AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED- ANZ NEW ZEALAND
REGISTERED BANK DISCLOSURE STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2019
NUMBER 41 | ISSUED DECEMBER 2019

CONTENTS
Glossary of terms

2

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

3
4
8
66
83

Independent Auditor’s Report84

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

2

FINANCIAL
STATEMENTS
Consolidated financial statements
Income statement

4Statement of comprehensive income

4

Balance sheet

5

Cash flow statement

6

Statement of changes in equity

7

Notes to the consolidated financial statements
Basis of preparation
1. About our financial statements

Non-financial assets
8

Financial performance

19. Goodwill and other intangible assets

51

Non-financial liabilities

2. Operating income

10

3. Operating expenses

12

4. Income tax

13

Equity5. Dividends

14

21. Shareholders' equity

55

6. Segment reporting14

22. Capital management

56

Financial assets

20. Other provisions

53

Consolidation and presentation

7. Cash and cash equivalents

16

23. Controlled entities

57

8. Trading securities

17

24. Structured entities

58

9. Derivative financial instruments

18

25. Transfers of financial assets

60

10. Investment securities

22

26. Divestments

60

11. Net loans and advances

23

12. Allowance for expected credit losses

24

Other disclosures
27. Related party disclosures

61

28. Commitments and contingent liabilities

63

13. Deposits and other borrowings

30

29. Compensation of auditors

64

14. Debt issuances

31

30. Events since the end of the financial year

64

Financial liabilities

Financial instrument disclosures
15. Financial risk management33

16. Fair value of financial assets and financial liabilities

46

17. Assets charged as security for liabilities49

and collateral accepted as security for assets
18. Offsetting

50

3

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTFINANCIAL STATEMENTS
INCOME STATEMENT
For the year ended 30 September

NoteInterest income
Interest expense

2019
NZ$m

2018
NZ$m

6,508
(3,276)6,550(3,373)

Net interest income

2

3,232

3,177

Other operating income

2

935

989

Net income from insurance business

2

27

149

Share of associates' profit

2

4

5

4,198

4,320

(1,609)(1,517)

2,589

2,803

Operating income
Operating expenses

3

Profit before credit impairment and income tax
Credit impairment charge

12

Profit before income tax

(99)

(53)

2,490

2,750

(665)

(764)

1,825

1,986

For the year ended 30 September

2019
NZ$m

2018
NZ$m

Profit for the year

1,825

1,986

(33)

3

Unrealised losses recognised directly in equity

(31)

(27)

Realised losses transferred to the income statement

14

5

Income tax attributable to the above items

15

6

Other comprehensive income after tax

(35)

(13)

Total comprehensive income for the year

1,790

1,973

Income tax expense
Profit for the year

4

STATEMENT OF COMPREHENSIVE INCOME

Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit or loss
Reserve movements:

The notes appearing on pages 8 to 64 form an integral part of these financial statements

4

FINANCIAL STATEMENTS

BALANCE SHEETAs at 30 September
AssetsCash and cash equivalents

Note

2019
NZ$m

2018
NZ$m

7

2,709

2,407

Settlement balances receivable
Collateral paid

193

656

2,324

1,919

Trading securities

8

8,942

8,024

Derivative financial instruments

9

11,653

8,072

Investment securities

10

7,027

6,502

Net loans and advances11

133,264

128,677

Assets held for sale

26

-

897

-

6

Deferred tax assets

4

80

-

Goodwill and other intangible assets

19

1

Investments in associates

3,276

3,289

Premises and equipment

335

325

Other assets

689

642

Total assets

170,492

161,416

1,590

2,066

991

845

Liabilities
Settlement balances payable
Collateral received
Deposits and other borrowings

13

117,071

112,920

Derivative financial instruments

9

10,912

8,133

Current tax liabilities

110

174

Deferred tax liabilities

-

23

-

334

1,174

955

138

120

Liabilities held for sale

26

Payables and other liabilities
Employee entitlements
Other provisions

20

314

76

Debt issuances

14

25,59324,534

Total liabilities (excluding head office account)

157,893

150,180

Net assets (excluding head office account)

12,59911,236

11,055

11,05521

33

EquityShare capital and initial head office accountReserves

21

Retained earnings

1,523

148

Total equity & head office account

12,59911,236

1

On adoption of NZ IFRS 9 Financial Instruments (NZ IFRS 9) on 1 October 2018, the classification and measurement of financial assets were revised. The available-for-sale classification used incomparative periods ceases to exist under NZ IFRS 9 and a new classification of investment securities was introduced. Refer to Note 1 and Note 10 for further details.

The notes appearing on pages 8 to 64 form an integral part of these financial statements

5

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTFINANCIAL STATEMENTS
CASH FLOW STATEMENT
For the year ended 30 September

Note

Profit after income tax

2019
NZ$m

2018
NZ$m

1,825

1,986

81

88

Adjustments to reconcile to net cash provided by/(used in) operating activities:
Depreciation and amortisation
Loss on sale and impairment of premises and equipment

10

4

Net derivatives/foreign exchange adjustment

213

1,050

Proceeds from divestments net of intangibles disposed of, classified as investing activities

(646)

-

Other non-cash movements

(128)

(19)

Collateral paid

(405)

(504)

Trading securities

(918)

(361)

Net loans and advances(4,587)(3,797)

Other assets

1,132

(266)

Deposits and other borrowings (excluding borrowings from Immediate Parent and Ultimate Parent Bank)

5,416

5,345

Settlement balances payable

(476)

448

Collateral received

146

232

Other liabilities

54

53

Total adjustments

(108)

2,273

Net cash flows from operating activities1

1,717

4,259

(2,347)(4,368)

1,963

4,246

747

-

Net (increase)/decrease in operating assets:

Net increase/(decrease) in operating liabilities:

Cash flows from investing activities
Investment securities:
Purchases
Proceeds from sale or maturity
Proceeds from divestments

26

Other assets

(88)

3

Net cash flows from investing activities

275

(119)

Cash flows from financing activities
Debt issuances:2
Issue proceeds

4,010

3,385

Redemptions(3,909)(3,991)

Borrowings from Immediate Parent and Ultimate Parent Bank:3
Loans drawn down

1,487

603

Repayments(2,903)(2,119)Proceeds from issue of preference shares
Dividends paid

-

3,000

(375)

(4,600)-(450)

Net cash flows from financing activities(1,690)(4,172)

Net change in cash and cash equivalents

302

(32)

Cash and cash equivalents at beginning of year

2,407

2,439

Cash and cash equivalents at end of year

2,709

2,407

NZ Branch retained earnings repatriated1
2

3

Net cash provided by operating activities includes income taxes paid of NZ$792 million (2018: NZ$619 million).
Movement in debt issuances (Note 14 Debt Issuances) also includes an NZ$403 million increase (2018: NZ$1,371 million increase) from the effect of foreign exchange rates, a NZ$657
million increase (2018: NZ$246 million decrease) from changes in fair value hedging instruments and an NZ$102 million decrease (2018: NZ$18 million increase) of other changes.
Movement in borrowings from Immediate Parent and Ultimate Parent Bank (Note 13 Deposit and Other Borrowings) also includes a NZ$47 million increase (2018: NZ$95 million increase)from the effect of foreign exchange rates and a NZ$104 million increase (2018: NZ$56 million decrease) from changes in fair value hedging instruments.

The notes appearing on pages 8 to 64 form an integral part of these financial statements

6

FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN EQUITYNote
As at 1 October 2017
Profit or loss

Sharecapitaland initial Investment
head securities
office revaluationaccount
reserve
NZ$m
NZ$m

Cash flow
hedging
reserve
NZ$m

Retainedearnings
NZ$m

Total
equity
NZ$m

8,055
-

5
-

43
-

3,210
1,986

11,313
1,986

Unrealised gains / (losses) recognised directly in equity

-

8

(35)

-

(27)

Realised losses transferred to the income statement

-

-

5

-

5

Actuarial gain on defined benefit schemes

-

-

-

3

3

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

-

(2)

9

(1)

6

Total comprehensive income for the year

-

6

(21)

1,988

1,973

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

21

3,000

-

-

-

3,000

Ordinary dividends paid

5

-

-

-

(4,600)(4,600)

3,000

-

-

(4,600)(1,600)Transactions with Immediate Parent Company in its capacity as owner
NZ Branch retained earnings repatriated

-

-

-

(450)

(450)

As at 30 September 2018

11,055

11

22

148

11,236As at 1 October 2018
Impact on transition to NZ IFRS 9

11,055

11

22

148

11,236

-

-

-

(52)

(52)

1

As at 1 October 2018 (adjusted)

11,0551122

96

11,184

Profit or loss

-

-

-

1,825

1,825

Unrealised losses recognised directly in equity

-

(24)

(7)

-

(31)

Realised losses transferred to the income statement

-

-

14

-

14

Actuarial loss on defined benefit schemes

-

-

-

(33)

(33)

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

-

7

(2)

10

15

Total comprehensive income for the year

-

(17)

5

1,802

1,790

-

-

-

(375)

(375)

Transactions with Immediate Parent Company in its capacity as owner:
Ordinary dividends paid
Transactions with Immediate Parent Company in its capacity as owner
As at 30 September 2019

5

-

-

-

(375)

(375)

11,055

(6)

27

1,523

12,599The notes appearing on pages 8 to 64 form an integral part of these financial statements

7

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
1.

ABOUT OUR FINANCIAL STATEMENTS

These are the financial statements for ANZ New Zealand for the year ended 30 September 2019. The Ultimate Parent Bank is incorporated in Australia
and is also registered in New Zealand (NZ Branch). The NZ Branch is domiciled in New Zealand, and the address of the NZ Branch’s registered office
and its principal place of business is Level 10, 171 Featherston Street, Wellington, New Zealand.
On 12 December 2019, the Directors resolved to authorise the issue of these financial statements.
Information in the financial statements is included only to the extent we consider it material and relevant to the understanding of the financial
statements. A disclosure is considered material and relevant if, for example:• the amount is significant in size (quantitative factor);• the information is significant by nature (qualitative factor);• the user cannot understand ANZ New Zealand’s results without the specific disclosure (qualitative factor);• the information is critical to a user’s understanding of the impact of significant changes in ANZ New Zealand’s business during the period – forexample: business acquisitions or disposals (qualitative factor);• the information relates to an aspect of ANZ New Zealand’s operations that is important to its future performance (qualitative factor); or• the information is required under legislative requirements of the Financial Markets Conduct Act 2013 or by ANZ New Zealand’s principal
regulator, RBNZ.
This section of the financial statements:• outlines the basis upon which ANZ New Zealand’s financial statements have been prepared; and• discusses any new accounting standards or regulations that directly impact the financial statements.

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

BASIS OF MEASUREMENT
We have prepared the financial information in accordance with the historical cost basis - except for the following assets and liabilities which we havestated at their fair value:• derivative financial instruments;• financial instruments measured at fair value through other comprehensive income (2018: available-for-sale financial assets); and• financial instruments measured at fair value through profit and loss.

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

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

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

8

NOTES TO THE FINANCIAL STATEMENTS

1.

ABOUT OUR FINANCIAL STATEMENTS (continued)

ACCOUNTING STANDARDS ADOPTED IN THE PERIODNZ IFRS 9 FINANCIAL INSTRUMENTS (NZ IFRS 9)
ANZ New Zealand has applied NZ IFRS 9 from 1 October 2018 (with the exception of the ‘own credit’ requirements relating to financial liabilities
designated as measured at fair value, which were early adopted by ANZ New Zealand effective from 1 October 2013). In addition, ANZ New Zealandchose to early adopt Prepayment Features with Negative Compensation (Amendment to NZ IFRS 9) effective from 1 October 2018. NZ IFRS 9 provides anaccounting policy choice, which ANZ New Zealand has taken in the current period, to continue to apply the NZ IAS 39 hedge accounting
requirements until the International Accounting Standards Board’s (IASB) ongoing project on macro hedge accounting is completed.
NZ IFRS 9 and Amendment to NZ IFRS 9 stipulate new requirements for the impairment of financial assets, classification and measurement of financial
assets and financial liabilities and general hedge accounting. Details of the key requirements are outlined within the Financial Assets and Financial
Liabilities sections on pages 16 and 29 respectively.
NZ IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS (NZ IFRS 15)
ANZ New Zealand adopted NZ IFRS 15 from 1 October 2018 which resulted in changes in accounting policies and adjustments to amounts
recognised in the consolidated financial statements. The standard requires identification of distinct performance obligations within a contract, andallocation of the transaction price of the contract to those performance obligations. Revenue is then recognised as each performance obligation issatisfied. The standard also provides guidance on whether an entity is acting as a principal or an agent which impacts the presentation of revenue ona gross or net basis.
ANZ New Zealand has assessed all revenue streams existing at the date of transition to the new standard and determined that the impact of NZ IFRS
15 is immaterial given the majority of ANZ New Zealand’s revenues are outside the scope of the standard. ANZ New Zealand has adopted NZ IFRS 15
retrospectively including restatement of prior period comparatives.

ACCOUNTING STANDARDS NOT EARLY ADOPTED
A number of new standards, amendments to standards and interpretations have been published but are not mandatory for the financial statements
for the year ended 30 September 2019, and have not been applied by ANZ New Zealand in preparing these financial statements.
ANZ New Zealand has identified five standards where this applies to ANZ New Zealand and further details are set out below:
GENERAL HEDGE ACCOUNTINGNZ IFRS 9 introduces new hedge accounting requirements which more closely align accounting with risk management activities undertaken when
hedging financial and non-financial risks. NZ IFRS 9 provides ANZ New Zealand with an accounting policy choice to continue to apply the NZ IAS 39
hedge accounting requirements until the IASB’s ongoing project on macro hedge accounting is completed. ANZ New Zealand currently applies thehedge accounting requirements of NZ IAS 39.
NZ IFRS 16 LEASES (NZ IFRS 16)
ANZ New Zealand will adopt NZ IFRS 16 on 1 October 2019 replacing the previous standard NZ IAS 17 Leases (NZ IAS 17). NZ IFRS 16 primarily impacts
ANZ New Zealand’s property and technology leases which were previously classified as operating leases. Under NZ IAS 17, operating leases were notrecognised on the balance sheet and rent payments were expensed over the lease term.
Under NZ IFRS 16, lessees must recognise all leases (except for leases of low value assets and short term leases) on the balance sheet under a single
accounting model. Accordingly, ANZ New Zealand will recognise its right to use an underlying leased asset over the lease term, as a right-of-use (ROU)
asset, and its obligation to make lease payments as a lease liability. In the income statement, ANZ New Zealand will recognise depreciation expenseon the ROU asset and interest expense on the lease liability. As a result, lease expenses will be higher in the early periods of a lease and lower in thelater periods of the lease compared to the previous standard where expenses were constant over the lease term. Cumulative expenses over the life ofa lease will not change.
NZ IFRS 16 only has minor impacts on ANZ New Zealand’s lessor arrangements in relation to sale-leaseback transactions which will be implemented
prospectively.
ANZ New Zealand will apply the modified retrospective transition approach whereby initial lease liabilities are recognised based on the present valueof remaining lease payments as of the transition date. The initial ROU asset recognised for certain large commercial and retail leases are measured as if
NZ IFRS 16 had always been applied to the leases. For all other leases, the initial ROU asset is measured as equal to the initial lease liability. Based on
this transition approach, ANZ New Zealand expects to recognise an increase in liabilities of NZ$332 million and an increase in assets of NZ$308 million.
This is expected to result in a reduction to opening retained earnings of NZ$17 million and an increase in deferred tax assets of NZ$7 million as of 1
October 2019. Comparative information from prior periods will not be restated.
The implementation of NZ IFRS 16 requires management to make certain key judgements including the determination of lease terms, discount rates
and identifying arrangements that contain a lease. These estimates may be refined as ANZ New Zealand finalises its implementation of the standard in
the first half of the 2020 financial year.
NZ IFRIC INTERPRETATION 23 UNCERTAINTY OVER INCOME TAX TREATMENTS (NZ IFRIC 23)
In August 2017, the External Reporting Board (XRB) issued NZ IFRIC 23. NZ IFRIC 23 clarifies application and recognition and measurement
requirements in NZ IAS 12 Income Taxes when there is uncertainty over income tax treatments. NZ IFRIC 23 will apply to ANZ New Zealand from 1
October 2019, and is not expected to have a material impact on ANZ New Zealand.
REVISED CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTINGIn May 2018, the XRB issued a revised Conceptual Framework for Financial Reporting. The new Framework includes updated definitions and criteria forthe recognition and derecognition of assets and liabilities. Additionally it introduces new concepts on measurement, including factors to consider
when selecting a measurement basis. The revised Conceptual Framework for Financial Reporting will apply to ANZ New Zealand from 1 October 2020
and is not expected to have a material impact on ANZ New Zealand.
9

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
1.

ABOUT OUR FINANCIAL STATEMENTS (continued)

INTEREST RATE BENCHMARK REFORM
Interbank offered rates (IBORs), such as LIBOR are a key reference rate for derivative, loans and securities for global financial markets. In response toconcerns about the transparency and liquidity of IBORs, regulators in a number of jurisdictions across the globe are well advanced in developing
benchmark rates to phase out and replace IBORs, these projects are collectively known as ‘IBOR Reform’. The IASB are considering the financial
reporting implications of IBOR reform which is expected to impact elements of financial instrument accounting, including hedge accounting, loan
modifications, fair value methodologies and disclosures.
The IASB project is split into two phases: Phase 1 deals with pre-placement issues (issues affecting financial reporting in the period before thereplacement of IBORs); and Phase 2 deals with replacement issues (issues affecting financial reporting when existing IBORs are replaced).
In September 2019, the IASB issued a final standard, Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39 and IFRS 7, which focuses on‘pre-rate replacement issues’ and provides exceptions to specific hedge accounting requirements under IAS 39 and IFRS 9 so that entities will be able
to apply those hedge accounting requirements under an assumption that the interest rate benchmark is not altered as a result of the interest ratebenchmark reform. In October 2019, XRB adopted these amendments in XRB amending standard Interest Rate Benchmark Reform.
Although ANZ New Zealand anticipates the new standard, once adopted, will provide certain relief in relation to hedge accounting requirements, for
30 September 2019 reporting purposes, it has considered the existing portfolio of hedge accounted relationships in light of:• the significant uncertainty surrounding the methods and timing of transition away from IBORs; and• ongoing application and reliance in capital markets on IBORs for financial instrument pricing.
As a result of these factors, ANZ New Zealand has concluded that continuation of hedge accounting relationships for potentially impacted hedge
relationships remains appropriate. ANZ New Zealand is considering the new standard which is effective on 1 October 2020 but may be adopted
earlier.

2.

OPERATING INCOME
Note

Net interest income
Interest income by type of financial asset
Financial assets at amortised cost
Trading securities
Investment securities
Financial assets at fair value through profit or loss
Interest income
Interest expense by type of financial liability
Financial liabilities at amortised cost
Financial liabilities designated at fair value through profit or loss
Interest expense
Net interest income
Other operating income(i) Fee and commission income
Lending fees
Non-lending fees
Commissions
Funds management income
Fee and commission income
Fee and commission expense
Net fee and commission income(ii) Other income
Net foreign exchange earnings and other financial instruments income
Gain on UDC terminated transaction
Insurance proceeds
Sale of OnePath
Sale of investment in Paymark Limited (Paymark)
Other
Other income
Other operating income
Net income from insurance business
Share of associates' profit
Operating income

10

26
26

2019
NZ$m

2018
NZ$m

6,147
203
157
1
6,508

6,146
240
159
5
6,550

(3,231)(45)(3,276)
3,232(3,301)(72)(3,373)
3,177

33
792
65
257
1,147
(485)
662

32
786
46
250
1,114
(463)
651

141
66
39
27
273
935
27
4
4,198

276
20
20
22
338
989
149
5
4,320

NOTES TO THE FINANCIAL STATEMENTS

2.

OPERATING INCOME (continued)

RECOGNITION AND MEASUREMENTNET INTEREST INCOME
Interest income and expense
We recognise interest income and expense for all financial instruments, including those classified as held for trading, assets measured atfair value through other comprehensive income or designated at fair value through profit or loss in net interest income. For assets held at
amortised cost we use the effective interest rate method to calculate amortised cost. The effective interest rate is the rate that discounts thestream of estimated future cash receipts or payments over the expected life of the financial instrument or, when appropriate, a shorter
period, to the net carrying amount of the financial asset or liability. For assets subject to prepayment, we determine their expected life on
the basis of historical behaviour of the particular asset portfolio - taking into account contractual obligations and prepayment experience.
We recognise fees and costs, which form an integral part of the financial instruments (for example, loan origination fees and costs), using
the effective interest rate method. This is presented as part of interest income or expense depending on whether the underlying financial
instrument is a financial asset or financial liability.
OTHER OPERATING INCOME
Fee and commission income
We recognise fees or commissions:• that relate to the execution of a significant act (for example, advisory or arrangement services, placement fees and underwriting fees)
when the significant act has been completed; and• charged for providing ongoing services (for example, maintaining and administering existing facilities, funds management services) as
income over the period the service is provided.
Net foreign exchange earnings and other financial instruments income
We recognise the following as net foreign exchange earnings and other financial instruments income:• exchange rate differences arising on the settlement of monetary items and translation differences on monetary items translated at rates
different to those at which they were initially recognised;• fair value movements (excluding realised and accrued interest) on derivatives that we use to manage interest rate and foreign exchange
risk on funding instruments not designated as accounting hedges;• the ineffective portions of fair value hedges and cash flow hedges;• immediately upon sale or repayment of a hedged item, the unamortised fair value adjustments in items designated as fair value hedges
and amounts accumulated in equity related to designated cash flow hedges;• fair value movements on financial assets and financial liabilities designated at fair value through profit or loss or held for trading; and• amounts released from the investment securities revaluation reserve in equity when a debt instrument classified as FVOCI is sold.
NET INCOME FROM INSURANCE BUSINESSWe recognise:• premiums with a regular due date as income on an accruals basis;• claims on an accruals basis once our liability to the policyholder has been confirmed under the terms of the contract; and• change in life insurance contract asset, net of liability for reinsurance, under the Margin of Service (MoS) model.
SHARE OF ASSOCIATES’ PROFITThe equity method is applied to accounting for associates in the consolidated financial statements. Under the equity method, ANZ New
Zealand’s share of the after tax results of associates is included in the income statement and the statement of comprehensive income.

11

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
3.

OPERATING EXPENSES

Personnel
Salaries and related costs
Superannuation costs
Other
Personnel
Premises
Rent
Other
Premises
Technology
Depreciation and amortisation
Licences and outsourced services
Other
Technology (excluding personnel)
Other
Advertising and public relations
Professional fees
Freight, stationery, postage and communication
Charges from Ultimate Parent Bank
Other
Other
Operating expenses

2019
NZ$m

2018
NZ$m

858
29
35
922

820
29
42
891

81
72
153

82
71
153

48
116
41
205

47
126
52
225

47
64
44
60
114
329
1,609

43
45
44
52
64
248
1,517

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

12

NOTES TO THE FINANCIAL STATEMENTS

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

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

2019
NZ$m
2,490
697

2018
NZ$m
2,750
770

(1)
(29)
(5)
2
664
1
665
744
1
(80)
665
26.7%

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

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

13

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
5.

