Australia and New Zealand Banking Group Ltd. — Annual Report 2008

Nov 27, 2008

ANZ NATIONAL BANK LIMITED GROUP

GENERAL DISCLOSURE STATEMENT

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For the year ended 30 September 2008 Number 51 Issued November 2008

ANZ National Bank Limited

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

GENERAL DISCLOSURE STATEMENT

fOR ThE yEAR ENDED 30 SEpTEMbER 2008

CONTENTS

CONTENTS
General Disclosures	2 - 3
Summary of Financial Statements	4
Income Statements	5
Statements of Recognised Income and Expense	6
Balance Sheets	7
Cash Flow Statements	8 - 9
Notes to the Financial Statements	10 - 110
Directorate and Auditors	111 -112
Conditions of Registration	113 -115
Credit Rating Information	116
Directors’ Statement	117
Independent Audit Report	118
Index	119

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

GENERAL DISCLOSURES

This Disclosure Statement has been issued in accordance with the Registered Bank Disclosure Statement (Full and Half-Year - New Zealand Incorporated Registered Banks) Order 2008 (‘the Order’).

In this Disclosure Statement unless the context otherwise requires:

• a) “Banking Group” means ANZ National Bank Limited and all its subsidiaries; and

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

GENERAL MATTERS

The full name of the registered bank is ANZ National Bank Limited (‘the Bank’) and its address for service is Level 14, ANZ Tower, 215229 Lambton Quay, 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 immediate parent company of the Bank is ANZ Holdings (New Zealand) Limited (incorporated in New Zealand). The immediate parent company is owned by ANZ Funds Pty Limited and Australia and New Zealand Banking Group Limited (both incorporated in Australia).

The Ultimate Parent Bank is Australia and New Zealand Banking Group Limited (‘ANZ’), which is incorporated in Australia, and its address for service is Level 14, 100 Queen Street, Melbourne, Australia.

The Bank is wholly owned by its immediate parent company and ultimately the Ultimate Parent Bank. 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 appointment of a new Director may occur unless the Reserve Bank of New Zealand (‘RBNZ’) confirms that it does not object to the appointment.

NATURE Of BUSINESS

The principal activities of the Banking Group during the period were retail, corporate and rural banking, mortgage lending, asset and general finance, international and investment banking, nominee and custodian services. Life insurance and funds management activities are carried out through the ING New Zealand joint venture.

With the sale of Truck Leasing Limited, the Banking Group no longer has significant operating lease activities.

MATERIAL fINANCIAL SUPPORT

In accordance with the requirements issued by the Australian Prudential Regulatory Authority (‘APRA’) pursuant to the Prudential Standards, Australia and New Zealand Banking Group Limited, as the Ultimate Parent Bank, may not provide material financial support to the Bank[1] contrary to the following:

• the Ultimate Parent Bank should not undertake any third party dealings with the prime purpose of supporting the business of the Bank;

• the Ultimate Parent Bank should not hold unlimited exposures (should be limited as to specified time and amount) in the Bank (e.g. not provide a general guarantee covering any of the Bank’s obligations);

• the Ultimate Parent Bank should not enter into cross default clauses whereby a default by the Bank on an obligation (whether financial or otherwise) is deemed to trigger a default 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 to third parties of broadly equivalent credit status. In this regard, prior consultation (and in cases approval) is required before entering exceptionally large exposures; and

• the impact on the Ultimate Parent Bank’s capital and liquidity position and its ability to continue operating in the event of a failure by the Bank.

• the level of exposure to the Bank not exceeding:

• 50% on an individual exposure basis; 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.

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 and in the event of a bank becoming unable to meet its obligations or suspending payment, the assets of the bank in Australia shall be available to meet that bank’s deposit liabilities in Australia in priority to all other liabilities of the bank.

The Ultimate Parent Bank has not provided material financial support to the Bank contrary to any of the above requirements.

PENDING PROCEEDINGS OR ARBITRATION

Other than disclosed in the Disclosure Statement, there are no pending proceedings or arbitration concerning any member of the Banking Group that may have a material adverse effect on the Bank or the Banking Group as at the date of the General Disclosure Statement.

The Banking Group has received amended tax assessments from the New Zealand Inland Revenue Department (‘IRD’) in respect of its review of certain structured finance transactions. The Banking Group is confident, based on independent tax and legal advice obtained, that its tax treatment of these transactions is correct and disagrees with the IRD’s position.

The Commerce Commission has brought proceedings under the Commerce Act 1986 against Visa, MasterCard and all New Zealand issuers of Visa and MasterCard credit cards, including the Bank. Several major New Zealand retailers have also issued proceedings. The Bank is defending the proceedings. At this stage any potential liabilities cannot be assessed.

1. Note that for material financial support purposes, the APRA requirements include any exposures to the Bank’s parent company, ANZ Holdings (New Zealand) Limited.

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GENERAL DISCLOSURES (CONTINUED)

The Bank markets and distributes a range of wealth management products which are managed by ING (NZ) Limited (of which the Bank holds 49%). Trading in the ING Diversified Yield Fund and the ING Regular Income Fund was suspended on 13 March 2008 by the fund manager, ING (NZ) Limited, due to the deterioration in liquidity in credit markets.

The matter is being reviewed by both the Bank and ING (NZ) Limited and it is too early to assess the nature or quantum of any, if any, potential liability

Further details on pending proceedings or arbitration are set out in Note 43 Contingent Liabilities and Credit Related Commitments.

OThER MATERIAL MATTERS

There are no matters relating to the business or affairs of the Bank and the Banking Group which are not contained elsewhere in the General Disclosure Statement and which would, if disclosed, materially adversely affect the decision of a person to subscribe for debt securities of which the Bank or any member of the Banking Group is the issuer.

GUARANTORS

The Bank has a guarantee under the New Zealand Deposit Guarantee Scheme (“Crown Guarantee”). The Crown Guarantee is provided under a Crown Deed of Guarantee (Registered Bank) entered into by the Bank and the Crown on 14 November 2008 (“Crown Deed of Guarantee”).

As at the date of this General Disclosure Statement the only material obligations of the Bank that are guaranteed are the Debt Securities (as defined in the Crown Deed of Guarantee) guaranteed under the Crown Guarantee.

The Crown Guarantee does not extend to subordinated debt securities issued by the Bank or debt securities that are issued by the Bank to Related Parties (as defined in the Crown Deed of Guarantee) of the Bank or to Financial Institutions.

As defined in the Crown Deed of Guarantee, “Financial Institutions” means a financial institution, as defined in section 2 of the Reserve Bank of New Zealand Act 1989, which carries on the business of borrowing and lending money, such as a life insurance company, a building society or a registered bank, and, without limiting the generality of the foregoing, includes:

• a) a “collective investment scheme” as that term is defined in section 157B of the Reserve Bank of New Zealand Act 1989 (including any “superannuation fund” or “superannuation scheme”);

• b) an “insurer” as that term is defined in section 2 of the Insurance Companies (Rating and Inspections) Act 1994 or any other person carrying on the business of providing insurance cover (of whatever nature);

• c) a person carrying on business as a sharebroker, an investment adviser or a fund manager (to the extent that person is acting in that capacity); or

• d) a person who is a subsidiary of, or who is controlled by a financial institution within (a), (b) or (c) above.

• The Crown Guarantee applies for a period commencing at 12.01 am on 12 October 2008 and expiring at 12.01 am on 12 October 2010 (“Guarantee Period”).

Under the Crown Guarantee the Crown absolutely and irrevocably guarantees:

• a) all obligations of the Bank to pay money to a creditor under Debt Securities (“Indebtedness”) that become due and payable during the Guarantee Period; and

• b) if a Default Event, as defined in the Crown Deed of Guarantee, occurs during the Guarantee Period, all Indebtedness that exists on the date of that Default Event (whether or not that Indebtedness is due and payable during the Guarantee Period); and

c) all interest accruing on the amounts referred to in (b) after the occurrence of the Default Event.

The Crown undertakes that if the Bank does not pay an amount referred to in (a), (b) or (c) above, the Crown will pay that amount to the creditor when it is due and payable (except to the extent that that Indebtedness or interest is not paid solely as a result of an administrative error or technical error and is subsequently paid within 7 days of its due date).

The Crown’s obligation to pay any amount under the Crown Guarantee is subject to the Crown receiving a notice of claim from the creditor in respect of the relevant Indebtedness and to the Crown satisfying itself as to the amount of the relevant Indebtedness and such other matters as the Crown reasonably considers appropriate in order to ascertain the extent of its liability under the Crown Guarantee in respect of that Indebtedness. Notice may be served on the Crown in respect of the Crown Guarantee by service on the Solicitor-General at Crown Law Office, Unisys House, 56 The Terrace, Wellington.

The maximum liability of the Crown to each creditor under the Crown Guarantee is one million New Zealand dollars (NZ$1,000,000). For this purpose amounts owed to creditors by the Bank under any Debt Security will be aggregated with other amounts owed to the same creditor by the Bank which are supported by the Crown Guarantee.

Further information about the Crown Guarantee and a copy of the Crown Deed of Guarantee are available in the most recent Supplemental Disclosure Statement and on The Treasury website at www.treasury.govt.nz. The Supplemental Disclosure Statement for the year ended 30 September 2008 is available at no charge:

a) on the Bank’s website at www.anznational.co.nz, www.anz.co.nz and www.nationalbank.co.nz;

b) immediately if request is made at the Bank’s head office; and

• c) within five working days of a request, if a request is made at any branch of ANZ or The National Bank of New Zealand.

The Crown’s long-term foreign currency issuer credit rating is Aaa (Moody’s Investors Service), AA+ (Standard & Poor’s), AA+ (Fitch Ratings) and has not changed in the two years immediately before the date of this General Disclosure Statement.

Credit ratings are assigned to sovereigns and businesses by the international credit rating agencies. Credit ratings provide investors with an indication of the credit-worthiness of an entity in which they are considering investing. There are three major internationally recognised credit rating agencies: Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. AAA is the highest rating level while a rating in the AA range is also seen as a very high level of credit-worthiness.

Further information about the Crown, including a copy of its most recent audited financial statements and details of its credit ratings is also available at www.treasury.govt.nz.

SUPPLEMENTAL DISCLOSURE STATEMENT

A copy of the Bank’s most recent Supplemental Disclosure Statement for the year ended 30 September 2008 can be obtained immediately where request is made within normal banking hours at Level 14, ANZ Tower, 215-229 Lambton Quay, Wellington, New Zealand. It is also available, free of charge, either on one of the Bank’s websites, or within five working days of any such request, at any branch of the Bank.

The Bank’s most recent Supplemental Disclosure Statement contains a copy of the bilateral netting agreement (refer Note 33) and a copy of the Crown Guarantee.

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S SUMMARy Of fINANCIAL STATEMENTS

CONTINUING OPERATIONS Interest income Interest expense Net interest income Other operating income Operating income Operating expenses Proft before provision for credit impairment and income tax Collective provision charge (credit) Individual provision charge4 Provision for credit impairment Profit before income tax Income tax expense Profit after income tax from continuing operations DISCONTINUED OPERATIONS Proft from discontinued operations (net of income tax) Profit after income tax Retained profits at beginning of the year Adjustment on adoption of NZ IFRS on 1 October 2004 Adjustment on adoption of NZ IAS 39 on 1 October 2005 Total available for appropriation Actuarial (loss) gain on defned beneft schemes after tax Interim ordinary dividends paid Retained profits at end of the year Total impaired assets (on-balance sheet and off-balance sheet) Total assets Total liabilities Equity	Consolidated
	Previous Previous NZ IFRS NZ IFRS1 NZ IFRS1, 2 NZ IFRS1, 2 GAAP1 GAAP3 Audited Audited Audited Audited Audited Audited Year to Year to Year to Year to Year to Year to 30/09/200830/09/2007 30/09/2006 30/09/2005 30/09/2005 30/09/2004 $m $m $m $m $m $m
	9,857 8,309 7,206 6,009 5,985 4,481 7,568 6,059 5,077 4,069 4,069 2,797
	2,289 2,250 2,129 1,940 1,916 1,684 1,124 861 802 794 851 751
	3,413 3,111 2,931 2,734 2,767 2,435 1,444 1,331 1,323 1,312 1,506 1,265
	1,969 1,780 1,608 1,422 1,261 1,170 112 20 (10) 121 122 133 190 54 28 - - -
	302 74 18 121 122 133
	1,667 1,706 1,590 1,301 1,139 1,037 504 614 523 398 404 357
	1,163 1,092 1,067 903 735 680 - 76 5 14 - -
	1,163 1,168 1,072 917 735 680 3,052 2,610 2,378 1,813 1,438 958 - - - 4 - - - - 61 - - -
	4,215 3,778 3,511 2,734 2,173 1,638 (23) 2 (1) 4 - - - (728) (900) (360) (360) (200)
	4,192 3,052 2,610 2,378 1,813 1,438
	Consolidated
	Previous Previous NZ IFRS NZ IFRS1 NZ IFRS1, 2 NZ IFRS1, 2 GAAP3 GAAP3 Audited Audited Audited Audited Audited Audited Year to Year to Year to Year to Year to Year to 30/09/200830/09/2007 30/09/2006 30/09/2005 30/09/2005 30/09/2004 $m $m $m $m $m $m
	333 121 159 220 220 123 122,915107,787 95,814 85,501 85,301 74,212 113,108 99,084 87,581 77,555 77,545 66,831 9,807 8,703 8,233 7,946 7,756 7,381

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

1. Truck Leasing Limited has been classified as a discontinued operation for the comparative years ending 30 September 2007, 30 September 2006 and 30 September 2005. For further details, refer to Note 10 Discontinued Operations.

2. On 1 October 2005, the Banking Group adopted New Zealand equivalents to International Financial Reporting Standards (‘NZ IFRS’). In accordance with NZ IFRS, comparative information was restated using the new accounting standards from 1 October 2004. As permitted by the transitional provisions set out in NZ IFRS 1: First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards, management has elected not to restate comparative information for the adoption of NZ IAS 32 Financial Instruments: Disclosure and Presentation (‘NZ IAS 32’) and NZ IAS 39 Financial Instruments: Recognition and Measurement (‘NZ IAS 39’). Refer to Note 52 Explanation of Transition to NZ IFRS in the 30 September 2006 General Disclosure Statement for an explanation of the Banking Group’s transition to NZ IFRS and the adjustments required to comply with NZ IFRS.

3. On 1 December 2003, the Banking Group acquired all of the shares of NBNZ Holdings Limited (‘NBNZ Group’). The results and financial position of NBNZ Group have been included in the Banking Group since that date. For further details, refer to Note 14 Acquisition of Subsidiaries in the 30 September 2004 General Disclosure Statement.

4. The RBNZ’s guidelines require the Banking Group to show the individual provision charge to profit as the ‘impaired asset expense’. Prior to adopting NZ IFRS on 1 October 2005, under the Banking Group’s Bad and Doubtful Debts policy, the required individual provision was not charged to profit, but was transferred from the collective provision balance. The Banking Group’s provision for credit impairment, which represented the expected average annual loss on principal over the economic cycle for the lending portfolio, was credited to the collective provision. Under NZ IFRS, there is no longer a transfer between the collective and individual provisions. Further detail on the provision for credit impairment is set out in Note 15 Provision for Credit Impairment.

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

INCOME STATEMENTS fOR ThE yEAR ENDED 30 SEpTEMbER 2008

Note CONTINUING OPERATIONS Interest income 4 Interest expense 5 Net interest income Other operating income 4 Share of proft of equity accounted associates and jointly controlled entities 16 Operating income Operating expenses 5 Proft before provision for credit impairment and income tax Provision for credit impairment 15 Profit before income tax Income tax expense 6 Profit after income tax from continuing operations DISCONTINUED OPERATIONS Proft from discontinued operations (net of income tax) 10 Profit after income tax	Consolidated	Parent
	Year to Year to 30/09/2008 30/09/2007 $m $m	Year to Year to 30/09/2008 30/09/2007 $m $m
	9,857 8,309 7,568 6,059	9,638 8,038 8,130 6,542
	2,289 2,250 1,013 837	1,508 1,496 1,056 2,017
	111 24	- -
	3,413 3,111 1,444 1,331	2,564 3,513 1,384 1,283
	1,969 1,780 302 74	1,180 2,230 278 75
	1,667 1,706 504 614	902 2,155 258 379
	1,163 1,092	644 1,776
	- 76	- -
	1,163 1,168	644 1,776

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

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STATEMENTS Of RECOGNISED INCOME AND EXpENSE fOR ThE yEAR ENDED 30 SEpTEMbER 2008

Note AvAILABLE-fOR-SALE REvALUATION RESERvE: - Valuation gain (loss) taken to equity 30 - Cumulative gain transferred to the income statement on sale of fnancial assets 30 CASH FLOW HEDGING RESERVE: - Valuation (loss) gain taken to equity 11 - Transferred to income statement 11 Actuarial (loss) gain on defned beneft schemes 45 Income tax credit (expense) on items recognised directly in equity Net (expense) income recognised directly in equity Profit after income tax Total recognised income and expense for the year	Consolidated	Parent Year to Year to 30/09/2008 30/09/2007 $m $m 26 (1) - (3) (47) 78 (37) (35) (35) 3 34 (12)
	Year to Year to 30/09/2008 30/09/2007 $m $m
	26 (1) - (3) (47) 78 (37) (35) (35) 3 34 (12)
	(59) 30 1,163 1,168	(59) 30 644 1,776
	1,104 1,198	585 1,806

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

bALANCE ShEETS AS AT 30 SEpTEMbER 2008

Note ASSETS Liquid assets 7 Due from other f nancial institutions 8 Trading securities 9 Derivative f nancial instruments 11 Available-for-sale assets 12 Net loans and advances 13, 14, 15 Due from subsidiary companies Shares in controlled entities, associates and jointly controlled entities 16 Current tax assets Other assets 17 Deferred tax assets 18 Premises and equipment 19 Goodwill and other intangible assets 20 Total assets LIABILITIES Due to other f nancial institutions 21 Deposits and other borrowings 22 Due to subsidiary companies Due to parent company 27 Derivative f nancial instruments 11 Payables and other liabilities 23 Deferred tax liabilities 24 Provisions 25 Bonds and notes 26 Loan capital 28 Total liabilities Net assets EqUITY Ordinary share capital 29 Reserves 30 Retained earnings 30 Total equity	Consolidated	Parent
	Year to Year to 30/09/2008 30/09/2007 $m $m	Year to Year to 30/09/2008 30/09/2007 $m $m
	4,838 4,807 5,032 3,563 2,624 1,877 7,533 4,711 109 48 97,679 87,878 - - 363 206 57 112 1,000 1,045 121 11 242 232 3,317 3,297	4,837 4,807 4,527 3,101 2,624 1,877 7,544 4,705 107 38 95,241 84,044 1,992 1,585 7,694 7,683 214 248 885 920 100 - 53 54 3,268 3,247
	122,915 107,787	129,086 112,309
	3,312 3,170 77,136 70,030 - - 404 2,775 6,710 4,924 1,841 1,351 - - 190 165 20,695 14,607 2,820 2,062	1,940 1,686 62,800 58,514 43,260 32,942 404 2,775 6,710 4,896 1,531 988 - 7 186 151 1,123 561 2,820 2,062
	113,108 99,084	120,774 104,582
	9,807 8,703	8,312 7,727
	5,943 5,943 47 83 3,817 2,677	5,943 5,943 47 83 2,322 1,701
	9,807 8,703	8,312 7,727

For and on behalf of the Board of Directors:

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Sir Dryden Spring Director 19 November 2008

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Graham Hodges Director 19 November 2008

The notes on pages 10 to 110 form part of and should be read in conjunction with these fi nancial statements.

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CASh fLOW STATEMENTS fOR ThE yEAR ENDED 30 SEpTEMbER 2008[1]

Note CASh fLOwS fROM OPERATING ACTIvITIES Interest received Dividends received Fees and other income received Interest paid Operating expenses paid Income taxes paid Cash fows from operating profts before changes in operating assets and liabilities Net changes in operating assets and liabilities: (Increase) decrease in due from other fnancial institutions - term Increase in trading securities (Increase) decrease in derivative fnancial instruments (Increase) decrease in available-for-sale assets Increase in loans and advances Decrease (increase) in due from subsidiary companies Increase in due to subsidiary companies Decrease (increase) in other assets (Decrease) increase in due to other fnancial institutions Increase in deposits and other borrowings Increase (decrease) in payables and other liabilities Net cash flows used in operating activities 38 CASh fLOwS fROM INvESTING ACTIvITIES Proceeds from sale of shares in associates and jointly controlled entities Proceeds from sale of subsidiary companies2 10 Proceeds from sale of premises and equipment Purchase of shares in associates and jointly controlled entities Purchase of shares in subsidiary companies Purchase of intangible assets Purchase of premises and equipment Net cash flows (used in) provided by investing activities	Consolidated	Parent
	Year to 30/09/2008 $m Year to 30/09/2007 $m	Year to 30/09/2008 $m Year to 30/09/2007 $m
	9,502 7,892 4 3 1,060 926 (6,959) (5,486) (1,313) (1,254) (524) (513)	9,258 7,739 24 1,217 992 715 (7,504) (6,027) (1,275) (1,226) (303) (285)
	1,770 1,568 (630) 469 (617) (73) 2,358 (1,136) (36) 312 (9,433) (10,149) - - - - 28 (69) 142 (817) 4,618 6,857 208 (125)	1,192 2,133 (587) 446 (617) (73) 2,336 (1,114) (44) 312 (10,806) (9,993) (407) (80) 2,701 2,593 154 (27) 254 (1,142) 3,889 4,573 251 (194)
	(1,592) (3,163)	(1,684) (2,566)
	- 5 - 585 2 17 (48) (8) - - (29) (17) (51) (51)	9 6 - - 1 2 - - - (25) (29) (16) (16) (13)
	(126) 531	(35) (46)

1. The comparative cash flow statements have not been restated for the classification of Truck Leasing Limited as a discontinued operation. For a detailed explanation of the financial impacts of the sale of Truck Leasing Limited refer to Note 10 Discontinued Operations in the consolidated financial statements for the year ended 30 September 2007.

2. The cash proceeds from the sale of controlled entities includes $438 million relating to the repayment of TLL’s unsecured bank borrowings with UDC Finance Limited (‘UDC’) by the acquiree.

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

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CASh fLOW STATEMENTS fOR ThE yEAR ENDED 30 SEpTEMbER 2008[1] (CONTINUED)

Note CASh fLOwS fROM fINANCING ACTIvITIES Proceeds from bonds and notes Redemptions of bonds and notes Proceeds from loan capital Redemptions of loan capital Increase in due to subsidiary companies - term (Decrease) increase in due to parent company Dividends paid Net cash flows provided by financing activities Net cash fows used in operating activities Net cash fows (used in) provided by investing activities Net cash fows provided by fnancing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period RECONCILIATION Of CASh AND CASh EqUIvALENTS TO ThE BALANCE ShEETS 3 Liquid assets Due from other fnancial institutions - less than 90 days Total cash and cash equivalents 38	Consolidated	Parent
	Year to 30/09/2008 $m Year to 30/09/2007 $m	Year to 30/09/2008 $m Year to 30/09/2007 $m
	9,283 4,173 (5,270) (684) 835 800 (100) (550) - - (2,371) 55 - (728)	615 86 (109) - 835 800 (100) (550) 3,507 3,403 (2,371) 55 - (728)
	2,377 3,066	2,377 3,066
	(1,592) (3,163) (126) 531 2,377 3,066	(1,684) (2,566) (35) (46) 2,377 3,066
	659 434 7,130 6,696	658 454 7,128 6,674
	7,789 7,130	7,786 7,128
	4,838 4,807 2,951 2,323	4,837 4,807 2,949 2,321
	7,789 7,130	7,786 7,128

1. Comparatives for cash and cash equivalents have been restated to remove “due to other financial institutions - less than 90 days” from the definition of cash and cash equivalents. A reconciliation of cash and cash equivalents to the Banking Group’s core liquidity portfolio is included in Note 38 Notes to the Cash Flow Statements. An analysis of the balance sheet items that make up the Banking Group’s core liquidity portfolio is included in Note 32 Financial Risk Management.

The notes on pages 10 to 110 form part of and should be read in conjunction with these financial statements.

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NOTES TO ThE fINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

A. Basis of preparation

i) Statement of compliance

These financial statements have been prepared in accordance with the requirements of the Companies Act 1993, the Financial Reporting Act 1993 and the Registered Bank Disclosure Statement (Full and Half-Year - New Zealand Incorporated Banks) Order 2008 (the ‘Order’). The parent company’s financial statements are for ANZ National Bank Limited (the ‘Bank’ or ‘Parent’) as a separate entity and the consolidated financial statements are for the ANZ National Bank Limited Group (the ‘Banking Group’ or ‘reporting entity’), which includes subsidiaries, associate companies and jointly controlled entities.

These financial statements have also been prepared in accordance with New Zealand Generally Accepted Accounting Principles. They comply with New Zealand equivalents to International Financial Reporting Standards (‘NZ IFRS’) and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. The financial statements comply with International Financial Reporting Standards (‘IFRS’).

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied by the Parent and all consolidated entities and to all periods presented in the consolidated financial statements. These financial statements were authorised for issue by the Board of Directors on 19 November 2008.

ii) Use of estimates and assumptions

The preparation of the financial statements requires the use of management judgement, estimates and assumptions that affect reported amounts and the application of policies. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable. Actual results may differ from these estimates.

For further discussion on the judgements and estimates made by the Banking Group, in the process of applying its accounting policies, that have the most effect on the amounts recognised in the financial statements refer to Note 2 Critical Estimates and Judgements Used in Applying Accounting Policies. Such estimates may require review in future periods.

iii) Basis of measurement

The financial statements have been prepared on a going concern basis in accordance with the historical cost basis except that the following assets and liabilities are stated at their fair value:

• derivative financial instruments, including in the case of fair value hedging, the fair value of any applicable underlying exposure;

• assets treated as available-for-sale;

• financial instruments held for trading;

• assets and liabilities designated at fair value through profit and loss; and

• defined benefit plan assets and liabilities.

iv) Changes in accounting policies and early adoptions

There have been no material changes in accounting policies or early adoption of NZ IFRS in the preparation or presentation of this financial report.

The Banking Group has adopted NZ IFRS 7: Financial Instruments: Disclosures (‘NZ IFRS 7’) and amendments to NZ IAS 1 Presentation of Financial Statements - Capital Disclosures from 1 October 2007. Application of these standards has resulted in modified financial disclosures relating to risks arising from financial instruments and further qualitative disclosures on financial risk and capital management policies, but does not have any impact on reported profits or financial position.

The Banking Group has not early adopted NZ IAS 1 : Presentation of Financial Statements (revised) issued in November 2007. This standard is effective for annual accounting periods beginning on or after 1 January 2009 and will not result in recognition or measurement changes in the financial statements.

The Banking Group has not early adopted NZ IFRS 8: Operating Segments issued in December 2006. This standard is effective for annual accounting periods beginning on or after 1 January 2009. Adoption of this standard will not result in any measurement or recognition changes in the financial statements.

v) Presentation currency and rounding

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

vi) Comparatives

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

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(CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED) vii) Principles of consolidation

Subsidiaries

The financial statements consolidate the financial statements of the Bank and all its subsidiaries where it is determined that there is a 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, decision making in relation to the financial and operating policies of an entity so as to obtain benefits from its activities. Control is usually present when an entity has:

• power over more than one-half of the voting rights of the other entity;

• power to govern the financial and operating policies of the other entity;

• power to appoint or remove the majority of the members of the board of directors or equivalent governing body;

• power to cast the majority of votes at meetings of the board of directors or equivalent governing body of the entity.

In addition, potential voting rights that are presently exercisable or convertible are taken into account in determining whether control exists. However, all the facts of a particular situation are considered when determining whether control exists.

The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at acquisition date. The excess of the cost of acquisition over the fair value of the Banking Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Banking Group’s share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The accounting policies of the subsidiary have been changed where necessary to ensure consistency with the policies adopted by the Banking Group.

Associates and joint ventures

The Banking Group adopts the equity method of accounting for associates and the Group’s interest in joint venture entities. The Parent adopts the fair value method of accounting for its interest in associates, and the cost method of accounting for its interest in joint ventures. Associates are all entities over which the Banking Group has significant influence but not control, which generally accompany a shareholding of between 20% and 50% of the voting rights.

Joint ventures are entities over which the Banking Group has joint control. Joint control is the contractually agreed sharing of control and exists only when the strategic financial and operating decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control.

The Banking Group’s share of the post acquisition results of associates and jointly controlled entities is included in the consolidated income statement and its share of post-acquisition movements in reserves recognised in reserves. Shares in associates and jointly controlled entities are stated in the consolidated balance sheet at cost plus the Banking Group’s share of post acquisition net assets. Unrealised gains on transactions between the Banking Group and its associates and jointly controlled entities are eliminated to the extent of the Banking Group’s interest in the entity. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. If an associate or jointly controlled entity uses accounting policies other than those used by the Banking Group for like transactions and similar events, adjustments are made to conform the associate or jointly controlled entity’s policy to those of the Banking Group in applying the equity method.

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

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

The Banking Group may invest in or establish special purpose entities to enable it to undertake specific types of transactions. Where the Banking Group controls such vehicles, they are consolidated into the Banking Group’s financial results.

Special purpose and off-balance sheet entities

The Group may invest in or establish special purpose entities (SPEs) to enable it to undertake specific types of transactions. The main types of these SPEs are securitisation vehicles, structured finance entities, and entities used to sell credit protection.

Where the Banking Group has established SPEs which are controlled by the Banking Group to facilitate transactions undertaken for Banking Group purposes, these are consolidated in the Banking Group’s financial statements.

The Banking Group does not consolidate SPEs that it does not control. As it can sometimes be difficult to determine whether the Banking Group has control of an SPE, it makes judgements about its exposure to the risks and rewards, as well as about its ability to make operational decision for the SPE in question.

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(CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED) 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 the currency of the primary economic environment in which the entity operates (the functional currency). The Banking Group’s financial statements are presented in New Zealand dollars, which is the Bank’s functional and presentation currency.

Foreign currency transactions

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the date of the transaction. Monetary assets and liabilities resulting from foreign currency transactions are subsequently translated at the spot rate at reporting date.

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

Translation differences on non-monetary items measured at fair value through profit or loss, are reported as part of the fair value gain or loss on these items. Translation differences on non-monetary items measured at fair value through equity, such as equities classified as available-for-sale financial assets, are included in the available-for-sale reserve in equity.

B. Income Recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Banking Group and that revenue can be reliably measured.

i) Interest income

Interest income is recognised in the income statement as it accrues, using the effective interest method.

The effective interest method calculates the amortised cost of a financial asset or financial liability and allocates the interest income or interest expense, including any 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. Income and expense on the financial asset or financial liability is recognised on an effective yield basis in proportion to the amount outstanding over the period to maturity or repayment.

For assets subject to prepayment, expected life is determined on the basis of the historical behaviour of the particular asset portfolio, taking into account contractual obligations and prepayment experience assessed on a regular basis.

ii) Fee and commission income

Fees and commissions that are integral to the effective rate of a financial asset or liability are included in the determination of the effective interest rate.

Fees and commissions that relate to the execution of a significant act (for example, advisory services, placement fees and underwriting fees) are recognised when the significant act has been completed.

Fees charged for providing ongoing services that represent the recoupment of the costs of providing service (for example, maintaining and administering existing facilities) are recognised as revenue over the period the service is provided.

iii) Dividend income

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

iv) Leasing income

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

• v) Gain or loss on sale of property, plant and equipment

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

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(CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

C. Expense recognition

Expenses are recognised in the income statement on an accruals basis.

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

ii) Loan origination expenses

Certain loan origination expenses are an integral part of the effective interest rate of a financial asset and are measured at amortised cost. These loan origination expenses include:

• fees and commissions payable to brokers in respect of originating lending business; and

• other 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 recognised as part of the cost of acquiring the financial asset and amortised as part of the expected yield of the financial asset over its expected life using the effective interest method.

iii) Capitalised expenses

Direct external expenses, comprising direct and incremental costs related to the acquisition of interest earning assets, including structured institutional lending, mortgages and finance leases, are initially recognised as part of the cost of acquiring the asset and written off as an adjustment to its expected yield over its expected life using the effective interest method.

iv) Share-based compensation expense

The Banking Group has various equity settled share-based compensation plans. These are described in note 44 and largely comprise the Employee Share Acquisition Plan and the ANZ Share Option Plan.

ANZ Ordinary Shares

The fair value of ANZ ordinary shares granted under the Employee Share Acquisition Plan is measured at grant date, using the one-day volume weighted average market price of ANZ shares. The fair value is expensed immediately when shares vest immediately. Where shares are subject to a vesting period, the Banking Group initially recognises a net share compensation asset reflecting the fair value of unvested shares issued to employees of the Banking Group. The fair value of unvested shares is amortised to profit and loss on a straight-line basis over the vesting period (normally three years) as employee services are received.

Share Options

The fair value of ANZ share options is measured at grant date, using an option pricing model. The fair value is expensed on a straightline basis over the relevant vesting period. This is recognised as an employee compensation expense with a corresponding increase in the share options liability account.

The option pricing model takes into account the exercise price of the option, the risk free interest rate, the expected volatility of the ANZ ordinary share price and other factors. Market vesting conditions are taken into account in estimating the fair value.

Performance Rights

A Performance Right is a right to acquire a share at nil cost to the employee subject to satisfactorily meeting time and performance hurdles. Upon exercise, each Performance Right entitles the holder to one ordinary share in ANZ. The fair value of Performance Rights is determined at grant date using an option pricing model, taking into account market conditions. The fair value is expensed over the relevant vesting period with a corresponding increase in the share options reserve.

Other adjustments

Subsequent to the grant of an equity-based award, the amount recognised as an expense is adjusted for vesting conditions other than market conditions so that, ultimately, the amount recognised as an expense is based on the number of equity instruments that eventually vest.

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1. ACCOUNTING POLICIES (CONTINUED)

D. Income tax

i) Income tax expense

Income tax on earnings for the period comprises current and deferred tax. It is recognised in the income statement as tax expense, except when it relates to items credited directly to equity, in which case it is recorded in equity, or where it arises from the initial accounting for a business combination, in which case it is included in the determination of goodwill.

ii) Current tax

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

iii) Deferred tax

Deferred tax is accounted for using the comprehensive tax balance sheet method. Deferred tax arises by providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date. The measurement reflects the tax consequences that would follow from the manner in which the Banking Group, at the reporting date, expects to recover or settle the carrying amount of its assets and liabilities.

Deferred tax liabilities are recognised for all taxable temporary differences, other than those in relation to taxable temporary differences arising from goodwill. They are also recognised for taxable temporary differences arising on investments in controlled entities, branches, associates and joint ventures, except where the Banking Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets associated with these interests are recognised only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and there will be sufficient taxable profits against which to utilise the benefits of the temporary difference.

Deferred tax assets, including those related to the tax effects of income tax losses and credits available to be carried forward, are recognised only to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences or unused tax losses and credits can be utilised.

Deferred tax related to fair value re-measurement of available-for-sale financial assets and cash flow hedges, which are charged or credited directly to equity, is also charged or credited directly to equity and subsequently recognised in the income statement together with the deferred gain or loss on the related asset or liability.

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 is allowed under the tax law of the relevant jurisdiction.

E. Assets

Financial assets

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

Trading securities

Trading securities are financial instruments acquired principally for the purpose of selling in the short-term or which are a part of a portfolio which is managed for short-term profit-taking. They comprise debt and equity securities and treasury notes purchased with the intent of being actively traded. Trading securities are initially recognised at fair value on trade date with transaction costs taken to the income statement. Changes in the fair value (gains or losses) of these securities are recognised in the income statement in the period in which they occur. The assets are derecognised when the rights to receive cash flows have expired, or the Banking Group has transferred substantially all of the risks and rewards of ownership. Fair value for listed and unlisted securities is determined by the price displayed by a willing buyer in a liquid market at the reporting date. Where a market price in a liquid market is not readily available, the fair value is determined by reference to the market price available for a security with similar credit, maturity and yield characteristics or by using industry standard pricing models.

ii) Derivative financial instruments

Derivatives that are neither financial guarantee contracts nor effective hedging instruments are carried at fair value through profit or loss. In addition, certain financial assets and liabilities are designated and measured at fair value through profit or loss where the following applies:

• doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets and liabilities, or recognising the gains or losses thereon, on different bases;

• a group of financial assets or financial liabilities or both is managed and its performance evaluated on a fair value basis; or

• the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

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(CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED) The designation of a financial asset or liability at fair value through profit or loss is irrevocable. Changes in the fair value (gains or losses) of these financial instruments are recognised in the income statement in the period in which they occur. Purchases and sales of trading securities are recognised on trade date. Derivative financial instruments are contracts whose value is derived from changes in one or more underlying financial instruments or indices. They include swaps, forward rate agreements, futures, options and combinations of these instruments. Derivative financial instruments are entered into for trading purposes (including customer-related reasons) or for hedging purposes (where the derivative instruments are used to hedge the Banking Group’s exposures to interest rate risk, currency risk, price risk, credit risk and other exposures relating to non-trading positions). Derivative financial instruments are recognised initially at fair value with gains or losses from subsequent measurement at fair value being recognised in the income statement. Fair values are obtained from quoted prices in active markets (including recent transactions) and valuation techniques including discounted cash flow models and option pricing models, as appropriate.

