ANZ National Bank Limited
Disclosure Statement
FOR THE YEAR ENDED 30 SEPTEMBER 2011 | NUMBER 63 ISSUED NOVEMBER 2011

ANZ National Bank Limited

General Disclosures

For the year ended 30 September 2011

General Matters
The Disclosure Statement has been issued in accordance with
the Order.

Contents
General Disclosures
Summary of Financial Statements
Income Statements and Statementsof Comprehensive Income
Statements of Changes in Equity
Balance Sheets
Cash Flow Statements
Notes to the Financial Statements
Directorate and Auditors
Conditions of Registration
Directors’ Statement
Auditors’ Report
Index

1
4
5
6
8
9
10
88
90
94
95
97

The address for service for the Bank is Level 6, 1 Victoria Street,
Wellington, New Zealand. The Bank was incorporated under
the Companies Act 1955 by virtue of the ANZ Banking Group(New Zealand) Act 1979 on 23 October 1979, and was
reregistered under the Companies Act 1993 on 13 June 1997.
The Bank is wholly owned by its immediate parent company
and ultimately by the Ultimate Parent Bank. The Immediate
Parent Company of the Bank is incorporated in New Zealandand owned by ANZ Funds Pty Limited and the Ultimate
Parent Bank (both incorporated in Australia). The address forservice for the Ultimate Parent Bank is ANZ Centre Melbourne,
Level 9, 833 Collins Street, Docklands, Victoria 3008, Australia.
The Immediate Parent Company has the power under the
Bank’s Constitution to appoint any person as a Director of the
Bank either to 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 appointmentof a new Director may occur unless the RBNZ confirms that it
does not object to the appointment.

Glossary of Terms

Material Financial Support

In this Disclosure Statement unless the context otherwise
requires:

In accordance with the 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:(a) “Bank” means ANZ National Bank Limited;(b) “Banking Group” means ANZ National Bank Limited andall its controlled entities;(c) “Immediate Parent Company” means ANZ Holdings(New Zealand) Limited;(d) “Ultimate Parent Bank” means Australia and New Zealand
Banking Group Limited;(e) “Overseas Banking Group” means the worldwide
operations of Australia and New Zealand Banking Group
Limited including its controlled entities;(f ) “New Zealand business” means all business, operations,or undertakings conducted in or from New Zealandidentified and treated as if it were conducted by acompany formed and registered in New Zealand;

•

•

•

•

(g) “NZ Branch” means the New Zealand business of the
Ultimate Parent Bank;(h) “ANZ New Zealand” means the New Zealand business of
the Overseas Banking Group;(i) “Registered Office” is Level 6, 1 Victoria Street, Wellington,
New Zealand, which is also the Banking Group’s address
for Service;(j) “RBNZ” means the Reserve Bank of New Zealand;(k) “APRA” means the Australian Prudential Regulation
Authority;(l) “the Order” means the Registered Bank DisclosureStatements (New Zealand Incorporated Registered
Banks) Order (No 3) 2011; and(m) Any term or expression which is defined in, or in themanner prescribed by, the Order shall have the meaning
given in or prescribed by the Order.

•

the Ultimate Parent Bank should not undertake any
third party dealings with the prime purpose of
supporting the business of the Bank;
the Ultimate Parent Bank should not hold unlimited
exposures (should be limited as to specified time andamount) in the Bank (e.g. not provide a generalguarantee covering any of the Bank’s obligations);
the Ultimate Parent Bank should not enter into crossdefault clauses whereby a default by the Bank on an
obligation (whether financial or otherwise) is deemed
to trigger a default of the Ultimate Parent Bank in
its obligations;
the Board of the Ultimate Parent Bank in determining
limits on acceptable levels of exposure to the Bank
should have regard to:– the level of exposure that would be approved tothird parties of broadly equivalent credit status. In
this regard, prior consultation (and in some cases
approval) is required before entering exceptionallylarge 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; andthe level of exposure to the Bank not exceeding:– 50% on an individual exposure basis; and– 150% in aggregate (being exposures to all
similar regulated entities related to the Ultimate
Parent Bank)of the Ultimate Parent Bank’s capital base.

1

Disclosure Statement

ANZ National Bank Limited

General Disclosures (continued)
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 the protection of a bank’s depositors andin the event of a bank becoming unable to meet its
obligations or suspending payment, the assets of the bankin Australia shall be available to meet that bank’s deposit
liabilities in Australia in priority to all other liabilities ofthe bank.
The Ultimate Parent Bank has not provided material
financial support to the Bank contrary to any of theabove requirements.

Credit Rating Information
As at 21 November 2011 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 27 May 2011, Moody’s downgraded theBank’s long-term senior unsecured debt and deposit ratingsfrom Aa2 outlook negative to Aa3 outlook stable. This
followed a similar one notch downgrade on the Ultimate
Parent Bank and other major Australian banks. On 20 May
2010 Fitch changed the outlook on the Bank from Stable toPositive. During the two years ended 30 September 2011
there were no other changes to the Bank’s credit ratings orqualifications.
The Bank’s Credit Ratings are:Rating Agency

Current
Credit Rating

Qualification

Standard & Poor’s

AA

Outlook Stable

Moody’s Investors Service

Aa3

Outlook Stable

Fitch Ratings

AA-

Outlook Positive

Credit ratings from Standard & Poor’s and Fitch Ratings may
be modified by the addition of “+” or “-” to show the relative
standing within the “AA” to “B” categories. Moody’s InvestorsService 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.

Guarantors
As at the date of signing this Disclosure Statement the only
material obligations of the Bank that are guaranteed aredebt securities with a carrying value at 30 September 2011of $2,317 million for which the Crown has issued a Guarantee
Eligibility Certificate under the New Zealand Wholesale
Funding Guarantee Facility (“Crown Wholesale Guarantee”),
copies of which are available on the Treasury website
treasury.govt.nz

Crown Wholesale Guarantee
The Crown Wholesale Guarantee was provided under the
Crown Wholesale Funding Guarantee Deed entered into by
the Crown and the Bank on 23 December 2008 andsupplemented on 19 February 2009 (“Wholesale Deed”).
The Government closed the Crown Wholesale Guarantee to
new debt securities on 30 April 2010. The closure did notaffect debt securities previously issued with the benefit of
the Crown Wholesale Guarantee.
If a Guarantee Eligibility Certificate was issued in respect ofdebt securities, the Crown (subject to any special conditions
specified in a Guarantee Eligibility Certificate and provided
the debt securities are not varied, amended, waived,
released, novated, supplemented, extended or restated inany respect without the prior written consent of the Crown)
has irrevocably:(a) guaranteed the payment by the Bank of any liability of
the Bank to pay principal and interest (excluding any
penalty interest or other amount only payable following
a default) in respect of the debt securities; andThe following table describes the credit rating grades
available:
Standard& Poor's

Moody's
Investors Service

Fitch Ratings

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

AAA

Aaa

AAA

Very strong ability to repay principal and interest.

AA

Aa

AA

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

A

A

A

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

BBB

Baa

BBB

BB

Ba

BB

The following grades display investment grade characteristics:

The following grades have predominantly speculative characteristics:
Significant uncertainties exist which could affect the payment of principal
and interest on a timely basis.
Greater vulnerability and therefore greater likelihood of default.

B

B

BB

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

CCC

Caa

CCC

Highest risk of default.

CC to CCa to CCC to CD-

RD & D

Obligations currently in default.

ANZ National Bank Limited

The Crown Wholesale Guarantee does not extend to debt
securities held by a Related Party (as defined in the
Wholesale Deed) of the Bank.
In the event of a claim made on the Crown, the Crown will
only pay the interest and principal due to the holders ofdebt securities on the originally scheduled dates forpayment of interest and principal.
The Crown’s obligations in respect of any debt security
terminate on the date falling 30 days after the earlier of:(a) the scheduled maturity date for the debt security underwhich the guaranteed liability arises; and(b) the date falling five years after the date of issue ofthe debt security under which the guaranteed
liability arises,
unless valid demand has been made on the Crown prior tothat time.
Any demand on the Crown in respect of debt securities forwhich the Crown has issued a Guarantee Eligibility
Certificate must be made in the prescribed form anddelivered by hand to the Minister of Finance, Parliament
Buildings, Wellington, New Zealand or to one of the otheraddresses specified in the Wholesale Deed.

Further information
Further information about the Crown Wholesale Guarantee,
including a copy of the Wholesale Deed, and any
Guarantee Eligibility Certificate issued by the Crown inrespect of the Bank, is available on The Treasury website attreasury.govt.nz.
Further information about the Crown, including a copy of its
most recent audited financial statements can be obtainedat treasury.govt.nz.
The Crown’s credit ratings are available on the New Zealand
Debt Management Office website nzdmo.govt.nz. On 29
and 30 September 2011 Fitch and Standard & Poor’s,
respectively, downgraded the Crown’s long term foreign
currency ratings from AA+ (Outlook Negative) to AA(Outlook Stable) and its local currency ratings from
AAA (Outlook Negative) to AA+ (Outlook Stable). On
22 November 2010 Standard & Poor’s changed the outlook
on the Crown’s foreign currency credit rating from stableto negative. There have been no other changes to the
Crown’s long-term foreign-currency and domestic debt
credit ratings in the two years immediately before the dateof signing this Disclosure Statement.

The Crown’s foreign currency credit ratings are:Rating Agency

Current
Credit Rating

Qualification

Standard & Poor’s

AA

Outlook Stable

Moody’s
Investors Service

Aaa

Outlook Stable

Fitch Ratings

AA

Outlook Stable

The Crown’s domestic currency credit ratings are:Rating Agency

Current
Credit Rating

Qualification

Standard & Poor’s

AA+

Outlook Stable

Moody’s
Investors Service

Aaa

Outlook Stable

Fitch Ratings

AA+

Outlook Stable

2–3(b) undertaken that if the Bank does not pay any suchliability on the date on which it becomes due andpayable, the Crown shall, within five Business Days of ademand being made in accordance with the Wholesale
Deed and following the expiry of any applicable grace
period, pay such liability.

ANZ National Bank Limited

Summary of Financial Statements
Banking Group$ millions

Year to30/09/2011

Year to30/09/2010

Year to30/09/2009

Year to30/09/2008

Year to1
30/09/2007

Continuing operations
Interest income

6,179

5,876

7,345

9,857

8,309

Interest expense

3,620

3,457

4,892

7,568

6,059

Net interest income

2,250

2,559

2,419

2,453

2,289

Other operating income

856

744

663

1,124

861

Operating income

3,415

3,163

3,116

3,413

3,111

Operating expenses

1,686

1,565

1,477

1,444

1,331

Profit before provision for credit impairment and income tax

1,729

1,598

1,639

1,969

1,780

178

436

874

302

74

1,551

1,162

765

1,667

1,706

452

335

467

504

614

1,099

827

298

1,163

1,092

-

-

-

-

76

Profit after income tax

1,099

827

298

1,163

1,168

Dividends paid

(700)

(600)

(1,000)-(728)

Provision for credit impairment
Profit before income tax
Income tax expense
Profit after income tax from continuing operations
Profit from discontinued operations (net of income tax)

Banking Group$ millions

Total impaired assets

As at
30/09/2010

As at
30/09/2009

As at
30/09/2008

As at 1
30/09/2007

1,726

2,004

1,178

327

115

Total assets

119,012

116,458

117,891

122,915

107,787

Total liabilities

108,187

106,012

107,803

113,108

99,084

-

1

-

-

-

10,825

10,446

10,088

9,807

8,703

Non-controlling interests
Equity1

As at
30/09/2011

Truck Leasing Limited has been classified as a discontinued operation for the comparative year ending 30 September 2007.

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

ANZ National Bank Limited
4–5

Income Statements
Banking Group$ millions

Note

Year to30/09/2011

Bank

Year to30/09/2010

Year to30/09/2011

Year to30/09/2010

Interest income

4

6,179

5,876

6,393

5,963

Interest expense

5

3,620

3,457

4,194

3,904

2,559

2,419

2,199

2,059

Net trading gains

4

228

39

175

22

Funds management and insurance income

4

265

218

69

65

Other operating income

4

361

445

620

954

2

42

-

-

Net interest income

Share of profit of associates and jointly controlled entities
Operating income
5

Operating expenses
Profit before provision for credit impairment and income tax
Provision for credit impairment

15

Profit before income tax
Income tax expense
Profit after income tax

6

3,415

3,163

3,063

3,100

1,686

1,565

1,528

1,401

1,729

1,598

1,535

1,699

178

436

174

417

1,551

1,162

1,361

1,282

452

335

329

227

1,099

827

1,032

1,055

Statements of Comprehensive Income
Banking GroupBank

Year to30/09/2011

Year to30/09/2010

Year to30/09/2011

Year to30/09/2010

1,099

827

1,032

1,055

Unrealised gains recognised directly in equity

72

142

58

104

Realised losses/ (gains) transferred to the income statement

(38)

9

4

21

Actuarial gain/(loss) on defined benefit schemes

(64)

27

(64)

27

$ millions

Profit after income tax

Income tax credit/(expense) on items recognised directly in equity
Total comprehensive income for the year

11

(48)

3

(41)

1,080

957

1,033

1,166

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

ANZ National Bank Limited

Statements of Changes in Equity
Banking Group$ millions

As at 1 October 2009

Ordinaryshare capital

Availablefor-salerevaluation
reserve

Cash flow
hedging
reserve

Retainedearnings

Total equity
attributable toowners of theparent entity

Noncontrollinginterests

Total equity

6,943

25

23

3,097

10,088-10,088

Profit after income tax
attributable to parent

-

-

-

827

827

-

827

Valuation gain recognised inother comprehensive income

-

53

89

-

142

-

142

Losses / (gains) transferred to theincome statement

-

(12)

21

-

9

-

9

Actuarial gain on defined benefit
schemes

-

-

-

27

27

-

27

Income tax expense on items
recognised directly in equity

-

(8)

(31)

(9)

(48)

-

(48)

Total comprehensive income forthe year

-

33

79

845

957

-

957

Ordinary dividend paid

-

-

-

(600)

(600)

-

(600)

Acquired in a businesscombination

-

-

-

-

-

1

1

6,943

58

102

3,342

10,445

1

10,446

Profit after income tax
attributable to parent

-

-

-

1,099

1,099

-

1,099

Valuation gain recognised inother comprehensive income

-

21

51

-

72

-

72

Losses / (gains) transferred to theincome statement

-

(42)

4

-

(38)

-

(38)

Actuarial loss on defined benefit
schemes

-

-

-

(64)

(64)

-

(64)

Income tax credit/(expense) on
items recognised directly inequity

-

9

(16)

18

11

-

11

Total comprehensive income forthe year

-

(12)

39

1,053

1,080

-

1,080

Ordinary dividend paid

-

-

-

(700)

(700)

-

(700)

Movement in non-controllinginterests

-

-

-

-

-

(1)

(1)

6,943

46

141

3,695

10,825-

10,825As at 30 September 2010

As at 30 September 2011

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

ANZ National Bank Limited
6–7

Statements of Changes in EquityBank$ millions

As at 1 October 2009

Ordinaryshare capital

Availablefor-salerevaluation
reserve

Cash flow
hedging
reserve

Retainedearnings

Total equity
attributable toowners of theparent entity

Noncontrollinginterests

Total equity

6,943

25

23

2,314

9,305

-

9,305

Profit after income tax
attributable to parent

-

-

-

1,055

1,055

-

1,055

Valuation gain recognised inother comprehensive income

-

15

89

-

104

-

104

Losses transferred to the income
statement

-

-

21

-

21

-

21

Actuarial gain on defined
benefit schemes

-

-

-

27

27

-

27

Income tax expense on items
recognised directly in equity

-

(41)
1,166

-

(1)

(31)

(9)

(41)

Total comprehensive income
for the year

-

14

79

1,073

1,166

-

Ordinary dividend paid

-

-

-

(600)

(600)

-

(600)

6,943

39

102

2,787

9,871

-

9,871

Profit after income tax
attributable to parent

-

-

-

1,032

1,032

-

1,032

Valuation gain recognised inother comprehensive income

-

7

51

-

58

-

58

Losses transferred to the income
statement

-

-

4

-

4

-

4

Actuarial loss on defined
benefit schemes

-

-

-

(64)

(64)

-

(64)

Income tax credit/(expense)on items recognised directlyin equity

-

1

(16)

18

3

-

3

Total comprehensive income
for the year

-

8

39

986

1,033

-

1,033

As at 30 September 2010

Ordinary dividend paid
As at 30 September 2011

-

-

-

(700)

(700)

-

(700)

6,943

47

141

3,073

10,204-

10,204

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

ANZ National Bank Limited

Balance Sheets
Banking GroupNote$ millions

Bank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

2,223

AssetsLiquid assets

8

2,455

2,238

2,443

Due from other financial institutions

9

3,685

3,496

3,685

1,926

Trading securities

10

9,466

6,757

9,466

6,757

Derivative financial instruments

11

14,16010,367

14,203

10,382Available-for-sale assets

12

411

2,151

375

2,040

Net loans and advances

13

83,61085,91381,306

83,522

Due from subsidiary companies

26

9,043

-

-

11,753

Investments backing insurance policyholder liabilities

97

87

-

-

Insurance policy assets

200

138

-

-

Due from Immediate Parent Company

26

-

6

-

6

Shares in controlled entities, associates and jointly controlled entities

16

100

144

6,609

7,428

-

25

-

73

Other assets

17

854

965

794

929

Deferred tax assets

18

139

312

230

293

325

311

89

83

19

3,510

3,548

3,298

3,292

Total assets

119,012

116,458

134,251

127,997

Interest earning and discount bearing assets

98,214

98,250106,663

104,575

20

2,236

1,819

2,236

1,819

Deposits and other borrowings

21

69,23870,29563,007

61,680Due to subsidiary companies

26

-

-

37,39037,458Due to Immediate Parent Company

26

174

-

174

-

Derivative financial instruments

11

14,174

10,715

14,174

10,715

Payables and other liabilities

22

2,645

1,700

2,452

1,668

17

-

36

-

Provisions

23

309

315

271

217

Bonds and notes

24

17,406

18,761

2,319

2,157

Loan capital

25

Current tax assets

Premises and equipment
Goodwill and other intangible assets

Liabilities
Due to other financial institutions

Current tax liability

1,988

2,407

1,988

2,412

Total liabilities

108,187

106,012124,047

118,126

Net assets

10,825

10,446

10,204

9,871

6,943

6,943

6,943

6,943

Equity28

Ordinary share capital
Reserves

187

160

188

141

Retained earnings

3,695

3,342

3,073

2,787

Parent shareholder's equity

10,825

10,445

10,204

9,871

Non-controlling interest

-

1

-

-

Total equity

10,825

10,446

10,204

9,871Interest and discount bearing liabilities

85,72886,956

101,800

100,627

For and on behalf of the Board of Directors:

Sir Dryden Spring
Chairman21 November 2011

David Hisco
Executive Director
21 November 2011

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

ANZ National Bank Limited
8–9

Cash Flow Statements
Banking Group$ millions

Note

Bank

Year to30/09/2011

Year to30/09/2010

Year to30/09/2011

Year to30/09/2010

6,074

5,636

6,231

5,723

2

2

183

435

203

137

69

65

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

799

771

824

802

Interest paid

(3,573)(3,412)(4,158)(3,860)Operating expenses paid

(1,602)(1,476)(1,478)(1,345)

Income taxes paid

(226)

(629)

(155)

(521)

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

1,677

1,029

1,516

1,299

755

1,967

667

1,755

(2,777)(2,613)(2,754)(2,613)

152

1,571

(219)

1,947

1,745

(444)

1,697

(466)

Net changes in operating assets and liabilities:
Change in due from other financial institutions – term
Change in trading securities
Change in derivative financial instruments
Change in available-for-sale assets
Change in insurance investment assets

(10)

31

-

-

Change in loans and advances(84)(1,950)(167)(1,847)

1,915

3,494

1,915

3,494

Proceeds from sale of loans and advances to NZ Branch
Change in due from subsidiaries--(2,710)(1,333)

Change in due to subsidiaries

-

-

(79)

(346)

40

145

99

104

Change in due to other financial institutions

417(1,963)417(1,420)Change in deposits and other borrowings(1,570)(1,910)1,260(1,264)

Change in other assets

Change in payables and other liabilities
Net cash flows provided by/(used in) operating activities

33

974

(103)

842

(138)

3,234

(746)

2,484

(828)

49

7

3

2

-

1

-

-

20

-

-

-

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

-

-

819

-

Purchase of shares in controlled entities

-

(247)

-

(272)

Purchase of intangible assets

(54)

(43)

(52)

(37)

Purchase of premises and equipment

(65)

(80)

(24)

(44)

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

(50)

(362)

746

(351)

Cash flows from financing activities
Proceeds from issue of bonds and notes

3,992

5,481

800

746

Redemptions of bonds and notes(3,687)(3,825)

(490)

(240)

(405)

(200)

(405)

(200)

-

-

11

1,150

180

(936)

180

(936)

Redemptions of loan capital
Change in due to subsidiary companies – term
Change in funding from Immediate Parent Company
Distributions to non-controlling interests
Dividends paid

(1)

-

-

-

(700)

(600)

(700)

(600)

Net cash flows used in financing activities

(621)

(80)

(604)

(80)

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

3,234

(746)

2,484

(828)

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

(50)

(362)

746

(351)

Net cash flows used in financing activities

(621)

(80)

(604)

(80)

Net increase/(decrease) in cash and cash equivalents

2,563(1,188)2,626(1,259)Cash and cash equivalents at beginning of the year

3,577

4,765

3,502

4,761

6,140

3,577

6,128

3,502

Cash and cash equivalents at end of the year

33

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

ANZ National Bank Limited

Notes to the Financial Statements
1. Significant Accounting Policies(a) Basis of Preparation(i) Statement of compliance
These financial statements have been prepared inaccordance with the requirements of the Companies
Act 1993, the Financial Reporting Act 1993 and theOrder. The Bank’s financial statements are for ANZ
National Bank Limited as a separate entity and the
Banking Group’s financial statements are for the Bank’s
consolidated group, which includes subsidiaries,
associate companies and jointly controlled entities.
These financial statements have also been prepared inaccordance with New Zealand Generally Accepted
Accounting Practice. They comply with New Zealandequivalents to International Financial ReportingStandards (“NZ IFRS”) and other applicable Financial
Reporting Standards, as appropriate for profit-oriented
entities. The financial statements comply with
International Financial Reporting Standards (“IFRS”).
The principal accounting policies adopted in the
preparation of these financial statements are set
out below.
These financial statements were authorised for issue by
the Board of Directors on 21 November 2011.
(ii) Use of estimates and assumptions
Preparation of the financial statements requires the useof management judgement, estimates and assumptions
that affect reported amounts and the application ofpolicies. The estimates and associated assumptions are
based on historical experience and various other factorsthat are believed to be reasonable. Actual results may
differ from these estimates.

(iv) Changes in accounting policies and application of
new accounting standards
The accounting policies adopted by the Banking Groupare consistent with those adopted and disclosed in theprior period.
(v) Rounding
The amounts contained in the financial statements
have been rounded to the nearest million dollars,
except where otherwise stated.
(vi) Comparatives
Certain amounts in the comparative information havebeen reclassified to ensure consistency with the current
year’s presentation. This includes reclassifying certain
investment assets that relate to the insurance businessfrom available-for-sale assets to investments backing
insurance policyholder liabilities, to better reflect the
purpose the assets are held for.
(vii) Principles of consolidation
Subsidiaries
The financial statements consolidate the financial
statements of the Bank and all its subsidiaries where it isdetermined that there is capacity to control.
Where subsidiaries have been sold or acquired during
the period, their operating results have been included
to the date of disposal or from the date of acquisition.
Control means the power to govern, directly or
indirectly, the financial and operating policies of anentity so as to obtain benefits from its activities. All of
the facts of a particular situation are considered when
determining whether control exists. Control is usuallypresent when an entity has:Discussion of the critical accounting treatments, which
include complex or subjective decisions or assessments,
are covered in Note 2. Such estimates may require
review in future periods.

•(iii) Basis of measurement
The financial statements have been prepared on agoing concern basis in accordance with historical cost
concepts except that the following assets and liabilities
are stated at their fair value:

•

•

•
•
•

derivative financial instruments, including in thecase of fair value hedging, the fair value of any
applicable underlying exposure;financial instruments held for trading;assets treated as available-for-sale; andfinancial instruments designated at fair value throughprofit and loss.

Insurance policy assets are measured using the Margin on
Services basis, and defined benefit obligations are measured
using the Projected Unit Credit method.

••

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

In addition, potential voting rights that are presently
exercisable or convertible are taken into account indetermining whether control exists.
In relation to special purpose entities control is deemed
to exist where:••in substance, the majority of the residual risks andrewards from their activities accrue to the Banking
Group; orin substance, the Banking Group controls decision
making powers so as to obtain the majority of therisks and rewards from their activities.

ANZ National Bank Limited
10 – 11

Notes to the Financial Statements
Associates and joint ventures
The Banking Group adopts the equity method of
accounting for associates and the Banking Group’s
interest in joint venture entities.

(b) Income recognition
Income is recognised to the extent that it is probablethat economic benefits will flow to the Banking Groupand that revenue can be reliably measured.

The Banking Group’s share of results of associates andjoint venture entities is included in the consolidated
income statement. Shares in associates and joint
venture entities are carried in the consolidated balance
sheet at cost plus the Banking Group’s share of postacquisition net assets. Interests in associates and joint
ventures are reviewed for any indication of impairment
at least at each reporting date. This impairment review
may use a discounted cash flow methodology andother methodologies, including a multiples of earnings
methodology, to determine the reasonableness of thevaluation.

(i) Interest income
Interest income is recognised as it accrues, using theeffective interest method.

In the Bank’s financial statements investments in
subsidiaries, associates and joint ventures are carried atcost less accumulated impairment losses.
(viii) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the
Banking Group’s entities are measured using thecurrency of the primary economic environment inwhich the entity operates (the functional currency). The
Banking Group’s financial statements are presented in
New Zealand dollars, which is the Banking Group’sfunctional 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. Monetary assets andliabilities resulting from foreign currency transactions aresubsequently translated at the spot rate at reporting date.
Exchange differences arising on the settlement ofmonetary items or on translating monetary items at
rates different to those at which they were initiallyrecognised or included in a previous financial report,
are recognised in the income statement in the period inwhich they arise.
Translation differences on non-monetary items, such asderivatives, measured at fair value through profit or loss
are reported as part of the fair value gain or loss onthese items.
Translation differences on non-monetary items
measured at fair value through equity, such as equities
classified as available-for-sale financial assets, areincluded in the available-for-sale revaluation reservein equity.

The effective interest method calculates the amortised
cost of a financial asset or financial liability and allocatesthe interest income or interest expense, including any
fees and directly related transaction costs that are an
integral part of the effective interest rate, over the
expected life of the financial asset or liability so as toachieve a constant yield on the financial asset or liability.
For assets subject to prepayment, expected life isdetermined on the basis of the historical behaviour ofthe particular asset portfolio, taking into accountcontractual obligations and prepayment experienceassessed on a 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,
are deferred and recognised as an adjustment to
the effective interest rate on a loan once drawn.
Commitment fees to originate a loan which is unlikely tobe drawn down are recognised as fee income as theservice is provided.
Fees and commissions that relate to the execution ofa significant act (for example, advisory services orarrangement services, placement fees and underwritingfees) are recognised when the significant act has
been completed.
Fees charged for providing ongoing services (forexample, maintaining and administering existing
facilities) are recognised as income over the period theservice is provided.
(iii) Dividend income
Dividends are recognised as revenue when the right toreceive payment is established.
(iv) Leasing income
Finance income on finance leases is recognised on abasis that reflects a constant periodic return on the net
investment in the finance lease.
(v) Gain or loss on sale of premises and equipment
The gain or loss on the disposal of premises andequipment is determined as the difference between the
carrying amount of the assets at the time of disposal andthe proceeds of disposal, and is recognised as an item ofother income in the period in which the significant risks
and rewards of ownership are transferred to the buyer.

ANZ National Bank Limited

Notes to the Financial Statements(c) Expense recognition
Expenses are recognised in the income statement on an
accruals basis.
(i) Interest expense
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 partof the effective interest rate of a financial asset
measured at amortised cost. These loan origination
expenses include:••

fees and commissions payable to brokers in respectof originating lending business; andother expenses of originating lending business,such as external legal costs and valuation fees,
provided these are direct and incremental costs
related to the issue of a financial asset.

Such loan origination expenses are initially recognisedas part of the cost of acquiring the financial asset
and amortised as part of the expected yield of thefinancial asset over its expected life using the effective
interest method.
(iii) Lease payments
Leases entered into by the Banking Group as lessee are
predominantly operating leases, and the operatinglease payments are recognised as an expense on astraight-line basis over the lease term.
(d) Income tax(i) Income tax expense
Income tax on earnings for the year comprises current
and deferred tax and is based on the applicable tax law
in each jurisdiction. It is recognised in the income
statement as tax expense, except when it relates toitems credited directly to equity, in which case it isrecorded in equity, or where it arises from the initialaccounting for a business combination, in which case it
is included in the determination of goodwill.

Deferred tax liabilities are recognised for all taxable
temporary differences, other than those relating totaxable temporary differences arising from goodwill.
They are also recognised for taxable temporary
differences arising on investments in controlled entities,
branches, associates and joint ventures, except where
the Banking Group is able to control the reversal of thetemporary differences and it is probable that thetemporary differences will not reverse in the foreseeable
future. Deferred tax assets associated with theseinterests are recognised only to the extent that it isprobable that the temporary difference will reverse in
the foreseeable future and there will be sufficienttaxable profits against which to utilise the benefits ofthe temporary difference.
Deferred tax assets and liabilities are measured at
the tax rates that are expected to apply to theperiod(s) when the asset and liability giving rise tothem are realised or settled, based on tax rates andtax laws that have been enacted or substantively
enacted by the reporting date. The measurement
reflects the tax consequences that would follow
from the manner in which the Banking Group, at thereporting date, recovers or settles the carrying amountof its assets and liabilities.
(iv) Offsetting
Current and deferred tax assets and liabilities are offset
only to the extent that they relate to income taxes
imposed by the same taxation authority, there is a legal
right and intention to settle on a net basis and it isallowed under the tax law of the relevant jurisdiction.
(e) Assets
Financial assets(i) Financial assets and liabilities at fair value throughprofit or loss
Trading securities are financial instruments acquired
principally for the purpose of selling in the short-termor which are a part of a portfolio which is managed forshort-term profit-taking. Trading securities are initiallyrecognised and subsequently measured in the balance
sheet at their fair value.

