For personal use only

General DisclosureStatement
Australia and New Zealand Banking Group Limited– New Zealand Branch
For the six months ended 31 March 2009
No 2. Issued June 2009

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH

1GENERAL DISCLOSURE STATEMENT for the six months ended 31 March 2009

For personal use only

Contents

General Disclosures

2-4

Summary of Financial Statements

5

Income Statements

6Statements of Recognised Income and Expense

7

Balance Sheets

8

Cash Flow Statements

9Notes to the Financial Statements

10 - 99

Directorate and Auditors

100 - 101

Credit Rating Information

102

Directors’ and New Zealand Chief Executive Officer's Statement

103

Independent Audit Report

105

Conditions of Registration

104

Index

105

2

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCHGENERAL DISCLOSURESThis Disclosure Statement has been issued in accordance with the Registered Bank
Disclosure Statement (Full and Half-Year - Overseas Incorporated Registered
Banks) Order 2008 (‘the Order’).

For personal use only

In this Disclosure Statement unless the context otherwise requires:“Overseas Banking Group” means the worldwide operations of Australia anda)
New Zealand Banking Group Limited including its controlled entities;

Section 86 of the Reserve Bank Act provides that notwithstanding anything
contained in any law relating to the winding up of companies, but subject tosection 13A(3) of the Banking Act, debts due to the Reserve Bank of Australia by
any ADI shall, in a winding up, have priority over all other debts other than debts
due to the Commonwealth of Australia.

b)“Overseas Bank” or "Ultimate Parent Bank" means the worldwide operations ofAustralia and New Zealand Banking Group Limited excluding its controlled
entities;

Section 13A(3) affects all of the unsecured deposit liabilities of the NZ Branchwhich as at 31 March 2009 amounted to $nil. (31/03/2008 $nil; 30/09/2008 $nil).

c)“NZ Banking Group” means the aggregated NZ operations of Australia and
New Zealand Banking Group Limited, including those operations conducted
through the NZ branch and controlled entities of the Overseas Bank registeredin New Zealand;d)"NZ Branch" or "Registered Bank" means the New Zealand operations ofAustralia and New Zealand Banking Group Limited, as conducted through the
NZ Branch;e)

any term or expression which is defined in, or in the manner prescribed by, theRegistered Bank Disclosure Statement (Full and Half-Year - Overseas
Incorporated Registered Banks) Order 2008 shall have the meaning given in orprescribed by that Order.

Requirement to hold excess assets over deposit liabilities
Section 13A(4) of the Banking Act (the "Act") states that it is an offence for an
ADI not to hold assets (other than goodwill) in Australia of a value that is equal toor greater than the total amount of its deposit liabilities in Australia, unless APRA
has authorised the ADI to hold assets of a lesser value. During the six months
ended 31 March 2009, the Overseas Bank has at all times held assets (otherthan goodwill) in Australia of not less than the value of the Overseas Bank's total
deposit liabilities in Australia. The requirements of this section of the Act havethe potential to impact on the management of the liquidity of the NZ Banking
Group.

General Matters

Guarantees

Australia and New Zealand Banking Group Limited - New Zealand Branch ('NZ
Branch') was established on 5 January 2009. The full name of the NZ Branch isAustralia and New Zealand Banking Group Limited New Zealand Branch and its
address for service is Level 14, ANZ Tower, 215-229 Lambton Quay, Wellington,
New Zealand.

The Overseas Bank has guarantees from the Commonwealth of Australia under:

The full name of the Overseas Bank is Australia and New Zealand Banking Group
Limited and its address for service is Level 14, 100 Queen Street, Melbourne,
Australia.
Nature of Business
The principal activities of the NZ Banking Group during the period were retail,corporate and rural banking, mortgage lending, asset and general finance,international and investment banking, nominee and custodian services. Life
insurance and funds management activities are carried out through the ING New
Zealand joint venture.

Ranking of local creditors in liquidation
There are material legislative restrictions in the Overseas Bank's country ofincorporation which subordinate the claims of a class of unsecured creditors of theRegistered Bank on the assets of the Overseas Bank to those of another class of
unsecured creditors of the Overseas Bank, in liquidation of the Overseas Bank.

The Banking Act 1959 of the Commonwealth of Australia (the "Banking Act") gives
priority over Australian assets of the Overseas Bank to Australian depositors if theOverseas Bank is unable to meet its obligations or suspends payment. Accordingly,
New Zealand depositors (together with all other senior unsecured creditors of theOverseas Bank) will rank after Australian depositors of the Overseas Bank in relation
to claims against Australian assets.

Specifically, pursuant to section 13A(3) of the Banking Act, if an Authorised Deposit
Taking Institution (defined in that Act to include a Bank like the Overseas Bank) (an"ADI") becomes unable to meet its obligations or suspends payment, the assets of
the ADI in Australia are to be available to meet the ADI's liabilities in the following
order:(a)first, the ADI's liabilities to the Australian Prudential Regulation Authority("APRA") (if any), because of the rights APRA has against the ADI because
APRA has made, or is required to make, payments to depositors under the
Financial Claims Scheme (defined below);(b)second, the ADI's debts to APRA for costs incurred by APRA in administrationof the Financial Claims Scheme in respect of the ADI;(c)third, in payment of the ADI's deposit liabilities in Australia (other than liabilities
covered under paragraph (a)); and(d)fourth, the ADI's other liabilities (in order of priority apart from section 13A(3)).

Under section 13A(1) of the Banking Act, in certain circumstances APRA may takecontrol of an ADI or appoint an administrator (defined in the Banking Act) to takecontrol of its business. Section 16(1) and (2) of the Banking Act provide that, despite
anything contained in any law relating to the winding up of companies, but subject tosection 13A(3) of the Banking Act, the debts of an ADI to APRA in respect of APRA's
costs (including costs in the nature of remuneration and expenses) of being in controlof the ADI's business or of having an administrator in control of the ADI's businesshave priority in a winding up of the ADI over all other unsecured debts.

(a)

(b)

in the case of deposits and certain other accounts up to A$1 million, ascheme (The "Financial Claims Scheme") pursuant to the Financial System
Legislation Amendment (Financial Claims Scheme and Other Measures)
Act 2008 of the Commonwealth of Australia (The "Financial Claims
Scheme Act");in the case of wholesale funding, by a Deed of Guarantee executed by theTreasurer (and related scheme rules) (the "Wholesale Funding
Guarantee").

The Financial Claims Scheme applies to the Registered Bank, as it is a foreign
branch of an eligible Australian ADI. The Wholesale Funding Guarantee may
also apply as described below.
Financial Claims Scheme
Under the Financial Claims Scheme (the "scheme") if:· APRA has applied for an ADI to be wound up; and·the responsible Minister makes a declaration that the scheme applies tothat particular ADI

then each account holder of a Protected Account (defined below) with that ADI isentitled to be paid by APRA an amount equal to the balance of the protectedaccount plus accrued interest which has been credited to the account (subject tovarious adjustments and preconditions described in the Financial Claims
Scheme Act). Once the responsible Minister has made a declaration, there areno other material conditions to payment other than the ADI being unable to meetits obligations or suspending payment. The deposit must be for an amount lessthan A$1 million. Deposits for a greater amount are covered by the Wholesale
Funding Guarantee (to the extent that is applicable as described below).

A protected account (a "Protected Account") is:· accounts or covered financial products (defined below) kept under anagreement between the account holder and the ADI requiring the ADI to
pay the account holder, on demand by the account holder or at a timeagreed by them, the net credit balance of the account at the time of thedemand or the agreed time; and·an account prescribed by regulations.

A covered financial product is a financial product declared by the AustralianTreasurer to be a covered financial product. A list is available atwww.treasury.gov.au. The list includes accounts such as saving, call, current,
cheque, debit card, transaction and mortgage offset accounts.
Deposit holders do not have to be Australian residents to obtain the benefit of the
Financial Claims Scheme and it applies to deposits denominated in any currency.

From 12 October 2011 the Financial Claims Scheme is to apply to Australian
dollar deposits only.
Wholesale Funding Guarantee
The Wholesale Funding Guarantee is a deed governed by the laws of the State
of New South Wales and has been executed by the Australian Treasurer onbehalf of the Australian Government. Australian institutions which are ADIs
under the Banking Act, which includes the Overseas Bank, are entitled to apply
for the Wholesale Funding Guarantee to apply to deposit accounts over A$1
million and certain funding liabilities.

3
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCHGENERAL DISCLOSURES (continued)

For personal use only

Foreign banks authorised to carry on banking business in Australia may also apply tohave certain deposits and funding liabilities held by Australian residents guaranteedby the Australian Government. The Reserve Bank of Australia administers theWholesale Funding Guarantee.

Under the Wholesale Funding Guarantee, the Commonwealth of Australia
irrevocably guarantees the payment of liabilities covered by an eligibility certificate
issued by the Australian Government in response to an application made by the ADI,
and irrevocably undertakes that whenever the ADI does not pay a liability on the dateon which it becomes due or payable, it shall, upon a claim by a person to whom aguaranteed liability is owed, and following the expiry of any applicable grace period,
pay the guaranteed liability in accordance with the scheme rules. A claim must be
made in the form provided in the scheme rules. In the case of a liability of anAustralian ADI, such as the Overseas Bank, the claimant need not be a resident ofAustralia.

In order to have the Wholesale Funding Guarantee apply, an ADI must apply to theReserve Bank of Australia for an eligibility certificate. Fees will also be payable,
calculated by reference to the term and amount of the liabilities guaranteed and thecredit rating of the ADI (as at the date of this document, the fee which will apply to
the Overseas Bank based on its rating by Standard and Poor’s of AA, is 70 basis
points per annum applied in respect of its guaranteed liabilities in accordance with
the Wholesale Funding Guarantee). The fees will be levied on a monthly or quarterly
basis depending on the liability. An ADI may apply for an eligibility certificate inrespect of a programme under which it issues debt instruments from time to time oron a series-by-series basis.

A person to whom a guaranteed liability is owed may rely on the eligibility certificate
issued by the Australian Government as conclusive evidence that the liability
satisfies the criteria for eligibility to be guaranteed under the Wholesale Funding
Guarantee.
An application must set out details of the liabilities to be guaranteed and beaccompanied by an executed counter indemnity in favour of the AustralianGovernment, external legal opinions in a prescribed form, an executed fee letter anda letter of prudential compliance. Further information with respect to the application
procedure and fees can be found at the Australian Government Guarantee website atwww.guaranteescheme.gov.au.

If the ADI is an Australian ADI (such as the Overseas Bank) or an Australiansubsidiary of a bank incorporated overseas, it may apply for the guarantee to applyto:· Deposit liabilities for amounts over A$1 million: The deposit can be at callor with maturity of up to 60 months in excess of $1 million per customer per
ADI, be in any currency and may pre-date the Wholesale Funding Guarantee.
There are no restrictions on the types of depositors;·

Deposits held in overseas branches: Deposits held in overseas branches ofAustralian-owned ADIs can be covered by the Wholesale Funding Guarantee.
There are no restrictions on the types of depositors;·

Short Term Wholesale Funding Liabilities: The liability (which may be in any
currency) must be a senior and unsecured debt instrument with a maturity notexceeding 15 months. In addition, the instrument must be “not complex” andbe either a bank bill, a certificate of deposit or transferable deposit, adebenture or commercial paper; and·Term Wholesale Funding Liabilities: The liability (which may be in any
currency) must be a senior and unsecured debt instrument with a maturity notexceeding 60 months but greater than 15 months. The instrument must also be“not complex” and be either a bond, a note or a debenture.

In the case of all instruments, they may be issued in bearer, registered or
dematerialised form. An instrument will not be granted an eligibility certificate
unless it is “not complex”. The Government has published a list of the featuresthat are likely to be regarded by the Government as “complex”.

If the Australian Government does not perform its obligations under the
Wholesale Funding Guarantee, a beneficiary of the guarantee could sue theCommonwealth of Australia under the Judiciary Act 1903 of Australia. In such a
suit, the rights of parties are as nearly as possible the same as in a suit between
subjects of the Commonwealth of Australia. Jurisdiction to hear claims against
the Commonwealth of Australia in contract is vested in certain Australian courts
under the Judiciary Act 1903 of Australia. If a judgment is obtained against theAustralian Government, no execution or attachment can be issued against theproperty or revenues of the Commonwealth of Australia. However, if any
judgment is given against the Australian Government, the Minister for Finance isobliged to satisfy the judgment out of money legally available, on receipt of acertificate of the judgment issued by an officer of a court in which such judgment
has been obtained.

In order to render money legally available, specific appropriation by legislation
passed by the Parliament of the Commonwealth of Australia would be necessary
before any payment is made, unless the amount involved is such that it could be
paid out of funds available under an existing standing appropriation. The
Australian Government has enacted legislation which appropriates funds fromconsolidated revenue for the purposes of paying claims under the Wholesale
Funding Guarantee. The Wholesale Funding Guarantee does not contain any
submission to the courts of a foreign jurisdiction or any waiver of any immunity
which might be available to the Commonwealth of Australia under the law of any
foreign jurisdiction.

The Wholesale Funding Guarantee is subject to being withdrawn or change,
which may have a negative impact on the availability of funding in the markets inwhich the Overseas Bank operates.
The Australian Government has announced the Wholesale Funding Guarantee
will be reviewed on an ongoing basis and revised if necessary.

The Australian Government shall not be liable to perform its obligations under the
Wholesale Funding Guarantee in respect of liabilities which have been varied,amended, waived, released, novated, supplemented, extended or restated in any
material respect without the written consent of the Australian Government.

The Australian Government may also amend the terms of the Wholesale Funding
Guarantee at any time at its discretion, provided that (except insofar as such
amendment is required by law) such amendment does not reduce the AustralianGovernment obligations to the beneficiaries under the Wholesale Funding
Guarantee in a manner which is prejudicial to the interests of the beneficiaries inrespect of any subsisting liability of the Overseas Bank guaranteed under the
Wholesale Funding Guarantee.

Further information on the Wholesale Funding Guarantee including theWholesale Deed of Guarantee is available in the most recent Supplemental
Disclosure Statement.

The most recent Supplemental Disclosure Statement is available at no charge.
Copies of eligibility certificates issued by the Reserve Bank of Australia under the
Wholesale Funding Guarantee are available at www.guaranteescheme.gov.au.

4
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCHGENERAL DISCLOSURES (continued)

For personal use only

The name of the Guarantor and address for service is: The Scheme Administrator,
Australian Government Guarantee Scheme for Large Deposits and Wholesale
Funding, c/- The Secretary, Reserve Bank of Australia, 65 Martin Place, Sydney,
New South Wales 2001, Australia.
Further details of the arrangements, together with relevant legislation, regulations
and other documents setting out the terms and conditions of the current guarantee
arrangements, are available at the Treasury website www.treasury.gov.au,
www.apra.gov.au and www.guaranteescheme.gov.au.

The most recent audited financial statements of the Commonwealth of Australia canbe obtained at the Treasury's Budget website www.budget.gov.au. As at the date ofsigning of the General Disclosure Statement, the following ratings were assigned to
the Commonwealth of Australia's long term, AUD denomination debt: AAA Outlook
Stable (Standard & Poor's), Aaa Outlook Stable (Moody's) and AAA Outlook Stable(Fitch). These ratings have remained unchanged in the two preceding years. Refer
to 'Credit Rating Information' for a full description of credit rating scales.

New Zealand Guarantee Arrangements
The Crown guarantees retail deposits and wholesale funding of participating New
Zealand financial institutions under the New Zealand Deposit Guarantee Scheme('Crown Retail Guarantee') and New Zealand Wholesale Funding Guarantee Facility('Crown Wholesale Guarantee') respectively. The Registered Bank does not have aguarantee under either Scheme.
Pending Proceedings or Arbitration
Other than disclosed in this Disclosure Statement, there are no pending proceedings
or arbitration that may have a material adverse effect on the NZ Branch or the NZ
Banking Group as at the date of the General Disclosure Statement.

The NZ 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 Group has received independent tax
and legal advice. It is confident that its tax treatment of these transactions is correctand disagrees with the IRD’s position.

The Commerce Commission has brought proceedings under the Commerce Act
1986 against Visa, MasterCard and all New Zealand issuers of Visa and MasterCard
credit cards, including the NZ Banking Group regarding credit card interchange fees.
Several major New Zealand retailers have also issued proceedings. The NZ Banking
Group has received independent legal advice. This matter is complex and difficult.
The NZ Banking Group is defending the proceedings. This matter is scheduled fortrial in October 2009.

The NZ Banking Group markets and distributes a range of wealth management
products which are managed by ING (NZ) Limited (of which the NZ Banking
Group holds 49%). Trading in the ING Diversified Yield Fund and the ING
Regular Income Fund ('the Funds') was suspended on 13 March 2008 by thefund manager, ING (NZ) Limited, due to the deterioration in liquidity in credit
markets.
On 25 February 2009, ING (NZ) Limited announced that investors in the Funds
will be receiving a proposal which allows the ability to exit the Funds. The
estimated cost of this proposal to the NZ Banking Group is $167m and thisamount has been recognised in 'other operating income' in the Income
Statement.
Further details on pending proceedings or arbitration are set out in Note 42
Contingent Liabilities and Credit Related Commitments of this General
Disclosure Statement.
The Overseas Banking Group has worldwide contingent liabilities in respect of
actual and potential claims and proceedings, which have not been determined.
An assessment of the Overseas Banking Group's likely loss is made on a caseby-case basis and provisions are made where appropriate. Such contingencies
are disclosed in the Overseas Banking Group's 31 March 2009 Interim Financial
Report.
Other Material Matters
There are no matters relating to the business or affairs of the NZ Branch and the
NZ Banking Group which are not contained elsewhere in the General DisclosureStatement and which would, if disclosed, materially adversely affect the decisionof a person to subscribe for debt securities of which the NZ Branch or any
member of the NZ Banking Group is the issuer.

Supplemental Disclosure Statement
A copy of the most recent Supplemental Disclosure Statement for the six months
ended 31 March 2009 can be obtained immediately where request is made within
normal banking hours at the NZ Branch head office, Level 14, ANZ Tower, 215229 Lambton Quay, Wellington. It is also available at no charge:a)b)

on the NZ Banking Group's website at www.anz.com;
immediately if request is made at the NZ Banking Group's head office; andc)within five working days of a request, if a request is made at any branch of
the ANZ or National Bank of New Zealand.

The NZ Banking Group's most recent Supplemental Disclosure Statement
contains a copy of the 31 March 2009 Interim Financial Report for the Overseas
Banking Group and a copy of the Deed of Guarantee for the Guarantee Scheme.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH

5SUMMARY OF FINANCIAL STATEMENTS

NZ Banking GroupNZ IFRS
AuditedYear to30/09/2008$m

NZ IFRS
AuditedYear to30/09/2007$m

1

NZ IFRS1, 2
AuditedYear to30/09/2006$m

NZ IFRS1, 2
AuditedYear to30/09/2005$mPrevious
GAAP
AuditedYear to30/09/2005$mPrevious
GAAP3
AuditedYear to30/09/2004$mContinuing operations
Interest income
Interest expense

4,233
3,047

9,858
7,829

8,296
6,239

7,195
5,246

6,023
4,325

5,999
4,325

4,533
3,036

Net interest income
Other operating income

1,186
439

2,029
1,126

2,057
864

1,949
801

1,698
794

1,674
851

1,497
758

Operating income
Operating expenses

1,625
739

3,155
1,445

2,921
1,331

2,750
1,323

2,492
1,312

2,525
1,506

2,255
1,269

Profit before provision for credit impairment and income tax
Collective provision charge (credit)
3
Individual provision charge

886
76
212

1,710
112
190

1,590
20
54

1,427
(10)
28

1,180
121
-

1,019
122
-

986
133
-

For personal use only

NZ IFRS
Unaudited
6 months to
31/03/2009$m

Provision for credit impairment

288

302

74

18

121

122

133

Profit before income tax
Income tax expense

598
176

1,408
418

1,516
551

1,409
463

1,059
318

897
324

853
296

Profit after income tax from continuing operations

422

990

965

946

741

573

557

Discontinued operations
Profit from discontinued operations (net of income tax)

-

-

76

5

14

-

-

Profit after income tax

Retained profits at beginning of the year

Adjustment on adoption of NZ IFRS on 1 October 2004
Adjustment on adoption of NZ IAS 39 on 1 October 2005

422

990

1,041

951

755

573

557

1,667

1,869

1,580

1,350

746

746

264

-

-

-

60

4
-

-

-

Total available for appropriation
Actuarial (loss) gain on defined benefit schemes after tax
Foreign exchange (loss)/gain on redemption of redeemablepreference sharesInterim ordinary dividends paid

2,089
(28)

2,859
(23)

2,621
2

2,361
(1)

1,505
4

1,319
-

821
-

(1,000)(1,169)

(154)
(600)

(780)

41
(200)

41
(200)

(75)

Retained profits at end of the year

1,061

1,667

1,869

1,580

1,350

1,160

746

NZ IFRS1, 2
AuditedYear to30/09/2005$mPrevious
GAAP
AuditedYear to30/09/2005$mPrevious
GAAP
AuditedYear to30/09/2004$m

NZ Banking GroupNZ IFRS
Unaudited
6 months to
31/03/2009$m

Total impaired assets (on-balance sheet and off-balance sheet)

NZ IFRS
AuditedYear to30/09/2008$m

1

NZ IFRS
AuditedYear to30/09/2007$m

NZ IFRS1, 2
AuditedYear to30/09/2006
$m

620

333

121

159

220

220

123

Total assets

132,972

123,078

107,606

95,92985,491

85,291

74,099Total liabilities

125,455

115,951

100,751

89,54379,39079,38069,690

7,517

7,127

6,855

6,386

6,101

5,911

4,409

EquityThe amounts included in this summary have been taken from the audited financial statements of the Australia and New Zealand Banking Group Limited (New ZealandGeographic Activities and Subsidiary Companies in New Zealand).

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.

2

On 1 October 2005, the NZ 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 elected not to restate comparative information for the adoption of NZ IAS
32 Financial Instruments: Disclosure and Presentation ('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 ANZ National Bank Limited and Subsidiary Companies' General Disclosure Statement for an explanation of
the NZ Banking Group's transition to NZ IFRS and the adjustments required to comply with NZ IFRS.
3The RBNZ's guidelines require the NZ 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 NZ Banking Group's Bad and Doubtful Debts policy, the required individual provision was not charged to profit, but was transferred from thecollective provision balance. The NZ 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 14 Provision for Credit Impairment.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH

6INCOME STATEMENTS for the six months ended 31 March 2009Note

For personal use onlyInterest income
Interest expense

NZ Banking Group
Unaudited
Unaudited
Audited
6 months to
6 months toYear to31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
6 months to
31/03/2009$m

NZ Branch
Unaudited
6 months to
31/03/2008$m

AuditedYear to30/09/2008
$m

4

4,233

4,810

9,858

28

-

-

5

3,047

3,792

7,829

23

-

-

1,186

1,018

2,029

5

-

-

Net interest income

Other operating income

4

431

490

1,015

(8)

-

-

Share of profit of equity accounted associates
and jointly controlled entities

15

8

96

111

-

-

-

1,625

1,604

3,155

(3)

-

-

739

673

1,445

1

-

-

886

931

1,710

(4)

-

-

288

93

302

3

-

-

598

838

1,408

(7)

-

-

176

229

418

(2)

-

-

422

609

990

(5)

-

-

Operating income

Operating expenses

5

Profit/(loss) before provision for credit impairment
and income tax
Provision for credit impairment

14

Profit/(loss) before income tax

Income tax expense/(benefit)

Profit/(loss) after income tax

6

The notes on pages 10 to 101 form part of and should be read in conjunction with these financial statements.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH

7STATEMENTS OF RECOGNISED INCOME AND EXPENSE for the six months ended 31 March 2009Note

For personal use only

Available-for-sale revaluation reserve:- Valuation gain taken to equity- Cumulative gain transferred to the income
statement on sale of financial assets

NZ Banking Group
Unaudited
Unaudited
Audited
6 months to
6 months toYear to31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
6 months to
31/03/2009$m

NZ Branch
Unaudited
6 months to
31/03/2008$m

AuditedYear to30/09/2008
$m

4

16

26

-

-

-

-

-

-

-

-

-

Cash flow hedging reserve:- Valuation loss taken to equity- Transferred to income statement

10
10

(9)
(19)

(17)
(16)

(47)
(37)

-

-

-

Actuarial loss on defined benefit schemes

44

(38)

(12)

(33)

-

-

-

Income tax credit on items recognised directly in equity

20

15

34

-

-

-

Net (expense) income recognised directly in equity

(42)

(14)

(57)

-

-

-

Profit/(loss) after income tax

422

609

990

(5)

-

-

Total recognised income and expense for the period

380

595

933

(5)

-

-

The notes on pages 10 to 101 form part of and should be read in conjunction with these financial statements.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH

8BALANCE SHEETS as at 31 March 2009Note

For personal use only

AssetsLiquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Due from related entities
Shares in controlled entities, associates
and jointly controlled entities
Current tax assets
Other assets
Deferred tax assets
Premises and equipment
Goodwill and other intangible assets

Audited30/09/2008
$m

3,863
3,890
2,149
4,901
96
92,579
-

4,839
5,032
2,624
7,603
109
97,679
1

30
4,754
204

-

-

15

396
189
878
193
250
3,321

350
248
913
52
238
3,296

363
154
1,000
118
242
3,314

1
25
1
-

-

-

132,972

112,575

123,078

5,015

-

-

8,911
72,76013,0802,143
340
23,620
1,766
2,835

2,383
74,080
4,472
1,684
154
19,192
1,766
2,053

3,311
77,136
6,472
1,874
190
22,382
1,766
2,820

4,751
250
8
-

-

-

125,455

105,784

115,951

5,009

-

-

7,517

6,791

7,127

6

-

-

6,424
32
1,061

5,413
77
1,301

5,413
47
1,667

11
(5)

-

-

7,517

6,791

7,127

6

-

-

16
17
18
19

20
21
10
22
23
24
25
26
27

Net assets (excluding Head Office Account)

Total equity & Head Office Account

NZ Branch
Unaudited
31/03/2008
$m

3,390
7,631
2,565
15,072597
98,490-Total liabilities (excluding Head Office Account)Represented By:
Ordinary share capital & Head Office AccountReserves
Retained earnings

Unaudited
31/03/2009
$m

7
8
9
10
11
12, 13, 14

Total assets

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

NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

28
29
29

The notes on pages 10 to 101 form part of and should be read in conjunction with these financial statements.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH

9CASH FLOW STATEMENTS for the six months ended 31 March 2009

Note

Cash flows from operating activities
Interest received
Dividends received
Fees and other income received
Interest paid
Operating expenses paid
Income taxes paid

NZ Banking Group
Unaudited
Unaudited
Audited
6 months to
6 months toYear to31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
6 months to
31/03/2009$m

NZ Branch
Unaudited
6 months to
31/03/2008$m

AuditedYear to30/09/2008
$m

4,646
512
(3,580)
(663)
(320)

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

3
(16)
-

-

-

676

595

1,579

(13)

-

-

159
90
(204)
(485)
(383)
53
5,945
(3,692)
502

(861)
(206)
(1,313)(28)(4,756)
112
(825)
3,860
233

(630)
(617)
1,361
(36)
(9,522)
28
141
5,417
159

(36)
(4,974)
(1)
5,023
-

-

-

2,661

(3,189)(2,120)(1)--

Cash flows from investing activities
Proceeds from sale of premises and equipment
Purchase of shares in associates and jointly controlled entities
Purchase of intangible assets
Purchase of premises and equipment

34
(25)
(13)
(42)

1
(46)
(6)
(25)

2
(48)
(30)
(51)

-

-

-

Net cash flows used in investing activities

(46)

(76)

(127)

-

-

-

Cash flows from financing activities
Proceeds from bonds and notes
Redemptions of bonds and notes
Proceeds from loan capital
Redemptions of loan capital
Issue of redeemable preference shares
Dividends paid

135
(3,323)1,001(1,000)3,553(1,210)510(1,169)9,263(6,433)
835
(100)
510
(1,169)1---

Net cash flows (used in) provided by financing activities(3,187)

1,684

2,906

1

-

-

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

2,661
(46)
(3,187)(3,189)(76)
1,684(2,120)
(127)
2,906

(1)
1

-

-

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

(572)
7,790

(1,581)
7,131

659
7,131

-

-

-

Cash and cash equivalents at end of the period

7,218

5,550

7,790

-

-

-

Reconciliation of cash and cash equivalents to the balance sheets1
Liquid assets
Due from other financial institutions - less than 90 days

3,390
3,828

3,863
1,687

4,839
2,951

-

-

-

7,218

5,550

7,790

-

-

-

For personal use only

4,152
619
(3,094)
(736)
(265)

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

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

Total cash and cash equivalents

37

37

1
A reconciliation of cash and cash equivalents to the NZ Banking Group's core liquidity portfolio is included in Note 37 Notes to the Cash Flow Statements. An analysis of thebalance sheet items that make up the NZ Banking Group's core liquidity portfolio is included in Note 31 Financial Risk Management.

The notes on pages 10 to 101 form part of and should be read in conjunction with these financial statements.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH10NOTES TO THE FINANCIAL STATEMENTS

1.

ACCOUNTING POLICIESFor personal use onlyA) BASIS OF PREPARATION
i)

ii)

Statement of compliance
These financial statements have been prepared in accordance with the requirements of the Companies Act 1993, the Financial Reporting Act 1993 and the Registered Bank
Disclosure Statement (Full and Half-Year - Overseas Incorporated Banks) Order 2008 (the ‘Order'). The parent financial statements are for the New Zealand operations ofAustralia and New Zealand Banking Group Limited as conducted through the NZ Branch ("the Registered Bank" or "NZ Branch") and the aggregated financial statements arefor the New Zealand operations of Australia and New Zealand Banking Group Limited (the ‘NZ Banking Group’), which includes the NZ Branch and all New Zealandgeographic operations, subsidiaries, associate companies and jointly controlled entities as disclosed in Note 38.

The Reserve Bank of New Zealand granted the NZ Branch registration as a registered bank in New Zealand from 5 January 2009.

These financial statements have also been prepared in accordance with New Zealand Generally Accepted Accounting Principles. They comply with New Zealand equivalents
to International Financial Reporting Standards ('NZ IFRS') and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. The financial
statements comply with International Financial Reporting Standards (‘IFRS’).
The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied by the NZ Banking
Group for all periods presented.
These financial statements were authorised for issue by the overseas Banking Group's Board of Directors on 26 May 2009.
Use of estimates and assumptions
The preparation of the financial statements requires the use of management judgement, estimates and assumptions that affect reported amounts and the application ofpolicies. The estimates and associated assumptions are based on historical experience and various 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 NZ Banking Group, in the process of applying its accounting policies, that have the most effect on theamounts recognised in the financial statements refer to Note 2 Critical Estimates and Judgements Used in Applying Accounting Policies. Such estimates will require review infuture periods.

iii)

Basis of measurement
The financial statements have been prepared on a going concern basis in accordance with the historical cost basis except that the following assets and liabilities are stated attheir fair value:zderivative financial instruments, including in the case of fair value hedging, the fair value of any applicable underlying exposure;z
assets treated as available-for-sale;zfinancial instruments held for trading;zassets and liabilities designated at fair value through profit and loss; andzdefined benefit plan assets and liabilities.

iv)

Changes in accounting policies and adoption of new accounting statements
The following standards and amendments were available for early adoption but have not been applied by the Banking Group in these financial statements. The Banking
Group does not intend to apply any of these pronouncements until their application date which is 1 October 2009 in all instances.
NZ IFRS 8 Operating Segments
This standard requires the 'management approach' to identifying and disclosing information about reportable segments. This standard is concerned with disclosure only andwill have no impact on the financial results of the Bank or the Banking Group.
NZ IAS 1 Presentation of Financial Statements (amended)
This standard requires the presentation of a Statement of Comprehensive Income and a Statement of Changes in Equity. These amendments are concerned with disclosure
only and will have no impact on the financial results of the Bank or the Banking Group.
NZ IAS 23 Borrowing Costs (amended)
This standard requires all borrowing costs to be capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. This amendment
will not have a material impact on the financial statements of the Bank or the Banking Group.
NZ IAS 27 Consolidated and Separate Financial Statements (amended)
This standard changes aspects of accounting for non-controlling interests and clarifies the accounting for changes in a parent’s ownership interest in a subsidiary. These
amendments are not expected to have a material impact on the financial statements of the Bank or the Banking Group.
NZ IFRS 3 Business Combinations (amended)
This standard will change certain aspects of accounting for business combinations occurring after the application date. These amendments apply prospectively so the initial
application is expected to have no impact on the financial statements of the Bank or the Banking Group.
NZ IFRS 2 Share-based Payment (amended). Definition of vesting conditions.
NZ IFRS 7 Financial Instruments: Disclosures (amended). Fair value measurement and liquidity risk disclosures.
NZ IAS 32 Financial Instruments: Presentation (amended). Definition and accounting for puttable instruments.
NZ IAS 39 Financial Instruments: Recognition and Measurement (amended). Options as hedging instruments and hedging inflation risk.
We have yet to assess the impact of these changes on the financial statements of the Bank or the Banking Group.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH11NOTES TO THE FINANCIAL STATEMENTS (continued)

ACCOUNTING POLICIES (continued)v)

Presentation currency and rounding
The amounts contained in the financial statements are presented in millions of New Zealand dollars, unless otherwise stated.

