ANZ BANK NEW ZEALAND LIMITEDANNUAL REPORT AND REGISTERED BANK DISCLOSURE STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2017
NUMBER 87 | ISSUED NOVEMBER 2017

ANZ Bank New Zealand Limited

ANNUAL REPORT AND REGISTERED BANK DISCLOSURE STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2017

CONTENTS
Annual Report and Glossary of Terms
Consolidated Financial Statements
Income Statement
Statement of Comprehensive Income
Balance Sheet
Cash Flow Statement
Statement of Changes in Equity
Notes to the Financial Statements
Basis of Preparation
1. Significant Accounting Policies
2. Critical Estimates and Judgements Used in
Applying Accounting Policies
Financial Performance
3. Net Interest Income
4. Non Interest Income
5. Operating Expenses
6. Income Tax
7. Segment Analysis
8. Notes to the Cash Flow Statement

2

3
3
4
5
6

7
13

15
15
16
17
18
20

Financial Assets
9. Cash
10. Trading Securities
11. Derivative Financial Instruments
12. Available-for-sale Assets
13. Net Loans and Advances
14. Provision for Credit Impairment

21
21
21
23
23
24

Financial Liabilities
15. Deposits and Other Borrowings
16. Unsubordinated Debt
17. Subordinated Debt

25
25
26

Financial Instrument Disclosures
18. Financial Risk Management
19. Classification of Financial Instruments and Fair Value
Measurements
20. Maturity Analysis of Assets and Liabilities
21. Assets Charged as Security for Liabilities and CollateralAccepted as Security for Assets
22. Offsetting
23. Credit Related Commitments, Guarantees andContingent Liabilities

28
43
45
46
47
48

Non-Financial Assets
24. Goodwill and Other Intangible Assets

48

Equity25. Share Capital
26. Capital Adequacy

49
50

Consolidation and Presentation
27. Subsidiaries
28. Structured Entities, Transferred Financial Assets,
Fiduciary Activities and Insurance
29. Assets and Liabilities Held for Sale
Other Disclosures
30. Related Party Disclosures
31. Capital Expenditure and Operating Lease
Commitments
32. Compensation of Auditors
33. Concentrations of Credit Risk to IndividualCounterparties
34. Risk Management Framework

58
59
61

62
64
64
65
66

Other Registered Bank Disclosures
Historical Summary of Financial Statements
General Disclosures
Conditions of Registration
Directorate and Auditor

68
69
71
76

Directors’ Statement

78

Independent Auditor’s Report79ANZ Bank New Zealand Limited

2

ANNUAL REPORTFOR THE YEAR ENDED 30 SEPTEMBER 2017

Pursuant to section 211(3) of the Companies Act 1993, the shareholder of the Bank has agreed that the Annual Report of the Banking
Group need not comply with any of the paragraphs (a), and (e) to (j) of subsection (1) and subsection (2) of section 211.
Accordingly, there is no information to be provided in this Annual Report other than the financial statements for the year ended 30
September 2017 and the audit report on those financial statements.
For and on behalf of the Board of Directors:

John Judge
Chairman
15 November 2017

David Hisco
Executive Director
15 November 2017

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 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 means the New Zealand business of the Overseas Banking Group.
UDC means UDC Finance Limited.
Registered Office is Ground Floor, ANZ Centre, 23-29 Albert Street, Auckland, New Zealand, which is also the Banking Group’s address forservice.
RBNZ means the Reserve Bank of New Zealand.
APRA means the Australian Prudential Regulation Authority.
the Order means the Registered Bank Disclosure Statements (New Zealand 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 theOrder.

ANZ Bank New Zealand Limited

3

INCOME STATEMENT
Year toYear to30/09/2016
NZ$m

Note

30/09/2017
NZ$mInterest income

3

6,198

6,423

Interest expense

3

3,161

3,421

3,037

3,002

Net interest income
Net trading gains

4

226

12

Net funds management and insurance income

4

329

414

Other operating income

4

378

421

Share of associates' profit
Operating income
Operating expenses

5

Profit before credit impairment and income tax
Credit impairment charge

14

Profit before income tax
Income tax expense
Profit after income tax

6

5

5

3,975

3,854

1,468

1,599

2,507

2,255

62

150

2,445

2,105

680

570

1,765

1,535

STATEMENT OF COMPREHENSIVE INCOME
Year toYear to30/09/2017

30/09/2016

NZ$m

NZ$m

1,765

1,535

Actuarial gain on defined benefit schemes

21

18

Income tax expense relating to items not reclassified

(6)

(5)

Total items that will not be reclassified to profit or loss

15

13

Unrealised gains / (losses) recognised directly in equity

(32)

91

Realised losses transferred to the income statement

129Income tax credit / (expense) relating to items that may be reclassified

6

(28)

(14)

72

1,766

1,620

Profit after income tax
Items that will not be reclassified to profit or loss

Items that may be reclassified subsequently to profit or loss

Total items that may be reclassified subsequently to profit or loss
Total comprehensive income for the year

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

ANZ Bank New Zealand Limited

4

BALANCE SHEET
Note

30/09/2017
NZ$m

30/09/2016
NZ$m

9

2,338

2,274

AssetsCash
Settlement balances receivable

536

396

Collateral paid

1,415

2,310

7,663

11,979Trading securities

10

Investments backing insurance contract liabilities

123

119

Derivative financial instruments

11

9,878

21,110Available-for-sale assets

12

6,360

2,859

Net loans and advances

13

117,627

114,623

UDC assets held for sale

29

3,065

-

Other assets

683

701

Life insurance contract assets

636

630

7

7

Investments in associates
Premises and equipment

367

387

3,275

3,424

Total assets

153,973

160,819

Interest earning and discount bearing assets

138,795

134,489

Settlement balances payable

1,840

1,771

Collateral received

613

529

Goodwill and other intangible assets

24

Liabilities

Deposits and other borrowings

15

101,657

99,066

Derivative financial instruments

11

9,826

21,956

Current tax liabilities

39

21

Deferred tax liabilities

187

145

UDC liabilities held for sale

1,088

-

Payables and other liabilities

29

1,151

1,119

Employee entitlements

119

126

Other provisions

66

80

21,32320,014

Unsubordinated debt

16

Subordinated debt

17

3,283

3,282

Total liabilities

141,192

148,109

Net assets

12,781

12,710

8,888

8,888

EquityShare capital

25

Reserves
Retained earnings

48

62

3,845

3,760

Total equity

12,781

12,710Interest and discount bearing liabilities

119,814

115,961

For and on behalf of the Board of Directors:

John Judge
Chairman
15 November 2017

David Hisco
Executive Director
15 November 2017

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

ANZ Bank New Zealand Limited

5

CASH FLOW STATEMENT

Note

Year toYear to30/09/2017
NZ$m

30/09/2016
NZ$m

6,223

6,443

Cash flows from operating activities
Interest received
Dividends received
Net funds management and insurance income
Fees and other income received

5

2

344

332

569

642

Interest paid

(3,100)(3,416)

Operating expenses paid

(1,374)(1,495)

Income taxes paid

(605)

(648)

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

2,062

1,860

Net changes in operating assets and liabilities:
Change in settlements receivable

(14)

(19)

Change in collateral paid

895

(381)

Change in trading securities

4,210

164

10

(2,028)(3,476)(1,381)

Change in derivative financial instruments
Change in available-for-sale assets
Change in insurance investment assets
Change in loans and advances
Proceeds from sale of loans and advances to NZ Branch

(4)

32

(6,761)(9,435)481

697

Change in settlements payable

2

(67)

Change in collateral received

84(1,158)Change in deposits and other borrowings

3,356

9,142

Net changes in operating assets and liabilities(1,217)(4,434)845(2,574)

Proceeds from sale of premises and equipment

917

Proceeds from sale of insurance policies-

23

Purchase of intangible assets

(14)

(29)

Purchase of premises and equipment

(44)

(71)

Net cash flows used in investing activities

(49)

(60)

4,922

7,380

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

8

Cash flows from investing activities

Cash flows from financing activities
Proceeds from issue of unsubordinated debt
Proceeds from issue of subordinated debt-

938

Redemptions of unsubordinated debt

(3,899)(4,477)

Dividends paid

(1,695)(1,363)

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

(672)

2,478

Net increase / (decrease) in cash and cash equivalents

124

(156)

Cash and cash equivalents at beginning of the year

2,315

2,471

2,439

2,315

Cash and cash equivalents at end of the year

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

8

ANZ Bank New Zealand Limited

6

STATEMENT OF CHANGES IN EQUITY

Share capital

Availablefor-salerevaluation
reserve

Cash flow
hedging
reserve

Retainedearnings

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

As at 1 October 2015

8,888

-

(10)

3,575

12,453

Profit after income tax

-

-

-

1,535

1,535

Unrealised gains / (losses) recognised directly in equity

-

(2)

93

-

91

Realised losses transferred to the income statement

-

2

7

-

9

Actuarial gain on defined benefit schemes

-

-

-

18

18

Income tax expense on items recognised directly in equity

-

-

(28)

(5)

(33)

Total comprehensive income for the year

-

-

72

1,548

1,620
(1,350)Note

Total equity

Ordinary dividend paid

25

-

-

-

(1,350)Preference dividend paid

25

-

-

-

(13)

(13)

8,888

-

62

3,760

12,710As at 30 September 2016
Profit after income tax

-

-

-

1,765

1,765

Unrealised gains / (losses) recognised directly in equity

-

7

(39)

-

(32)

Realised losses transferred to the income statement

-

-

12

-

12

Actuarial gain on defined benefit schemes

-

-

-

21

21

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

-

(2)

8

(6)

-

Total comprehensive income for the year

-

5

(19)

1,780

1,766
(1,684)

Ordinary dividend paid

25

-

-

-

(1,684)Preference dividend paid

25

-

-

-

(11)

(11)

8,888

5

43

3,845

12,781As at 30 September 2017

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

ANZ Bank New Zealand Limited

7

NOTES TO THE FINANCIAL STATEMENTS
1.

SIGNIFICANT ACCOUNTING POLICIES(A)Basis of preparation(i)Statement of compliance

These financial statements have been prepared in accordance with the requirements of the Financial Markets Conduct Act 2013 and theOrder. The Banking Group’s financial statements are for the Bank’s consolidated group, which includes its subsidiaries and associates.
These financial statements comply with:•New Zealand Generally Accepted Accounting Practice, as defined in the Financial Reporting Act 2013•
New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial ReportingStandards, as appropriate for publicly accountable for-profit entities•
International Financial Reporting Standards (IFRS).
The principal accounting policies adopted in the preparation of these financial statements are set out below.
(ii)

Use of estimates and assumptions

The preparation of these financial statements requires the use of management judgements, estimates and assumptions that affectreported amounts and the application of policies.
Discussion of the critical accounting estimates, which include complex or subjective decisions or assessments, are covered in note 2. Suchestimates are reviewed on an ongoing basis.
(iii) Basis of measurement
The financial information has been prepared in accordance with the historical cost basis except that the following assets and liabilities arestated at their fair value:••••

derivative financial instruments
available-for-sale financial assets
financial instruments held for trading
financial instruments designated at fair value through profit and loss.

(iv) Rounding
The amounts in the financial statements have been rounded to the nearest million dollars, except where otherwise stated.
(v)

Principles of consolidation

Subsidiaries
The consolidated financial statements of the Banking Group comprise the financial statements of the Bank and all its subsidiaries. An
entity, including a structured entity, is considered a subsidiary of the Banking Group when it is determined that control over the entity
exists. Control is deemed to exist when the Banking Group is exposed, or has rights, to variable returns from its involvement with the entity
and has the ability to affect those returns through its power over the entity. Power is assessed by examining existing rights that give the
Banking Group the current ability to direct the relevant activities of the entity.
At times, the determination of control can be judgemental. Further detail on the judgements involved in assessing control has been
provided in note 2.
The effect of all transactions between entities in the Banking Group is eliminated.
Associates
The Banking Group applies the equity method of accounting for associates.
(vi) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Banking Group’s entities are measured using the currency of the primaryeconomic environment in which the entity operates (the functional currency).
The Banking Group’s financial statements are presented in New Zealand dollars, which is the Banking Group’s functional and presentation
currency.
Foreign currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of thetransactions.
Monetary assets and liabilities resulting from foreign currency transactions are subsequently translated at the spot rate at reporting date.
Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different to those at which
they were initially recognised or included in a previous financial report, are recognised in profit or loss in the period in which they arise.

ANZ Bank New Zealand Limited

8

NOTES TO THE FINANCIAL STATEMENTS(B)

Operating income(i)

Net Interest income

Interest income and expense
Interest income and expense is recognised in profit or loss using the effective interest method. This method uses the effective interest rateof a financial asset or financial liability to calculate its amortised cost. The effective interest rate is the rate that discounts the stream ofestimated 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, the expected life is determined on the basis ofhistorical behaviour of the particular asset portfolio – taking into account contractual obligations and prepayment experience.
Fees and costs, which form an integral part of the financial instruments (for example loan origination fees and costs), are recognised using
the effective interest method. This is presented as part of interest income or expense depending on whether the underlying financial
instrument is a financial asset or liability.
(ii)

Fee and commission income

Fees and commissions that relate to the execution of a significant act (for example, advisory or arrangement services, placement fees andunderwriting fees) are recognised when the significant act has been completed.
Fees charged for providing ongoing services (for example, maintaining and administering existing facilities) are recognised as income overthe period the service is provided.
(C)

Income tax(i)Income tax expense

Income tax expense comprises both current and deferred taxes and is based on accounting profit adjusted for differences in theaccounting and tax treatments of income and expenses (that is, taxable income). Tax expense is recognised in profit or loss, except to theextent to which it relates to items recognised directly in equity or other comprehensive income respectively.
(ii)

Current tax expense

Current tax is the tax payable on taxable income for the year, based on tax rates (and tax laws) which are enacted at the reporting date. It
includes any adjustment for tax payable in previous periods. Current tax is recognised as a liability (or asset) to the extent that it is unpaid(or refundable).
(iii) Deferred tax
Deferred tax is accounted for using the balance sheet method. Deferred tax arises because the accounting income is not always the sameas the taxable income. This creates temporary differences, which usually reverse over time. Until they reverse, a deferred tax, or liability, isrecognised on the balance sheet. Deferred taxes are measured at the tax rates that we expect will apply to the period(s) when the asset isrealised, or the liability settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date.
Current and deferred tax assets and liabilities are offset only to the extent that: they relate to income taxes imposed by the same taxation
authority; there is a legal right and intention to settle on a net basis; and it is allowed under the tax law of the relevant jurisdiction.
(D)

AssetsFinancial assets(i)Financial assets and liabilities at fair value through profit or loss

Trading securities are financial instruments acquired principally for the purpose of selling in the short-term or which are a part of aportfolio which is managed for short-term profit-taking. Purchases and sales of trading securities are recognised on trade date and are
initially designated at fair value through profit and loss, and subsequently measured in the balance sheet at their fair value with any
revaluation recognised in profit and loss.
(ii)

Derivative financial instruments

Derivative financial instruments are contracts whose value is derived from an underlying price index (or other variable) defined in thecontract – sometimes the value is derived from more than 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 variable, which cause the value of the contract to fluctuate, are reflected in thefair value of the derivative.
Derivative financial instruments are entered into for trading purposes (including customer-related reasons) or for hedging purposes(where the derivative instruments are used to hedge the Banking Group’s exposures to interest rate risk, currency risk, price risk, credit risk
and other exposures relating to non-trading positions).
Derivative financial instruments include forwards, futures, swaps and options.
Derivative financial instruments are recognised initially and at each reporting date at fair value. If the fair value of a derivative is: positive,then it is carried as an asset, but if it is negative, then it is carried as a liability. Valuation adjustments are integral in determining the fairvalue of derivatives. This includes a derivative credit valuation adjustment (CVA) to reflect the counterparty risk and/or event of default;
and a funding valuation adjustment (FVA) to account for the funding cost and benefits in the derivatives’ portfolio.

ANZ Bank New Zealand Limited

9

NOTES TO THE FINANCIAL STATEMENTS
Where the derivative is effective as a hedging instrument and designated as such, the timing of the recognition of any resultant gain orloss in profit or loss is dependent on the hedging designation. These hedging designations and associated accounting are as follows:
Fair value hedge
Where the Banking Group hedges the fair value of a recognised asset or liability or firm commitment, changes in the fair value of thederivative designated as a fair value hedge are recognised in profit or loss. Changes in the fair value of the hedged item attributable to thehedged risk are reflected in adjustments to the carrying value of the hedged item, which are also recognised in profit or loss.
Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised or no longer qualifies for hedge
accounting. The resulting adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to profit or loss
over the period to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in profit or loss.
Cash flow hedge
The Banking Group designates derivatives as cash flow hedges where the instrument hedges the variability in cash flows of a recognised
asset or liability, a foreign exchange component of a firm commitment, or a highly probable forecast transaction. For qualifying cash flow
hedges, the fair value gain or loss associated with the effective portion of the cash flow hedges is recognised initially in othercomprehensive income and then recycled to profit or loss in the periods when the hedged item will affect profit or loss. Any ineffective
portion is recognised immediately in profit or loss. When the hedging instrument expires, is sold, terminated, exercised, or no longer
qualifies for hedge accounting, the cumulative amount deferred in equity remains in the hedging reserve, and is subsequently transferred
to profit or loss when the hedged item is recognised in profit or loss.
When a forecast hedged transaction is no longer expected to occur, the amount deferred in equity is recognised immediately in profit orloss.
Derecognition of assets and liabilities
Derivative assets are removed from the balance sheet when substantially all of the risks and rewards of ownership have transferred.
Derivative financial liabilities are removed from the balance sheet when the Banking Group’s contractual obligations are discharged,
cancelled or expired.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value of derivatives that are not designated in a hedging relationship but are entered into to
manage the interest rate and foreign exchange risk of the Banking Group are recognised in profit or loss. Under certain circumstances, thecomponent of the fair value change in the derivative which relates to current period realised and accrued interest is included in net
interest income. The remainder of the fair value movement is included in other income.
(iii) Available-for-sale assets
Available-for-sale assets comprise non-derivative financial assets which the Banking Group designates as available-for-sale but which are
not deemed to be held principally for trading purposes, and include equity investments and debt securities.
They are initially recognised at fair value plus transaction costs. Subsequent gains or losses arising from changes in fair value are included
as a separate component of equity in the available-for-sale revaluation reserve. When the asset is sold, the cumulative gain or loss from theavailable-for-sale reserve is recognised in profit or loss.
(iv) Net loans and advances
Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
Loans and advances are initially recognised at fair value plus transaction costs directly attributable to the issue of the loan or advance,
which are primarily brokerage/mortgage origination fees. Subsequently, they are measured at amortised cost using the effective interest
method, net of any provision for credit impairment.
The Banking Group classifies contracts to lease assets and hire purchase agreements as finance leases if they transfer substantially all therisks and rewards of ownership of the asset to the customer or an unrelated third party. All other lease contracts are classified as operatingleases.
The Banking Group enters into transactions in which it transfers financial assets that are recognised on its balance sheet. When the
Banking Group retains substantially all of the risks and rewards of the transferred assets, then the transferred assets remain on the Banking
Group’s balance sheet, however if substantially all the risks and rewards are transferred then the Banking Group derecognises the asset.
If the risks and rewards are partially retained and control over the asset is lost, then the Banking Group derecognises the asset. If control
over the asset is not lost, then the Banking Group continues to recognise the asset to the extent of its continuing involvement.
The Banking Group separately recognises the rights and obligations retained, or created, in the transfer as assets and liabilities asappropriate.

ANZ Bank New Zealand Limited

10

NOTES TO THE FINANCIAL STATEMENTS
Impairment of loans and advances
The Banking Group recognises two types of impairment provisions for its loans and advances:••

Individual provisions for significant assets that are assessed to be impaired; andCollective provisions for portfolios of similar assets that are assessed collectively for impairment.

IndividuallyIf any impaired loans and advances exceed thresholds and an impairment event has been identified, then the Banking Group assesses theneed for a provision individually.
Loans and advances are assessed as impaired if the Banking Group has objective evidence that they may not recover principal or interest
payments (that is, a loss event has been incurred) and the Banking Group can reliably measure the impairment.
Collectively
To allow for any small value loans and advances where losses may have been incurred but not yet identified, and individually significant
loans and advances that the Banking Group does not assess as impaired, the Banking Group assesses them collectively in pools of assets
with similar risk characteristics.
The Banking Group estimates the provision on the basis of historical loss experience for assets with credit risk characteristics similar toothers in the respective collective pool. The Banking Group adjusts the historical loss experience based on current observable data, suchas: changing economic conditions, the impact of the inherent risk of large concentrated losses within the portfolio and an assessment of
the economic cycle.
Measurement
The Banking Group measures 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. The Banking Group records the result as an expense in profit
or loss in the period the Banking Group identifies the impairment and recognises a corresponding reduction in the carrying amount ofloans and advances through an offsetting provision.
Uncollectible amounts
If a loan or advance is uncollectible (whether partially or in full), then the Banking Group writes off the balance (and also any related
provision for credit impairment).
The Banking Group writes 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 theproceeds determined to be recoverable from the realisation of collateral.
Recoveries
If the Banking Group recovers any cash flows from loans and advances previously written off, then the recovery is recognised in profit orloss 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 and collective basis.
Non-financial assets(v)

Goodwill

Goodwill represents the excess amount the Banking Group has paid in acquiring a business over the fair value less costs of disposal of theidentifiable assets and liabilities acquired. Goodwill is recognised at cost less any accumulated impairment losses. Goodwill is reviewed for
impairment at least annually or when there is an indication of impairment. This involves using the discounted cash flows methodology todetermine the expected future benefits of the cash generating units to which the acquisition relates. Where the assessment results in the
goodwill balance exceeding the value of expected future benefits, the difference is charged to profit or loss. Any impairment of goodwill is
not subsequently reversed.
(E)

Liabilities

Financial liabilities(i)

Deposits and other borrowings

For deposits and borrowings that are not designated at fair value through profit or loss on initial recognition, the Banking Group measuresthem at amortised cost and recognises their interest expense using the effective interest rate method. When deposits and otherborrowings are managed on a fair value basis, reduce or eliminate an accounting mismatch or contain an embedded derivative, theBanking Group designates them as fair value through profit or loss.
For deposits and other borrowings designated at fair value the Banking Group recognises the amount of fair value gain or loss attributable
to changes in the Banking Group’s own credit risk in other comprehensive income in retained earnings. Any remaining amount of fair

ANZ Bank New Zealand Limited

11

NOTES TO THE FINANCIAL STATEMENTS
value gain or loss is recognised directly in profit or loss. Once the Banking Group has recognised an amount in other comprehensive
income, the Banking Group does not later reclassify it to profit or loss.
Securities sold under repurchase agreements represent a liability to repurchase the financial assets that remain on the Banking Group’sbalance sheet, since the risks and rewards of ownership remain with the Banking Group. Over the life of the repurchase agreement, theBanking Group recognises the difference between the sale price and the repurchase price and charges it to interest expense in profit or
loss.
(ii)

Unsubordinated debt and subordinated debt

Unsubordinated debt and subordinated debt are measured at amortised cost, except where designated at fair value through profit or loss.
Where the Banking Group enters into a hedge accounting relationship, the fair value attributable to the hedged risks is reflected inadjustments to the carrying value of the debt. Interest expense is recognised using the effective interest rate method.
(F)

Equity(i)

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

Reserves

Available-for-sale revaluation reserve
This reserve includes the changes in fair value and exchange differences on the Banking Group’s revaluation of available-for-sale financial
assets, net of deferred taxes to be realised upon disposal of the asset.
Cash flow hedging reserve
This reserve includes fair value gains and losses associated with the effective portion of designated cash flow hedging instruments, net ofdeferred taxes to be realised when the position is settled.
(G)

Presentation(i)

Offsetting of income and expenses

Income and expenses are not offset unless required or permitted by an accounting standard. This generally arises in either of the following
circumstances:••where transaction costs form an integral part of the effective interest rate of a financial instrument which is measured at amortisedcost, these are offset against the interest income generated by the financial instrument
where gains and losses arise from a group of similar transactions, such as foreign exchange gains and losses.

(ii)

Offsetting of financial assets and liabilities

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

(iii) Segment reporting
Operating segments are distinguishable components of the Banking Group that provide products or services that are subject to risks andrewards that are different to those of other operating segments. The Banking Group operates predominantly in the banking industry
within New Zealand. The Banking Group has very limited exposure to risk associated with operating in different economic environmentsor political conditions. On this basis no geographical segment information is provided.
(H)

Other

(i)

Contingent liabilities

Contingent liabilities are not recognised in the balance sheet but disclosed in note 23 unless it is considered remote that the Banking
Group will be liable to settle the possible obligation.
(ii)

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 2017, and have not been applied by the Banking Group in preparing these financial
statements.
The Banking Group has identified three standards where this applies to the Banking Group and further details are set out below.
NZ IFRS 9 Financial Instruments (NZ IFRS 9)NZ IFRS 9 was issued in September 2014. When operative, this standard will replace NZ IAS 39 Financial Instruments: Recognition andMeasurement (NZ IAS 39) and includes requirements for impairment, classification and measurement and general hedge accounting.

