communications, and personal services.

P A G E

6 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )MAXIMUM EXPOSURE TO CREDIT RISKFor financial assets recognised on the balance sheet, the exposure to credit risk equals their carrying amount. For contingent exposures, themaximum exposure to credit risk is the maximum amount that the Banking Group would have to pay if the contingent is called upon. For
undrawn facilities, the maximum exposure to credit risk is the full amount of the committed facilities.
The following table presents the maximum exposure to credit risk of on-balance sheet financial instruments before taking account of any
collateral held or other credit enhancements and after deductions such as provision for credit impairment. The exposure is classified intosummarised Basel II asset classes, with Corporate exposures including all non-Retail mortgages and Other retail exposures.
Consolidated

Parent				
Total				
Total
				
maximum				maximum
Retail Other retail Corporate exposure to
Retail Other retail Corporate exposure tomortgages exposures exposures credit risk
mortgages exposures exposures credit risk
$m
$m
$m
$m
$m
$m
$m
$m

Unaudited 31/03/2008
On-balance sheet positions
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Due from subsidiary companies
Other financial assets

48,784
-

5,249
-

3,863
3,890
2,149
4,865
96
38,546
891

3,863
3,890
2,149
4,865
96
92,579891

48,784
-

4,382
-

3,863
3,455
2,149
4,865
86
37,005
1,506
808

3,863
3,455
2,149
4,865
86
90,171
1,506
808

Total financial assets

48,784

5,249

54,300108,333

48,784

4,382

53,737

106,903On-balance sheet positions
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Due from subsidiary companies
Other financial assets

42,725
-

4,810
-

5,741
3,067
1,917
3,041
45
34,723
714

5,741
3,067
1,917
3,041
45
82,258714

42,725
-

4,020
-

5,740
2,580
1,916
3,066
35
31,825
1,543
606

5,740
2,580
1,916
3,066
35
78,570
1,543
606

Total financial assets

42,725

4,810

49,24896,78342,7254,020

47,311

94,056On-balance sheet positions
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Due from subsidiary companies
Other financial assets

45,944
-

4,987
-

4,807
3,563
1,877
4,711
48
36,947
970

4,807
3,563
1,877
4,711
48
87,878970

45,944
-

4,157
-

4,807
3,101
1,877
4,705
38
33,943
1,585
852

4,807
3,101
1,877
4,705
38
84,044
1,585
852

Total financial assets

45,944

4,987

52,923103,854

45,944

4,157

50,908101,009

Unaudited 31/03/2007

Audited 30/09/2007

6 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )CREDIT QUALITY
A core component of the Banking Group’s credit risk management capability is the risk grading framework used across all major Business
Units. A set of risk grading principles and policies are supported by a complementary risk grading methodology. Pronouncements by theInternational Basel Committee on Banking Supervision have been encapsulated in these principles and policies including governance, validationand modelling requirements.
The Banking Group’s risk grade profile changes dynamically through new counterparty lending and/or existing counterparty movements ineither risk or volume. All counterparty risk grades are subject to frequent review, including statistical and behavioural reviews in consumer andsmall business segments, and individual counterparty reviews in segments with larger single name borrowers.
Impairment and provisioning of financial assets
The Banking Group’s policy relating to the recognition and measurement of impaired assets conforms with the RBNZ’s guidelines.
Loans are classified as either performing or impaired. Impaired assets are credit exposures where there is doubt as to whether the full contractual
amount (including interest) will be received, and/or where a material credit obligation is 90 days past due but not well secured, or is a portfolio
managed facility that can be held for up to 180 days past due, or where concessional terms have been provided due to the financial difficultiesof the customer.
In the event where the value of collateral is sufficient to repay both the principal debt and all potential interest and there is no concern of thecreditworthiness of the counterparty in question, the exposure is then classified as past due but not impaired.
The provision for credit impairment represents management’s best estimate of the losses incurred in the loan portfolio at balance date basedon its experienced judgement.
Credit exposures, including loans and advances and off-balance sheet items, such as commitments and guarantees, are reviewed at least at
each reporting date for impairment. Exposures are impaired and impairment losses are recorded if, and only if, there is objective evidence ofimpairment as a result of one or more loss events that occurred after the initial recognition of the loan and prior to the reporting date, and thata loss event or events has (or have) had an impact on the estimated future cash flows of the individual loan or the collective portfolio of loansthat can be reliably estimated. When the Banking Group recognises an impairment loss in an individual asset or portfolio of assets, the Banking
Group is recognising that future economic benefits (previously assessed as being available to the entity) are no longer probable.
The Banking Group’s methodology for determining the total provision for loan losses establishes both an individual component for assets thatare individually significant (or on a portfolio basis for small value loans) and then a collective component for those exposures not individuallyknown to be impaired. The individual provision represents the results of analysis of individual loans within the Banking Group’s portfolio.
The Banking Group reviews its loan portfolios and monitors adherence to terms, conditions and lending covenants. The reviews undertaken
employ a variety of statistical measures and experienced judgement to determine the continuing collectability of credit facilities.
When objective evidence arises as to the collectability of a credit facility, the exposure is classified and reported as individually impaired andan individual provision for credit impairment is allocated against it.

P A G E

6 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Exposures that are assessed collectively are placed into pools of similar assets with similar risk characteristics to be collectively assessed forlosses that have been incurred, but not yet identified. The collective provision is estimated on the basis of historical loss experience for assets
with credit risk characteristics similar to those in the collective pool. Historical loss experience is determined using loan and portfolio risk
gradings, associated default and loss expectancy rates and an assessment of the emergence period. The historical loss experience may be refined
based on current observed default data and through various scenario adjustments.
The collective provision is also reviewed to ensure it is adequate for the term of the portfolio as a whole.
Distribution of gross loans and advances assets by credit quality
The credit quality of the portfolio of loans and advances is assessed by reference to the Banking Group’s risk grading principles and policies
supported by a complementary risk grading methodology. The following table presents an analysis of gross loans and advances, prior todeducting the fair value hedge adjustment and provision for credit impairment, by summarised Basel II asset class into exposures neither past
due nor impaired, past due and impaired.
Consolidated
Retail Other retailmortgages exposures$m$m

ParentCorporate		
exposures
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures
$m

Total
$m

Unaudited 31/03/2008
Neither past due nor impaired
Past due but not impaired (30 to 89 days)
Past due but not impaired (over 90 days)
Impaired

48,654
321
122
14

5,271
75
37
21

38,50615267
124

92,431548
226
159

48,654
321
122
14

4,418
59
32
8

36,967143
62
113

90,039
523
216
135

		

49,111

5,404

38,84993,364

49,111

4,517

37,28590,913

Unaudited 31/03/2007
Neither past due nor impaired
Past due but not impaired (30 to 89 days)
Past due but not impaired (over 90 days)
Impaired

42,888
198
54
6

4,869
53
19
17

34,7488546
96

82,505336
119
119

42,888
198
54
6

4,081
40
14
10

31,85583
38
80

78,824
321
106
96

		

43,146

4,958

34,97583,07943,146

4,145

32,056

79,347

Audited 30/09/2007
Neither past due nor impaired
Past due but not impaired (30 to 89 days)
Past due but not impaired (over 90 days)
Impaired

46,214
170
57
7

5,042
49
19
20

37,04553
26
88

88,301
268
102
115

46,214
170
57
7

4,214
41
17
7

34,04045
2179

84,468
256
95
93

		

46,4485,130

37,212

88,78646,448

4,279

34,18584,912Credit quality of gross loans and advances neither past due nor impaired
The credit quality of financial assets is assessed by the Banking Group using internal ratings which aim to reflect the relative ability ofcounterparties to fulfil, on time, their credit-related obligations, and is based on their current probability of default.
Internal rating
Strong risk rating
Corporate customers demonstrating superior stability in their operating and financial performance over the long-term, and whose debt servicing
capacity is not significantly vulnerable to foreseeable events. Retail customers with low expected loss. This rating band comprises CCR 0+ to
CCR 4- which broadly corresponds to ratings “Aaa” to “Ba1” and “AAA” to “BBB+” of Moody’s Investors Service and Standard & Poor’s
respectively.
Satisfactory risk rating
Corporate customers consistently demonstrating sound operational and financial stability over the medium to long term, even though some may
be susceptible to cyclical trends or variability in earnings. Retail customers with moderate expected loss. This rating band comprises CCR 5+ to
CCR 6- which broadly corresponds to ratings “Ba2” to “Ba3” and “BB” to “BB-” of Moody’s Investors Service and Standard & Poor’s respectively.
Weak risk rating 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 comprises
CCR 7+ to 8 which broadly corresponds to ratings “B1” to “Caa” and “B+” to “CCC” of Moody’s Investors Service and Standard & Poor’s
respectively.
The rating bands presented below differ from the Note 31 Capital Adequacy credit risk exposures subject to the internal ratings based approach
disclosures as RBNZ credit risk estimates are not used for these internal ratings. 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.

P A G E

6 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )The following table presents an analysis of gross loans and advances neither past due nor impaired by the above internal ratings:
Consolidated
Retail Other retailmortgages exposures$m$m

ParentCorporate		
exposures
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures
$m

Total
$m

Unaudited 31/03/2008
Strong risk rating
44,040Satisfactory risk rating
3,834
Weak risk rating but not past due or impaired
780

1,830
2,940
501

17,134
19,516
1,856

63,004
26,2903,137

44,040
3,834
780

1,702
2,240
476

16,795
18,426
1,746

62,53724,5003,002

		48,654

5,271

38,50692,431

48,654

4,418

36,96790,039Unaudited 31/03/2007
Strong risk rating
Satisfactory risk rating
Weak risk rating but not past due or impaired

38,597
3,625
666

1,582
2,805
482

15,297
18,331
1,120

55,476
24,761
2,268

38,597
3,625
666

1,507
2,144
430

13,46817,364
1,023

53,572
23,1332,119

		

42,8884,869

34,74882,50542,8884,081

31,85578,824

Audited 30/09/2007
Strong risk rating
Satisfactory risk rating
Weak risk rating but not past due or impaired

42,064
3,520
630

1,682
2,894
466

18,93516,0292,081

62,681
22,443
3,177

42,064
3,520
630

1,618
2,177
419

17,076
14,983
1,981

60,75820,6803,030

		

46,214

5,042

37,04588,301

46,214

4,214

34,04084,468Credit quality of financial assets that are past due but not impaired
Ageing analysis of past due loans between 30 and 90 days is used by the Banking Group to measure and manage the retail portfolio’s credit
quality. The remaining portfolios are individually managed and therefore, accounts are managed on a daily basis. As such, the data for financial
assets past due less than 30 days has not been presented as it does not correspond with the Banking Group’s risk management practices. The
following table presents an ageing analysis of past due loans that are not impaired:

Consolidated
Retail Other retailmortgages exposures$m$m

ParentCorporate		
exposures
Total
$m
$m

Retail Other retailmortgages exposures$m$m

Corporate
exposures
$m

Total
$m

Unaudited 31/03/2008
30 to 59 days
60 to 89 days
90 days or over

224
97
122

51
24
37

113
39
67

388
160
226

224
97
122

39
20
32

105
38
62

368
155
216

		

443

112

219

774

443

91

205

739

Unaudited 31/03/2007
30 to 59 days
60 to 89 days
90 days or over

163
35
54

38
15
19

80
5
46

281
55
119

163
35
54

28
12
14

78
5
38

269
52
106

		

252

72

131

455

252

54

121

427

Audited 30/09/2007
30 to 59 days
60 to 89 days
90 days or over

138
32
57

35
14
19

34
19
26

207
65
102

138
32
57

29
12
17

28
17
21

195
61
95

		

227

68

79

374

227

58

66

351

P A G E

6 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Past due but not impaired (over 90 days)
This classification applies where contractual payments are past due greater than 90 days, or where the facility remains outside of contractual
arrangements for greater than 90 consecutive days, but the Banking Group believes that impairment is not appropriate on the basis of the levelof security/collateral available, or the facility is portfolio managed.
A facility, subject to a regular repayment schedule, is classified as 90 days past due when at least 90 calendar days have elapsed since the due
date of a contractual payment has not been met in full and the facility is well secured.
Facilities that do not have a regular repayment schedule are considered 90 days past due when the facility has remained continuously outsideof contracted arrangements for 90 or more consecutive days and the facility is well secured.
Well secured is when the fair value of associated security is sufficient to ensure that the Banking Group will recover the entire amount owing overthe life of the facility and there is reasonable assurance that collective efforts will result in payment of the amounts due in a timely manner.
The Banking Group’s residential mortgages and corporate exposures are generally well secured. Collateral is generally represented by residential
property and business assets respectively.
Portfolio managed assets are 90 days past due but not impaired include financial assets which are homogenous with similar characteristics andare assessed, approved, and controlled on a portfolio basis within a centralised environment (for example Credit Cards, Personal Loans, Home
Loans). When the financial assets are managed on a portfolio basis, the assets can be held on a non-impaired basis for up to 180 days.
Credit quality of financial assets that are individually impaired
The Banking Group regularly reviews its portfolio and monitors adherence to contractual terms. When doubt arises as to the collectabilityof a credit facility, the financial asset is classified and reported as individually impaired and an individual provision is allocated against it.
The following table presents an analysis of individually impaired assets, undrawn facilities with impaired customers and provision for credit
impairment by summarised Basel II asset class:
Consolidated
Retail Other retailmortgages exposures		$m

ParentCorporate		
Retail Other retail
exposuresTotal
mortgages exposures
$m
$m		
$m

Corporate
exposures
$m

Total
$m

Unaudited 31/03/2008
Impaired financial assets
Undrawn facilities with impaired customers
Individual provision balance

14
2

21
10

124
18
39

159
18
51

14
2

8
4

113
18
35

135
18
41

Net impaired financial assets

12

11

103

126

12

4

96

112

Collective provision balance

62

145

264

471

62

131

245

438

Unaudited 31/03/2007
Impaired financial assets
Undrawn facilities with impaired customers
Individual provision balance

6
3

17
14

96
5
30

119
5
47

6
3

10
7

80
5
28

96
5
38

Net impaired financial assets

3

3

71

77

3

3

57

63

Collective provision balance

54

134

222

410

54

118

203

375

Audited 30/09/2007
Impaired financial assets
Undrawn facilities with impaired customers
Individual provision balance

7
4

20
13

88
6
27

115
6
44

7
4

7
5

79
6
25

93
6
34

Net impaired financial assets

3

7

67

77

3

2

60

65

Collective provision balance

58

130

234

422

58

117

217

392

Security held by the Banking Group in respect of individually impaired financial assets in the analysis above has an estimated fair value of $108
million (31/03/2007 $72 million; 30/09/2007 $71 million). In addition, security held in respect of impaired off-balance sheet facilities amounts
to $18 million (31/03/2007 $5 million; 30/09/2007 $6 million).
Security held by the Bank in respect of individually impaired financial assets in the analysis above has an estimated fair value of $94 million(31/03/2007 $54 million; 30/09/2007 $54 million) In addition, security held in respect of impaired off-balance sheet facilities amounts to $18
million (31/03/2007 $5 million; 30/09/2007 $6 million).

P A G E

6 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Renegotiated facilities
The Banking Group distinguishes between facilities renegotiated on a commercial basis, on terms similar to those offered to new clients withsimilar risk, and those renegotiated on non-commercial terms as a result of a client’s inability to meet original contractual obligations.
In the course of renegotiating facilities due to financial difficulty, the Banking Group may consider modifying its terms to include concessions
such as a reduction in the principal amount, a deferral of repayments, and/or an extension of the maturity date materially beyond thosetypically offered to new facilities with similar risk.
Renegotiated facilities are classified as productive and must demonstrate sound prospects of being able to adhere to the modified contractual
terms. Where doubt exists as to the capacity to sustain the modified terms, the facilities remain impaired and an appropriate level ofindividual provision is held.
Renegotiated loans that would otherwise be past due or impaired held by the Banking Group are $nil (31/03/2007 $nil; 30/09/2007 $nil),and held by the Bank are $nil (31/03/2007 $nil; 30/09/2007 $nil).
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 fromfluctuations in bond, commodity or equity prices.
Market risk management and control responsibilities
The Banking Group has a detailed market risk management and control framework, to support trading and non-trading activities, which
incorporates an independent risk measurement approach to quantify the magnitude of market risk within the trading and non-trading books.
This approach, along with related analysis, identifies the range of possible outcomes that can be expected over a given period of time, andestablishes the relative likelihood of those outcomes.
These risks are monitored daily against a comprehensive limit framework that includes VaR, aggregate market position and sensitivity, productand geographic thresholds. To facilitate the management, control, measurements and reporting of market risk, the Banking Group has grouped
market risk into two broad categories:a) Traded market riskThis is the risk of loss from changes in the value of financial instruments due to movements in price factors for both physical andderivative trading positions. They arise in trading transactions where the Banking Group acts as principal with clients or with themarket. The principal risk categories monitored are:• Currency risk is the potential loss arising from the decline in the value of a financial instrument due to changes in foreign exchange
rates or their implied volatilities.
• Interest rate risk is the potential loss arising from the change in the value of a financial instrument due to changes in market interest
rates or their implied volatilities.
• Credit spread risk is the potential loss arising from a change in value of an instrument due to a movement of its margin or spread
relative to a bench mark.
b) Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest rate risk, liquidity, and the risk to capital and earnings as a result of foreignexchange rate movements.
Some instruments do not fall into either category that also exposes the Banking Group to market risk. These include equity securities classified
as available-for-sale. Regular reviews are performed to substantiate valuation of the investments within this portfolio.
The Board of Directors through the Risk Committee has responsibility for oversight of market risk within the Banking Group. Routine management,
overall strategies and policies, and control of market risk exposures at Banking Group level is the responsibility of the Chief Risk Officer, whoworks closely with the Markets business unit.
The Traded Market risk function provides specific oversight of each of the main trading areas and is responsible for the establishment of a
Value at Risk (VaR) framework and detailed control limits. In all trading areas the Banking Group has implemented models that calculate VaR
exposures, monitor risk exposures against defined limits on a daily basis, and ‘stress test’ trading portfolios. The Banking Group has an Asset andLiability Committee (‘ALCO’), comprising executive management to provide monthly oversight of Market Risk.
The Chief Risk Officer is responsible for daily review and oversight of Traded market risk reports. The Chief Risk Officer has the authority for
instructing the business to close exposures and withdraw limits where appropriate.