For personal use only

1.

vi)

Comparatives
Certain amounts in the comparative information have been reclassified to conform with current period financial statement presentations.

vii)

Basis of aggregation
These financial statements aggregate the financial statements of the New Zealand geographic activities of Australia and New Zealand Banking Group Limited as conducted
through the NZ Branch (the "NZ Branch") and its controlled entities in New Zealand (the "NZ Banking Group").
Subsidiaries
Where subsidiaries have been sold or acquired during the period, their operating results have been included to the date of disposal or from the date of acquisition.

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. All the facts of a particular situation are considered when determining whether control exists. Control is usually present when an entity has:zzzz

power over more than one-half of the voting rights of the other entity;
power to govern the financial and operating policies of the other entity;
power to appoint or remove the majority of the members of the board of directors or equivalent governing body;
power to cast the majority of votes at meetings of the board of directors or equivalent governing body of the entity.

In addition, potential voting rights that are presently exercisable or convertible are taken into account in determining whether control exists. However, all the facts of aparticular situation are considered when determining whether control exists.
The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of acquisition is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities andcontingent 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 valueof the NZ Banking Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the NZ 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 eliminatedunless the transaction provides evidence of an impairment of the asset transferred. The accounting policies of the subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the NZ Banking Group.
Associates and joint ventures
The NZ Banking Group adopts the equity method of accounting for associates and the Group's interest in joint venture entities.
Associates are all entities over which the NZ Banking Group has significant influence but not control, which generally accompany a shareholding of between 20% and 50% of
the voting rights.

Joint ventures are entities over which the NZ Banking Group has joint control. Joint control is the contractually agreed sharing of control and exists only when the strategic
financial and operating decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control.
The NZ 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 postacquisition movements in reserves recognised in reserves. Shares in associates and jointly controlled entities are stated in the consolidated balance sheet at cost plus the NZ
Banking Group’s share of post acquisition net assets. Unrealised gains on transactions between the NZ Banking Group and its associates and jointly controlled entities are
eliminated to the extent of the NZ Banking Group’s interest in the entity. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of
the asset transferred. If an associate or jointly controlled entity uses accounting policies other than those used by the NZ 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 NZ Banking Group in applying the equity method.

Interests in associates and jointly controlled entities are reviewed at each reporting date for indicators of impairment. Any impairment is recognised in the income statement.

All significant activities of the NZ Banking Group, with the exception of the ING New Zealand joint venture, are operated through wholly owned entities.

Special purpose and off-balance sheet entities
The NZ Banking Group may invest in or establish special purpose entities (SPEs) to enable it to undertake specific types of transactions. The main types of these SPEs are
securitisation vehicles, structured finance entities, and entities used to sell credit protection.
Where the NZ Banking Group has established SPEs which are controlled by the NZ Banking Group to facilitate transactions undertaken for NZ Banking Group purposes,
these are consolidated in the NZ Banking Group's financial statements.
The NZ Banking Group does not consolidate SPEs that it does not control. As it can sometimes be difficult to determine whether the NZ Banking Group has control of anSPE, it makes judgements about its exposure to the risks and rewards, as well as about its ability to make operational decision for the SPE in question.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH12NOTES TO THE FINANCIAL STATEMENTS (continued)

For personal use only

1.

viii)

ACCOUNTING POLICIES (continued)
Type of SPE

Reason for establishment

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

Structured
finance entities

These entities are set up to assist the Group's Corporate
Finance function with the structuring of client financing.
The resulting lending arrangements are at arms lengthand the Bank typically has limited ongoing involvementwith the entity.

Control Factors

The Bank may manage these securitisation vehicles, service assets in thevehicle or provide liquidity or other support. The Bank retains the risks
associated with the provision of these services. For any SPE which is notconsolidated, credit and market risks associated with the underlying assets are
not retained or assumed by the Bank except to the limited extent to the limited
extent that ANZ provides arm's length services and facilities.
The Bank may manage these vehicles, hold minor amounts of capital, provide
financing or derivatives.

Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the NZ Banking Group’s entities are measured using the currency of the primary economic environment in which theentity operates (the functional currency). The NZ Banking Group’s financial statements are presented in New Zealand dollars, which is the registered bank's functional andpresentation currency.
Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the date of the transaction. Monetary assets and liabilities
resulting from foreign currency transactions are subsequently translated at the spot rate at reporting date.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different to those at which they were initially recognised or included
in a previously financial report, are recognised in the income statement in the period in which they arise.
Translation differences on non-monetary items measured at fair value through profit or loss, are reported as part of the fair value gain or loss on these items. Translationdifferences on non-monetary items measured at fair value through equity, such as equities classified as available-for-sale financial assets, are included in the available-forsale reserve in equity.

B) INCOME RECOGNITION

i)

ii)

Revenue is recognised to the extent that it is probable that economic benefits will flow to the NZ Banking Group and that revenue can be reliably measured.
Interest income
Interest income is recognised in the income statement as it accrues, using the effective interest rate 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 feesand directly related transaction costs that are an integral part of the effective interest rate, over the expected life of the financial asset or liability. Income and expense on thefinancial asset or financial liability is recognised on an effective yield basis in proportion to the amount outstanding over the period to maturity or repayment.

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.
Fee and commission income
Fees and commissions that are integral to the effective rate of a financial asset or liability are recognised using the effective interest method. For example, loan commitment
fees, together with related direct costs, are deferred and recognised as an adjustment to the effective interest rate on a loan once drawn. Commitment fees to originate a loan
which is unlikely to be drawn down are recognised as fee income as the service is provided.

Fees and commissions that relate to the execution of a significant act (for example, advisory services, placement fees and underwriting fees) are recognised when thesignificant 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) arerecognised as revenue over the period the service is provided.

iii)

Dividend income
Dividends are recognised as revenue when the right to receive payment is established.

iv)

Leasing income
Finance income on finance leases is recognised on a basis that reflects a constant periodic return on the net investment in the finance lease.

v)

Gain or loss on sale of property, plant and equipment
The gain or loss on the disposal of premises and equipment is determined as the difference between the carrying amount of the assets at the time of disposal and theproceeds of disposal, and is recognised as income in the year for which the significant risks and rewards of ownership are transferred to the buyer.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH13NOTES TO THE FINANCIAL STATEMENTS (continued)

1.

ACCOUNTING POLICIES (continued)

For personal use onlyC) EXPENSE RECOGNITION
Expenses are recognised in the income statement on an accruals basis.

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

ii)

Loan origination expenses
Certain loan origination expenses are an integral part of the effective interest rate of a financial asset and are measured at amortised cost. These loan origination expenses
include:z
fees and commissions payable to brokers in respect of originating lending business; andzother expenses of originating lending business, such as external legal costs and valuation fees, provided these are direct and incremental costs related to theissue of a financial asset.

iii)

iv)

Such loan origination expenses are initially recognised as part of the cost of acquiring the financial asset and amortised as part of the expected yield of the financial asset ove
its expected life using the effective interest method.
Share-based compensation expense
The NZ Banking Group participates in various equity settled share-based compensation plans. These are described in note 43 and largely comprise the Employee Share
Acquisition Plan and the ANZ Share Option Plan.
ANZ Ordinary Shares
The fair value of ANZ ordinary shares granted under the Employee Share Acquisition Plan is measured at 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 NZ Banking Group initiallyrecognises a net share compensation asset reflecting the fair value of unvested shares issued to employees of the NZ Banking Group. The fair value of unvested shares isamortised 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 straight-line 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.
Performance Rights
A Performance Right is a right to acquire a share at nil cost to the employee subject to satisfactorily meeting time and performance hurdles. Upon exercise, each
Performance Right entitles the holder to one ordinary share in ANZ. The fair value of Performance Rights is determined at grant date using an option pricing model, taking
into account market conditions. The fair value is expensed over the relevant vesting period with a corresponding increase in the share options reserve.
Other adjustments
Subsequent to the grant of an equity-based award, the amount recognised as an expense is adjusted for vesting conditions other than market conditions so that, ultimately,
the amount recognised as an expense is based on the number of equity instruments that eventually vest.
Lease payments
Leases entered into by the NZ Banking Group as lessee are predominantly operating leases, and the operating lease payments are recognised as an expense on a straightline basis over the lease term.

D) INCOME TAXi)

Income tax expense
Income tax on earnings 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 determinationof goodwill.

ii)

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

iii)

Deferred tax
Deferred tax is accounted for using the comprehensive tax balance sheet method. Deferred tax arises by providing for temporary differences between the carrying amounts ofassets and liabilities for financial reporting purposes and their tax base.
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 the reporting date. The measurement reflects the tax consequences that would
follow from the manner in which the NZ Banking Group, at the reporting date, expects to recover or settle 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. They are also
recognised for taxable temporary differences arising on investments in controlled entities, branches, associates and joint ventures, except where the NZ Banking Group isable to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH14NOTES TO THE FINANCIAL STATEMENTS (continued)

For personal use only

1.

iv)

ACCOUNTING POLICIES (continued)
Deferred tax assets, including those related to the tax effects of income tax losses and credits available to be carried forward, are recognised only to the extent that it isprobable 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, there is a legal right andintention to settle on a net basis and it is allowed under the tax law of the relevant jurisdiction.

E) ASSETS
Financial assetsi)Financial assets and liabilities at fair value through profit or lossii)

Trading securities are financial instruments acquired principally for the purpose of selling in the short-term or which are a part of a portfolio which is managed for short-term
profit-taking. They comprise debt and equity securities and treasury notes purchased with the intent of being actively traded. Trading securities are initially recognised at fairvalue 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 NZ Banking Group has transferred
substantially all of the risks and rewards of ownership. Fair value for listed and unlisted securities is determined by the price displayed by a willing buyer in a liquid market atthe 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 withsimilar credit, maturity and yield characteristics or by using industry standard pricing models.

Derivatives that are neither financial guarantee contracts nor effective hedging instruments are carried at fair value through profit or loss. In addition, certain financial assets
and liabilities are designated and measured at fair value through profit or loss where the following applies:z
doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets and liabilities, orrecognising the gains or losses thereon, on different bases;z
a group of financial assets or financial liabilities or both is managed and its performance evaluated on a fair value basis; orz
the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little
or no analysis, that it would not be separately recorded.
The designation of a financial asset or liability at fair value through profit or loss is irrevocable. Changes in the fair value (gains or losses) of these financial instruments arerecognised in the income statement in the period in which they occur.
Purchases and sales of trading securities are recognised on trade date.
Derivative financial instruments
Derivative financial instruments are contracts whose value is derived from changes in one or more underlying financial instruments or indices. 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 NZ 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 on trade date with gains or losses from subsequent measurement at fair value being recognised in theincome statement. Included in the determination of fair value of derivatives is a credit valuation adjustment to reflect the credit worthiness of the counterparty, modelled using
the counterparty's credit spreads. The valuation adjustment is influenced by the mark-to-market of the derivative trades and by the movement in credit spreads. 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.
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 associated accounting are as follows:
Fair value hedge
Where the NZ Banking Group hedges the change in fair value of a recognised asset or liability or firm commitment, any change in the fair value of derivatives designated asfair 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 thecarrying value of the hedged item, which are also recognised in the income statement.
Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised or 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 the income statement over a period to maturity of the hedged item. If the hedged item issold or repaid, the unamortised adjustment is recognised immediately in the income statement.
Cash flow hedge
The NZ Banking Group designates derivatives as cash flow hedges where the instrument hedges the variability in cash flows of a recognised asset or liability, or a highly
probable forecast transaction. The effective portion of changes in the fair value of derivatives qualifying and designated 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 arerecognised 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.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH15NOTES TO THE FINANCIAL STATEMENTS (continued)

1.

ACCOUNTING POLICIES (continued)

For personal use only

When the hedge expires, is sold, terminated, exercised, or no longer qualifies for hedge accounting, the cumulative amount deferred in equity remains in the cash flow
hedging reserve, and is subsequently transferred to the income statement when the hedged item is recognised in the income statement.

iii)

iv)

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
All gains and losses from changes in the fair value of derivatives that are not designated in a hedging relationship but are entered into to manage the interest rate and foreignexchange risk are recognised in the income statement. Under certain circumstances, the component of the fair value change in the derivative which relates to current period
realised and accrued interest is included in net interest income. The remainder of the fair value movement is included in other income.

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.
Set-off arrangements
Fair value gains/losses arising from trading derivatives are not offset against fair value gains/losses on the balance sheet unless a legal right of set-off exists and there is anintention to settle net.
For contracts subject to master netting agreements that create a legal right of set-off for which only the net revaluation amount is recognised in the income statement, net
unrealised gains on derivatives are recognised as part of other assets and net unrealised losses are recognised as part of other liabilities.
Available-for-sale assets
Available-for-sale assets comprise non-derivative financial assets which the NZ Banking Group designates as available-for-sale but which are not deemed to be heldprincipally for trading purposes, and include equity investments, certain loans and advances, and quoted debt securities. They are initially recorded at fair value plustransaction costs. Subsequent gains or losses arising from changes in fair value are included as a separate component of equity in the ‘available-for-sale revaluation reserve’.
When the asset is sold, the cumulative gain or loss relating 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 as an impairment
expense for debt instruments or as non-interest income for equity instruments. If, in a subsequent period, the amount of an impairment loss relating to an available-for-saleasset decreases and the decrease can be linked objectively to an event occurring after the impairment event, the loss previously recognised in the income statement isreversed through the income statement through the impairment expense line. Impairment losses recognised in the income statement for an investment in an equity
instrument classified as available-for-sale are not reversed through the income statement.

Purchases and sales of available-for-sale financial assets are recognised on the trade date as with all regular way assets, being the date on which the NZ Banking Group
commits to purchase or sell the asset.
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 NZ Banking
Group has no intention of trading on the loans and advances. The loans and advances are initially recognised 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 the hedged item, and also
recognised in the income statement. Loans and advances are derecognised when the rights to receive cash flows have expired or the NZ 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 lease receivables and commercial bills.
Overdrafts, credit cards and term loans are carried at amortised cost. Customer financing through redeemable 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.

Credit assessment
All loans are graded according to the level of credit risk. Loans are classified as either productive or impaired.
Impaired assets include loans where there is doubt as to full recovery, and loans that have been restructured. An individual provision is raised to cover the expected loss,
where full recovery of principal is doubtful.
Restructured assets are those assets where the counterparty had difficulty complying with the original terms of the contract and the original terms have been modified to grant
the counterparty concessional terms below those applicable to a customer of equal credit standing.
Assets acquired through enforcement of security are those assets which are legally owned by the NZ Banking Group as a result of enforcing security, other than any buildings
occupied by the NZ Banking Group.
A past due asset is any loan where the counterparty has failed to make a payment when contractually due, and which is not an impaired asset. A 90 days past due asset isany 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 of voluntary or involuntary administration,
including receivership, liquidation, bankruptcy or statutory management.
Impairment of loans and advances
Loans and advances are reviewed at least at each reporting date for impairment. Credit impairment provisions are raised for exposures that are known to be impaired.
Exposures are impaired and impairment losses are recorded if, and only if, there is objective evidence of impairment as a result of one or more loss events, which will impact
the estimated future cash flows of the individual loan or the collective portfolio of loans that can be reliably estimated.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH16NOTES TO THE FINANCIAL STATEMENTS (continued)

1.

ACCOUNTING POLICIES (continued)

For personal use only

Impairment is assessed initially for assets that are individually significant (or on a portfolio basis for small value loans), and then on a collective basis for those exposures notindividually known to be impaired.

v)

vi)

vii)

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 thebasis of historical loss experience for assets with credit risk characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current
observable data such as changed economic conditions. The provision also takes account of the impact of inherent risk of large concentrated losses within the portfolio.

The estimated individual impairment loss is measured as the difference between the asset’s carrying amount and the estimated future 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 cash flow, it is recognised in theincome statement. The process of estimating the amount and timing of cash flows involves considerable management judgement. These judgements are reviewed regularly
to reduce any differences between loss estimates and actual loss experience.

Impairment of capitalised acquisition expenses is assessed by comparing the actual behaviour of the portfolio to initial expected life assumptions.
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.
When a loan is uncollectible, either partially or in full, it is written off against the related provision for loan impairment. Subsequent recoveries of amounts previously written off
are taken to the income statement. Unsecured facilities are normally written-off when they become 180 days past due or earlier in the event of the customer's bankruptcy orsimilar legal release from the obligation. However, a certain level of recoveries is expected after the write-off, which is reflected in the amount of the provision for credit
losses. In the case of secured facilities, remaining balances are written-off after proceeds from the realisation of collateral have been received, if the proceeds are insufficient.

Where impairment losses recognised in previous periods have subsequently decreased or no longer exist, such impairments are reversed in the income statement.

A provision is also raised for off balance sheet items such as commitments that are considered to be onerous.
Lease receivables
Finance leases
Contracts to lease assets and hire purchase agreements are classified as finance leases if they transfer substantially all the risks and rewards of ownership of the asset to thecustomer or an unrelated third party. All other lease contracts are classified as operating leases.
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 are recorded as gross lease receivables andthe 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 the present value of any unguaranteed
residual value expected to accrue at the end of the lease term. Finance lease payments are allocated between interest revenue and reduction in the lease receivable over theterm of the finance lease, reflecting a constant periodic rate of return on the net investment outstanding in respect of the lease.

Operating leases
Operating lease payments are recognised as an expense on a straight-line basis over the lease term as lessee.
Repurchase agreements
Securities sold under repurchase agreements are retained in the financial statements where substantially all the risks and rewards of ownership remain with the NZ Banking
Group, and a counterparty liability is disclosed under the classifications of due to other financial institutions or payables and other liabilities, depending on the term of theagreement and the counterparty.
The difference between the sale price and the repurchase price is amortised over the life of the repurchase agreement and charged to interest expense in the income
statement.
Securities purchased under agreements to resell, where the NZ Banking Group does not acquire the risks and rewards of ownership, are recorded as liquid assets, net loans
and advances, or due from other financial institutions, depending on the term of the agreement and the counterparty. The security is not included in the balance sheet.
Interest income is accrued on the underlying loan amount.
Derecognition
The NZ Banking Group enters into transactions where it transfers financial assets recognised on its balance sheet yet retains either all the risks and rewards of the transferredassets or a portion of them. If all, or substantially all, the risks and rewards are retained, the transferred assets are not derecognised from the balance sheet
In transactions where substantially all the risks and rewards of ownership of a financial asset are neither retained nor transferred, the NZ Banking Group derecognises theasset if control over the asset is lost. In transfers where control over the asset is retained, the NZ Banking Group continues to recognise the asset to the extent of its
continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. The rights and obligations retained or created in thetransfer are recognised separately as assets and liabilities as appropriate.

Non-financial assetsviii) Goodwill
Goodwill represents 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. Goodwill isrecognised as an asset and not amortised, but assessed for impairment at least annually or more frequently if there is an indication that the goodwill may be impaired. This
involves using the discounted cash flow (DCF) or the capitalisation of earnings methodology (CEM) to determine the expected future benefits of the cash generating units.
Where the assessment results in the goodwill balance exceeding the value of expected future benefits, the difference is charged to the income statement. Any impairment of
goodwill may not be subsequently reversed.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH17

NOTES TO THE FINANCIAL STATEMENTS (continued)

1.

ACCOUNTING POLICIES (continued)

For personal use only

Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
ix)

x)Other intangible assets
Other intangible assets include costs incurred in acquiring and building software and computer systems (referred to as software) and an 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 NZ Banking Group. The period of amortisation is between 3 and 5 years, except for
certain core infrastructure projects where the useful life has been determined to be 7 years.
At each reporting date, the software assets and other intangible assets are reviewed for impairment against impairment indicators. If any indication of impairment exists, therecoverable amount of the assets are estimated and compared against the existing carrying value. Where the existing carrying value exceeds the recoverable amount, thedifference is charged to the income statement.
Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation, are not capitalised.
Premises and equipment
Premises and equipment are carried at cost less accumulated depreciation and impairment.
Borrowing costs incurred for the construction of qualifying assets are capitalised during the period of time that is required to complete and prepare the asset for its intended
use. The calculation of borrowing costs is based on the Group's interest cost of capital.
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 theproceeds of disposal, and is included in the income statement in the year in which the significant risks and rewards of ownership are transferred to the buyer.

Assets other than freehold land are depreciated at rates based upon their expected useful lives to the NZ Banking Group, using the straight-line method. The depreciation
rates used for each class of asset are:
Buildings
Building integrals
Furniture & equipment
Computer & office equipment
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 the asset’s existing carrying value exceeds its recoverable amount the difference ischarged to the income statement. If it is not possible to estimate the recoverable amount of an individual asset, the NZ Banking Group estimates the recoverable amount of
the cash generating unit to which the asset belongs.
A previously recognised impairment loss is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount.

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

ii)

Bonds, notes and loan capital
Bonds, notes and loan capital are initially recognised at fair value plus transaction costs. 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 inadjustments to the carrying value of the hedged item, and also recognised in the income statement. Interest expense is recognised in the income statement using theeffective interest method.

iii)

Financial guarantee contracts

iv)

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to
make payments when due. Financial guarantees are issued in the ordinary course of business, consisting of letters of credit, guarantees and acceptances. Financial
guarantees are initially recognised in the financial statements at fair value on the date the guarantee was given; typically this is the premium received.
Subsequent to initial recognition, the NZ Banking Group's liabilities under such guarantees are measured at the higher of their amortised amount and the best estimate of theexpenditure required to settle any financial obligation arising at the balance sheet date. These estimates are determined based on experience of similar transactions andhistory of past losses.
Derecognition
Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH18

NOTES TO THE FINANCIAL STATEMENTS (continued)

1.

ACCOUNTING POLICIES (continued)

For personal use only

Non-financial liabilities
vi)
Employee benefitsvii)

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. Expected future payments
for long service leave are discounted using market yields at the reporting date on national government bonds with terms to maturity that match, as closely as possible, theestimated future cash outflows. Liability for long service leave is calculated and accrued for in respect of all applicable employees (including on-costs) using an actuarial
valuation.
Superannuation schemes
The NZ Banking Group operates a number of defined contribution schemes and also contributes, according to local law, in the various countries to which it operates, togovernment and other plans that have the characteristics of defined contribution schemes. The NZ Banking Group’s contributions to its defined contribution cash
accumulation scheme are recognised as an expense in the income statement when incurred.
The NZ Banking Group operates two defined benefit superannuation schemes. The liability and expense related to providing benefits to employees under each of the defined
benefit schemes are calculated by independent actuaries. A defined benefit liability is recognised to the extent that the present value of the defined benefit obligation of eachscheme, 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 NZ
Banking Group, a defined benefit asset is recognised and capped at the recoverable amount. The present value of the defined benefit obligation is determined by discounting
the estimated future outflows by reference to New Zealand 10-year government bond rates.

In each subsequent reporting period, ongoing movements in the carrying value of the defined benefit liability or asset are treated as follows:
the net movement relating to the current period’s service cost, interest cost, expected return on scheme assets, past service costs and other costs (such as•
the effects of any curtailments and settlements), is recognised as an employee expense in the income statement;
movements relating to actuarial gains and losses are recognised directly in retained 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 these financial statements as the NZ 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 NZ
Banking Group, and from income earned by the assets of the schemes. Members’ contributions are at varying rates. Actuarial valuations are carried out at minimum of every
three years in accordance with the schemes’ Trust Deed and superannuation legislation.

Provisions
The NZ Banking Group recognises provisions when there is a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can bemeasured reliably. The amount recognised is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks anduncertainties surrounding the obligation at reporting date. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is
the present value of those cash flows. Any expected third party recoveries are recognised as an asset if it is virtually certain that recovery will be received and the amount of
the receivable can be measured reliably.

G) EQUITYi)

Reserves
Available-for-sale revaluation reserve
This reserve includes changes in the fair value of available-for-sale financial assets, net of tax. These changes are transferred to the income statement in non-interest income
when the asset is derecognised. When the asset is impaired, the changes are transferred to the impairment expense line in the income statement for debt instruments and in
the case of equity instruments to non-interest income.
Cash flow hedging reserve
This reserve includes the fair value gains and losses associated with the effective portion of designated cash flow hedging instruments.

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

Offsetting of assets and liabilities
Assets and liabilities are offset and the net amount reported in the balance sheet only where:
There is a current enforceable legal right to offset the asset and liability; and•There is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
•iii)

Statement of cash flows
For cash flow statement presentation purposes the statement of cash flows has been prepared using the direct approach modified by the netting of the certain items as
disclosed below.
For cash flow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with other financial institutions, other short-term, highly
liquid investments with original terms to maturity of three months or less that are readily convertible to cash and which are subject to an insignificant risk of changes in value.

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

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH19

NOTES TO THE FINANCIAL STATEMENTS (continued)

ACCOUNTING POLICIES (continued)

iv)

Segment reporting
A segment is a distinguishable component of the NZ Banking Group that is engaged in providing products or services (business segment), or in providing products or services
within a particular economic environment (geographical segment), that is subject to risks and returns that are different from those of other business or geographical 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

For personal use only

1.

v)

Business segments are the NZ Banking Group’s primary reporting segments. For reporting purposes the three major business segments are Retail Banking, RelationshipBanking and Institutional. The NZ Banking Group operates in one geographic segment, New Zealand.
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 theInland Revenue Department (‘IRD’). In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the IRD is included as ‘other assets’ or ‘otherliabilities’ 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 and financing activities, which are recoverable
from, or payable to, the IRD are classified as operating cash flows.

I) OTHER
i)

ii)

iii)

Contingent liabilities
A contingent liability is a possible or present obligation where it is less than probable there will be an outflow of resources or it is not possible to measure the amount of theobligation with sufficient reliability.
Liabilities are no longer contingent, and are recognised on the balance sheet, when the following requirements are met:
the transaction is probable in that the contingency is likely to occur; and•the contingency can be reasonably estimated.
•
Further disclosure is made within Note 42 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 of the nature of the contingent liability are provided and, where practicable, an estimate of its financial effect.
Alternatively, where no disclosure is made of its financial effect because it is not practicable to do so, a statement to that effect is provided.

Securitisation, funds under management and other fiduciary activities
Certain subsidiaries of the NZ Banking Group act as trustees and/or managers for a number of unit trusts and superannuation investment funds. The NZ Banking Group
provides private banking services to customers including portfolio management. The assets of the managed funds and private banking clients are not included in thesefinancial statements, as direct or indirect control of the assets is not held by the NZ Banking Group. Commissions and fees earned in respect of the Banking Group’s funds
under management are included in net operating income.
Financial services provided by any member of the NZ Banking Group to discretionary private banking activities or entities conducting funds management, and assets
purchased from discretionary private banking activities 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 cash flows have expired or the NZ Banking Group has transferred substantially all the risks and rewards ofownership.
Discontinued operations
A discontinued operation is a component of the NZ Banking Group’s business that represents a separate major line of business or geographical area of operations that has
been disposed of or is classified as held for sale, or is a subsidiary that has been disposed of or is classified as held for sale.

When an operation is classified as a discontinued operation the comparative income statement is restated as if the operation had been discontinued from the start of thecomparative period.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH20NOTES TO THE FINANCIAL STATEMENTS

2.

CRITICAL ESTIMATES AND JUDGEMENTS USED IN APPLYING ACCOUNTING POLICIES
These financial statements are prepared in accordance with New Zealand equivalents to International Financial Reporting Standards and other authoritative
accounting pronouncements. Notwithstanding the existence of relevant accounting standards, there are a number of critical accounting treatments which include
complex or subjective judgements and estimates that may affect the reported amounts of assets and liabilities in the financial statements. Estimates andjudgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to bereasonable under the circumstances.

For personal use only

An explanation of the judgements and estimates made by the NZ Banking Group in the process of applying its accounting policies, that have the most significant
effect on the amounts recognised in the financial statements are set out below.
Critical accounting estimates and assumptions
Credit provisioning
The accounting policy, as explained in note 1(E)(iv), relating to measuring the impairment of loans and advances, requires the Banking Group to assess
impairment at least at each reporting date. The credit provisions raised (individual and collective) represent management's best estimate of the losses incurredin the loan portfolio at balance date based on their experienced judgement.
The collective provision is estimated on the basis of historical loss experience for assets with credit characteristics similar to those in the collective pool. The
historical loss experience is adjusted based on current observable data and events and an assessment of the impact of model risk. The provision also takes into
account the impact of large concentrated losses within the portfolio.
The use of such judgements and reasonable estimates is considered by management to be an essential part of the process and does not impact on reliability.

Individual provisioning is applied when the full collectibility of one of the Group's loans is identified as being doubtful. Individual and collective provisioning is
calculated using discounted expected future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows
are revised regularly to reduce any differences between loss estimates and actual loss experience.
As at 31 March 2009 for the NZ Banking Group, total provision for credit impairment was $879 million representing 0.89% of total net loans and advances(31/03/2008 $522 million or 0.56%; 30/09/2008 $666 million or 0.68%). Of the total provision for 31 March 2009, $610 million represented collective provisions
and $269 million represented individual provisions.
Management regularly reviews and adjusts the estimates and methodologies as improved analysis becomes available. Changes in these assumptions andmethodologies could have a direct impact on the level of provision and impairment charge recorded in the financial statements.
Critical judgements in applying the NZ Banking Group’s accounting policies
Derivatives and hedging
The NZ Banking Group buys and sells derivatives as part of its trading operations and to hedge its interest rate risk, currency risk, price risk, credit risk and otherexposures relating to non-trading positions. The derivative instruments used to hedge the NZ Banking Group’s exposures include:• Swaps• Foreign exchange contracts• Forward rate agreements• Futures• Options, and• Combinations of the above instruments.
Hedging
A hedging instrument is a designated derivative whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designatedhedged item. A hedged item is an asset, liability, firm commitment or highly probable forecast transaction that (a) exposes the NZ Banking Group to the risk ofchanges 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 theoriginally documented risk management strategy for that particular hedging relationship for hedge accounting to be achievable.
The effectiveness of the hedge must be capable of being reliably measured, that is, the fair value or cash flows of the hedged item that are attributable to thehedged risk and the fair value of the hedging instrument can be reliably measured. Prospective hedge effectiveness testing is required at least quarterly.
• Retrospective Effectiveness: This is a backward-looking test of whether a hedging relationship has actually been highly effective throughout the reporting
periods for which the hedge was designated (i.e. retrospectively). The actual results of the hedge must be within a range of 80 - 125 per cent.
Hedge accounting is only achieved where both prospective and retrospective effectiveness is achieved.
• External Counterparty: For hedge accounting purposes, only instruments that involve a party external to the NZ Banking Group can be designated as hedging
instruments.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH21

NOTES TO THE FINANCIAL STATEMENTS

2.

CRITICAL ESTIMATES AND JUDGEMENTS USED IN APPLYING ACCOUNTING POLICIES (continued)
Judgement is required by management in selecting and designating hedging relationships and assessing hedge effectiveness. NZ IAS 39 does not specify asingle method for assessing hedge effectiveness prospectively or retrospectively. The NZ Banking Group adopts the hypothetical derivative approach todetermine hedge effectiveness in line with current risk management strategies. Hedge ineffectiveness can arise for a number of reasons, 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 thisineffectiveness.

For personal use only

Fair values of financial instruments including derivatives
A significant portion of financial instruments, including derivatives which are entered into for trading and hedging purposes, are measured at fair value. Where
liquid markets exist, fair value is based on quoted market prices. Where there is no active market, fair value is determined by the use of various valuation
techniques including discounted cash flow models and option pricing models. To the extent possible models use only observable data, however such areas ascounterparty risk, volatilities and correlations require management to make judgements and estimates. Changes in assumptions used in these models andprojections of future cash flows could affect the reported fair value of financial instruments and have an impact on the income statement. The extent of usage ofvaluation techniques for financial instruments carried at fair value is disclosed in note 35.

Goodwill
The carrying value of goodwill is subject to an impairment test to ensure that the current carrying value does not exceed its recoverable value at the balance
sheet date. Any excess of carrying value over recoverable amount is taken to the income statement as an impairment writedown.
As at 31 March 2009, the balance of goodwill recorded as an asset on the NZ Banking Group’s consolidated balance sheet as a result of acquisitions was$3,262 million (31/03/2008 $3,262 million; 30/09/2008 $3,262 million) of which $3,230 million relates to the acquisition of NBNZ Group in December 2003
(31/03/2008 $3,230 million; 30/09/2008 $3,230 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 forinternal 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 ANZ National Bank Limited 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 the higher of fair value less costs to sell and its value in use. Where
the current carrying value is greater than the recoverable amount a charge for impairment of goodwill will be recorded in the income statement.
The NZ Banking Group obtained an independent valuation of the ANZ National Bank Limited Group as at 31 March 2009. The recoverable amount was basedon a value in use calculation using forecasts covering a 4 year period. Forecast cashflows beyond 4 years assume a historical growth rate. The discount rateused was the pre-tax rate that reflects the time value of money and risks specific to the Bank.
The results of the independent valuation resulted in a recoverable amount in excess of current carrying value.
Changes in the assumptions upon which the valuation is based, together with changes in future cash flows could materially impact the valuation obtained. Basedon this independent valuation, the current carrying value of the NZ Banking Group’s goodwill arising from acquisitions is considered recoverable and no
impairment write-down is required.
Valuation of investment in ING (NZ) Holdings Ltd (ING NZ)
The NZ Banking Group adopts the equity method of accounting for its 49% interest in its jointly controlled entity, ING NZ. As at 31 March 2009, the carrying
value of the NZ Banking Group’s investment in ING NZ was $242 million (31/03/2008 $201 million; 30/09/2008 $212 million).
The carrying value of this investment is subject to an impairment test to ensure that the current carrying value does not exceed its recoverable value at thebalance sheet date. Any excess of carrying value over recoverable amount is taken to the income statement as an impairment writedown.
The NZ Banking Group obtained an independent valuation of ING NZ as at 31 March 2009. The valuation was based on a value-in-use methodology using a
discounted cash flow approach. The results of the independent valuation resulted in a value-in-use in excess of the NZ Banking Group's current carrying value.