ANZ Bank New Zealand Limited

12

NOTES TO THE FINANCIAL STATEMENTS
Impairment
NZ IFRS 9 replaces the incurred loss model under NZ IAS 39 with a forward-looking expected loss model. This model will be applied tofinancial assets measured at amortised cost, debt instruments measured at fair value through other comprehensive income, leasereceivables, and certain loan commitments and financial guarantees. Under NZ IFRS 9, a three stage approach is applied to measuring
expected credit losses (ECL) based on credit migration between the stages as follows:•••Stage 1: At initial recognition, a provision equivalent to 12 months ECL is recognised.
Stage 2: Where there has been a significant increase in credit risk since initial recognition, a provision equivalent to full lifetime ECL isrequired.
Stage 3: Similar to the current NZ IAS 39 requirements for individual impairment provisions, lifetime ECL is recognised for loans
where there is objective evidence of impairment.

ECL are probability weighted and determined by evaluating a range of possible outcomes, taking into account the time value of money,
past events, current conditions and forecasts of future economic conditions.
Classification and measurement
There are three measurement classifications under NZ IFRS 9: amortised cost, fair value through profit or loss and, for financial assets, fairvalue through other comprehensive income. Financial assets are classified into these measurement classifications taking into account thebusiness model within which they are managed, and their contractual cash flow characteristics.
The classification and measurement requirements for financial liabilities under NZ IFRS 9 are largely consistent with NZ IAS 39 with the
exception that for financial liabilities 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. This part of the standard was early adopted by the Banking Group from 1 October 2013.
General hedge accounting
NZ IFRS 9 introduces general hedge accounting requirements which more closely align with risk management activities undertaken when
hedging financial and non-financial risks.
Transition and impact
Other than noted above under classification and measurement, NZ IFRS 9 has a date of initial application for the Banking Group of 1
October 2018.
The classification and measurement, and impairment requirements will be applied retrospectively by adjusting the opening balance sheet
at the date of initial application, with no requirements to restate comparative periods. The Banking Group does not intend to restatecomparatives. NZ IFRS 9 provides an accounting policy choice to continue with NZ IAS 39 hedge accounting given the International
Accounting Standards Board’s ongoing project on macro hedge accounting. The Banking Group’s current expectation is that it willcontinue to apply the hedge accounting requirements of NZ IAS 39.
The Banking Group is in the process of assessing the impact of the application of NZ IFRS 9 and is not yet able to reasonably estimate theimpact on its financial statements.
NZ IFRS 15 Revenue from Contracts with Customers (NZ IFRS 15)
NZ IFRS 15 was issued in July 2014. NZ IFRS 15 contains new requirements for the recognition of revenue.
NZ IFRS 15 requires identification of distinct performance obligations within a contract and allocation of the transaction price of thecontract to those performance obligations. Revenue is recognised as each performance obligation is satisfied. Variable amounts ofrevenue can only be recognised if it is highly probable that a significant reversal of the variable amount will not be required in future
periods.
Although a significant proportion of the Banking Group’s revenue is outside the scope of NZ IFRS 15, certain revenue streams are in thescope of the standard. NZ IFRS 15 is not mandatorily effective for the Banking Group until 1 October 2018. The Banking Group is in theprocess of assessing the impact of application of NZ IFRS 15 and is not yet able to reasonably estimate the impact on its financial
statements.
NZ IFRS 15 may be applied under different transition approaches which could impact (a) revenue recognised in future periods and (b) the
opening adjustment to retained earnings at the relevant date of initial application. The Banking Group has not determined whichtransition approach it will adopt.
NZ IFRS 16 Leases (NZ IFRS 16)
The final version of NZ IFRS 16 Leases was issued in February 2016 and is not effective for the Banking Group until 1 October 2019. NZ IFRS
16 requires a lessee to recognise its right to use the underlying leased asset, as a right-of-use asset, and obligation to make lease payments
as a lease liability. NZ IFRS 16 substantially carries forward the lessor accounting requirements in NZ IAS 17 Leases.
The Banking Group is in the process of assessing the impact of the application of NZ IFRS 16 and is not yet able to reasonably estimate theimpact on its financial statements.

ANZ Bank New Zealand Limited

13

NOTES TO THE FINANCIAL STATEMENTS
2.

CRITICAL ESTIMATES AND JUDGEMENTS USED IN APPLYING ACCOUNTING POLICIESThere are a number of critical accounting treatments which include complex or subjective judgements and estimates that may affect thereported amounts of assets and liabilities in the financial statements. Estimates and judgements are continually evaluated and are basedon historical experience and other factors, including expectations of future events that are believed to be reasonable under thecircumstances.
An explanation of the judgements and estimates made by the Banking Group, in the process of applying its accounting policies, that havethe most significant effect on the amounts recognised in the financial statements is set out below.
Critical accounting estimates and assumptions
Credit provisioning
The accounting policy relating to measuring the impairment of loans and advances requires the Banking Group to assess impairment atleast at each reporting date. The credit provisions raised (collective and individual) represent management's best estimate of the losses
incurred in the loan portfolio at balance date based on their experienced judgement.
The collective provision is estimated on the basis of historical loss experience for assets with credit characteristics similar to those in thecollective pool. The historical loss experience is adjusted based on current observable data and events and an assessment of the impact ofmodel risk. The provision also takes into account the impact of large concentrated losses within the portfolio and the economic cycle.
The use of such judgements and reasonable estimates is considered by management to be an essential part of the process and does not
impact on the reliability of the provision.
Individual and collective provisioning involves the use of assumptions for estimating the amounts and timing of expected future cash
flows. The process of estimating the amount and timing of cash flows involves considerable management judgement. These judgements
are revised regularly to reduce any differences between loss estimates and actual loss experience.
Refer to note 14 for details of credit impairment provisions.
Critical judgements in applying the Banking Group’s accounting policies
Financial instruments at fair value
The Banking Group’s financial instruments measured at fair value are stated in note 1(A)(iii). In estimating fair value the Banking Group
uses, wherever possible, quoted market prices in an active market for the financial instrument.
In the event that there is no active market for the instrument, fair value is based on present value estimates or other market acceptedvaluation techniques. The valuation models incorporate the impact of bid/ask spread, counterparty credit spreads and other factors thatwould influence the fair value determined by a market participant. The selection of appropriate valuation techniques, methodology andinputs requires judgement. These are reviewed and updated as market practice evolves.
Derivatives and hedging
The Banking Group buys and sells derivatives as part of its trading operations and to hedge its interest rate risk, currency risk, price risk,
credit risk and other exposures relating to non-trading positions.
A hedging instrument is a designated derivative whose fair value or cash flows are expected to offset changes in the fair value or cash
flows of a designated hedged item. A hedged item is an asset, liability, firm commitment or highly probable forecast transaction that: (a)exposes the Banking Group to the risk of changes in fair value or future cash flows; and (b) is designated as being hedged.
Judgement is required in selecting and designating hedging relationships and assessing hedge effectiveness. NZ IAS 39 does not specify asingle method for assessing hedge effectiveness prospectively or retrospectively. The Banking Group adopts the hypothetical derivative
approach to determine hedge effectiveness in line with current risk management strategies. Hedge ineffectiveness can arise for a numberof reasons and whilst a hedge may pass the effectiveness tests above it may not be perfectly effective, leaving some volatility in profit orloss.
The majority of outstanding derivative positions are transacted over-the-counter and therefore need to be valued using valuation
techniques. Included in the determination of the fair value of derivatives is a credit valuation adjustment (CVA) to reflect thecreditworthiness of the counterparty. This is influenced by the mark-to-market of the derivative trades and by the movement in the market
cost of credit. Further adjustments are made to account for the funding costs inherent in the derivative. Judgement is required todetermine the appropriate cost of funding and the future expected cashflows used in this funding valuation adjustment (FVA).
Structured entities
A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding who controls the entity, such as
when voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.
Structured entities are generally created to achieve a narrow and well defined objective with restrictions around their ongoing activities
and are often thinly capitalised with a reliance on debt financing for support.
The Banking Group assesses, at inception and periodically, whether a structured entity should be consolidated based on the accounting
policy outlined in note 1. Such assessments are predominantly securitisation activities and involvement with managed funds. When

ANZ Bank New Zealand Limited

14

NOTES TO THE FINANCIAL STATEMENTS
assessing whether the Banking Group controls (and therefore consolidates) a structured entity, judgement is required about whether the
Banking Group has power over the relevant activities as well as exposure to variable returns of the structured entity. All involvement, rights
and exposure to returns are considered when assessing if control exists.
The Banking Group is deemed to have power over a managed fund when it performs the function of Manager of that managed fund.
Whether the Banking Group controls the managed fund depends on whether it holds that power as principal, or as an agent for otherinvestors. The Banking Group is considered the principal, and thus controls the managed fund, when it cannot be easily removed from theposition of Manager by other investors and has variable returns through significant aggregate economic interest in that managed fund. In
all other cases the Banking Group is considered to be acting in an agency capacity and does not control the managed fund.
Structured entities are consolidated when control exists. In other cases the Banking Group may simply have an interest in or may sponsor a
structured entity but not consolidate it.
The Banking Group considers itself the sponsor of an unconsolidated structured entity where it is the primary party involved in the designand establishment of that structured entity and where any of the following apply:•
where the Banking Group is the major user of that structured entity•
the Banking Group’s name appears in the name of that structured entity or on its products•
the Banking Group provides implicit or explicit guarantees of that entity’s performance.
Goodwill
Refer to note 24 for details of goodwill held by the Banking Group.
The carrying value of goodwill is subject to an impairment test to ensure that the current carrying value does not exceed its recoverable
value at the balance sheet date. Any excess of carrying value over recoverable amount is taken to profit or loss as an impairment write
down.
Goodwill has been allocated for impairment purposes to the cash generating units at which the goodwill is monitored for internalreporting purposes. Impairment testing of purchased goodwill is performed by comparing the recoverable value of each cash generating
unit with the current carrying amount of its net assets, including goodwill. Judgement is required in identifying the cash-generating units
to which goodwill and other assets are allocated for the purpose of impairment testing.
The recoverable amount is based on value-in-use calculations. These calculations use cash flow projections based on a number of financial
budgets within each segment approved by management covering a three year period. Cash flow projections are based on a range ofreadily available economic assumptions including GDP and CPI. 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 2017 when the last valuation was
prepared, a discount rate of 11.5% was applied to each cash generating unit. The main variables in the calculation of the discount rateused are the risk free rate, the beta rate and the market risk premium. The risk free rate is based on the 10 year Government Bond Rate. The
beta rate and the market risk premium are consistent with observable and comparative market rates applied in the regional banking
sector. Market observable information is 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 notcause the Banking Group’s carrying amount to exceed its recoverable amount.

ANZ Bank New Zealand Limited

15

NOTES TO THE FINANCIAL STATEMENTS
3.

NET INTEREST INCOME
Year toYear to30/09/2017
NZ$m

30/09/2016
NZ$m

351

453

Cash

41

63

Available-for-sale assets

106

64

Net loans and advances

5,675

5,814

Interest income
Financial assets at fair value through profit or loss
Trading securities
Financial assets not at fair value through profit or loss

Other

25

29

5,847

5,970

6,198

6,423

122

226

Deposits and other borrowings

2,090

2,310

Unsubordinated debt

704

681

Subordinated debt

220

170

Other

25

34

3,039

3,195

Total interest expense

3,161

3,421

Net Interest Income

3,037

3,002

Total interest income
Interest expense
Financial liabilities at fair value through profit or loss
Commercial paper
Financial liabilities not at fair value through profit or loss

4.

NON INTEREST INCOME
Year toYear to30/09/2017
NZ$m

30/09/2016
NZ$m

Net gain on foreign exchange trading

176

203

Net gain / (loss) on trading securities

(121)

115

Net gain / (loss) on trading derivatives

171

(306)

Net trading gains

226

12

Net funds management income

199

187

Net insurance income

130

227

Total funds management and insurance income

329

414

Net trading gains

Net funds management and insurance income

Other operating income
Lending and credit facility fee income

35

55

Other fee income

702

675

Total fee income

737

730

Direct fee expense

(328)

(308)

Net fee income

409

422

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

4(5)

Net ineffectiveness on qualifying fair value hedges(6)

1

Net loss on derivatives not qualifying for hedge accounting

(50)

(29)

Net cash flow hedge loss transferred to income statement

(12)

(7)

Net loss on available for sale securities transferred to income statement-(2)

Gain / (loss) on sale of mortgages to NZ Branch(1)

1

Other income

34

40

Total other operating income

378

421

ANZ Bank New Zealand Limited

16

NOTES TO THE FINANCIAL STATEMENTS
5.

OPERATING EXPENSES
Year toYear to30/09/2017
NZ$m

30/09/2016
NZ$m

Salaries and related costs

801

811

Superannuation costs

29

30

Share-based payments expense

15

21

Other

11

32

Total personnel expenses

856

894

Depreciation of premises and equipment

32

32

Leasing and rental costs

80

79

Other

41

41

Total premises expenses

153

152

Depreciation and amortisation

44

111

Licences and outsourced services

125

116

Other

49

58

Total technology expenses

218

285

Advertising and public relations

41

42

Amortisation and impairment of other intangible assets

45

Freight, stationery, postage and telephone

45

48

Goodwill impairment

3-

Professional fees

43

45

Travel and entertainment expenses

26

28

Charges from Ultimate Parent Bank

46

64

Other

33

36

Total other expenses

241

268

Total operating expenses

1,468

1,599

Personnel

Premises

Technology

Other

ANZ Bank New Zealand Limited

17

NOTES TO THE FINANCIAL STATEMENTS
6.

INCOME TAX
Year toYear to30/09/2017

30/09/2016

NZ$m

NZ$m

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

2,445

2,105

Prima facie income tax at 28%

685

589

Imputed and non-assessable dividends

(1)

(1)

Change in tax provisions

(5)

(5)

Non assessable income and non deductible expenditure

2

(11)

Income tax over provided in prior years

(1)

(2)

Total income tax expense

680

570

Effective tax rate (%)

27.8%

27.1%

Current tax

640

582

Deferred tax

40

(12)

Total income tax expense recognised in the income statement

680

570

Imputation credits available

4,196

3,566

Amounts recognised in the income statement

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

ANZ Bank New Zealand Limited

18

NOTES TO THE FINANCIAL STATEMENTS
7.

SEGMENT ANALYSISThe Banking Group is organised into three major business segments for segment reporting purposes - Retail, Commercial and Institutional.
Centralised back office and corporate functions support these segments. These segments are consistent with internal reporting provided
to the chief operating decision maker, being the Bank’s Chief Executive Officer.
Segment reporting has been updated to reflect minor changes to the Banking Group’s structure. Comparative data has been adjusted tobe consistent with the current year’s segment definitions.
RetailRetail provides products and services to Retail, Private Banking, and Business Banking customers via the branch network, mortgage
specialists, relationship managers, the contact centre and a variety of self service channels (internet banking, phone banking, ATMs,website and mobile phone banking). Retail and Private Banking customers have personal banking requirements and Business Banking
customers consist primarily of small enterprises with annual revenues of less than NZ$5 million. Core products and services include current
and savings accounts, unsecured lending (credit cards, personal loans and overdrafts), home loans secured by mortgages over property,
investment products, superannuation and insurance services.
Commercial
Commercial provides services to Commercial & Agri (CommAgri) and UDC customers. CommAgri customers consist of primarily privately
owned medium to large enterprises. Commercial’s relationship with these businesses ranges from simple banking requirements withrevenue from deposit and transactional facilities, and cash flow lending, to more complex funding arrangements with revenue sourced
from a wider range of products. UDC is principally involved in the financing and leasing of plant, vehicles and equipment, mainly for small
and medium sized businesses, as well as investment products.
Institutional
Institutional provides financial services through a number of specialised units to large multi-banked corporations, often global, which
require sophisticated product and risk management solutions. Those financial services include loan structuring, foreign exchange andinterest rate products, wholesale money market services and transaction banking.
Other
Other includes treasury and back office support functions, none of which constitutes a separately reportable segment.
Business segment analysis1
RetailCommercial

Institutional

Other

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

External interest income

3,430

2,070

699

(1)

6,198

External interest expense(1,474)

(302)

(338)

(1,047)(3,161)

Net intersegment interest

(253)

(868)

(1)

1,122

-

Net interest income

1,703

900

360

74

3,037

Other external operating income

688

21

302

(78)

933

30/09/2017

Share of associates' profit

5

-

-

-

5

Operating income

2,396

921

662

(4)

3,975

Operating expenses

1,005

259

184

20

1,468

Profit before credit impairment and income tax

1,391

662

478

(24)

2,507

35

51

(24)

-

62
2,445

Credit impairment charge / (release)
Profit before income tax

1,356

611

502

(24)

Income tax expense

379

172

141

(12)

680

Profit after income tax

977

439

361

(12)

1,765

Other information
Depreciation and amortisation

12

1

-

67

80

Goodwill

1,109

1,052

1,069

-

3,230

Other intangible assets

111

2

-

65

178

Investment in associates

7

-

-

-

7

Total external assets

74,50542,18636,259

1,023

153,973

Total external liabilities

68,415

14,17628,96829,633

141,192

ANZ Bank New Zealand Limited

19

NOTES TO THE FINANCIAL STATEMENTS
RetailCommercial

Institutional

Other

Total

30/09/2016

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

External interest income

3,456

2,202

760

5

6,423

External interest expense(1,598)

(333)

(403)

(1,087)(3,421)

Net intersegment interest

(198)

(980)

11

1,167

-

Net interest income

1,660

889

368

85

3,002

Other external operating income

680

19

104

44

847

5

-

-

-

5

Operating income

2,345

908

472

129

3,854

Operating expenses

1,048

256

179

116

1,599

Profit before credit impairment and income tax

1,297

652

293

13

2,255

Share of associates' profit

Credit impairment charge

58

72

20

-

150

Profit before income tax

1,239

580

273

13

2,105

Income tax expense

335

163

77

(5)

570

Profit after income tax

904

417

196

18

1,535

Other information
Depreciation and amortisation

12

1

-

135

148

Goodwill

1,109

1,052

1,072

-

3,233

Other intangible assets

118

3

-

70

191

Investment in associates

7

-

-

-

7

Total external assets

69,23041,63947,883

2,067

160,819

Total external liabilities

63,605

13,36440,73030,410148,109

30/09/2017
NZ$m

30/09/2016
NZ$m

1

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

Other segment
The table below sets out the profit/(loss) after tax impact of items included in Other.

Operations and support

1

3

Economic hedges

(44)

(29)

Revaluation of insurance policies from changes in interest rates

(25)

42

Other

56

2

Total

(12)

18

ANZ Bank New Zealand Limited

20

NOTES TO THE FINANCIAL STATEMENTS
8.

NOTES TO THE CASH FLOW STATEMENT
Year toYear to30/09/2017
NZ$m

30/09/2016
NZ$m

1,765

1,535

Depreciation and amortisation

80

148

Provision for credit impairment

62

150

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

Deferred fee revenue and expenses

(13)

(7)

Amortisation of capitalised brokerage / mortgage origination fees

164

152

Amortisation of premiums and discounts

89

70

Fair value gains and losses

(160)

31

5

4

(1,217)(4,434)

Loss on disposal and impairment of premises and equipment and intangibles
Deferrals or accruals of past or future operating cash receipts or payments:
Change in net operating assets less liabilities
Change in interest receivable

(14)

29

Change in interest payable

17

(43)

Change in accrued expenses

(2)

(71)

Change in provisions

(20)

15

Change in life insurance policy assets

17

(57)

Change in other receivables and payables(3)

8

Change in net income tax assets / liabilities

75

(78)

Dividends from associates in excess of share of profits-(3)

Items classified as investing activities:
Proceeds from sale of insurance policies

-

(23)

845

(2,574)30/09/2017
NZ$m

30/09/2016
NZ$m

2,338

2,274

Nostro accounts

170

45

Overdrawn nostro accounts

(69)

(4)

Total cash and cash equivalents

2,439

2,315

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

Reconciliation of cash and cash equivalents to the balance sheet
CashAmounts included in settlement balances receivable / (payable):ANZ Bank New Zealand Limited

21

NOTES TO THE FINANCIAL STATEMENTS
9.

CASH
30/09/2017
NZ$m

30/09/2016
NZ$m

Coins, notes and cash at bank

202

193

Securities purchased under agreements to resell

360

229

Balances with central banks

1,776

1,852

Total cash

2,338

2,274

30/09/2017

30/09/2016

10. TRADING SECURITIES

NZ$m

NZ$m

Government securities

3,299

5,953

Corporate and financial institution securities

4,364

6,026

Total trading securities

7,663

11,97911.

DERIVATIVE FINANCIAL INSTRUMENTS

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

ANZ Bank New Zealand Limited

22

NOTES TO THE FINANCIAL STATEMENTS
30/09/2017
Notional
principal
amountNZ$m30/09/2016

Fair values
AssetsLiabilities
NZ$m
NZ$m

Notional
principal
amountNZ$mFair values
AssetsLiabilities
NZ$m
NZ$m

Derivatives held for trading
Foreign exchange derivatives
Spot and forward contracts

105,717615

696

63,895

650

785

Swap agreements

164,131

1,773

1,895

141,306

1,718

3,157

Options purchased

1,301

17

-

2,379

50

2

Options sold

1,268

2

27

2,248

7

77

272,417

2,407

2,618

209,828

2,425

4,021

Interest rate derivatives
Forward rate agreements

33,945--41,507

1

5

Swap agreements

1,049,894

7,062

6,335

1,178,795

17,91017,084

Futures contracts

80,5835

24

78,9883

46

Options purchased

1,928

3

-

2,366

6

-

Options soldCommodity derivatives
Total derivatives held for trading

1,239

-

1

1,603

1

2

1,167,589

7,070

6,360

1,303,259

17,921

17,137

320

13

14

460

33

32

1,440,326

9,490

8,992

1,513,547

20,37921,19042,03886

618

34,639238

386

42,03886

618

34,639238

386

22,955302

216

18,985493

380

Derivatives in hedging relationships
Fair value hedges
Interest rate swap agreements
Cash flow hedges
Interest rate swap agreements
Total derivatives in hedging relationships
Total derivative financial instruments

64,993388

834

53,624731

766

1,505,319

9,878

9,826

1,567,171

21,11021,956

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

30/09/2017

30/09/2016

NZ$m

NZ$m

- hedged item

153

(45)

- hedging instrument

(159)

46

(6)

1

Gain / (loss) arising from fair value hedges:

Net ineffectiveness on qualifying fair value hedges

Cash flow hedges
The Banking Group’s cash flow hedges comprise interest rate swaps that are used to protect against exposures to variability in futureinterest cash flows on non-trading assets and liabilities which bear interest at variable rates or which are expected to be refunded or
reinvested in the future. The amounts and timing of future cash flows, representing both principal and interest flows, are projected foreach portfolio of financial assets and liabilities on the basis of their forecast repricing profile. This forms the basis for identifying gains andlosses on the effective portions of derivatives designated as cash flow hedges.
Analysis of the cash flow hedging reserve30/09/2017

30/09/2016

NZ$m

NZ$m

Deferred gain / (loss) attributable to hedges of:
Variable rate loan assets

159

296

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

(116)

(234)

Total cash flow hedging reserve

43

62

All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur, which isanticipated to take place over the next ten years (2016: ten years).

ANZ Bank New Zealand Limited

23

NOTES TO THE FINANCIAL STATEMENTS
12. AVAILABLE-FOR-SALE ASSETS
30/09/2017
NZ$m

30/09/2016
NZ$m

Government securities

4,238

1,195

Corporate and financial institution securities

2,121

1,663

Equity and other securities
Total available-for-sale assets

1

1

6,360

2,859

30/09/2017

30/09/2016

13. NET LOANS AND ADVANCES

Note

NZ$m

NZ$m

Overdrafts

1,040

1,133

Credit cards outstanding

1,638

1,663

Term loans - housing

72,52467,298Term loans - non-housing

44,22743,651

Finance lease and hire purchase receivables

1,577

1,324

121,006

115,069

(579)

(622)

Less: Unearned income

(222)

(211)

Add: Capitalised brokerage/mortgage origination fees

334

360

Total gross loans and advances
Less: Provision for credit impairment

14

Add: Customer liability for acceptances1
Net loans and advances (including assets classified as held for sale)Less: UDC net loans and advances held for sale
Net loans and advances
1

29

-

27

120,539

114,623(2,912)-

117,627

114,623

Customer liability for acceptances has been recognised in Other assets from 30 September 2017.

The Bank has sold residential mortgages to the NZ Branch with a net carrying value of NZ$4,337 million as at 30 September 2017 (2016:
NZ$6,020 million). These assets qualify for derecognition as the Bank does not retain a continuing involvement in the transferred assets.