P A G E

6 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Value at Risk (VaR) measure
A key measure of market risk is Value at Risk. VaR is a statistical estimate of the likely daily loss and is based on historical market movements.
The confidence level is such that there is 97.5% or 99% probability that the loss will not exceed the VaR estimate on any 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 levelencompasses a wider range of potential outcomes.
The Banking Group has adopted the historical simulation methodology as its standard for the calculation of VaR. This methodology is basedon assessing the change in value of portfolios each day against historical prices. The Banking Group calculates VaR using historical changes inmarket rates and prices over the previous 500 business days. Traded and non-traded VaR is calculated using a one-day holding period.
It should be noted that because VaR is driven by actual historical observations, it is not an estimate of the maximum loss that the Banking
Group could experience from an extreme market event. As a result of this limitation, the Banking Group utilises a number of other risk measures(e.g. stress testing) and associated detailed control limits to measure and manage market risk.
Traded and non-traded market risks are considered separately below.
Traded market risks
Trading activities are focused on customer trading, distribution and underwriting of a range of securities and derivative instruments. The
principal activities include foreign exchange, interest rate, and debt markets. These activities are managed on a global product basis.
Below are aggregate VaR exposures covering both derivative and non-derivative trading positions for the Banking Group.
Consolidated
Value at risk at 97.5% confidence
		
As at
$m

High for
period$m

Consolidated
Value at risk at 99% confidence

Low for Average for		
periodperiod
As at
$m
$m
$m

High for
period$m

Low for Average for
periodperiod$m$m

Unaudited 31/03/2008
Foreign exchangeInterest rate
Credit spread
Diversification benefit

0.3
1.2
0.1
(0.4)

0.8
1.8
0.2
n/a

0.2
0.5
0.1
n/a

0.3
0.8
0.1
(0.4)

0.3
1.4
0.2
(0.4)

1.0
2.3
0.3
n/a

0.2
0.6
0.2
n/a

0.4
1.1
0.2
(0.6)

Total VaR

1.2

1.7

0.3

0.8

1.5

2.2

0.5

1.1

Unaudited 31/03/2007
Foreign exchangeInterest rate
Credit spread
Diversification benefit

0.2
1.0
0.2
(0.5)

1.0
1.2
0.2
n/a

0.1
0.6
0.1
n/a

0.4
0.8
0.1
(0.4)

0.3
1.3
0.2
(0.7)

1.2
1.9
0.3
n/a

0.1
0.8
0.1
n/a

0.5
1.2
0.2
(0.6)

Total VaR

0.9

1.6

0.5

0.9

1.1

2.1

0.7

1.3

Audited 30/09/2007
Foreign exchangeInterest rate
Credit spread
Diversification benefit

0.2
0.7
0.2
(0.1)

1.1
1.5
0.2
n/a

0.1
0.5
0.1
n/a

0.4
0.9
0.1
(0.4)

0.3
0.8
0.3
(0.1)

1.3
2.3
0.4
n/a

0.1
0.7
0.1
n/a

0.5
1.3
0.2
(0.5)

Total VaR

1.0

2.0

0.5

1.0

1.3

3.1

0.7

1.5

VaR is calculated separately for Foreign Exchange/Commodities and for Interest Rate/Debt Markets businesses as well as for the Banking Group.
The diversification benefit reflects the historical correlation between Foreign Exchange, Commodity, 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 a Banking
Group level. The Banking Group’s stress-testing regime provides senior management with an assessment of the financial impact of identified
extreme events on market risk exposures of the Banking Group.

7 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Non-traded market risks (balance sheet risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptable levels of interest
rate and liquidity risk and to manage the market value of the Banking Group’s capital. Liquidity risk is dealt with in the next section.
Interest rate risk
The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income over both the short (next 12months) and long term. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Banking
Group’s future net interest income. This risk arises from two principal sources: mismatches between the repricing dates of interest bearing
assets and liabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets. Non-traded interest raterisk 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.

a) VaR non-traded interest rate risk
Below are aggregate VaR figures covering non-traded interest rate risk.		

Consolidated						
					
As at
					
$m

High for
period$m

Low for Average for
periodperiod$m$m

Unaudited 31/03/2008
Value at risk at 97.5% confidence				

11.6

11.6

10.4

11.1

Unaudited 31/03/2007
Value at risk at 97.5% confidence					

7.5

8.6

7.3

7.9

Audited 30/09/2007
Value at risk at 97.5% confidence					

10.8

10.8

7.3

8.8

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 an assessment of the financial impact of identified
extreme events on market risk exposures of the Banking Group.
b) Scenario Analysis – A 1% Shock on the Next 12 Months’ Net Interest Income
A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income over the
succeeding 12 months. This is a standard risk quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and comparative periods – expressed as a percentageof reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that a rate increase ispositive for net interest income over the next 12 months. Conversely, a negative number signifies that a rate increase is negative for the next
12 months’ net interest income.
			Consolidated

			
					

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007

Impact of 1% Rate ShockAs at					Maximum exposure					Minimum exposure					Average exposure (in absolute terms)					

1.4%
1.8%
1.1%
1.4%

2.5%
2.5%
0.9%
1.9%

1.4%
2.8%
0.9%
1.9%

The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any point has implications
for future net interest income. The Banking Group quantifies the potential variation in future net interest income as a result of these repricing
mismatches each month using a static gap model.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where thecontractual term to repricing is not considered to be reflective of the actual interest rate sensitivity (for example, products priced at the Banking
Group’s discretion), a profile based on historically observed and/or anticipated rate sensitivity is used. This treatment excludes the effect ofbasis risk between customer pricing and wholesale market pricing. For example, when wholesale market rates are anticipating an official rateincrease the Banking Group does not reprice certain customer business until the first repricing date after the official rate rise.
The majority of the Banking Group’s non-traded interest exposure exists in New Zealand. A separate balance sheet simulation processsupplements the static gap information. This allows the net interest income outcomes of a number of different scenarios – with different
market interest rate environments and future balance sheet structures – to be identified. This better enables the Banking Group to quantify theinterest rate risks associated with the balance sheet and to formulate strategies to manage current and future risk profiles.

P A G E

7 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Interest rate sensitivity gap
The interest rate sensitivity gap analysis provides information about the Banking Group’s exposure to interest rate risk.
Repricing gaps are based upon contractual repricing information except where the contractual terms are not considered to be reflectiveof actual interest rate sensitivity, for example, those assets and liabilities priced at the Banking Group’s discretion. In such cases, the ratesensitivity is based upon historically observed and/or anticipated rate sensitivity.
Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the corresponding liability funding. Thesemismatches are managed within policy guidelines for mismatch positions.
The majority of the Banking Group’s loan business is conducted domestically in New Zealand and is priced on a fixed rate basis. The majority ofretail deposits are also raised in New Zealand but are either fixed or floating in nature. The mix of repricing maturities in this book is influenced
by the underlying financial needs of customers.
The Banking Group’s offshore operations are wholesale in nature and are able to minimise interest rate sensitivity through closely matching thematurities of loans and deposits. Given both the size and nature of this business, the interest rate sensitivity of this balance sheet contributes
little to the aggregate risk exposure, which is primarily a reflection of the positions in New Zealand.
A combination of off-balance sheet instruments and pricing initiatives is used in the management of interest rate risk. For example, where astrong medium to long term rate view is held, hedging and pricing strategies are used to modify the profile’s interest rate sensitivity so that
it is positioned to take advantage of the expected movement in interest rates. However, such positions are taken within the overall risk limits
specified by Banking Group policy.
The following tables represent the interest rate sensitivity of the Banking Group’s assets, liabilities and off balance sheet instruments repricing(that is, when interest rates applicable to each asset or liability can be changed) in the periods shown.
Consolidated
			
		
Total
		
$m

Less than
3 months$m

3 to 6months$m

6 to 12months$m

1 to 5years$mBeyond Not bearing
5 years
interest$m$m

Unaudited 31/03/2008
AssetsLiquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments		
Available-for-sale assets		
Net loans and advances		
Other financial assets		

3,863
3,890
2,149
4,865
96
92,579
891

3,648
3,067
893
38,881
-

570
149
6,756
-

8
30
10,579
-

147
847
11
36,699
-

252
27
-

215
106
4,865
55
(363)
891

Total financial assets		
Non-financial assets		

108,333
4,181

46,489-7,475-

10,617-37,704
-

279
-

5,769
4,181

Total assets		

112,51446,4897,475

10,61737,704279

9,950

Liabilities
Due to other financial institutions		
Deposits and other borrowings
Derivative financial instruments		
Payables and other financial liabilities		
Bonds and notes		Due to parent company		
Loan capital		

2,384
74,0804,472
1,361
16,586
1,758
2,053

1,285
52,490188
15,453
1,758
215

239
8,405
15
893

280
7,734
394
-

382
1,146
84
739
945

21
-

177
4,305
4,472
1,074
-

Total financial liabilities		
Non-financial liabilities		
Equity		102,694
439
9,381

71,389
-

9,552
-

8,408
-

3,296
-

21
-

10,028439
9,381

Total liabilities and equity

112,514

71,389

9,552

8,408

3,296

21

19,848On-balance sheet interest sensitivity gap		
Hedging instruments		

-(24,900)
27,680(2,077)
6,589

2,209
(6,501)

34,408(28,382)258
614(9,898)-Interest sensitivity gap - net		
Interest sensitivity gap - cumulative		

-

2,780
2,780

4,512
7,292

(4,292)
3,000

6,026
9,026

872
9,898

(9,898)-7 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		Consolidated

			
		
Total
		
$m

Less than
3 months$m

3 to 6months$m

6 to 12months$m

1 to 5years$mBeyond Not bearing
5 years
interest$m$m

Unaudited 31/03/2007
AssetsLiquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments		
Available-for-sale assets		
Net loans and advances		
Other financial assets		

5,741
3,067
1,917
3,041
45
82,258
714

5,496
2,567
1,591
32
32,963
-

79
4,983
-

3
6,241
-

200
43
13
38,280
-

201
129
-

245
300
3,041
(338)
714

Total financial assets		
Non-financial assets		

96,783
4,175

42,649
-

5,062
-

6,244
-

38,536
-

330
-

3,962
4,175

Total assets		

100,958

42,649

5,062

6,244

38,536330

8,137

Liabilities
Due to other financial institutions		
Deposits and other borrowings		
Derivative financial instruments		
Payables and other financial liabilities		
Bonds and notes		Due to parent company		
Loan capital		

4,178
64,7583,168
1,190
13,340
2,764
2,039

2,535
43,611
261
11,340
2,764
329

175
7,423
11
350
1,010

641
6,142
150
-

48
3,424
1,500
700

429
60
-

350
4,158
3,168
858
-

Total financial liabilities		
Non-financial liabilities		
Equity		91,437629
8,892

60,840
-

8,969
-

6,933
-

5,672
-

489
-

8,534
629
8,892

Total liabilities and equity		

100,958

60,840

8,969

6,933

5,672

489

18,055On-balance sheet interest sensitivity gap		
Hedging instruments		

-(18,191)
22,438(3,907)
5,988

(689)
3,680

32,864(32,872)

(159)
766

(9,918)-Interest sensitivity gap - net		
Interest sensitivity gap - cumulative		

-

4,247
4,247

2,081
6,328

2,991
9,319

(8)
9,311

607
9,918

(9,918)-P A G E

7 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		Consolidated

			
		
Total
		
$m

Less than
3 months$m

3 to 6months$m

6 to 12months$m

1 to 5years$mBeyond Not bearing
5 years
interest$m$m

Audited 30/09/2007
AssetsLiquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments		
Available-for-sale assets		
Net loans and advances		
Other financial assets		

4,807
3,563
1,877
4,711
48
87,878
970

4,606
2,925
742
34
33,335
-

440
375
4,051
-

4
11,404
-

174
629
13
39,355
-

127
84
-

201
24
4,711
1
(351)
970

Total financial assets		
Non-financial assets		

103,854
3,933

41,642-

4,866-

11,408-40,171
-

211
-

5,556
3,933

Total assets		

107,787

41,642

4,866

11,40840,171

211

9,489

Liabilities
Due to other financial institutions		
Deposits and other borrowings		
Derivative financial instruments		
Payables and other financial liabilities		
Bonds and notes		Due to parent company		
Loan capital		

3,170
70,0304,924
1,087
14,607
2,775
2,062

2,334
49,27616
13,113
2,775
217

216
7,489
77
150
799

189
6,261
379
100

16
2,650
965
946

377
60
-

38
4,354
4,924
934
-

Total financial liabilities		
Non-financial liabilities		
Equity		98,655429
8,703

67,731
-

8,731
-

6,929
-

4,577
-

437
-

10,250429
8,703

Total liabilities and equity		

107,787

67,731

8,731

6,929

4,577

437

19,382On-balance sheet interest sensitivity gap		
Hedging instruments		

-(26,089)
25,195(3,865)
3,514

4,479
2,371

35,594(31,707)

(226)
627

(9,893)-

Interest sensitivity gap - net		
Interest sensitivity gap - cumulative		

-

(894)
(894)

(351)
(1,245)

6,850
5,605

3,887
9,492

401
9,893

(9,893)-7 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		Parent

			
		
Total
		
$m

Less than
3 months$m

3 to 6months$m

6 to 12months$m

1 to 5years$mBeyond Not bearing
5 years
interest$m$m

Unaudited 31/03/2008
AssetsLiquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments		
Available-for-sale assets		
Net loans and advances		Due from subsidiary companies		
Other financial assets		

3,863
3,455
2,149
4,865
86
90,171
1,506
808

3,648
2,779
893
38,058
74
-

570
149
6,464
153
-

8
30
10,321-847
135,638
525
-

252
10
-

215
106
4,865
55
(320)
754
808

Total financial assets		
Non-financial assets		

106,903
11,55145,452-

7,336-

10,359-37,011
-

262
-

6,483
11,551

Total assets		

118,454

45,452

7,336

10,35937,011

262

18,034

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

1,432
61,37937,078
4,445
1,146
579
1,758
2,053

1,022
44,13733,512
188
279
1,758
215

81
5,764
2,417
15
893

95
6,180
560
150
-

36
993
589
24
150
945

21
-

177
4,305
4,445
919
-

Total financial liabilities		
Non-financial liabilities		
Equity		109,870
412
8,172

81,111
-

9,170
-

6,985
-

2,737
-

21
-

9,846
412
8,172

Total liabilities and equity		

118,454

81,111

9,170

6,985

2,737

21

18,430On-balance sheet interest sensitivity gap		
Hedging instruments		

-(35,659)
27,700(1,834)
6,576

3,374
(6,501)

34,274(28,389)

241
614

(396)
-

Interest sensitivity gap - net		
Interest sensitivity gap - cumulative		-(7,959)(7,959)4,742(3,217)(3,127)(6,344)

5,885
(459)

855
396

(396)
-

P A G E

7 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		Parent

			
		
Total
		
$m

Less than
3 months$m

3 to 6months$m

6 to 12months$m

1 to 5years$mBeyond Not bearing
5 years
interest$m$m

Unaudited 31/03/2007
AssetsLiquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments		
Available-for-sale assets		
Net loans and advances		Due from subsidiary companies		
Other financial assets

5,740
2,580
1,916
3,066
35
78,570
1,543
606

5,495
2,280
1,590
32
32,288
243
-

79
4,821
-

3
5,929
-

43
3
35,735
476
-

201
114
171
-

245
300
3,066
(317)
653
606

Total financial assets		
Non-financial assets		

94,056
11,57841,928
-

4,900
-

5,932
-

36,257
-

486
-

4,553
11,578

Total assets		

105,634

41,928

4,900

5,932

36,257486

16,131

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

1,741
56,61830,185
3,165
924
509
2,764
2,039

1,245
39,831
23,397
261
209
2,764
329

5,010
2,575
11
1,010

4,760
2,457
-

48
2,859
1,756
300
700

95
-

353
4,158
3,165
652
-

Total financial liabilities		
Non-financial liabilities		
Equity		97,945591
7,098

68,036
-

8,606
-

7,217
-

5,663
-

95
-

8,328
591
7,098

Total liabilities and equity		

105,634

68,036

8,606

7,217

5,663

95

16,017On-balance sheet interest sensitivity gap		
Hedging instruments		

-(26,108)
22,843(3,706)
5,988(1,285)
3,685

30,594(32,893)

391
377

114
-

Interest sensitivity gap - net		
Interest sensitivity gap - cumulative		-(3,265)(3,265)

2,282
(983)

2,400
1,417

(2,299)
(882)

768
(114)

114
-

7 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		Parent

			
		
Total
		
$m

Less than
3 months$m

3 to 6months$m

6 to 12months$m

1 to 5years$mBeyond Not bearing
5 years
interest$m$m

Audited 30/09/2007
AssetsLiquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments		
Available-for-sale assets		
Net loans and advances		Due from subsidiary companies		
Other financial assets		

4,807
3,101
1,877
4,705
38
84,044
1,585
852

4,606
2,637
742
34
32,602
141
-

440
375
3,855
-

4
11,008140-629
336,844
397
-

127
68
156
-

201
24
4,705
1
(333)
751
852

Total financial assets		
Non-financial assets		

101,00911,30040,762-

4,670-

11,152-37,873
-

351
-

6,201
11,300Total assets		

112,30940,762

4,670

11,15237,873351

17,501

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

1,686
58,51432,942
4,896
741
561
2,775
2,062

1,562
41,29428,650
16
261
2,775
217

15
5,802
1,778
19
799

23
4,978
1,285
100

16
2,086
1,229
300
946

30
-

40
4,354
4,896
706
-

Total financial liabilities		
Non-financial liabilities		
Equity		104,177
405
7,727

74,775
-

8,413
-

6,386
-

4,577
-

30
-

9,996
405
7,727

Total liabilities and equity		

112,30974,775

8,413

6,386

4,577

30

18,128On-balance sheet interest sensitivity gap		
Hedging instruments		

-(34,013)
25,234(3,743)
3,514

4,766
2,378

33,296(31,753)

321
627

(627)
-

Interest sensitivity gap - net		
Interest sensitivity gap - cumulative		-(8,779)(8,779)(229)(9,008)

7,144(1,864)

1,543
(321)

948
627

(627)
-

Equity securities classified as available-for-saleMarket risk arises on equity securities classified as available-for-sale. The fair value of these securities as at 31 March 2008 was $55 million(31 March 2007 $nil; 30 September 2007 $1 million) and private equity holdings of $nil included in other assets (31 March 2007 $2 million;
30 September 2007 $2 million). Regular reviews are performed to substantiate valuation of the investments within the portfolio. The fair valueof the equity securities classified as available-for-sale can fluctuate considerably. A 10 per cent reduction in the value of the available-for-sale
equity securities at 31 March 2008 would have reduced equity by $5 million (31 March 2007 $nil; 30 September 2007 $nil).
Foreign currency related risksThis risk relates to the potential loss arising from the decline in the value of foreign currency positions due to changes in foreign exchange rates.
For non-traded instruments in foreign currencies, the risk is monitored and is hedged in accordance with policy. Risk arising from individual
funding and other transactions is actively managed. The total amounts of unmatched foreign currency assets and liabilities and consequent
foreign currency exposures, arising from each class of financial asset and liability, whether recognised or unrecognised, within each currency
are not material.
The net open position in each foreign currency, detailed in the table below, represents the net on-balance sheet assets and liabilities in that
foreign currency aggregated with the net expected future cash flows from off-balance sheet purchases and sales from foreign exchangetransactions in that foreign currency. The amounts are stated in New Zealand dollar equivalents translated using the spot exchange rates as atbalance sheet date.