DIVIDENDS

ORDINARY SHARE DIVIDENDSDividends
Financial Year 2018
Dividend paid in March 2018
Dividend paid in April 2018
Dividend paid in September 2018
Dividends paid during the year ended 30 September 2018
Financial Year 2019
Dividend paid in March 2019
Dividends paid during the year ended 30 September 2019

Amountper share

Total
dividend
NZ$m

211.6 cents
793.3 cents
211.6 cents

800
3,000
800
4,600

99.2 cents

375
375

2019
NZ$m
5,660

2018
NZ$m
4,919

IMPUTATION CREDIT ACCOUNT

Imputation credits available

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

6. SEGMENT REPORTINGDESCRIPTION OF SEGMENTS
ANZ New Zealand is organised into three major business segments for segment reporting purposes - Retail, Commercial and Institutional. Centralised
back office and corporate functions support these segments. These segments are consistent with internal reporting provided to the chief operating
decision maker, being the Bank’s Chief Executive Officer.
Comparative data has been adjusted to reflect a change in the methodology for allocating earnings on capital to each segment, and other minor
structure changes. While neutral at ANZ New Zealand level, these changes have impacted net interest income, operating expenses and profit after tax
at the segment level.
RetailRetail provides a full range of banking and wealth management services to consumer, private banking and small business banking customers. We
deliver our services via our internet and app-based digital solutions and network of branches, mortgage specialists, relationship managers and contact
centres.
Commercial
Commercial provides a full range of banking services including traditional relationship banking and sophisticated financial solutions throughdedicated managers focusing on privately owned medium to large enterprises, the agricultural business segment, government and government
related entities.
Institutional
The Institutional division services governments, global institutional and corporate customers across three product sets: Transaction Banking, Loans &Specialised Finance and Markets.
•

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

•

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

•

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

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

14

NOTES TO THE FINANCIAL STATEMENTS

6.

SEGMENT REPORTING (continued)

OPERATING SEGMENTS
RetailCommercial

Institutional

Other

Total

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

For the year ended 30 September

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Net interest income

1,821

1,874

1,057

1,004

345

322

9

(23)

3,232

3,177

Net fee and commission income- Lending fees

16

16

1

1

16

15

-

-

33

32

- Non-lending fees

714

694

16

19

62

73

-

-

792

786

- Commissions

65

46

-

-

-

-

-

-

65

46

- Funds management fees

257

250

-

-

-

-

-

-

257

250

- Fee and commission expense

(485)

(463)

-

-

-

-

-

-

(485)

(463)

Net fee and commission income

567

543

17

20

78

88

-

-

662

651

Other income

7

5

-

1

171

177

95

155

273

338

Net income from insurance business

19

131

-

-

-

-

8

18

27

149

Share of associates' profits

4

5

-

-

-

-

-

-

4

5

Other operating income

597

684

17

21

249

265

103

173

966

1,143

Operating income

2,418

2,558

1,074

1,025

594

587

112

150

4,198

4,320

Operating expenses(1,078)(1,032)

(274)

(258)

(216)

(182)

(41)

(45)

(1,609)(1,517)

1,340

1,526

800

767

378

405

71

105

2,589

2,803

(45)

(48)

(47)

41

(7)

(46)

-

-

(99)

(53)

Profit before income tax

1,295

1,478

753

808

371

359

71

105

2,490

2,750

Income tax expense

(361)

(412)

(211)

(227)

(104)

(101)

11

(24)

(665)

(764)

Profit after income tax

934

1,066

542

581

267

258

82

81

1,825

1,986

3,160

3,230

Profit before credit impairment and income tax
Credit impairment (charge) / release

Financial position
Goodwill1

1,039

1,109

1,052

1,052

1,069

1,069

-

-

Net loans and advances

82,52779,052

43,46442,446

7,270

7,166

3

13 133,264 128,677

Customer deposits

73,86670,25916,138

16,842

19,232

16,954-- 109,236 104,055

1

Including items reclassified as held for sale.

OTHER SEGMENTThe Other segment profit after income tax comprises:

Central functions1
Technology and Group Centre2,3
Economic hedges
Revaluation of insurance policies from changes in interest rates3
Total
1

2

3

2019
NZ$m
3
187
(27)
(81)
82

2018
NZ$m
8
(9)
67
15
81

Central functions’ other income for the year ended 30 September 2018 includes the NZ$20 million insurance proceeds (Note 2 Operating Income) that were received from a member of theOverseas Banking Group.
Technology and Group Centre’s other income for the year ended 30 September 2019 includes the NZ$66 million gain on sale of OnePath and the NZ$39 million gain on sale of Paymark(Note 2 Operating Income).
Amounts for the year ended 30 September 2019 include the transfer of NZ$86 million of accumulated after tax gains previously recognised in revaluation of insurance policies fromchanges in interest rates to Technology and Group Centre. These gains were transferred upon the sale of OnePath.

15

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
FINANCIAL ASSETS

CLASSIFICATION AND MEASUREMENT
Financial assets - general
There are three measurement classifications for financial assets under NZ IFRS 9: amortised cost, fair value through profit or loss (FVTPL) and fairvalue through other comprehensive income (FVOCI). Financial assets are classified into these measurement classifications on the basis of two
criteria:• the business model within which the financial asset is managed; and• the contractual cash flow characteristics of the financial asset (specifically whether the contractual cash flows represent solely payments ofprincipal and interest).
The resultant financial asset classifications are as follows:• Amortised cost: financial assets with contractual cash flows that comprise solely payments of principal and interest and which are held in abusiness model whose objective is to collect their cash flows;• FVOCI: financial assets with contractual cash flows that comprise solely payments of principal and interest only and which are held in abusiness model whose objective is to collect their cash flows or to sell the assets; and• FVTPL: any other financial assets not falling into the categories above are measured at FVTPL.
Fair Value Option for Financial Assets
A financial asset may be irrevocably designated at FVTPL on initial recognition when the designation eliminates or significantly reduces anaccounting mismatch that would otherwise arise.
Impact of the transition to NZ IFRS 9 from 1 October 2018
The following table summarises the changes to the measurement classifications on adoption of NZ IFRS 9:
Balance sheet presentation

NZ IAS 39

NZ IFRS 9

Net loans and advances

Loans and receivables

Amortised cost

Investment securities(2018: Available-for-sale assets (AFS))

AFS

FVOCI

1

2

1
2

7.

Refer to Note 12 Allowance for expected credit losses for the change in the carrying amounts on transition to NZ IFRS 9 as at 1 October 2018.
The carrying amounts did not change on transition to NZ IFRS 9 as at 1 October 2018.

CASH AND CASH EQUIVALENTS

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

16

2019
NZ$m
538
297
1,448
426
2,709

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

NOTES TO THE FINANCIAL STATEMENTS

8.

TRADING SECURITIES

Government securities
Corporate and financial institution securities
Trading securities

2019
NZ$m
4,354
4,588
8,942

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

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

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

17

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
9. DERIVATIVE FINANCIAL INSTRUMENTS

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

Assets2019
NZ$m
10,699954
11,653Liabilities
2019
NZ$m
(9,625)(1,287)(10,912)

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

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

FEATURES
Derivative financial instruments are contracts:•

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

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

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

Derivatives held in order to:•

Designated in hedging
relationships

meet customer needs for managing their own risks.

•manage risk in ANZ New Zealand that are not in a designated hedge accounting relationship.

•

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

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

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

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

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

Futures

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

Swaps

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

Options

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

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

Currencies at current or determined rates of exchange.

Interest rate

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

Commodity

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

CreditCounterparty risk in the event of default.

18

NOTES TO THE FINANCIAL STATEMENTS

9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

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

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

Assets2019
NZ$m

Liabilities
2019
NZ$m

Assets2018
NZ$m

Liabilities
2018
NZ$m

6
10
6,042
3
6,061

(6)
(11)
(4,617)(4,634)

5
7
4,227
3
4,242

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

2,246
2,340
35
1
4,622
16
10,699(1,785)(3,148)(1)(35)(4,969)(22)(9,625)

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

(888)
(2,135)(3)(24)(3,050)(26)(6,978)DERIVATIVE FINANCIAL INSTRUMENTS – DESIGNATED IN HEDGING RELATIONSHIPSANZ New Zealand uses two types of hedge accounting relationships:
Fair value hedge

Cash flow hedge

Objective of thishedgingarrangement

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

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

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

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

Recognition of ineffective
hedge portion

Recognised immediately in other operating income.

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

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

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

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

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

As outlined in Note 1, ANZ New Zealand has continued to apply the NZ IAS 39 hedge accounting requirements until the IASB’s ongoing project onmacro hedge accounting is completed. However, new hedge disclosures are required in this period under NZ IFRS 7 Financial Instruments: Disclosures(NZ IFRS 7) which are presented below. The presentation of derivatives information for 2018 has not been amended.

19

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The fair value of derivative financial instruments designated in hedging relationships are:2019

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

2018

NominalamountNZ$mAssets
NZ$m

Liabilities
NZ$m

Assets
NZ$m

Liabilities
NZ$m

26,995

387

(727)

54

(902)

37,73064,725

567
954

(560)
(1,287)

286
340

(253)
(1,155)The maturity profile of the nominal amounts of our hedging instruments held at 30 September 2019 is:Nominal amount
Fair value hedges
Interest rate
Cash flow hedges
Interest rate

Averagerate

Less than 3months
NZ$m

3 to 12months
NZ$m

1 to 5years
NZ$m

After 5
years
NZ$m

Total
NZ$m

Interest rate

2.06%

-

1,860

15,587

9,548

26,995Interest rate

2.22%

531

3,010

30,561

3,628

37,730The impact of ineffectiveness from our designated hedge relationships by type of hedge relationship and type of risk being hedged are:IneffectivenessChange in valueof hedging
instrument
NZ$m

2019
Fair value hedges1
Interest rate
Cash flow hedges1
Interest rate
1

Hedge ineffectivenessChange in value
recognised in profitof hedged item
and loss
NZ$m
NZ$m

Amount reclassified
from the cash flow
hedge reserve
to profit and loss
NZ$m

562

(567)

(5)

-

(6)

7

1

14

All instruments are held within derivative financial instruments.

Hedge ineffectiveness recognised is classified within other operating income. Reclassification adjustments to the statement of comprehensive income
are recognised within net interest income.
Hedged items in relation to ANZ New Zealand’s fair value hedges for 30 September 2019 are as follows:

Fixed rate loans and advances
Fixed rate debt issuances
Fixed rate investment securities (FVOCI)1
Total
1

Balance sheet
presentation
Net loans and advances
Debt issuances
Investment securities

Hedged risk
Interest rate
Interest rate
Interest rate

Carrying amount
AssetsLiabilities
NZ$m
NZ$m
1,122
(19,843)
6,745
7,867
(19,843)

Accumulated fair value
hedge adjustments on
the hedged item
AssetsLiabilities
NZ$m
NZ$m
3
(363)
259
262
(363)

The carrying amount of debt instruments at fair value through other comprehensive income does not include the fair value hedge adjustment as the hedged assets are measured at fairvalue. The accounting for the hedge relationship results in a transfer from other comprehensive income to the income statement.

The cumulative amount of fair value hedge adjustments relating to ceased hedge relationships remaining on the balance sheet is NZ$3 million.
Hedged items in relation to ANZ New Zealand’s cash flow hedges for 30 September 2019 are as follows:

Floating rate loans and advances
Floating rate customer deposits

20

Hedged risk
Interest rate
Interest rate

Cash flow
hedge reserve
Continuing Discontinued
hedgeshedges
NZ$m
NZ$m
516
(1)
(465)
(13)

NOTES TO THE FINANCIAL STATEMENTS

9.

DERIVATIVE FINANCIAL INSTRUMENTS (continued)

The table below details the reconciliation of the cash flow hedge by risk type:Interest rate
NZ$m
22
(7)
14
(2)
27

Balance at 1 October 2018
Fair value losses
Transferred to income statement
Income taxes
Balance at 30 September 20192018 Disclosure

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

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

Hedge
accounting type

2018
NZ$m

Fair value
Fair Value

265
(270)

RECOGNITION AND MEASUREMENT
Recognition

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

Derecognition ofassets and liabilities

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

Impact on theincome statement

How we recognise gains or losses on derivative financial instruments depends on whether the derivative isheld for trading or is designated into a hedging relationship. For derivative financial instruments held for
trading, gains or losses from changes in the fair value are recognised in profit or loss.
For an instrument designated into a hedging relationship the recognition of gains or losses depends on thenature of the item being hedged. Refer to the previous table on page 19 for profit or loss treatment dependingon the hedge type.
Sources of hedge ineffectiveness may arise from basis risk and differences in discounting between the hedged
items and the hedging instruments. The hedging instruments are discounted using Overnight Index Swaps
discount curves which are not applied to the hedged items.

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

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

21

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
10. INVESTMENT SECURITIES
2019
Corporate
and financial
Security Government
institution
EquityPeriodtype
securities
securities
securities
NZ$m
NZ$m
NZ$m
Less than 3 months
85
80
Between 3 and 12 months
119
307
Between 1 and 5 years
3,263
1,812
Greater than 5 years
1,33426
No maturity
1
Total
4,801
2,225
1
Carried on balance sheet at:
FVOCI1
4,801
2,225
1
Available-for-sale assets1
Total
4,801
2,225
1
1

Total
NZ$m
165
426
5,075
1,360
1
7,027
7,027
7,027

2018
Corporate
and financial
Government institution
Equitysecurities
securities
securities
NZ$m
NZ$m
NZ$m
110
19
616
162
3,134
1,831
458
171
1
4,318
2,183
1
4,318
4,318

2,183
2,183

1
1

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

On adoption of NZ IFRS 9 on 1 October 2018, the classification and measurement of financial assets were revised. The available-for-sale classification used in comparative periods ceases toexist under NZ IFRS 9 and a new classification of investment securities was introduced. Refer to Note 1 for further details.

RECOGNITION AND MEASUREMENT
Policy applicable from 1 October 2018
Investment securities are those financial assets in security form (i.e. transferable debt or equity instruments) that are not held for trading
purposes. By way of exception, bills of exchange (a form of security/transferable instrument) which are used to facilitate ANZ New Zealand’s
customer lending activities are classified as loans and advances (rather than investment securities) to better reflect the substance of thearrangement.
Non-trading equity instruments may be designated at FVOCI on an instrument by instrument basis. If this election is made, gains or losses are
not reclassified from other comprehensive income to profit or loss on disposal of the investment. However, gains or losses may be reclassified
within equity.
Assets disclosed as investment securities are subject to the general classification and measurement policy for financial assets outlined at thecommencement of ANZ New Zealand’s Financial Asset disclosures on page 16.
Policy applicable prior to 1 October 2018
AFS assets comprise non-derivative financial assets which we designate as AFS since we do not hold them principally for trading purposes. They
include both equity and debt securities. AFS assets are initially recognised at fair value plus transaction costs and are revalued at least biannually. On revaluation, we include movements in fair value within the available-for-sale revaluation reserve in equity, except for certain items
which are recognised directly in profit or loss, being interest on debt securities, dividends received, foreign exchange on debt securities andimpairment charges.
When we sell the asset, any cumulative gain or loss from the available-for-sale revaluation reserve is recognised in profit or loss.
At each reporting date, we assess whether any AFS assets are impaired. We assess the impairment of any debt securities if an event has occurred
which will have a negative impact on the asset’s estimated cash flows. For equity securities, we assess if there is a significant or prolonged
decline in fair value below cost.
If an AFS asset is impaired, then we remove the cumulative loss related to that asset from the available-for-sale revaluation reserve. We thenrecognise it in profit or loss for:• debt instruments, as a credit impairment expense; and• equity instruments, as a negative impact in other operating income.
We recognise any later reversals of impairment on debt securities in the profit or loss through the credit impairment charge line. However, we
do not make any reversals of impairment for equity securities. To the extent previously impaired equity securities recover in value, gains arerecognised directly in equity.

Judgement is required when we select valuation techniques used to measure the fair value of assets not valued using quoted market
prices, particularly the selection of valuation inputs that are not readily observable. Refer to Note 16 Fair Value of Financial Assets andFinancial Liabilities for further details.
22

NOTES TO THE FINANCIAL STATEMENTS

11. NET LOANS AND ADVANCES
The following table provides details of net loans and advances for ANZ New Zealand:

Note
Overdrafts
Credit cards
Term loans - housing
Term loans - non-housing
Finance lease and hire purchase receivables
Subtotal
Unearned income
Capitalised brokerage/mortgage origination fees
Gross loans and advances
Allowance for expected credit losses
Net loans and advances
Residual contractual maturity:- within one year
- after more than one year
Net loans and advances

12

2019
NZ$m
927
1,569
84,74844,586
1,863
133,693(237)
307
133,763(499)
133,264

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

27,829105,435
133,264

26,937
101,740
128,677

RECOGNITION AND MEASUREMENT
Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are
facilities ANZ New Zealand provides directly to customers or through third party channels.
Loans and advances are initially recognised at fair value plus transaction costs directly attributable to the issue of the loan or advance, which areprimarily brokerage/mortgage origination fees which we amortise over the estimated life of the loan. Subsequently, we then measure loans andadvances at amortised cost using the effective interest rate method, net of any provision for credit impairment.
We classify contracts to lease assets and hire purchase agreements as finance leases if they transfer substantially all the risks and rewards ofownership of the asset to the customer or an unrelated third party.
ANZ New Zealand enters into transactions in which it transfers financial assets that are recognised on its balance sheet. When ANZ New Zealandretains substantially all of the risks and rewards of the transferred assets, the transferred assets remain on ANZ New Zealand’s balance sheet,however if substantially all the risks and rewards are transferred, ANZ New Zealand derecognises the asset.
If the risks and rewards are partially retained and control over the asset is lost, then ANZ New Zealand derecognises the asset. If control over theasset is not lost, ANZ New Zealand continues to recognise the asset to the extent of its continuing involvement.
We separately recognise the rights and obligations retained, or created, in the transfer as assets and liabilities as appropriate.
From 1 October 2018, assets disclosed as net loans and advances are subject to the general classification and measurement policy for financial
assets outlined at the commencement of ANZ New Zealand’s Financial Asset disclosures on page 16. Additionally, expected credit losses
associated with loans and advances at amortised cost are recognised and measured in accordance with the accounting policies outlined in
Note 12.

23

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
12. ALLOWANCE FOR EXPECTED CREDIT LOSSESAs described in Note 1, ANZ New Zealand adopted NZ IFRS 9 effective from 1 October 2018 which resulted in the application of an expected credit
loss (ECL) model for measuring impairment of financial assets and amendments to the presentation of credit impairment information for the current
year. Comparative information has not been restated.

ALLOWANCE FOR EXPECTED CREDIT LOSSES – IMPACT OF THE TRANSITION TO NZ IFRS 9
The table below reconciles the closing collective provision for credit impairment for financial assets determined in accordance with NZ IAS 39, andprovisions for loan commitments and financial guarantee contracts in accordance with NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets
as at 30 September 2018, and the opening provisions for credit impairment determined in accordance with NZ IFRS 9 as at 1 October 2018.
Off-balance
sheet credit
Net loans andrelatedadvances commitments
NZ$m
NZ$m

Collective provision reconciliation

Total
NZ$m

As at 30 September 2018
Impact on transition to NZ IFRS 91

312
60

72
13

384
73

As at 1 October 2018

372

85

457

Collective credit impairment charge

29

1

30

As at 30 September 2019

401

86

487

1

The increase in allowance for expected credit losses resulted in an increase in deferred tax assets of NZ$21 million and a decrease in retained earnings of NZ$52 million..

ALLOWANCE FOR EXPECTED CREDIT LOSSES – BALANCE SHEETThe following tables present the movement in the allowance for ECL for the year ended 30 September 2019.

Provision for credit impairment
Individual provision2
Collective provision3
Total provision for credit impairment
1
2
3

Net loans andadvances
30 Sep 19
30 Sep 18
NZ$m
NZ$m
132
98
401
312
499
444

Off-balance sheet credit
related commitments1
30 Sep 19
30 Sep 18
NZ$m
NZ$m
11
86
72
97
72

Total
30 Sep 19
30 Sep 18
NZ$m
NZ$m
132
109
487
384
596
516

Individual and collective provision relating to off-balance sheet credit related commitments is included in provisions from 1 October 2018.
Individual provision comprises Stage 3 ECL assessed individually from 1 October 2018.
Collective provision comprises Stage 1, 2 and 3 ECL assessed collectively from 1 October 2018.

Net loans and advances - at amortised cost
Allowance for ECL is included in net loans and advances.

As at 1 October 2018
Transfer between stages
New and increased provisions (net of collective provision releases)
Write-backs
Recoveries of amounts previously written off
Credit impairment charge
Bad debts written-off (excluding recoveries)
Add back recoveries of amounts previously written off
Discount unwind
As at 30 September 2019

Stage 1
NZ$m
160
29
(25)
4
164

Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
171
41
132
(40)
4
7
63
(2)
123
(49)
(23)
23
2
58
(106)
23
(9)
194
43
98

Total
NZ$m
504
159
(49)
(23)
87
(106)
23
(9)
499

Off-balance sheet credit related commitments - undrawn and contingent facilities
Allowance for ECL is included in other provisions.
As at 1 October 2018
Transfer between stages
New and increased provisions (net of collective provision releases)
Credit impairment charge
As at 30 September 2019
24

60
5
(5)
60

23
(5)
6
1
24

2
2

11
11
11

85
12
12
97

NOTES TO THE FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)
Explanation of how changes in the gross carrying amounts of gross loans and advances contributed to changes in loss allowance
Overall, loss allowances on gross loans and advances have remained stable at approximately 0.4% of gross loans and advances. Loss allowances haveincreased by NZ$7 million (1%) driven by an increase in the proportion of gross loans and advances in Stage 2 and Stage 3, offset by a net decrease inStage 3 individually assessed exposures as a result of amounts written-off.
2018 Provision for credit impairment disclosure under NZ IAS 39
The below disclosure does not reflect the adoption of NZ IFRS 9 and is prepared under the requirements of the previous NZ IAS 39. All provisions for
credit impairment were recognised in net loans and advances until 30 September 2018.

Provision for credit impairment for the year ended 30 September 2018
Individual provision
Balance at start of year
New and increased provisions
Write-backs
Bad debts written off (excluding recoveries)
Discount unwind
Total individual provisionCollective provision
Balance at start of year
Release to profit or loss
Total collective provision
Total provision for credit impairment

Net loansandadvances
NZ$m

Off-balance
sheet credit
relatedcommitments
NZ$m

Total
NZ$m

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

-

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

348
(36)
312
444

84
(12)
72
72

432
(48)
384
516

CREDIT IMPAIRMENT CHARGE – INCOME STATEMENT
Credit impairment charge analysis under NZ IFRS 9.
2019
NZ$m
New and increased provisions- Collectively assessed- Individually assessed
Write-backs
Recoveries of amounts previously written-off
Total credit impairment charge

30
141
(49)
(23)
99

2018 credit impairment charge analysis under NZ IAS 39
The below disclosure does not reflect the adoption of NZ IFRS 9 and is prepared under the requirements of the previous NZ IAS 39.