(ii) Current tax
Current tax is the expected tax payable on taxable
income for the year, based on tax rates (and tax laws)
which are enacted or substantively enacted by thereporting date and including any adjustment for tax
payable in previous periods. Current tax for current andprior periods is recognised as a liability (or asset) to theextent that it is unpaid (or refundable).

Derivatives that are neither financial guarantee
contracts nor effective hedging instruments are carriedat fair value through profit or loss. In addition, certain
financial assets and liabilities are designated andmeasured at fair value through profit or loss where thefollowing applies:(iii) Deferred tax
Deferred tax is accounted for using the comprehensive
tax balance sheet method. It is generated by providing
for temporary differences between the carrying
amounts of assets and liabilities 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
carried forward, are recognised only to the extent that itis probable that future taxable profits will be available
against which the deductible temporary differences orunused tax losses and credit can be utilised.

•

•

•

investments backing insurance policyholder
liabilities;
doing so eliminates or significantly reduces ameasurement or recognition inconsistency thatwould otherwise arise from measuring assets andliabilities, or recognising the gains or losses thereon,on different bases;a group of financial assets or financial liabilities orboth is managed and its performance evaluated ona fair value basis; orthe financial instrument contains an embedded
derivative, unless the embedded derivative does
not significantly modify the cash flows or it is clear,with little or no analysis, that it would not be
separately recorded.

ANZ National Bank Limited
12 – 13

Notes to the Financial Statements
Changes in the fair value (gains or losses) of thesefinancial instruments are recognised in the income
statement in the period in which they occur.
Purchases and sales of trading securities are recognisedon trade date.
(ii) Derivative financial instruments
Derivative financial instruments are contracts whose
value is derived from changes in one or more underlying
price index or other variable, require little or no initial
net investment and are settled at a later date. They
include swaps, forward rate agreements, futures,
options and combinations of these instruments.
Derivative financial instruments are entered into
for trading purposes (including customer-related
reasons) or for hedging purposes (where thederivative instruments are used to hedge the
Banking Group’s exposures to interest rate risk,
currency risk, price risk, credit risk and other exposuresrelating to non-trading positions).
Derivative financial instruments are recognised initiallyat fair value with gains or losses from subsequent
measurement at fair value being recognised in theincome statement. Included in the determination of fairvalue of derivatives is a credit valuation adjustment toreflect the credit worthiness of the counterparty,
modelled using the counterparty’s credit spreads. The
valuation adjustment is influenced by the mark-tomarket of the derivative trades and by the movement incredit spreads.
Where the derivative is designated and is effective as ahedging instrument, the timing of the recognition of
any resultant gain or loss in the income statement isdependent 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 asa 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 inadjustments to the carrying value of the hedged item,
which are also recognised in the income statement.
Hedge accounting is discontinued when the hedge
instrument expires or is sold, terminated, exercised or
no longer qualifies for hedge accounting. The resulting
adjustment to the carrying amount of the hedged
item arising from the hedged risk is amortised to theincome statement over a period to maturity of thehedged item. If the hedged item is sold or repaid, theunamortised 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 incash flows of a recognised asset or liability, a foreignexchange component of a firm commitment, or a highly
probable forecast transaction. The effective portion ofchanges in the fair value of derivatives qualifying anddesignated as cash flow hedges is deferred to thehedging reserve, which forms part of shareholders’equity. Any ineffective portion is recognised
immediately in the income statement. Amounts
deferred in equity are recognised in the income
statement in the period during which the hedged
forecast transactions take place.
When the hedge expires, is sold, terminated, exercised,or no longer qualifies for hedge accounting, thecumulative amount deferred in equity remains in thehedging reserve, and is subsequently transferred to theincome statement when the hedged item is recognisedin the income statement.
When a forecast hedged transaction is no longer
expected to occur, the amount deferred in equity isrecognised 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
relationship but are entered into to manage the interest
rate and foreign exchange risk of funding instruments
are recognised in the income statement. Under certain
circumstances, the component of the fair value change
in the derivative which relates to current period realised
and accrued interest is included in net interest income.
The remainder of the fair value movement is included inother income.
Set-off arrangements
Fair value gains/losses arising from trading derivatives
are not offset against fair value gains/losses on thebalance sheet unless a legal right of set-off exists andthere is an intention to settle net.
For contracts subject to master netting agreementsthat create a legal right of set-off for which only the net
revaluation amount is recognised in the income
statement, net unrealised gains on derivatives arerecognised as part of other assets and net unrealised
losses are recognised as part of other liabilities.
(iii) Available-for-sale assets
Available-for-sale assets comprise non-derivative
financial assets which the Banking Group designates asavailable-for-sale but which are not deemed to be heldprincipally for trading purposes, and include equity
investments, certain loans and advances and quoted
debt securities.
They are initially recognised at fair value plustransaction costs. Subsequent gains or losses arisingfrom changes in fair value are included as a separate
component of equity in the available-for-salerevaluation reserve. When the asset is sold, thecumulative gain or loss relating to the asset is transferredto the income statement.

ANZ National Bank Limited

Notes to the Financial Statements
Where there is objective evidence of impairment on anavailable-for-sale asset, the cumulative loss related tothat asset is removed from equity and recognised in theincome statement, as an impairment expense for debt
instruments or as non-interest income for equity
instruments. If, in a subsequent period, the amount of
an impairment loss relating to an available-for-sale debt
instrument decreases and the decrease can be linked
objectively to an event occurring after the impairment
event, the loss is reversed through the income statement
through the impairment expense line.

The estimated impairment losses are measured as thedifference between the asset’s carrying amount and theestimated future cash flows discounted to their present
value. As this discount unwinds during the period
between recognition of impairment and recovery of the
cash flow, it is recognised in interest income. The
process of estimating the amount and timing of cash
flows involves considerable management judgement.
These judgements are reviewed regularly to reduceany differences between loss estimates and actual
loss experience.

Purchases and sales of available-for-sale financial
assets are recognised on trade date, being the date on
which the Banking Group commits to purchase or sell
the asset.

Impairment of capitalised acquisition expenses isassessed through comparing the actual behaviour ofthe portfolio against initial expected life assumptions.

(iv) Net loans and advances
Loans and advances are non-derivative financial assets
with fixed or determinable payments that are notquoted in an active market. They arise when the Banking
Group provides money to a debtor with no intention of
trading the loans and advances. The loans and advances
are initially recognised at fair value plus transaction
costs that are directly attributable to the issue of theloan or advance. They are subsequently measured atamortised cost using the effective interest method,
unless specifically designated on initial recognition atfair value through profit or loss.
All loans are graded according to the level of credit risk.
Net loans and advances include direct finance provided
to customers such as bank overdrafts, credit cards, termloans, finance lease receivables and commercial bills.
Impairment of loans and advances
Loans and advances are reviewed at least at eachreporting date for impairment. Credit impairment
provisions are raised for exposures that are known to be
impaired. Exposures are impaired and impairment
losses are recorded if, and only if, there is objective
evidence of impairment as a result of one or more loss
events, 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 loans that can be reliably estimated.
Impairment is assessed for assets that are individuallysignificant (or on a portfolio basis for small value loans)and then on a collective basis for those exposures notindividually known to be impaired.
Exposures that are assessed collectively are placed inpools of similar assets with similar risk characteristics.
The required provision is estimated on the basis ofhistorical loss experience for assets with credit risk
characteristics similar to those in the collective pool.
The historical loss experience is adjusted based on
current observable data such as changed economic
conditions. The provision also takes account of
the impact of inherent risk of large concentrated
losses within the portfolio and an assessment of theeconomic cycle.

The provision for impairment loss (individual andcollective) is deducted from loans and advances in thebalance 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 writtenoff when they become 180 days past due or earlier inthe event of the customer’s bankruptcy or similar legal
release from the obligation. However, a certain level ofrecoveries is expected after the write-off, which isreflected in the amount of the provision for credit
losses. In the case of secured facilities, remainingbalances are written-off after proceeds from therealisation of collateral have been received, if there isa shortfall.
Where impairment losses recognised in previous
periods have subsequently decreased or no longer
exist, such impairment losses are reversed in theincome statement.
A provision is also raised for off-balance sheet items
such as commitments that are considered likely to resultin an expected loss.
(v) Lease receivables
Contracts to lease assets and hire purchase agreements
are classified as finance leases if they transfer
substantially all the risks and rewards of ownership of
the asset to the customer or an unrelated third party. Allother lease contracts are classified as operating leases.
(vi) Repurchase agreements
Securities sold under repurchase agreements are
retained in the financial statements where substantially
all the risks and rewards of ownership remain with the
Banking Group, and a counterparty liability is disclosed
under the classifications of due to other financial
institutions or payables and other liabilities. The
difference between the sale price and the repurchaseprice is accrued over the life of the repurchaseagreement and charged to interest expense in theincome statement.
Securities purchased under agreements to resell, where
the Banking Group does not acquire the risks andrewards of ownership, are recorded as receivables inliquid assets, net loans and advances, or due from otherfinancial institutions, depending on the term of theagreement and the counterparty. The security is notincluded in the balance sheet. Interest income isaccrued on the underlying loan amount.

ANZ National Bank Limited
14 – 15

Notes to the Financial Statements
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 afinancial liability at fair 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 the risks and rewards of thetransferred assets or a portion of them. If all, or
substantially all, the risks and rewards are retained, thetransferred assets are not derecognised from thebalance sheet.
In transactions where substantially all the risks andrewards of ownership of a financial asset are neither
retained nor transferred, the Banking Groupderecognises the asset if control over the asset is lost. In
transfers where control over the asset is retained, theBanking Group continues to recognise the asset to theextent of its continuing involvement, determined by
the extent to which it is exposed to changes in the valueof the transferred asset. The rights and obligations
retained or created in the transfer are recognised
separately as assets and liabilities as appropriate.
(viii) Investments backing insurance policyholder
liabilities
Securities held to back insurance and investment
contract liabilities are classified as policyholder assets.
These policyholder assets are designated at fair value
through profit or loss.
Non-financial assets(ix) 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 notamortised, but is assessed for impairment at least
annually or more frequently if there is an indication thatthe goodwill may be impaired. This involves using thediscounted cash flow (“DCF”) or the capitalisation of
earnings methodology (“CEM”) to determine theexpected future benefits of the cash generating units towhich the goodwill relates. Where the assessment
results in the goodwill balance exceeding the value of
expected future benefits, the difference is charged tothe income statement. Any impairment of goodwill is
not subsequently reversed.
(x) Other intangible assets
Other intangible assets include costs incurred inacquiring and building software and computer systems(“software”) and management rights and customer
relationships acquired in business combinations.
Software is amortised using the straight-line method
over its expected useful life to the Banking Group. The
period of amortisation is between 3 and 5 years, except
for certain core infrastructure projects where the usefullife has been determined to be 7 years.

Management rights and customer relationships,
including the value of in force insurance contracts, areinitially measured at fair value. Management rights andcustomer relationships with a definite useful life areamortised over the expected useful life. Where
management rights and customer relationships do nothave finite terms and the cash flows associated withthese management rights are expected to continue
indefinitely, the intangible assets associated with these
items are treated as having an indefinite useful life.
Management rights and customer relationships with anindefinite useful life are not amortised.
At each reporting date, the software assets and otherintangible assets are reviewed for impairment. If any
such indication exists, the recoverable amount of theassets is estimated and compared against the existing
carrying value. Where the existing carrying value
exceeds the recoverable amount, the difference ischarged to the income statement.
Costs incurred in planning or evaluating software
proposals, or in maintaining systems after
implementation, are not capitalised.
(xi) Premises and equipment
Premises and equipment are carried at cost lessaccumulated depreciation and impairment.
Borrowing costs incurred for the construction ofqualifying assets are capitalised during the period oftime that is required to complete and prepare theasset for its intended use. The calculation of borrowing
costs is based upon the Banking Group’s internal costof capital.
Assets other than freehold land are depreciated at rates
based upon their expected useful lives to the Banking
Group, using the straight-line method. The depreciation
rates used for each class of asset are:
Buildings
Building integrals
Furniture & equipment
Computer & office equipment

1.5%
10%
10%
12.5% - 33%

Leasehold improvements are amortised on a straightline basis over the shorter of their useful lives orremaining terms of the lease.
At each reporting date, the carrying amounts ofpremises and equipment are reviewed for impairment.
If any such indication exists, the recoverable amount of
the assets is estimated and compared against theexisting carrying value. Where the existing carrying
value exceeds the recoverable amount, the difference ischarged to the income statement. If it is not possible toestimate the recoverable amount of an individual asset,
the Banking Group estimates the recoverable amountof the cash generating unit to which the asset belongs.
A previously recognised impairment loss is reversed if
there has been a change in the estimates used todetermine the recoverable amount.

ANZ National Bank Limited

Notes to the Financial Statements(xii) Insurance policy assets/liabilities
Net insurance policy assets/liabilities include liabilities
arising from life investment contracts and assets/
liabilities arising from life insurance contracts.
Provisions for liabilities under life investment contracts
are measured at fair value. The provision consists of adeposit component, being a financial instrument,
which is recognised as an increase in investment
contract liabilities, and an investment management
services element. Fair value is determined as the netpresent value of fees, in respect of the investment
management service, discounted at the risk free rate.
Life insurance contract assets/liabilities are determinedusing either a projection method or an accumulation
method. Using a projection method, expected policy
cash flows are projected into the future. The asset/
liability is determined as the net present value of the
expected cash flows. An accumulation method is used
where the policy assets/liabilities determined are notmaterially different from those determined under the
projection method.
Profits from life insurance contracts are brought toaccount using the Margin on Services model, underwhich profit is recognised as premiums are received
and services are provided to policyholders. Where
premiums are received but the service has not been
provided, the profit is deferred. Losses are expensed
when identified.
(f) Liabilities
Financial liabilities(i) Deposits and other borrowings
Deposits and other borrowings include certificates ofdeposit, interest bearing deposits, debentures,commercial paper and other related interest and noninterest bearing financial instruments. Deposits andother borrowings, excluding commercial paper, areinitially recognised at fair value plus transaction costs
and subsequently measured at amortised cost. Theinterest expense is recognised using the effective
interest method. Commercial paper is designated at fairvalue through profit or loss, with fair value movements
recorded directly in the income statement, whichreflects the basis on which it is managed.
(ii) Bonds, notes and loan capital
Bonds, notes and loan capital are accounted for in thesame way as deposits and other borrowings, except for
those bonds and notes which are designated at fairvalue through profit or loss on initial recognition, withfair value movements recorded in the income statement.

(iii) Financial guarantee contracts
Financial guarantee contracts are contracts that require
the issuer to make specified payments to reimburse theholder for a loss it incurs because a specified debtor fails
to make payments when due. Financial guarantees areissued in the ordinary course of business, consisting ofletters of credit, guarantees and acceptances. Financial
guarantees are initially recognised in the financial
statements at fair value on the date the guarantee wasgiven; typically this is the premium received. Subsequent
to initial recognition, the Banking Group’s liabilities
under such guarantees are measured at the higher of
their amortised amount and the best estimate of theexpenditure required to settle any financial obligation
arising at the balance sheet date. These estimates are
determined based on experience of similar transactions
and history of past losses.
(iv) Derecognition
Financial liabilities are derecognised when the obligation
specified in the contract is discharged, cancelled
or expires.
Non-financial liabilities(v) Employee leave benefits
The amounts expected to be paid in respect of
employees’ entitlements to annual leave are accrued at
expected salary rates including on-costs. Liability forlong service leave is calculated and accrued for in
respect of all applicable employees (including on-costs)
using an actuarial valuation. Expected future payments
for long service leave are discounted using market
yields at the reporting date on national government
bonds with terms to maturity that match, as closely as
possible, the estimated future cash outflows.
(vi) Provisions
The Banking Group recognises provisions when there isa present obligation, the future sacrifice of economic
benefits is probable, and the amount of the provision
can be measured reliably.
The amount recognised is the best estimate of theconsideration required to settle the present obligation
at the reporting date, taking into account the risks anduncertainties surrounding the obligation at thereporting date. Where a provision is measured using
the cash flows estimated to settle the present obligation,
its carrying amount is the present value of thosecash flows.
(g) Equity(i) Shares
Issued shares are recognised at the amount paid pershare net of directly attributable issue costs.
(ii) Non-controlling interests
Non-controlling interests represent the share in the net
assets of subsidiaries attributable to equity interests not
owned directly or indirectly by the Bank.

ANZ National Bank Limited
16 – 17

Notes to the Financial Statements(iii) Reserves
Available-for-sale revaluation reserve
This reserve includes changes in the fair value ofavailable-for-sale financial assets, net of tax. Thesechanges are transferred to the income statement (innon-interest income) when the asset is derecognised.
Where the asset is impaired, the changes are transferredto the impairment expense line in the income statementfor debt instruments and in the case of equity
instruments to non-interest income.
Cash flow hedging reserve
This reserve includes the fair value gains and losses
associated with the effective portion of designatedcash flow hedging instruments.
(h) Presentation(i) Offsetting of income and expenses
Income and expenses are not offset unless required or
permitted by an accounting standard. This generally
arises in the following circumstances:•••where transaction costs form an integral part of theeffective interest rate of a financial instrument
which is measured at amortised cost, these areoffset against the interest income generated by thefinancial instrument;
where gains and losses relating to fair value hedges
are assessed as being effective; orwhere gains and losses arise from a group ofsimilar transactions, such as foreign exchange
gains and losses.

(ii) Offsetting of financial assets and liabilities
Assets and liabilities are offset and the net amountreported in the balance sheet only where there is:••a current enforceable legal right to offset the asset
and liability; andan intention to settle on a net basis, or to realise theasset and settle the liability simultaneously.

(iii) Statement of cash flows
For cash flow statement presentation purposes, cash
and cash equivalents includes: cash on hand; deposits
held at call with other financial institutions; and othershort term, highly liquid, investments with originalterms of maturity of three months or less that are readily
convertible to cash and which are subject to an
insignificant risk of changes in value.
Certain cash flows have been netted in order to provide
more meaningful disclosure, as many of the cash flows
are received and disbursed on behalf of customers andreflect the activities of the customers rather than thoseof the Banking Group. These include customer loans
and advances, customer deposits, certificates ofdeposit, related party balances and trading securities.

(iv) Segment reporting
Business segments are distinguishable components of
the Banking Group that provide products or services
that are subject to risks and rewards that are different tothose of other business 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 thisbasis no geographical segment information is provided.
For reporting purposes the three major businesssegments are Retail, Commercial and Institutional.
(v) Goods and services tax
Income, expenses and assets are recognised net ofthe amount of goods and services tax (“GST”) except
where the amount of GST incurred is not recoverablefrom the Inland Revenue Department (“IRD”). In thesecircumstances, the GST is recognised as part of the costof acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of
GST included. The net amount of GST recoverable from,or payable to, the IRD is included as other assets orother liabilities in the balance sheet.
Cash flows are included in the cash flow statement on a
net basis. The GST components of cash flows arisingfrom investing and financing activities, which arerecoverable from, or payable to, the IRD are classified as
operating cash flows.
(i) Other(i) Contingent liabilities
Contingent liabilities acquired in a business combination
are individually measured at fair value at the acquisition
date. At subsequent reporting dates the value of suchcontingent liabilities is reassessed based on the estimateof expenditure required to settle the contingent liability.
Other contingent liabilities are not recognised in thebalance sheet but disclosed in Note 35 unless it isconsidered remote that the Banking Group will be liable
to settle the possible obligation.
(ii) Accounting Standards not early adopted
The following standards and amendments wereavailable for early adoption but have not been appliedby the Banking Group in these financial statements. The
Banking Group currently does not intend to apply anyof these pronouncements until their effective date andis assessing their impact on its financial statements.
Standards and amendments effective for periods
commencing after 1 January 2013
NZ IFRS 9 Financial Instruments (2009 & 2010)
Specifies a simpler methodology for classifying andmeasuring financial assets, with two primarymeasurement categories: amortised cost and fair value.
Requires the amount of change in the fair value
attributable to changes in credit risk of certain liabilities
designated under the fair value option to be presented
in other comprehensive income.

ANZ National Bank Limited

Notes to the Financial Statements
NZ IFRS 10 Consolidated Financial Statements
Establishes a new approach to determining whichinvestees should be consolidated and provides asingle model to be applied in the control analysis for
all investors.
NZ IFRS 11 Joint Arrangements
Introduces a new approach to joint arrangements,
which focuses on the rights and obligations of thearrangement rather than its legal form, and requires theequity method of accounting for joint ventures.
NZ IFRS 12 Disclosure of Interests in Other Entities
Provides a single, consistent approach for disclosures of
all interests in subsidiaries, joint arrangements,
associates and unconsolidated structured entities.
NZ IFRS 13 Fair value measurement
Provides a single source of guidance on fair value
measurement and requires certain disclosures
regarding fair value.
NZ IAS 27 (2011) Separate Financial Statements
Carries forward the existing accounting and disclosure
requirements for separate financial statements.
Other amendments
Improvements to New Zealand equivalents to International
Financial Reporting Standards 2010
Is the International Accounting Standards Board’s
annual omnibus updates of standards.

2. Critical Estimates and Judgement Used in
Applying Accounting Policies
There are a number of critical accounting treatments
which include complex or subjective judgements andestimates that may affect the reported amounts ofassets and liabilities in the financial statements.
Estimates and judgements are continually evaluatedand 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 madeby 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 are set out below.
Critical accounting estimates and assumptions
Credit provisioning
The accounting policy relating to measuring theimpairment of loans and advances requires the Banking
Group to assess impairment at least at each reporting
date. The credit provisions raised (collective andindividual) represent management’s best estimate of
the losses incurred in the loan portfolio at balance datebased on their experienced judgement.

The collective provision is estimated on the basis ofhistorical loss experience for assets with credit
characteristics similar to those in the collective pool.
The historical loss experience is adjusted based on
current observable data and events and an assessmentof the impact of model risk. The provision also takes into
account the impact of large concentrated losses within
the portfolio.
The use of such judgements and reasonable estimatesis considered by management to be an essential part ofthe process and does not impact on reliability.
Individual provisioning is applied when the fullcollectability of one of the Banking Group’s loans
is identified as being doubtful. Individual andcollective provisioning is calculated using discounted
expected future cash flows. The methodology andassumptions used for estimating both the amount andtiming of future cash flows are revised regularly to
reduce any differences between loss estimates andactual loss experience.
Refer to Note 15 for details of credit impairment
provisions.
Management regularly reviews and adjusts theestimates and methodologies as improved analysis
becomes available. Changes in these assumptions andmethodologies could have a direct impact on the levelof provision and impairment charge recorded in thefinancial statements.
Critical judgements in applying the Banking Group’s
accounting policies
Derivatives and hedging
The Banking Group buys and sells derivatives as part ofits trading operations and to hedge its interest rate risk,
currency risk, price risk, credit risk and other exposuresrelating to non-trading positions.
A hedging instrument is a designated derivative whose
fair value or cash flows are expected to offset changes
in the fair value or cash flows of a designated hedged
item. A hedged item is an asset, liability, firm
commitment or highly probable forecast transaction
that: (a) exposes the Banking Group to the risk ofchanges 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 effectiveness prospectively
or retrospectively. The Banking Group adopts the
hypothetical derivative approach to determine hedge
effectiveness in line with current risk management
strategies. Hedge ineffectiveness can arise for a numberof reasons and whilst a hedge may pass the effectivenesstests above it may not be perfectly effective, thus
creating volatility within the income statement throughrecognition of this ineffectiveness.

ANZ National Bank Limited
18 – 19

Notes to the Financial Statements
Goodwill
Refer to 19 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 thebalance sheet date. Any excess of carrying value overrecoverable amount is taken to the income statement
as an impairment write down.

They key factors that affect the estimation of theseliabilities and related assets are: the cost of providing
the benefits and administering the contracts; mortality
and morbidity experience; discontinuance rates; for life
investment contracts, the amounts credited topolicyholders’ accounts compared to the returns on
invested assets; interest rates; inflation; rates of taxation;and general market and economic conditions.

3. Risk Management Policies

Goodwill has been allocated for impairment purposes
to the cash generating units at which the goodwill ismonitored for internal reporting purposes. Each ofthese cash generating units is represented by anindividual reporting segment – Retail, Commercial andInstitutional. Refer to Note 7.

The Banking Group recognises the importance ofeffective risk management to its business success.
Management is committed to achieving strong control
and a distinctive risk management capability thatenables the Banking Group business units to meet theirperformance objectives.

Impairment testing of purchased goodwill is performed
annually, or more frequently where there is anindication that the goodwill may be impaired, bycomparing the recoverable value of each cash
generating unit with the current carrying amount of its
net assets, including goodwill.

The Banking Group approaches risk through managing
the various elements of the system as a whole rather
than viewing them as independent and unrelated parts.
The risk management division (“Risk Management”) is
independent of the business, with clear delegations
from the Board, and operates within a comprehensive
framework comprising:

The recoverable amount is based on value-in-use
calculations. These calculations use cash flow
projections based on a number of financial budgets
within each segment approved by management
covering a three year period. Cash flow projections are
based on a range of readily available economic
assumptions including GDP and CPI. Cash flows beyond
the three year period are extrapolated using a 3%
growth rate.
These cash flow projections are discounted using acapital asset pricing model. As at 31 March 2011 when
the last valuation was prepared, a discount rate of
12.04% was applied to each segment. The main
variables in the calculation of the discount rate used are
the risk free rate, the beta rate and the market risk
premium. The risk free rate is based on the 10 year
Government Bond Rate. The beta rate and the market
risk premium are consistent with observable andcomparative market rates applied in the regionalbanking sector. Market observable information is notreadily available at the segment level therefore
management performed stress tests for key sensitivities
in each segment.
Management believes any reasonable possible change
in the key assumptions on which the recoverable
amount is based would not cause the Banking Group’s
carrying amount to exceed its recoverable amount.
Insurance policy assets
Insurance policy assets represent deferred policy
acquisition costs less policy liabilities for life investment
contracts and life insurance contracts. Policy liabilities
are computed using statistical or mathematicalmethods, expected to give approximately the same
results as if an individual liability was calculated for eachcontract. The computations are made by suitably
qualified personnel on the basis of recognised actuarial
methods, with due regard to relevant actuarial
principles and standards. Deferred policy acquisition
costs are connected with the measurement basis of thepolicy liabilities and are equally sensitive to the factorsthat are considered in the liability measurement.

•
•

•

•

•

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; andIndependent oversight to ensure business unit levelcompliance with policies, regulations and laws, andto provide regular risk evaluation and reporting.

The Banking Group manages risk through an approval,delegation and limits structure. Regular reviews of thepolicies, systems and risk reports, including theeffectiveness of the risk management systems,
discussions covering the Banking Group’s response to
emerging risk issues and trends, and that the requisite
culture and practices are in place across the Banking
Group, are conducted within the Banking Group and also
by the Ultimate Parent Bank. The Board has responsibility
for reviewing all aspects of risk management.
The Board has ultimate responsibility for overseeing 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 theeffective discharge of its responsibilities for business,market, credit, operational, compliance, liquidity, productand reputational risk management, and to liaise andconsult with the Ultimate Parent Bank Risk Committee as
required. Risk Management, via the Chief Risk Officer,
coordinates risk management activities directly between
Business Unit risk functions and Ultimate Parent Bank
Group Risk Management functions.

ANZ National Bank Limited

Notes to the Financial Statements
The risk management process is subject to oversight by
the Risk Committee of the Ultimate Parent Bank Board.
This includes the review of risk portfolios and theestablishment of prudential policies and controls.
The Banking Group’s risk management policies are
essentially the same as the Ultimate Parent Bank, but are
tailored where required to suit the local New Zealand
regulatory and business environment.
The Audit Committee, which is a sub-committee of theBoard, has responsibility for reviewing all aspects ofpublished financial statements and internal and external
audit processes. The Audit Committee has a quorum of
two directors, both of whom must be non-executive
directors. It meets at least four times a year and reports
directly to the Board.
Financial risk management
Refer to Note 30 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 orindirect loss. These losses may result from failure tocomply with policies, procedures, laws and regulations,from fraud or forgery, from a breakdown in the availability
or integrity of services, systems and information, or
damage to the Banking Group’s reputation.
Examples include failure to comply with policy andlegislation, human error, natural disasters, fraud andother malicious acts. Where appropriate, risks are
mitigated by insurance.
Risk Management is responsible for establishing the
Banking Group’s operational risk framework andassociated Banking Group-wide policies. Business units
are responsible for the identification, analysis, assessment
and treatment of operational risks on a day-to-day basis.
Business units have primary responsibility for theidentification and management of operational risk withexecutive oversight provided by the relevant Retail andWholesale Risk Committees. The Bank’s Operational Risk
Executive Committee (“OREC”) undertakes thegovernance function through the bi-monthly monitoringof operational risk performance across the Banking
Group. The Board and Risk Management conduct
effective oversight through the approval of operationalrisk policies and frameworks and monitoring key
operational risk metrics.
Compliance
The Banking Group conducts its business in accordancewith all relevant compliance requirements in eachpoint of representation. In order to assist the Banking
Group identify, manage, monitor and measure its
compliance obligations, the Banking Group has acomprehensive regulatory compliance framework inplace, which addresses both external (regulatory) andinternal compliance.

Risk Management, in conjunction with business unit
staff ensure the Banking Group operates within acompliance infrastructure and framework thatincorporates new and changing business obligations
and processes.
The compliance policies and their supporting
framework seek to minimise material risks to the
Banking Group’s reputation and value that could arise
from non-compliance with laws, regulations, industry
codes and internal standards and policies. Business
units have primary responsibility for the 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 mattersof prudential compliance. The Bank’s OREC, the Chief
Risk Officer, the Board and the Risk Committee of the
Ultimate Parent Bank Board conduct board andexecutive oversight.
Global Internal Audit
The Banking Group’s internal audit function (“Global
Internal Audit”) conducts independent reviews thatassist the Board of Directors and management to meettheir statutory and other obligations.
Global Internal Audit reports directly to the Chairman of
the Bank’s Audit Committee. Under its Charter, Global
Internal Audit conducts independent appraisals of:
•

•
•
•
•

The continued operation and effectiveness of theinternal controls in place to safeguard and monitor
all material risks to the Banking Group;
Compliance with Board policies and management
directives;
Compliance with the requirements of supervisory
regulatory authorities;
The economic and efficient management of
resources; andThe effectiveness of operations undertaken by the
Banking Group.