P A G E

7 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )				Consolidated		 Parent
Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Net open position
Australian dollar		Euro		
Pound sterling		
US dollar		
Other		

15
1
1
(26)
6

13
18
(31)
4

(10)
13
(1)
2
2

15
1
1
(26)
6

13
18
(31)
4

(10)
13
(1)
2
2

Total net open position		

(3)

4

6

(3)

4

6

LIQUIDITY RISK
Liquidity risk is the risk that the Banking Group has insufficient capacity to fund increases in assets, or is unable to meet its payment obligations
as they fall due, including repaying depositors or maturing wholesale debt. The Banking Group maintains sufficient liquid funds to meet its
commitments based on historical and forecasted cash flow requirements. Liquidity risk is measured through cash flow modelling, with profiles
produced for both normal business and short-term crisis conditions.
The timing mismatch of cashflows and the related liquidity risk is inherent in all banking operations, and may result from internal and/or
external events, including: credit or operational risks, bank-specific events, market disruptions, or systemic shocks. The following outlines the
Banking Group’s approach to liquidity and funding risk management. Principles include:
•
•
•
•
•
•

ensuring the liquidity management framework is compatible with local regulatory requirements;
daily liquidity reporting and scenario analysis to quantify the Banking Group’s positions;monitoring wholesale and customer liability composition;
maintaining a diversified funding base, avoiding undue concentrations by investor type, maturity, market source and currency;
holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-to-day operations; andestablishing detailed contingency plans to cover liquidity crisis events.

Scenario Modelling
A key component of the Banking Group’s liquidity management framework is scenario modelling. This requires assessing liquidity under at least
two specific scenarios:
1.

‘Normal Business conditions’: the normal behaviour of cash flows in the ordinary course of business. The Banking Group must be able tomeet all commitments and obligations under a going concern scenario, within the Banking Group’s normal funding capacity, over at least
the next 30 calendar days. In estimating the funding requirement, the Banking Group models expected cashflows by reference to historicalbehaviour and contractual maturity data.

2.

‘Short term crisis’: refers to a potential name-specific liquidity crisis in which the Banking Group may have significant difficulty rolling overor replacing liabilities. The Banking Group needs to be cashflow positive over a 5 business day period under a short term crisis scenario. The
Banking Group models expected cashflow behaviour under such a scenario based on the type of customer and their level of sophistication,and the type of asset/ liability.

In addition, the Banking Group models a number of other stress tests and liquidity scenarios over a variety of time horizons, including theimpact of credit rating downgrades, and reduced access to wholesale debt in domestic and offshore markets.
Customer and wholesale funding composition
The Banking Group employs actual cash flow based funding metrics to determine appropriate balance sheet liquidity and funding risk strategies.
These metrics are used to measure and manage the proportion of the Banking Group’s external assets which are funded by customer liabilities,
wholesale debt, equity and loan capital.
Managing these metrics assists in ensuring that an appropriate proportion of the Banking Group’s assets are funded by either ‘sticky’ customer
liabilities; or long-term wholesale debt funding (with a remaining term exceeding 1 year). This approach recognises that long-term wholesale
debt and other sticky liabilities have favourable liquidity characteristics thereby assisting in reducing any adverse impact or volatility caused byshort-term funding, and in monitoring the impact of deposit-gathering strategies.

7 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )The table below outlines total Banking Group volumes of customer deposits and wholesale funding.
Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Funding composition
Customer deposits1
New Zealand		
Overseas		

51,426
6,199

48,096
5,707

50,391
5,875

49,766
6,096

46,2685,160

48,711
5,356

Total customer deposits		

57,62553,80356,26655,862

51,42854,067Wholesale funding
Bonds and notes		
Loan capital		
Certificates of deposit		
Commercial paper		
Due to subsidiary companies - ANZ National (Int’l) Limited		Due to subsidiary companies - other		Due to parent company		
Secured deposits		
Due to other financial institutions		

16,586
2,053
5,517
10,9381,758
2,384

13,340
2,039
5,190
5,565
2,764
200
4,178

14,607
2,062
4,447
9,317
2,775
3,170

579
2,053
5,517
27,155
9,923
1,758
1,432

509
2,039
5,190
20,137
10,048
2,764
1,741

561
2,062
4,447
24,183
8,759
2,775
1,686

Total wholesale funding		

39,23633,27636,37848,41742,42844,473

Total funding		

96,86187,07992,644104,279

93,856

98,540Concentrations of funding by industry
Households		
Agriculture, forestry and fishing		
Manufacturing		
Finance and insurance		
Retail trade		
Wholesale trade		Business and property services		Transport and storage		Construction		
Government and local authority		
Other2		

35,7022,580
1,544
44,891
735
644
4,696
714
643
1,614
3,098

32,8811,879
1,220
39,714
621
575
4,399
579
642
1,537
3,032

34,2342,010
1,429
43,727
665
590
4,405
582
693
1,366
2,943

33,9392,580
1,544
54,072
735
644
4,696
714
643
1,614
3,098

30,896
1,879
1,220
48,676
621
575
4,399
579
642
1,537
2,832

32,4482,010
1,429
51,409
665
590
4,405
582
693
1,366
2,943

Total concentrations of funding by industry		

96,86187,07992,644104,279

93,856

98,540Concentrations of funding by geography
New Zealand		
United States		Europe		Other countries		

60,351
15,45914,307
6,744

57,03812,251
11,057
6,733

57,32013,834
14,1207,370

68,711
15,09013,8006,678

65,177
11,495
10,552
6,632

64,561
13,06913,615
7,295

Total concentrations of funding by geography		

96,86187,07992,644104,279

93,856

98,5403

Analyses of funding liabilities by industry sector are based on Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.
1.

Represents: term deposits, other deposits bearing interest, deposits not bearing interest and secured debenture stock.

2.

Other includes exposures to mining, electricity, gas and water, entertainment, leisure and tourism, communications, and personal services.

3.

Funding of the Bank via ANZ National (Int’l) Limited is classified as either from the United States or Europe, as the company conducts overseas
funding activities through its London branch.

P A G E

7 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Wholesale funding
The Banking Group’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency
while targeting diversification by markets, investors, currencies, maturities and funding structures. Short-term wholesale funding requirements,
with a contractual maturity of less than one year, are managed through the Treasury and Markets operations. Long-term wholesale funding ismanaged and executed through Treasury operations.
The Banking Group also uses maturity concentration limits under the wholesale funding and liquidity management framework. Funding
instruments used to meet the wholesale borrowing requirement must be on a pre-established list of approved products.
Funding capacity and debt issuance planning
Under the normal business conditions scenario, borrowing capacity is an estimate of the amount of funding that can be raised in the wholesalemarkets in normal market conditions. The Banking Group adopts a conservative approach to determine its funding capacity. Funding capacity
limits are determined at the Ultimate Parent Bank level and allocated to individual sites based on their requirements.
Annually, a Funding Plan is ratified by the Banking Group’s Senior Management. The plan is supplemented by monthly updates, and is linked to
the Banking Group’s three year strategic planning cycle.
Liquidity portfolio management
The Banking Group holds a diversified portfolio of cash and high-quality highly-liquid securities to support payment obligations and contingent
funding in the event of a market disruption.
The size of the Banking Group’s liquidity portfolio is based on the amount of liquidity required to meet: day-to-day operational requirements;
a potential name crisis; or potential wholesale ‘funding stress’ requirements.
In addition, the Banking Group monitors the ratio of cover provided by the liquidity portfolio to fund both domestic and offshore wholesale
debt maturities.
Supplementing its liquidity position, the Banking Group holds additional cash and liquid asset balances. The Markets business holds secondary
sources of liquidity in the form of highly liquid instruments in its trading portfolios.
The Banking Group’s core liquidity portfolio held for managing liquidity risk comprises:
Consolidated		NoteCash and balances with central banks
Securities purchased under agreement to resell
Securities purchased under agreements to resell
Certificates of deposit
Government, Local Body stock and bonds
Certificates of deposit
Other bank bonds
Government, Local Body stock and bonds

7
7
8
8
9
9
9
12

Total liquidity portfolio		

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

2,171
4,041
185		
2,609
737
1
126
690
1,148
935
-

2,809
221
125
1,634
783
595
1

2,171
4,041
185		
2,609
737
1
126
690
1,148
935
-

2,809
221
125
1,634
783
595
1

6,052

6,168

6,591

6,052

6,168

6,591

Assets held for managing liquidity risk includes short term cash held with the RBNZ or other banks, government securities and othersecurities that are readily acceptable in repurchase agreements with the RBNZ and other New Zealand banks and securities issued by offshore
Supranational and highly rated banks.
Liquidity crisis contingency planning
The Banking Group maintains liquidity crisis contingency plans defining an approach for analysing and responding to a liquidity threatening
event at a Banking Group-wide basis. The framework includes:• the establishment of crisis severity/stress levels;• clearly assigned crisis roles and responsibilities;• early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals;• action plans, and courses of action for altering asset and liability behaviour.
• procedures for crisis management reporting, and covering cash-flow shortfalls;• guidelines determining the priority of customer relationships in the event of liquidity problems; and• assigned responsibilities for internal and external communications.

8 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )The tables below analyse the Banking Group’s financial assets and liabilities into relevant maturity groupings based on the remaining period atbalance date to the contractual maturity date. Where a counterparty has a choice of when an amount is received or paid, the asset or liability
is included on the basis of the earliest date on which the Banking Group expects to receive or is required to repay.
The Banking Group does not manage its liquidity risk on this basis. The management of this risk is detailed on pages 78 to 80. The analysis
presented below has been made on a discounted basis, as the Banking Group considers this basis to provide more relevant information toevaluate the nature and extent of liquidity risk. The Banking Group does not use undiscounted financial information when managing liquidity
risk in practice.
Contractual maturity analysis of financial assets and liabilities:		Consolidated

				
		
Total
At call		$m$mLess than
3 months$m

3 to 12months$m

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

Unaudited 31/03/2008
AssetsLiquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments		
Available-for-sale assets		
Net loans and advances		
Other financial assets		

3,863
3,890
2,149
4,865
96
92,579
891

3,776
418
-

87
2,469
868
9,514
891

570
157
10,636
-

433
866
11
24,694-258
30
48,098
-

4,865
55
(363)
-

Total financial assets		

108,333

4,194

13,82911,36326,004

48,386

4,557

Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments		
Other financial liabilities		
Bonds and notes		Due to parent company		
Loan capital		

2,384
74,0804,472
1,361
16,586
1,758
2,053

923
25,954
1,758-

539
30,870
1,262
1,690
-

519
16,110
15
5,236
-

382
1,146
84
9,660
-

21
1,746

4,472
307

Total financial liabilities		

102,694

28,63534,361

21,88011,272

1,767

4,779

Unaudited 31/03/2007
AssetsLiquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments		
Available-for-sale assets		
Net loans and advances		
Other financial assets		

5,741
3,067
1,917
3,041
45
82,258
714

5,644
776
-

97
1,805
1,490
32
9,230
714

94
9,051
-

200
107
13
22,086-286
226
42,229
-

3,041
(338)
-

Total financial assets		

96,7836,420

13,3689,145

22,40642,741

2,703

Liabilities
Due to other financial institutions		
Deposits and other borrowings		
Derivative financial instruments		
Other financial liabilities		
Bonds and notes		Due to parent company		
Loan capital		

4,178
64,7583,168
1,190
13,340
2,764
2,039

611
26,546
2,764
-

2,274
22,167
1,025
148
-

816
13,734
68
1,186
-

48
2,311
37
12,006
-

429
60
1,738

3,168
301

Total financial liabilities		

91,43729,921

25,61415,804

14,402

2,227

3,469

		

P A G E

8 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )Consolidated
				
		
Total
At call		$m$mLess than
3 months$m

3 to 12months$m

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

Audited 30/09/2007
AssetsLiquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments		
Available-for-sale assets		
Net loans and advances		
Other financial assets		

4,807
3,563
1,877
4,711
48
87,878
970

4,477
952
-

330
1,698
658
33
9,276
970

440
396
1
9,906
-

187
671
13
24,142-286
152
44,905
-

4,711
1
(351)
-

Total financial assets		

103,854

5,429

12,965

10,74325,01345,343

4,361

Liabilities
Due to other financial institutions		
Deposits and other borrowings		
Derivative financial instruments		
Other financial liabilities		
Bonds and notes		Due to parent company		
Loan capital		

3,170
70,0304,924
1,087
14,607
2,775
2,062

1,136
25,482
2,775
-

1,220
27,577
919
672
-

405
14,726
76
4,341
-

32
2,245
32
9,594
-

377
60
1,753

4,924
309

Total financial liabilities		

98,65529,39330,38819,548

11,903

2,190

5,233

Parent
				
		
Total
At call		$m$mLess than
3 months$m

3 to 12months$m

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

Unaudited 31/03/2008
AssetsLiquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments		
Available-for-sale assets		
Net loans and advances		Due from subsidiary companies		
Other financial assets		

3,863
3,455
2,149
4,865
86
90,171
1,506
808

3,776
417
624
-

87
2,468
868
8,690
808

570
157
10,086153-866
123,633
729
-

258
30
48,082
-

4,865
55
(320)
-

Total financial assets		

106,903

4,817

12,921

10,96625,22948,3704,600

Liabilities
Due to other financial institutions
Deposits and other borrowings		
Due to subsidiary companies		
Derivative financial instruments		
Other financial liabilities		
Bonds and notes		Due to parent company		
Loan capital		

1,432
61,37937,078
4,445
1,146
579
1,758
2,053

923
25,514
8,765
1,758
-

276
22,957
9,260
1,107
183
-

176
11,915
9,613
15
176
-

36
993
9,440
24
220
-

21
1,746

4,445
307

Total financial liabilities		

109,870

36,96033,783

21,895

10,713

1,767

4,752

8 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 2 .	F I N A N C I A L R I S K M A N A G E M E N T ( continued )		Parent

				
		
Total
At call		$m$mLess than
3 months$m

3 to 12months$m

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

Unaudited 31/03/2007
AssetsLiquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments		
Available-for-sale assets		
Net loans and advances		Due from subsidiary companies		
Other financial assets		

5,740
2,580
1,916
3,066
35
78,570
1,543
606

5,643
774
609
-

97
1,806
1,489
32
8,930
606

94
8,498
5
-

107
3
19,253758-

226
42,206
171
-

3,066
(317)
-

Total financial assets		

94,056

7,026

12,9608,597

20,12142,603

2,749

Liabilities
Due to other financial institutions		
Deposits and other borrowings		
Due to subsidiary companies		
Derivative financial instruments		
Other financial liabilities		
Bonds and notes		Due to parent company		
Loan capital		

1,741
611
56,61825,54630,1858,212
3,165		
924		
509		
2,764
2,764
2,039		

98719,385
5,305
876
10
-

9,941
5,500
11
70
-

48
1,746
11,168
37
429
-

95
1,738

3,165
301

Total financial liabilities		

97,945

37,133

26,563

15,522

13,428

1,833

3,466

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

4,807
3,101
1,877
4,705
38
84,044
1,585
852

4,477
950
627
-

330
1,711
658
33
9,018
852

440
396
1
9,142
148
-

671
3
21,336654-

152
44,881
156
-

4,705
1
(333)
-

Total financial assets		

101,009

6,054

12,602

10,127

22,66445,1894,373

Liabilities
Due to other financial institutions		
Deposits and other borrowings		
Due to subsidiary companies		
Derivative financial instruments		
Other financial liabilities		
Bonds and notes		Due to parent company		
Loan capital		

1,686
58,51432,942
4,896
741
561
2,775
2,062

1,136
25,069
6,841
2,775
-

450
19,597
8,751
690
-

38
11,756
6,725
19
150
-

32
2,092
10,625
32
411
-

30
1,753

4,896
309

Total financial liabilities		

104,177

35,821

29,48818,68813,192

1,783

5,205

Audited 30/09/2007

P A G E

8 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 3 . C O N C E N T R AT I O N S O F C R E D I T R I S KConcentrations of credit risk to individual counterparties
The number of individual counterparties other than banks or groups of closely related counterparties of which a bank is a parent (excludingOECD Governments and connected persons), where the quarter end and peak end-of-day credit exposure equals or exceeds 10% of equity (asat the end of the quarter) in ranges of 10% of equity, on the basis of limits:		Unaudited 31/03/2008
Number of Counterparties				

10% to 20% of equity

Consolidated
Unaudited 31/03/2007
Number of Counterparties

Audited 30/09/2007
Number of Counterparties

Peak for		
Peak for		
Peak forAs at the quarter
As at the quarter
As at the quarter

1

1

2

2

2

2

As noted above, the number of individual counterparties disclosed within the various equity ranges is based on counterparty limits rather thanactual exposures outstanding. No account is taken of security and/or guarantees which the Banking Group may hold in respect of the various
counterparty limits.
The amount and percentage of quarter end and peak end-of-day credit exposures to individual counterparties other than banks or groups ofclosely related counterparties of which a bank is a parent (excluding OECD Governments and connected persons), where the quarter end andpeak end-of-day credit exposure equals or exceeds 10% of equity (as at the end of the quarter), by credit rating:
		

		

As at
Investment grade credit rating1

Consolidated

Unaudited 31/03/2008
Unaudited 31/03/2007
Audited 30/09/2007% of Total		 % of Total		 % of Total
AmountCreditAmountCreditAmountCredit$m
Exposure$m
Exposure$m
Exposure

1,629

100.0%

2,500

100.0%

2,509

100.0%

Concentrations of credit risk to bank counterparties
The number of bank counterparties or groups of closely related counterparties of which a bank is the parent (excluding OECD Governments andconnected persons), where the quarter end and peak end-of-day credit exposure equals or exceeds 10% of equity (as at the end of the quarter)in ranges of 10% of equity, on the basis of actual exposures:		
Unaudited 31/03/2008
Number of Counterparties

Consolidated
Unaudited 31/03/2007
Number of Counterparties

Audited 30/09/2007
Number of Counterparties

		
Peak for		
Peak for		
Peak for		
As at the quarter
As at the quarter
As at the quarter

10% to 20% of equity

2

3

1

2

1

3

The amount and percentage of quarter end and peak end-of-day credit exposures to bank counterparties or groups of closely related
counterparties of which a bank is a parent (excluding OECD Governments and connected persons), where the quarter end and peak end-of-day
credit exposure equals or exceeds 10% of equity (as at the end of the quarter), by credit rating:		Consolidated

Unaudited 31/03/2008% of Total

Unaudited 31/03/2007% of Total

Audited 30/09/2007% of Total

		

Amount$m

CreditExposureAmount$m

CreditExposureAmount$m

CreditExposure

As at
Investment grade credit rating1

2,477

100.0%

1,343

100.0%

1,193

100.0%

1. All of the individual and bank counterparties included in the above tables have an investment grade rating. An investment grade credit rating means a credit rating of BBB- or Baa3 or above, or its
equivalent. In the case of a group of closely related counterparties, the credit rating applicable is that of the entity heading the group of closely related counterparties. The credit rating is applicable
to an entity’s long term senior unsecured obligations payable in New Zealand, in New Zealand dollars, or to an entity’s long term senior unsecured foreign currency obligations.