New and increased provisions
Write-backs
Recoveries of amounts previously written-off
Individual credit impairment charge
Collective credit impairment release
Total credit impairment charge

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

25

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENT
Policy applicable from 1 October 2018
EXPECTED CREDIT LOSS IMPAIRMENT MODEL
The measurement of expected credit losses reflects an unbiased, probability weighted prediction which evaluates a range of scenarios andtakes into account the time value of money, past events, current conditions and forecasts of future economic conditions.
Expected credit losses are either measured over 12 months or the expected lifetime of the financial asset, depending on credit deterioration
since origination, according to the following three-stage approach:•••Stage 1: At the origination of a financial asset, and where there has not been a significant increase in credit risk (SICR) since origination,an allowance equivalent to 12 months ECL is recognised reflecting the expected credit losses resulting from default events that are
possible within the next 12 months from the reporting date. For instruments with a remaining maturity of less than 12 months,
expected credit losses are estimated based on default events that are possible over the remaining time to maturity.
Stage 2: Where there has been a significant increase in credit risk since origination, an allowance equivalent to lifetime ECL is recognised
reflecting expected credit losses resulting from all possible default events over the expected life of a financial instrument. If credit risk
were to improve in a subsequent period such that the increase in credit risk since origination is no longer considered significant, theexposure returns to a Stage 1 classification and a 12 month ECL applies.
Stage 3: Where there is objective evidence of impairment, an allowance equivalent to lifetime ECL is recognised.

Expected credit losses are estimated on a collective basis for exposures in Stage 1 and Stage 2, and on either a collective or individual basis
when transferred to Stage 3.
MEASUREMENT OF EXPECTED CREDIT LOSSESECL is calculated as the product of the following credit risk factors at a facility level, discounted to incorporate the time value of money:•••

Probability of default (PD) – the estimate of the likelihood that a borrower will default over a given period;
Exposure at default (EAD) – the expected balance sheet exposure at default taking into account repayments of principal and interest,
expected additional drawdowns and accrued interest; andLoss given default (LGD) – the expected loss in the event of the borrower defaulting, expressed as a percentage of the facility’s EAD,
taking into account direct and indirect recovery costs.

These credit risk factors are adjusted for current and forward looking information through the use of macro-economic variables.
EXPECTED LIFE
When estimating ECL for exposures in Stage 2 and 3, ANZ New Zealand considers the expected lifetime over which it is exposed to credit risk.
For non-retail portfolios, ANZ New Zealand uses the maximum contractual period as the expected lifetime for non-revolving credit facilities.
For non-retail revolving credit facilities, such as corporate lines of credit, the expected life reflects ANZ New Zealand’s contractual right towithdraw a facility as part of a contractually agreed annual review, after taking into account the applicable notice period.
For retail portfolios, the expected lifetime is determined using behavioural term, taking into account expected repayment behaviour andsubstantial modifications.
DEFINITION OF DEFAULT, CREDIT IMPAIRED AND WRITE-OFFS
The definition of default used in measuring expected credit losses is aligned to the definition used for internal credit risk management
purposes across all portfolios. This definition is also in line with the regulatory definition of default. Default occurs when there are indicatorsthat a debtor is unlikely to fully satisfy contractual credit obligations to ANZ New Zealand, or the exposure is 90 days past due.
Financial assets, including those that are well secured, are considered credit impaired for financial reporting purposes when they default.
When there is no realistic probability of recovery, loans are written off against the related impairment allowance on completion of ANZ New
Zealand’s internal processes and when all reasonably expected recoveries have been collected. In subsequent periods, any recoveries ofamounts previously written-off are credited to credit impairment charge in the income statement.
MODIFIED FINANCIAL ASSETS
If the terms of a financial asset are modified or an existing financial asset is replaced with a new one for either credit or commercial reasons, anassessment is made to determine if the changes to the terms of the existing financial asset are considered substantial. This assessment
considers both changes in cash flows arising from the modified terms as well as changes in the overall instrument risk profile; for example,
changes in the principal (credit limit), term, or type of underlying collateral. Where a modification is considered non-substantial, the existing
financial asset is not derecognised and its date of origination continues to be used to determine SICR. Where a modification is considered
substantial, the existing financial asset is derecognised and a new financial asset is recognised at its fair value on the modification date, which
also becomes the date of origination used to determine SICR for this new asset.

26

NOTES TO THE FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENTSIGNIFICANT INCREASE IN CREDIT RISKStage 2 assets are those that have experienced a SICR since origination. In determining what constitutes a SICR, ANZ New Zealandconsiders both qualitative and quantitative information:•

Internal credit rating grade
For the majority of portfolios, the primary indicator of a SICR is a significant deterioration in the internal credit rating grade of a facility
since origination and is measured by application of thresholds.
For non-retail portfolios, a SICR is determined by comparing the Customer Credit Rating (CCR) applicable to a facility at reporting
date to the CCR at origination of that facility. A CCR is assigned to each borrower which reflects the probability of default of theborrower and incorporates both borrower and non-borrower specific information, including forward looking information. CCRs are
subject to review at least annually or more frequently when an event occurs which could affect the credit risk of the customer.
For retail portfolios, a SICR is determined by comparing each facility’s scenario weighted lifetime probability of default at thereporting date to the scenario weighted lifetime probability of default at origination. The scenario weighted lifetime probability ofdefault may increase significantly if:•••

there has been a deterioration in the economic outlook, or an increase in economic uncertainty; orthere has been a deterioration in the customer’s overall credit position, or ability to manage their credit obligations.

Backstop criteria
ANZ New Zealand uses 30 days past due arrears as a backstop criteria for both non-retail and retail portfolios. For retail portfolios
only, facilities are required to demonstrate three to six months of good payment behaviour prior to being allocated back to Stage 1.

FORWARD LOOKING INFORMATION
In applying forward looking information for estimating ECL, ANZ New Zealand considers four probability-weighted forecast economic
scenarios as follows:•

Base case scenario
The base case scenario is our view of the most likely future macro-economic conditions. It reflects management’s assumptions used
for strategic planning and budgeting, and also informs ANZ New Zealand’s Internal Capital Adequacy Assessment Process (ICAAP)
which is the process ANZ New Zealand applies in strategic and capital planning over a 3 year time horizon;•

Upside and Downside scenarios
The upside and downside scenarios are fixed by reference to average economic cycle conditions (that is, they are not based on theeconomic conditions prevailing at balance date) and are based on a combination more optimistic (in the case of the upside) andpessimistic (in the case of the downside) economic events and uncertainty over the long term horizons; and•Severe downside scenario
The severe downside scenario is fixed by reference to average economic cycle conditions and accounts for the potentially severe
impact of less likely extremely adverse economic conditions. It reflects macro-economic conditions of a downturn economic eventwith a probability of occurrence once every 25 years.

The four scenarios are described in terms of macro-economic variables used in the PD, LGD and EAD models (collectively the ECL models)depending on the portfolio and country of the borrower. Examples of the variables include unemployment rates, GDP growth rates, house
price indices, commercial property price indices and consumer price indices.
Probability weighting each scenario is determined by management considering the risks and uncertainties surrounding the base casescenario, as well as specific portfolio considerations where required.
Where applicable, adjustments may be made to account for situations where known or expected risks have not been adequately
addressed in the modelling process.
ECL Sensitivity
The table below illustrates the impact on ANZ New Zealand’s ECL allowance under scenarios where a 100% weighting is applied to both
upside and downside scenarios with all other modelling assumptions remaining constant.
Collective ECL

Impact

NZ$m

NZ$m

100% upside scenario

371

(116)

100% downside scenario

549

62

27

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

RECOGNITION AND MEASUREMENT
Policy applicable prior to 1 October 2018
ANZ New Zealand recognises two types of impairment provisions for its loans and advances:• individual provisions for significant assets that are assessed to be impaired; and• collective provisions for portfolios of similar assets that are assessed collectively for impairment.
The accounting treatment for each of them is detailed below:

28

IndividuallyCollectively

Assessment

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

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

Impairment

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

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

Measurement

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

Uncollectableamounts

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

Recoveries

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

Off-balance sheet
amounts

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

NOTES TO THE FINANCIAL STATEMENTS

12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued)

Applicable from 1 October 2018
When estimating the allowance for expected credit losses for loans and advances, we used management’s judgement in respect of thematters outlined below.
Key judgements
Determining when asignificant increasein credit risk has
occurredIn the measurement of ECL, judgement is involved in setting the rules to determine whether there has been
a SICR since initial recognition of a loan, resulting in the financial asset moving from Stage 1 to Stage 2. Thisis a key area of judgement as transition from Stage 1 to Stage 2 increases the ECL calculation from anallowance based on the probability of default in the next 12 months, to an allowance for lifetime expectedcredit losses. Subsequent decreases in credit risk combined with transition from Stage 2 to Stage 1 may
similarly result in significant changes in the ECL allowance.
The setting of precise trigger points requires judgement which may have a material impact upon the size of
the ECL allowance. ANZ New Zealand monitors the effectiveness of SICR criteria on an ongoing basis.

Measuring both 12month and lifetime
credit losses

The PD, LGD, and EAD credit risk parameters used in determining ECL are point-in-time measures reflecting
the relevant forward looking information determined by management. Judgement is involved indetermining which forward-looking information variables are relevant for particular lending portfolios andfor determining each portfolio’s point-in-time sensitivity.
In addition, judgement is required where behavioural characteristics are applied in estimating the lifetime ofa facility to be used in measuring ECL. All other things being equal, an increase in the expected behaviourallife will increase the amount of ECL.

Forecasting forwardlooking scenarios

Our forecast of forward-looking information variables is established from a “base case” or most likely
scenario that is used internally by management for planning and forecasting purposes.
The expected outcomes of key economic drivers for the base case scenario as at 30 September 2019 are as
follows:
New Zealand
GDP growth is forecast to improve modestly over the forecast period, with the unemployment rate
remaining stable. Residential property values are expected to achieve modest levels of growth. Commercial
property prices are expected to grow, however, the growth rate is expected to be modest through theforecast period. The consumer price index is expected to rise modestly.

Probability
weighting of eachscenario

Probability weighting of each scenario is determined by management considering the risks anduncertainties surrounding the base case scenario, as well as specific portfolio considerations where required.

Management
temporaryadjustments

Management temporary adjustments to the ECL allowance are adjustments we use in circumstances where
we judge that our existing inputs, assumptions and model techniques do not capture all the risk factors
relevant to our lending portfolios. Emerging local or global macroeconomic, microeconomic or politicalevents, and natural disasters that are not incorporated into our current parameters, risk ratings, or forwardlooking information are examples of such circumstances.
The use of management temporary adjustments may impact the amount of ECL recognised.

Applicable prior to 1 October 2018
When we measured impairment of loans and advances, we used management’s judgement of the extent of losses at reporting date.
IndividuallyCollectively
Key judgements• estimated future cash flows• business prospects for the customer• realisable value of any collateral• ANZ New Zealand’s position relative to otherclaimants• reliability of customer information• likely cost and duration of recovering loans• estimated future cash flows• historical loss experience of assets with similar risk
characteristics• impact of large concentrated losses inherent in theportfolio• assessment of the economic cycle

We regularly reviewed our key judgements and updated them to reflect actual loss experience.

29

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
FINANCIAL LIABILITIESCLASSIFICATION AND MEASUREMENT
Financial liabilities
Financial liabilities are measured at amortised cost, or fair value through profit or loss (when they are held for trading). Additionally, financial
liabilities can be designated at FVTPL where:• the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise; or• a group of financial liabilities are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk
management strategy; or• the financial liability contains one or more embedded derivatives unless:• the embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract; or• the embedded derivative is closely related to the host financial liability.
Where financial liabilities are designated as measured at fair value, gains or losses relating to changes in the entity’s own credit risk are included
in other comprehensive income, except where doing so would create or enlarge an accounting mismatch in profit or loss. This section of thestandard was early adopted by ANZ New Zealand on 1 October 2013.

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

17

27

2019
NZ$m
54,98442,329
11,795
128
109,236
1,484
2,461
203
3,687
117,0712018
NZ$m
51,29841,602
10,224931
104,055
910
2,486
517
4,952
112,920

113,340
3,731
117,071

107,692
5,228
112,920

114,6102,461
117,071

110,434
2,486
112,920

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

30

NOTES TO THE FINANCIAL STATEMENTS

13. DEPOSITS AND OTHER BORROWINGS (continued)

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

14. DEBT ISSUANCESANZ New Zealand uses a variety of funding programmes to issue unsubordinated debt (including senior debt and covered bonds) and subordinateddebt. The difference between unsubordinated debt and subordinated debt is that holders of unsubordinated debt take priority over holders ofsubordinated debt owed by the relevant issuer and subordinated debt will be repaid by the relevant issuer only after the repayment of claims ofdepositors, other creditors and the senior debt holders.
2019
2018
NZ$m
NZ$m
Senior debt
18,767
19,307
Covered bonds
3,929
4,460
22,696
Total unsubordinated debt
23,767
Subordinated debt
- ANZ Capital Notes
1,549
1,540
- Other289
286
Total subordinated debt
1,826
1,838
Total debt issued
25,59324,534TOTAL DEBT ISSUED BY CURRENCY
The table below shows ANZ New Zealand’s issued debt by currency of issue, which broadly represents the debt holders’ base location.

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

2019
NZ$m
1,375
8,200
4,219
1,522
10,27725,593

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

4,866
20,72725,593

4,124
20,41024,534

Covered bonds are guaranteed by ANZNZ Covered Bond Trust Limited (the Covered Bond Guarantor), solely in its capacity as trustee of ANZNZ
Covered Bond Trust (the Covered Bond Trust). The Covered Bond Trust is a member of the Banking Group, whereas the Covered Bond Guarantor is nota member of the Banking Group.

31

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
14. DEBT ISSUANCES (continued)
ANZ Capital Notes
ANZ Capital Notes are fully paid mandatorily convertible non-cumulative perpetual subordinated notes. ANZ Capital Notes 3 (ANZ CN3) rank equallywith other additional tier 1 capital instruments issued by the Ultimate Parent Bank. ANZ New Zealand Capital Notes (ANZ NZ CN) rank equally with theBank’s other additional tier 1 capital instruments, including preference shares. Holders of ANZ Capital Notes do not have any right to vote in general
meetings of the Ultimate Parent Bank or the Bank.
As at 30 September 2019, ANZ NZ CN carried a BB+ credit rating from S&P Global Ratings. On 24 October 2019, S&P Global Ratings revised the credit
rating on ANZ NZ CN from BB+ to BBB-.
ANZ Capital Notes are classified as debt given there are circumstances beyond ANZ New Zealand’s control where the principal is converted into avariable number of ordinary shares of the Ultimate Parent Bank.
Distributions on ANZ CN3 and interest payments on ANZ NZ CN are non-cumulative and subject to the issuer’s absolute discretion and certain
payment conditions (including regulatory requirements). Distributions on ANZ CN3 are franked in line with the franking applied to the Ultimate Parent
Bank’s ordinary shares.
ANZ Capital Notes provide the issuer with an early redemption or conversion option on a specified date and in certain other circumstances (such as a
tax or regulatory event). This option is subject to APRA’s and, in respect of the ANZ NZ CN, RBNZ’s prior written approval.
ANZ Capital Notes will immediately convert into a variable number of ordinary shares of the Ultimate Parent Bank (based on the average market priceof the Ultimate Parent Bank’s ordinary shares immediately prior to conversion less a 1% discount, subject to a maximum conversion number of
Ultimate Parent Bank ordinary shares) if:• the Overseas Banking Group’s Level 1 (ANZ CN3 only) or Level 2 common equity tier 1 capital ratio is equal to or less than 5.125% or, in the caseof the ANZ NZ CN, the Banking Group’s common equity tier 1 capital ratio is equal to or less than 5.125% - known as a Common Equity Capital
Trigger Event; or• APRA notifies the Ultimate Parent Bank that, without the conversion or write-off of certain securities or a public injection of capital (or equivalent
support), it considers that the Ultimate Parent Bank would become non-viable or, in the case of the ANZ NZ CN, the RBNZ directs the Bank toconvert or write-off the notes or a statutory manager is appointed to the Bank and decides that the Bank must convert or write-off the notes –known as a Non-Viability Trigger Event.
ANZ Capital Notes mandatorily convert into a variable number of ordinary shares of the Ultimate Parent Bank (based on the average market price ofthe shares immediately prior to conversion less a 1% discount):• on a specified mandatory conversion date; or• on an earlier date under certain circumstances as set out in the terms.
However, the mandatory conversion is deferred for a specified period if certain conversion tests are not met.
The table below show the key details of the ANZ Capital Notes on issue at 30 September in both the current and the prior year:
IssuerIssue dateIssue amount
Face value
Distribution/interest frequency
Distribution/interest rate
Issuer's early redemption or conversion option
Mandatory conversion dateCommon equity capital trigger event
Non-viability trigger event
Carrying value as at 30 September 2019 (net of issue costs)

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

ANZ NZ CN
The Bank
31 March 2015
NZ$500 million
NZ$1
Quarterly in arrears
Fixed at 7.2% p.a. until 25
Floating rate: (Australian 180
May 2020. Resets in May 2020
day Bank Bill rate + 3.6%)
to a floating rate: (Newx (1-Australian corporate
Zealand 3 month Bank Billtax rate)
rate + 3.5%)
24 March 2023
25 May 2020
24 March 2025
25 May 2022
Yes
Yes
Yes
Yes
NZ$1,041 million
NZ$499 million

RECOGNITION AND MEASUREMENT
Debt issuances are measured at amortised cost. Where ANZ New Zealand enters into a fair value hedge accounting relationship, the fair value
attributable to the hedge risk is reflected in adjustments to the carrying value of the debt. Interest expense is recognised using the effective
interest rate method.
Subordinated debt with capital-based conversion features (i.e. Common Equity Capital Trigger Event or Non-Viability Trigger Events) areconsidered to contain embedded derivatives that we account for separately at fair value through profit and loss. The embedded derivatives arise
because the amount of shares issued on conversion following any of those trigger events is subject to the maximum conversion number,
however they have no value as of the reporting date given the remote nature of those triggering events.
32

NOTES TO THE FINANCIAL STATEMENTS

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

Key sections applicable to this risk

Overview• An overview of our Risk Management Framework

Credit risk

•
•
•
•
•

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

•
•
•
•

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

•
•
•
•
•

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

The risk of financial loss from:• a counterparty failing to fulfil its obligations; or• a decrease in credit quality of a counterparty resulting in financial loss.
Credit risk incorporates the risks associate with us lending to customers who
could be impacted by climate change or by changes to laws, regulations, orother policies adopted by governments or regulatory authorities, including
carbon pricing and climate change adaptation or mitigation policies.
Market risk
The risk to ANZ New Zealand’s earnings arising from:• changes in any interest rates, foreign exchanges rates, credit spreads,
volatility and correlations; or• fluctuations in bond, commodity or equity prices.
Liquidity and funding risk
The risk that ANZ New Zealand is unable to meet its payment obligations
when they fall due, including:• repaying depositors or maturing wholesale debt; or• ANZ New Zealand having insufficient capacity to fund increases in assets.

OVERVIEWAN OVERVIEW OF OUR RISK MANAGEMENT FRAMEWORKThis overview is provided to aid the users of the financial statements to understand the context of the financial disclosures required under NZ IFRS 7.
The Board is responsible for establishing and overseeing ANZ New Zealand’s Risk Management Framework (RMF). The Board has delegated authority
to the Bank’s Board Risk Committee (BRC) to develop and monitor compliance with ANZ New Zealand’s financial risk management policies. The BRC
reports regularly to the Board on its activities.
The Board approves the strategic objectives of ANZ New Zealand including:• the Risk Appetite Statement (RAS), which sets out the Board’s expectations regarding the degree of risk that ANZ New Zealand is prepared toaccept in pursuit of its strategic objectives and business plan; and• the Risk Management Strategy (RMS), which describes ANZ New Zealand’s strategy for managing risks and the key elements of the RMF thatgives effect to this strategy. This includes a description of each material risk, and an overview of how the RMF addresses each risk, with reference
to the relevant policies, standards and procedures. It also includes information on how ANZ New Zealand identifies measures, evaluates,
monitors, reports and controls or mitigates material risks.
ANZ New Zealand, through its training and management standards and procedures, aims to maintain a disciplined and robust control environment inwhich all employees understand their roles and obligations. At ANZ New Zealand, risk is everyone’s responsibility.
ANZ New Zealand has an independent risk management function, headed by the Chief Risk Officer who:
• is responsible for overseeing the risk profile and the risk management framework;• can effectively challenge activities and decisions that materially affect ANZ New Zealand’s risk profile; and• has an independent reporting line to the BRC to enable the appropriate escalation of issues of concern.
Internal Audit Function
Internal Audit is a function independent of management whose role is to provide the Board and management with an effective and independent
appraisal of the internal controls established by management. Operating under a Board approved Charter, the reporting line for the outcomes of work
conducted by Internal Audit is direct to the Chair of the Audit Committee, with a direct communication line to the Chief Executive Officer and theexternal auditor. The Internal Audit Plan is developed using a risk based approach and is reviewed quarterly. The Audit Committee approves the plan.
All audit activities are conducted in accordance with local and international auditing standards, and the results of the activities are reported to the
Audit Committee and management. These results influence the performance assessment of business heads. Furthermore, Internal Audit monitors theremediation of audit issues and reports the current status of any outstanding audits.

33

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISKCREDIT RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Granting credit facilities to customers is one of ANZ New Zealand’s major sources of income. As this activity is also a principal risk, ANZ New Zealanddedicates considerable resources to its management. ANZ New Zealand assumes credit risk in a wide range of lending and other activities in diverse
markets and in many jurisdictions. Credit risks arise from traditional lending to customers as well as from inter-bank, treasury, trade finance and capital
markets activities around the world.
Our credit risk management framework ensures we apply a consistent approach across ANZ New Zealand when we measure, monitor and manage
the credit risk appetite set by the Board. The Board is assisted and advised by the BRC in discharging its duty to oversee credit risk. The BRC:
• sets the credit risk appetite and credit strategies; and• approves credit transactions beyond the discretion of executive management.
We quantify credit risk through an internal credit rating system (masterscales) to ensure consistency across exposure types and to provide a consistentframework for reporting and analysis. The system uses models and other tools to measure the following for customer exposures:
Probability of Default (PD)Expressed by a Customer Credit Rating (CCR), reflecting ANZ New Zealand’s assessment of a customer’sability to service and repay debt.