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

ANZ National Bank Limited
20 – 21

Notes to the Financial Statements
4. Income
Banking Group$ millions

Note

Bank

Year to30/09/2011

Year to30/09/2010

Year to30/09/2011

Year to30/09/2010

404

346

404

346

-

-

280

266

404

346

684

612

64

66

63

65
57

Interest income
Financial assets at fair value through profit or loss
Trading securities
Due from controlled entities
Financial assets not at fair value through profit or loss
Liquid assets
Other financial institutions

43

67

43

Available-for-sale assets

34

69

29

51

Lending on productive loans

5,410

5,103

5,235

4,910

Lending on impaired assets

76

59

73

56

Due from controlled entities

-

-

122

52

Immediate Parent Company

19

10

19

10

Other

129

156

125

150

5,775

5,530

5,709

5,351

6,179

5,876

6,393

5,963

137

123

165

121

Total interest income
Net trading gains
Net gain on foreign exchange trading
Net gain on trading securities

204

174

123

161

Net loss on trading derivatives

(113)

(258)

(113)

(260)

Net trading gains

228

39

175

22

Fee income on trust and other fiduciary activities

61

62

25

21

Other funds management and insurance income

204

156

44

44

Total funds management and insurance income

265

218

69

65

Funds management and insurance income

Other operating income
Lending and credit facility fee income

41

45

42

45

Other fee income

593

587

629

590

Total fee income

634

632

671

635

Direct fee expense

185

181

185

181

Net fee income

449

451

486

454

2

2

185

381

-

-

-

54

-

-

53

80

(103)

50

(109)

22

6

22

6

22

Net cash flow hedge loss transferred to income statement

(4)

(21)

(4)

(21)

Dividends received
Gain recognised on winding up of subsidiaries

16

Net gain on financial assets designated at fair value
Net gain/(loss) on hedges not qualifying for hedge accounting
Net ineffectiveness on qualifying fair value hedges

11

Net gain on financial liabilities designated at fair value

2

1

2

12

Loss on re-measuring existing equity interests to fair value

-

(82)

-

(61)

Other income

9

22

1

11

361

445

620

954

Total other operating income

ANZ National Bank Limited

Notes to the Financial Statements
5. Expenses
Banking Group$ millions

Bank

Year to30/09/2011

Year to30/09/2010

Year to30/09/2011

158

265

-

-

-

-

401

412

158

265

401

412

29

39

29

34

2,347

2,150

2,315

2,193

-

-

1,104

925

884

748

141

134

Year to30/09/2010

Interest expense
Financial liabilities at fair value through profit or loss
Commercial paper
Due to controlled entities
Financial liabilities not at fair value through profit or loss
Other financial institutions
Deposits and other borrowings
Due to controlled entities
Bonds and notes
Related party funding
Loan capital
Other

1

5

1

5

177

180

177

180

24

70

26

21

3,462

3,192

3,793

3,492

3,620

3,457

4,194

3,904

Personnel costs

760

735

683

661

Employee entitlements

75

71

72

69

- Defined contribution schemes

36

36

34

35

- Defined benefit schemes

6

7

6

7

Share-based payments expense

22

21

22

21

Building occupancy costs

41

44

4

8
21

Total interest expense
Operating expenses

Pension costs

Depreciation of premises and equipment

49

47

18

Leasing and rental costs

84

82

16

15

Related parties (Note 26)

80

86

197

199
117

Technology expenses

105

126

94

Impairment of software and other intangible assets

15

5

-

5

Amortisation of software and other intangible assets

25

24

13

14

Administrative expenses

209

209

183

185

Asset write-offs associated with core system simplification

26

-

26

-

Other core system simplification costs

136

-

136

-

Other costs

17

72

24

44

1,686

1,565

1,528

1,401

Year to30/09/2011

Year to30/09/2010

Year to30/09/2011

Year to30/09/2010

2,227

2,194

1,262

1,422

Other audit-related services

534

668

146

575

Taxation services

58

-

-

-

2,819

2,862

1,408

1,997

55

140

-

-

Total operating expenses$ thousands

Fees paid to principal auditors
Audit or review of financial statements

Total auditors' remuneration
Audit fees paid to other audit firms

It is the Banking Group’s policy that, subject to the approval of the Ultimate Parent Bank 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 ofauditor. KPMG may not provide services that are perceived to be in conflict with the role of auditor. Services that are perceived to
be in conflict with the role of auditor 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.
Other audit-related services include services for the audit or review of financial information other than financial reports
including prudential supervision reviews, prospectus reviews and other audits required for local regulatory purposes.

ANZ National Bank Limited
22 – 23

Notes to the Financial Statements
6. Income Tax Expense
Banking Group$ millions

Bank

Year to30/09/2011

Year to30/09/2010

Year to30/09/2011

Year to30/09/2010

1,551

1,162

1,361

1,282

465

349

408

385

(6)

(6)

(55)

(131)

Reconciliation of the prima facie income tax payable on profit
Profit before income tax
Prima facie income tax at 30%
Imputed and non-assessable dividends
Effect of changes in tax legislation

(5)

45

(3)

29

Change in tax provisions

(11)

(54)

(11)

(54)

Non-deductible expenses/(non-assessable income)

7

1

(27)

(2)

450

335

312

227

2

-

17

-

Income tax under provided in prior years
Total income tax expense

452

335

329

227

Effective tax rate (%) before change in tax provisions and the effect ofchanges in tax legislation

30.2%

29.6%

25.2%

19.6%

Effective tax rate (%)

29.1%

28.8%

24.2%

17.7%

275

642

247

616

2

-

17

-

175

(334)

65

(416)

-

27

-

27

452

335

329

227

(9)

8

(1)

1

Net gain on revaluation of financial instruments

16

32

16

32

Actuarial gain/(loss) on defined benefit schemes

(18)

8

(18)

8

Total income tax charge/(benefit) recognised directly in equity

(11)

48

(3)

41

935

645

802

528

5

31

59

106

Taxation paid

187

375

135

270

Imputation credits attached to dividends paid

(145)

(125)

(145)

(125)

3

9

3

23

985

935

854

802

Amounts recognised in the income statement
Current income tax charge
Current income tax charge
Adjustments recognised in the current year in relation to current tax ofprior years
Deferred income tax
Deferred tax expense/(income) relating to the origination and reversalof temporary differences
Other (including indemnity)
Total income tax expense recognised in the income statement
Amounts recognised directly in equity
Current income tax
Net gain/(loss) on revaluation of financial instruments
Deferred income tax

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

Other
Balance at end of the year

The Bank is a member of an imputation group. The imputation credit account figures for the Bank include items that giverise to imputation credits that are available for use by this imputation group. The imputation credit figures for the Banking
Group include those in relation to both the imputation group and other companies in the Banking Group that are not in the
imputation group.
Changes in tax legislation
In May 2010 legislation was passed to reduce the New Zealand corporate tax rate from 30% to 28% and to remove the ability
to claim depreciation on buildings with an estimated useful life greater than fifty years, effective for the 2011-2012 income
tax year.

ANZ National Bank Limited

Notes to the Financial Statements
7. Segmental Analysis
For segment reporting purposes, the Banking Group is organised into three major business segments – Retail, Commercial andInstitutional. Centralised back office and corporate functions support these segments. These segments are consistent withinternal reporting provided to the chief operating decision maker, being the Bank’s Chief Executive Officer.
During the year ended 30 September 2011 a specialist standalone Business Banking unit was created within the Commercial
segment. Segmental reporting has been updated to reflect this and other minor changes to the Banking Group’s structure.
Comparative data has been adjusted to be consistent with the current year’s segment definitions.
RetailRetail provides banking products and services to individuals through separate ANZ and The National Bank of New Zealand
branded distribution channels. Personal banking customers have access to a wide range of financial services and products.
Retail contains the Banking Group’s wealth businesses which include private banking and investment services provided tohigh net worth individuals, the OnePath wealth management and insurance businesses, and other investment products. This
segment also includes other profit centres supporting the Retail Banking segment.
Commercial
Commercial provides services to Business Banking, Commercial & Agri, and UDC customers. Business Banking services areoffered to small enterprises (typically with annual revenues of less than $5 million). Commercial & Agri customers consist of
primarily privately owned medium to large enterprises. The Banking Group’s relationship with these businesses ranges from
simple banking requirements with revenue from deposit and transactional facilities, and cash flow lending, to more complex
funding arrangements with revenue sourced from a wider range of products. UDC is principally involved in the financing andleasing of plant, vehicles and equipment, mainly for small and medium sized businesses, as well as investment products.
Institutional
Institutional provides financial services to large multi-banked corporations, often global, who require sophisticated productand structuring solutions. The Institutional business unit includes the following specialised units:•••

Markets – provides foreign exchange, interest rate and commodity trading and sales-related services, origination,
underwriting, structuring, risk management and sale of credit and derivative products globally;
Transaction Banking – provides cash management, trade finance and international payments;
Specialised Lending – provides origination, credit analysis, structuring and execution of specific customer transactions.

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

ANZ National Bank Limited
24 – 25

Notes to the Financial Statements
Business segment analysis1
Banking Group$ millions
30/09/2011

Retail3

Commercial

External interest income

1,887

3,443

831

18

6,179

External interest expense(1,309)

(625)

(457)

(1,229)(3,620)Net intersegment interest

142(1,483)

19

1,322

-

Net interest income

720

1,335

393

111

2,559

Other external operating income

598

127

238

(109)

854

-

-

-

2

2

Operating income

1,318

1,462

631

4

3,415

Share of profit of associates and jointly controlled entities

Institutional

Other

Total

Other external expenses

598

245

109

654

1,606

Net intersegment and related party expenses2

249

246

67

(482)

80

Operating expenses

847

491

176

172

1,686

Profit before provision for credit impairment

471

971

455

(168)

1,729

Provision for credit impairment

65

139

(26)

-

178

Profit before income tax

406

832

481

(168)

1,551

Income tax expense

117

250

141

(56)

452

Profit after income tax

289

582

340

(112)

1,099

Other information
Depreciation and amortisation

29

8

-

37

74

Goodwill

727

1,466

1,072

-

3,265

Intangible assets – indefinite life

73

-

-

-

73

Intangible assets – definite life

142

7

1

22

172

-

-

13

87

100

Total external assets

27,09350,88835,731

5,300

119,012

Total external liabilities

32,86017,95935,342

22,026108,187

30/09/2010

Retail3

Commercial

Institutional

Other4

Total

External interest income

2,013

3,439

415

9

5876

External interest expense(1,197)

(569)

(414)

(1,277)(3,457)

Net intersegment interest(213)(1,629)

492

1,350

-

Net interest income

603

1,241

493

82

2,419

Other external operating income3

411

143

116

32

702

Share of profit of associates and jointly controlled entities

35

-

5

2

42

1,049

1,384

614

116

3,163

609

255

103

512

1,479

Shares in associates and jointly controlled entities

Operating income
Other external expenses
Net intersegment and related party expenses

237

250

62

(463)

86

Operating expenses

846

505

165

49

1,565
1,598

2

Profit before provision for credit impairment

203

879

449

67

Provision for credit impairment

131

365

(60)

-

436

Profit before income tax

72

514

509

67

1,162

Income tax expense

22

155

146

12

335

Profit after income tax

50

359

363

55

827

Other information
Depreciation and amortisation

26

8

1

36

71

Goodwill

727

1,466

1,072

-

3,265

Intangible assets – indefinite life

125

-

-

-

125

Intangible assets – definite life

148

8

-

2

158

-

-

56

88

144

Shares in associates and jointly controlled entities
Total external assets

28,34751,72930,0096,373

116,458

Total external liabilities

32,44016,97932,58424,009106,012Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
Net intersegment and related party expenses are eliminated at the Overseas Banking Group level.
3Comparative information includes a loss of $82 million on acquisition of ING (NZ) Holdings Limited.
4This segment has negative external revenues as this segment incurs funding costs on behalf of the Banking Group and is reimbursed internally.
1
2

ANZ National Bank Limited

Notes to the Financial Statements
8. Liquid Assets
Banking Group$ millions

Bank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

1,829

1,954

1,829

1,954

Securities purchased under agreement to resell

50

-

50

-

Money at call

330

328

330

320

Cash and balances with central banks

Bills receivable and remittances in transit
Total liquid assets

121

81

109

74

2,455

2,238

2,443

2,223

30/09/2011

30/09/2010

30/09/2011

30/09/2010

380

457

380

448

1,086

176

1,086

176

9. Due from Other Financial Institutions
Banking Group$ millions

Able to be withdrawn without prior notice
Securities purchased under agreement to resell

Bank

-

170

-

170

Security settlements

606

1,535

606

108

Certificates of deposit

1,562

707

1,562

657

Securities purchased under agreement to resell with central banks

51

451

51

367

Total due from other financial institutions

3,685

3,496

3,685

1,926

Fair value of securities purchased under agreement to resell

1,133

352

1,133

352

Term loans and advances

10. Trading Securities
Banking Group$ millions

Government, local body stock and bonds
Certificates of depositBank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

5,961

3,917

5,961

3,917

334

32

334

32

Promissory notes

59

64

59

64

Other bank bonds

3,047

2,655

3,047

2,655

65

89

65

89

Total trading securities

9,466

6,757

9,466

6,757

Assets encumbered through repurchase agreements included in trading securities

1,219

222

1,219

222

Other

11. 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 andinterest 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 Groupmanages these risks in a consistent manner.
Derivatives, except for those that are specifically designated as effective hedging instruments, are classified as held for trading.
The held for trading classification includes two categories of derivative instruments: those held as trading positions and thoseused 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 structuringand marketing of derivative products to customers which enable them to take or mitigate risks. Market making activities
consist of derivatives entered into principally for the purpose 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.

ANZ National Bank Limited
26 – 27

Notes to the Financial Statements
Balance sheet risk management
The Banking Group designates certain balance sheet risk management derivatives into hedging relationships in order tominimise income statement volatility. This volatility is created by differences in the timing of recognition of gains and losses
between the derivative and the hedged item. Hedge accounting is not applied to all balance sheet risk management positions
as other balance sheet risk management derivatives are classified as held for trading.
The following tables provide an overview of the Banking Group’s and the Bank’s foreign exchange rate, interest rate andcommodity derivatives.
Banking Group
Fair values

Notional
Principal
AmountAssetsSpot and forward contracts

62,832

Swap agreements
Options purchased
Options sold30/09/2011$ millions

Bank
Fair values

Liabilities

Notional
Principal
AmountAssetsLiabilities

2,111

1,440

62,832

2,111

1,440

117,442

4,607

5,578

117,442

4,607

5,578

2,271

66

1

2,271

66

1

2,280

-

69

2,280

-

69

184,825

6,784

7,088

184,825

6,784

7,088

Derivatives held for trading
Foreign exchange derivatives

Interest rate derivatives
Forward rate agreements

73,64113

1273,641

13

12

Swap agreements

629,986

8,224

7,637

636,630

8,267

7,637

Futures contracts

12,84118

8

12,841

18

8

Options purchased

4,623

24

-

4,623

24

-

Options sold

6,446

-

26

6,446

-

26

727,537

8,279

7,683

734,181

8,322

7,683

Commodity derivatives

182

13

12

182

13

12

Collateral received / paid

n/a(1,475)

(944)

n/a

(1,475)(944)

912,544

13,601

13,839919,188

13,644

13,839

76

3

-

76

3

-

Total derivatives held for trading
Derivatives held for hedging(a) Designated as fair value hedges
Foreign exchange derivatives
Swap agreements
Interest rate derivatives
Swap agreements

17,652281

256

17,652281

256

Total derivatives designated as fair value hedges

17,728284

256

17,728284

256

Swap agreements

11,090275

69

11,090275

69

Futures contracts

13,431-

10

13,431-10(b) Designated as cash flow hedges
Interest rate derivatives

Total derivatives designated as cash flow hedges

24,521275

79

24,521275

79

Total derivatives held for hedging

42,249559

335

42,249559

335

Total derivative financial instruments

954,793

14,16014,174

961,437

14,203

14,174

ANZ National Bank Limited

Notes to the Financial Statements
Banking Group

30/09/2010$ millions

Bank

Fair values

Notional
Principal
AmountAssetsLiabilities

Notional
Principal
AmountFair values
AssetsLiabilities

Derivatives held for trading
Foreign exchange derivatives
Spot and forward contracts

36,249465

925

36,298464

925

Swap agreements

101,489

1,788

3,155

101,572

1,791

3,155

Options purchased

1,563

48

-

1,563

48

-

Options sold

1,505

1

58

1,505

1

58

140,806

2,302

4,138

140,938

2,304

4,138

Forward rate agreements

46,7367

7

46,736

7

7

Swap agreements

410,238

7,766

7,340

416,881

7,779

7,340

Futures contracts

25,4943

22

25,494

3

22

Options purchased

524

21

-

524

21

-

Interest rate derivatives

Options soldCommodity derivatives
Collateral received / paid

2,630

-

15

2,630

-

15

485,622

7,797

7,384

492,265

7,810

7,384

68

2

2

68

2

2

n/a

(361)

(1,242)

n/a

(361)

(1,242)

626,496

9,740

10,282

633,271

9,755

10,282

53

3

-

53

3

-

Swap agreements

18,656397

340

18,656397

340

Total derivatives designated as fair value hedges

18,709400

340

18,709400

340

Swap agreements

9,082

227

80

9,082

227

80

Futures contracts

6,226

-

13

6,226

-

13

Total derivatives designated as cash flow hedges

15,308227

93

15,308227

93

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

Total derivatives held for hedging

34,017627

433

34,017627

433

Total derivative financial instruments

660,513

10,367

10,715667,288

10,382

10,715

Fair value hedges
The Banking Group’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in thefair 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
Banking GroupBank

30/09/2011

30/09/2010

30/09/2011

30/09/2010– hedged item

(138)

(478)

(138)

(478)

– hedging instrument

144

500

144

500

6

22

6

22

$ millions

Gain/(loss) arising from fair value hedges:

Net ineffectiveness on qualifying fair value hedges

ANZ National Bank Limited
28 – 29

Notes to the Financial Statements
Cash flow hedges
The Banking Group’s cash flow hedges consist principally of interest rate swaps that are used to protect against exposures tovariability in future interest cash flows on non-trading assets and liabilities which bear interest at variable rates or which are
expected to be refunded or reinvested in the future. The Banking Group primarily applies cash flow hedge accounting, where
necessary, to its variable rate loan assets, variable rate liabilities and short term re-issuances of fixed rate customer andwholesale deposit liabilities. The amounts and timing of future cash flows, representing both principal and interest flows, areprojected for each portfolio of financial assets and liabilities on the basis of their forecast repricing profile. This forms the basis
for identifying gains and losses on the effective portions of derivatives designated as cash flow hedges.
Analysis of the cash flow hedging reserve
Banking Group$ millions

Bank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

219

200

219

200

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

(33)

(34)

(33)

(34)

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

(45)

(64)

(45)

(64)

Total cash flow hedging reserve

141

102

141

102

All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur,
which is anticipated to take place over the next 0-10 years (30/09/2010 0-10 years).
Ineffectiveness recognised in the income statement in respect of cash flow hedges was less than $1 million in the Banking
Group and Bank (30/09/2010 less than $1 million).
There were no transactions where cash flow hedge accounting ceased in the year ended 30 September 2011 as a result ofhighly probable cash flows that were no longer expected to occur (30/09/2010 no transactions).

12. Available-for-sale Assets
Banking GroupBank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

Government, local body stock and bonds

247

1,939

246

1,916

Other debt securities

48

134

42

46

Equity securities

116

78

87

78

Total available-for-sale assets

411

2,151

375

2,040

$ millions

ANZ National Bank Limited

Notes to the Financial Statements
13. Net Loans and Advances
Banking Group
30/09/2011$ millions

Bank

30/09/2010

30/09/2011

30/09/2010

Overdrafts

1,698

2,131

1,698

2,131

Credit card outstandings

1,367

1,388

1,367

1,388

Term loans – housing

43,78543,88743,78543,887

Term loans – non-housing

37,39839,17935,53837,153Finance lease receivables

768

726

19

24

Gross loans and advances

85,01687,311

82,407

84,583

Provision for credit impairment (Note 15)(1,156)(1,398)(1,112)(1,339)Unearned finance income

(256)

(273)

-

-

Fair value hedge adjustment

22

279

22

279

Deferred fee revenue and expenses

(51)

(49)

(46)

(44)

35

43

35

43

83,61085,91381,306

83,522

Capitalised brokerage/mortgage origination fees
Total net loans and advances

The Bank has sold residential mortgages to the NZ Branch with a net carrying value of $9,931 million as at 30 September 2011
(30/09/2010 $10,059 million). These assets qualify for derecognition as the Bank does not retain a continuing involvement in thetransferred assets.

14. Impaired Assets, Restructured Assets and Other Assets Under Administration
Banking Group
Individually impaired assets$ millions

Retailmortgages

Bank

Other
retailexposures

Non-retail
exposures

Total

Retailmortgages

Otherretailexposures

Non-retail
exposures

Total

30/09/2011
Balance at beginning of the year

511

81

1,403

1,995

511

81

1317

1,909

Transfers from productive

442

158

774

1,374

442

158

756

1,356

Transfers to productive

(77)

(1)

(101)

(179)

(77)

(1)

(99)

(177)

Assets realised or loans repaid

(356)

(71)

(691)

(1,118)

(356)

(71)

(666)

(1,093)

Write offs

(69)

(106)

(191)

(366)

(69)

(106)

(177)

(352)

Individually impaired asset balanceat end of the year

451

61

1,194

1,706

451

61

1,131

1,643

Restructured items

20

-

-

20

20

-

-

20

Total impaired assets

471

61

1,194

1,726

471

61

1,131

1,663

30/09/2010
Balance at beginning of the year

377

59

740

1,176

377

51

689

1,117

Transfers from productive

532

258

1,282

2,072

532

258

1,200

1,990

Transfers to productive

(20)

(2)

(73)

(95)

(20)

(2)

(71)

(93)

Assets realised or loans repaid

(321)

(111)

(454)

(886)

(321)

(106)

(425)

(852)

Write offs

(57)

(123)

(92)

(272)

(57)

(120)

(76)

(253)

Individually impaired asset balanceat end of the year

511

81

1,403

1,995

511

81

1,317

1,909

Restructured items

9

-

-

9

9

-

-

9

Total impaired assets

520

81

1,403

2,004

520

81

1,317

1,918

Restructured assets
A restructured asset is an impaired asset for which the terms have been changed to grant the counterparty a concession thatwould not otherwise have been available, due to the counterparty’s difficulty in complying with the original terms, and where
the yield on the asset following restructuring is still above the Banking Group’s cost of funds. An asset is classified as an otherindividually impaired asset if, following the restructure, the yield on the asset is below the Banking Group’s cost of funds.

ANZ National Bank Limited
30 – 31

Notes to the Financial Statements
Banking GroupBank

Retailmortgages

Otherretailexposures

Non-retail
exposures

Balance at beginning of the year

9

-

-

Transfers to restructured items

17-

Transfers from restructured items(6)-

Balance at end of the year

20

-

-

Restructured assets$ millions

Total

Retailmortgages

Otherretailexposures

Non-retail
exposures

Total

9

9

-

-

9

58

75

17

-

58

75

(58)

(64)

(6)

-

(58)

(64)

20

20

-

-

20

2

30/09/2011

30/09/2010
Balance at beginning of the year

2

-

-

2

2

-

-

Transfers to restructured items

9

-

-

9

9

-

-

9

Transfers from restructured items

(2)

-

-

(2)

(2)

-

-

(2)

Balance at end of the year

9

-

-

9

9

-

-

9

Renegotiated loans
Renegotiated loans are loans that would otherwise be past due or impaired had their terms not been renegotiated. At 30
September 2011, loans and advances of $550 million were renegotiated in the Banking Group (30/09/2010 $621 million) and$523 million were renegotiated in the Bank (30/09/2010 $565 million).
Assets acquired through enforcement of security
Assets acquired through enforcement of security are those assets which are legally owned by the Banking Group as a result of
enforcing security, other than any buildings occupied by the Banking Group. The Banking Group held no material assets
acquired through enforcement of security (30/09/2010 $nil).
Other assets under administration
Other assets under administration are any loans, not being impaired or 90 days past due, where the customer is in any form ofvoluntary or involuntary administration, including receivership, liquidation, bankruptcy or statutory management.
Interest forgone
Interest forgone on impaired assets has been calculated based on interest rates that would have been applied to loans ofsimilar risk and maturity.
Banking GroupBank

Retailmortgages

Otherretailexposures

Non-retail
exposures

Total

Other assets under administration

-

-

6

Undrawn facilities with impaired
customers--

30/09/2011$ millions

Retailmortgages

Otherretailexposures

Non-retail
exposures

Total

6

-

-

6

6

26

26

-

-

26

26

Interest forgone on impaired assets
Gross interest receivable on
impaired loans

54

7

82

143

54

6

77

137

Interest recognised

(16)

(4)

(56)

(76)

(16)

(2)

(55)

(73)

Net interest forgone on impaired loans

38

3

26

67

38

4

22

64

Other assets under administration

-

-

4

4

-

-

4

4

Undrawn facilities with impaired
customers

-

-

32

32

-

-

32

32

30/09/2010

Interest forgone on impaired assets
Gross interest receivable on
impaired loans

44

7

68

119

44

6

63

113

Interest recognised

(16)

(3)

(40)

(59)

(16)

(2)

(38)

(56)

Net interest forgone on impaired loans

28

4

28

60

28

4

25

57

ANZ National Bank Limited

Notes to the Financial Statements
15. Provision for Credit Impairment
Banking Group
Retailmortgages

Otherretailexposures

Balance at beginning of the year

111

149

Charge/(credit) to income statement

9

(2)

120

147

$ millions

Bank

Total

Retailmortgages

Otherretailexposures

533

793

111

135

518

764

(138)

(131)

9

1

(136)

(126)

395

662

120

136

382

638

Non-retail
exposures

Non-retail
exposures

Total

30/09/2011
Collective provision

Balance at end of the year
Individual provision (individually
impaired assets)
Balance at beginning of the year

207

51

347

605

207

51

317

575

Charge to income statement

24

79

206

309

24

77

199

300

Recoveries of amounts previously
written off
Bad debts written off

2

17

3

22

2

17

1

20

(69)

(106)

(191)

(366)

(69)

(106)

(177)

(352)

Discount unwind1

(16)

(4)

(56)

(76)

(16)

(2)

(51)

(69)

Balance at end of the year

148

37

309

494

148

37

289

474

Total provision for credit
impairment

268

184

704

1,156

268

173

671

1,112

Balance at beginning of the year

121

159

518

798

121

140

501

762

Charge/(credit) to income
statement

(10)

(10)

15

(5)

(10)

(5)

17

2

Balance at end of the year

111

149

533

793

111

135

518

764

30/09/2010
Collective provision

Individual provision (individually
impaired assets)
Balance at beginning of the year

153

40

281

474

153

40

257

450

Charge to income statement

125

120

196

441

125

117

173

415

Recoveries of amounts previously
written off
Bad debts written off

1

2

17

2

21

2

16

1

19

(57)

(123)

(92)

(272)

(57)

(120)

(76)

(253)

Discount unwind1

(16)

(3)

(40)

(59)

(16)

(2)

(38)

(56)

Balance at end of the year

207

51

347

605

207

51

317

575

Total provision for credit
impairment

318

200

880

1,398

318

186

835

1,339

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.

ANZ National Bank Limited
32 – 33

Notes to the Financial Statements
Banking GroupBank

Retailmortgages

Otherretailexposures

Non-retail
exposures

New and increased provisions

146

115

Provision releases

(120)
26

Recoveries of amounts previously
written off

(2)

(17)

(3)

Individual provision charge

24

79

206

Provision movement analysis$ millions

Total

Retailmortgages

Otherretailexposures

Non-retail
exposures

Total

319

580

146

113

306

565

(19)

(110)

(249)

(120)

(19)

(106)

(245)

96

209

331

26

94

200

320

(22)

(2)

(17)

(1)

(20)

309

24

77

199

300

30/09/2011

Collective provision charge/(credit)

9

(2)

(138)

(131)

9

1

(136)

(126)

Total charge to income statement

33

77

68

178

33

78

63

174

New and increased provisions

187

160

337

684

187

156

308

651

Provision releases

(60)

(23)

(139)

(222)

(60)

(23)

(134)

(217)

127

137

198

462

127

133

174

434

30/09/2010

Recoveries of amounts previously
written off

(2)

(17)

(2)

(21)

(2)

(16)

(1)

(19)

Individual provision charge

125

120

196

441

125

117

173

415

Collective provision charge/(credit)

(10)

(10)

15

(5)

(10)

(5)

17

2

Total charge to income statement

115

110

211

436

115

112

190

417

16. Controlled Entities, Associates and Jointly Controlled Entities
Banking GroupBank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

-

-

6,524

7,343

Shares in associates

99

143

85

85

Shares in jointly controlled entities

1

1

-

-

100

144

6,609

7,428

$ millions

Shares in controlled entities

Total shares in controlled entities, associates and jointly controlled entities

ANZ National Bank Limited

Notes to the Financial Statements
Controlled Entities
Alos Holdings Limited
ANZ Capital NZ Limited
ANZ Investment Services (New Zealand) Limited
ANZ National (Int’l) Limited
ANZ National Staff Superannuation Limited
ANZNZ Covered Bond Trust
Arawata Assets Limited
Arawata Finance Limited
Arawata Holdings Limited
Arawata Trust
Arawata Trust Company
Australian Properties Ltd
AUT Investments Limited
BHI Limited
Control Nominees Limited
Direct Broking Limited
Direct Nominees Limited
Diversified Yield Fund (registered in Australia)
Eastern Specialists Consulting Ltd
EFTPOS New Zealand Limited
Endeavour Finance Limited
Harcourt Corporation Limited
Karapiro Investments Limited
Kingfisher NZ Trust 2008-1
Medical Properties Holding Company No.1 Limited1
National Bank of New Zealand Custodians Limited
NBNZ Holdings Hong Kong Limited (registered in Hong Kong)
NBNZ Holdings Limited
OneAnswer Nominees Limited
OnePath (NZ) Limited
OnePath Holdings (NZ) Limited
OnePath Insurance Holdings (NZ) Limited
OnePath Insurance Services (NZ) Limited
OnePath Life (NZ) Limited
OnePath Nominees (NZ) Limited
Origin Mortgage Management Services Limited
Origin Mortgage Management Services (2008) Limited
Origin Mortgage Management Services (2011) Limited2
Private Nominees Limited
Radiola Corporation Limited
Regular Income Fund (registered in Australia)
Rural Growth Fund Limited
Silver Fern Life Brokers Limited
South Pacific Merchant Finance Limited
Southpac Corporation Limited
UDC Finance Limited
Vital Healthcare Australian Properties Proprietary Limited(registered in Australia)
Vital Healthcare Management Limited
1
2

Ownership
Interest %Balance
Date

Nature of business

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
99
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
99
100
100
100
100
100

30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 June30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
31 December
30 September
30 September
30 September
30 September
30 September
30 September
30 September
30 September
31 March
31 March
31 March
30 September
30 September
30 June30 September
30 September
30 September
30 September
30 September

Investment company
Investment company
Funds management company
Investment company
Staff superannuation scheme trustee
Securitisation entity
Property company
Investment company
Investment company
Investment entity
Investment company
Management company
Investment company
Non operative
Investment company
On-line share broker
Nominee company
Fixed income fundNon operative
EFTPOS service provider
Investment company
Investment company
Non operative
Securitisation entity
Holding company
Nominee company
Non operative
Investment company
Nominee company
Funds management company
Holding company
Holding company
Insurance company
Insurance company
Nominee company
Mortgage financeMortgage financeMortgage financeNominee company
Non operative
Fixed income fundInvestment company
Non operative
Investment company
Investment company
Finance company

100
100

30 September
30 September

Management company
Management company

Previously known as Argosy Property Management Limited.
Previously known as General Finance Custodians Limited.