P A G E

8 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS(CONTINUED)

For personal use only

3 3 . C O N C E N T R AT I O N S O F C R E D I T R I S K ( continued )Concentrations of credit risk to connected persons
		Consolidated

Unaudited 31/03/2008

Unaudited 31/03/2007

Audited 30/09/2007

		Amount% of Tier$m One Capital

Amount% of Tier$m One Capital

Amount% of Tier$m One Capital

Aggregate at end of period
Other connected persons2Non-bank connected persons3

1,694
-

29.8%
0.0%

1,454
-

27.3%
0.0%

1,952
-

38.1%
0.0%

Peak end-of-day for the quarter4
Other connected persons
Non-bank connected persons

1,941
-

34.2%
0.0%

1,612
-

30.2%
0.0%

2,299
-

44.8%
0.0%

Rating-contingent limit5
Other connected persons
Non-bank connected persons

n/a
n/a

70.0%
15.0%

n/a
n/a

70.0%
15.0%

n/a
n/a

75.0%
15.0%

The credit exposure concentrations disclosed for connected persons are on the basis of actual gross exposures and exclusive of exposures ofa capital nature. The peak end-of-day credit exposures for the quarter to connected persons are measured over Tier One Capital as at the endof the quarter. There were no individual provisions provided against credit exposures to connected persons as at 31 March 2008 (31/03/2007$nil; 30/09/2007 $nil). The Banking Group had no contingent exposures arising from risk lay-off arrangements to connected persons as at 31
March 2008 (31/03/2007 $nil; 30/09/2007 $nil).
2. The Banking Group has amounts due from its Parent Company and Ultimate Parent Company and other entities within the Ultimate Parent Group arising from the ordinary course of its
business. These balances arise primarily from unrealised gains on trading and hedging derivative financial instruments with the Ultimate Parent Bank. As at 31 March 2008, the exposures
to the Bank’s Parent Company were $45 million (31/03/2007 $327 million; 30/09/2007 $249 million). As at 31 March 2008, the exposures to the Bank’s Ultimate Parent Company were
$1,649 million (31/03/2007 $1,127 million; 30/09/2007 $1,703 million).
3. Non-bank connected persons exposures consist of loans to directors of the Bank. Any loans are made in the ordinary course of business of the Bank, on an arm’s length basis and on normal
commercial terms and conditions.
4. The method of calculating the peak end-of-day disclosure above differs from that applied in determining the connected persons’ limit under the Bank’s Conditions of Registration. The
peak end-of-day disclosure is measured against Tier One Capital at quarter end whereas the connected persons’ exposure under the Conditions of Registration is measured against Tier
One Capital on a continuous basis. The Banking Group has complied with the limits on aggregate credit exposures (of a non-capital nature and net of individual provisions) to connected
persons and non-bank connected persons, as set out in the Conditions of Registration, at all times during the quarter.
5. Represents the maximum peak end-of-day aggregate credit exposures limit (exclusive of exposures of a capital nature and net of individual provisions) to all connected persons. This isbased on the rating applicable to the Bank’s long term senior unsecured obligations payable in New Zealand, in New Zealand dollars (refer page 116 for the credit rating). Within the overall
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. On 4 May 2007, the connected persons’ limit increased from 70% to 75% as a result of an improvement in the Bank’s credit rating. On 18 March 2008, the Bank formally engaged
Fitch Ratings to provide credit rating services. The Fitch Ratings rating of AA- has meant that from this date the connected persons’ limit has decreased from 75% to 70% as the Fitch
Ratings rating of AA- is lower than that given by Standard & Poor’s and Moody’s Investors Services.

P A G E

8 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

34. MARKET RISKRBNZ Market Risk Disclosure
The aggregate market risk exposures below have been calculated in accordance with the Reserve Bank of New Zealand document entitled‘Capital Adequacy Framework (Internal Models Based Approach)’ (B2SB) dated February 2008.
The peak end-of-day market risk exposures for the quarter are measured over equity at the end of the quarter.
		Consolidated					Implied risk weighted exposure
Aggregate capital charge

Aggregate capital charge asa percentage of the Banking
Group’s Equity

		

As at
$m

Peak
$m

As at
$m

Peak
$m

As at
$m

Peak
$m

Unaudited 31/03/2008
Interest rate risk
Foreign currency risk
Equity risk

3,495
23
55

3,745
83
89

279.6
1.8
4.4

299.6
6.6
7.1

3.0%
0.0%
0.0%

3.2%
0.1%
0.1%

Unaudited 31/03/2007
Interest rate risk
Foreign currency risk
Equity risk

3,923
95
3

4,093
166
6

313.8
7.6
0.2

327.4
13.3
0.5

3.5%
0.1%
0.0%

3.7%
0.1%
0.0%

Audited 30/09/2007
Interest rate risk
Foreign currency risk
Equity risk

3,778
16
3

4,668
81
3

302.2
1.3
0.2

373.4
6.5
0.2

3.5%
0.0%
0.0%

4.3%
0.1%
0.0%

35. INTEREST EARNING AND DISCOUNT BEARING ASSETS AND LIABILITIESConsolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Interest earning and discount bearing assets		

102,564

92,821

98,298100,420

89,503

94,808Interest and discount bearing liabilities		

92,66682,90388,405100,024

89,617

94,1818 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S

All financial instruments are recognised initially at fair value, which is the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm’s length transaction.
The fair value of a financial instrument on initial recognition is normally the transaction price, however, in certain circumstances the initialfair value may be based on other observable current market transactions in the same instrument, without modification or repackaging, or on avaluation technique whose variables include only data from observable markets. For the majority of short-term financial instruments, defined as
those which reprice or mature in 90 days or less, with no significant change in credit risk, the fair value was assumed to equate to the carrying
amount in the Banking Group’s balance sheet.
Subsequent to initial recognition, the fair value of financial instruments measured at fair value is based on quoted market prices, whereavailable. In cases where quoted market prices are not available, fair values are based on present value estimates or other market acceptedvaluation techniques which include data from observable markets wherever possible.
The fair values are based on relevant information available as at the respective balance sheet dates. While judgement is used in obtaining thefair value of financial instruments, there are inherent weaknesses in any estimation technique. Many of the estimates involve uncertainties andmatters of significant judgement and changes in underlying assumptions could significantly affect these estimates.
In the tables below, classes of financial assets have been allocated into the following groups: amortised cost, financial assets at fair value
through profit or loss, derivatives in effective hedging relationships and available-for-sale financial assets. Similarly, each class of financial
liability has been allocated into three groups: amortised cost, financial liabilities at fair value through profit and loss and derivatives in effective
hedging relationships.
The significant accounting policies in Note 1 Accounting Policies describe how the categories of financial assets and financial liabilities aremeasured and how income and expenses, including fair value gains and losses, are recognised. The carrying amount and fair value of the Banking
Group’s financial assets and financial liabilities are also set out below.
A significant number of financial instruments are carried at fair value in the balance sheet. Additional disclosure of the fair value of thosefinancial instruments not carried at fair value has been provided below. The fair value disclosure does not cover those instruments that are notconsidered financial instruments from an accounting perspective such as income tax and intangible assets. The aggregate fair value amounts
do not represent the underlying value of the Banking Group.
FINANCIAL ASSETS
Liquid assets and due from other financial institutions
The carrying values of these financial instruments are considered to approximate their net fair values as they are short-term in nature or are
receivable on demand.
Trading securities
Trading securities are carried at fair value. Fair value is generally based on quoted market prices, broker or dealer price quotations, or prices forsecurities with similar credit risk, maturity and yield characteristics.
Derivative financial instruments
The fair values of derivative financial instruments are determined using market prices and market accepted valuation models as appropriate(including discounted cash flow models) based on current market yields for similar types of instruments and the maturity of each instrument.
Available-for-sale assets
Fair value is based on quoted market prices or broker or dealer price quotations. If this information is not available, fair value is estimated using
quoted market prices for securities with similar credit, maturity and yield characteristics, or market accepted valuation models as appropriate(including discounted cash flow models) based on current market yields for similar types of instruments and the maturity of each instrument.
Net loans and advances
The carrying value of loans and advances includes deferred fees and expenses, and is net of provision for credit impairment and income yet
to mature. The estimated fair value of loans and advances is based on the discounted amount of estimated future cash flows and accordingly
has not been adjusted for provision for credit impairment. Estimated contractual cash flows for performing loans are discounted at estimatedcurrent bank credit spreads to determine fair value. For loans with doubt as to collection, expected cash flows (inclusive of the value of security)
are discounted using a rate, which includes a premium for the uncertainty of the flows.
The difference between estimated fair values for loans and advances and their carrying value reflects changes in interest rates and the credit
worthiness of borrowers since loan origination.
Other financial assets
Included in this category are accrued interest and fees receivable. The carrying values of accrued interest and fees receivable are considered toapproximate their net fair values as they are short term in nature or are receivable on demand.
Financial assets designated at fair value through profit or loss
The Banking Group has not reclassified any financial assets previously measured at amortised cost to fair value, or previously measured at fairvalue to amortised cost, during the period ended 31 March 2008 (31 March 2007 nil; 30 September 2007 nil).

P A G E

8 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S ( continued )FINANCIAL LIABILITIESDue to other financial institutions
The carrying values of these financial instruments are considered to approximate their net fair values as they are short-term in nature or are
receivable on demand.
Deposits and other borrowings
The fair value of a deposit liability without a specified maturity or at call is deemed to be the amount payable on demand at the reporting date.
The fair value is not adjusted for any value expected to be derived from retaining the deposit for a future period of time.
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.
Bonds and notes, due to parent company and loan capital
The aggregate fair value of bonds and notes and loan capital is calculated based on quoted market prices. For those debt issues where quoted market
prices were not available, a discounted cash flow model using a yield curve appropriate for the remaining term to maturity of the debt instrument isused. The carrying value of the due to parent company balance is considered to approximate the fair value as it is repayable on demand.
Other financial liabilities
This category includes accrued interest and fees payable for which the carrying amount is considered to approximate the fair value.
Commitments and contingencies
As outlined in Note 43 Contingent Liabilities and Credit Related Commitments, the Banking Group and the Bank have various credit related
commitments. Based upon the level of fees currently charged for granting such commitments, taking into account maturity and interest rates,
together with any changes in the creditworthiness of counterparties since origination of the commitments, their estimated replacement or net
fair value is not material.
Financial liabilities designated at fair value through profit or loss
Certain items included in deposits and other borrowings have been designated as financial liabilities at fair value through profit or loss in order toeliminate an accounting mismatch which would arise if the liabilities were otherwise carried at amortised cost. This mismatch arises where a derivative,
which is required to be measured at fair value through profit or loss, has been acquired to mitigate a financial risk within the financial liability.
Deposits and other borrowings
At balance date, the carrying amount of deposits and other borrowings designated by the Banking Group at fair value through profit or loss was$10,938 million (31/03/2007 $5,565 million; 30/09/2007 $9,317 million). This is $5 million higher (31/03/2007 $5 million lower; 30/09/2007 $2
million lower) than their amortised cost.
The accumulated amount of the change in fair value attributable to changes in credit risk on these liabilities was less than $1 million (31/03/2007
less than $1 million; 30/09/2007 less than $1 million). The change in fair value attributable to changes in credit risk has been determined as theamount of change in fair value that is not attributable to changes in market conditions that give rise to market risks (benchmark interest rate, andforeign exchange rates).
The fair value amounts have not been updated for the purposes of these financial statements since 31 March 2008, and therefore the fair valueof the financial instruments subsequent to 31 March 2008 may be different from the amounts reported.

8 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S ( continued )Consolidated				At amortised cost
			
			
			
		 Loans and		 receivables
Carrying amount		
$m

Other
financialassets at
amortised		
cost
Sub-total$m$m

At fair value		
though		profit or loss
Hedging

Availablefor-saleassetsHeld fortrading			
$m
$m
$m

Total
$m

Financial assets
Unaudited 31/03/2008
Liquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments1		
Available-for-sale assets		
Net loans and advances2
Other financial assets		

92,579
-

3,863
1,281
891

3,863
1,281
92,579
891

2,149
4,471
-

394
-

2,609
96
-

3,863
3,890
2,149
4,865
96
92,579891

Total financial assets		

92,5796,035

98,614

6,620

394

2,705

108,333

Unaudited 31/03/2007
Liquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments1		
Available-for-sale assets		
Net loans and advances2		
Other financial assets		

82,258
-

5,741
2,330
712

5,741
2,330
82,258
712

1,917
2,718
-

323
-

737
45
2

5,741
3,067
1,917
3,041
45
82,258714

Total financial assets		

82,258

8,783

91,041

4,635

323

784

96,783

Audited 30/09/2007
Liquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments1		
Available-for-sale assets		
Net loans and advances2		
Other financial assets		

87,878
-

4,807
1,929
968

4,807
1,929
87,878
968

1,877
4,214
-

497
-

1,634
48
2

4,807
3,563
1,877
4,711
48
87,878970

Total financial assets		

87,878

7,704

95,582

6,091

497

1,684

103,854

The following table summarises the carrying amounts and fair values of those financial assets not presented in the Banking Group’s balance
sheet at their fair value:
Consolidated
Unaudited 31/03/2008
Unaudited 31/03/2007
			

Audited 30/09/2007

		Carrying
amount$m

Fair value$m

Carrying		
amountFair value$m$m

Carrying
amount$m

Fair value$mLiquid assets
Due from other financial institutions
Net loans and advances2
Other financial assets

3,863
1,281
92,579
891

3,863
1,281
92,377
891

5,741
2,330
82,258
712

5,741
2,330
81,807
712

4,807
1,929
87,878
968

4,807
1,929
87,607968

Total financial assets at amortised cost

98,614

98,412

91,04190,59095,582

95,311

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

P A G E

8 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S ( continued )		Consolidated
At amortisedcost

At fair value through profit or loss

Hedging		 Designated		
on initial		 recognition
Carrying amount		$m$mHeld fortrading$m

Sub-total		$m$mFinancial liabilities
Unaudited 31/03/2008
Due to other financial institutions		
Deposits and other borrowings		
Derivative financial instruments1		
Other financial liabilities		
Bonds and notes2		
Due to parent company		
Loan capital		

2,384
63,142
1,361
16,586
1,758
2,053

10,938-

4,223-

10,938
4,223
-

249
-

2,384
74,0804,472
1,361
16,586
1,758
2,053

Total financial liabilities		

87,284

10,938

4,223

15,161

249

102,694

Unaudited 31/03/2007
Due to other financial institutions		
Deposits and other borrowings		
Derivative financial instruments1		
Other financial liabilities		
Bonds and notes2		
Due to parent company		
Loan capital		

4,178
59,193
1,190
13,340
2,764
2,039

5,565
-

3,002
-

5,565
3,002
-

166
-

4,178
64,7583,168
1,190
13,3402,764
2,039

Total financial liabilities		

82,704

5,565

3,002

8,567

166

91,437

Audited 30/09/2007
Due to other financial institutions		
Deposits and other borrowings		
Derivative financial instruments1		
Other financial liabilities		
Bonds and notes2		
Due to parent company		
Loan capital		

3,170
60,713
1,087
14,607
2,775
2,062

9,317
-

4,748
-

9,317
4,748
-

176
-

3,170
70,0304,924
1,087
14,6072,775
2,062

Total financial liabilities		

84,414

9,317

4,748

14,065176

98,655Total$m

The following table summarises the carrying amounts and fair values of those financial liabilities not presented in the Banking Group’s balance
sheet at their fair value:
Consolidated
Unaudited 31/03/2008
Unaudited 31/03/2007
			

Audited 30/09/2007

		Carrying
amount$m

Fair value$m

Carrying		
amountFair value$m$m

Carrying
amount$m

Fair value$m

Due to other financial institutions
Deposits and other borrowings
Other financial liabilities
Bonds and notes2
Due to parent company
Loan capital

2,384
63,142
1,361
16,586
1,758
2,053

2,396
63,127
1,361
16,519
1,758
2,020

4,178
59,193
1,190
13,340
2,764
2,039

4,178
59,148
1,190
13,341
2,764
2,034

3,170
60,713
1,087
14,607
2,775
2,062

3,170
60,676
1,087
14,5852,775
2,038

Total financial liabilities at amortised cost

87,28487,181

82,70482,65584,41484,331

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

P A G E

9 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S ( continued )		Parent				At amortised cost
			
			
			
		 Loans and		 receivables
Carrying amount		$m

At fair value		
though		profit or loss
Hedging

Otherfinancialassets at
amortised		
cost
Sub-total$m$m

Availablefor-saleassetsHeld fortrading			
$m
$m
$m

Total
$m

Financial assets
Unaudited 31/03/2008
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Net loans and advances2
Due from subsidiary companies
Other financial assets

90,171
-

3,863
846
1,506
808

3,863
846
90,171
1,506
808

2,149
4,471
-

394
-

2,609
86
-

3,863
3,455
2,149
4,865
86
90,171
1,506
808

Total financial assets

90,171

7,023

97,194

6,620

394

2,695

106,903

Unaudited 31/03/2007
Liquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments1		
Available-for-sale assets		
Net loans and advances2		
Due from subsidiary companies		
Other financial assets		

78,570
-

5,740
1,843
1,543
606

5,740
1,843
78,570
1,543
606

1,916
2,743
-

323
-

737
35
-

5,740
2,580
1,916
3,066
35
78,570
1,543
606

Total financial assets		

78,5709,732

88,302

4,659

323

772

94,056

Audited 30/09/2007
Liquid assets		Due from other financial institutions		
Trading securities		
Derivative financial instruments1		
Available-for-sale assets		
Net loans and advances2		
Due from subsidiary companies		
Other financial assets		

84,044
-

4,807
1,467
1,585
852

4,807
1,467
84,044
1,585
852

1,877
4,215
-

490
-

1,634
38
-

4,807
3,101
1,877
4,705
38
84,044
1,585
852

Total financial assets		

84,044

8,711

92,755

6,092

490

1,672

101,009

The following table summarises the carrying amounts and fair values of those financial assets not presented in the Bank’s balance sheet attheir fair value:
ParentUnaudited 31/03/2008
Unaudited 31/03/2007
			

Audited 30/09/2007

		Carrying
amount$m

Fair value$m

Carrying		
amountFair value$m$m

Carrying
amount$m

Fair value$mLiquid assets
Due from other financial institutions
Net loans and advances2
Due from subsidiary companies
Other financial assets

3,863
846
90,171
1,506
808

3,863
846
89,956
1,506
808

5,740
1,843
78,570
1,543
606

5,740
1,843
78,123
1,543
606

4,807
1,467
84,044
1,585
852

4,807
1,467
83,7801,585
852

Total financial assets at amortised cost

97,19496,97988,30287,85592,75592,491P A G E

9 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S ( continued )		ParentAt amortisedcost

At fair value through profit or loss

		 Designated		
on initial		 recognition
Carrying amount		$m$mHeld fortrading$m

Hedging

Sub-total		
$m
$m

Total
$m

Financial liabilities
Unaudited 31/03/2008
Due to other financial institutions		
Deposits and other borrowings		
Due to subsidiary companies		
Derivative financial instruments1		
Other financial liabilities		
Bonds and notes2		
Due to parent company		
Loan capital		

1,432
61,37937,078
1,146
579
1,758
2,053

-

4,196
-

4,196
-

249
-

1,432
61,37937,078
4,445
1,146
579
1,758
2,053

Total financial liabilities		

105,425

-

4,196

4,196

249

109,870

Unaudited 31/03/2007
Due to other financial institutions		
Deposits and other borrowings		
Due to subsidiary companies		
Derivative financial instruments1		
Other financial liabilities		
Bonds and notes2		
Due to parent company		
Loan capital		

1,741
56,61830,185
924
509
2,764
2,039

-

3,027
-

3,027
-

138
-

1,741
56,61830,185
3,165
924
509
2,764
2,039

Total financial liabilities		

94,780

-

3,027

3,027

138

97,945

Audited 30/09/2007
Due to other financial institutions		
Deposits and other borrowings		
Due to subsidiary companies		
Derivative financial instruments1		
Other financial liabilities		
Bonds and notes2		
Due to parent company		
Loan capital		

1,686
58,51432,942
741
561
2,775
2,062

-

4,748
-

4,748
-

148
-

1,686
58,51432,942
4,896
741
561
2,775
2,062

Total financial liabilities		

99,281

-

4,748

4,748

148

104,177

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

9 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 6 .	FA I R VA L U E O F F I N A N C I A L A S S E T S A N D F I N A N C I A L L I A B I L I T I E S ( continued )The following table summarises the carrying amounts and fair values of those financial liabilities not presented in the Bank’s balance sheet attheir fair value:
ParentUnaudited 31/03/2008
Unaudited 31/03/2007
			

Audited 30/09/2007

		Carrying
amount$m

Fair value$m

Carrying		
amountFair value$m$m

Carrying
amount$m

Fair value$m

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

1,432
61,37937,078
1,146
579
1,758
2,053

1,432
61,36837,031
1,146
536
1,758
2,020

1,741
56,61830,185
924
509
2,764
2,039

1,741
56,57830,185
924
509
2,764
2,034

1,686
58,51432,942
741
561
2,775
2,062

1,686
58,48232,931
741
550
2,775
2,038

Total financial liabilities at amortised cost

105,425

105,291

94,78094,73599,281

99,203

2. Fair value hedging is applied to financial assets within loans and advances and financial liabilities within bonds and notes. The resulting fair value adjustment means that the carrying value
differs from the amortised cost.

