ANZ BANK NEW ZEALAND LIMITEDANNUAL REPORT AND REGISTERED BANK DISCLOSURE STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2016
NUMBER 83 | ISSUED NOVEMBER 2016

ANZ Bank New Zealand Limited

ANNUAL REPORT AND REGISTERED BANK DISCLOSURE STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2016

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

2

3
3
4
5
6

7
12

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 Statements

14
14
15
16
17
19

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

20
20
20
22
22
23

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

24
24
25

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

27
41
43
44
45
46

Non-Financial Assets
24. Other Assets
25. Goodwill and Other Intangible Assets

47
47

Non-Financial Liabilities
26. Payables and Other Liabilities
27. Provisions

47
47

Equity28. Share Capital
29. Capital Adequacy

48
49

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

58
59

61
63
63
64
65

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

67
68
70
74

Directors’ Statement

76

Independent Auditor’s Report77

ANZ Bank New Zealand Limited

2

ANNUAL REPORTFOR THE YEAR ENDED 30 SEPTEMBER 2016

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 2016 and the audit report on those financial statements.
For and on behalf of the Board of Directors:

John Judge
Chairman18 November 2016

David Hisco
Executive Director
18 November 2016

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.
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 to30/09/2015
NZ$m

Note

30/09/2016
NZ$mInterest income

3

6,423

6,926

Interest expense

3

3,421

4,051

3,002

2,875

Net interest income
Net trading gains

4

12

262

Net funds management and insurance income

4

414

385

Other operating income

4

421

523

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

3,854

4,050

1,599

1,512

2,255

2,538

150

74

2,105

2,464

570

681

1,535

1,783

STATEMENT OF COMPREHENSIVE INCOME

Profit after income tax

Year toYear to30/09/2016

30/09/2015

NZ$m

NZ$m

1,535

1,783
(32)

Items that will not be reclassified to profit or loss
Actuarial gain / (loss) on defined benefit schemes

18

Income tax credit / (expense) relating to items not reclassified(5)

9

Total items that will not be reclassified to profit or loss

13

(23)

Items that may be reclassified subsequently to profit or loss
Unrealised gains recognised directly in equity

91

12

Realised losses / (gains) transferred to the income statement

9

(16)

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

(28)

1

Total items that may be reclassified subsequently to profit or loss

72

(3)

1,620

1,757

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

30/09/2016
NZ$m

30/09/2015
NZ$m

9

2,274

2,380

AssetsCash
Settlement balances receivable

396

309

Collateral paid

2,310

1,929

11,97912,139Trading securities

10

Investments backing insurance contract liabilities

119

151

Derivative financial instruments

11

21,11017,658Available-for-sale assets

12

2,859

1,428

Net loans and advances

13

114,623

106,357

Other assets

24

701

740

630

552

Life insurance contract assets
Investments in associates

74

Premises and equipment

387

388

Goodwill and other intangible assets

3,424

3,492

Total assets

25

160,819

147,527

Interest earning and discount bearing assets

134,489

124,785

1,771

1,844

Liabilities
Settlement balances payable
Collateral received

529

1,687

Deposits and other borrowings

15

99,066

90,678Derivative financial instruments

11

21,956

17,230Current tax liabilities

21

87

Deferred tax liabilities

6

145

124

Payables and other liabilities

26

1,119

1,487

Provisions

27

206

191

Debt issuances

16

20,014

19,403

Subordinated debt

17

3,282

2,343

Total liabilities

148,109

135,074

Net assets

12,71012,453

8,888

8,888

EquityShare capital

28

Reserves

62(10)

Retained earnings

3,760

3,575

Total equity

12,71012,453

Interest and discount bearing liabilities

115,961

108,629

For and on behalf of the Board of Directors:

John Judge
Chairman18 November 2016

David Hisco
Executive Director
18 November 2016

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 to30/09/2016
NZ$m

30/09/2015
NZ$m

6,443

6,857

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

2

89

332

303

642

662

Interest paid

(3,416)(3,985)

Operating expenses paid

(1,495)(1,387)

Income taxes paid

(648)

(587)

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

1,860

1,952

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

(19)

4

Change in collateral paid

(381)

(1,146)

Change in trading securities

164

(208)

Change in derivative financial instruments(2,028)2,837

Change in available-for-sale assets(1,381)(634)

Change in insurance investment assets

32

39(9,435)(12,198)

697

1,891

Change in settlements payable

(67)

519

Change in collateral received(1,158)887

Change in deposits and other borrowings

9,142

6,511

(4,434)(1,498)(2,574)454

Proceeds from sale of premises and equipment

17-

Proceeds from sale of insurance policies

23-

Purchase of intangible assets

(29)

(73)

Purchase of premises and equipment

(71)

(59)

Net cash flows used in investing activities

(60)

(132)

Proceeds from issue of debt issuances

7,380

4,212

Proceeds from issue of subordinated debt

938

1,497

Change in loans and advances
Proceeds from sale of loans and advances to NZ Branch

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

8

Cash flows from investing activities

Cash flows from financing activities

Proceeds from issue of ordinary shares
Redemptions of debt issuances
Redemptions of subordinated debt-

675

(4,477)(4,008)-(297)

Dividends paid

(1,363)(1,760)Net cash flows provided by financing activities

2,478

319

Net increase / (decrease) in cash and cash equivalents

(156)

641

Cash and cash equivalents at beginning of the year

2,471

1,830

2,315

2,471

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 2014

8,213

-

(7)

3,575

11,781

Profit after income tax

-

-

-

1,783

1,783

Unrealised gains recognised directly in equity

-

-

12

-

12

Realised gains transferred to the income statement

-

-

(16)

-

(16)

Actuarial loss on defined benefit schemes

-

-

-

(32)

(32)

Income tax credit on items recognised directly in equity

-

-

1

9

10

Total comprehensive income for the year

-

-

(3)

1,760

1,757

Note

Total equity

Ordinary shares issued

28

675

-

-

-

675

Ordinary dividend paid

28

-

-

-

(1,745)(1,745)Preference dividend paid

28

-

-

-

(15)

(15)

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)

-

-

72

1,548

1,620

-

-

-

(1,350)(1,350)

-

-

-

(13)

(13)

8,888

-

62

3,760

12,710As at 30 September 2015

Total comprehensive income for the year
Ordinary dividend paid

28

Preference dividend paid

28

As at 30 September 2016

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)

The effect of all transactions between entities in the Banking
Group is eliminated.
Associates

Statement of compliance

The Banking Group applies the equity method of accounting
for associates.

These financial statements have been prepared inaccordance with the requirements of the Financial Markets
Conduct Act 2013 and the Order. The Banking Group’s
financial statements are for the Bank’s consolidated group,
which includes its subsidiaries and 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 ofthe primary economic environment in which the entity
operates (the functional currency).

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 Reporting Standards, as appropriate forpublicly accountable profit-oriented entities•
International Financial Reporting Standards (IFRS).

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 thefunctional currency using the exchange rates prevailing at
the dates of the transactions.

The principal accounting policies adopted in the preparationof these financial statements are set out below.
(ii)

Use of estimates and assumptions

Monetary assets and liabilities resulting from foreign
currency transactions are subsequently translated at the spot
rate at reporting date.

The preparation of these financial statements requires theuse of management judgements, estimates and assumptions
that affect reported amounts and the application of policies.

Exchange differences arising on the settlement of monetary
items or on translating monetary items at rates different tothose at which they were initially recognised or included in aprevious financial report, are recognised in the income
statement in the period in which they arise.

Discussion of the critical accounting estimates, which
include complex or subjective decisions or assessments, arecovered in note 2. Such estimates are reviewed on an
ongoing basis.
(iii)

Basis of measurement

The financial information has been prepared in accordancewith the historical cost basis except that the following assets
and liabilities are stated at their fair value:•
derivative financial instruments•
available-for sale financial assets•
financial instruments held for trading•
financial instruments designated at fair value throughprofit 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, isconsidered a subsidiary of the Banking Group when it isdetermined that control over the entity exists. Control isdeemed to exist when the Banking Group is exposed, or has
rights, to variable returns from its involvement with theentity 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.

(b)Income recognition(i)Interest income

Interest income is recognised as it accrues using the effective
interest method.
The effective interest method calculates the amortised costof a financial asset or financial liability and allocates theinterest income or interest expense, including any fees anddirectly related transaction costs that are an integral part ofthe effective interest rate, over the expected life of thefinancial asset or liability so as to achieve a constant yield on
the financial asset or liability.
For assets subject to prepayment, expected life isdetermined on the basis of the historical behaviour of theparticular asset portfolio, taking into account contractual
obligations and prepayment experience. This is assessed ona regular basis.
(ii)

Fee and commission income

Fees and commissions received that are integral to theeffective interest rate of a financial asset are recognised using
the effective interest method. For example, loan
commitment fees, together with related direct costs, aredeferred and recognised as an adjustment to the effective
interest rate on a loan once drawn.
Fees and commissions that relate to the execution of asignificant act (for example, advisory or arrangement
services, placement fees and underwriting fees) arerecognised when the significant act has been completed.
Fees charged for providing ongoing services (for example,
maintaining and administering existing facilities) are

ANZ Bank New Zealand Limited

8

NOTES TO THE FINANCIAL STATEMENTS
follow from the manner in which the Banking Group, at thereporting date, recovers or settles the carrying amount of its
assets and liabilities.

recognised as income over the period the service isprovided.
(c)

Expense recognition
(i)

(iv)

Interest expense

Current and deferred tax assets and liabilities are offset only
to the extent that they relate to income taxes imposed by
the same taxation authority, there is a legal right andintention to settle on a net basis and it is allowed under the
tax law of the relevant jurisdiction.

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

Loan origination expenses

Certain loan origination expenses are an integral part of theeffective interest rate of a financial asset measured atamortised cost. These loan origination expenses include:•
fees and commissions payable to brokers and certain
customer incentive payments in respect of originating
lending business•other expenses of originating lending business, suchas external legal costs and valuation fees, provided
these are direct and incremental costs related to theissue of a financial asset.
Such loan origination expenses are initially recognised aspart of the cost of acquiring the financial asset and amortisedas part of the effective yield of the financial asset over its
expected life using the effective interest method.
(d)Income tax(i)Income tax expense

Income tax on earnings for the year comprises current anddeferred tax and is based on the applicable tax law. It is
recognised in the income statement as tax expense, except
when it relates to items credited directly to equity, in whichcase it is recorded in equity.
(ii)

Current tax

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

Deferred tax

Deferred tax is accounted for using the comprehensive tax
balance sheet method. It is generated by temporary
differences between the carrying amounts of assets andliabilities for financial reporting purposes and their tax base.
Deferred tax assets, including those related to the tax effects
of income tax losses and credits available to be carriedforward, are recognised only to the extent that it is probablethat future taxable profits will be available against which the
deductible temporary differences or unused tax losses andcredit can be utilised.
Deferred tax liabilities are recognised for all taxable
temporary differences, other than those relating to taxable
temporary differences.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the period(s) when theasset and liability giving rise to them are realised or settled,based on tax rates and tax laws that have been enacted or
substantively enacted by the reporting date. The
measurement reflects the tax consequences that would

Offsetting(e)AssetsFinancial assets(i)Financial assets and liabilities at fair value throughprofit or loss

Purchases and sales of trading securities are recognised on
trade date.
Trading securities are financial instruments acquired
principally for the purpose of selling in the short-term or
which are a part of a portfolio which is managed for shortterm profit-taking. Trading securities are initially recognised
and subsequently measured in the balance sheet at their fairvalue.
Derivatives that are not effective accounting hedging
instruments are carried at fair value through profit or loss.
In addition, certain financial assets and liabilities aredesignated and measured at fair value through profit or loss
where any of the following applies:•
the asset represents investments backing insurance
policy liabilities•
where doing so eliminates or significantly reduces ameasurement or recognition inconsistency that would
otherwise arise from measuring assets and liabilities, orrecognising the gains or losses thereon, on differentbases•
a group of financial assets or financial liabilities or both
is managed and its performance evaluated on a fairvalue basis•
the financial instrument contains an embedded
derivative, unless the embedded derivative does not
significantly modify the cash flows or it is clear, withlittle or no analysis, that it would not be separately
recorded.
Changes in the fair value (gains or losses) of these financial
instruments are recognised in the income statement in the
period in which they occur.
(ii)

Derivative financial instruments

Derivative financial instruments are contracts whose value isderived from one or more underlying price index or othervariables. They include swaps, forward rate agreements,
futures, options and combinations of these instruments.
Derivative financial instruments are entered into for trading
purposes (including customer-related reasons) or forhedging purposes (where the derivative instruments areused to hedge the Banking Group’s exposures to interest
rate risk, currency risk, price risk, credit risk and otherexposures relating to non-trading positions).
Derivative financial instruments are recognised initially at fairvalue with gains or losses from subsequent measurement at

ANZ Bank New Zealand Limited

9

NOTES TO THE FINANCIAL STATEMENTS
fair value being recognised in the income statement.
Valuation adjustments are integral in determining the fairvalue of derivatives. This includes a credit valuation
adjustment (CVA) to reflect the credit worthiness of thecounterparty and funding valuation adjustment (FVA) toaccount for the funding cost inherent in the portfolio.
Where the derivative is effective as a hedging instrument
and designated as such, the timing of the recognition of any
resultant gain or loss in the income statement is dependent
on the hedging designation. These hedging designations
and associated accounting are as follows:
Fair value hedge
Where the Banking Group hedges the fair value of arecognised asset or liability or firm commitment, changes in
the fair value of the derivative designated as a fair value
hedge are recognised in the income statement. Changes in
the fair value of the hedged item attributable to the hedged
risk are reflected in adjustments to the carrying value of thehedged item, which are also recognised in the income
statement.
Hedge accounting is discontinued when the hedge
instrument expires or is sold, terminated, exercised or nolonger qualifies for hedge accounting. The resulting
adjustment to the carrying amount of the hedged item
arising from the hedged risk is amortised to the income
statement over the period to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised fairvalue adjustment is recognised immediately in the income
statement.
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 fairvalue gain or loss associated with the effective portion of the
cash flow hedges is recognised initially in othercomprehensive income and then recycled to the income
statement in the periods when the hedged item will affectprofit or loss. Any ineffective portion is recognised
immediately in the income statement. When the hedging
instrument expires, is sold, terminated, exercised, or nolonger qualifies for hedge accounting, the cumulative
amount deferred in equity remains in the hedging reserve,
and is subsequently transferred to the income statement
when the hedged item is recognised in the income
statement.
When a forecast hedged transaction is no longer expected
to occur, the amount deferred in equity is recognised
immediately in the income statement.
Derivatives that do not qualify for hedge accounting
All gains and losses from changes in the fair value ofderivatives that are not designated in a hedging relationshipbut are entered into to manage the interest rate and foreignexchange risk of the Banking Group are recognised in theincome statement. 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 fairvalue movement is included in other income.

(iii)

Available-for-sale assets

Purchases and sales of available-for-sale financial assets arerecognised on trade date, being the date on which the
Banking Group commits to purchase or sell the asset.
Available-for-sale assets comprise non-derivative financial
assets which the Banking Group designates as available-forsale but which are not deemed to be held principally fortrading 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 fairvalue are included as a separate component of equity in theavailable-for-sale revaluation reserve. When the asset is sold,the cumulative gain or loss relating to the asset is transferredto the income statement.
(iv)

Net loans and advances

Net loans and advances are non-derivative financial assets
with fixed or determinable payments that are not quoted inan active market. They arise when the Banking Group
provides money to a debtor with no intention of trading theloans and advances. The loans and advances are initiallyrecognised at fair value plus transaction costs that are
directly attributable to the issue of the loan or advance. They
are subsequently measured at amortised cost using theeffective interest method, unless specifically designated on
initial recognition at fair value through profit or loss.
All loans are graded according to the level of credit risk.
Net loans and advances include direct finance provided tocustomers such as bank overdrafts, credit cards, term loans
and finance lease receivables.
Impairment of loans and advances
Loans and advances are reviewed at least at each reporting
date for impairment.
Credit impairment provisions are raised for exposures thatare known to be impaired. Exposures are impaired andimpairment losses are recorded if, and only if, there is
objective evidence of impairment as a result of one or more
loss events, that occurred after the initial recognition of theloan and prior to the reporting date, and that loss event, or
events, has had an impact on the estimated future cash
flows of the individual loan or the collective portfolio of loansthat can be reliably estimated.
Impairment is assessed for assets that are individuallysignificant (or on a portfolio basis for small value loans) andthen on a collective basis for those exposures notindividually known to be impaired.
Exposures that are assessed collectively are placed in poolsof similar assets with similar risk characteristics. The required
provision is estimated on the basis of historical loss
experience for assets with credit risk characteristics similar to
those in the collective pool. The historical loss experience isadjusted based on current observable data such as changed
economic conditions. The provision also takes account of the
impact of inherent risk of large concentrated losses within
the portfolio and an assessment of the economic cycle.
The estimated impairment losses are measured as thedifference between the asset’s carrying amount and theestimated future cash flows discounted to their present

ANZ Bank New Zealand Limited

10

NOTES TO THE FINANCIAL STATEMENTS
rewards are retained, the transferred assets are notderecognised from the balance sheet.

value. As this discount unwinds during the period between
recognition of impairment and recovery of the cash flow, it isrecognised in interest income.