Changes in the assumptions upon which the valuation is based, together with changes in future cash flows could materially impact the valuation obtained. Basedon this independent valuation, the current carrying value of the NZ Banking Group’s investment in ING NZ is considered recoverable and no impairment writedown is required.
ING New Zealand Funds
Trading in the ING Diversified Yield Fund and the ING Regular Income Fund ('the Funds') was suspended on 13 March 2008 due to deterioration in the liquidity
and credit markets. These funds are managed by the joint venture partner ING (NZ) Limited. Some of these funds were sold to ANZ National customers.

On 25 February 2009, ING (NZ) Limited announced that investors in the Funds will be receiving a proposal which allows them the ability to exit the investment
for a cash amount.
The estimated cost of this proposal to the Bank is approximately $166m and this amount has been recognised in 'other operating income' in the Income
Statement.
The ultimate cost to the bank will depend on unit prices of the underlying funds, the discount rate applied and recoveries under insurance cover. In addition theCommerce Commission has sought information regarding the two Funds and is investigating this matter, although at this stage, it is not possible to determine theoutcome of any investigation.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH22NOTES TO THE FINANCIAL STATEMENTS (continued)

3.

RISK MANAGEMENT POLICIESThe NZ Banking Group recognises the importance of effective risk management to its business success. Management is committed to achieving
strong control and a distinctive risk management capability that enables the NZ Banking Group business units to meet their performance objectives.

For personal use only

The NZ 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 ultimately from the Board of the Ultimate Parent Bank,and operates within a comprehensive framework comprising:• The Boards of the entities making up the NZ Banking Group ("the Boards") providing leadership, setting risk appetite/strategy and monitoring
progress;• A strong framework for development and maintenance of risk management policies, procedures and systems set by the Boards, overseen by anindependent team of risk professionals;• The use of sophisticated risk tools, applications and processes to execute the global risk management strategies as they are deemed to apply toeach entity across the NZ Banking Group;• Where applicable Business Unit level accountability, as the “first line of defence”, and for the management of risks in alignment with the strategy
set by the relevant Board; and• Independent oversight to ensure each entity across the NZ Banking Group, and the Business Units within those entities, comply with policies,
regulations and laws, and to provide regular risk evaluation and reporting.
The NZ Banking Group manages risk through an approval, delegation and limits structure. Regular reviews of the policies, systems and risk reports,
including the effectiveness of the risk management systems, are conducted within the NZ Banking Group and also by the Ultimate Parent Bank. The
Boards have responsibility for reviewing all aspects of risk management.
The Boards have ultimate responsibility for overseeing the effective deployment of risk management frameworks, policies and processes within New
Zealand.
The NZ Banking Group’s risk management policies are essentially the same as the Ultimate Parent Bank, but are tailored where required to suit the
local New Zealand regulatory and business environment.

Financial risk management
Credit risk - the risk of financial loss from counterparties being unable to fulfil their contractual obligations.
Market risk - the risk to the NZ 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 - the risk that the NZ 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 31 Financial Risk Management for detailed disclosures on the NZ Banking Group's financial risk management policies.

Operational risk
Operational risk is the risk arising from day to day operational activities which may result in direct or indirect loss. These losses may result fromfailure to comply with policies, procedures, laws and regulations, from fraud or forgery, from a breakdown in the availability or integrity of services,
systems and information, or damage to the reputation of entities making up the NZ Banking Group.
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.
Group Risk Management is responsible for establishing the ANZ Group-wide operational risk framework and associated Group-level policies. The
entities across NZ Banking Group are responsible for the implementation of the operational risk framework and associated polices along with theidentification, analysis, assessment and treatment of operational risks on a day-to-day basis as applicable.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH23

NOTES TO THE FINANCIAL STATEMENTS (continued)

3.

RISK MANAGEMENT POLICIES (continued)

For personal use only

Compliance
The entities within the NZ Banking Group conduct their business in accordance with all relevant compliance requirements. In order to assist the NZ
Banking Group identify, manage, monitor and measure its compliance obligations, a comprehensive regulatory compliance framework is in place,which addresses both external (regulatory) and internal compliance. This is applied according to the requirements of each entity.

Where appropriate, Risk Management, in conjunction with Business Unit staff, ensures the key operating entities within the NZ Banking Group
operate within a compliance infrastructure and framework that incorporates new and changing business obligations and processes.
The compliance policies and their supporting framework seek to minimise material risks to the NZ Banking Group’s reputation and value that could
arise from non-compliance with laws, regulations, industry codes and internal standards and policies. The Board of each entity has primary
responsibility for the identification and management of compliance and may be assisted by Risk Management providing policy and framework,measurement, monitoring and reporting, as well as leadership in areas such as anti-money laundering procedures and matters of prudential
compliance. The Board and the Risk Committee of the Ultimate Parent Bank Board conduct Board and executive oversight.

Internal audit
The Overseas Banking Group internal audit function, conducts independent reviews that assist the Overseas Banking Group's Board of Directors
and management to meet their statutory and other obligations.
Internal Audit reports directly to the Chairman of the ANZ National Bank Limited Audit Committee and through to the 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 NZ Banking Group;• Compliance with Board policies and management directives;• Compliance with the requirements of supervisory regulatory authorities;• The economic and efficient management of resources; and• The effectiveness of operations undertaken by the NZ Banking Group.

In planning the audit activities, Internal Audit adopts a risk-based approach that directs and concentrates resources to those areas of greatest
significance, strategic concern and risk to the business. This encompasses reviews of major credit, market, technology and operating risks within
the wider NZ Banking Group. Significant findings are reported quarterly to the Group and ANZ National Bank Limited Audit Committees asappropriate.
The Internal Audit Plan is approved by the ANZ National Bank Limited Audit Committee and endorsed by the Group Audit Committee.
All issues and recommendations reported to management are tracked and monitored internally to ensure completion and agreed actions areundertaken where appropriate.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH24

NOTES TO THE FINANCIAL STATEMENTS (continued)

4.

INCOMENZ Banking Group
Unaudited
Unaudited
Audited
6 months
6 months
Year to31/03/2009
31/03/2008 30/09/2008
$m
$m
$m

For personal use onlyInterest income
Financial assets at fair value through profit or loss
Trading securities

Financial assets not at fair value through profit or loss
Liquid assets
Other financial institutions
Available-for-sale assets
Lending on productive loans
Lending on impaired assets (Note 13)
Related Parties
Other

Total interest income

Unaudited
6 months
31/03/2009$m

NZ Branch
Unaudited
6 months
31/03/2008$m

AuditedYear to30/09/2008
$m

95

104

220

-

-

-

95

104

220

-

-

-

86
178
2
3,875
2
(5)

165
155
1
4,358
3
24

313
321
3
8,979
6
16

28
-

-

-

-

-

4,138

4,706

9,638

28

-

-

4,233

4,810

9,858

28

-

-

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

329
111
71
(63)
131
(14)
19

323
69
4
72
(5)
(1)
16

646
4
166
45
60
70
(67)
37

(13)
5
-

-

-

(26)
(166)
39

(7)
19

15
39

-

-

-

Total other operating income

431

490

1,015

(8)

-

-

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

76
24
316

64
23
321

134
47
632

-

-

-

Total fee income

416

408

813

-

-

-

Direct fee expense

87

85

167

-

-

-

Net fee income

329

323

646

-

-

-

1

2

ING New Zealand Funds
Trading in the ING Diversified Yield Fund and the ING Regular Income Fund ('the Funds') was suspended on 13 March 2008 due to deterioration in the liquidity andcredit markets. These funds are managed by the joint venture partner ING (NZ) Limited. Some of these funds were sold to ANZ National customers.

On 25 February 2009, ING (NZ) Limited announced that investors in the Funds will be receiving a proposal which allows them the ability to exit the investment for acash amount. We understand further details on the proposal will be released shortly.
The estimated cost of this proposal to the Bank is approximately $166m and this amount has been recognised in 'other operating income' in the Income Statement.

The ultimate cost to the Bank will depend on the value of units in the underlying funds, the discount rate applied and recoveries under insurance cover. In addition
the Commerce Commission has sought information regarding the two Funds and is investigating this matter, although at this stage, it is not possible to determine theoutcome of any investigation.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH25

NOTES TO THE FINANCIAL STATEMENTS (continued)

5.

EXPENSESNZ Banking Group
Unaudited
Unaudited
Audited
6 months
6 months
Year to31/03/2009
31/03/2008 30/09/2008
$m
$m
$m

For personal use onlyInterest expense
Financial assets at fair value through profit or loss
Commercial paper

Unaudited
6 months
31/03/2009$m

NZ Branch
Unaudited
6 months
31/03/2008$m

AuditedYear to30/09/2008
$m

306

493

997

-

-

-

306

493

997

-

-

-

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

198
1,804
546
55
112
26

198
2,136
707
79
86
93

195
4,397
1,781
159
207
93

23
-

-

-

2,741

3,299

6,832

23

Total interest expense

3,047

3,792

7,829

23

-

-

374
36

336
37

724
75

-

-

-

18
3
9
22
18
40
41
57
85
36

18
3
7
20
17
39
39
53
87
17

37
7
13
38
38
80
82
117
180
54

1

-

-

739

673

1,445

1

-

-

NZ Banking Group
Unaudited
Unaudited
Audited
6 months
6 months
Year to31/03/2009
31/03/2008 30/09/2008
$'000
$'000
$'000

Unaudited
6 months
31/03/2009$'000

NZ Branch
Unaudited
6 months
31/03/2008$'000

AuditedYear to30/09/2008$'000

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 45)
Computer expenses
Administrative expenses
Other costs

Total operating expenses

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

1,209
155

931

1,942
500

15
-

-

-

Total auditors' remuneration

1,364

931

2,442

15

-

-

It is NZ Banking Group policy that KPMG can provide assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent
with the role of auditor. KPMG may not provide services that are perceived to be in conflict with the role of auditor. These include consulting advice andsubcontracting 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 materially in conflict with the role of auditor may be provided by KPMG subject to theapproval 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.

26

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (continued)

6.

INCOME TAX EXPENSENZ Banking Group
Unaudited
Unaudited
Audited
6 months
6 months
Year to31/03/2009
31/03/2008 30/09/2008
$m
$m
$m

Unaudited
6 months
31/03/2009$m

NZ Branch
Unaudited
6 months
31/03/2008$m

AuditedYear to30/09/2008$m

For personal use only

Reconciliation of the prima facie income tax payable on
profit with the income tax expense charged in
the income statement
Continuing operations
Profit before income tax

598

838

1,408

(7)

-

-

Prima facie income tax at 30%

179

277

465

(2)

-

-

Rebateable and non-assessable dividends

(4)

(4)

(10)

-

-

-

Non-assessable income/non-deductible expenses

1

(36)

(36)

-

-

-

176

237

419

(2)

-

-

-

(8)
-

(1)
-

-

-

-

176

229

418

(2)

-

-

29.4%

27.3%

29.7%

28.6%

0.0%

0.0%

259

267

525

(1)

-

-

-

-

-

-

-

-

(83)

(38)

(107)

(1)

-

-

176

229

418

(2)

-

-

(12)

(4)

(12)

-

-

-

8

(11)

(4)

-

-

-

(4)

(15)

(16)

-

-

-

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

696
41
67
(252)
-

831
22
101
(369)
(2)

831
33
211
(370)
(9)

-

-

-

Balance at end of the year

552

583

696

-

-

-

Tax effect of change in domestic tax rate1
Income tax under provided in prior periods
Total income tax expense from continuing operations

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 year 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:
Current income tax
Actuarial (loss) gain on defined benefit schemesDeferred income tax
Net (loss) gain on revaluation of cash flow hedges
Total income tax (credit) expense recognised directly in equity

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

1
In May 2007, legislation was passed to reduce the New Zealand corporate tax rate from 33% to 30%, effective for the 2009 income tax year. The tax effect 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.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH27

NOTES TO THE FINANCIAL STATEMENTS (continued)

7.

LIQUID ASSETSNZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008 30/09/2008
$m
$m
$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008$m

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

2,606
9
672
103

2,386
1,391
86

3,950
807
82

-

-

-

Total liquid assets

3,390

3,863

4,839

-

-

-

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

2,418

2,171

3,779

-

-

-

The NZ Banking Group's total core liquidity portfolio held for
managing liquidity risk (Note 31)

9,375

6,591

8,736

-

-

-

Able to be withdrawn without prior notice
Securities purchased under agreement to resell
Securities purchased under agreement to resell with central banks
Security settlements1
Certificates of deposit
Term loans and advances

167
558
38
1,760
4,269
839

418
308
69
2,609
486

437
304
1,328
2,447
516

-

-

-

Total due from other financial institutions

7,631

3,890

5,032

-

-

-

For personal use only
8.

Unaudited
31/03/2009$m

DUE FROM OTHER FINANCIAL INSTITUTIONSThere are no assets used to secure deposit obligations or assets encumbered through repurchase agreements at 31 March 2009 (31/03/2008 nil; 30/09/2008 nil).

1
There are no related party balances with subsidiaries of the Ultimate Parent Bank at 31 March 2009 (31/03/2008 $nil; 30/09/2008 $1,328 million). There is a related
party balance with a subsidiary of the Bank at 31 March 2009 of $1,760 million (31/03/2008 $nil; 30/09/2008 $1,328 million).

9.

TRADING SECURITIES

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

677
317
88
1,366
117

134
728
177
1,039
71

252
926
39
1,331
76

-

-

-

Total trading securities

2,565

2,149

2,624

-

-

-

104

198

97

-

-

-

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

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH28

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative instruments are contracts whose value is derived from one or more underlying variables or indices, require little or no initial net investment and aresettled at a future date. Derivatives include contracts traded on registered exchanges and contracts agreed between counterparties, called “Over theCounter” or “OTCs”. The use of derivatives and their sale to customers as risk management products is an integral part of the NZ Banking Group’s trading
activities. Derivatives are also used to manage the NZ Banking Group’s own exposure to fluctuations in exchange and interest rates as part of its asset andliability management activities (i.e. balance sheet risk management).

For personal use only

Derivatives are subject to the same types of credit and market risk as other financial instruments, and the NZ Banking Group manages these risks in aconsistent manner.
Types of derivative instruments
The principal foreign exchange rate contracts used by the NZ Banking Group are forward foreign exchange contracts, currency swaps and currency options.
Forward foreign exchange contracts are agreements to buy or sell a specified quantity of foreign currency on a specified future date at an agreed rate. A
currency swap generally involves the exchange, or notional exchange, of equivalent amounts of two currencies and a commitment to exchange interest
periodically until the principal amounts are re-exchanged on a future date. Currency options provide the buyer with the right, but not the obligation, either topurchase 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 NZ Banking Group are forward rate agreements, interest rate futures, interest rate swaps and options.
Forward rate agreements are contracts for the payment of the difference between a specified interest rate and a reference rate on a notional deposit at afuture settlement date. There is no exchange of principal. An interest rate future is an exchange traded contract for the 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 toreceive 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 apremium at the start of the option period.

The principal commodity contracts used by the NZ Banking Group are commodity swaps. A commodity swap generally involves the exchange of the returnon the commodity for a fixed or floating interest payment without the exchange of the underlying commodity or principal amount.

Equity related contracts are transacted by the NZ Banking Group to offset the equity risk associated with financial instruments priced against various shareindicies.
Derivatives, except for those that are specifically designated as effective hedging instruments, are classified as held for trading. The held for tradingclassification includes two categories of derivative instruments: those held as trading positions and those used for the NZ Banking Group’s balance sheet risk
management.

Trading positions
Trading positions consist of both sales to customers and market making activities. Sales to customers include the structuring and marketing of derivative
products to customers which enable them to take or mitigate risks. Market making activities consist of derivatives entered into principally for the purpose ofgenerating profits from short-term fluctuations in price or margins. Positions may be traded actively or held over a period of time to benefit from expectedchanges in market rates.
Gains or losses, including any current period interest, from the change in fair value of trading positions are recognised in the income statement as ‘otheroperating income’ in the period in which they occur.

Balance sheet risk management
The NZ Banking Group designates balance sheet risk management derivatives into hedging relationships 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 notapplied 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 relationship are recognisedin the income statement based on the hedging relationship. Any ineffectiveness is recognised in the income statement as ‘other operating income’ in the
period in which it occurs.
Gains or losses, excluding any current period interest, from the change in fair value of balance sheet risk management positions that are not designated into
hedging relationships are recognised in the income statement as ‘other operating income’ in the period in which they occur. Current period interest is
included in interest income and expense.
The following tables provide an overview of the NZ Banking Group’s foreign exchange rate, interest rate and equity derivatives. They include all trading andbalance 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 or unfavourable, 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 asfollows.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH29

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Unaudited 31/03/2009

For personal use only

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

NZ Banking Group
Notional
Principal
Fair values
AmountAssetsLiabilities
$m
$m
$m

NZ Branch
Notional
Principal
Amount$m

Fair values
AssetsLiabilities$m$m

29,86072,880
1,255
1,234
n/a

1,217
3,545
72
(328)

1,199
3,713
65
(2,824)

186
4,572
-

-

6
242
-

105,229

4,506

2,153

4,758

-

248

38,598355,381
16,021
1,941
1,941

47
9,657
96
31
-

20
9,367
11
31

523
1,009
-

1
-

2
-

413,882

9,831

9,429

1,532

1

2

32
25

7
2

6
2

-

-

-

519,168

14,346

11,590

6,290

1

250

Interest rate derivatives
Swap agreements

9,661

189

113

-

-

-

Total derivatives designated as cash flow hedges

9,661

189

113

-

-

-

68

3

-

-

-

-

Interest rate derivatives
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options soldCommodity derivatives
Fuel derivatives
Electricity derivatives

Total derivatives held for trading

Derivatives held for hedging(a) Designated as cash flow hedges(b) Designated as fair value hedges
Foreign exchange derivatives
Swap agreements

Interest rate derivatives
Swap agreements

27,263

534

1,377

3,498

29

-

Total derivatives designated as fair value hedges

27,331

537

1,377

3,498

29

-

Total derivatives held for hedging

36,992

726

1,490

3,498

29

-

Total derivative financial instruments

556,160

15,072

13,080

9,788

30

250

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH30NOTES TO THE FINANCIAL STATEMENTS (continued)

10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Unaudited 31/03/2008

For personal use only

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

NZ Banking Group
Notional
Principal
Fair values
AmountAssetsLiabilities
$m
$m
$m

NZ Branch
Notional
Principal
Amount$m

Fair values
AssetsLiabilities$m$m

42,23256,802
1,806
1,761
n/a

645
1,367
70
(95)

567
1,648
66
(528)

-

-

-

102,601

1,987

1,753

-

-

-

96,661
342,044
17,463
1,687
1,645

1
2,421
5
11
-

3
2,419
36
11

-

-

-

459,500

2,438

2,469

-

-

-

9

1

1

-

-

-

562,110

4,426

4,223

-

-

-

38

1

-

Interest rate derivatives
Swap agreements

13,940

114

41

-

-

-

Total derivatives designated as cash flow hedges

13,978

115

41

-

-

-

49

3

-

-

-

-

Interest rate derivatives
Swap agreements

34,664

357

208

-

-

-

Total derivatives designated as fair value hedges

34,713

360

208

-

-

-

Total derivatives held for hedging

48,691

475

249

-

-

-

Total derivative financial instruments

610,801

4,901

4,472

-

-

-

Interest rate derivatives
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options soldCommodity derivatives
Fuel derivatives
Electricity derivatives
Total derivatives held for trading

Derivatives held for hedging(a) Designated as cash flow hedges
Foreign exchange derivatives
Spot and forward contracts(b) Designated as fair value hedges
Foreign exchange derivatives
Swap agreements-

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH31

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Audited 30/09/2008

For personal use only

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

NZ Banking Group
Notional
Principal
Fair values
AmountAssetsLiabilities
$m
$m
$m

NZ Branch
Notional
Principal
Amount$m

Fair values
AssetsLiabilities$m$m

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

1,079
3,129
58
(586)

684
1,564
61
(270)

-

-

-

108,314

3,680

2,039

-

-

-

121,966
347,394
20,328
2,158
2,164

22
3,565
15
11
-

17
3,631
6
11

-

-

-

494,010

3,613

3,665

-

-

-

36

4

4

-

-

-

602,360

7,297

5,708

-

-

-

-

-

-

-

-

-

Interest rate derivatives
Swap agreements

12,160

161

142

-

-

-

Total derivatives designated as cash flow hedges

12,160

161

142

-

-

-

58

1

-

-

-

-

Interest rate derivatives
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options soldCommodity derivatives
Fuel derivatives
Electricity derivatives
Total derivatives held for trading

Derivatives held for hedging(a) Designated as cash flow hedges
Foreign exchange derivatives
Spot and forward contracts(b) Designated as fair value hedges
Foreign exchange derivatives
Swap agreements

Interest rate derivatives
Swap agreements

32,941

144

622

-

-

-

Total derivatives designated as fair value hedges

32,999

145

622

-

-

-

Total derivatives held for hedging

45,159

306

764

-

-

-

Total derivative financial instruments

647,519

7,603

6,472

-

-

-

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH32

NOTES TO THE FINANCIAL STATEMENTS (continued)
10. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Hedging relationships
The NZ Banking Group has two types of allowable hedging relationships which it enters into: fair value hedges and cash flow hedges. Each has specificrequirements when accounting for the fair value changes in the hedging relationship. For details on the accounting treatment of each type of hedging
relationship refer to Note 1 Accounting Policy E (ii).

For personal use only

Fair value hedges
The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or unrecognised firm commitment that may affect the income
statement. Changes in fair value might arise through changes in interest rates or foreign exchange rates. The NZ Banking Group’s fair value hedges
principally consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate long-term financial instruments due tomovements 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 theincome statement at the same time the hedging instrument impacts the income statement. If a hedging relationship is terminated, the fair value adjustment to
the hedged item continues to be recognised as part of the carrying amount of the item or group of items and is amortised to the income statement as a part ofthe effective yield over the period to maturity. The table below shows the gain or loss on fair value hedges by hedging instrument and hedge item attributable
to the hedged risk:
NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008$m

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

390
(404)

43
(44)

661
(728)

(24)
29

-

-

Net ineffectiveness on qualifying fair value hedges

(14)

(1)

(67)

5

-

-

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 and liabilities and highly probable
forecast transactions. The NZ Banking Group’s cash flow hedges consist principally of interest rate swaps that are used to protect against exposures tovariability in future interest cash flows on non-trading assets and liabilities which bear interest at variable rates or which are expected to be refunded or
reinvested in the future. The NZ Banking Group primarily applies cash flow hedge accounting, where necessary, to its variable rate loan assets, variable rate
liabilities and short term re-issuances of fixed rate customer and wholesale deposit liabilities. The amounts and timing of future cash flows, representing bothprincipal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their forecast repricing profile. This forms thebasis 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 the hedged forecast transactions
take place and is fully amortised when the hedging relationship matures. The table below shows the movements in the cash flow hedging reserve:

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

NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
Audited31/03/2008
30/09/2008
$m
$m

24
(19)
7
(9)
3

84
(16)
5
(17)
6

84
(37)
11
(47)
13

-

-

-

6

62

24

-

-

-

The mechanics of hedge accounting results in the gain or loss in the cash flow hedging reserve above being released into the income statement at the sametime that the corresponding loss or gain attributable to the hedged item impacts the income statement. It will not necessarily be released to the income
statement uniformly over the period of the hedging relationship as the fair value of the derivative is driven by changes 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 thananother, which impacts when the hedging reserve is released to the income statement.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH33

NOTES TO THE FINANCIAL STATEMENTS (continued)

10.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

For personal use only

The table below shows the breakdown of the cash flow hedging reserve attributable to each type of cash flow hedging relationship:

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

Total cash flow hedging reserve

NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008
$m

214
(60)

(5)
51

70
(1)

-

-

-

(148)

16

(45)

-

-

-

6

62

24

-

-

-

All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur which is anticipated to takeplace over the next 0 - 10 years (31/03/2008 0-10 years; 30/09/2008 0-10 years).
All gains and losses associated with the ineffective portion of the hedging derivatives are recognised immediately as ‘other operating income’ in theincome statement. The ineffectiveness recognised in the income statement in respect of cash flow hedges was less than $1 million in the NZ Banking
Group (31/03/2008 less than $1 million; 30/09/2008 less than $1 million) and $nil in the NZ Branch (31/03/2008 $nil; 30/09/2008 $nil).
There were no transactions where cash flow hedge accounting ceased in the period ended 31 March 2009 as a result of highly probable cash flows thatwere no longer expected to occur (31/03/2008 no transactions; 30/09/2008 no transactions).

11.

12.

AVAILABLE-FOR-SALE ASSETS
Government, Local Body stock and bonds
Other debt securities
Equity securities

496
30
71

3
38
55

3
41
65

-

-

-

Total available-for-sale assets

597

96

109

-

-

-

Overdrafts
Credit card outstandings
Term loans - housing 1
Term loans - non-housing
Finance lease receivables

2,094
1,429
53,537
40,696
741

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

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

4,773
-

-

-

Gross loans and advances
Provision for credit impairment (Note 14)

98,497(879)

93,639(522)

98,284
(666)

4,773
(3)

-

-

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

(295)
1,127
(54)
94

(337)
(263)
(58)
120

(346)
353
(55)
109

(24)
(1)
9

-

-

Total net loans and advances

98,49092,57997,679

4,754

-

-

NET LOANS AND ADVANCES

1

On 27 February 2009, ANZ National Bank Limited sold $4,877 million of residential mortgages to the NZ Branch. The NZ Banking Group's consolidated
financial statements do not change as a result of transferring these assets.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH34

NOTES TO THE FINANCIAL STATEMENTS (continued)

13. IMPAIRED ASSETS, PAST DUE ASSETS AND OTHER ASSETS UNDER ADMINISTRATION
Individually impaired assets

Unaudited 31/03/2009

Retailmortgages$m

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

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate
exposures
exposures
$m
$m

Total
$m

83
200
(10)
(64)
(9)

30
127
(20)
(15)
(66)

214
186
(14)
(28)
(5)

327
513
(44)
(107)
(80)

-

-

-

-

Balance at end of the period

200

56

353

609

-

-

-

-

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)

-

-

-

-

Balance at end of the period

14

21

124

159

-

-

-

-

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

7
103
(2)
(18)
(7)

20
122
(14)
(98)

88
228
(8)
(86)
(8)

115
453
(10)
(118)
(113)

-

-

-

-

Balance at end of the year

83

30

214

327

-

-

-

-

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008$m

For personal use only

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

Unaudited 31/03/2008

Audited 30/09/2008

NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$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

309
744
(506)

102
350
(226)

102
856
(649)

-

-

-

Balance at end of the period

547

226

309

-

-

-

Restructured Items
Balance at beginning of the period
Transfers to Restructured Items
Transfers from Restructured Items

20
-

-

-

-

-

-

Balance at end of the period

20

-

-

-

-

-

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

1
10
(7)

-

1
-

-

-

-

Balance at end of the period

4

-

1

-

-

-

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

6
5

6
12

6
-

-

-

-

Balance at end of the period

11

18

6

-

-

-

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

18
(2)

7
(3)

24
(6)

-

-

-

Net interest foregone on impaired loans

16

4

18

-

-

-

Further analysis of past due assets can be found in Note 31 Financial Risk Management, including an ageing analysis of all past due assets where the counterparty has failed tomake 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 category as at 31 March 2009 (31/03/2008 nil; 30/09/2008 nil).
The NZ Banking Group had $20 million of restructured assets (31/03/2008 nil; 30/09/2008 nil). The NZ Banking Group did not have any material assets acquired throughenforcement of security (31/03/2008 nil; 30/09/2008 nil).

1

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

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH35

NOTES TO THE FINANCIAL STATEMENTS (continued)

14. PROVISION FOR CREDIT IMPAIRMENT

Unaudited 31/03/2009

Retailmortgages$m

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

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate
exposures
exposures
$m
$m

Total
$m

81
15

164
(16)

289
77

534
76

3

-

-

3

Balance at end of the period

96

148

366

610

3

-

-

3

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

28
35
(9)
-

10
78
9
(66)
-

94
99
1
(5)
(5)

132
212
10
(80)
(5)

-

-

-

-

Balance at end of the period

54

31

184

269

-

-

-

-

Total provision for credit impairment

150

179

550

879

3

-

-

3

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

58
4
-

130
15
-

234
27
3

422
46
3

-

-

-

-

Balance at end of the period

62

145

264

471

-

-

-

-

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)

-

-

-

-

For personal use only

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

Unaudited 31/03/2008

Balance at end of the period

2

10

39

51

-

-

-

-

Total provision for credit impairment

64

155

303

522

-

-

-

-

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

58
23

130
34

234
55

422
112

-

-

-

-

Balance at end of the year

81

164

289

534

-

-

-

-

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

4
31
(7)
-

13
80
15
(98)
-

27
79
2
(8)
(6)

44
190
17
(113)
(6)

-

-

-

-

Balance at end of the year

28

10

94

132

-

-

-

-

Total provision for credit impairment

109

174

383

666

-

-

-

-

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008$m

Audited 30/09/2008

Provision movement analysis
NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

New and increased provisions
Provision releases

226
(4)

62
(7)

223
(16)

-

-

-

Recoveries of amounts previously written off

222
(10)

55
(8)

207
(17)

-

-

-

Individual provision charge
Collective provision charge

212
76

47
46

190
112

3

-

-

Charge to income statement

288

93

302

3

-

-

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

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH36

NOTES TO THE FINANCIAL STATEMENTS (continued)

15.

SHARES IN CONTROLLED ENTITIES, ASSOCIATES AND JOINTLY CONTROLLED ENTITIESNZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008 30/09/2008$m$m$m
Shares in controlled entities
Unquoted at cost
Shares in associates
Unquoted at cost plus equity accounted adjustments

Unaudited
31/03/2009$m

NZ Branch
Unaudited
Audited31/03/2008 30/09/2008
$m
$m

-

-

-

142

144

-

-

-

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

248

208

219

-

-

-

Total shares in controlled entities, associates andjointly controlled entities

396

350

363

-

-

-

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

144
2
2

10
46
2
84

10
48
(2)
88

-

-

-

Balance at end of the period

148

142

144

-

-

-

For personal use only

148

Shares in associates at 31 March 2009 includes goodwill of $59 million (31/03/2008 $54 million; 30/09/2008 $57 million) for the NZ Banking Group and $nil million (31/03/2008 $nil;
30/09/2008 $nil) for the NZ Branch.

Shares in jointly controlled entities comprise:
Balance at beginning of the period
Acquisitions
Share of profit of equity accounted jointly controlled entities

219
23
6

196
12

196
23

-

-

-

Balance at end of the period

248

208

219

-

-

-

Shares in jointly controlled entities at 31 March 2009 includes goodwill of $97 million (31/03/2008 $97 million; 30/09/2008 $97 million) for the Group and $nil million (31/03/2008$nil; 30/09/2007 $nil) for the NZ Branch.

1
The NZ Banking Group, via its associate, Cards NZ Limited, acquired shares in Visa in March 2008, resulting in an equity accounted profit of $88 million being recognised on thesale of the shares at fair value by Cards NZ Limited. Visa shares not sold into the initial public offering are held as an available-for-sale asset on the balance sheet.

16.

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

458
25
51
58
55
231

526
18
51
53
9
256

535
20
50
57
85
253

25
-

-

-

Total other assets

878

913

1,000

25

-

-

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH37

NOTES TO THE FINANCIAL STATEMENTS (continued)

17.

DEFERRED TAX ASSETSNZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008
$m

118
103
(28)

7
5
40

7
59
52

1
-

-

-

Balance at end of the period

193

52

118

1

-

-

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

251
4
1
6
168
4
20
2

158
2
(1)
31
98
4
2
1

200
3
11
125
3
8
3

1
-

-

-

456

295

353

1

-

-

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

(263)

(243)

(235)

-

-

-

Net deferred tax assets

193

52

118

1

-

-

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

51
1
1
(5)
43
1
12
(1)

18
(1)
(3)
(1)
(5)
1
2
(6)

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

1
-

-

-

Total deferred tax credited to the income statement

103

5

59

1

-

-

For personal use only

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

There was no deferred tax asset charged or credited to equity as at 31 March 2009 (31/03/2008 $nil; 30/09/2008 $nil). There were no unrecognised deferred tax assets as at 31
March 2009 (31/03/2008 $nil; 30/09/2008 $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 of deferred tax assets as at 31 March 2008
and 30 September 2008.

1
Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities
within the same taxable group.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH38NOTES TO THE FINANCIAL STATEMENTS (continued)

18.

