Australia and New Zealand Banking Group Ltd. — Annual Report 2011

Nov 30, 2011

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Australia and New Zealand Banking Group Limited – New Zealand Branch Disclosure Statement

FOR THE YEAR ENDED 30 SEPTEMBER 2011 | NUMBER 11 ISSUED NOVEMBER 2011

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Australia and New Zealand Banking Group Limited - New Zealand Branch

Disclosure Statement

For the year ended 30 September 2011

Contents

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

Glossary of Terms

In this Disclosure Statement unless the context otherwise requires:

• (a) "Bank" means ANZ National Bank Limited;

• (b) "Banking Group" means ANZ National Bank Limited and all its controlled entities;

• (c) "Immediate Parent Company" means ANZ Funds Pty Limited, which is the immediate parent company of ANZ Holdings (New Zealand) Limited;

• (d) "Ultimate Parent Bank" means Australia and New Zealand Banking Group Limited;

• (e) "Overseas Banking Group" means the worldwide operations of Australia and New Zealand Banking Group Limited including its controlled entities;

• (f) “New Zealand business” means all business, operations, or undertakings conducted in or from New Zealand identified and treated as if it were conducted by a company formed and registered in New Zealand;

• (g) "NZ Branch" means the New Zealand business of the Ultimate Parent Bank;

• (h) "ANZ New Zealand" means the New Zealand business of the Overseas Banking Group;

• (i) "Registered Office" is Level 6, 1 Victoria Street, Wellington, New Zealand, which is also ANZ New Zealand’s address for Service;

• (j) "RBNZ" means the Reserve Bank of New Zealand;

• (k) "APRA" means the Australian Prudential Regulation Authority;

• (l) "the Order" means the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order (No 3) 2011; and

• (m) Any term or expression which is defined in, or in the manner prescribed by, the Order shall have the meaning given in or prescribed by the Order.

Australia and New Zealand Banking Group Limited - New Zealand Branch

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General Disclosures

General Matters

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

The address for service for the NZ Branch is Level 6, 1 Victoria Street, Wellington, New Zealand.

The address for service for the Ultimate Parent Bank is ANZ Centre Melbourne, Level 9, 833 Collins Street, Docklands, Victoria 3008, Australia.

Credit Rating Information

As at 29 November 2011 the Ultimate Parent 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. On 18 May 2011, Moody’s downgraded the Ultimate Parent Bank’s debt and deposit ratings from Aa1. This followed a similar action on other major Australian banks. On 20 May 2010 Fitch changed the outlook on the Ultimate Parent Bank from Stable to Positive. During the two years ended 30 September 2011 there were no other changes to the Ultimate Parent Bank’s credit ratings or qualifications.

The Ultimate Parent Bank's Credit Ratings are:

RatingAgency	Current Credit Rating	Qualification
Standard & Poor’s	AA	Outlook Stable
Moody’s Investors Service	Aa2	Outlook Stable
Fitch Ratings	AA-	Outlook Positive

The following table describes the credit rating grades available:

		Moody's Investors
	Standard & Poor's	Service	Fitch Ratings
The following grades displayinvestmentgrade 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 financial 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:
Significant uncertainties exist which could affect the payment
ofprincipal and interest on a timelybasis.	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 financial
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.

Ranking of Local Creditors in Liquidation

There are material legislative restrictions in Australia which subordinate the claims of a class of unsecured creditors of the NZ Branch on the assets of the Ultimate Parent Bank to those of another class of unsecured creditors of the Ultimate Parent Bank, in liquidation of the Ultimate Parent Bank.

The Banking Act 1959 of the Commonwealth of Australia (the "Banking Act") gives priority over Australian assets of the Ultimate Parent Bank to deposits/liabilities in Australia if the Ultimate Parent Bank is unable to meet its obligations or suspends payment. Accordingly, deposits/liabilities in New Zealand (together with all other senior unsecured creditors of the Ultimate Parent Bank) will rank after deposits/liabilities in Australia of the Ultimate Parent Bank in relation to claims against Australian assets.

Specifically, pursuant to section 13A(3) of the Banking Act, if an Authorised Deposit-Taking Institution (defined in that Act to include a Bank like the Ultimate Parent Bank) (an "ADI") becomes unable to meet its obligations or suspends payment, the assets of the ADI in Australia are to be available to meet the ADI's liabilities in the following order:

Australia and New Zealand Banking Group Limited - New Zealand Branch

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General Disclosures

• (a) first, the ADI's liabilities to APRA (if any), because of the rights APRA has against the ADI because APRA has made, or is required to make, payments to depositors under the Financial Claims Scheme (defined below);

• (b) second, the ADI's debts to APRA for costs incurred by APRA in administration of the Financial Claims Scheme in respect of the ADI;

• (c) third, the ADI's liabilities (if any) in Australia in relation to protected accounts that account-holders keep with the ADI;

• (d) fourth, the ADI’s debts (if any) to the Reserve Bank of Australia;

• (e) fifth, the ADI’s liabilities (if any) under an industry support contract that is certified by APRA; and

• (f) sixth, the ADI's other liabilities in the order of their priority (apart from section 13A(3)).

Under section 13A(1) of the Banking Act, in certain circumstances APRA may take control of an ADI’s business or appoint an administrator (defined in the Banking Act) to take control of the ADI’s business. Section 16(1) and (2) of the Banking Act provide that, despite anything contained in any law relating to the winding up of companies, but subject to section 13A(3) of the Banking Act, the debts of an ADI to APRA in respect of APRA's costs (including costs in the nature of remuneration and expenses) of being in control of the ADI's business or of having an administrator in control of the ADI's business have priority in a winding-up of the ADI over all other unsecured debts.

Section 86 of the Reserve Bank Act provides that notwithstanding anything contained in any law relating to the winding up of companies, but subject to section 13A(3) of the Banking Act, debts due to the Reserve Bank of Australia by any ADI shall, in a winding up, have priority over all other debts other than debts due to the Commonwealth of Australia.

Section 13A(3) of the Banking Act affects all of the unsecured deposit liabilities of the NZ Branch, which as at 30 September 2011 amounted to $nil (30/09/2010 $nil).

Requirement to Hold Excess Assets over Deposit Liabilities

Section 13A(4) of the Banking Act states that it is an offence for an ADI not to hold assets (other than goodwill) in Australia of a value that is equal to or greater than the total amount of its deposit liabilities in Australia, unless APRA has authorised the ADI to hold assets of a lesser value. During the year ended 30 September 2011, the Overseas Bank has at all times held assets (other than goodwill and any assets or other amounts prescribed by APRA) in Australia of not less than the value of the Overseas Bank's total deposit liabilities in Australia.

Section 13E of the Banking Act states that APRA may give the Ultimate Parent Bank a direction that requires it to increase its level of capital.

The requirements of these sections of the Act have the potential to impact on the management of the liquidity of ANZ New Zealand.

Guarantors

As at the date of signing this Disclosure Statement, the Ultimate Parent Bank has guarantees from the Commonwealth of Australia under:

• (a) in the case of deposits and certain other accounts up to A$1 million, a scheme (the "Financial Claims Scheme") pursuant to the Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008 of the Commonwealth of Australia (the "Financial Claims Scheme Act");

• (b) in the case of wholesale funding, by a Deed of Guarantee executed by the Treasurer (and related scheme rules) (the "Wholesale Funding Guarantee"). The Australian Government closed this scheme to new debt securities on 31 March 2010.

As at the date of signing this Disclosure Statement, the NZ Branch has no obligations guaranteed under these schemes.

New Zealand Guarantee Arrangements

The Crown guarantees wholesale funding of participating New Zealand financial institutions under the New Zealand Wholesale Funding Guarantee Facility. The Government closed this scheme to new debt securities on 30 April 2010. The NZ Branch does not have a guarantee under this Scheme.

Financial Statements of the Ultimate Parent Bank and Overseas Banking Group

Copies of the most recent publicly available financial statements of the Ultimate Parent Bank and Overseas Banking Group will be provided immediately, free of charge, to any person requesting a copy where request is made at the Registered Office. The most recent publicly available financial statements for the Ultimate Parent Bank and Overseas Banking Group can also be accessed at the internet address anz.com.

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Summary of Financial Statements

		ANZ New Zealand	ANZ New Zealand
$ millions	Year to	Year to	Year to	Year to	Year to1
	30/09/2011	30/09/2010	30/09/2009	30/09/2008	30/09/2007
Continuing operations
Interest income	6,757	6,447	7,578	9,858	8,296
Interest expense	4,157	3,952	5,181	7,829	6,239
Net interest income	2,600	2,495	2,397	2,029	2,057
Other operating income	809	745	581	1,126	864
Operating income	3,409	3,240	2,978	3,155	2,921
Operating expenses	1,688	1,565	1,479	1,445	1,331
Profit before provision for credit impairment and
income tax	1,721	1,675	1,499	1,710	1,590
Provision for credit impairment	190	456	883	302	74
Profit before income tax	1,531	1,219	616	1,408	1,516
Income tax expense	446	352	422	418	551
Profit after income tax from continuing
operations	1,085	867	194	990	965
Profit from discontinued operations (net of income tax)	-	-	-	-	76
Profit after income tax	1,085	867	194	990	1,041
Dividends paid	(421)	(492)	(1,000)	(1,169)	(600)
		ANZ New Zealand
$ millions	As at	As at	As at	As at	As at1
	30/09/2011	30/09/2010	30/09/2009	30/09/2008	30/09/2007
Total impaired assets	1,792	2,047	1,188	327	115
Total assets	129,083	127,029	126,314	123,078	107,606
Total liabilities	120,618	119,208	118,999	115,951	100,751
Non-controlling interests	-	1	-	-	-
Equity	8,465	7,821	7,315	7,127	6,855

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

The amounts included in this summary have been taken from the audited financial statements of ANZ New Zealand.