3 7 . S E G M E N TA L A N A LYS I S

For segment reporting purposes, the Banking Group is organised into three major business segments - Retail Banking, Relationship Banking andInstitutional. Centralised back office and corporate functions support these segments.
A summarised description of each business segment is shown below:
Retail Banking
Provides banking products and services to individuals and small businesses through separate ANZ and The National Bank branded distribution
channels and UDC. Personal banking customers have access to a wide range of financial services and products. Small business banking services
are offered to enterprises with annual revenues of less than $5 million. Included in this segment is Private Banking, a stand-alone business unit,
which offers a fully inclusive banking and investment service to high net worth individuals. This segment also includes profit centres supporting
the Retail Banking segment (e.g. Direct Banking and the ING NZ joint venture). UDC is primarily involved in the financing and leasing ofequipment, plant and machinery for small and medium sized businesses.
Relationship Banking
This segment provides services to rural, commercial and corporate customers. A full range of banking products and services are provided to
Rural customers. Corporate and Commercial customers consist of primarily privately owned medium to large businesses with annual revenuesof $2 million and greater. The Banking Group’s relationship with these businesses ranges from simple banking requirements with revenue from
deposit and transactional facilities, and cashflow lending, to more complex funding arrangements with revenue sourced from a wider range of
products.
Institutional
Comprises businesses that provide a full range of financial services to the Banking Group’s client base. The Institutional business unit is madeup of the following specialised units:•

Institutional - provides financial services to large multi-banked corporates, often global, who require sophisticated product and structuringsolutions.

•

Corporate Finance - provides complex financing and advisory services, structured financial products, leasing, private equity, project, export
and leveraged finance and infrastructure.

•

Markets - provides foreign exchange and commodity trading and sales-related services, origination, underwriting, structuring, risk
management and sale of credit and derivative products globally.

•

Working Capital - provide cash management, trade finance, international payments, clearing and custodian services.

Other
Includes Treasury and back office support functions, none of which constitutes a separately reportable segment. Truck Leasing Limited(trading as Esanda FleetPartners) is classified as a discontinued operation, and is included in the “Other” segment.
As the composition of segments has changed over time, prior period comparatives have been adjusted to be consistent with the 2008
segment definitions.

P A G E

9 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 7 . S E G M E N TA L A N A LYS I S ( continued )Consolidated

			 Relationship		Retail Banking
Banking			$m$mInstitutional
$m

Other
$m

Total
$m

Unaudited 6 months to 31/03/2008
Continuing operations1, 2External interest income			External interest expense			
Net intersegment interest			

2,404(1,267)
(467)

1,422
(315)
(794)

968
(911)
(10)

(1,163)
1,271

4,794
(3,656)-

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

670
251
12

313
36
-

47
219
1

108
(13)
83

1,138
493
96

Operating income			
Other external expenses			
Net intersegment and related party expenses3			

933
309
175

349
66
47

267
40
33

178
218
(216)

1,727
633
39

Operating expenses			

484

113

73

2

672

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

449
60

236
18

194
16

176
(1)

1,055
93

Profit before income tax			
Income tax expense			

389
123

218
72

178
51

177
24

962
270

Profit after income tax			

266

146

127

153

692

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

-

-

-

-

-

Profit after income tax			

266

146

127

153

692

Non-cash expenses
Depreciation and amortisation			

8

-

1

13

22

55,776201
38,52031,416
9,310

21,256
61
21,5644,066
88
33,739112,514350
103,133

Balance sheet
Total external assets		
Share in associates and jointly controlled entities		
Total external liabilities		
1. Results are equity standardised
2. Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3. Net intersegment expenses are eliminated at the ultimate parent bank level.

9 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 7 . S E G M E N TA L A N A LYS I S ( continued )Consolidated
			 Relationship		Retail Banking
Banking			$m$mInstitutional
$m

Other
$m

Total
$m

Unaudited 6 months to 31/03/2007
Continuing operations1, 2External interest income			External interest expense			
Net intersegment interest			

1,996
(987)
(378)

1,137
(245)
(611)

780
(690)
11

10
(894)
978

3,923
(2,816)-

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

631
233
10

281
32
-

101
119
1

94
27
-

1,107
411
11

Operating income			
Other external expenses			
Net intersegment and related party expenses3			

874
303
175

313
57
48

221
37
28

121
222
(217)

1,529
619
34

Operating expenses			

478

105

65

5

653

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

396
26

208
11

156
(6)

116
(1)

876
30

Profit before income tax			
Income tax expense			

370
118

197
65

162
47

117
57

846
287

Profit after income tax			

252

132

115

60

559

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

-

-

-

76

76

Profit after income tax			

252

132

115

136

635

Non-cash expenses
Depreciation and amortisation			

8

-

1

23

32

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

49,504
177
34,936

26,893
8,124

20,432
11
22,2633,867
226,481

100,696
190
91,804

1. Results are equity standardised
2. Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3. Net intersegment expenses are eliminated at the ultimate parent bank level.

P A G E

9 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

3 7 . S E G M E N TA L A N A LYS I S ( continued )Consolidated

			 Relationship		Retail Banking
Banking			$m$mInstitutional
$m

Other
$m

Total
$m

Audited year to 30/09/2007
Continuing operations1, 2External interest income			External interest expense			
Net intersegment interest			

4,204(2,094)
(814)

2,419
(526)
(1,311)

1,668(1,507)7

18(1,932)
2,118

8,309
(6,059)-Net interest income			
Other external operating income			
Share of profit of equity accounted associates and jointly controlled entities		

1,296
476
22

582
66
-

168
265
2

204
30
-

2,250
837
24

Operating income			
Other external expenses			
Net intersegment and related party expenses3			

1,794
623
348

648
122
96

435
73
58

234
442
(431)

3,111
1,260
71

Operating expenses			

971

218

131

11

1,331

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

823
57

430
21

304
(3)

223
(1)

1,780
74

Profit before income tax			
Income tax expense			

766
245

409
136

307
91

224
142

1,706
614

Profit after income tax			

521

273

216

82

1,092

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

-

-

-

76

76

Profit after income tax			

521

273

216

158

1,168

Non-cash expenses
Depreciation and amortisation			

14

1

1

39

55

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

52,614
189
36,78729,488
8,611

21,66515
25,5864,020
228,100107,787
206
99,084

Geographic segment analysis
The Banking Group operates predominantly in New Zealand. No other geographic segments are reportable secondary segments.
1. Results are equity standardised
2. Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3. Net intersegment expenses are eliminated at the ultimate parent bank level.

9 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 8 . N OT E S TO T H E C A S H F L OW S TAT E M E N T S

Consolidated				

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

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

692

635

1,168

459

425

1,776

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

22
93
5
7
28

32
30
7
21

55
74
3
12
45

10
86
4
7
28

13
29
(1)
7
21

25
75
1
12
45

Deferrals or accruals of past or future operating
cash receipts or payments:
Increase in operating assets and liabilities		Decrease (increase) in interest receivable		
Increase in interest payable
Increase in accrued income		(Decrease) increase in accrued expenses		
Decrease in provisions		
Amortisation of premiums and discounts		
(Increase) decrease in income tax assets		
(Decrease) increase in income tax liabilities		

(3,568)
23
7
(6)
(8)
(11)
25
(20)
(32)

(2,023)
(38)
63
(23)
(18)
32
69
42

(4,731)
(94)
242
(1)
28
(9)
46
39
62

(3,324)
(7)
51
(6)
(7)
(7)
25
(93)
(32)

(1,229)
(31)
67
(25)
(16)
32
14
44

(4,699)
(104)
166
(1)
25
(4)
46
30
64

Items classified as investing/financing:
Share of profit of equity accounted associates andjointly controlled entities		
Gain on disposal of controlled entities		
Gain on disposal of associates and jointly controlled entities		
Loss (gain) on disposal of premises and equipment		

(96)
1

(11)
(76)
-

(24)
(76)
(2)
-

(96)
-

(11)
-

(22)
(1)

Net cash flows used in operating activities		

(2,838)(1,258)(3,163)(2,902)(661)(2,566)

Reconciliation of core liquidity portfolio to cash and cash equivalents
The Banking Group’s core liquidity portfolio held for managing liquidity risk comprises:
Consolidated		NoteTotal liquidity portfolio

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

32

6,591

6,052

6,168

6,591

6,052

6,168

Add back:
Liquid assets
Due from other financial institutions - less than 90 days

7
8

1,692
663

1,700
1,845

1,873
1,233

1,692
662

1,699
1,843

1,873
1,231

Deduct:Trading securities
Available-for-sale assets
Due from other financial institutions - greater than 90 days

9
12
8

(1,626)(1,770)(1,274)(277)(1,378)(1)(765)(1,626)(1,770)(1,274)(277)(1,378)(1)(765)

Total cash and cash equivalents		

5,550

8,046

7,130

5,549

8,043

7,128

1

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

P A G E

9 7

For personal use only

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

P A G E

3 9 . C O N T RO L L E D E N T I T I E S , A S S O C I AT E S A N D I N T E R E S T S I N J O I N T LY C O N T RO L L E D E N T I T I E S
Controlled entities

Ownership
Interest %Airlie Investments Limited
Alos Holdings Limited
ANZ Capital NZ Limited
ANZ Investment Services (New Zealand) Limited
ANZ National (Int’l) Limited
ANZ National Staff Superannuation Limited
APAC Investments Limited
Arawata Assets Limited
Arawata Capital Limited
Arawata Finance Limited
Arawata Funding Limited
Arawata Holdings Limited
Arawata Securities Limited
Arawata Trust
Arawata Trust Company
BHI Limited
CBC Finance Limited (incorporated in United Kingdom)
Control Nominees Limited
Cortland Finance Limited
Corvine Investments Limited
Culver Finance Limited
Direct Broking Limited
Direct Nominees Limited
EFTPOS New Zealand Limited
Endeavour Finance Limited
Endeavour Securities Limited
General Finance Custodians Limited
Harcourt Corporation Limited
Harcourt Investments Limited
Karapiro Investments Limited
Marmion Trust
National Bank of New Zealand Custodians Limited
NBNZ Finance Limited
NBNZ Holdings Hong Kong Limited (incorporated in Hong Kong)
NBNZ Holdings Limited
Origin Mortgage Management Services Limited
Pioneer First Limited
Private Nominees Limited
Radiola NZ Limited
Rural Growth Fund Limited
Sefton Finance Limited
South Pacific Merchant Finance Limited
Southpac Corporation Limited
Technical Solutions Limited
Trillium Holdings Limited
Tui Endeavour Limited
Tui Securities Limited
UDC Finance Limited

9 8

100
100
100
100
100
100
65
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

Balance
Dates

Nature of business

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

Investment company
Investment company
Investment company
Funds management company
Finance company
Staff superannuation scheme trustee
Finance company
Property company
Investment company
Investment company
Investment company
Investment company
Finance company
Finance entity
Investment company
Investment company
Finance company
Finance company
Investment company
Investment company
Investment company
On-line share broker
Non operative
Eftpos service provider
Investment company
Investment company
Mortgage finance
Investment company
Investment company
Non operative
Finance entity
Nominee and custody services
Finance company
Non operative
Finance company
Mortgage financeMortgage financeNominee company
Investment company
Investment company
Investment company
Investment company
Investment company
Software provider
Finance company
Investment company
Investment company
Finance company

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 9 . C O N T RO L L E D E N T I T I E S , A S S O C I AT E S A N D I N T E R E S T S I N J O I N T LY C O N T RO L L E D E N T I T I E S ( continued )All controlled entities are incorporated in New Zealand, unless stated.
For all controlled entities, with the exception of General Finance Custodians Limited, Origin Mortgage Management Services Limited andPioneer First Limited, the ownership interest percentage equates to the voting power held. In relation to these companies, control exists throughthe Banking Group having 100% of the voting rights.
In relation to Marmion Trust, control exists through the undertaking of the majority of variability of risks and rewards.
Movements in controlled entities
On 7 November 2007, the Banking Group exited its controlling interest in Amberley Investments (50% ownership).
On 7 November 2007, the Banking Group exited its controlling interest in Endeavour Caterpillar New Zealand Finance Company (50% ownership).
On 3 December 2007, Radiola NZ Limited was incorporated as a subsidiary of the Banking Group, and on 23 May 2008 changed its name toRadiola Corporation Limited.
On 8 January 2008, the Banking Group exited its controlling interest in Nerine Finance No. 2 (65% ownership).
On 5 March 2008, the Banking Group purchased a 100% interest in Technical Solutions Limited.
On 11 April 2008, Pioneer First Limited changed its name to Origin Mortgage Management Services (2008) Limited.
		Book Value Voting
Ownership$mInterest % Interest %Balance
Dates

Nature of business

Cards NZ Limited
Electronic Transaction Services Limited
EXCCL Limited
Mondex New Zealand Limited
NZ Poultry Enterprises Limited
UCG Investments Limited
Wyma Engineering (NZ) Limited

86
2
40
12
2

30 Sep31 Mar30 Sept
31 Dec30 Apr
31 Mar
31 March

Card services
Eftpos settlements
Plastics manufacturing and recycling
Card services
Poultry processor
Rest home operator
Agricultural machinery supplier

Total investment in associates

142

Associates

25
25
45
40
20
42
31

15
25
81
40
20
42
31

All associates are incorporated in New Zealand.
Movements in associates
On 25 February 2008, ANZ Capital NZ Limited acquired a 20% ownership interest in NZ Poultry Enterprises Limited.
		Book Value Voting
Ownership$mInterest % Interest %Balance
Dates

Nature of businessArgenta Limited
BCS Group Limited
ING (NZ) Holdings Limited
JMI Aerospace Limited

2
4
201
1

31 Jul30 Jun31 Dec31 MarManufacture and marketing of animal remedies
Manufacturer of baggage handling systems
Funds management and insurance
Airline maintenance and service provider

Total investment in jointly controlled entities

208

Jointly controlled entities

24
40
50
33

24
40
49
33

All jointly controlled entities are incorporated in New Zealand.
The Banking Group has joint control of all these entities due to a combination of control factors, none of which gives either party overall control.

P A G E

9 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

3 9 . C O N T RO L L E D E N T I T I E S , A S S O C I AT E S A N D I N T E R E S T S I N J O I N T LY C O N T RO L L E D E N T I T I E S ( continued )The summarised financial information relating to the Banking Group’s investment in ING (NZ) Holdings Limited is as follows:			Consolidated/Parent

				
				
					

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Share of assets and liabilities
Investments					Other assets					

82
159

81
156

81
160

Total assets					

241

237

241

Life insurance policy liabilities					Other liabilities					

12
9

31
10

22
11

Total liabilities					

21

41

33

Net assets					

220

196

208

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

30
14

26
14

49
29

Total revenue					Expenses					

44
34

40
30

78
56

Profit before income tax					Income tax expense					

10
(2)

10
-

22
-

Profit after tax					

12

10

22

Share of commitments
Lease commitments					

4

2

4

There are no unrecognised losses in respect of any of the Banking Group’s jointly controlled entities. The Banking Group’s share of thecontingent liabilities of its joint ventures are incurred jointly with other investors. There were no contingent liabilities as at 31 March 2008
(31/03/2007 $nil; 30/09/2007 $nil).

4 0 . PA R E N T C O M PA N Y A N D U LT I M AT E PA R E N T C O M PA N Y

The Parent Company is ANZ Holdings (New Zealand) Limited which is incorporated in New Zealand. The Ultimate Parent Company is Australia
and New Zealand Banking Group Limited which is incorporated in Australia.

4 1 . S E C U R I T I S AT I O N , F U N D S M A N A G E M E N T, OT H E R F I D U C I A RY A C T I V I T I E S A N D T H E M A R K E T I N G A N D D I S T R I B U T I O N O F
I N S U R A N C E P RO D U C T S

Securitisation
The Banking Group has not securitised any of its own assets. The Banking Group is involved in providing banking services to customers who
securitise assets.
Funds management
Certain subsidiaries of the Bank act as trustee and/or manager for a number of unit trusts and investment and superannuation funds. The Bank
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 owned by the Banking Group, they are not included in these financial statements. The Banking Group
derives fee and commission income from the sale and management of investment funds and superannuation bonds, unit trusts and theprovision of private banking services to a number of clients.
Some funds under management are invested in products owned or securities issued by the Banking Group and are recorded as liabilities in thebalance sheet. At 31 March 2008, $1,140 million of funds under management were invested in the Banking Group’s own products or securities(31/03/2007 $1,020 million; 30/09/2007 $1,035 million).
Funds management activities conducted by the ING New Zealand joint venture are not included in the funds managed by the Banking Group,as the Banking Group does not have control of the ING New Zealand joint venture.