All controlled entities are incorporated in New Zealand, unless stated.
For all companies, with the exception of Origin Mortgage Management Services Limited, Origin Mortgage Management
Services (2008) Limited, and Origin Mortgage Management Services (2011) Limited, the ownership interest percentage
equates to the voting power held. In relation to these companies, control exists through the Banking Group having 100% of
the voting rights.

ANZ National Bank Limited
34 – 35

Notes to the Financial Statements
In relation to Arawata Trust control exists through the Bank being trustee of the Trust. In relation to Kingfisher NZ Trust 2008-1
and ANZNZ Covered Bond Trust control exists as the Banking Group retains substantially all the risks and rewards ofthe operations.

Associates
30/09/2011
Book Value$m

30/09/2010
Book Value
$m

85

85

30

15

30 September

Card services

-

1

20

20

31 March

Financial services

NZ Poultry Enterprises Limited

-

43

n/a

n/a

30 April

Poultry processor

Paymark Limited

2

2

25

25

31 March

EFTPOS settlements

UCG Investments Limited

10

10

40

40

31 March

Rest home operator

Wyma Engineering (NZ) Limited

2

2

30

30

31 March

Agricultural machinery supplier

Total investment in associates

99

143

Associates

Cards NZ Limited
Kepler Group Southland/
Central Otago Limited1

1

VotingInterest%

Ownership
Interest%

Balance Date

Nature of business

Previously known as Bennetts Financial Services Limited.

Shares in associates at 30 September 2011 includes goodwill of $12 million (30/09/2010 $56 million) for the Banking Group and$nil (30/09/2010 $nil) for the Bank.
All associates are incorporated in New Zealand.

Jointly Ventures
30/09/2011
Book Value$m

30/09/2010
Book Value$m

Argenta Limited

1

1

Total investment in jointly
controlled entities

1

1

Jointly controlled entities

VotingInterest%

Ownership
Interest%

21

21

Balance Date

Nature of business

31 July

Manufacture and marketingof animal remedies

Movements in controlled entities, associates and joint ventures
In October 2010 the Banking Group sold its interest in APAC Investments Limited.
In December 2010 Trillium Holdings Limited, Tui Securities Limited and Arawata Securities Limited were deregistered.
In February 2011 the ANZNZ Covered Bond Trust was established.
In May 2011 CBC Finance Limited was deregistered.
In September 2011 Arawata Capital Limited was amalgamated into its direct parent company Arawata Finance Limited.

17. Other Assets
Banking GroupBank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

Accrued interest and prepaid discounts

343

391

412

423

$ millions

Accrued commission

22

25

13

18

Share-based payments asset

57

57

57

57

Prepaid expenses

29

60

21

59

Security settlements

250

81

250

81

Other assets

153

351

41

291

Total other assets

854

965

794

929

ANZ National Bank Limited

Notes to the Financial Statements
18. Deferred Tax Assets and Liabilities
Banking Group$ millions

Bank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

312

(17)

293

(83)

Deferred tax assets/(liabilities)
Balance at beginning of the year

(175)

334

(65)

416

Credited/(charged) directly to equity

2

(40)

2

(40)

Acquired as part of a business combination

-

35

-

-

139

312

230

293

Provision for credit impairment

324

391

311

375

Premises and equipment, software and intangibles

(17)

(20)

(5)

(3)

Provisions and accruals

126

149

122

137

Credited/(charged) to the income statement

1

Balance at end of the year
Deferred tax assets/(liabilities) comprise the following temporary differences:

Deferred acquisition costs and policy holder liabilities

(90)

(72)

-

-

Financial instruments

(55)

(39)

(55)

(39)

Carried forward losses

16

82

-

(122)

Lease finance

(148)

(126)

(142)

Other deferred tax assets and liabilities (including provisions)

(17)

(53)

(1)

(55)

Net deferred tax assets2

139

312

230

293

(67)

10

(64)

12

3

(5)

(2)

(4)

Provisions and accruals

(23)

(73)

(15)

(11)

Deferred acquisition costs and policy holder liabilities

Deferred tax credited/(charged) to the income statement comprises thefollowing temporary differences:
Provision for credit impairment
Premises and equipment, software and intangibles

(18)

(21)

-

-

Financial instruments

-

(8)

-

-

Carried forward losses

(66)

5

-

-

Lease finance

(22)

(14)

(20)

(12)

Other deferred tax assets and liabilities (including provisions)

18

440

36

431

(175)

334

(65)

416

Deferred tax credited/(charged) to equity comprises the following
temporary differences:
Defined benefit schemes

18

(8)

18

(8)

Financial instruments

(16)

(32)

(16)

(32)

2

(40)

2

(40)

Total deferred tax charged/(credited) directly to equity

Amounts charged/credited to the income statement include deferred tax assets/liabilities which have crystallised and have been transferred to current tax
assets/liabilities. These transfers are accounted for by charging/crediting deferred income tax expense and crediting/charging current tax expense.
2
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.
1

ANZ National Bank Limited
36 – 37

Notes to the Financial Statements
19. Goodwill and Other Intangible Assets
Banking GroupBank$ millions

30/09/2011

30/09/2010

30/09/2011

30/09/2010

Goodwill

3,265

3,265

3,217

3,217

Software

85

82

81

75
-

Other intangibles with a definite life

87

76

-

Other intangibles with an indefinite life

73

125

-

-

3,510

3,548

3,298

3,292

The goodwill balance above largely comprises the goodwill purchased by the Banking Group on the acquisition of NBNZ
Holdings Limited in December 2003 and the subsequent acquisition and amalgamation of The National Bank of New Zealand
Limited from NBNZ Holdings Limited in June 2004. Refer Note 2 for discussion of impairment testing for this goodwill.

20. Due to Other Financial Institutions
Banking GroupBank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

Due to other financial institutions

1,022

1,597

1,022

1,597

Securities sold under agreements to repurchase from other financial institutions

1,164

222

1,164

222

50

-

50

-

2,236

1,819

2,236

1,819

30/09/2011

30/09/2010

30/09/2011

30/09/2010

Certificates of deposit

2,454

3,245

2,461

3,245

$ millions

Securities sold under agreements to repurchase from central banks
Total due to other financial institutions

21. Deposits and Other Borrowings
Banking Group$ millions

Bank

Amortised cost
Term deposits

33,79934,68733,79934,687

Demand deposits bearing interest

21,58918,714

21,62918,784

Deposits not bearing interest

5,118

4,964

5,118

4,964

Secured debenture stock

1,488

1,378

-

-

Total deposits and other borrowings recognised at amortised cost

64,44862,98863,007

61,680Fair value through profit or loss
Commercial paper

4,790

7,307

-

-

Total deposits and other borrowings recognised at fair value

4,790

7,307

-

-

Total deposits and other borrowings

69,23870,29563,007

61,680

4,790

7,305

-

-

2,007

2,111

-

-

Amortised cost of balances included within deposits and otherborrowings recognised at fair value:
Commercial paper issued by ANZ National (Int'l) Limited guaranteed by
ANZ National Bank Limited
Secured debenture stock are secured over:Carrying value of total tangible assets of UDC Finance Limited

Deposits from customers are unsecured and rank equally with other unsecured liabilities of the Banking Group. In the unlikely
event that the Bank was put into liquidation or ceased to trade, secured creditors and those creditors set out in the Seventh
Schedule of the Companies Act 1993 would rank ahead of the claims of unsecured creditors.
Registered secured debenture stock is constituted and secured by a trust deed between UDC Finance Limited and its
independent trustee, Trustees Executors Limited. The trust deed creates floating charges over all the assets, primarily loans
and advances, of UDC Finance Limited.

ANZ National Bank Limited

Notes to the Financial Statements
22. Payables and Other Liabilities
Banking Group$ millions

30/09/2011

Bank

30/09/2010

30/09/2011

30/09/2010

Creditors

78

98

54

54

Accrued interest and unearned discounts

585

623

463

494

Defined benefit schemes deficit

84

26

84

26

Share-based payments liability

30

28

30

28

Accrued charges

253

308

225

289

1,242

195

1,237

188

-

16

-

16

Security settlements
Equitable assignment of mortgages
Other liabilities
Total payables and other liabilities

373

406

359

573

2,645

1,700

2,452

1,668

23. Provisions
Banking Group$ millions

30/09/2011

30/09/2010

30/09/2011

1

3

1

3

135

127

129

121

Non-lending losses, frauds and forgeries
Employee entitlementsBank
30/09/2010

Personnel restructuring costs

13

2

13

2

Other restructuring costs

58

22

54

13

Other provisions

102

161

74

78

Total provisions

309

315

271

217

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

Personnel restructuring costs and redundant assets restructuring costs
Restructuring cost provisions arise from exit activities relating to material changes in the scope or manner of businessundertaken by the Banking Group and includes termination benefits and costs relating to core system simplification. Provisions
are made when the Banking Group is demonstrably committed, it is probable that the costs will be incurred, though theirtiming is uncertain, and the costs can be reliably estimated. The majority of provisions recognised at 30 September 2011 are
expected to be settled over the coming financial year, with the exception that provisions for losses arising from rental
commitments on leased premises which have become vacant as a result of restructuring will be settled over the remaining
term of the leases.

Other provisions
Other provisions includes provisions relating to make-good provisions on leased premises, the acquisition of ING (NZ) Holdings
Limited, and related managed funds.

ANZ National Bank Limited
38 – 39

Notes to the Financial Statements
24. Bonds and Notes
Banking Group$ millions
Currency

Face value

Type of note

Maturity

Interest rate %70m

floating rate notes2010

3 month BKBM + 0.35%

30/09/2011

30/09/2010-

70

Issued by the Bank
NZD
NZD

150m

fixed rate notes

2011

6.80%

-

150

NZD

170m

floating rate notes

2011

3 month BKBM + 0.90%

-

170

NZD

50m

fixed rate notes

2011

8.25%

-

50

NZD

50m

floating rate notes

2011

3 month BKBM + 1.24%

-

50

NZD

40m

floating rate notes

2012

3 month BKBM + 0.90%

40

40
100

NZD

100m

floating rate notes

2012

3 month BKBM + 1.025%

100

NZD

150m

fixed rate notes

2012

5.63%

150

150

NZD

100m

fixed rate notes

2013

6.32%

100

100

NZD

175m

floating rate notes

2013

3 month BKBM + 1.30%

175

-

NZD

175m

fixed rate notes

2014

8.50%

175

175

NZD

60m

fixed rate notes

2014

8.50%

60

60

NZD

250m

fixed rate notes

2015

6.60%

250

250

NZD

350m

fixed rate notes

2015

6.51%

350

350

NZD

150m

fixed rate notes

2016

6.32%

150

-

NZD

250m

floating rate notes

2016

3 month BKBM + 1.50%

250

-

NZD

100m

fixed rate notes

2018

6.85%

100

-

NZD

125m

fixed rate notes

2018

6.08%

125

-

Index linked notes

78

100

Fair value hedge adjustment

246

365

Less bonds and notes held by the Bank

(30)

(23)

2,319

2,157

Issued by ANZ National (Int’l) Limited
USD

890m

floating rate notes1

2010

3 month LIBOR + 1.03%

-

1,210

USD

100m

floating rate notes2

2011

3 month LIBOR + 0.32%

-

136

USD

500m

floating rate notes

2011

3 month LIBOR + 0.18%

-

679

USD

300m

fixed rate notes

2011

5.50%

-

407
340

2

USD

250m

floating rate notes

2011

3 month LIBOR + 0.70%

-

USD

20m

floating rate notes2

2011

3 month LIBOR + 0.20%

-

27

USD

100m

floating rate notes

2011

3 month LIBOR + 0.65%

131

136

HKD

155m

floating rate notes

2011

3 month HIBOR + 0.51%

26

27

GBP

435m

floating rate notes

2011

3 month GBP LIBOR + 0.05%

886

935

GBP

105m

floating rate notes

2011

3 month GBP LIBOR + 0.05%

214

226

USD

1,000mfixed rate notes

2

2012

3.25%

1,308

1,359

USD

500m

fixed rate notes2

2012

3.25%

654

679
136

USD

100m

floating rate notes

2012

3 month LIBOR + 0.25%

131

USD

15m

floating rate notes

2012

3 month LIBOR + 0.80%

20

20

USD

1,250mfixed rate notes

2012

2.38%

1,634

1,698

2

HKD

300m

floating rate notes

2012

3 month HIBOR + 0.71%

50

53

GBP

450m

floating rate notes1

2012

6 month GBP LIBOR + 0.08%

917

968

USD

2,000mfixed rate notes

2013

6.20%

2,613

2,717

USD

750m

floating rate notes

2013

3 month LIBOR + 1.00%

981

-

USD

250m

floating rate notes

2013

3 month LIBOR + 1.00%

327

-

USD

100m

floating rate notes

2013

Fed Funds + 1.25%

131-

ANZ National Bank Limited

Notes to the Financial Statements
JPY

1,300mfloating rate notes

2013

3 month JPY LIBOR +0.40%

22

-

USD

1,050mfloating rate notes1

2014

3 month LIBOR + 1.16%

1,373

1,427

USD

100m

floating rate notes2

2014

3 month LIBOR + 0.44%

131

136

USD

50m

floating rate notes

2014

3 month LIBOR + 1.15%

65

68

USD

71m

floating rate notes2

2014

3 month LIBOR + 0.28%

93

96

USD

20m

floating rate notes

2014

3 month LIBOR + 1.10%

26

27

HKD

100m

fixed rate notes

2014

3.03%

17

18
18

HKD

100m

fixed rate notes

2014

3.40%

17

HKD

150m

fixed rate notes

2014

2.04%

25

-

HKD

150m

fixed rate notes

2014

2.02%

25

-

JPY

500m

fixed rate notes

2014

1.40%

9

8

JPY

3,000mfixed rate notes

2014

1.50%

51

49

CHF

250m

fixed rate notes

2014

2.01%

363

347

CHF

300m

fixed rate notes

2014

2.01%

435

417

USD

250m

floating rate notes

2015

3 month LIBOR + 0.90%

327

340

1,308

1,359

USD

1,000mfixed rate notes

2015

3.13%

USD

5m

floating rate notes

2015

3 month LIBOR + 1.25%

7

-

HKD

105m

fixed rate notes

2015

3.30%

18

18

JPY

500m

floating rate notes

2015

3 month JPY LIBOR + 0.50%

9

8

JPY

11,800m

fixed rate notes

2015

1.54%

201

192

JPY

7,200mfloating rate notes

2015

3 month JPY LIBOR + 1.00%

123

117
206

SGD

200m

fixed rate notes

2015

2.95%

201

CHF

150m

fixed rate notes

2016

2.13%

218

-

15,087

16,604

17,406

18,761

Total bonds and notes

Bonds and notes issued by ANZ National (Int’l) Limited are guaranteed by the Bank. Bonds and notes are unsecured and rank
equally with other unsecured liabilities of the Banking Group.
1
2

These notes were issued to subsidiaries of the Overseas Banking Group.
As well as being guaranteed by the Bank these notes also benefit from a supporting guarantee from the NZ Crown.

25. Loan Capital
Banking Group$ millions

AUD 265,740,000 perpetual subordinated floating rate loanBank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

338

349

338

349

AUD 43,767,507 term subordinated floating rate loan

-

58

-

58

AUD 169,520,000 term subordinated floating rate loan

216

223

216

223

Term subordinated fixed rate bonds

600

950

600

950

Perpetual subordinated bondTotal loan capital issued
Less loan capital instruments held by the Banking Group
Total loan capital

835

835

835

835

1,989

2,415

1,989

2,415

(1)

(8)

(1)

(3)

1,988

2,407

1,988

2,412

ANZ National Bank Limited
40 – 41

Notes to the Financial Statements
AUD 265,740,000 loan
This loan has no fixed maturity. Interest is payable half yearly in arrears based on BBSW + 0.95% p.a., with interest payments
due 15 March and 15 September.

AUD 43,767,507 loan
The Bank elected to repay this loan on 15 September 2011. Interest was based on BBSW + 0.29% p.a..

AUD 169,520,000 loan
This loan has an ultimate maturity date of 18 September 2017. The Bank may elect to repay the loan on 17 September each year
commencing from 2012 through to 2016. All interest is payable half yearly in arrears, with interest payments due 17 March and
17 September. Interest is based on BBSW + 0.68% p.a. to 17 September 2012 and increases to BBSW + 1.18% p.a. thereafter.

NZD subordinated bonds
Term subordinated fixed rate bonds
Issue dateAmount $m
15 September 2006
350
2 March 2007
250
23 July 2007
350

Coupon rate
7.16%
7.60%
8.23%

Call date
15 September 2011
2 March 201223 July 2012

Maturity date
15 September 2016
2 March 201723 July 2017

On 15 September 2011 the Bank fully redeemed the bonds that were originally issued on 15 September 2006.
The Bank may elect to redeem the remaining bonds on their respective call dates. If the bonds are not called the Bank willcontinue to pay interest to maturity at the five year interest rate swap rate plus 0.76% p.a. and 0.62% p.a. for the 2 March 2007
and 23 July 2007 bonds respectively. Interest is payable half yearly in arrears based on the fixed coupon rate.
As at 30 September 2011, these bonds carried an AA- rating by Standard & Poor’s.
Perpetual subordinated bonds
Issue date
18 April 2008

Amount $m
835

Coupon rate
9.66%

1st call date
18 April 2013

2nd call date
18 April 2018

The Bank may elect to redeem the bond on 18 April 2013, 18 April 2018 or any interest payment date subsequent to 18 April
2018. Interest is payable half yearly in arrears on 18 April and 18 October each year, beginning on 18 October 2008, up to andincluding the Second Call Date and then quarterly thereafter. If the bond is not called at the First Call Date, the coupon rate will
reset to the five year interest swap rate plus 2.00%. Should the bond not be called at the Second Call Date, the Coupon Ratefrom the Second Call Date onwards will be set on a quarterly basis to the three month FRA rate plus 3.00%.
As at 30 September 2011, this bond carried an A+ rating by Standard and Poor’s and an A3 rating by Moody’s.
Interest may not necessarily be paid on each interest payment date as under the terms of the bonds, the Bank has a generalright and in certain specified circumstances an obligation, to defer payment of interest on the bonds.
All of the NZD subordinated bonds are listed on the New Zealand Exchange (“NZX”). The Market Surveillance Panel of the NZX
granted the Bank a waiver from the requirements of Listing Rules 10.4 (relating to the provision of preliminary announcementsof half yearly and annual results to the NZX) and 10.5 (relating to preparing and providing a copy of half yearly and annual
reports to the NZX).
Loan capital is subordinated in right of payment in the event of liquidation or wind up to the claims of depositors and all
creditors of the Bank.
All subordinated debt qualifies as Lower Level Tier Two Capital for capital adequacy purposes except for the perpetual
subordinated debt which qualifies as Upper Level Tier Two Capital.

ANZ National Bank Limited

Notes to the Financial Statements
26. Related Party Transactions
Banking GroupBank

Year to30/09/2011

Year to30/09/2010

Year to30/09/2011

Year to30/09/2010

13,557

12,857

13,557

12,857

Post-employment benefits

344

352

344

352

Other long-term benefits

153

78

153

78

2,656

931

2,656

931

$ thousands
Key management personnel

Key management personnel compensation
Salaries and short-term employee benefits

Termination benefits
Share-based payments

2,080

3,911

2,080

3,911

Total compensation of key management personnel

18,79018,12918,79018,129Loans to key management personnel

3,300

4,056

3,300

4,056

Deposits from key management personnel

6,387

7,539

6,387

7,539

Key management personnel are defined as being Directors and senior management of the Banking Group – those persons
having the authority and responsibility for planning, directing and controlling the activities of the entity. The information
above relating to key management personnel includes transactions with those individuals, their close family members andtheir controlled entities.
Loans made to and deposits held by key management personnel are made in the course of ordinary business on normal
commercial terms and conditions no more favourable than those given to other employees or customers. Loans are on termsof repayment that range between fixed, variable and interest only, all of which have been made in accordance with the Bank’s
lending policies.
All transactions with key management personnel (including personally related parties) are conducted on an arm’s length basis
in the ordinary course of business and on commercial terms and conditions. These transactions principally consist of theprovision of financial and investment services.

Transactions with other related parties
The Bank and Banking Group undertake transactions with the Immediate Parent Company, Ultimate Parent Bank, othermembers of the Overseas Banking Group, associates and joint ventures.
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 with related 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 controlled entities, which are eliminated in the consolidated Banking
Group financial statements. Included within the Bank’s transactions with controlled entities is the provision of administrative
functions to some controlled entities for which no payments have been made.

ANZ National Bank Limited
42 – 43

Notes to the Financial Statements
Banking Group
Transactions with related parties$ millions

Bank

Year to30/09/2011

Year to30/09/2010

Year to30/09/2011

Year to30/09/2010

19

10

19

10
318

Interest income
Received from Immediate Parent Company
Received from controlled entities

-

-

402

Received from associates

6

7

6

7

Received from joint ventures

-

2

-

2

Paid to Ultimate Parent Bank and subsidiaries not part of the Banking Group

65

65

35

37

Paid to Immediate Parent Company

1

5

1

5

Paid to controlled entities

-

-

1,505

1,337

Paid to associates

2

2

2

2

29

26

29

26

-

-

181

379
66

Interest expense

Other operating income
Fees received from NZ Branch
Dividends received from controlled entities
Fees & commission received from controlled entities

-

-

66

Dividends received from associates

2

2

2

2

Commission received from joint ventures

-

6

-

6

80

86

80

86

-

-

117

113

Operating expenses
Paid to Ultimate Parent Bank and subsidiaries not part of the Banking GroupOperating expenses paid to controlled entities

ANZ National Bank Limited

Notes to the Financial Statements
Balances with related parties$ millions

Banking GroupBank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

185

1,507

185

80

2,621

2,060

2,664

2,077

Due from associates

4

151

4

151

Due from joint ventures

33

36

33

36
9,043

Due from other financial institutions
Due from Ultimate Parent Bank and subsidiaries not part of the Banking Group
Derivative financial assets
Due from related entities
Net loans and advances

Due from controlled entities--

11,753Due from Immediate Parent Company

-

6

-

6

100

144

6,609

7,428

Shares in controlled entities, associates and joint ventures
Other assets
Due from Ultimate Parent Bank and subsidiaries not part of the Banking Group
Total due from related parties

57

37

57

36

3,000

3,941

21,30518,857

775

8

775

8

85

85

85

85

-

-

37,39037,458

174

-

174

-

4,206

2,646

4,206

2,648

338

302

338

302

5

14

-

10

2,290

3,605

-

-

Due to other financial institutions
Due to Ultimate Parent Bank
Deposits and other borrowings
Due to associates
Due to controlled entities
Due to Immediate Parent Company
Derivative financial liabilities
Due to related entities
Payables and other liabilities
Due to NZ Branch
Due to Ultimate Parent Bank and subsidiaries not part of the Banking Group
Bonds and notes
Due to Ultimate Parent Bank and subsidiaries not part of the Banking Group
Loan capitalDue to Ultimate Parent Bank and subsidiaries not part of the Banking Group
Total due to related parties

554

630

554

630

8,427

7,290

43,522

41,141

Balances due from/to related parties are unsecured other than that the Banking Group and the Bank have provided guarantees
and commitments to related parties as follows:
Banking Group$ millions

Balances due to subsidiaries of the Ultimate Parent Bank not part of ANZ
New Zealand from ANZ National (Int'l) Limited guaranteed by the Bank
Financial guarantees provided to the Ultimate Parent Bank
Undrawn credit commitments provided to Immediate Parent Company
Undrawn credit commitments provided to controlled entities

30/09/2011

Bank

30/09/2010

30/09/2011

30/09/2010

-

-

2,290

3,605

1,296

1,660

1,296

1,660

250

-

250

-

-

-

2,863

400

A provision for credit impairment of $1 million has been recognised for amounts due from associates as at 30 September 2011
(30/09/2010 $10 million).

Kingfisher NZ Trust 2008-1 (“the Kingfisher Trust”) and ANZNZ Covered Bond Trust (“the Covered Bond Trust”)
Included within the tables above are transactions with the Kingfisher Trust and the Covered Bond Trust. Further details onthese securitisations are provided in Note 36.

ANZ National Bank Limited
44 – 45

Notes to the Financial Statements
27. Current and Non-current Assets and Liabilities
Banking Group
30/09/2011

Bank
30/09/2011

30/09/2010

30/09/2010

Current Non-current

Current Non-current

Current Non-current

Current Non-current

Liquid assets

2,455

-

2,238

-

2,443

-

2,223

-

Due from other financial institutions

3,685

-

3,496

-

3,685

-

1,926

-

$ millions

AssetsTrading securities

9,466

-

6,757

-

9,466

-

6,757

Derivative financial instruments

14,160-10,367-

14,203-

10,382-Available-for-sale assets

393

18

1,882

269

357

18

1,915

125

Net loans and advances

27,83455,77625,16060,75327,48953,817

24,79458,728Due from subsidiary companies

-

-

-

-

2,382

9,371

2,064

6,979

Investments relating to insurance
business

71

26

70

17

-

-

-

-

-

200

-

138

-

-

-

-

Insurance policy assets
Due from immediate parent company

-

-

6

-

-

-

6

-

Shares in controlled entities, associates

-

100

-

144

-

6,609

-

7,428

Current tax assets

-

-

25

-

-

-

73

-

Other assets

797

57

908

57

737

57

872

57

Deferred tax assets

-

139

-

312

-

230

-

293

Premises and equipment

-

325

-

311

-

89

-

83

Goodwill and other intangible assets
Total assets

-

3,510

-

3,548

-

3,298

-

3,292

58,86160,15150,90965,54960,76273,48951,012

76,985

Liabilities
Due to other financial institutions

2,174

62

1,791

28

2,174

62

1,790

29

Deposits and other borrowings

66,6592,579

68,314

1,981

60,4532,554

60,013

1,667

Due to subsidiary companies

-

-

-

-

17,26820,122

18,97718,481

Due to immediate parent company

174

-

-

-

174

-

-

-

Derivative financial instruments

14,174-

10,715-

14,174-

10,715-

Payables and other liabilities

2,531

114

1,646

54

2,338

114

1,614

54

17

-

-

-

36

-

-

-

Current tax liabilities
Provisions
Bonds and notes
Loan capital
Total liabilities

211

98

228

87

176

95

130

87

4,798

12,608

3,628

15,133

534

1,785

832

1,325

-

1,988

-

2,407

-

1,988

-

2,412

90,73817,44986,322

19,69097,327

26,72094,071

24,055

Assets and liabilities are classified as current if:••••

it is expected they will be realised, consumed or settled in the normal operating cycle or within twelve months after the endof the reporting date; orthey are held primarily for trading; orthey are assets that are cash or a cash equivalent; orthey are liabilities where there is no unconditional right to defer settlement for at least twelve months.

Non-current assets include premises and equipment and intangible assets as well as financial assets of a long-term nature.
Non-current liabilities include financial and non-financial liabilities which are expected to be settled after twelve months frombalance date.
For the purposes of this disclosure, the fair value of both trading and hedging derivatives has been classified as current.
For more information on the contractual timing of expected outflows and inflows in relation to hedging derivatives refer toNote 30.

ANZ National Bank Limited

Notes to the Financial Statements
28. Ordinary Share Capital
Banking GroupBank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

Ordinary shares at beginning of the year

1,700,755,498

1,700,755,498

1,700,755,498

1,700,755,498

Ordinary shares at end of the year

1,700,755,498

1,700,755,498

1,700,755,498

1,700,755,498

Ordinary share capital at beginning of the year

6,943

6,943

6,943

6,943

Ordinary share capital at end of the year

6,943

6,943

6,943

6,943

Issued share capital

Number of shares$ millions

The issued capital of the Bank comprises 1,700,755,498 ordinary shares, of which 650,712 shares are uncalled (30/09/2010
650,712 shares uncalled).
During the year ended 30 September 2011 the Bank paid an ordinary dividend of $700 million to the Immediate Parent
Company (equivalent to $0.41 per share). (30/09/2010 the Bank paid an ordinary dividend of $600 million to the Immediate
Parent Company (equivalent to $0.35 per share)). There were no changes to issued capital during the year ended 30 September
2011 (30/09/2010 $nil).
All ordinary shares share equally in dividends and any proceeds available to ordinary shareholders on winding up of the Bank.
On a show of 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.