Exposure at Default (EAD)

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

Loss Given Default (LGD)

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

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

Retail and some small business lending

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

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

We use ANZ New Zealand’s internal CCR to manage the credit quality of financial assets. To enable wider comparisons, ANZ New Zealand’s CCRs are
mapped to external rating agency scales as follows:
Credit quality
description

Internal CCR

ANZ New Zealand customer requirements

Moody’s
RatingS&P Global
Ratings

Strong

CCR 0+ to 4-

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

Aaa – Baa3

AAA – BBB-

Satisfactory

CCR 5+ to 6-

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

Ba1 – B1

BB+ – B+Weak

CCR 7+ to 8=

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

B2 – Caa

B - CCC

Defaulted

CCR 8- to 10

When doubt arises as to the collectability of a credit facility, thefinancial instrument (or ‘the facility’) is classified as defaulted.

n/a

n/a

34

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
ANZ New Zealand has adopted NZ IFRS 9 effective from 1 October 2018 which has resulted in changes to the classification and measurement offinancial assets, including the impairment of financial assets. The presentation of credit risk information for 2019 has been amended. Refer to Note 1
for further details on key requirements and impacts of the changes due to the adoption of NZ IFRS 9.
MAXIMUM EXPOSURE TO CREDIT RISKFor financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances there may
be differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below. Principally, thesedifferences arise in respect of financial assets that are subject to risks other than credit risk, such as equity instruments which are primarily subject tomarket risk, or bank notes and coins.
For undrawn facilities, this maximum exposure to credit risk is the full amount of the committed facilities. For contingent exposures, the maximum
exposure to credit risk is the maximum amount ANZ New Zealand would have to pay if the instrument is called upon.
For the purpose of this note, assets presented as held for sale in the balance sheet have been reallocated to their respective balance sheet categories.
The table below shows our maximum exposure to credit risk of on-balance sheet and off-balance sheet positions before taking account of any
collateral held or other credit enhancements.
ReportedOn-balance sheet positions
Net loans and advances2
Other financial assets:
Cash and cash equivalents
Settlement balances receivable
Collateral paid
Trading securities
Derivative financial instruments
Investment securities
Other financial assets3,4
Total other financial assets
Subtotal
Off-balance sheet commitments
Undrawn and contingent facilities2,5
Total
1
2

3
4
5

Maximum exposure tocredit risk

Excluded1 / Other2

2019
NZ$m

2018
NZ$m

2019
NZ$m

2018
NZ$m

2019
NZ$m

2018
NZ$m

133,264

128,677-(72)

133,264

128,749

2,709
193
2,324
8,942
11,653
7,027
623
33,471
166,735

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

192
192
192

204
204
132

2,517
193
2,324
8,942
11,653
7,027
623
33,279166,543

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

29,003
195,738

29,855
186,831

192

72
204

29,003
195,546

29,783
186,627

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

35

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT QUALITY
An analysis of ANZ New Zealand’s credit risk exposure is presented in the following tables based on ANZ New Zealand’s internal rating by stage
without account of the effects of any collateral or other credit enhancements.
Net loans and advances

As at 30 September 2019
StrongSatisfactory
Weak
Defaulted
Subtotal
Allowance for ECL
Net loans and advances at amortised cost
Coverage ratio
Unearned income
Capitalised brokerage/mortgage origination fees
Net carrying amountStage 1
NZ$m
96,212
26,468
1,229
123,909(164)
123,745
0.13%

Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
2,291
4,629
2,125
452
287
9,045
452
287
(194)
(43)
(98)
8,851
409
189
2.14%
9.51%
34.15%

Total
NZ$m
98,50331,097
3,354
739
133,693(499)
133,194
0.37%
(237)
307
133,264

Other financial assets
Total
NZ$m
32,676575
28
33,279As at 30 September 2019
StrongSatisfactory
Weak
Defaulted
Total carrying amountOff-balance sheet commitments - undrawn and contingent facilities

As at 30 September 2019
StrongSatisfactory
Weak
Defaulted
Gross undrawn and contingent facilities subject to ECLAllowance for ECL included in Other provisions (refer to Note 20)
Net undrawn and contingent facilities subject to ECL
Coverage ratio
Net undrawn and contingent facilities

36

Stage 1
NZ$m
23,0464,883
312
28,241(60)
28,181
0.21%

Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
59
641
137
3
19
837
3
19
(24)
(2)
(11)
813
1
8
2.87%
66.67%
57.89%

Total
NZ$m
23,1055,524
449
22
29,100(97)
29,0030.33%
29,003NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
2018 Credit risk disclosures
The below disclosures do not reflect the adoption of NZ IFRS 9 and have been prepared under the requirements of the previous NZ IAS 39.
The table below provides an analysis of the credit quality of the maximum exposure to credit risk split by:• neither past due nor impaired financial assets by credit quality;• past due but not impaired assets by ageing; and• impaired assets presented as gross amounts and net of individually assessed provisions.

As at 30 September 2018

Loans andadvances
NZ$m

Off-balance
Other
sheet
financial credit related
assets commitments
NZ$m
NZ$m

Total
NZ$m

Neither past due nor impaired
Strong credit profile

94,74727,561

23,224

145,532

Satisfactory risk

29,506521

6,186

36,213Sub-standard but not past due or impaired

2,314

13

359

2,686

126,567

28,09529,769184,431

Subtotal
Past due but not impaired≥ 1 < 30 days

1,441

-

-

1,441

≥ 30 < 60 days

190

-

-

190

≥ 60 < 90 days

139

-

-

139

≥ 90 days

221

-

-

221

Subtotal

1,991

-

-

1,991

Impaired
Impaired loans

323

-

-

323

-

-

14

14

Gross impaired financial assets

Non-performing commitments and contingencies

323

-

14

337

Individual provisions

(132)

-

-

(132)

Subtotal

191

-

14

205

128,749

28,09529,783

186,627

Total

37

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
CONCENTRATIONS OF CREDIT RISK
Credit risk becomes concentrated when a number of customers are engaged in similar activities, have similar economic characteristics, or have similar
activities within the same geographic region – therefore, they may be similarly affected by changes in economic or other conditions. ANZ New
Zealand monitors its credit portfolio to manage risk concentration and rebalance the portfolio. ANZ New Zealand also applies single customer
counterparty limits to protect against unacceptably large exposures to one single customer.
Analysis of financial assets by industry sector is based on Australian and New Zealand Standard Industrial Classification (ANZSIC) codes. The significant
categories shown are the level one New Zealand Standard Industry Output Categories (NZSIOC), except that Agriculture is shown separately as
required by the Order.
Composition of financial instruments that give rise to credit risk by industry group are presented below:
Off-balance sheet
credit related
commitments5

Loans
and advances3

Other financial
assets4

2019
NZ$m

2018
NZ$m

2019
NZ$m

2018
NZ$m

2019
NZ$m

2018
NZ$m

2019
NZ$m

2018
NZ$m

17,855
1,255
2,682
1,414
1,832
1,488
2,957
1,310
816
343
33,49017,845
1,379
2,687
1,403
1,714
1,404
3,214
1,224
871
364
32,293

84
9
378
514
32
94
29
137
6,169
9,723
1,212

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

1,021
225
2,004
1,834
1,039
1,681
961
864
1,377
1,105
3,112

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

18,960
1,489
5,064
3,762
2,903
3,263
3,947
2,311
8,362
11,17137,814

19,300
1,637
4,764
3,309
3,093
2,988
4,210
2,128
7,668
11,061
35,989

1,130

1,179

11

9

631

633

1,772

1,821

62,073
2,541

58,425
2,574

210
242

192
167

11,278
1,847

11,977
1,663

73,561
4,630

70,594
4,404

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

131,186

126,576

18,844

16,67428,97929,716

179,009

172,966

148
1,564
795

128
1,563
851

14,3985
32

11,331
5
85

121
-

139
-

14,667
1,569
827

11,598
1,568
936

Subtotal
Gross total
Allowance for ECL
Subtotal
Unearned income
Capitalised brokerage / mortgage
origination fees
Maximum exposure to credit risk

2,507
133,693(499)
133,194
(237)

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

14,43533,27933,279-11,421
28,09528,095-

121
29,100(97)
29,003-

139
29,855(72)
29,783-

17,063
196,072(596)
195,476(237)

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

307

314

-

-

-

-

307

314

133,264

128,749

33,27928,09529,00329,783

195,546

186,627

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

1
2
3
4
5

38

Total

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

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
COLLATERAL MANAGEMENT
We use collateral for on and off-balance sheet exposures to mitigate credit risk if a counterparty cannot meet its repayment obligations. Where there issufficient collateral, an expected credit loss is not recognised. This is largely the case for certain lending products that are secured by corresponding
investment for which margin loans are utilised and for reverse repurchase agreements. For some products, the collateral provided by customers isfundamental to the product’s structuring, so it is not strictly the secondary source of repayment - for example, lending secured by trade receivables istypically repaid by the collection of those receivables. During the period there was no change in our collateral policies.
The nature of collateral or security held for the relevant classes of financial assets is as follows:
Net loans and advances
Loans – housing and personal

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

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

Other financial assets
Trading securities, investment
securities, derivatives and otherfinancial assets

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

Off-balance sheet positions
Undrawn and contingent liabilities

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

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

Total value of collateral

Unsecured portion of credit
exposure

2019
NZ$m

2018
NZ$m

2019
NZ$m

2018
NZ$m

Net loans and advances

133,264

128,749

124,983

119,539

8,281

9,210

Other financial assets1

33,27928,095

1,857

2,029

31,422

26,066Off-balance sheet positions

29,00329,783

14,152

15,124

14,851

14,659

Total

195,546

186,627

140,992

136,692

54,55449,935

1

2019
NZ$m

2018
NZ$m

Including items reclassified as held for sale.

39

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISKMARKET RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIESMarket risk stems from ANZ New Zealand’s trading and balance sheet management activities and the impact of changes and correlation between
interest rates, foreign exchange rates, credit spreads and volatility in bond, commodity or equity prices.
The BRC delegates responsibility for day-to-day management of both market risk and compliance with market risk policies to the Bank’s Asset &Liability Committee (ALCO).
Within overall strategies and policies established by the BRC, business units and risk management have joint responsibility for the control of market
risk at the ANZ New Zealand level. The Market Risk team (a specialist risk management unit independent of the business) allocates market risk limits at
various levels and monitors and reports on them daily. This detailed framework allocates individual limits to manage and control exposures using risk
factors and profit and loss limits.
Management, measurement and reporting of market risk is undertaken in two broad categories:
Traded market risk

Non-traded market risk

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

•

Currency risk – potential loss arising from changes in foreignexchange rates or their implied volatilities.

•

Interest rate risk – potential loss from changes in market
interest rates or their implied volatilities.

•

Credit spread risk – potential loss arising from a movement inmargin or spread relative to a benchmark.

•Commodity risk – potential loss arising from changes incommodity prices or their implied volatilities.

•

Equity risk – potential loss arising from changes in equity
prices.

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

We calculate traded and non-traded VaR using a one-day holding period. For stressed VaR we use a ten-day period. Back testing is used to ensure ourVaR models remain accurate.
ANZ New Zealand measures VaR at a 99% confidence interval which means there is a 99% chance that a loss will not exceed the VaR for the relevant
holding period.

40

NOTES TO THE FINANCIAL STATEMENTS

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

As at
NZ$m
Traded value at risk 99% confidence
Foreign exchangeInterest rate
CreditDiversification benefit1
Total VaR
1.

0.5
1.4
0.6
(0.7)
1.8

2019
High forLow for
year
year
NZ$m
NZ$m
1.0
2.5
0.7
n/a
2.6

0.2
0.6
0.3
n/a
0.8

Averagefor year
NZ$m

As at
NZ$m

0.5
1.2
0.4
(0.8)
1.3

0.5
1.4
0.5
(1.0)
1.4

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

Averagefor year
NZ$m

0.2
0.8
0.3
n/a
1.0

0.7
1.9
0.5
(0.9)
2.2

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

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

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

10.0

2019
High forLow for
year
year
NZ$m
NZ$m
10.0

7.4

Averagefor year
NZ$m

As at
NZ$m

8.4

8.0

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

Averagefor year
NZ$m

6.4

7.8

We undertake scenario analysis to stress test the impact of extreme events on ANZ New Zealand’s market risk exposures. We model a 1% overnight
parallel positive shift in the yield curve to determine the potential impact on our net interest income over the next 12 months. This is a standard risk
measure which assumes the parallel shift is reflected in all wholesale and customer rates.
The table below shows the outcome of this risk measure for the current and previous financial years, expressed as a percentage of reported net
interest income. A positive number signifies that a rate increase is positive for net interest income over the next 12 months.
2019

2018

0.2%

-0.4%

Impact of 1% rate shock
As at period end
Maximum exposure

1.0%

0.9%

Minimum exposure

-0.7%

-1.2%

Average exposure (in absolute terms)

0.3%

-0.1%

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

41

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISKLIQUIDITY RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Liquidity risk is the risk that ANZ New Zealand is either:•

unable to meet its payment obligations (including repaying depositors or maturing wholesale debt) when they fall due; or•does not have the appropriate amount, tenor and composition of funding and liquidity to fund increases in its assets.

Management of liquidity and funding is overseen by ALCO. ANZ New Zealand’s liquidity and funding risks are governed by a set of principles
approved by the Risk Committees of the Bank’s and Ultimate Parent Bank’s Boards and include:•

maintaining the ability to meet all payment obligations in the immediate term;•

ensuring that ANZ New Zealand has the ability to meet ‘survival horizons’ under ANZ New Zealand specific and general market liquidity stressscenarios to meet cash flow obligations over the short to medium term;•

maintaining strength in ANZ New Zealand’s balance sheet structure to ensure long term resilience in the liquidity and funding risk profile;•

ensuring the liquidity management framework is compatible with local regulatory requirements;•

preparing daily liquidity reports and scenario analysis to quantify ANZ New Zealand’s positions;•targeting a diversified funding base to avoid undue concentrations by investor type, maturity, market source and currency;•

holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-to-day operations; and•establishing a detailed contingency plan to cover different liquidity crisis events.

KEY AREAS OF MEASUREMENT FOR LIQUIDITY RISKSupervision and regulation
RBNZ requires the Bank to have a comprehensive Board approved liquidity strategy defining: policy, systems and procedures for measuring, assessing,reporting and managing liquidity. This also includes a formal contingency plan for dealing with a liquidity crisis. The Banking Group is required to meet
one week and one month liquidity mismatch ratios and a one year core funding ratio each day.
Scenario modelling
A key component of ANZ New Zealand’s liquidity management framework is scenario modelling.
Potential severe liquidity crisis scenarios which model the behaviour of cash flows where there is a problem (real or perceived) may include, but are
not limited to, operational issues, doubts about the solvency of ANZ New Zealand, or adverse rating changes. Under these scenarios ANZ New
Zealand may have significant difficulty rolling over or replacing funding. ANZ New Zealand’s liquidity policy requires sufficient high quality liquid
assets to be held to meet its liquidity needs for the following 30 calendar days under the modelled scenarios.
As of 30 September 2019 ANZ New Zealand was in compliance with the above scenarios.
Structural balance sheet metrics
ANZ New Zealand’s liquidity management framework also encompasses structural balance sheet metrics such as the RBNZ core funding ratio. These
metrics are designed to limit the amount of funding required to be rolled over within a 1 year timeframe and so interact with the liquidity scenarios tomaintain ANZ New Zealand‘s liquidity position.
Wholesale funding
ANZ New Zealand’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency withtargeting diversification by markets, investors, currencies, maturities and funding structures. Short-term and long-term wholesale funding is managed
and executed by Treasury operations.
ANZ New Zealand also uses maturity concentration limits under the wholesale funding and liquidity management framework. Maturity concentration
limits ensure that ANZ New Zealand is not required to issue large volumes of new wholesale funding within a short time period to replace maturingwholesale funding. Funding instruments used to meet the wholesale borrowing requirement must be on a pre-established list of approved products.
Funding capacity and debt issuance planning
ANZ New Zealand adopts a conservative approach to determine its funding capacity. Annually, a funding plan is approved by the Bank’s Board. The
plan is supplemented by regular updates and is linked to ANZ New Zealand’s three year strategic planning cycle.

42

NOTES TO THE FINANCIAL STATEMENTS

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

Cash and balances with central banks
Certificates of deposit
Central and local government bonds
Government treasury bills
Reserve Bank bills
Other bonds
Total liquidity portfolio

2019
NZ$m
1,734
374
7,922
55
7,256
17,341

2018
NZ$m
2,026
179
7,528
794
50
5,493
16,070Assets held for managing liquidity risk include short term cash held with RBNZ, New Zealand Government securities, securities issued by supranational
agencies, securities issued by highly rated banks and securities issued by State Owned Enterprises, Local Authorities and highly rated New Zealanddomestic corporates. These assets would be accepted as collateral by RBNZ in repurchase transactions. At 30 September 2019 ANZ New Zealandwould be eligible to enter into repurchase transactions with a value of NZ$15,607 million. The Banking Group also held unencumbered internal
residential mortgage backed securities (RMBS) which would entitle ANZ New Zealand to enter into repurchase transactions with a value of NZ$7,179
million at 30 September 2019.
Liquidity crisis contingency planning
ANZ New Zealand maintains a liquidity crisis contingency plan to define an approach for analysing and responding to a liquidity-threatening event ona group wide basis. The framework includes:•

the establishment of crisis severity/stress levels;•

clearly assigned crisis roles and responsibilities;•

early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals;•

outlined action plans, and courses of action for altering asset and liability behaviour;•

procedures for crisis management reporting, and covering cash-flow shortfalls; and•assigned responsibilities for internal and external communications.

43

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
15. FINANCIAL RISK MANAGEMENT (continued)
FUNDING POSITIONANZ New Zealand actively uses balance sheet disciplines to prudently manage the funding mix. ANZ New Zealand employs funding metrics to ensurethat an appropriate proportion of its assets are funded from stable sources, including customer liabilities, longer-dated wholesale debt (withremaining term exceeding one year) and equity.
Analysis of funding liabilities by industry is based on ANZSIC codes. The significant categories shown are the level one NZSIOC.
Note

2019
NZ$m

2018
NZ$m

13

109,236

104,055

Debt issuances

25,59324,534

Certificates of deposit and commercial paper

3,945

3,396

Other borrowings

3,890

5,469

Total wholesale funding

33,42833,399Total funding

142,664

137,454

Agriculture, forestry and fishing

3,727

3,763

Manufacturing

2,152

2,335

Construction

2,194

2,050

Wholesale trade

2,020

1,571

Retail trade and accommodation

1,543

1,484

Financial and insurance services

11,458

10,661

Rental, hiring and real estate services

3,210

2,878

Professional, scientific, technical, administrative and support services

5,467

5,126

Public administration and safety

1,479

1,572

Arts, recreation and other services

Funding composition
Customer deposits
Wholesale funding

Customer deposits by industry - New Zealand residents

1,968

2,027

Households

59,131

56,640All other New Zealand residents1

3,553

3,556

97,902

93,663

Households

10,1189,876

All other non-NZ residents

1,216

516

11,334

10,392

109,236

104,055

Customer deposits by industry - overseas

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

5,815

7,084

Overseas

27,613

26,315

Total wholesale funding

33,42833,399Total funding

142,664

137,454

Concentrations of funding by geography
New Zealand

103,717

100,747

Australia

4,752

6,040

United States

13,844

13,671

Europe12,176

9,625

Other countries

8,175

7,371

Total funding

142,664

137,454

1

44

Other includes mining; electricity, gas, water and waste services; transport, postal and warehousing; information media and telecommunications; education and training; health care andsocial assistance.

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
RESIDUAL CONTRACTUAL MATURITY ANALYSIS OF ANZ NEW ZEALAND’S FINANCIAL LIABILITIESThe table below provides residual contractual maturity analysis of financial liabilities at 30 September 2019 within relevant maturity groupings. All
outstanding debt issuances are profiled on the earliest date on which ANZ New Zealand may be required to pay. The amounts represent principal andinterest cash flows – so they may differ from equivalent amounts reported on the balance sheet.
It should be noted that this is not how ANZ New Zealand manages its liquidity risk.
On demand
NZ$mLess than
3 months
NZ$m

3 to 12months
NZ$m

1 to 5
years
NZ$m

After
5 years
NZ$m

Total
NZ$m

Settlement balances payable
Collateral received

1,114

487

-

-

-

1,601

-

991

-

-

-

991

Deposits and other borrowings

54,18327,56930,635

5,558

1,181

119,126

Derivative financial liabilities (trading)

-

9,383

-

-

-

9,383

Debt issuances1

-

304

4,866

17,2504,339

26,759Other financial liabilities

-

145

28

106

108

387

2019

Derivative financial instruments(balance sheet management)- gross inflows

-

1,051

2,616

8,699

833

13,199- gross outflows-(1,190)(3,017)(9,376)(850)(14,433)

1,338

742

-

-

-

2,080

2018
Settlement balances payable
Collateral received

-

845

-

-

-

845

52,016

26,06330,010

5,843

1,186

115,118

Derivative financial liabilities (trading)

-

6,074

-

-

-

6,074

Debt issuances

-

957

3,968

17,8503,658

26,433

Other financial liabilities2

-

119

7

44

76

246

- gross inflows

-

2,245

3,221

10,0491,446

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

Deposits and other borrowings
1

Derivative financial instruments(balance sheet management)12

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

At 30 September 2019, NZ$59 million (2018: NZ$86 million) of ANZ New Zealand’s non-credit related commitments and NZ$29,100 million (2018:
NZ$29,855 million) of its credit related commitments and contingent liabilities mature in less than 1 year, based on the earliest date on which ANZ
New Zealand may be required to pay.

45

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESANZ New Zealand carries a significant number of financial instruments on the balance sheet at fair value. The fair value is the best estimate of the pricethat would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
VALUATIONANZ New Zealand has an established control framework, including appropriate segregation of duties, to ensure that fair values are accurately
determined, reported and controlled. The framework includes the following features:• products are approved for transacting with external customers and counterparties only where fair values can be appropriately determined;• quoted market prices used to value financial instruments are independently verified with information from external pricing providers;• fair value methodologies and inputs are evaluated and approved by a function independent of the party that undertakes the transaction;• movements in fair values are independently monitored and explained by reference to underlying factors relevant to the fair value; and• valuation adjustments (such as funding valuation adjustments, credit valuation adjustments and bid-offer adjustments) are independently
validated and monitored.
If ANZ New Zealand holds offsetting risk positions, then ANZ New Zealand uses the portfolio exemption in NZ IFRS 13 Fair Value Measurement (NZ IFRS
13) to measure the fair value of such groups of financial assets and financial liabilities. We measure the portfolio based on the price that would bereceived to sell a net long position (an asset) for a particular risk exposure, or to transfer a net short position (a liability) for a particular risk exposure.
FAIR VALUE APPROACH AND VALUATION TECHNIQUESWe use valuation techniques to estimate the fair value of assets and liabilities for recognition, measurement and disclosure purposes where no quoted
price in an active market exists for that asset or liability. This includes the following:
Asset or liability

Fair value approach

Financial instruments classified as:- Trading securities- Derivative financial assets and financial liabilities- Investment securities

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

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

Discounted cash flow techniques are used whereby contractual future cash flows of the
instrument are discounted using wholesale market interest rates, or market borrowing rates
for debt with similar maturities or with a yield curve appropriate for the remaining term tomaturity.

CLASSIFICATION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESThe following tables set out the classification of financial asset and liability categories according to measurement bases together with the carrying
amounts as reported on the balance sheet.
2019
2018
At
At
amortised
At fair
amortised
At fair
cost
value
Total
cost
value
Total
Note
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
Financial assets
Cash and cash equivalents
2,407
2,407
2,709
2,709
Settlement balances receivable
656
656
193
193
Collateral paid
1,919
1,919
2,324
2,324
Trading securities
8
8,024
8,024
8,942
8,942
Derivative financial instruments
9
11,653
11,6538,072
8,072
Investment securities
10
7,027
7,027
6,502
6,502
Net loans and advances
128,677
128,677
133,264
133,264
Other financial assets1
592
127
719
623
623
134,251
22,725
156,976
Total
139,11327,622
166,735
Financial liabilities
Settlement balances payable
2,066
2,066
1,590
1,590
Collateral received
845
845
991
991
Deposits and other borrowings
13
114,6102,461
117,071
110,434
2,486
112,920
Derivative financial instruments
9
10,912
10,9128,133
8,133
Debt issuances
24,53424,53425,59325,593
Other financial liabilities1
584
110
694
641
213
854
138,463
10,729149,192
Total
143,425
13,586
157,0111

46

Including items reclassified as held for sale.