PREMISES AND EQUIPMENTNZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008
$m

63
(11)

69
(12)

69
(12)

-

-

-

Total carrying amount

52

57

57

-

-

-

Leasehold improvements
At costAccumulated depreciation

100
(77)

97
(75)

98
(75)

-

-

-

Total carrying amount

23

22

23

-

-

-

264
(184)

244
(172)

255
(176)

-

-

-

80

72

79

-

-

-

252
(204)

52
-

246
(196)

-

-

-

Total carrying amount

48

52

50

-

-

-

Work in progress

47

35

33

-

-

-

Total premises and equipment

250

238

242

-

-

-

For personal use only

Freehold and leasehold land and buildings
At costAccumulated depreciation

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

Reconciliations of the carrying amounts for each class of premises and equipment are set out below:

Freehold and leasehold land and buildings
Balance at beginning of the period
Additions
Disposals
Depreciation

57
10
(15)
-

57
-

57
1
(1)

-

-

-

Balance at end of the period

52

57

57

-

-

-

Leasehold improvements
Balance at beginning of the period
Additions
Disposals
Depreciation

23
2
(2)

24
(2)

24
3
(4)

-

-

-

Balance at end of the period

23

22

23

-

-

-

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

79
8
(7)

78
1
(7)

78
16
(15)

-

-

-

Balance at end of the period

80

72

79

-

-

-

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

50
9
(2)
(9)

50
11
(9)

50
18
(1)
(17)

-

-

-

Balance at end of the period

48

52

50

-

-

-

Work in progress
Balance at beginning of the period
Additions
Disposals
Depreciation

33
14
-

23
12
-

23
10
-

-

-

-

Balance at end of the period

47

35

33

-

-

-

Total premises and equipment

250

238

242

-

-

-

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH39

NOTES TO THE FINANCIAL STATEMENTS (continued)

19.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill
Gross carrying amount
Balance at beginning and end of the year

NZ Banking Group
AuditedUnaudited
Unaudited
31/03/2008
30/09/2008
31/03/2009
$m
$m
$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008
$m

3,262

3,262

-

-

-

SoftwareGross carrying amount
Balance at beginning of the year
Additions

96
4

68
6

68
28

-

-

-

Balance at end of the year

100

74

96

-

-

-

Accumulated amortisation
Balance at beginning of the year
Amortisation expense1

(47)
(6)

(39)
(4)

(39)
(8)

-

-

-

Balance at end of the year

(53)

(43)

(47)

-

-

-

Total software

47

31

49

-

-

-

For personal use only

3,262

Other intangible assets
Total goodwill and other intangible assets

12

3

3

-

-

-

3,321

3,296

3,314

-

-

-

No impairment losses have been recognised against the gross carrying amount of goodwill, software and other intangible assets for the year ended 31 March 2009 (31/03/2008$nil; 30/09/2008 $nil).
1

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

20.

DUE TO OTHER FINANCIAL INSTITUTIONS

Australia and New Zealand Banking Group Limited(Ultimate Parent Bank)
Securities sold under agreements to repurchasefrom other financial institutions
Securities sold under agreements to repurchase from central banks
Other financial institutions

5,280
45

592
198

1,001
97

4,751
-

-

-

1,856
1,730

1,593

2,213

-

-

-

Total due to other financial institutions

8,911

2,383

3,311

4,751

-

-

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

528
4,751

592
-

1,001
-

4,751

-

-

Balances owing to the Ultimate Parent Bank are due as detailed in Note 31. Interest is paid at variable bank rates.

The Banking Group has entered into repurchase agreements for residential mortgage-backed securities with the RBNZ with a book value of $1,806 million (31/03/2008 $nil;
30/09/2008 $nil). The underlying collateral accepted by the Reserve Bank under this transaction are mortgages to the value of $2,250 million (31/03/2008 $nil; 30/09/2008 $nil).

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH40NOTES TO THE FINANCIAL STATEMENTS (continued)

21.

DEPOSITS AND OTHER BORROWINGSNZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008 30/09/2008
$m
$m
$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
Audited31/03/2008 30/09/2008
$m
$m

7,054
30,02023,583
4,248
1,702
9

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

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

-

-

-

Total deposits and other borrowings recognised at amortised cost

66,616

63,14264,483---

Fair value through the profit or loss
Commercial paper

6,144

10,93812,653---

Total deposits and other borrowings recognised at fair value

6,144

10,93812,653---

Total deposits and other borrowings

72,76074,08077,136---

For personal use only

Amortised cost
Certificates of deposit
Term deposits
Demand deposits bearing interest
Deposits not bearing interest
Secured debenture stock
Securities sold under agreement to repurchase

The principal at maturity of commercial paper at fair value through the profit and loss is $6,153 million (31/03/2008 $11,014; 30/09/2008 $12,755 million).
The NZ Banking Group has not defaulted on any principal, interest or redemption amounts on its borrowed funds during the year ended 31 March 2009 (31/03/2008 nil; 30/09/2008nil). Deposits from customers are unsecured and rank equally with other unsecured liabilities of the NZ Banking Group. In the unlikely event that a company in the NZ Banking
Group was put into liquidation or ceased to trade, secured creditors and those creditors set out in the Seventh Schedule of the Companies Act 1993 would rank ahead of theclaims of unsecured creditors.
Included within deposits and other borrowings are the following balances:
Commercial paper issued by ANZ National (Int'l) Limited
guaranteed by ANZ National Bank Limited at amortised cost

6,135

10,933

12,670---UDC Finance Limited secured debentures
Carrying value of total tangible assets

2,006

2,064

2,032

-

-

-

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.

22.

PAYABLES AND OTHER LIABILITIESCreditors
Accrued interest and unearned discounts
Defined benefit schemes deficit
Share-based payments liability
Accrued charges
Security settlements
Equitable assignment of mortgages1
Other liabilities
Total payables and other liabilities

1

61
734
66
18
201
552
22
489

42
794
5
24
162
270
28
359

77
991
27
29
216
235
25
274

7
1
-

-

-

2,143

1,684

1,874

8

-

-

The ANZ FlexiMortgage Income Trust holds mortgages under an equitable assignment with the subsidiary, ANZ National Bank Limited (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 thesefinancial statements.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH41

NOTES TO THE FINANCIAL STATEMENTS (continued)

23.

DEFERRED TAX LIABILITIESNZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008$m$m$m
Provision for deferred income tax
Balance at beginning of the period
Charged (credited) to income statement
Charged (credited) directly to equity
Set-off of deferred tax liabilities pursuant to set-off provisions1

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008
$m

(33)
(11)
44

(48)
(4)
52

-

-

-

-

-

-

-

-

-

Deferred tax liabilities comprise the following temporary differences:
Lease financeDefined benefit schemes
Other

101
162

76
167

90
145

-

-

-

263

243

235

-

-

-

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

(263)

(243)

(235)

-

-

-

-

-

-

-

-

-

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

11
9

(34)
(2)
3

(20)
(2)
(26)

-

-

-

Total deferred tax (credited) charged to the income statement

20

(33)

(48)

-

-

-

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

8

(11)

(4)

-

-

-

Total deferred tax (credited) charged directly to equity

8

(11)

(4)

-

-

-

For personal use only

20
8
(28)

Balance at end of the period

Net deferred tax liabilities

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 of deferred tax liabilities as at 31 March 2008
and 30 September 2008.

1
Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities
within the same taxable group.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH42

NOTES TO THE FINANCIAL STATEMENTS (continued)

24.

PROVISIONSNZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008 30/09/2008
$m
$m
$m

NZ Branch
Unaudited
Audited31/03/2008 30/09/2008
$m
$m

4

3

11

-

-

-

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

117
31
(35)

110
32
(30)

110
62
(55)

-

-

-

Balance at end of the period

113

112

117

-

-

-

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

32
17
(22)

2
(1)

2
30
-

-

-

-

Balance at end of the period

27

1

32

-

-

-

Redundant assets restructuring costs2
Balance at beginning of the period
Provisions utilised

1
4

2
(1)

2
(1)

-

-

-

Balance at end of the period

1

1

1

-

-

-

Balance at beginning of the period
New provisions
Provisions utilised

29
179
(13)

48
8
(19)

48
11
(30)

-

-

-

Balance at end of the period

195

37

29

-

-

-

Total provisions

340

154

190

-

-

-

For personal use only

Non-lending losses, frauds and forgeries

Unaudited
31/03/2009$m

Other provisions3

1

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

2

Personnel restructuring costs and redundant assets restructuring costs
Restructuring cost provisions arise from exit activities relating to material changes in the scope or manner of business undertaken by the NZ Banking Group and includes
termination benefits. Provisions are made when the NZ Banking Group is demonstrably committed, it is probable that the costs will be incurred, though their timing is uncertain,
and the costs can be reliably estimated. The majority of provisions recognised at 31 March 2009 are expected to be settled over the 2009 financial year, with the exception thatprovisions 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 theleases.

3

ING New Zealand Funds
Trading in the ING Diversified Yield Fund and the ING Regular Income Fund ('the Funds') was suspended on 13 March 2008 due to deterioration in the liquidity and credit markets.
These funds are managed by the joint venture partner ING (NZ) Limited. Some of these funds were sold to ANZ National customers.

On 25 February 2009, ING (NZ) Limited announced that investors in the Funds will be receiving a proposal which allows them the ability to exit the investment for a cash amount.
We understand further details on the proposal will be released shortly.
The estimated cost of this proposal to the Bank is approximately $166m and this amount has been recognised in 'other operating income' in the Income Statement.
The ultimate cost to the Bank will depend on the value of units in the underlying funds, the discount rate applied and recoveries under insurance cover. In addition the CommerceCommission has sought information regarding the two Funds and is investigating this matter, although at this stage, it is not possible to determine the outcome of any
investigation.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH43

NOTES TO THE FINANCIAL STATEMENTS (continued)

25.

BONDS AND NOTESNZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

For personal use only

Issued by ANZ National Bank Limited
Denomination
Face value ($m)
NZD
150m
fixed rate notes
NZD
50m
floating rate notes
NZD
70m
floating rate notes
NZD
100m
fixed rate notes
NZD
75m
fixed rate notes
NZD
150m
fixed rate notes
NZD
170m
NZD
50m
NZD
175m
NZD
60m
Other bonds and notes 1
Fair value hedge adjustment

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

Issued by ANZ National (Int'l) Limited
Denomination
Face value ($m)
EUR
100m
floating rate notes
GBP
300m
floating rate notes
HKD
80m
fixed rate notes
fixed rate notes2
USD
27m
USD
120m
floating rate notes
USD
250m
fixed rate notes
USD
750m
floating rate notes
floating rate notes3
USD
170m
floating
rate notes3
USD
1,500mNZD
200m
fixed rate notes
JPY
15,000m
floating rate notes
EUR
750m
floating rate notes
HKD
1,000mfixed rate notes
NZD
150m
floating rate notes
HKD
300m
fixed rate notes
HKD
280m
fixed rate notes
USD
750m
floating rate notes
USD
250m
floating rate notes
USD
300m
floating rate notes
NZD
20m
floating rate notes
EUR
300m
floating rate notes
JPY
17,770m
fixed rate notes
JPY
17,500m
floating rate notes
floating rate notes3
USD1m
floating rate notes4
USD
2,000m
JPY
8,640mfixed rate notes
JPY
1,000mfixed rate notes
JPY
6,000mfloating rate notes
floating rate notes3
USD
8m
floating rate notes5
HKD
150m
floating rate notes6
HKD
190m
USD
NZD
CHF
SGD
USD
AUD
USD
USD
GBP
GBP
USD
USD
USD

750m
100m
275m
200m
100m
50m
890m
300m
435m
450m
1,000m
2,000m
250m

floating rate notes
floating rate notes
floating rate notes
fixed rate notes
floating rate notes
floating rate notes
floating rate notes8
fixed rate notes
floating rate notes
floating rate notes8
fixed rate notes9
fixed rate notes
floating rate notes

Maturity
2009
2009
2010
2010
2010
2011

Interest rate %6.82%
3 month BKBM + 0.30%
3 month BKBM + 0.35%
8.50%
8.50%
6.80%

2011
2011
2014
2014

3 month BKBM + 0.90%
8.25%
8.50%
8.50%

Maturity
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
2009
2009
2009
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2011
2011
2012
2012.00
2013.00
2015.00

Interest rate %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%
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%
0.114%
0.01%
3 month JPY LIBOR
1 month LIBOR + 0.01%
6 month HIBOR + 0.60%
6 month HIBOR + 0.60%
3 month LIBOR + 0.11%
3 month BKBM + 0.05%
3 month CHF LIBOR + 0.75%
3.22%
3 month LIBOR + 0.55%
3 month BBSW + 0.61%
3 month LIBOR + 1.03%
5.50%
3 month GBP LIBOR + 0.05%
6 month GBP LIBOR + 0.08%
3.25%
6.20%
3 month LIBOR + 0.90%

50
70
100
75
150

150
70
150

150
50
70
100
150

170
50
175
60
81
334

174
35

170
50
175
146
62

1,315

579

1,123

1,748
227
150
68
1,320
528
20
2
3,521
155
108
14
1,320
100
422
232
176
60
1,567
528
1,094
1,132
1,760
3,521
440

199
755
13
34
151
315
946
1,881
200
189
1,495
162
150
49
45
946
315
378
20
598
224
221
1
2,523
10
24
31
946
100
378
1,095
1,133
-

806
179
254
200
215
1,607
193
150
58
54
1,120
373
448
20
643
254
250
1
2,985
124
14
86
12
1,120
100
375
209
149
60
1,328
448
1,169
1,210
2,985
373

20,213

15,527

19,572

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH44

NOTES TO THE FINANCIAL STATEMENTS (continued)

25.

NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008 30/09/2008
$m
$m
$m

BONDS AND NOTES (continued)

Maturity
2008

Interest rate %3 month BKBM

-

480

-

Issued by ANZ Holdings (New Zealand) Limited
Denomination
Face value
floating rate notes10
AUD
1,000mMaturity
2053

Interest rate %BBSW + 1.00% p.a.

-

1,155

-

Issued by Samson Funding Limited
Denomination
Face value
fixed rate notes11
USD
350m
fixed rate notes11
USD
750m

Maturity
2053
2053

Interest rate %4.484%
5.36%

666
1,426

461
990

527
1,160

For personal use only

Issued by NBNZ Holdings Limited
Denomination
Face value
floating rate notes7
NZD
480m

2,092

1,451

1,687

Total bonds and notes

23,62019,192

22,382

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

2,699

1,133

2,538

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

1

Other bonds and notes includes index linked notes and other fixed rate and fixed term bonds.
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 electto redeem the notes annually from May 2004. These notes matured in May 2008.
2

3
The interest rate payable on these notes is stepped as follows: Year 1 1 month LIBOR - 0.02%, Year 2 1 month LIBOR, Year 3 1 month LIBOR + 0.01%, Year 4 1
month LIBOR + 0.02% and Year 5 1 month LIBOR + 0.03%. The investor may elect to extend the maturity of the notes for a year on a monthly basis. These notes
were orginally for USD1.5billion, but between 7 August 2007 and 6 March 2009, investors elected not to extend some of these bonds. As a result these bonds
carrying a fixed maturity as follows: 7 August 2008 USD 89 million; 5 September 2008 USD 1,232 million; 7 October 2008 USD 164 million; 5 December 2008 USD 6
million; 7 May 2009 USD 1 million; and 5 March 2010 USD 8 million.
4
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. On
10 June 2008 and 10 September 2008 and 10 December 2008, investors elected not to extend USD 686 million,USD 525 million and USD 789 million of bonds
which has resulted in these bonds carrying a fixed maturity on 9 April 2009, 10 July 2009 and 9 October 2009 respectively.

5
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 semiannual coupon date from 28 April 2006. The issuer exercised their option to call the note on 28 April 2008.
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 semiannual coupon date from 28 April 2006. The issuer exercised their option to call the note on 28 April 2008.
7
These notes can be redeemed by the noteholder giving not less than 30 days notice. The bonds matured in August 2008.
8
These notes were issued to subsidiaries of ANZ Group.
9
These notes are guaranteed by the Bank and benefit from a supporting guarantee from the NZ Crown.
10

These notes were issued on 23 September 2003 by ANZ Holdings (New Zealand) Limited. The notes were 'stapled' to preference shares issued by Australia and
New Zealand Banking Group Limited (the Ultimate Parent Bank) and could not be traded separately from them. All interest was payable quarterly based on BBSW +1.00% p.a., with interest payments due 15 March, 15 June, 15 September and 15 December. On 15 September 2008, the preference shares were converted toordinary shares and ANZ Holdings (New Zealand) Limited opted to collapse these notes.

11
These notes were issued in two tranches of USD 350,000,000 and USD 750,000,000 by Samson Funding Limited on 26 November 2003 and mature in 2053. The
notes are 'stapled' to preference shares issued by the Ultimate Parent Bank and may not be traded separately from them. They can be repaid on 15 January 2010
(USD 350,000,000,000) and 15 December 2013 (USD 750,000,000,000). Interest is payable half yearly in arrears at a fixed rate of 4.484% p.a. (USD
350,000,000,000) and 5.36% p.a. (USD 750,000,000), with interest payments due 15 June and 15 December.

26.

TERM FUNDING

ANZ Funds Pty Limited

NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m
1,766

1,766

1,766

Unaudited
31/03/2009$m-

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008$m-

ANZ Funds Pty Limited (Related Company)
This New Zealand dollar loan was made on 1 December 2003 and is repayable upon demand being made by the ANZ Funds Pty Limited, where 12 months priorwritten notice is given, unless a shorter notice period is agreed upon. Interest is payable quarterly in arrears based on BKBM + 0.20% p.a., with interest payments
due 1 March, 1 June, 1 September and 1 December. As part of the annual review of terms and conditions of the loan the margin was increased to + 0.32% p.a.,effective from 1 December 2007.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH45NOTES TO THE FINANCIAL STATEMENTS (continued)

27. LOAN CAPITALNZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
Audited31/03/2008
30/09/2008
$m
$m

249
321
225
53
205
950
835

239
307
215
51
196
1,050
-

248
317
222
52
202
950
835

-

-

-

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

2,838
(3)

2,058
(5)

2,826
(6)

-

-

-

Total loan capital

2,835

2,053

2,820

-

-

-

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

1,053

1,008

1,041

-

-

-

For personal use only

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

AUD 207,450,000 loan
This loan was drawn down on 31 August 2004 and has an ultimate maturity date of 31 August 2014. ANZ National Bank Limited (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., withinterest 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 loan on 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 subordinated fixed rate bonds
The terms and conditions of these fixed rate and fixed term bonds are as follows:
Term subordinated fixed rate 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

As at 31 March 2009, these bonds carried an AA- rating by Standard & Poor's.
The Bank may elect to redeem the bonds on their call date. If the bonds are not called the Bank will continue to pay interest to maturity at the five year interest
rate swap rate plus 0.75% p.a., 0.76% p.a. and 0.62% p.a. for the 15 September 2006; 2 March 2007 and 23 July 2007 bonds respectively. Interest is payablehalf yearly in arrears based on the fixed coupon rate.
The terms and conditions of the perpetual subordinated bond are as follows:
Perpetual Subordinated Bond
Issue date
18 April 2008

Amount $m
835

Coupon rate
9.66%

1st Call date
18 April 2013

2nd Call date
18 April 2018

The Bank may elect to redeem the bonds on 18 April 2013, 18 April 2018 or any interest payment date subsequent to 18 April 2018. Interest is payable half
yearly in arrears on 18 April and 18 October each year, beginning on 18 October 2008, up to and including the Second Call Date and then quarterly thereafter.
If the bonds are not called at the First Call Date, the coupon rate will reset to the five year interest swap rate plus 2.00%. Should the bonds not be called at theSecond Call Date, the Coupon Rate from the Second Call Date onwards will be set on a quarterly basis to the three month FRA rate plus 3.00%.
As at 31 March 2009, these bonds carried an A+ rating by Standard and Poor's.
Interest may not necessarily be paid on each interest payment date as under the terms of the Bonds, the Bank has a general right and in certain specified
circumstances an obligation, to defer payment of interest on the Bonds.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH46

NOTES TO THE FINANCIAL STATEMENTS (continued)

27.

LOAN CAPITAL (continued)

For personal use only

All of the subordinated bonds are listed on the New Zealand Exchange ('NZX'). The Market Surveillance Panel of the NZX granted the Bank a waiver from the requirements ofListing 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. Rule 10.5 relates to preparing andproviding a copy of half yearly and annual reports to the NZX. The Bank has been granted a waiver from these rules 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 atthe above locations; that all bondholders are notified on an ongoing basis, by way of a sentence included on the notification of interest payments, that the latest GDS is available
for review at the above locations; and that a copy of the GDS is sent to the NZX on an ongoing basis.

Loan capital is subordinated in right of payment in the event of liquidation or wind up to the claims of depositors and all creditors of the 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.

28.

ORDINARY SHARE CAPITAL

Issued share capital
Ordinary shares at beginning and end of the period

NZ Banking Group
Unaudited
Unaudited
31/03/2009
31/03/2008
Number of
Number ofIssued Shares
Issued Shares

AuditedUnaudited
30/09/2008
31/03/2009
Number of
Number ofIssued Shares Issued Shares

NZ Branch
Unaudited
31/03/2008

Audited30/09/2008
Number ofIssued Shares

382,238,236

382,238,236

382,238,236

-

-

-

Redeemable preference shares at beginning of the period
Issue of redeemable preference shares during period
Redemption of redeemable preference shares during period

3,210,066,601
795,228,628-

2,700,066,601
510,000,000-

2,700,066,601
510,000,000
-

-

-

-

Redeemable preference shares at end of the period

4,005,295,229

3,210,066,601

3,210,066,601

-

-

-

Issued share capital at end of the period

4,387,533,465

3,592,304,837

3,592,304,837

-

-

-

NZ Banking Group
Unaudited
Unaudited
31/03/2009
31/03/2008$m$m

Audited30/09/2008$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008$m

Paid in share capital & Head Office AccountOrdinary shares fully paid at beginning and end of the period

1,453

1,453

1,453

-

-

-

Redeemable preference shares at beginning of the period
Issue of redeemable preference shares during period
Redemption of redeemable preference shares during period

3,960
1,000
-

3,450
510
-

3,450
510
-

-

-

-

Redeemable preference shares at end of the period

4,960

3,960

3,960

-

-

-

Paid in share capital at end of period
Head Office Account

6,413
11

5,413
-

5,413
-

11

-

-

Total capital & Head Office Account at end of period

6,424

5,413

5,413

11

-

-

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.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH47

NOTES TO THE FINANCIAL STATEMENTS (continued)

29.

RESERVES AND RETAINED EARNINGSNZ Banking Group
Unaudited
Unaudited
31/03/2009
31/03/2008$m$m
Available-for-sale revaluation reserve
Balance at beginning of the period
Valuation gain recognised after tax
Cumulative gain transferred to the income
statement on sale of financial assets

Audited30/09/2008$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
Audited31/03/2008 30/09/2008
$m
$m

(1)
16

(1)
24

-

-

-

-

-

-

-

-

-

Balance at end of the period

26

15

23

-

-

-

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

24
(6)
(12)

84
(11)
(11)

84
(34)
(26)

-

-

-

Balance at end of the period

6

62

24

-

-

-

Total reserves

32

77

47

-

-

-

1,667
422

1,869
609

1,869
990

(5)

-

-

Total available for appropriation
Actuarial loss on defined benefit schemes after tax
Interim ordinary dividends paid
Foreign exchange loss on redemption of redeemablepreference shares
Supplementary dividend
Foreign investor tax credits

2,089
(28)
(1,000)2,478(8)(1,169)2,859(23)(1,169)

(5)
-

-

-

-

-

-

-

-

-

Balance at end of the period

1,061

1,301

1,667

(5)

-

-

For personal use only

23
3

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

The paid dividend on ordinary shares was $2.64 per share (31/03/2008 $nil per share; 30/09/2008 $nil per share).

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH48

NOTES TO THE FINANCIAL STATEMENTS (continued)

30. CAPITAL ADEQUACYFor personal use only

OVERSEAS BANKING GROUP CAPITAL ADEQUACY RATIO

Unaudited
31/03/2009
Basel II

Unaudited
31/03/2008
Basel II

Unaudited
30/09/2008
Basel II

Tier One Capital

8.2%

6.9%

7.7%

Total Capital

11.0%

10.1%

11.1%

Overseas Banking Group

Basel II came into force on 1 January 2008. The Overseas Banking Group received accreditation from APRA to apply the Advanced Internal Ratings Based (Advanced IRB)
methodology for credit risk weighted assets and the Advanced Measurement Approach (AMA) for operational risk weighted asset equivalent.
The Overseas Banking Group is required by APRA to hold minimum capital at least equal to that specified under the Advanced IRB methodology. The Overseas Banking
Group exceeded the minimum capital adequacy requirements as specified by APRA as at 30 March 2009.
Further details of the Overseas Banking Group's capital adequacy requirements and credit risk management processes can be found in its 2008 Annual Report. This report
can be accessed at the following website address: www.anz.com.
RISK WEIGHTED CREDIT RISK EXPOSURES
Risk weighted exposures for the NZ Banking Group and NZ Branch have been derived in accordance with the RBNZ document entitled 'Capital Adequacy Framework (Basel I
Approach)' (BS2) dated March 2008.
Total Risk Weighted Exposures of the NZ Banking Group as at 31 March 2009 unaudited:
Risk weighted
Principal
amount
$m
3,853
236
9,040
733
54,68045,97518,455On-balance sheet exposures
Cash and short term claims on Government
Long term claims on Government
Claims on banks
Claims on public sector entities
Residential Mortgages
Other
Non risk weighted assets

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

132,972

Off-balance sheet exposures
Direct credit substitutes
Commitments with certain drawdown
Transaction related contingent items
Short term, self liquidating trade related contingencies
Other commitments to provide financial services which have an
original maturity of 1 year or more
Other commitments with an original maturity of less than 1 year
or which can be unconditionally cancelled at any time
Market related contracts 1- Foreign exchange- Interest rate
- Other1

exposure
$m
24
1,808
147
27,34045,97575,294

Averagecounterparty
risk weight

100%
100%
50%
20%

Creditequivalentamount
$m
2,287
732
542
13

34%
75%
70%
62%

Risk weighted
exposure
$m
780
546
378
8

4,770

50%

2,385

100%

2,385

17,839

0%

-

100%

-

105,297450,806
57

7,528
11,808
15

22%
23%
73%

1,654
2,770
11

582,936

25,310Principal
amount
$m
2,287
732
1,083
65

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

8,532

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH49

NOTES TO THE FINANCIAL STATEMENTS (continued)

30. CAPITAL ADEQUACY (continued)

For personal use only

Total Risk Weighted Exposures of the NZ Banking Group as at 31 March 2008 unaudited:
Risk weightOn-balance sheet exposures
Principal amount
$m
2,371
346
5,796
390
52,65642,845
8,171

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

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

112,575

Off-balance sheet exposures

Direct credit substitutes
Commitments with certain drawdown
Transaction related contingent items
Short term, self liquidating trade related contingencies
Other commitments to provide financial services which have an
original maturity of 1 year or more
Other commitments with an original maturity of less than 1 year
or which can be unconditionally cancelled at any time
Market related contracts 2- Foreign exchange- Interest rate
- Other

Principal
amountCreditconversion
factor

$m
2,487
1,385
567
315

100%
100%
50%
20%

Credit equivalentamount
$m
2,487
1,385
284
63

4,191

50%

20,3890%

Risk weighted
exposure
$m
35
1,159
78
26,32842,84570,445

Averagecounterparty risk
weightRisk weighted
exposure

44%
69%
80%
49%

$m
1,100
956
226
31

2,096

100%

2,096

0

100%

-

102,688508,104
9

4,571
4,122
-

25%
22%
0%

1,133
889
-

640,135

15,008

6,431

Total Risk Weighted Exposures of the NZ Banking Group as at 30 September 2008 audited:

Principal amount
$m
3,940
297
7,465
668
53,89145,663
11,154On-balance sheet exposures
Cash and short term claims on Government
Long term claims on Government
Claims on banks
Claims on public sector entities
Residential Mortgages
Other
Non risk weighted assets

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

123,078

Off-balance sheet exposures
Direct credit substitutes
Commitments with certain drawdown
Transaction related contingent items
Short term, self liquidating trade related contingencies
Other commitments to provide financial services which have an
original maturity of 1 year or more
Other commitments with an original maturity of less than 1 year
or which can be unconditionally cancelled at any time
Market related contracts 2- Foreign exchange- Interest rate
- Other2

Risk weighted
exposure
$m
30
1,493
134
26,94645,66374,266

Principal
amountCreditconversion
factorCredit equivalentamountAveragecounterparty risk
weightRisk weighted
exposure

$m
2,418
659
1,090
118

100%
100%
50%
20%

$m
2,418
659
545
24

37%
73%
91%
71%

$m
899
481
495
17

4,081

50%

2,041

100%

2,041

19,069

0%

0

100%

-

108,372
539,111
36

7,051
5,094
7

22%
23%
57%

1,584
1,159
4

674,954

17,839The credit equivalent amounts for market related contracts are calculated using the current exposure method.

6,680

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH50NOTES TO THE FINANCIAL STATEMENTS (continued)

30. CAPITAL ADEQUACY (continued)

For personal use only

Total Risk Weighted Exposures of the NZ Branch as at 31 March 2009 unaudited:
Risk weighted
Principal
amount
$m
204
4,770
10
31

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

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

5,015

Off-balance sheet exposures
Direct credit substitutes
Commitments with certain drawdown
Transaction related contingent items
Short term, self liquidating trade related contingencies
Other commitments to provide financial services which have an
original maturity of 1 year or more
Other commitments with an original maturity of less than 1 year
or which can be unconditionally cancelled at any time
Market related contracts 3- Foreign exchange- Interest rate
- Other

exposure
$m
41
2,385
10
2,436

Averagecounterparty
risk weight

100%
100%
50%
20%

Creditequivalentamount
$m
-

0%
0%
0%
0%

Risk weighted
exposure
$m
-

-

50%

-

0%

-

-

0%

-

0%

-

4,758
5,030
-

25
18
-

20%
20%
0%

5
4
-

9,788

43

Principal
amount$m-

Creditconversion
factor9

Total Risk Weighted Exposures of the NZ Branch as at 31 March 2008 unaudited:
Risk weighted
Prinicipal
amount$m-

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

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

-

Off-balance sheet exposures

Direct credit substitutes
Commitments with certain drawdown
Transaction related contingent items
Short term, self liquidating trade related contingencies
Other commitments to provide financial services which have an
original maturity of 1 year or more
Other commitments with an original maturity of less than 1 year
or which can be unconditionally cancelled at any time
Market related contracts 3- Foreign exchange- Interest rate
- Other3

Principal
amountCreditconversion
factorexposure
$m
-

$m
-

100%
100%
50%
20%

Creditequivalentamount
$m
-

-

50%

-

0%

-

-

0%

-

0%

-

-

-

0%
0%
0%

-

-

-

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

Averagecounterparty
risk weight
0%
0%
0%
0%

Risk weighted
exposure$m--AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH51

NOTES TO THE FINANCIAL STATEMENTS (continued)

30. CAPITAL ADEQUACY (continued)

For personal use only

Total Risk Weighted Exposures of the NZ Branch as at 30 September 2008 audited:

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

Off-balance sheet exposures
Direct credit substitutes
Commitments with certain drawdown
Transaction related contingent items
Short term, self liquidating trade related contingencies
Other commitments to provide financial services which have an
original maturity of 1 year or more
Other commitments with an original maturity of less than 1 year
or which can be unconditionally cancelled at any time
Market related contracts 4- Foreign exchange- Interest rate
- Equity

4

Creditconversion
factorRisk weight
0%
10%
20%
20%
50%
100%
n/a

Averagecounterparty risk
weightRisk weighted
exposure
$m
-

0%
0%
0%
0%

Risk weighted
exposure
$m
-

-

0%

-

-

0%

-

-

-

0%
0%
0%

-

-

-

Principal
amount
$m
-

100%
100%
50%
20%

Credit equivalentamount
$m
-

-

50%

-

0%

-

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

ADDITIONAL MORTGAGE INFORMATION
The following information sets out loan-to value ratios in respect of total residential mortgage loans and is derived in accordance with the definition of loan-to-valuation ratio
specified in RBNZ's document entitled 'Capital Adequacy Framework (The Standardised Approach)' (BS2A) dated November 2007.
Residential mortgages by loan-to-valuation ratio for the NZ Banking Group as at 31 March 2009
ExposureAmount 5$m
LVR range
0% - 80%
80% - 90%
Over 90%

39,713
7,417
6,218
53,348

5Loan value includes undrawn commitments where the drawn amount is secured by residential mortgage.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH52

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT
Strategy in using financial instruments
Financial instruments are fundamental to the NZ Banking Group’s business, constituting the core element of its operations. Accordingly, the risks associated with financial instruments are a significant
component of the risks faced by the NZ Banking Group. Financial instruments create, modify or reduce the credit, market (including traded or fair value risks and non-traded or interest and foreign
currency related risks) and liquidity risks of the NZ Banking Group’s balance sheet. These risks and the NZ Banking Group’s policies and objectives for managing such risks are outlined below. The
NZ Banking Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the NZ
Banking Group.

For personal use only

CREDIT RISK
Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations. The NZ Banking Group assumes credit risk in a wide range of lending and other activities indiverse 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 aroundthe world.
The NZ Banking Group has a common overall lending objective of sound growth for appropriate returns. The credit risk objectives of the entities within the NZ Banking Group are set by each Boardand are implemented and monitored within a tiered structure of delegated authority, designed to oversee multiple facets of credit risk. This may include asset writing strategies, credit
policies/controls, single exposures, portfolio monitoring and risk concentrations as appropriate. A 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 independent credit chains and is supported by comprehensive risk analysis, risk tools, monitoring processes and policies.