ANZ Bank New Zealand Limited

24

NOTES TO THE FINANCIAL STATEMENTS
14. PROVISION FOR CREDIT IMPAIRMENT
Credit impairment charge / (release)
30/09/2017
Retail Other retailmortgages exposures
NZ$m

New and increased provisions

30/09/2016

Non-retail
exposures

Total

NZ$m

NZ$m

NZ$m

Retail Other retailmortgages exposures

Non-retail
exposures

Total

NZ$m

NZ$m

NZ$m

NZ$m

5

94

133

232

16

110

111

237

Write-backs

(16)

(12)

(67)

(95)

(28)

(18)

(30)

(76)

Recoveries

-

(20)

(11)

(31)

-

(22)

(3)

(25)

(11)

62

55

106

(12)

70

78

136

Individual credit impairment charge / (release)Collective credit impairment charge / (release)

(3)

(9)

(32)

(44)

1

3

10

14

Credit impairment charge / (release)

(14)

53

23

62

(11)

73

88

150

Movement in provision for credit impairment
30/09/2017
Retail Other retailmortgages exposures

30/09/2016

Non-retail
exposures

Total

Retail Other retailmortgages exposures

Non-retail
exposures

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

78

130

263

471

77

127

253

457

Collective provision
Balance at beginning of the year
Charge / (release) to income statement

(3)

(9)

(32)

(44)

1

3

10

14

Balance at end of the year

75

121

231

427

78

130

263

471
154

Individual provision
Balance at beginning of the year

37

6

108

151

54

9

91

New and increased provisions net of write-backs

(11)

82

66

137

(12)

92

81

161

Bad debts written off

(1)

(82)

(50)

(133)

(2)

(95)

(55)

(152)

Discount unwind1

-

-

(3)

(3)

(3)

-

(9)

(12)

Balance at end of the year

25

6

121

152

37

6

108

151

Total provision for credit impairment

100

127

352

579

115

136

371

622

1

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

Impaired assets
30/09/2017
Retail Other retailmortgages exposures
NZ$m
NZ$m

30/09/2016

Non-retail
exposures
NZ$m

Total
NZ$m

Retail Other retailmortgages exposures
NZ$m
NZ$m

Non-retail
exposures
NZ$m

Total
NZ$m

Balance at beginning of the year

57

27

342

426

97

32

253

382

Transfers from productive

35

106

430

571

64

129

395

588

Transfers to productive

(17)

(9)

(56)

(82)

(31)

(8)

(7)

(46)

Assets realised or loans repaid

(43)

(22)

(360)

(425)

(71)

(31)

(244)

(346)

Write offs

(1)

(82)

(50)

(133)

(2)

(95)

(55)

(152)

Total impaired assets

31

20

306

357

57

27

342

426

Other assets under administration

8

2

-

10

9

2

-

11

Undrawn facilities with impaired customers

1

-

5

6

-

1

57

58

ANZ Bank New Zealand Limited

25

NOTES TO THE FINANCIAL STATEMENTS
15. DEPOSITS AND OTHER BORROWINGS
30/09/2017
Note

30/09/2016

NZ$m

NZ$m

Term deposits

45,457

39,665On demand and short term deposits

41,45142,323

8,882

7,780

Deposits not bearing interest
UDC secured investments

1,039

1,592

Total customer deposits

96,82991,360

Certificates of deposit

1,916

2,237

Commercial paper

3,721

5,364

Securities sold under repurchase agreements

157

76

Deposits from Immediate Parent Company and NZ Branch

21

30

Deposits and other borrowings (including liabilities classified as held for sale)Less: UDC secured investments held for sale

29

Deposits and other borrowings

73

29

102,696

99,066(1,039)-101,657

99,066

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

16. UNSUBORDINATED DEBT
30/09/2017
Note

Domestic bonds
U.S. medium term notes1
1Euro medium term notes
Covered bonds1

NZ$m

3,900

3,975

9,004

6,883

3,173

2,792

5,325

6,218

21,402

19,868Fair value hedge adjustment

(53)

192

Less: held by the Bank

(26)

(46)

21,32320,014

Total unsubordinated debt issued

Total unsubordinated debt
1

21, 2830/09/2016

NZ$m

This unsubordinated debt is issued by ANZ New Zealand (Int’l) Limited and is guaranteed by the Bank.

Unsubordinated debt, other than covered bonds, is unsecured and ranks equally with other unsecured liabilities of the Banking Group.
NZX Regulation has granted the Bank a waiver from NZX Debt Market Listing Rule (Rule) 7.12.1 to the extent that this Rule requires the
Bank to release to the market details of any acquisition of the Bank’s domestic bonds as a result of its market-making activities or trading
on behalf of its clients. The Bank will notify the NZX if any such domestic bonds are subsequently cancelled. Rule 7.12.1 does not extend to
the Bank’s subsidiaries in this context. The Bank will continue to comply with Rule 7.12.1 in respect of any domestic bonds that are issued,
redeemed or purchased by the Bank in any other capacity.
Domestic bonds includes three series of bonds quoted on the NZX Debt Market which mature on 22 March 2019, 2 September 2021 and 1
September 2023 respectively (the Bonds). NZX Regulation has granted the Bank waivers from the requirement in Rule 5.2.3 (as modified by
NZX Regulation’s Ruling on Rule 5.2.3 issued on 29 September 2015) for the Bonds to be held by at least 100 members of the publicholding at least 25% of the Bonds issued (Spread). The effect of these waivers is that the Bonds may not be widely held and there may be
reduced liquidity in the Bonds. If there is a material reduction in the Spread of the Bonds, the Bank will notify NZX as appropriate.

ANZ Bank New Zealand Limited

26

NOTES TO THE FINANCIAL STATEMENTS
17. SUBORDINATED DEBTANZ Capital Notes

30/09/2017

30/09/2016

NZ$m

NZ$m

1

NZD 500m ANZ New Zealand Capital Notes (ANZ NZ CN)2

497

496

NZD 1,003m ANZ New Zealand Internal Capital Notes (ANZ NZ ICN)

1,003

1,003

NZD 938m ANZ New Zealand Internal Capital Notes 2 (ANZ NZ ICN2)

938

938

835

835

Perpetual subordinated debt
NZD 835m perpetual subordinated bond3
AUD 10m perpetual subordinated floating rate loan
Total subordinated debt
1
2
3

10

10

3,283

3,282

These instruments qualify as additional tier 1 capital.
These instruments are quoted on the NZX Debt Market.
These instruments are quoted on the NZX Debt Market, and qualify as tier 2 capital, subject to the RBNZ’s Basel III transition adjustment. Refer to note 26 for further details.

Subordinated debt is subordinated in right of payment in the event of liquidation or wind up to the claims of depositors and all creditorsof the relevant issuer or drawer of the debt.
ANZ Capital Notes•••

On 5 March 2015, the Bank issued 10.03 million convertible notes (ANZ NZ ICN) to the NZ Branch at NZ$100 each, raising NZ$1,003
million.
On 31 March 2015, the Bank issued 500 million convertible notes (ANZ NZ CN) at NZ$1 each, raising NZ$500 million before issue
costs.
On 15 June 2016, the Bank issued 9.38 million convertible notes (ANZ NZ ICN2) to the NZ Branch at NZ$100 each, raising NZ$938
million.

ANZ Capital Notes (the notes) are fully paid convertible non-cumulative perpetual subordinated notes.
As at 30 September 2017, ANZ NZ CN carried a BB+ credit rating from Standard and Poor’s.
The notes are classified as debt given there are circumstances beyond the Bank’s control where the principal is converted into a variable
number of shares of the Bank (ANZ NZ ICN and ANZ NZ ICN2) or the Ultimate Parent Bank (ANZ NZ CN).
Interest
Interest on the notes is non-cumulative and payable as follows:•••

ANZ NZ ICN: payable semi-annually in arrears in March and September in each year. The interest rate is based on a floating rateequal to the aggregate of the New Zealand 6 month bank bill rate plus a 380 basis point margin.
ANZ NZ CN: payable quarterly in arrears in February, May, August and November in each year. The interest rate is fixed at 7.2% perannum until 25 May 2020, and thereafter will be based on a floating rate equal to the aggregate of the New Zealand 3 month bankbill rate plus a 350 basis point margin.
ANZ NZ ICN2: payable semi-annually in arrears in June and December in each year. The interest rate is based on a floating rate equal
to the aggregate of the New Zealand 6 month bank bill rate plus a 629 basis point margin.

Interest payments are subject to the Bank’s absolute discretion and certain payment conditions being satisfied (including RBNZ and APRA(ANZ NZ CN only) requirements). If interest is not paid on the notes the Bank may not, except in limited circumstances, pay dividends orundertake a share buy-back or other capital reduction on its ordinary shares until interest is next paid.
Conversion features
On 24 March 2025 (ANZ NZ ICN) or 25 May 2022 (ANZ NZ CN) or an earlier date under certain circumstances, the relevant notes will
mandatorily convert into a variable number of ordinary shares of the:••Bank based on the net assets per share in the Bank’s most recently published Disclosure Statement (ANZ NZ ICN) or
Ultimate Parent Bank based on the average market price of the Ultimate Parent Bank’s ordinary shares over a specified period prior
to conversion less a 1% discount (ANZ NZ CN).

The mandatory conversion will be deferred for a specified period if the conversion tests are not met.
The Bank will be required to convert some or all of the notes if a common equity capital trigger event, or an RBNZ or APRA (ANZ NZ CN
only) non-viability trigger event occurs. The ANZ NZ ICN and ANZ NZ ICN2 will convert into ordinary shares of the Bank and the ANZ NZ
CN will convert into ordinary shares of the Ultimate Parent Bank, subject to a maximum conversion number.

ANZ Bank New Zealand Limited

27

NOTES TO THE FINANCIAL STATEMENTS
A common equity capital trigger event occurs if the:••Banking Group’s common equity tier 1 capital ratio is equal to or less than 5.125% orOverseas Banking Group’s Level 2 common equity tier 1 capital ratio is equal to or less than 5.125% (ANZ NZ CN only).

An RBNZ non-viability trigger event occurs if the RBNZ directs the Bank to convert or write off the notes or a statutory manager isappointed to the Bank and decides the Bank must convert or write off the notes. An APRA non-viability trigger event occurs if APRA
notifies the Ultimate Parent Bank that, without the conversion or write-off of certain securities or a public sector injection of capital (orequivalent support), it considers that the Ultimate Parent Bank would become non-viable.
On 25 May 2020 the Bank has the right, subject to satisfying certain conditions, to redeem (subject to receiving RBNZ’s and APRA’s priorapproval), or to convert into ordinary shares of the Ultimate Parent Bank, all or some of the ANZ NZ CN at its discretion on similar terms as
mandatory conversion.
On 24 March 2023 the Bank has the right, subject to satisfying certain conditions, to redeem (subject to receiving RBNZ’s prior approval), or
to convert into ordinary shares of the Bank, all or some of the ANZ NZ ICN at its discretion on similar terms as mandatory conversion.
On 15 June 2026 and each 5th anniversary thereafter the Bank has the right, subject to satisfying certain conditions, to redeem (subject toreceiving RBNZ’s prior approval), all or some of the ANZ NZ ICN2 at its discretion.
Rights of holders in event of liquidation
The notes rank equally with each other and with the Bank’s preference shares and lower than perpetual subordinated debt. Holders of thenotes do not have any right to vote in general meetings of the Bank.
Perpetual subordinated debt
Perpetual subordinated debt instruments are classified as debt reflecting an assessment of the key terms and conditions of the
instruments, and an assessment of the ability, and likelihood of interest payments being deferred. Certain of these instruments haveinterrelationships that have been considered in this assessment.
NZD 835,000,000 bondThis bond was issued by the Bank on 18 April 2008.
The Bank may elect to redeem the bond on 18 April 2018 (the Call Date) or any interest payment date subsequent to 18 April 2018.
Interest is payable semi-annually in arrears on 18 April and 18 October each year, up to and including the Call Date and then quarterly
thereafter. Should the bond not be called at the Call Date, the Coupon Rate from the Call Date onwards will be based on a floating rateequal to the aggregate of the 3 month bank bill rate plus a 300 basis point margin.
As at 30 September 2017, this bond carried a BBB rating by Standard and Poor's and a Baa1 rating by Moody’s.
The coupon interest on the bond is 5.28% per annum until 18 April 2018.
AUD 10,000,000 loan
This loan was drawn down by the Bank on 27 March 2013 and has no fixed maturity. Interest is payable semi-annually in arrears on 15
March and 15 September each year. The Bank may repay the loan on any interest payment date after the NZD 835,000,000 bond has been
repaid in full.
Coupon interest is based on a floating rate equal to the aggregate of the Australian 6 month bank bill rate plus a 240 basis point margin,
increasing to the Australian 6 month bank bill rate plus a 440 basis point margin from 15 September 2018.

ANZ Bank New Zealand Limited

28

NOTES TO THE FINANCIAL STATEMENTS
18. FINANCIAL RISK MANAGEMENT
Strategy in using financial instruments
Financial instruments are fundamental to the Banking Group’s business, constituting the core element of its operations. Accordingly, therisks associated with financial instruments are a significant component of the risks faced by the Banking Group. Financial instruments
create, modify or reduce the credit, market and liquidity risks of the Banking Group’s balance sheet. The Banking Group’s overall risk
management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on thefinancial performance of the Banking Group.
The risk management and policy control framework applicable to the entities comprising the Banking Group has been set by the Board
and Risk Committee of the Bank or the Ultimate Parent Bank, as appropriate. Likewise oversight and monitoring of material risk exposuresof the Banking Group is undertaken by the Risk Management functions of the Bank and also the Ultimate Parent Bank. Throughout thisdocument, references to the Risk Management of the operations within the entities comprising the Banking Group, implicitly involves
oversight by both related entities.

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

ANZ Bank New Zealand Limited

29

NOTES TO THE FINANCIAL STATEMENTSCountry risk management
Some customer credit risks involve country risk, whereby actions or events at a national or international level could disrupt servicing ofcommitments. Country risk arises when payment or discharge of an obligation will, or could, involve the flow of funds from one country toanother or involve transactions in a currency other than the domestic currency of the relevant country.
Country ratings are assigned to each country where the Banking Group incurs country risk and have a direct bearing on the Banking
Group's risk appetite for each country. The country rating is determined through a defined methodology based around external ratings
agencies’ ratings and internal specialist opinion. It is also a key risk consideration in the Banking Group's capital pricing model for crossborder flows.
The recording of country limits provides the Banking Group with a means to identify and control country risk. Country limits ensure that
there is a country-by-country ceiling on exposures that involve country risk. They are recorded by time to maturity and purpose of
exposure, e.g., trade, markets and project finance. Country limits are managed centrally by the Ultimate Parent Bank, through a global
country risk exposure management system managed by a specialist unit within Institutional Risk.
Portfolio stress testing
Stress testing is integral to strengthening the predictive approach to Risk Management and is a key component to managing risk appetiteand business writing strategies. It creates greater understanding of impacts on financial performance through modelling relationships andsensitivities between geographic, industry and business unit exposures under a range of macro economic scenarios.
The Ultimate Parent Bank has a dedicated stress testing team that assists business and risk executives in the Banking Group to model andreport periodically to management and the Board Risk Committee on a range of scenarios and stress tests.
Portfolio analysis and reporting
Credit portfolios are actively monitored at each layer of the risk structure to ensure credit deterioration is quickly detected and mitigatedthrough the implementation of remediation strategies.
Businesses incurring credit risk undertake regular and comprehensive analysis of their credit portfolios. Issue identification and adherence
to performance benchmarks are reported to Risk Management and business executives through a series of reports including monthly‘asset quality’ reporting. This process is undertaken by or overseen by Risk Management ensuring an efficient and independent conduit
exists to identify and communicate emerging credit issues to Banking Group executives and the Board.
Collateral management
Banking Group credit principles specify lending only what the counterparty has the capacity and ability to repay and the Banking Group
sets limits on the acceptable level of credit risk. Acceptance of credit risk is firstly based on the counterparty’s assessed capacity to meet
contractual obligations (ie interest and capital repayments). Obtaining collateral is only used to mitigate credit risk. Procedures aredesigned to ensure collateral is managed, legally enforceable, conservatively valued and adequately insured where appropriate. Banking
Group policy sets out the types of acceptable collateral, including:•Cash•
Mortgages over property•
Charges over business assets, eg premises, stock and debtors•
Charges over financial instruments, eg debt securities and equities in support of trading facilities•
Financial guarantees.
In the event of customer default, any loan security is usually held as mortgagee in possession while action is taken to realise it. Therefore
the Banking Group does not usually hold any real estate or other assets acquired through the enforcement of security.
The Banking Group uses International Swaps and Derivatives Association Master Agreements (ISDA) to document derivatives' activities tolimit exposure to credit losses. The credit risk is reduced by a master agreement to the extent that, if an event of default occurs, allcontracts with the counterparty are terminated and settled on a net basis. Further, it is the Banking Group's preferred practice to include all
products covered by the ISDA in the Credit Support Annex (CSA) in order to achieve further credit exposure reduction. Under a CSA,
collateral is passed between the parties, depending on the aggregate mark-to-market (positive or negative) of derivative trades between
the two entities, to mitigate the market contingent counterparty risk inherent in the outstanding positions.

ANZ Bank New Zealand Limited

30

NOTES TO THE FINANCIAL STATEMENTS
Concentrations of credit risk
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities within the samegeographic region, or when they have similar risk characteristics that would cause their ability to meet contractual obligations to be
similarly affected by changes in economic or other conditions.
The Banking Group monitors its portfolios to identify and assess risk concentrations. Concentration limits are used to guard against large
single customer or correlated credit risks. Risk Management, Business Unit executives and senior management monitor large exposure
concentrations through a monthly list of the Banking Group's top corporate exposures. The ANZ Credit and Market Risk Committee and
Board Risk Committee regularly review a comprehensive list of single customer concentration limits and customers’ adherence to theselimits.
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 isshown separately as required by the Order.
The presentation of these tables has changed from previous periods to align this disclosure with the classifications in the data series S34 –Banks: Assets – Loans by industry published by the RBNZ. This series uses ANZSIC 2006 industry classifications rather than ANZSIC 1996 thatwere previously used. Updated corresponding amounts as at 30 September 2016 have been provided for comparative purposes. The mostsignificant changes to the 30 September 2016 amounts from the previous presentation are:1
2

Industry classification is now shown separately for New Zealand residents and non-New Zealand residents
The reduction in exposures to households, previously described as personal lending, is due to the reclassification of loans secured byrental properties to the relevant customer’s industry, of which the majority are now included in rental, hiring and real estate services.

Cash,
Tradingsettlements securities andreceivable and available-forcollateral paid
sale assets
30/09/2017

Derivative
financial Net loans andadvances3
instruments

Otherfinancial Credit related
assets commitments4

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Agriculture

-

-

25

17,68658

1,436

19,205

Forestry and fishing, agriculture services

-

-

1

1,277

4

240

1,522

Manufacturing

-

14

146

2,729

9

1,798

4,696

Electricity, gas, water and waste services

-

15

437

1,602

5

1,522

3,581

Construction

-

-

13

1,635

5

1,119

2,772

Wholesale trade

-

-

49

1,630

5

1,357

3,041

Retail trade and accommodation

-

1

17

3,058

10

1,133

4,219

Transport, postal and warehousing

-

9

55

1,440

5

894

2,403

2,296

1,709

925

903

338

1,259

7,430

Public administration and safety1

-

7,477

621

412

1

794

9,305

Rental, hiring & real estate services
Professional, scientific, technical, administrativeand support services
Households

-

-

114

30,697104

3,699

34,614

-

1

5

1,267

4

619

1,896

-

-

-

51,554180

11,87863,612All other New Zealand residents2

-

5

240

2,625

8

1,474

4,352

2,296

9,231

2,648

118,515736

29,222

162,648

New Zealand residents

Finance and insurance services

Overseas
Finance and insurance services

1,795

4,325

7,006

123

-

155

13,404

Households

-

-

-

1,454

5

-

1,459

All other non-NZ residents

-

467

224

914

3

-

1,608

1,795
-

4,792
-

7,230
-

2,491
(495)

8
-

155
(84)

16,471
(579)

-

-

-

(222)

-

-

(222)

-

-

-

334

-

-

334

4,091

14,023

9,878

120,623

744

29,293

178,652

Less: Provision for credit impairment
Less: Unearned income
Add: Capitalised brokerage / mortgage
origination fees
Total financial assets

ANZ Bank New Zealand Limited

31

NOTES TO THE FINANCIAL STATEMENTS
Cash,
Tradingsettlements securities andreceivable and available-forcollateral paid
sale assets
30/09/2016

Derivative
financial Net loans andadvances3
instruments

Otherfinancial Credit related
assets commitments4

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Agriculture

-

-

23

17,77958

1,366

19,226

Forestry and fishing, agriculture services

-

-

21

1,231

4

242

1,498

Manufacturing

-

12

185

3,555

12

2,012

5,776

Electricity, gas, water and waste services

-

21

642

1,298

4

1,255

3,220

Construction

-

-

17

1,579

5

1,030

2,631

Wholesale trade

-

-

23

1,645

5

1,596

3,269

Retail trade and accommodation

-

-

63

3,059

10

1,110

4,242

Transport, postal and warehousing

-

5

91

1,380

5

924

2,405
8,976

New Zealand residents

Finance and insurance services

2,931

2,569

1,186

807

281

1,202

Public administration and safety1

-

7,028

1,049

352

5

750

9,184

Rental, hiring & real estate services
Professional, scientific, technical, administrativeand support services
Households

-

-

75

28,23096

3,562

31,963

-

-

9

1,154

4

734

1,901

-

-

-

47,923

172

11,48659,581

All other New Zealand residents2

-

46

244

2,529

8

2,305

5,132

2,931

9,681

3,628

112,521669

29,574

159,004

Overseas
Finance and insurance services

1,856

4,703

17,47095-

183

24,307

Households

-

-

-

1,353

5

-

1,358

All other non-NZ residents

-

454

12

1,127

4

-

1,597

1,856
-

5,157
-

17,482
-

2,575
(518)

9
-

183
(104)

27,262
(622)

-

-

-

(211)

-

-

(211)

-

-

-

360

-

-

360

4,787

14,838

21,110114,727678

29,653

185,793

Less: Provision for credit impairment
Less: Unearned income
Add: Capitalised brokerage / mortgage
origination fees
Total financial assets
1
2

3
4

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 otherservices.
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
Credit related commitments comprise undrawn facilities, customer contingent liabilities and letters of offer.

ANZ Bank New Zealand Limited

32

NOTES TO THE FINANCIAL STATEMENTS
Maximum exposure to credit risk
The following table presents the maximum exposure to credit risk for on and off balance sheet financial instruments before taking accountof the financial effect of any collateral held or other credit enhancements, unless such collateral meets the offsetting criteria in NZ IAS 32
Financial Instruments: Presentation.
The table also provides a quantification of the value of the financial charges the Banking Group holds over a borrower’s specific asset (orassets) where the Banking Group is able to enforce the collateral in satisfying a debt in the event of the borrower failing to meet its
contractual obligations. For the purposes of this disclosure, where the collateral held is valued at more than the corresponding credit
exposure, the financial effect is capped at the value of the credit exposure. In respect of derivative financial instruments, the assessedcollateral is the amount of cash collateral received and does not include the effect of any netting arrangements under ISDAs.
The assignable value of credit mitigants, such as guarantees and security interests over the assets of a customer’s business, is less certain
and their financial effect has not been quantified for disclosure purposes. Credit exposures shown as not fully secured may benefit fromsuch credit mitigants.
30/09/2017
Maximum
exposure tocredit risk

30/09/2016

Financial
Unsecuredeffect of portion of credit
collateralexposure

Maximum
exposure tocredit risk

Financial
Unsecuredeffect of portion of credit
collateralexposure

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

2,140

360

1,780

2,081

229

1,852

Settlement balances receivable

536

266

270

396

265

131

Collateral paid

1,415

-

1,415

2,310

-

2,310

Trading securities

7,663

-

7,663

11,979-11,979Derivative financial instruments

9,878

613

9,265

21,110529

20,581

Available-for-sale assets

6,360

-

6,360

2,859

-

2,859

Net loans and advances

120,623

110,914

9,709

114,727

104,399

10,328On and off-balance sheet positions
Cash

Other financial assets

744

378

366

678

361

317

Credit related commitments

29,293

14,526

14,76729,653

15,193

14,460Total exposure to credit risk

178,652

127,057

51,595

185,793

120,976

64,817

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

ANZ Bank New Zealand Limited

33

NOTES TO THE FINANCIAL STATEMENTS
Distribution of gross loans and advances assets by credit quality
The credit quality of the portfolio of loans and advances is assessed by reference to the Banking Group’s risk grading principles andpolicies supported by a complementary risk grading methodology.
30/09/2017

30/09/2016

Retailmortgages

Other retail
exposures

Non-retail
exposures

Total

Retailmortgages

Other retail
exposures

Non-retail
exposures

NZ$m

NZ$m

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Strong risk rating

59,574

Satisfactory risk rating

9,135

1,330

20,922

81,82657,203

1,263

20,24878,714

3,153

21,99534,283

6,335

2,997

22,309Substandard but not past due or impaired

31,641

480

435

1,643

2,558

325

539

1,928

2,792

69,1894,918

44,560118,667

63,863

4,799

44,485

113,147

1 to 5 days

375

113

543

1,031

337

125

350

812

6 to 29 days

181

74

99

354

131

73

42

246

1 to 29 days

556

187

642

1,385

468

198

392

1,058

30 to 59 days

85

34

171

290

109

32

62

203

60 to 89 days

95

18

12

125

82

17

6

105

90 days and over

132

31

19

182

81

26

23

130

Total past due but not impaired

868

270

844

1,982

740

273

483

1,496

Total impaired assets

31

20

306

357

57

27

342

426

70,0885,208

45,710121,006

64,6605,099

45,310115,069

Total neither past due nor impaired
Past due but not impaired:

Gross loans and advances

Credit quality of gross loans and advances neither past due nor impaired
The credit quality of financial assets is assessed by the Banking Group using internal ratings which aim to reflect the relative ability ofcounterparties to fulfil, on time, their credit-related obligations, and is based on their current probability of default.
Internal ratings
Strong risk rating - Corporate customers demonstrating superior stability in their operating and financial performance over the long-term,
and whose debt servicing capacity is not significantly vulnerable to foreseeable events. Retail customers with low expected loss. Thisrating band broadly corresponds to ratings “Aaa” to “Ba1” and “AAA” to “BB+” of Moody's Investors Service and Standard & Poor's
respectively.
Satisfactory risk rating - Corporate customers consistently demonstrating sound operational and financial stability over the medium to longterm, even though some may be susceptible to cyclical trends or variability in earnings. Retail customers with moderate expected loss.
This rating band broadly corresponds to ratings “Ba2” to “B1” and “BB” to “B+” of Moody's Investors Service and Standard & Poor's
respectively.
Substandard but not past due or impaired - Corporate customers demonstrating some operational and financial instability, with variability
and uncertainty in profitability and liquidity projected to continue over the short and possibly medium term. Retail customers with higher
expected loss. This rating band broadly corresponds to ratings “B2” to “Caa” and “B” to “CCC” of Moody's Investors Service and Standard &Poor's respectively.
Movements in the rating categories between balance dates are due to both changes in the underlying internal ratings applied tocustomers and to new loans written or loans rolling off.
Credit quality of financial assets that are past due but not impaired
Ageing analysis of past due loans is used by the Banking Group to measure and manage credit quality. Financial assets that are past due
but not impaired include those:•
Assessed, approved and managed on a portfolio basis within a centralised environment (for example, credit cards and personalloans)•
Held on a productive basis until they are 180 days past due•
Managed on an individual basis.
A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the fair value of associatedsecurity is sufficient to ensure that the Banking Group will recover the entire amount owing over the life of the facility and there isreasonable assurance that collection efforts will result in payment of the amounts due in a timely manner.