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; andEnsure that the capital base supports the Banking Group’s risk appetite, and strategic business objectives, in an efficient andeffective manner.

The Board holds ultimate responsibility for ensuring that capital adequacy is maintained. This includes: setting, monitoringand obtaining assurance for the Banking Group’s Internal Capital Adequacy Assessment Process (“ICAAP”) policy andframework; 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, trigger and operating range targets for both tier one and total capital that ensure sufficient
capital is maintained 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 and business plan; andSupport the economic risk capital requirements of the business.

The Banking Group’s Asset & Liability Committee and its related Capital Management sub-committee are responsible fordeveloping, implementing and maintaining the Banking Group’s ICAAP framework, including ongoing monitoring, reportingand 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.

ANZ National Bank Limited
46 – 47

Notes to the Financial Statements
Capital ratios of the Banking Group under the Basel II internal models based approach (Unaudited)
Banking Group
30/09/2011

30/09/2010

Tier One Capital

10.02%

9.68%

RBNZ minimum Tier One Capital ratio

4.00%

4.00%

Total Capital

12.74%

13.11%

RBNZ minimum Total Capital ratio

8.00%

8.00%

Capital of the Banking Group as at 30 September 2011 (Unaudited)$mTier One Capital
Ordinary share capital

6,943

Revenue and similar reserves

2,783

Current year's profit after tax

1,099

Less deductions from Tier One Capital
3,265

Goodwill

245

Software and other intangible assets
Future income tax benefits

17

Cash flow hedging reserve

141

50% of expected loss to the extent higher than total eligible allowances for impairment

59
7,098

Total Tier One Capital
Tier Two Capital – Upper Level

1,173

Perpetual subordinated debt
Tier Two Capital – Lower Level

815

Term subordinated debt
Less deductions from Tier Two Capital

59

50% of expected loss to the extent higher than total eligible allowances for impairment
Total Tier Two Capital

1,929

Total Capital

9,027

Total required capital of the Banking Group as at 30 September 2011 (Unaudited)$ millions

Exposures subject to internal ratings based approach

49,848

3,988
578

7,352

7,223

273

257

21

Equity exposures

222

911

73

Other exposures

2,782

878

70

Total credit risk

134,354

59,117

4,730
407

Operational risk

n/a

5,089

Market risk

n/a

3,685

295

Supervisory adjustment1

n/a

2,946

236

134,354

70,837

5,668

Total capital requirement

2

123,725

Exposures subject to standardised approach

Specialised lending exposures subject to slotting approach

1

Risk weighted
exposure or
implied risk
Exposure atweighted Total capitaldefault
exposure2 requirement

The supervisory adjustment includes an adjustment to the risk-weighted exposure of retail mortgages in accordance with the Bank’s Conditions of Registration.
Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.

ANZ National Bank Limited

Notes to the Financial Statements
Capital adequacy ratios under the Basel I approach (Unaudited)Bank
30/09/2011

30/09/2010

Tier One Capital

9.64%

9.20%

Total Capital

11.60%

11.46%

Total risk-weighted exposures ($ millions)

72,923

72,487RBNZ minimum ratios:Tier One Capital

4.00%

4.00%

Total Capital

8.00%

8.00%

Basel I capital adequacy in respect of the Banking Group and Bank has been derived in accordance with the RBNZ document
entitled ‘Capital Adequacy Framework (Basel I Approach)’ (“BS2”), dated October 2010.

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 BS2B.
Under this IRB Framework banks use their own measures for calculating the level of credit risk associated with customers andexposures, 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 atloan origination and for ongoing monitoring. For Retail Mortgage exposures the Banking Group is required to use the RBNZ
prescribed exposure weighted minimum PD of 1.25%;
Exposure at Default (“EAD”): The expected facility exposure at default. Total credit risk-weighted exposures include a scalarof 1.06 in accordance with the Bank’s Conditions of Registration; andLoss Given Default (“LGD”): An estimate of the potential economic loss on a credit exposure, incurred as a consequence ofobligor 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 isrequired to adopt RBNZ prescribed downturn LVR based LGDs, along with a minimum maturity of 2.5 years and the removal of thefirm-size adjustment.
For exposures classified under Specialised Lending, the Banking Group uses slotting tables supplied by the RBNZ rather thaninternal 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 entitled ‘Capital Adequacy Framework (Standardised Approach)’ (“BS2A”), dated
October 2010.

ANZ National Bank Limited
48 – 49

Notes to the Financial Statements
Classification of Banking Group exposures according to rating approach
Internal ratings based approach
IRB Asset Class

Borrower Type

Rating Approach

SovereignCrown

IRB - Advanced

RBNZ

IRB - Advanced

Any other sovereign and its central bank

IRB - Advanced

Bank

Registered banks

IRB - Advanced

Corporate

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

IRB - Advanced

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

IRB - Advanced

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
EquityOther assets

IRB
All other assets not falling within any of the above classes

IRB

Standardised approach
Exposure class

Exposure Type

Reason for Standardised Approach

Future Treatment

Corporate

Merchant card prepayment exposures

System constraints

Move to IRB

Corporate credit cards

System constraints

Move to IRB

Personal credit cards

System constraints

Move to IRB

Other Retail

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 of credit risk, the assignment of internal credit risk ratings and the quantification of associated default andloss 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 riskfunctions, in conjunction with the relevant Retail and Wholesale Risk Committees, regularly assess the performance of therating systems, identify any areas for improvement and monitor progress on previously identified development work needed.
The Banking Group’s Rating Systems are governed by a comprehensive framework of controls that operate at the business unit
and support 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,
are independent of operational lending activities and are responsible for the ratings strategies and ongoing management ofcredit risk models within New Zealand. The annual review of models used across the Banking Group is a function undertakenby the ANZ Decision Model Validation Unit, which is also independent of credit risk operational functions and is responsible foroverseeing the design, implementation and performance of all rating models in the Banking Group.
The target approach to modelling for the Banking Group is to deploy the model most suitable for the environment. At present
this involves 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.

ANZ National Bank Limited

Notes to the Financial Statements
Capital requirements by asset class under the IRB approach

Exposure atdefault$m

Exposureweighted
LGD used forthe capital
calculation%

Exposureweighted
risk weight%Riskweighted
exposure$m

Total capitalrequirement$m

32,591

32,55237

68

23,312

1,866

8,288

8,288

5

1

70

6

Total
exposureor principal
amount$m

Corporate
Sovereign

Banking GroupAs at 30/09/2011 (Unaudited)On-balance sheet exposures

Bank

5,853

4,885

59

13

679

54

Retail mortgages

41,30941,30921

24

10,540843

Other retail

4,337

4,337

61

74

3,380

270

Total on-balance sheet exposures

92,37891,37129

39

37,981

3,039

12,92910,388

48

47

5,214

418

Off-balance sheet exposures
Corporate
Sovereign

123

123

5

1

1

-

Bank

1,143

1,010

49

14

152

12

Retail mortgages

5,763

5,288

18

22

1,209

97

Other retail

4,919

4,610

75

50

2,467

197

Total off-balance sheet exposures

24,877

21,419

46

40

9,043

724

Corporate

75,128

2,640

61

44

1,217

97

Sovereign

11,599

578

5

1

6

-

Market related contracts

Bank

866,484

7,717

65

20

1,601

128

Total market related contracts

953,211

10,935

61

24

2,824

225

1,070,466

123,72535

38

49,848

3,988

Total credit risk exposures subject to the
IRB approach

ANZ National Bank Limited
50 – 51

Notes to the Financial Statements
IRB exposures by customer credit rating

Banking GroupAs at 30/09/2011 (Unaudited)

Probabilityof default%

Exposureat default$mExposureweighted
LGD used forthe capital
calculation%

Exposureweighted
risk weight%Riskweighted
exposure$m

Total capitalrequirement$m

Corporate
0-2

0.05

6,197

62

24

1,571

126

3-4

0.32

19,787

39

41

8,674

694
498

5

0.98

9,955

33

59

6,221

6

2.25

5,181

36

90

4,936

395

7-8

7.20

3,202

40

136

4,607

369

Default

100.00

1,258

44

280

3,734

299

3.88

45,58041

62

29,743

2,381

0

0.01

8,955

5

1

76

6

1-8

0.18

34

5

4

1

-

Total sovereign exposures

0.01

8,989

5

1

77

6

0

0.01

9,280

65

16

1,593

127

Total corporate exposures
Sovereign

Bank
1

0.02

3,795

53

16

655

52

2-4

0.10

526

62

31

171

14

5-6

1.29

11

65

118

13

1

Total bank exposures

0.02

13,612

62

17

2,432

194

0-3

0.20

18,417

20

8

1,510

122

4

0.45

9,397

21

15

1,476

118

5

0.97

12,565

22

26

3,504

280

6

2.44

3,022

22

48

1,552

124

7-8

12.25

2,442

23

107

2,765

221

Default

100.00

754

33

118

942

75

2.85

46,59721

24

11,749

940

0-2

0.10

21

76

19

6

-

3-4

0.31

4,212

72

36

1,613

129

5

1.13

1,934

65

68

1,392

111

6

2.60

1,499

60

81

1,287

103

7-8

10.73

1,130

68

118

1,413

113

Default

100.00

151

60

85

136

11

Total other retail exposures

3.87

8,947

68

62

5,847

467

Total credit risk exposures subject to the
IRB approach

2.79

123,72535

38

49,8483,988

Retail mortgages

Total residential mortgages exposures
Other retail

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

ANZ National Bank Limited

Notes to the Financial Statements
Specialised lending subject to the slotting approach
Exposureamount$m

Banking GroupAs at 30/09/2011 (Unaudited)

Risk Risk weighted
weightexposure%$m

Total capitalrequirement$mOn-balance sheet exposures
Strong

1,851

70

1,374

110

Good

3,254

90

3,102

249

Satisfactory

1,156

115

1,410

113

Weak

304

250

808

64

Default

270

-

-

-

6,835

92

6,694

536

Average Risk weighted
risk weight
exposure%$m

Total capitalrequirement$m

Total on-balance sheet exposures
Exposureamount$m

Exposureat default
$m

482

423

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

98

440

35

Market related contracts

1,582

94

89

89

7

Total off-balance sheet exposures

2,064

517

102

529

42

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
Exposureamount$m

Banking GroupAs at 30/09/2011 (Unaudited)

Risk Risk weighted
weightexposure%$m

Total capitalrequirement$mOn-balance sheet exposures
Corporates

57

100

Other retail1

Default

1

Total on-balance sheet exposures

59

Exposureamount$m

Average credit
conversion
factor%Creditequivalentamount
$m

500

43

214

61

5

100

1

-

150

2

-

102

64

5

Average Risk weighted
risk weight
exposure%$m

Total capitalrequirement$mOff-balance sheet exposures
Undrawn commitments and other off balance
sheet exposures

85

193

16

Risk Risk weighted
weightexposure%$m

Total capitalrequirement$m

Credit exposures subject to the Standardised Approach have been calculated in accordance with BS2A.
Equity exposures
Banking GroupAs at 30/09/2011 (Unaudited)All equity holdings not deducted from capital

Equity exposures have been calculated in accordance with BS2B.

Exposureamount
$m

222

387

911

73

ANZ National Bank Limited
52 – 53

Notes to the Financial Statements
Other exposures
Banking GroupAs at 30/09/2011 (Unaudited)

Cash and gold bullion
New Zealand dollar denominated claims on the Crown and the RBNZ
Other assets
Total other IRB credit risk exposures

Exposureamount$m

Risk Risk weighted
weightexposure%$m

Total capitalrequirement
$m

189

-

-

-

1,765

-

-

-

828

100

878

70

2,782

30

878

70

Other exposures have been calculated in accordance with BS2B.
A risk weight of 100% applies to premises and equipment and all other exposures not otherwise defined in BS2B, except for
cash, gold, New Zealand dollar denominated claims on the Crown and the RBNZ, which receive a 0% risk weight.
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 isgenerally unsecured.
As at 30 September 2011, under the IRB approach, the Banking Group had $1,520 million of Corporate exposures covered byguarantees and $nil of Corporate exposures covered by credit derivatives, where the presence of the guarantees or credit
derivatives was judged to reduce the underlying credit risk of the exposures. Information on the total value of exposurescovered by financial guarantees and eligible financial collateral is not disclosed, as the effect of these guarantees and collateralon 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 2011 the Banking Group had an implied risk weighted
exposure of $5,089 million for operational risk and an operational risk capital requirement of $407 million.
Operational risk capital is modelled at a New Zealand divisional level and then distributed and adjusted for the businessenvironment 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; andDirectly 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 National Bank Limited

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 are for the half-years ended 30 September 2011 and 2010. They are calculated
separately for each category of exposure and may not have occurred at the same time.
Implied risk
weighted exposure

Aggregate
capital charge

As at
$m

Peak
$m

As at
$m

Peak
$m

3,556

6,225

285

498

Banking Group (Unaudited)

30/09/2011
Interest rate risk
Foreign currency risk
Equity risk

6

72

-

6

123

126

10

10

3,685

295

30/09/2010
Interest rate risk
Foreign currency risk
Equity risk

3,797

4,827

304

386

25

101

2

8

78

96

6

8

3,900

312

Pillar II capital for other material risks
The Banking Group has an 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 notexplicitly captured in the calculation of the Banking Group’s tier one and total capital ratios. The other material risks identified
by the Banking Group include business risk, pension risk, insurance risk, premises and equipment risk and capitalised origination
fees risk.
The Banking Group’s internal capital allocation for these other material risks is $316 million (30/09/2010: $401 million).
Capital adequacy of the Ultimate Parent Bank under the Basel II approach
Overseas Banking Group

Ultimate Parent Bank

30/09/2011

30/09/2010

30/09/2011

Tier One Capital

10.9%

10.1%

11.5%

11.0%

Total Capital

12.1%

11.9%

12.3%

12.3%

30/09/2010

For calculation of minimum capital requirements under Pillar I of the Basel II Accord, APRA has accredited the Overseas Banking
Group to use the Advanced Internal Ratings Based (“AIRB”) methodology for calculation of credit risk weighted assets and theAdvanced Measurement Approach (“AMA”) for the operational risk weighted asset equivalent.
Under prudential regulations, the Ultimate Parent Bank is required to hold a minimum Prudential Capital Ratio (“PCR”) as
determined by APRA. The Overseas Banking Group exceeded the minimum capital adequacy requirements set by APRA as at
30 September 2011 and for the comparative prior period.
The Overseas Banking Group is required to publicly disclose Pillar III financial information as at 30 September 2011. The
Overseas Banking Group’s Basel II Pillar 3 Disclosure document for the year ended to 30 September 2011, in accordance with
APS 330, discloses capital adequacy ratios calculated under the Basel II methodology. This document can be accessed at thewebsite anz.com.

ANZ National Bank Limited
54 – 55

Notes to the Financial Statements
Retail mortgages by loan-to-valuation ratio (“LVR”)
As required by the RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided by the Banking
Group’s valuation of the security property at origination of the exposure. Off-balance sheet exposures include undrawn andpartially undrawn residential mortgage loans as well as commitments to lend. Commitments to lend are formal offers forhousing lending which may or may not be accepted by the customer.
As at 30/09/2011 (Unaudited)$ millions

On-balancesheet

Off-balance
sheet

Total

20,456

LVR range
0% - 59%

17,4493,007

60% - 69%

6,917

796

7,713

70% - 79%

8,929

1,054

9,983

80% - 89%

4,391

638

5,029

Over 90%

3,623

268

3,891

Total

41,3095,763

47,072

Reconciliation of mortgage related amounts
Banking Group$ millions

Term loans – housing

Note

Unaudited
30/09/2011

13

43,785339

Plus: short term housing loans classified as overdrafts(2,865)

Less: housing loans made to corporate customers
30

41,25929

41,309Total retail mortgage exposures subject to the IRB approach (as per LVR analysis)

29

47,072Gross retail mortgage loans

30

41,259Gross retail mortgage loans

50

Plus: Unsettled re-purchases of mortgages from the NZ BranchOn-balance sheet retail mortgage exposures subject to the IRB approach

5,763

Off-balance sheet retail mortgage exposures subject to the IRB approach(268)

Provisions for credit impairment
Fair value hedge adjustment

22

Deferred fee revenue and expenses / capitalised fees

(5)

Maximum exposure to credit risk

30

41,00830. Financial Risk Management
Strategy in using financial instruments
Financial instruments are fundamental to the Banking Group’s business, constituting the core element of its operations.
Accordingly, the risks associated with financial instruments are a significant component of the risks faced by the Banking
Group. Financial instruments create, modify or reduce the credit, market and liquidity risks of the Banking Group’s balance
sheet. These risks and the Banking Group’s policies and objectives for managing such risks are outlined below. The Banking
Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential
adverse effects on the financial performance of the Banking Group.
The risk management and policy control framework applicable to the entities comprising the Banking Group has been set by
the Board and Risk Committee of the Bank or the Ultimate Parent Bank, as appropriate. Likewise oversight and monitoring ofmaterial risk exposures of the Banking Group is undertaken by 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 by both related entities.

ANZ National Bank Limited

Notes to the Financial Statements
Credit risk
Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations. The Banking
Group assumes credit risk in a wide range of lending and other activities in diverse markets and many jurisdictions. The credit
risks arise not only from traditional lending to customers, but also from inter-bank, treasury, international trade and capital
market activities around the world.
The Banking Group has an overall lending objective of sound growth for appropriate returns. The credit risk objectives of the
Banking Group are set by the Board and are implemented and monitored within a tiered structure of delegated authority,
designed to oversee multiple facets of credit risk, including business writing strategies, credit policies/controls, single
exposures, portfolio monitoring and risk concentrations.
Credit risk management
The 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, vision, values, controls, risk concentrations and portfolio balance. It is supported by portfolio analysis and businesswriting strategies, which guide lending decisions and identify segments of the portfolio requiring attention. The effectivenessof 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 make independent credit decisions, and to provide strong support
to front line staff in the application of sound credit practices. In addition to providing independent credit assessment on
lending decisions, Risk Management also performs key roles in portfolio management by development and validation of
credit risk measurement systems, loan asset quality reporting, and development of credit standards and policies.
The credit risk management framework is top down. Where required, the framework is defined firstly by the Banking Group’s
values and vision, and secondly, by credit principles and policies. The effectiveness of the credit risk management framework
is validated through the compliance and monitoring processes.
Risk Management’s responsibilities for credit risk policy and management are executed through dedicated departments,
which support the 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 ona 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 through dedicated teams. Retail
Risk services the Banking Group’s small business and consumer customers. The Portfolio Reporting team within Risk
Management provides an independent overview of credit risk across the Bank at a portfolio level. The Banking Group allows
sole discretion for transaction approvals at the Business Unit level in both the retail and wholesale lending sectors, with larger
transactions approved by Retail Risk and Wholesale Risk.
The credit risk review function within Global Internal Audit also provides a further independent check mechanism to ensure
the quality of credit decisions. This includes providing independent periodic checks on asset quality and compliance with 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 therelevant 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 exposures that involve country risk. They are recorded by time to maturity
and purpose of exposure, e.g., trade, markets and project finance. Country limits are managed centrally by the Ultimate Parent
Bank, through a global country risk exposure management system managed by a specialist unit within Institutional Risk.
Portfolio stress testing
Stress testing is integral to strengthening the predictive approach to Risk Management and is a key component to managing
risk appetite and business writing strategies. It creates greater understanding of impacts on financial performance throughmodelling relationships and sensitivities between geographic, industry and business unit exposures under a range of macro
economic scenarios.
The Ultimate Parent Bank has a dedicated stress testing team that 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.

ANZ National Bank Limited

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 and comprehensive analysis of their credit portfolios. Issue identification
and adherence to performance benchmarks are reported to risk and business executives through a series of reports including
monthly ‘asset quality’ reporting. This process is undertaken by or overseen by Risk Management ensuring an efficient andindependent conduit exists to quickly identify and communicate emerging credit issues to Banking Group executives andthe Board.
Collateral management
Banking Group credit principles specify lending only what the counterparty has the capacity and ability to repay and the
Banking Group sets limits on the acceptable level of credit risk. Acceptance of credit risk is firstly based on the counterparty’s
assessed capacity to meet contractual obligations (i.e., interest and capital repayments). Obtaining collateral is only used tomitigate credit risk. Procedures are designed to ensure collateral is 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, e.g., premises, stock and debtors;
Charges over financial instruments, e.g., debt securities and equities in support of trading facilities; andFinancial guarantees.

In the event of customer default, any loan security is usually held as mortgagee in possession while action is taken to realise it.
Therefore the Banking Group does not usually hold any real estate or other assets acquired through the enforcement of
security.
The Banking Group uses ISDA Master Agreements to document derivatives’ activities to limit exposure to credit losses. The
credit risk is reduced by a master agreement to the extent that, if an event of default occurs, all contracts with the counterparty
are terminated and settled on a net basis. Further, it is the Banking Group’s preferred practice to include all products coveredby the ISDA in the Credit Support Annex (“CSA”) in order to achieve further credit exposure reduction. Under a CSA, collateralis passed between the parties, depending on the aggregate mark-to-market (positive or negative) of derivative trades between
the two entities, to mitigate the market contingent counterparty risk inherent in the outstanding positions.
Concentrations of credit risk
Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities within
the same geographic region, or when they have similar risk characteristics that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic or other conditions.
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 managementmonitor large exposure concentrations through a monthly list of the Banking Group’s top corporate exposures. The ANZ Credit
and Market Risk Committee and Board Risk Committee regularly review a comprehensive list of single customer concentration
limits and customers’ adherence to these limits.
Analyses of financial assets by industry sector are based on Australian and New Zealand Standard Industrial Classification(“ANZSIC”) codes.

56 – 57

Notes to the Financial Statements

ANZ National Bank Limited

Notes to the Financial Statements
Concentrations of credit risk analysis
Banking Group$ millions
30/09/2011

Liquidassets anddue fromotherfinancial
institutions

Tradingsecurities
andavailablefor-saleassets38-

Derivative
financial Net loans andinstruments
advancesOtherfinancialassetsCredit related
commitments3

Total

125

1,477

19,057

Industry
Agriculture

95

17,322

Forestry, fishing and mining

9

-

12

484

4

326

835

Business & property services

24

-

19

8,575

62

2,054

10,734

-

-

4

930

7

863

1,804

Construction
Entertainment, leisure and tourism

-

-

43

1,118

8

419

1,588

Finance and insurance

3,960

3,501

12,646

1,011

258

1,755

23,131Government and local authority1

11,199

1,887

6,253

537

1,442

10

1,070

Manufacturing

41

10

197

2,558

19

3,304

6,129

Personal lending

-

-

38

45,417329

9,489

55,2732,550

Retail trade

75

2

32

1,552

11

878

Transport and storage

19

57

42

1,584

11

639

2,352

Wholesale trade

51

-

106

1,174

8

1,306

2,645

Other2

36

54

389

1,849

13

2,278

4,619

6,140

9,877

14,16085,016865

25,858141,916

Provisions for credit impairment

-

-

-

(1,156)--(1,156)

Fair value hedge adjustment

-

-

-

22

-

-

22

Unearned finance income anddeferred/capitalised fees
Total financial assets

-

-

-

(272)

-

-

(272)

6,140

9,877

14,16083,610865

25,858140,510
124,405

Geography
New Zealand

4,992

8,017

2,471

82,202865

25,858Overseas

1,148

1,860

11,689

1,408

-

-

16,105

Total financial assets

6,140

9,877

14,16083,610865

25,858140,510

ANZ National Bank Limited
58 – 59

Notes to the Financial Statements
Banking Group
Liquidassets anddue fromotherfinancial
institutions

Tradingsecurities
andavailablefor-saleassetsDerivative
financial
instruments

Net loansandadvancesOtherfinancialassetsCredit related
commitments3

Total

Agriculture

2

-

118

18,546

188

1,431

20,285

Forestry, fishing and mining

46

-

9

466

5

258

784

Business and property services

32

-

80

8,354

85

1,944

10,495

-

-

2

999

10

823

1,834

$ millions
30/09/2010

Industry

Construction
Entertainment, leisure and tourism

-

-

39

1,099

11

500

1,649

Finance and insurance

3,755

3,103

9,102

1,793

47

1,236

19,036

Government and local authority1

1,677

5,556

317

1,425

40

805

9,820

Manufacturing

55

20

123

3,093

31

3,264

6,586

Personal lending

-

-

1

45,535461

8,796

54,793Retail trade

105

2

70

1,438

15

958

2,588

Transport and storage

6

21

150

1,791

18

576

2,562

Wholesale trade

56

-

19

1,218

12

1,296

2,601

Other

-

206

337

1,554

18

1,636

3,751

5,734

8,908

10,36787,311

941

23,523

136,784

Provisions for credit impairment

-

-

-

(1,398)--(1,398)Fair value hedge adjustment

-

-

-

279

-

-

279

2

Unearned finance income and deferred/
captialised fees
Total financial assets

-

-

-

(279)

-

-

(279)

5,734

8,908

10,36785,913941

23,523

135,386
121,681

Geography
New Zealand

3,130

6,617

3,145

84,325941

23,523

Overseas

2,604

2,291

7,222

1,588

-

-

13,705

Total financial assets

5,734

8,908

10,36785,913941

23,523

135,386

ANZ National Bank Limited

Notes to the Financial Statements
Bank
Liquidassets anddue fromotherfinancial
institutions

Tradingsecurities
andavailablefor-saleassetsDerivative
financial
instruments

Net loansandadvances

Due from
subsidiarycompanies

Other
financialassetsCredit related
commitments3

Total

Agriculture

38

-

95

17,019

-

96

1,477

18,725

Forestry, fishing and mining

9

-

12

340

-

2

326

689

Business and property
services

24

-

51

8,428

-

48

2,054

10,605

-

-

4

729

-

4

863

1,600

$ millions
30/09/2011

Industry

Construction
Entertainment, leisure andtourism

-

-

43

1,078

-

6

419

1,546

Finance and insurance

3,948

3,465

12,6681,004

11,753255

4,467

37,560Government and local
authority1

1,887

6,253

537

1,203

-

7

1,070

10,957

41

10

197

2,391

-

14

3,304

5,957

Manufacturing
Personal lending

-

-

38

44,872

-

254

9,489

54,653Retail trade

75

2

42

1,388

-

8

838

2,353

Transport and storage

19

57

106

1,226

-

7

599

2,014
2,504

Wholesale trade

51

-

21

1,120

-

6

1,306

Other2

36

54

389

1,609

-

9

2,278

4,375

6,128

9,841

14,20382,407

11,753716

28,490

153,538

Provisions for credit
impairment

-

-

-

(1,112)---(1,112)

Fair value hedge adjustment

-

-

-

22

-

-

-

22

Unearned finance income
and deferred/capitalised
fees
Total financial assets

-

-

-

(11)

-

-

-

(11)

6,128

9,841

14,20381,306

11,753716

28,490152,437

Geography
New Zealand

4,980

7,987

2,631

79,942

11,753716

28,490136,499

Overseas

1,148

1,854

11,572

1,364

-

-

-

15,938

Total financial assets

6,128

9,841

14,20381,306

11,753716

28,490152,437ANZ National Bank Limited
60 – 61

Notes to the Financial Statements
Bank
Liquidassets anddue fromotherfinancial
institutions

Tradingsecurities
andavailablefor-saleassetsDerivative
financial
instruments

Net loansandadvances

Due from
subsidiarycompanies

Other
financialassetsCredit related
commitments3

Total

Agriculture

2

-

118

18,250

-

177

1,421

19,968Forestry, fishing and mining

46

-

9

329

-

3

245

632

Business and property
services

32

-

80

8,179

-

79

1,927

10,297

Construction

-

-

2

779

-

8

791

1,580

$ millions
30/09/2010

Industry

Entertainment, leisure andtourism

-

-

39

1,052

-

10

498

1,599

Finance and insurance

2,170

2,993

9,117

1,780

9,043

17

1,636

26,756

Government and local
authority1

1,677

5,555

317

1,183

-

11

805

9,548

55

20

123

2,900

-

28

3,242

6,368

Manufacturing
Personal lending

-

-

1

44,981

-

437

8,793

54,212

105

2

70

1,272

-

12

895

2,356

Transport and storage

6

21

150

1,326

-

13

535

2,051

Wholesale trade

56

-

19

1,164

-

11

1,278

2,528

-

206

337

1,388

-

13

1,634

3,578

4,149

8,797

10,382

84,5839,043

819

23,700141,473

Provisions for credit
impairment

-

-

-

(1,339)---(1,339)Fair value hedge adjustment

-

-

-

279

-

-

-

279

Retail trade

Other2

Unearned finance income
and deferred/capitalised
fees

-

-

-

(1)

-

-

-

(1)

4,149

8,797

10,382

83,522

9,043

819

23,700140,412New Zealand

2,981

6,631

3,160

81,9349,043

819

23,700128,268

Overseas

1,168

2,166

7,222

1,588

-

-

-

12,144

Total financial assets

4,149

8,797

10,382

83,522

9,043

819

23,700140,412

Total financial assets
Geography

Government and local authority includes exposures to government administration and defence, education and health and community services.
Other includes exposures to electricity, gas and water, communications and personal services.
3
Credit related commitments comprise undrawn facilities, customer contingent liabilities and letters of offer.
1
2

Maximum exposure to credit risk
The following table presents the maximum exposure to credit risk of on and off-balance sheet financial instruments
before taking account of any collateral held or other credit enhancements, unless such collateral meets the offsetting criteria
in NZ IAS 32 Financial Instruments: Presentation, and after deductions such as provisions for credit impairment. The exposure isclassified into summarised Basel II asset classes.