In transactions where substantially all the risks and rewardsof ownership of a financial asset are neither retained nor
transferred, the Banking Group derecognises the asset if
control over the asset is lost. In transfers where control over
the asset is retained, the Banking Group continues torecognise the asset to the extent of its continuing
involvement, determined by the extent to which it is
exposed to changes in the value of the transferred asset. The
rights and obligations retained or created in the transfer are
recognised separately as assets and liabilities as appropriate.

Impairment of capitalised acquisition expenses is assessed
through comparing the actual behaviour of the portfolio
against initial expected life assumptions.
The provision for impairment loss (individual and collective)
is deducted from loans and advances in the balance sheet
and the movement for the reporting period is reflected in
the income statement.
When a loan is uncollectible, either partially or in full, it is
written off against the related provision for loan impairment.
Unsecured facilities are normally written-off when they
become 180 days past due or earlier in the event of thecustomer's bankruptcy or similar legal release from theobligation. However, a certain level of recoveries is expected
after the write-off, which is reflected in the amount of theprovision for credit losses. In the case of secured facilities,
remaining balances are written-off after proceeds from therealisation of collateral have been received, if there is a
shortfall.

Non-financial assets(viii) Goodwill
Goodwill represents the excess of the purchaseconsideration over the fair value of the identifiable net assets
of a controlled entity at the date of gaining control. Goodwill
is recognised as an asset and not amortised, but is assessed
for impairment at least annually or more frequently if there isan indication that the goodwill may be impaired. This
involves using the discounted cash flows methodology todetermine the expected future benefits of the cashgenerating units to which the goodwill relates. Where theassessment results in the goodwill balance exceeding thevalue of expected future benefits, the difference is charged
to the income statement. Any impairment of goodwill is not
subsequently reversed.

Impairment losses recognised in previous periods arereversed in the income statement if the estimate of the loss
subsequently decreases.
A provision is also raised for off-balance sheet items such ascommitments that are considered to be onerous.
(v)

Lease receivables

Contracts to lease assets and hire purchase agreements areclassified 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 areclassified as operating leases.
(vi)

Repurchase agreements

Securities sold under repurchase agreements are retained in
the financial statements where substantially all the risks andrewards of ownership remain with the Banking Group, and acounterparty liability is disclosed under deposits and otherborrowings. The difference between the sale price and therepurchase price is accrued over the life of the repurchaseagreement and charged to interest expense in the income
statement.
Securities purchased under agreements to resell, where the
Banking Group does not acquire the risks and rewards ofownership, are recorded as cash or net loans and advances if
original maturity is greater than 90 days. The security is notincluded in the balance sheet. Interest income is accrued on
the underlying loan amount.
Securities borrowed are not recognised in the balance sheet,
unless these are sold to third parties, at which point the
obligation to repurchase is recorded as a financial liability atfair value with fair value movements included in the income
statement.
(vii) Derecognition
The Banking Group enters into transactions where it transfers
financial assets recognised on its balance sheet yet retains
either all or a portion of the risks and rewards of thetransferred assets. If all, or substantially all, the risks and(f)Liabilities
Financial liabilities(i)

Deposits and other borrowings

Deposits and other borrowings include certificates ofdeposit, interest bearing deposits, UDC secured investments,
commercial paper and other related interest and noninterest bearing financial instruments. Deposits and otherborrowings, excluding commercial paper, are initiallyrecognised at fair value plus transaction costs andsubsequently measured at amortised cost. The interest
expense is recognised using the effective interest method.
Commercial paper is designated at fair value through profit
or loss, with fair value movements recorded directly in theincome statement, which reflects the basis on which it ismanaged.
(ii)

Debt issuances and subordinated debt

Debt issuances and subordinated debt are accounted for in
the same way as deposits and other borrowings.
(iii)

Financial guarantee contracts

Financial guarantee contracts are contracts that require theissuer to make specified payments to reimburse the holder
for a loss it incurs because a specified debtor fails to makepayments when due. Financial guarantees are issued in theordinary course of business, consisting of letters of credit,
guarantees and acceptances. Financial guarantees are
initially recognised in the financial statements at fair value on
the date the guarantee was given (typically this is thepremium received). Subsequent to initial recognition, theBanking Group's liabilities under such guarantees aremeasured at the higher of their amortised amount and thebest estimate of the expenditure required to settle any
financial obligation arising at the balance sheet date. TheseANZ Bank New Zealand Limited

11

NOTES TO THE FINANCIAL STATEMENTS
estimates are determined based on experience of similartransactions and history of past losses.
(iv)

(g)

Derecognition

Accounting Standards not early adopted

The following standards were available for early adoption
but have not been applied in these financial statements.

EquityStandards and amendments effective for periods
commencing after 1 January 2018

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 changes in the fair value of availablefor-sale financial assets, net of tax. These changes aretransferred to the income statement (in other operating
income) when the asset is derecognised or impaired.
Cash flow hedging reserve
This reserve includes the fair value gains and losses
associated with the effective portion of designated cash flow
hedging instruments. The cumulative deferred gain or loss
on the hedge is recognised in the income statement when
the hedged transaction impacts the income statement.
Presentation(i)

Offsetting of income and expenses

Income and expenses are not offset unless required or
permitted by an accounting standard. This generally arises ineither of the following circumstances:•where transaction costs form an integral part of theeffective interest rate of a financial instrument which ismeasured at amortised cost, these are offset against
the interest income generated by the financial
instrument•
where gains and losses arise from a group of similartransactions, such as foreign exchange gains andlosses.
(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 andliability•
an intention to settle on a net basis, or to realise theasset 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 and rewards that are different to those ofother operating segments. The Banking Group operates
predominately in the banking industry within New Zealand.
The Banking Group has very limited exposure to risk
associated with operating in different economic
environments or political conditions. On this basis nogeographical segment information is provided.
(i)

(ii)

Financial liabilities are derecognised when the obligation
specified in the contract is discharged, cancelled or expires.
(i)

(h)

the Banking Group will be liable to settle the possible
obligation.

Other
(i)

Contingent liabilities

Contingent liabilities are not recognised in the balance sheet
but disclosed in note 23 unless it is considered remote that

NZ IFRS 9 Financial Instruments
The External Reporting Board (XRB) issued the final version of
NZ IFRS 9 Financial Instruments in September 2014. When
operative, this standard will replace NZ IAS 39 Financial
Instruments: Recognition and Measurement. NZ IFRS 9
addresses recognition and measurement requirements forfinancial assets and financial liabilities, impairment
requirements that introduce an expected credit loss
impairment model and general hedge accounting
requirements which more closely align with risk
management activities undertaken when hedging financial
and non-financial risks. NZ IFRS 9 is not mandatorily effective
for the Banking Group until 1 October 2018. The Banking
Group is in the process of assessing the impact of applicationof NZ IFRS 9 and is not yet able to reasonably estimate theimpact on its financial statements.
Standards and amendments effective for periods
commencing after 1 January 2019
NZ IFRS 16 Leases
The XRB issued the final version of NZ IFRS 16 Leases in
February 2016. NZ IFRS 16 introduces a single lessee
accounting model and requires a lessee to recognise assets
and liabilities for all leases with a term of more than 12
months, unless the underlying asset is of low value. A lessee
is required to recognise a right-of-use asset representing its
right to use the underlying leased asset and a lease liability
representing its obligation to make lease payments. NZ IFRS
16 substantially carries forward the lessor accounting
requirements in NZ IAS 17 Leases. Accordingly, a lessor
continues to classify its leases as operating leases or financeleases, and to account for those two types of leases
differently. NZ IFRS 16 is not mandatorily effective for the
Banking Group until 1 October 2019. The Banking Group is in
the process of assessing the impact of application of NZ IFRS
16 and is not yet able to reasonably estimate the impact on
its financial statements.

ANZ Bank New Zealand Limited

12

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 the reported amounts of assets and liabilities in thefinancial statements. Estimates and judgements are continually
evaluated and are based on historical experience and otherfactors, including expectations of future events that are
believed to be reasonable under the circumstances.
An explanation of the judgements and estimates made by the
Banking Group, in the process of applying its accounting
policies, that have the 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 ofloans and advances requires the Banking Group to assess
impairment at least 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 balancedate based on their experienced judgement.
The collective provision is estimated on the basis of historicalloss experience for assets with credit characteristics similar to
those in the collective pool. The historical loss experience isadjusted based on current observable data and events and anassessment of the impact of model risk. The provision also takes
into account the impact of large concentrated losses within theportfolio and the economic cycle.
The use of such judgements and reasonable estimates is
considered by management to be an essential part of theprocess and does not impact on the reliability of the provision.
Individual and collective provisioning involves the use ofassumptions for estimating the amounts and timing of
expected future cash flows. The process of estimating theamount and timing of cash flows involves considerable
management judgement. These judgements are revised
regularly to reduce any differences between loss estimates andactual 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 fairvalue are stated in note 1(a)(iii). In estimating fair value the
Banking Group uses, wherever possible, quoted market prices inan 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
accepted valuation techniques. The valuation models
incorporate the impact of bid/ask spread, counterparty credit
spreads and other factors that would influence the fair value
determined by a market participant. The selection of
appropriate valuation techniques, methodology and inputs
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 nontrading positions.
A hedging instrument is a designated derivative whose fairvalue or cash flows are expected to offset changes in the fairvalue 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 therisk of changes in fair value or future cash flows; and (b) isdesignated as being hedged.
Judgement is required in selecting and designating hedging
relationships and assessing hedge effectiveness. NZ IAS 39
Financial Instruments: Recognition and Measurement does not
specify a single method for assessing hedge effectivenessprospectively or retrospectively. The Banking Group adopts the
hypothetical derivative approach to determine hedge
effectiveness in line with current risk management strategies.
Hedge ineffectiveness can arise for a number of reasons andwhilst a hedge may pass the effectiveness tests above it may
not be perfectly effective, leaving some volatility in the income
statement.
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 fairvalue of derivatives is a credit valuation adjustment (CVA) toreflect the creditworthiness of the counterparty. This is
influenced by the mark-to-market of the derivative trades andby the movement in the market cost of credit. Further
adjustments are made to account for the funding costs inherent
in the derivative. Judgment is required to determine theappropriate 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 toachieve a narrow and well defined objective with restrictions
around their ongoing activities and are often thinly capitalisedwith 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 withmanaged funds. When 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 andexposure 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 thatmanaged fund. Whether the Banking Group controls the
managed fund depends on whether it holds that power as

ANZ Bank New Zealand Limited

13

NOTES TO THE FINANCIAL STATEMENTS
principal, or as an agent for other investors. The Banking Groupis considered the principal, and thus controls the managed
fund, when it cannot be easily removed from the position ofManager by other investors and has variable returns throughsignificant 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 inor 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 design and establishment of that structured
entity and where any of the following apply:•
where the Banking Group is the major user of thatstructured entity•
the Banking Group’s name appears in the name of thatstructured entity or on its products•
the Banking Group provides implicit or explicit guaranteesof that entity’s performance.
Goodwill
Refer to note 25 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 ofcarrying value over recoverable amount is taken to the income
statement as an impairment write down.
Goodwill has been allocated for impairment purposes to the
cash generating units at which the goodwill is monitored forinternal reporting purposes. Impairment testing of purchased
goodwill is performed by comparing the recoverable value ofeach 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 andother 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 anumber of financial budgets within each segment approved bymanagement covering a three year period. Cash flow
projections are based on a range of readily available economic
assumptions including GDP and CPI. Cash flows beyond thethree year period are extrapolated using a 2% growth rate.
These cash flow projections are discounted using a capital asset
pricing model. As at 30 June 2016 when the last valuation was
prepared, a discount rate of 10.9% was applied to each cash
generating unit. The main variables in the calculation of the
discount rate used are the risk free rate, the beta rate and themarket 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 segmentlevel therefore management performed stress tests for key
sensitivities in each segment.
Management believes any reasonable possible change in the
key assumptions on which the recoverable amount is based
would not cause the Banking Group’s carrying amount toexceed its recoverable amount.

ANZ Bank New Zealand Limited

14

NOTES TO THE FINANCIAL STATEMENTS
3.

NET INTEREST INCOME
Year toYear to30/09/2016
NZ$m

30/09/2015
NZ$m

453

488

63

94

Interest income
Financial assets at fair value through profit or loss
Trading securities
Financial assets not at fair value through profit or loss
Cash
Available-for-sale assets

64

37

Net loans and advances

5,814

6,277

Other

29

30

5,970

6,438

6,423

6,926

226

280

Deposits and other borrowings

2,310

2,772

Debt issuances

681

855

Subordinated debt

170

112

Other

34

32

3,195

3,771

Total interest expense

3,421

4,051

Net Interest Income

3,002

2,875

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 to30/09/2016
NZ$m

30/09/2015
NZ$m

Net gain on foreign exchange trading

203

201

Net gain on trading securities

115

384

Net loss on trading derivatives

(306)

(323)

12

262

Net funds management income

187

165

Net insurance income

227

220

Total funds management and insurance income

414

385

Net trading gains

Net trading gains
Net funds management and insurance income

Other operating income
Lending and credit facility fee income

55

54

Other fee income

675

614

Total fee income

730

668

Direct fee expense

(308)

(264)

Net fee income

422

404

Net loss on financial liabilities designated at fair value

(5)

(1)

Net ineffectiveness on qualifying fair value hedges

1(8)

Net gain / (loss) on derivatives not qualifying for hedge accounting

(29)

57

Net cash flow hedge gain / (loss) transferred to income statement

(7)

16

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

40

54

Total other operating income

421

523

ANZ Bank New Zealand Limited

15

NOTES TO THE FINANCIAL STATEMENTS
5.

OPERATING EXPENSES
Year toYear to30/09/2016
NZ$m

30/09/2015
NZ$m

Salaries and related costs

811

803

Superannuation costs

30

31

Share-based payments expense

21

22

Other

32

20

Total personnel expenses

894

876

Depreciation of premises and equipment32

31

Leasing and rental costs

79

80

Other

41

42

Total premises expenses

152

153

Depreciation and amortisation

111

49

Licenses and outsourced services

116

99

Other

58

51

Total technology expenses

285

199

Advertising and public relations

42

61

Amortisation of other intangible assets

55Freight, stationery, postage and telephone

48

51

Professional Fees

45

37

Travel and entertainment expenses

28

38

Charges from Ultimate Parent Bank

64

64

Other

36

28

Total other expenses

268

284

Total operating expenses

1,599

1,512

Personnel

Premises

Technology

Other

Software capitalisation changes
During the year ended 30 September 2016, the Banking Group changed the application of its accounting policy for the capitalisation of
expenditure on internally generated software assets effective from 1 October 2015. The change aligns the accounting policy for software
assets with the rapidly changing technology landscape and the Banking Group’s evolving digital strategy by increasing the threshold forcapitalisation of software development costs and directly expensing more project related costs. The change does not affect the Banking
Group’s total investment in technology but does affect the timing of recognition of costs in the income statement. The impact of thechange on the results for the year ended 30 September 2016 was:•Higher amortisation of NZ$54 million relating to the accelerated amortisation of software assets where the original cost was below
the revised threshold at 1 October 2015. This brings forward amortisation which otherwise would have been recognised in future
periods.
•
Higher operating expenses of NZ$56 million relating to software development costs which otherwise would have been capitalised
and amortised in future periods.
The change in capitalised software treatment has no impact on regulatory capital ratios.

ANZ Bank New Zealand Limited

16

NOTES TO THE FINANCIAL STATEMENTS
6.