NOTES TO THE FINANCIAL STATEMENTS

16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FAIR VALUE HIERARCHYANZ New Zealand categorises assets and liabilities carried at fair value into a fair value hierarchy as required by NZ IFRS 13 based on the observabilityof inputs used to measure the fair value:•

Level 1 – valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities;•

Level 2 – valuations using inputs other than quoted prices included within Level 1 that are observable for a similar asset or liability, either directly
or indirectly; and•Level 3 – valuations where significant unobservable are used to measure the fair value of the asset or liability.

The following table presents assets and liabilities carried at fair value in accordance with the fair value hierarchy:

2019
NZ$m

2018
NZ$m

Fair value measurements
Using observable
Using unobservable
inputsinputs (Level 3)(Level 2)
2019
2018
2019
2018
NZ$m
NZ$m
NZ$m
NZ$m

8,319
10
7,026
15,355

6,795
7
6,457
13,259623
11,64012,263

1,229
8,062
44
127
9,462

3
1
4

11
213
224

10
110
120

2,461
10,901
13,362

2,486
8,122
10,608-

Quoted market price(Level 1)

AssetsTrading securities
Derivative financial instruments
Investment securities
Investments backing insurance contract liabilities1
Total
Liabilities
Deposits and other borrowings
Derivative financial instruments
Other financial liabilities
Total
1

Total
2019
NZ$m

2018
NZ$m

3
1
4

8,942
11,653
7,027
27,622

8,024
8,072
6,502
127
22,7251
1

2,461
10,912
213
13,586

2,486
8,133
110
10,729Including items reclassified as held for sale.

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

47

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE
The following table sets out ANZ New Zealand’s basis of estimating fair values of the financial instruments carried at amortised cost:
Financial asset and liability

Fair value approach

Net loans and advances to banks

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

Net loans and advances to customers

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

Deposit liability without a specified maturity or
at call

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

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

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

Debt issuances

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

The financial assets and financial liabilities listed in the table below are carried at amortised cost on ANZ New Zealand’s balance sheet. While this is thevalue at which we expect the assets will be realised and the liabilities settled, ANZ New Zealand provides an estimate of the fair value of the financial
assets and financial liabilities at balance date in the table below.
Carrying amountFinancial assets
Net loans and advances
Total
Financial liabilities
Deposits and otherborrowings
Debt issuances
Total

Categorised into fair value hierarchy
Using observable
With significant nonQuoted market priceinputsobservable inputs(Level 1)(Level 2)(Level 3)
2019
2018
2019
2018
2019
2018
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m

2019
NZ$m

2018
NZ$m

133,264
133,264

128,677
128,677

-

-

167
167

131
131

133,660
133,660

114,610

110,434--

114,840

110,643

25,593140,203

24,534
134,968

3,936
3,936

3,606
3,606

21,925
136,765

21,118
131,761Fair value (total)

2019
NZ$m

2018
NZ$m

128,828
128,828

133,827
133,827

128,959
128,959--

114,840

110,643--

25,861
140,701

24,724
135,367

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

48

NOTES TO THE FINANCIAL STATEMENTS

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

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

•

UDC secured investments are secured by a security interest granted under a trust deed over all of UDC’s present and future assets andundertakings, to Trustees Executors Limited, as supervisor. The assets subject to the security interest comprise mainly loans to UDC's customers
and certain plant and equipment. The security interest secures all amounts payable by UDC on the UDC secured investments and all othermonies payable by UDC under the trust deed. UDC announced on 29 July 2019 that it had decided to exercise its right to redeem all UDC
secured investments, and all UDC secured investments were repaid or transferred to deposits in the Bank on 14 October 2019.

•

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

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

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

2019
NZ$m
203
3,484
11,600

2018
NZ$m
517
3,296
10,747

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

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

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

2019
NZ$m
300
81

2018
NZ$m
139
34

49

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
18. OFFSETTING
We offset financial assets and financial liabilities in the balance sheet (in accordance with NZ IAS 32 Financial Instruments: Presentation) when there is:••a current legally enforceable right to set off the recognised amounts in all circumstances; andan intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.

If the above conditions are not met, the financial assets and financial liabilities are presented on a gross basis.
ANZ New Zealand does not have any arrangements that satisfy the conditions necessary to offset financial assets and financial liabilities within thebalance sheet. The following table identifies financial assets and financial liabilities which have not been offset but are subject to enforceable masternetting agreements (or similar arrangements) and the related amounts not offset in the balance sheet. We have not taken into account the effect ofover collateralisation.
Amount subject to master netting agreement or similar
Amounts not
subject toTotal amounts
masterFinancialrecognised
nettingcollateralin the agreement or
Financial(received)/balance sheet
similar
Total
instruments
pledgedNet amount
2019
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
NZ$m
Derivative financial instruments
11,653(3,083)8,570(6,433)(541)
1,596
Reverse repurchase agreements 1
297
297
(297)
Total financial assets
11,950(3,083)
8,867(6,433)(838)
1,596
Derivative financial instruments(10,912)2,361(8,551)
6,433
857(1,261)
2
Repurchase agreements
(203)
(203)
203
Total financial liabilities(11,115)2,361(8,754)6,433
1,060(1,261)2018
Derivative financial instruments
Reverse repurchase agreements 1
Total financial assets
Derivative financial instruments
Repurchase agreements 2
Total financial liabilities
1
2

50

8,072
136
8,208
(8,133)(517)(8,650)(1,043)(1,043)806
806

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

7,029
136
7,165
(7,327)(517)(7,844)(5,637)(5,637)
5,637
5,637

(527)
(136)
(663)
563
517
1,080

865
865
(1,127)(1,127)

NOTES TO THE FINANCIAL STATEMENTS

19. GOODWILL AND OTHER INTANGIBLE ASSETS
Note
Goodwill
Software
Other intangibles:
Management rights (indefinite life)
Acquired portfolios of insurance business
Goodwill and other intangible assets (including assets reclassified as held for sale)Less: Goodwill and other intangible assets reclassified as held for sale
Goodwill and other intangible assets

26

2019
NZ$m
3,160
40

2018
NZ$m
3,230
53

76
3,276
3,276

76
31
3,390
(101)
3,289

GOODWILL ALLOCATED TO CASH-GENERATING UNITS (CGUs)
An annual assessment is made as to whether the current carrying value of goodwill is impaired. For the purposes of impairment testing, goodwill isallocated at the date of acquisition to a CGU. Goodwill is considered to be impaired if the carrying amount of the relevant CGU exceeds its recoverable
amount.
To estimate the recoverable amount of the CGU to which each goodwill component is allocated, we use a value-in-use approach.
VALUE-IN-USE
These calculations use cash flow projections based on a number of financial budgets within each segment approved by management covering athree year period. Cash flow projections are based on a range of readily available economic assumptions including GDP and the Consumer Price
Index. Cash flows beyond the three year period are extrapolated using a 2% growth rate.
These cash flow projections are discounted using a capital asset pricing model. As at 28 February 2019 when the last valuation was prepared, adiscount rate of 11.1% was applied to each cash generating unit. The main variables in the calculation of the discount rate used are the risk free rate,
the beta rate and the market risk premium. The risk free rate is based on a blended yield rate between the 10 year New Zealand government bondrate and the associated 5 year forward rate. The beta rate and the market risk premium are consistent with observable and comparative market rates
applied in the regional banking sector. Market observable information is not readily available at the segment level therefore management performed
stress tests for key sensitivities in each segment.
Management believes any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause thecarrying amount of goodwill for any CGU to exceed its recoverable amount.

51

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
19. GOODWILL AND OTHER INTANGIBLE ASSETS (continued)

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

Goodwill

Software

Other Intangible Assets

Definition

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

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

Acquired portfolios of insurance
business and management fee
rights.

Cost less any accumulated
impairment losses.

Initially, measured at cost.

Carrying value

Allocated to the cash
generating unit to which theacquisition relates.

Useful life

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

Amortisation
methodNot applicable.

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

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

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

Acquired portfolios of insurance
business are amortised over 20
years.

Major core infrastructure amortisedover periods between 7-10 years.

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

Straight-line method.

Actuarial methods consistent withthe calculation of life insurance
contract assets.

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

52

NOTES TO THE FINANCIAL STATEMENTS

20. OTHER PROVISIONSECL allowance on undrawn facilities
Customer remediation
Restructuring costs
Leasehold make good
Other
Total other provisions

Note
12

2019
NZ$m
97
139
25
23
30
314

2018
NZ$m
34
6
12
24
76

Leaseholdmake good
NZ$m
12
15
(4)
23

Other
NZ$m
24
13
(2)
(5)
30

Movements in other provisions

Balance at start of year
New and increased provisions made during the year
Provisions used during the year
Unused amounts reversed during the year
Balance at end of year

Customer Restructuring
remediation
costs
NZ$m
NZ$m
34
6
115
52
(10)
(26)
(7)
139
25

Customer remediation
Customer remediation includes provisions for expected refunds to customers and other counterparties, remediation project costs and related
customer, counterparty and regulatory claims, penalties and litigation outcomes.
Restructuring costs
Provisions for restructuring costs arise from activities related to material changes in the scope of business undertaken by ANZ New Zealand, including
the OnePath separation, or the manner in which that business is undertaken and include employee termination benefits. Costs relating to on-going
activities are not provided for and are expensed as incurred.
Leasehold make good
Provisions associated with leased premises where, at the end of a lease, ANZ New Zealand is required to remove any fixtures and fittings installed in
the leased property. This obligation arises immediately upon installation. Estimated make good costs are added to the leasehold improvement asset(within premises and equipment) upon installation and amortised over the lease term.
Other
Other provisions comprise various other provisions including losses arising from other legal action, operational issues, and warranties and indemnities
provided in connection with various disposals of businesses and assets.

53

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
20. OTHER PROVISIONS (continued)

RECOGNITION AND MEASUREMENTANZ New Zealand recognises provisions where there is a present obligation arising from a past event, an outflow of economic resources isprobable, and the amount of the provision can be measured 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 and uncertainties surrounding the timing and amount of the obligation. Where a provision is measured using the estimatedcash flows required to settle the present obligation, its carrying amount is the present value of those cash flows.

ANZ New Zealand holds provisions for various obligations including customer remediation, restructuring costs, leasehold make good andlitigation related claims. These provisions involve judgements regarding the outcome of future events, including estimates of expenditure
required to satisfy such obligations. Where relevant, expert legal advice has been obtained and, in light of such advice, provisions and/or
disclosures as deemed appropriate have been made.
In relation to customer remediation, determining the amount of the provisions, which represent management’s best estimate of the costof settling the identified matters, requires the exercise of significant judgement. It will often be necessary to form a view on a number ofdifferent assumptions, including, the number of impacted customers, the average refund per customer and the associated remediation
costs. Consequently, the appropriateness of the underlying assumptions is reviewed on a regular basis against actual experience and otherrelevant evidence and adjustments are made to the provisions where appropriate.

54

NOTES TO THE FINANCIAL STATEMENTS

21. SHAREHOLDERS' EQUITY

Ordinary shares
Redeemable preference shares:
Redeemable preference shares at beginning of the year
Redeemable preference shares issued
Redeemable preference shares at end of the year
Total share capital
NZ Branch initial head office accountTotal share capital & initial head office accountNumber of issued shares
2019
2018
378,155,112
378,155,112
8,354,563,940
8,354,563,940
8,732,719,052
8,732,719,052

5,504,884,529
2,849,679,411
8,354,563,940
8,732,719,052
8,732,719,052

NZ$ millions
2019
2018
1,450
1,450
9,594
9,594
11,044
11
11,055

6,594
3,000
9,594
11,044
11
11,055

Redeemable preference shares
All redeemable preference shares (RPS) were issued by ANZ Holdings (New Zealand) Limited to the Immediate Parent Company.
There are eight classes of RPS, relating to issues in 1988, 2005, 2007, 2008, 2009, 2014, 2015 and 2018. ANZ Holdings (New Zealand) Limited did not
pay any dividends on RPS during the years ended 30 September 2019 and 30 September 2018.

RECOGNITION AND MEASUREMENT
Ordinary shares

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

Redeemablepreference shares

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

Reserves:

Cash flow hedge
reserve

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

Investment securities
revaluation reserve

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

55

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
22. CAPITAL MANAGEMENTCAPITAL MANAGEMENT STRATEGYANZ New Zealand’s core capital objectives are to:• protect the interests of depositors, creditors and shareholders;• ensure the safety and soundness of ANZ New Zealand’s capital position; and• ensure that the capital base supports ANZ New Zealand’s risk appetite, and strategic business objectives, in an efficient and effective manner.
Most of ANZ New Zealand’s capital is held in, and managed by, the Banking Group. The Bank’s Board holds ultimate responsibility for ensuring that
capital adequacy of the Banking Group is maintained. This includes: setting, monitoring and obtaining assurance for the Banking Group’s Internal
Capital Adequacy Assessment Process (ICAAP) policy and framework; standardised risk definitions for all material risks; materiality thresholds; capital
adequacy targets; internal risk capital principles; and risk appetite.
The Banking Group has minimum and trigger levels for capital that ensure sufficient capital is maintained to:• meet minimum prudential requirements imposed by the Bank’s regulators;• ensure consistency with the Banking Group’s overall risk profile and financial positions, taking into account its strategic focus and business plan;and• support the internal risk capital requirements of the business.
ALCO and its related Capital Management Forum are responsible for developing, implementing and maintaining the Banking Group's ICAAP
framework, including ongoing monitoring, reporting and compliance. The Banking Group’s ICAAP is subject to independent and periodic review
conducted by Internal Audit.

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

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

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

56

2019
NZ$m
12,599286
1,766(14,430)
221
1,111
19.9%

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

NOTES TO THE FINANCIAL STATEMENTS

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

2

ANZ New Zealand does not own ANZNZ Covered Bond Trust and Kingfisher NZ Trust 2008-1. Control exists as ANZ New Zealand retains substantially all the risks and rewards of theoperations. Details of ANZ New Zealand’s interest in consolidated structured entities is included in Note 24 Structured Entities.
Incorporated in Australia and registered in New Zealand as an Overseas ASIC Company.

Changes in controlled entities
OnePath was sold to Cigna Corporation on 30 November 2018 (see Note 26 Divestments).

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

57

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
24. STRUCTURED ENTITIESA Structured Entity (SE) is an entity that has been designed such that voting or similar rights are not the dominant factor in deciding who controls theentity, such as when any voting rights relate to administrative tasks only and the relevant activities (being those that significantly affect the entity’s
returns) are directed by means of contractual arrangement. A SE often has some or all of the following features or attributes:•

restricted activities;•

a narrow and well defined objective;•

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

SEs are classified as subsidiaries and consolidated when control exists. If ANZ New Zealand does not control a SE, then it is not consolidated. This note
provides information on both consolidated and unconsolidated SEs.
ANZ New Zealand’s involvement with SEs is as follows:Type

Details

Securitisation

ANZ New Zealand uses the Kingfisher NZ Trust 2008-1 (the Kingfisher Trust) to securitise residential mortgages thatit has originated, in order to diversify sources of funding for liquidity management. The Kingfisher Trust is aninternal securitisation (bankruptcy remote) vehicle we created for the purpose of structuring assets that are eligible
for repurchase under agreements with RBNZ (these are known as ‘Repo eligible’).
ANZ New Zealand is exposed to variable returns from its involvement with the Kingfisher Trust and has the ability
to affect those returns through its power over the Kingfisher Trust’s activities. The Kingfisher Trust is therefore
consolidated.
As at 30 September 2019 and 30 September 2018 ANZ New Zealand had not entered into any repurchaseagreements with RBNZ for residential mortgage backed securities issued and therefore no collateral had been
accepted by RBNZ under this facility.
Additionally, ANZ New Zealand may acquire interests in securitisation vehicles set up by third parties throughproviding lending facilities to, or holding securities issued by, such entities.

ANZNZ Covered Bond Trust(the Covered Bond Trust)

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

Structured financearrangements

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

Funds management activities ANZ New Zealand is the scheme manager for a number of Managed Investment Schemes (MIS). These MIS include
the ANZ and OneAnswer branded KiwiSaver, retail and wholesale schemes and the Bonus Bonds Scheme. TheseMIS are financed through the issue of units to investors and ANZ New Zealand considers them to be SEs. ANZ New
Zealand’s interests in these MIS is limited to receiving fees for services or providing risk management products(derivatives). These interests do not create significant exposures to the MIS that would allow ANZ New Zealand tocontrol the funds. Therefore, these MIS are not consolidated.

58

NOTES TO THE FINANCIAL STATEMENTS

24. STRUCTURED ENTITIES (continued)
CONSOLIDATED STRUCTURED ENTITIESFinancial or other support provided to Consolidated Structured Entities
The Bank provides lending facilities, derivatives and commitments to the Kingfisher Trust and the Covered Bond Trust and/or holds debt instrumentsthat they have issued. The Bank did not provide any non-contractual support to consolidated SEs during the year (2018: nil).
UNCONSOLIDATED STRUCTURED ENTITIESANZ New Zealand’s interest in Unconsolidated Structured Entities
An ‘interest’ in an unconsolidated SE is any form of contractual or non-contractual involvement with an SE that exposes ANZ New Zealand tovariability of returns from the performance of that SE. These interests include, but are not limited to: holdings of debt or equity securities; derivatives
that pass on risks specific to the performance of the SE; lending; loan commitments; financial guarantees; and fees from funds management activities.
For the purpose of disclosing interests in unconsolidated SEs:
• no disclosure is made if ANZ New Zealand’s involvement is not more than a passive interest - for example: when ANZ New Zealand’s
involvement constitutes a typical customer-supplier relationship. On this basis, exposures to unconsolidated SEs that arise from lending, trading
and investing activities are not considered disclosable interests - unless the design of the structured entity allows ANZ New Zealand toparticipate in decisions about the relevant activities (being those that significantly affect the entity’s returns).
• ‘interests’ do not include derivatives intended to expose ANZ New Zealand to market risk (rather than performance risk specific to the SE) or
derivatives through which ANZ New Zealand creates, rather than absorbs, variability of the unconsolidated SE (such as purchase of credit
protection under a credit default swap).
ANZ New Zealand earned funds management fees from its MIS of NZ$198 million (2018: NZ$191 million) during the year. Size of these MIS is indicatedby Funds Under Management which varies by fund, with a maximum value of approximately NZ$3.3 billion (2018: NZ$3.3 billion).
ANZ New Zealand did not provide any non-contractual support to unconsolidated SEs during the year (2018: nil): nor does it have any current
intention to provide financial or other support to unconsolidated SEs.
SPONSORED UNCONSOLIDATED STRUCTURED ENTITIESANZ New Zealand may also sponsor unconsolidated SEs in which it has no disclosable interest.
For the purposes of this disclosure, ANZ New Zealand considers itself the ‘sponsor’ of an unconsolidated SE if it is the primary party involved in thedesign and establishment of that SE and:• ANZ New Zealand is the major user of that SE; or• ANZ New Zealand’s name appears in the name of that SE, or on its products; or• ANZ New Zealand provides implicit or explicit guarantees of that SE’s performance.
The Bank has sponsored the ANZ PIE Fund, which invests only in deposits with the Bank. ANZ New Zealand does not provide any implicit or explicit
guarantees of the capital value or performance of investments in the ANZ PIE Fund. There was no income received from, nor assets transferred to, thisentity during the year.

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

59

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
25. TRANSFERS OF FINANCIAL ASSETSIn the normal course of business ANZ New Zealand enters into transactions where it transfers financial assets directly to third parties. These transfers
may give rise to ANZ New Zealand fully, or partially, derecognising those financial assets - depending on ANZ New Zealand’s exposure to the risks andrewards or control over the transferred assets. If ANZ New Zealand retains substantially all of the risk and rewards of a transferred asset, the transfer
does not qualify for derecognition and the asset remains on ANZ New Zealand’s balance sheet in its entirety.
Covered bonds
ANZ New Zealand operates a covered bond programme to raise funding. Refer to Note 24 Structured Entities for further details. The covered bonds
issued externally are included within debt issuances.
Repurchase agreements
When ANZ New Zealand sells securities subject to repurchase agreements under which we retain substantially all the risks and rewards of ownership,then those assets do not qualify for derecognition. An associated liability is recognised for the consideration received from the counterparty.
The table below sets out the balance of assets transferred that do not qualify for derecognition, along with the associated liabilities:

Current carrying amount of assets transferred
Carrying amount of associated liabilities

Covered bonds
2019
2018
NZ$m
NZ$m
10,747
11,6003,929
4,460

Repurchase agreements
2019
2018
NZ$m
NZ$m
517
203
517
203

26. DIVESTMENTS
OnePath and Paymark
On 30 November 2018, ANZ New Zealand sold OnePath to Cigna Corporation and on 11 January 2019, ANZ New Zealand sold its 25% shareholding inPaymark to Ingenico Group. ANZ New Zealand recognised net gains on sale of NZ$66 million and NZ$39 million respectively, which are included inother operating income.
Assets and liabilities sold
NZ$m
Investments backing insurance contract liabilities
Other assets, net of amounts payable to the Bank

101
6

Life insurance contract assets

675

Investments in associates - Paymark

7

Goodwill and other intangible assets

101

Total assets

890

Deposits and other borrowings (deposits with the Bank)(50)

Current tax liabilities

18

Deferred tax liabilities

178

Payables and other liabilities

146

Provisions

2

Total liabilities

294

Net assets sold

596

60

NOTES TO THE FINANCIAL STATEMENTS

27. RELATED PARTY DISCLOSURES
Key management personnel and their related parties
Key management personnel (KMP) are defined as directors and those executives having authority and responsibility for planning, directing andcontrolling the activities of ANZ New Zealand. Executive roles included in KMP are the Bank’s Chief Executive Officer (CEO), all executives reporting
directly to the Bank’s CEO, and the CEO – NZ Branch.
2019
2018
Key management personnel compensation1
NZ$000
NZ$000
Salaries and short-term employee benefits2
11,738
10,742
Post-employment benefits3219
297
Other long-term benefits4
38
39
Termination benefits5
452
2,233
Share-based payments
3,308
2,242
Total
15,55315,7551
2

3
4
5Includes former disclosed KMPs until the end of their employment.
Includes restatement of prior year amount to include items previously characterised as business related expenses that would more appropriately be characterised as non-business related.
Similar items existed in the prior periods between 2010-2017 which would have increased the short-term benefits by less than NZ$0.1m per annum. Prior year amount has also been restatedto include fringe benefit tax paid on short-term benefits, additional fees paid to a director, and the reclassification of annual and long service leave paid on termination to termination benefits.
Includes restatement of prior year amount to reclassify retirement allowances paid on termination to termination benefits.
Comprises long service leave accrued during the year.
Includes payments for accrued annual leave, long service leave and pay in lieu of notice in accordance with contract, payable on cessation. Comparative amounts have been updated toinclude payments of accrued annual and long service leave on termination previously included in salaries and short-term benefits, and payments of retirement allowances on termination
previously included in post-employment benefits.

Transactions and balances with key management personnel and their related parties1
Secured loans and advances
Credit related commitments (undrawn loan facilities)
Interest income
Customer deposits
Payables and other liabilities (share-based payments liability)
1

2019
NZ$m
23
5
1
14
2

2018
NZ$m
19
4
1
18
3

Includes KMP, close family members of KMP and entities that are controlled or jointly controlled by KMP or their close family members, of ANZ New Zealand and its parent companies.
Comparative amounts have been updated for consistency with current period presentation.