P A G E

1 0 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

4 1 . S E C U R I T I S AT I O N , F U N D S M A N A G E M E N T, OT H E R F I D U C I A RY A C T I V I T I E S A N D T H E M A R K E T I N G A N D D I S T R I B U T I O N O F
I N S U R A N C E P RO D U C T S ( C ontinued )The aggregate value of funds managed by the Banking Group at balance date was:			Consolidated

				
				
					

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Superannuation schemes					Bonus Bonds					Discretionary funds					

2,459
2,033

4
2,420
1,865

3
2,488
2,045

Totals funds under management					

4,492

4,289

4,536

On 1 October 2007, the Direct Broking Call Account was registered as a portfolio investment entity (PIE).
On 25 March 2008, the UDC Superbonds Superannuation Scheme managed by UDC Finance Limited was wound up.
On 1 April 2008, the National Bank Call Fund, Private Banking Portfolio Call Fund and National Bank Private Banking Call Fund, all managed by
ANZ Investments Services (New Zealand) Limited, commenced as PIEs. The funds invest in call deposits with the Bank.
On 9 April 2008, the Term Maximiser Fund and Call Maximiser Fund managed by UDC Finance Limited commenced as PIEs. The funds invest in
secured debentures with UDC Finance Limited.
Custodial services
The Banking Group provides custodial services to customers in respect of assets that are beneficially owned by those customers.
Marketing and distribution of insurance products
The Banking Group markets and distributes a range of insurance products which are underwritten by several insurance companies. These
activities are managed in association with the ING New Zealand joint venture.
Insurance business
The Banking Group does not conduct any insurance business directly, although the Banking Group holds a 49% share in the ING NZ joint
venture which does conduct insurance business.
Provision of financial services
Financial services provided by the Banking Group to entities which are involved in trust, custodial, funds management and other fiduciary
activities, and to affiliated insurance companies which conduct marketing or distribution of insurance products, or on whose behalf themarketing or distribution of insurance products are conducted, are provided on arm’s length terms and conditions and at fair value. Any assets
purchased from such entities have been purchased on an arm’s length basis and at fair value.
The 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; origination of securitised assets;marketing or servicing of securitisation schemes; marketing and distribution of insurance products during the quarter ended 31 March 2008
(31/03/2007 $nil; 30/09/2007 $nil).
Risk management
The Bank and subsidiaries 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 considered that these policies and procedures will minimise thepossibility that these conditions will adversely impact the Bank. The policies and procedures include comprehensive and prominent disclosureof information regarding products, and formal and regular review of operations and policies by management and auditors.
In addition, the following measures have been taken to manage any risk to the Bank of marketing and distributing insurance products:
Investment statements, prospectuses and brochures for insurance products include disclosures that the Bank and its subsidiaries do notguarantee the insurer, nor the insurer’s subsidiaries, nor any of the products issued by the insurer or the insurer’s subsidiaries.
Where the insurance products are subject to the Securities Act 1978, investment statements, prospectuses and brochures additionally
include disclosures that:• the policies do not represent deposits or other liabilities of the Bank or its subsidiaries;• the policies are subject to investment risk, including possible loss of income and principal; and• the Bank and its subsidiaries do not guarantee the capital value or performance of the policies.
Application forms for insurance products contain acknowledgements to be signed by a purchaser which are consistent with the disclosures
for insurance products noted above.
In addition, the following measures have been taken to manage any risk to the Bank of marketing and distributing fund management products:
Prospectuses, investment statements and brochures for funds management products include disclosures:• that the securities do not represent deposits or other liabilities of the Bank;• that the securities are subject to investment risk including possible loss of income and principal invested; and• that the Bank does not guarantee the capital value or performance of the securities.
Application forms for funds management products contain acknowledgements to be signed by a purchaser which are consistent with thedisclosures for funds management products noted above.

P A G E

1 0 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E

42. COMMITMENTS

Consolidated				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

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

20

16

15

-

-

1

Total capital expenditure commitments		

20

16

15

-

-

1

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

83
164
27

84
162
29

85
163
32

18
25
-

22
37
-

20
28
-

Total lease rental commitments		

274

275

280

43

59

48

Total commitments		

294

291

295

43

59

49

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

4 3 . C O N T I N G E N T L I A B I L I T I E S A N D C R E D I T R E L AT E D C O M M I T M E N T S

For contingent exposures, the maximum exposure to credit risk is the maximum amount that the Banking Group would have to pay if thecontingent is called upon. For undrawn facilities, the maximum exposure to credit risk is the full amount of the committed facilities.
			Face or contract value

				
				
					

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Credit related commitments
Consolidated
Commitments with certain drawdown due within one year					Commitments to provide financial services					1,38524,5802,375
20,102

1,074
20,751

Total credit related commitments				

25,96522,477

21,825

ParentCommitments with certain drawdown due within one year					Commitments to provide financial services					1,38524,361

2,375
19,897

1,074
20,483

Total credit related commitments					25,74622,272

21,557

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

2,107
380
567
315

1,815
362
371
150

1,933
528
398
123

Total contingent liabilities					

3,369

2,698

2,982

ParentFinancial guarantees					Standby letters of credit					Transaction related contingent items					Trade related contingent liabilities					

2,107
380
567
310

1,815
362
371
148

1,933
528
398
119

Total contingent liabilities					

3,364

2,696

2,978

Contingent liabilities

1 0 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

4 3 . C O N T I N G E N T L I A B I L I T I E S A N D C R E D I T R E L AT E D C O M M I T M E N T S ( continued )The Banking Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties, including its
ultimate parent company. The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers, therefore
these transactions are subjected to the same credit origination, portfolio management and collateral requirements for customers applying forloans. As the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements.
The detailed and estimated maximum amount of contingent liabilities that may become payable are set out below.
Contingent tax liability
As previously disclosed, the New Zealand Inland Revenue Department (‘IRD’) is reviewing a number of structured finance transactions as part ofan audit of the 2000 to 2005 tax years. This is part of an industry-wide review by the IRD of these transactions undertaken in New Zealand.
The Bank has received Notices of Proposed Adjustment (the ‘Notices’) in respect of some of these transactions. The Notices are formal advice
that the IRD is proposing to amend tax assessments. The Notices are not tax assessments and do not establish a tax liability but are the firststep in a formal disputes process.
As expected in March 2008 the IRD issued amended tax assessments as a follow up to the Notices in respect of four of these transactions for the
2003 tax year (prior to that tax year becoming statute-barred). We expect assessments for the 2003 income year for a further two transactions.
The IRD has previously issued tax assessments as a follow up to the Notices in respect of two transactions for the 2000 tax year, four transactions
for the 2001 tax year and five transactions in respect of the 2002 income year (in each case prior to that tax year becoming statute-barred).
Proceedings disputing the amended tax assessments with respect to the 2000, 2001 and 2002 tax years have been commenced.
Based on the independent tax and legal advice obtained, the Bank is confident that the tax treatment it has adopted for these transactions andall similar transactions is correct.
The tax adjustments proposed so far by the IRD cover the 2000 to 2005 tax years and imply a maximum potential liability of $224 million($332 million with interest tax effected).
The IRD is also investigating other transactions undertaken by the Banking Group, which have been subject to the same tax treatment. Should
the same position be taken by the IRD for all years on all these transactions, including those that the Notices cover, the maximum potential
liability would be approximately $365 million ($523 million with interest tax effected) as at 31 March 2008.
Of the maximum potential tax liability in dispute, it has been estimated that approximately $99 million ($147 million with interest tax
effected) is subject to indemnities given by Lloyds TSB Bank plc under the agreement by which the Bank acquired the NBNZ Holdings Limited
Group, and which relate to transactions undertaken by NBNZ Group before December 2003.
This leaves a net potential tax liability as at 31 March 2008 of $266 million ($376 million with interest tax effected).
All of these transactions have now either matured or been terminated.
Commerce Commission
In November 2006, the Commerce Commission brought proceedings under the Commerce Act 1986 against Visa, MasterCard and all New
Zealand issuers of Visa and MasterCard credit cards, including ANZ National Bank Limited. The Commission alleges price fixing and substantiallylessening competition in relation to the setting of credit card interchange fees and is seeking penalties and orders under the Commerce Act.
Subsequently, several major New Zealand retailers have issued proceedings against ANZ National Bank Limited and the other abovementioned
defendants seeking unquantified damages, based on allegations similar to those contained in the Commerce Commission proceedings.
ANZ National Bank Limited is defending the proceedings. Based on independent legal advice the Bank considers it has a strongly arguable case,but the matter is complex and difficult. At this stage any potential liabilities cannot be assessed with any certainty. A trial has been scheduled
for October 2009.
ING New Zealand Funds
The Bank markets and distributes a range of wealth management products which are managed by ING (NZ) Limited (of which the Bank holds49%). Trading in the ING Diversified Yield Fund and the ING Regular Income Fund was suspended on 13 March 2008 by the fund manager, ING(NZ) Limited, due to the deterioration in liquidity in credit markets.
The matter is being reviewed by both the Bank and ING (NZ) Limited and it is too early to assess the nature or quantum of any, if any,potential liability.
Other contingent liabilities
The Banking Group has other contingent liabilities in respect of actual and potential claims and proceedings. An assessment of the Banking
Group’s likely loss in respect of these matters has been made on a case-by-case basis and provision made where appropriate. As at 31 March
2008, there were no other contingent assets or liabilities required to be disclosed (31/03/2007 nil; 30/09/2007 nil).

P A G E

1 0 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E4 4 . E M P L OY E E S H A R E A N D O P T I O N P L A N S

The Banking Group participates in the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan operated by the ANZ. Any sharesor options granted under these plans are shares in Australia and New Zealand Banking Group Limited.
The closing market price of one ordinary share of ANZ quoted on the ASX (Australian Stock Exchange) at 31 March 2008 was A$22.55(31/03/2007 A$29.70; 30/09/2007 A$29.70).
ANZ EMPLOYEE SHARE ACQUISITION PLAN
The ANZ Employee Share Acquisition Plan includes the A$1,000 Share Plan, the Deferred Share Plan and the Restricted Share Plan.
A$1,000 share plan
Each permanent employee who has had continuous service for one year with the Banking Group is eligible to participate in a scheme enabling
the issue of up to A$1,000 of shares of ANZ in each financial year, subject to the approval of the Ultimate Parent Bank Board. The shares vest
subject to satisfaction of a three year service period but may be forfeited in the event of resignation or termination for serious misconduct.
On expiration of that period, an employee may sell the shares, transfer them into their name, or have them retained in trust. The issue price isbased on the one-day volume weighted average price (‘VWAP’) of the shares traded on the ASX on the date of issue.
The Banking Group’s employees are required to pay NZ 1 cent per share at the time the shares are transferred to them. During the six months to
31 March 2008, 267,523 shares with an average issue price of A$27.96 were issued under the A$1,000 Share Plan (31/03/2007 269,025 shareswith an average issue price of A$27.88 were issued; 30/09/2007 269,025 shares with an average issue price of A$27.88 were issued).
Deferred share plan
The Banking Group’s last issue of shares under this plan was in November 2004. Selected employees were issued deferred shares, which vest
subject to satisfaction of a minimum three year service period from the date of issue. Ordinary shares issued under this plan may be heldin trust for up to 10 years, and may be required to meet performance hurdles before being able to be traded after the restriction period has
expired. The issue price is based on the VWAP of the shares traded on the ASX in the five trading days leading up to and including the date ofissue. Unvested shares are forfeited on resignation or dismissal, or if a performance condition has not been met.
Restricted share plan
Restricted Shares are available to selected employees and are issued under the ANZ Employee Share Acquisition Plan. Selected employees havethe option to take some (or all) of their incentive payment as Restricted Shares. The shares are held in trust and may not be traded until theconclusion of the one-year restriction period, after which they may be transferred into the employees name. Until they are transferred into theemployees name, they continue to be subject to forfeiture on termination for serious misconduct.
Shares valuations
The fair value of services received in return for shares in the ANZ Employee Share Acquisition Plan are measured by referring to the fair valueof ANZ shares granted. The fair value of shares granted in the current period, measured at the date of grant of the shares, is NZ $8.5 million
based on 267,523 shares at a weighted average price of A$27.96 converted at the exchange rate of 0.8809 (31/03/2007 NZ $9 million basedon 269,025 shares at a weighted average price of A$27.88 converted at the exchange rate of 0.8391 were issued; 30/09/2007 NZ $9 million
based on 269,025 shares at a weighted average price of A$27.88 converted at the exchange rate of 0.8391 were issued).
The average issue price of shares granted and the number of shares that are expected to ultimately vest to the employees at the end of thevesting period are used to calculate the fair value of shares. No dividends are incorporated into the measurement of the fair value of shares.
ANZ SHARE OPTION PLAN
Selected employees may be granted options, which entitle them to purchase ordinary fully paid shares in ANZ at a price fixed at the time when
the options were issued. Voting and dividend rights will be attached to the unissued ordinary shares when the options have been exercised.
Each option entitles a holder to purchase one ordinary share subject to any terms and conditions imposed on issue. The exercise price of theoptions (excluding zero-priced options) is determined in accordance with the rules of the plan, and is based on the weighted average price of
the Ultimate Parent Bank’s shares traded during the five business days preceding the date of granting the options.
The main schemes of the ANZ Share Option Plan are as follows:
Current option plans
Performance rights planThis scheme is a long term incentive program available to certain Banking Group employees since November 2005 and grants the right toacquire ANZ shares at nil cost, subject to a three year vesting period and a Total Shareholder Return (TSR) performance hurdle. The proportionof rights that will become exercisable will depend upon the TSR achieved by ANZ relative to the companies in the comparator group, which
consists of selected major financial services companies in the Standard & Poor’s and ASX 100 Index. Performance equal to the median TSRof the comparator group will result in half the rights becoming exercisable. Performance above the median will result in further performancerights becoming exercisable, increasing on a straight line basis until all of the rights become exercisable where ANZ’s TSR is at or above the75th percentile in the comparator group.

1 0 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

4 4 . E M P L OY E E S H A R E A N D O P T I O N P L A N S ( continued )The TSR hurdle will only be tested once at the end of the three-year vesting period. If the rights do not pass the hurdle on testing date, or ifthey pass the hurdle on testing date and are not exercised by the end of five years from the grant date, the rights will lapse. In the case of
resignation or termination on notice, only rights that become exercisable by the end of the notice period may be exercised. A grace period
is provided in which to exercise the rights. All other rights will lapse. In the case of retrenchment or retirement, performance rights will be
performance tested at the date of termination and where performance hurdles have been met, performance rights will be pro-rated and a grace
period provided in which to exercise the rights. In case of death or total and permanent disablement, a grace period is provided in which toexercise all performance rights.
Deferred share rights
This scheme is a short term incentive program available to certain Banking Group employees since November 2004 and grants the right toacquire ANZ shares at nil cost after a specified vesting period ranging from one to three years. Deferred share rights must be exercised by
the seventh anniversary of grant date. In the case of resignation, only rights that become exercisable by the end of the notice period may be
exercised. A grace period is provided in which to exercise the rights. All other rights will lapse. In the case of termination on notice, retrenchment,
retirement, death or total and permanent disablement, a grace period is provided in which to exercise all performance rights.
Legacy Option Plans
Performance options planThis scheme is a long term incentive program available to certain Banking Group employees. The options can only be exercised after a threeyear vesting period and before the seventh anniversary of the grant date. There are no other performance conditions attached to these options.
All unexercised options are generally forfeited on resignation but any options to which the Banking Group employee is entitled will need to
be exercised within a specified period of termination. On retrenchment, entitlements to options will be pro-rated over the three year vesting
period. On death or total and permanent disablement, all unvested options will become available for exercise. No further performance options
have been granted to Banking Group employees after November 2005.
Zero-price options (ZPO)A ZPO is a right to acquire an ANZ share at nil cost and is granted to certain employees as part of their employment contracts. The ZPO’s haveno time based vesting criteria, so can be exercised at any time during employment and within 6 months of termination of employment. ZPO’s
must be exercised within two years of grant date or they lapse.
Other past option plans which are no longer available to the Banking Group’s employees, but continue to be amortised during their appropriate
vesting periods are hurdled options and index linked options (ILOs).
Details of the options over unissued ANZ ordinary shares and their related weighted average exercise prices as at the beginning and end of theperiod and movements during the period are set out below:
		Consolidated/Parent

31/03/2008
31/03/2007
30/09/2007
		 Weighted		Weighted		Weighted		
average		
average 		
average
Numberexercise
Numberexercise
Numberexercise1
1of shares
priceof shares
priceof shares
price1
			
A$		
A$		
A$

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

1,616,716
354,082(99,489)(52,865)

13.93
19.59
15.92

1,668,436
293,864(153,990)(15,801)

17.49
17.38
18.60

1,668,436
318,921(339,782)(30,859)

17.49
17.53
19.67

Share options at end of the period

1,818,444

10.99

1,792,509

14.57

1,616,716

13.93

Weighted average share price during the period		
26.02		28.49		28.83Range of exercise prices on share options at end of the period
0.00 - 23.49		0.00 - 23.49		0.00 - 23.49
Weighted average remaining contractual life on share options
at end of the period
			43 months		 50 months		 46 months
1. Calculation of weighted average exercise prices are affected by performance rights, deferred share rights and ZPO plans which have nil exercise prices.