INCOME TAX
Year toYear to30/09/2016

30/09/2015

NZ$m

NZ$m

Profit before income tax

2,105

2,464

Prima facie income tax at 28%

Reconciliation of the prima facie income tax payable on profit
589

690

Imputed and non-assessable dividends

(1)

(3)

Change in tax provisions(5)-

Non assessable income and non deductible expenditure

(11)

(6)

Income tax over provided in prior years(2)-

Total income tax expense

570

681

Effective tax rate (%)

27.1%

27.6%

582

607

Amounts recognised in the income statement
Current tax
Deferred tax

(12)

74

Total income tax expense recognised in the income statement

570

681

Imputation credits available

3,566

2,989

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.

30/09/2016
NZ$m

30/09/2015
NZ$m

Provision for credit impairment

174

171

Premises and equipment, software and intangibles

22

(8)

Provisions and accruals

75

60

Insurance policy assets

(159)

(146)

Financial instruments

(24)

4

Lease finance

(216)

(203)

Deferred tax assets / (liabilities) comprise the following temporary differences:

Other deferred tax assets and liabilities (including tax provisions)

(17)

(2)

Net deferred tax liabilities1

(145)

(124)

1

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

ANZ Bank New Zealand Limited

17

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.
During the year ended 30 September 2016, Wealth was integrated with Retail, having been disclosed separately previously. Segment
reporting has been updated to reflect this change and other minor changes to the Banking Group’s structure. Comparative data has beenadjusted to be 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,wholesale money market services and transaction banking.
Other
Other includes treasury and back office support functions, none of which constitutes a separately reportable segment.

ANZ Bank New Zealand Limited

18

NOTES TO THE FINANCIAL STATEMENTS
Business segment analysis1
RetailCommercial

Institutional

Other

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

External interest income

3,456

2,202

756

9

6,423

External interest expense(1,598)

(333)

(407)

(1,083)(3,421)

Net intersegment interest

(198)

(981)

19

1,160

-

Net interest income

1,660

888

368

86

3,002

Other external operating income

677

16

113

41

847

5

-

-

-

5

Operating income

2,342

904

481

127

3,854

Operating expenses

1,045

258

181

115

1,599

Profit before credit impairment and income tax

1,297

646

300

12

2,255

Credit impairment charge

58

72

20

-

150

Profit before income tax

1,239

574

280

12

2,105

Income tax expense

336

161

79

(6)

570

Profit after income tax

903

413

201

18

1,535

30/09/2016

Share of associates' profit

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

69,024

41,63947,9952,161

160,819

Total external liabilities

63,604

13,36240,88030,263

148,109

External interest income

3,474

2,441

1,002

9

6,926

External interest expense(1,905)

(388)

(498)

(1,260)(4,051)

Net intersegment interest(1)(1,149)

(200)

1,350

-

Net interest income

1,568

904

304

99

2,875

Other external operating income

657

17

360

136

1,170

3

-

-

2

5

Operating income

2,228

921

664

237

4,050

Operating expenses

1,023

257

189

43

1,512

Profit before credit impairment and income tax

1,205

664

475

194

2,538

Credit impairment charge

56

-

18

-

74

Profit before income tax

1,149

664

457

194

2,464

Income tax expense

314

186

126

55

681

Profit after income tax

835

478

331

139

1,783

30/09/2015

Share of associates' profit

Other information
Depreciation and amortisation

20

-

-

65

85

Goodwill

1,109

1,052

1,072

-

3,233

Other intangible assets

138

-

-

121

259

Investment in associates

4

-

-

-

4

Total external assets

61,36640,561

43,903

1,697

147,527

Total external liabilities

59,933

12,39038,96323,788135,0741Intersegment transfers are accounted for and determined on an arm's length or cost recovery basis.

ANZ Bank New Zealand Limited

19

NOTES TO THE FINANCIAL STATEMENTS
8.

NOTES TO THE CASH FLOW STATEMENT
Year toYear to30/09/2016
NZ$m

30/09/2015
NZ$m

1,535

1,783

Depreciation and amortisation

148

85

Provision for credit impairment

150

74

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

(7)

(3)

Amortisation of capitalised brokerage / mortgage origination fees

152

123

Amortisation of premiums and discounts

70

60

Fair value gains and losses

31

(263)

Loss on disposal and impairment of premises and equipment and intangibles

4

1(4,434)(1,498)Deferrals or accruals of past or future operating cash receipts or payments:
Change in net operating assets less liabilities
Change in interest receivable

29-

Change in interest payable

(43)

(9)

Change in accrued expenses

(71)

13

Change in provisions

15

(13)

Change in life insurance policy assets

(57)

(79)

Change in other receivables and payables

82Change in net income tax assets / liabilities

(78)

94

Dividends from associates in excess of share of profits

(3)

84

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

(23)

-

(2,574)454

30/09/2016
NZ$m

30/09/2015
NZ$m

2,274

2,380

Nostro accounts

45

108

Overdrawn nostro accounts

(4)

(17)

Total cash and cash equivalents

2,315

2,471

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

20

NOTES TO THE FINANCIAL STATEMENTS
9.

CASH
30/09/2016
NZ$m

30/09/2015
NZ$m

Coins, notes and cash at bank

193

195

Securities purchased under agreements to resell

229

338

Balances with central banks

1,852

1,847

Total cash

2,274

2,380

30/09/2016

30/09/2015

10. TRADING SECURITIES

Government securities

NZ$m

NZ$m

5,953

6,555

Corporate and financial institution securities

6,026

5,584

Total trading securities

11,97912,13911.

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

21

NOTES TO THE FINANCIAL STATEMENTS
30/09/2016
Notional
principal
amountNZ$m30/09/2015

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

63,895650

785

76,319

1,625

1,339

Swap agreements

141,306

1,718

3,157

123,744

2,886

3,559

Options purchased

2,379

50

2

1,870

79

3

Options sold

2,248

7

77

1,820

2

46

209,828

2,425

4,021

203,753

4,592

4,947

Interest rate derivatives
Forward rate agreements

41,5071

5

24,743

2

12

Swap agreements

1,178,795

17,91017,0841,140,894

12,421

11,479Futures contracts

78,9883

46

45,40712

19

Options purchased

2,366

6

-

1,218

5

-

Options soldCommodity derivatives
Total derivatives held for trading

1,603

1

2

827

1

2

1,303,259

17,921

17,137

1,213,089

12,441

11,512

460

33

32

235

29

29

1,513,547

20,37921,1901,417,077

17,062

16,48834,639238

386

30,230230

375

34,639238

386

30,230230

375

18,985493

380

21,715366

367

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

53,624731

766

51,945596

742

1,567,171

21,11021,956

1,469,022

17,65817,230Derivatives 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

30/09/2016

30/09/2015

NZ$m

NZ$m

Gain / (loss) arising from fair value hedges:- hedged item

(45)

143

- hedging instrument

46

(151)

Net ineffectiveness on qualifying fair value hedges

1(8)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 reserve30/09/2016

30/09/2015

NZ$m

NZ$m

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

296

187

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

(234)

(197)

62

(10)

Total cash flow hedging reserve

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 (2015: ten years).

ANZ Bank New Zealand Limited

22

NOTES TO THE FINANCIAL STATEMENTS
12. AVAILABLE-FOR-SALE ASSETS
30/09/2016
NZ$m

30/09/2015
NZ$m

Government securities

1,195

869

Corporate and financial institution securities

1,663

557

Equity and other securities
Total available-for-sale assets

1

2

2,859

1,428

30/09/2016

30/09/2015

13. NET LOANS AND ADVANCES

Note

NZ$m

NZ$m

1,133

1,162

1,663

1,688

67,29859,90443,65142,880

Lease receivables

226

236

Hire purchase

1,098

946

115,069

106,816

Overdrafts1
Credit card outstandings
Term loans - housing

1

Term loans - non-housing

Total gross loans and advances
Less: Provision for credit impairment

(622)

(611)

Less: Unearned income

(211)

(214)

Add: Capitalised brokerage/mortgage origination fees

360

314

Add: Customer liability for acceptances

27

52

114,623

106,357

Total net loans and advances
1

14

Comparative amounts have been changed to reclassify revolving credit facilities secured by residential property provided to corporate customers from Overdrafts to Termloans – housing (2015: NZ$476 million).

The Bank has sold residential mortgages to the NZ Branch with a net carrying value of NZ$6,020 million as at 30 September 2016 (2015:
NZ$8,011 million). These assets qualify for derecognition as the Bank does not retain a continuing involvement in the transferred assets.

ANZ Bank New Zealand Limited

23

NOTES TO THE FINANCIAL STATEMENTS
14. PROVISION FOR CREDIT IMPAIRMENT
Credit impairment charge / (release)
30/09/2016
Retail Other retailmortgages exposures

30/09/2015

Non-retail
exposures

Total

NZ$m

NZ$m

NZ$m

NZ$m

New and increased provisions

16

110

111

Write-backs

(28)

(18)

(30)

Recoveries of amounts written off previously

-

(22)

Individual credit impairment charge / (release)

(12)

70

1

3

10

14

(11)

73

88

150

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

Retail Other retailmortgages exposures

Non-retail
exposures

Total

NZ$m

NZ$m

NZ$m

NZ$m

237

31

107

76

214

(76)

(39)

(19)

(59)

(117)

(3)

(25)

(1)

(20)

(8)

(29)

78

136

(9)

68

9

68

(1)

9

(2)

6

(10)

77

7

74

Movement in provision for credit impairment
30/09/2016
Retail Other retailmortgages exposures

30/09/2015

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

77

127

253

457

78

118

255

451

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

1

3

10

14

(1)

9

(2)

6

Balance at end of the year

78

130

263

471

77

127

253

457
215

Individual provision
Balance at beginning of the year

54

9

91

154

72

15

128

New and increased provisions net of write-backs

(12)

92

81

161

(8)

88

17

97

Bad debts written off

(2)

(95)

(55)

(152)

(4)

(94)

(54)

(152)

Discount unwind reversal / (discount unwind)1

(3)

-

(9)

(12)

(6)

-

-

(6)

Balance at end of the year

37

6

108

151

54

9

91

154

Total provision for credit impairment

115

136

371

622

131

136

344

611

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
30/09/2016
Retail Other retailmortgages exposures
NZ$m
NZ$m

30/09/2015

Non-retail
exposures
NZ$m

Total
NZ$m

Retail Other retailmortgages exposures
NZ$m
NZ$m

Non-retail
exposures
NZ$m

Total
NZ$m

634

Balance at beginning of the year

97

32

253

382

189

35

410

Transfers from productive

64

129

395

588

89

126

155

370

Transfers to productive

(31)

(8)

(7)

(46)

(69)

(7)

(46)

(122)

Assets realised or loans repaid

(71)

(31)

(244)

(346)

(108)

(28)

(212)

(348)

Write offs

(2)

(95)

(55)

(152)

(4)

(94)

(54)

(152)

Total impaired assets

57

27

342

426

97

32

253

382

Other assets under administration

9

2

-

11

6

1

-

7

Undrawn facilities with impaired customers

-

1

57

58

1

-

14

15

ANZ Bank New Zealand Limited

24

NOTES TO THE FINANCIAL STATEMENTS
15. DEPOSITS AND OTHER BORROWINGS
30/09/2016
Note

30/09/2015

NZ$m

NZ$m

Term deposits

39,66534,982On demand and short term deposits

42,32341,436

7,780

6,716

Deposits not bearing interest
UDC secured investments

21

1,592

1,736

Total customer deposits

91,36084,870

Certificates of deposit

2,237

745

Commercial paper

5,364

4,964

76

47

Securities sold under repurchase agreements
Deposits from other members of ANZ New Zealand32

Total deposits and other borrowings

29

52

99,066

90,678Deposits 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. DEBT ISSUANCES
30/09/2016

30/09/2015

NZ$m

NZ$m

Domestic bonds

3,975

3,525

U.S. medium term notes1

6,883

6,831

Euro medium term notes1

2,792

3,598

6,218

5,335

-

35

Note

Covered bonds1
Index linked notes
Total debt issuances

21, 31

19,86819,324

Fair value hedge adjustment

192

175

Less debt issuances held by the Bank

(46)

(96)

20,014

19,403

Total debt issuances
1

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

Debt issuances, other than covered bonds, are unsecured and rank equally with other unsecured liabilities of the Banking Group.
Domestic bonds includes two series of bonds quoted on the NZX Debt Market which mature on 2 September 2021 and 1 September
2023 respectively (the Bonds). NZX Regulation has granted the Bank a waiver in respect of the Bonds from the requirement in Main
Board/Debt Market Listing Rule 5.2.3 (as modified by NZX’s ruling on Rule 5.2.3 issued on 29 September 2015) to enable the Bank to apply
for quotation of the Bonds on the NZX Debt Market even though the Bonds may not initially be held by at least 100 members of the
public holding at least 25% of the Bonds issued. The waiver has been granted for a period of 6 months from the relevant dates of
quotation of the Bonds on the NZX Debt Market. The effect of the waiver from NZX Listing Rule 5.2.3 is that initially the Bonds may not be
widely held and there may be reduced liquidity in the Bonds. To the extent that there is a material reduction in the spread of the Bonds,
the Bank will notify NZX accordingly.

ANZ Bank New Zealand Limited

25

NOTES TO THE FINANCIAL STATEMENTS
17. SUBORDINATED DEBTANZ Capital Notes

30/09/2016

30/09/2015

NZ$m

NZ$m

1

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

496

494

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

-

835

835

Perpetual subordinated debt
NZD 835m perpetual subordinated bond2,3
AUD 10m perpetual subordinated floating rate loan
Total subordinated debt
1
2
3

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 noncumulative perpetual subordinated notes.
As at 30 September 2016, ANZ NZ CN carried a BBB- 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 intoa variable number of shares of the Bank (ANZ NZ ICN and ANZNZ ICN2) or the Ultimate Parent Bank (ANZ NZ CN).
Interest
Interest on the notes is non-cumulative and payable as follows:
•

•

•

11
2,343

These instruments qualify as additional tier 1 capital.
These instruments are quoted on the NZX Debt Market.
These instruments qualify as tier 2 capital under RBNZ’s Basel III transitional rules, subject to the RBNZ’s Basel III transition adjustment. Refer to note 29 for further details.

Subordinated debt is subordinated in right of payment in theevent of liquidation or wind up to the claims of depositors andall creditors of the relevant issuer or drawer of the debt.
•

10
3,282

ANZ NZ ICN: payable semi-annually in arrears in Marchand September in each year. The interest rate is based ona floating rate equal 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% per annum until 25 May 2020, and thereafter
will be based on a floating rate equal to the aggregate of
the New Zealand 3 month bank bill rate plus a 350 basis
point margin.
ANZ NZ ICN2: payable semi-annually in arrears in Juneand December in each year. The interest rate is based ona 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 discretionand certain payment conditions being satisfied (including RBNZ
and APRA (ANZ NZ CN only) requirements). If interest is not paidon the notes the Bank may not, except in limited circumstances,

pay dividends or undertake 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 mostrecently published Disclosure Statement (ANZ NZ ICN) or
Ultimate Parent Bank based on the average market priceof 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 acommon equity capital trigger event, or an RBNZ or APRA (ANZNZ CN only) non-viability trigger event occurs. The ANZ NZ ICN
and ANZ NZ ICN2 will convert into ordinary shares of the Bankand the ANZ NZ CN will convert into ordinary shares of the
Ultimate Parent Bank, subject to a maximum conversion
number.
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 is appointed 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 apublic sector injection of capital (or equivalent support), it
considers that the Ultimate Parent Bank would become nonviable.
On 25 May 2020 the Bank has the right, subject to satisfying
certain conditions, to redeem (subject to receiving RBNZ’s and
APRA’s prior approval), or to convert into ordinary shares of the

ANZ Bank New Zealand Limited

26

NOTES TO THE FINANCIAL STATEMENTS
Ultimate Parent Bank, all or some of the ANZ NZ CN at its
discretion on similar terms as mandatory conversion.

NZD 835,000,000 bondOn 24 March 2023 the Bank has the right, subject to satisfying
certain conditions, to redeem (subject to receiving RBNZ’s priorapproval), or to convert into ordinary shares of the Bank, all orsome of the ANZ NZ ICN at its discretion on similar terms as
mandatory conversion.

The Bank may elect to redeem the bond on 18 April 2018 (theCall Date) or any interest payment date subsequent to 18 April
2018. Interest is payable semi-annually in arrears on 18 April and18 October each year, up to and including the Call Date andthen quarterly thereafter. Should the bond not be called at theCall Date, the Coupon Rate from the Call Date onwards will bebased on a floating rate equal to the aggregate of the 3 monthbank bill rate plus a 300 basis point margin.