ANZ National Bank Limited

Notes to the Financial Statements
Banking GroupBank

Retailmortgages

Other retail
exposures

Non-retail
exposuresTotal
maximum
exposure tocredit risk

Liquid assets

-

-

2,266

2,266

-

-

Due from other financial
institutions

-

-

3,685

3,685

-

-

3,685

3,685

Trading securities

-

-

9,466

9,466

-

-

9,466

9,466

Derivative financial
instruments--

14,16014,160--14,203

14,203Available-for-sale assets

-

-

295

295

-

-

288

288

Net loans and advances

41,008

4,076

38,526

83,61041,0083,365

36,93381,306

-

-

-

-

-

-

11,753

11,753$ millions
30/09/2011

Retailmortgages

Other retail
exposures

Non-retail
exposuresTotal
maximum
exposure tocredit risk

2,254

2,254

On and off-balance sheet
positionsDue from subsidiarycompanies
Other financial assets

-

-

865

865

-

-

716

716

Credit related commitments

5,763

4,919

15,17625,858

5,763

4,917

17,81028,490Total exposure to credit risk

46,771

8,995

84,439140,205

46,771

8,282

97,108152,161

Liquid assets

-

-

2,079

2,079

-

-

2,064

2,064

Due from other financial
institutions

-

-

3,496

3,496

-

-

1,926

1,926

Trading securities

-

-

6,757

6,757

-

-

6,757

6,757

Derivative financial
instruments--

10,367

10,367--

10,382

10,382Available-for-sale assets

-

-

2,073

2,073

-

-

1,962

1,962

Net loans and advances

40,878

4,087

40,94885,91340,881

3,399

39,242

83,522

-

-

-

-

-

-

9,043

9,043

30/09/2010

On and off-balance sheet
positionsDue from subsidiarycompanies
Other financial assets

-

-

941

941

-

-

819

819

Credit related commitments

5,261

4,575

13,687

23,523

5,261

4,573

13,866

23,700Total exposure to credit risk

46,1398,662

80,348135,149

46,142

7,972

86,061

140,175

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 Basel Committee on Banking Supervision have been encapsulated in these principles
and policies including governance, validation and modelling requirements.
The Banking Group’s risk grade profile changes dynamically through new counterparty lending and existing counterparty
movements 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 and measurement of impaired assets conforms to the RBNZ’s guidelines.
Loans are classified as either performing or impaired. Impaired assets are credit exposures where: there is doubt as to whether
the 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 and there is no concern as to the creditworthiness of the counterparty inquestion.

ANZ National Bank Limited
62 – 63

Notes to the Financial Statements
The past due but not impaired (over 90 days) classification applies where contractual payments are past due by 90 days or
more, or where the facility remains outside of contractual arrangements for 90 or more consecutive days, but the Banking
Group believes that impairment is not appropriate on the basis of the level of security/collateral available, or the facility is
portfolio managed.
The provision for credit impairment represents management’s best estimate of the losses incurred in the loan portfolio atbalance date based on its experienced judgement.
Distribution of gross loans and advances assets by credit quality
The credit quality of the portfolio of loans and advances is assessed by reference to the Banking Group’s risk grading principles
and policies supported by a complementary risk grading methodology.
Distribution of gross loans and advances by credit quality
Banking Group$ millions

Retailmortgages

Other retail
exposuresBank

Non-retail
exposures

Total

Retailmortgages

Other retail
exposures

Non-retail
exposures

Total

30/09/2011
Strong risk rating

30,966

1,071

17,29749,33430,966

1,071

16,401

48,438Satisfactory risk rating

7,277

2,312

16,561

26,150

7,277

1,590

15,73924,606

Substandard but not pastdue or impaired

1,484

557

3,489

5,530

1,484

546

3,459

5,489

Total neither past due nor
impaired

39,7273,940

37,34781,01439,7273,207

35,59978,533

1 to 5 days

336

126

545

1,007

336

126

536

998

Past due but not impaired:
6 to 29 days

365

94

119

578

365

70

116

551

1 to 29 days

701

220

664

1,585

701

196

652

1,549

30 to 59 days

167

35

99

301

167

27

97

291

60 to 89 days

60

18

24

102

60

15

24

99

90 days and over

133

38

117

288

133

32

107

272

Total past due but not
impaired

1,061

311

904

2,276

1,061

270

880

2,211

Individually impaired

471

61

1,194

1,726

471

61

1,131

1,663

41,2594,312

39,44585,016

41,2593,538

37,61082,407

Strong risk rating

29,787976

16,60047,36329,787976

15,66946,432

Satisfactory risk rating

7,835

2,349

18,30028,484

7,835

1,646

17,52527,006

Substandard but not pastdue or impaired

1,644

642

4,594

6,880

1,644

625

4,502

6,771

Total neither past due nor
impaired

39,266

3,967

39,49482,72739,266

3,247

37,69680,20930/09/2010

Past due but not impaired:
1 to 5 days

224

92

565

881

224

92

525

841

6 to 29 days

512

113

235

860

512

83

216

811

1 to 29 days

736

205

800

1,741

736

175

741

1,652

30 to 59 days

209

38

159

406

209

28

150

387

60 to 89 days

57

18

66

141

57

14

66

137

90 days and over

132

33

127

292

132

26

122

280

Total past due but not
impaired

1,134

294

1,152

2,580

1,134

243

1,079

2,456

Individually impaired

520

81

1,403

2,004

520

73

1,325

1,918

40,9204,342

42,04987,31140,9203,563

40,10084,583

ANZ National Bank Limited

Notes to the Financial Statements
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 superior stability in their operating and financial performance overthe long-term, and whose debt servicing capacity is not significantly vulnerable to foreseeable events. Retail customers withlow expected loss. This rating band broadly corresponds to ratings “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 over the
medium to long term, even though some may be susceptible to cyclical trends or variability in earnings. Retail customers withmoderate expected loss. This rating band broadly corresponds to ratings “Ba2” to “Ba3” and “BB” to “BB-” of Moody’s InvestorsService and Standard & Poor’s respectively.
Substandard but not past due or impaired – Corporate customers demonstrating some operational and financial instability,with variability and uncertainty in profitability and liquidity projected to continue over the short and possibly medium term.
Retail customers with higher expected loss. This rating band broadly corresponds to ratings “B1” to “Caa” and “B+” to “CCC” of
Moody’s Investors Service and Standard & Poor’s respectively.
These rating bands differ from the Capital Adequacy note credit risk exposures subject to the internal ratings based approach
disclosures as RBNZ credit risk estimates are not used for these internal ratings. The exposures recorded in these rating bands
in the table below also differ from the Capital Adequacy note tables as off-balance sheet exposures are excluded. Movementsin 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 impaired
Ageing analysis of past due loans is used by the Banking Group to measure and manage credit quality. Financial assets that are
past due but not impaired include those:•••

Assessed, approved and managed on a portfolio basis within a centralised environment (for example, credit cards andpersonal loans);
Held on a productive basis until they are 180 days past due; andManaged 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.
Credit quality of financial assets that are individually impaired
The Banking Group regularly reviews its portfolio and monitors adherence to contractual terms. When doubt arises as to thecollectability of a credit facility, the financial asset is classified and reported as individually impaired and an individual provision
is allocated against it.
Banking Group$ millions

Bank

Retailmortgages

Other retail
exposures

Non-retail
exposures

471

61

1,194

Total

Retailmortgages

Other retail
exposures

Non-retail
exposures

Total

1,726

471

61

1,131

1,663

30/09/2011
Impaired financial assets
Undrawn facilities with
impaired customers

-

-

26

26

-

-

26

26

Individual provision balance

148

37

309

494

148

37

289

474

Net impaired financial assets

323

24

911

1,258

323

24

868

1,215

Collective provision balance

120

147

395

662

120

136

382

638

Impaired financial assets

520

81

1,403

2,004

520

81

1,317

1,918

Undrawn facilities with
impaired customers

-

-

32

32

-

-

32

32

30/09/2010

Individual provision balance

207

51

347

605

207

51

317

575

Net impaired financial assets

313

30

1,088

1,431

313

30

1,032

1,375

Collective provision balance

111

149

533

793

111

135

518

764

ANZ National Bank Limited
64 – 65

Notes to the Financial Statements
Estimated value of collateral related to financial assets that are individually impaired
For the purposes of this disclosure, where security held is valued at more than the corresponding credit exposure, coverage iscapped at the value of the credit exposure.
Banking GroupNet
Loans andadvances1

Bank

Credit related
commitments2

Total

Net
Loans andadvances1

1,020

-

1,020

216

22

238

Total value of collateral

1,236

22

Credit exposure

1,726

26

490
945

$ millions

Credit related
commitments2

Total

1,020

-

1,020

173

22

195

1,258

1,193

22

1,215

1,752

1,663

26

1,689

4

494

470

4

474

-

945

971

-

971

30/09/2011
Real estate
Other

Unsecured portion of credit
30/09/2010
Real estate
Other

462

24

486

384

24

408

Total value of collateral

1,407

24

1,431

1,355

24

1,379

Credit exposure

2,004

32

2,036

1,918

32

1,950

597

8

605

563

8

571

Unsecured portion of credit
1
2

All individually impaired financial assets are classified as loans and advances.
Credit related commitments comprise undrawn facilities, customer contingent liabilities and letters of offer.

Market risk
Market risk is the risk to the Banking Group’s earnings arising from changes in interest rates, currency exchange rates, credit
spreads, or from fluctuations in bond, commodity or equity prices. Market risk is generated through both trading activities andthe interest rate risk inherent in the banking book.
The Banking Group conducts trading operations in interest rates, foreign exchange, commodities and debt securities. Trading
operations largely focus on supporting customer hedging and investing activities, rather than outright proprietary trading.
Consequently, the Board has set a medium market risk appetite for the Markets business which is reflected in the low/moderatemarket risk limit framework.
The Banking Group has a detailed risk management and control framework to support its trading and balance sheet activities.
The framework incorporates a risk measurement approach to quantify the magnitude of market risk within trading and balance
sheet portfolios. This approach and related analysis identifies the range of possible outcomes that can be expected over agiven period of time, establishes the relative likelihood of those outcomes and allocates an appropriate amount of capital tosupport these activities.
Market risk management and control responsibilities
Banking Group-wide responsibility for the strategies and policies relating to the management of market risk lies with each
Board Risk Committee. Responsibility for day to day management of both market risks and compliance with market risk policy
is delegated by the Risk Committee to the ANZ Credit and Market Risk Committee (“CMRC”) and the Bank’s Asset & Liability
Committee (“ALCO”). The CMRC, chaired by the ANZ Group Chief Risk Officer, is responsible for traded market risk, while the
ALCO, chaired by the NZ Group Chief Executive Officer, is responsible for non-traded market risk (or balance sheet risk). All
committees receive regular reporting on the range of trading and balance sheet market risks incurred.
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 each Board and CMRC allocated to both Risk Management andthe Business Units.
The management of market risk is supported by a comprehensive limit and policy framework to control the amount of risk thatthe Banking Group will accept. Market risk limits are allocated at various levels and are reported and monitored by Market Risk
on a daily basis. The detailed limit framework allocates individual limits to manage and control asset classes (e.g., interest rates,
foreign exchange), risk factors (e.g., interest rates, volatilities) and profit and loss limits (to monitor and manage the performanceof the trading portfolios).

ANZ National Bank Limited

Notes to the Financial Statements
These risks are monitored daily against a comprehensive limit framework that includes Value at Risk, aggregate market positionand sensitivity, product and geographic thresholds. To facilitate the management, control, measurements and reporting ofmarket risk, the Banking Group has grouped market risk into two broad categories:
a. Traded market riskThis is the risk of loss from changes in the value of financial instruments due to movements in price factors for both physicaland derivative trading positions. They arise in trading transactions where the Banking Group acts as principal with clients orwith the market. The principal risk categories monitored are:•••

Currency risk is the potential loss arising from the decline in the value of a financial instrument due to changes in foreignexchange rates or their implied volatilities.
Interest rate risk is the potential loss arising from the change in the value of a financial instrument due to changes in market
interest rates or their implied volatilities.
Credit spread risk is the potential loss arising from a change in value of an instrument due to a movement of its margin or
spread relative to a bench mark.

b. Non-traded market risk (or balance sheet risk)This comprises the management of non-traded interest rate risk, liquidity, and the risk to capital and earnings as a result of
foreign exchange rate movements.
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 valuation of the investments within
this portfolio.
The traded market risk function provides specific oversight of each of the main trading areas and is responsible for theestablishment of a Value at Risk (“VaR”) framework and detailed control limits. In all trading areas the Banking Group has
implemented models that calculate VaR exposures, monitor risk exposures against defined limits on a daily basis, and ‘stresstest’ trading portfolios. The Banking Group has an ALCO, comprising executive management to provide monthly oversight ofmarket risk.
The Bank’s Chief Risk Officer is responsible for daily review and oversight of traded market risk reports. The Chief Risk Officer
has the authority for instructing the business to close exposures and withdraw limits where appropriate.
Value at Risk (“VaR”) measure
A key measure of market risk is Value at Risk. VaR is a statistical estimate of the likely daily loss and is based on historical market
movements.
The confidence level is such that there is 97.5% or 99% probability that the loss will not exceed the VaR estimate on any givenday. Conversely there is a 2.5% or 1% probability of the decrease in market value exceeding the VaR estimate on any given day.
The 99% confidence level encompasses a wider range of potential outcomes.
The Banking Group’s standard VaR approach for both traded and non-traded risk is historical simulation. The Banking Groupcalculates VaR using historical changes in market rates and prices over the previous 500 business days. Traded and Non-TradedVaR is calculated using a one-day holding period.
It should be noted that because VaR is driven by actual historical observations, it is not an estimate of the maximum loss thatthe Banking Group could experience from an extreme market event. As a result of this limitation, the Banking Group utilises anumber of other risk measures (e.g., stress testing) and associated detailed control limits to measure and manage market risk.
Traded and non-traded market risks are considered separately.

ANZ National Bank Limited
66 – 67

Notes to the Financial Statements
Traded market risks$ millions

Banking Group

Banking Group

Value at risk at 97.5% confidence

Value at risk at 99% confidence

As at

High
for yearLow
for year

Averagefor year

As at

High
for yearLow
for year

Averagefor year

30/09/2011
Foreign exchange risk

0.4

0.9

0.2

0.4

0.4

1.3

0.3

0.5

Interest rate risk

1.9

4.3

1.2

2.8

2.3

7.2

1.6

3.9

Credit spread risk

0.8

1.0

0.3

0.6

0.9

1.1

0.4

0.7

Diversification benefit

(1.1)

n/a

n/a

(1.0)

(1.4)

n/a

n/a

(1.3)

Total VaR

2.0

4.4

1.4

2.8

2.2

6.7

1.8

3.8

30/09/2010
Foreign exchange risk

0.5

1.3

0.2

0.5

0.7

1.9

0.3

0.8

Interest rate risk

2.8

5.0

1.5

2.9

4.1

6.6

2.0

4.1

Credit spread risk

0.6

1.2

0.3

0.6

0.8

2.7

0.4

0.8

Diversification benefit

(1.1)

n/a

n/a

(1.1)

(1.5)

n/a

n/a

(1.5)

Total VaR

2.8

5.2

1.5

2.9

4.1

7.2

2.1

4.2

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 andat the Banking Group level. The Banking Group’s stress-testing regime provides senior management with an assessment of thefinancial impact of identified extreme events on market risk exposures of the Banking Group.
Non-traded market risks (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 wholesaleinterest rates on the earnings of the Banking Group’s banking book. Non-traded interest rate risk relates to the potential
adverse impact to earnings principally from changes in swap 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 noninterest bearing liabilities in interest bearing assets.
As part of normal business activity the Banking Group has additional risks from fixed rate mortgage prepayments andbasis risk:••

Prepayment risk is the potential risk to earnings or market value from when a customer prepays all or part of a fixed rate
mortgage and where any customer fee charged is not sufficient to offset the loss in value to the Banking Group of thisfinancial asset due to movements in interest rates and other pricing factors. As far as possible the true economic cost ispassed through to customers in line 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 threemeasures: VaR; scenario analysis (to a 1% shock); and interest rate sensitivity gap. This treatment excludes the effect of
prepayment and basis risk.

ANZ National Bank Limited

Notes to the Financial Statementsa) VaR non-traded interest rate risk
Banking Group$ millions

As atHigh for year

Low for year

Average for
year

7.9

13.5

7.3

9.3

11.6

13.5

7.2

11.2

30/09/2011
Value at risk at 97.5% confidence
30/09/2010
Value at risk at 97.5% confidenceb) Scenario analysis – A 1% shock on the next 12 months’ net interest income
A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income
over the succeeding 12 months. This is a standard risk quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and comparative periods – expressed
as a percentage of reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number
signifying that a rate increase is positive for net interest income over the next 12 months. Conversely, a negative number
signifies that a rate increase is negative for the next 12 months’ net interest income.
Banking Group
30/09/2011

30/09/2010

As at

1.4%

0.8%

Maximum exposure

1.5%

1.0%

Minimum exposure

-0.1%

-0.7%

Average exposure (in absolute terms)

0.7%

0.3%

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. The Banking Group quantifies the potential variation in future net interest
income as a result of these repricing mismatches each month using a static gap model.
The majority of the Banking Group’s non-traded interest exposure exists in New Zealand. A separate balance sheet simulation
process supplements the static gap information. This allows the net interest income outcomes of a number of different
scenarios – with different market interest rate environments and future balance sheet structures – to be identified. This better
enables the Banking Group to quantify the interest rate risks associated with the balance sheet and to formulate strategies tomanage current and future risk profiles.
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 majority of the Banking Group’s loan business is conducted domestically in New Zealand. The majority of retail deposits
are also raised in New Zealand but are either fixed or floating in nature. The mix of repricing maturities in this book is influenced
by the underlying financial needs of customers.
The Banking Group’s offshore operations are wholesale in nature and are able to minimise interest rate sensitivity throughclosely matching the maturities of loans and deposits. Given both the size and nature of this business, the interest ratesensitivity of this balance sheet contributes little to the aggregate risk exposure, which is primarily a reflection of the positions
in New Zealand.
A combination of off-balance sheet instruments and pricing initiatives is used in the management of interest rate risk. For
example, where a strong medium to long term rate view is held, hedging and pricing strategies are used to modify the profile’s
interest rate sensitivity so that it is positioned to take advantage of the expected movement in interest rates. However, such
positions are taken within the overall risk limits specified by the Banking Group’s policy.
The following tables represent the interest rate sensitivity of the Banking Group’s assets, liabilities and off balance sheet
instruments by showing the periods in which these instruments may reprice (that is, when interest rates applicable to each
asset or liability can be changed).
The repricing gaps are based upon contractual repricing information except where the contractual terms are not considered
to be reflective of actual interest rate sensitivity, for example, those assets and liabilities priced at the Banking Group’s
discretion. In such cases, the rate sensitivity is based upon historically observed and/or anticipated rate sensitivity. This
treatment excludes the effect of basis risk between customer pricing and wholesale market pricing.

ANZ National Bank Limited
68 – 69

Notes to the Financial Statements
Banking Group
30/09/2011$ millions

Total

Less than
3 months

3 to 6months6 to 12months1 to 2years

Beyond2 years

Not bearing
interest

2,455

2,266

-

-

-

-

189
648

AssetsLiquid assets
Due from other financial institutions

3,685

3,037

-

-

-

-

Trading securities

9,466

2,684

18

496

2,218

4,050

-

Derivative financial instruments

14,160

-

-

-

-

-

14,160Available-for-sale assets

411

94

72

122

-

-

123

Net loans and advances

83,61062,082

4,353

6,676

6,436

3,513

550

Other financial assets

865

66

4

7

14

6

768

Total financial assets

114,652

70,229

4,447

7,301

8,668

7,569

16,438

Liabilities
Due to other financial institutions

2,236

1,763

-

-

-

62

411

Deposits and other borrowings

69,23845,86911,227

4,427

1,080

1,517

5,118

Derivative financial instruments

14,174

-

-

-

-

-

14,174

Payables and other financial liabilities

2,411

198

-

-

2

189

2,022

Bonds and notes

17,406

6,875

-

2,110

4,348

4,073

-

Loan capital

1,988

-

250

903

835

-

-

Total financial liabilities

107,453

54,705

11,477

7,440

6,265

5,841

21,725

Hedging instruments-(6,788)

8,598(3,634)

1,624

200

-

Interest sensitivity gap

7,199

8,736

1,568

(3,773)

4,027

1,928

(5,287)

Not bearing
interest

Banking Group
Total

Less than
3 months

3 to 6months6 to 12months1 to 2years

Beyond2 years

Liquid assets

2,238

2,079

-

-

-

-

159

Due from other financial institutions

3,496

1,932

-

-

-

-

1,564

Trading securities

6,757

836

26

133

1,536

4,226

-

Derivative financial instruments

10,367

-

-

-

-

-

10,367Available-for-sale assets

2,151

703

1,061

246

23

40

78

Net loans and advances

85,91356,780

4,694

8,654

10,2404,948

597

30/09/2010$ millions

AssetsOther financial assets

941

93

-

-

-

-

848

Total financial assets

111,863

62,423

5,781

9,033

11,7999,214

13,613Liabilities
Due to other financial institutions

1,819

335

-

-

-

25

1,459

Deposits and other borrowings

70,295

43,696

13,223

6,414

1,000

998

4,964

Derivative financial instruments

10,715

-

-

-

-

-

10,715

Payables and other financial liabilities

1,282

97

-

-

-

-

1,185

Bonds and notes

18,761

7,982

150

457

2,188

7,984

-

2,407

-

630

350

592

835

-

Total financial liabilities

Loan capital

105,279

52,11014,003

7,221

3,780

9,842

18,323

Hedging instruments

-

5,222

(2,208)(992)(7,200)5,178-Interest sensitivity gap

6,584

15,535(10,430)

820

819

4,550

(4,710)ANZ National Bank Limited

Notes to the Financial Statements
Bank
Total

Less than
3 months

3 to 6months6 to 12months1 to 2years

Beyond2 years

Not bearing
interest

Liquid assets

2,443

2,254

-

-

-

-

189

Due from other financial institutions

3,685

3,037

-

-

-

-

648

Trading securities

9,466

2,684

18

496

2,218

4,050

-

Derivative financial instruments

14,203

-

-

-

-

-

14,20330/09/2011$ millions

AssetsAvailable-for-sale assets

375

94

72

122

-

-

87

Net loans and advances

81,30660,977

4,207

6,459

5,952

3,182

529

Due from subsidiary companies

11,753

10,841

-

-

-

-

912

Other financial assets

716

-

-

-

-

-

716

Total financial assets

123,947

79,887

4,297

7,077

8,170

7,232

17,284

Liabilities
Due to other financial institutions

2,236

1,763

-

-

-

62

411

Deposits and other borrowings

63,007

41,661

9,781

4,089

951

1,407

5,118

Derivative financial instruments

14,174

-

-

-

-

-

14,174

Payables and other financial liabilities

2,249

198

-

-

2

189

1,860

Due to subsidiary companies

37,39023,605

1,924

3,233

5,285

3,343

-

Bonds and notes

2,319

888

-

148

98

1,185

-

Loan capital

1,988

-

250

903

835

-

-

123,363

68,115

11,955

8,373

7,171

6,186

21,563

Hedging instruments-(5,989)7,043(3,446)

1,848

544

-

Interest sensitivity gap

584

5,783

(615)

(4,742)

2,847

1,590

(4,279)Total

Less than
3 months

3 to 6months6 to 12months1 to 2years

Beyond2 years

Not bearing
interest

2,223

2,064

-

-

-

-

159

Due from other financial institutions

1,926

1,790

-

-

-

-

136

Trading securities

6,757

836

26

133

1,536

4,226

-

Derivative financial instruments

10,382

-

-

-

-

-

10,382

Total financial liabilities

Bank
30/09/2010$ millions

AssetsLiquid assets

Available-for-sale assets

2,040

609

1,066

246

-

41

78

Net loans and advances

83,522

55,690

4,574

8,424

9,880

4,385

569

Due from subsidiary companies

9,043

9,043

-

-

-

-

-

Other financial assets

819

6

-

-

-

-

813

Total financial assets

116,71270,038

5,666

8,803

11,416

8,652

12,137

Liabilities
Due to other financial institutions

1,819

1,762

-

-

-

25

32

Deposits and other borrowings

61,68037,666

11,346

6,021

799

884

4,964

Derivative financial instruments

10,715

-

-

-

-

-

10,715

Payables and other financial liabilities

1,278

97

-

-

-

-

1,181

Due to subsidiary companies

37,45822,792

2,213

1,588

3,816

7,049

-

Bonds and notes

2,157

872

150

50

150

935

-

Loan capital

2,412

-

630

350

597

835

-

Total financial liabilities

117,519

63,18914,339

8,009

5,362

9,728

16,892

Hedging instruments

-

1,803

(1,649)92(5,423)

5,177-

Interest sensitivity gap

(807)

8,652

(10,322)

886

631

4,101

(4,755)ANZ National Bank Limited
70 – 71

Notes to the Financial Statements
Equity price risk
The portfolio of financial assets classified as available-for-sale contains equity investment holdings held for longer term
strategic intentions. These equity investments are also subject to market risk which is not captured by the VaR measures for
traded and non-traded market risks. The fair value of these securities as at 30 September 2011 was $116 million (30/09/2010 $78
million). A 10 per cent reduction in the value of the available-for-sale equity securities at 30 September 2011 would have
reduced equity by $12 million (30/09/2010 $8 million).
Foreign currency related risksThis risk relates to the potential loss arising from the decline in the value of foreign currency positions due to changes inforeign exchange rates.
For non-traded instruments in foreign currencies, the risk is monitored and is hedged in accordance with policy. Risk arisingfrom individual funding and other transactions is actively managed. The total amounts of unmatched foreign currency assets
and liabilities and consequent foreign currency exposures, arising from each class of financial asset and liability, whether
recognised or unrecognised, within each currency are not material.
The net open position in each foreign currency represents the net on-balance sheet assets and liabilities in that foreign
currency aggregated with the net expected future cash flows from off-balance sheet purchases and sales from foreignexchange transactions in that foreign currency. The amounts are stated in New Zealand dollar equivalents translated using
the spot exchange rates as at balance sheet date.
Banking Group$ millions

Bank

30/09/2011

30/09/2010

30/09/2011

30/09/201018

Net open position
(4)

18

(4)

Euro

-

(1)

-

(1)

Japanese yen

-

(2)

-

(2)

Australian dollar

Pound sterling

-

1

-

1

US dollar

2

(3)

2

(3)

Total net open position

(2)

13

(2)

13

Liquidity risk
Liquidity risk is the risk that the Banking Group is unable to meet its payment obligations as they fall due. The timing mismatchof cash flows and the related liquidity risk is inherent in all banking operations and is closely monitored by the Banking Group.
The Banking Group’s liquidity and funding risks are governed by a detailed policy framework which is approved by the Risk
Committees of the Bank’s and Ultimate Parent Bank’s Boards. The core objective of the Banking Group’s framework is to
manage liquidity to meet obligations as they fall due, without incurring unacceptable losses.
Central to the Banking Group’s liquidity risk management approach is the establishment of a liquidity risk appetite framework
to which the Banking Group must conform at all times. The risk appetite for liquidity has been set as low, and this objective isachieved by the Banking Group managing liquidity risks within the boundaries of the following requirements and principles:
•
•
•
•
•
•
•
•
•

Maintaining the ability to meet all payment obligations in the immediate term.
Ensuring the ability to meet “survival horizons” under a range of the Banking Group specific and general market liquidity
stress scenarios.
Maintaining strength in the Banking Group’s balance sheet structure to ensure long term resilience in the Banking Group’s
liquidity and funding risk profile.
Limiting the potential earnings at risk associated with unexpected increases in funding costs or the liquidation of assets
under stress.
Ensuring the liquidity management framework is compatible with regulatory requirements.
Daily liquidity reporting and scenario analysis, quantifying the Banking Group’s positions.
Targeting a diversified funding base, avoiding undue concentrations by investor type, maturity, market source and currency.
Holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-to-day
operations.
Establishing detailed contingency plans to cover different liquidity crisis events.

Management of liquidity and funding risks are overseen by ALCO.

ANZ National Bank Limited

Notes to the Financial Statements
Supervision and Regulation
The RBNZ requires the Banking Group to have a comprehensive Board approved liquidity strategy defining: policy, systems
and procedures for measuring, assessing, reporting and managing domestic and foreign currency liquidity. This also includes
a formal contingency plan for dealing with a liquidity crisis.
Scenario Modelling
A key component of the Banking Group’s liquidity management framework is scenario modelling. Liquidity is assessed under
different scenarios, including “going-concern”, “name-crisis” and various “survival horizons”.
“Going-concern”: reflects the normal behaviour of cash flows in the ordinary course of business. The Banking Group must beable to meet all commitments and obligations under a going concern scenario, within the Banking Group normal funding
capacity (‘available to fund’ limit), over at least the following 30 calendar days. In estimating the funding requirement, theBanking Group models expected cash flows by reference to historical behaviour and contractual maturity data.
“Name-crisis”: refers to a potential 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 solvencyof 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 be cash flow positive over an eight
calendar day period.
“Survival horizons”: The global financial crisis has highlighted the importance of differentiating between stressed and normal
market conditions in a name-specific crisis and the different behaviour that offshore and domestic wholesale funding markets
can exhibit during market stress events. The Banking Group has linked its liquidity risk appetite to defined liquidity “survival
horizons” (i.e. the time period under which the Banking Group must maintain a positive cash flow position). The following
stressed scenarios are modelled:••••

Extreme Short Term Crisis Scenario: A name-specific stress during a period of market stress.
Short Term Crisis Scenario: A name-specific stress during a period of normal markets conditions.
Global Funding Market Disruption: Stressed global wholesale funding markets leading to a closure of domestic andoffshore markets.
Offshore Funding Market Disruption: Stressed global wholesale funding markets leading to a closure of offshore markets
only.

As of 30 September 2011 the Banking Group was in compliance with all of the above scenarios.