P A G E

1 0 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

4 4 . E M P L OY E E S H A R E A N D O P T I O N P L A N S ( continued )Options valuations
The fair value of services received in return for share options are measured by referring to the fair value of ANZ share options granted. The fairvalue of options granted in the current period, measured at the date of grant are calculated using one of the following models:(a) Monte-Carlo simulation model utilising the assumptions underlying Black-Scholes. In terms of factoring in early exercise, the model
assumes that deferred share rights and performance rights are exercised as soon as they vest so that the option holder can benefit fromthe dividends. It assumes that the performance options are exercised when the share price reaches twice the exercise price; or(b) an adjusted form of the Binomial Option pricing model (“BOM”). In terms of factoring in early exercise, the model assumes that the
expected life of vanilla options is 5 years, performance rights is 4 years and that deferred share rights are exercised immediately to accountfor lack of marketability.
In addition, both models are designed such that they take into account as appropriate, any performance hurdles and non-transferability ofthe options.
All options issued in 2008 were valued using the BOM pricing model.
The following inputs are used to measure the fair value of instruments granted during the period. For each instrument, the model used (a or b)
is indicated. All prices are quoted in Australian dollars:					
Option type				LTI deferred
STI deferredshare rights (b) share rights (b)Grant date				Number of Options				
Option value				Exercise price (5 day VWAP)				
Share price at grant				
ANZ expected volatility2				
Option term				
Vesting period				Expected life				Expected dividends				Risk free interest rate				9-Nov-2007
161,011$24.49$nil$27.9515%
5 years
3 years
3 years
4.50%
6.69%

Performancerights (b)9-Nov-2007 30-Oct-2007
15,758177,313$25.59$12.30$nil$nil$27.95$29.6915%
15%
5 years
5 years
2 years
3 years
2 years
4 years
4.50%
4.50%
6.77%
6.63%

2. Expected volatility is based on ANZ’s historic volatility.

4 5 . R E T I R E M E N T B E N E F I T O B L I G AT I O N S

The Banking Group has established a number of pension and superannuation schemes. The Banking Group may be obliged to contribute to theschemes as a consequence of legislation and provision of trust deeds. Legal enforceability is dependent on the terms of the legislation and trust
deeds. The major schemes are:Contribution levels
Employee

Contribution levels
Employer

Defined Benefit Scheme2orDefined Contribution Scheme

Nil

Balance of cost4

2.5% minimum of salary

7.5% of salary6

Defined Benefit SchemeorDefined Contribution Scheme

5% of salary

Balance of cost5

2.0% minimum of salary

11.2% of salary7

SchemeScheme type

ANZ National Bank Staff Superannuation Scheme1

The National Bank Staff Superannuation Fund

13

1. These schemes provide for pension benefits and provide for lump sum benefits.
2. Closed to new members on 31 March 1990. Operates to make pension payments to retirees who were members of that section of the scheme or to dependents of the members.
3. Closed to new members on 1 October 1991.
4. 31/03/2008: $nil (31/03/2007 $nil; 30/09/2007 $nil).
5. 31/03/2008: 22.3% (31/03/2007 22.3%; 30/09/2007 22.3%) of members’ salaries.
6. 31/03/2008: 7.5% (31/03/2007 7.5%; 30/09/2007 7.5%) of members’ salaries.
7. 31/03/2008: 11.2% (31/03/2007 11.2%; 30/09/2007 11.2%) of members’ salaries.

P A G E

1 0 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

4 5 . R E T I R E M E N T B E N E F I T O B L I G AT I O N S ( continued )Details of the defined benefit schemes are as follows:
Actuarial valuations are undertaken every six months. The latest valuations were carried out as at 31 March 2008.
			

Consolidated/Parent

				
				
					

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

The amounts recognised in the balance sheet arising from the Banking Group’s
obligation in respect of its defined benefit schemes are determined as follows:
Defined benefit obligation at beginning of the period					Current service cost					Interest cost					Contributions by scheme participants					Actuarial (gains) losses					Benefits paid					

181
2
6
(5)
(7)

190
2
6
1
3
(7)

190
4
12
1
(10)
(16)

Present value of funded defined benefit obligations					

177

195

181

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

189
5
(17)
2
(7)

196
5
12
2
1
(7)

196
11
(7)
4
1
(16)

Fair value of scheme assets					

172

209

189

Net defined benefit (liability) asset recognised on balance sheet				

(5)

14

8

The fair value of scheme assets include cash deposits and fixed interest investments of $2 million with the Banking Group as at 31 March 2008
(31/03/2007 $5 million; 30/09/2007 $7 million).
The amounts recognised in the income statement in respect of defined benefit
schemes are as follows:
Current service cost					Interest cost					Expected return on scheme assets (net of tax)					Contribution withholding tax					

2
6
(5)
-

2
6
(5)
-

4
12
(11)
1

Total pension costs recognised in the income statement - defined benefit superannuation schemes		

3

3

6

4
3

The actuarial gains and losses recognised directly in equity via the statement of recognised income and expense are as follows:

Actuarial gains (pre-tax) at beginning of the period					Actuarial (loss) gain (pre-tax) incurred during the period					

7
(12)

4
9

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

(5)

13

7

Income tax credit (expense) recognised directly in equity					

2

(4)

(2)

Balance of actuarial (losses) gains at end of the period					

(3)

9

5

P A G E

1 0 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)P A G E4 5 . R E T I R E M E N T B E N E F I T O B L I G AT I O N S ( continued )The principal actuarial assumptions used were as follows:
The National Bank		
Staff Superannuation Fund				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007

ANZ National Bank
Staff Superannuation Scheme
Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007

Defined benefits calculation
Discount rate (gross of tax)
Future price inflation
Future pension increases
Future salary increases

6.4%
2.5%
2.5%
3.7%

6.0%
2.5%
2.5%
3.0%

6.5%
2.5%
2.5%
3.7%

6.4%
2.5%
2.5%
n/a

6.0%
2.5%
2.5%
n/a

6.5%
2.5%
2.5%
n/a

Scheme assets calculation
Expected return on scheme assets (net of tax)

5.5%

5.5%

5.5%

4.5%

4.5%

4.5%

The overall expected return on scheme assets is determined by reference to market expectations, at the beginning of the relevant period, ofasset performance applicable to the period over which the defined benefit obligation is to be settled. The overall expected return on scheme
assets reflects an aggregation of the expected returns on the underlying asset classes.
The actual return on scheme assets (net of tax) for The National Bank Staff Superannuation Fund was -6.0% for the six months ended 31 March
2008 (31/03/2007 4.2%; 30/09/2007 6.5%). The actual return on scheme assets (net of tax) for the ANZ National Bank Staff Superannuation
Scheme was -5.0% for the six months ended 31 March 2008 (31/03/2007 2.6%; 30/09/2007 6.1%).
The investment return on scheme assets is taxed at 33% (31/03/2007 33%; 30/09/2007 33%).
The major categories of scheme assets as a percentage of the fair value of scheme plan assets are as follows:
The National Bank		
Staff Superannuation Fund				

Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007

ANZ National Bank
Staff Superannuation Scheme
Unaudited
Unaudited
Audited31/03/2008 31/03/2007 30/09/2007

Cash and short term debt instruments
New Zealand fixed interest
Overseas fixed interest
New Zealand equities
Overseas equities
Property

16.3%
22.1%
16.6%
8.8%
36.2%
0.0%

15.0%
22.0%
16.0%
12.0%
35.0%
0.0%

15.7%
22.2%
16.5%
8.9%
36.7%
0.0%

14.0%
22.9%
23.1%
7.5%
26.7%
5.8%

18.0%
18.0%
23.0%
7.0%
28.0%
6.0%

13.2%
23.1%
23.3%
7.1%
28.0%
5.3%

		

100.0%

100.0%

100.0%

100.0%

100.0%

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

Consolidated/Parent
Unaudited
Audited
Audited
Audited31/03/2008 30/09/2007 30/09/2006 30/09/2005
$m
$m
$m
$m

Defined benefit obligation					Fair value of scheme assets					

(177)
172

(181)
189

(190)
196

(187)
195

Net benefit asset					

(5)

8

6

8

Experience adjustments on scheme liabilities					Experience adjustment on scheme assets					

(4)
(17)

(1)
(7)

3
5

11

1 0 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

4 5 . R E T I R E M E N T B E N E F I T O B L I G AT I O N S ( continued )Employer contributions
To ensure the defined benefit schemes remain solvent, the schemes’ independent actuaries recommend an employer contribution rate
to the Banking Group, annually for The National Bank Staff Superannuation Fund and every three years for the ANZ National Bank Staff
Superannuation Scheme. The funding methods and current contribution rates of the individual schemes are determined in accordance with NZ
IAS 26 Accounting and Reporting by Retirement Benefit Plans (‘NZ IAS 26’) for annual periods beginning on or after 1 January 2007.
The National Bank Staff Superannuation Fund deficit was valued at $5.5 million in the most recent actuarial valuation at 1 April 2007 determinedin accordance with FRS-32: Financial Reporting by Superannuation Schemes (‘FRS-32’). The ANZ National Bank Staff Superannuation Scheme
surplus was valued at $0.2 million in the most recent actuarial valuation at 31 December 2004 determined in accordance with FRS-32. The
valuations for the annual periods beginning on or after 1 January 2007 are currently being completed in accordance with NZ IAS 26.
The Banking Group expects to contribute $4 million (net of contributions withholding tax) to its defined benefit schemes in the period to 31
September 2008 (30/09/2007 $4 million). Employer contributions are taxed at a rate of 33% (31/03/2007 33%; 30/09/2007 33%).
Contingent liabilities
The National Bank Staff Superannuation Fund
The Banking Group has no present liability under the Fund’s Trust Deed to fund the deficit, but it does have a contingent liability if the Fund waswound up. Under the Fund’s Trust Deed, if this scheme were wound up, the Banking Group is required to pay the Trustee of the Fund an amountsufficient to ensure members do not suffer a reduction in benefits to which they would otherwise be entitled.
ANZ National Bank Staff Superannuation Scheme
If the Scheme is wound up then its assets must be cashed up and applied to all members’ benefits. If Scheme funds are insufficient to pay all
members’ benefits then the Banking Group must pay to the Scheme such amounts as the Scheme Actuary determines are necessary to pay
those benefits.

4 6 . R E L AT E D PA RT Y T R A N S A C T I O N S

Consolidated				

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$’000
$’000
$’000

ParentUnaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$’000
$’000
$’000

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

5,584
180
96
1,409

4,941
168
82
1,050

10,407
315
106
2,144

5,355
175
76
1,393

4,701
166
64
1,038

9,929
315
87
2,124

Total compensation of key management personnel		

7,269

6,241

12,972

6,999

5,969

12,455Loans to key management personnel		

6,362

8,279

6,202

6,362

8,279

6,202

Deposits from key management personnel		

5,355

3,699

2,666

5,343

3,692

2,649

Loans made to and deposits held by key management personnel (including personally related parties) are made in the course of ordinary businesson 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. No
provision for credit impairment has been recognised for loans made to key management personnel (31/03/2007 $nil; 30/09/2007 $nil).
All other transactions with key management personnel (including personally related parties) are conducted on an arm’s length basis in theordinary course of business and on commercial terms and conditions. These transactions principally consist of the provision of financial andinvestment services.
Key management personnel is defined as those persons having authority and responsibility for planning, directing and controlling the activitiesof the entity, directly or indirectly, including directors (whether executive or otherwise).

P A G E

1 0 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SNOTES TO THE FINANCIAL STATEMENTS

For personal use only

(CONTINUED)

4 6 . R E L AT E D PA RT Y T R A N S A C T I O N S ( continued )Transactions with the Parent Company, Ultimate Parent Company and subsidiaries
Details of amounts provided by/to the Parent Company, Ultimate Parent Company and subsidiaries of the Banking Group during the ordinary
course of business are set out in the relevant notes to these financial statements. No provision for credit impairment has been recognised during
the six months ended 31 March 2008 (31/03/2007 $nil; 30/09/2007 $nil).
Consolidated				

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Interest income- Subsidiary companies		- Parent Company		- Ultimate Parent Company		

-

7
2

13
4

25
-

29
7
2

84
13
4

Interest expense- Subsidiary companies		- Parent Company		- Ultimate Parent Company		

90
109

100
89

211
202

1,315
90
38

974
100
27

2,210
211
57

Operating expenses- Subsidiary companies		
- Ultimate Parent Company		

39

34

71

51
39

47
34

96
71

Transactions with associates and joint venture entities
During the period the Banking Group conducted transactions with associates and joint venture entities on normal commercial terms andconditions as shown below:
Consolidated				

Unaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

ParentUnaudited
Unaudited
Audited
6 months to 6 months toYear to31/03/2008 31/03/2007 30/09/2007
$m
$m
$m

Amounts receivable- associates		
- joint venture entities		

188
49

25
29

14
56

2

18
11

14

Amounts payable- associates		

87

-

-

87

-

-

Interest income- associates		
- joint venture entities		

2
2

5

1
8

1

3

4

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

12
1

10
1

23
1

12
1

10
1

23
1

The Banking Group provides general administrative, strategic and governance services to ING (NZ) Limited under a Technical Services Agreement.
The Banking Group provided registry services to the ING NZ joint venture in connection with the business of ING Managed Funds (NZ) Limited
until 31 December 2006. The Banking Group provided payroll, tax accounting and compliance services, and premises in connection with andfor the purpose of ING Insurance Services (NZ) Limited and ING Managed Funds (NZ) Limited. All provision of these services ceased from5 March 2007.
A provision for credit impairment of $6 million is recognised for amounts outstanding from associates as at 31 March 2008 (31/03/2007$9million; 30/09/2007 $7 million). A credit impairment loss of $1 million was recovered during the six months ended 31 March 2008
(31/03/2007 $nil; 30/09/2007 $1 million charged).

47. SUBSEQUENT EVENTS

On 18 April 2008, ANZ National Bank Limited issued perpetual callable subordinated bonds of NZD 835 million. Interest is payable half
yearly 18 April and 18 October. The Bank may elect to repay the bonds on 18 April 2013 or 18 April 2018, and on any interest payment date
subsequent to 18 April 2008.
P A G E

1 1 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

DIRECTORATE AND AUDITORS

D irectorate and A uditors

The address to which any document or communication may be sent to any Director is ANZ National Bank Limited, Level 14, 215-229 Lambton
Quay, PO Box 1492, Wellington, New Zealand. The document or communication should be marked for the attention of that Director.
Directors’ Interests
In order to ensure that members of the Board are reminded of their disclosure obligations under the Companies Act 1993, the following
procedures are adopted:a) At least once in each year, Directors are requested to complete, in terms of section 140(1) of the Companies Act 1993, a disclosure of any
interests which they have with the Bank itself. Directors are reminded at this time of their obligation under the Companies Act 1993 todisclose promptly any transaction or proposed transaction with the Bank in which they have an interest.
b) Directors are also requested to make a general disclosure of their interest in other entities in terms of section 140(2) of the Companies Act
1993. In addition, they are requested to initiate a review of that disclosure if there are any significant alterations which occur subsequently
during the period.
In addition to the written disclosures referred to in paragraphs (a) and (b) above, Directors disclose relevant interests which they have before
discussion of particular business items.
The Companies Act 1993 (subject to any different provision in the Bank’s Constitution) allows a Director with an interest in a transaction toparticipate in discussions and to vote on all matters relating to that particular transaction. The Bank’s Constitution does not alter that situation.
However, the Board has adopted a guideline whereby a Director with an interest in a transaction should not be present during any discussions,and should not vote, on any matter pertaining to that particular transaction.
Transactions with Directors
No Director has disclosed that he or any immediate relative or professional associate has any dealing with the Banking Group which has been
either entered into on terms other than those which would in the ordinary course of business be given to any other person of like circumstancesor means or which could otherwise be reasonably likely to influence materially the exercise of the Director’s duties as a Director of the Bank.
Changes in Directorships
There have been no changes to the Bank’s Board of Directors since the authorisation date of the previous Disclosure Statement on 14 February
2008.

B oard M embers as at 1 9 J une 2 0 0 8

Independent Non-Executive Director, Chairman
Sir Dryden Spring
DSc
Company Director
Matamata, New Zealand
Directorships
Director: Sky City Entertainment Group Limited, Port of Tauranga Limited, Fletcher Building Limited, Fletcher Building Finance Limited, Northport
Limited

Executive Director
Graham Kennedy Hodges
BEc (Hons)
Chief Executive
ANZ National Bank Limited
Wellington, New Zealand
Directorships
Director: ANZ Holdings (New Zealand) Limited, Banking Ombudsman Scheme Limited

P A G E

1 1 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

DIRECTORATE AND AUDITORSFor personal use only

(CONTINUED)

Non-Executive Directors
Dr Robert John Edgar
Ph.D, BEc (Hons)
Senior Managing Director
Australia and New Zealand Banking Group Limited
Melbourne, Australia

Peter Ralph Marriott
BEc (Hons), FCA
Chief Financial Officer
Australia and New Zealand Banking Group Limited
Melbourne, Australia

Directorships
Chairman: Esanda Finance Corporation Limited, ING Australia Limited
Director: ANZ Insage Pty Limited, ANZ Royal Bank (Cambodia)
Limited, ANZ Specialist Asset Management Limited, Tianjin City
Commercial Bank, AMMB Holdings Berhad, ANZ Business Equity
Fund Limited (Alternate Director)

Directorships
Director: ANZ Capital Hedging Pty Limited, ANZ (Delaware) Inc.,ANZ Holdings (New Zealand) Limited, Esanda Finance Corporation
Limited, ANZEST Pty Limited, ANZ Funds Pty Limited, ANZ
Investment Holdings Pty Limited, ANZ Investments Pty Limited, LFD
Limited, ANZ Orchard Investments Pty Limited, RFDL Pty Limited,
Ballimore Pty Limited, ANZ GPSC No.1 Pty Limited, NZ GPSC No.2
Pty Limited, NZ GPSC No.3 Pty Limited, NZ GPSC No.4 Pty Limited

Michael Roger Pearson Smith, OBE
BSc (Hons)
Chief Executive Officer
Australia and New Zealand Banking Group Limited
Melbourne, Australia
Directorships
Director: Australia and New Zealand Banking Group Limited

Independent Non-Executive Directors
Norman Michael Thomas Geary, CBE
B Com, FACA, FNZIM, FCIT
Company Director
Auckland, New Zealand

Dr Donald Thomas Brash
MA EconCompany Director
Auckland, New Zealand

Directorships
Director: Fisher & Paykel Appliances Holdings Limited,
Otago Innovation Limited, DB Breweries Limited

Directorships
Director: Brash Forestry Limited, Eljeans Orchard Limited, Brash Family
Trust Nominees Limited, Huljich Limited, Huljich (New Zealand)
Limited, Huljich Wealth Management (New Zealand) Limited,
Brash Consultancy Services Limited, Ocean Group Holdings Limited,
Ocean Partners Limited

Audit Committee Members as at 19 June 2008
N M T Geary (Chairman)
Independent Non-Executive Director
Sir Dryden Spring
Independent Non-Executive Director
Dr D T Brash
Independent Non-Executive Director
P R Marriott
Non-Executive Director
The Audit Committee, which is a sub-committee of the Board, has responsibility for reviewing and approving the published financial statements.
The Audit Committee Charter provides that the membership of the Audit Committee shall be not less than three non-executive Directors. The
quorum shall be not less than two non-executive Director members.

Auditors
KPMG
Chartered Accountants
10 Customhouse Quay
P O Box 996
Wellington, New ZealandP A G E

1 1 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

CONDITIONS OF REGISTRATION

Conditions of Registration, applicable as at 19 June 2008. These Conditions of Registration have applied from 31 March 2008.
The Bank’s Conditions of Registration were revised on 31 March 2008 and 16 June 2008 in order to implement a new set of capital adequacy
conditions for banks that have adopted the internal models based approach to capital adequacy and to correct the definition of the Parent Bank
capital ratios respectively. The conditions that were amended were conditions 1, 1A, 1B, 1C and 4. This has resulted in changes to the Banking
Group’s capital adequacy disclosures (refer to Note 31 Capital Adequacy).
The registration of ANZ National Bank Limited (‘the Bank’) as a registered bank is subject to the following conditions:1.