On 15 June 2026 and each 5th anniversary thereafter the Bank
has the right, subject to satisfying certain conditions, to redeem(subject to receiving 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 the notes 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 ofinterest payments being deferred. Certain of these instruments
have interrelationships that have been considered in thisassessment.

This bond was issued by the Bank on 18 April 2008.

As at 30 September 2016, this bond carried a BBB+ rating byStandard and Poor's and an A3 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 andhas 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 theaggregate of the Australian 6 month bank bill rate plus a 240
basis point margin, increasing to the Australian 6 month bankbill rate plus a 440 basis point margin from 15 September 2018.

ANZ Bank New Zealand Limited

27

NOTES TO THE FINANCIAL STATEMENTS
18. FINANCIAL RISK MANAGEMENT
Strategy in using financial instruments
Financial instruments are fundamental to the Banking Group’sbusiness, constituting the core element of its operations.
Accordingly, the risks associated with financial instruments are asignificant 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 tominimise potential adverse effects on the financial performanceof the Banking Group.
The risk management and policy control framework applicableto 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 monitoringof material risk exposures of the Banking Group is undertakenby the Risk Management functions of the Bank and also the
Ultimate Parent Bank. Throughout this document, references to
the Risk Management of the operations within the entities
comprising the Banking Group, implicitly involves oversight byboth related entities.

Credit risk
Credit risk is the risk of financial loss from counterparties being
unable to fulfil their contractual obligations. The Banking Groupassumes credit risk in a wide range of lending and otheractivities in diverse markets and many jurisdictions. Credit risksarise not only from traditional lending to customers, but also
from inter-bank, treasury, international trade and capital market
activities around the world.
The Banking Group has an overall lending objective of soundgrowth for appropriate returns. The credit risk objectives of the
Banking Group are set by the Board and are implemented andmonitored 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 anddisciplined approach is maintained in achieving the objectives
set by the Board. The framework focuses on policies, people,
skills, controls, risk concentrations and portfolio balance. It is
supported by portfolio analysis and business-writing strategies,
which guide lending decisions and identify segments of theportfolio requiring attention. The effectiveness of the framework
is monitored through a series of compliance and reporting
processes.
An independent Risk Management function is staffed by risk
specialists. In regard to credit risk management, the objective isfor Risk Management to provide robust credit policies, to makeindependent credit decisions, and to provide strong support tofront 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, anddevelopment 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 monitoringprocesses.
Risk Management's responsibilities for credit risk policy andmanagement are executed through dedicated departments,
which support the business units. All major business unit credit
decisions require approval from both business writers andindependent risk personnel.
Credit risk is controlled through a combination of approvals,
limits, reviews and monitoring procedures that are carried out
on a regular basis, the frequency of which is dependent upon
the level of risk. Credit risk policy and management is executed
through the Chief Risk Officer, who is responsible for various
dedicated areas within the Risk Management division.
Wholesale Risk services the Banking Group's commercial,investment banking and rural lending activities throughdedicated teams. Retail Risk services the Banking Group's small
business and consumer customers. The Credit Reporting teamwithin Risk Management provides an independent overview ofcredit risk across the Bank at a portfolio level. The Banking
Group allows sole discretion for transaction approvals at thebusiness unit level in both the retail and wholesale lending
sectors, with larger transactions approved by Retail Risk andWholesale Risk.
Credit risk review function Group Credit Assurance also provides
a further independent check mechanism to ensure the qualityof credit decisions. This includes providing independent
periodic checks on asset quality and compliance with theagreed standards and policies across the Banking Group.
Country risk management
Some customer credit risks involve country risk, whereby
actions or events at a national or international level could
disrupt servicing of commitments. Country risk arises when
payment or discharge of an obligation will, or could, involve theflow of funds from one country to another or involve
transactions in a currency other than the domestic currency of
the relevant country.
Country ratings are assigned to each country where the
Banking Group incurs country risk and have a direct bearing on
the Banking Group's risk appetite for each country. The country
rating is determined through a defined methodology basedaround external ratings agencies’ ratings and internal specialist
opinion. It is also a key risk consideration in the Banking Group's
capital pricing model for cross border flows.
The recording of country limits provides the Banking Group
with a means to identify and control country risk. Country limits
ensure that there is a country-by-country ceiling on exposuresthat involve country risk. They are recorded by time to maturity
and purpose of exposure, e.g., trade, markets and project
finance. Country limits are managed centrally by the Ultimate
Parent Bank, through a global country risk exposure
management system managed by a specialist unit within
Institutional Risk.
Portfolio stress testing
Stress testing is integral to strengthening the predictive
approach to Risk Management and is a key component tomanaging risk appetite and business writing strategies. It
creates greater understanding of impacts on financial

ANZ Bank New Zealand Limited

28

NOTES TO THE FINANCIAL STATEMENTS
performance through modelling relationships and sensitivities
between geographic, industry and business unit exposures
under a range of macro economic scenarios.
The Ultimate Parent Bank has a dedicated stress testing teamthat assists business and risk executives in the Banking Group tomodel and report 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 andmitigated through the implementation of remediation
strategies.
Businesses incurring credit risk undertake regular andcomprehensive analysis of their credit portfolios. Issue
identification and adherence to performance benchmarks arereported to Risk Management and business executives througha 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 thecounterparty 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 tomitigate credit risk. Procedures are designed to ensure collateralis managed, legally enforceable, conservatively valued andadequately 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 anddebtors•
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 realestate 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 to limit exposure to credit losses. The credit risk is
reduced by a master agreement to the extent that, if an eventof default occurs, all contracts with the counterparty are
terminated and settled on a net basis. Further, it is the Banking
Group's preferred practice to include all products covered by
the ISDA in the Credit Support Annex (CSA) in order to achieve
further credit exposure reduction. Under a CSA, collateral ispassed between the parties, depending on the aggregate markto-market (positive or negative) of derivative trades between
the two entities, to mitigate the market contingent
counterparty risk inherent in the outstanding positions.
Concentrations of credit risk
Concentrations of credit risk arise when a number of customers
are engaged in similar business activities or activities within thesame geographic region, or when they have similar risk
characteristics that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic orother 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 amonthly 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 tothese limits.
Analyses of financial assets by industry sector are based on
Australian and New Zealand Standard Industrial Classification(ANZSIC) codes. Notes on the following tables:
1 Government and local authority includes exposures togovernment administration and defence, education andhealth and community services.
2 Other includes exposures to electricity, gas and water,
communications and personal services.
3 Net loans and advances exclude individual and collective
provisions for credit impairment held in respect of credit
related commitments.
4 Credit related commitments comprise undrawn facilities,
customer contingent liabilities and letters of offer.

ANZ Bank New Zealand Limited

29

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

Derivative
Net loans andfinancialadvances 3
instruments

Other
Credit related
financialcommitments 4
assetsTotal

30/09/2016

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Industry
Agriculture

-

-

24

18,51064

1,189

19,787

Forestry, fishing and mining

-

-

45

776

3

809

1,633

Business and property services

-

-

79

11,29239

2,865

14,275Construction

-

-

17

1,492

5

853

2,367

Entertainment, leisure and tourism

-

-

31

1,347

5

361

1,744

Finance and insurance

2,935

7,728

18,692

941

282

1,378

31,956

Government and local authority1

12,373

1,852

7,030

1,075

1,245

4

1,167

Manufacturing

-

12

185

3,465

12

1,977

5,651

Personal lending

-

-

-

68,893238

14,12583,256

Retail trade

-

-

64

1,966

7

933

2,970

Transport and storage

-

5

91

1,611

6

871

2,584

Wholesale trade

-

-

23

1,617

6

1,561

3,207

Other2

-

63

784

1,941

7

1,668

4,463

4,787
-

14,838-

21,110-115,096
(518)

678
-

29,757(104)

186,266(622)

Less: Unearned income

-

-

-

(211)

-

-

(211)

Add: Capitalised brokerage/mortgage
origination fees

-

-

-

360

-

-

360

Total financial assets

4,787

14,838

21,110114,727678

29,653

185,793

Geography
New Zealand

2,931

9,681

3,628

112,152669

29,470158,531

Overseas

1,856

5,157

17,482

2,575

9

183

27,262

Total financial assets

4,787

14,838

21,110114,727678

29,653

185,793

Agriculture

-

-

23

18,38373

1,238

19,717

Forestry, fishing and mining

-

-

44

931

4

1,035

2,014

Business and property services

-

1

23

10,81643

2,798

13,681

Construction

-

-

12

1,342

5

811

2,170

Entertainment, leisure and tourism

-

-

47

1,067

4

268

1,386

Finance and insurance

2,576

6,956

15,140

1,245

335

1,317

27,569Government and local authority1
Manufacturing

1,847

6,475

1,338

1,156

5

1,408

12,229

-

31

417

3,470

14

1,993

5,925

Personal lending

-

-

-

61,374245

13,79875,417Retail trade

-

-

18

2,008

8

1,012

3,046

Transport and storage

-

6

60

1,638

7

759

2,470

Wholesale trade

-

-

17

1,468

6

1,248

2,739

Other2

-

98

519

1,970

8

1,672

4,267

4,423
-

13,567-

17,658-106,868
(514)

757
-

29,357(97)

172,630(611)

Less: Unearned income

-

-

-

(214)

-

-

(214)

Add: Capitalised brokerage / mortgage
origination fees

-

-

-

314

-

-

314

Total financial assets

4,423

13,567

17,658106,454757

29,260172,119

Geography
New Zealand

2,527

8,673

3,671

104,178748

29,077

148,874

Overseas

1,896

4,894

13,987

2,276

9

183

23,245

Total financial assets

4,423

13,567

17,658106,454757

29,260172,119

Less: Provision for credit impairment

30/09/2015

Industry

Less: Provision for credit impairment

1
2
3
4

Government and local authority includes exposures to government administration and defence, education and health and community services.
Other includes exposures to electricity, gas and water, communications and personal services.
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. The comparative amount for undrawn facilities has been reduced
by $5,518 million following a review of the composition of commitments.

ANZ Bank New Zealand Limited

30

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 most common types of collateral include:
Security over real estate including residential, commercial, industrial and rural property
Cash deposits
Other security over business assets including specific plant and equipment, inventory and accounts receivables.

•••

The Banking Group also manages its credit risk by accepting other types of collateral such as guarantees and security interests over theassets of a customer’s business. The assignable value of such credit mitigants is less certain and their financial effect has not been
quantified for disclosure purposes. Credit exposures shown as not fully secured may benefit from such credit mitigants.
30/09/2016
Maximum
exposure tocredit risk

30/09/2015

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

Cash

2,081

229

1,852

2,185

338

1,847

Settlement balances receivable

396

265

131

309

134

175

Collateral paid

2,310

-

2,310

1,929

-

1,929

Trading securities

11,979-11,97912,139-12,139Derivative financial instruments

21,110529

20,581

17,658

1,687

15,971

Available-for-sale assets

2,859

-

2,859

1,428

-

1,428

Net loans and advances

114,727

104,399

10,328106,454

95,56010,894

678

361

317

757

382

375

Credit related commitments

29,653

15,193

14,46029,26014,568

14,692

Total exposure to credit risk

185,793

120,976

64,817

172,119

112,669

59,450On and off-balance sheet positions

Other financial assets

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 the International BaselCommittee on Banking Supervision have been encapsulated inthese principles and policies, including governance, validationand modelling requirements.
The Banking Group’s risk grade profile changes dynamicallythrough new counterparty lending and existing counterparty
movements in either risk or volume. All counterparty risk grades
are subject to frequent review, including statistical andbehavioural reviews in consumer and small business segments,
and individual counterparty reviews in segments with larger
single name borrowers.
Impairment and provisioning of financial assets
The Banking Group's policy relating to the recognition andmeasurement of impaired assets conforms to the RBNZ'sguidelines.

Loans are classified as either performing or impaired. Impaired
assets are credit exposures where: there is doubt as to whether
the full contractual amount (including interest) will be received;a material credit obligation is 90 days past due but not wellsecured; 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 difficulties of the customer.
An exposure is classified as past due but not impaired (less than
90 days) where the value of collateral is sufficient to repay boththe principal debt and all other potential interest or there is noconcern as to the creditworthiness of the counterparty inquestion.
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 basisof 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 atbalance date based on its experienced judgement.

ANZ Bank New Zealand Limited

31

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.
30/09/2016

30/09/2015

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

57,203

Satisfactory risk rating

6,335

1,263

20,24878,71449,0201,285

23,05173,3562,997

22,30931,641

6,754

3,021

19,192

Substandard but not past due or impaired

28,967

325

539

1,928

2,792

575

382

1,389

2,346

63,863

4,799

44,485

113,147

56,3494,688

43,632

104,669

1 to 5 days

337

125

350

812

297

110

454

861

6 to 29 days

131

73

42

246

188

92

99

379

1 to 29 days

468

198

392

1,058

485

202

553

1,240

30 to 59 days

109

32

62

203

101

37

88

226

60 to 89 days

82

17

6

105

73

18

11

102

90 days and over

81

26

23

130

103

32

62

197

Total past due but not impaired

740

273

483

1,496

762

289

714

1,765

Total impaired assets

57

27

342

426

97

32

253

382

64,6605,099

45,310115,069

57,2085,009

44,599106,816

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 of counterparties 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 superiorstability in their operating and financial performance over the
long-term, and whose debt servicing capacity is not
significantly vulnerable to foreseeable events. Retail customers
with low expected loss. This rating band broadly corresponds toratings “Aaa” to “Ba1” and “AAA” to “BB+” of Moody's InvestorsService and Standard & Poor's respectively.
Satisfactory risk rating - Corporate customers consistently
demonstrating sound operational and financial stability overthe medium to long term, even though some may besusceptible to cyclical trends or variability in earnings. Retailcustomers with moderate expected loss. This rating bandbroadly 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, withvariability and uncertainty in profitability and liquidity projected
to continue over the short and possibly medium term. Retailcustomers with higher expected loss. This rating band broadly
corresponds to ratings “B2” to “Caa” and “B” to “CCC” of Moody's
Investors Service and Standard & Poor's respectively.

Movements in the rating categories between balance dates are
due to both changes in the underlying internal ratings applied
to customers and to new loans written or loans rolling off.
Credit quality of financial assets that are past due but not
impairedAgeing analysis of past due loans is used by the Banking Groupto 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 personal loans)•
Held on a productive basis until they are 180 days pastdue•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
associated security is sufficient to ensure that the Banking
Group will recover the entire amount owing over the life of the
facility and there is reasonable assurance that collection efforts
will result in payment of the amounts due in a timely manner.

ANZ Bank New Zealand Limited

32

NOTES TO THE FINANCIAL STATEMENTS
Market riska.

Market risk is the risk to the Banking Group’s earnings arisingfrom changes in interest rates, currency exchange rates, credit
spreads, or from fluctuations in bond, commodity or equity
prices. Market risk is generated through both trading activities
and the interest rate risk inherent in the banking book.

This 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 tradingtransactions where the Banking Group acts as principal withclients or with the market. The primary risk categories
monitored are:

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 outcomesthat can be expected over a given period of time, establishes
the relative likelihood of those outcomes and allocates anappropriate amount of capital to support these activities.
Market risk management and control responsibilities
The Board Risk Committee has delegated responsibility for theoversight of market risk to the Asset & Liability Committee(ALCO), chaired by the Chief Financial Officer of the Bank. ALCO
is required to ensure that market risk exposure across Tradedand 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, throughthe Chief Risk Officer, is responsible for the day-to-day oversightof market risk. This includes the implementation of acomprehensive limit and policy framework to control theamount of risk that the Banking Group will accept. Market risk
limits are allocated at various levels and are reported andmonitored on a daily basis. The detailed limit framework
allocates individual limits to manage and control asset classes(e.g., interest rates, foreign exchange), risk factors (e.g., interest
rates, volatilities) and profit and loss limits (to monitor andmanage the performance of the trading portfolios).

Traded market risk•

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

•

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

•

Credit spread risk is the potential loss arising from achange 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 in market rates.
Some instruments do not fall into either category but also
expose the Banking Group to market risk. These include equity
securities classified as available-for-sale. Regular reviews are
performed to substantiate the valuation of these types of
instruments.
In all trading areas the Banking Group has implemented models
that calculate Value at Risk (“VaR”) exposures, monitor risk
exposures against defined limits on a daily basis, and “stresstest” trading portfolios.
VaR measure
A key measure of market risk is VaR. VaR is a statistical estimateof the likely daily loss and is based on historical market
movements.