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Income Statements

Income Statements
		ANZ New Zealand		NZ Branch
$ millions		Year to	Year to	Year to	Year to
	Note	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Interest income	4	6,757	6,447	581	555
Interest expense	5	4,157	3,952	444	416
Net interest income		2,600	2,495	137	139
Net trading gains	4	228	39	-	-
Funds management and insurance income	4	265	218	-	-
Other operating income / (loss)	4	314	446	(32)	42
Share of profit of associates and jointly controlled entities		2	42	-	-
Operating income		3,409	3,240	105	181
Operating expenses	5	1,688	1,565	29	26
Profit before provision for credit impairment and income tax		1,721	1,675	76	155
Provision for credit impairment	15	190	456	13	20
Profit before income tax		1,531	1,219	63	135
Income tax expense	6	446	352	19	41
Profit after income tax		1,085	867	44	94

Statements of Comprehensive Income

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	Year to	Year to	Year to	Year to
	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Profit after income tax	1,085	867	44	94
Unrealised gains recognised directly in equity	72	142	-	-
Realised losses/ (gains) transferred to the income statement	(38)	9	-	-
Actuarial gain / (loss) on defined benefit schemes	(64)	27	-	-
Income tax credit / (expense) on items recognised directly in
equity	11	(48)	-	-
Total comprehensive income for the year	1,066	997	44	94

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Statements of Changes in Equity

			ANZ New Zealand	ANZ New Zealand	ANZ New Zealand
	Ordinary share				Total equity
	capital and	Available-for-	Cash flow		attributable to
	head office	sale revaluation	hedging	Retained	owners of the	Non-controlling
$ millions	account	reserve	reserve	earnings	parent entity	interests	Total equity
As at 1 October 2009	6,424	25	23	843	7,315	-	7,315
Profit after income tax attributable to
parent	-	-	-	867	867	-	867
Valuation gain recognised in other
comprehensive income	-	53	89	-	142	-	142
Losses / (gains) transferred to the income
statement	-	(12)	21	-	9	-	9
Actuarial gain on defined benefit schemes	-	-	-	27	27	-	27
Income tax expense on items recognised
directly in equity	-	(8)	(31)	(9)	(48)	-	(48)
Total comprehensive income for the year	-	33	79	885	997	-	997
Preference dividend paid	-	-	-	(492)	(492)	-	(492)
Acquired in a business combination	-	-	-	-	-	1	1
As at 30 September 2010	6,424	58	102	1,236	7,820	1	7,821
Profit after income tax attributable to
parent	-	-	-	1,085	1,085	-	1,085
Valuation gain recognised in other
comprehensive income	-	21	51	-	72	-	72
Losses / (gains) transferred to the income
statement	-	(42)	4	-	(38)	-	(38)
Actuarial loss on defined benefit schemes	-	-	-	(64)	(64)	-	(64)
Income tax credit / (expense) on items
recognised directly in equity	-	9	(16)	18	11	-	11
Total comprehensive income for the year	-	(12)	39	1,039	1,066	-	1,066
Ordinary dividend paid	-	-	-	(215)	(215)	-	(215)
Preference dividend paid	-	-	-	(206)	(206)	-	(206)
Movement in non-controlling interests	-	-	-	-	-	(1)	(1)
As at 30 September 2011	6,424	46	141	1,854	8,465	-	8,465
				NZ Branch
	Ordinary share				Total equity
	capital and	Available-for-	Cash flow		attributable to
	head office	sale revaluation	hedging	Retained	owners of the	Non-controlling
$ millions	account	reserve	reserve	earnings	parent entity	interests	Total equity
As at 1 October 2009	11	-	-	28	39	-	39
Profit after income tax attributable to
parent	-	-	-	94	94	-	94
Total comprehensive income for theyear	-	-	-	94	94	-	94
As at 30 September 2010	11	-	-	122	133	-	133
Profit after income tax attributable to
parent	-	-	-	44	44	-	44
Total comprehensive income for the year	-	-	-	44	44	-	44
As at 30 September 2011	11	-	-	166	177	-	177

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Balance Sheets

Balance Sheets
		ANZ New Zealand		NZ Branch
$ millions	Note	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Assets
Liquid assets	8	2,455	2,239	-	-
Due from other financial institutions	9	3,633	3,496	-	-
Trading securities	10	9,466	6,757	-	-
Derivative financial instruments	11	14,294	10,854	172	500
Available-for-sale assets	12	411	2,151	-	-
Net loans and advances	13	93,613	96,015	9,931	10,059
Due from related entities		-	-	338	302
Investments backing insurance policyholder liabilities		97	87	-	-
Insurance policy assets		200	138	-	-
Shares in associates and jointly controlled entities	16	100	144	-	-
Current tax assets		-	18	-	-
Other assets	17	857	970	-	3
Deferred tax assets	18	125	304	8	7
Premises and equipment		325	311	-	-
Goodwill and other intangible assets	19	3,507	3,545	-	-
Total assets		129,083	127,029	10,449	10,871
Interest earning and discount bearing assets		108,126	108,325	10,230	10,340
Liabilities
Due to other financial institutions	20	12,247	12,293	10,011	10,481
Deposits and other borrowings	21	69,238	70,295	-	-
Due to related parties		-	-	51	-
Derivative financial instruments	11	14,178	10,727	117	142
Payables and other liabilities	22	2,416	1,506	73	70
Provisions	23	309	315	-	-
Current tax liability		4	-	20	45
Bonds and notes	24	18,472	19,899	-	-
Term funding	26	1,766	1,766	-	-
Loan capital	25	1,988	2,407	-	-
Total liabilities (excluding head office account)		120,618	119,208	10,272	10,738
Net assets (excluding head office account)		8,465	7,821	177	133
Represented by:
Share capital and head office account	28	6,424	6,424	11	11
Reserves		187	160	-	-
Retained earnings		1,854	1,236	166	122
Parent shareholder's equity and head office account		8,465	7,820	177	133
Non-controlling interests		-	1	-	-
Total equity & head office account		8,465	7,821	177	133
Interest and discount bearing liabilities		98,397	100,335	10,011	10,481

For and on behalf of the Board of Directors:

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John Morschel Chairman Australia and New Zealand Banking Group Limited 29 November 2011

Michael Smith Executive Director Australia and New Zealand Banking Group Limited 29 November 2011

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Cash Flow Statement

Cash Flow Statement
		ANZ New Zealand		NZ Branch
		Year to	Year to	Year to	Year to
$ millions	Note	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Cash flows from operating activities
Interest received		6,661	6,217	590	565
Dividends received		2	2	-	-
Net funds management & insurance income		203	137	-	-
Fees and other income received		752	772	-	-
Interest paid		(4,088)	(3,880)	(440)	(390)
Operating expenses paid		(1,605)	(1,473)	(30)	(25)
Income taxes paid		(233)	(579)	(46)	(15)
Cash flows from operating profits before changes in operating
assets and liabilities		1,692	1,196	74	135
Net changes in operating assets and liabilities:
Change in due from other financial institutions - term		755	1,967	-	-
Change in trading securities		(2,777)	(2,613)	-	-
Change in derivative financial instruments		137	1,083	274	29
Change in available-for-sale assets		1,745	(444)	-	-
Change in insurance investment assets		(10)	31	-	-
Change in loans and advances		1,914	218	103	(1,248)
Change in due from related parties		-	-	(36)	-
Change in due to related entities		-	-	51	39
Change in other assets		42	143	3	(3)
Change in due to other financial institutions		237	(914)	(470)	1,048
Change in deposits and other borrowings		(1,570)	(1,910)	-	-
Change in payables and other liabilities		917	(65)	1	-
Net cash flows provided by / (used in) operating
activities	33	3,082	(1,308)	-	-
Cash flows from investing activities
Proceeds from sale of shares in associates and jointly
controlled entities		49	7	-	-
Proceeds from sale of premises and equipment		-	1	-	-
Proceeds from sale of intangible assets		20	-	-	-
Purchase of shares in subsidiary entities		-	(247)	-	-
Purchase of intangible assets		(54)	(43)	-	-
Purchase of premises and equipment		(65)	(80)	-	-
Net cash flows used in investing activities		(50)	(362)	-	-
Cash flows from financing activities
Proceeds from issue of bonds and notes		3,992	5,481	-	-
Redemptions of bonds and notes		(3,687)	(4,307)	-	-
Redemptions of loan capital		(405)	(200)	-	-
Distributions to non-controlling interests		(1)	-	-	-
Dividends paid		(421)	(492)	-	-
Net cash flows provided by / (used in) financing
activities		(522)	482	-	-
Net cash flows provided by / (used in) operating activities		3,082	(1,308)	-	-
Net cash flows used in investing activities		(50)	(362)	-	-
Net cash flows provided by / (used in) financing activities		(522)	482	-	-
Net increase / (decrease) in cash and cash equivalents		2,510	(1,188)	-	-
Cash and cash equivalents at beginning of the year		3,578	4,766	-	-
Cash and cash equivalents at end of the year	33	6,088	3,578	-	-

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

1. Significant Accounting Policies

(a) Basis of preparation

(i) Statement of compliance

These financial statements have been prepared in accordance with the requirements of the Companies Act 1993, the Financial Reporting Act 1993 and the Order. The NZ Branch’s financial statements are for Australia and New Zealand Banking Group Limited - New Zealand Branch as a separate entity and ANZ New Zealand’s financial statements are for the NZ Branch’s consolidated group, which includes subsidiaries, associate companies and jointly controlled entities.

These financial statements have also been prepared in accordance with New Zealand Generally Accepted Accounting Practice. 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 financial statements were authorised for issue by the Board of Directors on 29 November 2011.

(ii) Use of estimates and assumptions

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.

Discussion of the critical accounting treatments, which include complex or subjective decisions or assessments, are covered in Note 2. Such estimates may require review in future periods.

(iii) Basis of measurement

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

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

• financial instruments held for trading;

• assets treated as available-for-sale; and

• financial instruments designated at fair value through profit and loss.

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

(iv) Changes in accounting policies and application of new accounting standards

The accounting policies adopted by ANZ New Zealand are consistent with those adopted and disclosed in the prior period.

(v) Rounding

The amounts contained in the financial statements have been rounded to the nearest million dollars, except where otherwise stated.

(vi) Comparatives

Certain amounts in the comparative information have been reclassified to ensure consistency with the current year's presentation. This includes reclassifying certain investment assets that relate to the insurance business from availablefor-sale assets to investments backing insurance policyholder liabilities, to better reflect the purpose the assets are held for.

(vii) Basis of aggregation

The basis of aggregation is an addition of individual financial statements of the entities in ANZ New Zealand. All transactions between entities within ANZ New Zealand have been eliminated.

Subsidiaries

The financial statements aggregate the financial statements of the Branch and all New Zealand subsidiaries where it is determined that there is capacity to control.

Where subsidiaries have been sold or acquired during the year, their operating results have been included to the date of disposal or from the date of acquisition.

Control means the power to govern, directly or indirectly, the financial and operating policies of an entity so as to obtain benefits from its activities. All of the facts of a particular situation are considered when determining whether control exists. Control is 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; or

• 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.

In relation to special purpose entities control is deemed to exist where:

• in substance, the majority of the residual risks and rewards from their activities accrue to ANZ New Zealand; or

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

• in substance, ANZ New Zealand controls decision making powers so as to obtain the majority of the risks and rewards from their activities.

Associates and joint ventures

ANZ New Zealand adopts the equity method of accounting for associates and ANZ New Zealand's interest in joint venture entities.

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

In the NZ Branch’s financial statements investments in subsidiaries, associates and joint ventures are carried at cost less accumulated impairment losses.

(viii) Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of ANZ New Zealand’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). ANZ New Zealand’s financial statements are presented in New Zealand dollars, which is ANZ New Zealand’s functional and presentation currency.

Foreign currency transactions

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

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

Translation differences on non-monetary items, such as derivatives, 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 revaluation reserve in equity.

(b) Income recognition

Income is recognised to the extent that it is probable that economic benefits will flow to ANZ New Zealand and that revenue can be reliably measured.

(i) Interest income

Interest income is recognised 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 so as to achieve a constant yield on the financial asset or liability.

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 received that are integral to the effective interest rate of a financial asset are recognised using the effective interest method. For example, loan commitment fees, together with related direct costs, are deferred and recognised as an adjustment to the effective interest rate on a loan once drawn. Commitment fees to originate a loan which is unlikely to be drawn down are recognised as fee income as the service is provided.