ANZ Bank New Zealand Limited

34

NOTES TO THE FINANCIAL STATEMENTS
Market risk
Market risk is the risk to the Banking Group’s earnings arising from changes in interest rates, currency exchange rates, credit spreads, orfrom fluctuations in bond, commodity or equity prices. Market risk is generated through both trading activities and the interest rate risk
inherent in the banking book.
The Banking Group conducts trading operations in interest rates, foreign exchange, commodities and debt securities.
The Banking Group has a detailed risk management and control framework to support its trading and balance sheet management
activities. The framework incorporates a risk measurement approach to quantify the magnitude of market risk within trading and balance
sheet portfolios. This approach, and related analysis, identifies the range of possible outcomes that can be expected over a given period oftime, establishes the relative likelihood of those outcomes and allocates an appropriate amount of capital to support these activities.
Market risk management and control responsibilities
The Board Risk Committee has delegated responsibility for the oversight of market risk to the Asset & Liability Committee (ALCO), chairedby the Chief Financial Officer of the Bank. ALCO is required to ensure that market risk exposure across Traded and Non-Traded portfolios
remains within the risk appetite specified by the Board Risk Committee. ALCO receives regular reporting on a range of trading and balance
sheet market risk exposures.
The Risk Management division of the Banking Group, through the Chief Risk Officer, is responsible for the day-to-day oversight of market
risk. This includes the implementation of a comprehensive limit and policy framework to control the amount of risk that the Banking
Group will accept. Market risk limits are allocated at various levels and are reported and monitored on a daily basis. The detailed limit
framework allocates individual limits to manage and control asset classes (e.g., interest rates, foreign exchange), risk factors (e.g., interest
rates, volatilities) and profit and loss limits (to monitor and manage the performance of the trading portfolios).
Additional oversight and monitoring of material risk exposures of the Banking Group is undertaken by the Risk Management functions of
the Ultimate Parent Bank.
Within overall strategies and policies, the control of market risk is the joint responsibility of business units and Risk Management, with thedelegation of market risk limits from the Board Risk Committee to both Risk Management and the business units.
These risks are monitored daily against a comprehensive limit framework that includes Value at Risk, aggregate market position andsensitivity, product and geographic thresholds. To facilitate the management, control, measurement and reporting of market risk, theBanking Group has grouped market risk into two broad categories:a.

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

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

•

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

•

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

b.

Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest rate risk, liquidity, and the risk to capital and earnings as a result of movements inmarket rates.
Some instruments do not fall into either category but also expose the Banking Group to market risk. These include equity securities
classified as available-for-sale. Regular reviews are performed to substantiate the valuation of these types of instruments.
In all trading areas the Banking Group has implemented models that calculate Value at Risk (VaR) exposures, monitor risk exposuresagainst defined limits on a daily basis, and “stress test” trading portfolios.
VaR measure
A key measure of market risk is VaR. VaR is a statistical estimate of the likely daily loss and is based on historical market movements.
The confidence level is such that there is a 99% probability that the loss will not exceed the VaR estimate on any given day. Conversely
there is 1% probability of the decrease in market value exceeding the VaR estimate on any given day.
The Banking Group’s standard VaR approach for both traded and non-traded risk is historical simulation. The Banking Group calculates VaRusing historical changes in market rates and prices over the previous 500 business days. Traded and Non-Traded VaR is calculated using a
one-day holding period.

ANZ Bank New Zealand Limited

35

NOTES TO THE FINANCIAL STATEMENTS
It should be noted that because VaR is driven by actual historical observations, it is not an estimate of the maximum loss that the Banking
Group could experience from an extreme market event. As a result of this limitation, the Banking Group utilises a number of other risk
measures (e.g. stress testing) and associated detailed control limits to measure and manage market risk.
Traded market risks
30/09/2017

30/09/2016

Value at risk at 99% confidenceHigh forLow for
Period end
year
year

Average for
year

Value at risk at 99% confidenceHigh forLow for
Period end
year
year

Average for
year

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Foreign exchange risk

0.1

1.2

0.1

0.4

0.2

0.9

0.1

0.4

Interest rate risk

3.0

5.8

1.3

2.5

2.1

4.9

1.3

2.6

Credit spread risk

0.6

0.8

0.4

0.6

0.5

0.7

0.3

0.5

Diversification benefit

(0.9)

n/a

n/a

(0.9)

(0.7)

n/a

n/a

(1.0)

Total VaR

2.8

5.3

1.4

2.6

2.1

4.4

1.3

2.5

Traded market risk VaR is calculated separately for foreign exchange and for interest rate/debt markets businesses as well as for the
Banking Group. The diversification benefit reflects the historical correlation between foreign exchange, interest rate and debt markets.
To supplement the VaR methodology, the Banking Group applies a wide range of stress tests, both on individual portfolios and at the
Banking Group level. The Banking Group's stress-testing regime provides senior management with an assessment of the financial impactof identified extreme events on market risk exposures of the Banking Group.
Non-traded market risk (or balance sheet risk)
The principal objectives of balance sheet management are to manage net interest income sensitivity while maintaining acceptable levels
of interest rate and liquidity risk and to manage the market value of the Banking Group’s capital. Liquidity risk is dealt with in the next
section.
Interest rate risk
The objective of balance sheet interest rate risk management is to mitigate the negative impact of movements in wholesale interest rates
on the earnings of the Banking Group's banking book. Non-traded interest rate risk relates to the potential adverse impact to earnings
from changes in market interest rates. This risk arises from two principal sources: mismatches between the repricing dates of interest
bearing assets and liabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets.
As part of normal business activity the Banking Group has additional risks from fixed rate mortgage prepayments and basis risk:•
Prepayment risk is the potential risk to earnings or market value from when a customer prepays all or part of a fixed rate loan andwhere any customer fee charged is not sufficient to offset the loss in value to the Banking Group of this financial asset due tomovements in interest rates and other pricing factors. As far as possible the true economic cost is passed through to customers inline with their terms and conditions and relevant legislation.
•
Basis risk is the potential risk to earnings or market value from differences between customer pricing and wholesale market pricing.
This is managed through active review of product margins.
Non-traded interest rate risk is managed to both value and earnings at risk limits. Interest rate risk is reported using three measures: VaR;
scenario analysis (to a 1% shock); and interest rate sensitivity gap. This treatment excludes the effect of prepayment and basis risk.
a.

Non-traded interest rate risk VaR
Period end

High foryear

Low foryear

Average for
year

NZ$m

NZ$m

NZ$m

NZ$m

8.3

10.2

7.3

8.2

9.7

10.3

7.7

8.9

30/09/2017

Value at risk at 99% confidence
30/09/2016

Value at risk at 99% confidence

ANZ Bank New Zealand Limited

36

NOTES TO THE FINANCIAL STATEMENTSb.

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

A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income over the
succeeding 12 months. This is a standard risk quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and comparative periods – expressed as apercentage of reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that arate increase is positive for net interest income over the next 12 months. Conversely, a negative number signifies that a rate increase isnegative for the next 12 months’ net interest income.
30/09/2017

30/09/2016

Period end

0.6%

0.4%

Maximum exposure

0.9%

1.6%

Minimum exposure

-0.3%

-0.2%

Average exposure (in absolute terms)

0.4%

0.7%

Impact of 1% rate shock

The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any point has
implications for future net interest income.
Interest rate sensitivity gap
The interest rate sensitivity gap analysis provides information about the Banking Group's exposure to interest rate risk.
Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the corresponding liability funding.
These mismatches are managed within policy guidelines for mismatch positions.
The following tables represent the interest rate sensitivity of the Banking Group's assets, liabilities and off balance sheet instruments byshowing the periods in which these instruments may reprice (that is, when interest rates applicable to each asset or liability can bechanged).
The repricing gaps are based upon contractual repricing.

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
2 years
NZ$m

Not bearing
interest
NZ$m

Cash

2,338

2,140

-

-

-

-

198

Settlement balances receivable

536

129

-

-

-

-

407

Collateral paid

1,415

1,415

-

-

-

-

-

Trading securities

7,663

496

268

241

2,025

4,633

-

Derivative financial instruments

9,878

-

-

-

-

-

9,878

30/09/2017

AssetsAvailable-for-sale assets

6,360

713

250

603

1,465

3,328

1

Net loans and advances1

120,539

60,553

8,328

18,97921,575

11,531(427)

Other financial assets1

744

77

14

29

3

-

621

Total financial assets

149,473

65,5238,860

19,85225,06819,492

10,678Settlement balances payable

1,840

630

-

-

-

-

1,210

Collateral received

613

613

-

-

-

-

-

1

Deposits and other borrowings

102,696

68,71812,925

8,051

2,855

1,265

8,882

Derivative financial instruments

9,826

-

-

-

-

-

9,826

Unsubordinated debt

21,323

3,511

1,567

125

3,420

12,700-Subordinated debt

3,283

938

1,013

835

-

497

-

Liabilities

1

Other financial liabilities

759

151

-

-

-

-

608

Total financial liabilities

140,340

74,561

15,505

9,011

6,275

14,462

20,526

Hedging instruments

-

1,974

(1,395)

4,425(4,008)(996)-Interest sensitivity gap

9,133(7,064)(8,040)15,266

14,785

4,034(9,848)ANZ Bank New Zealand Limited

37

NOTES TO THE FINANCIAL STATEMENTS
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
2 years
NZ$m

Not bearing
interest
NZ$m

Cash

2,274

2,081

-

-

-

-

193

Settlement balances receivable

396

48

-

-

-

-

348

Collateral paid

2,310

2,310

-

-

-

-

-

Trading securities

11,979

1,092

243

308

2,090

8,246

-

Derivative financial instruments

21,110

-

-

-

-

-

21,110Available-for-sale assets

2,859

1,956

149

50

160

543

1

Net loans and advances(471)

30/09/2016

Assets114,623

61,267

8,256

18,483

18,677

8,411

Other financial assets

678

65

25

17

12

-

559

Total financial assets

156,229

68,8198,673

18,85820,93917,20021,740

Settlement balances payable

1,771

666

-

-

-

-

1,105

Collateral received

529

529

-

-

-

-

-

Deposits and other borrowings

99,06665,416

11,988

10,120

2,460

1,302

7,780

Derivative financial instruments

21,956

-

-

-

-

-

21,956

Unsubordinated debt

20,014

4,342

-

1,087

2,843

11,742-

Subordinated debt

3,282

938

1,013

-

835

496

-

Payables and other liabilities

639

51

-

-

9

124

455

147,257

71,942

13,001

11,207

6,147

13,664

31,296

Hedging instruments-

17,376(13,314)

5,850(11,914)2,002-

Interest sensitivity gap

8,972

14,253(17,642)

13,501

2,878

5,538

(9,556)

Liabilities

Total financial liabilities

1

Includes UDC items classified as held for sale

Foreign currency related risksThis risk relates to the potential loss arising from the decline in the value of foreign currency positions due to changes in foreign exchange
rates.
For non-traded instruments in foreign currencies, the risk is monitored and is hedged in accordance with policy. Risk arising fromindividual funding and other transactions is actively managed. The total amounts of unmatched foreign currency assets and liabilities, andconsequent foreign currency exposures arising from each class of financial asset and liability, whether recognised or unrecognised, withineach currency are not material.
The net open position in each foreign currency represents the net on-balance sheet assets and liabilities in that foreign currency
aggregated with the net expected future cash flows from off-balance sheet purchases and sales from foreign exchange transactions inthat foreign currency. The amounts are stated in New Zealand dollar equivalents translated using the spot exchange rates as at balance
sheet date.
30/09/2017
NZ$m

30/09/2016
NZ$m

24

26

Net open position
Australian dollar
Euro

-

6

Japanese yen

3(3)

US dollar

13

(5)

Other

2

1

Total net open position

42

25

ANZ Bank New Zealand Limited

38

NOTES TO THE FINANCIAL STATEMENTS
Liquidity risk
Liquidity risk is the risk that the Banking Group is unable to meet its payment obligations as they fall due. The timing mismatch of cash
flows and the related liquidity risk is inherent in all banking operations and is closely monitored by the Banking Group.
The Banking Group’s liquidity and funding risks are governed by a detailed policy framework which is approved by the Risk Committees of
the Bank’s and Ultimate Parent Bank’s Boards. The core objective of the Banking Group’s framework is to manage liquidity to meet
obligations as they fall due, without incurring unacceptable losses.
Central to the Banking Group’s liquidity risk management approach is the establishment of a liquidity risk appetite framework to which the
Banking Group must conform at all times. The risk appetite for liquidity has been set as low, and this objective is achieved by the Banking
Group managing liquidity risks within the boundaries of the following requirements and principles:•
Maintaining the ability to meet all payment obligations in the immediate term.
•
Ensuring the ability to meet “survival horizons” under Banking Group specific and general market liquidity stress scenarios.
•
Maintaining strength in the Banking Group’s balance sheet structure to ensure long term resilience in the Banking Group’s liquidityand funding risk profile.
•
Limiting the potential earnings at risk associated with unexpected increases in funding costs or the liquidation of assets under stress.
•
Ensuring the liquidity management framework is compatible with regulatory requirements.
•
Daily liquidity reporting and scenario analysis, quantifying the Banking Group’s positions.
•Targeting a diversified funding base, avoiding undue concentrations by investor type, maturity, market source and currency.
•
Holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-to-day operations.
•
Establishing detailed contingency plans to cover different liquidity crisis events.
Management of liquidity and funding risks are overseen by ALCO.
Supervision and regulation
The RBNZ requires the Bank to have a comprehensive Board approved liquidity strategy defining: policy, systems and procedures formeasuring, assessing, reporting and managing domestic and foreign currency liquidity. This also includes a formal contingency plan for
dealing with a liquidity crisis. The Banking Group is required to meet one week and one month liquidity mismatch ratios and a one year
core funding ratio each day.
Scenario modelling
A key component of the Banking Group’s liquidity management framework is scenario modelling.
Potential severe name-specific 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 the Banking Group, or adverse ratingchanges. Under these scenarios the Banking Group may have significant difficulty rolling over or replacing funding. Under the liquidity
policy the Banking Group must have sufficient high quality liquid assets to meet its liquidity needs for the following 30 calendar days
under these scenarios.
As of 30 September 2017 the Banking Group was in compliance with the above scenarios.
Structural balance sheet metrics
The Banking Group’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 withthe liquidity scenarios to maintain the Banking Group‘s liquidity position.
Wholesale funding
The Banking Group’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost
efficiency while targeting diversification by markets, investors, currencies, maturities and funding structures. Short-term wholesale funding
requirements, with a contractual maturity of less than one year, are managed through the Treasury and Markets operations. Long-term
wholesale funding is managed and executed through Treasury operations.
The Banking Group also uses maturity concentration limits under the wholesale funding and liquidity management framework. Maturity
concentration limits ensure that the Banking Group does not become reliant on issuing large volumes of new wholesale funding within ashort time period. Funding instruments used to meet the wholesale borrowing requirement must be on a pre-established list of approved
products.
Funding capacity and debt issuance planning
The Banking Group adopts a conservative approach to determine its funding capacity. Annually, a funding plan is approved by the Bank’s
Board. The plan is supplemented by regular updates and is linked to the Banking Group’s three year strategic planning cycle.

ANZ Bank New Zealand Limited

39

NOTES TO THE FINANCIAL STATEMENTS
Funding composition
The Banking Group actively uses balance sheet disciplines to prudently manage the funding mix. The Banking Group employs funding
metrics to ensure that an appropriate proportion of its assets are funded from stable sources, including customer liabilities, longer-dated
wholesale debt (with remaining term exceeding one year) and equity.
Analysis of funding liabilities by industry is based on ANZSIC codes. The significant categories shown are the level one New ZealandStandard Industry Output Categories (NZSIOC). The presentation of these tables has changed from previous periods to align this disclosure
with the classifications in the data series S41 – Banks: Liabilities – Deposits by industry published by the RBNZ.
Note

30/09/2017
NZ$m

30/09/2016
NZ$m

15

96,82991,360

Unsubordinated debt

21,32320,014

Subordinated debt

3,283

3,282

Certificates of deposit

1,916

2,237

Commercial paper

3,721

5,364

Other borrowings

230

105

Funding composition
Customer deposits
Wholesale funding

Total wholesale funding

30,47331,002

Total funding

127,302122,362

Agriculture, forestry and fishing

3,487

3,334

Manufacturing

2,024

1,978

Construction

1,851

1,598

Wholesale trade

1,433

1,284

Retail trade and accommodation

1,516

1,328

Financial and insurance services

8,996

8,918

Rental, hiring and real estate services

2,596

2,321

Professional, scientific, technical, administrative and support services

5,034

4,958

Public administration and safety

1,261

1,258

Arts, recreation and other services

1,928

1,833

Households

53,22249,492All other New Zealand residents1

3,483

3,040

86,831

81,342Customer deposits by industry - New Zealand residents

Customer deposits by industry - overseas
Households

9,461

8,948

All other non-NZ residents

537

1,070

9,998

10,01896,82991,360

New Zealand

9,134

9,080

Overseas

21,33921,922

Total wholesale funding

30,47331,002

Total funding

127,302122,362

95,96590,422

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

Concentrations of funding by geography
New ZealandAustralia

796

1,017

United States

13,471

12,215

Europe9,784

11,448Other countries

7,286

7,260

Total funding

127,302122,362

1

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

ANZ Bank New Zealand Limited

40

NOTES TO THE FINANCIAL STATEMENTS
Liquidity portfolio management
The Banking Group holds a diversified portfolio of cash and high quality highly liquid securities to support liquidity risk management. The
size of the Banking Group’s liquidity portfolio is based on the amount required to meet the requirements of its internal and regulatory
liquidity scenario metrics.
Total liquidity portfolio
30/09/2017

Cash and balances with central banks
Certificates of deposit

30/09/2016

NZ$m

NZ$m

2,102

2,068

59

1,124

Government, local body stock and bonds

6,609

6,117

Government treasury bills

775

811

Reserve Bank bills-

100

Other bonds

6,390

6,483

Total liquidity portfolio

15,935

16,703

Assets held for managing liquidity risk include short term cash held with the RBNZ, New Zealand Government securities, securities issued
by supranational agencies, securities issued by highly rated banks and securities issued by State Owned Enterprises, Local Authorities andhighly rated NZ domestic corporates. These assets would be accepted as collateral by the RBNZ in repurchase transactions. At 30
September 2017 the Banking Group would be eligible to enter into repurchase transactions with a value of NZ$13,832 million. The
Banking Group also held unencumbered internal residential mortgage backed securities (RMBS) which would entitle the Banking Group toenter into repurchase transactions with a value of NZ$7,297 million at 30 September 2017.
Liquidity crisis contingency planning
The Banking Group maintains liquidity crisis contingency plans defining an approach for analysing and responding to a liquiditythreatening event on a group wide basis. The framework includes:•
the establishment of crisis severity/stress levels•
clearly assigned crisis roles and responsibilities•
early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals•
outlined action plans, and courses of action for altering asset and liability behaviour•
procedures for crisis management reporting, and covering cash-flow shortfalls•
guidelines determining the priority of customer relationships in the event of liquidity problems•
assigned responsibilities for internal and external communications.

ANZ Bank New Zealand Limited

41

NOTES TO THE FINANCIAL STATEMENTS
Contractual maturity analysis of financial assets and liabilities
The following tables present the Banking Group's financial assets and liabilities within relevant contractual maturity groupings, based on
the earliest date on which the Bank or the Banking Group may be required to realise an asset or settle a liability. The amounts disclosed in
the tables represent undiscounted future principal and interest cash flows, except for derivatives held for trading where the full mark-tomarket amount has been included in the less than three months category. As a result, the amounts in the tables below may differ to theamounts reported on the balance sheet.
The contractual maturity analysis for off-balance sheet commitments and contingent liabilities has been prepared using the earliest date
at which the Banking Group or the Bank can be called upon to pay. The liquidity risk of credit related commitments and contingent
liabilities may be less than the contract amount, and does not necessarily represent future cash requirements as many of these facilities are
expected to be only partially used or to expire unused.
The Banking Group does not manage its liquidity risk on this basis.

Total
NZ$m

At call
NZ$m

Up to
3 months
NZ$m

Over 3 to
12 months
NZ$m

Over 1 to
5 years
NZ$m

Over
5 years
NZ$m

No maturity
specified
NZ$m

2,338

1,974

364

-

-

-

-

Settlement balances receivable

536

185

351

-

-

-

-

Collateral paid

1,415

-

1,415

-

-

-

-

Trading securities

8,226

-

366

804

6,323

733

-

Derivative financial assets (trading)

8,682

-

8,682

-

-

-

-

30/09/2017

Financial assets
Cash

Available-for-sale assets

6,746

-

545

1,013

4,452

735

1

Net loans and advances1

159,358

146

16,14917,40554,84870,810-

Other financial assets1

332

-

276

43

13

-

-

Total financial assets

187,633

2,305

28,14819,26565,636

72,2781

Settlement balances payable

1,850

1,165

685

-

-

-

-

Collateral received

613

-

613

-

-

-

-

111,925

58,287

24,81424,320

4,504

-

-

8,057

-

8,057

-

-

-

-

Financial liabilities

Deposits and other borrowings1
Derivative financial liabilities (trading)Unsubordinated debt

2

22,783

-

1,593

2,072

15,827

3,291-

Subordinated debt2

3,691

-

11

878

669

2,133

-

Other financial liabilities1

361

-

155

6

56

144

-

Total financial liabilities

149,280

59,45235,92827,276

21,056

5,568-

Derivative financial instruments used for balance sheet management- gross inflows

15,377

-

2,082

2,300

8,128

2,867

-

- gross outflows(15,737)-(2,235)(2,433)(8,328)(2,741)-

Net financial assets / (liabilities) after balance
sheet management

37,993(57,147)(7,933)(8,144)44,38066,836

1

Contractual maturity of off-balance sheet commitments and contingent liabilities

Non-credit related commitments

Total

Less than
1 yearBeyond1 year

NZ$m

NZ$m

NZ$m

488

88

400

Credit related commitments

26,76926,769-Contingent liabilities

2,608

2,608

-

Total

29,86529,465400

1²Includes UDC items classified as held for sale.
Any callable wholesale debt instruments have been included at their next call date. Refer to note 17 for subordinated debt call dates.