Where the derivative financial instrument is designated as, and effective as, a hedging instrument the timing of the recognition of any resultant gain or loss in the income statement is dependent on the hedging designation. These hedging designations and associated accounting are as follows: Fair value hedge Where the Banking Group hedges the change in fair value of a recognised asset or liability or firm commitment, any change in the fair value of derivatives designated as fair value hedges are recognised in the income statement. Changes in the fair value of the hedged item attributable to the hedged risk are reflected in adjustments to 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 the income statement over a period to maturity of the hedged item. If the hedged item is sold or repaid, the unamortised adjustment is recognised immediately in the income statement. Cash flow hedge

The Banking Group designates derivatives as cash flow hedges where the instrument hedges the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction. The effective portion of changes in the fair value of derivatives qualifying and designated as cash flow hedges are deferred to the cash flow hedging reserve, which forms part of shareholders’ equity. Any ineffective portion is immediately recognised in the income statement. Amounts deferred in equity are recognised in the income statement in the period during which the hedged forecast transactions take place. Where the forecast transaction that is hedged results in the recognition of a non-financial asset or non-financial liability, the gain or loss previously deferred in equity is transferred from equity and included in the initial measurement of the cost of the asset or liability.

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

When a forecast transaction is no longer expected to occur, the amount deferred in equity is immediately recognised in the income statement.

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

Embedded derivatives

Derivatives embedded in financial instruments or other host contracts are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contracts, and the host contracts are not measured at fair value. The embedded derivative is reported at fair value with changes in fair value immediately recognised in the income statement.

Set-off arrangements

Fair value gains/losses arising from trading derivatives are not offset against fair value gains/losses on the balance sheet unless a legal right of set-off exists and there is an intention to settle net.

iii) Available-for-sale assets

Available-for-sale assets comprise those non-derivative financial assets which the Banking Group designates as available-for-sale but which are not deemed to be held principally for trading purposes, and include equity investments and fixed term securities. They are initially recorded at fair value plus transaction costs. Subsequent gains or losses arising from changes in fair value are included as a separate component of equity in the ‘available-for-sale revaluation reserve’. When the asset is sold, the cumulative gain or loss relating to the asset is transferred to the income statement.

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(CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

Where there is objective evidence of impairment, the cumulative loss related to that asset is removed from equity and recognised in the income statement as an impairment expense for debt instruments or as non-interest income for equity instruments. If, in a subsequent period, the amount of an impairment loss relating to an available-for-sale asset decreases and the decrease can be linked objectively to an event occurring after the impairment event, the loss previously recognised in the income statement is reversed through the income statement. Impairment losses recognised in the income statement for an investment in an equity instrument classified as available-for-sale are not reversed through the income statement.

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

Premiums and discounts are included within the calculation of the fair value of the security. Interest is accrued and recognised in accordance with the effective yield basis.

iv) Net loans and advances

Net loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Banking Group has no intention of trading on the loans and advances. The loans and advances are initially recognised at fair value plus transaction costs that are directly attributable to the issue of the loan or advance. They are subsequently measured at amortised cost using the effective interest method, less any impairment loss, or when in an effective hedging relationship, changes in the fair value of the hedged item attributable to the hedged risk are reflected in adjustments to the carrying value of the hedged item, and also recognised in the income statement. Loans and advances are derecognised when the rights to receive cash flows have expired or the Banking Group has transferred substantially all the risks and rewards of ownership.

Net loans and advances include direct finance provided to customers such as bank overdrafts, credit cards, term loans, finance lease receivables and commercial bills. Overdrafts, credit cards and term loans are carried at amortised cost. Customer financing through redeemable preference shares is included within net loans and advances. Dividends received on redeemable preference shares are taken to the income statement as part of interest income.

Credit assessment

All loans are graded according to the level of credit risk. Loans are classified as either productive or impaired.

Impaired assets include other impaired assets, restructured assets and assets acquired through the enforcement of security.

Other impaired assets include loans where there is doubt as to full recovery, and loans that have been restructured. An individual provision is raised to cover the expected loss, where full recovery of principal is doubtful.

Restructured assets are those assets where the counterparty had difficulty complying with the original terms of the contract and the original terms have been modified to grant the counterparty concessional terms where the yield of the loan is equal to or greater than the Banking Group’s average cost of funds and below the yield applicable to a customer of equal credit standing. 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.

Cash receipts on other impaired assets are initially applied as a reduction in principal.

A past due asset is any loan where the counterparty has failed to make a payment when contractually due, and which is not an impaired asset. A 90 days past due asset is any past due asset which has not been operated by the counterparty within its key terms for at least 90 days.

Other assets under administration are any loans, not being impaired or 90 days past due, where the customer is in any form of voluntary or involuntary administration, including receivership, liquidation, bankruptcy or statutory management.

Impairment of loans and advances

Loans and advances are reviewed at least at each reporting date for impairment. Credit impairment provisions are raised for exposures that are known to be impaired. Loans are impaired and impairment losses incurred if there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the loan and that loss event (or events) has had a reliably measurable impact on the estimated future cash flows of the individual loan or the collective portfolio of loans.

Impairment is assessed initially for assets that are individually significant (or on a portfolio basis for small value loans), and then on a collective basis for those exposures not individually known to be impaired.

For those exposures that are assessed collectively, these are placed in pools of similar assets with similar risk characteristics. The required provision is estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current observable data such as changed economic conditions. The provision also takes account of the impact of inherent risk of large concentrated losses within the portfolio.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED) The estimated individual impairment loss is measured as the difference between the asset’s carrying amount and the estimated future cash flows discounted to their present value at the original effective interest rate. As this discount unwinds during the period between recognition of impairment and recovery of the cash flow, it is recognised in the income statement. The process of estimating the amount and timing of cash flows involves considerable management judgement. These judgements are reviewed regularly to reduce any differences between loss estimates and actual loss experience. The provision for credit impairment (individual and collective) is deducted from loans and advances in the balance sheet and the movement in the provision for the reporting period is reflected in the income statement. When a loan is uncollectible, either partially or in full, it is written off against the related provision for loan impairment. Subsequent recoveries of amounts previously written off are taken to the income statement. Unsecured facilities are normally written-off when they become 180 days past due or earlier in the event of the customer’s bankruptcy or similar legal release from the obligation. However, a certain level of recoveries is expected after the write-off, which is reflected in the amount of the provision for credit losses. In the case of secured facilities, remaining balances are written-off after proceeds from the realisation of collateral have been received, if the proceeds are insufficient. Where impairment losses recognised in previous periods have subsequently decreased or no longer exist, such impairments are reversed in the income statement. A provision is also raised for off balance sheet items such as commitments that are considered to be onerous. v) Lease receivables Finance leases Contracts to lease assets and hire purchase agreements are classified as finance leases if they transfer substantially all the risks and rewards of ownership of the asset to the customer or an unrelated third party. All other lease contracts are classified as operating leases. Finance lease receivables include amounts due from lessees in relation to finance leases and hire purchase contracts. The gross amount of contractual payments regarding lease finance to business customers that have a fixed rate and a fixed term are recorded as gross lease receivables and the unearned interest component is recognised as income yet to mature. The finance lease receivables are initially recognised at amounts equal to the present value of the minimum lease payments, plus the present value of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease payments are allocated between interest revenue and reduction in the lease receivable over the term of the finance lease, reflecting a constant periodic rate of return on the net investment outstanding in respect of the lease. Operating leases Operating lease payments are recognised as an expense on a straight-line basis over the lease term as lessee. 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, depending on the term of the agreement and the counterparty. The difference between the sale price and the repurchase price is amortised over the life of the repurchase agreement and charged to interest expense in the income statement.

Securities purchased under agreements to resell, where the Banking Group does not acquire the risks and rewards of ownership, are recorded as liquid assets, net loans and advances, or due from other financial institutions, depending on the term of the agreement and the counterparty. The security is not included in the balance sheet. Interest income is accrued on the underlying loan amount. vii) Derecognition The Group enters into transactions where it transfers financial assets recognised on its balance sheet yet retains either all the risks and rewards of the transferred assets or a portion of them. If all, or substantially all, the risks and rewards are retained, the transferred assets are not derecognised from the balance sheet. In transactions where substantially all the risks and rewards of ownership of a financial asset are neither retained nor transferred, the Group derecognises the asset if control over the asset is lost. In transfers where control over the asset is retained, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. The rights and obligations retained or created in the transfer are recognised separately as assets and liabilities as appropriate.

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(CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

Non-financial assets viii) Goodwill

Goodwill, representing the excess of the purchase consideration over the fair value of the identifiable net assets of a controlled entity at the date of gaining control, is recognised as an asset. Goodwill has an indefinite life. The carrying value of goodwill is reviewed for impairment at each reporting period and tested for impairment annually, or more frequently if there is an indication that the goodwill may be impaired. This involves, where required, using discounted cash flow or capitalisation of earnings methodology to determine the expected future benefits of the cash generating unit to which goodwill has been allocated. Where the assessment results in the current carrying value of goodwill exceeding the value of expected future benefits, the difference is charged to the income statement. Any impairment writedown of goodwill is not reversed in subsequent periods.

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

ix) Other intangible assets

Other intangible assets include costs incurred in acquiring and building software and computer systems (referred to as software) and an intangible asset relating to the ING New Zealand Joint Venture acquisition.

Software is amortised using the straight-line method over its expected useful life to the Banking Group. The period of amortisation is between 3 and 5 years for certain core infrastructure projects where the useful life has been determined to be 7 years.

At each reporting date, the software assets and other intangible assets are reviewed for impairment against impairment indicators. If any indication of impairment exists, the recoverable amount of the assets are estimated and compared against the existing carrying value. Where the existing carrying value exceeds the recoverable amount, the difference is charged to the income statement.

Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation, are not capitalised.

x) Premises and equipment

Premises and equipment are carried at cost less accumulated depreciation and impairment.

The gain or loss on the disposal of premises and equipment is determined as the difference between the carrying amount of the assets at the time of disposal and the proceeds of disposal, and is included in the income statement in the year in which the significant risks and rewards of ownership are transferred to the buyer.

Assets other than freehold land are depreciated at rates based upon their expected useful lives to the Banking Group, using the straight-line method. The depreciation rates used for each class of asset are:

Buildings	1%
Building integrals	10%
Furniture & equipment	10%
Computer & offce equipment	12.5% - 33%
Motor vehicles	20%

Leasehold improvements are amortised on a straight-line basis over the shorter of their useful lives or remaining terms of the lease.

At each reporting date, the carrying amounts of premises and equipment are reviewed for indications of impairment. If any such indication exists, the recoverable amount of the assets are estimated and compared against the existing carrying value. Where the asset’s existing carrying value exceeds its recoverable amount the difference is charged to the income statement. If it is not possible to estimate the recoverable amount of an individual asset, the Banking Group estimates the recoverable amount of the cash generating unit to which the asset belongs.

A previously recognised impairment loss is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount.

F. Liabilities

Financial liabilities

i) Deposits and other borrowings

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

ii) Bonds, notes and loan capital

Bonds, notes and loan capital are initially recognised at fair value plus transaction costs. They are subsequently measured at amortised cost using the effective interest method, less any impairment loss, or when in an effective hedging relationship, changes in the fair value of the hedged item attributable to the hedged risk are reflected in adjustments to the carrying value of the hedged item, and also recognised in the income statement. Interest expense is recognised in the income statement using the effective interest method.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED) iii) Financial guarantee contracts

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due. Financial guarantees are issued in the ordinary course of business, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements at fair value on the date the guarantee was given; typically this is the premium received.

Subsequent to initial recognition, the Banking Group’s liabilities under such guarantees are measured at the higher of their amortised amount and the best estimate of the expenditure 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

vi) Employee benefits

Leave benefits

The amounts expected to be paid in respect of employees’ entitlements to annual leave are accrued at expected salary rates including on-costs. Expected future payments for long service leave are discounted using market yields at the reporting date on national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows. Liability for long service leave is calculated and accrued for in respect of all applicable employees using an actuarial valuation.

Superannuation schemes

The Banking Group operates a number of defined contribution schemes and also contributes, according to local law, in the various countries to which it operates, to government and other plans that have the characteristics of defined contribution schemes. The Banking Group’s contributions to its defined contribution cash accumulation scheme are recognised as an expense in the income statement when incurred.

The Banking Group operates two defined benefit superannuation schemes. The liability and expense related to providing benefits to employees under each of the defined benefit schemes are calculated by independent actuaries. A defined benefit liability is recognised to the extent that the present value of the defined benefit obligation of each scheme, calculated using the Projected Unit Credit Method, is greater than the fair value of each scheme’s assets. Where this calculation results in a benefit to the Banking Group, a defined benefit asset is recognised and capped at the recoverable amount. The present value of the defined benefit obligation is determined by discounting the estimated future outflows by reference to New Zealand 10-year government bond rates.

In each subsequent reporting period, ongoing movements in the carrying value of the defined benefit liability or asset are treated as follows:

• the net movement relating to the current period’s service cost, interest cost, expected return on scheme assets, past service costs and other costs (such as the effects of any curtailments and settlements), is recognised as an employee expense in the income statement;

• movements relating to actuarial gains and losses are recognised directly in retained profits; and

• contributions incurred are recognised directly against the net defined benefit position.

The assets of the defined benefit and cash accumulation superannuation schemes are held in trust and are not included in these financial statements as the Banking Group does not have direct or indirect control of these schemes. The benefits under the schemes are provided from contributions by employee members and by the Banking Group, and from income earned by the assets of the schemes. Members’ contributions are at varying rates. Actuarial valuations are carried out at minimum of every three years in accordance with the schemes’ Trust Deed and superannuation legislation.

vii) Provisions

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

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

G. Equity

i) Reserves

Available-for-sale revaluation reserve

This reserve includes changes in the fair value of available-for-sale financial assets, net of tax. These changes are transferred to the income statement in non-interest income when the asset is either derecognised or impaired.

Cash flow hedging reserve

• This reserve includes the fair value gains and losses associated with the effective portion of designated cash flow hedging instruments.

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 the effective interest rate of a financial instrument which is measured at amortised cost, these are offset against the interest income generated by the financial instrument;

• where gains and losses relating to fair value hedges are assessed as being effective;

• where gains and losses arise from a group of similar transactions, such as foreign exchange gains and losses.

ii) Offsetting of assets and liabilities

Assets and liabilities are offset and the net amount reported in the balance sheet only where:

• There is a current enforceable legal right to offset the asset and liability; and

• There is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

iii) Statement of cash flows

For cash flow statement presentation purposes the statement of cash flows has been prepared using the direct approach modified by the netting of the certain items as disclosed below.

Cash and cash equivalents include liquid assets, amounts due from other financial institutions, trading securities and available-for-sale assets held for the purpose of meeting short-term cash commitments that are readily convertible to cash and subject to insignificant risk of changes in value.

Certain cash flows have been netted in order to provide more meaningful disclosure, as many of the cash flows are received and disbursed on behalf of customers and reflect the activities of the customers rather than those of the Banking Group. These include customer loans and advances, customer deposits, certificates of deposit, 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 to those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and rewards that are different to those components operating in other economic environments.

Business segments are the Banking Group’s primary reporting segments. For reporting purposes the three major business segments are Retail Banking, Relationship Banking and Institutional. The Banking Group operates primarily in one geographic segment, New Zealand.

v) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (‘GST’) except where the amount of GST incurred is not recoverable from the Inland Revenue Department (‘IRD’). In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the IRD is included as ‘other assets’ or ‘other liabilities’ in the balance sheet.

Cash flows are included in the cash flow statement on a net basis. The GST components of cash flows arising from investing and financing activities, which are recoverable from, or payable to, the IRD are classified as operating cash flows.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)

I. Other

i) Contingent liabilities

Liabilities are no longer contingent, and are recognised on the balance sheet, when the following requirements are met:

• the transaction is probable in that the contingency is likely to occur; and

• the contingency can be reasonably estimated.

Further disclosure is made within Note 43 Contingent Liabilities and Credit Related Commitments, where the above requirements are not met, but there is a possible obligation that is higher than remote. Specific details are provided together with an estimate of the range or a statement that such an estimate is not possible.

ii) Securitisation, funds under management and other fiduciary activities

Certain subsidiaries of the Bank act as trustees and/or managers for a number of unit trusts and superannuation investment funds. The Bank provides private banking services to customers including portfolio management. The assets of the managed funds and private banking clients are not included in these financial statements, as direct or indirect control of the assets is not held by the Banking Group. Commissions and fees earned in respect of the Banking Group’s funds under management are included in net operating income.

Financial services provided by any member of the Banking Group to discretionary private banking activities or entities conducting funds management, and assets purchased from discretionary private banking activities or entities conducting funds management are on arm’s length terms and conditions, and at fair value.

Securitised assets are derecognised when the right to receive cash flows have expired or the Banking Group has transferred substantially all the risks and rewards of ownership.

iii) Discontinued operations

A discontinued operation is a component of the Banking Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is classified as held for sale, or is a subsidiary that has been disposed of or is classified as held for sale.

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

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

2. CRITICAL ESTIMATES AND JUDGEMENTS USED IN APPLYING ACCOUNTING POLICIES

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

An explanation of the judgements and estimates made by the Banking Group in the process of applying its accounting policies, that have the most significant effect on the amounts recognised in the financial statements are set out below.

Critical accounting estimates and assumptions Credit provisioning Provisions for impairment in customer loans and advances are raised by management to cover incurred losses arising from past events. Losses for impaired loans are recognised when there is objective evidence that impairment of a loan or portfolio of loans has occurred. Impairment losses are calculated on individual loans and on loans assessed collectively. Losses expected from future events, no matter how likely, are not recognised. The amount of the impairment loss is recognised as an expense in the income statement. The calculation of impairment provisions includes consideration of all expected cash flows associated with the loan. This includes any expected cash flows from realisation of security and interest and takes into account any costs expected to be incurred, including security realisation costs, legal and administration costs.

Individual provisions An individual provision is raised where there is an expectation of a loss of principal, interest and/or fees and there is objective evidence of impairment.

At each balance date, the Banking Group reviews individually significant loans for evidence of impairment. All relevant information, including the economic situation, solvency of the customer/guarantor, enforceability of guarantees, current security values and the time value of future cash flows are taken into account in determining individual provisions. At a minimum, individual provisions are reassessed on a quarterly basis, upon receipt of a significant asset realisation or when there is a change in customer circumstances/business strategy.

Collective provisions
A collective provision is calculated for:
• Loans subject to individual assessment to cover losses which have been incurred but not yet identifed; and
For homogenous portfolios of loans that are not considered individually signifcant (e.g. retail portfolios such as mortgages, credit cards and •
some small business loans).
The collective provision is estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the
collective pool. The historical loss experience is then adjusted for the impact of current observable data.
For individually signifcant loans, historical loss experience used to calculate the collective provision is determined by taking into account
historical information on probability of default and loss given default by risk grade. The collective provision on homogeneous or portfolio
managed exposures is calculated by applying an expected loss factor to the outstanding drawn and undrawn balances in each loan portfolio.
The expected loss factor is determined from internal historical loss data.

The long-term historical loss experience is reviewed by management and adjustments made to reflect current economic and credit conditions as well as taking into account such factors as concentration risk in an individual portfolio. In addition, management recognise that a certain level of imprecision exists in any model used to generate risk grading and provisioning levels. As such an adjustment is applied for model risk. As at 30 September 2008 for the Banking Group, total provision for credit impairment was $666 million representing 0.68% of total net loans and advances (30/09/2007 $466 million or 0.53%). Of the total provision for 30 September 2008, $534 million represented collective provisions and $132 million represented individual provisions.

As at 30 September 2008 for the Bank, total provision for credit impairment was $612 million representing 0.64% of total net loans and advances (30/09/2007 $426 million or 0.51%). Of the total provision for 30 September 2008, $497 million represented collective provisions and $115 million represented individual provisions.

Management regularly reviews and adjusts the estimates and methodologies as improved analysis becomes available. Changes in these assumptions and methodologies could have a direct impact on the level of provision and impairment charge recorded in the financial statements.

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NOTES TO ThE fINANCIAL STATEMENTS (CONTINUED)

2. CRITICAL ESTIMATES AND JUDGEMENTS USED IN APPLYING ACCOUNTING POLICIES (CONTINUED) Critical judgements in applying the Banking Group’s accounting policies

Derivatives and hedging

The Banking Group buys and sells derivatives as part of its trading operations and to hedge its interest rate risk, currency risk, price risk, credit risk and other exposures relating to non-trading positions. The derivative instruments used to hedge the Banking Group’s exposures include:

• Swaps

• Foreign exchange contracts

• Forward rate agreements

• Futures

• Options, and • Combinations of the above instruments. The Banking Group enters into derivatives for trading (including transactions entered into on behalf of customers) or for hedging purposes. Hedging A hedging instrument is a designated derivative whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item. A hedged item is an asset, liability, firm commitment or highly probable forecast transaction that (a) exposes the Banking Group to the risk of changes in fair value or future cash flows and (b) is designated as being hedged. For a relationship to qualify for hedge accounting, the following criteria must be met:

• Designation and Documentation: The hedging relationship must be formally designated and documented at the inception of the hedge.

• • Prospective Effectiveness: This is a forward-looking test of whether a hedging relationship is expected to be highly effective in future periods. The hedge must be expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk, consistently with the originally documented risk management strategy for that particular hedging relationship for hedge accounting to be achievable. The effectiveness of the hedge must be capable of being reliably measured, that is, the fair value or cash flows of the hedged item that are attributable to the hedged risk and the fair value of the hedging instrument can be reliably measured. Prospective hedge effectiveness testing is required at least quarterly.

• Retrospective Effectiveness: This is a backward-looking test of whether a hedging relationship has actually been highly effective throughout the reporting periods for which the hedge was designated (i.e. retrospectively). The actual results of the hedge must be within a range of 80 - 125 per cent. Hedge accounting is only achieved where both prospective and retrospective effectiveness is achieved.

• • External Counterparty: For hedge accounting purposes, only instruments that involve a party external to the Banking Group can be designated as hedging instruments.

• Judgement is required by management in selecting and designating hedging relationships and assessing hedge effectiveness. NZ IAS 39 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 number of reasons, and whilst a hedge may pass the effectiveness tests above it may not be perfectly effective, thus creating volatility within the income statement through recognition of this ineffectiveness.

Fair value of derivatives

Derivatives which are entered into as part of the Banking Group’s trading operations and those derivatives which are part of fair value hedges are measured at fair value, with any changes in fair value recognised in the income statement. Where liquid markets exist, fair value is based on quoted market prices. Where there is no active market fair value is determined by the use of various valuation techniques including discounted cash flow models and option pricing models. To the extent possible models use only observable data, however such areas as counterparty risk, volatilities and correlations require management to make judgements and estimates. Changes in assumptions used in these models and projections of future cash flows could affect the reported fair value of derivative financial instruments.

Goodwill

The carrying value of goodwill is subject to an impairment test to ensure that the current carrying value does not exceed its recoverable value at the balance sheet date. Any excess of carrying value over recoverable amount is taken to the income statement as an impairment writedown. As at 30 September 2008, the balance of goodwill recorded as an asset on the Banking Group’s consolidated balance sheet as a result of acquisitions was $3,265 million (30/09/2007 $3,265 million) of which $3,230 million relates to the acquisition of NBNZ Group in December 2003 (30/09/2007 $3,230 million).

As at 30 September 2008, the balance of goodwill recorded as an asset on the Bank’s balance sheet as a result of acquisitions was $3,217 million, which relates to the amalgamation of The National Bank of New Zealand Limited in June 2004 (30/09/2007 $3,217 million).

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

2. CRITICAL ESTIMATES AND JUDGEMENTS USED IN APPLYING ACCOUNTING POLICIES (CONTINUED)

Goodwill is allocated to cash-generating units for the purpose of impairment testing, which is undertaken at the lowest level at which goodwill is monitored for internal management reporting purposes. The cash-generating unit to which goodwill related to the National Bank Group is the NZ Geographic segment being ANZ National Bank Limited Group.

Impairment testing of purchased goodwill is performed annually, or more frequently where there is an indication that the goodwill may be impaired, by comparing the recoverable value of the Banking Group, being the smallest cash-generating unit to which the goodwill is allocated, with the current carrying amount of its net assets, including goodwill. The recoverable amount is based on fair value less costs to sell. Where the current carrying value is greater than the recoverable amount a charge for impairment of goodwill will be recorded in the income statement.

The Banking Group obtained an independent valuation of the ANZ National Bank Limited Group as at 31 August 2008.

In determining the fair value of the Banking Group, independent valuations based on fair value less costs to sell using a capitalisation of earnings approach and a discounted cash flow approach were used.

The results of the independent valuation resulted in a fair value less costs to sell in excess of current carrying value.

In determining an appropriate price multiple under the capitalisation of earnings approach, judgement is applied in assessing comparability of similar companies or transactions, particularly with respect to the mix of business, geographic location, growth prospects, riskiness of future earnings and size of the overall business.

Changes in the assumptions upon which the valuation is based, together with changes in future cash flows could materially impact the valuation obtained. Based on this independent valuation, the current carrying value of the Banking Group’s goodwill arising from acquisitions is considered recoverable and no impairment write-down is required.

Valuation of investment in ING (NZ) Holdings Ltd (ING NZ)

The Banking Group adopts the equity method of accounting for its 49% interest in its jointly controlled entity, ING NZ. As at 30 September 2008, the carrying value of the Banking Group’s investment in ING NZ was $212 million (30/09/2007 $189 million). The carrying value of the Bank’s investment in ING NZ was $208 million (30/09/2007 $208 million).

The carrying value of this investment is subject to an impairment test to ensure that the current carrying value does not exceed its recoverable value at the balance sheet date. Any excess of carrying value over recoverable amount is taken to the income statement as an impairment writedown.

The Banking Group obtained an independent valuation of ING NZ as at 30 September 2008. The valuation was based on a value-in-use methodology using a discounted cash flow approach. The results of the independent valuation resulted in a value-in-use in excess of the Banking Group’s current carrying value. Based on this independent valuation, the current carrying value of the Banking Group’s investment in ING NZ is considered recoverable and no impairment write-down is required.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

3. RISK MANAGEMENT POLICIES

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

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

• The Board, providing leadership, setting risk appetite/strategy and monitoring progress;

• A strong framework for development and maintenance of Banking Group-wide risk management policies, procedures and systems, overseen by an independent team of risk professionals;

• The use of sophisticated risk tools, applications and processes to execute the global risk management strategy across the Banking Group;

• Business Unit level accountability, as the “first line of defence”, and for the management of risks in alignment with the Banking Group’s strategy; and

• Independent oversight to ensure Business Unit level compliance with policies, regulations and laws, and to provide regular risk evaluation and reporting.

The Banking Group manages risk through an approval, delegation and limits structure. Regular reviews of the policies, systems and risk reports, including the effectiveness of the risk management systems, discussions covering the Banking Group’s response to emerging risk issues and trends, and that the requisite culture and practices are in place across the Banking Group, are conducted within the Banking Group and also by the Ultimate Parent Bank. The Board has responsibility for reviewing all aspects of risk management.

The Board has ultimate responsibility for overseeing the effective deployment of risk management frameworks, policies and processes within New Zealand. The Banking Group’s Risk Committee assists the Board in this function. The role of the Committee is to assist the Board in the effective discharge of its responsibilities for business, market, credit, operational, compliance, liquidity and reputational risk management, and to liaise and consult with the Ultimate Parent Bank Risk Committee to assist it to discharge its responsibilities. The Banking Group has an independent Risk Management function, which via the Chief Risk Officer, coordinates risk management directly between Business Unit risk functions and Ultimate Parent Bank Group Risk Management functions. The risk management process is subject to oversight by the Risk Committee of the Ultimate Parent Bank Board. This includes the review of risk portfolios and the establishment of prudential policies and controls.

The Banking Group’s risk management policies are essentially the same as the Ultimate Parent Bank, but are tailored where required to suit the local New Zealand regulatory and business environment. The Audit Committee, which is a sub-committee of the Board, has responsibility for reviewing all aspects of published financial statements and internal and external audit processes. The 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 Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations. 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. Liquidity risk is the risk that the Banking Group has insufficient capacity to fund increases in assets, or is unable to meet its payment obligations as they fall due, including repaying depositors or maturing wholesale debt. Refer to Note 32 Financial Risk Management for detailed disclosures on the Banking Group’s financial risk management policies. Operational risk Operational risk is the risk arising from day to day operational activities which may result in direct or indirect loss. These losses may result from failure to comply with policies, procedures, laws and regulations, from fraud or forgery, from a breakdown in the availability or integrity of services, systems and information, or damage to the Bank’s reputation. Examples include failure to comply with policy and legislation, human error, natural disasters, fraud and other malicious acts. Where appropriate, risks are mitigated by insurance. Risk Management is responsible for establishing the Banking Group’s operational risk framework and associated Banking Group-level policies. Business Units are responsible for the identification, analysis, assessment and treatment of operational risks on a day-to-day basis. A Risk Drivers and Controls (or ‘Scorecards’) Approach to operational risk measurement is used to measure the operational risk profile of individual business units, and to allocate operational risk economic capital. This approach gives business managers a strong and clear incentive to reduce operational risk. Business Units have primary responsibility for the identification and management of operational risk with executive oversight provided by the relevant Retail and Wholesale Risk Committees. The Banking Group’s Operational Risk Executive Committee (OREC) undertakes the governance function through the monthly monitoring of operational risk performance across the Banking Group. The Board and Risk Management conduct effective oversight through the approval of operational risk policies and frameworks and monitoring key operational risk metrics.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

3. RISK MANAGEMENT POLICIES (CONTINUED)

Compliance

The Banking Group conducts its business in accordance with all relevant compliance requirements in each point of representation. In order to assist the Banking Group identify, manage, monitor and measure its compliance obligations, the Banking Group has a comprehensive regulatory compliance framework in place, which addresses both external (regulatory) and internal compliance.

Risk Management, in conjunction with Business Unit staff ensure the Banking Group operates within a compliance infrastructure and framework that incorporates new and changing business obligations and processes.

The compliance policies and their supporting framework seeks to minimise material risks to the Banking Group’s reputation and value that could arise from non-compliance with laws, regulations, industry codes and internal standards and policies. Business Units have primary responsibility for the identification and management of compliance. The Banking Group’s Risk Management division provides policy and framework, measurement, monitoring and reporting, as well as leadership in areas such as anti-money laundering procedures and matters of prudential compliance. The Banking Group’s OREC, the Chief Risk Officer, the Board and the Risk Committee of the Ultimate Parent Bank Board conduct Board and Executive oversight.

Internal audit

The Banking Group’s internal audit function, conducts independent reviews that assist the Board of Directors and management to meet their statutory and other obligations.

Internal Audit reports directly to the Chairman of the ANZ National Audit Committee. Under its Charter, Internal Audit conducts independent appraisals of:

• The continued operation and effectiveness of the internal controls in place to safeguard and monitor all material risks to the Banking Group;

• Compliance with Board policies and management directives;

• Compliance with the requirements of supervisory regulatory authorities;

• The economic and efficient management of resources; and

• The effectiveness of operations undertaken by the Banking Group.

In planning the audit activities, Internal Audit adopts a risk-based approach that directs and concentrates resources to those areas of greatest significance, strategic concern and risk to the business. This encompasses reviews of major credit, market, technology and operating risks within the wider Banking Group. Significant findings are reported quarterly to the Audit Committee.

The 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 to ensure completion and agreed actions are undertaken where appropriate.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

4. INCOME

CONTINUING OPERATIONS Interest income Financial assets at fair value through profit or loss Trading securities Derivative fnancial instruments Financial assets not at fair value through profit or loss Liquid assets Other fnancial institutions Available-for-sale assets Lending on productive loans Lending on impaired assets (Note 14) Subsidiary companies Related parties Other Total interest income Other operating income Net fee income1 Dividends received Associate investments Net gain on foreign exchange trading Net gain on trading securities Net gain on trading derivatives Net gain on available-for-sale assets Net gain on hedges not qualifying for hedge accounting Net ineffectiveness on qualifying fair value hedges Net cash fow hedge gains transferred to income statement Net gain (loss) on fnancial liabilities designated at fair value through proft or loss Other income Total other operating income 1Net fee income comprises: Lending and credit facility fee income Fee income on trust and other fduciary activities Other fee income Total fee income Direct fee expense Net fee income	Consolidated	Parent
	Year to 30/09/2008 $m Year to 30/09/2007 $m	Year to 30/09/2008 $m Year to 30/09/2007 $m
	220 233 507 278	220 233 556 288
	727 511 313 345 321 220 3 7 8,471 7,190 6 4 - - - 13 16 19	776 521 313 345 275 178 3 6 8,202 6,873 6 4 47 84 - 13 16 14
	9,130 7,798	8,862 7,517
	9,857 8,309	9,638 8,038
	646 594 4 3 - - 166 128 44 2 61 39 - 10 72 20 (70) (1) 37 35 15 (2) 38 9	594 552 24 1,217 88 2 164 126 44 2 61 39 - 10 72 20 (70) (1) 37 35 15 (2) 27 17
	1,013 837	1,056 2,017
	134 110 47 46 632 592	135 110 20 27 606 569
	813 748 167 154	761 706 167 154
	646 594	594 552

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

5. EXPENSES

CONTINUING OPERATIONS Interest expense Financial liabilities at fair value through profit or loss Commercial paper Deposits at amortised cost Other fnancial institutions Deposits and other borrowings Subsidiary companies Bonds and notes Related party funding Loan capital Other Total interest expense Operating expenses Personnel costs Employee entitlements Pension costs - Defned contribution schemes - Defned beneft schemes Share-based payments expense Building occupancy costs Depreciation of premises and equipment Leasing and rental costs Related parties (Note 46) Computer expenses Administrative expenses Other costs Total operating expenses Auditors’ remuneration to KPMG comprises: Audit or review of fnancial statements Other audit-related services Total auditors’ remuneration	Consolidated	Consolidated	Parent
	Year to 30/09/2008 $m Year to 30/09/2007 $m		Year to 30/09/2008 $m Year to 30/09/2007 $m
	997 595		- -
	997 595 195 206 4,397 3,740 - - 1,532 1,076 151 211 207 157 89 74		- - 99 100 4,800 3,774 2,730 2,210 57 32 151 211 207 157 86 58
	6,571	5,464	8,130 6,542
	7,568 6,059		8,130 6,542
	724 650 75 67 37 35 7 6 13 12 38 38 38 39 80 72 82 71 117 112		692 620 73 65 36 34 7 6 13 12 9 13 15 17 17 13 178 167 110 107 172 173 62 56
	180	181
	53	48
	1,444 1,331		1,384 1,283
	Consolidated		Parent
	Year to 30/09/2008 $000s Year to 30/09/2007 $000s		Year to 30/09/2008 $000s Year to 30/09/2007 $000s
	1,942 1,549 500 357		1,583 1,314 298 333
	2,442 1,906		1,881 1,647

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

Other audit-related services include services for the audit or review of financial information other than financial reports including prudential supervision reviews, prospectus reviews, trust audits and other audits required for local regulatory purposes.

P A G E 2 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

6. INCOME TAX EXPENSE

RECONCILIATION Of ThE PRIMA fACIE INCOME TAX PAYABLE ON IN ThE INCOME STATEMENT Continuing operations Proft before income tax Prima facie income tax at 33% Rebateable and non-assessable dividends Non-assessable income/non-deductible expenses Tax effect of change in domestic tax rate1 Income tax under provided in prior periods Total income tax expense from continuing operations Effective tax rate (%) The major components of the income tax expense comprise: Amounts recognised in the income statement Current income tax charge Current income tax charge Adjustments recognised in the current period in relation to current tax of prior periods Deferred income tax Deferred tax (income) expense relating to the origination and reversal of temporary differences Total income tax expense recognised in income statement - continuing operations The following amounts were (credited) charged directly to equity: Current income tax Actuarial (loss) gain on defned beneft schemes Deferred income tax Net (loss) gain on revaluation of cash fow hedges Total income tax (credit) expense recognised directly in equity Imputation Credit Account Balance at beginning of the year Imputation credits attached to dividends received Taxation paid Imputation credits attached to dividends paid Additions from companies joining the Imputation Group Other Balance at end of the year	Consolidated	Consolidated	Parent
	Year to 30/09/2008 $m Year to 30/09/2007 $m		Year to 30/09/2008 $m Year to 30/09/2007 $m
	PROfIT wITh ThE INCOME TAX EXPENSE ChARGED
	1,667 1,706 550 563 (10) (12) (35) 34		902 2,155 298 711 (8) (401) (31) 43
	505 585 (1) 27 - 2		259 353 (1) 25 - 1
	504 614		258 379
	30.2% 36.0%		28.6% 17.6%
	610 512 - 2 (106) 100		361 277 - 1 (103) 101
	504 614		258 379
	(12) 1 (4) 11		(12) 1 (4) 11
	(16) 12		(16) 12
			595 483 18 91 84 217 (370) (196) 121 - (2) -
	831 642 33 14 211 371 (370) (196) - - (9) -
	696 831		446 595

The above amounts only include items that give rise to imputation credits that are available for use by the Banking Group and/or the Bank.