Additional oversight and monitoring of material risk exposuresof the Banking Group is undertaken by the Risk Management
functions of the Ultimate Parent Bank.

The confidence level is such that there is a 99% probability thatthe 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.

Within overall strategies and policies, the control of market risk
is the joint responsibility of business units and Risk
Management, with the delegation of market risk limits from theBoard Risk Committee to both Risk Management and thebusiness units.

The Banking Group’s standard VaR approach for both tradedand non-traded risk is historical simulation. The Banking Groupcalculates VaR using historical changes in market rates andprices over the previous 500 business days. Traded and NonTraded VaR is calculated using a one-day holding period.

These risks are monitored daily against a comprehensive limit
framework that includes Value at Risk, aggregate market
position and sensitivity, product and geographic thresholds. To
facilitate the management, control, measurement and reportingof market risk, the Banking Group has grouped market risk into
two broad categories:

It should be noted that because VaR is driven by actual
historical observations, it is not an estimate of the maximum
loss that the Banking Group could experience from an extreme
market event. As a result of this limitation, the Banking Grouputilises a number of other risk measures (e.g. stress testing) andassociated detailed control limits to measure and manage
market risk.

ANZ Bank New Zealand Limited

33

NOTES TO THE FINANCIAL STATEMENTS
Traded market risks
30/09/2016

30/09/2015

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

0.2

0.9

0.1

0.4

0.6

1.1

-

0.3

Interest rate risk

2.1

4.9

1.3

2.6

2.4

5.1

1.0

2.1

Credit spread risk

0.5

0.7

0.3

0.5

0.7

0.7

0.2

0.4

Diversification benefit

(0.7)

n/a

n/a

(1.0)

(2.0)

n/a

n/a

(0.7)

Total VaR

2.1

4.4

1.3

2.5

1.7

4.9

1.0

2.1

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

9.7

10.3

7.7

8.9

7.4

12.4

7.3

10.1

30/09/2016

Value at risk at 99% confidence
30/09/2015

Value at risk at 99% confidence

ANZ Bank New Zealand Limited

34

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.
30/09/2016

30/09/2015

Period end

0.4%

1.7%

Maximum exposure

1.6%

2.3%

Minimum exposure

-0.2%

0.2%

Average exposure (in absolute terms)

0.7%

1.1%

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

2,274

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

-

-

-

-

-

21,11030/09/2016

AssetsAvailable-for-sale assets

2,859

1,956

149

50

160

543

1

Net loans and advances

114,623

61,267

8,256

18,483

18,677

8,411

(471)

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

11,986

10,120

2,460

1,302

7,782

Derivative financial instruments

21,956

-

-

-

-

-

21,956

Debt issuances

20,014

4,342

-

1,087

2,843

11,742-

Subordinated debt

3,282

938

1,013

-

835

496

-

Liabilities

Other financial liabilities

639

53

-

-

9

124

453

Total financial liabilities

147,257

71,944

12,999

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

14,251(17,640)

13,501

2,878

5,538

(9,556)

ANZ Bank New Zealand Limited

35

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

2,380

2,185

-

-

-

-

195

Settlement balances receivable

309

141

-

-

-

-

168

Collateral paid

1,929

1,929

-

-

-

-

-

Trading securities

12,139

1,280

731

789

863

8,476

-

Derivative financial instruments

17,658

-

-

-

-

-

17,658Available-for-sale assets

1,428

1,178

-

-

-

248

2

Net loans and advances

106,357

57,4596,373

15,23819,900

7,844

(457)

Other financial assets

757

-

113

33

-

5

606

Total financial assets

142,957

64,172

7,217

16,06020,763

16,573

18,172973

30/09/2015

AssetsLiabilities
Settlement balances payable

1,844

871

-

-

-

-

Collateral received

1,687

1,687

-

-

-

-

-

Deposits and other borrowings

90,67861,191

9,586

9,507

2,103

1,575

6,716

Derivative financial instruments

17,230

-

-

-

-

-

17,230Debt issuances

19,403

6,001

1,587

-

2,498

9,317

-

Subordinated debt

2,343

-

1,014

-

-

1,329

-

Payables and other liabilities

962

101

-

-

6

256

599

Total financial liabilities

134,147

69,851

12,187

9,507

4,607

12,47725,518

Hedging instruments-

34,623(20,949)(1,214)(11,354)(1,106)-

Interest sensitivity gap

8,810

28,944(25,919)

5,339

4,802

2,990

(7,346)

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.
30/09/2016
NZ$m

30/09/2015
NZ$m

Net open position
Australian dollar

26

(1)

Euro

6

(13)

Japanese yen

(3)

(4)

US dollar

(5)

34

Other

1

6

Total net open position

25

22

ANZ Bank New Zealand Limited

36

NOTES TO THE FINANCIAL STATEMENTS
Liquidity risk

Scenario Modelling

Liquidity risk is the risk that the Banking Group is unable to meetits 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.

A key component of the Banking Group’s liquidity management
framework is scenario modelling. Liquidity is assessed under
different scenarios, including normal conditions, name crisis andfunding market disruption.

The Banking Group’s liquidity and funding risks are governed bya 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.

Normal conditions: reflects the normal behaviour of cash flows in
the ordinary course of business. The Banking Group must
manage its short and long term wholesale funding to ensure
there are no undue maturity concentrations within thewholesale funding profile over the following three months.
Limits are applied within the three month period based on a
combination of the Banking Group’s demonstrated andassumed wholesale funding capacity.

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 thisobjective is achieved by the Banking Group managing liquidity
risks within the boundaries of the following requirements andprinciples:•
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 stressscenarios.
•
Maintaining strength in the Banking Group’s balance
sheet structure to ensure long term resilience in the
Banking Group’s liquidity and funding risk profile.
•
Limiting the potential earnings at risk associated with
unexpected increases in funding costs or the liquidationof 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 dayto-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 andprocedures for measuring, assessing, reporting and managing
domestic and foreign currency liquidity. This also includes aformal contingency plan for dealing with a liquidity crisis. The
Banking Group is required to meet one week and one monthliquidity mismatch ratios and a one year core funding ratio eachday.

Name-crisis: refers to a potential severe name-specific liquidity
crisis scenario which models the behaviour of cash flows where
there is a problem (real or perceived) which may include, but is
not limited to, operational issues, doubts about the solvency of
the Banking Group, or adverse rating changes. Under this
scenario the Banking Group may have significant difficultyrolling over or replacing funding. Under the liquidity policy the
Banking Group must have sufficient high quality liquid assets tomeet its liquidity needs for the following 30 calendar days
under this scenario.
Funding market disruption: The global financial crisis highlighted
the importance of differentiating between a name specific crisisand the different behaviour that domestic and offshore funding
markets can exhibit during market disruption events. Under theliquidity policy, the Banking Group must be able to meet its
wholesale maturities under a scenario of protracted stress indomestic and offshore wholesale funding markets over a periodof six months.
As of 30 September 2016 the Banking Group was in compliancewith the above scenarios.
Wholesale funding
The Banking Group’s wholesale funding strategy is designed todeliver a sustainable portfolio of wholesale funds that balances
cost efficiency while targeting diversification by markets,
investors, currencies, maturities and funding structures. Shortterm wholesale funding requirements, with a contractual
maturity of less than one year, are managed through theTreasury and Markets operations. Long-term wholesale fundingis managed and executed through Treasury operations.
The Banking Group also uses maturity concentration limits
under the wholesale funding and liquidity management
framework. Maturity concentration limits ensure that the
Banking Group does not become reliant on issuing large
volumes of new wholesale funding within a short time period.
Funding instruments used to meet the wholesale borrowing
requirement must be on a pre-established list of approved
products.

ANZ Bank New Zealand Limited

37

NOTES TO THE FINANCIAL STATEMENTS
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.
Funding Composition
The Banking Group actively uses balance sheet disciplines to prudently manage the funding mix. The Banking Group employs funding
metrics to ensure that an appropriate proportion of its assets are funded from stable sources, including customer liabilities, longer-dated
wholesale debt (with remaining term exceeding one year) and equity. This approach recognises that long-term wholesale debt and othersticky liabilities have favourable liquidity characteristics.
Analysis of funding liabilities by industry sector is based on Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.
30/09/2016
NZ$m

30/09/2015
NZ$m

New Zealand

81,34275,408Overseas

10,018

9,462

Total customer deposits

91,36084,870Debt issuances

20,014

19,403

Subordinated debt

3,282

2,343

Certificates of deposit

2,237

745

Commercial paper

5,364

4,964

Other borrowings

105

99

Customer deposits1

Wholesale funding

Total wholesale funding

31,002

27,554

Total funding

122,362

112,424

2,989

2,871

Concentrations of funding by industry
Agriculture
Forestry, fishing and mining

618

656

Business and property services

6,751

6,304

Construction

1,588

1,283

Entertainment, leisure and tourism

1,010

1,021

Finance and insurance

40,38335,331Government and local authority

2,958

2,910

Manufacturing

2,004

1,913

Households

59,27555,239Retail trade

1,075

1,064

Transport and storage

653

745

Wholesale trade

1,274

1,312

Other2

1,784

1,775

122,362

112,424

New Zealand

90,422

81,635Australia

1,017

1,016

United States

12,215

12,332Europe11,448

10,388Other countries

7,260

7,053

Total funding

122,362

112,424

Total funding
Concentrations of funding by geography

12

Represents term deposits, other deposits bearing interest, deposits not bearing interest and UDC secured investments.
Other includes exposures to electricity, gas and water, communications and personal services.

ANZ Bank New Zealand Limited

38

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 its internal and regulatory liquidity scenario
metrics.
Total liquidity portfolio
30/09/2016
NZ$m

30/09/2015
NZ$m

Cash and balances with central banks

2,068

2,069

Certificates of deposit

1,124

468

Government, local body stock and bonds

6,117

5,063

Government treasury bills

811

1,155

Reserve Bank bills

100

799

Other bonds

6,483

5,930

Total liquidity portfolio

16,703

15,484

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 2016 the Banking Group would be eligible to enter into repurchase transactions with a value of NZ$13,515 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$6,793 million at 30 September 2016.
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

39

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

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

30/09/2016

Financial assets

147,972246

15,35017,56250,16864,646-

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----

Debt issuances¹

20,983

-

2,363

1,882

13,466

3,272-

Subordinated debt¹

3,354

-

11

33

1,369

1,941

-

Other financial liabilities

264

-

33

7

93

131

-

Total financial liabilities

146,673

51,52443,72927,017

19,0595,344-

Financial liabilities

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

Non-credit related commitments
Credit related commitments

Total

Less than
1 yearBeyond1 year

NZ$m

NZ$m

NZ$m

460

92

368

27,29627,296-

Contingent liabilities

2,461

2,461

-

Total

30,217

29,849368

1

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

40

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

2,380

2,041

339

-

-

-

-

Settlement balances receivable

309

140

169

-

-

-

-

Collateral paid

1,929

-

1,929

-

-

-

-

Trading securities

13,180

-

516

1,929

9,710

1,025

-

Derivative financial assets (trading)

16,432-

16,432----

30/09/2015

Financial assets

Available-for-sale assets

1,454

-

1,078

11

363

-

2

Net loans and advances

141,418

252

15,39916,39749,731

59,639-Other financial assets

331

-

180

146

5

-

-

Total financial assets

177,433

2,433

36,042

18,48359,80960,664

2

1,803

1,188

615

-

-

-

-

Financial liabilities
Settlement balances payable
Collateral received

1,687

-

1,687

-

-

-

-

Deposits and other borrowings

92,24948,42918,78420,926

4,110

-

-

Derivative financial liabilities (trading)

14,700-14,700----Debt issuances¹

20,315

-

2,217

3,207

13,498

1,393-

Subordinated debt¹

2,461

-

11

33

1,414

1,003

-

Other financial liabilities

547

-

176

9

107

255

-

Total financial liabilities

133,762

49,61738,19024,175

19,1292,651-

Derivative financial instruments used for balance sheet management- gross inflows

16,190

-

1,884

2,881

9,480

1,945

-

- gross outflows(17,123)-(1,909)(3,049)(10,166)(1,999)-Net financial assets / (liabilities) after balance
sheet management

42,738(47,184)(2,173)(5,860)39,99457,9592

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

Less than
1 yearBeyond1 year

NZ$m

NZ$m

NZ$m

514

59

455

Credit related commitments

26,903

26,903-

Contingent liabilities

2,454

2,454

-

Total

29,871

29,416455

Non-credit related commitments

1

Any callable wholesale debt instruments have been included at their next call date. Prior period interest cash flows have been revised to improve comparability.

ANZ Bank New Zealand Limited

41

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

30/09/2016

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Cash

2,274

-

-

-

-

2,274

2,274

Settlement balances receivable

396

-

-

-

-

396

396

Collateral paid

2,310

-

-

-

-

2,310

2,310

-

-

11,979--11,97911,979Derivative financial instruments--

20,379731-

21,11021,110Available-for-sale assets

-

-

-

-

2,859

2,859

2,859

Net loans and advances2

114,623

-

-

-

-

114,623

114,891

Other financial assets

559

119

-

-

-

678

678

Total financial assets

120,162119

32,358731

2,859

156,229

156,497

Settlement balances payable

1,771

-

-

-

-

1,771

1,771

Collateral received

529

-

-

-

-

529

529

93,702

5,364

-

-

-

99,06699,169Trading securities
1

Deposits and other borrowings
Derivative financial instruments1--

21,190766-

21,956

21,956

Debt issuances2

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

147,563

Cash

2,380

-

-

-

-

2,380

2,380

Settlement balances receivable

309

-

-

-

-

309

309

Collateral paid

1,929

-

-

-

-

1,929

1,929

Trading securities--

12,139--12,13912,139Derivative financial instruments1--

17,062596-

17,65817,658Available-for-sale assets

-

-

-

-

1,428

1,428

1,428
106,854

30/09/2015

2

Net loans and advances

106,357

-

-

-

-

106,357

Other financial assets

606

151

-

-

-

757

757

Total financial assets

111,581151

29,201596

1,428

142,957

143,454

1,844

-

-

-

-

1,844

1,844

Settlement balances payable
Collateral received

1,687

-

-

-

-

1,687

1,687

Deposits and other borrowings

85,714

4,964

-

-

-

90,67890,832Derivative financial instruments1--

16,488742-

17,23017,230Debt issuances2

19,403----

19,403

19,516

Subordinated debt

2,343

-

-

-

-

2,343

2,288

Other financial liabilities

653

-

309

-

-

962

962

Total financial liabilities

111,644

4,964

16,797742-

134,147

134,359

1
2

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

ANZ Bank New Zealand Limited

42

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 debt issuances, discounted cash flow techniques are used wherecontractual future cash flows of the instrument are discounted using discount rates incorporating wholesale market rates or market
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

43

NOTES TO THE FINANCIAL STATEMENTS
Valuation hierarchy for financial assets and financial liabilities measured at fair value in the balance sheet
30/09/2016
Level 1
NZ$m

Level 2
NZ$m

30/09/2015
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
Derivative financial instruments
Available-for-sale assets
Investments backing insurance contract liabilities
Total

11,967

12-

11,97911,880259-

12,1393

21,100

7

21,11012

17,6406

17,658

1,671

1,187

1

2,859

900

526

2

1,428

5

114

-

119

2

149

-

151

13,646

22,4138

36,067

12,794

18,5748

31,376

Financial liabilities
Deposits and other borrowings

-

5,364

-

5,364

-

4,964

-

4,964

Derivative financial instruments

46

21,9082

21,95619

17,2092

17,230

Other financial liabilities

157

-

-

157

309

-

-

309

Total

203

27,272

2

27,477328

22,173

2

22,503

Valuation hierarchy for financial assets and financial liabilities not measured at fair value¹
30/09/2016

30/09/2015

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

-

111,513

3,378

114,891-

102,9453,909

106,854

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

93,805-93,805-85,868-85,868Debt issuances

1,629

18,519-20,148638

18,878-19,516

Subordinated debt

1,361

1,990

-

3,351

1,363

925

-

2,288

Total

2,990

114,314-

117,304

2,001

105,671-

107,672

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.
30/09/2016
within one
after more
year than one year

Total

30/09/2015
within one
after more
year than one year

Total

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

107

12

119

146

5

151

AssetsInvestments backing insurance contract liabilities
Available-for-sale assets