Loans made to KMP and their related parties are made in the ordinary course of business on normal commercial terms and conditions no morefavourable than those given to other employees or customers, including the term of the loan, security required and the interest rate. No amounts
have been written off or forgiven, or individually assessed allowances for expected credit losses raised in respect of these balances (2018: nil).
All other transactions with KMP and their related parties are made on terms equivalent to those that prevail in arm’s length transactions. Thesetransactions generally involve the provision of financial and investment services. In addition to the amounts above:•
Aggregate amounts for each of unsecured loans and advances, interest expense, fee income, insurance premium income, debt issuances andcollectively assessed credit impairment charge and allowance for expected credit losses were less than NZ$1 million for both years presented.
•
KMP and their related parties also hold units in MIS managed by ANZ New Zealand. These holdings include NZ$0.2 million (2018: nil) of units in
the ANZ PIE Fund, which are invested solely in deposits of the Bank. Other transactions and balances in respect of these, and other, MIS holdings
are not disclosed because those MIS are unconsolidated structured entities and not included in the financial statements of ANZ New Zealand.
• A close family member of an executive reporting to the CEO is an employee of ANZ New Zealand and received total compensation of NZ$0.1
million (2018: NZ$0.1 million).
•
Some KMP pay ANZ New Zealand for the use of carparks in premises owned or leased by ANZ New Zealand. These amounts were less than
NZ$0.1 million (2018: less than NZ$0.1 million).
In November 2010, a subsidiary of the Bank, Arawata Assets Limited, purchased a residential property for NZ$7.55 million. The property was leased tothe then CEO of the Bank, Mr David Hisco, as part of a relocation package arrangement.
On 31 March 2017, the property was sold to Mr Hisco’s wife for NZ$6.9 million. At that time, Mr Hisco was the CEO of the Bank and a member of KMP.
The Bank obtained two independent valuations of the property, one of which was not considered for a number of reasons, including that it did notcomply with valuation standards. The Bank then obtained a further independent valuation and the sale price was determined as the midpoint of two
independent valuations, less an amount reflecting part of the estimated sale costs that would have otherwise been incurred.
This transaction was not separately disclosed in ANZ New Zealand’s 2017 financial statements. ANZ New Zealand acknowledges the decision of the
Financial Markets Authority that ANZ New Zealand should have disclosed the March 2017 sale as a related party transaction in its 2017 financial
statements.
Transactions with other members of the Overseas Banking Group and associates
The NZ Branch and ANZ New Zealand undertake transactions with the Immediate Parent Company, the Ultimate Parent Bank, other members of theOverseas Banking Group and associates.
These transactions principally consist of funding and hedging transactions, the provision of other financial and investment services, technology andprocess support, and compensation for share based payments made to ANZ New Zealand employees. Other than noted on the following page,transactions with related parties outside of ANZ New Zealand are conducted on an arm’s length basis and on normal commercial terms.
61

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
27. RELATED PARTY DISCLOSURES (continued)
Transactions
Immediate Parent Company
Interest expense
Preference shares issued
Dividends paid
Ultimate Parent Bank and other subsidiaries not part of ANZ New ZealandInterest income
Interest expense
Other operating income
Operating expenses
NZ Branch retained earnings repatriated
Associates
Direct fee expense
Dividends received
Share of associates' profit
Outstanding balances
Ultimate Parent Bank and other subsidiaries not part of ANZ New Zealand
Cash and cash equivalents
Collateral paid
Derivative financial instruments
Other assets
Associates
Investments in associates
Total due from related parties
Immediate Parent Company
Deposits and other borrowings
Payables and other liabilities
Ultimate Parent Bank and subsidiaries not part of ANZ New Zealand
Settlement balances payable
Collateral received
Deposits and other borrowings
Derivative financial instruments
Payables and other liabilities
Debt issuances
Associates
Deposits and other borrowings
Payables and other liabilities
Post-employment benefit plans for the benefit of employees of ANZ New Zealand
Deposits and other borrowings
Total due to related parties

2019
NZ$m

2018
NZ$m

43
375

45
3,000
4,600

12
145
24
60
-

3
180
43
52
450

4
3
4

10
6
5

424
810
3,920
58

240
2,416
39

5,212

6
2,701

1,766
17

1,766
4

48
1,922
4,646
25
301

30
257
3,186
2,285
33
293

1
-

1
1

2
8,728

7,856

Balances due from / to other members of the Overseas Banking Group and associates are unsecured. The Bank has provided guarantees andcommitments to, and received guarantees from, these entities as follows. Fees associated with the provision of financial guarantees to/by the Ultimate
Parent Bank may be lower than those for similar transactions with unrelated parties.

Financial guarantees provided by the Ultimate Parent Bank
Financial guarantees provided to the Ultimate Parent Bank
Undrawn credit commitments provided to associates

62

2019
NZ$m
456
114
1

2018
NZ$m
698
138
1

NOTES TO THE FINANCIAL STATEMENTS

28. COMMITMENTS AND CONTINGENT LIABILITIESCREDIT RELATED COMMITMENTS AND CONTINGENCIES

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

2019
NZ$m

2018
NZ$m

26,3501,248
1,502
29,10026,995
1,531
1,329
29,855

UNDRAWN FACILITIESThe majority of undrawn facilities are subject to customers maintaining specific credit and other requirements or conditions. Many of these facilities
are expected to be only partially used, and others may never be used at all. As such, the total of the nominal principal amounts is not necessarily
representative of future liquidity risks or future cash requirements. Based on the earliest date on which ANZ New Zealand may be required to pay, thetotal undrawn facilities of NZ$26,350 million (2018: NZ$26,995 million) mature within 12 months.
GUARANTEES, LETTERS OF CREDIT AND PERFORMANCE RELATED CONTINGENCIES
Guarantees, letters of credit and performance related contingencies relate to transactions that ANZ New Zealand has entered into as principal –including: guarantees, standby letters of credit and documentary letters of credit.
Documentary letters of credit involve ANZ New Zealand issuing letters of credit guaranteeing payment in favour of an exporter. They are secured
against an underlying shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige ANZ New Zealand to make payments to a third party if the customer fails to fulfil its nonmonetary obligations under the contract.
To reflect the risk associated with these transactions, we apply the same credit origination, portfolio management and collateral requirements that weapply to loans. The contract amount represents the maximum potential amount that we could lose if the counterparty fails to meet its financial
obligations. As the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements. Basedon the earliest date on which ANZ New Zealand may be required to pay, the total guarantees and letters of credit of NZ$1,248 million (2018: NZ$1,531
million) and total performance related contingencies of NZ$1,502 million (2018: NZ$1,329 million) mature within 12 months.
PROPERTY RELATED COMMITMENTS

Property capital expenditure
Contracts for outstanding capital expenditure (not later than 1 year)
Total capital expenditure commitments for property
Lease rentals
Land and Buildings1
Furniture and equipment
Motor vehicles
Total lease rental commitments
Due within 1 year1
Due later than 1 year but not later than 5 years1
Due later than 5 years1
Total lease rental commitments
1

2019
NZ$m

2018
NZ$m

6
6

7
7

279
7
6
292
53
148
91
292

284
86
8
378
79
203
96
378

Comparatives have been restated to exclude costs for services to be paid by and reimbursed to the lessor as required by NZ IAS 17 Leases.

OTHER CONTINGENT LIABILITIESThere are outstanding court proceedings, claims and possible claims for and against ANZ New Zealand. Where relevant, expert legal advice has beenobtained and, in the light of such advice, provisions and/or disclosures as deemed appropriate have been made. In some instances we have notdisclosed the estimated financial impact of the individual items either because it is not practicable to do so or because such disclosure may prejudiceseriously the interests of ANZ New Zealand in relation to the particular matter.

63

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTNOTES TO THE FINANCIAL STATEMENTS
28. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
Regulatory and customer exposures
In recent years there has been an increase in the number of matters on which ANZ New Zealand engages with its regulators. There have also beensignificant increases in the nature and scale of regulatory investigations and reviews, civil and criminal enforcement actions (whether by court action
or otherwise), formal and informal inquiries, regulatory supervisory activities and the quantum of fines issued by regulators, particularly against
financial institutions globally. ANZ New Zealand has received various notices and requests for information from its regulators as part of both industrywide and ANZ New Zealand-specific reviews, and has also made disclosures to its regulators at its own instigation. The nature of these interactions canbe wide ranging and, for example, may include a range of matters including responsible lending practices, product suitability and distribution, interestand fees and the entitlement to charge them, customer remediation, wealth advice, insurance distribution, pricing, competition, conduct in financial
markets and financial transactions, capital market transactions, anti-money laundering and counter-terrorism financing obligations, reporting anddisclosure obligations and product disclosure documentation. There may be exposures to customers which are additional to any regulatory
exposures. These could include class actions, individual claims or customer remediation or compensation activities. The outcomes and total costs
associated with such reviews and possible exposures remain uncertain.
Reviews under section 95 of the Reserve Bank of New Zealand Act 1989 (RBNZ Act)
On 5 July 2019 RBNZ issued a notice under section 95 of the RBNZ Act, requiring the Bank to obtain two external reviews, the first on the Bank’s
compliance with certain aspects of the RBNZ Banking Supervision Handbook document Capital Adequacy Framework (Internal Models Based Approach)(BS2B) and the second on the effectiveness of the Bank’s directors’ attestation and assurance framework. While the director attestation and assurance
framework review has now been completed, and the Bank is committed to implementing the recommendations identified and addressing the issues
raised, the review of compliance with capital adequacy requirements is ongoing. On 11 December 2019 RBNZ issued a further notice under section 95
of the RBNZ Act, requiring the Bank to obtain an external review of the improvements made to the Bank’s directors’ attestation and assurance
framework.
Warranties and indemnities
ANZ New Zealand has provided warranties, indemnities and other commitments in favour of the purchaser in connection with various disposals of
businesses and assets and other transactions, covering a range of matters and risks. It is exposed to potential claims under those warranties,
indemnities and commitments.

29. COMPENSATION OF AUDITORS2019
NZ$0002018
NZ$000

1,928

2,273

1,418
111
53
1,582
3,510

212
104
36
352
2,625

42
3,552

45
2,670

KPMG New ZealandAudit or review of financial statements1
Audit related services:
Prudential and regulatory services2
Offer documents assurance or review
Other assurance services3
Total audit related services
Total compensation of auditors relating to ANZ New ZealandFees relating to certain managed funds and not recharged4
Total compensation of auditors
1
2
3
4

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

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

30. EVENTS SINCE THE END OF THE FINANCIAL YEAR
UDC announced on 29 July 2019 that it had decided to exercise its right to redeem all UDC secured investments, and all UDC secured investments
were repaid or transferred to deposits in the Bank on 14 October 2019.
On 31 October 2019, the Bank announced that it is again exploring a range of strategic options, including divestment, for UDC.
There were no other significant events from 30 September 2019 to the date of signing this Disclosure Statement.

64This page has been left blank intentionally

65

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

66

Section

Order reference

Page

B1.

General disclosures

Schedule 2

67

B2.

Additional financial disclosures

Schedule 4

74

B3.

Asset quality

Schedule 7

75

B4.

Credit and market risk exposures and capital adequacy

Schedule 9

77

B5.

Insurance business, securitisation, funds management, other fiduciary activities,
and marketing and distribution of insurance products

Schedule 11

78

B6.

Risk management policies

Schedule 13

80

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES
Details of registered bank, ultimate parent bank and ultimate holding company
The registered bank, which is also the ultimate parent bank and ultimate parent holding company, is Australia and New Zealand Banking Group
Limited (Ultimate Parent Bank). The principal office and place of business outside New Zealand, and address for service of the Ultimate Parent Bank, is
ANZ Centre, Melbourne, Level 9, 833 Collins Street, Docklands, Victoria 3008, Australia.
Subordination of claims of creditors
Certain creditors of the Ultimate Parent Bank are given a statutory priority under Australian law. Unsecured creditors of the NZ Branch could be
expected to rank behind such claims.
Specifically, pursuant to section 13A(3) of the Banking Act of the Commonwealth of Australia (the Banking Act), if an Authorised Deposit-Taking
Institution (ADI) (which includes the Ultimate Parent Bank) becomes unable to meet its obligations or suspends payment, the assets of the ADI inAustralia are to be available to meet the ADI's liabilities in the following order:(a) first, the ADI's liabilities (if any) to APRA because of the rights APRA has against the ADI because of section 16AI or 16AIC of the Banking Act;(b) second, the ADI's debts (if any) to APRA under section 16AO of the Banking Act;(c) third, the ADI's liabilities (if any) in Australia in relation to protected accounts that account-holders keep with the ADI. Broadly, this means
accounts (including deposit accounts) kept with the Ultimate Parent Bank that are situated in Australia and recorded in Australian dollars;(d) fourth, the ADI’s debts (if any) to the Reserve Bank of Australia;(e) fifth, the ADI’s liabilities (if any) under an industry support contract that is certified by APRA under section 11CB of the Banking Act; and(f) sixth, the ADI's other liabilities in the order of their priority (apart from section 13A(3)).
Unsecured creditors of the NZ Branch could be expected to rank as a creditor pursuant to the sixth paragraph, together with other unsecured
creditors of the Ultimate Parent Bank that do not otherwise have a priority claim under preceding paragraphs.
Section 16(1) and (2) of the Banking Act provide that, despite anything contained in any law relating to the winding-up of companies, but subject tosection 13A(3) of the Banking Act, the debts of an ADI to APRA in respect of APRA's costs (including costs in the nature of remuneration and expenses)
of being in control of the ADI's business, or of having an administrator in control of the ADI's business, are a debt due to APRA and have priority in awinding-up of the ADI over all other unsecured debts.
Section 86 of the Reserve Bank Act 1959 of the Commonwealth of Australia provides that notwithstanding anything contained in any law relating to
the winding-up of companies, but subject to section 13A(3) of the Banking Act, debts due to the Reserve Bank of Australia by any ADI shall, in awinding-up, have priority over all other debts.
This description of the liabilities which are mandatorily preferred by law is not exhaustive.
These provisions affect all of the unsecured liabilities of the NZ Branch, which as at 30 September 2019, amounted to NZ$1,112m (2018: NZ$1,082m).
Requirement to maintain sufficient assets to cover ongoing obligation to pay deposit liabilities
Section 13A(4) of the Banking Act states that it is an offence for an ADI not to hold assets (excluding goodwill and any assets or other amountexcluded by the prudential standards for the purposes of that subsection) in Australia of a value that is equal to or greater than the total amount of its
deposit liabilities in Australia, unless APRA has authorised the ADI to hold assets of a lesser value. This requirement has the potential to impact on the
management of the liquidity of the NZ Branch.
APRA’s powers
The Ultimate Parent Bank is subject to extensive prudential regulation by APRA.
The Banking Act requires APRA to exercise its powers and functions for the protection of the depositors of Australian ADIs and for the promotion offinancial system stability in Australia.
Where APRA considers that an ADI may become unable to meet its obligations or suspends payment (among other circumstances), APRA can takecontrol of the ADI's business (including by appointment of an ADI statutory manager). APRA also has power to direct the ADI not to make payments in
respect of its indebtedness and to compulsorily transfer some or all of the ADI’s assets and liabilities to another ADI in certain circumstances and toincrease its capital in specified circumstances. A counterparty to a contract with an ADI cannot rely solely on the fact that an ADI statutory manager isin control of the ADI's business or on the making of a direction or compulsory transfer order as a basis for denying any obligations to the ADI or for
accelerating any debt under that contract or closing out any transaction relating to that contract.
On 5 March 2018, the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 (the Crisis Management Act)came into effect. The Crisis Management Act amended the Banking Act (among other statutes applicable to financial institutions in Australia) and wasintended to enhance APRA’s powers. Specifically, the Crisis Management Act enhanced APRA’s powers to facilitate resolution of the entities it
regulates (and their subsidiaries) in times of distress. Additional powers which could impact the Overseas Banking Group include greater oversight,
management and directions powers in relation to the Ultimate Parent Bank and other Overseas Banking Group entities which were previously not
regulated by APRA, increased statutory management powers over regulated entities within the Overseas Banking Group and changes which aredesigned to give statutory recognition to the conversion or write-off of regulatory capital instruments.
The requirements of the Banking Act and the exercise by APRA of its powers have the potential to impact the management of the liquidity of ANZ
New Zealand.

67

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (continued)
Restrictions on the Ultimate Parent Bank’s ability to provide financial support
Effect of APRA’s Prudential Standards
APRA Prudential Standard APS 222 Associations with Related Entities (APS222) sets minimum requirements for ADIs in Australia, including the Ultimate
Parent Bank, in relation to the monitoring, management and control of risks which arise from associations with related entities and also includes
maximum limits on intra-group financial exposures.
Under APS222, the Ultimate Parent Bank’s ability to provide financial support to the Bank is subject to the following restrictions:• the Ultimate Parent Bank should not undertake any third party dealings with the prime purpose of supporting the business of the Bank;• the Ultimate Parent Bank must not hold unlimited exposures (i.e. should be limited as to specified time or amount) in the Bank (e.g. not provide
a general guarantee covering any of the Bank’s obligations);• the Ultimate Parent Bank must not enter into cross-default clauses whereby a default by the Bank on an obligation (whether financial orotherwise) triggers or is deemed to trigger a default by the Ultimate Parent Bank on its obligations; and• the level of exposure, net of exposures deducted from capital, of the Ultimate Parent Bank’s Level 1 total capital base to the Bank should notexceed: (A) 50% on an individual exposure basis; or (B) 150% in aggregate (being exposures to all similar regulated ADI equivalent entities
related to the Ultimate Parent Bank).
In August 2019, APRA released an update to APS 222, which is to be effective from 1 January 2021. Changes that affect the quantum and nature of thefinancial support that the Ultimate Parent Bank can provide the Bank are:• change the Level 1 capital base used for setting the exposure limits from total capital to Tier 1 capital; and• reduce the ADI exposure limit to 25% of Level 1 Tier 1, and the aggregate to 75% of Level 1 Tier 1 capital base.
APRA has provided for entity-specific transitional arrangements or flexibility on a case-by-case basis.
Further, in October 2019, APRA released a consultation paper on changes to APS 111 Capital Adequacy (APS 111), which proposes to change the Level
1 capital treatment for Australian ADIs, such as the Ultimate Parent Bank, investing in ADIs (or overseas equivalents such as the Bank) and insurance
subsidiaries. The proposed changes, set for implementation from 1 January 2021, would result in:• the initial investment, up to an amount equal to 10% of the Ultimate Parent Bank’s net Level 1 CET1 capital base, being risk-weighted at 250%;
and• the remainder of the investment being treated as a CET1 capital deduction.
If implemented, these APS 111 changes would reduce the Ultimate Parent Bank’s Level 1 Tier 1 capital base and exposure to the Bank for the purposesof APS 222 reporting. As a result, the Ultimate Parent Bank’s expected exposure to the Bank at 1 January 2021 would be compliant with the revised
APS 222 limits.
In addition, APRA has confirmed that by 1 January 2021, no more than 5% of the Ultimate Parent Bank’s Level 1 Tier 1 capital base can comprise nonequity exposures to its New Zealand operations (including its subsidiaries incorporated in New Zealand, such as the Banking Group and the New
Zealand Branch) during ordinary times. This limit does not include holdings of capital instruments or eligible secured contingent funding support
provided to the Bank during times of financial stress.
APRA has also confirmed that contingent funding support by the Ultimate Parent Bank to the Bank during times of financial stress must be provided
on terms that are acceptable to APRA. At present, only covered bonds meet APRA’s criteria for contingent funding.
Effect of the Level 3 framework
In addition, certain requirements of APRA’s Level 3 framework relating to, among other things, group governance and risk exposures became effective
on 1 July 2017. This framework also requires that the Ultimate Parent Bank must limit its financial and operational exposures to subsidiaries (including
the Bank).
In determining the acceptable level of exposure to a subsidiary, the Board of the Ultimate Parent Bank should have regard to:• the exposures that would be approved for third parties of broadly equivalent credit status;• the potential impact on the Ultimate Parent Bank’s capital and liquidity positions; and• the Ultimate Parent Bank’s ability to continue operating in the event of a failure by the Bank.
These requirements are not expected to place additional restrictions on the Ultimate Parent Bank’s ability to provide financial or operational support
to the Bank.
Other APRA powers
The Ultimate Parent Bank may not provide financial support in breach of the Banking Act, as described under ‘APRA’s powers’ above.
Guarantees
No material obligations of the NZ Branch are guaranteed as at 12 December 2019.

68

REGISTERED BANK DISCLOSURES

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

David Gonski, AC

Shayne Elliott

Ilana Atlas

Position

Chairman and Director

Chief Executive Officer and Director

Director

Occupation

Company Director

Chief Executive Officer – Australia and
New Zealand Banking Group

Company Director

Qualifications

BCom, LLB, FAICD(Life), FCPA

BCom

BJuris (Hons), LLB (Hons), LLM

Resides

Sydney, Australia

Melbourne, Australia

Sydney, Australia

Executive

No

Yes

No

Independent

Yes

No

Yes

Other company The University of New South Wales
Foundation Ltd, Sydney Airport Ltd,
directorships
Australian Philanthropic Services Ltd

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

Paula Dwyer

Jane Halton, AO PSM

Rt Hon Sir John Key, GNZM AC

Position

Director

Director

Director

Occupation

Company Director

Company Director

Company Director

Qualifications

BCom, FCA, SF Fin, FAICD

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

BCom, DCom (Honoris Causa)

Resides

Melbourne, Australia

Canberra, Australia

Auckland, New ZealandExecutive

No

No

No

Independent

Yes

Yes

Yes

Vault Systems, Clayton Utz,
Crown Resorts Ltd

Air New Zealand Ltd, MTK Capital Ltd,
Palo Alto Networks Inc, Thirty Eight JK Ltd

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

69

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (continued)

Graeme Liebelt

John Macfarlane

Paul O’Sullivan

Position

Director

Director

Director

Occupation

Company Director

Company Director

Company Director

Qualifications

BEc (Hons), FAICD, FTSE, FIML

BCom, MCom (Hons)

BA (Mod) Economics (Trinity College
Dublin), Advanced Management
Program of Harvard

Resides

Melbourne, Australia

Melbourne, Australia

Sydney, Australia

Executive

No

No

No

Independent

Yes

Yes

Yes

Other company
directorships

Amcor Ltd, Australian Foundation
Investment Company Ltd

Craigs Investment Partners Ltd, Colmac Coca-Cola Amatil Ltd, St Vincent’s
Group Pty Ltd, AGInvest Holdings Ltd
Health Australia, Singtel Optus Pty Ltd,(MyFarm), Aikenhead Centre for Medical Western Sydney Airport Corporation
Discovery Ltd, Collins Farms Ltd, Collins
Farms No 2 Ltd, Dumbarton Land
Company Ltd, Melior Genetics Ltd,
Melior Venison Ltd, The Boundary Ltd,
Balmoral Pastoral Investments Pty Ltd,
L1 Long Short Fund

Penny Dell

Antonia Watson

Position

Chief Executive Officer – NZ Branch

Responsible Person1

Occupation

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

Acting Chief Executive Officer New
Zealand

Qualifications

BCA

BCom (Hons), GAICD

Resides

Wellington, New Zealand

Auckland, New Zealand

Other company None
directorships
1

Not applicable

Authorised in writing by the Directors to sign the Disclosure Statement in accordance with section 82 of the Reserve Bank Act 1989.