The parent is a member of an Imputation Group with other members of the Banking Group. The figures shown for the Parent above include the imputation credits available for use by the Parent held by the Imputation Group.

1. In May 2007, legislation was passed to reduce the New Zealand corporate tax rate from 33% to 30%, effective for the 2009 income tax year. The tax effect shown is the impact on the value of deferred tax assets and liabilities as a result of the reduction in the corporate tax rate from 1 October 2008.

P A G E 2 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

7. LIqUID ASSETS

Cash and balances with central banks Securities purchased under agreement to resell Money at call Bills receivable and remittances in transit Total liquid assets Included within liquid assets is the following balance: Overnight balances with central banks The Banking Group’s total core liquidity portfolio held for managing liquidity risk (Note 32)	Consolidated Parent 30/09/2008 $m 30/09/2007 $m 30/09/2008 $m 30/09/2007 $m 3,949 3,010 3,949 3,010 - 197 - 197 807 1,467 806 1,467 82 133 82 133 4,838 4,807 4,837 4,807 3,779 2,809 3,779 2,809 8,736 6,168 8,736 6,168
8. DUE fROM OThER fINANCIAL INSTITUTIONS Able to be withdrawn without prior notice Securities purchased under agreement to resell Security settlements Certifcates of deposit Term loans and advances Total due from other fnancial institutions	437 952 435 950 304 512 304 512 1,328 - 1,328 - 2,447 1,634 2,447 1,634 516 465 13 5 5,032 3,563 4,527 3,101
	5,032 3,563

There are no assets used to secure deposit obligations or assets encumbered through repurchase agreements at 30 September 2008 (30 September 2007 nil).

There is a related party balance with a subsidiary of the Ultimate Parent Company at 30 September 2008 of $1,328m (30 September 2007 nil)

9. TRADING SECURITIES Government, Local Body stock and bonds Certifcates of deposit Promissory notes Other bank bonds Other Total trading securities Included within trading securities is the following balance: Assets encumbered through repurchase agreements	252 144 252 144 926 866 926 866 39 177 39 177 1,331 638 1,331 638 76 52 76 52	252 144 252 144 926 866 926 866 39 177 39 177 1,331 638 1,331 638 76 52 76 52
	2,624 1,877	2,624 1,877
	97 300 97 300

10. DISCONTINUED OPERATIONS

On 31 October 2006, UDC Finance Limited sold Truck Leasing Limited to Nikko Principal Investments Australia Limited, a private equity business of Nikko Cordial Corporation, for consideration of $147 million. A gain of $76 million was realised.

For a detailed explanation of the financial impacts of the sale of TLL refer to Note 10 Discontinued Operations in the consolidated financial statements for the year ended 30 September 2007.

P A G E 3 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

11. DERIvATIvE fINANCIAL INSTRUMENTS

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

Derivatives are subject to the same types of credit and market risk as other financial instruments, and the Banking Group manages these risks in a consistent manner.

Types of derivative instruments

The principal foreign exchange rate contracts used by the Banking Group are forward foreign exchange contracts, currency swaps and currency options. Forward foreign exchange contracts are agreements to buy or sell a specified quantity of foreign currency on a specified future date at an agreed rate. A currency swap generally involves the exchange, or notional exchange, of equivalent amounts of two currencies and a commitment to exchange interest periodically until the principal amounts are re-exchanged on a future date. Currency options provide the buyer with the right, but not the obligation, either to purchase or sell a fixed amount of a currency at a specified rate on or before a future date. As compensation for assuming the option risk, the option writer generally receives a premium at the start of the option period.

The principal commodity contracts used by the Banking Group are forward commodity contracts and commodity swaps. Forward commodity contracts are agreements for the payment of the difference between a specified commodity price and a fixed rate on a notional volume of the commodity at a future date. A commodity swap generally involves the exchange of the return on the commodity for a fixed or floating interest payment without the exchange of the underlying commodity or principal amount.

The principal interest rate contracts used by the Banking Group are forward rate agreements, interest rate futures, interest rate swaps and options. Forward rate agreements are contracts for the payment of the difference between a specified interest rate and a reference rate on a notional deposit at a future settlement date. There is no exchange of principal. An interest rate future is an exchange traded contract for the delivery of a standardised amount of a fixed income security or time deposit at a future date. Interest rate swap transactions generally involve the exchange of fixed and floating interest payment obligations without the exchange of the underlying principal amounts. Interest rate options provide the buyer with the right but not the obligation either to receive or pay interest at a specified rate on or before a future date. As compensation for assuming the option risk, the option writer generally receives a premium at the start of the option period.

Equity related contracts are transacted by the Banking Group to offset the equity risk associated with financial instruments priced against various share indices.

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 those used for the Banking Group’s balance sheet risk management.

Trading positions

Trading positions consist of both sales to customers and market making activities. Sales to customers include the structuring and marketing of derivative products to customers which enable them to take or mitigate risks. Market making activities consist of derivatives entered into principally for the purpose 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.

Gains or losses, including any current period interest, from the change in fair value of trading positions are recognised in the income statement as ‘other operating income’ in the period in which they occur.

Balance sheet risk management

The Banking Group designates balance sheet risk management derivatives into hedging relationships in order to minimise income statement volatility. This volatility is created by differences in the timing of recognition of gains and losses between the derivative and the hedged item. Hedge accounting is not applied to all balance sheet risk management positions.

Gains or losses from the change in fair value of balance sheet risk management derivatives that form part of an effective hedging relationship are recognised in the income statement based on the hedging relationship. Any ineffectiveness is recognised in the income statement as ‘other operating income’ in the period in which it occurs.

Gains or losses, excluding any current period interest, from the change in fair value of balance sheet risk management positions that are not designated into hedging relationships are recognised in the income statement as ‘other operating income’ in the period in which they occur. Current period interest is included in interest income and expense.

The following tables provide an overview of the Banking Group’s and the Bank’s foreign exchange rate, interest rate and equity derivatives. They include all trading and balance sheet risk management contracts. Notional principal amounts measure the amount of the underlying financial commodity and represent the volume of outstanding transactions. They are not a measure of the risk associated with a derivative. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market rates relative to their terms. The aggregate contractual or notional amount of derivative financial instruments on hand, the extent to which instruments are favourable or unfavourable, and as a consequence the aggregate fair values of derivative financial assets and liabilities, can fluctuate significantly from time to time. The fair values of derivative instruments held and notional principal amounts are set out as follows.

P A G E 3 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

11. DERIvATIvE fINANCIAL INSTRUMENTS (CONTINUED)

30/09/2008 Derivatives held for trading Foreign exchange derivatives Spot and forward contracts Swap agreements Options purchased Options sold Collateral received / paid Commodity derivatives Swap agreements Interest rate derivatives Forward rate agreements Swap agreements Futures contracts Options purchased Options sold Equity derivatives Options purchased Total derivatives held for trading Derivatives held for hedging (a) Designated as cash flow hedges Interest rate derivatives Swap agreements Total derivatives designated as cash fow hedges (b) Designated as fair value hedges Foreign exchange derivatives Swap agreements Interest rate derivatives Swap agreements Total derivatives designated as fair value hedges Total derivatives held for hedging Total derivative fnancial instruments
	Consolidated	Parent
	Notional Principal Fair values Amount Assets Liabilities $m $m $m	Notional Principal Fair values Amount Assets Liabilities $m $m $m
	37,914 1,079 684 68,158 3,129 1,802 1,828 58 - 1,813 - 61 n/a (586) (270)	37,914 1,079 684 68,246 3,138 1,802 1,828 58 - 1,813 - 61 n/a (586) (270)
	109,713 3,680 2,277	109,801 3,689 2,277
	36 4 4 121,966 22 17 347,394 3,565 3,631 20,328 15 6 2,158 11 - 2,164 - 11	36 4 4 121,966 22 17 346,844 3,565 3,631 20,328 15 6 2,158 11 - 2,164 - 11
	494,010 3,613 3,665	493,460 3,613 3,665
	- - -	- - -
	603,759 7,297 5,946	603,297 7,306 5,946
	12,160 161 142	12,160 161 142
	12,160 161 142	12,160 161 142
	58 1 - 31,299 74 622	58 1 - 31,899 76 622
	31,357 75 622	31,957 77 622
	43,517 236 764	44,117 238 764
	647,276 7,533 6,710	647,414 7,544 6,710

P A G E 3 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

11. DERIvATIvE fINANCIAL INSTRUMENTS (CONTINUED)

11. DERIvATIvE fINANCIAL INSTRUMENTS (CONTINUE 30/09/2007 Derivatives held for trading Foreign exchange derivatives Spot and forward contracts Swap agreements Options purchased Options sold Collateral received / paid Interest rate derivatives Forward rate agreements Swap agreements Futures contracts Options purchased Options sold Equity derivatives Options purchased Total derivatives held for trading Derivatives held for hedging (a) Designated as cash flow hedges Foreign exchange derivatives Spot and forward contracts Interest rate derivatives Swap agreements Total derivatives designated as cash fow hedges (b) Designated as fair value hedges Foreign exchange derivatives Swap agreements Interest rate derivatives Swap agreements Total derivatives designated as fair value hedges Total derivatives held for hedging Total derivative fnancial instruments	) Consolidated Notional Principal Fair values Amount Assets Liabilities $m $m $m 37,155 750 1,023 51,253 1,601 1,360 2,890 113 - 2,866 - 108 - (530) (115)
		Parent
		Notional Principal Fair values Amount Assets Liabilities $m $m $m
		37,155 750 1,023 51,253 1,601 1,360 2,890 113 - 2,866 - 108 - (530) (115) 94,164 1,934 2,376 74,574 3 4 318,965 2,241 2,321 17,761 4 34 1,703 13 - 1,651 - 13 414,654 2,261 2,372 20 20 - 508,838 4,215 4,748 49 2 - 12,568 108 50 12,617 110 50 74 1 7 35,735 379 91 35,809 380 98 48,426 490 148 557,264 4,705 4,896
	94,164 1,934 2,376
	74,574 3 4 319,459 2,240 2,321 17,761 4 34 1,703 13 - 1,651 - 13
	415,148 2,260 2,372
	20 20 -
	509,332 4,214 4,748
	49 2 - 12,568 108 50
	12,617 110 50
	74 1 7
	35,635 386 119
	35,709 387 126
	48,326 497 176
	557,658 4,711 4,924

P A G E 3 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

11. DERIvATIvE fINANCIAL INSTRUMENTS (CONTINUED)

Hedging relationships

The Banking Group has two types of allowable hedging relationsh ~~ips entered into by the Banking Group: fair value hedges and cash fow hedges.~~ Each has specific requirements when accounting for the fair value changes in the hedging relationship. For details on the accounting treatment of each type of hedging relationship refer to Note 1 Accounting Policy E (ii).

Fair value hedges

The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or unrecognised firm commitment that may affect the income statement. Changes in fair value might arise through changes in interest rates or foreign exchange rates. The Banking Group’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate long-term financial instruments due to movements in market interest rates.

The application of fair value hedge accounting results in the fair value adjustment on the hedged item attributable to the hedged risk being recognised in the income statement at the same time the hedging instrument impacts the income statement. If a hedging relationship is terminated, the fair value adjustment to the hedged item continues to be recognised as part of the carrying amount of the item or group of items and is amortised to the income statement as a part of the effective yield over the period to maturity. Where the hedged item is derecognised from the Banking Group’s balance sheet, the fair value adjustment is included in the income statement as ‘other operating income’ as a part of the gain or loss on disposal. The table below shows the gain or loss on fair value hedges by hedging instrument and hedge item attributable to the hedged risk:

Consolidated 30/09/200830/09/2007 $m $m Gain or (loss) arising from fair value hedges: - hedged item 733 (364) - hedging instrument (803) 363 Net ineffectiveness on qualifying fair value hedges (70) (1)	Consolidated 30/09/200830/09/2007 $m $m Gain or (loss) arising from fair value hedges: - hedged item 733 (364) - hedging instrument (803) 363 Net ineffectiveness on qualifying fair value hedges (70) (1)	Parent
		30/09/200830/09/2007 $m $m 733 (364) (803) 363 (70) (1)
	733 (364) (803) 363
	(70) (1)

Cash flow hedges

The risk being hedged in a cash flow hedge is the potential volatility in future cash flows that may affect the income statement. Volatility in the future cash flows may result from changes in interest rates or changes in exchange rates arising from recognised financial assets and liabilities and highly probable forecast transactions. The Banking Group’s cash flow hedges consist principally of interest rate swaps that are used to protect against exposures to variability 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 and wholesale deposit liabilities. The amounts and timing of future cash flows, representing both principal and interest flows, are projected 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.

The effective portion of changes in the fair value of derivatives qualifying and designated as cash flow hedges is deferred to the cash flow hedging reserve which forms part of equity. Amounts deferred in equity are recognised in the income statement in the period during which the hedged forecast transactions take place and is fully amortised when the hedging relationship matures. The table below shows the movements in the cash flow hedging reserve:

Balance at beginning of the year Transferred to income statement Tax effect of items transferred to income statement Valuation (loss) gain taken to equity Tax effect of net loss (gain) taken to equity Balance at end of the year		Parent
	Consolidated
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m 84 52 (37) (35) 11 12 (47) 78 13 (23) 24 84
	84 52 (37) (35) 11 12 (47) 78 13 (23)
	24 84

The mechanics of hedge accounting results in the gain or loss in the cash flow hedging reserve above being released into the income statement at the same time that the corresponding loss or gain attributable to the hedged item impacts the income statement. It will not necessarily be released to the income statement uniformly over the period of the hedging relationship as the fair value of the derivative is driven by changes in market rates over the term of the instrument. As market rates do not always move uniformly across all time periods, a change in market rates may drive more value in one forecast period than another, which impacts when the hedging reserve is released to the income statement.

P A G E 3 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

11. DERIvATIvE fINANCIAL INSTRUMENTS (CONTINUED)

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

Variable rate loan assets Variable rate liabilities Short term re-issuances of fxed rate customer and wholesale deposit liabilities Total cash fow hedging reserve	Consolidated	Parent
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m 70 (19) (1) 69 (45) 34 24 84
	70 (19) (1) 69 (45) 34
	24 84

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 (30/09/2007 0-10 years).

All gains and losses associated with the ineffective portion of the hedging derivatives are recognised immediately as ‘other operating income’ in the income statement. The ineffectiveness recognised in the income statement in respect of cash flow hedges was nil in the Banking Group (30/09/2007 less than $1 million) and nil in the Bank (30/09/2007 less than $1 million).

There were no transactions where cash flow hedge accounting ceased in the period ended 30 September 2008 as a result of highly probable cash flows that were no longer expected to occur (30/09/2007 no transactions).

12. AvAILABLE-fOR-SALE ASSETS

. Government, Local Body stock and bonds Other debt securities Equity securities Total available-for-sale assets
	Consolidated
	30/09/200830/09/2007 $m $m
	3 4 41 43 65 1
	109 48
13. NET LOANS AND ADvANCES Overdrafts Credit card outstandings Term loans - housing Term loans - non-housing Finance lease receivables Gross loans and advances Provision for credit impairment (Note 15) Unearned fnance income Fair value hedge adjustment Deferred fee revenue and expenses Capitalised brokerage/ mortgage origination fees Total net loans and advances Included within net loans and advances is the following related party balance: ANZ Holdings (New Zealand) Limited (Parent Company)	2,140 2,012 2,140 2,012 1,434 1,338 1,435 1,338 53,350 49,751 53,350 49,751 40,583 35,156 38,480 31,703 777 752 36 37 98,284 89,009 95,441 84,841 (666) (466) (612) (426) (346) (290) - - 353 (442) 353 (442) (55) (53) (50) (49) 109 120 109 120 97,679 87,878 95,241 84,044 - 89 - 89

The balance owing by the Parent Company is due within the next twelve months. Interest is received at variable bank rates.

P A G E 3 5

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(CONTINUED)

14. IMPAIRED ASSETS, PAST DUE ASSETS AND OThER ASSETS UNDER	14. IMPAIRED ASSETS, PAST DUE ASSETS AND OThER ASSETS UNDER	14. IMPAIRED ASSETS, PAST DUE ASSETS AND OThER ASSETS UNDER	14. IMPAIRED ASSETS, PAST DUE ASSETS AND OThER ASSETS UNDER	ADMINISTRATION	ADMINISTRATION	ADMINISTRATION
		Consolidated					Parent
	Retail	Other retail	Corporate			Retail	Other retail		Corporate
	mortgages	exposures	exposures1	Total		mortgages	exposures		exposures1	Total
	$m	$m	$m	$m		$m	$m		$m	$m
Individually impaired assets
30/09/2008
Balance at beginning of the year	7	20	88	115		7	7		79	93
Transfers from productive	103	122	228	453		103	97		200	400
Transfers to productive	(2)	-	(8)	(10)		(2)		-	(5)	(7)
Assets realised or loans repaid	(18)	(14)	(86)	(118)		(18)	(3)		(75)	(96)
Write offs	(7)	(98)	(8)	(113)		(7)	(87)		(8)	(102)
Balance at end of the year	83	30	214	327		83	14		191	288
30/09/2007
Balance at beginning of the year	9	19	123	151		9	12		108	129
Transfers from productive	3	85	81	169		3	73		62	138
Transfers to productive	-	-	(15)	(15)		-		-	(11)	(11)
Assets realised or loans repaid	(5)	(9)	(92)	(106)		(5)	(9)		(71)	(85)
Write offs	-	(75)	(9)	(84)		-	(69)		(9)	(78)
Balance at end of the year	7	20	88	115		7		7	79	93

		Consolidated			Parent
		30/09/2008	30/09/2007		30/09/200830/09/2007
		$m	$m		$m	$m
Past due assets (90 days past due assets)2
Balance at beginning of the year		102	86		95	78
Transfers to past due assets		856	360		798	326
Transfers from past due assets		(649)	(344)		(597)	(309)
Balance at end of the year		309	102		296	95
Other assets under administration
Balance at beginning of the year		-	-		-	-
Transfers to other assets under administration		1	3		1	3
Transfers from other assets under administration		-	(3)		-	(3)
Balance at end of the year		1	-		1	-
Undrawn facilities with impaired customers
Balance at beginning of the year		6	8		6	8
Transfers to (from) undrawn facilities with impaired customers		-	(2)		-	(2)
Balance at end of the year		6	6		6	6
Interest foregone on impaired assets
Gross interest receivable on impaired loans		24	12		24	11
Interest recognised		(6)	(4)		(6)	(4)
Net interest foregone on impaired loans		18	8		18	7

1. Includes corporate, sovereign and banks.

2. 90 day past due assets are not classified as impaired assets as they are either 90 days or more past due and well secured, or are portfolio managed facilities that can be held for up to 180 days past due.

P A G E 3 6

NOTES TO ThE fINANCIAL STATEMENTS

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

(CONTINUED)

14. IMPAIRED ASSETS, PAST DUE ASSETS AND OThER ASSETS UNDER ADMINISTRATION (CONTINUED)

Further analysis of past due assets can be found in Note 32 Financial Risk Management, including an ageing analysis of all past due assets 1 day and over where the counterparty has failed to make a payment when contractually due.

Other assets under administration and undrawn facilities with impaired customers are predominantly corporate exposures. There are no undrawn facilities with 90 day past due customers or customers within the other assets under administration category as at 30 September 2008 (30 September 2007 nil).

As at 30 September 2008, the Banking Group did not have any material restructured assets or assets acquired through enforcement of security (30 September 2007 nil).

15. PROvISION fOR CREDIT IMPAIRMENT

Consolidated Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m 30/09/2008 Collective provision Balance at beginning of the year 58 130 234 422 Charge to income statement 23 34 55 112 Balance at end of the year 81 164 289 534 Individual provision (individually impaired assets) Balance at beginning of the year 4 13 27 44 Charge to income statement 31 80 79 190 Recoveries of amounts previously written off - 15 2 17 Bad debts written off (7) (98) (8) (113) Discount unwind2 - - (6) (6) Balance at end of the year 28 10 94 132 Total provision for credit impairment 109 174 383 666 30/09/2007 Collective provision Balance at beginning of the year 51 132 219 402 Charge to income statement 7 (2) 15 20 Balance at end of the year 58 130 234 422 Individual provision (individually impaired assets) Balance at beginning of the year 3 16 39 58 Charge to income statement 1 55 (2) 54 Recoveries of amounts previously written off - 17 3 20 Bad debts written off - (75) (9) (84) Discount unwind2 - - (4) (4) Balance at end of the year 4 13 27 44 Total provision for credit impairment 62 143 261 466	Consolidated	Parent
	Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m	Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m
	58 130 234 422 23 34 55 112	58 117 217 392 23 29 53 105
	81 164 289 534	81 146 270 497
		4 5 25 34 31 71 71 173 - 15 1 16 (7) (87) (8) (102) - - (6) (6)
	28 10 94 132	28 4 83 115
	109 174 383 666	109 150 353 612
	51 132 219 402 7 (2) 15 20	51 115 198 364 7 2 19 28
	58 130 234 422	58 117 217 392
		3 9 39 51 1 48 (2) 47 - 17 1 18 - (69) (9) (78) - - (4) (4)
	4 13 27 44	4 5 25 34
	62 143 261 466	62 122 242 426

1. Includes corporate, sovereign and banks.

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

P A G E 3 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

15. PROvISION fOR CREDIT IMPAIRMENT (CONTINUED)

Provision movement analysis New and increased provisions Provision releases Recoveries of amounts previously written off Individual provision charge Collective provision charge Charge to income statement		Parent
	Consolidated
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m 203 82 (14) (17) 189 65 (16) (18) 173 47 105 28 278 75
	223 92 (16) (18)
	207 74 (17) (20)
	190 54 112 20
	302 74

16. ShARES IN CONTROLLED ENTITIES, ASSOCIATES AND JOINTLY CONTROLLED ENTITIES

Consolidated Parent 30/09/200830/09/2007 30/09/200830/09/2007 $m $m $m $m Shares in controlled entities Unquoted at cost - - 7,398 7,473 Shares in associates 144 10 88 2 Shares in jointly controlled entities Unquoted at cost plus equity accounted adjustments 219 196 208 208 Total shares in controlled entities, associates and jointly controlled entities 363 206 7,694 7,683 Shares in associates comprise: Balance at beginning of the year 10 3 2 3 Acquisitions 48 8 - - Disposals - (1) - - Transfers to subsidiary company - - - (1) Fair value adjustment (2) - 86 - Share of proft of equity accounted associates1 88 - - - Balance at end of the year 144 10 88 2 Shares in associates at 30 September 2008 includes goodwill of $57 million (30/09/2007 $8 million) for the Banking Group and $nil (30/09/2007 $nil) for the Parent. Shares in jointly controlled entities comprise: Balance at beginning of the year 196 174 Disposals - (2) Share of proft of equity accounted jointly controlled entities 23 24 Balance at end of the year 219 196	Consolidated	Parent
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m
	- - 144 10 219 196	7,398 7,473 88 2 208 208
	363 206	7,694 7,683
	10 3 48 8 - (1) - - (2) - 88 -	2 3 - - - - - (1) 86 - - -
	144 10	88 2

Shares in jointly controlled entities at 30 September 2008 includes goodwill of $97 million (30/09/2007 $97 million) for the Banking Group and $90 million (30/09/2007 $90 million) for the Parent.

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

P A G E 3 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

17. OThER ASSETS Accrued interest and prepaid discounts Accrued commission Defned beneft schemes surplus Share-based payments asset Prepaid expenses Security settlements Other assets Total other assets	Consolidated
	30/09/200830/09/2007 $m $m 535 537 20 12 - 8 50 37 57 30 85 137 253 284
	1,000 1,045
18. DEfERRED TAX ASSETS Deferred tax assets Balance at beginning of the year Credited (charged) to income statement Set-off of deferred tax liabilities pursuant to set-off provisions1 Balance at end of the year Deferred tax assets comprise the following temporary differences: Provision for credit impairment Deferred fee revenue and expenses Premises and equipment Software Provisions and accruals Derivative fnancial instruments Defned beneft schemes Other Set-off of deferred tax liabilities pursuant to set-off provisions1 Net deferred tax assets The deferred tax credited (charged) to the income statement comprises the following temporary differences: Provision for credit impairment Deferred fee revenue and expenses Premises and equipment Software Provisions and accruals Derivative fnancial instruments Defned beneft schemes Other Total deferred tax credited (charged) to the income statement	11 122 - 105 59 (38) 57 (37) 51 (73) 43 (68) 121 11 100 - 200 140 184 129 3 3 3 3 - 2 (3) (2) 11 32 12 32 125 103 118 95 3 3 4 4 8 - 8 - 3 11 1 9 353 294 327 270 (232) (283) (227) (270) 121 11 100 - 60 (12) 55 (8) - (2) - (2) (2) (2) (1) (1) (21) - (20) 1 22 4 23 - - (6) - (5) 8 - 8 - (8) (20) (8) (22) 59 (38) 57 (37)
	121 11
	200 140 3 3 - 2 11 32 125 103 3 3 8 - 3 11
	353 294 (232) (283)
	121 11
	60 (12) - (2) (2) (2) (21) - 22 4 - (6) 8 - (8) (20)
	59 (38)

There was no deferred tax asset charged or credited to equity as at 30 September 2008 (30/09/2007 $nil). There were no unrecognised deferred tax assets as at 30 September 2008 (30/09/2007 $nil).

The reduction in the corporate tax rate from 33% to 30% from the 2009 tax year has been taken into account in calculating the value of deferred tax assets as at 30 September 2008 and 30 September 2007.

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

P A G E 3 9

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

19. PREMISES AND EqUIPMENT

. Freehold and leasehold land and buildings At cost Accumulated depreciation Total carrying amount Leasehold improvements At cost Accumulated depreciation Total carrying amount Furniture and equipment At cost Accumulated depreciation Total carrying amount Computer and office equipment At cost Accumulated depreciation Total carrying amount Work in progress Total premises and equipment	Consolidated
	30/09/200830/09/2007 $m $m 69 69 (12) (12)
	57 57
	98 97 (75) (73)
	23 24
	255 244 (176) (166)
	79 78
	246 239 (196) (189)
	50 50
	33 23
	242 232
20. GOODwILL AND OThER INTANGIBLE ASSETS Goodwill Gross carrying amount Balance at beginning and end of the year Software Gross carrying amount Balance at beginning of the year Additions Balance at end of the year Accumulated amortisation Balance at beginning of the year Amortisation expense1 Balance at end of the year Total software Other intangible assets Total goodwill and other intangible assets	3,265 3,265 3,217 3,217 68 51 66 50 28 17 27 16 96 68 93 66 (39) (32) (39) (32) (8) (7) (6) (7) (47) (39) (45) (39) 49 29 48 27 3 3 3 3 3,317 3,297 3,268 3,247
	68 51 28 17
	96 68
	(39) (32) (8) (7)
	(47) (39)
	49 29
	3 3
	3,317 3,297

No impairment losses have been recognised against the gross carrying amount of goodwill, software and other intangible assets for the year ended 30 September 2008 (30/09/2007 $nil).

1. Software amortisation expense is included in ‘other costs’ in the income statement.

P A G E 4 0

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

21. DUE TO OThER fINANCIAL INSTITUTIONS Australia and New Zealand Banking Group Limited (Ultimate Parent Company) Securities sold under agreements to repurchase Other fnancial institutions Total due to other fnancial institutions Included within due to other financial institutions is the following balance: Balances owing to the Ultimate Parent Company by ANZ National (Int’l) Limited guaranteed by the Bank		Parent
	Consolidated
	30/09/200830/09/2007 $m $m
	1,002 1,140 97 300 2,213 1,730
	3,312 3,170

Balances owing to the Ultimate Parent Bank are due within twelve months. Interest is paid at variable bank rates.

22. DEPOSITS AND OThER BORROwINGS

Amortised cost Certifcates of deposit Term deposits Demand deposits bearing interest Deposits not bearing interest Secured debenture stock Total deposits and other borrowings recognised at amortised cost Fair value through the profit or loss Commercial paper Total deposits and other borrowings recognised at fair value Total deposits and other borrowings	5,527 4,447 5,527 4,447 31,260 28,998 31,260 28,998 22,085 21,128 22,085 20,715 3,928 4,354 3,928 4,354 1,683 1,786 - -	5,527 4,447 5,527 4,447 31,260 28,998 31,260 28,998 22,085 21,128 22,085 20,715 3,928 4,354 3,928 4,354 1,683 1,786 - -
	64,483 60,713	62,800 58,514
	12,653 9,317	- -
	12,653 9,317	- -
	77,136 70,030	62,800 58,514

The principal at maturity of commercial paper at fair value through the profit and loss is $12,755 million (30/09/2007 $9,404 million).

The Banking Group has not defaulted on any principal, interest or redemption amounts on its borrowed funds during the year ended 30 September 2008 (30/09/2007 nil). 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.

Included within deposits and other borrowings are the following balances:

Included within deposits and other borrowings are the following balances:
Commercial paper issued by ANZ National (Int’l) Limited
guaranteed by the Bank at amortised cost	12,670	9,319	-	-
UDC Finance Limited secured debentures
Carrying value of total tangible assets	2,032	2,065	-	-

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.

P A G E 4 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

23. PAYABLES AND OThER LIABILITIES

Creditors Accrued interest and unearned discounts Defned beneft schemes defcit Share-based payments liability Accrued charges Security settlements Equitable assignment of mortgages1 Other liabilities Total payables and other liabilities	Consolidated	Parent
	30/09/200830/09/2007 $m $m 77 55 982 770 27 - 29 20 215 170 236 37 25 32 250 267	30/09/200830/09/2007 $m $m 42 28 811 582 27 - 29 20 199 161 236 37 25 32 162 128 1,531 988
	1,841 1,351

1. The ANZ FlexiMortgage Income Trust holds mortgages under an equitable assignment with the Bank. The ANZ FlexiMortgage Income Trust can at any time require the Bank to repurchase any mortgage. The Bank may also require repurchase in certain circumstances. The mortgages are included in these financial statements.

24. DEfERRED TAX LIABILITIES

Provision for deferred income tax Balance at beginning of the year (Credited) charged to income statement (Credited) charged directly to equity Set-off of deferred tax liabilities pursuant to set-off provisions1 Balance at end of the year Deferred tax liabilities comprise the following temporary differences: Lease fnance Defned beneft schemes Other Set-off of deferred tax liabilities pursuant to set-off provisions1 Net deferred tax liabilities The deferred tax (credited) charged to the income statement comprises the following temporary differences: Lease fnance Share compensation Defned beneft schemes Other Total deferred tax (credited) charged to the income statement The deferred tax (credited) charged to equity comprises the following temporary differences: Cash fow hedges Total deferred tax (credited) charged directly to equity	- - 7 - (47) 62 (46) 64 (4) 11 (4) 11 51 (73) 43 (68)	- - 7 - (47) 62 (46) 64 (4) 11 (4) 11 51 (73) 43 (68)
	- -	- 7
	90 110 - 2 142 171	85 104 - 2 142 171
	232 283 (232) (283)	227 277 (227) (270)
	- -	- 7
	(20) 20 - (4) (2) - (25) 46	(19) 22 - (4) (2) - (25) 46
	(47) 62	(46) 64
	(4) 11	(4) 11
	(4) 11	(4) 11

The reduction in the corporate tax rate from 33% to 30% from the 2009 tax year has been taken into account in calculating the value of deferred tax liabilities as at 30 September 2008 and 30 September 2007.

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

P A G E 4 2

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

25. PROvISIONS Non-lending losses, frauds and forgeries Employee entitlements1 Balance at beginning of the year New provisions Provisions utilised Balance at end of the year Personnel restructuring costs2 Balance at beginning of the year Provisions utilised New provisions Balance at end of the year Redundant assets restructuring costs2 Balance at beginning of the year Transfers from subsidiary companies Provisions utilised Balance at end of the year Other provisions Total provisions		Parent
	Consolidated
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m 11 3 108 106 61 54 (54) (52) 115 108 2 9 - (7) 30 - 32 2 2 2 - 1 (1) (1) 1 2 27 36 186 151
	11 3
	110 107 62 56 (55) (53)
	117 110
	2 9 - (7) 30 -
	32 2
	2 5 - - (1) (3)
	1 2
	29 48
	190 165

1. Employee entitlements

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

2. Personnel restructuring costs and redundant assets restructuring costs Restructuring cost provisions arise from exit activities relating to material changes in the scope or manner of business undertaken by the Banking Group and includes termination benefits. Provisions are made when the Banking Group is demonstrably committed, it is probable that the costs will be incurred, though their timing is uncertain, and the costs can be reliably estimated. The majority of provisions recognised at 30 September 2008 are expected to be settled over the 2009 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.

P A G E 4 3

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

26. BONDS AND NOTES

Issued by ANZ National Bank Limited (Parent) Denomination Face value ($m) Maturity Interest rate % NZD 150m fxed rate notes 2009 6.82% NZD 50m foating rate notes 2009 3 month BKBM + 0.30% NZD 70m foating rate notes 2010 3 month BKBM + 0.35% NZD 100m fxed rate notes 2010 8.74% NZD 150m fxed rate notes 2011 6.80% NZD 170m foating rate notes 2011 3 month BKBM + 0.90% NZD 50m fxed rate notes 2011 8.25% NZD 175m fxed rate notes 2014 8.80% Other bonds and notes1 Issued by ANZ National (Int’l) Limited Denomination Face value ($m) Maturity Interest rate % GBP 250m foating rate notes2 2007 3 month LIBOR - 0.01% NZD 150m fxed rate notes 2008 6.50% JPY 9,000m foating rate notes 2008 3 month JPY LIBOR GBP 40m foating rate notes 2008 3 month GBP LIBOR - 0.065% EUR 100m foating rate notes 2008 3 month EURIBOR + 0.02% GBP 300m foating rate notes 2008 3 month GBP LIBOR + 0.01% HKD 80m fxed rate notes 2008 3.93% USD 27m fxed rate notes3 2008 5.00% USD 120m foating rate notes 2008 3 month LIBOR - 0.06% USD 250m fxed rate notes 2008 4.265% USD 750m foating rate notes 2008 3 month LIBOR + 0.07% USD 170m foating rate notes4 2008 1 month LIBOR + 0.01% USD 1,500m foating rate notes4 2008 1 month LIBOR + 0.01% NZD 200m fxed rate notes 2008 9.20% JPY 15,000m foating rate notes 2008 3 month JPY LIBOR EUR 750m foating rate notes 2009 3 month EURIBOR + 0.12% HKD 1,000m fxed rate notes 2009 4.40% NZD 150m foating rate notes 2009 3 month BKBM + 0.10% HKD 300m fxed rate notes 2009 4.93% HKD 280m fxed rate notes 2009 4.44% USD 750m foating rate notes 2009 3 month LIBOR + 0.04% USD 250m foating rate notes 2009 3 month Prime - 2.9125% USD 300m foating rate notes 2009 1 month LIBOR + 0.04% NZD 20m foating rate notes 2009 3 month BKBM + 0.05% EUR 300m foating rate notes 2009 3 month EUR LIBOR + 0.15% JPY 17,770m fxed rate notes 2009 0.055% JPY 17,500m foating rate notes 2009 3 month JPY LIBOR USD 9m foating rate notes4 2009 1 month LIBOR + 0.01% USD 2,000m foating rate notes5 2009 3 month LIBOR + 0.22% JPY 8,640m fxed rate notes 2009 0.114% JPY 1,000m fxed rate notes 2009 0.01% JPY 6,000m foating rate notes 2009 3 month JPY LIBOR HKD 150m foating rate notes6 2010 6 month HIBOR + 0.60% HKD 190m foating rate notes7 2010 6 month HIBOR + 0.60% HKD 200m foating rate notes8 2010 6 month HIBOR + 0.60% USD 750m foating rate notes 2010 3 month LIBOR + 0.11% NZD 100m foating rate notes 2010 3 month BKBM + 0.05% CHF 275m foating rate notes 2010 3 month CHF LIBOR + 0.75%	Consolidated
	30/09/200830/09/2007 $m $m
	150 150 50 - 70 - 100 - 150 150 170 - 50 - 175 - 208 261
	1,123 561
	- 668 - 150 - 103 - 107 - 187 806 802 - 14 - 36 179 158 - 330 - 991 254 - - 1,969 200 - 215 - 1,607 1,403 193 170 150 150 58 51 54 48 1,120 991 373 330 448 396 20 20 643 561 254 - 250 - 13 12 2,985 - 124 - 14 - 86 - - 26 - 32 - 34 1,120 991 100 100 375 -

P A G E 4 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS (CONTINUED)

26. BONDS AND NOTES (CONTINUED)

Denomination Face value ($m) Maturity Interest rate % SGD 200m fxed rate notes 2010 3.22% USD 100m foating rate notes 2010 3 month LIBOR + 0.55% AUD 50m foating rate notes 2010 3 month BBSW + 0.61% USD 890m foating rate notes12 2010 3 month LIBOR + 1.03% USD 300m fxed rate notes 2011 5.50% GBP 435m foating rate notes 2011 3 month GBP LIBOR + 0.05% HKD 200m fxed rate notes9 2011 5.10% HKD 200m fxed rate notes10 2011 4.90% GBP 450m foating rate notes12 2012 6 month GBP LIBOR + 0.08% USD 2,000m fxed rate notes 2013 6.20% USD 250m foating rate notes 2015 3 month LIBOR + 0.90% Issued by NBNZ Holdings Limited Denomination Face value ($m) Maturity Interest rate % NZD 480m foating rate notes11 2008 3 month BKBM Total bonds and notes Included within bonds and notes is the following related party balance: Australia and New Zealand Banking Group Limited (Ultimate Parent Bank)	Consolidated
	30/09/200830/09/2007 $m $m
	209 - 149 - 60 - 1,328 - 448 396 1,169 1,069 - 34 - 34 1,210 1,203 2,985 - 373 -
	19,572 13,566
	- 480
	20,695 14,607
	2,538 1,871

1. Other bonds and notes includes index linked notes, equity linked notes and other fixed rate and fixed term bonds.

2. These notes were issued to Australia and New Zealand Banking Group Limited.

3. The interest rate payable on these notes is stepped as follows: Year 1 3.00%, Year 2 3.25%, Year 3 3.50%, Year 4 4.25% and Year 5 5.00%. The issuer may elect to redeem the notes annually from May 2004. These notes matured in May 2008.