1,915

944

2,859

1,071

357

1,428

Net loans and advances

24,976

89,647

114,623

26,967

79,390106,357

598

103

701

657

83

740

Deposits and other borrowings

95,301

3,765

99,06687,0003,678

90,678

Payables and other liabilities

877

242

1,119

1,272

215

1,487

Provisions

108

98

206

95

96

191

Debt issuances

4,009

16,00520,014

5,237

14,166

19,403

Other assets
Liabilities

ANZ Bank New Zealand Limited

44

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
30/09/2016
NZ$m

Securities sold under agreements to repurchase

Related Liability

30/09/2015
NZ$m

30/09/2016
NZ$m

30/09/2015
NZ$m

77

47

76

47

Residential mortgages pledged as security for covered bonds

10,265

7,547

6,218

5,335

Assets pledged as collateral for UDC secured investments

2,665

2,441

1,592

1,736

UDC Secured Investments are secured by a security interest granted under the Trust Deed over all of UDC Finance Limited's (UDC) present
and future assets and undertakings, to Trustees Executors Limited, as supervisor. The assets subject to the security interest comprisemainly loans to UDC's customers and certain plant and equipment. The security interest secures all amounts payable by UDC on the UDC
Secured Investments and all other moneys 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:
30/09/2016
NZ$m

30/09/2015
NZ$m

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

231

339

Fair value of assets sold or repledged

141

269

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

45

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
30/09/2016

NZ$m

Related amounts not offset 1
Financial
instruments Cash collateral

Net amounts

NZ$m

NZ$m

NZ$m

1,405

-

(1,332)

73

77

(76)

-

1

7,618

(7,280)

(323)

15
35

Financial assets
Collateral paid
Trading securities 2
Derivative financial instruments
Financial liabilities
Collateral received

358

-

(323)

Securities sold under agreements to repurchase 3

76

(76)

-

-

8,768

(7,280)(1,332)

156

1,139

-

(1,112)

27

47

(47)

-

-

7,007

(6,201)

(781)

25

960

-

(781)

179

Derivative financial instruments
30/09/2015

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

3

47

(47)

-

-

7,349

(6,201)(1,112)36

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 Limited

46

NOTES TO THE FINANCIAL STATEMENTS
23. CREDIT RELATED COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES
30/09/2016

30/09/2015

NZ$m

NZ$m

27,296

26,903

Guarantees and letters of credit

850

1,002

Performance related contingencies

1,611

1,452

Total guarantees and contingent liabilities

2,461

2,454

Total Credit Related Commitments, Guarantees and Contingent Liabilities

29,75729,357

Contract amount of:
Credit related commitments - facilities provided
Undrawn facilities1
Guarantees and contingent liabilities

1

The comparative amount for undrawn facilities has been reduced by NZ$5,518 million following a review of the composition of commitments.

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
In June 2013, litigation funder Litigation Lending Services (NZ) Limited filed a representative action against the Bank regarding certain fees
charged to New Zealand customers. The representative action has been settled with the Bank making a contribution to the claimants’costs. The Bank has not admitted liability and all claims against it have been formally discontinued.
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 madewhere deemed necessary.

ANZ Bank New Zealand Limited

47

NOTES TO THE FINANCIAL STATEMENTS
24. OTHER ASSETS
30/09/2016

30/09/2015

NZ$m

NZ$m

Accrued interest and prepaid discounts

397

426

Accrued commission

22

22

Share-based payments asset

103

83

Prepaid expenses

19

24

Other assets

160

185

Total other assets

701

740

30/09/2016

30/09/2015

25. GOODWILL AND OTHER INTANGIBLE ASSETS

NZ$m

NZ$m

3,233

3,233

Software

76

139

Other intangibles

115

120

Total goodwill and other intangible assets

3,424

3,492

30/09/2016

30/09/2015

NZ$m

NZ$m

Creditors

60

121

Accrued interest and unearned discounts

436

479

Defined benefits plan obligations

28

43

Accrued charges

169

240

Securities short sold (classified as held for trading)

157

309

Liability for acceptances

27

52

Share-based payments liability

86

65Life insurance contract liabilities - reinsurance

128

107

Goodwill

26. PAYABLES AND OTHER LIABILITIESOther liabilities
Total payables and other liabilities

28

71

1,119

1,487

30/09/2016

30/09/2015

NZ$m

NZ$m

126

129

27. PROVISIONS

Employee annual and long service leave
Other

1

Total provisions
1

Includes provisions for surplus leased space, make-good of leased premises, seismic obligations, and restructuring costs.

80

62

206

191

ANZ Bank New Zealand Limited48

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

NZ$ millions

30/09/2016

30/09/2015

30/09/2016

30/09/2015

3,345,755,498

2,670,755,498

8,588

7,913

-

675,000,000-

675

3,345,755,498

3,345,755,498

8,588

8,588

At beginning of the year

300,000,000

300,000,000

300

300

Preference shares at end of the year

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
At beginning of the year
Issued during the year
Ordinary shares at end of the year
Preference shares

Ordinary shares
650,712 of the ordinary shares are uncalled (2015: 650,712 shares uncalled).
During the year ended 30 September 2016 the Bank paid ordinary dividends of NZ$1,350 million (2015: NZ$1,745 million) to the
Immediate Parent Company (equivalent to NZ$0.40 per share) (2015: equivalent to NZ$0.65 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, beginning on 1 March 2014.
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

49

NOTES TO THE FINANCIAL STATEMENTS
29. CAPITAL ADEQUACY
Capital management policies
The Banking Group’s core capital objectives are to:•Protect the interests of depositors, creditors and shareholders•
Ensure the safety and soundness of the Banking Group’s capital position•
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 andcomparative periods.
RBNZ
minimum
ratios30/09/2016

30/09/2015

Common equity tier 1 capital

4.5%

10.0%

10.5%

8.9%

9.4%

Tier 1 capital

6.0%

13.2%

12.7%

12.2%

11.8%

Total capital

8.0%

13.7%

13.6%

12.8%

12.7%

Buffer ratio

2.5%

5.5%

5.6%

Basel III capital ratios

Banking GroupBank
30/09/2016

30/09/2015

UnauditedANZ Bank New Zealand Limited

50

NOTES TO THE FINANCIAL STATEMENTS
Capital of the Banking Group
Unaudited
30/09/2016
Note

NZ$m

28

8,588

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

3,760

Accumulated other comprehensive income and other disclosed reserves

62

Less deductions from common equity tier 1 capital
Goodwill and intangible assets, net of associated deferred tax liabilities(3,412)

Cash flow hedge reserve(62)

Expected losses to the extent greater than total eligible allowances for impairment(211)

Common equity tier 1 capital

8,725

Additional tier 1 capitalPreference shares

28

300

ANZ Capital Notes

17

2,441

Capital attributable to The Bonus Bonds Trust investors

39

Additional tier 1 capital

2,780

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(367)

Total tier 2 capital

468

Total capital

11,973

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

157,545

60,363

4,829

Specialised lending exposures subject to slotting approach

11,017

10,049804

Exposures subject to standardised approach

2,100

376

30

Equity exposures

7

31

2

Other exposures

3,636

1,687

135

Total credit risk

174,305

72,506

5,800

Operational risk

n/a

6,052

484

Market risk

n/a

8,561

685

174,305

87,1196,969

Unaudited 30/09/2016

Total
1

2

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 40% from 1 January 2016; 20% 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

51

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 supplied 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

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

StandardisedBank

Future Treatment

ANZ Bank New Zealand Limited

52

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

Unaudited 30/09/2016

Total exposure
or principal
amount
NZ$mExposureweighted LGD
used for the
ExposureExposure at
capital weighted risk Risk weighted
default
calculation
weightexposure
NZ$m
%
%
NZ$m

Total capitalrequirement
NZ$m

On-balance sheet exposures
Corporate

35,80835,82036

59

22,396

Sovereign

11,237

11,027

5

1

112

9

Bank

8,094

6,570

58

18

1,268

103

Retail mortgages

64,66064,88420

22

15,374

1,230

Other retail

5,049

5,149

76

96

5,260

420

124,848

123,45027

34

44,4103,553

Corporate

12,387

10,369

50

50

5,472

438

Sovereign

275

160

5

1

1

-

Bank

1,379

1,123

51

18

216

17

Retail mortgages

8,272

8,662

17

15

1,415

113

Other retail

5,563

5,611

79

56

3,319

266

Total off-balance sheet exposures

27,87625,92545

38

10,423834

Corporate

105,432

3,254

60

88

3,019

242

Sovereign

12,430

463

5

41

201

16

Bank

841,969

4,453

59

49

2,310

184

Total on-balance sheet exposures

1,791

Off-balance sheet exposures

Market related contracts

Total market related contracts

959,831

8,170

56

64

5,530

442

Total credit risk exposures subject to the IRB approach

1,112,555

157,54532

36

60,363

4,829

ANZ Bank New Zealand Limited

53

NOTES TO THE FINANCIAL STATEMENTS
IRB exposures by customer credit rating

Unaudited 30/09/2016

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

6,300

63

46

3,090

247

3-4

0.32

22,104

37

42

9,811

785

5

1.03

13,050

36

64

8,880

710

6

2.26

5,688

37

84

5,071

406

7-8

8.49

1,846

43

158

3,100

248

Default

100.00

455

43

194

935

75

1.92

49,44340

59

30,887

2,471

0

0.01

11,501

5

3

311

25

1-8

0.03

149

5

2

3

-

Total sovereign exposures

0.01

11,650

5

3

314

25

Total corporate exposures
Sovereign

Bank
0

0.03

57

65

24

14

1

1

0.03

10,859

58

27

3,135

251

2-4

0.09

1,223

59

49

636

51

5-8

1.70

7

65

126

9

1

Total bank exposures

0.04

12,146

58

29

3,794

304

0-3

0.20

18,244

12

5

963

77

4

0.46

27,370

19

15

4,230

338

5

0.92

21,964

24

32

7,429

594

6

2.00

5,358

28

63

3,580

286

7-8

5.13

444

29

104

491

39

Default

100.00

166

23

54

96

9

0.90

73,54619

22

16,789

1,343

0-2

0.10

654

78

48

331

26

3-4

0.26

4,794

78

54

2,768

221

5

0.99

1,763

73

73

1,369

110

6

2.11

1,686

75

91

1,626

130

7-8

7.86

1,794

83

128

2,428

194

Default

100.00

69

78

77

57

5

Retail mortgages

Total retail mortgages exposures
Other retail

Total other retail exposures

2.57

10,760

78

75

8,579

686

Total credit risk exposures subject to the IRB approach

1.20

157,54532

36

60,363

4,829

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

54

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

3,351

70

2,487

199

Good

5,725

90

5,462

437

Satisfactory

447

115

545

44

Weak

88

250

234

19

Default

46

-

-

-

9,657

85

8,728

699

Average risk Risk weighted
weightexposure

Total capitalrequirement

Unaudited 30/09/2016

On-balance sheet exposures

Total on-balance sheet exposures

ExposureamountExposure atdefault

NZ$m

NZ$m

Undrawn commitments and other off balance sheet exposures

1,392

Market related contracts

1,948

Total off-balance sheet exposures

3,340

%

NZ$m

NZ$m

1,211

85

1,091

87

149

146

230

18

1,360

92

1,321

105

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
Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

NZ$m

%

NZ$m

NZ$m

Corporates

49

100

51

4

Default

1

150

1

-

Total on-balance sheet exposures

50

101

52

4

Average risk Risk weighted
weightexposure

Total capitalrequirement

Unaudited 30/09/2016

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

489

51

250

94

248

20

Market related contracts

606,149

-

1,800

4

76

6

Total off balance sheet

606,638

n/a

2,050

15

324

26

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

ANZ Bank New Zealand Limited

55

NOTES TO THE FINANCIAL STATEMENTS
Equity exposures
Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

NZ$m

%

NZ$m

NZ$m

7

400

31

2

Unaudited 30/09/2016

All equity holdings not deducted from capital

Equity exposures have been calculated in accordance with BS2B.
Other exposures
Unaudited 30/09/2016

Exposure atdefault

Risk weight

Risk weighted
exposure

Total capitalrequirement

NZ$m

%

NZ$m

NZ$m

Cash

193

-

-

-

New Zealand dollar denominated claims on the Crown and the RBNZ

1,852

-

-

-

Other assets

1,591

100

1,687

135

Total other IRB credit risk exposures

3,636

44

1,687

135

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 2016, under the IRB approach, the Banking Group had NZ$1,165 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 2016 the Banking Group had an implied risk weighted exposure of NZ$6,052
million for operational risk and an operational risk capital requirement of NZ$484 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

56

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 half-year ended 30 September 2016.
Implied risk weighted exposure
Period end

Aggregate capital charge

Peak

Peak

Period end

Peakoccurred on

Unaudited 30/09/2016

NZ$m

NZ$m

NZ$m

NZ$m

Interest rate risk

8,525

9,388

682

751

15/09/2016

Foreign currency risk

35

130

3

10

17/05/2016

Equity risk

1

2

-

-

29/06/2016

8,561

685

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$441 million (2015: NZ$479 million).
The Banking Group regularly reviews the methodologies used to calculate the economic capital allocated to other material risks.
Capital adequacy of the Ultimate Parent Bank
Basel III capital ratios
Overseas Banking Group
30/09/2016

30/09/2015

Ultimate Parent Bank
(Extended Licensed Entity)
30/09/2016

30/09/2015

Unaudited

Common equity tier 1 capital

9.6%

9.6%

9.7%

9.6%

Tier 1 capital

11.8%

11.3%

12.1%

11.6%

Total capital

14.3%

13.3%

14.7%

13.7%

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 2016 and for the comparative prior periods.
The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 30 September 2016. The Overseas Banking
Group’s Pillar 3 disclosure document for the quarter ended 30 September 2016, 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

57

NOTES TO THE FINANCIAL STATEMENTS
Residential mortgages by loan-to-valuation ratio
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.

30/09/2016
On-balance
sheet
NZ$m

Off-balance
sheet
NZ$m

Total
NZ$m

Does not exceed 60%

26,8304,760

31,590Exceeds 60% and not 70%

14,193

1,499

15,692

Exceeds 70% and not 80%

17,857

1,604

19,461

Does not exceed 80%

58,8807,863

66,743

Exceeds 80% and not 90%

3,968

198

4,166

Exceeds 90%

1,812

211

2,023

Total

64,6608,272

72,932Note

30/09/2016
NZ$m

13

67,298Unaudited

LVR range

Reconciliation of mortgage related amounts
Unaudited

Term loans - housing
Less: fair value hedging adjustment(138)

Less: housing loans made to corporate customers(2,524)

Add: unsettled re-purchases of mortgages from the NZ BranchOn-balance sheet retail mortgage exposures subject to the IRB approach24
18

64,660Add: off-balance sheet retail mortgage exposures subject to the IRB approach

8,272

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

72,932

ANZ Bank New Zealand Limited

58

NOTES TO THE FINANCIAL STATEMENTS
30. 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 unless stated otherwise.
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

Investment

Kingfisher NZ Trust 2008-11

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 31.