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

Fees charged for providing ongoing services (for example, maintaining and administering existing facilities) are recognised as income 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.

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Notes to the Financial Statements

(v) Gain or loss on sale of premises 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 an item of other income in the period in which the significant risks and rewards of ownership are transferred to the buyer.

(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.

(ii) Loan origination expenses

Certain loan origination expenses are an integral part of the effective interest rate of a financial asset 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) Lease payments

Leases entered into by ANZ New Zealand as lessee are predominantly operating leases, and the operating lease payments are recognised as an expense on a straight-line basis over the lease term.

(d) Income tax

(i) Income tax expense

Income tax on earnings for the year comprises current and deferred tax and is based on the applicable tax law in each jurisdiction. It is recognised in the income statement as tax expense, except when it relates 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 year, 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. It is generated by providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base.

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

Deferred tax liabilities are recognised for all taxable temporary differences, other than those relating 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 ANZ New Zealand 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 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 ANZ New Zealand, at the reporting date, recovers or settles the carrying amount of its assets and liabilities.

(iv) Offsetting

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

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Notes to the Financial Statements

(e) Assets

Financial assets

(i) Financial assets and liabilities at fair value through profit or loss Trading securities are financial instruments acquired principally for the purpose of selling in the short-term or which are a part of a portfolio which is managed for short-term profit-taking. Trading securities are initially recognised and subsequently measured in the balance sheet at their fair value.

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:

• investments backing insurance policyholder liabilities;

• 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.

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.

(ii) Derivative financial instruments

Derivative financial instruments are contracts whose value is derived from changes in one or more underlying price index or other variable, require little or no initial net investment and are settled at a later date. They include swaps, forward rate agreements, futures, options and combinations of these instruments.

Derivative financial instruments are entered into for trading purposes (including customer-related reasons) or for hedging purposes (where the derivative instruments are used to hedge ANZ New Zealand’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. Included in the determination of fair value of derivatives is a credit valuation adjustment to reflect the credit worthiness of the counterparty, modelled using the counterparty's credit spreads. The valuation adjustment is influenced by the mark-to-market of the derivative trades and by the movement in credit spreads.

Where the derivative is designated and is 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 ANZ New Zealand hedges the fair value of a recognised asset or liability or firm commitment, changes in the fair value of the derivative designated as a fair value hedge are recognised in the income statement. Changes in the fair value of the hedged item attributable to the hedged risk are reflected in adjustments to the carrying value of 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

ANZ New Zealand designates derivatives as cash flow hedges where the instrument hedges the variability in cash flows of a recognised asset or liability, a foreign exchange component of a firm commitment, or a highly probable forecast transaction. The effective portion of changes in the fair value of derivatives qualifying and designated as cash flow hedges is deferred to the hedging reserve, which forms part of shareholders’ equity. Any ineffective portion is recognised immediately in the income statement. Amounts deferred in equity are recognised in the income statement in the period during which the hedged forecast transactions take place.

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

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

Derivatives that do not qualify for hedge accounting

All gains and losses from changes in the fair value of derivatives that are not designated in a hedging relationship but are entered into to manage the interest rate and foreign exchange risk of funding instruments are recognised in the income statement. Under certain circumstances, the component of the fair value change in the derivative which relates to current

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

period realised and accrued interest is included in net interest income. The remainder of the fair value movement is included in other income.

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.

For contracts subject to master netting agreements that create a legal right of set-off for which only the net revaluation amount is recognised in the income statement, net unrealised gains on derivatives are recognised as part of other assets and net unrealised losses are recognised as part of other liabilities.

(iii) Available-for-sale assets

Available-for-sale assets comprise non-derivative financial assets which ANZ New Zealand designates as available-for-sale but which are not deemed to be held principally for trading purposes, and include equity investments, certain loans and advances and quoted debt securities.

They are initially recognised at fair value plus transaction costs. Subsequent gains or losses arising from changes in fair value are included as a separate component of equity in the available-for-sale revaluation reserve. When the asset is sold, the cumulative gain or loss relating to the asset is transferred to the income statement.

Where there is objective evidence of impairment on an available-for-sale asset, 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 noninterest income for equity instruments. If, in a subsequent period, the amount of an impairment loss relating to an available-for-sale debt instrument decreases and the decrease can be linked objectively to an event occurring after the impairment event, the loss is reversed through the income statement through the impairment expense line.

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

(iv) Net loans and advances

Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when ANZ New Zealand provides money to a debtor with no intention of trading the loans and advances. The loans and advances are initially recognised at fair value plus transaction costs that are directly attributable to the issue of the loan or advance. They are subsequently measured at amortised cost using the effective interest method, unless specifically designated on initial recognition at fair value through profit or loss.

All loans are graded according to the level of credit risk.

Net loans and advances include direct finance provided to customers such as bank overdrafts, credit cards, term loans, finance lease receivables and commercial bills.

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. 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 loss event, or events, has had an impact on the estimated future cash flows of the individual loan or the collective portfolio of loans that can be reliably estimated.

Impairment is assessed for assets that are 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.

Exposures that are assessed collectively 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 and an assessment of the economic cycle.

The estimated impairment losses are measured 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 between recognition of impairment and recovery of the cash flow, it is recognised in interest income. The process of estimating the amount and timing of cash flows involves considerable management judgement. These judgements are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

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

The provision for impairment loss (individual and collective) is deducted from loans and advances in the balance sheet and the movement for the reporting period is reflected in the income statement.

When a loan is uncollectible, either partially or in full, it is written off against the related provision for loan impairment. Unsecured facilities are normally written-off when they become 180 days past due or earlier in the event of the customer's bankruptcy or similar legal release from the obligation. However, a certain level of recoveries is expected after the writeoff, 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 there is a shortfall.

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Notes to the Financial Statements

Where impairment losses recognised in previous periods have subsequently decreased or no longer exist, such impairment losses are reversed in the income statement.

A provision is also raised for off-balance sheet items such as commitments that are considered likely to result in an expected loss.

(v) Lease receivables

Contracts to lease assets and hire purchase agreements are classified as finance leases if they transfer substantially all the risks and rewards of ownership of the asset to the customer or an unrelated third party. All other lease contracts are classified as operating leases.

(vi) Repurchase agreements

Securities sold under repurchase agreements are retained in the financial statements where substantially all the risks and rewards of ownership remain with ANZ New Zealand, and a counterparty liability is disclosed under the classifications of due to other financial institutions or payables and other liabilities. The difference between the sale price and the repurchase price is accrued over the life of the repurchase agreement and charged to interest expense in the income statement.

Securities purchased under agreements to resell, where ANZ New Zealand does not acquire the risks and rewards of ownership, are recorded as receivables in 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.

Securities borrowed are not recognised in the balance sheet, unless these are sold to third parties, at which point the obligation to repurchase is recorded as a financial liability at fair value with fair value movements included in the income statement.

(vii) Derecognition

ANZ New Zealand 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, ANZ New Zealand derecognises the asset if control over the asset is lost. In transfers where control over the asset is retained, ANZ New Zealand 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.

(viii)Investments backing insurance policyholder liabilities

Securities held to back insurance and investment contract liabilities are classified as policyholder assets. These policyholder assets are designated at fair value through profit or loss.

Non-financial assets

(ix) Goodwill

Goodwill represents the excess of the purchase consideration over the fair value of the identifiable net assets of a controlled entity at the date of gaining control. Goodwill is recognised as an asset and not amortised, but is assessed for impairment at least annually or more frequently if there is an indication that the goodwill may be impaired. This involves using the discounted cash flow ("DCF") or the capitalisation of earnings methodology ("CEM") to determine the expected future benefits of the cash generating units to which the goodwill relates. Where the assessment results in the goodwill balance exceeding the value of expected future benefits, the difference is charged to the income statement. Any impairment of goodwill is not subsequently reversed.

(x) Other intangible assets

Other intangible assets include costs incurred in acquiring and building software and computer systems ("software") and management rights and customer relationships acquired in business combinations.

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

Management rights and customer relationships, including the value of in force insurance contracts, are initially measured at fair value. Management rights and customer relationships with a definite useful life are amortised over the expected useful life. Where management rights and customer relationships do not have finite terms and the cash flows associated with these management rights are expected to continue indefinitely, the intangible assets associated with these items are treated as having an indefinite useful life. Management rights and customer relationships with an indefinite useful life are not amortised.

At each reporting date, the software assets and other intangible assets are reviewed for impairment. If any such indication exists, the recoverable amount of the assets is 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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

(xi) Premises and equipment

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

Borrowing costs incurred for the construction of qualifying assets are capitalised during the period of time that is required to complete and prepare the asset for its intended use. The calculation of borrowing costs is based upon ANZ New Zealand's internal cost of capital.

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

Buildings	1.5%
Building integrals	10%
Furniture & equipment	10%
Computer & office equipment	12.5 % - 33%

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 impairment. If any such indication exists, the recoverable amount of the assets is 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. If it is not possible to estimate the recoverable amount of an individual asset, ANZ New Zealand 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 recoverable amount.

(xii) Insurance policy assets / liabilities

Net insurance policy assets / liabilities include liabilities arising from life investment contracts and assets / liabilities arising from life insurance contracts.

Provisions for liabilities under life investment contracts are measured at fair value. The provision consists of a deposit component, being a financial instrument, which is recognised as an increase in investment contract liabilities, and an investment management services element. Fair value is determined as the net present value of fees, in respect of the investment management service, discounted at the risk free rate.

Life insurance contract assets / liabilities are determined using either a projection method or an accumulation method. Using a projection method, expected policy cash flows are projected into the future. The asset / liability is determined as the net present value of the expected cash flows. An accumulation method is used where the policy assets / liabilities determined are not materially different from those determined under the projection method.

Profits from life insurance contracts are brought to account using the Margin on Services model, under which profit is recognised as premiums are received and services are provided to policyholders. Where premiums are received but the service has not been provided, the profit is deferred. Losses are expensed when identified.

(f) Liabilities

Financial liabilities

(i) Deposits and other borrowings

Deposits and other borrowings include certificates of deposit, interest bearing deposits, debentures, commercial paper and other related interest and non-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. 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 accounted for in the same way as deposits and other borrowings, except for those bonds and notes which are designated at fair value through profit or loss on initial recognition, with fair value movements recorded in the income statement.

(iii) Financial guarantee contracts

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse 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, ANZ New Zealand'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.

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Notes to the Financial Statements

Non-financial liabilities

(v) Employee leave benefits

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

(vi) Provisions

ANZ New Zealand 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 the reporting date, taking into account the risks and uncertainties surrounding the obligation at the 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.

(g) Equity

(i) Shares

Issued shares are recognised at the amount paid per share net of directly attributable issue costs.

(ii) Non-controlling interests

Non-controlling interests represent the share in the net assets of subsidiaries attributable to equity interests not owned directly or indirectly by the Bank.

(iii) 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 derecognised. Where the asset is impaired, the changes are transferred to the impairment expense line in the income statement for debt instruments and in the case of equity instruments to non-interest income.