4. The interest rate payable on these notes is stepped as follows: Year 1 1 month LIBOR - 0.02%, Year 2 1 month LIBOR, Year 3 1 month LIBOR + 0.01%, Year 4 1 month LIBOR + 0.02% and Year 5 1 month LIBOR + 0.03%. The investor may elect to extend the maturity of the notes for a year on a monthly basis. These notes were originally for USD1.5billion, but between 7 August 2007 and 7 May 2008, investors elected not to extend USD 1,492 million of bonds. This has resulted in these bonds carrying a fixed maturity as follows: 7 August 2008 USD 89 million; 5 September 2008 USD 1,232 million; 7 October 2008 USD 164 million; 5 December 2008 USD 6 million; 7 May 2009 USD 1 million.

5. The interest rate payable on these notes is stepped as follows: Year 1 3 month LIBOR + 0.22%, Year 2 3 month LIBOR + 0.24% Year 3 3 month LIBOR + 0.26%, Year 4 3 month LIBOR + 0.28% and Year 5 3 month LIBOR + 0.29%. The investor may elect to extend the maturity of the notes for a year on a 3 monthly basis. On 10 June 2008 and 10 September 2008, investors elected not to extend USD 686 million and USD 525 million of bonds which has resulted in these bonds carrying a fixed maturity on 9 April 2009 and 10 July 2009, respectively.

6. The interest rate payable on these notes is stepped as follows: Year 1 3.77%, Years 2 - 5 HIBOR + 0.60%. For each 6 month period after Year 1, there is a maximum interest rate payable, starting at 3.75% after Year 1 and stepping up 0.25% every 6 months. The issuer has the right to redeem the notes on every semi-annual coupon date from 28 April 2006. The issuer exercised their option to call the note on 28 April 2008.

7. The interest rate payable on these notes is stepped as follows: Year 1 3.77%, Years 2 - 5 HIBOR + 0.60%. For each 6 month period after Year 1, there is a maximum interest rate payable, starting at 3.75% after Year 1 and stepping up 0.25% every 6 months. The issuer has the right to redeem the notes on every semi-annual coupon date from 28 April 2006. The issuer exercised their option to call the note on 28 April 2008.

8. The interest rate payable on these notes is stepped as follows: Year 1 HIBOR + 1.26%, Years 2 - 5 HIBOR + 0.60%. For each 6 month period after Year 1, there is a maximum interest rate payable, starting at 4.00% after Year 1 and stepping up 0.25% every 6 months. The issuer exercised their option to call the note on 26 November 2007.

9. The interest rate payable on these notes is stepped as follows: Year 1 5.10% per annum, Year 2 4.65% per annum, Years 3, 4 and 5 4.40% per annum. The issuer exercised their option to call the note on 5 December 2007.

10. The interest rate payable on these notes is stepped as follows: Year 1 4.90% per annum, Year 2 4.65% per annum, Years 3, 4 and 5 4.40% per annum. The issuer exercised their option to call the note on 6 December 2007.

11. These notes can be redeemed by the noteholder giving not less than 30 days notice. The bonds matured in August 2008.

12. These notes were issued to subsidiaries of ANZ Group. The issue for USD890m was settled on 1 October 2008. .

Bonds and notes issued by ANZ National (Int’l) Limited are guaranteed by the Bank.

27. DUE TO PARENT COMPANY ANZ Holdings (New Zealand) Limited (Parent Company)		Parent
	Consolidated
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m 404 2,775
	404 2,775

These funds have been borrowed in New Zealand dollars on an overnight basis and are at call. Interest is payable monthly, based on New Zealand overnight deposit rates.

P A G E 4 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

28. LOAN CAPITAL AUD 207,450,000 term subordinated foating rate loan AUD 265,740,000 perpetual subordinated foating rate loan AUD 186,100,000 term subordinated foating rate loan AUD 43,767,507 term subordinated foating rate loan AUD 169,520,000 term subordinated foating rate loan NZD subordinated fxed rate bonds Total loan capital Included within loan capital is the following related party balance: Australia and New Zealand Banking Group Limited (Ultimate Parent Bank)		Parent
	Consolidated
	30/09/200830/09/2007 $m $m
	248 242 317 309 222 217 52 51 202 197 1,779 1,046
	2,820 2,062

AUD 207,450,000 loan

This loan was drawn down on 31 August 2004 and has an ultimate maturity date of 31 August 2014. The Bank may elect to repay the loan on 31 August each year commencing from 2009 through to 2013. All interest is payable half yearly in arrears, with interest payments due 28 February and 31 August. Interest is based on BBSW + 0.40% p.a. up until, and including, 31 August 2009 and increases to BBSW + 0.90% p.a. thereafter.

AUD 265,740,000 loan

This loan was drawn down on 27 September 1996 and has no fixed maturity. Interest is payable half yearly in arrears based on BBSW + 0.95% p.a., with interest payments due 15 March and 15 September.

AUD 186,100,000 loan

This loan was drawn down on 19 April 2005 with an ultimate maturity date of 20 April 2015. The Bank may elect to repay the loan on 19 April each year commencing from 2010 through to 2015. All interest is payable half yearly in arrears, with interest payments due 19 April and 19 October. Interest is based on BBSW + 0.32% p.a. to 19 April 2010 and increases to BBSW + 0.82% p.a. thereafter.

AUD 43,767,507 loan

This loan was drawn down on 15 September 2006 with an ultimate maturity date of 15 September 2016. The Bank may elect to repay the loan on 15 September each year commencing from 2011 through to 2016. All interest is payable half yearly in arrears, with interest payments due 15 March and 15 September. Interest is based on BBSW + 0.29% p.a. to 15 September 2011 and increases to BBSW + 0.79% p.a. thereafter.

AUD 169,520,000 loan

This loan was drawn down on 17 September 2007 with an ultimate maturity date of 17 September 2017. The Bank may elect to repay the loan on 17 September each year commencing from 2012 through to 2016. All interest is payable half yearly in arrears, with interest payments due 17 March and 17 September. Interest is based on BBSW + 0.68% p.a. to 17 September 2012 and increases to BBSW + 1.18% p.a. thereafter.

NZD subordinated fixed rate bonds

The terms and conditions of these fixed rate and fixed term bonds are as follows:

New Zealand Exchange listed bonds
Issue date	Amount $m	Coupon rate	Call date	Maturity date
15 September 2006	350	7.16%	15 September 2011	15 September 2016
2 March 2007	250	7.60%	2 March 2012	2 March 2017
23 July 2007	350	8.23%	23 July 2012	23 July 2017

As at 30 September 2008, these bonds carried an AA- rating by Standard & Poor’s.

The Bank may elect to redeem the bonds on their call date. If the bonds are not called the Bank will continue to pay interest to maturity at the five year interest rate swap rate plus 0.75% p.a., 0.76% p.a. and 0.62% p.a. for the 15 September 2006; 2 March 2007 and 23 July 2007 bonds respectively. Interest is payable half yearly in arrears based on the fixed coupon rate.

P A G E 4 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

28. LOAN CAPITAL (CONTINUED)
Perpetual Subordinated Bond
Issue date	Amount $m	Coupon rate	1st Call date	2nd Call date
18 April 2008	835	9.66%	18 April 2013	18 April 2018

The Bank may elect to redeem the bonds on 18 April 2013, 18 April 2018 or any interest payment date subsequent to 18 April 2018. Interest is payable half yearly in arrears on 18 April and 18 October each year, beginning on 18 October 2008, up to and including the Second Call Date and then quarterly thereafter. If the bonds are not called at the First Call Date, the coupon rate will reset to the five year interest swap rate plus 2.00%. Should the bonds not be called at the Second Call Date, the Coupon Rate from the Second Call Date onwards will be set on a quarterly basis to the three month FRA rate plus 3.00%.

As at 30 September 2008, these bonds carried an A+ rating by Standard and Poor’s.

Interest may not necessarily be paid on each interest payment date as under the terms of the Bonds, ANZ National has a general right and in certain specified circumstances an obligation, to defer payment of interest on the Bonds.

These bonds are listed on the NZX. The Market Surveillance Panel of the NZX granted the Bank a waiver from the requirements of Listing Rules 10.4 and 10.5. Rule 10.4 relates to the provision of preliminary announcements of half yearly and annual results to the NZX. Rule 10.5 relates to preparing and providing a copy of half yearly and annual reports to the NZX. The Bank has been granted a waiver from these rules on the conditions that the Bank’s quarterly General Disclosure Statement (‘GDS’) is available on the Bank’s website, at any branch and at the NZX; that bondholders are advised by letter that copies of the GDS are available at the above locations; that all bondholders are notified on an ongoing basis, by way of a sentence included on the notification of interest payments, that the latest GDS is available for review at the above locations; and that a copy of the GDS is sent to the NZX on an ongoing basis.

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

All subordinated debt qualifies as Lower Level Tier Two Capital for capital adequacy purposes except for the perpetual subordinated debt which qualifies as Upper Level Tier Two Capital.

1. ORDINARY ShARE CAPITAL

29. ORDINARY ShARE CAPITAL
Ordinary shares at beginning and end of the period Ordinary share capital at beginning and end of the period
	Consolidated		Parent
	30/09/2008 30/09/2007 Number of Number of Issued Shares Issued Shares		30/09/2008 30/09/2007 Number of Number of Issued Shares Issued Shares
	700,755,498 700,755,498		700,755,498700,755,498
		Consolidated Parent
				Parent
		30/09/200830/09/2007 $m $m 5,943 5,943		30/09/200830/09/2007 $m $m
				5,943 5,943

The authorised share capital of the Bank comprises 700,755,498 ordinary shares at par value. At beginning and end of the period, 650,712 ordinary shares were uncalled (30/09/2007 650,712 shares).

Voting rights

At a meeting: on a show of hands or vote by voice every member who is present in person or by proxy or by representative shall have one vote.

On a poll: every member who is present in person or by proxy or by representative shall have one vote for every share of which such member is the holder.

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(CONTINUED)

1. RESERvES AND RETAINED EARNINGS

30. RESERvES AND RETAINED EARNINGS Available-for-sale revaluation reserve Balance at beginning of the year Valuation gain (loss) recognised after tax Cumulative gain transferred to the income statement on sale of fnancial assets Balance at end of the year Cash flow hedging reserve Balance at beginning of the year Valuation (loss) gain recognised after tax Transferred to income statement Balance at end of the year Total reserves Retained earnings Balance at beginning of the year Proft after income tax Total available for appropriation Actuarial (loss) gain on defned beneft schemes after tax Interim ordinary dividends paid Balance at end of the year The aid dividend on ordinar shares was $nil er share (30/09/2007 $104 er share)		Parent
	Consolidated
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m (1) 3 24 (1) - (3) 23 (1) 84 52 (26) 55 (34) (23) 24 84 47 83 1,701 651 644 1,776 2,345 2,427 (23) 2 - (728) 2,322 1,701
	(1) 3 24 (1) - (3)
	23 (1)
	84 52 (34) 55 (26) (23)
	24 84
	47 83
	2,677 2,235 1,163 1,168
	3,840 3,403 (23) 2 - (728)
	3,817 2,677

The paid dividend on ordinary shares was $nil per share (30/09/2007 $1.04 per share).

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

31. CAPITAL ADEqUACY

Adoption of Basel II Accord

The Bank received accreditation from the RBNZ to adopt the internal ratings based approach under the Basel II Accord on 10 December 2007 for calculating capital adequacy ratios, effective from 31 March 2008. The objective of the Basel II Accord is to develop capital adequacy guidelines that are more accurately aligned with the individual risk profile of banks. Basel II consists of three pillars - Pillar I covers the capital requirements for banks for credit, operational and market risks, Pillar II covers all other material risks not already included in Pillar I, and Pillar III relates to market disclosure. These market disclosure requirements are set out below.

CAPITAL MANAGEMENT POLICIES

The Bank is subject to regulation by the RBNZ. The RBNZ sets minimum capital requirements that the Bank must comply with that are specified in the Bank’s Conditions of Registration. The Bank’s Conditions of Registration require capital adequacy ratios for the Banking Group to be calculated under the Basel II framework in accordance with the RBNZ document entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008. In prior periods, risk weighted exposures for the Banking Group were calculated under the Basel I framework in accordance with the RBNZ document entitled ‘Capital Adequacy Framework’ (BS2) dated March 2007.

The RBNZ defines total regulatory capital as tier one capital plus tier two capital less deductions from total capital. Tier one capital consists of equity less prescribed deductions such as goodwill. Tier two capital consists of subordinated loan capital less any prescribed deductions.

Additional deductions from tier one and tier two capital are required where total expected loss (using RBNZ credit risk assumptions) exceeds the total eligible allowances for impairment.

The Bank has an Internal Capital Adequacy Assessment Process (‘ICAAP’) which complies with the requirements set out in the RBNZ document entitled ‘Guidelines on a Bank’s Internal Capital Adequacy Assessment Process (“ICAAP”)’ (BS12) from 31 August 2008, under the Bank’s Conditions of Registration. The Bank’s ICAAP incorporates overall capital policies and objectives, capital management policies and plans, allocation of capital to business units and stress testing of both risk and capital positions.

The Bank’s ICAAP policy outlines the core capital management principles that must be maintained to demonstrate that its capital levels: consider all material risks; are consistent with its overall risk appetite and profile, current operating environment and stage in business cycle; and that forward-looking stress testing of capital requirements is performed.

The Bank’s core capital objectives are to:

• Protect the interests of depositors, creditors and the shareholder.

• Ensure the safety and soundness of the Bank’s capital position.

• Ensure that the capital base supports the Bank’s risk appetite, and strategic business objectives, in an efficient and effective manner.

The Board holds ultimate responsibility for ensuring that capital adequacy is maintained. This includes setting, monitoring and obtaining assurance for the Bank’s ICAAP policy and framework, standardised risk definitions for all material risks, materiality thresholds, capital adequacy targets, internal economic risk capital principles and risk appetite.

• The Board has set capital minimum, trigger and operating range targets for both tier one and total capital that ensure sufficient capital is maintained to:

• Meet minimum prudential requirements as defined in the Bank’s Conditions of Registration.

• Ensure consistency with the Bank’s overall risk profile and financial positions, taking into account its strategic focus and business plan.

• Support the economic risk capital requirements of the business. The Bank aims to maintain capital consistent with a long-term Standard & Poor’s AA credit rating (and equivalent ratings from other rating agencies).

The Bank’s Asset & Liability Committee and its related Capital Management sub-committee are responsible for developing, implementing and maintaining the Bank’s ICAAP framework including ongoing monitoring, reporting and compliance.

The Bank’s ICAAP is subject to independent and periodic review conducted by internal and external audit as appropriate.

The Bank has complied with all externally imposed capital requirements to which it is subject during both the current and comparative periods.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

31. CAPITAL ADEqUACY (CONTINUED)

CAPITAL ADEQUACY RATIOS UNDER THE BASEL II INTERNAL MODELS BASED APPROACH[1]

Tier One Capital Total Capital Capital of the Banking Group as at 30 September 2008 Tier One Capital Ordinary share capital Revenue and similar reserves Current period’s proft after tax Less deductions from Tier One Capital - Goodwill - Other intangible assets - Equity investment in ING NZ - Cash fow hedging reserve - 50% of total expected loss to the extent greater than total eligible allowances for impairment Total Tier One Capital Tier Two Capital - Upper Level Tier Two Capital Perpetual subordinated debt Tier Two Capital - Lower Level Tier Two Capital Term subordinated debt Less deductions from Tier Two Capital - 50% of total expected loss to the extent greater than total eligible allowances for impairment Total Tier Two Capital Total Capital Total required capital of the Banking Group as at 30 September 2008 Internal ratings based approach Specialised lending subject to the slotting approach Other internal ratings based exposures Equity exposures Standardised approach Total credit risk Operational risk Market risk Supervisory adjustment2 Total capital requirement	RBNZ minimum ratios Consolidated 30/09/2008 30/09/2008 4.00% 8.13% 8.00% 11.72% $m 5,943 2,701 1,163 3,265 52 212 24 117 6,137 1,152 1,668 2,820 117 2,703 8,840 Risk weighted exposure or implied risk Exposure at weighted Total capital default exposure requirement $m $m $m 133,205 52,584 4,207 9,272 9,354 749 4,746 845 68 224 950 76 268 241 19	RBNZ minimum ratios Consolidated 30/09/2008 30/09/2008 4.00% 8.13% 8.00% 11.72% $m 5,943 2,701 1,163 3,265 52 212 24 117 6,137 1,152 1,668 2,820 117 2,703 8,840 Risk weighted exposure or implied risk Exposure at weighted Total capital default exposure requirement $m $m $m 133,205 52,584 4,207 9,272 9,354 749 4,746 845 68 224 950 76 268 241 19		Consolidated 30/09/2008
				8.13% 11.72% $m 5,943 2,701 1,163 3,265 52 212 24 117
				6,137
				1,152 1,668
				2,820 117
				2,703
				8,840
		52,584 4,207 9,354 749 845 68 950 76 241 19
	147,715	63,974 5,119 5,638 451 3,835 307 2,002 160
		75,449 6,037

1. Basel II capital ratios for the 30 September 2007 comparative periods have not been provided as the information is not readily available. The Bank was accredited to adopt the internal models based approach under Basel II on 10 December 2007.

2. The supervisory adjustment mandates an adjustment of 15% of risk-weighted retail mortgages and an adjustment, if required, in order to maintain the Basel II Minimum Capital Requirements at no less than 90% of the Basel I Minimum Capital Requirements, in accordance with the Bank’s Conditions of Registration. No adjustment was required to maintain the Basel II Minimum Capital Requirements at no less than 90% of the Basel I Minimum Capital Requirements at 30 September 2008.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

31. CAPITAL ADEqUACY (CONTINUED)

31. CAPITAL ADEqUACY (CONTINUED)
CAPITAL ADEQUACY RATIOS UNDER THE BASEL I APPROACH
	Consolidated			Parent
	30/09/2008	30/09/2007		30/09/200830/09/2007
Tier One Capital	7.75%	7.19%		7.65%	6.98%
Total Capital	11.24%	10.08%		11.09%	9.02%
Total risk-weighted exposures	80,717	71,311		78,860	69,489
RBNZ minimum ratios:
Tier One Capital	4.00%	4.00%		4.00%	4.00%
Total Capital	8.00%	8.00%		8.00%	8.00%

Basel I capital adequacy in respect of the Banking Group and Registered Bank has been derived in accordance with the RBNZ document entitled ‘Capital Adequacy Framework (Basel I Approach)’ (BS2) dated March 2008.

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 entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008 to measure capital requirements.

Under this IRB framework, banks use their own measures for calculating the level of credit risk associated with customers and exposures, by way of the primary components of:

Probability of Default (‘PD’) - an estimation of the level of risk of borrower default graded by way of rating models used both at loan origination and for ongoing monitoring. For Retail Mortgage exposures the Banking Group has adopted the RBNZ prescribed exposure weighted minimum PD of 1.25%

Exposure at Default (‘EAD’) - the expected facility exposure at default, and

Loss Given Default (‘LGD’) - an estimate of the potential economic loss on a credit exposure, incurred as a consequence of obligor default and expressed as a percentage of the facility’s EAD. For Retail Mortgage exposures the Bank applies the downturn LGDs according to loan-to-valuation ratio (‘LVR’) prescribed bands as set out in BS2B. For Rural Banking exposures within the Corporate asset class the Banking Group has adopted RBNZ prescribed downturn LGDs which are more conservative than internal estimates.

For exposures classified under Specialised Lending, the Banking Group uses slotting tables prescribed by the RBNZ rather than internal estimates

The exceptions to IRB treatment are five minor portfolios where, due to systems constraints or other reasons, determining IRB 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).

Set out below is a schedule showing the classification of Banking Group exposures according to rating approach:

Internal Ratings Based Approach

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IRB Asset Class Borrower Type Rating Approach
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IRB Asset Class	Borrower Type	Rating Approach
Sovereign	Crown	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 ft any other asset classifcation	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
Corporate sub-class – Specialised lending	Project Finance	IRB - Slotting
	Income-Producing Real Estate	IRB - Slotting
Equity		IRB
Other assets	All other assets not falling within any of the above classes	IRB

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

31. CAPITAL ADEqUACY (CONTINUED)

A risk weight of 100% applies to premises and equipment and all other exposures not otherwise defined in the BS2B document, except for cash, gold, New Zealand dollar denominated claims on the Crown and the RBNZ which receive a 0% risk weight.

Standardised Approach

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Asset Class Exposure Type Reason for Standardised Approach Future treatment
----- End of picture text -----

Asset Class	Exposure Type	Reason for Standardised Approach	Future treatment
Corporate	ANZ Retail residential investment loans	System constraints	Move to IRB
	Purchased receivables	Nature of product	Remain Standardised
	Merchant card prepayment exposures	System constraints	Move to IRB
	Corporate credit cards	System constraints	Move to IRB
Bank	Mondex	Immaterial	Remain Standardised

CONTROLS SURROUNDING CREDIT RISK RATING SYSTEMS

The term Rating System 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 and loss estimates.

All material aspects of the rating systems and risk estimate processes are governed by the Risk Management Committee of the Banking Group. Risk grades are an integral part of reporting to senior management and executive. Management and staff of credit risk functions, in conjunction with the relevant Retail and Wholesale risk committees, regularly assess the performance of the rating systems, identify any areas for improvement and monitor progress on previously identified development work needed.

The Banking Group’s rating systems are governed by a comprehensive framework of controls that operate at the business unit 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 of credit risk models within New Zealand. The annual validation of models used across the Banking Group is a function undertaken by the ANZ Decision Model Validation unit, which is also independent of credit risk operational functions and is responsible for overseeing the design, implementation and performance of all rating models in the Banking Group.

The target approach to modelling for the Banking Group is to deploy the model most suitable for the environment. At present this involves a combined approach to modelling, utilising models developed in New Zealand and ANZ-developed models tested and validated for use in New Zealand as appropriate.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

31. CAPITAL ADEqUACY (CONTINUED)

CREDIT RISK EXPOSURES SUBJECT TO INTERNAL RATINGS BASED APPROACH

The following tables analyse the capital requirements under the internal ratings based approach exposures by asset class

On-balance sheet exposures Corporate Sovereign Bank Retail mortgages Other retail Total on-balance sheet exposures Off-balance sheet exposures Corporate Sovereign Bank Retail mortgages Other retail Total off-balance sheet exposures Market related contracts Corporate Sovereign Bank Total market related contracts Total credit risk exposures subject to the internal ratings based approach	Consolidated as at 30/09/2008
	Exposure- weighted LGD used for the Exposure- Total exposure or Exposure at capital weighted risk Risk weighted Total capital principal amount default calculation weight exposure1 requirement $m $m % % $m $m
	35,955 35,955 38 59 22,496 1,800 1,030 1,030 5 1 13 1 6,688 6,401 64 15 1,039 83 49,623 49,623 22 25 12,988 1,038 5,381 5,381 52 51 2,902 233
	98,677 98,390 32 38 39,438 3,155
	13,474 12,465 47 53 6,996 560 66 59 5 - - - 1,307 1,189 53 26 327 26 5,397 5,314 21 21 1,159 93 5,304 5,358 61 32 1,818 145
	25,548 24,385 45 40 10,300 824
	121,447 2,459 61 39 1,008 81 4,541 323 5 1 3 - 517,813 7,648 65 23 1,835 147
	643,801 10,430 62 26 2,846 228
	768,026 133,205 37 37 52,584 4,207

1. Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.

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(CONTINUED)

31. CAPITAL ADEqUACY (CONTINUED)

Probability of default % Corporate CCR rating 0 - 2 0.04% 3 - 4 0.34% 5 1.00% 6 2.61% 7 - 8 7.79% Default 100.00% Total corporate credit risk exposures Sovereign CCR rating 0 0.01% 1 n/a 2 n/a 3 n/a 4 - 8 n/a Default n/a Total sovereign credit risk exposures Bank CCR rating 0 0.01% 1 0.02% 2 - 4 0.09% 5 - 6 1.22% 7 - 8 5.83% Default n/a Total bank credit risk exposures Retail mortgages CCR rating 0 - 3 0.24% 4 0.35% 5 0.98% 6 2.35% 7 - 8 12.58% Default 100.00% Total residential mortgage credit risk exposures Other retail CCR rating 0 - 2 0.10% 3 - 4 0.26% 5 1.09% 6 2.05% 7 - 8 11.53% Default 100.00% Total other retail credit risk exposures	Consolidated as at 30/09/2008
	Exposure- weighted LGD used for the Exposure- Exposure at capital weighted risk Risk weighted Total capital default calculation weight exposure1 requirement $m % % $m $m
	7,341 60 24 1,879 150 21,913 38 41 9,576 766 12,542 37 69 9,133 731 6,711 39 91 6,496 520 2,120 41 140 3,147 252 252 50 101 269 22
	50,879 41 57 30,500 2,441
	1,412 5 1 16 1 - - - - - - - - - - - - - - - - - - - - - - - - -
	1,412 5 1 16 1
	13,147 65 19 2,625 210 1,097 54 16 183 15 926 54 28 277 22 33 65 117 41 3 35 65 203 75 6 - - - - -
	15,238 64 20 3,201 256
	13,742 21 10 1,432 115 21,341 22 13 3,031 242 10,305 23 28 3,074 246 6,582 24 51 3,543 283 2,527 25 110 2,940 235 440 29 27 127 10
	54,937 22 24 14,147 1,131
	1,216 80 20 261 21 4,480 55 24 1,146 92 2,561 52 54 1,478 119 1,728 51 66 1,206 96 648 54 92 629 50 106 55 3 - -
	10,739 56 41 4,720 378

Credit risk exposures subject to the internal ratings based approach have been derived in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008 and other relevant correspondence from the RBNZ setting out prescribed credit risk estimates.

1. Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.

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(CONTINUED)

31. CAPITAL ADEqUACY (CONTINUED)

SPECIALISED LENDING SUBJECT TO THE SLOTTING APPROACH

On-balance sheet exposures3 Strong Good Satisfactory Weak Default Total on-balance sheet exposures subject to the slotting approach Off-balance sheet exposures Undrawn commitments and other off balance sheet exposures Market related contracts Total off-balance sheet exposures subject to the slotting approach		Consolidated as at 30/09/2008
		Exposure Risk weighted Total capital amount Risk weight exposure2 requirement $m % $m $m
		3,036 70 2,253 180 2,592 90 2,473 198 1,722 115 2,099 168 380 250 1,007 81 62 226 149 12
		7,792 97 7,981 639
	Exposure Average riskRisk weighted Total capital amount EAD weight exposure2 requirement $m $m % $m $m
	1,467 1,406 87 1,302 104 3,475 74 90 71 6
	4,942 1,480 88 1,373 110

Specialised lending subject to the slotting approach has been derived in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008.

OTHER IRB EXPOSURES

OTHER IRB EXPOSURES
Cash and gold bullion New Zealand dollar denominated claims on the Crown and the RBNZ Other assets Total other IRB credit risk exposures	Consolidated as at 30/09/2008
	Exposure Risk weighted Total capital amount Risk weight exposure2 requirement $m % $m $m
	170 - - - 3,779 - - - 797 100 845 68
	4,746 17 845 68

Other IRB exposures have been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008.

A risk weight of 100% applies to premises and equipment and all other exposures not otherwise defined in the BS2B document, except for cash, gold, New Zealand dollar denominated claims on the Crown and the RBNZ which receive a 0% risk weight.

EQUITY EXPOSURES

	Consolidated as	Consolidated as	at 30/09/2008
	Exposure		Risk weighted Total	capital
	amount	Risk weight	exposure2 requirement
	$m	%	$m	$m
All other equity holdings (not deducted from capital)	224	400	950	76

Equity exposures have been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008.

1. Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.

2. The supervisory categories of specialised lending above are associated with a specific risk-weight. These categories broadly correspond to the following external credit assessments using the Standard & Poor’s rating scale: Strong BBB- or better, Good BB+ or BB, Satisfactory BB- or B+ and Weak B to C-.

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(CONTINUED)

31. CAPITAL ADEqUACY (CONTINUED)

CREDIT RISK EXPOSURES SUBJECT TO THE STANDARDISED APPROACH

				Consolidated as at 30/09/2008	Consolidated as at 30/09/2008	Consolidated as at 30/09/2008	Consolidated as at 30/09/2008
				Exposure		Average risk Risk weighted Total		capital
				amount		weight	exposure2 requirement
				$m		%	$m	$m
On-balance sheet exposures
Corporates					122	70	91	7
Total on-balance sheet exposures subject to the standardised approach					122	70	91	7
	Average credit			Credit
	Exposure	conversion		equivalent	Average risk Risk weighted Total			capital
	amount	factor		amount		weight	exposure2 requirement
	$m	%		$m		%	$m	$m
Off-balance sheet exposures
Undrawn commitments and other off balance sheet exposures	420	35		146		97	150	12

Credit risk exposures subject to the standardised approach have been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework (Standardised Approach)’ (BS2A) dated November 2007.

OPERATIONAL RISK

Operational risk capital requirement as at 30 September 2008 Advanced Measurement Approach for operational risk	Total Implied risk operational weighted risk capital exposure requirement $m $m 5,638 451

The Banking Group uses the Advanced Measurement Approach for determining its regulatory capital requirement for operational risk calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008.

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. Operational risk incorporates legal risk which includes, but is not limited to, exposures to fines, penalties, or punitive damages resulting from regulatory actions, as well as private settlements.

The Banking Group has implemented an organisational-wide (‘top of house’) Loss Distribution Approach (LDA) calculation to determine the initial Operational Risk Capital. The data inputs into the LDA process include internal and external loss data and scenario analysis.

The initial capital number is calculated at the group-wide level and then distributed and adjusted for business environment and internal controls down to the business units (and completion points) using a Risk Drivers and Controls Approach (RDCA) Methodology. The RDCA is a risk and control self assessment system which:

• assesses the level of the Banking Group’s exposure to specified drivers of risk;

• assesses the scope and quality of the Banking Group’s internal control environment, key operational processes and risk mitigants; and

• directly links these assessments to operational risk capital.

The Banking Group’s Operating Risk Capital is calculated using the ANZ Group 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 drivers and control assessment (scorecard) methodology.

1. Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

1. CAPITAL ADEqUACY (CONTINUED) MARKET RISK

MARKET RISK
Market risk capital requirement as at 30 September 2008 Interest rate risk Foreign currency risk Equity risk	Implied risk weighted Aggregate exposure capital charge $m $m
	3,736 299 35 3 64 5
	3,835 307

The market risk capital requirement has been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (BS2B) dated March 2008.

CREDIT RISK MITIGATION

The Banking Group assesses the integrity and ability of counterparties to meet their contractual financial obligations for repayment. Collateral security in the form of real property or a security interest in personal property is generally taken for business credit except for major government, bank and corporate counterparties of strong financial standing. Longer term consumer finance in the form of housing loans is generally secured against real estate while short term revolving consumer credit is generally unsecured.

Netting is defined as the set-off of two or more cash flows, assets, or liabilities. The types of netting used by the Banking Group are payments or settlement, close-out, bilateral or multilateral. The Banking Group establishes its netting rights through various means including legally binding set-off agreements, collateral agreements, facility agreements, security agreements and the terms and conditions of trading (including ISDA Master Agreements when considered appropriate). Where documented rights to net have been established a net limit may be used for exposure assessment and monitoring.

Guarantees used for credit risk mitigation may be provided by bank, sovereign, corporate or individual counterparties. Guarantors are separately rated, and their capacity to honour their commitments under the guarantee is also assessed. The obligor is also separately rated on a standalone basis, and then the rating of the obligor is adjusted to take into account the strength of the guarantor. The size of the adjustment reflects the Banking Group’s assessment of the strength of the guarantor, but is capped at the guarantor’s rating so there is no recognition of “double default”. Guaranteed exposures are subject to Banking Group policy covering market and credit risk concentrations.

As at 30 September 2008, under the IRB approach the Banking Group had $1,024m of Corporate exposures covered by guarantees. None of the credit risk exposures subject to the Standardised approach were covered by eligible financial collateral. Under the IRB approach the Banking Group currently has no exposures backed by credit derivatives.

RETAIL MORTGAGES BY LOAN-TO-VALUATION RATIO

The table below sets out retail mortgages by loan-to-valuation ratio (‘LVR’) bands as used to calculate the Banking Group’s Pillar One capital requirement at balance date. As required by the RBNZ, LVRs are calculated as the current loan balance divided by the Bank’s valuation of the security property at origination of the exposure. Where the Bank is unable to calculate the LVR the exposure is placed in the over 90% band to maintain a conservative treatment.

LVR range 0% - 59% 60% - 69% 70% - 79% 80% - 89% Over 90% Total retail mortgage credit risk exposures subject to the internal ratings based approach	30/09/2008 Exposure amount1 $m 22,329 7,371 9,483 7,486 6,550
	53,219

1. The exposure amount used to calculate LVR excludes commitments to lend.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

31. CAPITAL ADEqUACY (CONTINUED) PILLAR II CAPITAL FOR OTHER MATERIAL RISKS2 Internal capital allocation for other material risks
	30/09/2008 Total capital requirement $m
	145

The internal capital allocation for other material risks has been derived in accordance with the Bank’s Conditions of Registration.

The Banking Group actively manages and measures all material risks affecting its operations. These risks go beyond the traditional banking risks of credit, operational and market risks. The measurement and management of any other material risk is covered in the Bank’s Economic Capital model which is used within the Bank’s ICAAP. Economic capital is defined as the maximum loss in excess of that which is to be expected in the normal course of business, assessed at a given confidence level. Losses in excess of those expected are termed ‘unexpected’. Economic capital is unexpected loss measured to a 99.97% confidence level, which is consistent with the Bank’s risk appetite of maintaining its AA credit rating.

The internal capital allocation for the Banking Group’s other material risks as at 30 September 2008 was $145 million, comprising premises and equipment risk and capitalised origination fees risk.

Other material risks outside of the credit, operational and market risks that the Banking Group measures and manages are generally already deducted from Tier 1 capital. As a result, the Banking Group has not included capital for these risks in the internal capital allocation for other material risks.

CAPITAL ADEQUACY OF ULTIMATE PARENT BANK

	Consolidated	Consolidated
	Basel II	Basel I
	30/09/2008	30/09/2007
Tier One Capital	7.71%	6.70%
Total Capital	11.10%	10.08%
Australian Prudential Regulatory Authority (APRA) minimum ratios:
Tier One Capital	4.00%	4.00%
Total Capital	8.00%	8.00%

For calculation of minimum capital requirements under Pillar I of the Basel II Accord, the Ultimate Parent Bank has been accredited by APRA to use the Advanced Internal Ratings Based (AIRB) methodology for calculation of credit risk weighted assets and the Advanced Measurement Approach (AMA) for the operational risk weighted asset equivalent. The Basel II Accord came into effect from 1 January 2008.

Under prudential regulations, the Ultimate Parent Bank is required to hold a prudential capital ratio (PCR) as determined by APRA. Subject to APRA’s discretion, the minimum PCR is 8 per cent of its total risk weighted assets. Half of this capital must be held in the form of Tier One Capital. Prior to 1 January 2008, the minimum capital ratio, subject to APRA’s discretion, was also 8 per cent of its total risk weighted assets calculated under the Basel I methodology and at least half of this capital was held in the form of Tier One Capital.

The Ultimate Parent Bank met the minimum capital adequacy requirements set by APRA as at 30 September 2008 and for comparative prior periods.

The Ultimate Parent Bank is required to publicly disclose Pillar III financial information as at 30 September 2008. In the Ultimate Parent Bank’s Consolidated Financial Report, Dividend Announcement and Appendix 4D for the Year to 30 September 2008, capital adequacy ratios calculated under the Basel II methodology were disclosed. This report can be accessed at the following website address: www.anz.com.