ANZ National Bank Limited
72 – 73

Notes to the Financial Statements
Funding Composition
The Banking Group actively uses balance sheet disciplines to prudently manage the funding mix. The Banking Group employs
funding metrics to ensure that an appropriate proportion of its assets are funded from stable sources, including customer
liabilities, longer-dated wholesale debt (with remaining term exceeding one year) and equity. This approach recognises that
long-term wholesale debt and other sticky liabilities have favourable liquidity characteristics.
Banking Group$ millions

Bank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

50,981

Funding composition
Customer deposits1
New Zealand

55,04452,18353,719Overseas

6,950

7,560

6,827

7,454

Total customer deposits

61,99459,74360,54658,435

Bonds and notes

17,406

18,761

2,319

2,157

Loan capital

1,988

2,407

1,988

2,412

Certificates of deposit

2,454

3,245

2,461

3,245

Commercial paper

4,790

7,307

-

-

-

-

37,39037,458Wholesale funding

Due to subsidiary companies

174

-

174

-

Due to other financial institutions

2,236

1,819

2,236

1,819

Total wholesale funding

29,04833,53946,56847,091

Total funding

91,04293,282

107,114

105,526

Households

40,59537,968

39,10736,590Agriculture

2,240

1,993

2,240

1,993

504

527

504

527

2,464

2,772

2,464

2,772

668

596

668

596

36,13240,01753,691

53,639Due to parent company

Concentrations of funding by industry

Forestry, fishing and mining
ManufacturingEntertainment, leisure and tourism
Finance and insurance
Retail trade

690

670

690

670

Wholesale trade

873

677

873

677

3,281

3,754

3,281

3,754

Transport and storage

507

620

507

620

Construction

762

731

762

731

1,347

1,967

1,348

1,967

979

990

979

990

91,04293,282

107,114

105,526

61,32359,99077,51872,340Business and property services

Government and local authority
Other2
Total funding
Concentrations of funding by geography3
New ZealandAustralia

2,712

1,978

2,692

1,964

United States

14,19817,325

14,18817,315

Europe

7,776

8,708

7,751

8,684

Other countries

5,033

5,281

4,965

5,223

Total funding

91,04293,282

107,114

105,526

Represents term deposits, demand deposits bearing interest, deposits not bearing interest and secured debenture stock.
Other includes exposures to electricity, gas and water, communications and personal services.
3
Funding of the Banking Group via ANZ National (Int’l) Limited is classified as either from the United States or Europe, as the company conducts overseas funding
activities through its London branch.
12Analysis of funding liabilities by industry sector is based on Australian and New Zealand Standard Industrial Classification(“ANZSIC”) codes.

ANZ National Bank Limited

Notes to the Financial Statements
Wholesale funding
The Banking Group’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances
cost efficiency while targeting diversification by markets, investors, currencies, maturities and funding structures. Short-term
wholesale funding requirements, with a contractual maturity of less than one year, are managed through the Treasury andMarkets operations. Long-term wholesale funding is managed and executed through Treasury operations.
The Banking Group also uses maturity concentration limits under the wholesale funding and liquidity management framework.
Maturity concentration limits ensure that the Banking Group does not become reliant on issuing large volumes of newwholesale 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.
Funding capacity and debt issuance planning
Under the normal business conditions scenario, borrowing capacity is an estimate of the amount of funding that can be raisedin the wholesale markets in normal market conditions. The Banking Group adopts a conservative approach to determine its
funding capacity. Funding capacity limits are determined at the Ultimate Parent Bank level and allocated to individual sites
based on their requirements.
Annually, a funding plan is ratified by the Banking Group’s senior management. The plan is supplemented by monthly updates
and is linked to the Banking Group’s three year strategic planning cycle.
Liquidity portfolio management
The Banking Group holds a diversified portfolio of cash and high-quality highly-liquid securities to support liquidity risk
management. The size of the Banking Group’s liquidity portfolio is based on the amount required to meet its liquidity policy.
Total liquidity portfolio$ millions

Balances with central banks

Banking GroupBank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

1,765

1,015

1,765

1,015
266

992

266

992

Certificates of deposit

1,562

687

1,562

687

Govt, local body stock and bonds

4,329

3,631

4,329

3,631

Securities purchased under agreement to resell

169

1,915

169

1,915

Other bonds

3,269

2,698

3,269

2,698

Total liquidity portfolio

12,086

10,212

12,086

10,212Government treasury bills

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 and highly rated NZ domestic corporates. These assets are accepted as collateral by the RBNZ in
repurchase transactions. At 30 September 2011 the Banking Group would be eligible to enter into repurchase transactions
with a value of $11,634 million. The Banking Group also held unencumbered internal residential mortgage backed securities(“RMBS”) which would entitle the Banking Group to enter into repurchase transactions with a value of $4,963 million at
30 September 2011 (the RBNZ has imposed a cap limiting the amount of RMBS deemed as eligible in the liquidity portfolio to
4% of total assets).
Liquidity crisis contingency planning
The Banking Group maintains liquidity crisis contingency plans defining an approach for analysing and responding to aliquidity-threatening 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; andassigned responsibilities for internal and external communications.

ANZ National Bank Limited
74 – 75

Notes to the Financial Statements
Contractual maturity analysis of financial assets and liabilities
The tables below 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 and may differ to the amounts
reported on the balance sheet.
The contractual maturity analysis for off-balance sheet commitments and contingent liabilities has been prepared using theearliest 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 the basis of the information below.
Banking GroupTotal

At callLess than
3 months

2,455

2,455

-

Due from other financial institutions

3,693

972

2,721

-

-

-

-

Trading securities

10,220

-

1,797

851

6,984

588

-

Derivative financial assets (trading)

12,455-

12,455----

Available-for-sale assets

418

-

73

201

-

21

123

Net loans and advances

113,431-

10,25821,631

32,07249,470-

Other financial assets

522

-

491

11

14

6

-

Total financial assets

143,194

3,427

27,795

22,69439,07050,085

123

2,236

726

1,448

-

-

62

-

Deposits and other borrowings

70,611

26,34024,483

16,785

2,887

116

-

Derivative financial liabilities (trading)

12,578-

12,578----Other financial liabilities

1,857

-

1,616

6

198

37

-

Bonds and notes

18,482

-

1,353

3,712

13,094323-

Loan capital

3,135

-

40

120

797

1,005

1,173

$ millions
30/09/2011

3 to 12months1 to 5years

Beyond5 years

No maturity
specified

-

-

-

-

Financial assets
Liquid assets

Financial liabilities
Due to other financial institutions

Total financial liabilities

108,899

27,066

41,518

20,623

16,976

1,543

1,173

Net financial assets / (liabilities)

34,295(23,639)(13,723)

2,071

22,09448,542(1,050)– gross inflows

19,833

-

2,822

5,478

11,46370-– gross outflows(19,451)-(3,059)(5,475)(10,840)(77)-

Net financial assets / (liabilities) after
balance sheet management

34,677(23,639)(13,960)

2,074

22,71748,535(1,050)Derivative financial instruments used
for balance sheet management

Contractual maturity of off-balance sheet commitments and contingent liabilities
Banking Group$ millions
30/09/2011

Non-credit related commitments
Credit related commitments

Less than
1 yearBeyond1 year

257

93

164

23,05323,053-

Total

Contingent liabilities

2,805

2,805

-

Total

26,11525,951

164

ANZ National Bank Limited

Notes to the Financial Statements
Banking GroupTotal

At callLess than
3 months

Liquid assets

2,238

2,238

-

Due from other financial institutions

3,499

457

2,959

83

-

-

-

Trading securities

7,991

-

924

396

6,501

170

-

Derivative financial assets (trading)

8,705

-

8,705

-

-

-

-

$ millions
30/09/2010

3 to 12months1 to 5years

Beyond5 years

No maturity
specified

-

-

-

-

Financial assets

Available-for-sale assets

2,221

-

634

1,309

54

146

78

Net loans and advances

118,960-

9,822

19,22934,20355,706-

Other financial assets

491

6

464

4

11

6

-

Total financial assets

144,105

2,701

23,50821,021

40,76956,02878

Liabilities
Due to other financial institutions

2,016

690

1,277

5

44

-

-

Deposits and other borrowings

71,974

23,67823,64922,326

2,280

41

-

Derivative financial liabilities (trading)

9,028

-

9,028

-

-

-

-

Other financial liabilities

659

-

659

-

-

-

-

Bonds and notes

20,364

-

1,711

2,426

16,118109-

Loan capital

3,781

-

48

144

960

1,445

1,184

Total financial liabilities

107,822

24,36836,372

24,901

19,402

1,595

1,184

Net financial assets/(liabilities)

36,283(21,667)(12,864)(3,880)21,36754,433(1,106)– gross inflows

23,110

-

845

6,080

16,16124-– gross outflows(22,606)-(820)(5,891)(15,869)(26)-

Net financial assets / (liabilities) after
balance sheet management

36,787(21,667)(12,839)(3,691)

21,65954,431(1,106)

Derivative financial instruments used
for balance sheet management

Contractual maturity of off-balance sheet commitments and contingent liabilities
Banking Group$ millions
30/09/2010

Total

Less than
1 yearBeyond1 yearNon-credit related commitments

303

108

195

Credit related commitments

20,782

20,782-

Contingent liabilities

2,741

2,741

-

Total

23,826

23,631

195

ANZ National Bank Limited
76 – 77

Notes to the Financial Statements
Bank
Total

At callLess than
3 months

2,443

2,443

-

Due from other financial institutions

3,693

972

2,721

-

-

-

-

Trading securities

10,220

-

1,797

851

6,984

588

-

Derivative financial assets (trading)

12,461-

12,461----

Available-for-sale assets

380

-

71

201

-

21

87

Net loans and advances

110,507-

9,804

21,32030,12949,254-Due from subsidiary companies

11,772

-

2,401

-

-

9,371

-

$ millions
30/09/2011

3 to 12months1 to 5years

Beyond5 years

No maturity
specified

-

-

-

-

Financial assets
Liquid assets

Other financial assets

293

-

293

-

-

-

-

Total financial assets

151,769

3,415

29,54822,372

37,113

59,23487

Financial liabilities
Due to other financial institutions

2,236

726

1,448

-

-

62

-

Deposits and other borrowings

64,174

26,16820,338

14,846

2,607

215

-

Due to subsidiary companies

43,748-13,008

5,268

13,841

11,631

Derivative financial liabilities (trading)

12,578-

12,578----Other financial liabilities

1,815

-

1,574

6

198

37

-

Bonds and notes

2,512

-

20

387

1,782

323

-

Loan capital

3,134

-

40

120

796

1,005

1,173

Total financial liabilities

130,197

26,89449,006

20,627

19,224

13,273

1,173

Net financial assets/(liabilities)

21,572(23,479)(19,458)

1,745

17,88945,961(1,086)– gross inflows

23,479

-

2,919

5,755

12,6952,110-– gross outflows(30,568)-(3,142)(5,723)(12,166)(9,537)-

Net financial assets (liabilities) after
balance sheet management

14,483(23,479)(19,681)

1,777

18,41838,534(1,086)

Derivative financial instruments used
for balance sheet management

Contractual maturity of off-balance sheet commitments and contingent liabilities
Bank$ millions
30/09/2011

Non-credit related commitments
Credit related commitments

Less than
1 yearBeyond1 year

229

85

144

25,687

25,687-

Total

Contingent liabilities

2,803

2,803

-

Total

28,71928,575

144

ANZ National Bank Limited

Notes to the Financial Statements
Bank
Total

At callLess than
3 months

Liquid assets

2,223

2,223

-

Due from other financial institutions

1,926

448

1,478

-

-

-

-

Trading securities

7,991

-

924

396

6,501

170

-

Derivative financial instruments (trading)

8,709

-

8,709

-

-

-

-

Available-for-sale assets

2,052

-

610

1,308

18

38

78

Net loans and advances

116,165-

9,592

18,92632,16955,478

-

9,155

-

1,474

630

337

6,714

-

$ millions
30/09/2010

3 to 12months1 to 5years

Beyond5 years

No maturity
specified

-

-

-

-

AssetsDue from subsidiary companies
Other financial assets
Total financial assets (inclusive of interest)

396

6

390

-

-

-

-

148,617

2,677

23,177

21,26039,02562,40078

Liabilities
Due to other financial institutions

1,819

690

1,101

-

28

-

-

Deposits and other borrowings

80,61023,74836,215

18,677

1,929

41

-

Due to subsidiary companies

42,423-14,3695,415

15,7596,880-

Derivative financial instruments (trading)

9,030

-

9,030

-

-

-

-

785

-

785

-

-

-

-

Other financial liabilities
Bonds and notes

2,513

-

434

498

1,472

109

-

Loan capital

3,677

-

43

131

867

1,452

1,184

Total financial liabilities

140,857

24,43861,977

24,721

20,055

8,482

1,184

7,760

(21,761)(38,800)(3,461)

18,97053,918(1,106)– gross inflows

26,949

-

952

6,379

17,4682,150-– gross outflows(34,881)-(909)(6,156)(17,291)(10,525)-(172)(21,761)(38,757)(3,238)19,14745,543(1,106)

Net financial assets / (liabilities)
Derivative financial instruments used
for balance sheet management

Net financial assets / (liabilities) after
balance sheet management

Contractual maturity of off-balance sheet commitments and contingent liabilities
Bank$ millions
30/09/2010

Non-credit related commitments
Credit related commitments

Less than
1 yearBeyond1 year

255

87

168

20,96020,960-

Total

Contingent liabilities

2,740

2,740

-

Total

23,95523,787-

ANZ National Bank Limited
78 – 79

Notes to the Financial Statements
31. Concentrations of Credit Risk to Individual Counterparties
The Banking Group measures its concentration of credit risk in respect to bank counterparties on the basis of approved
exposures and in respect to non bank counterparties on the basis of limits. No account is taken of collateral, security and/or
netting agreements which the Banking Group may hold in respect of the various counterparty exposures.
The number of individual counterparties (excluding connected parties, governments and banks with long term credit ratingsof A- or above) where the Banking Group’s period end or peak, for the quarter ended 30 September 2011, end-of-day credit
exposure equals or exceeds 10% of equity (as at the end of the period) are:
30/09/2011
Unaudited
Number of counterparties

As at

Peak forthe quarter

11

Concentrations of credit risk to non bank counterparties
10% to 15% of equity

The counterparty included in the preceding table has a credit rating of at least A- for its long term senior unsecured obligations
payable in New Zealand, in New Zealand dollars.
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 a gross basis. Netting has occurred in respect of certain transactions which are the subject of a bilateral
netting agreement.
Banking Group
30/09/2011

30/09/2010

Amount$m% of Tier
One Capital

Amount$m% of Tier
One Capital

Other connected persons (on gross basis, before netting)1

4,687

66.1%

3,925

58.9%

Less: amount netted off

4,221

59.5%

3,229

48.4%

466

6.6%

696

10.5%

-

0.0%

-

0.0%

Other connected persons (on gross basis, before netting)

5,534

78.0%

4,923

73.9%

Less: amount netted off

3,221

45.4%

2,787

41.8%

Other connected persons (on partial bilateral net basis)

2,313

32.6%

2,136

32.1%

-

0.0%

-

0.0%

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

n/a

125.0%

Other 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 year
1

Other connected persons (on partial bilateral net basis)1
Non-bank connected persons2Peak end-of-day for the year3

Non-bank connected persons
Rating-contingent limit

4

The Banking Group has amounts due from the Immediate Parent Company and the Ultimate Parent Bank and other entities within the Overseas Banking Grouparising in the ordinary 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 2011, the gross exposures to the Immediate Parent Company were $35 million (30/09/2010 $34 million). As at 30
September 2011, the gross exposures to the Ultimate Parent Bank were $4,652 million (30/09/2010 $3,891 million).
2
Non-bank connected persons exposures consist of loans to directors of the Bank. Any loans are made in the ordinary course of business of the Bank, on an arm’s
length basis and on normal commercial terms and conditions.
3
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-bank connected persons, as set out in the Conditions of Registration, at all times during the year. The peak end-of-day credit exposures for the year toconnected persons are measured over Tier One Capital as at the end of the year.
4
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 is based on the ratings applicable to the Bank’s long term senior unsecured obligations payable in New Zealand in New Zealand dollars. Within theoverall limit a sub-limit of 15% of Tier One Capital applies to aggregate credit exposures (exclusive of exposures of a capital nature and net of individual
provisions) to non-bank connected persons. There have been no changes to these limits for the year ended 30 September 2011.
1

The credit exposure concentrations disclosed for connected persons are on the basis of actual gross exposures and are
exclusive of exposures of a capital nature. There were no individual provisions provided against credit exposures to connected
persons as at 30 September 2011 (30/09/2010 $nil). The Banking Group had no contingent exposures arising from risk lay-off
arrangements to connected persons as at 30 September 2011 (30/09/2010 $nil).

ANZ National Bank Limited

Notes to the Financial Statements
32. Fair Value of Financial Assets and Financial Liabilities
Banking GroupAt amorised
cost$ millions
Carrying amountAt fair value throughprofit or loss

Hedging

Designatedon initialrecognition

Held fortrading

Availablefor-saleassets

Total

Fair value

30/09/2011
Liquid assets

2,455

-

-

-

-

2,455

2,455

Due from other financial institutions

2,123

-

-

-

1,562

3,685

3,685

-

-

9,466

-

-

9,466

9,466
14,160

Trading securities
Derivative financial instruments--

13,601559-

14,160Available-for-sale assets

-

-

-

-

411

411

411

Net loans and advances2

83,610----83,61083,828Other financial assets

768

97

-

-

-

865

865

Total financial assets

88,956

97

23,067559

1,973

114,652

114,8701

Due to other financial institutions

2,236

-

-

-

-

2,236

2,236

Deposits and other borrowings

64,448

4,790

-

-

-

69,23869,343

Derivative financial instruments1--

13,839335-

14,174

14,174

Other financial liabilities

2,411

-

-

-

-

2,411

2,411

Bonds and notes2

17,406----

17,406

17,390Loan capital

1,988

-

-

-

-

1,988

1,922

Total financial liabilities

88,4894,790

13,839335-

107,453

107,476

Liquid assets

2,238

-

-

-

-

2,238

2,238

Due from other financial institutions

2,789

-

-

-

707

3,496

3,496

-

-

6,757

-

-

6,757

6,757
10,36730/09/2010

Trading securities
Derivative financial instruments

-

-

9,740

627

-

10,367Available-for-sale assets

-

-

-

-

2,151

2,151

2,151

Net loans and advances2

85,913----85,91385,900

Other financial assets

854

87

-

-

-

941

941

Total financial assets

91,79487

16,497627

2,858

111,863

111,850

Due to other financial institutions

1,819

-

-

-

-

1,819

1,819

Deposits and other borrowings

62,988

7,307

-

-

-

70,29570,362Derivative financial instruments1--

10,282433-

10,715

10,715

1

Other financial liabilities

1,282

-

-

-

-

1,282

1,282

Bonds and notes2

18,761----

18,761

18,902

Loan capital

2,407

-

-

-

-

2,407

2,361

Total financial liabilities

87,257

7,307

10,282

433-

105,279

105,441

ANZ National Bank Limited
80 – 81

Notes to the Financial Statements
Bank
At amorised
cost$ millions
Carrying amountAt fair value throughprofit or loss

Hedging

Availablefor-saleassets

Total

Fair value

2,443

2,443

Designatedon initialrecognition

Held fortrading---

30/09/2011
Liquid assets

2,443

-

Due from other financial institutions

2,123

-

-

-

1,562

3,685

3,685

Trading securities

-

-

9,466

-

-

9,466

9,466

Derivative financial instruments1--

13,644559-

14,203

14,203Available-for-sale assets

-

-

-

-

375

375

375

Net loans and advances2

81,306----81,306

81,510Due from subsidiary companies

11,761

5,169

6,584

-

-

-

11,753

Other financial assets

716

-

-

-

-

716

716

Total financial assets

91,757

6,584

23,110559

1,937

123,947

124,159

Due to other financial institutions

2,236

-

-

-

-

2,236

2,236

Deposits and other borrowings

63,007----63,007

63,10230,723

6,667

-

-

-

37,39037,310Due to subsidiary companies
Derivative financial instruments--

13,839335-

14,174

14,174

2,249

-

-

-

-

2,249

2,249

Bonds and notes2

2,319

-

-

-

-

2,319

2,146

Loan capital

1,988

-

-

-

-

1,988

1,922

102,522

6,667

13,839335-

123,363

123,139

Liquid assets

2,223

-

-

-

-

2,223

2,223

Due from other financial institutions

1,269

-

-

-

657

1,926

1,926

1

Other financial liabilities

Total financial liabilities
30/09/2010

Trading securities

-

-

6,757

-

-

6,757

6,757

Derivative financial instruments1

-

-

9,755

627

-

10,382

10,382Available-for-sale assets

-

-

-

-

2,040

2,040

2,040

Net loans and advances

83,522----

83,522

83,496Due from subsidiary companies

2,402

6,641

-

-

-

9,043

9,043

2

Other financial assets

819

-

-

-

-

819

819

Total financial assets

90,235

6,641

16,512627

2,697

116,712

116,686

Due to other financial institutions

1,819

-

-

-

-

1,819

1,819

Deposits and other borrowings

61,680----61,68061,740Due to subsidiary companies

30,927

6,531

-

-

-

37,45837,548--

10,282433-

10,715

10,715Derivative financial instruments1
Other financial liabilities

1,278

-

-

-

-

1,278

1,278

Bonds and notes2

2,157

-

-

-

-

2,157

2,208

Loan capital
Total financial liabilities

2,412

-

-

-

-

2,412

2,366

100,273

6,531

10,282

433-

117,519

117,674

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

ANZ National Bank Limited

Notes to the Financial Statements
Estimation of fair value
Liquid assets and due from/to other financial institutions
Where these financial instruments are short-term in nature, defined as those that reprice or mature in 90 days or less, or are
receivable on demand, the carrying values are considered to approximate the fair values. When longer term in nature, fairvalue is based on quoted market prices, or for those debt issues where quoted market prices are not available, a discounted
cash flow model using a yield curve appropriate for the remaining term to maturity of that debt instrument.
Trading securities, derivative financial instruments and available for sale assets
Fair value is based on quoted market prices, broker or dealer price quotations. If this information is not available, fair value isestimated using quoted market prices for securities with similar credit, maturity and yield characteristics, or market acceptedvaluation models as appropriate (including discounted cash flow models) based on current market yields for similar types of
instruments and the maturity of each instrument.
Net loans and advances
Fair value has been estimated through discounting future cash flows. For fixed rate loans and advances, the discount rateapplied incorporates changes in wholesale market rates, the Banking Group’s cost of wholesale funding and movements incustomer margin. For floating rate loans, only changes in wholesale market rates and the Banking Group’s cost of wholesalefunding are incorporated in the discount rate. For variable rate loans where the Banking Group sets the applicable rate at its
discretion, the carrying value is considered to approximate the fair value.
Other financial assets/liabilities
Included in this category are accrued interest and fees receivable/payable. For these balances the carrying value is considered
to approximate the fair values, as they are short term in nature or are receivable/payable on demand.
Deposits and other borrowings
For interest bearing fixed maturity deposits and other borrowings without quoted market prices, market borrowing rates ofinterest for debt with a similar maturity are used to discount contractual cash flows. The fair value of a deposit liability without
a specified maturity or at call is deemed to be the amount payable on demand at the reporting date. The fair value is not
adjusted for any value expected to be derived from retaining the deposit for a future period of time.
Certain items included in deposits and other borrowings have been designated as financial liabilities at fair value throughprofit or loss and are carried at fair value.
Bonds and notes, due to parent company and loan capital
The aggregate fair value of bonds and notes and loan capital is calculated based on quoted market prices. For those debt issues
where quoted market prices are not available, a discounted cash flow model using a yield curve appropriate for the remaining
term to maturity of the debt instrument is used.
Commitments and contingencies
Adjustments to fair value for commitments and contingencies that are not financial instruments recognised in the balance
sheet are not included in this note.

Valuation hierarchy
In determining the carrying amount of financial instruments held at fair value the Banking Group uses a valuation method
within the following hierarchy:“Level 1” – Quoted market price
Where an active market exists fair value is based on quoted market prices for identical financial instruments. The quoted
market price is not adjusted for any potential impact that may be attributed to a large holding of the financial instrument.
“Level 2” – Valuation technique using observable inputs
In the event that there is no quoted market price for the instruments, fair values are based on present value estimates or othermarket accepted valuation techniques which include data from observable markets wherever possible.
“Level 3” – Valuation technique with significant non observable inputs
The majority of valuation techniques employ only observable market data. However, the Banking Group holds someinvestments in unlisted funds or other investments which do not trade in an active market. For these instruments the fair value
cannot be determined in whole with reference to current market transactions or valuation techniques whose variables only
include data from observable markets. Where observable market data is not available, the fair value is determined using broker
quotes or valuation techniques, including discounted cash flow analysis, using data derived and extrapolated from market
data and tested against historic transactions and observed market trends.

ANZ National Bank Limited
82 – 83

Notes to the Financial Statements
Valuation technique$ millions

Banking GroupBank

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3Total

Due from other financial institutions

1,562

-

-

1,562

1,562

-

-

1,562

Trading securities

9,466

30/09/2011
5,565

3,901

-

9,466

5,565

3,901

-

Available-for-sale assets

334

72

5

411

334

41

-

375

Derivative financial instruments

18

14,141

1

14,16018

14,1841

14,203

Investments relating to insurance business

27

70

-

97

-

-

-

-

-

-

-

-

-

6,584

-

6,584

7,506

18,184

6

25,696

7,479

24,7101

32,190

-

4,790

-

4,790

-

-

-

-

18

14,156-

14,17418

14,156-

14,174

-

-

-

-

-

6,667

-

6,667

18

18,946-

18,96418

20,823-

20,841

Due from subsidiary companies
Total financial assets held at fair value
Commercial paper
Derivative financial instruments
Due to subsidiary companies
Total financial liabilities held at fair value
30/09/2010
Due from other financial institutions

707

-

-

707

657

-

-

657

Trading securities

3,630

3,127

-

6,757

3,630

3,127

-

6,757

Available-for-sale assets

1,990

42

119

2,151

1,990

50

-

2,040

Derivative financial instruments

3

10,364-

10,367

3

10,379-10,382

Investments relating to insurance business

-

87

-

87

-

-

-

-

Due from subsidiary companies

-

-

-

-

-

6,641

-

6,641

6,330

13,620119

20,0696,280

20,197-

26,477

-

7,307

-

7,307

-

-

-

-

Derivative financial instruments

35

10,680-10,71535

10,680-10,715Due to subsidiary companies

-

-

-

-

-

6,531

-

6,531

35

17,987-18,022

35

17,211-

17,246

Total financial assets held at fair value
Commercial paper

Total financial liabilities held at fair value

Movements in level 3 valuations
Banking Group$ millions

30/09/2011

Bank

30/09/2010

30/09/2011

30/09/2010

119

-

-

-

Acquired in a business combination

-

127

-

-

Purchases

11

-

-

-

Revaluations

38

38

1

-

Foreign exchange movements

4

(8)

-

-

Opening balance

Sales
Closing balance

(166)

(38)

-

-

6

119

1

-

ANZ National Bank Limited

Notes to the Financial Statements
33. Notes to the Cash Flow Statements
Banking GroupBank

Year to30/09/2011

Year to30/09/2010

Year to30/09/2011

Year to30/09/2010

1,099

827

1,032

1,055

Depreciation and amortisation

74

71

31

35

Provision for credit impairment

417$ millions

Reconciliation of profit after income tax to net cash flows provided
by/(used in) operating activities
Profit after income tax
Non-cash items:
178

436

174

Deferred fee revenue and expenses

4

(5)

4

(5)

Share-based payments expense

22

21

22

21

Amortisation of capitalised brokerage/mortgage origination fees

33

35

33

35
(2,127)

Deferrals or accruals of past or future operating cash receipts or payments:
1,557(1,799)975

Change in interest receivable

48

6

11

2

Change in interest payable

(38)

(64)

(31)

(65)

Change in net operating assets less liabilities

Change in accrued income

3

(6)

5

(2)

Change in accrued expenses

(55)

51

(64)

50

Change in provisions

35

(63)

54

(58)

Amortisation of premiums and discounts

109

39

69

39

Change in insurance policy assets

(62)

(49)

-

-

Change in income tax assets/liabilities

226

(302)

174

(294)

(2)

(42)

-

-

Items classified as investing/financing:
Share of profit of associates and jointly controlled entities
Impairment of associates

-

7

-

-

Re-measuring existing equity interest to fair value

-

82

-

61

Gain on disposal of interests in associates

(5)

-

(5)

-

8

9

-

8

3,234

(746)

2,484

(828)

30/09/2011

30/09/2010

30/09/2011

30/09/2010

Liquid assets

2,455

2,238

2,443

2,223

Due from other financial institutions – less than 90 days

3,685

1,339

3,685

1,279

Total cash and cash equivalents

6,140

3,577

6,128

3,502

Loss on disposal and impairment of premises and equipment and intangibles
Net cash flows provided by/(used in) operating activities

Banking Group$ millions

Bank

Reconciliation of cash and cash equivalents to the balance sheets

ANZ National Bank Limited
84 – 85

Notes to the Financial Statements
34. Commitments
Banking GroupBank

30/09/2011

30/09/2010

30/09/2011

30/09/2010

Not later than 1 year

13

17

13

4

Total capital expenditure commitments

13

17

13

4

Not later than 1 year

80

91

72

83

Later than 1 year but not later than 5 years

135

166

120

147

Later than 5 years

29

29

24

21

Total lease rental commitments

244

286

216

251

Total commitments

257

303

229

255

$ millions

Contracts for outstanding capital expenditure

Future minimum lease payments under non-cancellable operating leases

35. Credit Related Commitments and Contingent Liabilities$ millions

Banking GroupBank

Face or contract value

Face or contract value

30/09/2011

30/09/2010

30/09/2011

30/09/2010

Credit related commitments
527

493

527

493

Commitments to provide financial services

22,526

20,28925,16020,467

Total credit related commitments

23,053

20,782

25,687

20,960Commitments with certain drawdown due within one year

Contingent liabilities
1,753

1,686

1,753

1,686

Standby letters of credit

60

60

60

60

Transaction related contingent items

882

898

882

898

Trade related contingent liabilities

110

97

108

96

2,805

2,741

2,803

2,740

Financial guarantees

Total contingent liabilities

The Banking Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third
parties, including its Ultimate Parent Bank. The risk involved is essentially the same as the credit risk involved in extending loan
facilities to customers, therefore these transactions are subjected to the same credit origination, portfolio management andcollateral requirements for customers applying for loans. As the facilities may expire without being drawn upon, the notionalamounts do not necessarily reflect future cash requirements.
Other contingent liabilities
The Banking Group has other contingent liabilities in respect of actual and possible claims and court proceedings. An
assessment of the Banking Group’s likely loss in respect of these matters has been made on a case-by-case basis and provision
made where deemed necessary.