That the Banking Group complies with the following requirements:(a) the total capital ratio of the Banking Group calculated in accordance with the Reserve Bank of New Zealand document “Capital
adequacy framework (internal models based approach)” (BS2B) dated March 2008 is not less than 8%;(b) the tier one capital ratio of the Banking Group calculated in accordance with the Reserve Bank of New Zealand document “Capital
adequacy framework (internal models based approach)” (BS2B) dated March 2008 is not less than 4%; and(c) the capital of the Banking Group calculated in accordance with the Reserve Bank of New Zealand document “Capital adequacy
framework (internal models based approach)” (BS2B) dated March 2008 is not less than $15 million.
For the purposes of this condition of registration the scalar referred to in the Reserve Bank of New Zealand document “Capital adequacy
framework (internal models based approach)” (BS2B) dated March 2008 is 1.06.
For the purposes of this condition of registration, the supervisory adjustment referred to in the Reserve Bank of New Zealand document“Capital adequacy framework (internal models based approach)” (BS2B) dated March 2008 is the sum of:(a) 15% of risk-weighted exposures secured by residential mortgages as defined in the Reserve Bank of New Zealand document “Capital
adequacy framework (internal models based approach)” (BS2B) dated March 2008; and(b) 12.5 times the greater of: zero; and 90% of adjusted Basel I capital, less adjusted Basel II capital; where(i) “adjusted Basel I capital” means 8% of total risk-weighted exposures, plus deductions from tier one capital, plus deductions fromtotal capital, all calculated in accordance with the Reserve Bank of New Zealand document “Capital adequacy framework (Basel I
approach)” (BS2) dated March 2008;(ii) “adjusted Basel II capital” means 8% of total Basel II risk-weighted exposures plus deductions from tier one capital, plus deductions
from total capital, less any amount included in tier two capital arising from the excess of eligible allowances for impairment overEL (expected losses), all calculated in accordance with the Reserve Bank of New Zealand document “Capital adequacy framework(internal models based approach)” (BS2B) dated March 2008; and(iii) “total Basel II risk-weighted exposures” means scalar x (risk-weighted on and off balance sheet credit exposures) + 12.5 x total
capital charge for market risk exposure + 12.5 x total capital requirement for operational risk + 15% of risk-weighted exposures
secured by residential mortgages as defined in the Reserve Bank of New Zealand document “Capital adequacy framework (internal
models based approach)” (BS2B) dated March 2008.

1A. That (a) the Bank has an internal capital adequacy assessment process (“ICAAP”); that with effect from 31 August 2008 the Bank’s ICAAP
accords with the requirements set out in the document “Guidelines on a Bank’s internal capital adequacy process (“ICAAP”)” (BS12)
dated December 2007;(b) under its ICAAP the Bank identifies and measures its “other material risks” defined as all material risks of the Banking Group that are
not explicitly captured in the calculation of tier one and total capital ratios under the requirements set out in the document “Capital
adequacy framework (internal models based approach)” (BS2B) dated March 2008; and(c) the Bank determines an internal capital allocation for each identified and measured “other material risk”.
1B. That the Banking Group complies with all requirements set out in the Reserve Bank of New Zealand document “Capital adequacy framework(internal models based approach)” (BS2B) dated March 2008.
1C. That the Bank complies with the following requirements:
The total capital ratio of the Bank is not less than 8 %.
The tier one capital ratio of the Bank is not less than 4%.
For the purposes of this condition of registration:•

the total capital ratio is defined as capital as a percentage of risk-weighted exposures where capital and risk-weighted exposures are
as defined in the Reserve Bank of New Zealand document “Capital adequacy framework (Basel I approach)” (BS2) dated March 2008;
and•the tier one capital ratio is defined as tier one capital as a percentage of risk-weighted exposures where tier one capital and riskweighted exposures are as defined in the Reserve Bank of New Zealand document “Capital adequacy framework (Basel I approach)”(BS2) dated March 2008.

2. That the Banking Group does not conduct any non-financial activities that in aggregate are material relative to its total activities, where
the term material is based on generally accepted accounting practice, as defined in the Financial Reporting Act 1993.

P A G E

1 1 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SCONDITIONS OF REGISTRATION

For personal use only

(CONTINUED)

3. That the Banking Group’s insurance business is not greater than 1% of its total consolidated assets. For the purposes of this condition:(i) Insurance business means any business of the nature referred to in section 4 of the Insurance Companies (Ratings and Inspections)
Act 1994 (including those to which the Act is disapplied by sections 4(1)(a) and (b) and 9 of that Act), or any business of the naturereferred to in section 3(1) of the Life Insurance Act 1908;(ii) In measuring the size of the Banking Group’s insurance business:(a) where insurance business is conducted by any entity whose business predominantly consists of insurance business, the size of that
insurance business shall be:•

The total consolidated assets of the group headed by that entity;•

Or if the entity is a subsidiary of another entity whose business predominantly consists of insurance business, the total
consolidated assets of the group headed by the latter entity;(b) otherwise, the size of each insurance business conducted by any entity within the Banking Group shall equal the total liabilities
relating to that insurance business, plus the equity retained by the entity to meet the solvency or financial soundness needs of theinsurance business;(c) the amounts measured in relation to parts a) and b) shall be summed and compared to the total consolidated assets of the Banking
Group. All amounts in parts a) and b) shall relate to on balance sheet items only, and shall be determined in accordance withgenerally accepted accounting practice, as defined in the Financial Reporting Act 1993;(d) where products or assets of which an insurance business is comprised also contain a non-insurance component, the whole of suchproducts or assets shall be considered part of the insurance business.
4. That the aggregate credit exposures (of a non-capital nature and net of any allowances for impairment) of the Banking Group to all
connected persons do not exceed the rating-contingent limit outlined in the following matrix:
Credit Rating1

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

AA/Aa2 and above

75

AA-/Aa3

70

A+/A1

60

A/A2

40

A-/A3

30

BBB+/Baa1 and below

15

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

Within the rating-contingent limit, credit exposures (of a non-capital nature and net of any allowances for impairment) to non-bankconnected 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 inaccordance with the Reserve Bank of New Zealand document entitled ‘Connected exposures policy’ (BS8) dated March 2008.
5. That exposures to connected persons are not on more favourable terms (e.g. as relates to such matters as credit assessment, tenor, interest
rates, amortisation schedules and requirement for collateral) than corresponding exposures to non-connected persons.
6. That the board of the Bank contains at least two independent directors and that alternates for those directors, if any, are also independent.
In this context an independent director (or alternate) is a director (or alternate) who is not an employee of the Bank, and who is not a
director, trustee, or employee of any holding company (as that term is defined in section 5 of the Companies Act 1993) of the Bank, or any
other entity capable of controlling or significantly influencing the Bank.
7. That the chairperson of the Bank’s board is not an employee of the Bank.
8. That the Bank’s constitution does not include any provision permitting a director, when exercising powers or performing duties as a director,
to act other than in what he or she believes is the best interests of the company (i.e. the Bank).
9. That a substantial proportion of the Bank’s business is conducted in and from New Zealand.
10. That no appointment of any director, chief executive officer, or executive who reports or is accountable directly to the chief executive
officer, shall be made in respect of the Bank unless:(i) The Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee, and(ii) The Reserve Bank has advised that it has no objection to that appointment.

P A G E

1 1 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E SCONDITIONS OF REGISTRATION

For personal use only

(CONTINUED)

11. That the Bank has legal and practical ability to control and execute any business, and any functions relating to any business, of the Bank
that are carried on by a person other than the Bank, sufficient to achieve, under normal business conditions and in the event of stress or
failure of the Bank or of a service provider to the Bank, the following outcomes:(a) that the Bank’s clearing and settlement obligations due on a day can be met on that day;(b) that the Bank’s financial risk positions on a day can be identified on that day;(c) that the Bank’s financial risk positions can be monitored and managed on the day following any failure and on subsequent days; and(d) that the Bank’s existing customers can be given access to payments facilities on the day following any failure and on subsequent days.
For the purposes of this condition of registration, the term “legal and practical ability to control and execute” is explained in the Reserve
Bank of New Zealand document entitled ‘Outsourcing Policy’ (BS11) dated January 2006.
Until 30 June 2008, functions provided to the Bank by Electronic Transaction Services Limited and Interchange and Settlement Limited are
not covered by this condition.
12. (a) That the business and affairs of the Bank are managed by, or under the direction and supervision of, the board of the Bank.
(b) That the employment contract of the chief executive officer of the Bank or person in an equivalent position (together “CEO”) is with
the Bank, and the terms and conditions of the CEO’s employment agreement are determined by, and any decision relating to theemployment or termination of employment of the CEO are made by, the board of the Bank.
(c) That all staff employed by the Bank shall have their remuneration determined by (or under the delegated authority of) the board or
the CEO of the Bank and be accountable (directly or indirectly) to the CEO of the Bank.
For the purposes of these conditions of registration, the term ‘Banking Group’ means ANZ National Bank Limited’s financial reporting group(as defined in section 2(1) of the Financial Reporting Act 1993).

P A G E

1 1 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

CREDIT RATING INFORM ATIONP A G E

Credit Ratings applicable as at 19 June 2008
The Bank has three current credit ratings, which are applicable to its long-term senior unsecured obligations which are payable in New Zealandin New Zealand dollars. The credit ratings are:Standard & Poor’s

AA

Moody’s Investors Service

Aa2

Fitch RatingsAA-

The Standard & Poor’s rating was issued on 22 February 2007. On this date Standard & Poor’s revised the Bank’s rating to AA from AA-.
There have been no other changes in the credit rating issued in the past two years ended 31 March 2008. The rating is not subject to any
qualifications.
The Moody’s Investors Service was issued on 4 May 2007. On this date Moody’s Investors Service revised the Bank’s rating to Aa2 from Aa3.
There have been no other changes in the credit rating issued in the past two years ended 31 March 2008. The rating is not subject to any
qualifications.
Fitch Ratings was formally engaged by the Bank on 18 March 2008 to provide credit rating services. Previously Fitch Ratings had rated the Bankon an unsolicited basis as AA- and this rating was last affirmed on 26 October 2007. The rating is not subject to any qualifications.
Standard &Poor’sMoody’s
Investors
Service

Fitch Ratings

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

AAA

Aaa

AAA

The following grades display investment grade characteristics:

Very strong ability to repay principal and interest.

AA

Aa

AA

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

A

A

A

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

BBB

Baa

BBB

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

BB

Ba

BB

Greater vulnerability and therefore greater likelihood of default.

B

B

BB

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

CCC

Caa

CCC

CC to CCa to CCC to CD-

RD & DThe following grades have predominantly speculative characteristics:

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 withinthe ‘AA’ to ‘B’ categories. Moody’s Investors Service applies numerical modifiers 1, 2, and 3 to each of the ‘Aa’ to ‘Caa’ classifications, with 1
indicating the higher end and 3 the lower end of the rating category.

1 1 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

DIRECTORS’ STATEMENT

D irectors ’ S tatement

As at the date on which this Disclosure Statement is signed, after due enquiry, each Director believes that:(i) The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statement (Full and Half-Year New Zealand Incorporated Registered Banks) Order 2008;(ii) The Disclosure Statement is not false or misleading.
Over the six months ended 31 March 2008, after due enquiry, each Director believes that:(i) ANZ National Bank Limited has complied with the Conditions of Registration;(ii) Credit exposures to connected persons were not contrary to the interests of the Banking Group;(iii) ANZ National Bank Limited had systems in place to monitor and control adequately the Banking Group’s material risks, including credit
risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk and other business risks, and that those systems
were being properly applied.
This General Disclosure Statement is dated, and has been signed by or on behalf of all Directors of the Bank on, 19 June 2008. On
that date, the Directors of the Bank were:

Dr D T Brash

Dr R J Edgar

N M T Geary, CBE

G K Hodges

P R Marriott

M R P Smith, OBE

Sir Dryden Spring

P A G E

1 1 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

INDEPENDENT RE VIE W REPORT
for the six months ended 31 March 2008

I ndependent R e v ie w R eport to t h e D irectors o f A N Z N ational B ank L imited

We have reviewed the interim financial statements on page 4 to 110 prepared and disclosed in accordance with Clause 23 of the Registered
Bank Disclosure Statement (Full and Half-Year – New Zealand Incorporated Registered Banks) Order 2008 (the ‘Order’) and the supplementary
information prescribed in Schedules 4 to 9 and Clause 17 of Schedule 3 of the Order. The interim financial statements, and supplementary
information, provide information about the past financial performance and cash flows of ANZ National Bank Limited (the ‘Registered Bank’)
and its subsidiary companies (the ‘Banking Group’) and their financial position as at 31 March 2008. This information is stated in accordancewith the accounting policies set out on pages 10 to 18.
D irectors ’ responsibilities	

The Directors of ANZ National Bank Limited are responsible for the preparation and presentation of interim financial statements in accordancewith clause 23(2) of the Order which give a true and fair view of the financial position of the Registered Bank and Banking Group as at 31 March
2008 and their financial performance and cash flows for the six months ended on that date.
They are also responsible for the preparation of supplementary information which:• gives a true and fair view, in accordance with Clause 23 of the Order, of the matters to which it relates; and• complies with Schedules 3 to 9 of the Order.
R e v ie w ers ’ responsibilities

We are responsible for reviewing the interim financial statements, including the supplementary information disclosed in accordance with Clause
23, Schedules 4 to 9, and Clause 17 of Schedule 3 of the Order and presented to us by the Directors.
In respect to the interim financial statements we are responsible for reviewing these financial statements in order to state whether, on the basisof the procedures described below, anything has come to our attention that would indicate that the interim financial statements do not present
a true and fair view of the matters to which they relate, and for reporting our findings to you.
In respect to the supplementary information we note Clause 3(b) of Schedule 1 of the Order refers to expressing a “true and fair view”. “Trueand fair view” only has meaning in the context of the financial statements because of their prescribed basis of preparation, i.e. generally
accepted accounting practice (“GAAP”). This supplementary information does not and is not intended to comply with GAAP. As a result, weare responsible for reviewing the supplementary information in order to state whether, on the basis of the procedures described below, anything
has come to our attention that would indicate that the supplementary information does not fairly state the matters to which it relates, andfor reporting our findings to you.
B asis o f re v ie w opinion

We have performed our review in accordance with the review engagement standard RS-1 Statement of Review Engagement Standards issued
by the New Zealand Institute of Chartered Accountants. A review is limited primarily to enquiries of Banking Group personnel and analyticalreview procedures applied to the financial data, and thus provides less assurance than an audit. We have not performed an audit and, accordingly,
we do not express an audit opinion.
Our firm has also provided other services to the Registered Bank and Banking Group in relation to other audit related services. Partners and employees
of our firm may also deal with the Registered Bank and Banking Group on normal terms within the ordinary course of trading activities of the businessof the Registered Bank and Banking Group. There are, however, certain restrictions on borrowings which the partners and employees of our firm canhave with the Registered Bank and Banking Group. These matters have not impaired our independence as auditors of the Registered Bank and Banking
Group. The firm has no other relationship with, or interest in, the Registered Bank and Banking Group.
R e v ie w O pinion

Based on our review, which is not an audit, nothing has come to our attention that would cause us to believe that:(a)		the interim financial statements (excluding the supplementary information included in Notes 31, 33, 34 and 41) do not present a true andfair view of the financial position of the Registered Bank and Banking Group as at 31 March 2008 and their financial performance and cash
flows for the six months ended on that date;(b) the supplementary information disclosed in Notes 33, 34 and 41 prescribed by Schedules 4 and 6 to 9 and Clauses 17 of Schedule 3 of theOrder is not fairly stated in accordance with those Schedules; and(c)		the supplementary information relating to Capital Adequacy disclosed in Note 31 of the financial statements, as required by Schedule 5Bof the Order, derived from the Registered Bank’s financial statements and sources other than the Registered Banks’ accounting records,
is not in all material respects derived in accordance with the Bank’s Conditions of Registration, with the Reserve Bank of New Zealanddocument Capital Adequacy Framework (Internal Models Based Approach) (BS2B), and with the Bank’s internal models for credit risk andoperational risk as accredited by the Reserve Bank of New Zealand, and disclosed in accordance with Schedule 5B of the Order.
Our review was completed on 19 June 2008 and our review opinion is expressed as at that date.
n
Wellington

P A G E

1 1 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

For personal use only

INDE X

General Disclosures

2 -3

26. Bonds and Notes

43 - 44

Summary of Financial Statements

4

27. Due to Parent Company

Income Statements

5

28. Loan CapitalStatements of Recognised Income and Expense

6

29. Ordinary Share Capital

46

Balance Sheets

7

30. Reserves and Retained Earnings

46

Cash Flow Statements

8-9

1.

Accounting Policies

2.

Critical Estimates and Judgements Used in
Applying Accounting Policies

10 - 18
19 - 213.

Risk Management Policies

22 - 23

4.

Income24

5.

Expenses25

6.

Income Tax Expense26

7.

Liquid Assets

27

8.

Due from Other Financial Institutions

27

9.

Trading Securities

27

10. Discontinued Operations27

11. Derivative Financial Instruments

28 - 33

12. Available-For-Sale Assets

33

13. Net Loans and Advances

33

31. Capital Adequacy

47 - 57

32. Financial Risk Management

58 - 83

33. Concentrations of Credit Risk

84 - 85

34. Market Risk

86

35. Interest Earning and Discount Bearing
Assets and Liabilities

86

36. Fair Value of Financial Assets andFinancial Liabilities

87 - 93

37. Segmental Analysis

93 - 96

38. Notes to the Cash Flow Statements
39. Controlled Entities, Associates and Interests
in Jointly Controlled Entities
40. Parent Company and Ultimate Parent Company
41. Securitisation, Funds Management, Other
Fiduciary Activities and the Marketing andDistribution of Insurance Products
42. Commitments

14. Impaired Assets, Past Due Assets andOther Assets Under Administration

34 - 35

15. Provision for Credit Impairment

35 - 3644
44 - 4597
98 - 100
100

100 - 101
102

43. Contingent Liabilities and Credit
Related Commitments

102 - 103

44. Employee Share and Option Plans

104 - 106

16. Shares in Controlled Entities, Associates andJointly Controlled Entities

37

45. Retirement Benefit Obligations

106 - 109

17. Other Assets

37

46. Related Party Transactions

109 - 110

18. Deferred Tax Assets

38

47. Subsequent Events110

19. Premises and Equipment

39

Directorate and Auditors

111 - 112

20. Goodwill and Other Intangible Assets

39

Conditions of Registration

113 - 115

21. Due to Other Financial Institutions

40

Credit Rating Information

116

22. Deposits and Other Borrowings

40

Directors’ Statement

117

23. Payables and Other Liabilities

41

Independent Review Report

118

24. Deferred Tax Liabilities

41

25. Provisions

42

P A G E

1 1 9

For personal use onlyFor personal use only

Anz National Bank Limited