ANZ Bank New Zealand Limited

59

NOTES TO THE FINANCIAL STATEMENTS
31. 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 2016 and 30 September 2015 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
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 2016, NZ$19,656 million of assets were
held in the Kingfisher Trust and the Covered Bond Trust (2015: NZ$16,071 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 2016, NZ$3,698 million of funds under management were invested in the Banking Group's own
products or securities (2015: NZ$3,100 million).
Custodial services
The Banking Group provides custodial services to customers in respect of assets that are beneficially owned by those customers.
30/09/2016

30/09/2015

NZ$m

NZ$m

Kiwisaver and other managed funds

11,2199,147

The Bonus Bonds Trust

3,561

3,277

ANZ PIE Fund1

953

794

Discretionary Investment Management Service (DIMS)2

7,007

6,020

Other investment portfolios2

3,745

3,502

Total funds under management

26,48522,740Funds under custodial arrangements

7,408

6,535

Other funds held or managed subject to fiduciary responsibilities

1,927

1,547

Funds management fee income from structured entities

156

137

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 (2015: 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$926 million(2015: NZ$884 million), which is 0.6% (2015: 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
32. 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 to30/09/2016
NZ$00030/09/2015
NZ$000Key management personnel compensation
Salaries and short-term employee benefits

11,303

12,698Post-employment benefits

280

220

Other long-term benefits

88

77

Termination benefits

79-

Share-based payments expense

4,123

5,076

Total compensation of key management personnel

15,87318,071Loans to key management personnel

7,373

4,020

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 to30/09/2016
NZ$m

30/09/2015
NZ$m

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

4917Interest expense

87

62

Fee income

1923

Gain on sale of mortgages to the NZ Branch

1

1

Other operating income

1935

Operating expenses

64

64

Mortgages sold to the NZ Branch

697

1,891

Interest expense

1-

Ordinary shares issued-

675Interest expense-

3

Direct fee expense

108Dividends received

2

89

Share of associates' profit

5

5

Immediate Parent Company

Associates

ANZ Bank New Zealand Limited

62

NOTES TO THE FINANCIAL STATEMENTS
Balances with related parties
30/09/2016

30/09/2015

NZ$m

NZ$m

Ultimate Parent Bank and subsidiaries not part of the Banking Group
Cash

47

-

Settlement balances receivable

31

86

Collateral paid

375-

Derivative financial instruments

4,361

4,006

Other assets

108

97

-

2

7

4

4,929

4,195

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
Settlement balances payable

323

476

Collateral received-

688

Deposits and other borrowings-

1

Derivative financial instruments

4,818

3,240

Payables and other liabilities

32

17

1,951

1,014

29

51

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

1-

Total due to related parties

7,154

5,487

Balances due from / to related parties are unsecured other than that the Banking Group and the Bank have provided guarantees andcommitments to related parties as follows:
30/09/2016

30/09/2015

NZ$m

NZ$m

Financial guarantees provided to the Ultimate Parent Bank

152

183

Undrawn credit commitments provided to the Immediate Parent Company

250

250

ANZ Bank New Zealand Limited

63

NOTES TO THE FINANCIAL STATEMENTS
33. CAPITAL EXPENDITURE AND OPERATING LEASE COMMITMENTS
30/09/2016
NZ$m

30/09/2015
NZ$m

5

12

Not later than 1 year

87

47

Later than 1 year but not later than 5 years

217

258

Later than 5 years

151

197

Total operating lease commitments

455

502

Total commitments

460

514

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

34. COMPENSATION OF AUDITORS
Year toYear to30/09/2016

30/09/2015

NZ$000

NZ$000

2,219

2,165

Prudential and regulatory services3

262

119

Offer documents assurance or review

100

155

Other assurance services4

67

126

Total other services

429

400

Total compensation of auditors relating to the Banking Group

2,648

2,565

Compensation of auditors (KPMG New Zealand)
Audit or review of financial statements1
2

Other services:

Fees paid on behalf of certain managed funds and not recharged2,5
Total compensation of auditors
1
2
3
4
5

33

35

2,681

2,600

Includes fees for both the audit of the annual financial statements and reviews of interim financial statements.
Comparative amounts have been updated to conform with current period classification, and to exclude NZ$68,000 of fees that were recharged to managed funds.
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

64

NOTES TO THE FINANCIAL STATEMENTS
35. 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 2016 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, the RBNZ document Connected Exposures Policy(BS8). The exposures are net of individual credit impairment allowances and exclude advances to connected persons of a capital nature.

30/09/2016

30/09/2015

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

9,349

81.3%

7,907

76.9%

Less: amount netted off

7,619

66.2%

5,205

50.6%

Bank connected persons (on partial bilateral net basis)

1,730

15.1%

2,702

26.3%

1

0.0%

1

0.0%

Bank connected persons (on gross basis, before netting)

9,352

86.4%

8,491

89.6%

Less: amount netted off

5,353

49.5%

5,334

56.3%

Bank connected persons (on partial bilateral net basis)

3,999

36.9%

3,157

33.3%

4

0.0%

3

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

70.0%

n/a

70.0%

Non-bank connected persons

n/a

15.0%

n/a

15.0%

Aggregate at end of year1

Non-bank connected persons

2

Peak end-of-day for the year3

Non-bank connected persons

2

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 2016, the gross exposures to the Immediate Parent Company were NZ$3 million (2015: NZ$5 million). As at 30 September 2016, the gross exposures to the
Ultimate Parent Bank were NZ$9,346 million (2015: NZ$7,902 million).
Non-bank connected persons exposures comprise loans to directors of the Bank and their related parties.
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 beginning of the month in which the peak aggregate amount of credit exposure occurred. Previously Tier 1 Capital as at the end of theyear was used to calculate the peak ratios, and comparative ratios have been updated.
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 2016.

ANZ Bank New Zealand Limited

65

NOTES TO THE FINANCIAL STATEMENTS
36. RISK MANAGEMENT FRAMEWORKThe Banking Group recognises the importance of effective risk
management to its business success. Management iscommitted to achieving strong control and a distinctive risk
management capability that enables the Banking Groupbusiness units to meet their performance objectives.
The Banking Group approaches risk through managing thevarious 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 thebusiness, 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 maintenanceof Banking Group-wide risk management policies,
procedures and systems, overseen by an independent
team of risk professionals•
The use of sophisticated risk tools, applications andprocesses to execute the global risk management
strategy across the Banking Group•
Business unit level accountability, as the “first line ofdefence”, for the management of risks in alignment with
the Banking Group’s strategy•
Independent oversight to ensure business unit levelcompliance with policies, regulations and laws, and toprovide 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 thatthe requisite culture and practices are in place across the
Banking Group, are conducted within the Banking Group andalso by the Ultimate Parent Bank. The Board has responsibility
for reviewing all aspects of risk management.
The Board has ultimate responsibility for overseeing theeffective 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 theChief 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 thereview of risk portfolios and the establishment of prudential
policies and controls.
The Banking Group’s risk management policies are essentiallythe same as the Ultimate Parent Bank, but are tailored whererequired to suit the local New Zealand regulatory and businessenvironment.
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 non-executive 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 theavailability 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 theidentification, analysis, assessment and treatment of operationalrisks on a day-to-day basis.
Business units have primary responsibility for the identificationand management of operational risk with executive oversightprovided through business unit Risk Forums. The Bank’s
Operational Risk Executive Committee (OREC) undertakes thegovernance function through the bi-monthly monitoring ofoperational risk performance across the Banking Group. The
Board and Risk Management conduct effective oversight
through the approval of operational risk policies andframeworks 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 Group identify, manage, monitor and measure its
compliance obligations, the Banking Group has acomprehensive compliance framework in place, which
addresses both external (regulatory) and internal compliance.
Risk Management, in conjunction with business unit staff
ensure the Banking Group operates within a complianceinfrastructure and framework that incorporates new andchanging business obligations and processes.
The compliance policies and their supporting framework seek
to minimise material risks to the Banking Group’s reputationand value that could arise from non-compliance with laws,
regulations, industry codes and internal standards and policies.
Business units have primary responsibility for the identificationand management of compliance. Risk Management provides
policy and framework, measurement, monitoring and reporting,as well as leadership 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 Committeeof the Ultimate Parent Bank Board conduct board and executive
oversight.
Internal Audit
Internal Audit is a function independent of management whoserole is to provide the Board and management with an effective
and independent appraisal of the internal controls establishedby management. Operating under a Board approved Charter,

ANZ Bank New Zealand Limited

NOTES TO THE FINANCIAL STATEMENTS
the reporting line for the outcomes of work conducted byInternal Audit is direct to the Chair of the Audit Committee, witha direct communication line to the Chief Executive Officer andthe 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, the associated budget and anychanges.
All audit activities are conducted in accordance with local andinternational auditing standards, and the results of the activities
are reported to the Audit Committee, Risk Committee andmanagement. These results influence the performanceassessment of business heads.
Furthermore, Internal Audit monitors the remediation of audit
issues and highlights the current status of any outstanding
audits.

66

ANZ Bank New Zealand Limited

67

HISTORICAL SUMMARY OF FINANCIAL STATEMENTS
Year toYear toYear toYear toYear to30/09/2016

30/09/2015

30/09/2014

30/09/2013

30/09/2012

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

Interest income

6,423

6,926

6,272

5,957

6,017

Interest expense

3,421

4,051

3,529

3,344

3,335

Net interest income

3,002

2,875

2,743

2,613

2,682

Non-interest income

852

1,175

1,085

823

1,006

Operating income

3,854

4,050

3,828

3,436

3,688

Operating expenses

1,599

1,512

1,489

1,512

1,742

Credit impairment charge / (release)

150

74

(16)

63

193

Profit before income tax

2,105

2,464

2,355

1,861

1,753

Income tax expense

570

681

639

490

428

Profit after income tax

1,535

1,783

1,716

1,371

1,325

Dividends paid

(1,363)(1,760)(2,353)(1,065)(1,150)

-

675

970

300

-

Share capital issued

Total impaired assets

As at

As at

As at

As at

As at

30/09/2016

30/09/2015

30/09/2014

30/09/2013

30/09/2012

NZ$m

NZ$m

NZ$m

NZ$m

NZ$m

426

382

634

901

1,366

Total assets

160,819

147,527

128,915

120,444

121,564

Total liabilities

148,109

135,074

117,134

108,990

110,653

Equity12,71012,453

11,781

11,454

10,911

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

ANZ Bank New Zealand Limited

68

GENERAL DISCLOSURES
General Matters

Guarantors

The Disclosure Statement has been issued in accordance with theOrder.

No material obligations of the Bank are guaranteed as at 18
November 2016.

The Bank is incorporated under the Companies Act 1993. The Bankis wholly owned by its Immediate Parent Company and ultimatelyby 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 (bothincorporated in Australia). The address for service for the Ultimate
Parent Bank is ANZ Centre Melbourne, Level 9, 833 Collins Street,
Docklands, Victoria 3008, Australia.

ANZNZ Covered Bond Trust

The Immediate Parent Company has the power under the Bank’sConstitution to appoint any person as a Director of the Bank either
to fill a casual vacancy or as an additional Director or to remove
any person from 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 theappointment.

Material Financial Support
In accordance with requirements issued by APRA pursuant to its
Prudential Standards, the Ultimate Parent Bank may not provide
material financial support to the Bank contrary to the following:•
the Ultimate Parent Bank should not undertake any third party
dealings with the prime purpose of supporting the businessof the Bank•
the Ultimate Parent Bank should not hold unlimited
exposures (should be limited as to specified time andamount) 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 defaultof the Ultimate Parent Bank in its obligations•
the Board of the Ultimate Parent Bank in determining limits on
acceptable levels of exposure to the Bank should have regardto:• the level of exposure that would be approved to third
parties of broadly equivalent credit status. In this regard,
prior consultation (and in some cases approval) is
required before entering exceptionally large exposures• the impact on the Ultimate Parent Bank’s capital andliquidity position and its ability to continue operating in
the event of a failure by the Bank•
the level of exposure to the Bank not exceeding:•
50% on an individual exposure basis•
150% in aggregate (being exposures to all similar
regulated entities related to the Ultimate Parent Bank)of the Ultimate Parent Bank’s capital base.
Additionally, the Ultimate Parent Bank may not provide material
financial support in breach of the Australian Banking Act (1959).
This requires APRA to exercise its powers and functions for theprotection of a bank’s depositors and in the event of a bankbecoming unable to meet its obligations or suspending payment,
the assets of the bank in Australia shall be available to meet thatbank’s deposit liabilities in Australia in priority to all other liabilitiesof the bank.
The Ultimate Parent Bank has not provided material financial
support to the Bank contrary to any of the above requirements.

Certain debt securities (Covered Bonds) issued by the Bank’s
wholly owned subsidiary, ANZ New Zealand (Int’l) Limited, areguaranteed by ANZNZ Covered Bond Trust Limited (the Covered
Bond Guarantor), solely in its capacity as trustee of ANZNZ Covered
Bond Trust. The Covered Bond Guarantor has guaranteed thepayment of interest and principal of Covered Bonds with a carrying
value as at 30 September 2016 of NZ$6,218 million, pursuant to aguarantee which is secured over a pool of assets. The Covered
Bond Guarantor’s address for service is Level 9, 34 Shortland Street,
Auckland, New Zealand. The Covered Bond Guarantor is not amember of the Banking Group and has no credit ratings applicable
to its long term senior unsecured obligations payable in New
Zealand dollars. The Covered Bonds have been assigned a longterm rating of Aaa and AAA by Moody’s Investors Service and Fitch
Ratings respectively. Details of the pool of assets that secure thisguarantee are provided in note 31.

Other Matters
APRA has reviewed the level of 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 can comprise nonequity exposures to its New Zealand operations during ordinary
times. Exposures in excess of this limit must be reduced in equal
percentages over the five year transition period and may notincrease 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-totime, residential loans and mortgages into the NZ Branch toprovide funding for the Bank’s business. As at 30 September 2016,
the NZ Branch held approximately NZ$6.0 billion of residential
loans. To satisfy APRA’s requirements described above, the Bank
intends to repay this funding at approximately NZ$1.6 billion perannum over the five year transition period ending 31 December
2020.
APRA has also clarified that contingent funding support by the
Ultimate Parent Bank to the Bank during times of financial stressmust be provided on terms that are acceptable to APRA and, inaggregate with all other exposures to its New Zealand operations,must not exceed 50% of the Ultimate Parent Bank’s Level 1 Tier 1
capital. At present, only covered bonds meet APRA’s criteria forcontingent funding. On this basis, we believe that the Ultimate
Parent Bank will continue to be able to provide financial support to
the Bank.

ANZ Bank New Zealand Limited

69

GENERAL DISCLOSURES
Credit Rating Information

The following table describes the credit rating grades available:

As at 18 November 2016 the Bank has three credit ratings, which
are applicable to its long-term senior unsecured obligations which
are payable in New Zealand in New Zealand dollars. On 7 July
2016, Standard & Poor’s changed the outlook on the Bank from
Stable to Negative. On 18 August 2016, Moody’s Investors Service
changed the outlook on the Bank from Stable to Negative.
The Bank’s credit ratings are:Rating Agency
Standard & Poor’s

Current Credit
Rating
Qualification
AAOutlook Negative

Moody’s Investors Service

Aa3

Outlook Negative

Fitch Ratings

AA-

Outlook Stable

Standard &Poor'sMoody's Fitch Ratings
Investors
Service

The following grades display investment grade characteristics:
Ability to repay principal and
AAA
Aaa
AAA
interest is extremely strong. This is
the highest investment category.
Very strong ability to repayAA
AaAA
principal and interest.
Strong ability to repay principal
AAA
and interest although somewhat
susceptible to adverse changes in
economic, business or financial
conditions.
Adequate ability to repay
BBB
Baa
BBB
principal and interest. Morevulnerable to adverse changes.
The following grades have predominantly speculative
characteristics:
Significant uncertainties exist
BB
Ba
BB
which could affect the paymentof principal and interest on atimely basis.
Greater vulnerability andB
B
B
therefore greater likelihood of
default.
Likelihood of default now
CCC
Caa
CCC
considered high. Timely
repayment of principal andinterest is dependent on
favourable financial conditions.
CC to CCa to CCC to C
Highest risk of default.
D
RD & D
Obligations currently in default.
Credit ratings from Standard & Poor's and Fitch Ratings may be modified by theaddition 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

70

CONDITIONS OF REGISTRATION
Conditions of Registration, applicable as at 30 September
2016. These Conditions of Registration have applied from 1
November 2015.

(c)
1B.

The registration of ANZ Bank New Zealand Limited (“the bank”) as aregistered bank is subject to the following conditions:1.

That(a)the Total capital ratio of the banking group is not lessthan 8%;(a)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)

(f)

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 nonobjection to the instrument from the Reserve Bank; andthe bank meets the requirements of Part 3 of theReserve Bank of New Zealand document: “Application
requirements for capital recognition or repayment andnotification requirements in respect of capital” (BS16)
dated November 2015 in respect of regulatory capital
instruments.

0%>0.625 - 1.25%

20%>1.25 - 1.875%

40%>1.875% - 2.5%

60%

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 Zealanddocument: “Capital Adequacy Framework (Internal Models
Based Approach)” (BS2B) dated November 2015.
the scalar referred to in the Reserve Bank of New Zealanddocument “Capital adequacy framework (Internal Models
Based Approach)” (BS2B) dated November 2015 is 1.06.

an Additional Tier 1 capital instrument is an instrument thatmeets the requirements of subsection 2.13(a) or (c) of theReserve Bank of New Zealand document “Capital adequacy
framework (Internal Models Based Approach)” (BS2B) dated
November 2015.

2.

a Tier 2 capital instrument is an instrument that meets therequirements of subsection 2.16(a) or (c) of the Reserve Bankof New Zealand document “Capital adequacy framework(Internal Models Based Approach)” (BS2B) dated November
2015.

3.