ANZ National Bank Limited

Notes to the Financial Statements
36. Securitisation, Funds Management, Other Fiduciary Activities and Insurance
The Kingfisher Trust
The Banking Group has established the Kingfisher Trust as an in-house residential mortgage backed securities facility that canissue securities meeting the RBNZ criteria to use as collateral in repurchase transactions with the RBNZ.
As at 30 September 2011 the rights to cash flows associated with residential mortgages with a carrying value of $6,666 million(30/09/2010 $6,531 million) were held in this facility. These assets do not qualify for derecognition as the Bank retains
substantially all of the risks and rewards of the transferred assets, therefore the Banking Group’s financial statements do notchange as a result of establishing this facility.
As at 30 September 2011 and 30 September 2010 the Banking Group had entered into no repurchase agreements with the
RBNZ for residential mortgage backed securities and therefore no collateral had been accepted by the RBNZ under this facility.
The Covered Bond TrustOn 11 February 2011, as part of the establishment of the Bank’s covered bond programme, the Covered Bond Trust wasestablished. The assets of the Covered Bond Trust are made up of certain housing loans and related securities originated by the
Bank and which are security for the guarantee by ANZNZ Covered Bond Trust Limited as trustee of the Covered Bond Trust of
issuances of covered bonds by the Bank or its wholly owned subsidiary ANZ National (Int’l) Limited, from time to time.
As at 30 September 2011 the rights to cash flows associated with housing loans and related securities with a carrying value of$2,745 million were held in the Covered Bond Trust. The assets of the Covered Bond Trust do not qualify for derecognition as
the Bank retains substantially all of the risks and rewards of the transferred assets. Therefore, the establishment of the coveredbond programme and the Covered Bond Trust do not change the Banking Group’s financial statements.
The Bank has purchased securities issued by both the Kingfisher Trust and the Covered Bond Trust in exchange for the transferof the rights to the cash flows associated with the identified residential mortgages. These amounts also form part of the duefrom and due to subsidiary company balances in the balance sheet of the Bank.

Residential mortgage-backed securities
Bank$ millions

As at
30/09/2011

As at
30/09/2010

9,371

6,641

40

-

9,411

6,531

-

110

-

-

Year to30/09/2011

Year to30/09/2010

353

266

Carrying amount of securitised assets
Due from subsidiary companies
Other
Carrying amount of associated liabilities
Due to subsidiary companies
Other$ millions

Associated items recognised in operating income
Interest received
Fees received

52

18

Gains from hedging activity

105

123

Interest paid

(509)

(412)

1

(5)

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
bonds, unit trusts and the provision of private banking services to a number of clients. 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 2011, $2,500 million of funds under management were invested in the
Banking Group’s own products or securities (30/09/2010 $2,888 million).

ANZ National Bank Limited
86 – 87

Notes to the Financial Statements
Aggregate value of funds managed by the Banking Group
Banking Group$ millions

30/09/2011

30/09/2010

Funds managed by OnePath

6,709

7,430

The Bonus Bonds Trust

2,996

2,973

Other discretionary funds

5,016

4,760

Totals funds under management

14,721

15,163Custodial services
The Banking Group provides custodial services to customers in respect of assets that are beneficially owned by those customers.
Provision of financial services
Financial services provided by the Banking Group to entities which are involved in trust, custodial, funds management andother fiduciary activities, and to affiliated insurance companies which conduct marketing or distribution of insurance products,
or on whose behalf the marketing or distribution of insurance products are conducted, are provided on arm’s length terms andconditions and at fair value. Any assets purchased from such entities have been purchased on an arm’s length basis and atfair value.
Except for standard lending facilities provided in the normal course of business on arm’s length terms, the Banking Group has
not provided any funding to entities which conduct any of the following activities: trust, custodial, funds management or otherfiduciary activities established, marketed and/or sponsored by a member of the Banking Group (30/09/2010 $nil).
Insurance business
The Banking Group conducts an insurance business through OnePath Insurance Holdings (NZ) Limited and its subsidiaries(“OnePath Insurance”), the assets, liabilities and operations of which are fully consolidated into the Banking Group. OnePath
Insurance provides risk transfer and investment contract life insurance products. In addition, other entities within the Banking
Group market and distribute a range of insurance products which are underwritten by OnePath Insurance, or by third party
insurance companies.
The aggregate insurance business conducted by OnePath Insurance comprises assets totalling $438 million (30/09/2010: $337
million), which is 0.4% (30/09/2010: 0.3%) 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 toensure that those activities are conducted in an appropriate manner. Should adverse conditions arise, it is considered thatthese policies and procedures will minimise the possibility that these conditions will adversely impact the Bank or the Banking
Group. The policies and procedures include comprehensive and prominent disclosure of information regarding products, andformal and regular review of operations and policies by management.
In addition, the following measures have been taken to manage any risk to the Banking Group of marketing and distributing
insurance and funds management products:• Investment statements, prospectuses and brochures for insurance products include disclosures that neither the Bank nor any
member of the Banking Group guarantees the insurer, the insurer’s subsidiaries, or any of the products issued by the insureror the insurer’s subsidiaries.
• Investment statements, prospectuses and brochures of fund management products and insurance products subject to the
Securities Act 1978 additionally include disclosures that:– the products do not represent deposits or other liabilities of the entities within the Banking Group;– the products are subject to investment risk, including possible loss of income and principal; and– entities within the Banking Group do not guarantee the capital value or performance of the products.
• Application forms for insurance and fund management products contain acknowledgements to be signed by a purchaser
which are consistent with the disclosures noted above.

37. Subsequent Events
On 20 October 2011 ANZ National (Int’l) Limited, a wholly owned subsidiary of the Bank, issued fixed rate covered bonds witha face value of EUR 500 million, a coupon rate of 3.0% and a maturity date of 20 October 2016. The covered bonds are guaranteedby ANZNZ Covered Bond Trust Limited as trustee of the Covered Bond Trust under the terms of the Bank’s covered bondprogramme. 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 the residual assets of the Covered Bond Trust (if any) after all prior ranking
creditors of the Covered Bond Trust have been satisfied. Refer to note 36 for further details of the covered bond programme.
There have been no other material subsequent events.

ANZ National Bank Limited

Directorate and Auditors
The address to which any document or communication may be sent to any Director is ANZ National Bank Limited, Level 6,
1 Victoria Street, Wellington, New Zealand. The document or communication should be marked for the attention ofthat Director.

Directors’ interests
In order to ensure that members of the Board are reminded of their disclosure obligations under the Companies Act 1993, thefollowing procedures are adopted:a.

At least once in each year, Directors are requested to complete, in terms of section 140(1) of the Companies Act 1993, adisclosure 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.

b. Directors are also requested to make a general disclosure of their interest in other entities in terms of section 140(2) of theCompanies Act 1993. In addition, they are requested to initiate a review of that disclosure if there are any significant
alterations which occur subsequently during the period.
In addition to the written disclosures referred to in paragraphs (a) and (b) above, Directors disclose relevant interests which
they have before discussion of particular business items.
The Companies Act 1993 (subject to any different provision in the Bank’s Constitution) allows a Director with an interest in atransaction to participate in discussions and to vote on all matters relating to that particular transaction. The Bank’s Constitution
does not alter that situation. However, the Board has adopted a guideline whereby a Director with an interest in a transaction
should not be present during any discussions, and should not vote, on any matter pertaining to that particular transaction.

Transactions with Directors
No Director has disclosed that he/she or any immediate relative or professional associate has any dealing with the Banking
Group which has been either entered into on terms other than those which would in the ordinary course of business be given
to any other person of like 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.

Board Members as at 21 November 2011
Independent Non-Executive Director and Chairman
Sir Dryden Spring, Kt
DSc
Company Director
Matamata, New Zealand
Sir Dryden is the Chair of the Remuneration Committee and a Member of the Audit Committee and the Risk Committee.
Other directorships: Port of Tauranga Limited

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

Non-Executive Directors
Michael Roger Pearson Smith, OBE
BSc (Hons)
Chief Executive Officer, Australia and New Zealand Banking Group Limited
Melbourne, Australia
Mr Smith is a Member of the Remuneration Committee.
Other directorships: Australia and New Zealand Banking Group Limited, The Financial Markets Foundation for Children,
The Institute of International Finance Inc

ANZ National Bank LimitedPeter Ralph Marriott
BEc (Hons), FCA
Chief Financial Officer, Australia and New Zealand Banking Group Limited
Melbourne, Australia
Mr Marriott is a Member of the Audit Committee and the Risk Committee.
Other directorships: ANZ Capital Hedging Pty Limited, ANZ (Delaware) Inc., ANZ Holdings (New Zealand) Limited,
Esanda Finance Corporation Limited, ANZ Funds Pty Limited, ANZ Investments Pty Limited, ASX Limited, LFD Pty Limited,
RFDL Pty Limited, ASX Clearing Corporation Limited, ASX Clear Pty Limited (previously Australian Clearing House Pty Limited),
ASX Clear (Futures) Pty Limited (previously SFE Clearing Corporation Pty Limited), ASX Settlement Pty Limited (previously
ASX Settlement & Transfer Corporation Pty Limited), ASX Settlement Corporation Limited, Austraclear Limited
Shayne Cary Elliott
B Com
Group Managing Director, Institutional, Australia and New Zealand Banking Group Limited
Melbourne, Australia
Other directorships: ANZ Securities Limited

Independent Non-Executive Directors
Norman Michael Thomas Geary, CBE
B Com, FACA, FNZIM, FCIT
Company Director
Auckland, New Zealand
Mr Geary is the Chair of the Risk Committee and a Member of the Audit Committee and the Remuneration Committee.
Other directorships: Otago Innovation Limited
John Frederick JudgeB Com, FICA
Company Director
Auckland, New Zealand
Mr Judge is the Chair of the Audit Committee and a Member of the Risk Committee and the Remuneration Committee.
Other directorships: Fletcher Building Limited, Fletcher Building Finance Limited, Aquatx Holdings Limited, Aquatx Limited,
Janohn Limited, Sebca Limited, John Judge Limited, Health TV Limited, Sails Friday Limited, Crop Solutions 09 Limited, Formerly
Fuel Equipment Limited, Greentide Limited, Greentide K4B3 Limited
Antony (Tony) John Carter
BE (Hons), ME, FNZIM
Company Director
Auckland, New Zealand
Mr Carter is a Member of the Audit Committee, Risk Committee and Remuneration Committee.
Other directorships: Air New Zealand, Vector Limited, Fletcher Building Limited, Fisher and Paykel Healthcare Corporation,
Fletcher Building Industries Limited, Loughborough Investments Limited

Auditors
KPMG
Chartered Accountants
10 Customhouse Quay
PO Box 996
Wellington, New Zealand

88 – 89

Directorate and Auditors

ANZ National Bank Limited

Conditions of Registration
Conditions of Registration, applicable as at 30 September 2011. These Conditions of Registration haveapplied from 30 September 2011.
Since issuance of the last Disclosure Statement dated 12 August 2011 the Bank’s conditions of registration have been changed
to remove the supervisory adjustment for residential mortgages (with effect from 1 October 2011); to amend conditions 2 and
3 to incorporate a new definition of insurance business; and to move the definition of “generally accepted accounting practice”
to the end of the conditions.
The registration of ANZ National Bank Limited (“the Bank”) as a registered bank is subject to the following conditions:
1. (1)That the Banking Group complies with the following requirements:(a) the total capital ratio of the Banking Group calculated in accordance with the Reserve Bank of New Zealand document“Capital adequacy framework (internal models based approach)” (BS2B) dated June 2011 is not less than 8%;(b) the tier one capital ratio of the Banking Group calculated in accordance with the Reserve Bank of New Zealanddocument “Capital adequacy framework (internal models based approach)” (BS2B) dated June 2011 is not less than 4%;and(c) the capital of the Banking Group calculated in accordance with the Reserve Bank of New Zealand document “Capital
adequacy framework (internal models based approach)” (BS2B) dated June 2011 is not less than $30 million.
For the purposes of this condition of registration the scalar referred to in the Reserve Bank of New Zealand document“Capital adequacy framework (internal models based approach)” (BS2B) dated June 2011 is 1.06.
1.(2) For the purposes of this condition of registration, the supervisory adjustment referred to in the Reserve Bank of New Zealanddocument “Capital adequacy framework (internal models based approach)” (BS2B) dated June 2011 is defined as follows:
Supervisory adjustment = (30% x RM Exposure) – (RMRWA x 1.06), where RM Exposure = non defaulted exposures secured by residential mortgages as defined in the Reserve Bank of New Zealanddocument “Capital adequacy framework (internal models based approach)”(B2SB) dated June 2011.
RMRWA = risk weighted exposure for non defaulted exposures secured by residential mortgages as defined in the Reserve
Bank of New Zealand document “Capital adequacy framework (internal models based approach)” (B2SB) dated June 2011,
calculated using the bank’s long-run capital model with the weighted average probability of default for non –defaulted
exposures calibrated to 1.25%.
Clause (2) of this condition does not apply on or after 1 October 2011.
1A. That(a) the Bank has an internal capital adequacy assessment process (“ICAAP”) that accords with the requirements set out inthe document “Guidelines on a bank’s internal capital adequacy process (“ICAAP”)” (BS12) dated December 2007;(b) under its ICAAP the Bank identifies and measures its “other material risks” defined as all material risks of the Banking
Group that are not explicitly captured in the calculation of tier one and total capital ratios under the requirements set
out in the document “Capital adequacy framework (internal models based approach)” (BS2B) dated June 2011; and(c) the Bank determines an internal capital allocation for each identified and measured “other material risk”.
1B. That the Banking Group complies with all requirements set out in the Reserve Bank of New Zealand document “Capital
adequacy framework (internal models based approach)” (BS2B) dated June 2011.
1C. That the Bank complies with the following requirements:(a) The total capital ratio of the Bank is not less than 8%; and(b) The tier one capital ratio of the Bank is not less than 4%.
For the purposes of this condition of registration:
•

•

2.

the total capital ratio is defined as capital as a percentage of risk-weighted exposures where capital and risk-weighted
exposures are as defined in the Reserve Bank of New Zealand document “Capital adequacy framework (Basel I
approach)” (BS2) dated October 2010; andthe tier one capital ratio is defined as tier one capital as a percentage of risk-weighted exposures where tier one capitaland risk-weighted exposures are as defined in the Reserve Bank of New Zealand document “Capital adequacy framework(Basel I approach)” (BS2) dated October 2010.

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

3.

That the Banking Group’s insurance business is not greater than 1% of its total consolidated assets. For the purposes of thiscondition of registration, the Banking Group’s insurance business is the sum of the following amounts for entities in thebanking group:(a) if the business of an entity predominantly consists of insurance business and the entity is not a subsidiary of anotherentity in the Banking Group whose business predominantly consists of insurance business, the amount of the insurance
business to sum is the total consolidated assets of the group headed by the entity; andANZ National Bank Limited(b) if the entity conducts insurance business and its business does not predominantly consist of insurance business andthe entity is not a subsidiary of another entity in the Banking Group whose business predominantly consists of insurance
business, the amount of the insurance business to sum is the total liabilities relating to the entity’s insurance businessplus 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(i) all amounts must relate to on balance sheet items only and must comply with generally accepted accounting
practice; and(ii) if products or assets of which an insurance business is comprised also contain a non-insurance component, thewhole of such products or assets must be considered part of the insurance business.
For the purposes of this condition of registration:“insurance business” means the undertaking or assumption of liability as an insurer under a contract of insurance;“insurer” and “contract of insurance” have the same meaning as provided in sections 6 and 7 of the Insurance (Prudential
Supervision) Act 2010.
4.

That the aggregate credit exposures (of a non-capital nature and net of any allowances for impairment) of the Banking
Group to all connected persons do not exceed the rating-contingent limit outlined in the following matrix:
Credit Rating of theregistered bank1

1

Connected exposure limit(% of the Banking Group’s
Tier 1 capital)

AA/Aa2 and above

75

AA-/Aa3

70

A+/A1

60

A/A2

40

A-/A3

30

BBB+/Baa1 and below

15

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

Within the rating-contingent limit, credit exposures (of a non-capital nature and net of any allowances for impairment) to
non-bank connected persons shall not exceed 15 percent of the Banking Group’s Tier One capital.
For the purposes of this condition of registration, compliance with the rating-contingent connected exposure limit isdetermined in accordance with the Reserve Bank of New Zealand document entitled “Connected Exposures Policy” (BS8)
dated June 2011.
5.

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

5A. Before and on 31 March 2012, that the Bank complies with the following corporate governance requirements:(a) the board of the Bank must contain at least two independent directors and alternates for those directors, if any, mustalso be independent. In this context an independent director (or alternate) is a director (or alternate) who is not an
employee of the Bank, and who is not a director, trustee or employee of any holding company (as that term is definedin section 5 of the Companies Act 1993) of the Bank or any other entity capable of controlling or significantly influencing
the Bank;(b) the chairperson of the Bank’s board must not be an employee of the Bank; and(c) the Bank’s constitution must not include any provision permitting a director, when exercising powers or performing
duties as a director, to act other than in what he or she believes is the best interests of the company (i.e. the Bank).
6.

On and after 1 April 2012, that the Bank complies with the following corporate governance requirements:(a) the board of the Bank must have at least five directors;(b) the majority of the board members must be non-executive directors;(c) at least half of the board members must be independent directors;(d) an alternate director,—(i) for a non-executive director must be non-executive; and(ii) for an independent director must be independent;(e) at least half of the independent directors of the Bank must be ordinarily resident in New Zealand;(f) the chairperson of the board of the Bank must be independent; and(g) the Bank’s constitution must not include any provision permitting a director, when exercising powers or performing
duties as a director, to act other than in what he or she believes is the best interests of the company (i.e. the Bank).

90 – 91

Conditions of Registration

ANZ National Bank Limited

Conditions of Registration
For the purposes of this condition of registration, “non-executive” and “independent” have the same meaning as in the
Reserve Bank of New Zealand document entitled “Corporate Governance” (BS14) dated March 2011.
7.

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 the curriculum vitae of the proposed appointee; and(b) the Reserve Bank has advised that it has no objection to that appointment.

8. On and after 1 April 2012, that a person must not be appointed as chairperson of the board of the Bank unless:(a) the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; and(b) the Reserve Bank has advised that it has no objection to that appointment.
9.

On and after 1 April 2012, that the Bank has a board audit committee, or other separate board committee covering audit
matters, that meets the following requirements:(a) the mandate of the committee must include: ensuring the integrity of the Bank’s financial controls, reporting systems
and internal audit standards;(b) the committee must have at least three members;(c) every member of the committee must be a non-executive director of the Bank;(d) the majority of the members of the committee must be independent; and(e) the chairperson of the committee must be independent and must not be the chairperson of the Bank.
For the purposes of this condition of registration, “non-executive” and “independent” have the same meaning as in the
Reserve Bank of New Zealand document entitled “Corporate Governance” (BS14) dated March 2011.

10. That a substantial proportion of the Bank’s business is conducted in and from New Zealand.
11. That the Bank has legal and practical ability to control and execute any business, and any functions relating to any business,of the Bank that are carried on by a person other than the Bank, sufficient to achieve, under normal business conditions
and in the event of stress or failure of the Bank or of a service provider to the Bank, the following outcomes:(a) that the Bank’s clearing and settlement obligations due on a day can be met on that day;(b) that the Bank’s financial risk positions on a day can be identified on that day;(c) that the Bank’s financial risk positions can be monitored and managed on the day following any failure and on
subsequent days; and(d) that the Bank’s existing customers can be given access to payments facilities on the day following any failure and on
subsequent days.
For the purposes of this condition of registration, the term “legal and practical ability to control and execute” is explainedin the Reserve Bank of New Zealand document entitled “Outsourcing Policy” (BS11) dated January 2006.
12. (a) That the business and affairs of the Bank are managed by, or under the direction and supervision of, the board of
the Bank.
(b) That the employment contract of the chief executive officer of the Bank or person in an equivalent position (together“CEO”) is with the Bank, and the terms and conditions of the CEO’s employment agreement are determined by, andany decision relating to the employment or termination of employment of the CEO are made by, the board of the Bank.
(c) That all staff employed by the Bank shall have their remuneration determined by (or under the delegated authority of)
the board or the CEO of the Bank and be accountable (directly or indirectly) to the CEO of the Bank.
13. That the Banking Group complies with the following quantitative requirements for liquidity-risk management:(a) the one-week mismatch ratio of the Banking Group is not less than zero per cent at the end of each business day;(b) the one-month mismatch ratio of the Banking Group is not less than zero per cent at the end of each business day; and(c) the one-year core funding ratio of the Banking Group is not less than 70 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 March 2011 and “Liquidity Policy Annex: Liquid
Assets” (BS13A) dated March 2010.

ANZ National Bank Limited

14. That the Bank has an internal framework for liquidity risk management that is adequate in the Bank’s view for managing
the Bank’s liquidity risk at a prudent level, and that, in particular:(a) is clearly documented and communicated to all those in the organisation with responsibility for managing liquidity
and liquidity risk;(b) identifies responsibility for approval, oversight and implementation of the framework and policies for liquidity
risk management;(c) identifies the principal methods that the Bank will use for measuring, monitoring and controlling liquidity risk; and(d) considers the material sources of stress that the Bank might face, and prepares the Bank to manage stress through acontingency funding plan.
15. That no more than 10% of total assets may be beneficially owned by a SPV. For the purposes of this condition,—“total assets” means all assets of the Banking Group plus any assets held by any SPV that are not included in the Banking
Group’s assets:“SPV” means a person—(a) to whom any member of the Banking Group has sold, assigned, or otherwise transferred any asset;(b) who has granted, or may grant, a security interest in its assets for the benefit of any holder of any covered bond; and(c) who carries on no other business except for that necessary or incidental to guarantee the obligations of any memberof the Banking Group under a covered bond:“covered bond” means a debt security issued by any member of the Banking Group, for which repayment to holders isguaranteed by a SPV, and investors retain an unsecured claim on the issuer.
For the purposes of these conditions of registration:“Banking Group” means ANZ National Bank Limited’s financial reporting group (as defined in section 2(1) of the Financial
Reporting Act 1993);“generally accepted accounting practice” has the same meaning as in section 2 of the Financial Reporting Act 1993.

92 – 93

Conditions of Registration

ANZ National Bank Limited

Directors’ Statement
As at the date on which this Disclosure Statement is signed, after due enquiry, each Director believes that:(i) The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements(New Zealand Incorporated Registered Banks) Order (No 3) 2011;(ii) The Disclosure Statement is not false or misleading.
Over the year ended 30 September 2011, after due enquiry, each Director believes that:(i) ANZ National Bank Limited has complied with all the Conditions of Registration;(ii) Credit exposures to connected persons were not contrary to the interests of the Banking Group;(iii) ANZ National Bank Limited had systems in place to monitor and control adequately the Banking Group’s material risks,
including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk, operationalrisk and other business risks, and that those systems were being properly applied.
This Disclosure Statement is dated, and has been signed by or on behalf of all Directors of the Bank on 21 November 2011.
On that date, the Directors of the Bank were:A J Carter

S C Elliott

N M T Geary, CBE

D D Hisco

J F Judge

P R Marriott

M R P Smith, OBE

Sir Dryden Spring, Kt

ANZ National Bank Limited
94 – 95

Independent Audit Report
For the year ended 30 September 2011
To the Shareholder of ANZ National Bank Limited
Report on the Bank and Banking Group Disclosure Statement(excluding Supplementary Information relating to Capital Adequacy)
We have audited the accompanying Disclosure Statement and supplementary information (excluding the supplementary
information relating to Capital Adequacy disclosed in note 29) of ANZ National Bank Limited (the “Bank’’) and its subsidiaries(the “Banking Group”) on pages 5 to 87. The Disclosure Statement comprises the balance sheets as at 30 September 2011, theincome statements and statements of comprehensive income, changes in equity and cash flows for the year then ended, anda summary of significant accounting policies and other explanatory information of the Bank and the Banking Group. The
supplementary information comprises the information that is required to be disclosed under the Registered Bank DisclosureStatements (New Zealand Incorporated Registered Banks) Order (No 3) 2011 (the “Order”).

Directors’ Responsibility for the Financial Statements
The Directors are responsible for the preparation of the Disclosure Statement, which includes financial statements prepared inaccordance with Clause 24 of the Order, generally accepted accounting practice in New Zealand, and International Financial
Reporting Standards and that gives a true and fair view of the matters to which they relate. The Directors are also responsible
for such internal controls as they determine are necessary to enable the preparation of the Disclosure Statement that is freefrom material misstatement whether due to fraud 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 supplementary information (excluding the
supplementary information relating to Capital Adequacy disclosed in note 29), disclosed in accordance with Schedules 4, 7, 13, 14,
15 and 17 of the Order and presented to us by the Directors. 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 toobtain reasonable assurance about whether the Disclosure Statement is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Disclosure Statement.
The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of
the Disclosure Statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls
relevant to the Bank and Banking Group’s preparation of the Disclosure Statement that gives a true and fair view of the matters towhich they relate in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Bank and 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 thepresentation of the Disclosure Statement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Our firm has provided other services to the Bank and Banking Group in relation to audit related services. Partners and employees
of our firm may also deal with the Bank and Banking Group on normal terms within the ordinary course of trading activities of thebusiness of the Banking Group. These matters have not impaired our independence as auditors of the Bank and Banking Group.
The firm has no other relationship with, or interest in, the Bank or Banking Group.

OpinionIn our opinion the Disclosure Statement of ANZ National Bank Limited and its subsidiaries (‘’the Bank and Banking Group’’) on pages
5 to 87 (excluding the supplementary information disclosed in accordance with Schedules 4, 7, 11, 13, 14, 15 and 17 of the Order):•••complies with generally accepted accounting practice in New Zealand;
complies with International Financial Reporting Standards; andgives a true and fair view of the financial position as at 30 September 2011 and of their financial performance and cash flows
for the year ended on that date.

Opinion on Supplementary Information (excluding Supplementary Information relating to Capital Adequacy)
In our opinion, the supplementary information that is required to be disclosed in accordance with Schedules 4, 7, 13, 14, 15 and
17 of the Order, and is included within notes 14, 30, 31 and 36 of the Disclosure Statement:•••

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 Bank and Banking Group; andpresents fairly, in all material respects, the matters to which it relates, in accordance with those Schedules.

ANZ National Bank Limited

Independent Audit Report
For the year ended 30 September 2011
Report on Other Legal and Regulatory Requirements (excluding Supplementary
Information relating to Capital Adequacy)
In accordance with the requirements of sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993, and clauses 2(d) and2(e) of Schedule 1 of the Order, we report that:••

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

Report on the Supplementary Information Relating to Capital Adequacy
We have reviewed the supplementary information relating to Capital Adequacy, as disclosed in note 29 of the DisclosureStatement for the year ended 30 September 2011.

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 be disclosed under Schedule 11 of the Order and prepared in accordance with the Bank’s Conditions of Registration and with
the Bank’s internal models for credit risk and operational risk, as accredited by the Reserve Bank of New Zealand and describedin 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 the Review Engagement Standards issued by the New Zealand Institute of Chartered
Accountants.
We are responsible for reviewing the disclosures in order to state whether, on the basis of the procedures described below, anything
has come to our attention that would cause us to believe that the supplementary information 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; and• disclosed in accordance with Schedule 11 of the Orderand for reporting our findings to you.
A review is limited primarily to enquiries of Bank and Banking Group personnel and analytical review procedures applied to thefinancial data, and thus provides less assurance than an audit. We have not performed an audit in respect of the Capital Adequacy
disclosures, and accordingly, we do not express an audit opinion on these disclosures.

OpinionBased on our review, nothing has come to our attention that causes us to believe that the supplementary information relating
to Capital Adequacy, disclosed in note 29 of the Disclosure Statement, is not prepared and disclosed, in all material respects, inaccordance with:•••

the Bank’s Conditions of Registration;
the Bank’s internal models for credit risk and operational risk as accredited by the Reserve Bank of New Zealand; andSchedule 11 of the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order (No 3) 2011.

21 November 2011
KPMG
Wellington

ANZ National Bank Limited
96 – 97

Index
Contents and Glossary of Terms
General Disclosures
Summary of Financial Statements
Income Statements
Statements of Comprehensive Income
Statements of Changes in Equity
Balance Sheets
Cash Flow Statements
1. Significant Accounting Policies
2. Critical Estimates and Judgement Used in Applying Accounting Policies
3. Risk Management Policies
4. Income5. Expenses
6. Income Tax Expense
7. Segmental Analysis
8. Liquid Assets
9. Due from Other Financial Institutions
10. Trading Securities
11. Derivative Financial Instruments
12. Available-for-sale Assets
13. Net Loans and Advances
14. Impaired Assets, Past Due Assets and Other Assets Under Administration
15. Provision for Credit Impairment
16. Controlled Entities, Associates and Jointly Controlled Entities
17. Other Assets
18. Deferred Tax Assets and Liabilities
19. Goodwill and Other Intangible Assets
20. Due to Other Financial Institutions
21. Deposits and Other Borrowings
22. Payables and Other Liabilities
23. Provisions
24. Bonds and Notes
25. Loan Capital
26. Related Party Transactions
27. Current and Non-current Assets and Liabilities
28. Ordinary Share Capital
29. Capital Adequacy
30. Financial Risk Management
31. Concentrations of Credit Risk to Individual Counterparties
32. Fair Value of Financial Assets and Financial Liabilities
33. Notes to the Cash Flow Statements
34. Commitments
35. Credit Related Commitments and Contingent Liabilities
36. Securitisation, Funds Management, Other Fiduciary Activities and Insurance
37. Subsequent Events
Directorate and Auditors
Conditions of Registration
Directors’ Statement
Auditors’ Report
Index

1
1
4
5
5
6
8
9
10
18
19
21
22
23
24
26
26
26
26
29
30
30
32
33
35
36
37
37
37
38
38
39
40
42
45
46
46
55
79
80
84
85
85
86
87
88
90
94
95
97

ANZ National Bank Limited ANZ11860 11/11

anz.co.nz