CREDIT RISK MANAGEMENT

Where appropriate the Group-wide credit risk management framework is applied to each entity across the NZ Banking Group with the aim of ensuring a structured and disciplined approach ismaintained in achieving the objectives set by each Board. The framework focuses on policies, people, skills, vision, values, controls, risk concentrations and portfolio balance. Where applicable it is
supported by portfolio analysis and asset-writing strategies which guide lending decisions and identify segments of the portfolio requiring attention. The effectiveness of the framework is monitored
through a series of compliance and reporting processes.
An independent Risk Management function, staffed by specialists, assists with credit risk management across each entity as required. In addition to providing independent credit assessment on
lending decisions, Risk Management also performs key roles in portfolio management by development and validation of credit risk measurement systems, loan asset quality reporting, anddevelopment of credit standards and policies.
The credit risk management framework is top down. Where required, the framework is defined firstly by the Overseas Banking Group Board establishing Vision and Values and secondly, by Credit
Principles and Policies. The effectiveness of the credit risk management framework is validated through the compliance and monitoring processes.
Risk Management's responsibilities for credit risk policy and management are executed through dedicated departments, which support the entities and Business Units within the NZ Banking Group. All
major Business Unit credit decisions require approval from both business writers and independent risk personnel.
Credit Risk is controlled through a combination of approvals, limits, reviews and monitoring procedures that are carried out on a regular basis, the frequency of which is dependent upon the level ofrisk. For the key operating entities within the NZ Banking Group credit risk policy and management is executed through the Chief Risk Officer who has various dedicated areas within the Risk
Management division. A formal outsourcing agreement provides for credit risk functions to be provided to a number of NZ Banking Group entities by staff of ANZ National Bank Limited.

The credit risk review function within Internal Audit, either within Australia or New Zealand, also provides a further independent check mechanism to ensure the quality of credit decisions. This may
include providing independent periodic checks on asset quality and compliance with the agreed standards and policies across the NZ Banking Group.
Country risk management
Some customer credit risks involve country risk whereby actions or events at a national or international level could disrupt servicing of commitments. Country risk arises when payment or discharge ofan obligation will, or could, involve the flow of funds from one country to another or involve transactions in a currency other than the domestic currency of the relevant country.

Country ratings are assigned to each country where the NZ Banking Group incurs country risk and have a direct bearing on the NZ Banking Group's risk appetite for each country. The country rating isdetermined through a defined methodology based around external ratings agencies’ ratings and internal specialist opinion. It is also a key risk consideration in the use of capital pricing model for crossborder flows.
The recording of country limits provides the NZ Banking Group with a means to identify and control country risk. Country limits ensure that there is a country- by-country ceiling on exposures thatinvolve country risk. They are recorded by time to maturity and purpose of exposure e.g. trade, markets, project finance. Country limits are managed centrally by the Overseas Bank, through a global
country risk exposure management system managed by a specialist unit within Institutional Risk.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH53

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (continued)
Portfolio stress testing
Stress testing is integral to strengthening the predictive approach to Risk Management and is a key component to managing risk appetite, asset writing strategies and business strategies. It creates
greater understanding of impacts on financial performance through modelling relationships and sensitivities between geographic, industry and business unit exposures under a range of macro
economic scenarios. Stress testing programmes have been implemented within the key operating business of the NZ Banking Group.
The Overseas Bank has a dedicated stress testing team within Risk Management that assists business and risk executives in the NZ Banking Group to model and report on a range of scenarios andstress tests.

For personal use only

Portfolio analysis and reporting
Credit portfolios are actively monitored at each layer of the risk structure to ensure credit deterioration is quickly detected and mitigated through the implementation of remediation strategies.

Businesses incurring credit risk undertake regular and comprehensive analysis of their credit portfolios. Issue identification and adherence to performance benchmarks are reported to risk andbusiness executives through a series of reporting processes, which include a monthly ‘asset quality’ reporting function closely supported and overseen by the NZ Banking Group Risk function ensuring
an efficient and independent conduit exists to quickly identify and communicate emerging credit issues to NZ Banking Group executives and each Board.

Collateral management
ANZ Group-wide credit principles specify to only lend what the counterparty has the capacity and ability to repay. The entities within the NZ Banking Group set limits on the acceptable level of credit
risk. Acceptance of credit risk is firstly based on the counterparty’s assessed capacity to meet contractual obligations (i.e. interest and capital repayments). Obtaining collateral is only used to mitigate
credit risk. Procedures are designed to ensure collateral is managed, legally enforceable, conservatively valued and adequately insured. Credit policies for each entity set out the types of acceptable
collateral, including:
•
•
•
•
•

cash;
mortgages over property;
charges over business assets, e.g. premises, stock and debtors;
charges over financial instruments, e.g. debt securities and equities in support of trading facilities; andfinancial guarantees.

In the event of customer default, any loan security is usually held as mortgage in possession while action is taken to realise it. Therefore the NZ Banking Group does not usually hold any real estate orother assets acquired through the enforcement of security.
The key operating entities within the NZ Banking Group use International Swaps and Derivatives Association (ISDA) Master Agreements to document derivatives activities to limit exposure to credit
losses. The credit risk is reduced by a master agreement to the extent that if an event of default occurs, all contracts with the counterparty are terminated and settled on a net basis. Further, it ispreferred 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 theparties, depending on the aggregate mark-to-market (positive or negative) of derivative trades between the two entities, to mitigate the market contingent counterparty risk inherent in the outstanding
positions.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH54

NOTES TO THE FINANCIAL STATEMENTS (continued)
31.

FINANCIAL RISK MANAGEMENT (continued)
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities within the same geographic region, or when they have similar risk characteristics
that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
Where applicable entities within the NZ Banking Group monitor lending portfolios to identify and assess risk concentrations. Concentration limits are used to guard against large single customer orcorrelated credit risks. Risk Management, Business Unit Executives and Senior Management monitor large exposure concentrations through a monthly list of top Corporate exposures. The Credit andMarket Risk Committee (six monthly) and the respective Board Risk Committees (annually) review a comprehensive list of single customer concentration limits and customers’ adherence to theselimits.

For personal use only

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:

Unaudited 31/03/2009
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2

NZ Banking Group
Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and available
for-sale assets
$m

214
7,711
2,670
141
4
211
23
22
25

30
2,380
680
14
2
56

225
9
5
47
13,505
486
358
68
54
77
16
222

Derivative
financial
Net loans
instruments and advances
$m
$m

Other
financialassets$m

Creditrelatedcommitments3
$m

Total
$m

18,708
1,484
901
976
1,618
1,099
3,261
54,781
9,157
1,712
1,448
1,634
1,463

146
12
7
8
13
9
26
428
72
13
11
13
11

6,885
546
332
359
595
404
1,200
10,781
3,371
630
533
601
539

26,178
2,051
1,245
1,420
25,822
5,348
5,000
65,99012,672
2,620
2,094
2,286
2,316

11,021

3,162

15,072

98,242769

26,776

155,042

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(269)
(610)

-

-

(269)
(610)

Fair value hedge adjustment

-

-

-

(879)
1,127

-

-

(879)
1,127

Total financial assets

11,021

3,162

15,072

98,490769

26,776

155,290

Geography
New ZealandOverseas

10,120
901

1,678
1,484

4,162
10,91097,291
1,199

769
-

26,776-

140,796
14,494

Total financial assets

11,021

3,162

15,072

98,490769

26,776

155,290

1

Government and local authority includes exposures to government administration and defence, education and health and community services.
Other includes exposures to electricity, gas and water, communications, and personal services.
3
Credit related commitments comprise undrawn facilities, customer contingent liabilities, and letters of offer.
2

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH55

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (continued)
NZ Banking Group
Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and available
for-sale assets
$m

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

28
1,896
142
104
14
61

19
10
1
8
4,459
50
126
46
37
16
129

7,753

2,245

Individual provision for credit impairment
Collective provision for credit impairment-

Fair value hedge adjustment

Other
financialassets$m

Creditrelatedcommitments3
$m

Total
$m

15,431
931
977
1,047
1,531
1,081
2,673
54,262
9,126
1,632
1,410
1,506
1,757

134
8
8
9
13
9
23
472
79
14
12
13
15

7,080
427
448
480
702
496
1,226
11,393
4,189
749
647
691
806

22,974
1,376
1,434
1,572
12,6584,291
4,438
66,127
13,394
2,851
2,164
2,262
2,865

4,901

93,364809

29,334

138,406

-

-

(51)
(471)

-

-

(51)
(471)

-

-

-

(522)
(263)

-

-

(522)
(263)

Total financial assets

7,753

2,245

4,901

92,579809

29,334

137,621

Geography
New ZealandOverseas

6,881
872

1,310
935

1,177
3,724

90,908
1,671

809
-

29,334-130,419
7,202

Total financial assets

7,753

2,245

4,901

92,579809

29,334

137,621

Audited 30/09/2008

Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and available
for-sale assets$m

Derivative
financial
Net loans
instruments and advances
$m
$m

Other
financialassets$m

Creditrelatedcommitments3
$m

Total
$m

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

28
2,423
255
8
4
15

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

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

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

5,018
559
427
488
843
298
1,452
10,704
4,303
883
646
858
956

23,285
1,780
1,357
1,584
17,084
5,444
5,035
66,034
13,678
3,208
2,106
2,758
3,174

Unaudited 31/03/2008

For personal use only

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

Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2Derivative
financial
Net loans
instruments and advances$m$m

NZ Banking Group

9,871

2,733

7,603

97,992893

27,435

146,527

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(132)
(534)

-

-

(132)
(534)

Fair value hedge adjustment

-

-

-

(666)
353

-

-

(666)
353

Total financial assets

9,871

2,733

7,603

97,679893

27,435

146,214

Geography
New ZealandOverseas

7,582
2,289

1,229
1,504

1,839
5,764

96,452
1,227

893
-

27,435-

135,430
10,784

Total financial assets

9,871

2,733

7,603

97,679893

27,435

146,214

1

Government and local authority includes exposures to government administration and defence, education and health and community services.
2
Other includes exposures to electricity, gas and water, communications, and personal services.
3
Credit related commitments comprise undrawn facilities, customer contingent liabilities, and letters of offer.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH56

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (continued)
NZ Branch

Unaudited 31/03/2009

For personal use only

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

Tradingsecurities
and available
for-sale assets
$m

-

-

30
-

Derivative
financial
Net loans
instruments and advances$m$m

Due from
relatedentities$m

Otherfinancialassets$m

Creditrelatedcommitments3
$m

Total
$m

4,781
-

204
-

25
-

-

234
4,806
-

-

-

30

4,781

204

25

-

5,040

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

(3)

-

-

-

(3)

Fair value hedge adjustment

-

-

-

(3)
(24)

-

-

-

(3)
(24)

Total financial assets

-

-

30

4,754

204

25

-

5,013

Geography
New ZealandOverseas

-

-

30
-

4,754
-

11
-

25
-

-

4,820
-

Total financial assets

-

-

30

4,754

11

25

-

4,820

Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and available
for-sale assets$m

Due from
relatedentities$m

Otherfinancialassets$m

Creditrelatedcommitments3
$m

Total
$m

-

-

-

-

-

-

-

-

Unaudited 31/03/2008
Industry
Agriculture, forestry, fishing
Business services
Construction
Entertainment, leisure and tourism
Finance and insurance
Government and local authority1
Manufacturing
Personal lending
Property services
Retail trade
Transport and storage
Wholesale trade
Other2NZ Branch
Derivative
financial
Net loans
instruments and advances
$m
$m

-

-

-

-

-

-

-

-

Individual provision for credit impairment
Collective provision for credit impairment

-

-

-

-

-

-

-

-

Fair value hedge adjustment

-

-

-

-

-

-

-

-

Total financial assets

-

-

-

-

-

-

-

-

Geography
New ZealandOverseas

-

-

-

-

-

-

-

-

Total financial assets

-

-

-

-

-

-

-

-

1

Government and local authority includes exposures to government administration and defence, education and health and community services.
2
Other includes exposures to electricity, gas and water, communications, and personal services.
3
Credit related commitments comprise undrawn facilities, customer contingent liabilities, and letters of offer.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH57

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (continued)
NZ Branch
Liquid assets
and due fromother financial
institutions$m

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

-

-

-

-

-

Individual provision for credit impairment
Collective provision for credit impairment--

Fair value hedge adjustment-

Total financial assets

Due from
relatedentities$m

Otherfinancialassets$m

Creditrelatedcommitments3
$m

Total
$m

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Geography
New ZealandOverseas

-

-

-

-

-

-

-

-

Total financial assets

-

-

-

-

-

-

-

-

For personal use only

Audited 30/09/2008

1

Derivative
financial
Net loans
instruments and advances$m$m

Government and local authority includes exposures to government administration and defence, education and health and community services.
2
Other includes exposures to electricity, gas and water, communications, and personal services.
3
Credit related commitments comprise undrawn facilities, customer contingent liabilities, and letters of offer.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH58

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (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, the maximum exposure to credit risk
is the maximum amount that the NZ Banking Group would have to pay if the contingent is called upon. For undrawn facilities, the maximum exposure to credit risk is the fullamount of the committed facilities.

For personal use only

The following table presents the maximum exposure to credit risk of on and off-balance sheet financial instruments before taking account of any collateral held or other credit
enhancements and after deductions such as provision for credit impairment. The exposure is classified into summarised Basel II asset classes.
NZ Banking GroupNZ Branch

Total maximum
Corporate exposure to
exposures 1
credit risk$m$mRetailmortgages$mOther retail
exposures
$m

-

-

3,390
7,631
2,565
15,072Available-for-sale assets
Net loans and advances
Due from subsidiary companies
Other financial assets
Credit related commitments

50,824
5,666

5,172
5,115

Total exposure to credit risk

56,490On and off-balance sheet positions
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Other financial assets
Credit related commitments
Total exposure to credit risk

Total maximum
Corporate exposure to
exposures 1 credit risk$m$mRetailmortgages$mOther retail
exposures
$m

3,390
7,631
2,565
15,072

-

-

30

30

597
42,494769
15,995597
98,490769
26,776

4,712
-

-

42
204
25
-

4,754
204
25
-

10,28788,513

155,290

4,712

-

301

5,013

48,784
5,840

5,249
5,553

3,863
3,890
2,149
4,901
96
38,546809
17,941

3,863
3,890
2,149
4,901
96
92,579809
29,334----54,624

10,802

72,195

137,621

-

-

-

-

-

-

4,839
5,032
2,624
7,603

4,839
5,032
2,624
7,603

-

-

-

-

Available-for-sale assets
Net loans and advances
Other financial assets
Credit related commitments

49,867
5,397

5,207
5,307

109
42,605893
16,731

109
97,679893
27,435----

Total exposure to credit risk

55,264

10,51480,436146,214

-

-

-

-

Unaudited 31/03/2009
On and off-balance sheet positions
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments

Unaudited 31/03/2008

Audited 30/09/2008

On and off-balance sheet positions
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments

1

Includes corporate, sovereign and bank

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH59

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (continued)
CREDIT QUALITY
A core component of the NZ Banking Group’s credit risk management capability is the risk grading 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 the International Basel Committee on Banking Supervision havebeen encapsulated in these principles and policies including governance, validation and modelling requirements.
Where applicable, credit risk grade profile changes dynamically through new counterparty lending and/or existing counterparty movements in either risk or volume. All
counterparty risk grades are subject to frequent review, including statistical and behavioural reviews in consumer and small business segments, and individual counterparty
reviews in segments with larger single name borrowers.

For personal use only

Impairment and past due financial assets
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 pastdue, or where concessional terms have been provided due to the financial difficulties of the customer. Where applicable the policies relating to impaired assets conform to
RBNZ's guidelines.
An exposure is classified as past due but not impaired where the value of collateral is sufficient to repay both the principal debt and all potential interest and there is noconcern as to the creditworthiness of the counterparty in question.

The past due but not impaired (over 90 days) classification applies where contractual payments are past due by 90 days or more, or where the facility remains outside ofcontractual arrangements for 90 or more consecutive days, but the NZ Banking Group believes that impairment is not appropriate on the basis of the level of
security/collateral available, or the facility is portfolio managed.
The provision for credit impairment represents management’s best estimate of the losses incurred in the loan portfolio at balance date based on its experienced judgement.

Distribution of gross loans and advances assets by credit quality
The credit quality of the portfolio of loans and advances is assessed by reference to the risk grading principles and policies adopted across the NZ Banking Group wherethese are also supported by a complementary risk grading methodology. The following table presents an analysis of gross loans and advances, prior to deducting the fairvalue hedge adjustment and provision for credit impairment, by summarised Basel II asset class into exposures neither past due nor impaired, past due and impaired.

Unaudited 31/03/2009
Neither past due nor impaired
Past due but not impaired (1 to 89 days)
Past due but not impaired (over 90 days)
Impaired

Retailmortgages$m

NZ Banking Group
Other retail
Corporate
exposures 1
exposures
$m
$m

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate1
exposures exposures
$m
$m

Total
$m

47,248
1,993
406
200

4,723
501
71
56

41,661
959
70
353

93,632
3,453
547
609

4,596
95
-

-

4
-

4,600
95
-

49,847

5,351

43,04398,241

4,691

-

4

4,695

47,587
1,388
122
14

5,044
302
37
21

37,507
1,151
67
124

90,138
2,841
226
159

-

-

-

-

49,111

5,404

38,84993,364----47,520
1,776
244
83

4,912
385
54
30

41,886877
11
214

94,318
3,038
309
327

-

-

-

-

49,623

5,381

42,98897,992----

Unaudited 31/03/2008
Neither past due nor impaired
Past due but not impaired (1 to 89 days)
Past due but not impaired (over 90 days)
Impaired

Audited 30/09/2008

Neither past due nor impaired
Past due but not impaired (1 to 89 days)
Past due but not impaired (over 90 days)
Impaired1

Includes corporate, sovereign and bank

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH60

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (continued)
Credit quality of gross loans and advances neither past due nor impaired
Where applicable, the credit quality of financial assets is assessed by the entities within the NZ Banking Group using internal ratings which aim to reflect the relative ability ofcounterparties to fulfil, on time, their credit-related obligations, and is based on their current probability of default.

For personal use onlyInternal 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 broadly corresponds to ratings "Aaa" to "Ba1" and "AAA" to "BB+" of Moody's
Investors Service and Standard & Poor's respectively.
Satisfactory risk rating
Corporate customers consistently demonstrating sound operational and financial stability over the medium to long term, even though some may be susceptible to cyclicaltrends or variability in earnings. Retail customers with moderate expected loss. This rating band broadly corresponds to ratings "Ba2" to “Ba3” and "BB" to “BB-” of Moody's
Investors Service and Standard & Poor's respectively.
Substandard but not past due or impaired
Corporate customers demonstrating some operational and financial instability, with variability and uncertainty in profitability and liquidity projected to continue over the shortand possibly medium term. Retail customers with higher expected loss. This rating band broadly corresponds to ratings “B1” to “Caa” and “B+” to “CCC” of Moody's InvestorsService and Standard & Poor's respectively.
Movements in the rating categories between balance dates are due to both changes in the underlying internal ratings applied to customers and to new loans written or loans
rolling off.
The following table presents an analysis of gross loans and advances neither past due nor impaired by the above internal ratings:

Unaudited 31/03/2009
Strong risk rating
Satisfactory risk rating
Substandard but not past due or impaired

Retailmortgages$m

NZ Banking Group
Other retail
Corporate
exposures 1
exposures
$m
$m

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate1
exposures exposures
$m
$m

Total
$m

43,983
2,525
740

1,687
2,745
291

18,797
19,7933,071

64,46725,063
4,102

4,179
380
37

-

3
1

4,179
383
38

47,248

4,723

41,661

93,632

4,596

-

4

4,600

42,973
3,834
780

1,603
2,940
501

16,135
19,516
1,856

60,711
26,290
3,137

-

-

-

-

47,587

5,044

37,507

90,138----43,866
3,041
613

1,849
2,800
263

19,827
19,9872,072

65,54225,828
2,948

-

-

-

-

47,5204,912

41,886

94,318----Unaudited 31/03/2008
Strong risk rating
Satisfactory risk rating
Substandard but not past due or impaired

Audited 30/09/2008
Strong risk rating
Satisfactory risk rating
Substandard but not past due or impaired

Credit quality of financial assets that are past due but not impaired
Ageing analysis of past due loans is used by the NZ Banking Group to measure and manage the retail portfolio's credit quality. Financial assets that are past due but not
impaired include those:- Assessed, approved and managed on a portfolio basis within a centralised environment (for example, credit cards and personal loans);- Held on a productive basis until they are 180 days past due; and- Managed on an individual basis.

Unaudited 31/03/2009
1 to 5 days
6 to 29 days
30 to 59 days
60 to 89 days
90 days or over

Retailmortgages$m

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

Total
$m

Retailmortgages$m

NZ Branch
Other retail
Corporate
exposures
exposures
$m
$m

Total
$m

527
863
459
144
406

145
250
71
35
71

605
162
129
63
70

1,277
1,275
659
242
547

17
51
24
3
-

-

-

17
51
24
3
-

2,399

572

1,029

4,000

95

-

-

95

509
558
224
97
122

86
141
51
24
37

673
326
113
39
67

1,268
1,025
388
160
226

-

-

-

-

1,510

339

1,218

3,067

-

-

-

-

544
798
304
130
244

137
155
63
30
54

534
193
106
44
11

1,215
1,146
473
204
309

-

-

-

-

2,020

439

888

3,347

-

-

-

-

Unaudited 31/03/2008

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

Audited 30/09/2008
1 to 5 days
6 to 29 days
30 to 59 days
60 to 89 days
90 days or over1

Includes corporate, sovereign and bank

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH61

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (continued)

For personal use only

Credit quality of financial assets that are individually impaired
The key operating entities within the NZ Banking Group regularly review their portfolios and monitors adherence to contractual terms. When doubt arises as to thecollectability of a credit facility, the financial asset is classified and reported as individually impaired and an individual provision is allocated against it. The following table
presents an analysis of individually impaired assets, undrawn facilities with impaired customers and provision for credit impairment by summarised Basel II asset class:

Retailmortgages

Unaudited 31/03/2009

NZ Banking Group
Other retail
Corporate
exposures 1
exposures
$m
$m

Total
$m

Retailmortgages

NZ Branch
Other retail
Corporate1
exposures exposures
$m
$m

Total
$m

Impaired financial assets
Undrawn facilities with impaired customers
Individual provision balance

200
54

56
31

353
11
184

609
11
269

-

-

-

-

Net impaired financial assets

146

25

180

351

-

-

-

-

Collective provision balance

96

148

366

610

3

-

-

3

Impaired financial assets
Undrawn facilities with impaired customers
Individual provision balance

14
2

21
10

124
18
39

159
18
51

-

-

-

-

Net impaired financial assets

12

11

103

126

-

-

-

-

Collective provision balance

62

145

264

471

-

-

-

-

Impaired financial assets
Undrawn facilities with impaired customers
Individual provision balance

83
28

30
10

214
6
94

327
6
132

-

-

-

-

Net impaired financial assets

55

20

126

201

-

-

-

-

Collective provision balance

81

164

289

534

-

-

-

-

Unaudited 31/03/2008

Audited 30/09/2008

1

Includes corporate, sovereign and bankSecurity held by the NZ Banking Group in respect of individually impaired financial assets in the analysis above has an estimated fair value of $339 million (31/03/2008 $108
million; 30/09/2008 $195 million). In addition, security held in respect of impaired off-balance sheet facilities amounts to $11 million (31/03/2008 $18 million; 30/09/2008 $6
million).
Restructured items
The key operating entities within the NZ Banking Group distinguish between facilities renegotiated on a commercial basis, on terms similar to those offered to new clients withsimilar risk, and those restructured on non commercial terms as a result of a client’s inability to meet original contractual obligations.

In the course of restructuring facilities due to financial difficulty, these entities may consider modifying credit terms to include concessions such as a reduction in the principal
amount, a deferral of repayments, and/or an reduction in interest rates or an extension of the maturity date materially beyond those typically offered to new facilities withsimilar risk.
Restructured facilities must demonstrate sound prospects of being able to adhere to the modified contractual terms. Where doubt exists as to the capacity to sustain themodified terms, the facilities remain impaired and an appropriate level of individual provision is held.
The NZ Banking Group held $20 million of restructured loans as at 31 March 2009 (31/3/2008 $nil, 30/09/2008 $nil)).

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH62

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (continued)
Estimated value of collateral and other charges related to financial assets that are individually impaired
NZ Banking Group
Tradingsecurities
and available
for-sale assets$mCash and securities
Real estate
Other

-

-

-

182
157

-

11

182
168

Total value of collateral

-

-

-

339

-

11

350

Credit exposure

-

-

-

608

-

11

619

Unsecured portion of credit

-

-

-

269

-

-

269

Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and available
for-sale assets
$m

Other
Creditfinancialrelatedassetscommitments
$m
$m

Total
$m

Cash and securities
Real estate
Other

-

-

-

12
96

-

18

12
114

Total value of collateral

-

-

-

108

-

18

126

Credit exposure

-

-

-

159

-

18

177

Unsecured portion of credit

-

-

-

51

-

-

51

Audited 30/09/2008

Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and available
for-sale assets
$m

Other
Creditfinancialrelatedassetscommitments
$m
$m

Total
$m

Cash and securities
Real estate
Other

-

-

-

112
83

-

6

112
89

Total value of collateral

-

-

-

195

-

6

201

Credit exposure

-

-

-

327

-

6

333

Unsecured portion of credit

-

-

-

132

-

-

132

For personal use only

Liquid assets
and due fromother financial
institutions$m

Unaudited 31/03/2009

Unaudited 31/03/2008

Derivative
financial
Net loans
instruments and advances
$m
$m

Other
Creditfinancialrelatedassetscommitments
$m
$m

Total
$m

NZ Banking Group
Derivative
financial
Net loans
instruments and advances$m$m

NZ Banking Group
Derivative
financial
Net loans
instruments and advances$m$m

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH63

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (continued)
NZ Branch
Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and available
for-sale assets$mCash and securities
Real estate
Other

-

-

-

-

-

-

-

Total value of collateral

-

-

-

-

-

-

-

Credit exposure

-

-

-

-

-

-

-

Unsecured portion of credit

-

-

-

-

-

-

-

Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and available
for-sale assets
$m

Other
Creditfinancialrelatedassetscommitments
$m
$m

Total
$m

Cash and securities
Real estate
Other

-

-

-

-

-

-

-

Total value of collateral

-

-

-

-

-

-

-

Credit exposure

-

-

-

-

-

-

-

Unsecured portion of credit

-

-

-

-

-

-

-

Audited 30/09/2008

Liquid assets
and due fromother financial
institutions$m

Tradingsecurities
and available
for-sale assets
$m

Other
Creditfinancialrelatedassetscommitments
$m
$m

Total
$m

Cash and securities
Real estate
Other

-

-

-

-

-

-

-

Total value of collateral

-

-

-

-

-

-

-

Credit exposure

-

-

-

-

-

-

-

Unsecured portion of credit

-

-

-

-

-

-

-

For personal use only

Unaudited 31/03/2009

Unaudited 31/03/2008

Derivative
financial
Net loans
instruments and advances
$m
$m

Other
Creditfinancialrelatedassetscommitments
$m
$m

Total
$m

NZ Branch
Derivative
financial
Net loans
instruments and advances$m$m

NZ Branch
Derivative
financial
Net loans
instruments and advances$m$m

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH64

NOTES TO THE FINANCIAL STATEMENTS (continued)
31.

FINANCIAL RISK MANAGEMENT (continued)
MARKET RISK
Market risk is the risk to the NZ Banking Group’s earnings arising from changes in interest rates, currency exchange rates, credit spreads, or from fluctuations in bond,commodity or equity prices. Market risk arises when changes in market rates, prices and volatilities lead to a decline in the value of assets and liabilities, including
financial derivatives. Market risk is generated through both trading activities and the interest rate risk inherent in the banking book.

For personal use only

The NZ Banking Group conducts trading operations in interest rates, foreign exchange, commodities and debt securities. Trading operations largely focus on supporting
customer hedging and investing activities, rather than outright proprietary trading. Consequently, the Board has set a medium market risk appetite for the Markets
business which is reflected in the low/moderate market risk limit framework
The NZ Banking Group has a detailed risk management and control framework to support its trading and balance sheet activities. The framework incorporates a risk
measurement approach to quantify the magnitude of market risk within trading and balance sheet portfolios. This approach and related analysis identifies the range ofpossible outcomes that can be expected over a given period of time, establishes the relative likelihood of those outcomes and allocates an appropriate amount of capitaltosupportthese
activities.
The market risk management and policy control framework applicable to the entities comprising the NZ Banking Group has been set by the Board and Risk Committeeof either ANZ National Bank Limited or the Ultimate Parent Bank, as appropriate. Likewise oversight and monitoring of material Market Risk exposures of the NZ
Banking Group is undertaken by the market risk functions of ANZ National Bank Limited and also the Ultimate Parent Bank. Throughout this document, references tothe risk management of the operations within the entities comprising the NZ Banking Group, implicitly involves oversight by both related entities.

Market risk management and control responsibilities
NZ Banking Group-wide responsibility for the strategies and policies relating to the management of market risk lies with each Board Risk Committee. Responsibility for
day to day management of both market risks and compliance with market risk policy is delegated by the Risk Committee to the Credit and Market Risk Committee(CMRC) and the ANZ National Limited Asset & Liability Committee (ALCO). The CMRC, chaired by the ANZ Group Chief Risk Officer, is responsible for traded market
risk, while the ALCO, chaired by the NZ Group Chief Excutive Officer, is responsible for non-traded market risk (or balance sheet risk). All committees receive regular
reporting
on
the
range
of
tradingandbalancesheetmarketrisks
incurred.
Within overall strategies and policies, the control of market risk at the Group level is the joint responsibility of Business Units and Risk Management, with the delegationof market risk limits from each Board and CMRC allocated to both Risk Management and the Business Units.

The management of market risk is supported by a comprehensive limit and policy framework to control the amount of risk that the NZ Banking Group will accept. Market
risk limits are allocated at various levels and are reported and monitored by Market Risk on a daily basis. The detailed limit framework allocates individual limits tomanage and control asset classes (e.g. interest rates, foreign exchange), risk factors (e.g. interest rates, volatilities) and P&L limits (to monitor and manage theperformance of the trading portfolios).
The NZ Banking Group has a detailed market risk management and control framework, to support trading and non-trading activities, which incorporates an independentrisk measurement approach to quantify the magnitude of market risk within the trading and non-trading books. This approach, along with related analysis, identifies therange of possible outcomes that can be expected over a given period of time, and establishes the relative likelihood of those outcomes.
These risks are monitored daily against a comprehensive limit framework that includes Value at Risk (VaR), aggregate market position and sensitivity, product andgeographic thresholds. To facilitate the management, control, measurements and reporting of market risk, the NZ Banking Group has grouped market risk into two
broad categories:a) Traded market riskThis is the risk of loss from changes in the value of financial instruments due to movements in price factors for both physical and derivative trading positions. Theyarise in trading transactions where the NZ Banking Group acts as principal with customers, financial exchanges or interbank counterparties. The principal risk
categories monitored are:• Currency risk is the potential loss arising from the decline in the value of a financial instrument due 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.

• Commodity risk is the potential loss arising from the decline in the value of a financial instrument due to changes in commodity prices, or their implied volatilities.
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 foreign exchange rate movements.

Some instruments do not fall into either category that also exposes the NZ 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 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 NZ 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 Asset and Liability Committees of both the ANZ National Bank Limited and the ANZ Banking Group
provide monthly oversight of market risk.
The ANZ National Bank Limited Chief Risk Officer is responsible for daily review and oversight of traded market risk reports via a service level agreement with the
Ultimate Parent Bank. The Chief Risk Officers have the authority for instructing the business to close exposures and withdraw limits where appropriate.

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. VaR calculations andlimits are prepared separately for ANZ National Bank Limited and the NZ Branch.
The confidence level is such that there is 97.5% or 99% probability that the loss will not exceed the VaR estimate on any given day. Conversely there is a 2.5% or 1%
probability of the decrease in market value exceeding the VaR estimate on any given day. The 99% confidence level encompasses a wider range of potential outcomes.
The NZ Banking Group's standard VaR approach for both traded and non-traded risks is historical simulation. The NZ Banking Group calculates VaR using historicalchanges in market rates and prices over the previous 500 business days. Traded and Non-Traded VaR is calculated using a one-day holding period.
It should be noted that because VaR is driven by actual historical observations, it is not an estimate of the maximum loss that the NZ Banking Group could experiencefrom an extreme market event. As a result of this limitation, the NZ 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.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH65

NOTES TO THE FINANCIAL STATEMENTS (continued)
31.

FINANCIAL RISK MANAGEMENT (continued)
Traded market risks
Trading activities are focused on customer trading, distribution and underwriting of a range of securities 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 NZ Banking Group's product classes.