(b) under its ICAAP the bank identifies and measures its“other material risks” defined as all material risks of thebanking group that are not explicitly captured in thecalculation of the Common Equity Tier 1 capital ratio, theTier 1 capital ratio and the Total capital ratio under therequirements set out in the document “Capital
adequacy framework (Internal Models Based Approach)”(BS2B) dated November 2015; and

0% - 0.625%(c)“Total capital ratio”, “Tier 1 capital ratio”, “Common Equity Tier
1 capital ratio”, and “Total capital” must be calculated inaccordance with the Reserve Bank of New Zealand document“Capital adequacy framework (Internal Models BasedApproach)” (BS2B) dated November 2015.

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;

Percentage limit to
distributions of the
bank's earnings(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; andthe scalar referred to in the Reserve Bank of New Zealanddocument “Capital adequacy framework (Internal Models
Based Approach)” (BS2B) dated November 2015 is 1.06.

1A. That-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

For the purposes of this condition of registration,-(a)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:(b) the Tier 1 capital ratio of the banking group is not lessthan 6%;(c)the bank determines an internal capital allocation foreach identified and measured “other material risk”.

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” isbased on generally accepted accounting practice.
That the banking group’s insurance business is not greaterthan 1% of its total consolidated assets.
For the purposes of this condition of registration, the banking
group’s insurance business is the sum of the following
amounts for entities in the banking group:(a)

if the business of an entity predominantly consists of
insurance business and the entity is not a subsidiary of
another entity in the banking group whose businesspredominantly consists of insurance business, theamount 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 anotherentity in the banking group whose businesspredominantly consists of insurance business, theamount of the insurance business to sum is the total
liabilities relating to the entity’s insurance business plus

ANZ Bank New Zealand Limited

71

CONDITIONS OF REGISTRATION
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)(b)

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

For the purposes of this condition of registration, “nonexecutive” and “independent” have the same meaning as in
the Reserve Bank of New Zealand document entitled“Corporate Governance” (BS14) dated July 2014.

AA/Aa2 and above

75

AA-/Aa3

70

A+/A1

60

A/A2

40

A-/A3

30

BBB+/Baa1 and below

15

1

5.

6.

7.

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

Credit Rating of the bank1

This table uses the rating scales of Standard & Poor’s, Fitch Ratings andMoody’s Investors Service. (Fitch Ratings’ scale is identical to Standard &Poor’s)for an independent director must be independent;(g) the bank’s constitution must not include any provisionpermitting a director, when exercising powers or
performing duties as a director, to act other than in what
he or she believes is the best interests of the company(i.e. the bank).

“insurance business” means the undertaking or assumptionof liability as an insurer under a contract of insurance:

Connected exposure limit(% of the banking group’s Tier 1
capital)(ii)(f) the chairperson of the board of the bank must be
independent; andFor the purposes of this condition of registration,-4.

for a non-executive director must be nonexecutive; and(e) at least half of the independent directors of the bankmust be ordinarily resident in New Zealand;

all amounts must relate to on balance sheet items only,
and must comply with generally accepted accounting
practice; and“insurer” and “contract of insurance” have the same meaning
as provided in sections 6 and 7 of the Insurance (Prudential
Supervision) Act 2010.

(i)

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

8.

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

9.

That the bank has a board audit committee, or other separateboard committee covering audit matters, that meets thefollowing requirements:(a) the mandate of the committee must include: ensuring
the integrity of the bank’s financial controls, reporting
systems and internal audit standards;

Within the rating-contingent limit, credit exposures (of a noncapital nature and net of any allowances for impairment) to
non-bank connected persons shall not exceed 15 percent of
the banking group’s Tier 1 capital.

(b) the committee must have at least three members;

For the purposes of this condition of registration, compliancewith the rating-contingent connected exposure limit isdetermined in accordance with the Reserve Bank of New
Zealand document entitled “Connected Exposures Policy”(BS8) dated November 2015.

(d) the majority of the members of the committee must be
independent; andThat exposures to connected persons are not on morefavourable terms (e.g. as relates to such matters as credit
assessment, tenor, interest rates, amortisation schedules andrequirement for collateral) than corresponding exposures tonon-connected persons.
That the bank complies with the following corporate
governance requirements:(a) the board of the bank must have at least five directors;(b) the majority of the board members must be nonexecutive directors;(c) at least half of the board members must be independent
directors;(d) an alternate director,—(c) every member of the committee must be a nonexecutive director of the bank;(e) the chairperson of the committee must be independentand must not be the chairperson of the bank.
For the purposes of this condition of registration, “nonexecutive” and “independent” have the same meaning as in
the Reserve Bank of New Zealand document entitled“Corporate Governance” (BS14) dated July 2014.
10. That a substantial proportion of the bank’s business isconducted in and from New Zealand.
11. That the bank has legal and practical ability to control andexecute any business, and any functions relating to any
business, of the bank that are carried on by a person otherthan the bank, sufficient to achieve, under normal businessconditions and in the event of stress or failure of the bank orof 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;

ANZ Bank New Zealand Limited

72

CONDITIONS OF REGISTRATION(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 andon subsequent days.
For the purposes of this condition of registration, the term“legal and practical ability to control and execute” is explainedin 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 thebank;(b) the employment contract of the chief executive officer ofthe bank or person in an equivalent position (together“CEO”) is with the bank, and the terms and conditions of
the CEO’s employment agreement are determined by,
and any decision relating to the employment or
termination of employment of the CEO are made by, theboard of the bank; and(c) all staff employed by the bank shall have theirremuneration determined by (or under the delegatedauthority of) the board or the CEO of the bank and be
accountable (directly or indirectly) to the CEO of thebank.
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 notless 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 andimplementation of the framework and policies forliquidity risk management;(c) identifies the principal methods that the bank will use formeasuring, monitoring and controlling liquidity risk; and(d) considers the material sources of stress that the bankmight face, and prepares the bank to manage stressthrough a contingency funding plan.

15. That no more than 10% of total assets may be beneficiallyowned by a SPV.
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 thatnecessary or incidental to guarantee the obligations ofany member of the banking group under a covered
bond:“covered bond” means a debt security issued by any memberof the banking group, for which repayment to holders isguaranteed by a SPV, and investors retain an unsecured claimon the issuer.
16. That—(a) no member of the banking group may give effect to aqualifying acquisition or business combination thatmeets the notification threshold, 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 theintended acquisition or business combination, thebank provided the Reserve Bank with theinformation 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 aqualifying acquisition or business combination thatmeets the non-objection 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 theintended acquisition or business combination, thebank provided the Reserve Bank with theinformation 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 orbusiness combination.
For the purposes of this condition of registration, “qualifying
acquisition or business combination”, “notification threshold”
and “non-objection threshold” have the same meaning as in
the Reserve Bank of New Zealand Banking SupervisionHandbook document “Significant Acquisitions Policy” (BS15)
dated December 2011.
17. That the bank is pre-positioned for Open Bank Resolution andin accordance with a direction from the Reserve Bank, thebank can—ANZ Bank New Zealand Limited

73

CONDITIONS OF REGISTRATION(a) close promptly at any time of the day and on any day of
the week and that effective upon the appointment of thestatutory manager—(i)

all liabilities are frozen in full; and(ii) no further access by customers and counterparties
to their accounts (deposits, liabilities or otherobligations) is possible;(b) apply a de minimis to relevant customer liability accounts;(c) apply a partial freeze to the customer liability accountbalances;(d) reopen by no later than 9am the next business day
following the appointment of a statutory manager andprovide customers access to their unfrozen funds;(e) maintain a full freeze on liabilities not pre-positioned foropen 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 andunfrozen 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; andResolution (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 inrespect of APIL with a loan-to-valuation ratio of more than
70%, must not exceed 5% of the total of the qualifying new
mortgage lending amount in respect of APIL arising in theloan-to-valuation measurement period.
22. That, for a loan-to-valuation measurement period, the total of
the bank’s qualifying new mortgage lending amount inrespect of ANPIL with a loan-to-valuation ratio of more than
80%, must not exceed 10% of the total of the qualifying new
mortgage lending amount in respect of ANPIL arising in theloan-to-valuation measurement period.
23. That, for a loan-to-valuation measurement period, the total of
the bank’s qualifying new mortgage lending amount inrespect of non-Auckland loans with a loan-to-valuation ratioof more than 80%, must not exceed 15% of the total of thequalifying new mortgage lending amount in respect of nonAuckland loans arising in the loan-to-valuation measurement
period.
24. That the bank must not make a residential mortgage loan
unless the terms and conditions of the loan contract or theterms and conditions for an associated mortgage require thata borrower obtain the bank’s agreement before the borrower
can grant to another person a charge over the residential
property used as security for the loan.

(b) demonstrates that the bank’s prepositioning for OpenBank Resolution meets the requirements set out in the
Reserve Bank document: “Open Bank Resolution Prepositioning Requirements Policy” (BS17) dated
September 2013.

In these conditions of registration,—

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.

“generally accepted accounting practice” has the same
meaning as in section 8 of the Financial Reporting Act 2013.

“banking group” means ANZ Bank New Zealand Limited (asreporting entity) and all other entities included in the groupas defined in section 6(1) of the Financial Markets Conduct
Act 2013 for the purposes of Part 7 of that Act.

In conditions of registration 21 to 24, —(i)

pre-positioned for Open Bank Resolution; and“ANPIL”, “APIL”, “loan-to-valuation ratio”, “non-Auckland loan”,“qualifying new mortgage lending amount in respect of […]”and “residential mortgage loan” 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 November 2015:(ii)

not pre-positioned for Open Bank Resolution;“loan-to-valuation measurement period” means—

19. That the bank has a compendium of liabilities that—(a) at the product-class level lists all liabilities, indicating
which are—(b) is agreed to by the Reserve Bank; and(c) if the Reserve Bank’s agreement is conditional, meets theReserve Bank’s conditions.
For the purposes of this condition of registration,“compendium of liabilities” and “pre-positioned and non prepositioned 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(a)the six calendar month period ending on the last day ofApril 2016; and(b) thereafter a period of three calendar months ending on
the last day of the third calendar month, the first ofwhich ends on the last day of May 2016.

ANZ Bank New Zealand Limited

74

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 18 November 2016

Directors’ interests

John Frederick JudgeB Com, 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, Fletcher Building Limited, Fletcher
Building Industries 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

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

Non-Executive Directors
Shayne Cary Elliott
B Com
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
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, Capital Training Limited
Mark 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, Spark New Zealand Limited, Willis Bond CapitalPartners Limited, Willis Bond General Partner Limited, MyCare
Limited, The Treasury
Joan Withers
MBA, AFInstD
Company Director
Auckland, New Zealand
Ms Withers is the Chair of the Human Resources Committee anda member of the Risk Committee and the Audit Committee.
Other directorships: Mercury NZ Limited, Television New
Zealand Limited, The Warehouse Group Limited, TVNZInternational Limited, TVNZ Investments Limited, Freeview
Television Limited, NZOOM Limited

Auditor
KPMG
Chartered Accountants
10 Customhouse Quay
P O Box 996
Wellington, New Zealand75

ANZ Bank New Zealand Limited

76

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 2016, 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, 18 November 2016.

Antony Carter

Shayne ElliottDavid Hisco

John Judge

Mark Verbiest

Nigel Williams

Joan Withers

ANZ Bank New Zealand Limited

77

INDEPENDENT AUDITOR’S REPORTTo the Shareholder of ANZ Bank New Zealand Limited
Report on the Banking Group Disclosure Statement
We have audited the accompanying financial statements and supplementary information of ANZ Bank New Zealand Limited (“the Bank”)
and its subsidiaries (“Banking Group”) on pages 3 to 66 of the Disclosure Statement. The financial statements comprise the balance sheet
as at 30 September 2016, the statements of income, comprehensive income, changes in equity and cash flows for the year then ended,
and a summary of significant accounting policies and other explanatory information of the Banking Group. The supplementary
information comprises the information that is required to be disclosed in accordance with Schedules 2, 4, 7, 11, 13, 14, 15 and 17 of theRegistered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (as amended) (the Order).
This report is made solely to the shareholder as a body. Our audit work has been undertaken so that we might state to the shareholder ofthe Bank 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 the shareholder of the Bank as a body, for our audit work, thisreport or any of the opinions we have formed.
Directors' responsibility for the disclosure statement
The Directors are responsible on behalf of the Banking Group for the preparation of the Banking Group Disclosure Statement, including
financial statements prepared in accordance with Clause 24 of the Order, generally accepted accounting practice in New Zealand, that is afair presentation of the matters to which they relate. The Directors are also responsible for such internal controls as they determine arenecessary to enable the preparation of the Banking Group financial statements that are free from material misstatement whether due tofraud or error.
The directors are responsible for the preparation and fair presentation of supplementary information, in accordance with Schedules 2, 4, 7,
13, 14, 15 and 17 of the Order.
Auditor’s responsibility
Our responsibility is to express an opinion on the Disclosure Statement, including the financial statements prepared in accordance with
Clause 24 of the Order and the supplementary information (excluding the supplementary information related to CapitalAdequacy)
disclosed in accordance with Schedules 4, 7, 13, 14, 15 and 17 of the Order. We conducted our audit in accordance with International
Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance about whether the Banking Group financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Banking Group financial
statements (excluding the supplementary information relating to Capital Adequacy). The procedures selected depend on the auditor’s
judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, the auditor considers internal controls relevant to the Banking Group’s preparation of the financial
statements that present fairly the matters to which they relate in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the Banking Group’s internal controls. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as
evaluating the presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion on the Disclosure Statement
In our opinion the Disclosure Statement of the Banking Group on pages 3 to 66 (excluding supplementary information):•complies with generally accepted accounting practice in New Zealand•complies with International Financial Reporting Standards•

give a true and fair view of the financial position of the Banking Group as at 30 September 2016 and of the financial performance andcash flows of the Banking Group for the year ended on that date.

Opinion on supplementary information
In our opinion, the supplementary information (excluding supplementary information relating to Capital Adequacy) that is required to bedisclosed in accordance with Schedules 4, 7, 13, 14, 15 and 17 of the Order:•

has been prepared, in all material respects, in accordance with the guidelines issued pursuant to section 78(3) of the Reserve Bank of
New Zealand Act 1989 and any conditions of registration•

is in accordance with the books and records of the Banking Group in all material respects•

fairly states the matters to which it relates in accordance with those Schedules.

ANZ Bank New Zealand Limited

78

Report on supplementary information relating to Capital Adequacy
We have reviewed the supplementary information relating to Capital Adequacy information, as disclosed in note 29 of the DisclosureStatement for the year ended 30 September 2016.
Directors’ responsibility for the supplementary information relating to Capital Adequacy
The Directors are responsible for the preparation of supplementary information relating to Capital Adequacy that 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 29 of the Disclosure Statement.
Auditor’s responsibility
Our responsibility is to express an opinion on the supplementary information relating to Capital Adequacy 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
issued by the New Zealand External Reporting Board. As the auditor of the Banking Group, 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 supplementary information relating to Capital Adequacy information is, in all material respects:•

prepared in accordance with the Bank’s conditions of registration•

prepared in accordance with the Bank’s internal models for credit risk and operational risk as accredited by the Reserve Bank of New
Zealand•disclosed in accordance with Schedule 11 of the Order.

A review is limited primarily to enquiries of the Banking Group personnel and analytical review procedures applied to the financial data,
and thus provides less assurance than an audit. We have not performed an audit in respect of the Capital Adequacy disclosures, andaccordingly, we do not express an audit opinion on these disclosures.
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 for financial 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 in accordance with International
Standards on Auditing (New Zealand). Accordingly we do not express an audit opinion on the supplementary information relating tocapital adequacy disclosures.
Review opinion on the supplementary information relating to Capital Adequacy
Based on our review, nothing has come to our attention that causes us to believe that the supplementary information relating to Capital
Adequacy, and disclosed in note 29 of the Disclosure Statement, is not, in all material respects:•

prepared in accordance with the Bank’s conditions of registration•

prepared in accordance with the Bank’s internal models for credit risk and operational risk as accredited by the Reserve Bank of New
Zealand•disclosed in accordance with Schedule 11 of the Order.

Review 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 thoserecords.

Independence
Our firm has 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 the ordinary course of trading activities of the business of the Banking Group.
There are, however, certain restrictions on dealings which the partners and employees of our firm can have with the Banking Group.
These matters have not impaired our independence as auditors of the Banking Group. The firm has no other relationship with, or interestin, the Banking Group.

Wellington
18 November 2016