Cash flow hedging reserve

This reserve includes the fair value gains and losses associated with the effective portion of 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; or

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

(ii) Offsetting of financial assets and liabilities

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

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

• 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, cash and cash equivalents includes: cash on hand; deposits held at call with other financial institutions; and other short term, highly liquid, investments with original terms of maturity of three months or less that are readily convertible to cash and which are subject to an insignificant risk of changes in value.

Certain cash flows have been netted in order to provide more meaningful disclosure, as many of the cash flows are received and disbursed on behalf of customers and reflect the activities of the customers rather than those of ANZ New Zealand. 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 ANZ New Zealand that provide products or services that are subject to risks and rewards that are different to those of other business segments. ANZ New Zealand operates predominately in the banking industry within New Zealand. ANZ New Zealand has very limited exposure to risk associated with operating in different economic environments or political conditions. On this basis no geographical segment information is provided. For reporting purposes the three major business segments are Retail, Commercial and Institutional.

(v) Goods and services tax

Income, 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.

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Notes to the Financial Statements

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.

(i) Other

(i) Contingent liabilities

Contingent liabilities acquired in a business combination are individually measured at fair value at the acquisition date. At subsequent reporting dates the value of such contingent liabilities is reassessed based on the estimate of expenditure required to settle the contingent liability.

Other contingent liabilities are not recognised in the balance sheet but disclosed in Note 35 unless it is considered remote that ANZ New Zealand will be liable to settle the possible obligation.

(ii) Accounting Standards not early adopted

The following standards and amendments were available for early adoption but have not been applied by ANZ New Zealand in these financial statements. ANZ New Zealand currently does not intend to apply any of these pronouncements until their effective date and is assessing their impact on its financial statements.

Standards and amendments effective for periods commencing after 1 January 2013

NZ IFRS 9 Financial Instruments (2009 & 2010)

Specifies a simpler methodology for classifying and measuring financial assets, with two primary measurement categories: amortised cost and fair value. Requires the amount of change in the fair value attributable to changes in credit risk of certain liabilities designated under the fair value option to be presented in other comprehensive income. NZ IFRS 10 Consolidated Financial Statements

Establishes a new approach to determining which investees should be consolidated and provides a single model to be applied in the control analysis for all investors.

NZ IFRS 11 Joint Arrangements

Introduces a new approach to joint arrangements, which focuses on the rights and obligations of the arrangement rather than its legal form, and requires the equity method of accounting for joint ventures.

NZ IFRS 12 Disclosure of Interests in Other Entities

Provides a single, consistent approach for disclosures of all interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities.

NZ IFRS 13 Fair value measurement

Provides a single source of guidance on fair value measurement and requires certain disclosures regarding fair value. NZ IAS 27 (2011) Separate Financial Statements

Carries forward the existing accounting and disclosure requirements for separate financial statements.

Other amendments

Improvements to New Zealand equivalents to International Financial Reporting Standards 2010

Is the International Accounting Standards Board’s annual omnibus updates of standards.

2. Critical Estimates and Judgement Used in Applying Accounting Policies

There are a number of critical accounting treatments which include complex or subjective judgements 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 ANZ New Zealand, in the process of applying its accounting policies, that have the most significant effect on the amounts recognised in the financial statements are set out below.

Critical accounting estimates and assumptions

Credit provisioning

The accounting policy relating to measuring the impairment of loans and advances requires ANZ New Zealand to assess impairment at least at each reporting date. The credit provisions raised (collective and individual) represent management's best estimate of the losses incurred in the loan portfolio at balance date based on their experienced judgement.

The collective provision is estimated on the basis of historical loss experience for assets with credit characteristics similar to those in the collective pool. The historical loss experience is adjusted based on current observable data and events and an assessment of the impact of model risk. The provision also takes into account the impact of large concentrated losses within the portfolio.

The use of such judgements and reasonable estimates is considered by management to be an essential part of the process and does not impact on reliability.

Individual provisioning is applied when the full collectability of one of ANZ New Zealand's loans is identified as being doubtful. Individual and collective provisioning is calculated using discounted expected future cash flows. The

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

methodology and assumptions used for estimating both the amount and timing of future cash flows are revised regularly to reduce any differences between loss estimates and actual loss experience.

Refer to Note 15 for details of credit impairment 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.

Critical judgements in applying ANZ New Zealand’s accounting policies

Derivatives and hedging

ANZ New Zealand buys and sells derivatives as part of its trading operations and to hedge its interest rate risk, currency risk, price risk, credit risk and other exposures relating to non-trading positions.

A hedging instrument is a designated derivative whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item. A hedged item is an asset, liability, firm commitment or highly probable forecast transaction that: (a) exposes ANZ New Zealand to the risk of changes in fair value or future cash flows; and (b) is designated as being hedged.

Judgement is required in selecting and designating hedging relationships and assessing hedge effectiveness. NZ IAS 39 Financial Instruments: Recognition and Measurement does not specify a single method for assessing hedge effectiveness prospectively or retrospectively. ANZ New Zealand 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.

Goodwill

Refer to Note 19 for details of goodwill held by ANZ New Zealand

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 write down.

Goodwill has been allocated for impairment purposes to the cash generating units at which the goodwill is monitored for internal reporting purposes. Each of these cash generating units is represented by an individual reporting segment – Retail, Commercial and Institutional. Refer to Note 7.

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 each cash generating unit with the current carrying amount of its net assets, including goodwill.

The recoverable amount is based on value-in-use calculations. These calculations use cash flow projections based on a number of financial budgets within each segment approved by management covering a three year period. Cash flow projections are based on a range of readily available economic assumptions including GDP and CPI. Cash flows beyond the three year period are extrapolated using a 3% growth rate.

These cash flow projections are discounted using a capital asset pricing model. As at 31 March 2011 when the last valuation was prepared, a discount rate of 12.04% was applied to each segment. The main variables in the calculation of the discount rate used are the risk free rate, the beta rate and the market risk premium. The risk free rate is based on the 10 year Government Bond Rate. The beta rate and the market risk premium are consistent with observable and comparative market rates applied in the regional banking sector. Market observable information is not readily available at the segment level therefore management performed stress tests for key sensitivities in each segment.

Management believes any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause ANZ New Zealand’s carrying amount to exceed its recoverable amount.

Insurance policy assets

Insurance policy assets represent deferred policy acquisition costs less policy liabilities for life investment contracts and life insurance contracts. Policy liabilities are computed using statistical or mathematical methods, expected to give approximately the same results as if an indiividual liability was calculated for each contract. The computations are made by suitably qualified personnel on the basis of recognised actuarial methods, with due regard to relevant actuarial principles and standards. Deferred policy acquisition costs are connected with the measurement basis of the policy liabilities and are equally sensitive to the factors that are considered in the liability measurement.

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

19

Notes to the Financial Statements

3. Risk Management Policies

ANZ New Zealand 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 ANZ New Zealand business units to meet their performance objectives.

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

• The Boards of the entities making up ANZ New Zealand (“the Boards”) providing leadership, setting risk appetite/strategy and monitoring progress;

• A strong framework for development and maintenance of ANZ New Zealand-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 as it is deemed to apply to each entity across ANZ New Zealand;

• Business unit level accountability, as the “first line of defence”, for the management of risks in alignment with ANZ New Zealand’s strategy; and

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

ANZ New Zealand 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 ANZ New Zealand’s response to emerging risk issues and trends, and that the requisite culture and practices are in place across ANZ New Zealand, are conducted within ANZ New Zealand and also by the Ultimate Parent Bank. The Boards have responsibility for reviewing all aspects of risk management.

The Boards have ultimate responsibility for overseeing the effective deployment of risk management frameworks, policies and processes within New Zealand. The Bank’s Risk Committee assists the Board in this function. The role of the Risk Committee is to assist the Board in the effective discharge of its responsibilities for business, market, credit, operational, compliance, liquidity, product and reputational risk management, and to liaise and consult with the Ultimate Parent Bank Risk Committee as required. Risk Management, via the Chief Risk Officer, coordinates risk management activities directly between Business Unit risk functions and Ultimate Parent Bank Group Risk Management functions.

ANZ New Zealand’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 Bank’s Audit Committee, which is a sub-committee of the Board of the Bank, has responsibility for reviewing all aspects of published financial statements and internal and external audit processes. The Bank’s Audit Committee has a quorum of two directors, both of whom must be non-executive directors. It meets at least four times a year and reports directly to the Board of the Bank.

Financial risk management

Refer to Note 30 for detailed disclosures on ANZ New Zealand'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 ANZ New Zealand’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 ANZ New Zealand’s operational risk framework and associated ANZ New Zealand-wide policies. Business units are responsible for the identification, analysis, assessment and treatment of operational risks on a day-to-day basis.

Business units have primary responsibility for the identification and management of operational risk with executive oversight provided by the relevant Retail and Wholesale Risk Committees. The Bank’s Operational Risk Executive Committee ("OREC") undertakes the governance function through the bi-monthly monitoring of operational risk performance across ANZ New Zealand. The Board and Risk Management conduct effective oversight through the approval of operational risk policies and frameworks and monitoring key operational risk metrics.

Compliance

ANZ New Zealand conducts its business in accordance with all relevant compliance requirements in each point of representation. In order to assist ANZ New Zealand identify, manage, monitor and measure its compliance obligations, ANZ New Zealand 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 ANZ New Zealand operates within a compliance infrastructure and framework that incorporates new and changing business obligations and processes.

Australia and New Zealand Banking Group Limited - New Zealand Branch

20

Notes to the Financial Statements

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

Global Internal Audit

ANZ New Zealand’s internal audit function (“Global Internal Audit”) conducts independent reviews that assist the Boards and management to meet their statutory and other obligations.

Global Internal Audit reports directly to the Chairman of the Bank’s Audit Committee and through to the Ultimate Parent Bank Group General Manager Global Internal Audit. Under its Charter, Global 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 ANZ New Zealand;

• 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 ANZ New Zealand.

In planning audit activities, Global Internal Audit adopts a risk-based approach that directs and concentrates resources to those areas of greatest significance, strategic concern and risk to the business. This encompasses reviews of major credit, market, technology and operating risks within ANZ New Zealand. Significant findings are reported quarterly to the Ultimate Parent Bank and ANZ National Bank Limited Audit Committees as appropriate.

The Global Internal Audit Plan is approved by the Bank’s Audit Committee and endorsed by the Ultimate Parent Bank Audit Committee.

All issues and recommendations reported to management are tracked and monitored internally to ensure completion and agreed actions are undertaken where appropriate.