Foreign exchangeInterest rate
Credit spread
Diversification benefit

0.5
2.4
0.4
(1.0)

1.4
2.8
0.4
n/a

0.2
1.1
0.2
n/a

0.5
1.9
0.3
(0.8)

0.8
2.8
0.6
(1.4)

1.9
4.3
0.6
n/a

0.3
1.7
0.4
n/a

0.7
2.9
0.5
(1.2)

Total VaR

2.3

3.4

1.1

1.9

2.8

4.4

1.7

2.9

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

Foreign exchangeInterest rate
Credit spread
Diversification benefit

0.2
1.6
0.2
(0.3)

1.3
1.9
0.3
n/a

0.1
0.5
0.1
n/a

0.3
0.9
0.1
(0.5)

0.2
2.7
0.4
(0.6)

1.6
2.7
0.4
n/a

0.2
0.6
0.2
n/a

0.5
1.3
0.2
(0.7)

Total VaR

1.7

2.0

0.3

0.8

2.7

2.8

0.5

1.3

For personal use only

Unaudited 31/03/2009

NZ Banking Group
Value at risk at 97.5% confidenceHigh forLow forAs atperiodperiod$m$m$m

Average for
period$m

NZ Banking Group
Value at risk at 99% confidenceHigh forLow forAs atperiodperiod$m$m$m

Average for
period$m

Unaudited 31/03/2008

Audited 30/09/2008

VaR is calculated separately for foreign exchange/commodities and for interest rate/debt markets businesses as well as for the overall trading activities of each relevant
entity. The diversification benefit reflects the historical correlation between these products.
To supplement the VaR methodology, the NZ Banking Group applies a wide range of stress tests, both on individual portfolios and for the overall trading activities ofeach relevant entity within the NZ Banking Group. The NZ Banking Group's stress-testing regime provides senior management with an assessment of the financial
impact of identified extreme events on market risk exposures of the NZ Banking Group.

Non-traded market risks (balance sheet risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptable levels of interest rate and liquidity risk
and to manage the market value of the NZ Banking Group’s capital. Liquidity risk is dealt with later in the next section.
Interest rate risk
The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income over both the short (next 12 months) and long term.
Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the NZ Banking Group’s future net interest income. This riskarises 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. The marjority of the NZ Banking Group's non-traded interest exposure exists in New Zealand and 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.
NZ Banking GroupHigh forLow for

Average for

Unaudited 31/03/2009

As at
$m

period$mperiod$mperiod$m

Value at risk at 97.5% confidence

21.0

21.0

12.4

14.6

11.6

11.6

10.4

11.1

12.8

13.0

10.4

11.9

Unaudited 31/03/2008
Value at risk at 97.5% confidence
Audited 30/09/2008
Value at risk at 97.5% confidence

To supplement the VaR methodology, the NZ Banking Group applies a wide range of stress tests, both on individual portfolios and for the overall trading activities ofeach material entity within the NZ Banking Group. The NZ Banking Group's stress-testing regime provides senior management with an assessment of the financial
impact of identified extreme events on market risk exposures of the NZ Banking Group.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH66

NOTES TO THE FINANCIAL STATEMENTS (continued)
31.

FINANCIAL RISK MANAGEMENT (continued)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 astandard risk quantification tool.

For personal use only

The figures in the table below indicate the outcome of this risk measure for the current and comparative periods – expressed as a percentage of reported net interest
income. The sign indicates the nature of the rate sensitivity with a positive number signifying that a rate increase is positive for net interest income over the next 12months. Conversely, a negative number signifies that a rate increase is negative for the next 12 months’ net interest income.

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

NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
0.1%
0.7%
0.0%
0.3%

1.4%
1.8%
1.1%
1.4%

0.0%
1.8%
0.0%
0.8%

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. For relevant entities within the NZ Banking Group, quantification of the potential variation in future net interest income as a result of these repricing mismatches
is performed each month using a static gap model.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where the contractual term torepricing is not considered to be reflective of the actual interest rate sensitivity (for example, products priced at the NZ Banking Group’s discretion), a profile based on
historically observed and/or anticipated rate sensitivity is used. This treatment excludes the effect of basis risk between customer pricing and wholesale market pricing.
For example, when wholesale market rates are anticipating an official rate increase, the NZ Banking Group does not reprice certain customer business until the first
repricing date after the official rate rise.

A separate balance sheet simulation process supplements the static gap information. This allows the net interest income outcomes of a number of different scenarios –with different market interest rate environments and future balance sheet structures – to be identified. This better enables the NZ Banking Group to quantify the interest
rate risks associated with the balance sheet and to formulate strategies to manage current and future risk profiles.

Interest rate sensitivity gap
The interest rate sensitivity gap analysis provides information about the NZ 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 reflective of actual interest rate sensitivity,for example, those assets and liabilities priced at the NZ Banking Group's discretion. In such cases, the rate sensitivity is based upon historically observed and/or
anticipated rate sensitivity.
Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the corresponding liability funding. These mismatches are managed
within policy guidelines for mismatch positions.
The majority of the NZ Banking Group's loan business is conducted domestically in New Zealand. The majority of retail deposits are also raised in New Zealand but areeither fixed or floating in nature. The mix of repricing maturities in this book is influenced by the underlying financial needs of customers.
The NZ Banking Group's offshore operations are wholesale in nature and are managed to minimise interest rate sensitivity through closely matching the maturities ofloans 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 a strong 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 expectedmovement in interest rates. However, such positions are taken within the overall risk limits specified by policy applicable to the relevant NZ Banking Group entity.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH67

NOTES TO THE FINANCIAL STATEMENTS (continued)
31.

FINANCIAL RISK MANAGEMENT (continued)
The following tables represent the interest rate sensitivity of the NZ 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.

Total
$m

Less than
3 months$m

3 to 6months$m

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

3,390
7,631
2,565
15,072597
98,490
769

3,201
3,364
511
53,225
-

2,000
384
395
7,565
-

Total financial assets

128,51460,301

10,344

For personal use only

Unaudited 31/03/2009

Non-financial assets

NZ Banking Group
6 to 12months$m

1 to 5years$mBeyond5 years$m

Not bearing
interest
$m

300
5
121
11,759
-

92
1,497
10
26,157
-

168
57
-

189
1,875
15,072
71
(273)
769

12,18527,756225

17,703

4,458

-

-

-

-

-

4,458

Total assets

132,972

60,301

10,344

12,18527,756225

22,161

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

8,911
72,76013,0801,606
23,620
1,766
2,835

6,627
51,135220
15,034
1,766
225

8,349
92
828

1,805
6,544
616
-

408
2,484
85
7,735
1,782

25
6
235
-

46
4,248
13,0801,203-

Total financial liabilities

124,578

75,007

9,269

8,965

12,494266

18,577

Non-financial liabilities
Equity

877
7,517

-

-

-

-

-

877
7,517

Total liabilities and equity

132,972

75,007

9,269

8,965

12,494266

26,971On-balance sheet interest sensitivity gap
Hedging instruments-(14,706)
7,057

1,075
6,875

3,220
(9,586)

15,262(3,922)

(41)
(424)

(4,810)-Interest sensitivity gap - net
Interest sensitivity gap - cumulative-(7,649)(7,649)7,950
301(6,366)(6,065)

11,340
5,275

(465)
4,810

(4,810)
-

Total
$m

Less than
3 months$m

3 to 6months$m

1 to 5years$mBeyond5 years$m

Not bearing
interest$m

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

3,863
3,890
2,149
4,901
96
92,579
809

3,648
3,067
892
38,922
-

570
150
6,762
-

8
29
10,592
-

147
847
12
36,639
-

252
27
-

215
106
4,901
55
(363)
809

Total financial assets

108,287

46,529

7,482

10,62937,645279

5,723

Non-financial assets

4,288

-

-

-

-

-

4,288

Total assets

112,575

46,529

7,482

10,62937,645279

10,011

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

2,383
74,0804,472
1,299
19,192
1,766
2,053

1,285
52,490248
14,082
1,766
1,003

239
8,405
15
1,155
100

280
7,734
1,773
-

382
1,146
24
1,236
950

20
946
-

177
4,305
4,472
1,012
-

Total financial liabilities

105,245

70,874

9,914

9,787

3,738

966

9,966

Non-financial liabilities
Equity

539
6,791

-

-

-

-

-

539
6,791

Total liabilities and equity

112,575

70,874

9,914

9,787

3,738

966

17,296On-balance sheet interest sensitivity gap
Hedging instruments-(24,345)
23,319(2,432)
7,686

842(5,975)33,907(26,659)

(687)
1,629

(7,285)-Interest sensitivity gap - net
Interest sensitivity gap - cumulative-(1,026)(1,026)

5,254
4,228

(5,133)
(905)

7,248
6,343

942
7,285

(7,285)-

Unaudited 31/03/2008

NZ Banking Group
6 to 12months$m

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH68

NOTES TO THE FINANCIAL STATEMENTS (continued)
31.

FINANCIAL RISK MANAGEMENT (continued)

Total
$m

Less than
3 months$m

3 to 6months$m

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

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

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

450
10
6,682
-

Total financial assets

118,779

52,926

Non-financial assets

4,299

Total assets

NZ Banking Group
6 to 12months$m

1 to 5years$mBeyond5 years$m

Not bearing
interest$m

13,308
-

134
1,332
14
33,877
-

239
46
-

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

7,142

13,30835,357

285

9,761

-

-

-

-

-

4,299

123,078

52,926

7,142

13,30835,357285

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

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

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

114
10,671
472
819

378
6,813
374
-

381
896
60
4,464
1,785

40
1
7
1,295
-

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

Total financial liabilities

115,386

75,013

12,076

7,565

7,586

1,343

11,803

Non-financial liabilities
Equity

565
7,127

-

-

-

-

-

565
7,127

Total liabilities and equity

123,078

75,013

12,076

7,565

7,586

1,343

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

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

8,807
5,626

(191)
5,435

(5,435)-

Unaudited 31/03/2009

Total
$m

Less than
3 months$m

3 to 6months$m

NZ Branch
6 to 12months$m

1 to 5years$mBeyond5 years$m

Not bearing
interest$m

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

30
4,754
204
25

1,377
11
-

488
-

910
-

1,982
-

-

30
(3)
193
25

Total financial assets

5,013

1,388

488

910

1,982

-

245

For personal use only

Audited 30/09/2008

Non-financial assets

2

-

-

-

-

-

2

Total assets

5,015

1,388

488

910

1,982

-

247

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

4,751
250
-

4,751
-

-

-

-

-

250
-

Total financial liabilities

5,001

4,751

-

-

-

-

250

Non-financial liabilities
Equity

8
6

-

-

-

-

-

8
6

Total liabilities and equity

5,015

4,751

-

-

-

-

264

-

(3,363)

488

910

1,982

-

(17)

Hedging instruments

-

3,271

(352)

(776)

(2,113)(30)-

Interest sensitivity gap - net
Interest sensitivity gap - cumulative

-

(92)
(92)

136
44

134
178

(131)
47

(30)
17

(17)
-

On-balance sheet interest sensitivity gap

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH69

NOTES TO THE FINANCIAL STATEMENTS (continued)
31.

FINANCIAL RISK MANAGEMENT (continued)

Total
$m

Less than
3 months$m

3 to 6months$m

NZ Branch
6 to 12months$m

1 to 5years$mBeyond5 years$m

Not bearing
interest$m

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

-

-

-

-

-

-

-

Total financial assets

-

-

-

-

-

-

-

Non-financial assets

-

-

-

-

-

-

-

For personal use only

Unaudited 31/03/2008

Total assets

-

-

-

-

-

-

-

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

-

-

-

-

-

-

-

Total financial liabilities

-

-

-

-

-

-

-

Non-financial liabilities
Equity

-

-

-

-

-

-

-

Total liabilities and equity

-

-

-

-

-

-

-

On-balance sheet interest sensitivity gap
Hedging instruments

-

-

-

-

-

-

-

Interest sensitivity gap - net
Interest sensitivity gap - cumulative

-

-

-

-

-

-

-

Total
$m

Less than
3 months$m

3 to 6months$m

NZ Branch
6 to 12months$m

1 to 5years$mBeyond5 years$m

Not bearing
interest$m

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

-

-

-

-

-

-

-

Total financial assets

-

-

-

-

-

-

-

Audited 30/09/2008

Non-financial assets

-

-

-

-

-

-

-

Total assets

-

-

-

-

-

-

-

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

-

-

-

-

-

-

-

Total financial liabilities

-

-

-

-

-

-

-

Non-financial liabilities
Equity

-

-

-

-

-

-

-

Total liabilities and equity

-

-

-

-

-

-

-

On-balance sheet interest sensitivity gap
Hedging instruments

-

-

-

-

-

-

-

Interest sensitivity gap - net
Interest sensitivity gap - cumulative

-

-

-

-

-

-

-

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH70

NOTES TO THE FINANCIAL STATEMENTS (continued)
31.

FINANCIAL RISK MANAGEMENT (continued)
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 2009 was $71 million (31/03/2008 $55 million;
30/09/2008 $65 million) and private equity holdings of $nil included in other assets (31/03/2008 $nil; 30/09/2008 $nil). Regular reviews are performed to substantiatevaluation of the investments within the portfolio. The fair value of the equity securities classified as available-for-sale can fluctuate considerably. A 10 per cent reductionin the value of the available-for-sale equity securities at 31 March 2009 would have reduced equity by $7.1 million (31/03/2008 $5 million; 30/09/2008 $6.5 million).

For personal use only

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 othertransactions is actively managed. The total amounts of unmatched foreign currency assets and liabilities and consequent foreign currency exposures, arising from eachclass 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 aggregatedwith the net expected future cash flows from off-balance sheet purchases and sales from foreign exchange transactions in that foreign currency. The amounts are statedin New Zealand dollar equivalents translated using the spot exchange rates as at balance sheet date.

Net open position

NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008$m

Australian dollar
Canadian dollar
Swiss FrancEuro
Pound sterling
US dollar
Other

27
3
(4)
9
1
(4)
-

15
2
1
1
(26)
4

9
(2)
9
14
2

-

-

-

Total net open position

32

(3)

32

-

-

-

LIQUIDITY RISK
Liquidity risk is the risk that the NZ 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. Entities within the NZ Banking Group maintain sufficient liquid funds to meet their 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-termcrisis conditions.
The timing mismatch of cash flows 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 NZ 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, where appropriate, to quantify the 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 NZ Banking Group’s liquidity management framework is scenario modelling. Scenario modelling is carried out separately for each entity within
the NZ Banking Group where material. This requires assessing liquidity under at least two specific scenarios for each:1). ‘Normal Business conditions': the normal behaviour of cash flows in the ordinary course of business. The relevant entities must be able to meet all commitments andobligations under a going concern scenario, within their normal funding capacity, over at least the next 30 calendar days. In estimating the funding requirement themodels use econometric regression equations which are a function of historical volume and seasonal impacts derived from the last 2 years of historical data.
2). ‘Short term crisis’: refers to a potential name-specific liquidity crisis in which the entities comprising the entity may have significant difficulty rolling over or replacing
liabilities. Each entity needs to be cash flow positive over a 5 business day period under a short term crisis scenario. The models incorporate expected cash flow
behaviour under such a scenario based on the type of customer and their level of sophistication, and the type of asset/ liability.

In addition, a number of other stress tests and liquidity scenarios are modelled over a variety of time horizons, including the impact of credit rating downgrades, andreduced access to wholesale debt in domestic and offshore markets.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH71

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (continued)
Customer and wholesale funding composition
The NZ Banking Group employs actual cash flow based funding metrics to determine appropriate balance sheet liquidity and funding risk strategies. These metrics areused to measure and manage the proportion of the Group’s external assets which are funded by customer liabilities, wholesale debt, equity and loan capital.

For personal use only

Managing these metrics assists in ensuring that an appropriate proportion of the NZ Banking Group’s assets are funded by either ‘sticky’ customer liabilities; or longterm wholesale debt funding (with a remaining term exceeding 1 year). This approach recognises that long-term wholesale debt and other 'sticky' liabilities havefavourable liquidity characteristics thereby assisting in reducing any adverse impact or volatility caused by short-term funding, and in monitoring the impact of depositgathering strategies.

The table below outlines total NZ Banking Group volumes of customer deposits and wholesale funding.
NZ Banking Group
Unaudited
Unaudited
31/03/2009
31/03/2008$m$m

Funding composition

Audited30/09/2008$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008$m

Customer deposits 1
New ZealandOverseas

52,127
7,435

51,426
6,199

52,199
6,757

-

-

-

Total customer deposits

59,562

57,62558,956---Wholesale funding
Bonds and notes
Loan capital
Certificates of deposit
Commercial paper
Term funding
Due to other financial institutions

23,620
2,835
7,054
6,144
1,766
8,911

19,192
2,053
5,517
10,9381,766
2,383

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

4,751

-

-

Total wholesale funding

50,33041,84948,459

4,751

-

-

Total funding

109,892

99,474

107,415

4,751

-

-

Concentrations of funding by industry
Households
Agriculture, forestry, fishing and mining
ManufacturingEntertainment, leisure and tourism
Finance and insurance
Retail trade
Wholesale trade
Business and property services
Transport and storage
Construction
Government and local authority
Other237,491
4,186
1,419
625
56,698
768
690
4,082
480
743
1,752
958

35,702
4,037
1,544
617
47,504
735
644
4,696
714
643
1,614
1,024

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

4,751
-

-

-

109,892

99,474

107,415

4,751

-

-

65,356
21,4407,476
15,62060,351
15,45914,307
9,357

60,66024,178
11,484
11,093

4,751

-

-

109,892

99,474

107,415

4,751

-

-

Total concentrations of funding by industry

Concentrations of funding by geography
New ZealandUnited States
EuropeOther countries

3

Total concentrations of funding by geography

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.
Other includes exposures to electricity, gas and water, communications, and personal services.
3
Funding of the NZ Banking Group via ANZ National (Int'l) Limited is classified as either from the United States or Europe, as the company conducts overseas funding
activities through its London branch.
2

Wholesale funding
Wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency while targeting diversification by markets,
investors, currencies, maturities and funding structures. Short-term wholesale funding requirements, with a contractual maturity of less than one year, are managed
through the Treasury and Markets operations. Long-term wholesale funding is managed and executed through Treasury operations.
The NZ Banking Group also uses maturity concentration limits under the wholesale funding and liquidity management framework. Funding instruments used to meet thewholesale 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 wholesale markets in normal market
conditions. The NZ Banking Group adopts a conservative approach to determine its funding capacity. Funding capacity limits are determined at the Ultimate Parent
Bank level and allocated to individual sites based on their requirements.
Annually, a Funding Plan is ratified by the NZ Banking Group’s Senior Management. The plan is supplemented by monthly updates, and is linked to the NZ Banking
Group’s three year strategic planning cycle.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH72

NOTES TO THE FINANCIAL STATEMENTS (continued)

31.

FINANCIAL RISK MANAGEMENT (continued)
Liquidity portfolio management
The NZ Banking Group holds a diversified portfolio of cash and unencumbered high-quality highly-liquid securities that may be sold or pledged to provide same day
liquidity.
The size of the NZ Banking Group’s liquidity portfolio is based on the amount of liquidity required to meet: day-to-day operational requirements; a potential name crisis;or potential wholesale ‘funding stress’ requirements.

For personal use only

In addition, the ratio of cover provided by the liquidity portfolio to fund both domestic and offshore wholesale debt maturities is monitored.
Supplementing its liquidity position, the NZ Banking Group holds additional cash and liquid asset balances. The Markets business holds secondary sources of liquidity inthe form of highly liquid instruments in its trading portfolios.

Assets held for managing liquidity risk includes short term cash held with the RBNZ or other banks, government securities and other securities that are readily
acceptable in repurchase agreements with the RBNZ and other New Zealand banks, and securities issued by offshore Supranational and highly rated banks.
The NZ Banking Group's core liquidity portfolio held for managing liquidity risk comprises:
NZ Banking Group
Unaudited
Unaudited
31/03/2009
31/03/2008$m$m

Audited30/09/2008$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008$m

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

2,418
448
4,314
477
394
1,324

2,171
185
3,299
1
935

3,779
134
3,343
180
1,300

-

-

-

Total liquidity portfolio

9,375

6,591

8,736

-

-

-

In addition, the RBNZ accepts as collateral for lending (subject to meeting their criteria), residential mortgages securitised by the NZ Banking Group. As at 31 March
2009, $7,368 million of eligible securities were on issue, of which $2,250 million had been pledged as collateral with the RBNZ (see Note 40).

Liquidity crisis contingency planning
The NZ Banking Group maintains liquidity crisis contingency plans defining an approach for analysing and responding to a liquidity threatening event at a Group-widebasis. 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.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH73

NOTES TO THE FINANCIAL STATEMENTS (continued)
31.

FINANCIAL RISK MANAGEMENT (continued)
Contractual maturity analysis of financial assets and liabilities
The tables below analyse the NZ Banking Group's financial assets and liabilities, within relevant maturity groupings based on the earliest date on which the NZ Banking
Group may be required to pay. The amounts represent principal and interest cash flows and may differ compared to the amounts reported on the balance sheet.

The management of liquidity risk is detailed on pages 72 to 74. The analysis presented below has been made on an undiscounted basis, but it should be noted that thisis not how the NZ Banking Group manages its liquidity risk.

For personal use only

Contractual maturity analysis for on-balance sheet financial assets and financial liabilities:
Less thanNZ Banking Group
3 to 12

BeyondNo maturity

Value
$m

Total
$m

At call$m

3 months$mmonths$m

1 to 5 years$m

5 years$m

specified$m

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

3,390
7,631
2,565
15,072597
98,490
769

3,414
7,742
2,969
15,072
614
142,161
769

3,390
158
-

24
4,425
528
3
11,605
769

2,433
497
495
16,301
-

726
1,763
18
44,719-181
27
69,806-

15,072
71(270)-

Total financial assets

128,514

172,741

3,548

17,354

19,72647,22670,014

14,873Liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Other financial liabilities
Bonds and notes
Term funding
Loan capital

8,911
72,76013,0801,606
23,620
1,766
2,835

9,824
74,081
13,0801,610
25,137
1,830
4,398

1,200
28,07915-

1,378
27,353
1,415
2,419
20
56

2,724
15,932
94
7,237
1,795
168

4,497
2,717
94
14,789
1,116

25
7
692
1,902

13,0801,156

Total financial liabilities

124,578

129,960

29,29432,641

27,95023,213

2,626

14,236

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
4,901
96
92,579
809

3,916
4,072
2,504
4,901
120
165,702
809

3,863
418
3,557
-

53
2,476
881
11,525
809

495
604
225
15,712
-

18
574
1,114
24
45,968-27
69,777284
41
92,860
-

71
(269)
4,901
55
(363)
-

Total financial assets

108,287

182,024

7,838

15,744

17,036

47,698

162,989

4,395

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

2,383
74,0804,472
1,299
19,192
1,766
2,053

3,689
76,5894,472
1,354
23,017
1,920
3,064

1,104
26,42118-

1,498
31,595
56
1,225
3,169
28
36

568
17,049
168
21
5,934
1,874
108

495
1,524
1,116
108
11,526
578

24
1,902
2,388
2,035

4,472
14,024307

Total financial liabilities

105,245

114,105

27,54337,60725,722

15,347

6,349

18,803

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

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

4,923
5,173
3,097
7,603
136
163,788
893

4,838
436
-

85
3,640
1,028
11,047893

579
103
18,580
-

518
1,688
32
47,374-278
39
87,120
-

7,603
65
(333)
-

Total financial assets

118,779

185,613

5,274

16,693

19,262

49,61287,437

7,335

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

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

3,528
79,4976,472
1,499
26,881
1,902
4,502

1,713
26,9467834-

734
33,068
1,432
2,183
51
60

538
18,292
7,511
1,817
178

497
1,189
60
15,160
959

46
2
7
1,904
2,153

6,472
45
1,152

Total financial liabilities

115,386

124,281

28,771

37,52828,336

17,865

4,112

7,669

Unaudited 31/03/2009

Carrying

Unaudited 31/03/2008

Audited 30/09/2008

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH74

NOTES TO THE FINANCIAL STATEMENTS (continued)
31.

FINANCIAL RISK MANAGEMENT (continued)

Less thanNZ Branch
3 to 12

BeyondNo maturity

Unaudited 31/03/2009

Value
$m

Total
$m

At call$m

3 months$mmonths$m

1 to 5 years$m

5 years$m

specified$m

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

30
4,754
204
25

30
5,230
11
218

11
-

750
218

216
-

4,264
-

-

30
-

Total financial assets

5,013

5,489

11

968

216

4,264

-

30

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
Term Funding
Loan capital

4,751
250
-

5,233
250
-

-

457
-

853
-

3,923
-

-

250
-

-

-

-

-

-

-

-

Total financial liabilities

5,001

5,483

-

457

853

3,923

-

250

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

-

-

-

-

-

-

-

-

Total financial assets

-

-

-

-

-

-

-

-

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
Term Funding
Loan capital

-

-

-

-

-

-

-

-

Total financial liabilities

-

-

-

-

-

-

-

-

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

-

-

-

-

-

-

-

-

Total financial assets

-

-

-

-

-

-

-

-

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
Term Funding
Loan capital

-

-

-

-

-

-

-

-

Total financial liabilities

-

-

-

-

-

-

-

-

For personal use only

Carrying

Unaudited 31/03/2008

Audited 30/09/2008

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH75

NOTES TO THE FINANCIAL STATEMENTS (continued)

For personal use only

32.

33.

34.

CONCENTRATIONS OF CREDIT RISK TO INDIVIDUAL COUNTERPARTIESThe NZ Banking Group has no credit exposures, on the basis of limits, to individual counterparties or groups of closely related counterparties (whether bankor non-bank exposures) which equal or exceed 10% of the Overseas Banking Group's equity as at 31 March 2009, 31 March 2008 or 30 September 2008,
or in respect of peak end-of-day aggregate credit exposures for the quarter ended 31 March 2009. The peak end-of-day exposures have been calculatedusing the Overseas Banking Group equity as at 31 March 2009. These calculations exclude credit exposures to the central government of any country witha long term credit rating of A- or A3 or above, or its equivalent.

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 (Standardised Approach)' (BS2A) dated November 2007.

The peak end-of-day market risk exposures for the quarter are measured as a percentage of the Overseas Banking Group's equity as at 31 March 2009.
NZ Banking Group

Implied risk weighted
exposure

Aggregate capital charge

Aggregate capital charge
as a percentage of theOverseas Banking Group's
Equity

As at
$m

Peak
$m

As at
$m

Peak
$m

As at
$m

Peak
$m

3,519
38
68

4,018
113
78

282
3
5

321
9
6

0.8%
0.0%
0.0%

0.9%
0.0%
0.0%

3,400
23
55

3,745
83
89

272
2
4

300
7
7

1.0%
0.0%
0.0%

1.1%
0.0%
0.0%

3,696
35
64

4,000
160
75

296
3
5

320
13
6

0.9%
0.0%
0.0%

1.0%
0.0%
0.0%

Unaudited 31/03/2009
Interest rate risk
Foreign currency risk
Equity risk
Unaudited 31/03/2008
Interest rate risk
Foreign currency risk
Equity risk
Audited 30/09/2008
Interest rate risk
Foreign currency risk
Equity risk

INTEREST EARNING AND DISCOUNT BEARING ASSETS AND LIABILITIESNZ Banking GroupNZ Branch

Unaudited
31/03/2009$m

Unaudited
31/03/2008$m

Audited30/09/2008$m

Unaudited
31/03/2009$m

Unaudited
31/03/2008$m

Audited30/09/2008$m

Interest earning and discount bearing assets

110,811

102,564

109,017

4,768

-

-

Interest and discount bearing liabilities

106,001

95,279103,583

4,751

-

-

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH76

NOTES TO THE FINANCIAL STATEMENTS (continued)

35.

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESFair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s lengthtransaction. The determination of the fair value of financial instruments is fundamental to the financial reporting framework as all financial instruments
are recognised initially at fair value and, with the exception of those financial instruments carried at amortised cost, are remeasured at fair value insubsequent periods.

For personal use only

The fair value of a financial instrument on initial recognition is normally the transaction price, however, in certain circumstances the initial fair value may
be based on other observable current market transactions in the same instrument, without modification or repackaging, or on a valuation techniquewhose variables include only data from observable markets.
Subsequent to initial recognition, the fair value of financial instruments measured at fair value is based on quoted market prices, where available. In
cases where quoted market prices are not available, fair values are based on present value estimates or other market accepted valuation techniques
which include data from observable market data. In limited cases where observable market data is not available, the input is estimated based on otherobservable market data, historical trends and other factors that may be relevant.
A significant number of financial instruments are carried at fair value in the balance sheet. Below is a comparison of the carrying amounts, as reported
on the balance sheet, and fair values of all financial assets and liabilities. 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. In our view, the aggregate fair value
amounts do not represent the underlying value of the NZ Banking Group.
In the tables below, financial instruments have been allocated based on their accounting treatment. The significant accounting policies in note 1
describe how the categories of financial assets and financial liabilities are measured and how income and expenses, including fair value gains andlosses, are recognised.
Financial asset classes 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. Similarily, each class of financial liability has been allocated into three groups:
amortised cost; financial liabilities at fair value through profit or loss; and derivatives in effective hedging relationships.

The fair values are based on relevant information available as at the respective balance sheet dates and have not been updated to reflect changes inmarket conditions after the balance sheet date.
FINANCIAL ASSETS
Liquid assets and due from other financial institutions
The carrying values of these financial instruments where there has been no significant change in credit risk is considered to approximate their net fairvalues as they are short-term in nature, defined as those which reprice or mature in 90 days or less, 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
Derivative financial instruments are carried at fair value. Exchange traded derivative financial instruments are valued using quoted prices. Over-thecounter derivative financial instruments are valued using accepted valuation models (including discounted cash flow models) based on current market
yields for similar types of instruments and the maturity of each instrument and an adjustment reflecting the credit worthiness of the counterparty.

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.

Fair value has been determined through discounting future cash flows. For fixed rate loans and advances, the discount rate applied incorporates
changes in wholesale market rates, the NZ Banking Group's cost of wholesale funding and movements in customer margin. For floating rate loans, onlychanges in wholesale market rates and the NZ Banking Group's cost of wholesale funding are incorporated in the discount rate. For variable rate loans
where the NZ Banking Group sets the applicable rate at its discretion, the fair value is set equal to the carrying value.

The difference between estimated fair values for loans and advances and their carrying value reflects changes in interest rates and the credit worthinessof 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.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH77

NOTES TO THE FINANCIAL STATEMENTS (continued)

35.

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
Financial assets designated at fair value through profit or loss
The NZ Banking Group has not reclassified any financial assets previously measured at amortised cost to fair value, or previously measured at fairvalue to amortised cost, during the period ended 31 March 2009 (30 September 2008 nil).

For personal use only

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, or when longer term in nature, fair value is based on quoted market prices.
Deposits and other borrowings
For interest bearing fixed maturity deposits and other borrowings with quoted market prices, market borrowing rates of interest for debt with a similar
maturity are used to discount contractual cash flows. The fair value of a deposit liability without a specified maturity or at call is deemed to be theamount 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.
Certain deposits and other borrowings have been designated at fair value through profit or loss and are carried at fair value.
At balance date, the carrying amount of deposits and other borrowings designated by the NZ Banking Group at fair value through profit or loss was$6,144 million (31/03/2008 $10,938 million; 30/09/2008 $12,653 million). This is $9 million higher (31/03/2008 $5 million higher; 30/09/2008 $17 million
lower) than their amortised cost.
The accumulated amount of the change in fair value attributable to changes in credit risk on these liabilities was less than $3 million (31/03/2008 lessthan $1 million; 30/09/2008 less than $3 million). The change in fair value attributable to changes in credit risk has been determined as the amount ofchange in fair value that is not attributable to changes in market conditions that give rise to market risks (benchmark interest rate, and foreign exchange
rates).
Bonds and notes, term funding and loan capital
The aggregate fair value of bonds and notes, term funding and loan capital is calculated based on quoted market prices. For those debt issues where
quoted market prices were not available, a discounted cash flow model using a yield curve appropriate for the remaining term to maturity of the debt
instrument is used. The carrying value of the due to parent company balance is considered to approximate the fair value as it is repayable on demand.

Payables and 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 42 Contingent Liabilities and Credit Related Commitments, the NZ Banking Group has various credit related commitments. Basedupon the level of fees currently charged for granting such commitments, taking into account maturity and interest rates, together with any changes in thecreditworthiness of counterparties since origination of the commitments, their estimated replacement or net 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.

VALUATION METHODOLOGY
A significant number of financial instruments are carried on the balance sheet at fair value. The NZ Banking Group has implemented controls that
ensure that the fair value is either determined, or validated, by a function independent of the party that undertakes the transaction.
The best evidence of fair value is a quoted price in an active market. Accordingly, wherever possible fair value is based on quoted market prices for thefinancial instrument. The net position of non-derivative financial instruments with offsetting market risks and all derivative portfolios, are valued at thequoted bid price for assets and the quoted ask price for liabilities. The quoted market price is not adjusted for any potential impact that may be attributed
to a large holding of the financial instrument.
Where quoted market prices are used, independent price determination or validation is utilised. The results of independent validation processes arereported to senior management, and adjustments to the fair values are made as appropriate.
In the event that there is no quoted market price for the instrument, fair values are based on present value estimates or other market accepted valuation
techniques which include data from observable markets wherever possible. The majority of valuation techniques employ only observable market data
however, for certain financial instruments the fair value cannot be determined in whole with reference to current market transactions or valuation
techniques whose variables only include data from observable markets. In respect of the valuation component where market observable data is notavailable, the fair value is determined using valuation techniques based on data derived and extrapolated from market data and tested against historictransactions and observed market trends.
The valuation models incorporate the impact of the bid/ask spread, counterparty credit spreads and other factors that would influence the fair value
determined by a market participant.
For fair values determined using a valuation model, the control framework may include, as applicable, independent development or validation of: (i)valuation models; (ii) any inputs to those models; and (iii) any adjustments required outside of the valuation model, and, where possible, independentvalidation of model outputs.