ANZ Bank New Zealand Limited

42

NOTES TO THE FINANCIAL STATEMENTS
Total
NZ$m

At call
NZ$m

Up to
3 months
NZ$m

Over 3 to
12 months
NZ$m

Over 1 to
5 years
NZ$m

Over
5 years
NZ$m

No maturity
specified
NZ$m

Cash

2,274

2,045

229

-

-

-

-

Settlement balances receivable

396

58

338

-

-

-

-

Collateral paid

2,310

-

2,310

-

-

-

-

Trading securities

12,804

-

171

1,136

10,859638-

Derivative financial assets (trading)

19,513-

19,513----Available-for-sale assets

2,923

-

1,670

283

969

-

1

Net loans and advances

147,972246

15,35017,56250,16864,646-30/09/2016

Financial assets

Other financial assets

281

-

228

41

12

-

-

Total financial assets

188,473

2,349

39,80919,02262,00865,284

1

Settlement balances payable

1,740

1,111

629

-

-

-

-

Collateral received

529

-

529

-

-

-

-

Deposits and other borrowings

100,429

50,413

20,79025,095

4,131

-

-

Derivative financial liabilities (trading)

19,374-

19,374----

Unsubordinated debt¹

20,983

-

2,363

1,882

13,466

3,272-

Subordinated debt¹

3,354

-

11

33

1,369

1,941

-

Financial liabilities

Other financial liabilities

264

-

33

7

93

131

-

Total financial liabilities

146,673

51,52443,72927,017

19,0595,344-

Derivative financial instruments used for balance sheet management- gross inflows

16,047

-

3,006

1,811

7,642

3,588

-

- gross outflows(16,844)-(3,492)(1,823)(7,874)(3,655)-

Net financial assets / (liabilities) after balance
sheet management

41,003(49,175)(4,406)(8,007)42,71759,873

1

Contractual maturity of off-balance sheet commitments and contingent liabilities
Total

Less than
1 yearBeyond1 year

NZ$m

NZ$m

NZ$m

460

92

368

Credit related commitments

27,29627,296-

Contingent liabilities

2,461

2,461

-

Total

30,217

29,849368

Non-credit related commitments

1

Any callable wholesale debt instruments have been included at their next call date.

ANZ Bank New Zealand Limited

43

NOTES TO THE FINANCIAL STATEMENTS
19. CLASSIFICATION OF FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
At amortisedcost

At fair value throughprofit or loss
Designatedon initial
Held forrecognition
trading

Hedging

Available-forsale assets

Total
carrying
amountFair value

30/09/2017

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Cash

2,338

-

-

-

-

2,338

2,338

Settlement balances receivable

536

-

-

-

-

536

536

Collateral paid

1,415

-

-

-

-

1,415

1,415

-

-

7,663

-

-

7,663

7,663

Derivative financial instruments

-

-

9,490

388

-

9,878

9,878

Available-for-sale assets

-

-

-

-

6,360

6,360

6,360

120,539

-

-

-

-

120,539

120,588

Other financial assets

621

123

-

-

-

744

744

Total financial assets

125,449

123

17,153388

6,360

149,473

149,522

Settlement balances payable

1,840

-

-

-

-

1,840

1,840

Collateral received

613

-

-

-

-

613

613

98,975

3,721

-

-

-

102,696

102,751

Trading securities
1

Net loans and advances2, 3

Deposits and other borrowings3
Derivative financial instruments1

-

-

8,992

834

-

9,826

9,826

Unsubordinated debt2

21,323----

21,32321,517

Subordinated debt

3,283

-

-

-

-

3,283

3,501

Other financial liabilities

608

-

151

-

-

759

759

Total financial liabilities

126,642

3,721

9,143

834

-

140,340

140,807

Cash

2,274

-

-

-

-

2,274

2,274

Settlement balances receivable

396

-

-

-

-

396

396

Collateral paid

2,310

-

-

-

-

2,310

2,310

Trading securities--

11,979--11,97911,979Derivative financial instruments1--

20,379731-

21,11021,110Available-for-sale assets

-

-

-

-

2,859

2,859

2,859
114,891

30/09/2016

2

Net loans and advances

114,623

-

-

-

-

114,623

Other financial assets

559

119

-

-

-

678

678

Total financial assets

120,162119

32,358731

2,859

156,229

156,497

1,771

-

-

-

-

1,771

1,771

Settlement balances payable
Collateral received
Deposits and other borrowings
Derivative financial instruments1

529

-

-

-

-

529

529

93,702

5,364

-

-

-

99,06699,169--21,190766-

21,956

21,956

Unsubordinated debt2

20,014----20,014

20,148Subordinated debt

3,282

-

-

-

-

3,282

3,351

Other financial liabilities

482

-

157

-

-

639

639

Total financial liabilities

119,780

5,364

21,347766-

147,257

147,5631
2

3

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

ANZ Bank New Zealand Limited

44

NOTES TO THE FINANCIAL STATEMENTS
Measurement of fair value
Valuation methodologies
The Banking Group has an established control framework that ensures fair value is either determined or validated by a function
independent of the party that undertakes the transaction. The control framework ensures that all models are calibrated periodically to test
that outputs reflect prices from observable current market transactions in the same instrument or other available observable market data.
Where quoted market prices are used, prices are independently verified from other sources. For fair values determined using a valuation
model, the control framework may include, as applicable, independent development or validation of valuation models, any inputs to
those models, any adjustments required outside of the valuation model and, where possible, independent validation of model outputs. In
this way, continued appropriateness of the valuations is ensured.
In instances where the Banking Group holds offsetting risk positions, the Banking Group uses the portfolio exemption in NZ IFRS 13 Fair
Value Measurement to measure the fair value of such groups of financial assets and financial liabilities on the basis of the price that would
be received to sell a net long position (that is, an asset) for a particular risk exposure or to transfer a net short position (that is, a liability) fora particular risk exposure.
The Banking Group categorises its fair value measurements on the basis of inputs used in measuring fair value using the fair value
hierarchy below:•

Level 1 – Financial instruments that have been valued by reference to unadjusted quoted prices in active markets for identicalfinancial instruments. This category includes financial instruments valued using quoted yields where available for specific debt
securities.

•

Level 2 – Financial instruments that have been valued through valuation techniques incorporating inputs other than quoted prices
within Level 1 that are observable for a similar financial asset or liability, either directly or indirectly.

•

Level 3 – Financial instruments that have been valued using valuation techniques which incorporate significant inputs that are notbased on observable market data (unobservable inputs).

Valuation techniques and inputs used
In the event that there is no quoted market price for the instrument, fair value is based on valuation techniques. The valuation models
incorporate the impact of bid/ask spreads, counterparty credit spreads, funding costs and other factors that would influence the fair value
determined by market participants.
The majority of valuation techniques employ only observable market data. However, for certain financial instruments the valuation
technique may employ some data (valuation inputs or components) which is not readily observable in the current market. In these cases
valuation inputs (or components of the overall value) are derived and extrapolated from other relevant market data and tested against
historic transactions and observed market trends. To the extent that valuation is based on models or inputs that are not observable in themarket, the determination of fair value can be more subjective, dependent on the significance of the unobservable input to the overall
valuation.
The following valuation techniques have been applied to determine the fair values of financial instruments where there is no quoted price(level1) for the instrument:•

For instruments classified as trading securities and securities short sold, derivative financial assets and liabilities, available-for-saleassets, and investments backing insurance contract liabilities, fair value measurements are derived by using modelled valuations
techniques (including discounted cash flow models) that incorporate market prices / yields for securities with similar credit risk,
maturity and yield characteristics; and/or current market yields for similar instruments.

•

For net loans and advances, deposits and other borrowings and unsubordinated debt, discounted cash flow techniques are used
where contractual future cash flows of the instrument are discounted using discount rates incorporating wholesale market rates ormarket borrowing rates of debt with similar maturities or a yield curve appropriate for the remaining term to maturity.

There have been no substantial changes in the valuation techniques applied to different classes of financial instruments during the year.

ANZ Bank New Zealand Limited

45

NOTES TO THE FINANCIAL STATEMENTS
Valuation hierarchy for financial assets and financial liabilities measured at fair value in the balance sheet
30/09/2017
Level 1
NZ$m

Level 2
NZ$m

30/09/2016
Level 3
NZ$m

Total
NZ$m

Level 1
NZ$m

Level 2
NZ$m

Level 3
NZ$m

Total
NZ$m

Financial assets
Trading securities

7,276

387

-

7,663

11,967

12-

11,979

5

9,870

3

9,878

3

21,100

7

21,110

5,336

1,023

1

6,360

1,671

1,187

1

2,859

-

123

-

123

5

114

-

119

12,617

11,403

4

24,024

13,646

22,4138

36,067

Deposits and other borrowings

-

3,721

-

3,721

-

5,364

-

5,364

Derivative financial instruments

24

9,801

1

9,826

46

21,9082

21,956

Other financial liabilities

151

-

-

151

157

-

-

157

Total

175

13,522

1

13,698203

27,272

2

27,477

Derivative financial instruments
Available-for-sale assets
Investments backing insurance contract liabilities
Total
Financial liabilities

Valuation hierarchy for financial assets and financial liabilities not measured at fair value¹
30/09/2017

30/09/2016

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

-

117,365

3,223

120,588-

111,513

3,378

114,891

Financial assets
Net loans and advances
Financial liabilities
Deposits and other borrowings-

99,030-99,030-93,805-93,805

Unsubordinated debt

1,487

20,030-21,517

1,629

18,519-20,148Subordinated debt

1,368

2,133

-

3,501

1,361

1,990

-

3,351

Total

2,855

121,193-

124,048

2,990

114,314-

117,304

1

Fair values, where the carrying amount is not considered a close approximation of fair value.

20. MATURITY ANALYSIS OF ASSETS AND LIABILITIESThe following is an analysis of asset and liability line items in the balance sheet that combine amounts expected to be realised or due tobe settled within one year and after more than one year.
30/09/2017
within one
after more
year than one year
NZ$m

NZ$m

Total
NZ$m

30/09/2016
within one
after more
year than one year
NZ$m

NZ$m

Total
NZ$m

AssetsInvestments backing insurance contract liabilities

120

3

123

107

12

119

Available-for-sale assets

1,400

4,960

6,360

1,915

944

2,859

Net loans and advances1

24,945

95,594

120,539

24,976

89,647

114,623

Other assets1

665

38

703

598

103

701

Life insurance contract assets

45

591

636

42

588

630

Deposits and other borrowings1

98,193

4,503

102,696

95,301

3,765

99,066

Payables and other liabilities1

1,006

178

1,184

884

235

1,119

34

86

120

29

97

126

Liabilities

Employee entitlements1
Other provisions

66

-

66

79

1

80

Unsubordinated debt

3,169

18,154

21,323

4,009

16,00520,014

Subordinated debt2

845

2,438

3,283

-

3,282

3,282

1
2

Includes UDC items classified as held for sale.
Any callable wholesale debt instruments have been included at their next call date.

ANZ Bank New Zealand Limited

46

NOTES TO THE FINANCIAL STATEMENTS
21. ASSETS CHARGED AS SECURITY FOR LIABILITIES AND COLLATERAL ACCEPTED AS
SECURITY FOR ASSETS
Assets charged as security for liabilities1
The carrying amounts of assets pledged as security are as follows:
Carrying Amount
30/09/2017
NZ$m

Securities sold under agreements to repurchase

Related Liability

30/09/2016
NZ$m

30/09/2017
NZ$m

30/09/2016
NZ$m

157

77

157

76

Residential mortgages pledged as security for covered bonds

10,595

10,265

5,325

6,218

Assets pledged as collateral for UDC secured investments

2,985

2,665

1,039

1,592

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'scustomers and certain plant and equipment. The security interest secures all amounts payable by UDC on the UDC Secured Investments
and all other monies payable by UDC under the trust deed.
Collateral accepted as security for assets1
The Banking Group has received collateral in relation to reverse repurchase agreements. These transactions are governed by standard
industry agreements.
The fair value of collateral received and sold or repledged is as follows:
30/09/2017
NZ$m

30/09/2016
NZ$m

Collateral received on standard reverse repurchase agreements
Fair value of assets which can be sold

361

231

Fair value of assets sold or repledged

218

141

1

Excludes the amounts disclosed as collateral paid and received in the balance sheet that relate to derivative liabilities and derivative assets respectively. The terms andconditions of the collateral agreements are included in the standard CSA that forms part of the ISDA.

ANZ Bank New Zealand Limited

47

NOTES TO THE FINANCIAL STATEMENTS
22. OFFSETTING
The following information relates to financial assets and liabilities which have not been set off in the balance sheet but for which the
Banking Group has enforceable master netting agreements in place with counterparties. No financial assets and liabilities have been set
off in the balance sheet.
Gross amounts
presented in thebalance sheet
30/09/2017

NZ$m

Related amounts not offset 1
Financial
instruments Cash collateral

Net amounts

NZ$m

NZ$m

NZ$m

61

Financial assets
Collateral paid

409

-

(348)

Trading securities 2

157

(157)

-

-

Derivative financial instruments

7,945(7,478)

(245)

222
73

Financial liabilities
Collateral received

318

-

(245)

Securities sold under agreements to repurchase 3

157

(157)

-

-

Derivative financial instruments

8,440(7,478)

(348)

614

1,405

-

(1,332)

73

77

(76)

-

1

7,618

(7,280)

(323)

15

358

-

(323)

35

30/09/2016

Financial assets
Collateral paid
Trading securities 2
Derivative financial instruments
Financial liabilities
Collateral received
Securities sold under agreements to repurchase
Derivative financial instruments

3

76

(76)

-

-

8,768

(7,280)(1,332)156

The Banking Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard masternetting agreements. The Banking Group holds and provides cash and securities collateral in respective of derivative transactions covered by these agreements. The right to set
off balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, thesearrangements do not qualify for offsetting under NZ IAS 32 Financial Instruments: Presentation.
2
This is the amount of trading securities encumbered through repurchase agreements, see financial assets pledged as collateral table in note 21.
3
Included in deposits and other borrowings, see note 15.
1

ANZ Bank New Zealand Limited48

NOTES TO THE FINANCIAL STATEMENTS
23. CREDIT RELATED COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES
30/09/2017

30/09/2016

NZ$m

NZ$m

26,76927,296

Contract amount of:
Credit related commitments - facilities provided
Undrawn facilities
Guarantees and contingent liabilities
Guarantees and letters of credit

1,010

850

Performance related contingencies

1,598

1,611

Total guarantees and contingent liabilities

2,608

2,461

Total Credit Related Commitments, Guarantees and Contingent Liabilities

29,37729,757

These guarantees and contingent liabilities relate to transactions that the Banking Group has entered into as principal, including
guarantees, standby letters of credit and documentary letters of credit.
Documentary letters of credit involve the issue of letters of credit guaranteeing payment in favour of an exporter secured against anunderlying shipment of goods or backed by a confirmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige the Banking Group to make payments to a third party should the customer failto fulfil the non-monetary terms of the contract.
To reflect the risk associated with these transactions, they are subjected to the same credit origination, portfolio management andcollateral requirements as customers that apply for loans. The contract amount represents the maximum potential amount that could be
lost 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.
Other contingent liabilities
The Banking Group has other contingent liabilities in respect of actual and possible claims and court proceedings. An assessment of the
Banking Group’s likely loss in respect of these matters has been made on a case-by-case basis and provision made where deemednecessary.

24. GOODWILL AND OTHER INTANGIBLE ASSETS
30/09/2017

30/09/2016

NZ$m

NZ$m

Goodwill

3,230

3,233

Software

67

76

Other intangibles

111

115

3,408

3,424

(133)

-

3,275

3,424

Note

Goodwill and other intangible assets (including assets classified as held for sale)Less: goodwill allocated to UDC and held for sale
Goodwill and other intangible assets

29

ANZ Bank New Zealand Limited

49

NOTES TO THE FINANCIAL STATEMENTS
25. SHARE CAPITAL
Number of issued shares

NZ$ millions

30/09/2017

30/09/2016

30/09/2017

30/09/2016

Ordinary shares

3,345,755,498

3,345,755,498

8,588

8,588

Redeemable preference shares

300,000,000

300,000,000

300

300

Total share capital

3,645,755,498

3,645,755,498

8,888

8,888

Ordinary shares
650,712 of the ordinary shares are uncalled (2016: 650,712 shares uncalled).
During the year ended 30 September 2017 the Bank paid ordinary dividends of NZ$1,684 million (2016: NZ$1,350 million) to the
Immediate Parent Company (equivalent to NZ$0.50 per share) (2016: equivalent to NZ$0.40 per share).
All ordinary shares share equally in dividends and any proceeds available to ordinary shareholders on winding up of the Bank. On a showof hands every member who is present at a meeting in person or by proxy or by representative is entitled to one vote, and upon a poll
every member shall have one vote for each share held.
Preference shares
All preference shares were issued by the Bank to the Immediate Parent and do not carry any voting rights. The preference shares arewholly classified as equity instruments as there is no contractual obligation for the Bank to either deliver cash or another financial
instrument or to exchange financial instruments on a potentially unfavourable basis. The key terms of the preference shares are as follows:
Dividends
Dividends are payable at the discretion of the directors of the Bank and are non-cumulative. The Bank must not resolve to pay any
dividend or make any other distribution on its ordinary shares until the next preference dividend payment date if the dividend on thepreference shares is not paid.
Should the Bank elect to pay a dividend, the dividend is based on a floating rate equal to the aggregate of the New Zealand 6 month bankbill rate plus a 325 basis point margin, multiplied by one minus the New Zealand company tax rate, with dividend payments due on 1
March and 1 September each year.
Redemption features
The preference shares are redeemable, subject to prior written approval of the RBNZ, by the Bank providing notice in writing to holders of
the preference shares:•
on any date on or after a change to laws or regulations that adversely affects the regulatory capital or tax treatment of thepreference shares or•on any dividend payment date on or after 1 March 2019 or•on any date after 1 March 2019 if the Bank has ceased to be a wholly owned subsidiary of the Ultimate Parent Bank.
The preference shares may be redeemed for nil consideration should a non-viability trigger event occur.
Rights of holders in event of liquidation
In the event of liquidation, holders of preference shares are entitled to available subscribed capital per share, pari passu with all holders ofexisting preference shares and ANZ capital notes but in priority to all holders of ordinary shares. They have no entitlement to participate infurther distribution of profits or assets.
The preference shares qualify as “additional tier 1 capital” for capital adequacy purposes.

ANZ Bank New Zealand Limited

50

NOTES TO THE FINANCIAL STATEMENTS
26. CAPITAL ADEQUACY
Capital management policies
The Banking Group’s core capital objectives are to:•Protect the interests of depositors, creditors and shareholders•
Ensure the safety and soundness of the Banking Group’s capital position•
Ensure that the capital base supports the Banking Group’s risk appetite, and strategic business objectives, in an efficient and effective
manner.
The Board holds ultimate responsibility for ensuring that capital adequacy is maintained. This includes: setting, monitoring and obtaining
assurance for the Banking Group’s Internal Capital Adequacy Assessment Process (“ICAAP”) policy and framework; standardised risk
definitions for all material risks; materiality thresholds; capital adequacy targets; internal economic risk capital principles; and risk appetite.
The Banking Group has minimum and trigger levels for common equity tier 1, tier 1 and total capital that ensure sufficient capital ismaintained to:•
Meet minimum prudential requirements imposed by regulators•
Ensure consistency with the Banking Group’s overall risk profile and financial positions, taking into account its strategic focus andbusiness plan•
Support the economic risk capital requirements of the business.
The Banking Group’s Asset & Liability Committee 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.
The Banking Group has complied with all externally imposed capital requirements to which it is subject during the current and priorperiods.
RBNZ
minimum
ratios30/09/2017

30/09/2016

Common equity tier 1 capital

4.5%

10.7%

10.0%

9.5%

8.9%

Tier 1 capital

6.0%

14.1%

13.2%

13.0%

12.2%

Total capital

8.0%

14.4%

13.7%

13.3%

12.8%

Buffer ratio

2.5%

6.2%

5.5%

RBNZ Basel III capital ratios

Banking GroupBank
30/09/2017

30/09/2016

UnauditedANZ Bank New Zealand Limited

51

NOTES TO THE FINANCIAL STATEMENTS
Capital of the Banking Group
Unaudited
30/09/2017
Note

NZ$m

25

8,588

Tier 1 capital
Common equity tier 1 capital
Paid up ordinary shares issued by the Bank
Retained earnings (net of appropriations)

3,845

Accumulated other comprehensive income and other disclosed reserves

48

Less deductions from common equity tier 1 capital
Goodwill and intangible assets, net of associated deferred tax liabilities(3,399)Cash flow hedge reserve(43)

Expected losses to the extent greater than total eligible allowances for impairment(312)

Common equity tier 1 capital

8,727

Additional tier 1 capitalPreference shares

25

300

ANZ Capital Notes

17

2,441

Capital attributable to Bonus Bonds Scheme investors

37

Additional tier 1 capital

2,778

Total tier 1 capital

11,505Tier 2 capital
Qualifying tier 2 capital instruments subject to phase-out under RBNZ Basel III transition arrangements
NZD 835,000,000 perpetual subordinated bond

17

835

Less deductions from tier 2 capitalBasel III transition adjustment1(601)

Total tier 2 capital

234

Total capital

11,739

Capital requirements of the Banking Group

Exposure atdefault

Risk weighted
exposure or
implied risk
weighted
exposure2

Total capitalrequirement

NZ$m

NZ$m

NZ$m

Exposures subject to internal ratings based approach

160,456

57,268

4,581

Specialised lending exposures subject to slotting approach

11,631

10,472

838

Exposures subject to standardised approach

1,915

479

38

Equity exposures

8

32

3

Other exposures

3,553

1,674

134

n/a

1,363

109

Total credit risk

177,563

71,288

5,703

Operational risk

n/a

5,805

464

Unaudited 30/09/2017

Agri business supervisory adjustment

Market risk
Total
1

2

n/a

4,549

364

177,563

81,642

6,531

Certain instruments issued by the Bank qualify as tier 2 capital instruments subject to phase-out under RBNZ Basel III transition arrangements. Fixing the base at the nominal
amount of such instruments outstanding at 31 December 2012, their recognition is capped at 20% of that base from 1 January 2017; and from 1 January 2018 onwards these
instruments will not be included in regulatory capital.
Total credit risk weighted exposures include a scalar of 1.06 in accordance with the Bank's Conditions of Registration.

ANZ Bank New Zealand Limited

52

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

Borrower Type

Rating Approach

SovereignCrown

IRB - Advanced

RBNZ

IRB - Advanced

Any other sovereign and its central bank

IRB - Advanced

Bank

Registered banks

IRB - Advanced

Corporate

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

IRB - Advanced

Corporate Small to Medium Enterprises ("SME") with turnover of less than NZ$50 million

IRB - Advanced

Retail Mortgages

Individuals' borrowings against residential property

IRB - Advanced

Other Retail

Other lending to individuals (including credit cards)

IRB - Advanced

SME business borrowers

IRB - Advanced

Project finance

IRB - Slotting

Income producing real estate

IRB - Slotting

Corporate sub-class- Specialised lending
EquityIRB

Other assets

All other assets not falling within any of the above classes

IRB

Standardised approach
Exposure class

Exposure Type

Reason for Standardised Approach

Future Treatment

Corporate

Merchant card prepayment exposures

System constraints

Move to IRB

Corporate credit cards

System constraints

Move to IRB

Qualifying Central Counterparty (QCCP)

Required by Basel III

Standardised

Bank

ANZ Bank New Zealand Limited

53

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

Total exposure
or principal
amountUnaudited 30/09/2017

Exposureweighted LGD
used for the
ExposureExposure at
capital weighted risk Risk weighted
default
calculation
weightexposure

Total capitalrequirement

NZ$m

NZ$m

%

%

NZ$m

NZ$m

Corporate

35,23135,33634

56

20,977

1,678

Sovereign

11,30911,030

5

1

99

8

Bank

6,507

5,804

58

19

1,177

94

Retail mortgages

70,08870,31419

21

15,503

1,240

Other retail

5,211

5,302

74

94

5,300

424

128,346

127,786

26

32

43,0563,444

Corporate

12,471

10,025

47

47

4,999

400

Sovereign

128

97

5

1

1

-

Bank

1,410

1,146

51

17

205

16

Retail mortgages

8,066

8,468

16

14

1,258

101

On-balance sheet exposures

Total on-balance sheet exposures
Off-balance sheet exposures

Other retail

5,591

5,609

79

56

3,354

268

Total off-balance sheet exposures

27,66625,345

44

37

9,817

785

Corporate

114,726

3,171

61

80

2,690

215

Sovereign

17,002

82

5

31

27

2

Bank

1,028,806

4,072

62

39

1,678

135

Total market related contracts

1,160,534

7,325

61

57

4,395

352

Total credit risk exposures subject to the IRB approach

1,316,546

160,45630

34

57,2684,581

Market related contracts

ANZ Bank New Zealand Limited

54

NOTES TO THE FINANCIAL STATEMENTS
IRB exposures by customer credit rating

Unaudited 30/09/2017

Probability ofdefault%

Exposureweighted LGD
used for the
ExposureExposure at
capital weighted risk Risk weighted
default
calculation
weightexposure
NZ$m
%
%
NZ$m

Total capitalrequirement
NZ$m

Corporate
0-2

0.06

6,174

62

45

2,972

238

3-4

0.33

21,429

36

40

9,112

729

5

1.02

13,986

33

60

8,840

707

6

2.30

4,833

36

83

4,248

340

7-8

15.52

1,711

39

161

2,919

233

Default

100.00

399

46

136

575

46

2.04

48,53239

56

28,666

2,293

0

0.01

11,075

5

1

125

10

1-8

0.02

134

5

2

2

-

Total sovereign exposures

0.01

11,209

5

1

127

10

Total corporate exposures
Sovereign

Bank
0

0.03

60

65

18

11

1

1

0.03

9,991

58

25

2,634

211

2-4

0.11

969

64

40

412

33

5-8

1.26

2

65

115

3

-

Total bank exposures

0.04

11,022

59

26

3,060

245

0-3

0.20

21,487

12

5

1,228

98

4

0.46

30,842

18

15

4,835

387

5

0.92

21,044

24

32

7,061

565

6

1.98

4,811

27

62

3,178

254

7-8

5.02

395

28

100

421

34

Default

100.00

203

21

18

38

3

0.88

78,78219

20

16,761

1,341

0-2

0.10

584

77

50

306

25

3-4

0.26

4,883

78

54

2,811

225

5

1.01

1,856

73

74

1,458

117

6

2.18

1,807

73

90

1,730

138

7-8

8.06

1,712

83

128

2,317

185

Default

100.00

69

78

45

32

2

Retail mortgages

Total retail mortgages exposures
Other retail

Total other retail exposures

2.56

10,911

77

75

8,654

692

Total credit risk exposures subject to the IRB approach

1.23

160,45630

34

57,268

4,581

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

ANZ Bank New Zealand Limited

55

NOTES TO THE FINANCIAL STATEMENTS
Specialised lending subject to the slotting approach
Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

NZ$m

%

NZ$m

NZ$m

Strong

3,859

70

2,864

229

Good

5,815

90

5,547

444

Satisfactory

641

115

782

63

Weak

75

250

197

15

Default

42

-

-

-

10,432

85

9,390

751

Average risk Risk weighted
weightexposure

Total capitalrequirement

Unaudited 30/09/2017

On-balance sheet exposures

Total on-balance sheet exposures

ExposureamountExposure atdefault

NZ$m

NZ$m

Undrawn commitments and other off balance sheet exposures

1,148

Market related contracts

2,126

Total off-balance sheet exposures

3,274

%

NZ$m

NZ$m

1,101

81

945

76

98

132

137

11

1,199

85

1,082

87

Off-balance sheet exposures

Specialised lending exposures subject to the slotting approach have been calculated in accordance with BS2B.
The supervisory categories of specialised lending above are associated with specific risk-weights. These categories broadly correspond to
the following external credit assessments using Standard & Poor's rating scale, Strong: BBB- or better, Good: BB+ or BB, Satisfactory: BB- or
B+ and Weak: B to C-.
Credit risk exposures subject to the standardised approach
Unaudited 30/09/2017

Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

NZ$m

%

NZ$m

NZ$m

105

78

86

7

1

150

1

-

106

78

87

7

Average risk Risk weighted
weightexposure

Total capitalrequirement

On-balance sheet exposures
Corporates
Default
Total on-balance sheet exposures
AveragecreditExposure conversion
amountfactor
NZ$m%

Exposure atdefault
NZ$m

%

NZ$m

NZ$m

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

563

57

323

96

328

26

Market related contracts

343,810

-

1,486

4

64

5

Total off balance sheet

344,373

n/a

1,809

20

392

31

Credit exposures subject to the Standardised Approach have been calculated in accordance with BS2A.