Australia and New Zealand Banking Group Limited - New Zealand Branch

21

Notes to the Financial Statements

4. Income

		ANZ New Zealand	ANZ New Zealand	NZ Branch
		Year to	Year to	Year to	Year to
$ millions	Note	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Interest income
Financial assets at fair value through profit or loss
Trading securities		404	346	-	-
		404	346	-	-
Financial assets not at fair value through profit or loss
Liquid assets		64	66	-	-
Other financial institutions		43	67	-	-
Available-for-sale assets		34	69	-	-
Lending on productive loans		6,008	5,719	579	554
Lending on impaired assets		78	60	2	1
Other		126	120	-	-
		6,353	6,101	581	555
Total interest income		6,757	6,447	581	555
Net trading gains
Net gain on foreign exchange trading		137	123	-	-
Net gain on trading securities		204	174	-	-
Net loss on trading derivatives		(113)	(258)	-	-
Net trading gains		228	39	-	-
Funds management and insurance income
Fee income on trust and other fiduciary activities		61	62	-	-
Other funds management and insurance income		204	156	-	-
Total funds management and insurance income		265	218	-	-
Other operating income
Lending and credit facility fee income		41	45	1	-
Other fee income		566	554	-	-
Total fee income		607	599	1	-
Direct fee expense		185	181	-	-
Net fee income		422	418	1	-
Dividends received		2	2	-	-
Net gain / (loss) on hedges not qualifying for hedge
accounting		(132)	101	(29)	50
Net ineffectiveness on qualifying fair value hedges	11	11	(20)	(7)	(10)
Net cash flow hedge loss transferred to income statement		(4)	(21)	-	-
Net gain on financial liabilities designated at fair value		2	1	-	-
Loss on re-measuring existing equity interests to fair value		-	(82)	-	-
Other income		13	47	3	2
Total other operating income		314	446	(32)	42

Australia and New Zealand Banking Group Limited - New Zealand Branch

22

Notes to the Financial Statements

5. Expenses

	ANZ New Zealand	ANZ New Zealand	NZ Branch
	Year to	Year to	Year to	Year to
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Interest expense
Financial liabilities at fair value through profit or loss
Commercial paper	158	265	-	-
	158	265	-	-
Financial liabilities not at fair value through profit or loss
Other financial institutions	445	401	444	412
Deposits and other borrowings	2,347	2,150	-	-
Bonds and notes	939	810	-	-
Term funding	68	72	-	-
Loan capital	177	180	-	-
Other	23	74	-	4
	3,999	3,687	444	416
Total interest expense	4,157	3,952	444	416
Operating expenses
Personnel costs	760	735	-	-
Employee entitlements	75	71	-	-
Pension costs
- Defined contribution schemes	36	36	-	-
- Defined benefit schemes	6	7	-	-
Share-based payments expense	22	21	-	-
Building occupancy costs	41	44	-	-
Depreciation of premises and equipment	49	47	-	-
Leasing and rental costs	84	82	-	-
Related parties (Note 26)	80	86	-	-
Technology expenses	105	126	-	-
Impairment of software and other intangible assets	15	5	-	-
Amortisation of software and other intangible assets	25	24	-	-
Administrative expenses	209	209	-	-
Asset write-offs associated with core system simplification	26	-	-	-
Other core system simplification costs	136	-	-	-
Other costs	19	72	29	26
Total operating expenses	1,688	1,565	29	26
	Year to	Year to	Year to	Year to
$ thousands	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Fees paid to principal auditors
Audit or review of financial statements	2,325	2,290	72	71
Other audit-related services	567	701	33	33
Taxation services	58	-	-	-
Total auditors' remuneration	2,950	2,991	105	104
Audit fees paid to other audit firms	55	140	-	-

It is ANZ New Zealand’s policy that, subject to the approval of the Ultimate Parent Bank Audit Committee, KPMG can provide assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent with the role of auditor. KPMG may not provide services that are perceived to be in conflict with the role of auditor. Services that are perceived to be in conflict with the role of auditor include consulting advice and subcontracting of operational activities normally undertaken by management, and engagements where the auditor may ultimately be required to express an opinion on its own work.

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

23

Notes to the Financial Statements

6. Income Tax Expense

		ANZ New Zealand	ANZ New Zealand	NZ Branch
		Year to	Year to	Year to	Year to
$ millions		30/09/2011	30/09/2010	30/09/2011	30/09/2010
Reconciliation of the prima facie income tax payable on profit
Profit before income tax		1,531	1,219	63	135
Prima facie income tax at 30%		459	366	19	41
Imputed and non-assessable dividends		(6)	(6)	-	-
Effect of changes in tax legislation		(5)	45	-	-
Change in tax provisions		(11)	(54)	-	-
Non-deductible expenses		7	1	-	-
		444	352	19	41
Income tax under provided in prior years		2	-	-	-
Total income tax expense		446	352	19	41
Effective tax rate (%) before change in tax provisions and the	effect of
changes in tax legislation		30.2%	29.6%	30.0%	30.4%
Effective tax rate (%)		29.1%	28.9%	30.0%	30.4%
Amounts recognised in the income statement
Current income tax charge
Current income tax charge		262	649	20	45
Adjustments recognised in the current year in relation to current tax of
prior years		3	-	-	-
Deferred income tax
Deferred tax expense / (income) relating to the origination and reversal
of temporary differences		181	(324)	(1)	(4)
Other (including indemnity)		-	27	-	-
Total income tax expense recognised in the income statement		446	352	19	41
Amounts recognised directly in equity
Current income tax
Net gain / (loss) on revaluation of financial instruments		(9)	8	-	-
Deferred income tax
Net gain on revaluation of financial instruments		16	32	-	-
Actuarial gain / (loss) on defined benefit schemes		(18)	8	-	-
Total income tax charge / (benefit) recognised directly in equity		(11)	48	-	-
Imputation Credit Account
Balance at beginning of the year		935	645	-	-
Imputation credits attached to dividends received		5	31	-	-
Taxation paid		187	375	-	-
Imputation credits attached to dividends paid		(145)	(125)	-	-
Other		3	9	-	-
Balance at end of the year		985	935	-	-

A number of companies within ANZ New Zealand are members of an imputation group. The imputation credit account figures for ANZ New Zealand include those in relation to both the imputation group and other companies in ANZ New Zealand that are not in the imputation group.

Changes in tax legislation

In May 2010 legislation was passed to reduce the New Zealand corporate tax rate from 30% to 28% and to remove the ability to claim depreciation on buildings with an estimated useful life greater than fifty years, effective for the 2011-2012 income tax year.

Australia and New Zealand Banking Group Limited - New Zealand Branch

24

Notes to the Financial Statements

7. Segmental Analysis

For segment reporting purposes, ANZ New Zealand is organised into three major business segments - Retail, Commercial and Institutional. Centralised back office and corporate functions support these segments. These segments are consistent with internal reporting provided to the chief operating decision maker, being the Bank’s Chief Executive Officer.

During the year ended 30 September 2011 a specialist Business Banking unit was created within the Commercial segment. Segmental reporting has been updated to reflect this and other minor changes to ANZ New Zealand’s structure. Comparative data has been adjusted to be consistent with the current year’s segment definitions.

Retail

Retail provides banking products and services to individuals through separate ANZ and The National Bank of New Zealand branded distribution channels. Personal banking customers have access to a wide range of financial services and products. Retail contains ANZ New Zealand's wealth businesses which include private banking and investment services provided to high net worth individuals, the OnePath wealth management and insurance businesses, and other investment products. This segment also includes other profit centres supporting the Retail Banking segment.

Commercial

Commercial provides services to Business Banking, Commercial & Agri, and UDC customers. Business Banking services are offered to small enterprises (typically with annual revenues of less than $5 million). Commercial & Agri customers consist of primarily privately owned medium to large enterprises. ANZ New Zealand's relationship with these businesses ranges from simple banking requirements with revenue from deposit and transactional facilities, and cash flow lending, to more complex funding arrangements with revenue sourced from a wider range of products. UDC is principally involved in the financing and leasing of plant, vehicles and equipment, mainly for small and medium sized businesses, as well as investment products.

Institutional

Institutional provides financial services to large multi-banked corporations, often global, who require sophisticated product and structuring solutions. The Institutional business unit includes the following specialised units:

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

• Transaction Banking - provides cash management, trade finance and international payments;

• Specialised Lending - provides origination, credit analysis, structuring and execution of specific customer transactions.

Other

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

25

Notes to the Financial Statements

Business segment analysis1
$ millions		ANZ New Zealand
30/09/2011	Retail3	Commercial	Institutional	Other4	Total
External interest income	2,533	3,443	810	(29)	6,757
External interest expense	(1,309)	(625)	(486)	(1,737)	(4,157)
Net intersegment interest	(354)	(1,483)	73	1,764	-
Net interest income	870	1,335	397	(2)	2,600
Other external operating income	572	127	238	(130)	807
Share of profit of associates and jointly controlled
entities	-	-	-	2	2
Operating income	1,442	1,462	635	(130)	3,409
Other external expenses	598	245	109	656	1,608
Net intersegment and related party expenses2	249	246	67	(482)	80
Operating expenses	847	491	176	174	1,688
Profit before provision for credit impairment	595	971	459	(304)	1,721
Provision for credit impairment	77	139	(26)	-	190
Profit before income tax	518	832	485	(304)	1,531
Income tax expense	151	250	142	(97)	446
Profit after income tax	367	582	343	(207)	1,085
Other information
Depreciation and amortisation	29	8	-	37	74
Goodwill	724	1,466	1,072	-	3,262
Intangible assets - indefinite life	73	-	-	-	73
Intangible assets - definite life	142	7	1	22	172
Shares in associates and jointly controlled entities	-	-	13	87	100
Total external assets	37,325	50,888	35,867	5,003	129,083
Total external liabilities	32,862	17,957	35,791	34,008	120,618
30/09/2010	Retail3	Commercial	Institutional	Other4	Total
External interest income	2,686	3,439	359	(37)	6,447
External interest expense	(1,201)	(569)	(414)	(1,768)	(3,952)
Net intersegment interest	(674)	(1,629)	549	1,754	-
Net interest income	811	1,241	494	(51)	2,495
Other external operating income3	386	143	116	58	703
Share of profit of associates and jointly controlled
entities	35	-	5	2	42
Operating income	1,232	1,384	615	9	3,240
Other external expenses	609	255	103	512	1,479
Net intersegment and related party expenses2	237	250	62	(463)	86
Operating expenses	846	505	165	49	1,565
Profit before provision for credit impairment	386	879	450	(40)	1,675
Provision for credit impairment	151	365	(60)	-	456
Profit before income tax	235	514	510	(40)	1,219
Income tax expense	71	155	146	(20)	352
Profit after income tax	164	359	364	(20)	867
Other information
Depreciation and amortisation	26	8	1	36	71
Goodwill	724	1,466	1,072	-	3,262
Intangible assets - indefinite life	125	-	-	-	125
Intangible assets - definite life	148	8	-	2	158
Shares in associates and jointly controlled entities	-	-	56	88	144
Total external assets	38,364	51,729	30,141	6,795	127,029
Total external liabilities	32,147	16,979	31,639	38,443	119,208

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

2 Net intersegment and related party expenses are eliminated at the Overseas Banking Group level.

3 Comparative information includes a loss of $82 million on acquisition of ING (NZ) Holdings Limited.

4 This segment has negative external revenues as this segment incurs funding costs on behalf of ANZ New Zealand and is reimbursed internally.