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

70

REGISTERED BANK DISCLOSURES

B1. GENERAL DISCLOSURES (continued)
Policy of the board of directors for avoiding or dealing with conflicts of interest
The Board of the Ultimate Parent Bank has adopted procedures to ensure that conflicts and potential conflicts of interest between a Director’s duties
to the Ultimate Parent Bank and their own interests are avoided or dealt with. Pursuant to these procedures:• each Director should disclose to all Directors any material personal interest they have in any matter which relates to the affairs of the Ultimate
Parent Bank and any other interest which the Director believes is appropriate to disclose in order to avoid an actual conflict of interest or theperception of a conflict of interest. This disclosure should be made as soon as practicable after the Director becomes aware of their interest or
the need to make a disclosure.
• Director who has an interest of the type referred to above in a matter that is to be considered at a Directors' meeting, must not vote on thematter nor be present while the matter is considered at the meeting, unless a majority of Directors who do not have such an interest in thematter agree that the interest should not disqualify such Director from being present while the matter is being considered and from voting on
the matter. The minutes of the meeting should record the decision taken by the Directors who do not have an interest in the matter.
In addition, Standing Notices about Interests are maintained for each Director. If the Director's interests change, the Director shall disclose the change
as soon as practicable and an updated Standing Notice shall be tabled at the next Board meeting and recorded in the minutes of that meeting.
Auditors
KPMG, 18 Viaduct Harbour Avenue, Auckland, New Zealand.
Conditions of registration
The following conditions of registration were applicable as at 30 September 2019, and have applied from 1 November 2015.
The registration of Australia and New Zealand Banking Group Limited (the registered bank) in New Zealand is subject to the following conditions:1.

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

2.

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

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

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

In determining the total amount of the banking group’s insurance business—a)

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

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

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

That the business of the registered bank in New Zealand does not constitute a predominant proportion of the total business of the registered bank.

4.

That no appointment to the position of the New Zealand chief executive officer of the registered bank shall be made unless:a)the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; andb)

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

5.

That Australia and New Zealand Banking Group Limited complies with the requirements imposed on it by the Australian Prudential Regulation Authority.

6.

That Australia and New Zealand Banking Group Limited complies with the following minimum capital adequacy requirements, as administered by the Australian
Prudential Regulation Authority:
a)

7.

b)

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

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

That the business of the registered bank in New Zealand is restricted to:a)8.

Common Equity Tier 1 capital of Australia and New Zealand Banking Group Limited is not less than 4.5 percent of risk weighted exposures;acquiring for fair value, and holding, mortgages originated by ANZ Bank New Zealand Limited; andb)

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

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

71

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B1. GENERAL DISCLOSURES (continued)
9.

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

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

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

Pending proceedings or arbitration
A description of any pending legal proceedings or arbitration concerning any member of ANZ New Zealand that may have a material adverse effecton the NZ Branch or ANZ New Zealand is included in Note 28 Commitments and Contingent Liabilities.
Credit rating
As at 12 December 2019 the Ultimate Parent Bank has three credit ratings, which are applicable to its long-term senior unsecured obligations which
are payable in New Zealand in New Zealand dollars. On 9 July 2019, S&P Global Ratings changed the Ultimate Parent Bank’s outlook from Negative to
Stable. On 17 July 2019, Fitch Ratings changed the Ultimate Parent Bank’s outlook from Stable to Negative.
The Ultimate Parent Bank’s credit ratings are:Rating agency
S&P Global Ratings
Fitch Ratings
Moody’s Investors Service

Credit rating
AAAAAa3

Qualification
Outlook Stable
Outlook Negative
Outlook Stable

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

Moody's
Investors
Service

Fitch Ratings

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

AAA

Aaa

AAA

Very strong ability to repay principal and interest.

AA

Aa

AA

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

A

A

A

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

BBB

Baa

BBB

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

BB

Ba

BB

Greater vulnerability and therefore greater likelihood of default.

B

B

B

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

CCC

Caa

CCC

Highest risk of default.

CC to CCa to CCC to CD-

RD & DThe following grades display investment grade characteristics:

The following grades have predominantly speculative characteristics:

Obligations currently in default.

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

72

REGISTERED BANK DISCLOSURES

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

Income statement
Interest income
Interest expense
Net interest income
Non-interest income
Operating income
Operating expenses
Credit impairment charge
Profit before income tax
Income tax expense
Profit after income tax
Dividends paid
NZ Branch retained earnings repatriatedShare capital issued
Balance sheet
Total assets
Total individually impaired assets
Total impaired assets (i.e. stage 3)
Total liabilities
Equity & head office account

2019
NZ$m
6,508
(3,276)
3,232
966
4,198
(1,609)
(99)
2,490
(665)
1,825

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

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

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

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

(375)
-

(4,600)
(450)
3,000

(1,635)-(1,320)-(1,630)665

170,492
287
739
157,893
12,599161,416323
n/a
150,180
11,236

158,185361
n/a
146,872
11,313

166,706433
n/a
155,539
11,167

155,530404
n/a
144,670
10,860

The amounts included in this summary have been taken from the audited financial statements of ANZ New Zealand.
Other material matters
Outcome of the RBNZ capital review
On 14 December 2018, the RBNZ sought feedback on proposals to reform the amount of regulatory capital required of banks incorporated in New
Zealand. On 5 December 2019, the RBNZ released its final decisions in respect of these proposals.
While the increase in capital remains significant, as a result of the consultation process there have been changes to the capital instruments and thetransition period to the new regime.
The key changes to the RBNZ final capital requirements relative to the consultation paper are:• No change in total Tier 1 capital required for the Banking Group of 16%, however the transition period is longer at seven years.
• A greater proportion of the increase is in additional tier 1 (AT1) capital (2.5% compared to the initial proposal of 1.5%), decreasing the amount ofcommon equity tier 1 capital required.
• Redeemable preference shares allowable as AT1 capital. It is anticipated that the Bank will be able to refinance existing internal AT1 securities(issued to ANZ Holdings (New Zealand) Limited) to external counterparties.
Any changes will be implemented gradually, considering the market is competitive for lending. The Banking Group has already started preparing forthe change. Of the Banking Group’s NZ$1.8 billion net profit after tax in for the year ended 30 September 2019, approximately 80% has been retainedin response to the proposals.
Directors’ and New Zealand Chief Executive Officer’s statements
The Directors' and New Zealand Chief Executive Officer's statement is included on page 83.
Financial statements of the Ultimate Parent Bank and Overseas Banking Group
Copies of the most recent publicly available financial statements of the Ultimate Parent Bank and Overseas Banking Group will be provided
immediately, free of charge, to any person requesting a copy where request is made at the Registered Office. The most recent publicly available
financial statements for the Ultimate Parent Bank and Overseas Banking Group can also be accessed at the website shareholder.anz.com.
Auditor’s report
The auditor’s report is included on page 84.
Index
The index to the contents of the Disclosure Statement is included on page 2, and an index to the contents of the financial statements is included on
page 3.

73

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B2. ADDITIONAL FINANCIAL DISCLOSURES
Additional information on the balance sheet
2019
NZ$m
154,382
132,524
1,112

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

2018
NZ$m
147,740
128,934
1,082

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

2019
AssetsCash and cash equivalents
Settlement balances receivable
Collateral paid
Trading securities
Derivative financial instruments
Investment securities
Net loans and advances
Other financial assets
Total financial assets
Liabilities
Settlement balances payable
Collateral received
Deposits and other borrowings
Derivative financial instruments
Debt issuances
Other financial liabilities
Total financial liabilities
Hedging instruments
Interest sensitivity gap

Total
NZ$m

Up to
3 months
NZ$m

Over 3 to
6 months
NZ$m

Over 6 to
12 months
NZ$m

Over 1 to
2 years
NZ$m

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

2,709
193
2,324
8,942
11,653
7,027
133,264
623
166,735

2,427
2,324
650
256
65,03470,691

253
148
11,023
11,424253
247
23,202
23,702

1,624
1,997
24,70428,325

6,162
4,378
9,700
20,240282
193
11,653
1(399)
623
12,353

1,590
991
117,071
10,912
25,593854
157,011
9,724

451
991
71,3822,561
213
75,598(7,173)(12,080)

16,3671,810
18,177
10,9094,156

11,5673,446
15,013
479
9,168

2,810
4,266
7,076
(9,770)11,4793,150
13,51016,660
5,555
9,135

1,139
11,795
10,912641
24,487(12,134)

Overseas Banking Group Profitability and Size
2019
5,968
0.61%
981,137
4.02%

Net Profit for the year ended 30 September 2019 (AUDm)1
Net profit after tax for the year ended 30 September 2019 as a percentage of average total assets
Total assets (AUDm)
Percentage change in total assets in the 12 months to 30 September 20191

Net profit after tax for the year includes AUD 15 million of profit attributable to non-controlling interests.

Reconciliation of mortgage related amounts
As at 30 September 2019
Term loans - housing1
Less: fair value hedging adjustment
Less: housing loans made to corporate customers
On-balance sheet residential mortgage exposures
Add: off-balance sheet residential mortgage exposures
Total residential mortgage exposures as per LVR analysis
174Term loans – housing includes loans secured over residential property for owner-occupier, residential property investment and business purposes.

Note
11

B4
B4
B4

NZ$m
84,748(3)(2,109)82,636
8,268
90,904

REGISTERED BANK DISCLOSURES

B3. ASSET QUALITY
Movements in components of loss allowance - total
Stage 3
Collectively IndividuallyStage 2
assessedassessed
NZ$m
NZ$m
NZ$m
171
41
132
(40)
4
7
63
(2)
123
(49)
(23)
23
2
58
(106)
23
(9)
194
43
98

Net loans and advances - total
As at 1 October 2018
Transfer between stages
New and increased provisions (net of collective provision releases)
Write-backs
Recoveries of amounts previously written off
Credit impairment charge
Bad debts written-off (excluding recoveries)
Add back recoveries of amounts previously written off
Discount unwind
As at 30 September 2019

Stage 1
NZ$m
160
29
(25)
4
164

Total
NZ$m
504
159
(49)
(23)
87
(106)
23
(9)
499

Off-balance sheet credit related commitments - total
As at 1 October 2018
Transfer between stages
New and increased provisions (net of collective provision releases)
Credit impairment charge
As at 30 September 2019

60
5
(5)
60

23
(5)
6
1
24

2
2

11
11
11

85
12
12
97

Gross loans and advances - total
As at 1 October 2018
Net transfers in to each stage
Amounts drawn from new or existing facilities
Additions
Net transfers out of each stage
Amounts repaid
Deletions
Amounts written off
As at 30 September 2019
Loss allowance as at 30 September 2019

120,971
21,143
21,143(2,376)(15,759)(18,135)
123,979
164

7,550
1,981
689
2,670
(1,175)(1,175)
9,045
194

349
208
35
243
(140)
(140)
452
43

323
203
105
308
(16)
(222)
(238)
(106)
287
98

129,193
2,392
21,972
24,364(2,392)(17,296)(19,688)(106)
133,763499

Off-balance sheet credit related commitments - total
As at 1 October 2018
Net transfers in to each stage
Amounts drawn from new or existing facilities
Additions
Net transfers out of each stage
Amounts repaid
Deletions
Amounts written off
As at 30 September 2019
Loss allowance as at 30 September 2019

28,632
38
3,896
3,934
(31)
(4,294)(4,325)28,241
60

1,198
29
78
107
(45)
(423)
(468)
837
24

11
4
1
5
(13)
(13)
3
2

14
14
14
(9)
(9)
19
11

29,855
85
3,975
4,060
(85)
(4,730)(4,815)
29,10097

Impacts of changes in gross financial assets on loss allowances - total

Explanation of how changes in the gross carrying amounts of gross loans and advances contributed to changes in loss allowance
Overall, loss allowances on gross loans and advances have remained stable at approximately 0.4% of gross loans and advances. Loss allowances haveincreased by NZ$7 million (1%) driven by an increase in the proportion of gross loans and advances in Stage 2 and Stage 3, offset by a net decrease inStage 3 individually assessed exposures as a result of amounts written-off.

75

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B3. ASSET QUALITY (continued)
Past due assets

Less than 30 days past due
At least 30 days but less than 60 days past due
At least 60 days but less than 90 days past due
At least 90 days past due
Total past due but not individually impaired

2019
NZ$m
1,102
261
196
334
1,893

2018
NZ$m
1,441
190
139
221
1,991

2019
NZ$m
19
7

2018
NZ$m
14
10

Other asset quality information

Undrawn facilities with individually impaired customers
Other assets under administration
Asset quality for financial assets designated at fair value
ANZ New Zealand does not have any loans and advances designated at fair value through profit or loss.
Overseas Banking Group asset quality
As at 30 September 2019
Gross impaired assets (AUDm)
Gross impaired assets as a percentage of total assets
Individual provision (AUDm)
Individual provision as a percentage of gross impaired assets
Collective provision (AUDm)

2,029
0.2%
814
40.1%
3,376

2018 Asset quality disclosure under NZ IAS 39
The below disclosure does not reflect the adoption of NZ IFRS 9 and is prepared under the requirements of the previous NZ IAS 39.
Movement in individually impaired assets

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

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

Movement in balances of individual credit impairment allowances

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

76

2018
NZ$m
154
214
(83)
(30)
101
(149)
30
(4)
132

REGISTERED BANK DISCLOSURES

B4. CREDIT AND MARKET RISK EXPOSURES AND CAPITAL ADEQUACY (UNAUDITED)APRA Basel III capital ratios
Unaudited
Common equity tier 1 capital
Tier 1 capital
Total capital

Ultimate Parent Bank
Overseas Banking Group (Extended Licensed Entity)
2019
2018
2019
2018
11.4%
11.6%
11.4%
11.4%
13.4%
13.6%
13.2%
13.4%
15.3%
15.2%
15.7%
15.6%

The Ultimate Parent Bank and the Overseas Banking Group are required to hold minimum capital as determined by APRA, which is at least equal tothat specified under the Basel III capital framework.
APRA has authorised the Ultimate Parent Bank and the Overseas Banking Group to use:
• the Advanced Internal Ratings Based (AIRB) methodology for calculation of credit risk weighted assets. There are however small portfolios(mainly retail and local corporates in Asia Pacific) where the Overseas Banking Group applies the standardised approach.
• the AMA for the operational risk weighted asset equivalent.
The Overseas Banking Group exceeded the minimum capital requirements set by APRA as at 30 September 2019 and for the comparative priorperiods.
The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 30 September 2019. The Overseas Banking Group’s Pillar
3 disclosure document for the quarter ended 30 September 2019, in accordance with APS 330: Public Disclosure of Prudential Information, discloses
capital adequacy ratios and other prudential information. This document can be accessed at the website anz.com.
Market risk
ANZ New Zealand’s aggregate market risk exposures below have been calculated in accordance with the RBNZ document BS2A. The peak end-of-day
market risk exposures are for the six months ended 30 September 2019.

As at 30 September 2019
Interest rate risk
Foreign currency risk
Equity risk

Implied risk weighted
exposure
Period end
Peak
NZ$m
NZ$m
4,570
6,632
10
128
1
1
4,581

Notional capital charge
Period end
Peak
NZ$m
NZ$m
366
531
1
10
367

Additional mortgage information
As required by RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided by ANZ New Zealand's valuation of the
security property at origination of the exposure. Off-balance sheet exposures include undrawn and partially drawn residential mortgage loans as wellas commitments to lend. Commitments to lend are formal offers for housing lending which have been accepted by the customer.

As at 30 September 2019
LVR range
Does not exceed 60%
Exceeds 60% and not 70%
Exceeds 70% and not 80%
Does not exceed 80%
Exceeds 80% and not 90%
Exceeds 90%
Total

On-balance Off-balance
sheet
sheet
NZ$m
NZ$m
41,046
18,691
18,34978,0863,290
1,260
82,636

5,697
1,317
931
7,945
159
164
8,268

Total
NZ$m
46,74320,00819,28086,0313,449
1,424
90,904

77

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B5. INSURANCE BUSINESS, SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIESAND MARKETING AND DISTRIBUTION OF INSURANCE PRODUCTS
Insurance business
ANZ New Zealand previously conducted insurance business through its subsidiary OnePath. OnePath was sold to Cigna Corporaton on 30 November
2018, and as at 30 September 2019, ANZ New Zealand does not conduct any insurance business. As at 30 September 2018, ANZ New Zealand’s
aggregate amount of insurance business comprised the total consolidated assets of OnePath of $NZ940 million, which was 0.6% of the total
consolidated assets of ANZ New Zealand.
Non-consolidated insurance and non-financial activities
The Ultimate Parent Bank does not carry on any insurance business or non-financial activities in New Zealand that are outside ANZ New Zealand.
ANZ New Zealand’s involvement in securitisation, funds management, other fiduciary activities, and marketing and distribution of insurance
productsa)

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

Activity

Details

Custodial

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

Funds
management

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

Other fiduciary
activities

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

b)

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

ANZ New Zealand originates securitised assets in the form of residential mortgage backed securities held for potential repurchase transactions with
the RBNZ, and covered bonds. Refer to Note 24 Structured Entities for further details on these programmes. Other than these activities, ANZ New
Zealand is not involved in the marketing or servicing of securitisation schemes.
c)

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

ANZ New Zealand markets and distributes life insurance, other personal and business insurance products provided by or arranged through a numberof insurance partners. None of these insurance partners are affiliated insurance entities or affiliated insurance groups. Our insurance partners are:•
OnePath for life insurance. OnePath was a subsidiary of ANZ New Zealand until 30 November 2018;•
Vero Insurance New Zealand Limited for house, contents, car and boat insurance;•
AWP Services New Zealand Limited, trading as Allianz Partners, for travel insurance. Policies are underwritten by Allianz Australia Insurance
Limited (incorporated in Australia) trading as Allianz New Zealand;•
Cigna Life Insurance New Zealand Limited for credit card repayment insurance; and•Crombie Lockwood (NZ) Limited is our business insurance broker.
Arrangements to ensure no adverse impacts arising from the above activities
Arrangements have been put in place to ensure that difficulties arising from the activities in a), b) and c) above would not impact adversely on ANZ
New Zealand. The policies and procedures in place include comprehensive and prominent disclosure of information regarding products, and formal
and regular review of operations and policies by management.

78

REGISTERED BANK DISCLOSURES

B5. INSURANCE BUSINESS, SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIESAND MARKETING AND DISTRIBUTION OF INSURANCE PRODUCTS (continued)
Amounts represented by funds management and securitisation activities

Funds under management:
KiwiSaver1
Bonus Bonds Scheme2
Other managed funds1
ANZ PIE Fund2
DIMS3
Other investment portfolios4
Total funds under management
Funds under custodial arrangements5
Other funds held or managed subject to fiduciary responsibilities6
Outstanding securitised assets originated by ANZ New Zealand - carrying amount of covered bonds
1
2
3
4
5

6

2019
NZ$m

2018
NZ$m

14,781
3,276
2,494
2,131
8,062
3,401
34,145
8,373
1,401
4,460

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

Managed by ANZ Investments.
Managed by ANZIS.
Managed by the Bank.
Comprises portfolios managed by ANZ Investments, and the ANZ National Retirement Scheme managed by ANZ National Staff Superannuation Limited.
Amount for 2018 includes NZ$60 million held in custody by ANZ New Zealand Securities Nominees Limited, which was sold in December 2018, which are not included in funds undermanagement. All other amounts are also included in funds under management.
Not included in funds under management.

79

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B6. RISK MANAGEMENT POLICIESInformation about risk
The success of ANZ New Zealand’s strategy is underpinned by our sound management of ANZ New Zealand’s risks. All of ANZ New Zealand’s activities
involve - to varying degrees - the analysis, evaluation, acceptance and management of risks or combinations of risks.
The Board is responsible for establishing and overseeing ANZ New Zealand’s Risk Management Framework. The Board hasdelegated authority to the Bank’s Board Risk Committee (BRC) to develop and monitor compliance with ANZ New Zealand’s risk
management policies. The Committee reports regularly to the Board on its activities.
The key pillars of ANZ New Zealand’s Risk Management Framework include:•

the Risk Appetite Statement (RAS), which clearly and concisely sets out the Board’s expectations regarding the degree of riskthat ANZ New Zealand is prepared to accept in pursuing its strategic objectives and its business plan; and•the Risk Management Statement (RMS), which describes ANZ New Zealand’s strategy for managing risks and a summary of
the key elements of the Risk Management Framework (RMF) that give effect to that strategy. The RMS includes: a descriptionof each material risk; and an overview of how the RMF addresses each risk, with reference to the relevant policies, standards
and procedures. It also includes information on how ANZ New Zealand identifies, measures, evaluates, monitors, reports andthen either controls or mitigates material risks.

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

Key Material Risks
Each key material risk has an associated RAS, and where applicable, measured by appropriate metric(s) and associated tolerance(s) representing the
maximum level of risk appropriate to execute ANZ New Zealand’s strategic agenda. Metrics are prepared and reviewed at least monthly. A risk
appetite dashboard is prepared and reviewed by senior management monthly, and presented to the BRC at each meeting.
Risk Type

Description

Managing the Risk

Strategic
Risk

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

We consider and manage Strategic Risks through our annual strategicplanning process, managed by the Executive Committee andapproved by the Board. Any increase to our key Material Risks is
managed in accordance with the risk management practices
specified below.

CapitalAdequacy
Risk

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

We pursue an active approach to Capital Management throughongoing review, and Board approval, of the level and composition of
our capital base against key policy objectives.

CreditRisk

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

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

Credit Risk incorporates the risks associated with us lending
to customers who could be impacted by climate change orby changes to laws, regulations, or other policies adopted
by governments or regulatory authorities, including carbon
pricing and climate change adaptation or mitigation
policies.

The effectiveness of the Credit Risk framework is assessed throughvarious compliance and monitoring processes. These, together withportfolio selection, define and guide the credit process, organisationand staff.

Includes:• concentrations of credit risk;• intra-day credit risk;• credit risk to bank counterparties; and• related party credit risk.
MarketRisk

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

Our risk management and control framework for Market Risk involves
us quantifying the magnitude of market risk within the trading andbalance sheet portfolios through independent risk measurement.
First, we identify the range of possible outcomes, the likely
timeframe, and the likelihood of the outcome occurring. Then we
allocate an appropriate amount of capital to support these activities.
ANZ New Zealand’s key tools to measure and manage Market Risk ona daily basis include value at risk, earnings at risk, interest ratesensitivities, market value loss limits and stress testing.

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REGISTERED BANK DISCLOSURES

B6. RISK MANAGEMENT POLICIES (continued)
Risk Type

Description

Managing the Risk

Liquidity
andFunding
Risk

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

Key principles in managing our Liquidity and Funding Risk include:• maintaining our ability to meet liquidity ‘survival horizons’ undera range of stress scenarios to meet cash flow obligations over ashort to medium term horizon;• maintaining a strong structural funding profile; and• maintaining a portfolio of high-quality liquid assets to act as asource of liquidity in times of stress.

Operational
Risk

The risk of loss and/or non-compliance with laws resulting
from inadequate or failed internal processes, people and/or
systems, or from external events. This definition includes
legal risk, and the risk of reputation loss, or damage arisingfrom inadequate or failed internal processes, people and/or
systems; but excludes Strategic Risk.