ANZ Bank New Zealand Limited

56

NOTES TO THE FINANCIAL STATEMENTS
Equity exposures
Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

NZ$m

%

NZ$m

NZ$m

8

400

32

3

Unaudited 30/09/2017

All equity holdings not deducted from capital

Equity exposures have been calculated in accordance with BS2B.
Other exposures
Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

Unaudited 30/09/2017

NZ$m

%

NZ$m

NZ$m

Cash

198

-

-

-

New Zealand dollar denominated claims on the Crown and the RBNZ

1,776

-

-

-

Other assets

1,579

100

1,674

134

Total other IRB credit risk exposures

3,553

44

1,674

134

Other exposures have been calculated in accordance with BS2B.
Credit risk mitigation
The Banking Group assesses the integrity and ability of counterparties to meet their contractual financial obligations for repayment. The
Banking Group generally takes collateral security in the form of real property or a security interest in personal property, except for major
government, bank and corporate counterparties of strong financial standing. Longer term consumer finance, in the form of housing loans,is generally secured against real estate while short term revolving consumer credit is generally unsecured.
As at 30 September 2017, under the IRB approach, the Banking Group had NZ$1,038 million of Corporate exposures covered byguarantees where the presence of the guarantees was judged to reduce the underlying credit risk of the exposures. Information on the
total value of exposures covered by financial guarantees and eligible financial collateral is not disclosed, as the effect of these guarantees
and collateral on the underlying credit risk exposures is not considered to be material.
Operational risk
The Banking Group uses the Advanced Measurement Approach for determining its regulatory capital requirement for operational risk
calculated in accordance with BS2B. As at 30 September 2017 the Banking Group had an implied risk weighted exposure of NZ$5,805
million for operational risk and an operational risk capital requirement of NZ$464 million.
Operational risk capital is modelled at a New Zealand geographic level and then distributed and adjusted for the business environment
and internal controls down to the business units using the Risk Scenario Methodology. This methodology ensures that there is sufficient
operational risk capital held as a buffer for rare and severe unexpected operational loss events that may impact the New Zealand business.
The Methodology applies a combination of expert judgement, business unit risk profiles, audit findings, and internal and external loss
events to derive a series of business specific Risk Scenarios that are applied to the capital model. The Risk Scenario approach•assesses the level of the Bank's exposure to specified risk scenarios;•
assesses the scope and quality of the Bank's internal control environment, key operational processes and risk mitigants; and•directly links the risk scenarios to operational risk capital.
The Banking Group's operating risk capital is calculated using the Ultimate Parent Bank’s methodology, but with standalone New Zealand
inputs to ensure there are no diversification benefits.
The Banking Group does not incorporate any insurance mitigation impact into its capital number. Accordingly, there are no insurance
related questions contained within the Risk Scenario Methodology.

ANZ Bank New Zealand Limited

57

NOTES TO THE FINANCIAL STATEMENTS
Market risk
The aggregate market risk exposures below have been calculated in accordance with BS2B. The peak end-of-day market risk exposures arefor the six months ended 30 September 2017.
Implied risk weighted exposure
Period end

Aggregate capital charge

Peak

Peak

Period end

Peakoccurred on

Unaudited 30/09/2017

NZ$m

NZ$m

NZ$m

NZ$m

Interest rate risk

4,502

7,271

360

582

6/06/2017

Foreign currency risk

46

152

4

12

20/06/2017

Equity risk

1

1

-

-

30/09/2017

4,549

364

Capital for other material risks
The Banking Group has an Internal Capital Adequacy Assessment Process (ICAAP) which complies with the requirements of the Bank's
Conditions of Registration.
Under the Banking Group's ICAAP it identifies and measures all "other material risks", which are those material risks that are not explicitly
captured in the calculation of the Banking Group's tier 1 and total capital ratios. The other material risks identified by the Banking Group
include pension risk, insurance risk, strategic equity risk, fixed asset risk, deferred acquisition cost risk, value in-force risk, business retention
risk and software risk.
The Banking Group's internal capital allocation for these other material risks is NZ$421 million. (2016: NZ$441 million).
Capital adequacy of the Ultimate Parent Bank
Basel III capital ratios
Overseas Banking Group

Ultimate Parent Bank
(Extended Licensed Entity)

30/09/2017

30/09/2016

30/09/2017

30/09/2016

Common equity tier 1 capital

10.6%

9.6%

10.5%

9.7%

Tier 1 capital

12.6%

11.8%

12.7%

12.1%

Total capital

14.8%

14.3%

14.8%

14.7%

Unaudited

For calculation of minimum capital requirements under Pillar 1 (Capital Requirements) of the Basel Accord, APRA has accredited theOverseas Banking Group to use the Advanced Internal Ratings Based (AIRB) methodology for calculation of credit risk weighted assets andthe Advanced Measurement Approach (AMA) for the operational risk weighted asset equivalent.
Under prudential regulations, the Overseas Banking Group is required to maintain a Prudential Capital Ratio (PCR) as determined by APRA.
The Overseas Banking Group exceeded the PCR set by APRA as at 30 September 2017 and for the comparative prior periods.
The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 30 September 2017. The Overseas Banking
Group’s Pillar 3 disclosure document for the quarter ended 30 September 2017, 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.

ANZ Bank New Zealand Limited

58

NOTES TO THE FINANCIAL STATEMENTS
Residential mortgages by loan-to-valuation ratio (LVR)
As required by the RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided by the Banking Group'svaluation of the security property at origination of the exposure. Off balance sheet exposures include undrawn and partially drawn
residential mortgage loans as well as commitments to lend. Commitments to lend are formal offers for housing lending which have been
accepted by the customer.
30/09/2017
On-balance
sheet
NZ$m

Off-balance
sheet
NZ$m

Total
NZ$m

Does not exceed 60%

33,292

5,227

38,519Exceeds 60% and not 70%

15,974

1,346

17,320Exceeds 70% and not 80%

16,725

1,168

17,893

Does not exceed 80%

65,991

7,741

73,732

Exceeds 80% and not 90%

2,648

137

2,785

Exceeds 90%

1,449

188

1,637

Total

70,088

8,066

78,154Note

30/09/2017
NZ$m

13

72,524

Unaudited

LVR range

Reconciliation of mortgage related amounts
Unaudited

Term loans - housing
Less: fair value hedging adjustment(44)

Less: housing loans made to corporate customers(2,414)

Add: unsettled re-purchases of mortgages from the NZ Branch22

On-balance sheet retail mortgage exposures subject to the IRB approach

18

70,088Add: off-balance sheet retail mortgage exposures subject to the IRB approach

8,066

Total retail mortgage exposures subject to the IRB approach (as per LVR analysis)

78,154

27. SUBSIDIARIESThe following table lists the principal subsidiaries of the Bank. Principal subsidiaries are those that have transactions or balances withparties outside the Banking Group. All subsidiaries are 100% owned and incorporated in New Zealand.
Principal subsidiaries

Nature of business

ANZ Investment Services (New Zealand) Limited

Funds management

ANZ New Zealand (Int'l) Limited

Finance

ANZ New Zealand Investments Limited

Funds management

ANZ New Zealand Securities Limited

On-line share broker

ANZNZ Covered Bond Trust1

Securitisation entity

Arawata Assets Limited

Property

Karapiro Investments Limited
1

Asset finance

Kingfisher NZ Trust 2008-1

Securitisation entity

OnePath Life (NZ) Limited

Insurance

UDC Finance Limited

Asset finance1

The Banking Group does not own ANZNZ Covered Bond Trust and Kingfisher NZ Trust 2008-1. Control exists as the Banking Group retains substantially all the risks and rewardsof the operations. Details of the Banking Group’s interest in consolidated structured entities is included in note 28.

ANZ Bank New Zealand Limited

59

NOTES TO THE FINANCIAL STATEMENTS
28. STRUCTURED ENTITIES, TRANSFERRED FINANCIAL ASSETS, FIDUCIARY ACTIVITIES AND
INSURANCE
Structured entities
The Banking Group’s involvement with structured entities is mainly through securitisations and its funds management activities, which are
outlined further below. The Banking Group has involvement with structured entities that may be established either by the Banking Groupor by a third party.
Consolidated structured entities
Kingfisher NZ Trust 2008-1 (the Kingfisher Trust)
The Banking Group has established the Kingfisher Trust as an in-house residential mortgage backed securities facility that can issue
securities meeting the RBNZ criteria to use as collateral in repurchase transactions with the RBNZ.
These assets do not qualify for derecognition as the Bank retains substantially all of the risks and rewards of the transferred assets.
As at 30 September 2017 and 30 September 2016 the Banking Group had not entered into any repurchase agreements with the RBNZ for
residential mortgage backed securities and therefore no collateral had been accepted by the RBNZ under this facility.
ANZNZ Covered Bond Trust (the Covered Bond Trust)
Substantially all of the assets of the Covered Bond Trust are made up of certain housing loans and related securities originated by the Bank
which are security for the guarantee by ANZNZ Covered Bond Trust Limited as trustee of the Covered Bond Trust of issuances of coveredbonds by the Bank, or its wholly owned subsidiary ANZ New Zealand (Int’l) Limited, from time to time. The assets of the Covered Bond
Trust are not available to creditors of the Bank, although the Bank (or its liquidator or statutory manager) may have a claim against theresidual assets of the Covered Bond Trust (if any) after all prior ranking creditors of the Covered Bond Trust have been satisfied.
The Banking Group continues to recognise the assets of the Covered Bond Trust on its balance sheet as, although they are pledged as
security for covered bonds, the Bank retains substantially all the risks and rewards of ownership.
Unconsolidated securitisations
The Banking Group also has an interest in unconsolidated securitisation entities through the provision of funding facilities or holding
bonds or notes issued by such entities. The Banking Group’s exposure to these entities is not material.
Transferred financial assets
In the normal course of business the Banking Group enters into transactions where it transfers financial assets directly to third parties or to
structured entities. These transfers may give rise to the Banking Group fully, or partially, derecognising those financial assets - dependingon the Banking Group’s exposure to the risks and rewards or control over the transferred assets. If the Banking Group retains substantiallyall of the risk and rewards of a transferred asset, the transfer does not qualify for derecognition and the asset remains on the Banking
Group’s balance sheet in its entirety.
Assets transferred to the Kingfisher Trust and the Covered Bond Trust
The Bank has purchased securities issued by both the Kingfisher Trust and the Covered Bond Trust in exchange for the transfer of therights to the cash flows associated with the identified residential mortgages. As at 30 September 2017, NZ$20,551 million of assets were
held in the Kingfisher Trust and the Covered Bond Trust (2016: NZ$19,656 million).
Repurchase transactions
Securities sold subject to repurchase agreements are not derecognised when substantially all the risks and rewards of ownership remain
with the Bank. See note 21 for details of securities sold under agreements to repurchase. The amount of trading securities encumberedthrough repurchase agreements is shown in note 22. The carrying amount of the associated liabilities is not materially different to theamount of trading securities subject to the repurchase agreement.

ANZ Bank New Zealand Limited

60

NOTES TO THE FINANCIAL STATEMENTS
Funds management and other fiduciary activities
Funds management
Certain subsidiaries of the Bank act as trustee and/or manager for a number of unit trusts and investment and superannuation funds. The
Banking Group provides private banking services to a number of clients, including investment advice and portfolio management. The
Banking Group is not responsible for any decline in performance of the underlying assets of the investors due to market forces.
As funds under management are not controlled by the Banking Group, they are not included in these financial statements. The Banking
Group derives fee and commission income from the sale and management of investment funds and superannuation schemes, unit trusts
and the provision of private banking services to customers. The Banking Group derives commission income from the sale of third party
funds management products.
Some funds under management are invested in products owned or securities issued by the Banking Group and are recorded as liabilities
in the balance sheet. At 30 September 2017, NZ$3,964 million of funds under management were invested in the Banking Group's own
products or securities (2016: NZ$3,698 million).
Custodial services
The Banking Group provides custodial services to customers in respect of assets that are beneficially owned by those customers.
30/09/2017

30/09/2016

NZ$m

NZ$m

Kiwisaver

11,047

9,295

Bonus Bonds Scheme

3,405

3,561

Other managed funds

1,984

1,924

ANZ PIE Fund1

1,381

953

Discretionary Investment Management Service (DIMS)2

7,193

7,007

Other investment portfolios2

3,480

3,745

Total funds under management

28,49026,485

Funds under custodial arrangements

7,720

7,408

Other funds held or managed subject to fiduciary responsibilities

1,557

1,927

Funds management fee income from structured entities

170

156

The Banking Group established, and is considered to be the sponsor of, the ANZ PIE Fund. The ANZ PIE Fund invests only in deposits with the Bank. The Banking Group does notreceive a management fee from, and does not have an interest in, the ANZ PIE Fund.
2
These funds are not structured entities as they are investment portfolios managed on behalf of customers.
1

Provision of financial services
Financial services provided by the Banking Group to entities which are involved in trust, custodial, funds management and other fiduciary
activities are provided on arm’s length terms and conditions and at fair value. Any assets purchased from such entities have beenpurchased on an arm’s length basis and at fair value. The Banking Group does not have any affiliated insurance entities or affiliatedinsurance groups that are not members of the Banking Group.
Except for standard lending facilities provided in the normal course of business on arm’s length terms, the Banking Group has notprovided any funding to entities where trust, custodial, funds management or other fiduciary activities are established, marketed and/or
sponsored by a member of the Banking Group (2016: nil).
Insurance business
The Banking Group conducts insurance business through its subsidiary OnePath Life (NZ) Limited (OnePath Life).
The Banking Group’s aggregate amount of insurance business comprises the total consolidated assets of OnePath Life of NZ$921 million(2016: NZ$926 million), which is 0.6% (2016: 0.6%) of the total consolidated assets of the Banking Group.
Risk management
The Bank and subsidiaries of the Bank participating in the activities identified above have in place policies and procedures to ensure thatthose activities are conducted in an appropriate manner. Should adverse conditions arise, it is considered that these policies andprocedures will minimise the possibility that these conditions will adversely impact the Bank or the Banking Group. The policies andprocedures include comprehensive and prominent disclosure of information regarding products, and formal and regular review ofoperations and policies by management.

ANZ Bank New Zealand Limited

61

NOTES TO THE FINANCIAL STATEMENTS
29. ASSETS AND LIABILITIES HELD FOR SALE
On 11 January 2017, the Bank announced that it had entered into a conditional agreement to sell UDC to HNA Group. The sale is subject
to certain conditions (including regulatory approvals) and the Banking Group is working with HNA Group towards completion of the sale.
The assets and liabilities of UDC are classified as held for sale as at 30 September 2017. The following assets and liabilities of UDC held forsale are measured at the lower of their carrying amount and fair value less costs to sell, except for assets such as deferred tax assets andfinancial assets which are specifically exempt from this requirement.
30/09/2017
NZ$m

Net loans and advances

2,912

Goodwill

133

Other assets

20

Total UDC assets held for sale

3,065

Deposits and other borrowings

1,039

Payables and other liabilities

33

Current tax liabilities

24

Deferred tax liabilities(9)

Employee entitlements
Total UDC liabilities held for sale

1
1,088

ANZ Bank New Zealand Limited

62

NOTES TO THE FINANCIAL STATEMENTS
30. RELATED PARTY DISCLOSURES
Key management personnel
Key management personnel (KMP) are defined as directors and those executives who report directly to the Bank’s Chief Executive Officer
with responsibility for the strategic direction and management of a major revenue generating division or who control material revenue
and expenses.
Loans made to directors and other KMP are made in the ordinary course of business on normal commercial terms and conditions no morefavourable than those given to other employees or customers, including the term of the loan, security required and the interest rate.
All other transactions with KMP and their related parties are made on terms equivalent to those that prevail in arm’s length transactions.
These transactions generally involve the provision of financial and investment services. All such transactions that have occurred with KMP
and their related parties have been trivial or domestic in nature. In this context, transactions are only disclosed when they are consideredof interest to the users of the financial statements in making and evaluating decisions about the allocation of scarce resources.
Year toYear to30/09/2017
NZ$00030/09/2016
NZ$000Key management personnel compensation
Salaries and short-term employee benefits

11,43011,382

Post-employment benefits

480

280

Other long-term benefits

60

88

Share-based payments expense

3,515

4,123

Total compensation of key management personnel

15,485

15,873

Loans

5,102

7,373

Unsubordinated debt

520

520

Subordinated debt

190

190

Loans to, and securities held by, key management personnel and their related parties

Transactions with other related parties
The Bank and Banking Group undertake transactions with the Immediate Parent Company, the Ultimate Parent Bank, other members of
the Overseas Banking Group and associates.
These transactions principally consist of funding and hedging transactions, the provision of other financial and investment services,
technology and process support, and compensation for share based payments made to Banking Group employees. Transactions withrelated parties outside of the Banking Group are conducted on an arm’s length basis and on normal commercial terms.
In addition the Bank undertakes similar transactions with subsidiaries, which are eliminated in the consolidated Banking Group financial
statements. Included within the Bank’s transactions with subsidiaries is the provision of administrative functions to some subsidiaries forwhich no payments have been made.
Transactions with related parties
Year toYear to30/09/2017
NZ$m

30/09/2016
NZ$m

Ultimate Parent Bank and subsidiaries not part of the Banking GroupInterest income

3249Interest expense

146

87

Fee income

1419

Gain/(loss) on sale of mortgages to the NZ Branch(1)

1

Other operating income

23

19

Operating expenses

46

64

Mortgages sold to the NZ Branch

481

697

1

1

Direct fee expense

1010Dividends received

5

2

Share of associates' profit

5

5

Immediate Parent Company
Interest expense
Associates

ANZ Bank New Zealand Limited

63

NOTES TO THE FINANCIAL STATEMENTS
Balances with related parties
30/09/2017

30/09/2016

NZ$m

NZ$m

Cash

64

47

Settlement balances receivable

111

31

-

375

2,623

4,361

42

108

4

-

7

7

2,851

4,929

Settlement balances payable

220

323

Collateral received

198-

Deposits and other borrowings

11-

Derivative financial instruments

2,486

4,818

Payables and other liabilities

31

32

1,951

1,951

62

29

Ultimate Parent Bank and subsidiaries not part of the Banking Group

Collateral paid
Derivative financial instruments
Other assets
Immediate Parent Company
Derivative financial instruments
Associates
Investments in associates
Total due from related parties
Ultimate Parent Bank and subsidiaries not part of the Banking Group

Subordinated debt
Immediate Parent Company
Deposits and other borrowings
Associates
Payables and other liabilities

1

1

Total due to related parties

4,960

7,154

Balances due from / to related parties are unsecured. The Bank has provided guarantees and commitments to related parties as follows:
30/09/2017

30/09/2016

NZ$m

NZ$m

Financial guarantees provided to the Ultimate Parent Bank

155

152

Undrawn credit commitments provided to the Immediate Parent Company

250

250

ANZ Bank New Zealand Limited

64

NOTES TO THE FINANCIAL STATEMENTS
31. CAPITAL EXPENDITURE AND OPERATING LEASE COMMITMENTS
30/09/2017
NZ$m

30/09/2016
NZ$m

4

5

Not later than 1 year

84

87

Later than 1 year but not later than 5 years

256

217

Later than 5 years

144

151

Total operating lease commitments

484

455

Total commitments

488

460

Contracts for outstanding capital expenditure
Not later than 1 year
Future minimum lease payments under non-cancellable operating leases

32. COMPENSATION OF AUDITORS
Year toYear to30/09/2017

30/09/2016

NZ$000

NZ$000

2,227

2,219

Prudential and regulatory services2

225

262

Offer documents assurance or review

146

100

Other assurance services3

95

52

Total other services

466

414

Total compensation of auditors relating to the Banking Group

2,693

2,633

Compensation of auditors (KPMG New Zealand)
Audit or review of financial statements1
Other services:

Fees relating to certain managed funds and not recharged4
Total compensation of auditors
1
2
3
4

46

48

2,739

2,681

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 controls reports, comfort letters 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 and audits of summary financial statements forinclusion in offer documents, comfort letters and other agreed upon procedures engagements.

It is the Banking Group’s policy that, subject to the approval of the Ultimate Parent Bank’s Audit Committee, KPMG can provide assurance
and other audit-related services that, while outside the scope of the statutory audit, are consistent with the role of auditor. KPMG may notprovide services that are perceived to be in conflict with the role of auditor. Services that are perceived to be in conflict with the role ofauditor include consulting advice and subcontracting of operational activities normally undertaken by management, and engagements
where the auditor may ultimately be required to express an opinion on its own work.

ANZ Bank New Zealand Limited

65

NOTES TO THE FINANCIAL STATEMENTS
33. CONCENTRATIONS OF CREDIT RISK TO INDIVIDUAL COUNTERPARTIESThe Banking Group measures its concentration of credit risk using actual exposures for bank counterparties and limits for non bankcounterparties. No account is taken of collateral, security and/or netting agreements which the Banking Group may hold in respect of thevarious counterparty exposures.
For the three months ended 30 September 2017 there were no individual counterparties (excluding connected parties, governments andbanks with long term credit ratings of A- or above) where the Banking Group’s period end or peak end-of-day credit exposure equalled or
exceeded 10% of equity (as at the end of the period).
Concentrations of credit risk to connected persons
Credit exposures to connected persons reported in the table below have been calculated partially on a bilateral net basis and partially on agross basis. Netting has occurred (up to a limit of 125% of the Banking Group’s tier 1 capital) in respect of certain transactions which are
the subject of a bilateral netting agreement.
This information has been derived in accordance with the Bank’s conditions of registration and the RBNZ document Connected Exposures
Policy (BS8). The exposures are net of individual credit impairment allowances and exclude advances to connected persons of a capitalnature.