Australia and New Zealand Banking Group Limited - New Zealand Branch

26

Notes to the Financial Statements

8. Liquid Assets

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Cash and balances with central banks	1,954	1,830	-	-
Securities purchased under agreement to resell	50	-	-	-
Money at call	330	328	-	-
Bills receivable and remittances in transit	121	81	-	-
Total liquid assets	2,455	2,239	-	-

9. Due from Other Financial Institutions

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Able to be withdrawn without prior notice	380	457	-	-
Securities purchased under agreement to resell	1,085	176	-	-
Securities purchased under agreement to resell with central
banks	-	170	-	-
Security settlements	606	1,535	-	-
Certificates of deposit	1,562	707	-	-
Term loans and advances	-	451	-	-
Total due from other financial institutions	3,633	3,496	-	-
Fair value of securities purchased under agreement to resell	1,133	352	-	-

10. Trading Securities

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Government, local body stock and bonds	5,961	3,917	-	-
Certificates of deposit	334	32	-	-
Promissory notes	59	64	-	-
Other bank bonds	3,047	2,655	-	-
Other	65	89	-	-
Total trading securities	9,466	6,757	-	-
Assets encumbered through repurchase agreements included
in trading securities	1,219	222	-	-

Australia and New Zealand Banking Group Limited - New Zealand Branch

27

Notes to the Financial Statements

11. Derivative Financial Instruments

The use of derivatives and their sale to customers as risk management products is an integral part of ANZ New Zealand’s trading activities. Derivatives are also used to manage ANZ New Zealand’s own exposure to fluctuations in exchange and interest rates as part of its own asset and liability management activities.

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

Derivatives, except for those that are specifically designated as effective hedging instruments, are classified as held for trading. The held for trading classification includes two categories of derivative instruments: those held as trading positions and those used for ANZ New Zealand’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.

Balance sheet risk management

ANZ New Zealand designates certain balance sheet risk management derivatives into hedging relationships in order to minimise income statement volatility. This volatility is created by differences in the timing of recognition of gains and losses between the derivative and the hedged item. Hedge accounting is not applied to all balance sheet risk management positions as other balance sheet risk management derivatives are classified as held for trading.

The following tables provide an overview of ANZ New Zealand’s and the NZ Branch's foreign exchange rate, interest rate

and commodity derivatives.

Australia and New Zealand Banking Group Limited - New Zealand Branch

28

Notes to the Financial Statements

	ANZ New Zealand	ANZ New Zealand	ANZ New Zealand		NZ Branch
	Notional			Notional
30/09/2011	Principal	Fair values		Principal	Fair values
$ millions	Amount	Assets	Liabilities	Amount	Assets	Liabilities
Derivatives held for trading
Foreign exchange derivatives
Spot and forward contracts	62,682	2,111	1,437	154	3	-
Swap agreements	126,313	4,727	5,609	9,875	145	31
Options purchased	2,271	66	1	-	-	-
Options sold	2,280	-	69	-	-	-
	193,546	6,904	7,116	10,029	148	31
Interest rate derivatives
Forward rate agreements	73,346	13	11	295	-	-
Swap agreements	617,014	8,137	7,488	3,446	24	27
Futures contracts	12,841	18	8	-	-	-
Options purchased	4,623	24	-	-	-	-
Options sold	6,446	-	26	-	-	-
	714,270	8,192	7,533	3,741	24	27
Commodity derivatives	182	13	12	-	-	-
Collateral received / paid	n/a	(1,475)	(944)	n/a	-	-
Total derivatives held for trading	907,998	13,634	13,717	13,770	172	58
Derivatives held for hedging
(a) Designated as fair value hedges
Foreign exchange derivatives
Swap agreements	76	3	-	-	-	-
Interest rate derivatives
Swapagreements	23,699	382	382	4,460	-	59
Total derivatives designated as fair
value hedges	23,775	385	382	4,460	-	59
(b) Designated as cash flow hedges
Interest rate derivatives
Swap agreements	11,090	275	69	-	-	-
Futures contracts	13,431	-	10	-	-	-
Total derivatives designated as cash
flow hedges	24,521	275	79	-	-	-
Total derivatives held for hedging	48,296	660	461	4,460	-	59
Total derivative financial instruments	956,294	14,294	14,178	18,230	172	117

Australia and New Zealand Banking Group Limited - New Zealand Branch

29

Notes to the Financial Statements

	ANZ New Zealand	ANZ New Zealand	ANZ New Zealand		NZ Branch
	Notional			Notional
30/09/2010	Principal	Fair values		Principal	Fair values
$ millions	Amount	Assets	Liabilities	Amount	Assets	Liabilities
Derivatives held for trading
Foreign exchange derivatives
Spot and forward contracts	35,893	465	910	355	15	-
Swap agreements	110,566	2,232	3,206	10,111	460	52
Options purchased	1,563	48	-	-	-	-
Options sold	1,505	1	58	-	-	-
	149,527	2,746	4,174	10,466	475	52
Interest rate derivatives
Forward rate agreements	44,065	7	7	2,671	-	-
Swap agreements	391,616	7,676	7,177	7,850	25	20
Futures contracts	25,494	3	22	-	-	-
Options purchased	524	21	-	-	-	-
Options sold	2,630	-	15	-	-	-
	464,329	7,707	7,221	10,521	25	20
Commodity derivatives	68	2	2	-	-	-
Collateral received / paid	n/a	(361)	(1,242)	n/a	-	-
Total derivatives held for trading	613,924	10,094	10,155	20,987	500	72
Derivatives held for hedging
(a) Designated as fair value hedges
Foreign exchange derivatives
Swap agreements	53	3	-	-	-	-
Interest rate derivatives
Swap agreements	23,437	530	482	7,320	-	70
Total derivatives designated as fair
value hedges	23,490	533	482	7,320	-	70
(b) Designated as cash flow hedges
Interest rate derivatives
Swap agreements	8,772	227	77	-	-	-
Futures contracts	6,226	-	13	-	-	-
Total derivatives designated as cash
flow hedges	14,998	227	90	-	-	-
Total derivatives held for hedging	38,488	760	572	7,320	-	70
Total derivative financial instruments	652,412	10,854	10,727	28,307	500	142

Fair value hedges

ANZ New Zealand’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate long-term financial instruments due to movements in market interest rates.

Gain / (loss) on fair value hedges attributable to the hedged risk

		ANZ New Zealand	NZ Branch
$ millions		30/09/2011 30/09/2010 30/09/2011 30/09/2010
Gain / (loss) arising from fair value hedges:
- hedged item		(100) (458) (3) 66
- hedging instrument		111 438 (4) (76)
Net ineffectiveness on qualifying fair value hedges		11 (20) (7) (10)

Cash flow hedges

ANZ New Zealand’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. ANZ New Zealand 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

Australia and New Zealand Banking Group Limited - New Zealand Branch

30

Notes to the Financial Statements

profile. This forms the basis for identifying gains and losses on the effective portions of derivatives designated as cash flow hedges.

Analysis of the cash flow hedging reserve

	ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Deferred gain / (loss) attributable to:
Variable rate loan assets	219	200	-	-
Variable rate liabilities	(33)	(34)	-	-
Short term re-issuances of fixed rate customer and wholesale
deposit liabilities	(45)	(64)	-	-
Total cash flow hedging reserve	141	102	-	-

All underlying hedged cash flows are expected to be recognised in the income statement in the period in which they occur, which is anticipated to take place over the next 0-10 years (30/09/2010 0-10 years).

Ineffectiveness recognised in the income statement in respect of cash flow hedges was less than $1 million in ANZ New Zealand and NZ Branch (30/09/2010 less than $1 million).

There were no transactions where cash flow hedge accounting ceased in the year ended 30 September 2011 as a result of highly probable cash flows that were no longer expected to occur (30/09/2010 no transactions).

12. Available-for-sale Assets

		ANZ New Zealand	NZ Branch
$ millions		30/09/2011 30/09/2010 30/09/2011 30/09/2010
Government, local body stock and bonds		247 1,939 - -
Other debt securities		48 134 - -
Equity securities		116 78 - -
Total available-for-sale assets		411 2,151 - -

13. Net Loans and Advances

		ANZ New Zealand	NZ Branch
$ millions		30/09/2011 30/09/2010 30/09/2011 30/09/2010
Overdrafts		1,698 2,131 - -
Credit card outstandings		1,367 1,388 - -
Term loans - housing		53,696 53,892 9,916 10,029
Term loans - non-housing		37,398 39,179 - -
Finance lease receivables		768 726 - -
Gross loans and advances		94,927 97,316 9,916 10,029
Provision for credit impairment (Note 15)		(1,183) (1,420) (27) (22)
Unearned finance income		(256) (273) - -
Fair value hedge adjustment		134 386 37 40
Deferred fee revenue and expenses		(51) (50) (1) (1)
Capitalised brokerage/mortgage origination fees		42 56 6 13
Total net loans and advances		93,613 96,015 9,931 10,059

Australia and New Zealand Banking Group Limited - New Zealand Branch

31

Notes to the Financial Statements

14. Impaired Assets, Restructured Assets and Other Assets Under Administration

Individually impaired assets		ANZ New Zealand	ANZ New Zealand			NZ Branch	NZ Branch
$ millions	Retail	Other retail	Non-retail		Retail	Other retail	Non-retail
	mortgages	exposures	exposures	Total	mortgages	exposures	exposures	Total
30/09/2011
Balance at beginning of the year	554	81	1,403	2,038	43	-	-	43
Transfers from productive	527	158	774	1,459	85	-	-	85
Transfers to productive	(83)	(1)	(101)	(185)	(6)	-	-	(6)
Assets realised or loans repaid	(407)	(71)	(691)	(1,169)	(50)	-	-	(50)
Write offs	(74)	(106)	(191)	(371)	(6)	-	-	(6)
Individually impaired asset balance at
end of the year	517	61	1,194	1,772	66	-	-	66
Restructured items	20	-	-	20	-	-	-	-
Total impaired assets	537	61	1,194	1,792	66	-	-	66
30/09/2010
Balance at beginning of the year	387	59	740	1,186	10	-	-	10
Transfers from productive	591	258	1,282	2,131	59	-	-	59
Transfers to productive	(24)	(2)	(73)	(99)	(4)	-	-	(4)
Assets realised or loans repaid	(338)	(110)	(454)	(902)	(16)	-	-	(16)
Write offs	(62)	(124)	(92)	(278)	(6)	-	-	(6)
Individually impaired asset balance at
end of the year	554	81	1,403	2,038	43	-	-	43
Restructured items	9	-	-	9	-	-	-	-
Total impaired assets	563	81	1,403	2,047	43	-	-	43

Restructured assets

A restructured asset is an impaired asset for which the terms have been changed to grant the counterparty a concession that would not otherwise have been available, due to the counterparty’s difficulty in complying with the original terms, and where the yield on the asset following restructuring is still above ANZ New Zealand’s cost of funds. An asset is classified as an other individually impaired asset if, following the restructure, the yield on the asset is below ANZ New Zealand’s cost of funds.