1. The Internal allocation for other material risks for 30 September 2007 comparative period has not been provided as the information is not readily available.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. 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 (including traded or fair value risks and non-traded or interest and foreign currency related risks) 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 programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Banking Group.

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 asset writing strategies, credit policies/controls, single exposures, portfolio monitoring and risk concentrations. The credit risk management framework exists to provide a structured and disciplined process to support those objectives. The integrity of the credit risk function is maintained by the independence of the credit chain and is supported by comprehensive risk analysis, risk tools, monitoring processes and policies.

CREDIT RISK MANAGEMENT

The credit risk management framework is in place across the Banking Group with the aim of ensuring a structured and disciplined approach is maintained in achieving the objectives set by the Board. The framework focuses on policies, people, skills, vision, values, controls, risk concentrations and portfolio balance. It is supported by portfolio analysis and asset-writing strategies which guide lending decisions and identify segments of the portfolio requiring attention. The effectiveness of the framework is monitored through a series of compliance and reporting processes.

An independent Risk Management function, at Banking Group, Divisional and Business Unit levels, is staffed by risk specialists. In regards to credit risk management, the objective is for Risk Management to provide robust credit policies, to make independent credit decisions, and to provide strong support to front line staff in the application of sound credit practices. In addition to providing independent credit assessment on lending decisions, Risk Management also performs key roles in portfolio management by development and validation of credit risk measurement systems, loan asset quality reporting, and development of credit standards and policies.

The framework is top down, being defined firstly by the Banking Group’s Vision and Values and secondly, by Credit Principles and Policies. The effectiveness of the credit risk management framework is validated through the compliance and monitoring processes.

Risk Management’s responsibilities for credit risk policy and management are executed through dedicated departments, which support the Banking Group’s business units. All major Business Unit credit decisions require approval from both business writers and independent risk personnel.

Credit Risk is controlled through a combination of approvals, limits, reviews and monitoring procedures that are carried out on a 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 has various dedicated areas within the Risk Management division. Wholesale Risk services the Banking Group’s corporate, 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 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 the agreed standards and policies across the Banking Group.

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(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

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 the flow of funds from one country to another or involve transactions in a currency other than the domestic currency of the relevant country.

Country ratings are assigned to each country where the Banking Group incurs country risk and have a direct bearing on the Banking Group’s risk appetite for each country. The country rating is determined through a defined methodology based around external ratings agencies’ ratings and internal specialist opinion. It is also a key risk consideration in the Banking Group’s capital pricing model for 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, 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, asset writing strategies and business strategies. It creates greater understanding of impacts on financial performance through modelling relationships and sensitivities between geographic, industry and business unit exposures under a range of macroeconomic scenarios.

The Ultimate Parent Bank has a dedicated stress testing team within Risk Management that assists business and risk executives in the Banking Group to model and report periodically to management and the Board Risk Committee on a range of scenarios and stress tests.

Portfolio analysis and reporting

Global credit portfolios are analysed by the Risk Committees and Senior Business Executives. A central risk reporting department produces credit portfolio analysis which is distributed to senior Risk and Business Executives through monthly, half yearly and ad hoc reporting, or as set agenda reports to the various Risk Committees. This area provides an independent mechanism to ensure that significant and emerging credit risks are proactively identified and communicated to Group, Risk and Business Executives, including the Board Risk Committee.

Collateral management

Banking Group credit principles specify to only lend 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 to mitigate credit risk. Procedures are designed to ensure collateral is managed, legally enforceable, conservatively valued and adequately insured. 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; and

• financial guarantees.

In the event of customer default, any loan security is usually held as mortgage in possession while the Banking Group is actively seeking 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 covered by the ISDA in the Credit Support Annex (“CSA”), in order to achieve further credit exposure reduction. Under a CSA, collateral is passed between the parties, depending on the aggregate mark-tomarket (positive or negative) of derivative trades between the two entities, to mitigate the market contingent counterparty risk inherent in the outstanding positions.

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(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

CONCENTRATIONS OF CREDIT RISK

Concentrations of credit risk arise when a number of customers are engaged in similar business activities or activities within the same geographic region, or when they have similar risk characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.

The Banking Group monitors its portfolios to identify and assess risk concentrations. Concentration limits are used to guard against large single customer or correlated credit risks. Risk Management, Business Unit Executives and Senior Management monitor large exposure concentrations through a monthly list of the Banking Group’s top Corporate exposures. The Credit and Trading Risk Committee (six monthly) and Board Risk Committee (annually) 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.

Concentrations of credit risk analysis:

The composition of financial instruments, that give rise to credit risk, by industry and geography:

				Consolidated
	Liquid assets	Trading
	and due from	securities	Derivative		Other	Credit
	other fnancial	and available	fnancial	Net loans	fnancial	related
	institutions	for-sale assets	instruments	and advances	assets	commitments3	Total
	$m	$m	$m	$m	$m	$m	$m
30/09/2008
Industry
Agriculture, forestry, fshing	105	-	74	17,925	163	5,018	23,285
Business services	-	-	9	1,201	11	559	1,780
Construction	-	-	1	921	8	427	1,357
Entertainment, leisure and tourism	-	28	7	1,051	10	488	1,584
Finance and insurance	5,104	2,423	6,809	1,817	17	843	17,013
Government and local authority1	3,966	255	277	642	6	298	5,444
Manufacturing	209	8	208	3,129	29	1,452	5,035
Personal lending	-	-	-	54,831	499	10,704	66,034
Property services	-	-	20	9,271	84	4,303	13,678
Retail trade	392	-	13	1,903	17	883	3,208
Transport and storage	31	4	20	1,392	13	646	2,106
Wholesale trade	23	-	11	1,849	17	858	2,758
Other2	40	15	84	2,060	19	956	3,174
	9,870	2,733	7,533	97,992	893	27,435	146,456
Individual provision for credit impairment	-	-	-	(132)	-	-	(132)
Collective provision for credit impairment	-	-	-	(534)	-	-	(534)
	-	-	-	(666)	-	-	(666)
Fair value hedge adjustment	-	-	-	353	-	-	353
Total fnancial assets	9,870	2,733	7,533	97,679	893	27,435	146,143
Geography
New Zealand	7,581	1,229	1,839	96,452	893	27,435	135,429
Overseas	2,289	1,504	5,694	1,227	-	-	10,714
Total fnancial assets	9,870	2,733	7,533	97,679	893	27,435	146,143

1. Government and local authority includes exposures to government administration and defence, education and health, and community services.

2. Other includes exposures to electricity, gas and water, communications, and personal services.

3. Includes credit related commitments, contingent liabilities, and letters of offer.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

				Consolidated
	Liquid assets	Trading
	and due from	securities	Derivative		Other	Credit
	other fnancial	and available	fnancial	Net loans	fnancial	related
	institutions	for-sale assets	instruments	and advances	assets	commitments3	Total
	$m	$m	$m	$m	$m	$m	$m
30/09/2007
Industry
Agriculture, forestry, fshing	201	-	24	14,514	159	4,055	18,953
Business services	-	-	10	1,141	12	577	1,740
Construction	-	-	-	812	9	410	1,231
Entertainment, leisure and tourism	21	4	63	958	10	484	1,540
Finance and insurance	4,115	1,577	4,199	2,560	28	1,294	13,773
Government and local authority1	3,082	152	48	1,334	16	673	5,305
Manufacturing	281	27	139	2,809	31	1,420	4,707
Personal lending	-	-	-	51,819	566	9,405	61,790
Property services	-	-	-	7,432	81	3,756	11,269
Retail trade	441	-	52	1,556	17	786	2,852
Transport and storage	69	28	26	1,233	13	623	1,992
Wholesale trade	16	-	8	1,218	13	616	1,871
Other2	144	137	142	1,400	15	708	2,546
	8,370	1,925	4,711	88,786	970	24,807	129,569
Individual provision for credit impairment	-	-	-	(44)	-	-	(44)
Collective provision for credit impairment	-	-	-	(422)	-	-	(422)
	-	-	-	(466)	-	-	(466)
Fair value hedge adjustment	-	-	-	(442)	-	-	(442)
Total fnancial assets	8,370	1,925	4,711	87,878	970	24,807	128,661
Geography
New Zealand	7,108	1,329	1,367	84,701	970	24,807	120,282
Overseas	1,262	596	3,344	3,177	-	-	8,379
Total fnancial assets	8,370	1,925	4,711	87,878	970	24,807	128,661

1. Government and local authority includes exposures to government administration and defence, education and health, and community services.

2. Other includes exposures to electricity, gas and water, communications, and personal services.

3. Includes credit related commitments, contingent liabilities, and letters of offer.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

				Parent
Liquid assets		Trading
and	due from	securities	Derivative		Due from	Other	Credit
other	fnancial	and available	fnancial	Net loans	subsidiary	fnancial	related
institutions		for-sale assets	instruments	and advances	companies	assets	commitments3	Total
30/09/2008	$m	$m	$m	$m	$m	$m	$m	$m
Industry
Agriculture, forestry, fshing	105	-	74	17,604	-	145	5,018	22,946
Business services	-	-	9	1,078	-	9	527	1,623
Construction	-	-	1	689	-	6	402	1,098
Entertainment, leisure and tourism	-	28	7	1,026	-	8	462	1,531
Finance and insurance	4,599	2,421	6,820	1,648	1,992	14	811	18,305
Government and local authority1	3,965	255	277	560	-	5	274	5,336
Manufacturing	209	8	208	2,946	-	24	1,441	4,836
Personal lending	-	-	-	54,358	-	449	10,690	65,497
Property services	-	-	20	9,267	-	77	4,303	13,667
Retail trade	392	-	13	1,723	-	14	843	2,985
Transport and storage	31	4	20	1,009	-	8	644	1,716
Wholesale trade	23	-	11	1,797	-	15	854	2,700
Other2	40	15	84	1,795	-	15	953	2,902
	9,364	2,731	7,544	95,500	1,992	789	27,222	145,142
Individual provision for credit impairment	-	-	-	(115)	-	-	-	(115)
Collective provision for credit impairment	-	-	-	(497)	-	-	-	(497)
	-	-	-	(612)	-	-	-	(612)
Fair value hedge adjustment	-	-	-	353	-	-	-	353
Total fnancial assets	9,364	2,731	7,544	95,241	1,992	789	27,222	144,883
Geography
New Zealand	7,435	1,227	1,850	94,014	1,992	789	27,222	134,529
Overseas	1,929	1,504	5,694	1,227	-	-	-	10,354
Total fnancial assets	9,364	2,731	7,544	95,241	1,992	789	27,222	144,883

1. Government and local authority includes exposures to government administration and defence, education and health, and community services.

2. Other includes exposures to electricity, gas and water, communications, and personal services.

3. Includes credit related commitments, contingent liabilities, and letters of offer.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

				Parent
Liquid assets		Trading
and	due from	securities	Derivative		Due from	Other	Credit
other	fnancial	and available	fnancial	Net loans	subsidiary	fnancial	related
institutions		for-sale assets	instruments	and advances	companies	assets	commitments3	Total
	$m	$m	$m	$m	$m	$m	$m	$m
30/09/2007
Industry
Agriculture, forestry, fshing	201	-	24	14,222	-	143	4,050	18,640
Business services	-	-	10	1,037	-	10	575	1,632
Construction	-	-	-	628	-	6	372	1,006
Entertainment, leisure and tourism	21	20	63	939	-	9	479	1,531
Finance and insurance	3,653	1,567	4,193	1,008	1,585	10	1,209	13,225
Government and local authority1	3,082	152	48	1,244	-	12	668	5,206
Manufacturing	281	4	139	2,469	-	25	1,405	4,323
Personal lending	-	-	-	51,325	-	516	9,405	61,246
Property services	-	-	-	7,427	-	75	3,746	11,248
Retail trade	441	-	52	1,422	-	14	780	2,709
Transport and storage	69	28	26	871	-	9	561	1,564
Wholesale trade	16	-	8	1,184	-	12	609	1,829
Other2	144	144	142	1,136	-	11	676	2,253
	7,908	1,915	4,705	84,912	1,585	852	24,535	126,412
Individual provision for credit impairment	-	-	-	(34)	-	-	-	(34)
Collective provision for credit impairment	-	-	-	(392)	-	-	-	(392)
	-	-	-	(426)	-	-	-	(426)
Fair value hedge adjustment	-	-	-	(442)	-	-	-	(442)
Total fnancial assets	7,908	1,915	4,705	84,044	1,585	852	24,535	125,544
Geography
New Zealand	6,727	1,319	1,361	80,786	1,585	852	24,535	117,165
Overseas	1,181	596	3,344	3,258	-	-	-	8,379
Total fnancial assets	7,908	1,915	4,705	84,044	1,585	852	24,535	125,544

1. Government and local authority includes exposures to government administration and defence, education and health, and community services.

2. Other includes exposures to electricity, gas and water, communications, and personal services.

3. Includes credit related commitments, contingent liabilities, and letters of offer.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

MAXIMUM EXPOSURE TO CREDIT RISK

For financial assets recognised on the balance sheet, the exposure to credit risk equals their carrying amount. For contingent exposures, the maximum exposure to credit risk is the maximum amount that the Banking Group would have to pay if the contingent is called upon. For undrawn facilities, the maximum exposure to credit risk is the full amount of the committed facilities.

The following table presents the maximum exposure to credit risk of balance sheet financial instruments before taking account of any collateral held or other credit enhancements and after deductions such as provision for credit impairment. The exposure is classified into summarised Basel II asset classes, with Corporate exposures including all non-Retail mortgages and Other retail exposures.

30/09/2008 Exposure to credit risk Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments Available-for-sale assets Net loans and advances Due from subsidiary companies Other fnancial assets Credit related commitments Total fnancial assets 30/09/2007 Exposure to credit risk Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments Available-for-sale assets Net loans and advances Due from subsidiary companies Other fnancial assets Credit related commitments Total fnancial assets	Consolidated	Parent
	Total maximum Retail Other retail Corporate exposure to mortgages exposures exposures1 credit risk $m $m $m $m	Total maximum Retail Other retail Corporate exposure to mortgages exposures exposures1 credit risk $m $m $m $m
	- - 4,838 4,838 - - 5,032 5,032 - - 2,624 2,624 - - 7,533 7,533 - - 109 109 49,514 5,207 42,958 97,679 - - - - - - 893 893 5,397 5,307 16,731 27,435	- - 4,837 4,837 - - 4,527 4,527 - - 2,624 2,624 - - 7,544 7,544 - - 107 107 49,514 4,385 41,342 95,241 - - 1,992 1,992 - - 789 789 5,397 5,293 16,532 27,222
	54,911 10,514 80,718 146,143	54,911 9,678 80,294 144,883
	- - 4,807 4,807 - - 3,563 3,563 - - 1,877 1,877 - - 4,711 4,711 - - 48 48 45,944 4,987 36,947 87,878 - - - - - - 970 970 4,552 4,853 15,402 24,807	- - 4,807 4,807 - - 3,101 3,101 - - 1,877 1,877 - - 4,705 4,705 - - 38 38 45,944 4,157 33,943 84,044 - - 1,585 1,585 - - 852 852 4,552 4,853 15,130 24,535
	50,496 9,840 68,325 128,661	50,496 9,010 66,038 125,544

1. Includes corporate, sovereign and banks.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

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 are 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/or existing counterparty movements in either risk or volume. All counterparty risk grades are subject to frequent review, including statistical and behavioural reviews in consumer and small business segments, and individual counterparty reviews in segments with larger single name borrowers.

Impairment and provisioning of financial assets

The Banking Group’s policy relating to the recognition and measurement of impaired assets conforms with 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, and/or where a material credit obligation is 90 days past due but not well secured, or is a portfolio managed facility that can be held for up to 180 days past due, or where concessional terms have been provided due to the financial difficulties of the customer.

In the event where the value of collateral is sufficient to repay both the principal debt and all potential interest and there is no concern as to the creditworthiness of the counterparty in question, the exposure is then classified as past due but not impaired.

The provision for credit impairment represents management’s best estimate of the losses incurred in the loan portfolio at balance date based on its experienced judgement.

Credit exposures, including loans and advances and off-balance sheet items, such as commitments and guarantees, are reviewed at least at each reporting date for impairment. 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 the loan and prior to the reporting date, and that a loss event or events has (or have) had an impact on the estimated future cash flows of the individual loan or the collective portfolio of loans that can be reliably estimated. When the Banking Group recognises an impairment loss in an individual asset or portfolio of assets, the Banking Group is recognising that future economic benefits (previously assessed as being available to the entity) are no longer probable.

The Banking Group’s methodology for determining the total provision for loan losses establishes both an individual component for assets that are individually significant (or on a portfolio basis for small value loans) and then a collective component for those exposures not individually known to be impaired. The individual provision represents the results of analysis of individual loans within the Banking Group’s portfolio. The Banking Group reviews its loan portfolios and monitors adherence to terms, conditions and lending covenants. The reviews undertaken employ a variety of statistical measures and experienced judgement to determine the continuing collectability of credit facilities. When objective evidence arises as to the collectability of a credit facility, the exposure is classified and reported as individually impaired and an individual provision for credit impairment is allocated against it.

Exposures that are assessed collectively are placed into pools of similar assets with similar risk characteristics to be collectively assessed for losses that have been incurred, but not yet identified. The collective provision is estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the collective pool. Historical loss experience is determined using loan and portfolio risk gradings, associated default and loss expectancy rates and an assessment of the emergence period. The historical loss experience may be refined based on current observed default data and through various scenario adjustments.

The collective provision is also reviewed to ensure it is adequate for the term of the portfolio as a whole.

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. The following table presents an analysis of gross loans and advances, prior to deducting the fair value hedge adjustment and provision for credit impairment, by summarised Basel II asset class into exposures neither past due nor impaired, past due and impaired.

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32. fINANCIAL RISK MANAGEMENT (CONTINUED)

30/09/2008 Neither past due nor impaired Past due but not impaired (1 to 89 days) Past due but not impaired (over 90 days) Impaired 30/09/2007 Neither past due nor impaired Past due but not impaired (1 to 89 days) Past due but not impaired (over 90 days) Impaired	Consolidated	Parent
	Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m	Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m
	47,520 4,912 41,886 94,318 1,776 385 877 3,038 244 54 11 309 83 30 214 327	47,520 4,161 40,311 91,992 1,776 312 836 2,924 244 48 4 296 83 14 191 288
	49,623 5,381 42,988 97,992	49,623 4,535 41,342 95,500
	45,268 4,730 36,397 86,395 1,116 361 697 2,174 57 19 26 102 7 20 88 115	45,268 4,008 33,467 82,743 1,116 247 618 1,981 57 17 21 95 7 7 79 93
	46,448 5,130 37,208 88,786	46,448 4,279 34,185 84,912

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 rating

Strong risk rating

Corporate customers demonstrating superior stability in their operating and financial performance over the long-term, and whose debt servicing capacity is not significantly vulnerable to foreseeable events. Retail customers with low expected loss. This rating band comprises CCR 0+ to CCR 4- which broadly corresponds to ratings “Aaa” to “Ba1” and “AAA” to “BB+” of Moody’s Investors Service and Standard & Poor’s respectively.

Satisfactory risk rating

Corporate customers consistently demonstrating sound operational and financial stability over the medium to long term, even though some may be susceptible to cyclical trends or variability in earnings. Retail customers with moderate expected loss. This rating band comprises CCR 5+ to CCR 6- which broadly corresponds to ratings “Ba2” to “Ba3” and “BB” to “BB-” of Moody’s Investors Service and Standard & Poor’s respectively.

Weak risk rating 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 comprises CCR 7+ to 8 which broadly corresponds to ratings “B1” to “Caa” and “B+” to “CCC” of Moody’s Investors Service and Standard & Poor’s respectively.

The rating bands presented below differ from the Note 31 Capital Adequacy credit risk exposures subject to the internal ratings based approach disclosures as RBNZ credit risk estimates are not used for these internal ratings. Movements in the rating categories between balance dates are due to both changes in the underlying internal ratings applied to customers and to new loans written or loans rolling off.

1. Includes corporate, sovereign and banks.

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32. fINANCIAL RISK MANAGEMENT (CONTINUED)

The following table presents an analysis of gross loans and advances neither past due nor impaired by the above internal ratings:

Consolidated Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m 30/09/2008 Strong risk rating 43,866 1,849 19,827 65,542 Satisfactory risk rating 3,041 2,800 19,987 25,828 Weak risk rating but not past due or impaired 613 263 2,072 2,948 47,520 4,912 41,886 94,318 30/09/2007 Strong risk rating 41,385 1,524 17,879 60,788 Satisfactory risk rating 3,041 2,810 17,246 23,413 Weak risk rating but not past due or impaired 613 396 1,272 2,194 45,268 4,730 36,397 86,395	Consolidated Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m 30/09/2008 Strong risk rating 43,866 1,849 19,827 65,542 Satisfactory risk rating 3,041 2,800 19,987 25,828 Weak risk rating but not past due or impaired 613 263 2,072 2,948 47,520 4,912 41,886 94,318 30/09/2007 Strong risk rating 41,385 1,524 17,879 60,788 Satisfactory risk rating 3,041 2,810 17,246 23,413 Weak risk rating but not past due or impaired 613 396 1,272 2,194 45,268 4,730 36,397 86,395	Parent
		Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m
		43,866 1,807 19,437 65,110 3,041 2,091 18,996 24,128 613 263 1,878 2,754
	47,520 4,912 41,886 94,318	47,520 4,161 40,311 91,992
		41,385 1,524 15,987 58,896 3,357 2,088 16,297 21,742 526 396 1,183 2,105
	45,268 4,730 36,397 86,395	45,268 4,008 33,467 82,743

Credit quality of financial assets that are past due but not impaired

Ageing analysis of past due loans between 1 and 90 days is used by the Banking Group to measure and manage the retail portfolio’s credit quality. The remaining portfolios are individually managed and therefore, accounts are managed on a daily basis. The following table presents an ageing analysis of past due loans that are not impaired:

30/09/2008 1 to 5 days 6 to 29 days 30 to 59 days 60 to 89 days 90 days or over 30/09/2007 1 to 5 days 6 to 29 days 30 to 59 days 60 to 89 days 90 days or over 1. Includes corporate, sovereign and banks.	Consolidated	Parent
	Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m	Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m
	544 137 534 1,215 798 155 193 1,146 304 63 106 473 130 30 44 204 244 54 11 309	544 113 520 1,177 798 123 176 1,097 304 51 102 457 130 25 38 193 244 48 4 296
	2,020 439 888 3,347	2,020 360 840 3,220
	366 189 506 1,061 580 125 136 841 138 34 35 207 32 13 20 65 57 19 26 102	366 103 441 910 580 103 132 815 138 29 28 195 32 12 17 61 57 17 21 95
	1,173 380 723 2,276	1,173 264 639 2,076

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32. fINANCIAL RISK MANAGEMENT (CONTINUED) Past due but not impaired (over 90 days)

This classification applies where contractual payments are past due greater than 90 days, or where the facility remains outside of contractual arrangements for greater than 90 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.

A facility, subject to a regular repayment schedule, is classified as 90 days past due when at least 90 calendar days have elapsed since the due date of a contractual payment has not been met in full and the facility is well secured.

Facilities that do not have a regular repayment schedule are considered 90 days past due when the facility has remained continuously outside of contracted arrangements for 90 or more consecutive days and the facility is well secured.

Well secured is when 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 collective efforts will result in payment of the amounts due in a timely manner.

The Banking Group’s residential mortgages and corporate exposures are generally well secured. Collateral is generally represented by residential property and business assets respectively.

Portfolio managed assets 90 days past due but not impaired include financial assets which are homogenous with similar characteristics and are assessed, approved, and controlled on a portfolio basis within a centralised environment (for example Credit Cards, Personal Loans, Home Loans). When the financial assets are managed on a portfolio basis, the assets can be held on a non-impaired basis for up to 180 days.

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 the collectability of a credit facility, the financial asset is classified and reported as individually impaired and an individual provision is allocated against it. The following table presents an analysis of individually impaired assets, undrawn facilities with impaired customers and provision for credit impairment by summarised Basel II asset class:

30/09/2008 Impaired fnancial assets Undrawn facilities with impaired customers Individual provision balance Net impaired fnancial assets Collective provision balance 30/09/2007 Impaired fnancial assets Undrawn facilities with impaired customers Individual provision balance Net impaired fnancial assets Collective provision balance	Consolidated	Parent
	Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m	Retail Other retail Corporate mortgages exposures exposures1 Total $m $m $m $m
	83 30 214 327 - - 6 6 28 10 94 132	83 14 191 288 - - 6 6 28 4 83 115
	55 20 126 201	55 10 114 179
	81 164 289 534	81 146 270 497
	7 20 88 115 - - 6 6 4 13 27 44	7 7 79 93 - - 6 6 4 5 25 34
	3 7 67 77	3 2 60 65
	58 130 234 422	58 117 217 392

Security held by the Banking Group in respect of individually impaired financial assets in the analysis above has an estimated fair value of $195 million (30/09/2007 $71 million). In addition, security held in respect of impaired off-balance sheet facilities amounts to $6 million (30/09/2007 $6 million).

Security held by the Bank in respect of individually impaired financial assets in the analysis above has an estimated fair value of $173 million (30/09/2007 $59 million) In addition, security held in respect of impaired off-balance sheet facilities amounts to $6 million (30/09/2007 $6 million).

Restructured items

The Banking Group distinguishes between facilities renegotiated on a commercial basis, on terms similar to those offered to new clients with similar risk, and those restructured on non commercial terms as a result of a client’s inability to meet original contractual obligations.

In the course of restructuring facilities due to financial difficulty, the Banking Group may consider modifying its terms to include concessions such as a reduction in the principal amount, a deferral of repayments, and/or a reduction in interest rates or an extension of the maturity date materially beyond those typically offered to new facilities with similar risk.

Restructured facilities are classified as productive and must demonstrate sound prospects of being able to adhere to the modified contractual terms. Where doubt exists as to the capacity to sustain the modified terms, the facilities remain impaired and an appropriate level of individual provision is held.

There are no material restructured loans held by the Banking Group or the Bank (30/09/2008 $nil).

1. Includes corporate, sovereign and banks.

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32. fINANCIAL RISK MANAGEMENT (CONTINUED)

Estimated value of collateral and other charges related to financial assets that are individually impaired.

				Consolidated
	Liquid assets	Trading
	and due from	securities	Derivative		Other	Credit
	other fnancial	and available	fnancial	Net loans	fnancial	related
	institutions	for-sale assets	instruments	and advances	assets	commitments1	Total
30/09/2008	$m	$m	$m	$m	$m	$m	$m
Cash and securities	-	-	-	-	-	-	-
Real estate	-	-	-	112	-	-	112
Other	-	-	-	83	-	6	89
Total value of collateral	-	-	-	195	-	6	201
Credit exposure	-	-	-	327	-	6	333
Unsecured portion of credit	-	-	-	132	-	-	132
	Liquid assets	Trading
	and due from	securities	Derivative		Other	Credit
	other fnancial	and available	fnancial	Net loans	fnancial	related
	institutions	for-sale assets	instruments	and advances	assets	commitments1	Total
30/09/2007	$m	$m	$m	$m	$m	$m	$m
Cash and securities	-	-	-	-	-	-	-
Real estate	-	-	-	3	-	-	3
Other	-	-	-	68	-	6	74
Total value of collateral	-	-	-	71	-	6	77
Credit exposure	-	-	-	115	-	6	121
Unsecured portion of credit	-	-	-	44	-	-	44

				Parent
	Liquid assets	Trading
	and due from	securities	Derivative		Other	Credit
	other fnancial	and available	fnancial	Net loans	fnancial	related
	institutions	for-sale assets	instruments	and advances	assets	commitments1	Total
30/09/2008	$m	$m	$m	$m	$m	$m	$m
Cash and securities	-	-	-	-	-	-	-
Real estate	-	-	-	113	-	-	113
Other	-	-	-	60	-	6	66
Total value of collateral	-	-	-	173	-	6	179
Credit exposure	-	-	-	288	-	6	294
Unsecured portion of credit	-	-	-	115	-	-	115

	Liquid assets	Trading
	and due from	securities	Derivative		Other	Credit
	other fnancial	and available	fnancial	Net loans	fnancial	related
	institutions	for-sale assets	instruments and advances		assets	commitments1	Total
30/09/2007	$m	$m	$m	$m	$m	$m	$m
Cash and securities	-	-	-	-	-	-	-
Real estate	-	-	-	3	-	-	3
Other	-	-	-	56	-	6	62
Total value of collateral	-	-	-	59	-	6	65
Credit exposure	-	-	-	93	-	6	99
Unsecured portion of credit	-	-	-	34	-	-	34

1. Includes credit related commitments, contingent liabilities, and letters of offer.

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32. fINANCIAL RISK MANAGEMENT (CONTINUED)

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 management and control responsibilities

The Banking Group has a detailed market risk management and control framework, to support trading and non-trading activities, which incorporates an independent risk measurement approach to quantify the magnitude of market risk within the trading and non-trading books. This approach, along with related analysis, identifies the range of possible outcomes that can be expected over a given period of time, and establishes the relative likelihood of those outcomes.

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

a) Traded market risk

• This is the risk of loss from changes in the value of financial instruments due to movements in price factors for both physical and derivative trading positions. They arise in trading transactions where the Banking Group acts as principal with clients or with 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 foreign exchange rates or their implied volatilities.

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

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

b) Non-traded market risk (or balance sheet risk)

• This comprises the management of non-traded interest rate risk, liquidity, and the risk to capital and earnings as a result of 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 Board of Directors through the Risk Committee has responsibility for oversight of market risk within the Banking Group. Routine management, overall strategies and policies, and control of market risk exposures at Banking Group level is the responsibility of the Chief Risk Officer, who works closely with the Markets business unit.

The Traded Market risk function provides specific oversight of each of the main trading areas and is responsible for the establishment of a Value at Risk (VaR) framework and detailed control limits. In all trading areas the Banking Group has implemented models that calculate VaR exposures, monitor risk exposures against defined limits on a daily basis, and ‘stress test’ trading portfolios. The Banking Group has an Asset and Liability Committee (‘ALCO’), comprising executive management to provide monthly oversight of Market Risk.

The 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 given day. Conversely there is a 2.5% or 1% probability of the decrease in market value exceeding the VaR estimate on any given day. The 99% confidence level encompasses a wider range of potential outcomes.

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

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

Traded and non-traded market risks are considered separately on the following page.

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32. fINANCIAL RISK MANAGEMENT (CONTINUED)

Traded market risks

Trading activities are focused on customer trading, distribution and underwriting of a range of securities and derivative instruments. The principal activities include foreign exchange, interest rate, and debt markets. These activities are managed on a global product basis. Below are aggregate VaR exposures covering both derivative and non-derivative trading positions for the Banking Group.

30/09/2008 Foreign exchange Interest rate Credit spread Diversifcation beneft Total VaR 30/09/2007 Foreign exchange Interest rate Credit spread Diversifcation beneft Total VaR
	Consolidated Value at risk at 97.5% confidence	Consolidated Value at risk at 99% confidence
	High for Low for Average for As at period period period $m $m $m $m	High for Low for Average for As at period period period $m $m $m $m
	0.2 1.3 0.1 0.3 1.6 1.9 0.5 0.9 0.2 0.3 0.1 0.1 (0.3) n/a n/a (0.5)	0.2 1.6 0.2 0.5 2.7 2.7 0.6 1.3 0.4 0.4 0.2 0.2 (0.6) n/a n/a (0.7)
	1.7 2.0 0.3 0.8	2.7 2.8 0.5 1.3
	0.2 1.1 0.1 0.4 0.7 1.5 0.5 0.9 0.2 0.2 0.1 0.1 (0.1) n/a n/a (0.4)	0.3 1.3 0.1 0.5 0.8 2.3 0.7 1.3 0.3 0.4 0.1 0.2 (0.1) n/a n/a (0.5)
	1.0 2.0 0.5 1.0	1.3 3.1 0.7 1.5

VaR is calculated separately for Foreign Exchange/Commodities and for Interest Rate/Debt Markets businesses as well as for the Banking Group. The diversification benefit reflects the historical correlation between Foreign Exchange, Commodity, Interest Rate and Debt Markets.

To supplement the VaR methodology, the Banking Group applies a wide range of stress tests, both on individual portfolios and at a Banking Group level. The Banking Group’s stress-testing regime provides senior management with an assessment of the financial impact of identified extreme events on market risk exposures of the Banking Group.

Non-traded market risks (balance sheet risk)

The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptable levels of interest rate and liquidity risk and to manage the market value of the 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 secure stable and optimal net interest income over both the short (next 12 months) and long term. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Banking Group’s future net interest income. This risk arises from two principal sources: mismatches between the repricing dates of interest bearing assets and liabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets. Non-traded interest rate risk is managed to both value and earnings at risk limits. Interest rate risk is reported using three measures: VaR; scenario analysis (to a 1% shock); and interest rate sensitivity gap.

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32. fINANCIAL RISK MANAGEMENT (CONTINUED)

a) VaR non-traded interest rate risk

Below are aggregate VaR figures covering non-traded interest rate risk.

a) VaR non-traded interest rate risk Below are aggregate VaR fgures covering non-traded interest rate risk.
30/09/2008 Value at risk at 97.5% confdence 30/09/2007 Value at risk at 97.5% confdence	Consolidated
	High for Low for Average for As at period period period $m $m $m $m
	12.8 13.0 10.4 11.9
	10.8 10.8 7.3 8.8

To supplement the VaR methodology, the Banking Group applies a wide range of stress tests, both on individual portfolios and at the Banking Group level. The Banking Group’s stress-testing regime provides senior management with an assessment of the financial impact of identified extreme events on market risk exposures of the Banking Group.

b) Scenario Analysis – A 1% Shock on the Next 12 Months’ Net Interest Income

A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income over the succeeding 12 months. This is 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.

	Consolidated	Consolidated
	30/09/2008	30/09/2007
Impact of 1% Rate Shock
As at	0.0%	1.4%
Maximum exposure	1.8%	2.8%
Minimum exposure	0.0%	0.9%
Average exposure (in absolute terms)	0.8%	1.9%

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 repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where the contractual term to repricing is not considered to be reflective of the actual interest rate sensitivity (for example, products priced at the Banking Group’s discretion), a profile based on historically observed and/or anticipated rate sensitivity is used. This treatment excludes the effect of basis risk between customer pricing and wholesale market pricing. For example, when wholesale market rates are anticipating an official rate increase the Banking Group does not reprice certain customer business until the first repricing date after the official rate rise.

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 to manage current and future risk profiles.

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32. fINANCIAL RISK MANAGEMENT (CONTINUED)

Interest rate sensitivity gap

The interest rate sensitivity gap analysis provides information about the Banking Group’s exposure to interest rate risk.

Repricing gaps are based upon contractual repricing information except where the contractual terms are not considered to be reflective of actual interest rate sensitivity, for example, those assets and liabilities priced at the Banking Group’s discretion. In such cases, the rate sensitivity is based upon historically observed and/or anticipated rate sensitivity.

Sensitivity to interest rates arises from mismatches in the period to repricing of assets and that of the corresponding liability funding. These mismatches are managed within policy guidelines for mismatch positions.

The majority of the 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 through closely matching the maturities of loans and deposits. Given both the size and nature of this business, the interest rate sensitivity of this balance sheet contributes little to the aggregate risk exposure, which is primarily a reflection of the positions in New Zealand.

A combination of off-balance sheet instruments and pricing initiatives is used in the management of interest rate risk. For example, where a strong medium to long term rate view is held, hedging and pricing strategies are used to modify the profile’s interest rate sensitivity so that it is positioned to take advantage of the expected movement in interest rates. However, such positions are taken within the overall risk limits specified by Banking Group policy.

The following tables represent the interest rate sensitivity of the Banking Group’s assets, liabilities and off balance sheet instruments repricing (that is, when interest rates applicable to each asset or liability can be changed) in the periods shown.