30/09/2017

30/09/2016

Amount
NZ$m% of Tier 1
CapitalAmount
NZ$m% of Tier 1
CapitalBank connected persons (on gross basis, before netting)

8,074

70.2%

9,349

81.3%

Less: amount netted off

5,230

45.5%

7,619

66.2%

Bank connected persons (on partial bilateral net basis)

2,844

24.7%

1,730

15.1%

-

0.0%

1

0.0%

Bank connected persons (on gross basis, before netting)

8,382

72.9%

9,352

81.3%

Less: amount netted off

5,336

46.4%

5,353

46.5%

Bank connected persons (on partial bilateral net basis)

3,046

26.5%

3,999

34.8%

1

0.0%

4

0.0%

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

n/a

125.0%

Bank connected persons (on partial bilateral net basis)

n/a

60.0%

n/a

70.0%

Non-bank connected persons

n/a

15.0%

n/a

15.0%

Aggregate at end of year1

Non-bank connected persons2Peak end-of-day for the year3

Non-bank connected persons2
Rating-contingent limit4

1

2
3

4

The Banking Group has amounts due from the Immediate Parent Company and the Ultimate Parent Bank and other entities within the Overseas Banking Group arising in theordinary course of business. These balances arise primarily from unrealised gains on trading and hedging derivative financial instruments with the Ultimate Parent Bank. As at
30 September 2017, the gross exposures to the Immediate Parent Company were NZ$7 million (2016: NZ$3 million). As at 30 September 2017, the gross exposures to the
Ultimate Parent Bank were NZ$8,067 million (2016: NZ$9,346 million).
Non-bank connected persons exposures comprise loans to directors of the Bank.
The Banking Group has complied with the limits on aggregate credit exposure (of a non-capital nature and net of individual provisions) to connected persons and non-bankconnected persons, as set out in the Conditions of Registration, at all times during the year. The peak end-of-day credit exposure ratios for the year to connected persons aremeasured over Tier 1 Capital as at the end of the year. Previously Tier 1 Capital as at the beginning of the month in which the peak aggregate amount of credit exposure
occurred was used to calculate the peak ratios, and comparative ratios have been updated. Both methods are allowed by the Order, and the change was made to make these
disclosures consistent with private regulatory reporting submitted to the RBNZ.
Represents the maximum peak end-of-day aggregate credit exposures limit (of a non-capital nature and net of individual provisions) to all connected persons. This limit isbased on the ratings applicable to the Bank’s long term senior unsecured obligations payable in New Zealand in New Zealand dollars. Within the overall limit a sub-limit of
15% of Tier 1 Capital applies to aggregate credit exposures (exclusive of exposures of a capital nature and net of individual provisions) to non-bank connected persons. There
have been no changes to these limits for the year ended 30 September 2017.

ANZ Bank New Zealand Limited

66

NOTES TO THE FINANCIAL STATEMENTS
34. RISK MANAGEMENT FRAMEWORKThe Banking Group recognises the importance of effective risk management to its business success. Management is committed toachieving strong control and a distinctive risk management capability that enables the Banking Group business units to meet theirperformance objectives.
The Banking Group approaches risk through managing the various elements of the system as a whole rather than viewing them as
independent and unrelated parts. The risk management division (Risk Management) is independent of the business, with clear delegations
from the Board, and operates within a comprehensive framework comprising:•
The Board providing leadership, setting risk appetite/strategy and monitoring progress•
A strong framework for development and maintenance of Banking Group-wide risk management policies, procedures and systems,
overseen by an independent team of risk professionals•
The use of sophisticated risk tools, applications and processes to execute the global risk management strategy across the Banking
Group•
Business unit level accountability, as the “first line of defence”, for the management of risks in alignment with the Banking Group’s
strategy•
Independent oversight to ensure business unit level compliance with policies, regulations and laws, and to provide regular risk
evaluation and reporting.
The Banking Group manages risk through an approval, delegation and limits structure. Regular reviews of the policies, systems and risk
reports, including the effectiveness of the risk management systems, discussions covering the Banking Group’s response to emerging risk
issues and trends, and that the requisite culture and practices are in place across the Banking Group, are conducted within the Banking
Group and also by the Ultimate Parent Bank. The Board has responsibility for reviewing all aspects of risk management.
The Board has ultimate responsibility for overseeing the effective deployment of risk management frameworks, policies and processes
within New Zealand. The Bank’s Risk Committee assists the Board in this function. The role of the Risk Committee is to assist the Board in
the effective discharge of its responsibilities for business, market, credit, operational, compliance, liquidity, product and reputational risk
management, and to liaise and consult with the Ultimate Parent Bank Risk Committee as required. Risk Management, via the Chief Risk
Officer, coordinates risk management activities directly between Business Unit risk functions and Ultimate Parent Bank Group Risk
Management functions.
The risk management process is subject to oversight by the Risk Committee of the Ultimate Parent Bank Board. This includes the review ofrisk portfolios and the establishment of prudential policies and controls.
The Banking Group’s risk management policies are essentially the same as the Ultimate Parent Bank, but are tailored where required to suitthe local New Zealand regulatory and business environment.
The Audit Committee has responsibility for ensuring the integrity of the Banking Group's financial controls, reporting systems and internal
audit standards. It meets at least four times a year and reports directly to the Board. All members of the Audit Committee are nonexecutive directors.
Financial risk management
Refer to note 18 for detailed disclosures on the Banking Group's financial risk management policies.
Operational Risk
Operational risk is the risk arising from day to day operational activities which may result in direct or indirect loss. These losses may result
from failure to comply with policies, procedures, laws and regulations, from fraud or forgery, from a breakdown in the availability or
integrity of services, systems and information, or damage to the Banking Group’s reputation.
Examples include failure to comply with policy and legislation, human error, natural disasters, fraud and other malicious acts. Where
appropriate, risks are mitigated by insurance.
Risk Management is responsible for establishing the Banking Group’s operational risk framework and associated Banking Group-wide
policies. Business units are responsible for the identification, analysis, assessment and treatment of operational risks on a day-to-day basis.
Business units have primary responsibility for the identification and management of operational risk with executive oversight provided
through business unit Risk Forums. The Bank’s Operational Risk Executive Committee (OREC) undertakes the governance function throughthe bi-monthly monitoring of operational risk performance across the Banking Group. The Board and Risk Management conduct effective
oversight through the approval of operational risk policies and frameworks and monitoring key operational risk metrics.
Compliance
The Banking Group conducts its business in accordance with all relevant compliance requirements. In order to assist the Banking Groupidentify, manage, monitor and measure its compliance obligations, the Banking Group has a comprehensive compliance framework inplace, which addresses both external (regulatory) and internal compliance.
Risk Management, in conjunction with business unit staff ensure the Banking Group operates within a compliance infrastructure andframework that incorporates new and changing business obligations and processes.

ANZ Bank New Zealand Limited

67

NOTES TO THE FINANCIAL STATEMENTS
The compliance policies and their supporting framework seek to minimise material risks to the Banking Group’s reputation and value that
could arise from non-compliance with laws, regulations, industry codes and internal standards and policies. Business units have primary
responsibility for the identification and management of compliance. Risk Management provides policy and framework, measurement,
monitoring and reporting, as well as leadership in areas such as anti-money laundering procedures and matters of prudential compliance.
The Bank’s OREC, the Chief Risk Officer, the Board and the Risk Committee of the Ultimate Parent Bank Board conduct board and executive
oversight.
Internal Audit
Internal Audit is a function independent of management whose role is to provide the Board and management with an effective andindependent 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 the external auditor.
The Internal Audit Plan is developed utilising a risk based approach and is refreshed on a quarterly basis. 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 arereported to the Audit Committee, Risk Committee and management. These results influence the performance assessment of businessheads.
Furthermore, Internal Audit monitors the remediation of audit issues and reports the current status of any outstanding audits.

ANZ Bank New Zealand Limited

68

HISTORICAL SUMMARY OF FINANCIAL STATEMENTS
Year toYear toYear toYear toYear to30/09/2017

30/09/2016

30/09/2015

30/09/2014

30/09/2013

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Interest income

6,198

6,423

6,926

6,272

5,957

Interest expense

3,161

3,421

4,051

3,529

3,344

Net interest income

3,037

3,002

2,875

2,743

2,613

Non-interest income

938

852

1,175

1,085

823

Operating income

3,975

3,854

4,050

3,828

3,436

Operating expenses

1,468

1,599

1,512

1,489

1,512

62

150

74

(16)

63

2,445

2,105

2,464

2,355

1,861

Credit impairment charge / (release)
Profit before income tax
Income tax expense

680

570

681

639

490

Profit after income tax

1,765

1,535

1,783

1,716

1,371

Dividends paid

(1,695)(1,363)(1,760)(2,353)(1,065)

-

-

675

970

300

Share capital issued

Total impaired assets

As at

As at

As at

As at

As at

30/09/2017

30/09/2016

30/09/2015

30/09/2014

30/09/2013

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

357

426

382

634

901

Total assets

153,973

160,819

147,527

128,915

120,444

Total liabilities

141,192

148,109

135,074

117,134

108,990

Equity12,781

12,71012,453

11,781

11,454

The amounts included in this summary have been taken from the audited financial statements of the Banking Group.

ANZ Bank New Zealand Limited

69

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

Financial Support
The Ultimate Parent Bank may not provide financial support in breach of the Australian Banking Act 1959 (the Act). Under the Act:••APRA must exercise its powers and functions for the protection of a bank’s depositors in Australia andin the event of a bank becoming unable to meet its obligations or suspending payment, the assets of the bank in Australia will beavailable to meet that bank’s deposit liabilities in Australia in priority to all other liabilities of the bank.

Under APRA’s Prudential Standards, the Ultimate Parent Bank’s ability to provide financial support to the Bank is subject to certain
requirements:••••

The Ultimate Parent Bank should not undertake any third party dealings with the prime purpose of supporting the business of the
Bank.
The Ultimate Parent Bank should not hold unlimited exposures (should be limited as to specified time and amount) in the Bank (e.g.
not provide a general guarantee covering any of the Bank’s obligations).
The Ultimate Parent Bank should not enter into cross-default clauses whereby a default by the Bank on an obligation (whether
financial or otherwise) is deemed to trigger a default by the Ultimate Parent Bank on its obligations.
The level of exposure of the Ultimate Parent Bank’s Level 1 capital base to the Bank should not exceed:•
50% on an individual exposure basis or•150% in aggregate (being exposures to all similar regulated entities related to the Ultimate Parent Bank).

In addition, APRA has reviewed the level of financial exposures that can be provided to the respective New Zealand banking subsidiaries
and branches (New Zealand operations) of the four Australian parent banks, including the Ultimate Parent Bank.
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 during ordinary times. Exposures in excess of this limit as at 1 January 2016 must be
reduced in equal percentages over the five year transition period and may not increase above the exposures as at 30 June 2015. This limit
does not include holdings of capital instruments or eligible secured contingent funding support provided to the Bank during times offinancial stress.
The Ultimate Parent Bank established a New Zealand branch which was registered on 5 January 2009. The Bank sells, from time-to-time,
residential mortgages into the NZ Branch to provide funding for the Bank’s business. As at 30 September 2017, the NZ Branch held
approximately NZ$4.3 billion of residential mortgages. To satisfy APRA’s requirements described above, the Bank intends to repay thisfunding at approximately NZ$1.6 billion per annum over the transition period ending 31 December 2020.
APRA has also stated 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 and the Ultimate Parent Bank’s exposures to the Bank and its other New Zealandoperations must not exceed 50% of the Ultimate Parent Bank’s Level 1 Tier 1 capital base. At present, only covered bonds meet APRA’s
criteria for contingent funding. On this basis, the Ultimate Parent Bank believes it will be able to continue to provide financial support to
the Bank.
Further, from 1 July 2017, APRA’s Level 3 Conglomerates regulations became effective which limit the financial and operational assistancethe Ultimate Parent Bank can provide the Bank.
In determining the acceptable level of financial and operational exposure to the Bank, the Board of the Ultimate Parent Bank should haveregard to:•••the exposures that would be approved for third parties of broadly equivalent credit status
the impact on the Ultimate Parent Bank’s capital and liquidity position andthe 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.

Guarantors
No material obligations of the Bank are guaranteed as at 15 November 2017.

ANZ Bank New Zealand Limited

70

GENERAL DISCLOSURESANZNZ Covered Bond Trust
Certain debt securities (Covered Bonds) issued by the Bank’s wholly owned subsidiary, ANZ New Zealand (Int’l) Limited, are guaranteed by
ANZNZ Covered Bond Trust Limited (the Covered Bond Guarantor), solely in its capacity as trustee of ANZNZ Covered Bond Trust. The
Covered Bond Guarantor has guaranteed the payment of interest and principal of Covered Bonds with a carrying value as at 30 September
2017 of NZ$5,325 million, pursuant to a guarantee which is secured over a pool of assets. The Covered Bond Guarantor’s address forservice is Level 9, 34 Shortland Street, Auckland, New Zealand. The Covered Bond Guarantor is not a member of the Banking Group andhas no credit ratings applicable to its long term senior unsecured obligations. The Covered Bonds have been assigned a long term ratingof Aaa and AAA by Moody’s Investors Service and Fitch Ratings respectively. Details of the pool of assets that secure this guarantee areprovided in note 28.

Credit Rating Information
As at 15 November 2017 the Bank has three credit ratings, which are applicable to its long-term senior unsecured obligations which arepayable in New Zealand in New Zealand dollars. On 19 June 2017, Moody’s Investors Service downgraded the Bank’s credit rating fromAa3 to A1 and changed the outlook on the Bank from Negative to Stable.
The Bank’s credit ratings are:Rating Agency
Standard & Poor’s

Current Credit RatingAA-

Qualification
Outlook Negative

Moody’s Investors Service

A1

Outlook Stable

Fitch Ratings

AA-

Outlook Stable

The following table describes the credit rating grades available:

The following grades display investment grade characteristics:
Ability to repay principal and interest is extremely strong. This is the highest investment category.
Very strong ability to repay principal and interest.
Strong ability to repay principal and interest although somewhat susceptible to adverse changes in
economic, business or financial conditions.
Adequate ability to repay principal and interest. More vulnerable to adverse changes.
The following grades have predominantly speculative characteristics:
Significant uncertainties exist which could affect the payment of principal and interest on a timely basis.
Greater vulnerability and therefore greater likelihood of default.
Likelihood of default now considered high. Timely repayment of principal and interest is dependent on
favourable financial conditions.
Highest risk of default.
Obligations currently in default.

Standard &Poor'sMoody's
Investors
Service

Fitch Ratings

AAA
AA
A

Aaa
Aa
A

AAA
AA
A

BBB

Baa

BBB

BB
B
CCC

Ba
B
Caa

BB
B
CCC

CC to CD

Ca to C-CC to CRD & D

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

ANZ Bank New Zealand Limited

71

CONDITIONS OF REGISTRATION
Conditions of Registration, applicable as at 30 September 2017. These Conditions of Registration have applied from 1 October
2016.
The registration of ANZ Bank New Zealand Limited (“the bank”) as a registered bank is subject to the following conditions:1.

That(a)the Total capital ratio of the banking group is not less than 8%;(b) the Tier 1 capital ratio of the banking group is not less than 6%;(c)the Common Equity Tier 1 capital ratio of the banking group is not less than 4.5%;(d) the Total capital of the banking group is not less than $30 million; and(e)the bank must not include the amount of an Additional Tier 1 capital instrument or Tier 2 capital instrument issued after 1
January 2013 in the calculation of its capital ratios unless it has received a notice of non-objection to the instrument from theReserve Bank; and(f)the bank meets the requirements of Part 3 of the Reserve Bank of New Zealand document: “Application requirements for capital
recognition or repayment and notification requirements in respect of capital” (BS16) dated November 2015 in respect ofregulatory capital instruments.

For the purposes of this condition of registration,the scalar referred to in the Reserve Bank of New Zealand document “Capital adequacy framework (Internal Models Based Approach)”(BS2B) dated November 2015 is 1.06.
“Total capital ratio”, “Tier 1 capital ratio”, “Common Equity Tier 1 capital ratio”, and “Total capital” must be calculated in accordancewith the Reserve Bank of New Zealand document “Capital adequacy framework (Internal Models Based Approach)” (BS2B) dated
November 2015.
an Additional Tier 1 capital instrument is an instrument that meets the requirements of subsection 2.13(a) or (c) of the Reserve Bankof New Zealand document “Capital adequacy framework (Internal Models Based Approach)” (BS2B) dated November 2015.
a Tier 2 capital instrument is an instrument that meets the requirements of subsection 2.16(a) or (c) of the Reserve Bank of New
Zealand document “Capital adequacy framework (Internal Models Based Approach)” (BS2B) dated November 2015.
1A. That(a)the bank has an internal capital adequacy assessment process (“ICAAP”) that accords with the requirements set out in the
document “Guidelines on a bank’s internal capital adequacy assessment process (‘ICAAP’)” (BS12) dated December 2007;(b) under its ICAAP the bank identifies and measures its “other material risks” defined as all material risks of the banking group thatare not explicitly captured in the calculation of the Common Equity Tier 1 capital ratio, the Tier 1 capital ratio and the Total
capital ratio under the requirements set out in the document “Capital adequacy framework (Internal Models Based Approach)”(BS2B) dated November 2015; and(c)
1B.

the bank determines an internal capital allocation for each identified and measured “other material risk”.

That the banking group complies with all requirements set out in the Reserve Bank of New Zealand document “Capital adequacy
framework (Internal Models Based Approach)” (BS2B) dated November 2015.

1C. That, if the buffer ratio of the banking group is 2.5% or less, the bank must:(a)according to the following table, limit the aggregate distributions of the bank’s earnings to the percentage limit to distributions
that corresponds to the banking group’s buffer ratio:

Banking group's
buffer ratio

Percentage limit to
distributions of the
bank's earnings

0% - 0.625%

0%>0.625 - 1.25%

20%>1.25 - 1.875%

40%>1.875% - 2.5%60%(b) prepare a capital plan to restore the banking group’s buffer ratio to above 2.5% within any timeframe determined by the
Reserve Bank for restoring the buffer ratio; and(c)have the capital plan approved by the Reserve Bank.

For the purposes of this condition of registration, —“buffer ratio”, “distributions”, and “earnings” have the same meaning as in Part 3 of the Reserve Bank of New Zealand document:“Capital Adequacy Framework (Internal Models Based Approach)” (BS2B) dated November 2015.
the scalar referred to in the Reserve Bank of New Zealand document “Capital adequacy framework (Internal Models Based Approach)”(BS2B) dated November 2015 is 1.06.

ANZ Bank New Zealand Limited

72

CONDITIONS OF REGISTRATION
2.

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.

3.

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 forentities 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 inthe banking group whose business 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; and(b)

if the entity conducts insurance business and its business does not predominantly consist of insurance business and the entity
is not a subsidiary of another entity in the banking group whose business predominantly consists of insurance business, theamount 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; and(b)

if products or assets of which an insurance business is comprised also contain a non-insurance component, the whole of suchproducts 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.
4.

That the aggregate credit exposures (of a non-capital nature and net of any allowances for impairment) of the banking group to all
connected persons do not exceed the rating-contingent limit outlined in the following matrix:

Credit Rating of the bank1

Connected exposure limit(% of the banking group’s Tier 1
capital)AA/Aa2 and above

75

AA-/Aa3

70

A+/A1

60

A/A2

40

A-/A3

30

BBB+/Baa1 and below

15

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

Within the rating-contingent limit, credit exposures (of a non-capital nature and net of any allowances for impairment) to non-bankconnected persons shall not exceed 15 percent of the banking group’s Tier 1 capital.
For the purposes of this condition of registration, compliance with the rating-contingent connected exposure limit is determined inaccordance with the Reserve Bank of New Zealand document entitled “Connected Exposures Policy” (BS8) dated November 2015.
5.

That exposures to connected persons are not on more favourable terms (e.g. as relates to such matters as credit assessment, tenor,
interest rates, amortisation schedules and requirement for collateral) than corresponding exposures to non-connected persons.

6.

That the bank complies with the following corporate governance requirements:(a) the board of the bank must have at least five directors;(b) the majority of the board members must be non-executive directors;(c) at least half of the board members must be independent directors;(d) an alternate director,—(i)for a non-executive director must be non-executive; and(ii)

for an independent director must be independent;(e) at least half of the independent directors of the bank must be ordinarily resident in New Zealand;(f) the chairperson of the board of the bank must be independent; and(g) the bank’s constitution must not include any provision permitting a director, when exercising powers or performing duties as adirector, to act other than in what he or she believes is the best interests of the company (i.e. the bank).
For the purposes of this condition of registration, “non-executive” and “independent” have the same meaning as in the Reserve Bankof New Zealand document entitled “Corporate Governance” (BS14) dated July 2014.

ANZ Bank New Zealand Limited

73

CONDITIONS OF REGISTRATION
7.

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

8.

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

9.

That the bank has a board audit committee, or other separate board committee covering audit matters, that meets the following
requirements:(a) the mandate of the committee must include: ensuring the integrity of the bank’s financial controls, reporting systems andinternal audit standards;(b) the committee must have at least three members;(c) every member of the committee must be a non-executive director of the bank;(d) the majority of the members of the committee must be independent; and(e) the chairperson of the committee must be independent and must not be the chairperson of the bank.
For the purposes of this condition of registration, “non-executive” and “independent” have the same meaning as in the Reserve Bankof New Zealand document entitled “Corporate Governance” (BS14) dated July 2014.

10. That a substantial proportion of the bank’s business is conducted in and from New Zealand.
11. That the bank has legal and practical ability to control and execute any business, and any functions relating to any business, of thebank that are carried on by a person other than the bank, sufficient to achieve, under normal business conditions and in the event ofstress or failure of the bank or of a service provider to the bank, the following outcomes:(a) that the bank’s clearing and settlement obligations due on a day can be met on that day;(b) that the bank’s financial risk positions on a day can be identified on that day;(c) that the bank’s financial risk positions can be monitored and managed on the day following any failure and on subsequent days;and(d) that the bank’s existing customers can be given access to payments facilities on the day following any failure and on subsequentdays.
For the purposes of this condition of registration, the term “legal and practical ability to control and execute” is explained in the
Reserve Bank of New Zealand document entitled “Outsourcing Policy” (BS11) dated January 2006.
12. That:(a) the business and affairs of the bank are managed by, or under the direction or supervision of, the board of the bank;(b) the employment contract of the chief executive officer of the bank or person in an equivalent position (together “CEO”) is withthe bank, and the terms and conditions of the CEO’s employment agreement are determined by, and any decision relating to
the employment or termination of employment of the CEO are made by, the board of the bank; and(c) all staff employed by the bank shall have their remuneration determined by (or under the delegated authority of) the board or
the CEO of the bank and be accountable (directly or indirectly) to the CEO of the bank.
13. That the banking group complies with the following quantitative requirements for liquidity-risk management:(a) the one-week mismatch ratio of the banking group is not less than zero per cent at the end of each business day;(b) the one-month mismatch ratio of the banking group is not less than zero per cent at the end of each business day; and(c) the one-year core funding ratio of the banking group is not less than 75 per cent at the end of each business day.
For the purposes of this condition of registration, the ratios identified must be calculated in accordance with the Reserve Bank of New
Zealand documents entitled “Liquidity Policy” (BS13) dated July 2014 and “Liquidity Policy Annex: Liquid Assets” (BS13A) dated
December 2011.
14. That the bank has an internal framework for liquidity risk management that is adequate in the bank’s view for managing the bank’s
liquidity risk at a prudent level, and that, in particular:(a) is clearly documented and communicated to all those in the organisation with responsibility for managing liquidity and liquidity
risk;(b) identifies responsibility for approval, oversight and implementation of the framework and policies for liquidity risk management;(c) identifies the principal methods that the bank will use for measuring, monitoring and controlling liquidity risk; and(d) considers the material sources of stress that the bank might face, and prepares the bank to manage stress through acontingency funding plan.
15. That no more than 10% of total assets may be beneficially owned by a SPV.