78

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (continued)

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

For personal use only

35.

Carrying amountAt amortised cost
Otherfinancialassets at
Loans andamortisedreceivables
cost
$m
$m

NZ Banking GroupAt fair value
thoughprofit or loss

Hedging

Availablefor-saleassetsSub-total$mHeld fortrading
$m

$m

$m

Total
$m

Financial assets
Unaudited 31/03/2009
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments 1
Available-for-sale assets
Net loans and advances 2
Other financial assets

98,490
-

3,390
3,362
769

3,390
3,362
98,490769

2,565
14,346
-

726
-

4,269
597
-

3,390
7,631
2,565
15,072597
98,490769

Total financial assets

98,4907,521

106,011

16,911

726

4,866

128,514

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments 1
Available-for-sale assets
Net loans and advances 2
Other financial assets

92,579
-

3,863
1,281
809

3,863
1,281
92,579
809

2,149
4,426
-

475
-

2,609
96
-

3,863
3,890
2,149
4,901
96
92,579809

Total financial assets

92,5795,953

98,532

6,575

475

2,705

108,287

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments 1
Available-for-sale assets
Net loans and advances 2
Other financial assets

97,679
-

4,839
2,585
893

4,839
2,585
97,679
893

2,624
7,297
-

306
-

2,447
109
-

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

Total financial assets

97,6798,317

105,996

9,921

306

2,556

118,779

Unaudited 31/03/2008

Audited 30/09/2008

The following table summarises the carrying amounts and fair values of those financial assets not presented in the NZ Banking Group's balance sheet
at their fair value:
NZ Banking Group
Audited 30/09/2008
Unaudited 31/03/2008
Unaudited 31/03/2009
Carrying
Carrying
Carrying
amountFair value
amountFair value
amountFair value
$m
$m
$m
$m
$m
$m

Liquid assets
Due from other financial institutions
Net loans and advances 2
Other financial assets

3,390
3,362
98,490
769

3,381
3,371
98,364
769

3,863
1,281
92,579
809

3,863
1,281
92,377
809

4,839
2,585
97,679
893

4,839
2,585
97,429893

Total financial assets at amortised cost

106,011

105,885

98,532

98,330105,996

105,746

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 differsfrom the amortised cost.

79

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (continued)

35.

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

For personal use only

At amortised cost

Carrying amount$m

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

Hedging

$m

Total
$m

Financial liabilities
Unaudited 31/03/2009
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments 1
Other financial liabilities
Bonds and notes 2
Term funding
Loan capital

8,911
66,616
1,606
23,620
1,766
2,835

6,144
-

11,590-6,144
11,590
-

1,490
-

8,911
72,76013,0801,606
23,6201,766
2,835

Total financial liabilities

105,354

6,144

11,59017,734

1,490

124,578

Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments 1
Other financial liabilities
Bonds and notes 2
Term Funding
Loan capital

2,383
63,142
1,299
19,192
1,766
2,053

10,938-

4,223-

10,938
4,223
-

249
-

2,383
74,0804,472
1,299
19,192
1,766
2,053

Total financial liabilities

89,835

10,938

4,223

15,161

249

105,245

Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments 1
Other financial liabilities
Bonds and notes 2
Term Funding
Loan capital

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

12,653-

5,708-

12,653
5,708
-

764
-

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

Total financial liabilities

96,261

12,653

5,708

18,361

764

115,386

Unaudited 31/03/2008

Audited 30/09/2008

The following table summarises the carrying amounts and fair values of those financial liabilities not presented in the NZ Banking Group's balance sheet
at their fair value:
NZ Banking Group
Unaudited 31/03/2009
Audited 30/09/2008
Unaudited 31/03/2008
Carrying
Carrying
Carrying
amountFair value
amountFair value
amountFair value
$m
$m
$m
$m
$m
$m

Due to other financial institutions
Deposits and other borrowings
Other financial liabilities
Bonds and notes 2
Term Funding
Loan capital

8,911
66,616
1,606
23,620
1,766
2,835

8,750
66,743
1,743
22,918
1,754
2,642

2,383
63,142
1,299
19,192
1,766
2,053

2,395
63,127
1,361
19,125
1,765
2,020

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

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

Total financial liabilities at amortised cost

105,354

104,550

89,83589,793

96,261

95,674

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 liabilities within bonds and notes and loan capital. The resulting fair value adjustment means that the carrying
value differs from the amortised cost.

80

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (continued)

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

For personal use only

35.

Carrying amountFinancial assets
Unaudited 31/03/2009
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments 1
Available-for-sale assets
Net loans and advances 2

At amortised cost
Otherfinancialassets at
Loans andamortisedreceivables
cost
$m
$m

NZ Branch
At fair value
thoughprofit or loss

Hedging

Sub-total$mHeld fortrading
$m

$m

$m

Total
$m

Availablefor-saleassetsDue from subsidiary companies
Other financial assets

4,754
-

204
25

4,754
204
25

1
-

29
-

-

30
4,754
204
25

Total financial assets

4,754

229

4,983

1

29

-

5,013

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments 1
Available-for-sale assets
Net loans and advances 2
Due from subsidiary companies
Other financial assets

-

-

-

-

-

-

-

Total financial assets

-

-

-

-

-

-

-

Due from subsidiary companies
Other financial assets

-

-

-

-

-

-

-

Total financial assets

-

-

-

-

-

-

-

Unaudited 31/03/2008

Audited 30/09/2008

Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments 1
Available-for-sale assets
Net loans and advances 2

The following table summarises the carrying amounts and fair values of those financial assets not presented in the NZ Branch's balance sheet at theirfair value:
NZ Branch
Unaudited 31/03/2008
Unaudited 31/03/2009
Audited 30/09/2008
Carrying
Carrying
Carrying
amountFair value
amountFair value
amountFair value
$m
$m
$m
$m
$m
$m

Liquid assets
Due from other financial institutions
Net loans and advances 2
Due from subsidiary companies
Other financial assets

4,754
204
25

4,877
204
25

-

-

-

-

Total financial assets at amortised cost

4,983

5,106

-

-

-

-

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 differsfrom the amortised cost.

81

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCHNOTES TO THE FINANCIAL STATEMENTS (continued)

35.

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

At amortised cost

For personal use only

Carrying amount$m

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

Hedging

$m

Total
$m

Financial liabilities
Unaudited 31/03/2009
Due to other financial institutions
Deposits and other borrowings
Due to subsidiary companies
Derivative financial instruments 1
Other financial liabilities
Bonds and notes 2
Term funding
Loan capital

4,751
-

-

250
-

250
-

-

4,751
250
-

Total financial liabilities

4,751

-

250

250

-

5,001

Due to other financial institutions
Deposits and other borrowings
Due to subsidiary companies
Derivative financial instruments 1
Other financial liabilities
Bonds and notes 2
Term Funding
Loan capital

-

-

-

-

-

-

Total financial liabilities

-

-

-

-

-

-

Due to other financial institutions
Deposits and other borrowings
Due to subsidiary companies
Derivative financial instruments 1
Other financial liabilities
Bonds and notes 2
Term Funding
Loan capital

-

-

-

-

-

-

Total financial liabilities

-

-

-

-

-

-

Unaudited 31/03/2008

Audited 30/09/2008

The following table summarises the carrying amounts and fair values of those financial liabilities not presented in the NZ Branch's balance sheet at theirfair value:
NZ Branch
Unaudited 31/03/2008
Unaudited 31/03/2009
Audited 30/09/2008
Carrying
Carrying
Carrying
amountFair value
amountFair value
amountFair value
$m
$m
$m
$m
$m
$m

Due to other financial institutions
Deposits and other borrowings
Due to subsidiary companies
Other financial liabilities
Bonds and notes 2
Term Funding
Loan capital

4,751
-

4,590
-

-

-

-

-

Total financial liabilities at amortised cost

4,751

4,590

-

-

-

-

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 liabilities within bonds and notes and loan capital. The resulting fair value adjustment means that the carrying
value differs from the amortised cost.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH82

NOTES TO THE FINANCIAL STATEMENTS (continued)

36.

SEGMENTAL ANALYSIS
For segment reporting purposes, the NZ Banking Group is organised into three major business segments - Retail Banking, Relationship Banking andInstitutional. Centralised back office and corporate functions support these segments.

For personal use only

A summarised description of each business segment is shown below:
Provides banking products and services to individuals and small businesses through separate ANZ and The National Bank branded
Retail Banking
distribution channels. Personal banking customers have access to a wide range of financial services and products. Small businessbanking services are offered to enterprises with annual revenues of less than $5 million. Included in this segment is Private Banking, astand-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).

Relationship Banking

This segment provides services to rural, commercial and corporate and UDC customers. A full range of banking products and services
are provided to Rural customers. Corporate and Commercial customers consist of primarily privately owned medium to large
businesses with annual revenues of $2 million and greater. The NZ Banking Group's relationship with these businesses ranges from
simple banking requirements with revenue from deposit and transactional facilities, and cash flow lending, to more complex funding
arrangements with revenue sourced from a wider range of products. UDC is primarily involved in the financing and leasing of plant,
vehicles and equipment, primarily for small and medium sized businesses, as well as investment products.

Institutional

Institutional provides financial services to large multi-banked corporates, often global, who require sophisticated product andstructuring solutions. The Institutional business unit includes the following specialised units:• Markets - provides foreign exchange and commodity trading and sales-related services, origination, underwriting, structuring, risk
management and sale of credit and derivative products globally.

Other• Transaction Banking - provides cash management, trade finance, international payments, clearing and custodian services.
• Specialised Lending - provides origination, credit analysis, structuring and execution of specific customer transactions.
Includes Treasury Funding and back office support functions, none of which constitutes a separately reportable segment.

As the composition of segments has changed over time, prior period comparatives have been adjusted to be consistent with the 2009 segment definitions.

4

Unaudited 6 months to 31/03/2009

Retail Banking$m

NZ Banking Group
RelationshipBanking
Institutional
$m
$m

Other
$m

Total
$m

1, 2

Continuing operations
External interest income
External interest expense
Net intersegment interest

2,332(1,051)
(716)

1,514
(322)
(824)

415
(520)
342

(28)
(1,154)
1,198

4,233
(3,047)-

Net interest income

565

368

237

16

1,186

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

79

49

196

107

431

7

-

-

1

8

Operating income

651

417

433

124

1,625

Other external expenses
Net intersegment and related party expenses3

312
164

82
57

54
33

250
(213)

698
41

Operating expenses

476

139

87

37

739

Profit before provision for credit impairment and income tax

175

278

346

87

886

Provision for credit impairment

136

120

32

-

288

Profit before income tax

39

158

314

87

598

Income tax expense

12

47

94

23

176

Profit after income tax

27

111

220

64

422

Non-cash expenses
Depreciation and amortisation

9

1

1

13

24

54,550242
43,482

36,618
11,291

34,88565
34,5936,919
89
36,089132,972396
125,455

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

1

Results are equity standardisedIntersegment transfers are accounted for and determined on an arm's length or cost recovery basis
3
Net intersegment expenses are eliminated at the Overseas Bank level.
4
Other operating income includes an adjustment for $166m in relation to ING New Zealand Funds. Refer to notes 4 and 24 for further details
2

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH83

NOTES TO THE FINANCIAL STATEMENTS (continued)

36.

SEGMENTAL ANALYSIS (continued)

Unaudited 6 months to 31/03/2008

Retail Banking$m

NZ Banking Group
RelationshipBanking
Institutional
$m
$m

Other
$m

Total
$m

1, 2

Continuing operations
External interest income
External interest expense
Net intersegment interest

1,528
(389)
(789)

967
(642)
(279)

16
(1,567)
1,544

4,810
(3,792)-

Net interest income

629

350

46

(7)

1,018

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

249

37

217

(13)

490

12

-

1

83

96

Operating income

890

387

264

63

1,604

Other external expenses
Net intersegment and related party expenses3

308
164

73
58

47
28

206
(211)

634
39

Operating expenses

472

131

75

(5)

673

Profit before provision for credit impairment and income tax

418

256

189

68

931

For personal use only

2,299
(1,194)(476)

Provision for credit impairment

54

25

14

-

93

Profit before income tax

364

231

175

68

838

Income tax expense

117

75

50

(13)

229

Profit after income tax

247

156

125

81

609

7

1

1

13

22

53,786201
36,69633,411
11,17021,15061
23,1534,228
88
34,765112,575
350
105,784

Non-cash expenses
Depreciation and amortisation

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

1

Results are equity standardisedIntersegment transfers are accounted for and determined on an arm's length or cost recovery basis
3
Net intersegment expenses are eliminated at the Overseas Bank level.
2

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH84

NOTES TO THE FINANCIAL STATEMENTS (continued)

36.

SEGMENTAL ANALYSIS (continued)

Audited year to 30/09/2008

Retail Banking$m

NZ Banking Group
RelationshipBanking
Institutional
$m
$m

Other
$m

Total
$m

1, 2

4,729
(2,498)(1,000)

3,219
(819)
(1,687)

1,874(1,247)(502)

36(3,265)
3,189

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

1,231

713

125

(40)

2,029

499

82

420

14

1,015

23

-

1

87

111

1,753

795

546

61

3,155

Other external expenses
Net intersegment and related party expenses3

629
335

156
116

103
58

475
(427)

1,363
82

Operating expenses

964

272

161

48

1,445

Profit before provision for credit impairment and income tax

789

523

385

13

1,710

For personal use only

Continuing operations
External interest income
External interest expense
Net intersegment interest

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

Operating income

Provision for credit impairment

178

108

16

-

302

Profit before income tax

611

415

369

13

1,408

Income tax expense

194

134

109

(19)

418

Profit after income tax

417

281

260

32

990

Non-cash expenses
Depreciation and amortisation

15

1

2

29

47

54,272
212
37,68236,153
11,717

26,79364
28,9455,860
8737,607123,078363
115,951

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

Geographic segment analysis
The NZ Banking Group operates predominantly in New Zealand. No other geographic segments are reportable secondary segments.
1

Results are equity standardisedIntersegment transfers are accounted for and determined on an arm's length or cost recovery basis.
3
Net intersegment expenses are eliminated at the Overseas Bank level.
2

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH85

NOTES TO THE FINANCIAL STATEMENTS (continued)

37.

NOTES TO THE CASH FLOW STATEMENTS
NZ Banking Group
Unaudited
Unaudited
Audited
6 months to
6 months toYear to31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
6 months to
31/03/2009$m

NZ Branch
Unaudited
6 months to
31/03/2008$m

AuditedYear to30/09/2008
$m

-

-

For personal use only

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

422

609

990

(5)

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

24
288
3
9
8
27

22
93
3
7
28

46
302
(3)
13
57

3
8
-

Deferrals or accruals of past or future operating
cash receipts or payments:
Increase (decrease) in operating assets and liabilities
Decrease (increase) in interest receivable(Decrease) increase in interest payable
Increase in accrued income(Decrease) increase in accrued expenses
Increase (decrease) in provisions
Amortisation of premiums and discounts
Increase in income tax assets

1,985
77
(257)
(5)
(15)
150
59
(89)

(3,785)
11
9
(6)
(8)
(11)
25
(91)

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

12
(25)
7
1
(2)

Items classified as investing/financing:
Share of profit of equity accounted associates andjointly controlled entities(Gain) loss on disposal of premises and equipment

(8)
(17)

(96)
1

(111)
1

-

2,661

(3,189)(2,120)(1)--

The NZ Banking Group's core liquidity portfolio held for managing liquidity risk comprises:
NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008$m

Net cash flows provided by (used in) operating activities

-

-

-

-

Reconciliation of core liquidity portfolio to cash and cash equivalents

Total liquidity portfolio1

9,375

6,591

8,736

-

-

-

Add back items not included in liquidity portfolio:
Liquid assets
Due from other financial institutions - less than 90 days

964
2,726

1,692
663

1,060
1,948

-

-

-

Deduct items not included in cash and cash equivalents:
Trading securities
Available-for-sale assets
Due from other financial institutions - greater than 90 days

(1,846)(394)(3,607)(1,626)(1,770)(2,376)(1,578)---

Total cash and cash equivalents

7,218

5,550

7,790

-

-

-

1
Assets held for managing liquidity risk includes short term cash held with the RBNZ or other banks, government securities and other securities that are readily
acceptable in repurchase agreements with the RBNZ and other New Zealand banks and securities issued by offshore Supranational and highly rated banks.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH86

NOTES TO THE FINANCIAL STATEMENTS (continued)

SIGNIFICANT NZ CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED ENTITIES OF ANZ BANKING GROUP LIMITED

Controlled entities
Airlie Investments Limited
Alos Holdings Limited
ANZ Capel Court Limited (New Zealand Branch)
ANZ Capital NZ Limited
ANZ Holdings (New Zealand) Limited
ANZ Investment Services (New Zealand) Limited
ANZ National Bank Limited
ANZ National (Int'l) Limited
ANZ National Staff Superannuation Limited
ANZ Nominees Limited (New Zealand Branch)
ANZ Securities (NZ) Limited
ANZMAC Securities (NZ) Nominees Limited
APAC Investments Limited
Arawata Assets Limited
Arawata Capital Limited
Arawata Finance Limited
Arawata Funding Limited
Arawata Holdings Limited
Arawata Securities Limited
Arawata Trust
Arawata Trust Company
BHI Limited
CBC Finance Limited (incorporated in United Kingdom)
Control Nominees Limited
Cortland Finance Limited
Corvine Investments Limited
Culver Finance Limited
Direct Broking Limited
Direct Nominees Limited
EFTPOS New Zealand Limited
Endeavour Finance Limited
Endeavour Securities Limited
General Finance Custodians Limited
Harcourt Corporation Limited
Harcourt Investments Limited
Karapiro Investments Limited
Kingfisher NZ Trust 2008-1
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
Origin Mortgage Management Services (2008) Limited
Private Nominees Limited
Radiola Corporation Limited
Rural Growth Fund Limited
Samson Funding Limited
Sefton Finance Limited
South Pacific Merchant Finance Limited
Southpac Corporation Limited
Technical Solutions Limited
Trillium Holdings Limited
Tui Endeavour Limited
Tui Securities Limited
UDC Finance Limited

For personal use only38.

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

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

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

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH87

NOTES TO THE FINANCIAL STATEMENTS (continued)

38.

SIGNIFICANT CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED ENTITIES AS AT 30 SEPTEMBER 2008
All controlled entities are incorporated in New Zealand, unless otherwise stated.
The ownership interest percentage may be held either directly or through other controlled entities of the Ultimate Parent Bank.

For personal use only

For all controlled entities, with the exception of General Finance Custodians Limited, Origin Mortgage Management Services Limited and Origin Mortgage Management
Services (2008) Limited, the ownership interest percentage equates to the voting power held. In relation to these companies, control exists through the NZ Banking
Group having 100% of the voting rights.
On 2 April 2009, the Bank ceased to control Marmion Trust. Control previously existed through the undertaking of the majority of risks and rewards relating to aparticular transaction. This transaction was unwound on 2 April 2009.
On 9 April 2009, Technical Solutions Limited was amalgamated with Direct Broking Limited.
Movements in controlled entities
On 7 November 2007, the NZ Banking Group exited its controlling interest in Amberley Investments (50% ownership).
On 7 November 2007, the NZ Banking Group exited its controlling interest in Endeavour Caterpillar New Zealand Finance Company (50% ownership).

On 3 December 2007, Radiola NZ Limited was incorporated as a subsidiary of the NZ Banking Group, and on 23 May 2008 changed its name to Radiola Corporation
Limited.
On 8 January 2008, the NZ Banking Group exited its controlling interest in Nerine Finance No. 2 (65% ownership).
On 23 January 2008, ANZ Commodity Trading ( New Zealand Branch) was deregistered as an overseas company in New Zealand.
On 5 March 2008, the NZ Banking Group purchased a 100% interest in Technical Solutions Limited.
On 11 April 2008, Pioneer First Limited changed its name to Origin Mortgage Management Services (2008) Limited.

On 17 October 2008, ETRADE New Zealand Limited, ETRADE New Zealand Securities Limited and ETRADE New Zealand Securities Nominees Limited
were deregistered.

Associates

Book Value
Voting$m
Interest %Cards NZ Limited
Electronic Transaction Services Limited
EXCCL Limited (in receivership)
Mondex New Zealand Limited
NZ Poultry Enterprises Limited
UCG Investments Limited
Wyma Engineering (NZ) Limited

87
2
0
0
41
15
3

Total investment in associates

148

25
25
45
40
20
40
31

Ownership
Interest %Balance
Date

14
25
81
40
20
40
31

30 September
31 March
30 September
31 December
30 April
31 March
31 March

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

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.
From 28 November 2007, ANZ Capital NZ Limited purchased five further tranches of UCG Investments Limited.

Jointly controlled entities
Argenta Limited
BCS Group Limited
ING (NZ) Holdings Limited
JMI Aerospace Limited
Total investment in jointly controlled entities

Book Value
Voting$m
Interest %
2
21
3
40
242
50
1
33

Ownership
Interest %
21
40
49
33

BalanceDate
31 July
30 June31 December
31 March

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

248

All jointly controlled entities are incorporated in New Zealand.
The NZ Banking Group has joint control of all these entities due to a combination of control factors, none of which gives either party overall control.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH88

NOTES TO THE FINANCIAL STATEMENTS (continued)

38.

CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED ENTITIES (continued)
The summarised financial information relating to the NZ Banking Group's investment in ING (NZ) Holdings Limited is as follows:
NZ Banking Group
Unaudited
Unaudited
31/03/2008
31/03/2009$m$m

Audited30/09/2008
$m

179
67

82
159

78
160

Total assets

246

241

238

Life insurance policy liabilities
Other liabilities

(36)
46

12
9

(3)
11

Total liabilities

10

21

8

Net assets

236

220

230

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

43
7

30
14

66
25

Total revenue

50

44

91

Expenses

46

34

75

Profit before income tax

4

10

16

Income tax expense

(2)

(2)

(6)

Profit after tax

6

12

22

Share of commitments
Lease commitments

17

4

8

For personal use only

Share of assets and liabilities
Investments
Other assets

There are no unrecognised losses in respect of any of the NZ Banking Group's jointly controlled entities. The NZ Banking Group's share of the contingent liabilities of
its joint ventures are incurred jointly with other investors. There were no contingent liabilities as at 31 March 2009 (31/03/2008 $nil; 30/09/2008 $nil).

39.

ULTIMATE PARENT BANKThe Ultimate Parent Bank is Australia and New Zealand Banking Group Limited which is incorporated in Australia.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH89

NOTES TO THE FINANCIAL STATEMENTS (continued)
40.

SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIES AND THE MARKETING AND DISTRIBUTION OF INSURANCE PRODUCTS
Securitisation
The NZ Banking Group enters into transactions in the normal course of business by which it transfers financial assets directly to third parties or to special purpose
entities. These transfers may give rise to the full or partial derecognition of those financial assets.
Full derecognition occurs when the NZ Banking Group transfers its contractual right to receive cash flows from the financial assets, or retains the right but
assumes an obligation to pass on the cash flows from the asset, and transfers substantially all the risks and rewards of ownership. These risks include credit,
interest rate, currency, prepayment and other price risks.

For personal use only

Partial derecognition occurs when the NZ Banking Group sells or otherwise transfers financial assets in such a way that some but not substantially all of the risks
and rewards of ownership are transferred but control is retained. These financial assets are recognised on the balance sheet to the extent of the NZ Banking
Group's continuing involvement.

In May 2008, the RBNZ expanded the range of acceptable collateral that banks can pledge and borrow against as part of changes to its liquidity management
arrangement designed to help ensure adequate liquidity for New Zealand financial institutions in the event that global market disruption was to intensify. From 31
July 2008, acceptable collateral includes residential mortgage backed securities ("RMBS") that satisfy RBNZ criteria.
On 10 October 2008, the NZ Banking Group established an in-house RMBS facility in order to issue securities that meet the RBNZ criteria. The establishment of
the facility resulted in the ANZ National Bank Parent financial statements recognising a payable and a receivable of RMBS securities of equal amount totalling$3,721 million to Kingfisher NZ Trust 2008-1 ('The Trust'), a newly established consolidated entity. On 12 December 2008, a further tranche totalling $5,521 million
was also 'sold' to the Trust, creating a further payable and receivable of RMBS securities of equal amount. These assets and liabilities do not qualify for
derecognition as the NZ Banking Group retains a continuing involvement in the transferred assets, therefore the Consolidated NZ Banking Group's financial
statements do not change as a result of establishing these facilities.
The RMBS facility is dynamic in nature reflecting the underlying movement in loan balances. To the extent that any loans are found to be ineligible in terms of the
RBNZ criteria, they are automatically removed from the facility. Additional lending to existing RMBS customers is added into the facility on a monthly basis.

The establishment of this facility increases the NZ Banking Group's contingent funding ability from the RBNZ.
On 27 February 2009, $4,877 million of residential mortgage assets were sold to the Australia and New Zealand Banking Group Limited - New Zealand Branch.
These assets qualify for derecognition as the Banking Group does not retain a continuing involvement in the transferred assets. The Consolidated NZ Banking
Group's financial statements have reduced as a result of transferring these assets.

Funds management
Certain subsidiaries of the NZ Banking Group act as trustee and/or manager for a number of unit trusts and investment and superannuation funds. ANZ National
Bank Limited (the "Bank"), provides private banking services to a number of clients, including investment advice and portfolio management. The Group is not
responsible for any decline in performance of the underlying assets of the investors due to market forces.
As funds under management are not owned by the NZ Banking Group, they are not included in these financial statements. The NZ Banking Group derives fee
and/or commission income from the sale and management of investment funds and superannuation bonds, unit trusts and the provision of private banking
services to a number of clients.

Some funds under management are invested in products owned or securities issued by the NZ Banking Group and are recorded as liabilities in the balance sheet.
At 31 March 2009, $2,735 million of funds under management were invested in the NZ Banking Group's own products or securities (31/08/2008 $1,140 million;
30/09/2008 $2,229 million).
Funds management activities conducted by the ING New Zealand joint venture are not included in the funds managed by the NZ Banking Group, as the NZ
Banking Group does not have control of the ING New Zealand joint venture.

The aggregate value of funds managed by the Group at balance date was:NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Bonus Bonds
Discretionary funds

2,611
4,251

2,459
2,033

2,417
3,440

Totals funds under management

6,862

4,492

5,857

On 1 October 2007, the Direct Broking Call Account was registered as a portfolio investment entity (PIE).
On 25 March 2008, the UDC Superbonds Superannuation Scheme managed by UDC Finance Limited was 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.

On 1 October 2008, the ANZ Call Fund and ANZ Term Fund, managed by UDC Finance Limited, commenced as PIEs. The funds invest in New Zealand dollar calland term deposits with the Bank.
Custodial services
The NZ 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 NZ Banking Group markets and distributes a range of insurance products which are underwritten by several insurance companies. These activities aremanaged in association with the ING New Zealand joint venture.
Insurance business
The NZ Banking Group does not conduct any insurance business directly, although the Group holds a 49% share in the ING NZ joint venture which does conduct
insurance business.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH90

NOTES TO THE FINANCIAL STATEMENTS (continued)

40.

SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIES AND THE MARKETING AND DISTRIBUTION OF INSURANCE PRODUCTS(continued)
Provision of financial services
Financial services provided by the NZ Banking Group to entities which are involved in trust, custodial, funds management and other fiduciary activities, and toaffiliated insurance companies which conduct marketing or distribution of insurance products, or on whose behalf the marketing or distribution of insurance
products are conducted, are provided on arm’s length terms and conditions and at fair value. Any assets purchased from such entities have been purchased on anarm’s length basis and at fair value.

For personal use only

The NZ Banking Group has not provided any funding to entities except standard lending facilities provided in the normal course of business on arm's length terms
which conduct any of the following activities: trust, custodial, funds management or other fiduciary activities established, marketed and/or sponsored by a memberof the NZ Banking Group for the period ended 31 March 2009 (31/03/2008 $nil; 30/09/2008 $nil).

Risk management
The subsidiaries participating in the activities identified above have in place policies and procedures to ensure that those activities are conducted in an appropriatemanner. Should adverse conditions arise, it is considered that these policies and procedures will minimise the possibility that these conditions will adversely impact
the registered bank. The policies and procedures include comprehensive and prominent disclosure of information regarding products, and formal and regularreview of operations and policies by management.
In addition, the following measures have been taken to manage any risk to the registered bank of marketing and distributing insurance products:
Investment statements, prospectuses and brochures for insurance products include disclosures that the registered bank nor any member of the NZ Banking
Group does not guarantee the insurer, nor the insurer’s subsidiaries, nor any of the products issued by the insurer or the insurer’s subsidiaries.
Where the insurance products are subject to the Securities Act 1978, investment statements, prospectuses and brochures additionally include disclosures that:• the policies do not represent deposits or other liabilities of the NZ Banking Group;• the policies are subject to investment risk, including possible loss of income and principal; and• the NZ Banking Group does 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 registered 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 NZ Banking Group;• that the securities are subject to investment risk including possible loss of income and principal invested; and• that the NZ Banking Group does not guarantee the capital value or performance of the securities.
Application forms for funds management products contain acknowledgements to be signed by a purchaser which are consistent with the disclosures for funds
management products noted above.

41.

COMMITMENTS
NZ Banking Group
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

Unaudited
31/03/2009$m

NZ Branch
Unaudited
31/03/2008$m

Audited30/09/2008$m

Capital expenditure
Contracts for outstanding capital expenditure:42.

Premises and equipment
Not later than 1 year

22

20

26

-

-

-

Total capital expenditure commitments

22

20

26

-

-

-

Lease rentals
Future minimum lease payments under non-cancellable operating leases:
Premises and equipment
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years

86
156
31

83
164
27

86
167
27

-

-

-

Total lease rental commitments

273

274

280

-

-

-

Total commitments

295

294

306

-

-

-

CONTINGENT LIABILITIES AND CREDIT RELATED COMMITMENTS
For contingent exposures, the maximum exposure to credit risk is the maximum amount that the NZ Banking Group would have to pay if the contingent is called
upon. For undrawn facilities, the maximum exposure to credit risk is the full amount of the committed facilities.

Credit related commitments

NZ Banking Group
Face or contract value
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

NZ Branch
Face or contract value
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008
$m
$m
$m

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

732
22,6091,385
24,580659
23,150---Total credit related commitments

23,341

25,96523,809---Contingent liabilities
Financial guarantees
Standby letters of credit
Transaction related contingent items
Trade related contingent liabilities

1,913
374
1,083
65

2,107
380
567
315

2,017
401
1,090
118

-

-

-

Total contingent liabilities

3,435

3,369

3,626

-

-

-

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH91

NOTES TO THE FINANCIAL STATEMENTS (continued)

42.

CONTINGENT LIABILITIES AND CREDIT RELATED COMMITMENTS (continued)
The NZ Banking Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties, including its Ultimate Parent
Bank. The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers, therefore these transactions are subjected to thesame credit origination, portfolio management and collateral requirements for customers applying for loans. As the facilities may expire without being drawn upon,
the notional amounts do not necessarily reflect future cash requirements.
The detailed and estimated maximum amount of contingent liabilities that may become payable are set out below.

For personal use only

Contingent tax liability
As previously disclosed, the New Zealand Inland Revenue Department (‘IRD’) is reviewing a number of structured finance transactions as part of an audit of the2000 to 2005 tax years. This is part of an industry-wide review by the IRD of these transactions undertaken in New Zealand.
The NZ Banking Group 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 first step in a formal disputes
process.
In November 2008 the IRD issued amended tax assessments as a follow up to the Notices in respect of six of these transactions for the 2004 income year (prior tothat tax year becoming statute-barred) and a further two in respect of the 2003 income year. 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, five transactions in respect of the 2002 income year and four inrespect of the 2003 income year (in each case prior to that tax year becoming statute-barred). Proceedings disputing the amended tax assessments with respect
to the 2000-2004 income years have been commenced.
Based on the independent tax and legal advice obtained, the NZ Banking Group is confident that the tax treatment it has adopted for these transactions and all
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 $313 million ($486 million with interesttax effected).
The IRD is also investigating other transactions undertaken by the NZ 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 ($562 million with interest tax effected) as at 31 March 2009.
Of the maximum potential tax liability, it has been estimated that approximately $99 million ($157 million with interest tax effected) is subject to indemnities given by
Lloyds TSB Bank plc under the agreement by which the NZ Banking Group 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 2009 of $266 million ($405 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 substantially lessening 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 (the 'Bank') is defending the proceedings. The Bank has received independent legal advice. At this stage the risks and any potential
liabilities cannot be assessed. The court has now allocated a 10 week fixture for the proceedings beginning in October 2009.
In addition, the Bank is aware that the Commerce Commission is looking closely at credit contract fees under the Credit Contracts and Consumer Finance Act
2003 (CCCFA). In its 2008-2011 Statement of Intent the Commission stated that:"The Commission is turning more to litigation under the Credit Contracts and Consumer Finance Act to ensure credit contract fees are reasonable anddisclosed. Currently the credit industry is not fully compliant with the legislation and taking more action through the courts will encourage better compliance andclarify any areas of the law that may be uncertain."In particular the Bank is aware that the Commerce Commission is investigating the level of default fees charged on credit cards and the level of currency
conversion charges on overseas transactions using credit cards under the CCCFA. We have also been notified that the Commission is investigating early
repayment charges on fixed rate mortgages. At this stage the possible outcome of these investigations and any liability or impact on fees cannot be determinedwith any certainty.
ING New Zealand Funds
Trading in the ING Diversified Yield Fund and the ING Regular Income Fund ('the Funds') was suspended on 13 March 2008 due to deterioration in the liquidity andcredit markets. These funds are managed by the joint venture partner ING (NZ) Limited. Some of these funds were sold to ANZ National customers.