30/09/2008 Assets Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments Available-for-sale assets Net loans and advances Other fnancial assets Total fnancial assets Non-fnancial assets Total assets Liabilities Due to other fnancial institutions Deposits and other borrowings Derivative fnancial instruments Payables and other fnancial liabilities Bonds and notes Due to parent company Loan capital Total fnancial liabilities Non-fnancial liabilities Equity Total liabilities and equity On-balance sheet interest sensitivity gap Hedging instruments Interest sensitivity gap - net Interest sensitivity gap - cumulative

Consolidated

Less than 3 to 6 6 to 12 1 to 5 Beyond Not bearing Total 3 months months months years 5 years interest $m $m $m $m $m $m $m 4,838 4,667 - - - - 171 5,032 3,080 450 - 134 - 1,368 2,624 1,043 10 - 1,332 239 - 7,533 - - - - - 7,533 109 30 - - 14 - 65 97,679 44,105 6,682 13,308 33,877 46 (339) 893 - - - - - 893 118,708 52,925 7,142 13,308 35,357 285 9,691 4,207 - - - - - 4,207 122,915 52,925 7,142 13,308 35,357 285 13,898 3,312 2,380 114 378 381 40 19 77,136 54,827 10,671 6,813 896 1 3,928 6,710 - - - - - 6,710 1,471 94 - - 60 7 1,310 20,695 15,732 472 374 3,942 175 - 404 404 - - - - - 2,820 216 819 - 1,785 - - 112,548 73,653 12,076 7,565 7,064 223 11,967 560 - - - - - 560 9,807 - - - - - 9,807 122,915 73,653 12,076 7,565 7,064 223 22,334 - (20,728) (4,934) 5,743 28,293 62 (8,436) - 20,239 5,578 (6,078) (19,486) (253) - - (489) 644 (335) 8,807 (191) (8,436) - (489) 155 (180) 8,627 8,436 -

P A G E 7 4

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

30/09/2007 Assets Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments Available-for-sale assets Net loans and advances Other fnancial assets Total fnancial assets Non-fnancial assets Total assets Liabilities Due to other fnancial institutions Deposits and other borrowings Derivative fnancial instruments Payables and other fnancial liabilities Bonds and notes Due to parent company Loan capital Total fnancial liabilities Non-fnancial liabilities Equity Total liabilities and equity On-balance sheet interest sensitivity gap Hedging instruments Interest sensitivity gap - net Interest sensitivity gap - cumulative

Consolidated

Less than 3 to 6 6 to 12 1 to 5 Beyond Not bearing Total 3 months months months years 5 years interest $m $m $m $m $m $m $m 4,807 4,606 - - - - 201 3,563 2,925 440 - 174 - 24 1,877 742 375 4 629 127 - 4,711 - - - - - 4,711 48 34 - - 13 - 1 87,878 33,335 4,051 11,404 39,355 84 (351) 970 - - - - - 970 103,854 41,642 4,866 11,408 40,171 211 5,556 3,933 - - - - - 3,933 107,787 41,642 4,866 11,408 40,171 211 9,489 3,170 2,334 216 189 16 377 38 70,030 49,276 7,489 6,261 2,650 - 4,354 4,924 - - - - - 4,924 1,087 16 77 - - 60 934 14,607 13,113 150 379 965 - - 2,775 2,775 - - - - - 2,062 217 799 100 946 - - 98,655 67,731 8,731 6,929 4,577 437 10,250 429 - - - - - 429 8,703 - - - - - 8,703 107,787 67,731 8,731 6,929 4,577 437 19,382 - (26,089) (3,865) 4,479 35,594 (226) (9,893) - 25,195 3,514 2,371 (31,707) 627 - - (894) (351) 6,850 3,887 401 (9,893) - (894) (1,245) 5,605 9,492 9,893 -

P A G E 7 5

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

30/09/2008 Assets Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments Available-for-sale assets Net loans and advances Due from subsidiary companies Other fnancial assets Total fnancial assets Non-fnancial assets Total assets Liabilities Due to other fnancial institutions Deposits and other borrowings Due to subsidiary companies Derivative fnancial instruments Payables and other fnancial liabilities Bonds and notes Due to parent company Loan capital Total fnancial liabilities Non-fnancial liabilities Equity Total liabilities and equity On-balance sheet interest sensitivity gap Hedging instruments Interest sensitivity gap - net Interest sensitivity gap - cumulative

Parent

Less than 3 to 6 6 to 12 1 to 5 Beyond Not bearing Total 3 months months months years 5 years interest $m $m $m $m $m $m $m 4,837 4,666 - - - - 171 4,527 2,709 450 - - - 1,368 2,624 1,041 10 - 1,334 239 - 7,544 - - - - - 7,544 107 31 - - 13 - 63 95,241 43,418 6,648 13,203 32,280 16 (324) 1,992 614 85 - 530 - 763 789 - - - - - 789 117,661 52,479 7,193 13,203 34,157 255 10,374 11,425 - - - - - 11,425 129,086 52,479 7,193 13,203 34,157 255 21,799 1,940 1,863 8 - 10 40 19 62,800 46,991 6,668 4,505 707 1 3,928 43,260 33,153 4,120 2,198 3,789 - - 6,710 - - - - - 6,710 1,187 95 - - - 7 1,085 1,123 498 150 - 300 175 - 404 404 - - - - - 2,820 216 819 - 1,785 - - 120,244 83,220 11,765 6,703 6,591 223 11,742 530 - - - - - 530 8,312 - - - - - 8,312 129,086 83,220 11,765 6,703 6,591 223 20,584 - (30,741) (4,572) 6,500 27,566 32 1,215 - 20,789 6,178 (6,073) (20,641) (253) - - (9,952) 1,606 427 6,925 (221) 1,215 - (9,952) (8,346) (7,919) (994) (1,215) -

P A G E 7 6

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

30/09/2007 Assets Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments Available-for-sale assets Net loans and advances Due from subsidiary companies Other fnancial assets Total fnancial assets Non-fnancial assets Total assets Liabilities Due to other fnancial institutions Deposits and other borrowings Due to subsidiary companies Derivative fnancial instruments Payables and other fnancial liabilities Bonds and notes Due to parent company Loan capital Total fnancial liabilities Non-fnancial liabilities Equity Total liabilities and equity On-balance sheet interest sensitivity gap Hedging instruments Interest sensitivity gap - net Interest sensitivity gap - cumulative

Parent

Less than 3 to 6 6 to 12 1 to 5 Beyond Not bearing Total 3 months months months years 5 years interest $m $m $m $m $m $m $m 4,807 4,606 - - - - 201 3,101 2,637 440 - - - 24 1,877 742 375 4 629 127 - 4,705 - - - - - 4,705 38 34 - - 3 - 1 84,044 32,602 3,855 11,008 36,844 68 (333) 1,585 141 - 140 397 156 751 852 - - - - - 852 101,009 40,762 4,670 11,152 37,873 351 6,201 11,300 - - - - - 11,300 112,309 40,762 4,670 11,152 37,873 351 17,501 1,686 1,562 15 23 16 30 40 58,514 41,294 5,802 4,978 2,086 - 4,354 32,942 28,650 1,778 1,285 1,229 - - 4,896 - - - - - 4,896 741 16 19 - - - 706 561 261 - - 300 - - 2,775 2,775 - - - - - 2,062 217 799 100 946 - - 104,177 74,775 8,413 6,386 4,577 30 9,996 405 - - - - - 405 7,727 - - - - - 7,727 112,309 74,775 8,413 6,386 4,577 30 18,128 - (34,013) (3,743) 4,766 33,296 321 (627) - 25,234 3,514 2,378 (31,753) 627 - - (8,779) (229) 7,144 1,543 948 (627) - (8,779) (9,008) (1,864) (321) 627 -

P A G E 7 7

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

Equity securities classified as available-for-sale

Market risk arises on equity securities classified as available-for-sale. The fair value of these securities as at 30 September 2008 was $65 million (30 September 2007 $1 million) and private equity holdings of $nil included in other assets (30 September 2007 $2 million). Regular reviews are performed to substantiate valuation of the investments within the portfolio. The fair value of the equity securities classified as availablefor-sale can fluctuate considerably. A 10 per cent reduction in the value of the available-for-sale equity securities at 30 September 2008 would have reduced equity by $6.5 million (30 September 2007 $nil).

Foreign currency related risks

This risk relates to the potential loss arising from the decline in the value of foreign currency positions due to changes in foreign exchange rates.

For non-traded instruments in foreign currencies, the risk is monitored and is hedged in accordance with policy. Risk arising from individual funding and 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, detailed in the table below, represents the net on-balance sheet assets and liabilities in that foreign currency aggregated with the net expected future cash flows from off-balance sheet purchases and sales from foreign exchange transactions in that foreign currency. The amounts are stated in New Zealand dollar equivalents translated using the spot exchange rates as at balance sheet date.

Net open position Australian dollar Canadian dollar Euro Pound sterling US dollar Other Total net open position		Parent
	Consolidated
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m 9 (10) (2) - 9 13 - (1) 14 2 2 2 32 6
	9 (10) (2) - 9 13 - (1) 14 2 2 2
	32 6

LIQUIDITY RISK

Liquidity risk is the risk that the Banking Group has insufficient capacity to fund increases in assets, or is unable to meet its payment obligations as they fall due, including repaying depositors or maturing wholesale debt. The Banking Group maintains sufficient liquid funds to meet its commitments based on historical and forecasted cash flow requirements. Liquidity risk is measured through cash flow modelling, with profiles produced for both normal business and short-term crisis conditions.

The timing mismatch of cash flows and the related liquidity risk is inherent in all banking operations, and may result from internal and/or external events, including: credit or operational risks, bank-specific events, market disruptions, or systemic shocks. The following outlines the Banking Group’s approach to liquidity and funding risk management. Principles include:

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

• daily liquidity reporting and scenario analysis to quantify the Banking Group’s positions;

• monitoring wholesale and customer liability composition;

• maintaining a diversified funding base, avoiding undue concentrations by investor type, maturity, market source and currency;

• holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-to-day operations; and

• establishing detailed contingency plans to cover liquidity crisis events.

Scenario Modelling

A key component of the Banking Group’s liquidity management framework is scenario modelling. This requires assessing liquidity under at least two specific scenarios:

1. ‘Normal Business conditions’: the normal behaviour of cash flows in the ordinary course of business. The Banking Group must be able to meet all commitments and obligations under a going concern scenario, within the Banking Group’s normal funding capacity, over at least the next 30 calendar days. In estimating the funding requirement, the Banking Group models expected cash flows by reference to historical behaviour and contractual maturity data.

2. ‘Short term crisis’: refers to a potential name-specific liquidity crisis in which the Banking Group may have significant difficulty rolling over or replacing liabilities. The Banking Group needs to be cash flow positive over a 5 business day period under a short term crisis scenario. The Banking Group models expected cash flow behaviour under such a scenario based on the type of customer and their level of sophistication, and the type of asset/ liability.

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

P A G E 7 8

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

Customer and wholesale funding composition

The Banking Group employs actual cash flow based funding metrics to determine appropriate balance sheet liquidity and funding risk strategies. These metrics are used to measure and manage the proportion of the Banking Group’s external assets which are funded by customer liabilities, wholesale debt, equity and loan capital.

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

The table below outlines total Banking Group volumes of customer deposits and wholesale funding.

Funding Composition Customer deposits1 New Zealand Overseas Total customer deposits Wholesale funding Bonds and notes Loan capital Certifcates of deposit Commercial paper Due to subsidiary companies - ANZ National (Int’l) Limited Due to subsidiary companies - other Due to parent company Secured deposits Due to other fnancial institutions Total wholesale funding Total funding Concentrations of funding by industry Households Agriculture, forestry, fshing and mining Manufacturing Entertainment, leisure and tourism Finance and insurance Retail trade Wholesale trade Business and property services Transport and storage Construction Government and local authority Other2 Total concentrations of funding by industry Concentrations of funding by geography3 New Zealand United States Europe Other countries Total concentrations of funding by geography	Consolidated	Parent
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m 50,647 48,711 6,626 5,356 57,273 54,067 1,123 561 2,820 2,062 5,527 4,447 - - 33,386 24,183 9,874 8,759 404 2,775 - - 1,940 1,686 55,074 44,473 112,347 98,540 34,571 32,448 4,517 3,438 1,465 1,429 611 559 61,145 51,409 752 665 626 591 4,686 4,405 594 582 722 693 1,586 1,366 1,072 955 112,347 98,540 69,356 64,561 23,797 13,069 11,466 13,615 7,728 7,295 112,347 98,540
	52,199 50,391 6,757 5,875
	58,956 56,266 20,695 14,607 2,820 2,062 5,527 4,447 12,653 9,317 - - - - 404 2,775 - - 3,312 3,170
	45,411 36,378
	104,367 92,644
	36,239 34,234 4,517 3,438 1,465 1,429 611 559 51,498 43,728 752 665 626 590 4,686 4,405 594 582 722 693 1,585 1,366 1,072 955
	104,367 92,644
	61,065 57,320 24,178 13,834 11,484 14,120 7,640 7,370
	104,367 92,644

Analyses of funding liabilities by industry sector are based on Australian and New Zealand Standard Industrial Classification (ANZSIC) codes.

1. Represents: term deposits, other deposits bearing interest, deposits not bearing interest and secured debenture stock.

2 . Other includes exposures to electricity, gas and water, communications, and personal services.

1. Funding of the Bank 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.

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

Wholesale funding

The Banking Group’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency while targeting diversification by markets, investors, currencies, maturities and funding structures. Short-term wholesale funding requirements, with a contractual maturity of less than one year, are managed through the Treasury and Markets operations. Long-term wholesale funding is managed and executed through Treasury operations.

The Banking Group also uses maturity concentration limits under the wholesale funding and liquidity management framework. 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 raised in 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 payment obligations and contingent funding in the event of a market disruption.

The size of the Banking Group’s liquidity portfolio is based on the amount of liquidity required to meet: day-to-day operational requirements; a potential name crisis; or potential wholesale ‘funding stress’ requirements.

In addition, the Banking Group monitors the ratio of cover provided by the liquidity portfolio to fund both domestic and offshore wholesale debt maturities.

Supplementing its liquidity position, the Banking Group holds additional cash and liquid asset balances. The Markets business holds secondary sources of liquidity in the form of highly liquid instruments in its trading portfolios.

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

The Banking Group’s core liquidity portfolio held for managing liquidity risk comprises:

Cash and balances with central banks Securities purchased under agreement to resell Certifcates of deposit Government, Local Body stock and bonds Other bank bonds Total liquidity portfolio	Consolidated	Parent
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m 3,779 2,809 134 346 3,343 2,417 180 1 1,300 595 8,736 6,168
	3,779 2,809 134 346 3,343 2,417 180 1 1,300 595
	8,736 6,168

Liquidity crisis contingency planning

The Banking Group maintains liquidity crisis contingency plans defining an approach for analysing and responding to a liquidity threatening event at a Banking 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;

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

• procedures for crisis management reporting, and covering cash-flow shortfalls;

• guidelines determining the priority of customer relationships in the event of liquidity problems; and

• assigned responsibilities for internal and external communications.

P A G E 8 0

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

Contractual maturity analysis of financial assets and liabilities

The tables below analyse the Banking Group’s financial assets and liabilities into relevant maturity groupings based on the earliest on which the Bank or Banking Group may be required to pay. The amounts represent principal and interest cash flows and may differ compared to the amounts reported on the balance sheet.

The management of liquidity risk is detailed on pages 78 to 80. The analysis presented below has been made on an undiscounted basis, but it should be noted that this is not how the Bank or Banking Group manages its liquidity risk. Contractual maturity analysis for on-balance sheet financial assets and financial liabilities:

30/09/2008 Assets Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments Available-for-sale assets Net loans and advances Other fnancial assets Total fnancial assets Liabilities Due to other fnancial institutions Deposits and other borrowings Derivative fnancial instruments Other fnancial liabilities Bonds and notes Due to parent company Loan capital Total fnancial liabilities 30/09/2007 Assets Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments Available-for-sale assets Net loans and advances Other fnancial assets Total fnancial assets Liabilities Due to other fnancial institutions Deposits and other borrowings Derivative fnancial instruments Other fnancial liabilities Bonds and notes Due to parent company Loan capital Total fnancial liabilities	Consolidated
	Carrying Less than 3 to 12 1 to 5 Beyond No maturity Value Total At call 3 months months years 5 years specifed $m $m $m $m $m $m $m $m
	4,838 4,923 4,838 85 - - - - 5,032 5,173 436 3,640 579 518 - - 2,624 3,097 - 1,028 103 1,688 278 - 7,533 7,533 - - - - - 7,533 109 136 - - - 32 39 65 97,679 163,788 - 11,047 18,580 47,374 87,120 (333) 893 893 - 893 - - - -
	118,708 185,543 5,274 16,693 19,262 49,612 87,437 7,265
	3,312 3,528 1,713 734 538 497 46 - 77,136 79,497 26,946 33,068 18,292 1,189 2 - 6,710 6,710 - - - - - 6,710 1,471 1,471 - 1,404 - 60 7 - 20,695 24,317 - 2,134 7,462 14,115 606 - 404 411 411 - - - - - 2,820 4,502 - 60 178 959 2,153 1,152
	112,548 120,436 29,070 37,400 26,470 16,820 2,814 7,862
	4,807 5,219 4,860 359 - - - - 3,563 3,782 961 1,718 474 334 295 - 1,877 2,169 - 662 454 865 188 - 4,711 4,711 - - - - - 4,711 48 53 - 34 3 15 - 1 87,878 159,967 - 11,527 15,086 45,380 88,324 (350) 970 970 - 970 - - - -
	103,854 176,871 5,821 15,270 16,017 46,594 88,807 4,362
	3,170 3,407 1,163 1,248 449 128 419 - 70,030 72,875 26,073 28,216 15,666 2,920 - - 4,924 4,924 - - - - - 4,924 1,087 1,087 - 919 76 32 60 - 14,607 17,402 - 866 4,897 11,639 - - 2,775 2,836 2,836 - - - - - 2,062 3,194 - 40 122 647 2,076 309
	98,655 105,725 30,072 31,289 21,210 15,366 2,555 5,233

P A G E 8 1

A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

32. fINANCIAL RISK MANAGEMENT (CONTINUED)

30/09/2008 Assets Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments Available-for-sale assets Net loans and advances Due from subsidiary companies Other fnancial assets Total fnancial assets Liabilities Due to other fnancial institutions Deposits and other borrowings Due to subsidiary companies Derivative fnancial instruments Other fnancial liabilities Bonds and notes Due to parent company Loan capital Total fnancial liabilities 30/09/2007 Assets Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments Available-for-sale assets Net loans and advances Due from subsidiary companies Other fnancial assets Total fnancial assets Liabilities Due to other fnancial institutions Deposits and other borrowings Due to subsidiary companies Derivative fnancial instruments Other fnancial liabilities Bonds and notes Due to parent company Loan capital Total fnancial liabilities	Parent
	Carrying Less than 3 to 12 1 to 5 Beyond No maturity Value Total At call 3 months months years 5 years specifed $m $m $m $m $m $m $m $m
	4,837 4,922 4,837 85 - - - - 4,527 4,538 440 3,643 455 - - - 2,624 3,097 - 1,028 103 1,688 278 - 7,544 7,544 - - - - - 7,544 107 134 - - - 32 39 63 95,241 160,885 - 11,047 18,175 45,015 86,967 (319) 1,992 2,179 1,138 - 175 866 - - 789 789 - 789 - - - -
	117,661 184,088 6,415 16,592 18,908 47,601 87,284 7,288
	1,940 2,009 1,718 209 11 25 46 - 62,800 64,794 26,554 25,426 11,878 934 2 - 43,260 54,696 14,587 12,649 13,675 13,361 424 - 6,710 6,710 - - - - - 6,710 1,187 1,187 - 1,187 - - - - 1,123 1,343 - 223 236 691 193 - 404 411 411 - - - - - 2,820 4,502 - 60 178 959 2,153 1,152
	120,244 135,652 43,270 39,754 25,978 15,970 2,818 7,862
	4,807 5,219 4,860 359 - - - - 3,101 3,123 956 1,723 444 - - - 1,877 2,169 - 662 454 865 188 - 4,705 4,705 - - - - - 4,705 38 40 - 35 1 4 - - 84,044 153,557 - 11,149 14,072 41,063 87,606 (333) 1,585 1,763 690 - 224 687 162 - 852 852 - 852 - - - -
	101,009 171,428 6,506 14,780 15,195 42,619 87,956 4,372
	1,686 1,745 1,157 457 44 52 35 - 58,514 60,971 25,655 20,055 12,541 2,720 - - 32,942 38,583 7,161 9,160 7,877 14,385 - - 4,896 4,896 - - - - - 4,896 741 741 - 690 19 32 - - 561 679 - 7 172 500 - - 2,775 2,836 2,836 - - - - - 2,062 3,194 - 40 122 648 2,075 309
	104,177 113,645 36,809 30,409 20,775 18,337 2,110 5,205

P A G E 8 2

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

33. CONCENTRATIONS Of CREDIT RISK

Concentrations of credit risk to individual counterparties

The number of individual counterparties other than banks or groups of closely related counterparties of which a bank is a parent (excluding OECD Governments and connected persons), where the quarter end and peak end-of-day credit exposure equals or exceeds 10% of equity (as at the end of the quarter) in ranges of 10% of equity, on the basis of limits:

10% to 20% of equity

Consolidated	Consolidated
30/09/2008 Number of Counterparties Peak for As at the quarter	30/09/2007 Number of Counterparties Peak for As at the quarter
1 1 2 2

As noted above, the number of individual counterparties disclosed within the various equity ranges is based on counterparty limits rather than actual exposures outstanding. No account is taken of security and/or guarantees which the Banking Group may hold in respect of the various counterparty limits.

The amount and percentage of quarter end and peak end-of-day credit exposures to individual counterparties other than banks or groups of closely related counterparties of which a bank is a parent (excluding OECD Governments and connected persons), where the quarter end and peak end-of-day credit exposure equals or exceeds 10% of equity (as at the end of the quarter), by credit rating:

		Consolidated	Consolidated	Consolidated
	30/09/2008				30/09/2007
		% of Total				% of Total
	Amount	Credit			Amount	Credit
	$m	Exposure			$m	Exposure
As at
Investment grade credit rating1	1,329	100.0%			2,509	100.0%

Concentrations of credit risk to bank counterparties

The number of bank counterparties or groups of closely related counterparties of which a bank is the parent (excluding OECD Governments and connected persons), where the quarter end and peak end-of-day credit exposure equals or exceeds 10% of equity (as at the end of the quarter) in ranges of 10% of equity, on the basis of actual exposures:

			Consolidated	Consolidated	Consolidated
		30/09/2008			30/09/2007
		Number of Counterparties			Number of Counterparties
			Peak for			Peak for
		As at	the quarter		As at	the quarter
10% to	20% of equity	1	2		1	3
20% to	30% of equity	1	1		-	-

The amount and percentage of quarter end and peak end-of-day credit exposures to bank counterparties or groups of closely related counterparties of which a bank is a parent (excluding OECD Governments and connected persons), where the quarter end and peak end-of-day credit exposure equals or exceeds 10% of equity (as at the end of the quarter), by credit rating:

		Consolidated	Consolidated	Consolidated
	30/09/2008				30/09/2007
		% of Total				% of Total
	Amount	Credit			Amount	Credit
	$m	Exposure			$m	Exposure
As at
Investment grade credit rating1	3,416	100.0%			1,193	100.0%

1. All of the individual and bank counterparties included in the above tables have an investment grade rating. An investment grade credit rating means a credit rating of BBB- or Baa3 or above, or its equivalent. In the case of a group of closely related counterparties, the credit rating applicable is that of the entity heading the group of closely related counterparties. The credit rating is applicable to an entity’s long term senior unsecured obligations payable in New Zealand, in New Zealand dollars, or to an entity’s long term senior unsecured foreign currency obligations.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

33. CONCENTRATIONS Of CREDIT RISK (CONTINUED)

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. With effect from 11 August 2008, netting has occurred in respect of certain transactions which are the subject of a bilateral netting agreement disclosed in the Bank’s most recent Supplemental Disclosure Statement for the year ended 30 September 2008. There is a limit of 125% of the Banking Group Tier One Capital in respect of the gross amount of aggregate credit exposure to connected persons that can be netted off in determining the net exposure.

netted off in determining the net exposure.
		Consolidated
	30/09/2008			30/09/2007
	Amount	% of Tier		Amount6	% of Tier
	$m	One Capital		$m	One Capital
Aggregate at end of period4
Other connected persons (on gross basis, before netting)2	3,011	49.1%		2,793	54.5%
Other connected persons (netted amount)2	2,187	35.6%		n/a		n/a
Other connected persons (on partial bilateral net basis)2	824	13.5%		n/a		n/a
Non-bank connected persons3	-	0.0%		-		0.0%
Peak end-of-day for the quarter4
Other connected persons (on gross basis, before netting)	4,250	69.3%		3,468	67.6%
Other connected persons (netted amount)	2,889	47.1%		n/a		n/a
Other connected persons (on partial bilateral net basis)	1,361	22.2%		n/a		n/a
Non-bank connected persons	-	0.0%		-		0.0%
Rating-contingent limit5
Other connected persons	n/a	70.0%		n/a	75.0%
Non-bank connected persons	n/a	15.0%		n/a	15.0%

The credit exposure concentrations disclosed for connected persons are on the basis of actual exposures and exclusive of exposures of a capital nature. The peak end-of-day credit exposures for the quarter to connected persons are measured over Tier One Capital as at the end of the quarter. There were no individual provisions provided against credit exposures to connected persons as at 30 September 2008 (30/09/2007 $nil). The Banking Group had no contingent exposures arising from risk lay-off arrangements to connected persons as at 30 September 2008 (30/09/2007 $nil).

1. The Banking Group has amounts due from its Parent Company and Ultimate Parent Company and other entities within the Ultimate Parent Group arising from the ordinary course of its business. These balances arise primarily from unrealised gains on trading and hedging derivative financial instruments with the Ultimate Parent Bank. As at 30 September 2008, the gross exposures to the Bank’s Parent Company were $nil million (30/09/2007 $249 million). As at 30 September 2008, the gross exposures to the Bank’s Ultimate Parent Company were $3,011 million (30/09/2007 $2,715 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 exposures (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 quarter.

4. Represents the maximum peak end-of-day aggregate credit exposures limit (exclusive of exposures of a capital nature and net of individual provisions) to all connected persons. This is based on the rating applicable to the Bank’s long term senior unsecured obligations payable in New Zealand, in New Zealand dollars (refer page 116 for the credit rating). Within the overall 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. On 4 May 2007, the connected persons’ limit increased from 70% to 75% as a result of an improvement in the Bank’s credit rating. On 18 March 2008, the Bank formally engaged Fitch Ratings to provide credit rating services. The Fitch Ratings rating of AA- has meant that from this date the connected persons’ limit has decreased from 75% to 70% as the Fitch Ratings rating of AA- is lower than that given by Standard & Poor’s and Moody’s Investors Services.

5. The connected exposure balances for 30 September 2007 have been amended for the credit equivalent adjustment for derivatives, in addition to the fair value which was already included. The revised balances remain within limits.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

34. MARKET RISK

RBNZ Market Risk Disclosure

The aggregate market risk exposures below have been calculated in accordance with the Reserve Bank of New Zealand document entitled ‘Capital Adequacy Framework (Internal Models Based Approach)’ (B2SB) dated February 2008.

The peak end-of-day market risk exposures for the quarter are measured over equity at the end of the quarter.

				Consolidated	Consolidated
							Aggregate capital charge as
							a percentage of the Banking
	Implied risk weighted exposure			Aggregate capital charge			Group’s Equity
	As at	Peak		As at	Peak		As at	Peak
	$m	$m		$m	$m		$m	$m
30/09/2008
Interest rate risk	3,736	3,984		299	319		3.0%	3.3%
Foreign currency risk	35	160		3	13		0.0%	0.1%
Equity risk	64	75		5	6		0.1%	0.1%
30/09/2007
Interest rate risk	3,778	4,668		302	373		3.5%	4.3%
Foreign currency risk	16	81		1	7		0.0%	0.1%
Equity risk	3	3		0	0		0.0%	0.0%

35. INTEREST EARNING AND DISCOUNT BEARING ASSETS AND LIABILITIES

. Interest earning and discount bearing assets Interest and discount bearing liabilities
	Consolidated	Parent
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m
	109,017 98,298	107,287 94,808
	100,581 88,405	108,502 94,181

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

36. fAIR vALUE Of fINANCIAL ASSETS AND fINANCIAL LIABILITIES

All financial instruments are recognised initially at fair value, which is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

The fair value of a financial instrument on initial recognition is normally the transaction price, however, in certain circumstances the initial fair value may be based on other observable current market transactions in the same instrument, without modification or repackaging, or on a valuation technique whose variables include only data from observable markets. For the majority of short-term financial instruments, defined as those which reprice or mature in 90 days or less, with no significant change in credit risk, the fair value was assumed to equate to the carrying amount in the Banking Group’s balance sheet.

Subsequent to initial recognition, the fair value of financial instruments measured at fair value is based on quoted market prices, where available. In cases where quoted market prices are not available, fair values are based on present value estimates or other market accepted valuation techniques which include data from observable markets wherever possible.

The fair values are based on relevant information available as at the respective balance sheet dates. While judgement is used in obtaining the fair value of financial instruments, there are inherent weaknesses in any estimation technique. Many of the estimates involve uncertainties and matters of significant judgement and changes in underlying assumptions could significantly affect these estimates.

In the tables below, classes of financial assets have been allocated into the following groups: amortised cost, financial assets at fair value through profit or loss, derivatives in effective hedging relationships and available-for-sale financial assets. Similarly, each class of financial liability has been allocated into three groups: amortised cost, financial liabilities at fair value through profit and loss and derivatives in effective hedging relationships.

The significant accounting policies in Note 1 Accounting Policies describe how the categories of financial assets and financial liabilities are measured and how income and expenses, including fair value gains and losses, are recognised. The carrying amount and fair value of the Banking Group’s financial assets and financial liabilities are also set out below.

A significant number of financial instruments are carried at fair value in the balance sheet. Additional disclosure of the fair value of those financial instruments not carried at fair value has been provided below. The fair value disclosure does not cover those instruments that are not considered financial instruments from an accounting perspective such as income tax and intangible assets. The aggregate fair value amounts do not represent the underlying value of the Banking Group.

FINANCIAL ASSETS

Liquid assets and due from other financial institutions

The carrying values of these financial instruments are considered to approximate their net fair values as they are short-term in nature or are receivable on demand.

Trading securities

Trading securities are carried at fair value. Fair value is generally based on quoted market prices, broker or dealer price quotations, or prices for securities with similar credit risk, maturity and yield characteristics.

Derivative financial instruments

The fair values of derivative financial instruments are determined using market prices and market accepted valuation models as appropriate (including discounted cash flow models) based on current market yields for similar types of instruments and the maturity of each instrument.

Available-for-sale assets

Fair value is based on quoted market prices or broker or dealer price quotations. If this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics, or market accepted valuation models as appropriate (including discounted cash flow models) based on current market yields for similar types of instruments and the maturity of each instrument.

Net loans and advances

The carrying value of loans and advances includes deferred fees and expenses, and is net of provision for credit impairment and income yet to mature. The estimated fair value of loans and advances is based on the discounted amount of estimated future cash flows and accordingly has not been adjusted for provision for credit impairment. Estimated contractual cash flows for performing loans are discounted at estimated current bank credit spreads to determine fair value. For loans with doubt as to collection, expected cash flows (inclusive of the value of security) are discounted using a rate, which includes a premium for the uncertainty of the flows.

The difference between estimated fair values for loans and advances and their carrying value reflects changes in interest rates and the credit worthiness of borrowers since loan origination.

Other financial assets

Included in this category are accrued interest and fees receivable. The carrying values of accrued interest and fees receivable are considered to approximate their net fair values as they are short term in nature or are receivable on demand.

Financial assets designated at fair value through profit or loss

The Banking Group has not reclassified any financial assets previously measured at amortised cost to fair value, or previously measured at fair value to amortised cost, during the period ended 30 September 2008 (30 September 2007 nil).

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

36. fAIR vALUE Of fINANCIAL ASSETS AND fINANCIAL LIABILITIES (CONTINUED)

FINANCIAL LIABILITIES

Due to other financial institutions

The carrying values of these financial instruments are considered to approximate their net fair values as they are short-term in nature or are receivable on demand.

Deposits and other borrowings

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.

For interest bearing fixed maturity deposits and other borrowings without quoted market prices, market borrowing rates of interest for debt with a similar maturity are used to discount contractual cash flows.

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 were not available, a discounted cash flow model using a yield curve appropriate for the remaining term to maturity of the debt instrument is used. The carrying value of the due to parent company balance is considered to approximate the fair value as it is repayable on demand.

Other financial liabilities

This category includes accrued interest and fees payable for which the carrying amount is considered to approximate the fair value.

Commitments and contingencies

As outlined in Note 43 Contingent Liabilities and Credit Related Commitments, the Banking Group and the Bank have various credit related commitments. Based upon the level of fees currently charged for granting such commitments, taking into account maturity and interest rates, together with any changes in the creditworthiness of counterparties since origination of the commitments, their estimated replacement or net fair value is not material.

Financial liabilities designated at fair value through profit or loss

Certain items included in deposits and other borrowings have been designated as financial liabilities at fair value through profit or loss in order to eliminate an accounting mismatch which would arise if the liabilities were otherwise carried at amortised cost. This mismatch arises where a derivative, which is required to be measured at fair value through profit or loss, has been acquired to mitigate a financial risk within the financial liability.

Deposits and other borrowings

At balance date, the carrying amount of deposits and other borrowings designated by the Banking Group at fair value through profit or loss was $12,653 million (30/09/2007 $9,317 million). This is $17 million lower (30/09/2007 $2 million lower) than their amortised cost. The accumulated amount of the change in fair value attributable to changes in credit risk on these liabilities was less than $3 million (30/09/2007 less than $1 million). The change in fair value attributable to changes in credit risk has been determined as the amount of change in fair value that is not attributable to changes in market conditions that give rise to market risks (benchmark interest rate, and foreign exchange rates).

The fair value amounts have not been updated for the purposes of these financial statements since 30 September 2008, and therefore the fair value of the financial instruments subsequent to 30 September 2008 may be different from the amounts reported.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

36. fAIR vALUE Of fINANCIAL ASSETS A Carrying amount Financial assets 30/09/2008 Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments1 Available-for-sale assets Net loans and advances2 Other fnancial assets Total fnancial assets 30/09/2007 Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments1 Available-for-sale assets Net loans and advances2 Other fnancial assets Total fnancial assets	ND fINANCIAL LIABILITIES (CONTINUED)	ND fINANCIAL LIABILITIES (CONTINUED)	ND fINANCIAL LIABILITIES (CONTINUED)	ND fINANCIAL LIABILITIES (CONTINUED)	ND fINANCIAL LIABILITIES (CONTINUED)	ND fINANCIAL LIABILITIES (CONTINUED)	ND fINANCIAL LIABILITIES (CONTINUED)
	Consolidated
	At amortised cost			At fair value though profit or loss	Hedging	Available- for-sale assets
	Other fnancial assets at Loans and amortised receivables cost Sub-total $m $m $m			Held for trading $m	$m	$m	Total $m
	- 4,838 4,838 - 2,585 2,585 - - - - - - - - - 97,679 - 97,679 - 893 893			- - 2,624 7,297 - - -	- - - 236 - - -	- 2,447 - - 109 - -	4,838 5,032 2,624 7,533 109 97,679 893
	97,679 8,316 105,995			9,921	236	2,556	118,708
	- 4,807 4,807 - 1,929 1,929 - - - - - - - - - 87,878 - 87,878 - 968 968			- - 1,877 4,214 - - -	- - - 497 - - -	- 1,634 - - 48 - 2	4,807 3,563 1,877 4,711 48 87,878 970
	87,878	7,704	95,582	6,091	497	1,684	103,854

The following table summarises the carrying amounts and fair values of those financial assets not presented in the Banking Group’s balance sheet at their fair value:

Liquid assets Due from other fnancial institutions Net loans and advances2 Other fnancial assets Total fnancial assets at amortised cost	Consolidated	Consolidated	Consolidated	Consolidated
	30/09/2008 Carrying amount Fair value $m $m		30/09/2007 Carrying amount Fair value $m $m
	4,838 4,838 2,585 2,585 97,679 97,429 893 893		4,807 4,807 1,929 1,929 87,878 87,607 968 968
	105,995	105,745	95,582	95,311

1. Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.

2. Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustment means that the carrying value differs from the amortised cost.

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NOTES TO ThE fINANCIAL STATEMENTS (CONTINUED)

36. fAIR vALUE Of fINANCIAL ASSETS AND fINANCIAL LIABILITIES (CONTINUED)

Carrying amount Financial liabilities 30/09/2008 Due to other fnancial institutions Deposits and other borrowings Derivative fnancial instruments1 Other fnancial liabilities Bonds and notes2 Due to parent company Loan capital Total fnancial liabilities 30/09/2007 Due to other fnancial institutions Deposits and other borrowings Derivative fnancial instruments1 Other fnancial liabilities Bonds and notes2 Due to parent company Loan capital2 Total fnancial liabilities	Carrying amount Financial liabilities 30/09/2008 Due to other fnancial institutions Deposits and other borrowings Derivative fnancial instruments1 Other fnancial liabilities Bonds and notes2 Due to parent company Loan capital Total fnancial liabilities 30/09/2007 Due to other fnancial institutions Deposits and other borrowings Derivative fnancial instruments1 Other fnancial liabilities Bonds and notes2 Due to parent company Loan capital2 Total fnancial liabilities	Consolidated	Consolidated	Consolidated	Consolidated	Consolidated	Consolidated
		At amortised cost	At fair value through proft or loss			Hedging
		$m	Designated on initial recognition $m	Held for trading $m	Sub-total $m	$m	Total $m
		3,312 64,483 - 1,471 20,695 404 2,820	- 12,653 - - - - -	- - 5,946 - - - -	- 12,653 5,946 - - - -	- - 764 - - - -	3,312 77,136 6,710 1,471 20,695 404 2,820
		93,185	12,653	5,946	18,599	764	112,548
		3,170 60,713 - 1,087 14,607 2,775 2,062	- 9,317 - - - - -	- - 4,748 - - - -	- 9,317 4,748 - - - -	- - 176 - - - -	3,170 70,030 4,924 1,087 14,607 2,775 2,062
		84,414	9,317	4,748	14,065	176	98,655

The following table summarises the carrying amounts and fair values of those financial liabilities not presented in the Banking Group’s balance sheet at their fair value:

Due to other fnancial institutions Deposits and other borrowings Other fnancial liabilities Bonds and notes2 Due to parent company Loan capital Total fnancial liabilities at amortised cost	Consolidated	Consolidated
	30/09/2008 Carrying amount Fair value $m $m	30/09/2007 Carrying amount Fair value $m $m
	3,312 3,312 64,483 64,532 1,471 1,471 20,695 20,448 404 404	3,170 3,170 60,713 60,676 1,087 1,087 14,607 14,585 2775 2775
	, , 2,820 2,687 2,062 2,038
	93,185 92,854 84,414 84,331

1. Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.