Restructured assets		ANZ New Zealand	ANZ New Zealand			NZ Branch	NZ Branch
$ millions	Retail	Other retail	Non-retail		Retail	Other retail	Non-retail
	mortgages	exposures	exposures	Total	mortgages	exposures	exposures	Total
30/09/2011
Balance at beginning of the year	9	-	-	9	-	-	-	-
Transfers to restructured items	17	-	58	75	-	-	-	-
Transfers from restructured items	(6)	-	(58)	(64)	-	-	-	-
Balance at end of the year	20	-	-	20	-	-	-	-
30/09/2010
Balance at beginning of the year	2	-	-	2	-	-	-	-
Transfers to restructured items	9	-	-	9	-	-	-	-
Transfers from restructured items	(2)	-	-	(2)	-	-	-	-
Balance at end of the year	9	-	-	9	-	-	-	-

Renegotiated loans

Renegotiated loans are loans that would otherwise be past due or impaired had their terms not been renegotiated. At 30 September 2011, loans and advances of $590 million were renegotiated in ANZ New Zealand (30/09/2010 $621 million) and $40 million were renegotiated in the NZ Branch (30/09/2010 nil).

Assets acquired through enforcement of security

Assets acquired through enforcement of security are those assets which are legally owned by ANZ New Zealand as a result of enforcing security, other than any buildings occupied by ANZ New Zealand. ANZ New Zealand held no material assets acquired through enforcement of security (30/09/2010 $nil).

Other assets under administration

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

32

Notes to the Financial Statements

Interest forgone

Interest forgone on impaired assets has been calculated based on interest rates that would have been applied to loans of similar risk and maturity.

		ANZ New Zealand	ANZ New Zealand			NZ Branch	NZ Branch
		Other				Other
30/09/2011	Retail	retail	Non-retail		Retail	retail	Non-retail
$ millions	mortgages	exposures	exposures	Total	mortgages	exposures	exposures	Total
Other assets under
administration	-	-	6	6	-	-	-	-
Undrawn facilities with impaired
customers	-	-	26	26	-	-	-	-
Interest forgone on impaired assets
Gross interest receivable on impaired
loans	54	7	82	143	3	-	-	3
Interest recognised	(18)	(4)	(56)	(78)	(2)	-	-	(2)
Net interest forgone on impaired
loans	36	3	26	65	1	-	-	1
30/09/2010
Other assets under
administration	-	-	4	4	-	-	-	-
Undrawn facilities with impaired
customers	-	-	32	32	-	-	-	-
Interest forgone on impaired assets
Gross interest receivable on impaired
loans	44	7	68	119	2	-	-	2
Interest recognised	(16)	(3)	(41)	(60)	(1)	-	-	(1)
Net interest forgone on impaired
loans	28	4	27	59	1	-	-	1

Australia and New Zealand Banking Group Limited - New Zealand Branch

33

Notes to the Financial Statements

15. Provision for Credit Impairment

		ANZ New Zealand	ANZ New Zealand			NZ Branch	NZ Branch
$ millions	Retail	Other retail	Non-retail		Retail	Other retail	Non-retail
	mortgages	exposures	exposures	Total	mortgages	exposures	exposures	Total
30/09/2011
Collective provision
Balance at beginning of the year	122	149	533	804	11	-	-	11
Charge / (credit) to income statement	8	(2)	(138)	(132)	(1)	-	-	(1)
Balance at end of the year	130	147	395	672	10	-	-	10
Individual provision (individually impaired assets)
Balance at beginning of the year	218	50	348	616	12	-	-	12
Charge to income statement	37	79	206	322	14	-	-	14
Recoveries of amounts previously
written off	2	17	3	22	-	-	-	-
Bad debts written off	(74)	(106)	(191)	(371)	(7)	-	-	(7)
Discount unwind1	(18)	(4)	(56)	(78)	(2)	-	-	(2)
Balance at end of the year	165	36	310	511	17	-	-	17
Total provision for credit impairment	295	183	705	1,183	27	-	-	27
30/09/2010
Collective provision
Balance at beginning of the year	127	159	518	804	6	-	-	6
Charge / (credit) to income statement	(5)	(10)	15	-	5	-	-	5
Balance at end of the year	122	149	533	804	11	-	-	11
Individual provision (individually impaired assets)
Balance at beginning of the year	156	40	281	477	3	-	-	3
Charge to income statement	139	120	197	456	15	-	-	15
Recoveries of amounts previously
written off	2	17	2	21	-	-	-	-
Bad debts written off	(62)	(124)	(92)	(278)	(5)	-	-	(5)
Discount unwind1	(17)	(3)	(40)	(60)	(1)	-	-	(1)
Balance at end of the year	218	50	348	616	12	-	-	12
Total provision for credit impairment	340	199	881	1,420	23	-	-	23

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

34

Notes to the Financial Statements

Provision movement analysis		ANZ New Zealand	ANZ New Zealand			NZ Branch	NZ Branch
$ millions	Retail	Other retail	Non-retail		Retail	Other retail	Non-retail
	mortgages	exposures	exposures	Total	mortgages	exposures	exposures	Total
30/09/2011
New and increased provisions	165	115	319	599	20	-	-	20
Provision releases	(126)	(19)	(110)	(255)	(6)	-	-	(6)
	39	96	209	344	14	-	-	14
Recoveries of amounts previously
written off	(2)	(17)	(3)	(22)	-	-	-	-
Individual provision charge	37	79	206	322	14	-	-	14
Collective provision charge / (credit)	8	(2)	(138)	(132)	(1)	-	-	(1)
Total charge to income statement	45	77	68	190	13	-	-	13
30/09/2010
New and increased provisions	206	160	338	704	20	-	-	20
Provision releases	(65)	(23)	(139)	(227)	(5)	-	-	(5)
	141	137	199	477	15	-	-	15
Recoveries of amounts previously
written off	(2)	(17)	(2)	(21)	-	-	-	-
Individual provision charge	139	120	197	456	15	-	-	15
Collective provision charge / (credit)	(5)	(10)	15	-	5	-	-	5
Total charge to income statement	134	110	212	456	20	-	-	20

16. Controlled Entities, Associates and Jointly Controlled Entities

		ANZ New Zealand	NZ Branch
$ millions		30/09/2011 30/09/2010 30/09/2011 30/09/2010
Shares in associates		99 143 - -
Shares in jointly controlled entities		1 1 - -
Total shares in controlled entities, associates and jointly controlled
entities		100 144 - -

Australia and New Zealand Banking Group Limited - New Zealand Branch

35

Notes to the Financial Statements

	Ownership	Balance
Controlled Entities	Interest %	Date	Nature of business
Alos Holdings Limited	100	30 September	Investment company
ANZ Capel Court Limited (New Zealand Branch)	100	30 September	Securitisation services company
ANZ Capital NZ Limited	100	30 September	Investment company
ANZ Holdings (New Zealand) Limited	100	30 September	Investment company
ANZ Investment Services (New Zealand) Limited	100	30 September	Funds management company
ANZ National Bank Limited	100	30 September	Registered bank
ANZ National (Int'l) Limited	100	30 September	Investment company
ANZ National Staff Superannuation Limited	100	30 September	Staff superannuation scheme trustee
ANZ Nominees Limited (New Zealand Branch)	100	30 September	Nominee company
ANZ Securities (NZ) Limited	100	30 September	Nominee company
ANZMAC Securities (NZ) Nominees Limited	100	30 September	Nominee company
ANZNZ Covered Bond Trust	-	30 September	Securitisation entity
Arawata Assets Limited	100	30 September	Property company
Arawata Finance Limited	100	30 September	Investment company
Arawata Holdings Limited	100	30 September	Investment company
Arawata Trust	-	30 September	Investment entity
Arawata Trust Company	100	30 September	Investment company
Australian Properties Ltd	100	30 September	Management company
AUT Investments Limited	100	30 September	Investment company
BHI Limited	100	30 September	Non operative
Control Nominees Limited	100	30 September	Investment company
Direct Broking Limited	100	30 September	On-line share broker
Direct Nominees Limited	100	30 September	Nominee company
Diversified Yield Fund (registered in Australia)	99	30 June	Fixed income fund
Eastern Specialists Consulting Ltd	100	30 September	Non operative
EFTPOS New Zealand Limited	100	30 September	EFTPOS service provider
Endeavour Finance Limited	100	30 September	Investment company
Harcourt Corporation Limited	100	30 September	Investment company
Karapiro Investments Limited	100	30 September	Non operative
Kingfisher NZ Trust 2008-1	-	30 September	Securitisation entity
Medical Properties Holding Company No.1 Limited1	100	30 September	Holding company
National Bank of New Zealand Custodians Limited	100	30 September	Nominee company
NBNZ Holdings Hong Kong Limited (registered in Hong Kong)	100	31 December	Non operative
NBNZ Holdings Limited	100	30 September	Investment company
OneAnswer Nominees Limited	100	30 September	Nominee company
OnePath (NZ) Limited	100	30 September	Funds management company
OnePath Holdings (NZ) Limited	100	30 September	Holding company
OnePath Insurance Holdings (NZ) Limited	100	30 September	Holding company
OnePath Insurance Services (NZ) Limited	100	30 September	Insurance company
OnePath Life (NZ) Limited	100	30 September	Insurance company
OnePath Nominees (NZ) Limited	100	30 September	Nominee company
Origin Mortgage Management Services Limited	-	31 March	Mortgage finance
Origin Mortgage Management Services (2008) Limited	-	31 March	Mortgage finance
Origin Mortgage Management Services (2011) Limited2	-	31 March	Mortgage finance
Private Nominees Limited	100	30 September	Nominee company
Radiola Corporation Limited	100	30 September	Non operative
Regular Income Fund (registered in Australia)	99	30 June	Fixed income fund
Rural Growth Fund Limited	100	30 September	Investment company
Samson Funding Limited	100	30 September	Investment company
Silver Fern Life Brokers Limited	100	30 September	Non operative
South Pacific Merchant Finance Limited	100	30 September	Investment company
Southpac Corporation Limited	100	30 September	Investment company
UDC Finance Limited	100	30 September	Finance company
Vital Healthcare Australian Properties Proprietary Limited
(registered in Australia)	100	30 September	Management company
Vital Healthcare Management Limited	100	30 September	Management company

1 Previously known as Argosy Property Management Limited.

2 Previously known as General Finance Custodians Limited.

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

For all companies, with the exception of Origin Mortgage Management Services Limited, Origin Mortgage Management Services (2008) Limited, and Origin Mortgage Management Services (2011) Limited, the ownership interest percentage

Australia and New Zealand Banking Group Limited - New Zealand Branch

36

Notes to the Financial Statements

equates to the voting power held. In relation to these companies, control exists through ANZ New Zealand having 100% of the voting rights.

In relation to Arawata Trust control exists through the Bank being trustee of the Trust. In relation to Kingfisher NZ Trust 2008-1 and ANZNZ Covered Bond Trust control exists as ANZ New Zealand retains substantially all the risks and rewards of the operations.