ANZ Bank New Zealand Limited

74

CONDITIONS OF REGISTRATION
For the purposes of this condition, —“total assets” means all assets of the banking group plus any assets held by any SPV that are not included in the banking group’s
assets:“SPV” means a person—(a) to whom any member of the banking group has sold, assigned, or otherwise transferred any asset;(b) who has granted, or may grant, a security interest in its assets for the benefit of any holder of any covered bond; and(c) who carries on no other business except for that necessary or incidental to guarantee the obligations of any member of thebanking group under a covered bond:“covered bond” means a debt security issued by any member of the banking group, for which repayment to holders is guaranteed
by a SPV, and investors retain an unsecured claim on the issuer.
16. That—(a) no member of the banking group may give effect to a qualifying acquisition or business combination that meets the notificationthreshold, and does not meet the non-objection threshold, unless:(i)the bank has notified the Reserve Bank in writing of the intended acquisition or business combination and at least 10
working days have passed; and(ii) at the time of notifying the Reserve Bank of the intended acquisition or business combination, the bank provided theReserve Bank with the information required under the Reserve Bank of New Zealand Banking Supervision Handbook
document “Significant Acquisitions Policy” (BS15) dated December 2011; and(b) no member of the banking group may give effect to a qualifying acquisition or business combination that meets the nonobjection threshold unless:(i)the bank has notified the Reserve Bank in writing of the intended acquisition or business combination;(ii) at the time of notifying the Reserve Bank of the intended acquisition or business combination, the bank provided theReserve Bank with the information required under the Reserve Bank of New Zealand Banking Supervision Handbook
document “Significant Acquisitions Policy” (BS15) dated December 2011; and(iii) the Reserve Bank has given the bank a notice of non-objection to the significant acquisition or business combination.
For the purposes of this condition of registration, “qualifying acquisition or business combination”, “notification threshold” and “nonobjection threshold” have the same meaning as in the Reserve Bank of New Zealand Banking Supervision Handbook document“Significant Acquisitions Policy” (BS15) dated December 2011.
17. That the bank is pre-positioned for Open Bank Resolution and in accordance with a direction from the Reserve Bank, the bank can—(a) close promptly at any time of the day and on any day of the week and that effective upon the appointment of the statutory
manager—(i)all liabilities are frozen in full; and(ii) no further access by customers and counterparties to their accounts (deposits, liabilities or other obligations) is possible;(b) apply a de minimis to relevant customer liability accounts;(c) apply a partial freeze to the customer liability account balances;(d) reopen by no later than 9am the next business day following the appointment of a statutory manager and provide customers
access to their unfrozen funds;(e) maintain a full freeze on liabilities not pre-positioned for open bank resolution; and(f) reinstate customers’ access to some or all of their residual frozen funds.
For the purposes of this condition of registration, “de minimis”, “partial freeze”, “customer liability account”, and “frozen and unfrozen
funds” have the same meaning as in the Reserve Bank of New Zealand document “Open Bank Resolution (OBR) Pre-positioning
Requirements Policy” (BS17) dated September 2013.
18. That the bank has an Implementation Plan that—(a) is up-to-date; and(b) demonstrates that the bank’s prepositioning for Open Bank Resolution meets the requirements set out in the Reserve Bank
document: “Open Bank Resolution Pre-positioning Requirements Policy” (BS17) dated September 2013.
For the purposes of this condition of registration, “Implementation Plan” has the same meaning as in the Reserve Bank of New
Zealand document “Open Bank Resolution (OBR) Pre-positioning Requirements Policy” (BS17) dated September 2013.
19. That the bank has a compendium of liabilities that—(a) at the product-class level lists all liabilities, indicating which are—(i)pre-positioned for Open Bank Resolution; and(ii)

not pre-positioned for Open Bank Resolution;

ANZ Bank New Zealand Limited

75

CONDITIONS OF REGISTRATION(b) is agreed to by the Reserve Bank; and(c) if the Reserve Bank’s agreement is conditional, meets the Reserve Bank’s conditions.
For the purposes of this condition of registration, “compendium of liabilities” and “pre-positioned and non pre-positioned liabilities”
have the same meaning as in the Reserve Bank of New Zealand document “Open Bank Resolution (OBR) Pre-positioning
Requirements Policy” (BS17) dated September 2013.
20. That on an annual basis the bank tests all the component parts of its Open Bank Resolution solution that demonstrates the bank’s
prepositioning for Open Bank Resolution as specified in the bank’s Implementation Plan.
For the purposes of this condition of registration, “Implementation Plan” has the same meaning as in the Reserve Bank of New
Zealand document “Open Bank Resolution (OBR) Pre-positioning Requirements Policy” (BS17) dated September 2013.
21. That, for a loan-to-valuation measurement period, the total of the bank’s qualifying new mortgage lending amount in respect ofproperty-investment residential loans with a loan-to-valuation ratio of more than 60%, must not exceed 5% of the total of thequalifying new mortgage lending amount in respect of property-investment residential loans arising in the loan-to-valuation
measurement period.
22. That, for a loan-to-valuation measurement period, the total of the bank’s qualifying new mortgage lending amount in respect of nonproperty-investment residential loans with a loan-to-valuation ratio of more than 80%, must not exceed 10% of the total of thequalifying new mortgage lending amount in respect of non property-investment residential loans arising in the loan-to-valuation
measurement period.
23. That the bank must not make a residential mortgage loan unless the terms and conditions of the loan contract or the terms andconditions for an associated mortgage require that a borrower obtain the bank’s agreement before the borrower can grant toanother person a charge over the residential property used as security for the loan.
In these conditions of registration,—“banking group” means ANZ Bank New Zealand Limited (as reporting entity) and all other entities included in the group as defined in
section 6(1) of the Financial Markets Conduct Act 2013 for the purposes of Part 7 of that Act.
“generally accepted accounting practice” has the same meaning as in section 8 of the Financial Reporting Act 2013.
In conditions of registration 21 to 23, —“loan-to-valuation ratio”, “non property-investment residential loans”, “property-investment residential loans”, “qualifying new
mortgage lending amount in respect of property-investment residential loans”, “qualifying new mortgage lending amount in respectof non property-investment residential loans” and “residential mortgage loans” have the same meaning as in the Reserve Bank of
New Zealand document entitled “Framework for Restrictions on High-LVR Residential Mortgage Lending” (BS19) dated October 2016:“loan-to-valuation measurement period” means—(a)the six calendar month period ending on the last day of December 2016; and(b) thereafter a period of three calendar months ending on the last day of the third calendar month, the first of which ends on thelast day of January 2017.

ANZ Bank New Zealand Limited

76

DIRECTORATE AND AUDITOR
Any document or communication may be sent to any Director
at the Registered Office. The document or communication
should be marked for the attention of that Director.

Board Members as at 15 November 2017

Directors’ interests

John Frederick Judge
BCom, FCA
Company Director
Auckland, New Zealand

In order to ensure that members of the Board are reminded of
their disclosure obligations under the Companies Act 1993, thefollowing procedures are adopted:••

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

In addition to the written disclosures referred to above,
Directors disclose relevant interests which they have before
discussion of particular business items.
The Companies Act 1993 allows a Director with an interest in atransaction to participate in discussions and to vote on all
matters relating to that particular transaction. However, theBoard has adopted a guideline whereby a Director with aninterest in a transaction should not be present during any
discussions, and should not vote, on any matter pertaining tothat particular transaction.
Transactions with Directors
No Director has disclosed that he/she or any immediate relativeor professional associate has any dealing with the Banking
Group 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 be reasonably likely to influence materially theexercise of the Director’s duties as a Director of the Bank.

Independent Non-Executive Director and Chair

Mr Judge is a member of the Audit Committee, the Human
Resources Committee and the Risk Committee.
Other directorships: Aquatx Holdings Limited, Biotelliga
Limited, Biotelliga Holdings Limited, Biotelliga Nominees
Limited, Endogen Limited, Janohn Limited, Sebca Limited, John
Judge Limited, Cup Limited, Sails Friday Limited, The New
Zealand Initiative Limited, Hydraulink Fluid Connectors Limited,
Analog Digital Instruments Limited, Hydraulink Australia Pty
Limited, ADInstruments Pty Limited, ADInstruments NZ Limited

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

Non-Executive Directors
Shayne Cary Elliott
BCom
Chief Executive Officer, Australia and New Zealand Banking
Group Limited
Melbourne, Australia
Mr Elliott is a member of the Human Resources Committee.
Other directorships: ANZ Holdings (New Zealand) Limited,
Australia and New Zealand Banking Group Limited and the
Financial Markets Foundation for Children
Michelle Nicole Jablko
LLB (Hons), B.Ec (Hons)
Chief Financial Officer, Australia and New Zealand Banking
Group Limited
Melbourne, Australia
Ms Jablko is an alternate director for Mr Elliott
Nigel Henry Murray Williams
BCom
Chief Risk Officer, Australia and New Zealand Banking Group
LimitedMelbourne, Australia
Other directorships: Shanghai Rural Commercial Bank Co.
LimitedMr Williams is a member of the Risk Committee and Audit
Committee.

ANZ Bank New Zealand Limited

DIRECTORATE AND AUDITOR
Independent Non-Executive Directors
Antony John Carter
BE (Hons), ME, FNZIM
Company Director
Auckland, New Zealand
Mr Carter is the Chair of the Risk Committee and a member ofthe Audit Committee and the Human Resources Committee.
Other directorships: Air New Zealand Limited, Avonhead Mall
Limited, Blues Management Limited, Fletcher Building Limited,Fisher & Paykel Healthcare Corporation Limited, Fisher & Paykel
Healthcare Employee Share Purchase Trustee Limited, Fletcher
Building Industries Limited, Loughborough Investments
Limited, Modern Merchants Limited, Strategic Interchange
Limited, Tetrad Corporation Limited
The Rt Hon. Sir John Phillip Key, GNZM, AC
BComCompany Director
Auckland, New Zealand
Sir John is a member of the Risk Committee, Audit Committee
and the Human Resources Committee.
Other directorships: Air New Zealand Limited, Thirty Eight JK
LimitedMark John Verbiest
LLB, CFInstD
Company Director
Wanaka, New Zealand
Mr Verbiest is the Chair of the Audit Committee and a memberof the Human Resources Committee and the Risk Committee.
Other directorships: Bear Fund NZ Limited, Freightways
Limited, Willis Bond Capital Partners Limited, Willis Bond General
Partner Limited, MyCare Limited, The Treasury, Meridian Energy
LimitedJoan Withers
MBA, AFInstD
Company Director
Auckland, New Zealand
Mrs Withers is the Chair of the Human Resources Committee
and a member of the Risk Committee and the Audit Committee.
Other directorships: Mercury NZ Limited, The Warehouse
Group Limited, On Being Bold Limited, The Warehouse Planit
Trustees Limited, The Warehouse Management Trustee
Company Limited, The Warehouse Management Trustee
Company No.2 Limited

Auditor
KPMG
Chartered Accountants
10 Customhouse Quay
P O Box 996
Wellington, New Zealand77

ANZ Bank New Zealand Limited

78

DIRECTORS' STATEMENT
As at the date on which this Disclosure Statement is signed, after due enquiry, each Director believes that:•

The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (New Zealand
Incorporated Registered Banks) Order 2014•

The Disclosure Statement is not false or misleading.

Over the year ended 30 September 2017, after due enquiry, each Director believes that:•

ANZ Bank New Zealand Limited has complied with all Conditions of Registration that applied during that period•

Credit exposures to connected persons were not contrary to the interests of the Banking Group•ANZ Bank New Zealand Limited had systems in place to monitor and control adequately the Banking Group’s material risks, including
credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk, operational risk and other business risks,
and that those systems were being properly applied.

This Disclosure Statement is dated, and has been signed by all Directors of the Bank on, 15 November 2017.

Antony Carter

Shayne ElliottDavid Hisco

John Judge

The Rt Hon. Sir John Key, GNZM, AC

Mark Verbiest

Nigel Williams

Joan Withers

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Independent Auditor’s Report
To the shareholder of ANZ Bank New Zealand Limited
Report on the Banking Group Disclosure Statement

OpinionIn our opinion, the accompanying consolidated
financial statements (excluding supplementary
information) of ANZ Bank New Zealand Limited (thecompany) and its subsidiaries (the Banking Group) on
pages 3 to 67:— give a true and fair view of the Banking Group’s
financial position as at 30 September 2017 andits financial performance and cash flows for theyear ended on that date— comply with New Zealand Generally Accepted
Accounting Practice, which in this instancemeans New Zealand Equivalents to International
Financial Reporting Standards (NZ IFRS) andInternational Financial Reporting Standards.
In our opinion, the supplementary information that isrequired to be disclosed in accordance with
Schedules 4, 7, 13, 14, 15 and 17 of the Registered
Bank Disclosure Statements (New Zealand
Incorporated Registered Banks) Order 2014 (asamended) (the Order) and is included within the
Balance Sheet and notes 14, 18, 28 and 33 of theDisclosure Statement:

We have audited the accompanying consolidated
financial statements and supplementary information
which comprise:— the consolidated balance sheet as at 30
September 2017

— theconsolidated
incomestatement,
statements of comprehensive income, changes
in equity and cash flows for the year then ended— notes, including a summary of significant
accounting policies
information

and

other

explanatory— the information that is required to be disclosed
in accordance with Schedules 4, 7, 13, 14, 15
and 17 of the Order.

— has been prepared, in all material respects, inaccordance with the guidelines issued pursuant
to section 78(3) of the Reserve Bank of New
Zealand Act 1989 and any conditions ofregistration— is in accordance with the books and records of
the Banking Group in all material respects— fairly states the matters to which it relates inaccordance with those Schedules© 2017 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative(“KPMG International”), a Swiss entity.

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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 we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Banking Group in accordance with Professional and Ethical Standard 1 (Revised) Codeof Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board and theInternational Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code),and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.
Our responsibilities under ISA (NZ) are further described in the Auditor’s Responsibilities for the Audit of theconsolidated financial statements and supplementary information section of our report.
Our firm has also provided other services to the Banking Group 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 the Banking Group on normal terms within theordinary course of trading activities of the business of the Banking Group. These matters have not impaired our
independence as auditor of the Banking Group. The firm has no other relationship with, or interest in, the Banking
Group.

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 shareholder as a body may better understand the process
by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely for the
purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not express
discrete opinions on separate elements of the consolidated financial statements.
The key audit matter
Provisions for Credit Impairment
The provision for credit impairment is a Key Audit Matter as the Banking Group has significant credit risk
exposure to a large number of counterparties across a wide range of lending and industries. The value of loans
and advances on the balance sheet is significant and there is a high degree of complexity and judgement
involved for the Banking Group in estimating individual and collective credit impairment provisions against
these loans. These features resulted in significant audit effort to address the risks around loan recoverability
and the determination of related provisions.
How the matter was addressed in our audit
Our audit procedures for the individual and collective provision for credit impairment included:
Provisions against specific individual loans (individual provision)— Testing the key controls over counterparty risk grading for wholesale loans (larger customer exposuresthat are monitored individually). We tested the approval of new lending facilities against the Banking
Group’s lending policies, the performance of annual loan assessments, and controls over the monitoringof counterparty credit quality. This included testing controls over the identification of exposures showing
signs of stress, either due to internal factors specific to the counterparty or external macroeconomic
factors, and testing the timeliness of and the accuracy of counterparty risk assessments and risk grading
against the requirements of the Banking Group’s lending policies

81— Performing credit assessments of a sample of wholesale loans managed by the Banking Group’s specialist
workout and recovery team assessed as higher risk or impaired, and a sample of other loans, focusing onlarger exposures assessed by the Banking Group as showing signs of deterioration, or in areas of emerging
risk (assessed against external market conditions). We challenged the Banking Group’s risk grading of theloan, their assessment of loan recoverability and the impact on the credit provision. To do this, we used
the information on the Banking Group’s loan file, discussed the case with the loan officer andmanagement, and performed our own assessment of recoverability. This involved using our understandingof relevant industries and the macroeconomic environment, and comparing assumptions of inputs usedby the Banking Group in recoverability assessments to externally sourced evidence, such as commodity
prices, publicly available audited financial statements, and comparable external valuations of collateral held

— For retail loans (smaller customer exposures not monitored individually), we evaluated the Banking Group’s
oversight of the portfolios, with a focus on controls over delinquency statistics monitoring. We tested thelevel of provisions held against different loan products, on a sample basis, based on the delinquency profileand challenged assumptions made in respect of expected recoveries, primarily from collateral held.
Provisions estimated across loan portfolios (collective provision)— Testing the Banking Group’s processes to validate the models used to calculate collective provisions, andevaluating the Banking Group’s model methodologies against established market practices and criteria in
the accounting standards— Testing the key controls within IT systems used to calculate the collective provision, specifically thoserelating to data management and the completeness and accuracy of data transfer from underlying source
systems to the collective provision models— Testing the accuracy of key inputs into models by checking a sample of balances to the general ledger
and risk ratings to source systems— Challenging the key assumptions in the models such as emergence periods, probability of default and loss
given default for a sample of retail and wholesale portfolios. We compared modelled estimates against
actual losses incurred by the Banking Group— Re-performing, for a sample of retail and wholesale portfolios and using a KPMG-constructed calculation
tool, the calculation of collective provisions to determine the accuracy of model output.
We also challenged key assumptions in the components of the Banking Group’s collective provision balance
held above modelled provision estimates. This included:— Evaluating inputs to the concentration risk and economic cycle provisions by comparing underlying
portfolio characteristics to loss experience, current market conditions and specific risks inherent in the
Banking Group’s loan portfolios— Assessing the requirement for other additional provisions by considering model or data deficiencies
identified by the Banking Group’s model validation processes— Assessing the completeness of additional provisions by checking the consistency of risks identified in theportfolios to their inclusion in the Banking Group’s assessment.

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The key audit matter
Valuation of Financial Instruments
Financial instruments held at fair value on the Banking Group’s balance sheet include available-for-sale-assets,
trading securities, derivative assets and liabilities, investments backing insurance contract liabilities, certain
debt securities, 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 or used by the Banking Group to
manage its own interest rate and foreign exchange risk.
The valuation of financial instruments is considered a Key Audit Matter due to:— Financial instruments held at fair value are significant (16% of assets and 10% of liabilities)— The significant volume and range of products transacted, increases the risk of inconsistencies intransaction management processes that could lead to inaccurate valuation— Determining the fair value of trading securities and derivatives involves a significant level of judgement by
the Banking Group, increasing the risk of error, and adding complexity to our audit. The level of judgement
increases where internal models, as opposed to quoted market prices, are used to determine fair value of
an instrument— The valuation of certain derivatives held by the Banking Group is sensitive to inputs including credit risk,
funding rates, probabilities of default and loss given default, and industry practice is evolving as to how
the impact of both funding and credit risk is incorporated within the valuation of certain derivative
instruments. This increased our audit effort in this area and necessitated the involvement of valuation
specialists.
How the matter was addressed in our audit
Our audit procedures for the valuation of financial instruments held at fair value included:— Testing access rights and change management controls for key valuation systems— Testing interface controls, notably the completeness and accuracy of data transfers between transaction
processing systems, key systems used to generate valuations and any related valuation adjustments, andthe Banking Group’s market risk management and finance systems to identify inconsistencies intransaction management and valuation processes across products— Testing the governance and approval controls such as management review and approval of the valuation
models and approval of new products against policies and procedures— Testing the front office management review and approval of the daily financial instrument trading profit
and loss reconciliations prepared by the Banking Group’s independent product control function— Testing the management review and approval of model construction and validation, aimed at assessing
the validity and robustness of underlying valuation models— Testing the Banking Group’s data validation controls, such as those over key inputs in generating the fairvalue to market data where fair values were determined by front office teams.
We carried out testing over the valuation of financial instruments with both observable and unobservable
inputs. Our specific testing involved valuation specialists and included:— Re-performing the valuation of ‘level 1’ and ‘level 2’ available for sale assets and trading securities, which
are primarily government, semi-government and corporate debt securities, by comparing the observable
inputs, including quoted prices, to independently sourced market data

83

— Using independent models, re-calculating the valuation of a sample of derivative assets and liabilities
where the fair value was determined using observable inputs. This included comparing a sample ofobservable inputs used in the Banking Group’s derivative valuations to independently-sourced market data,such as interest rates, foreign exchange rates and volatilities— Where the fair value of derivatives and other financial assets and liabilities were determined using
unobservable inputs (‘level 3’ instruments), challenging the Banking Group’s valuation model by testing
the key inputs used to comparable data in the market, including the use of proxy instruments and available
alternatives— Evaluating the appropriateness of the Banking Group’s valuation methodology for derivative financial
instruments, having regard to current and emerging derivative valuation practices across a range of peer
institutions and against the required criteria in the accounting standards. We tested adjustments made tovaluations, particularly funding and credit valuation adjustments on un-collateralised derivatives. In
particular, for a sample of individual counterparties, we tested key inputs to the credit valuation adjustment
calculation, including the probability of default, against observable market data. Where proxies were used,
we assessed the proxy against available alternatives across a number of locations.
The key audit matter
IT systems and controls
As a major New Zealand bank, the Banking Group’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 the Banking Group’s financial positionand performance. The IT systems and controls, as they impact the financial recording and reporting oftransactions, is a key audit matter and our audit approach could significantly differ depending on the effective
operation of the Banking Group’s IT controls. KPMG IT specialists were used throughout the engagement asa core part of our audit team.
How the matter was addressed in our audit
We tested the control environment for key IT applications (systems) used in processing significant transactions
and recording balances in the general ledger. We also tested automated controls embedded within thesesystems. Our audit procedures included:— Testing the governance controls used by the Banking Group’s technology teams and third party suppliers
to monitor system integrity, by checking matters impacting the operational integrity of core systems for
escalation and action in accordance with the Banking Group’s policies— Testing the access rights given to staff by checking them to approved records, and inspecting the reports
over the granting and removal of access rights. We also looked for evidence of escalation of breaches— Testing preventative controls designed to enforce segregation of duties between users within particularsystems— Testing the operating effectiveness of automated controls, principally relating to the automated calculationof financial transactions. We tested the inputs used within automated calculations to source data and also
tested the accuracy of the calculation logic for a sample of transactions within each identified control— Testing the operating effectiveness of automated reconciliation controls, both between systems and intrasystem. For a sample of identified breaks, in reconciliations, we checked that these were recorded on
exception reports, and subsequently investigated and cleared by the Banking Group.

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Other Supplementary Information
The Directors, on behalf of the Banking Group, are responsible for the other information included in the Banking
Group’s Disclosure Statement. Other information includes the information required to be included in the
Disclosure Statement in accordance with Schedule 2 of the Order. Our opinion on the consolidated financial
statements does not cover any other information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the consolidated financial statements our responsibility is to read the otherinformation and, in doing so, consider whether the other information is materially inconsistent with theconsolidated financial statements or our knowledge obtained in the audit or otherwise appears materially
misstated. If, based on the work we have performed, we conclude that there is a material misstatement of thisother information, we are required to report that fact. We have nothing to report in this regard.

Report on other legal and regulatory requirements
In accordance with the requirements of clauses 2(1)(d) and 2(1)(e) of Schedule 1 of the Order, we report that:— we have obtained all the information and explanations we have required— in our opinion, proper accounting records have been kept by the Banking Group, as far as appears from our
examination of those records.

Responsibilities of Directors for the consolidated financial statements
and supplementary information
The Directors, on behalf of the Banking Group, are responsible for:— the preparation and fair presentation of the consolidated financial statements in accordance with Clause 24of the Order, NZ IFRS and International Financial Reporting Standards— the preparation and fair presentation of supplementary information, in accordance with Schedules 2, 4, 7, 13,
14, 15 and 17 of the Order— implementing necessary internal controls to enable the preparation of consolidated financial statements thatare fairly presented and free from material misstatement, whether due to fraud or error— assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related togoing concern and using the going concern basis of accounting unless they either intend to liquidate or tocease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the consolidated financial
statements and supplementary information
Our objective is:— to obtain reasonable assurance about whether the Disclosure Statement, including the consolidated financial
statements prepared in accordance with Clause 24 of the Order, and supplementary information, in
accordance with Schedules 4, 7, 13, 14, 15 and 17 of the Order as a whole is free from material misstatement,
whether due to fraud or error— to issue an Auditor’s Report that includes our opinion.

85

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordancewith International Standards on Auditing (New Zealand) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of this consolidated
financial statements.
A further description of our responsibilities for the Audit of these consolidated financial statements is located at
the External Reporting Board (XRB) website at:https://www.xrb.govt.nz/Site/Auditing_Assurance_Standards/Current_Standards/Page1.aspx
This description forms part of our Auditor’s Report.

Review conclusion on the supplementary information relating to Capital
Adequacy
Based on our review, nothing has come to ourattention that causes us to believe that the
information relating to Capital Adequacy, disclosed innote 26 to the Disclosure Statement, is not, in allmaterial respects:
prepared in accordance with the Banking
Group’s conditions of registration—

We have reviewed the information relating to
Capital Adequacy, as disclosed in note 26 of theDisclosure Statement for the year ended 30
September 2017. The information relating to
Capital Adequacy comprises the informationthat is required to be disclosed in accordancewith Schedule 11 of the Order.

disclosed in accordance with Schedule 11 of
the Order.

—

Basis for conclusion on the supplementary information relating to
Capital Adequacy
A review of the supplementary information relating to Capital Adequacy 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 under that standard are further described in the Auditor’s Responsibilities for the Review of the
supplementary information relating to capital adequacy section of our report.
As the auditor of the Banking Group, NZ SRE 2410 requires that we comply with the ethical requirements relevantto the audit of the annual financial statements.

Responsibilities of Directors for the supplementary information relating
to capital adequacy
The Directors are responsible for the preparation of information relating to Capital Adequacy that is required to bedisclosed under Schedule 11 of the Order and prepared in accordance with the Capital Adequacy Framework(Internal Models Based Approach) (BS2B) and described in note 26 to the Disclosure Statement.

86

Auditor’s Responsibilities for the Review of the supplementary
information relating to capital adequacy
Our responsibility is to express a conclusion on the Capital Adequacy information based on our review. We
conducted our review in accordance with NZ SRE 2410 Review of Financial Statements Performed by the
Independent Auditor of the Entity (NZ SRE 2410) issued by the XRB. As the auditor of ANZ Bank New Zealand
Limited, NZ SRE 2410 requires that we comply 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 capital
adequacy information is, in all material respects:— prepared in accordance with the Banking Group’s conditions of registration— disclosed in accordance with Schedule 11 of the Order.
A review of the Capital Adequacy information in accordance with NZ SRE 2410 is a limited assurance engagement.
The auditor performs procedures, primarily consisting of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other review procedures.
The procedures performed in a review are substantially less than those performed in an audit conducted inaccordance with International Standards on Auditing (New Zealand). Accordingly we do not express an audit
opinion on the information relating to Capital Adequacy disclosures.

Use of this Auditor’s Report
This report is made solely to the shareholder as a body. Our work has been undertaken so that we might state to
the shareholder those matters we are required to state to them in the 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 theshareholder as a body for our work, this report, or any of the opinions or conclusions we have formed.
The engagement partner on the audit resulting in this independent auditor's report is Graeme Edwards.
For and on behalf of

KPMG
Wellington
15 November 2017