2. Fair value hedging is applied to financial assets within bonds and notes and loan capital. The resulting fair value adjustment means that the carrying value differs from the amortised cost.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

36. fAIR vALUE Of fINANCIAL ASSETS AND fINANCIAL LIABILITIES (CONTINUED)

Carrying amount Financial assets 30/09/2008 Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments1 Available-for-sale assets Net loans and advances2 Due from subsidiary companies Other fnancial assets Total fnancial assets 30/09/2007 Liquid assets Due from other fnancial institutions Trading securities Derivative fnancial instruments1 Available-for-sale assets Net loans and advances2 Due from subsidiary companies Other fnancial assets Total fnancial assets	Parent	Parent	Parent	Parent	Parent
	At amortised cost	At fair value though profit or loss	Hedging	Available- for-sale assets
	Other fnancial assets at Loans and amortised receivables cost Sub-total $m $m $m	Held for trading $m	$m	$m	Total $m
	- 4,837 4,837 - 2,080 2,080 - - - - - - - - - 95,241 - 95,241 - 1,992 1,992 - 789 789	- - 2,624 7,306 - - - -	- - - 238 - - - -	- 2,447 - - 107 - - -	4,837 4,527 2,624 7,544 107 95,241 1,992 789
	95,241 9,698 104,939	9,930	238	2,554	117,661
	- 4,807 4,807 - 1,467 1,467 - - - - - - - - - 84,044 - 84,044 - 1,585 1,585 - 852 852	- - 1,877 4,215 - - - -	- - - 490 - - - -	- 1,634 - - 38 - - -	4,807 3,101 1,877 4,705 38 84,044 1,585 852
	84,044 8,711 92,755	6,092	490	1,672	101,009

The following table summarises the carrying amounts and fair values of those financial assets not presented in the Bank’s balance sheet at their fair value:

Liquid assets Due from other fnancial institutions Net loans and advances2 Due from subsidiary companies Other fnancial assets Total fnancial assets at amortised cost	Consolidated	Consolidated
	30/09/2008 Carrying amount Fair value $m $m	30/09/2007 Carrying amount Fair value $m $m
	4,837 4,837 2,080 2,080 95,241 94,972 1,992 1,992 789 789	4,807 4,807 1,467 1,467 84,044 83,780 1,585 1,585 852 852
	104,939 104,670	92,755 92,491

1. Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.

2. Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustment means that the carrying value differs from the amortised cost.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

1. fAIR vALUE Of fINANCIAL ASSETS AND fINANCIAL LIABILITIES (CONTINUED)

At Carrying amount Financial liabilities 30/09/2008 Due to other fnancial institutions Deposits and other borrowings Due to subsidiary companies Derivative fnancial instruments1 Other fnancial liabilities Bonds and notes2 Due to parent company Loan capital Total fnancial liabilities 30/09/2007 Due to other fnancial institutions Deposits and other borrowings Due to subsidiary companies Derivative fnancial instruments1 Other fnancial liabilities Bonds and notes2 Due to parent company Loan capital2 Total fnancial liabilities	At Carrying amount Financial liabilities 30/09/2008 Due to other fnancial institutions Deposits and other borrowings Due to subsidiary companies Derivative fnancial instruments1 Other fnancial liabilities Bonds and notes2 Due to parent company Loan capital Total fnancial liabilities 30/09/2007 Due to other fnancial institutions Deposits and other borrowings Due to subsidiary companies Derivative fnancial instruments1 Other fnancial liabilities Bonds and notes2 Due to parent company Loan capital2 Total fnancial liabilities	Parent	Parent	Parent	Parent	Parent	Parent
	At	amortised cost	At fair value through proft or loss			Hedging
		$m	Designated on initial recognition $m	Held for trading $m	Sub-total $m	$m	Total $m
		1,940 62,800 43,260 - 1,187 1,123 404 2,820	- - - - - - - -	- - - 5,946 - - - -	- - - 5,946 - - - -	- - - 764 - - - -	1,940 62,800 43,260 6,710 1,187 1,123 404 2,820
		113,534	-	5,946	5,946	764	120,244
		1,686 58,514 32,942 - 741 561 2,775 2,062	- - - - - - - -	- - - 4,748 - - - -	- - - 4,748 - - - -	- - - 148 - - - -	1,686 58,514 32,942 4,896 741 561 2,775 2,062
		99,281	-	4,748	4,748	148	104,177
	values of those		fnancial liabil	ities not pre	ented in the	Banking Group’s balance

The following table summarises the carrying amounts and fair values of those financial liabilities not presented in the Banking Group’s balance sheet at their fair value:

Due to other fnancial institutions Deposits and other borrowings Due to subsidiary companies Other fnancial liabilities Bonds and notes2 Due to parent company Loan capital Total fnancial liabilities at amortised cost	Parent	Parent	Parent	Parent
	30/09/2008 Carrying amount Fair value $m $m		30/09/2007 Carrying amount Fair value $m $m
	1,940 1,940 62,800 62,843 43,260 43,027 1,187 1,187 1,123 1,125 404 404 2,820 2,687		1,686 1,686 58,514 58,482 32,942 32,931 741 741 561 550 2,775 2,775 2,062 2,038
	113,534	113,213	99,281	99,203

1. Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.

2. Fair value hedging is applied to financial assets within bonds and notes and loan capital. The resulting fair value adjustment means that the carrying value differs from the amortised cost.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

37. SEGMENTAL ANALYSIS

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

A summarised description of each business segment is shown below:

Retail Banking

Provides banking products and services to individuals and small businesses through separate ANZ and The National Bank branded distribution channels and UDC. Personal banking customers have access to a wide range of financial services and products. Small business banking services are offered to enterprises with annual revenues of less than $5 million. Included in this segment is Private Banking, a stand-alone business unit, which offers a fully inclusive banking and investment service to high net worth individuals. This segment also includes profit centres supporting the Retail Banking segment (e.g. Direct Banking and the ING NZ joint venture). UDC is primarily involved in the financing and leasing of equipment, plant and machinery for small and medium sized businesses.

Relationship Banking

This segment provides services to rural, commercial and corporate customers. A full range of banking products and services are provided to Rural customers. Corporate and Commercial customers consist of primarily privately owned medium to large businesses with annual revenues of $2 million and greater. The 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.

Institutional

• Comprises businesses that provide a full range of financial services to the Banking Group’s client base. The Institutional business unit is made up of the following specialised units:

• Institutional - provides financial services to large multi-banked corporates, often global, who require sophisticated product and structuring solutions.

• Corporate Finance - provides complex financing and advisory services, structured financial products, leasing, private equity, project, export and leveraged finance.

• Markets - provides foreign exchange and commodity trading and sales-related services, origination, underwriting, structuring, risk management and sale of credit and derivative products globally.

• Working Capital - provide cash management, trade finance, international payments, clearing and custodian services.

Other

Includes Treasury and back office support functions, none of which constitutes a separately reportable segment. Truck Leasing Limited (trading as Esanda FleetPartners) is classified as a discontinued operation, and is included in the “Other” segment for 2007.

As the composition of segments has changed over time, prior period comparatives have been adjusted to be consistent with the 2008 segment definitions.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

37. SEGMENTAL ANALYSIS (CONTINUED) Year to 30/09/2008 Continuing operations1, 2 External interest income External interest expense Net intersegment interest Net interest income Other external operating income Share of proft of equity accounted associates and jointly controlled entities Operating income Other external expenses Net intersegment and related party expenses3 Operating expenses Proft before provision for credit impairment and income tax Provision for credit impairment Proft before income tax Income tax expense Proft after income tax Discontinued operations Proft from discontinued operations (net of income tax) Proft after income tax Non-cash expenses Depreciation and amortisation Balance sheet Total external assets Share in associates and jointly controlled entities Total external liabilities

Consolidated

Relationship Retail Banking Banking Institutional Other Total $m $m $m $m $m 4,945 3,002 1,875 35 9,857 (2,646) (669) (1,821) (2,432) (7,568) (984) (1,694) 71 2,607 - 1,315 639 125 210 2,289 502 79 420 12 1,013 23 - 1 87 111 1,840 718 546 309 3,413 631 143 90 498 1,362 357 95 68 (438) 82 988 238 158 60 1,444 852 480 388 249 1,969 202 85 15 - 302 650 395 373 249 1,667 204 131 110 59 504 446 264 263 190 1,163 - - - - - 446 264 263 190 1,163 16 - 2 28 46 56,299 34,129 27,550 4,937 122,915 231 - 64 68 363 39,431 9,949 29,183 34,545 113,108

1. Results are equity standardised.

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

3. Net intersegment expenses are eliminated at the Ultimate Parent Bank level.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

37. SEGMENTAL ANALYSIS (CONTINUED)

Year to 30/09/2007 Continuing operations1, 2 External interest income External interest expense Net intersegment interest Net interest income Other external operating income Share of proft of equity accounted associates and jointly controlled entities Operating income Other external expenses Net intersegment and related party expenses3 Operating expenses Proft before provision for credit impairment and income tax Provision for credit impairment Proft before income tax Income tax expense Proft after income tax Discontinued operations Proft from discontinued operations (net of income tax) Proft after income tax Non-cash expenses Depreciation and amortisation Balance sheet Total external assets Share in associates and jointly controlled entities Total external liabilities

Consolidated

Relationship Retail Banking Banking Institutional Other Total $m $m $m $m $m 4,204 2,419 1,668 18 8,309 (2,094) (526) (1,507) (1,932) (6,059) (814) (1,311) 7 2,118 - 1,296 582 168 204 2,250 476 66 265 30 837 22 - 2 - 24 1,794 648 435 234 3,111 623 122 73 442 1,260 348 96 58 (431) 71 971 218 131 11 1,331 823 430 304 223 1,780 57 21 (3) (1) 74 766 409 307 224 1,706 245 136 91 142 614 521 273 216 82 1,092 - - - 76 76 521 273 216 158 1,168 14 1 1 39 55 52,614 29,488 21,665 4,020 107,787 189 - 15 2 206 36,787 8,611 25,586 28,100 99,084

Geographic segment analysis

The Banking Group operates predominantly in New Zealand. No other geographic segments are reportable secondary segments.

1. Results are equity standardised.

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

3. Net intersegment expenses are eliminated at the Ultimate Parent Bank level.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

38. NOTES TO ThE CASh fLOw STATEMENTS

Reconciliation of profit after income tax to net cash flows (used in) provided by operating activities Proft after income tax Non-cash items: Depreciation and amortisation Provision for credit impairment Deferred fee revenue and expenses Share-based payments expense Amortisation of capitalised brokerage/ mortgage origination fees Deferrals or accruals of past or future operating cash receipts or payments: Increase in operating assets and liabilities Decrease (increase) in interest receivable Increase in interest payable Increase in accrued income (Decrease) increase in accrued expenses Decrease in provisions Amortisation of premiums and discounts (Increase) decrease in income tax assets (Decrease) increase in income tax liabilities Items classified as investing/financing: Share of proft of equity accounted associates and jointly controlled entities Other adjustments including associates Gain on disposal of controlled entities Gain on disposal of associates and jointly controlled entities Loss (gain) on disposal of premises and equipment Net cash flows used in operating activities	Consolidated	Parent
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m
	1,163 1,168 46 55 302 74 (3) 3 13 12 57 45 (3,362) (4,731) 2 (94) 202 242 (8) (1) 45 28 25 (9) 56 46 (20) 39 - 62 (111) (24) - - - (76) - (2) 1 -	644 1,776 22 25 278 75 (2) 1 13 12 57 45 (2,876) (4,699) (28) (104) 219 166 (7) (1) 37 25 35 (4) 56 46 (38) 30 (7) 64 - - (88) (22) - - - - 1 (1)
	(1,592) (3,163)	(1,684) (2,566)
Note Total liquidity portfolio1 32 Add back items not included in liquidity portfolio: Liquid assets Due from other fnancial institutions - less than 90 days Deduct items not included in cash and cash equivalents: Trading securities Available-for-sale assets Due from other fnancial institutions - greater than 90 days Total cash and cash equivalents	Consolidated	Parent
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m
	8,736 6,168 1,059 1,873 1,948 1,233 (2,376) (1,378) - (1) (1,578) (765)	8,736 6,168 1,058 1,873 1,946 1,231 (2,376) (1,378) - (1) (1,578) (765)
	7,789 7,130	7,786 7,128

Reconciliation of core liquidity portfolio to cash and cash equivalents

The Banking Group’s core liquidity portfolio held for managing liquidity risk comprises:

		Consolidated	Consolidated		Parent
		30/09/2008	30/09/2007		30/09/200830/09/2007
	Note	$m	$m		$m	$m
Total liquidity portfolio1	32	8,736	6,168		8,736	6,168
Add back items not included in liquidity portfolio:
Liquid assets		1,059	1,873		1,058	1,873
Due from other fnancial institutions - less than 90 days		1,948	1,233		1,946	1,231
Deduct items not included in cash and cash equivalents:
Trading securities		(2,376)	(1,378)		(2,376)	(1,378)
Available-for-sale assets		-	(1)		-	(1)
Due from other fnancial institutions - greater than 90 days		(1,578)	(765)		(1,578)	(765)
Total cash and cash equivalents		7,789	7,130		7,786	7,128

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

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1. SIGNIfICANT CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED ENTITIES AS AT 30 SEPTEMBER 2008

	Ownership	Ownership	Balance
Controlled entities	Interest %		Date	Nature of business
Airlie Investments Limited		100	30 September	Investment company
Alos Holdings Limited		100	30 September	Investment company
ANZ Capital NZ Limited		100	30 September	Investment company
ANZ Investment Services (New Zealand) Limited		100	30 September	Funds management company
ANZ National (Int’l) Limited		100	30 September	Finance company
ANZ National Staff Superannuation Limited		100	30 September	Staff superannuation scheme trustee
APAC Investments Limited		65	30 September	Finance company
Arawata Assets Limited		100	30 September	Property company
Arawata Capital Limited		100	30 September	Investment company
Arawata Finance Limited		100	30 September	Investment company
Arawata Funding Limited		100	30 September	Investment company
Arawata Holdings Limited		100	30 September	Investment company
Arawata Securities Limited		100	30 September	Finance company
Arawata Trust		100	30 September	Finance entity
Arawata Trust Company		100	30 September	Investment company
BHI Limited		100	30 September	Investment company
CBC Finance Limited (incorporated in United Kingdom)		100	31 December	Finance company
Control Nominees Limited		100	30 September	Finance company
Cortland Finance Limited		100	30 September	Investment company
Corvine Investments Limited		100	30 September	Investment company
Culver Finance Limited		100	30 September	Investment company
Direct Broking Limited		100	30 September	On-line share broker
Direct Nominees Limited		100	30 September	Nominee company
EFTPOS New Zealand Limited		100	30 September	Eftpos service provider
Endeavour Finance Limited		100	30 September	Investment company
Endeavour Securities Limited		100	30 September	Investment company
General Finance Custodians Limited		-	31 March	Mortgage fnance
Harcourt Corporation Limited		100	30 September	Investment company
Harcourt Investments Limited		100	30 September	Investment company
Karapiro Investments Limited		100	30 September	Non operative
Marmion Trust		-	31 December	Finance entity
National Bank of New Zealand Custodians Limited		100	30 September	Nominee and custody services
NBNZ Finance Limited		100	30 September	Finance company
NBNZ Holdings Hong Kong Limited (incorporated in Hong	Kong)	100	31 December	Non operative
NBNZ Holdings Limited		100	30 September	Finance company
Origin Mortgage Management Services Limited		-	31 March	Mortgage fnance
Origin Mortgage Management Services (2008) Limited		-	31 March	Mortgage fnance
Private Nominees Limited		100	30 September	Nominee company
Radiola Corporation Limited		100	30 September	Distribution company
Rural Growth Fund Limited		100	30 September	Investment company
Sefton Finance Limited		100	30 September	Investment company
South Pacifc Merchant Finance Limited		100	30 September	Investment company
Southpac Corporation Limited		100	30 September	Investment company
Technical Solutions Limited		100	30 September	Software provider
Trillium Holdings Limited		100	30 September	Finance company
Tui Endeavour Limited		100	30 September	Investment company
Tui Securities Limited		100	30 September	Investment company
UDC Finance Limited		100	30 September	Finance company

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

39. SIGNIfICANT CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED ENTITIES AS AT 30 SEPTEMBER 2008 (CONTINUED)

All controlled entities are incorporated in New Zealand, unless stated.

For all controlled entities, with the exception of General Finance Custodians Limited, Origin Mortgage Management Services Limited and Origin Mortgage Management Services (2008) Limited, the ownership interest percentage equates to the voting power held. In relation to these companies, control exists through the Banking Group having 100% of the voting rights.

In relation to Marmion Trust, control exists through the undertaking of the majority of risks and rewards which are variable.

Movements in controlled entities

On 7 November 2007, the Banking Group exited its controlling interest in Amberley Investments (50% ownership).

On 7 November 2007, the Banking Group exited its controlling interest in Endeavour Caterpillar New Zealand Finance Company (50% ownership).

On 3 December 2007, Radiola NZ Limited was incorporated as a subsidiary of the Banking Group, and on 23 May 2008 changed its name to Radiola Corporation Limited.

On 8 January 2008, the Banking Group exited its controlling interest in Nerine Finance No. 2 (65% ownership).

On 5 March 2008, the Banking Group purchased a 100% interest in Technical Solutions Limited.

On 11 April 2008, Pioneer First Limited changed its name to Origin Mortgage Management Services (2008) Limited.

Associates	Book Value Voting Ownership Balance $m Interest % Interest % Date Nature of business
Cards NZ Limited Electronic Transaction Services Limited EXCCL Limited (in receivership) Mondex New Zealand Limited NZ Poultry Enterprises Limited UCG Investments Limited Wyma Engineering (NZ) Limited Total investment in associates	86 25 14 30 Sep Card services 2 25 25 31 Mar Eftpos settlements 0 45 81 30 Sep Plastics manufacturing and recycling 0 40 40 31 Dec Card services 40 20 20 30 Apr Poultry processor 13 38 38 31 Mar Rest home operator 3 31 31 31 Mar Agricultural machinery supplier 144

All associates are incorporated in New Zealand.

Movements in associates

On 25 February 2008, ANZ Capital NZ Limited acquired a 20% ownership interest in NZ Poultry Enterprises Limited. From 28 November 2007, ANZ Capital NZ Limited purchased five further tranches of UCG Investments Limited.

Jointly controlled entities	Book Value Voting Ownership Balance $m Interest % Interest % Date Nature of business
Argenta Limited BCS Group Limited ING (NZ) Holdings Limited JMI Aerospace Limited Total investment in jointly controlled entities	2 24 24 31 Jul Manufacture and marketing of animal remedies 4 40 40 30 Jun Manufacturer of baggage handling systems 212 50 49 31 Dec Funds management and insurance 1 33 33 31 Mar Airline maintenance and service provider 219

All jointly controlled entities are incorporated in New Zealand.

The Banking Group has joint control of all these entities due to a combination of control factors, none of which gives either party overall control.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

1. SIGNIfICANT CONTROLLED ENTITIES, ASSOCIATES AND INTERESTS IN JOINTLY CONTROLLED ENTITIES AS AT 30 SEPTEMBER 2008 (CONTINUED)

The summarised financial information relating to the Banking Group’s investment in ING (NZ) Holdings Limited is as follows:

Share of assets and liabilities Investments Other assets Total assets Life insurance policy liabilities Other liabilities Total liabilities Net assets Share of revenue, expenses and results Net underwriting result Other revenue Total revenue Expenses Proft before income tax Income tax expense Proft after tax Share of commitments Lease commitments	Consolidated
	30/09/200830/03/2007 $m $m
	78 81 160 160
	238 241
	(3) 22 11 11
	8 33
	230 208
	66 49 25 29
	91 78 75 56
	16 22 (6) -
	22 22
	8 4

There are no unrecognised losses in respect of any of the Banking Group’s jointly controlled entities. The Banking Group’s share of the contingent liabilities of its joint ventures are incurred jointly with other investors. There were no contingent liabilities as at 30 September 2008 (30/09/2007 $nil).

40. PARENT COMPANY AND ULTIMATE PARENT BANK

The Parent Company is ANZ Holdings (New Zealand) Limited which is incorporated in New Zealand. The Ultimate Parent Bank is Australia and New Zealand Banking Group Limited which is incorporated in Australia.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

41. SECURITISATION, fUNDS MANAGEMENT, OThER fIDUCIARY ACTIvITIES AND ThE MARKETING AND DISTRIBUTION Of INSURANCE PRODUCTS

Securitisation

In May 2008 the RBNZ expanded the range of acceptable collateral that banks can pledge and borrow against as part of changes to its liquidity management arrangement designed to help ensure adequate liquidity for New Zealand financial institutions in the event that global market disruption was to intensify. From 31 July 2008, acceptable collateral includes residential mortgage backed securities (“RMBS”) that satisfy RBNZ criteria.

On 10 October 2008, subsequent to balance date, the Banking Group established an in-house RMBS facility that could issue securities meeting the RBNZ criteria. The establishment of the facility resulted in the Parent financial statements recognising a payable and receivable of equal amount of $3,720m to Kingfisher NZ Trust 2008-1, a newly established consolidated entity post balance date. The Consolidated Group’s financial statements do not change as a result of establishing this facility.

The establishment of this facility increases the Banking Group’s contingent funding ability from the RBNZ.

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 Bank 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 owned 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.

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 2008, $2,229 million of funds under management were invested in the Banking Group’s own products or securities (30/09/2007 $1,035 million).

Funds management activities conducted by the ING New Zealand joint venture are not included in the funds managed by the Banking Group, as the Banking Group does not have control of the ING New Zealand joint venture.

The aggregate value of funds managed by the Banking Group at balance date was:

Superannuation schemes Bonus Bonds Discretionary funds Totals funds under management	Consolidated
	30/09/200830/09/2007 $m $m
	- 3 2,417 2,488 3,440 2,045
	5,857 4,536

On 1 October 2007, the Direct Broking Call Account was registered as a portfolio investment entity (PIE).

On 25 March 2008, the UDC Superbonds Superannuation Scheme managed by UDC Finance Limited was wound up.

On 1 April 2008, the National Bank Call Fund, Private Banking Portfolio Call Fund and National Bank Private Banking Call Fund, all managed by ANZ Investments Services (New Zealand) Limited, commenced as PIEs. The funds invest in call deposits with the Bank.

On 9 April 2008, the Term Maximiser Fund and Call Maximiser Fund managed by UDC Finance Limited commenced as PIEs. The funds invest in secured debentures with UDC Finance Limited.

On 1 October 2008, the ANZ Call Fund and ANZ Term Fund, managed by UDC Finance Limited, commenced as PIEs. The funds invest in New Zealand dollar call and term deposits with the Bank.

Custodial services

The Banking Group provides custodial services to customers in respect of assets that are beneficially owned by those customers.

Marketing and distribution of insurance products

The Banking Group markets and distributes a range of insurance products which are underwritten by several insurance companies. These activities are managed in association with the ING New Zealand joint venture.

Insurance business

The Banking Group does not conduct any insurance business directly, although the Banking Group holds a 49% share in the ING NZ joint venture which does conduct insurance business.

Provision of financial services

Financial services provided by the Banking Group to entities which are involved in trust, custodial, funds management and other fiduciary activities, 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 and conditions and at fair value. Any assets purchased from such entities have been purchased on an arm’s length basis and at fair value.

The Banking Group has not provided any funding to entities which conduct any of the following activities: trust, custodial, funds management or other fiduciary activities established, marketed and/or sponsored by a member of the Banking Group (30/09/2007 $nil).

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

1. SECURITISATION, fUNDS MANAGEMENT, OThER fIDUCIARY ACTIvITIES AND ThE MARKETING AND DISTRIBUTION Of INSURANCE PRODUCTS (CONTINUED)

Risk management

The Bank and subsidiaries participating in the activities identified above have in place policies and procedures to ensure that those activities are conducted in an appropriate manner. Should adverse conditions arise, it is considered that these policies and procedures will minimise the possibility that these conditions will adversely impact the Bank. The policies and procedures include comprehensive and prominent disclosure of information regarding products, and formal and regular review of operations and policies by management and auditors.

• In addition, the following measures have been taken to manage any risk to the Bank of marketing and distributing insurance products: Investment statements, prospectuses and brochures for insurance products include disclosures that the Bank and its subsidiaries do not guarantee the insurer, nor the insurer’s subsidiaries, nor any of the products issued by the insurer or the insurer’s subsidiaries.

• Where the insurance products are subject to the Securities Act 1978, investment statements, prospectuses and brochures additionally include disclosures that:

• the policies do not represent deposits or other liabilities of the Bank or its subsidiaries;

• the policies are subject to investment risk, including possible loss of income and principal; and

• the Bank and its subsidiaries do not guarantee the capital value or performance of the policies.

Application forms for insurance products contain acknowledgements to be signed by a purchaser which are consistent with the disclosures for insurance products noted above.

• In addition, the following measures have been taken to manage any risk to the Bank of marketing and distributing fund management products: Prospectuses, investment statements and brochures for funds management products include disclosures:

• that the securities do not represent deposits or other liabilities of the Bank;

• that the securities are subject to investment risk including possible loss of income and principal invested; and

• that the Bank does not guarantee the capital value or performance of the securities.

Application forms for funds management products contain acknowledgements to be signed by a purchaser which are consistent with the disclosures for funds management products noted above.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

42. COMMITMENTS

Capital expenditure Contracts for outstanding capital expenditure: Premises and equipment Not later than 1 year Total capital expenditure commitments Lease rentals Future minimum lease payments under non-cancellable operating leases: Premises and equipment Not later than 1 year Later than 1 year but not later than 5 years Later than 5 years Total lease rental commitments Total commitments
	Consolidated	Parent
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m
	26 15	- 1
	26 15	- 1
	86 85 167 163 27 32	17 20 19 28 - -
	280 280	36 48
	306 295	36 49

43. CONTINGENT LIABILITIES AND CREDIT RELATED COMMITMENTS

For contingent exposures, the maximum exposure to credit risk is the maximum amount that the Banking Group would have to pay if the contingent is called upon. For undrawn facilities, the maximum exposure to credit risk is the full amount of the committed facilities.

Credit related commitments Commitments with certain drawdown due within one year Commitments to provide fnancial services Total credit related commitments Contingent liabilities Financial guarantees Standby letters of credit Transaction related contingent items Trade related contingent liabilities Total contingent liabilities	Consolidated	Parent
	30/09/200830/09/2007 $m $m	30/09/200830/09/2007 $m $m
	659 1,074 23,150 20,751	659 1,074 22,940 20,483
	23,809 21,825	23,599 21,557
	2,017 1,933 401 528 1,090 398 118 123	2,017 1,933 401 528 1,090 398 115 119
	3,626 2,982	3,623 2,978

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

43. CONTINGENT LIABILITIES AND CREDIT RELATED COMMITMENTS (CONTINUED)

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 and collateral requirements for customers applying for loans. As the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements.

The detailed and estimated maximum amount of contingent liabilities that may become payable are set out below.

Contingent tax liability

As previously disclosed, the New Zealand Inland Revenue Department (‘IRD’) is reviewing a number of structured finance transactions as part of an audit of the 2000 to 2005 tax years. This is part of an industry-wide review by the IRD of these transactions undertaken in New Zealand.

The Bank has received Notices of Proposed Adjustment (the ‘Notices’) in respect of some of these transactions. The Notices are formal advice that the IRD is proposing to amend tax assessments. The Notices are not tax assessments and do not establish a tax liability but are the first step in a formal disputes process.

As expected in March 2008 the IRD issued amended tax assessments as a follow up to the Notices in respect of four of these transactions for the 2003 tax year (prior to that tax year becoming statute-barred). We expect assessments for the 2003 income year for a further two transactions. The IRD has previously issued tax assessments as a follow up to the Notices in respect of two transactions for the 2000 tax year, four transactions for the 2001 tax year and five transactions in respect of the 2002 income year (in each case prior to that tax year becoming statute-barred). Proceedings disputing the amended tax assessments with respect to the 2000-2003 tax years have been commenced.

Based on the independent tax and legal advice obtained, the Bank is confident that the tax treatment it has adopted for these transactions and all similar transactions is correct.

The tax adjustments proposed so far by the IRD cover the 2000 to 2005 tax years and imply a maximum potential liability of $224 million ($343 million with interest tax effected).

The IRD is also investigating other transactions undertaken by the Banking Group, which have been subject to the same tax treatment. Should the same position be taken by the IRD for all years on all these transactions, including those that the Notices cover, the maximum potential liability would be approximately $365 million ($541 million with interest tax effected) as at 30 September 2008.

Of the maximum potential tax liability in dispute, it has been estimated that approximately $99 million ($151 million with interest tax effected) is subject to indemnities given by Lloyds TSB Bank plc under the agreement by which the Bank acquired the NBNZ Holdings Limited Group, and which relate to transactions undertaken by NBNZ Group before December 2003.

This leaves a net potential tax liability as at 30 September 2008 of $266 million ($390 million with interest tax effected). All of these transactions have now either matured or been terminated.

Commerce Commission

In November 2006, the Commerce Commission brought proceedings under the Commerce Act 1986 against Visa, MasterCard and all New Zealand issuers of Visa and MasterCard credit cards, including ANZ National Bank Limited. The Commission alleges price fixing and substantially lessening competition in relation to the setting of credit card interchange fees and is seeking penalties and orders under the Commerce Act.

Subsequently, several major New Zealand retailers have issued proceedings against ANZ National Bank Limited and the other above mentioned defendants seeking unquantified damages, based on allegations similar to those contained in the Commerce Commission proceedings.

ANZ National Bank Limited is defending the proceedings. The Bank has received independent legal advice. The Bank considers it has a strongly arguable case, but the matter is complex and difficult. At this stage any potential liabilities cannot be assessed with any certainty. A trial has been scheduled for October 2009.

In addition, the Bank is aware that the Commerce Commission is looking closely at credit contract fees under the Credit Contracts and Consumer Finance Act 2003 (CCCFA). In its 2008-2011 Statement of Intent the Commission stated that:

“The Commission is turning more to litigation under the Credit Contracts and Consumer Finance Act to ensure credit contract fees are reasonable and disclosed. Currently the credit industry is not fully compliant with the legislation and taking more action through the courts will encourage better compliance and clarify any areas of the law that may be uncertain. ”

In particular the Bank is aware that the Commerce Commission is investigating the level of default fees charged on credit cards and the level of currency conversion charges on overseas transactions using credit cards under the CCCFA. We have also been notified that the Commission may be investigating early repayment charges on fixed rate mortgages. At this stage the possible outcome of these investigations and any liability or impact on fees cannot be determined with any certainty.

ING New Zealand Funds

The Bank markets and distributes a range of wealth management products which are managed by ING (NZ) Limited (of which the Bank holds 49%). Trading in the ING Diversified Yield Fund and the ING Regular Income Fund was suspended on 13 March 2008 by the fund manager, ING (NZ) Limited, due to the deterioration in liquidity in credit markets.

There has been significant public coverage regarding the closure of these funds and questions have been raised about the involvement of ING and the Bank. In particular, the Bank has received a number of claims from customers alleging that the Bank, in its capacity as one of the distributors for ING, mis-sold these funds to some investors. We are investigating these claims. It is too early at this stage to assess the merit of these claims and therefore the nature or quantum of any potential liability.

Other contingent liabilities

The Banking Group has other contingent liabilities in respect of actual and potential claims and 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 appropriate. As at 30 September 2008, there were no other contingent assets or liabilities required to be disclosed (30/09/2007 nil).

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

44. EMPLOYEE ShARE AND OPTION PLANS

The Banking Group participates in the ANZ Employee Share Acquisition Plan and the ANZ Share Option Plan operated by the ANZ. Any shares or options granted under these plans are shares in Australia and New Zealand Banking Group Limited.

The closing market price of one ordinary share of ANZ quoted on the ASX (Australian Stock Exchange) at 30 September 2008 was A$18.75 (30/09/2007 A$29.70).

ANZ EMPLOYEE SHARE ACQUISITION PLAN

The ANZ Employee Share Acquisition Plan includes the A$1,000 Share Plan, the Deferred Share Plan and the Restricted Share Plan.

A$1,000 share plan

Each permanent employee who has had continuous service for one year with the Banking Group is eligible to participate in a scheme enabling the issue of up to A$1,000 of shares of ANZ in each financial year, subject to the approval of the Ultimate Parent Bank Board. The shares vest subject to satisfaction of a three year service period but may be forfeited in the event of resignation or termination for serious misconduct. On expiration of that period, an employee may sell the shares, transfer them into their name, or have them retained in trust. The issue price is based on the one-day volume weighted average price (‘VWAP’) of the shares traded on the ASX on the date of issue.

The Banking Group’s employees are required to pay NZ 1 cent per share at the time the shares are transferred to them. During the year to 30 September 2008, 267,523 shares with an average issue price of A$27.96 were issued under the A$1,000 Share Plan (30/09/2007 269,025 shares with an average issue price of A$27.88 were issued).

Deferred share plan

The Banking Group’s last issue of shares under this plan was in November 2004. Selected employees were issued deferred shares, which vest subject to satisfaction of a minimum three year service period from the date of issue. Ordinary shares issued under this plan may be held in trust for up to 10 years, and may be required to meet performance hurdles before being able to be traded after the restriction period has expired. The issue price is based on the VWAP of the shares traded on the ASX in the five trading days leading up to and including the date of issue. Unvested shares are forfeited on resignation or dismissal, or if a performance condition has not been met.

Restricted share plan

Restricted Shares are available to selected employees and are issued under the ANZ Employee Share Acquisition Plan. Selected employees have the option to take some (or all) of their incentive payment as Restricted Shares. The shares are held in trust and may not be traded until the conclusion of the one-year restriction period, after which they may be transferred into the employees name. Until they are transferred into the employees name, they continue to be subject to forfeiture on termination for serious misconduct.

Shares valuations

The fair value of services received in return for shares in the ANZ Employee Share Acquisition Plan are measured by referring to the fair value of ANZ shares granted. The fair value of shares granted in the current period, measured at the date of grant of the shares, is NZ $8.5 million based on 267,523 shares at a weighted average price of A$27.96 converted at the exchange rate of 0.8809 (30/09/2007 NZ $9 million based on 269,025 shares at a weighted average price of A$27.88 converted at the exchange rate of 0.8391 were issued).

The average issue price of shares granted and the number of shares that are expected to ultimately vest to the employees at the end of the vesting period are used to calculate the fair value of shares. No dividends are incorporated into the measurement of the fair value of shares.

ANZ SHARE OPTION PLAN

Selected employees may be granted options, which entitle them to purchase ordinary fully paid shares in ANZ at a price fixed at the time when the options were issued. Voting and dividend rights will be attached to the unissued ordinary shares when the options have been exercised. Each option entitles a holder to purchase one ordinary share subject to any terms and conditions imposed on issue. The exercise price of the options (excluding zero-priced options) is determined in accordance with the rules of the plan, and is based on the weighted average price of the Ultimate Parent Bank’s shares traded during the five business days preceding the date of granting the options.

The main schemes of the ANZ Share Option Plan are as follows:

Current option plans

Performance rights plan

This scheme is a long term incentive program available to certain Banking Group employees since November 2005 and grants the right to acquire ANZ shares at nil cost, subject to a three year vesting period and a Total Shareholder Return (TSR) performance hurdle. The proportion of rights that will become exercisable will depend upon the TSR achieved by ANZ relative to the companies in the comparator group, which consists of selected major financial services companies in the Standard & Poor’s and ASX 100 Index. Performance equal to the median TSR of the comparator group will result in half the rights becoming exercisable. Performance above the median will result in further performance rights becoming exercisable, increasing on a straight line basis until all of the rights become exercisable where ANZ’s TSR is at or above the 75th percentile in the comparator group.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

44. EMPLOYEE ShARE AND OPTION PLANS (CONTINUED)

The TSR hurdle will only be tested once at the end of the three-year vesting period. If the rights do not pass the hurdle on testing date, or if they pass the hurdle on testing date and are not exercised by the end of five years from the grant date, the rights will lapse. In the case of resignation or termination on notice, only rights that become exercisable by the end of the notice period may be exercised. A grace period is provided in which to exercise the rights. All other rights will lapse. In the case of retrenchment or retirement, performance rights will be performance tested at the date of termination and where performance hurdles have been met, performance rights will be pro-rated and a grace period provided in which to exercise the rights. In case of death or total and permanent disablement, a grace period is provided in which to exercise all performance rights.