On 25 February 2009, ING (NZ) Limited announced that investors in the Funds will be receiving a proposal which allows them the ability to exit the investment for acash amount. We understand further details on the proposal will be released shortly.
The estimated cost of this proposal to the Bank is approximately $166m and this amount has been recognised in 'other operating income' in the Income Statement
and as a provision in the Balance Sheet.
The ultimate cost to the Bank will depend on the value of units in the underlying funds, the discount rate applied and recoveries under insurance cover. In addition
the Commerce Commission has sought information regarding the two Funds and is investigating this matter, although at this stage, it is not possible to determine
the outcome of any investigation.
Other contingent liabilities
The NZ Banking Group has other contingent liabilities in respect of actual and potential claims and proceedings. An assessment of the NZ Banking Group's likely
loss in respect of these matters has been made on a case-by-case basis and provision made where appropriate. As at 31 March 2009, there were no othercontingent assets or liabilities required to be disclosed (31/03/2008 nil; 30/09/2008 nil).

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH92

NOTES TO THE FINANCIAL STATEMENTS (continued)

43.

EMPLOYEE SHARE AND OPTION PLANS
The NZ Banking Group participates in the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan operated by the Overseas Banking Group. Any
shares or options granted under these plans are shares in Australia and New Zealand Banking Group Limited.
The closing market price of one ordinary share of ANZ quoted on the ASX (Australian Stock Exchange) at 31 March 2009 was A$15.75 (31/03/2008 A$22.55;
30/09/2008 A$18.75).

For personal use only

ANZ EMPLOYEE SHARE ACQUISITION PLAN
The ANZ Employee Share Acquisition Plan includes the A$1,000 Share Plan, the Deferred Share Plan and the Restricted Share Plan.
A$1,000 share plan
Each permanent employee who has had continuous service for one year with the NZ Banking Group is eligible 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 is based on the one-day volume weighted average price ('VWAP') of the shares tradedon the ASX on the date of issue.
The NZ Banking Group's employees are required to pay NZ 1 cent per share at the time the shares are transferred to them. During the six months to 31 March 2009,
540,305 shares with an average issue price of A$14.94 were issued under the A$1,000 Share Plan (31/03/2008 267,523 shares with an average issue price of
A$27.96 were issued; 30/09/2008 267,523 shares with an average issue price of A$27.96 were issued).

Deferred share plan
The NZ Banking Group's last issue of shares under this plan was in November 2004. Selected employees were issued deferred shares, which vest subject tosatisfaction of a minimum three year service period from the date of issue. Ordinary shares issued under this plan may be held in 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 of issue. Unvested shares are forfeited on resignation or dismissal, or if a
performance condition has not been met.
Restricted share plan
Restricted Shares are available to selected employees and are issued under the ANZ Employee Share Acquisition Plan. Selected employees have the option totake some (or all) of their incentive payment as Restricted Shares. The shares are held in trust and may not be traded until the conclusion of the one-year restriction
period, after which they may be transferred into the employees name. Until they are transferred into the employees name, they continue to be subject to forfeitureon 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 value of ANZ shares
granted. The fair value of shares granted in the current period, measured at the date of grant of the shares, is NZ $9.8 million based on 540,305 shares at aweighted average price of A$14.94 converted at the exchange rate of 0.8232 (31/03/2008 NZ $8.5 million based on 267,523 shares at a weighted average price of
A$27.96 converted at the exchange rate of 0.8809 were issued; 30/09/2008 NZ $8.5 million based on 267,523 shares at a weighted average price of A$27.96
converted at the exchange rate of 0.8809 were issued).
The average issue price of shares granted and the number of shares that are expected to ultimately vest to the employees at the end of the vesting 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 purchaseone ordinary share subject to any terms and conditions imposed on issue. The exercise price of the options (excluding zero-priced options) is determined inaccordance 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 NZ Banking Group employees since November 2005 and grants the right to acquire ANZ shares atnil cost, subject to a three year vesting period and a Total Shareholder Return (TSR) performance hurdle. The proportion of rights that will become exercisable will
depend upon the TSR achieved by ANZ relative to the companies in the comparator group, which consists of selected major financial services companies in theStandard & Poor's and ASX 100 Index. Performance equal to the median TSR of the comparator group will result in half the rights becoming exercisable.
Performance above the median will result in further performance rights becoming exercisable, increasing on a straight line basis until all of the rights become
exercisable where ANZ's TSR is at or above the 75th percentile in the comparator group.
The TSR hurdle will only be tested once at the end of the three-year vesting period. If the rights do not pass the hurdle on testing date, or if they pass the hurdle on
testing date and are not exercised by the end of five years from the grant date, the rights will lapse. In the case of resignation or termination on notice, only rightsthat 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 thecase 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 to exercise all performance rights.

Deferred share rights
This scheme is a short term incentive program available to certain NZ Banking Group employees since November 2004 and grants the right to acquire ANZ sharesat 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 thecase of resignation, only rights that become exercisable by the end of the notice period may be exercised. A grace period is provided in which to exercise the rights.
All other rights will lapse. In the case of termination on notice, retrenchment, retirement, death or total and permanent disablement, a grace period is provided inwhich to exercise all deferred share rights.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH93

NOTES TO THE FINANCIAL STATEMENTS (continued)

43.

EMPLOYEE SHARE AND OPTION PLANS (continued)
Legacy Option Plans

For personal use only

Performance options planThis scheme is a long term incentive program available to certain NZ Banking Group employees. The options can only be exercised after a three year vesting period
and before the seventh anniversary of the grant date. There are no other performance conditions attached to these options. All unexercised options are generally
forfeited on resignation but any options to which the NZ Banking Group employee is entitled will need to be exercised within a specified period of termination. On
retrenchment, entitlements to options will be pro-rated over the three year vesting period. On death or total and permanent disablement, all unvested options will
become available for exercise. No further performance options have been granted to NZ Banking Group employees after November 2005.

Zero-price options (ZPO)A ZPO is a right to acquire an ANZ share at nil cost and is granted to certain employees as part of their employment contracts. The ZPO's have no time based
vesting criteria, so can be exercised at any time during employment and within 6 months of termination of employment. ZPO's must be exercised within two years ofgrant date or they lapse.
Other past option plans which are no longer available to the NZ Banking Group's employees, but continue to 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 the period andmovements during the period are set out below:

Unaudited 31/03/2009
Weighted
average
Number ofsharesexercise price1
A$

NZ Banking Group
Unaudited 31/03/2008
Weighted
Number of average exercise
sharesprice1

Audited 30/09/2008
Weighted
average
Number ofsharesexercise price 1
A$

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

1,741,771
709,805(66,823)(150,781)

10.86
2.51
1.28
3.68

1,616,716
354,082(99,489)(52,865)

13.93
19.59
15.92

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

13.93
16.13
12.27

Share options at end of the period

2,233,972

8.98

1,818,444

10.99

1,741,771

10.86

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

14.86
0.00 - 23.49

26.02
0.00 - 23.49

21.37
0.00-23.49

39 months

43 months

36 months

Options valuations
The fair value of services received in return for share options are measured by referring to the fair value of ANZ share options granted. The fair value 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 deferredshare rights and performance rights are exercised as soon as they vest so that the option holder can benefit from the dividends. It assumes that theperformance 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 account for lack of marketability.

In addition, both models are designed such that they take into account as appropriate, any performance hurdles and non-transferability of the options.

The following inputs are used to measure the fair value of instruments granted during the period. All prices are quoted in Australian dollars:

Option type

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

Deferred sharerights9-Dec-2008
18,210$11.84$nil$14.1034%
5 years
3 years
3 years
6.00%
3.49%

PerformancerightsLTI deferredshare rights

STI deferredshare rights

STI restricted
share rights

STI deferredshare rights

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

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

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

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

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

1

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

2

Expected volatility is based on ANZ's historic volatility.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH94

NOTES TO THE FINANCIAL STATEMENTS (continued)

43.

EMPLOYEE SHARE AND OPTION PLANS (continued)
Options valuations (continued)
The following inputs are used to measure the fair value of instruments granted during the period. All prices are quoted in Australian dollars:

For personal use only

Option type

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

2

Expected volatility is based on ANZ's historic volatility.

STI restricted
share options

STI deferredshare options

STI deferredshare options

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

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

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

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH95

NOTES TO THE FINANCIAL STATEMENTS (continued)

44.

RETIREMENT BENEFIT OBLIGATIONSThe NZ Banking Group has established a number of pension and superannuation schemes. The NZ Banking Group may be obliged to contribute to the schemes
as a consequence of legislation and provision of trust deeds. Legal enforceability is dependent on the terms of the legislation and the requirements of Scheme
Trust Deeds. The major schemes are:

For personal use only

SchemeScheme type1

ANZ National Bank Staff Superannuation Scheme

1

The National Bank Staff Superannuation FundContribution levels
Employer

Employee
2

Defined Benefit SchemeorDefined Contribution Scheme
3Defined Benefit SchemeorDefined Contribution Scheme

4

Nil

Balance of cost

2.5% minimum of salary

7.5% of salary

5% of salary

Balance of cost

2.0% minimum of salary

11.2% of salary76
5

Details of the defined benefit schemes are as follows:

Actuarial valuations for financial reporting purposes are undertaken every six months. The latest valuations were carried out as at 31 March 2009.

Unaudited
31/03/2009$m

NZ Banking Group
Unaudited
31/03/2008$m

Audited30/09/2008$m

The amounts recognised in the balance sheet arising from the NZ Banking Group's obligation in
respect of its defined benefit schemes are determined as follows:
Defined benefit obligation at beginning of the year
Current service cost
Interest cost
Contributions by scheme participants
Actuarial (gains) losses
Benefits paid

179
1
5
1
(1)
(8)

181
2
6
(5)
(7)

181
3
12
1
3
(21)

Present value of funded defined benefit obligations

177

177

179

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

152
4
(38)
1
(8)

189
5
(17)
2
(7)

189
10
(30)
3
1
(21)

Fair value of scheme assets

111

172

152

Net defined benefit (liability) asset recognised on balance sheet

(66)

(5)

(27)

The fair value of scheme assets include cash deposits and fixed interest investments of $5.5 million with the NZ Banking Group as at 31 March 2009 (31/03/2008$2 million; 30/09/2008 $5 million).
The amounts recognised in the income statement in respect of defined benefit schemes are as follows:1

Current service cost
Interest cost
Expected return on scheme assets (net of tax)
Contribution withholding tax

1
5
(4)
1

2
6
(5)
-

3
12
(10)
2

Total pension costs recognised in the income statement - defined benefit superannuation schemes

3

3

8

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 dependentsof the members.
3

Closed to new members on 1 October 1991.
31/03/2009: $nil (31/03/2008 $nil; 30/09/2008 $nil).
5
31/03/2009: 24.8% (31/03/2008 24.8%; 30/09/2008 24.8%) of members' salaries.
6
31/03/2009: 7.5% (31/03/2008 7.5%; 30/09/2008 7.5%) of members' salaries.
7
31/03/2009: 11.5% (31/03/2008 11.5%; 30/09/2008 11.5%) of members' salaries.
4

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH96

NOTES TO THE FINANCIAL STATEMENTS (continued)

44.

RETIREMENT BENEFIT OBLIGATIONS (continued)
The actuarial gains and losses recognised directly in equity via the statement of recognised income and expense are as follows:

For personal use only

Unaudited
31/03/2009

NZ Banking Group
Unaudited
31/03/2008

Audited30/09/2008

Actuarial gains (pre-tax) at beginning of the period
Actuarial (loss) gain (pre-tax) incurred during the period

(25)
(38)

7
(12)

8
(33)

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

(63)

(5)

(25)

Income tax credit (expense) recognised directly in equity

19

2

8

Balance of actuarial (losses) gains at end of the period (net of tax)

(44)

(3)

(17)

The principal actuarial assumptions used were as follows:
The National Bank
Staff Superannuation Fund
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008

ANZ National Bank
Staff Superannuation Scheme
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008

Defined benefits calculation
Discount rate (gross of tax)
Future price inflation
Future pension increases
Future salary increases

6.0%
2.5%
2.5%
3.7%

6.4%
2.5%
2.5%
3.7%

6.5%
2.5%
2.5%
3.7%

6.0%
2.5%
2.5%
n/a

6.4%
2.5%
2.5%
n/a

6.0%
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 beginning of the relevant period, of asset performance
applicable to the period over which the defined benefit obligation is to be settled. The overall expected return on scheme assets reflects an aggregation of the
expected returns on the underlying asset classes.
The actual return on scheme assets (net of tax) for The National Bank Staff Superannuation Fund was -10.57% for the six months ended 31 March 2009(31/03/2008 -6.0%; 30/09/2008 -9.0%). The actual return on scheme assets (net of tax) for the ANZ National Bank Staff Superannuation Scheme was -7.25% for
the six months ended 31 March 2009 (31/03/2008 -5.0%; 30/09/2008 -6.0%).

The investment return on scheme assets is taxed at 30% (31/03/2008 33%; 30/09/2008 33%).
The major categories of scheme assets as a percentage of the fair value of scheme plan assets are as follows:

Cash and short term debt instruments
New Zealand fixed interest
Overseas fixed interest
Australasian shares
Overseas shares
Property fund units

The National Bank
Staff Superannuation Fund
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008

ANZ National Bank
Staff Superannuation Scheme
Unaudited
Unaudited
Audited31/03/2009
31/03/2008
30/09/2008

24.0%
13.7%
20.2%
9.9%
32.2%
0.0%

16.3%
22.1%
16.6%
8.8%
36.2%
0.0%

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

13.0%
28.0%
26.6%
9.2%
19.4%
3.8%

14.0%
22.9%
23.1%
7.5%
26.7%
5.8%

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

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.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH97

NOTES TO THE FINANCIAL STATEMENTS (continued)

44.

RETIREMENT BENEFIT OBLIGATIONS (continued)

For personal use only

Historical summary
Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous actuarial assumptions and what has actuallyoccurred 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:
NZ Banking Group
Audited
Audited30/09/2007
30/09/2006$m$m

Unaudited
31/03/2009$m

Audited30/09/2008$m

Audited30/09/2005$m

Defined benefit obligation
Fair value of scheme assets

(177)
111

(179)
152

(181)
189

(190)
196

(187)
195

Net benefit (liability)/asset

(66)

(27)

8

6

8

Experience adjustments on scheme liabilities
Experience adjustment on scheme assets

(28)

5
(21)

(1)
(7)

3
5

11

Employer contributions
To ensure the defined benefit schemes remain solvent, the schemes' independent actuaries recommend an employer contribution rate to the NZ 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 19 Employee Benefits ('NZ IAS 19') for annual periods
beginning on or after 1 January 2007.
The National Bank Staff Superannuation Fund deficit for funding purposes was valued at $18.8m in the most recent actuarial review at 1 April 2008 determined inaccordance with NZ IAS 19. The ANZ National Bank Staff Superannuation Scheme surplus was valued at $0.2 million in the most recent actuarial valuation at 31
Dec 2007 determined in accordance with NZ IAS 19.

The NZ Banking Group expects to contribute $2.1 million (net of contributions withholding tax) to its defined benefit schemes in the period to 31 March 2009(31/03/2008 $2 million; 30/09/2008 $4 million). Employer contributions are taxed at a rate of 30% (31/03/2008 33%; 30/09/2008 33%).

Contingent liabilities
The National Bank Staff Superannuation Fund
Under the Fund's Trust Deed, if this scheme were wound up, the NZ Banking Group is required to pay the Trustee of the Fund an amount sufficient 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 NZ Banking Group must pay to the Scheme such amounts as the Scheme Actuary determines are necessary to pay those benefits.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH98

NOTES TO THE FINANCIAL STATEMENTS (continued)

45.

RELATED PARTY TRANSACTIONSNZ Banking Group
Unaudited
Unaudited
6 months to
6 months to
31/03/2009
31/03/2008
$'000
$'000

AuditedYear to30/09/2008$'000

Unaudited
6 months to
31/03/2009$'000

NZ Branch
Unaudited
6 months to
31/03/2008$'000

AuditedYear to30/09/2008$'000

Key management personnel

5,850
249
40
1,408

5,584
180
96
1,409

11,919
786
127
2,665

-

-

-

Total compensation of key management personnel

7,547

7,269

15,497---Loans to key management personnel

3,936

6,362

7,272

-

-

-

Deposits from key management personnel

5,871

5,355

3,594

-

-

-

For personal use only

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

Key management personnel are defined as being Directors and senior management of the NZ Banking Group, those persons having authority and responsibility forplanning, directing and controlling the activities of the entity. The information above relating to key management personnel includes transactions with thoseindividuals, their close family members and their controlled entities.
Loans made to and deposits held by key management personnel (including personally related parties) are made in the course of ordinary business on normal
commercial terms and conditions no more favourable than those given to other employees or customers. Loans are on terms of repayment that range between
fixed, variable and interest only, all of which have been made in accordance with the NZ Banking Group's lending policies. No provision for credit impairment has
been recognised for loans made to key management personnel (31/03/2008 $nil; 30/09/2008 $nil).
All other transactions with key management personnel (including personally related parties) are conducted on an arm's length basis in the ordinary course ofbusiness and on commercial terms and conditions. These transactions principally consist of the provision of financial and investment services.

Transactions with the Ultimate Parent Bank and subsidiaries
Details of amounts provided by/to the Ultimate Parent Bank and subsidiaries of the NZ Banking Group during the ordinary course of business are set out in therelevant notes to these financial statements. No provision for credit impairment has been recognised during the six months ended 31 March 2009 (31/03/2008 $nil;
30/09/2008 $nil).
On 27 February 2009, $4,877 million of residential mortgage assets were sold to the NZ Branch. These assets qualify for derecognition as the Bank does not retain
the risks and rewards associated with these mortgages. The Consolidated Group's financial statements have reduced as a result of transferring these assets.

NZ Banking Group
Unaudited
Unaudited
6 months to
6 months to
31/03/2009
31/03/2008$m$m

AuditedYear to30/09/2008$m

Unaudited
6 months to
31/03/2009$m

NZ Branch
Unaudited
6 months to
31/03/2008$m

AuditedYear to30/09/2008$m

Interest income- Ultimate Parent Bank

-

-

4

-

-

-

Interest expense- ANZ Funds Pty Ltd- Ultimate Parent Bank

55
158

79
72

159
193

18

-

-

Operating expenses- Ultimate Parent Bank

41

39

82

-

-

-

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH99

NOTES TO THE FINANCIAL STATEMENTS (continued)

45.

RELATED PARTY TRANSACTIONS (continued)

For personal use only

Transactions with associates and joint venture entities
During the period the NZ Banking Group conducted transactions with associates and joint venture entities on normal commercial terms and conditions as shown
below:NZ Banking Group
Unaudited
Unaudited
6 months to
6 months to
31/03/2009
31/03/2008$m$m

AuditedYear to30/09/2008$m

Unaudited
6 months to
31/03/2009$m

NZ Branch
Unaudited
6 months to
31/03/2008$m

AuditedYear to30/09/2008$m

Amounts receivable- associates- joint venture entities

27
40

188
49

28
36

-

-

-

Amounts payable- associates

85

87

85

-

-

-

Interest income- associates- joint venture entities

1
2

2
2

2
4

-

-

-

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

13
-

12
1

23
1

-

-

-

The NZ Banking Group provides general administrative, strategic and governance services to ING (NZ) Limited under a Technical Services Agreement.
The NZ 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 Group provided payroll, tax accounting and compliance services, and premises in connection with and for the purpose of ING Insurance
Services (NZ) Limited and ING Managed Funds (NZ) Limited. All provision of these services ceased from 5 March 2007.

A provision for credit impairment of $6 million is recognised for amounts outstanding from associates as at 31 March 2009 (31/03/2008 $6million; 30/09/2008 $5
million). A credit impairment loss of $nil was charged during the six months ended 31 March 2009 (31/03/2008 $1 million recovered; 30/09/2008 $nil charged).

46.

SUBSEQUENT EVENTSThe financial statements were authorised for issue by the Directors on 26 May 2009. No subsequent events occurred between 31 March 2009 and the date ofissue.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH100

DIRECTORATE AND AUDITORS

Directorate and Auditors

For personal use only

The address to which any document or communication may be sent to any Director or the Chief Executive Officer, NZ Branch is Australia and New Zealand Banking Group Limited - New
Zealand Branch, Level 14, ANZ Tower, 215-229 Lambton Quay, Wellington, New Zealand. The document or communication should be marked for the attention of that Director or the
Chief Executive Officer.
Directors’ Interests
The Board of the Overseas Bank has adopted procedures to ensure that conflicts and potential conflicts of interest between the Directors' duty to the Overseas Bank and their own
interests are avoided or dealt with. Pursuant to these procedures:a)each Director should disclose to all Directors any material personal interest they have in any matter which relates to the affairs of the Overseas Bank and any other interest which the
Director believes is appropriate to disclose in order to avoid an actual conflict of interest or the perception of a conflict of interest. This disclosure should be made as soon aspracticable after the Director becomes aware of their interest or the need to make a disclosure; andb)a Director who has an interest of the type referred to in a) above in a matter that is to be considered at a Directors' meeting, must not vote on the matter nor be present while thematter is considered at the meeting, unless a majority of Directors who do not have such an interest in the matter agree that the interest should not disqualify such Director frombeing present while the matter is being considered and from voting on the matter. The minutes of the meeting should record the decision taken by the Directors who do not have aninterest in the matter.

In addition, Standing Notices about interests are maintained for each Director. If the Director's interests change, the Director shall disclose the change as soon as practicable and an
updated Standing Notice shall be tabled at the next Board meeting and recorded in the minutes of that meeting.
Transactions with Directors and the Chief Executive Officer, NZ Branch
There are no transactions entered into by any Director, the Chief Executive Officer, NZ Branch or any immediate relative or close business associate of any Director or the Chief Executive
Officer, NZ Branch, with the NZ Branch or any member of the NZ Banking Group which has been either entered into on terms other than those which would in the ordinary course ofbusiness be given to any other person of like circumstances or means or which could otherwise be reasonably likely to influence materially the exercise of the Directors' or Chief Executive
Officer, NZ Branch, duties as Director or Chief Executive Officer of the NZ Branch and NZ Banking Group.

Directors as at 26 May 2009
The name, qualifications, occupation, country of residence and material external directorships of each director of the Overseas Bank as at the date this General Disclosure Statement was
signed were:
Independent Non-Executive Director, Chairman
Charles Barrington Goode, AC
BCom (Hons), MBA, Hon LLD (Melb), Hon LLD (Monash)
Company Director
Melbourne, Australia
External Directorships
Chairman: Australian United Investment Company Limited, Diversified United Investment Limited, Grosvenor Australia Properties Pty Ltd, The Ian Potter Foundation Ltd
Member: International Council of the Asia Society, Asia Society Australasia Centre, AsiaLink Council, The Global Foundation.

Chief Executive Officer - Australia and New Zealand Banking Group Limited
Michael Roger Pearson Smith, OBE
BSc (Hons)
Chief Executive Officer
Melbourne, Australia
External Directorships
Director : The Financial Markets Foundation for Children, ANZ National Bank Limited
Member: Chongqing Mayor's International Economic Advisory Council, Australian Bankers' Association Incorporated, Asia Business Council, Financial Literacy Advisory Board
Fellow: The Hong Kong Management Association.

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH

101

DIRECTORATE AND AUDITORS (continued)

Non-Executive Directors

For personal use only

Dr Gregory John Clark
BSc (Hons), PhD, FAPS, FTSE
Company Director
Based in New York, United States of America but also resides in Sydney,
Australia
External Directorships
Chairman: GPM Classified Directories
Director: Babcock & Brown Capital Limited, KaComm Communications Pty
LimitedPrincipal: Clark Capital Partners

Ian John Macfarlane, AC
BEc (Hons), MEc, Hon DSc (Syd), Hon DSc (UNSW), Hon DCom (Melb),
Hon DLitt (Macq), Hon LLD (Monash)
Company Director
Sydney, Australia
External Directorships
Director: Woolworths Limited, Leighton Holdings Limited, Lowy Institute forInternational Policy
Member: International Advisory Board of Goldman Sachs JB Were,
International Advisory Board of CHAMP Private Equity

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

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

External Directorships

External Directorships
Chairman: PaperlinX Limited
Director: Coca Cola Amatil Limited, Mirrabooka Investments Limited

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

President: Melbourne Cricket ClubPeter Algernon Franc Hay
LLB (Melb)
Company Director
Melbourne, Australia

John Powell Morschel
DipQS, FAIM
Company Director
Sydney, Australia

External Directorships
Chairman: Advisory Board of Lazard Carnegie Wylie Pty Ltd
Director: Alumina Limited, Landcare Australia Limited

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

Lee Hsien Yang
MSc, BA
Company Director
Singapore
External Directorships
Chairman: Fraser & Neave Limited, Republic Polytechnic, New Civil Aviation
Authority (Chairman-Designate from 2008 and Chairman with effect from July2009)

Alison Mary Watkins
BCom, ICAA, FSIA, AICD
Chief Executive Officer - Bennelong Group
Melbourne, Australia
External Directorships
Director: Bennelong Group & related entities; Woolworths Limited, Yarra
Capital Partners Pty Ltd. Yarra Investment Group Pty Ltd

Director: Singapore Exchange Limited, The Islamic Bank of Asia Limited, Kwa
Geok Choo Pte Ltd, Asia Pacific Investments Pte Ltd
Member: Governing Board of Lee Kuan Yew School of Public Policy, Rolls
Royce International Advisory Council, Merrill Lynch PacRim Advisory Council

Chief Executive Officer, Australia and New Zealand Banking Group - New
Zealand Branch
Susan Ruth Peterson
BCom, LLB
Chief Executive Officer & Managing Director, NZ Branch
Auckland, New ZealandExternal Directorships
Director: IHC New ZealandAudit Committee
The following were members of the Audit Committee of the Overseas Bank as at 26 May 2009:

D E Meiklejohn
Non-Executive Director

J K Ellis
Non-Executive Director

AM Watkins
Non-executive Director

C B Goode (ex Officio)
Chairman of the Board

Auditors
KPMG
Chartered Accountants
10 Customhouse Quay
PO Box 996
Wellington, New ZealandAUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH102

CREDIT RATING INFORMATION

For personal use only

Credit Ratings applicable as at 26 May 2009
The Overseas Bank has three current credit ratings, which are applicable to its long-term senior unsecured obligations, including obligations payable in New Zealand in New
Zealand dollars. The credit ratings are:Rating Agency

Current Credit Rating

Qualification

Standard & Poor’s

AA

Outlook Stable

Moody’s Investors Service

Aa1

Outlook Negative

Fitch Ratings

AA-

Outlook Stable

During the two-year period ended 31 March 2009, the Standard and Poor's credit rating and qualification remained at AA and Outlook Stable.
During the two-year period ended 31 March 2009, the Moody's Investors Service credit rating and qualification changed from Aa3 Outlook Stable to Aa1 Outlook Stable on 4
May 2007. On 2 March 2009 the Outlook changed from Stable to Negative.

During the two-year period ended 31 March 2009, the Fitch Ratings credit rating and qualification remained at AA- and Outlook Stable. Fitch Ratings were formally engaged
by the Overseas Bank on 18 March 2008 to provide credit rating services. Previously Fitch Ratings had rated the Overseas Bank on an unsolicited basis as AA-.

The following grades display investment grade characteristics:
Ability to repay principal and interest is extremely strong. This is the highest investment category.
Very strong ability to repay principal and interest.
Strong ability to repay principal and interest although somewhat susceptible to adverse changes in economic, businessor financial conditions.
Adequate ability to repay principal and interest. More vulnerable to adverse changes.
The following grades have predominantly speculative characteristics:
Significant uncertainties exist which could affect the payment of principal and interest on a timely basis.
Greater vulnerability and therefore greater likelihood of default.
Likelihood of default now considered high. Timely repayment of principal and interest is dependent on favourable
financial conditions.
Highest risk of default.
Obligations currently in default.

Standard &Poor'sMoody's
Investors
Service

Fitch Ratings

AAA
AA

Aaa
Aa

AAA
AA

A
BBB

A
Baa

A
BBB

BB

Ba

BB

B

B

BB

CCC
CC to CD

Caa
Ca to C-CCC
CC to CRD & D

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

FINANCIAL STATEMENTS OF THE OVERSEAS BANK AND OVERSEAS BANKING GROUP

Copies of the most recent publicly available financial statements of the Overseas Bank and Overseas Banking Group, will be provided immediately, free of charge, to any
person requesting a copy where the request is made at the NZ Branch's head office, Level 14, ANZ Tower, 215-229 Lambton Quay, Wellington. The most recent publicly
available financial statements for the Overseas Bank and Overseas Banking Group can also be accessed at the internet address www.anz.com.au

For personal use only

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH

104

CONDITIONS OF REGISTRATION

Conditions of Registration, applicable as at date of registration.

For personal use only

The Conditions of Registration imposed on the NZ Branch, which will apply from the date of registration are:1.

That the New Zealand banking group does not conduct any non-financial activities that in aggregate are material relative to its total activities, where the termmaterial is based on generally accepted accounting practice, as defined in the Financial Reporting Act 1993.
That the New Zealand banking group’s insurance business is not greater than 1% of its total consolidated assets. For the purposes of this condition:2.
(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 nature referred to in section
3(1) of the Life Insurance Act 1908;(ii) In measuring the size of the New Zealand banking group’s insurance business:(a) where insurance business is conducted by any entity whose business predominantly consists of insurance business, the size of that insurance businessshall 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

(c)

(d)

business, plus the equity retained by the entity to meet the solvency or financial soundness needs of the insurance business;
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 with generally accepted accounting practice, as
defined in the Financial Reporting Act 1993;
where products or assets of which an insurance business is comprised also contain a non-insurance component, the whole of such products or assets
shall be considered part of the insurance business.

3.

That the business of the registered bank in New Zealand does not constitute a predominant proportion of the business of the Australia and New Zealand Banking
Group Limited.

4.

That no appointment to the position of the New Zealand chief executive officer of the registered bank shall be made 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.

5.

That Australia and New Zealand Banking Group Limited complies with the requirements imposed on it by the Australian Prudential Regulation Authority.

6.

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

7.

That the business of the registered bank in New Zealand is restricted to:(i) acquiring for fair value, and holding, mortgages originated by ANZ National Bank Limited; and(ii) any other business for which the prior written approval of the Reserve Bank of New Zealand has been obtained; and(iii) activities that are necessarily incidental to the business specified in paragraphs (i) and (ii).

8.

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

9.

That the registered bank in New Zealand may not incur any liabilities except:(i) to the government of New Zealand in respect of taxation and other charges; and(ii) to other branches or the head office of the registered bank; and(iii) to trade creditors and staff; and(iv) to ANZ National Bank Limited in respect of activities, other than borrowing, that are necessarily incidental to the business specified in paragraphs (i) and(v)(ii) of condition 7; andany other liabilities for which the prior written approval of the Reserve Bank has been obtained.

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

For personal use only

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - NEW ZEALAND BRANCH

105

INDEX

Index

For personal use only

General Disclosures
Summary of Financial Statements
Income Statements
Statements of Recognised Income and Expense
Balance Sheets
Cash Flow Statements
1.
Accounting Policies
Critical Estimates and Judgements Used in Applying
2.
Accounting Policies
3.
Risk Management Policies
4.
Income5.
Expenses
6.
Income Tax Expense
7.
Liquid Assets
8.
Due from Other Financial Institutions
9.
Trading Securities
10. Derivative Financial Instruments
11. Available-For-Sale Assets
12. Net Loans and Advances
13. Impaired Assets, Past Due Assets and Other Assets
Under Administration
14. Provision for Credit Impairment
15. Shares in Controlled Entities, Associates and Jointly
Controlled Entities
16. Other Assets
17. Deferred Tax Assets
18. Premises and Equipment
19. Goodwill and Other Intangible Assets
20. Due to Other Financial Institutions
21. Deposits and Other Borrowings
22. Payables and Other Liabilities
23. Deferred Tax Liabilities
24. Provisions

2
5
6
7
8
9
10
20
22
24
25
26
27
27
27
28
33
33
34
35
36
36
37
38
38
38
40
40
41
42

25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.

Bonds and Notes
Term Funding
Loan Capital
Ordinary Share Capital
Reserves and Retained Earnings
Capital Adequacy
Financial Risk Management
Concentrations of Credit Risk
Market Risk
Interest Earning and Discount Bearing Assets and Liabilities
Fair Value of Financial Assets and Financial Liabilities
Segmental Analysis
Notes to the Cash Flow Statements
Controlled Entities, Associates and Interests in Jointly
Controlled Entities
Parent Company and Ultimate Parent Company
Securitisation, Funds Management, Other Fiduciary Activities
and the Marketing and Distribution of Insurance Products

41. Commitments
42. Contingent Liabilities and Credit Related Commitments
43. Employee Share and Option Plans
44. Retirement Benefit Obligations
45. Related Party Transactions
46. Subsequent Events
Directorate and Auditors
Credit Rating Information
Financial Statements of the Overseas Bank and Overseas
Banking Group
Directors' and New Zealand Chief Executive Officer's Statement
Conditions of Registration
Independent Audit Report

43
44
45
46
47
48
52
75
75
75
76
82
85
86
88

89
90
90
92
95
98
99
100
102
102
103
104
105