We operate a three-lines-of-defence model to manage Operational
Risk, with each line of defence having defined roles, responsibilities
and escalation paths to support effective communication andeffective management of our Operational Risk. Also, we haveongoing review mechanisms to ensure our Operational Risk
framework continues to meet organisational needs and regulatory
requirements.

Compliance Risk
The risk of failure to act in accordance with laws,
regulations, industry standards and codes, internal policies
and procedures and principles of good governance asapplicable to ANZ New Zealand’s businesses.

Key features of how we manage Compliance Risk as part of our
Operational Risk framework include:• centralised management of key obligations, and emphasis on
identifying changes in regulations and the business environment,so as to enable us to proactively assess emerging compliancerisks and implement robust reporting and certification processes.
• recognition of incident management as a separate element toenhance ANZ New Zealand’s ability to identify, manage andreport on incidents/breaches in a timely manner.
• the Whistleblower Protection Policy allowing employees andcontractors to make confidential, anonymous submissions
regarding concerns relating to accounting, internal control,
compliance, audit and other matters.

Conduct and Reputation Risk
The risk of loss that directly or indirectly impacts earnings,
capital adequacy or value, that is caused by:• adverse perceptions of ANZ New Zealand held by anyof our customers, the community, shareholders,investors, regulators, or rating agencies;• conduct risk associated with ANZ New Zealand’s
employees or contractors (or both); or the social orenvironmental (or both) impacts of our lending
decisions.

We manage Conduct and Reputation Risk by maintaining a positiveand dynamic culture that:• ensures we act with integrity; and• enables us to build strong and trusted relationships withcustomers and clients, with colleagues, and with the broader
society.
We have well established decision-making frameworks and policies
to ensure our business decisions are guided by sound social andenvironmental standards that take into account Conduct and
Reputation Risk.

Refer to Note 15 Financial Risk Management for the disclosures required under NZ IFRS 7 Financial Instruments: Disclosures.

Other Material Risks
Risks where the maximum level of risk is set as part of ANZ New Zealand’s ICAAP. These risks do not require the same degree of active or transactional
management as the Key Material Risks and are managed and monitored as part of ANZ New Zealand’s business, strategic and capital management
process. For more information about ANZ New Zealand’s ICAAP refer to the section ‘Capital for other material risks’ in Note B4.
PensionRisk

The risk of the value of investments in a defined benefit pension fund being insufficient to meet liabilities resulting in additional
funds being required to match pension liabilities.

Strategic
Equity Risk

The risk of financial loss arising from the unexpected reduction in value of equity investments not held in the trading book.

Fixed Asset
Risk

The risk of financial loss arising from the negative revaluation of fixed assets owned and leased, caused by adverse changes inbusiness and/or economic conditions. Residual Value Risk is included in the definition of Fixed Assets, which is the risk that themarket value of the underlying assets of operating leases may fall below the anticipated residual value.

Deferred
Acquisiton
Risk

The risk of loss arising from the failure of the benefits associated with the acquisition of interest earnings assets to arise due toimpairment, transfer, or prepayment.

SoftwareRisk

The risk of financial loss arising from the unexpected accelerated write down of capitalised software expenditure due to diminishedfuture economic benefits caused by adverse business or economic conditions.

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AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTREGISTERED BANK DISCLOSURES
B6. RISK MANAGEMENT POLICIES (continued)
Reviews of ANZ New Zealand’s risk management systems
Refer to Note 15 Financial Risk Management for details of the Internal audit Functions reviews of ANZ New Zealand’s RMF. These reviews are notconducted by a party external to ANZ New Zealand, the Overseas Banking Group, or the Ultimate Parent Bank.
Internal Audit Function of ANZ New Zealand
ANZ New Zealand has an Internal Audit Function, refer to Note 15 Financial Risk Management for details.
The nature and scope of the responsibilities of the Bank’s Audit Committee responsibilities, to which Internal Audit reports, are to assist the Bank’s
Board of Directors by providing oversight and review of:• ANZ New Zealand's financial reporting principles and policies, controls, systems and procedures;• the effectiveness of ANZ New Zealand’s internal control and risk management framework;• the work and internal audit standards of Internal Audit which reports directly and solely to the Chair of the Bank’s Audit Committee;• the integrity of ANZ New Zealand's financial statements and the independent audit thereof, and ANZ New Zealand’s compliance with legal andregulatory requirements in relation thereto;• any due diligence procedures;• prudential supervision procedures and other regulatory requirements to the extent relating to financial reporting; and• any other matters referred to it by the Bank’s Board.
The Bank’s Audit Committee is also responsible for:• the appointment, annual evaluation and oversight of the external auditor;• annual review of the independence, fitness and propriety, and qualifications of the external auditor;• compensation of the external auditor; and• where deemed appropriate, replacement of the external auditor.
In carrying out its responsibilities and duties, the Bank’s Audit Committee will aim to seek fair customer outcomes and financial market integrity in its
deliberations.
Access to parental disclosures
Disclosures made by the Ultimate Parent Bank in relation to capital adequacy requirements and risk management processes implemented by the
Ultimate Parent Bank are included in the Ultimate Parent Bank’s Annual Report and APS 330 Basel III Pillar 3 Capital Disclosures documents which canbe accessed at the website shareholder.anz.com.

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

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

Over the year ended 30 September 2019, after due enquiry, each Director of the Ultimate Parent Bank and the Chief Executive Officer – NZ Branchbelieves that:•

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

Signed by the Chief Executive Officer – NZ Branch

Penny Dell
Chief Executive Officer – NZ Branch
12 December 2019
Signed on behalf of all the Directors of the Ultimate Parent Bank

Antonia Watson
Responsible Person
12 December 2019
on behalf of the Directors of the Ultimate Parent Bank:
Ilana Atlas
Paula Dwyer
Shayne ElliottDavid Gonski, AC
Jane Halton, AO PSM
Rt Hon Sir John Key, GNZM AC
Graeme Liebelt
John Macfarlane
Paul O’Sullivan

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AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTINDEPENDENT AUDITOR’S REPORTTO THE DIRECTORS OF AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITEDREPORT ON THE ANZ NEW ZEALAND DISCLOSURE STATEMENTOPINION
We have audited the accompanying consolidated financial statements and registered bank disclosures of Australia and New Zealand Banking
Group Limited - ANZ Bank New Zealand and its related entities (ANZ New Zealand) in section B2, B3, B5 and B6 which comprise:••••the consolidated balance sheet as at 30 September 2019;the consolidated income statement, statements of comprehensive income, changes in equity and cash flows for the year then ended;
notes, including a summary of significant accounting policies and other explanatory information; andthe information that is required to be disclosed in accordance with Schedules 4, 7, 11 and 13 of the Registered Bank Disclosure Statements(Overseas Incorporated Registered Banks) Order 2014 (as amended) (the Order).

In our opinion, the accompanying consolidated financial statements on pages 4 to 64:••

give a true and fair view of ANZ New Zealand’s financial position as at 30 September 2019 and its financial performance and cash flows forthe year ended on that date; andcomply with New Zealand Generally Accepted Accounting Practice, which in this instance means New Zealand Equivalents to International
Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards.

In our opinion, the Registered Bank disclosures that are required to be disclosed in accordance with Schedules 4, 7, 11 and 13 of the Order and areincluded in section, B2, B3, B5, B6 of the Disclosure Statement:•••

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

In accordance with the requirements of clauses 2(1)(d) and 2(1)(e) of Schedule 1 of the Order, we report that:••

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

BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISA’s (NZ)). We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of ANZ New Zealand in accordance with Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners
issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ Code of Ethics forProfessional Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA
Code.
Our responsibilities under ISA’s (NZ) are further described in the auditor’s responsibilities for the audit of the consolidated financial statements andregistered bank disclosures in section B2, B3, B5 and B6 section of our report.
Our firm has also provided other audit related services to ANZ New Zealand in relation to review of regulatory returns, internal controls reports,
prospectus assurance or reviews and agreed upon procedures engagements. Subject to certain restrictions, partners and employees of our firm may
also deal with ANZ New Zealand on normal terms within the ordinary course of trading activities of the business of ANZ New Zealand. These mattershave not impaired our independence as auditor of ANZ New Zealand. The firm has no other relationship with, or interest in, ANZ New Zealand.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial
statements in the current period. We summarise below those matters and our key audit procedures to address those matters in order that the
Directors as a body may better understand the process by which we arrived at our audit opinion. Our procedures were undertaken in the context ofand solely for the purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not express discrete opinions
on separate elements of the consolidated financial statements.
ALLOWANCE FOR EXPECTED CREDIT LOSSESThe Key Audit Matter
NZ IFRS 9 Financial Instruments (NZ IFRS 9) was adopted by ANZ New Zealand on 1 October 2018. The allowance for expected credit losses under NZ
IFRS 9 is a key audit matter due to the significance of the loans and advances balance to the financial statements and the inherent complexity of ANZ
New Zealand’s Expected Credit Loss (ECL) models used to measure ECL allowances. This new and complex accounting standard requires ANZ New
Zealand to recognise ECLs on its loans and advances and off-balance sheet positions; ANZ New Zealand developed new models, which are reliant on
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INDEPENDENT AUDITOR’S REPORT
data and a number of estimates including impacts of multiple economic scenarios, and other assumptions such as defining a Significant Increase in
Credit Risk (SICR). This involves significant judgement and estimates and forward looking information reflecting potential future economic events.
NZ IFRS 9 requires ANZ New Zealand to measure ECLs on a forward-looking basis reflecting a range of future economic conditions, including forwardlooking assumptions such as forecast GDP and unemployment levels. Post-model adjustments to the ECL results are also made by ANZ New Zealandto address known ECL model limitations or emerging trends in the loan portfolios. Significant judgement is required in selecting the economic
scenarios used and the judgemental overlays that ANZ New Zealand applies to the ECL results.
The criteria selected to identify a SICR, such as a decrease in customer credit rating (CCR), are key areas of judgement within ANZ New Zealand’s ECL
methodology as these criteria determine if a forward-looking 12 month or lifetime allowance is recorded.
Separate from the ECL calculation, allowances for individually assessed loans exceeding specific thresholds are individually assessed by ANZ New
Zealand. These specific allowances are established based on the expected future cash repayments and estimated proceeds from the value of thecollateral held by ANZ New Zealand in respect of the loans.
How the matter was addressed in our audit
Our audit procedures for the allowance for ECL and disclosures under NZ IFRS 9 for the year ended 30 September 2019 included assessing ANZ New
Zealand’s significant accounting policies against the requirements of the accounting standard. KPMG Financial Risk Management specialists were usedin ECL audit procedures as a core part of our audit team.
We tested key controls in relation to:
•
•
•
•
•

ANZ New Zealand’s ECL model governance and validation processes;
ANZ New Zealand’s assessment and approval of the forward looking macroeconomic assumptions and scenario weightings through challenge
applied by ANZ New Zealand’s internal governance processes;
Reconciliation of the data used in the ECL calculation process to gross balances recorded within the general ledger as well as source systems;
Counterparty risk grading for non-retail loans (larger customer exposures are monitored individually). We tested the approval of new lending
facilities against ANZ New Zealand’s lending policies, and controls over the monitoring of counterparty credit quality; and
ANZ New Zealand’s oversight of the retail loan portfolios, with a focus on controls over delinquency monitoring.

We also tested relevant General Information Technology Controls (GITCs) over the Key IT applications used by ANZ New Zealand in measuring ECL
allowances, as detailed in the IT systems and Controls key audit matter below.
In addition to controls testing, our procedures included:
•

•
•
•

•
•

Performing credit assessments of a sample of non-retail loans, controlled by ANZ New Zealand’s specialist workout and recovery team, assessedas higher risk or impaired, and a sample of other loans, focusing on larger exposures assessed by ANZ New Zealand as showing signs ofdeterioration, or in areas of emerging risk (assessed against external market conditions). We challenged ANZ New Zealand’s risk grading of theloan, assessment of loan recoverability, valuation of security and the impact on the credit allowance. To do this, we reviewed the information on
ANZ New Zealand’s loan file, understood the facts and circumstances of the case with the relationship manager, and performed our own
assessment of recoverability. Exercising our judgement, our procedures included using our understanding of relevant industries and themacroeconomic environment, and comparing data and assumptions used by ANZ New Zealand in recoverability assessments to externallysourced evidence, such as commodity prices and external property sale information;
Obtaining an understanding of ANZ New Zealand’s processes to determine ECL allowances, evaluating ANZ New Zealand’s ECL model
methodologies against established market practices and criteria in the accounting standards;
Assessing the accuracy of ANZ New Zealand’s ECL model predictions by re-performing, for a sample of loans, the calculation of the ECL
allowance and comparing this to the amount recorded by ANZ New Zealand;
Utilising KPMG Economic specialists to challenge ANZ New Zealand’s forward-looking macroeconomic assumptions and scenarios incorporated
in ANZ New Zealand’s ECL models. We compared ANZ New Zealand’s forecast GDP and unemployment rates to relevant publicly available
macro-economic information, and considered other known variables and information obtained through our other audit procedures to identify
contradictory indicators;
Testing the implementation of ANZ New Zealand’s SICR methodology by re-performing the staging calculation for a sample of loans andcomparing our expectation to actual staging applied on an individual account level, taking into consideration movements in CCR; andAssessing the accuracy of the data used in the ECL models by confirming a sample of data fields such as account balance and CCR to relevant
source systems.

We also challenged key assumptions in the components of ANZ New Zealand’s post-model adjustments to the ECL allowance balance. This included:•••

Evaluating underlying data used in concentration risk and economic cycle allowances by comparing underlying portfolio characteristics to loss
experience, current market conditions and specific risks inherent in ANZ New Zealand’s loan portfolios;
Assessing the requirement for other additional allowances ANZ New Zealand’s ECL model and data deficiencies identified by ANZ New
Zealand’s ECL model validation processes; andAssessing the completeness of additional allowance overlays by checking the consistency of risks we identified in the portfolios against ANZ
New Zealand’s assessment.

VALUATION OF FINANCIAL INSTRUMENTS
The Key Audit Matter
Financial instruments held at fair value on ANZ New Zealand’s balance sheet include investment securities, trading securities, derivative assets andliabilities, certain deposits and other borrowings, and other assets and liabilities designated as measured at fair value through profit or loss. The
instruments are mainly risk management products sold to customers and used by ANZ New Zealand to manage its own interest rate and foreignexchange risk.

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AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTINDEPENDENT AUDITOR’S REPORTThe valuation of financial instruments held at fair value is considered a key audit matter due to:••••

Their significant fair value (17% of assets and 9% of liabilities of ANZ New Zealand);The significant volume and range of products transacted, which increases the risk of errors that could lead to inaccurate valuation;
The significant level of judgement by ANZ New Zealand, increasing the risk of error, and adding complexity to our audit. The level of judgement
increases in the small number of instances where internal models, as opposed to quoted market prices, are used to determine fair value of an
instrument; andThe valuation of certain derivatives held by ANZ New Zealand is sensitive to inputs including credit risk, funding rates, probabilities of default
and loss given default. Both funding and credit risk are incorporated within the valuation of certain derivative instruments.

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

Testing access rights and change management controls for key valuation systems;
Testing interface controls, notably the completeness and accuracy of data transfers between transaction processing systems, key systems used
to generate valuations and any related valuation adjustments, and ANZ New Zealand’s market risk management and finance systems to identify
inconsistencies in valuation processes across products;
Testing the governance and approval controls such as management review and approval of the valuation models and approval of new products
against policies and procedures;
Testing the front office management review and approval of the daily financial instrument trading profit and loss reconciliations prepared by
ANZ New Zealand’s independent markets and treasury control;
Testing management’s review and approval of valuation model construction and validation; andTesting ANZ New Zealand’s data validation controls.

We tested the valuation of financial instruments with both observable and unobservable inputs. Our specific testing involved valuation specialists andincluded:•••

Evaluating the appropriateness of ANZ New Zealand’s valuation methodology for derivative financial instruments;
Re-performing the valuation of ‘level 1’ and ‘level 2’ investment securities and trading securities, which are primarily government, semigovernment and corporate debt securities, by comparing the observable inputs, including quoted prices, to independently sourced market
data; andUsing independent models to recalculate the valuation of a sample of derivative assets and liabilities where the fair value was determined using
observable inputs. This included comparing a sample of observable inputs used in ANZ New Zealand’s derivative valuations to independentlysourced market data, such as interest rates, foreign exchange rates and volatilities.

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

86

Assessing the governance and higher-level controls in place across the IT Environment, including the approach to ANZ New Zealand policy
design, review and awareness;
Testing the design and operating effectiveness of controls across the User Access Management Lifecycle, including how users are on-boarded,
reviewed, and removed on a timely basis from critical IT applications and supporting infrastructure. We also looked at how privileged roles andfunctions are managed across each IT Application and the supporting infrastructure;
Testing the design and operating effectiveness of controls in place over change management, including how changes are initiated,documented, approved, tested and authorised prior to migration into the production environment of critical IT Applications. We also assessed
the appropriateness of users with access to make changes to IT applications across ANZ New Zealand;
Testing the design and operating effectiveness of controls used by ANZ New Zealand’s technology teams to schedule system jobs and monitor
system integrity;
Testing the design and operating effectiveness of controls in place to support Program Development, including the implementation of revised
guidelines per the new ANZ Delivery Framework; andTesting the design and operating effectiveness of automated business process controls including those that enforce segregation of duties
between conflicting roles within IT applications, configurations in place to perform calculations, mappings, and flagging of financial transactions,
automated reconciliation controls, both between systems, and intra-system and data integrity of critical system reporting used for sampling,data analysis and financial reporting across the audit.

INDEPENDENT AUDITOR’S REPORTPROVISION FOR CUSTOMER REMEDIATIONThe Key Audit Matter
ANZ New Zealand has assessed the need to recognise provisions in relation to certain customer remediation activities arising from both internal andexternal investigations, and reviews. This includes provisions for expected refunds to customers and other counterparties, remediation project costs
and related customer, counterparty and regulatory claims, penalties, and litigation outcomes.
The provision for customer remediation is a key audit matter due to the number of investigations, the quantum of amounts involved and thejudgements required in assessing ANZ New Zealand’s determination of:•••

The existence of a present legal or constructive obligation arising from a past event using the conditions of the event against the criteria in theaccounting standards;
Reliable estimates of the amounts that may be paid arising from investigations, including estimates of related costs; andThe potential for legal proceedings, further investigations, and reviews from its regulators leading to a wider range of estimation outcomes for
us to consider.

How the matter was addressed in our audit
Our audit procedures for customer remediation provisions included:
•
•
•
•
•
•
•
•

Obtaining an understanding of ANZ New Zealand’s processes for identifying and assessing the potential impact of the investigations into
customer remediation payments, related project costs and legal proceedings associated with compliance matters, investigations and reviews
from its regulators;
Enquiring with ANZ New Zealand regarding ongoing legal, and regulatory matters, and investigation into other remediation activities;
Enquiring with external legal counsel;
Reading the minutes and other relevant documentation of ANZ Bank New Zealand Limited’s Board of Directors and various management
committees, and attending ANZ Bank New Zealand Limited’s Audit and Risk Committee meetings;
Inspecting correspondence with relevant regulatory bodies;
For a sample of individual matters, assessing the basis for recognition and measurement of a provision and associated costs against therequirements of the accounting standards. We did this by understanding and challenging the provisioning methodologies and underlying
assumptions;
Testing completeness by evaluating all current customer remediation matters identified by ANZ New Zealand and checking these exposuresagainst the criteria for a provision or a contingency in the accounting standards; andEvaluating the related disclosures against the requirements of NZ IFRS.

COMPLETENESS AND ACCURACY OF RELATED PARTY DISCLOSURESThe Key Audit Matter
ANZ New Zealand has significantly increased its focus on related party disclosures. We also reassessed the risk of completeness and accuracy of related
party disclosures. We consider the increased risk to primarily arise from transactions with key management personnel and their related parties.
How the matter was addressed in our audit
Our audit procedures for related party disclosures included:
•
•
•
•
•
•
•
•

Challenging ANZ New Zealand’s definition of related parties and related party transactions;
Testing the key control over ANZ New Zealand’s process for identifying key management personnel, their related parties and their transactions
and balances;
Ensuring intra-group related party amounts are matched against Overseas Banking Group counterparties;
Testing the completeness of the related parties identified by searching the Directors’ Interests Register and public records to identify companies
controlled by key management personnel or their close family members;
Agreeing a sample of key management personnel compensation, transactions and balances identified by ANZ New Zealand to approval
documents and source systems;
Sample testing ANZ New Zealand’s core bank system to identify undisclosed balances with key management personnel and their relatedparties;
Evaluating ANZ New Zealand’s assertion that key management personnel transactions are on normal commercial terms by testing a sample oftransactions and comparing the terms offered to those offered to other employees or customers; andObtaining evidence over ANZ New Zealand’s assertion that transactions with the Overseas Banking Group are conducted at arm’s length and on
normal commercial terms basis.

OTHER INFORMATIONThe Directors, on behalf of ANZ New Zealand, are responsible for the general disclosures required to be included in ANZ New Zealand’s DisclosureStatement in accordance with Schedule 2 of the Order (section B1).
Our opinion on the consolidated financial statements does not cover section B1 (referred to as ‘other information’) and we do not express any form ofassurance conclusion thereon.
In connection with our audit of the consolidated financial statements our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit orotherwise appears materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this otherinformation, we are required to report that fact. We have nothing to report in this regard.

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AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND 2019 DISCLOSURE STATEMENTINDEPENDENT AUDITOR’S REPORTDIRECTORS' RESPONSIBILITIES FOR THE CONSOLIDATED FINANCIAL STATEMENTS AND REGISTERED BANKDISCLOSURES IN SECTION B1, B2, B3, B5 AND B6The Directors, on behalf of ANZ New Zealand, are responsible for:••••the preparation and fair presentation of the consolidated financial statements in accordance with Clause 25 of the Order, NZ IFRS andInternational Financial Reporting Standards;
the preparation and fair presentation of supplementary information, in accordance with Schedules 2, 4, 7, 11 and 13 of the Order;
implementing necessary internal control to enable the preparation of consolidated financial statements that are fairly presented and free frommaterial misstatement, whether due to fraud or error; andassessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern and using thegoing concern basis of accounting unless they either intend to liquidate or to cease operations, or have no realistic alternative but to do so.

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

to obtain reasonable assurance about whether the Disclosure Statement, including the consolidated financial statements prepared inaccordance with Clause 25 of the Order, and registered bank disclosures in section B2, B3, B5 and B6, prepared in accordance with Schedules 4,7, 11 and 13 of the Order as a whole is free from material misstatement, whether due to fraud or error; andto issue an independent auditor’s report that includes our opinion.

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

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INDEPENDENT AUDITOR’S REPORTREVIEW CONCLUSION ON THE REGISTERED BANK DISCLOSURES IN SECTION B4 RELATING TO CREDIT AND
MARKET RISK EXPOSURES AND CAPITAL ADEQUACY (SECTION B4)
We have reviewed the registered bank disclosures, as disclosed in section B4 of the Disclosure Statement for the year ended 30 September 2019,
which are required to be disclosed in accordance with Schedule 9 of the Order.
Based on our review, nothing has come to our attention that causes us to believe that the registered bank disclosures relating to credit andmarket risk exposures and capital adequacy as disclosed in section B4 of the Disclosure Statement, is not, in all material respects disclosed inaccordance with Schedule 9 of the Order.

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

KPMG
Auckland12 December 201989