Deferred share rights

This scheme is a short term incentive program available to certain Banking Group employees since November 2004 and grants the right to acquire ANZ shares at nil cost after a specified vesting period ranging from one to three years. Deferred share rights must be exercised by the seventh anniversary of grant date. In the case of resignation, only rights that become exercisable by the end of the notice period may be exercised. A grace period is provided in which to exercise the rights. All other rights will lapse. In the case of termination on notice, retrenchment, retirement, death or total and permanent disablement, a grace period is provided in which to exercise all deferred share rights.

Legacy Option Plans

Performance options plan

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

Zero-price options (ZPO)

A ZPO is a right to acquire an ANZ share at nil cost and is granted to certain employees as part of their employment contracts. The ZPO’s have no time based vesting criteria, so can be exercised at any time during employment and within 6 months of termination of employment. ZPO’s must be exercised within two years of grant date or they lapse.

Other past option plans which are no longer available to the Banking Group’s employees, but continue to be amortised during their appropriate vesting periods are hurdled options and index linked options (ILOs).

Details of the options over unissued ANZ ordinary shares and their related weighted average exercise prices as at the beginning and end of the year and movements during the year are set out below:

Share options at beginning of the year Share options granted Share options exercised Share options forfeited and expired Share options at end of the year Weighted average share price during the year Range of exercise prices on share options at end of the year Weighted average remaining contractual life on share options at end of the year	Share options at beginning of the year Share options granted Share options exercised Share options forfeited and expired Share options at end of the year Weighted average share price during the year Range of exercise prices on share options at end of the year Weighted average remaining contractual life on share options at end of the year	Consolidated/Parent	Consolidated/Parent
		30/09/2008 Weighted average Number exercise of shares price1 A$	30/09/2007 Weighted average Number exercise of shares price1 A$
		1,616,716 13.93 376,715 - (130,988) 16.13 (120,672) 12.27	1,668,436 17.49 318,921 - (339,782) 17.53 (30,859) 19.67
		1,741,771 10.86	1,616,716 13.93
		21.37 28.83 0.00-23.49 0.00-23.49 36 months 46 months

1. Calculation of weighted average exercise prices are affected by performance rights, deferred share rights and ZPO plans which have nil exercise prices.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

44. EMPLOYEE ShARE AND OPTION PLANS (CONTINUED)

Options valuations

The fair value of services received in return for share options are measured by referring to the fair value of ANZ share options granted. The fair value of options granted in the current period, measured at the date of grant are calculated using one of the following models:

• (a) Monte-Carlo simulation model utilising the assumptions underlying Black-Scholes. In terms of factoring in early exercise, the model assumes that deferred share rights and performance rights are exercised as soon as they vest so that the option holder can benefit from the dividends. It assumes that the performance options are exercised when the share price reaches twice the exercise price; or

• (b) an adjusted form of the Binomial Option pricing model (“BOM”). In terms of factoring in early exercise, the model assumes that the expected life of vanilla options is 5 years, performance rights is 4 years and that deferred share rights are exercised immediately to account for lack of marketability.

In addition, both models are designed such that they take into account as appropriate, any performance hurdles and non-transferability of the options.

All options issued in 2008 were valued using the BOM pricing model.

The following inputs are used to measure the fair value of instruments granted during the period. For each instrument, the model used (a or b) is indicated. All prices are quoted in Australian dollars:

	Performance	LTI deferred	STI deferred	Performance
Option type	rights (b)	share rights (b)	share rights (b)	rights (b)
Grant date	29-May-2008	9-Nov-2007	9-Nov-2007	30-Oct-2007
Number of Options	22,633	161,011	15,758	177,313
Option value	$18.38	$24.49	$25.59	$12.30
Exercise price (5 day VWAP)	$nil	$nil	$nil	$nil
Share price at grant	$21.35	$27.95	$27.95	$29.69
ANZ expected volatility2	15%	15%	15%	n/a
Option term	5 years	5 years	5 years	5 years
Vesting period	3 years	3 years	2 years	3 years
Expected life	2 years	2 years	3 years	2 years
Expected dividends	5.00%	4.50%	4.50%	4.50%
Risk free interest rate	n/a	6.69%	6.77%	6.63%

1. Expected volatility is based on ANZ’s historic volatility.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

45. RETIREMENT BENEfIT OBLIGATIONS

The Banking Group has established a number of pension and superannuation schemes. The Banking Group may be obliged to contribute to the schemes as a consequence of legislation and provision of trust deeds. Legal enforceability is dependent on the terms of the legislation and trust deeds. The major schemes are:

		Contribution levels	Contribution levels
Scheme	Scheme type	Employee	Employer
ANZ National Bank Staff Superannuation Scheme1	Defned Beneft Scheme2	Nil	Balance of cost4
	or
	Defned Contribution Scheme	2.5% minimum of salary	7.5% of salary6
The National Bank Staff Superannuation Fund1	Defned Beneft Scheme3	5% of salary	Balance of cost5
	or
	Defned Contribution Scheme	2.0% minimum of salary	11.2% of salary7

1. These schemes provide for pension benefits and provide for lump sum benefits.

2. Closed to new members on 31 March 1990. Operates to make pension payments to retirees who were members of that section of the scheme or to dependents of the members.

3. Closed to new members on 1 October 1991.

4. 30/09/2008: $nil (30/09/2007 $nil).

5. 30/09/2008: 22.3% (30/09/2007 22.3%) of members’ salaries.

6. 30/09/2008: 7.5% (30/09/2007 7.5%) of members’ salaries.

7. 30/09/2008: 11.2% (30/09/2007 11.2%) of members’ salaries.

Details of the defined benefit schemes are as follows:

Actuarial valuations are undertaken every six months. The latest valuations were carried out as at 30 September 2008.

The amounts recognised in the balance sheet arising from the Banking Group’s obligation in respect of its defined benefit schemes are determined as follows: Defned beneft obligation at beginning of the year Current service cost Interest cost Contributions by scheme participants Actuarial (gains) losses Benefts paid Present value of funded defned beneft obligations Fair value of scheme assets at beginning of the year Expected return on scheme assets (net of tax) Actuarial (losses) gains Contributions by employer Contributions by scheme participants Benefts paid Fair value of scheme assets Net defned beneft (liability) asset recognised on balance sheet	Consolidated/Parent
	30/09/200830/09/2007 $m $m
	181 190 3 4 12 12 1 1 3 (10) (21) (16)
	179 181
	189 196 10 11 (30) (7) 3 4 1 1 (21) (16)
	152 189
	(27) 8

The fair value of scheme assets include cash deposits and fixed interest investments of $5 million with the Banking Group as at 30 September 2008 (30/09/2007 $7 million).

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

45. RETIREMENT BENEfIT OBLIGATIONS (CONTINUED)

The amounts recognised in the income statement in respect of defined benefit schemes are as follows: Current service cost Interest cost Expected return on scheme assets (net of tax) Contribution withholding tax Total pension costs recognised in the income statement - defned beneft superannuation schemes The actuarial gains and losses recognised directly in equity via the statement of recognised income and expense are Actuarial gains (pre-tax) at beginning of the year Actuarial (loss) gain (pre-tax) incurred during the year Balance of actuarial (losses) gains (pre-tax) at end of the year Income tax credit (expense) recognised directly in equity Balance of actuarial (losses) gains at end of the year The principal actuarial assumptions used were as follows:	The amounts recognised in the income statement in respect of defined benefit schemes are as follows: Current service cost Interest cost Expected return on scheme assets (net of tax) Contribution withholding tax Total pension costs recognised in the income statement - defned beneft superannuation schemes The actuarial gains and losses recognised directly in equity via the statement of recognised income and expense are Actuarial gains (pre-tax) at beginning of the year Actuarial (loss) gain (pre-tax) incurred during the year Balance of actuarial (losses) gains (pre-tax) at end of the year Income tax credit (expense) recognised directly in equity Balance of actuarial (losses) gains at end of the year The principal actuarial assumptions used were as follows:	Consolidated/Parent 30/09/200830/09/2007 $m $m 3 4 12 12 (10) (11) 2 1
		7 6
		as follows: 8 4 (35) 3
		(27) 7
		8 (2)
		(19) 5
The National Bank ANZ National Bank Staff Superannuation Fund Staff Superannuation Scheme 30/09/2008 30/09/2007 30/09/2008 30/09/2007 Defined benefits calculation Discount rate (gross of tax) 6.0% 6.5% 6.0% 6.5% Future price infation 2.5% 2.5% 2.5% 2.5% Future pension increases 2.5% 2.5% 2.5% 2.5% Future salary increases 3.7% 3.7% n/a n/a Scheme assets calculation Expected return on scheme assets (net of tax) 5.5% 5.5% 4.5% 4.5%	ANZ National Bank Staff Superannuation Scheme
	30/09/2008 30/09/2007

	The National Bank	The National Bank		ANZ National	Bank
	Staff Superannuation Fund			Staff Superannuation Scheme
	30/09/2008	30/09/2007		30/09/2008	30/09/2007
Defined benefits calculation
Discount rate (gross of tax)	6.0%	6.5%		6.0%	6.5%
Future price infation	2.5%	2.5%		2.5%	2.5%
Future pension increases	2.5%	2.5%		2.5%	2.5%
Future salary increases	3.7%	3.7%		n/a	n/a
Scheme assets calculation
Expected return on scheme assets (net of tax)	5.5%	5.5%		4.5%	4.5%

The overall expected return on scheme assets is determined by reference to market expectations, at the beginning of the relevant period, of asset performance applicable to the period over which the defined benefit obligation is to be settled. The overall expected return on scheme assets reflects an aggregation of the expected returns on the underlying asset classes.

The actual return on scheme assets (net of tax) for The National Bank Staff Superannuation Fund was -9.0% for the year ended 30 September 2008 (30/09/2007 6.5%). The actual return on scheme assets (net of tax) for the ANZ National Bank Staff Superannuation Scheme was -6.0% for the year ended 30 September 2008 (30/09/2007 6.1%).

The investment return on scheme assets is taxed at 33% (30/09/2007 33%).

The major categories of scheme assets as a percentage of the fair value of scheme plan assets are as follows:

Cash and short term debt instruments New Zealand fxed interest Overseas fxed interest New Zealand equities Overseas equities Property	The National Bank Staff Superannuation Fund	ANZ National Bank Staff Superannuation Scheme
	30/09/2008 30/09/2007	30/09/2008 30/09/2007
	19.9% 15.7% 14.5% 22.2% 16.1% 16.5% 9.7% 8.9% 39.8% 36.7% 0.0% 0.0%	17.1% 13.2% 23.2% 23.1% 20.8% 23.3% 9.3% 7.1% 23.9% 28.0% 5.7% 5.3%
	100.0% 100.0%	100.0% 100.0%

The benchmark weightings of each asset class is determined by the Trustee in conjunction with the investment manager.

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

45. RETIREMENT BENEfIT OBLIGATIONS (CONTINUED)

Historical summary

Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred in the period) and the effects of changes in actuarial assumptions on valuation date. The history of the schemes’ net position and experience adjustments is as follows:

Defned beneft obligation Fair value of scheme assets Net beneft (liability)/asset Experience adjustments on scheme liabilities Experience adjustment on scheme assets	Consolidated/Parent
	30/09/200830/09/2007 30/09/2006 30/09/2005 $m $m $m $m
	(179) (181) (190) (187) 152 189 196 195 (27) 8 6 8 5 (1) 3 - (21) (7) 5 11

Employer contributions

To ensure the defined benefit schemes remain solvent, the schemes’ independent actuaries recommend an employer contribution rate to the Banking Group, annually for The National Bank Staff Superannuation Fund and every three years for the ANZ National Bank Staff Superannuation Scheme. The funding methods and current contribution rates of the individual schemes are determined in accordance with NZ IAS 19 Employee Benefits (‘NZ IAS 19’) for annual periods beginning on or after 1 January 2007.

The National Bank Staff Superannuation Fund deficit was valued at $5.5 million in the most recent actuarial valuation at 1 April 2007 determined in accordance with NZ IAS 19. The ANZ National Bank Staff Superannuation Scheme surplus was valued at $0.2 million in the most recent actuarial valuation at 31 December 2007 determined in accordance with NZ IAS 19.

The Banking Group contributed $3.1 million (net of contributions withholding tax) to its defined benefit schemes in the period to 30 September 2008 (30/09/2007 $4 million). Employer contributions are taxed at a rate of 33% (30/09/2007 33%).

Contingent liabilities

The National Bank Staff Superannuation Fund

Under the Fund’s Trust Deed, if this scheme were wound up, the Banking Group is required to pay the Trustee of the Fund an amount sufficient to ensure members do not suffer a reduction in benefits to which they would otherwise be entitled.

ANZ National Bank Staff Superannuation Scheme

If the Scheme is wound up then its assets must be cashed up and applied to all members’ benefits. If Scheme funds are insufficient to pay all members’ benefits then the Banking Group must pay to the Scheme such amounts as the Scheme Actuary determines are necessary to pay those benefits.

46. RELATED PARTY TRANSACTIONS

Key management personnel Key management personnel compensation Salaries and short-term employee benefts Post-employment benefts Other long-term benefts Share-based payments Total compensation of key management personnel Loans to key management personnel Deposits from key management personnel	Consolidated	Parent Year to Year to 30/09/200830/09/2007 $000 $000 11,518 9,929 780 315 107 87 2,633 2,124 15,038 12,455 7,272 6,202 3,594 2,649
	Year to Year to 30/09/200830/09/2007 $000 $000
	11,919 10,407 786 315 127 106 2,665 2,144
	15,497 12,972
	7,272 6,202
	3,594 2,666

Loans made to and deposits held by key management personnel (including personally related parties) are made in the course of ordinary business on normal commercial terms and conditions no more favourable than those given to other employees or customers. Loans are on terms of repayment that range between fixed, variable and interest only, all of which have been made in accordance with the Bank’s lending policies. No provision for credit impairment has been recognised for loans made to key management personnel (30/09/2007 $nil).

All other 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 the provision of financial and investment services.

Key management personnel is defined as those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including directors (whether executive or otherwise).

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

46. RELATED PARTY TRANSACTIONS (CONTINUED)

Transactions with the Parent Company, Ultimate Parent Bank and subsidiaries

Details of amounts provided by/to the Parent Company, Ultimate Parent Bank and subsidiaries of the Banking Group during the ordinary course of business are set out in the relevant notes to these financial statements. No provision for credit impairment has been recognised during the year ended 30 September 2008 (30/09/2007 $nil).

	Consolidated	Consolidated		Parent
	Year to	Year to		Year to	Year to
	30/09/2008	30/09/2007		30/09/200830/09/2007
	$m	$m		$m	$m
Interest income
- Subsidiary companies	-	-		47	84
- Parent Company	-	13		-	13
- Ultimate Parent Bank	4	4		4	4
Interest expense
- Subsidiary companies	-	-		2,730	2,210
- Parent Company	151	211		151	211
- Ultimate Parent Bank	199	202		83	57
Operating expenses
- Subsidiary companies	-	-		96	96
- Ultimate Parent Bank	82	71		82	71

Transactions with associates and joint venture entities

During the period the Banking Group conducted transactions with associates and joint venture entities on normal commercial terms and conditions as shown below:

	Consolidated	Consolidated		Parent
	Year to	Year to		Year to	Year to
	30/09/2008	30/09/2007		30/09/200830/09/2007
	$m	$m		$m	$m
Amounts receivable
- associates	28	14		-	-
- joint venture entities	36	56		-	14
Amounts payable
- associates	85	-		85	-
Interest income
- associates	2	1		-	-
- joint venture entities	4	8		-	4
Commission received from ING NZ joint venture	23	23		23	23
Costs recovered from ING NZ joint venture	1	1		1	1

The Banking Group provides general administrative, strategic and governance services to ING (NZ) Limited under a Technical Services Agreement.

The Banking Group provided registry services to the ING NZ joint venture in connection with the business of ING Managed Funds (NZ) Limited until 31 December 2006. The Banking Group provided payroll, tax accounting and compliance services, and premises in connection with and for the purpose of ING Insurance Services (NZ) Limited and ING Managed Funds (NZ) Limited. All provision of these services ceased from 5 March 2007.

A provision for credit impairment of $5 million is recognised for amounts outstanding from associates as at 30 September 2008 (30/09/2007 $7 million). A credit impairment loss of $nil was recovered during the year ended 30 September 2008 (30/09/2007 $nil)

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NOTES TO ThE fINANCIAL STATEMENTS

(CONTINUED)

47. SUBSEqUENT EvENTS

Deposit Guarantee Scheme

The Bank has a guarantee under the New Zealand Deposit Guarantee Scheme (‘Crown Guarantee’). The Crown Guarantee is provided under a Crown Deed of Guarantee (Registered Bank) entered into by the Bank and the Crown on 14 November 2008. Further information about the Crown Guarantee is available in the General Disclosures section of this General Disclosure Statement, the most recent Supplemental Disclosure Statement and on The Treasury website at www.treasury.govt.nz

Securitisation

On 10 October 2008, subsequent to balance date, the Banking Group established an in-house residential mortgage-backed securities facility that could issue securities that can be used as collateral for borrowing from the RBNZ. The establishment of the facility resulted in the Parent financial statements recognising a payable and receivable of equal amount totalling $3,720m to Kingfisher Trust 2008-1, a newly established consolidated entity post balance date. The Consolidated Group’s financial statements do not change as a result of establishing this facility.

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DIRECTORATE AND AUDITORS

DIRECTORATE AND AUDITORS

The address to which any document or communication may be sent to any Director is ANZ National Bank Limited, Level 14, 215-229 Lambton Quay, Wellington, New Zealand. The document or communication should be marked for the attention of that Director.

Directors’ Interests

In order to ensure that members of the Board are reminded of their disclosure obligations under the Companies Act 1993, the following 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, a disclosure of any interests which they have with the Bank itself. Directors are reminded at this time of their obligation under the Companies Act 1993 to disclose promptly any transaction or proposed transaction with the Bank in which they have an interest.

• b) Directors are also requested to make a general disclosure of their interest in other entities in terms of section 140(2) of the Companies Act 1993. In addition, they are requested to initiate a review of that disclosure if there are any significant alterations which occur subsequently during the period.

In addition to the written disclosures referred to 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 a transaction 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 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 the exercise of the Director’s duties as a Director of the Bank.

Changes in Directorships

There have been no changes to the Bank’s Board of Directors since the authorisation date of the previous Disclosure Statement on 20 August 2008.

BOARD MEMBERS AS AT 19 NOvEMBER 2008

Independent Non-Executive Director, Chairman

Sir Dryden Spring

DSc Company Director Matamata, New Zealand

Directorships

Director: Sky City Entertainment Group Limited, Port of Tauranga Limited, Fletcher Building Limited, Fletcher Building Finance Limited, Northport Limited

Executive Director

Graham Kennedy Hodges

BEc (Hons) Chief Executive ANZ National Bank Limited Wellington, New Zealand Directorships

Director: ANZ Holdings (New Zealand) Limited, Banking Ombudsman Scheme Limited

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DIRECTORATE AND AUDITORS

(CONTINUED)

Non-Executive Directors

Dr Robert John Edgar

Ph.D, BEc (Hons) Senior Managing Director Australia and New Zealand Banking Group Limited Melbourne, Australia

Directorships

Chairman: Esanda Finance Corporation Limited, ING Australia Limited Director: ANZ Insage Pty Limited, ANZ Royal Bank (Cambodia) Limited, ANZ Specialist Asset Management Limited, Tianjin City Commercial Bank, AMMB Holdings Berhad, ANZ Business Equity Fund Limited (Alternate Director)

Michael Roger Pearson Smith, OBE

BSc (Hons) Chief Executive Officer Australia and New Zealand Banking Group Limited Melbourne, Australia

Peter Ralph Marriott

BEc (Hons), FCA Chief Financial Officer Australia and New Zealand Banking Group Limited Melbourne, Australia

Directorships

Director: ANZ Capital Hedging Pty Limited, ANZ (Delaware) Inc., ANZ Holdings (New Zealand) Limited, Esanda Finance Corporation Limited, ANZEST Pty Limited, ANZ Funds Pty Limited, ANZ Investment Holdings Pty Limited, ANZ Investments Pty Limited, LFD Limited, ANZ Orchard Investments Pty Limited, RFDL Pty Limited, Ballimore Pty Limited, ANZ GPSC No.1 Pty Limited, NZ GPSC No.2 Pty Limited, NZ GPSC No.3 Pty Limited, NZ GPSC No.4 Pty Limited

Directorships

Director: Australia and New Zealand Banking Group Limited

Independent Non-Executive Directors

Norman Michael Thomas Geary, CBE

B Com, FACA, FNZIM, FCIT Company Director Auckland, New Zealand

Directorships

Director: Fisher & Paykel Appliances Holdings Limited, Otago Innovation Limited, DB Breweries Limited

Dr Donald Thomas Brash

MA Econ Company Director Auckland, New Zealand

Directorships

Director: Brash Forestry Limited, Eljeans Orchard Limited, Huljich Limited, Huljich (New Zealand) Limited, Huljich Wealth Management (New Zealand) Limited, Brash Consultancy Services Limited, Ocean Group Holdings Limited, Ocean Partners Limited

Audit Committee Members as at 19 November 2008

N M T Geary (Chairman)

Independent Non-Executive Director

Sir Dryden Spring Independent Non-Executive Director

Dr D T Brash

Independent Non-Executive Director

P R Marriott

Non-Executive Director

The Audit Committee, which is a sub-committee of the Board, has responsibility for reviewing and approving the published financial statements. The Audit Committee Charter provides that the membership of the Audit Committee shall be not less than three non-executive Directors. The quorum shall be not less than two non-executive Director members.

Auditors

KPMG

Chartered Accountants 10 Customhouse Quay P O Box 996 Wellington, New Zealand

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

CONDITIONS Of REGISTRATION

Conditions of Registration, applicable as at 19 November 2008.

The Bank’s Conditions of Registration were revised on 31 March 2008 and 16 June 2008 and 15 October 2008 in order to implement a new set of capital adequacy conditions for banks that have adopted the internal models based approach to capital adequacy and to correct the definition of the Parent Bank capital ratios respectively. The conditions that were amended were conditions 1, 1A, 1B, 1C and 4. This has resulted in changes to the Banking Group’s capital adequacy disclosures (refer to Note 31 Capital Adequacy). Condition 11 was also changed on 27 June 2008 to exclude the outsourcing functions provided to the bank by Electronic Services Limited and Interchange and Settlement Limited until 31 December 2008.

The registration of ANZ National Bank Limited (‘the Bank’) as a registered bank is subject to the following conditions:

1. That the Banking Group complies with the following requirements:

2. (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 March 2008 is not less than 8%;

3. (b) the tier one 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 March 2008 is not less than 4%; and

4. (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 March 2008 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 March 2008 is 1.06.

• For the purposes of this condition of registration, the supervisory adjustment referred to in the Reserve Bank of New Zealand document “Capital adequacy framework (internal models based approach)” (BS2B) dated March 2008 is the sum of:

• (a) 15% of risk-weighted exposures secured by residential mortgages as defined in the Reserve Bank of New Zealand document “Capital adequacy framework (internal models based approach)” (BS2B) dated March 2008; and

• (b) 12.5 times the greater of: zero; and 90% of adjusted Basel I capital, less adjusted Basel II capital; where

• (i) “adjusted Basel I capital” means 8% of total risk-weighted exposures, plus deductions from tier one capital, plus deductions from total capital, all calculated in accordance with the Reserve Bank of New Zealand document “Capital adequacy framework (Basel I approach)” (BS2) dated March 2008;

• (ii) “adjusted Basel II capital” means 8% of total Basel II risk-weighted exposures plus deductions from tier one capital, plus deductions from total capital, less any amount included in tier two capital arising from the excess of eligible allowances for impairment over EL (expected losses), all calculated in accordance with the Reserve Bank of New Zealand document “Capital adequacy framework (internal models based approach)” (BS2B) dated March 2008; and

• (iii) “total Basel II risk-weighted exposures” means scalar x (risk-weighted on and off balance sheet credit exposures) + 12.5 x total capital charge for market risk exposure + 12.5 x total capital requirement for operational risk + 15% of risk-weighted exposures secured by residential mortgages as defined in the Reserve Bank of New Zealand document “Capital adequacy framework (internal models based approach)” (BS2B) dated March 2008.

1A. That -

• (a) the Bank has an internal capital adequacy assessment process (“ICAAP”); that with effect from 31 August 2008 the Bank’s ICAAP accords with the requirements set out in the 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 March 2008; 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 March 2008.

• 1C. That the Bank complies with the following requirements:

  • The total capital ratio of the Bank is not less than 8 %.

  • The tier one capital ratio of the Bank is not less than 4%.

• For the purposes of this condition of registration:

• 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 March 2008; and

• the tier one capital ratio is defined as tier one capital as a percentage of risk-weighted exposures where tier one capital and riskweighted exposures are as defined in the Reserve Bank of New Zealand document “Capital adequacy framework (Basel I approach)” (BS2) dated March 2008.

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

CONDITIONS Of REGISTRATION

(CONTINUED)

1. That the Banking Group does not conduct any non-financial activities that in aggregate are material relative to its total activities, where the term material is based on generally accepted accounting practice, as defined in the Financial Reporting Act 1993.

2. That the Banking Group’s insurance business is not greater than 1% of its total consolidated assets. For the purposes of this condition:

3. (i) Insurance business means any business of the nature referred to in section 4 of the Insurance Companies (Ratings and Inspections) Act 1994 (including those to which the Act is disapplied by sections 4(1)(a) and (b) and 9 of that Act), or any business of the nature referred to in section 3(1) of the Life Insurance Act 1908;

4. (ii) In measuring the size of the Banking Group’s insurance business:

   • (a) where insurance business is conducted by any entity whose business predominantly consists of insurance business, the size of that insurance business shall be:

     • The total consolidated assets of the group headed by that entity;

     • Or if the entity is a subsidiary of another entity whose business predominantly consists of insurance business, the total consolidated assets of the group headed by the latter entity;

   • (b) otherwise, the size of each insurance business conducted by any entity within the Banking Group shall equal the total liabilities relating to that insurance business, plus the equity retained by the entity to meet the solvency or financial soundness needs of the insurance business;

   • (c) the amounts measured in relation to parts a) and b) shall be summed and compared to the total consolidated assets of the Banking Group. All amounts in parts a) and b) shall relate to on balance sheet items only, and shall be determined in accordance with generally accepted accounting practice, as defined in the Financial Reporting Act 1993;

   • (d) where products or assets of which an insurance business is comprised also contain a non-insurance component, the whole of such products or assets shall be considered part of the insurance business.

5. 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:

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Connected exposure limit
Credit Rating [1]
(% of the Banking Group’s Tier 1 capital)
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Credit Rating1	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

1. 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.)

2. 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.

3. For the purposes of this condition of registration, compliance with the rating-contingent connected exposure limit is determined in accordance with the Reserve Bank of New Zealand document entitled ‘Connected exposures policy’ (BS8) dated March 2008.

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

5. That the board of the Bank contains at least two independent directors and that alternates for those directors, if any, are also 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 defined in section 5 of the Companies Act 1993) of the Bank, or any other entity capable of controlling or significantly influencing the Bank.

6. That the chairperson of the Bank’s board is not an employee of the Bank.

7. That the Bank’s constitution does 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).

8. That a substantial proportion of the Bank’s business is conducted in and from New Zealand.

9. That no appointment of any director, chief executive officer, or executive who reports or is accountable directly to the chief executive officer, shall be made in respect of the Bank unless:

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

CONDITIONS Of REGISTRATION

(CONTINUED)

• (i) The Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee, and

• (ii) The Reserve Bank has advised that it has no objection to that appointment.

• 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 explained in the Reserve Bank of New Zealand document entitled ‘Outsourcing Policy’ (BS11) dated January 2006.

• Until 31 December 2008, functions provided to the Bank by Electronic Transaction Services Limited and Interchange and Settlement Limited are not covered by this condition.

• (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, and any 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.

• For the purposes of these conditions of registration, the term ‘Banking Group’ means ANZ National Bank Limited’s financial reporting group (as defined in section 2(1) of the Financial Reporting Act 1993).

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S CREDIT RATING INfORMATION

Credit Ratings applicable as at 19 November 2008

The Bank has three current credit ratings, which are applicable to its long-term senior unsecured obligations which are payable in New Zealand in New Zealand dollars. The credit ratings are:

in New Zealand dollars. The credit ratings	are:
Standard & Poor’s	AA
Moody’s Investors Service	Aa2
Fitch Ratings	AA-

The Standard & Poor’s rating was issued on 22 February 2007. On this date Standard & Poor’s revised the Bank’s rating to AA from AA-. There have been no other changes in the credit rating issued in the past two years ended 30 September 2008. The rating is not subject to any qualifications.

The Moody’s Investors Service was issued on 4 May 2007. On this date Moody’s Investors Service revised the Bank’s rating to Aa2 from Aa3. There have been no other changes in the credit rating issued in the past two years ended 30 September 2008. The rating is not subject to any qualifications.

Fitch Ratings was formally engaged by the Bank on 18 March 2008 to provide credit rating services. Previously Fitch Ratings had rated the Bank on an unsolicited basis as AA- and this rating was last affirmed on 26 October 2007. The rating is not subject to any qualifications.

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Standard & Moody’s
Poor’s Investors Fitch Ratings
Service
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	Standard & Poor’s	Moody’s Investors Service	Fitch Ratings
The following grades display investment grade characteristics:
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 fnancial conditions.	A	A	A
Adequate ability to repay principal and interest. More vulnerable to adverse changes.	BBB	Baa	BBB
The following grades have predominantly speculative characteristics:
Signifcant uncertainties exist which could affect the payment of principal and interest on a timely basis.	BB	Ba	BB
Greater vulnerability and therefore greater likelihood of default.	B	B	BB
Likelihood of default now considered high. Timely repayment of principal and interest is dependent on favourable fnancial conditions.	CCC	Caa	CCC
Highest risk of default.	CC to C	Ca to C	CC to C
Obligations currently in default.	D	-	RD & D

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

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

DIRECTORS’ STATEMENT

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 Statement (Full and Half-Year - New Zealand Incorporated Registered Banks) Order 2008;

• (ii) The Disclosure Statement is not false or misleading.

Over the year ended 30 September 2008, after due enquiry, each Director believes that:

• (i) ANZ National Bank Limited has complied with 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, operational risk and other business risks, and that those systems were being properly applied.

This General Disclosure Statement is dated, and has been signed by or on behalf of all Directors of the Bank on, 19 November 2008. On that date, the Directors of the Bank were:

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Dr D T Brash

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Dr R J Edgar

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N M T Geary, CBE

G K Hodges

P R Marriott

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M R P Smith, OBE

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Sir Dryden Spring

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S

INDEpENDENT AUDIT REpORT fOR ThE yEAR ENDED 30 SEpTEMbER 2008

INDEPENDENT AUDIT REPORT TO ThE ShAREhOLDER Of ANZ NATIONAL BANK LIMITED

We have audited the financial statements on pages 4 to 110 prepared and disclosed in accordance with Clause 22 of the Registered Bank Disclosure Statement (Full and Half-Year – New Zealand Incorporated Registered Banks) Order 2008 (the ‘Order’) and the supplementary information prescribed in Schedules 3 to 9 of the Order. The financial statements, and supplementary information, provide information about the past financial performance and cash flows of ANZ National Bank Limited (the ‘Bank’) and its subsidiary companies (the ‘Banking Group’) and their financial position as at 30 September 2008. This information is stated in accordance with the accounting policies set out on pages 10 to 21.

DIRECTORS’ RESPONSIBILITIES

The Directors of ANZ National Bank Limited are responsible for the preparation and presentation of financial statements which give a true and fair view of the financial position of the Bank and Banking Group as at 30 September 2008 and their financial performance and cash flows for the year ended on that date.

They are also responsible for the preparation of supplementary information which gives a fair view, in accordance with the Order, of the matters to which it relates; and complies with Schedules 3 to 9 of the Order.

AUDITORS’ RESPONSIBILITIES

It is our responsibility to express an independent opinion on the financial statements, including the supplementary information disclosed in accordance with Schedules 4, 6 to 9, and Clause 17 of Schedule 3 of the Order presented to us by the Directors and report our opinion to you in accordance with Clause 19 of the Order.

It is also our responsibility to express an independent opinion on the supplementary information as required by Schedule 5B of the Order in order to state whether, on the basis of the procedures described below, anything has come to our attention that would indicate that the information disclosed in accordance with Schedule 5B is not in all material respects 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 disclosed in accordance with Schedule 5B and for reporting our findings to you.

BASIS Of AUDIT OPINION

An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: • the significant estimates and judgments made by the Directors in the preparation of the financial statements and supplementary information; and

• whether the accounting policies are appropriate to the Bank’s and Banking Group’s circumstances, consistently applied and adequately disclosed.

We conducted our audit in accordance with New Zealand Auditing Standards. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to obtain reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Our firm has also provided other services to the Bank and Banking Group in relation to other 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 the business of the Bank and Banking Group. There are, however, certain restrictions on borrowings which the partners and employees of our firm can have with the Bank and 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 and Banking Group.

UNqUALIfIED OPINION

We have obtained all the information and explanations we have required.

• In our opinion:

• proper accounting records have been kept by the Bank and Banking Group as far as appears from our examination of those records;

• the financial statements on pages 4 to 110 (excluding the supplementary information included in Notes 31, 33, 34 and 41):

• comply with New Zealand generally accepted accounting practice; and

• give a true and fair view of the balance sheets of the Bank and Banking Group as at 30 September 2008 and the results of their operations and cash flows for the year ended on that date;

• the supplementary information disclosed in Notes 33, 34 and 41 prescribed by Schedules 4, 6 to 9 and Clause 17 of Schedule 3 of the Order is fairly stated in accordance with those Schedules;

Further, nothing has come to our attention that:

• the supplementary information disclosed in Note 31 relating to Capital Adequacy as required by Schedule 5B of the Order, derived from the Bank’s financial statements and sources other than the Banks’ accounting records, is not in all material respects derived in accordance with the Bank’s Conditions of Registration, with the Reserve Bank of New Zealand document Capital Adequacy Framework (Internal Models Based Approach) (BS2B), and 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 5B of the Order.

Our review was completed on 19 November 2008 and our unqualified opinion is expressed as at that date.

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Wellington

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A N Z N AT I O N A L B A N K L I M I T E D A N D S U B S I D I A RY C O M PA N I E S INDEX

General Disclosures	General Disclosures	2
Summary of Financial Statements		4
Income Statements		5
Statements of Recognised Income and Expense		6
Balance Sheets		7
Cash Flow Statements		8
1.	Accounting Policies	10
2.	Critical Estimates and Judgements Used in
	Applying Accounting Policies	22
3.	Risk Management Policies	25
4.	Income	27
5.	Expenses	28
6.	Income Tax Expense	29
7.	Liquid Assets	30
8.	Due from Other Financial Institutions	30
9.	Trading Securities	30
10.	Discontinued Operations	30
11.	Derivative Financial Instruments	31
12.	Available-For-Sale Assets	35
13.	Net Loans and Advances	35
14.	Impaired Assets, Past Due Assets and
	Other Assets Under Administration	36
15.	Provision for Credit Impairment	37
16.	Shares in Controlled Entities, Associates and
	Jointly Controlled Entities	38
17.	Other Assets	39
18.	Deferred Tax Assets	39
19.	Premises and Equipment	40
20.	Goodwill and Other Intangible Assets	40
21.	Due to Other Financial Institutions	41
22.	Deposits and Other Borrowings	41
23.	Payables and Other Liabilities	42

24. Deferred Tax Liabilities	42
25. Provisions	43
26. Bonds and Notes	44
27. Due to Parent Company	45
28. Loan Capital	46
29. Ordinary Share Capital	47
30. Reserves and Retained Earnings	48
31. Capital Adequacy	49
32. Financial Risk Management	59
33. Concentrations of Credit Risk	83
34. Market Risk	85
35. Interest Earning and Discount Bearing
Assets and Liabilities	85
36. Fair Value of Financial Assets and
Financial Liabilities	86
37. Segmental Analysis	92
38. Notes to the Cash Flow Statements	95
39. Controlled Entities, Associates and Interests
in Jointly Controlled Entities	96
40. Parent Company and Ultimate Parent Company	98
41. Securitisation, Funds Management, Other
Fiduciary Activities and the Marketing and
Distribution of Insurance Products	99
42. Commitments	101
43. Contingent Liabilities and Credit
Related Commitments	101
44. Employee Share and Option Plans	103
45. Retirement Beneft Obligations	106
46. Related Party Transactions	108
47. Subsequent Events	110
Directorate and Auditors	111
Conditions of Registration	113
Credit Rating Information	116
Directors’ Statement	117
Independent Audit Report	118

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