Associates

	30/09/2011	30/09/2010	Voting	Ownership	Balance
	Book Value	Book Value	Interest	Interest	Date	Nature of business
Associates	$m	$m	%	%
Cards NZ Limited	85	85	30	15	30 September	Card services
Kepler Group Southland / Central
Otago Limited1	-	1	20	20	31 March	Financial services
NZ Poultry Enterprises Limited	-	43	n/a	n/a	30 April	Poultry processor
Paymark Limited	2	2	25	25	31 March	EFTPOS settlements
UCG Investments Limited	10	10	40	40	31 March	Rest home operator
Wyma Engineering (NZ) Limited	2	2	30	30	31 March	Agricultural machinery
Total investment in associates	99	143

1 Previously known as Bennetts Financial Services Limited.

Shares in associates at 30 September 2011 includes goodwill of $12 million (30/09/2010 $56 million) for ANZ New Zealand and $nil (30/09/2010 $nil) for the NZ Branch.

All associates are incorporated in New Zealand.

Joint Ventures

	30/09/2011	30/09/2010	Voting	Ownership	Balance
	Book Value	Book Value	Interest	Interest	Date	Nature of business
Jointly controlled entities	$m	$m	%	%
	1	1	21	21	31 July	Manufacture and
Argenta Limited						marketing of animal
						remedies
Total investment in jointly
controlled entities	1	1

Movements in controlled entities, associates and joint ventures

In October 2010 ANZ New Zealand sold its interest in APAC Investments Limited.

In December 2010 Trillium Holdings Limited, Tui Securities Limited and Arawata Securities Limited were deregistered.

In February 2011 ANZNZ Covered Bond Trust was established.

In April 2011 ANZ New Zealand sold its interest in NZ Poultry Enterprises Limited.

In May 2011 CBC Finance Limited was deregistered.

In September 2011 Arawata Capital Limited was amalgamated into its direct parent company Arawata Finance Limited.

Australia and New Zealand Banking Group Limited - New Zealand Branch

37

Notes to the Financial Statements

17. Other Assets

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Accrued interest and prepaid discounts	343	391	-	-
Accrued commission	22	25	-	-
Share-based payments asset	57	57	-	-
Prepaid expenses	29	60	-	-
Security settlements	250	81	-	-
Other assets	156	356	-	3
Total other assets	857	970	-	3

18. Deferred Tax Assets and Liabilities

	ANZ New Zealand NZ Branch
$ millions	30/09/2011 30/09/2010 30/09/2011 30/09/2010
Deferred tax assets / (liabilities)
Balance at beginning of the year	304 (15) 7 3
Credited / (charged) to the income statement1	(181) 324 1 4
Credited / (charged) directly to equity	2 (40) - -
Acquired as part of a business combination	- 35 - -
Balance at end of the year	125 304 8 7
Deferred tax assets / (liabilities) comprise the following temporary differences:
Provision for credit impairment 331 397 8 6
Premises and equipment, software and intangibles (17) (20) - -
Provisions and accruals 126 150 - 1
Deferred acquisition costs and policy holder liabilities (90) (72) - -
Financial instruments (55) (39) - -
Carried forward losses 16 82 - -
Lease finance (147) (126) - -
Other deferred tax assets and liabilities (including provisions) (39) (68) - -
Net deferred tax assets2 125 304 8 7
Deferred tax credited / (charged) to the income statement comprises the following temporary differences:
Provision for credit impairment (66) 13 2 3
Premises and equipment, software and intangibles 3 (5) - -
Provisions and accruals (24) (72) (1) 1
Deferred acquisition costs and policy holder liabilities (18) (21) - -
Financial instruments - (7) - -
Carried forward losses (66) 5 - -
Lease finance (21) (13) - -
Other deferred tax assets and liabilities (including provisions) 11 424 - -
(181) 324 1 4
Deferred tax credited / (charged) to equity comprises the following temporary differences:
Defined benefit schemes 18 (8) - -
Financial instruments (16) (32) - -
Total deferred tax charged / (credited) directly to equity 2 (40) - -

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

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

38

Notes to the Financial Statements

19. Goodwill and Other Intangible Assets

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Goodwill	3,262	3,262	-	-
Software	85	82	-	-
Other intangibles with a definite life	87	76	-	-
Other intangibles with an indefinite life	73	125	-	-
	3,507	3,545	-	-

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

20. Due to Other Financial Institutions

		ANZ New Zealand	NZ Branch
$ millions		30/09/2011 30/09/2010 30/09/2011 30/09/2010
Due to other financial institutions		11,033 12,071 10,011 10,481
Securities sold under agreements to repurchase from other financial
institutions		1,164 222 - -
Securities sold under agreements to repurchase from central banks		50 - - -
Total due to other financial institutions		12,247 12,293 10,011 10,481

21. Deposits and Other Borrowings

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Amortised cost
Certificates of deposit	2,454	3,245	-	-
Term deposits	33,799	34,687	-	-
Demand deposits bearing interest	21,589	18,714	-	-
Deposits not bearing interest	5,118	4,964	-	-
Secured debenture stock	1,488	1,378	-	-
Total deposits and other borrowings recognised at amortised
cost	64,448	62,988	-	-
Fair value through profit or loss
Commercial paper	4,790	7,307	-	-
Total deposits and other borrowings recognised at fair value	4,790	7,307	-	-
Total deposits and other borrowings	69,238	70,295	-	-
Amortised cost of balances included within deposits and other borrowings recognised at fair value:
Commercial paper issued by ANZ National (Int'l) Limited
guaranteed by ANZ National Bank Limited	4,790	7,305	-	-
Secured debenture stock are secured over:
Carrying value of total tangible assets of UDC Finance Limited	2,007	2,111	-	-

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

Registered secured debenture stock is constituted and secured by a trust deed between UDC Finance Limited and its independent trustee, Trustees Executors Limited. The trust deed creates floating charges over all the assets, primarily loans and advances, of UDC Finance Limited.

Australia and New Zealand Banking Group Limited - New Zealand Branch

39

Notes to the Financial Statements

22. Payables and Other Liabilities

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Creditors	78	98	-	-
Accrued interest and unearned discounts	679	695	71	67
Defined benefit schemes deficit	84	26	-	-
Share-based payments liability	30	28	-	-
Accrued charges	255	311	2	3
Security settlements	1,242	195	-	-
Equitable assignment of mortgages	-	16	-	-
Other liabilities	48	137	-	-
Total payables and other liabilities	2,416	1,506	73	70

23. Provisions

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Non-lending losses, frauds and forgeries	1	3	-	-
Employee entitlements	135	127	-	-
Personnel restructuring costs	13	2	-	-
Other restructuring costs	58	22	-	-
Other provisions	102	161	-	-
Total provisions	309	315	-	-

Employee entitlements

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

Personnel restructuring costs and redundant assets restructuring costs

Restructuring cost provisions arise from exit activities relating to material changes in the scope or manner of business undertaken by ANZ New Zealand and includes termination benefits and costs relating to core system simplification. Provisions are made when ANZ New Zealand 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 2011 are expected to be settled over the coming financial year, with the exception that provisions for losses arising from rental commitments on leased premises which have become vacant as a result of restructuring will be settled over the remaining term of the leases.

Other provisions

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

40

Notes to the Financial Statements

24. Bonds and Notes

$ millions					ANZ New Zealand	ANZ New Zealand
Currency	Face value Type of note		Maturity	Interest rate %	30/09/2011	30/09/2010
Issued by	the Bank
NZD	70m	floating rate notes	2010	3 month BKBM + 0.35%	-	70
NZD	150m	fixed rate notes	2011	6.80%	-	150
NZD	170m	floating rate notes	2011	3 month BKBM + 0.90%	-	170
NZD	50m	fixed rate notes	2011	8.25%	-	50
NZD	50m	floating rate notes	2011	3 month BKBM + 1.24%	-	50
NZD	40m	floating rate notes	2012	3 month BKBM + 0.90%	40	40
NZD	100m	floating rate notes	2012	3 month BKBM + 1.025%	100	100
NZD	150m	fixed rate notes	2012	5.63%	150	150
NZD	100m	fixed rate notes	2013	6.32%	100	100
NZD	175m	floating rate notes	2013	3 month BKBM + 1.30%	175	-
NZD	175m	fixed rate notes	2014	8.50%	175	175
NZD	60m	fixed rate notes	2014	8.50%	60	60
NZD	250m	fixed rate notes	2015	6.60%	250	250
NZD	350m	fixed rate notes	2015	6.51%	350	350
NZD	150m	fixed rate notes	2016	6.32%	150	-
NZD	250m	floating rate notes	2016	3 month BKBM + 1.50%	250	-
NZD	100m	fixed rate notes	2018	6.85%	100	-
NZD	125m	fixed rate notes	2018	6.08%	125	-
Index linked notes					78	100
Fair value hedge adjustment					246	365
Less bonds	and notes held by the Bank				(30)	(23)
					2,319	2,157
Issued by	ANZ National (Int'l) Limited
USD	890m	floating rate notes1	2010	3 month LIBOR + 1.03%	-	1,210
USD	100m	floating rate notes2	2011	3 month LIBOR + 0.32%	-	136
USD	500m	floating rate notes2	2011	3 month LIBOR + 0.18%	-	679
USD	300m	fixed rate notes	2011	5.50%	-	407
USD	250m	floating rate notes	2011	3 month LIBOR + 0.70%	-	340
USD	20m	floating rate notes2	2011	3 month LIBOR + 0.20%	-	27
USD	100m	floating rate notes	2011	3 month LIBOR + 0.65%	131	136
HKD	155m	floating rate notes	2011	3 month HIBOR + 0.51%	26	27
GBP	435m	floating rate notes	2011	3 month GBP LIBOR + 0.05%	886	935
GBP	105m	floating rate notes	2011	3 month GBP LIBOR + 0.05%	214	226
USD	1,000m	fixed rate notes2	2012	3.25%	1,308	1,359
USD	500m	fixed rate notes2	2012	3.25%	654	679
USD	100m	floating rate notes2	2012	3 month LIBOR + 0.25%	131	136
USD	15m	floating rate notes	2012	3 month LIBOR + 0.80%	20	20
USD	1,250m	fixed rate notes	2012	2.38%	1,634	1,698
HKD	300m	floating rate notes	2012	3 month HIBOR + 0.71%	50	53
GBP	450m	floating rate notes1	2012	6 month GBP LIBOR + 0.08%	917	968
USD	2,000m	fixed rate notes	2013	6.20%	2,613	2,717
USD	750m	floating rate notes	2013	3 month LIBOR + 1.00%	981	-
USD	250m	floating rate notes	2013	3 month LIBOR + 1.00%	327	-
USD	100m	floating rate notes	2013	Fed Funds + 1.25%	131	-
JPY	1,300m	floating rate notes	2013	3 month JPY LIBOR +0.40%	22	-
USD	1,050m	floating rate notes1	2014	3 month LIBOR + 1.16%	1,373	1,427
USD	100m	floating rate notes2	2014	3 month LIBOR + 0.44%	131	136
USD	50m	floating rate notes	2014	3 month LIBOR + 1.15%	65	68
USD	71m	floating rate notes2	2014	3 month LIBOR + 0.28%	93	96
USD	20m	floating rate notes	2014	3 month LIBOR + 1.10%	26	27
HKD	100m	fixed rate notes	2014	3.03%	17	18
HKD	100m	fixed rate notes	2014	3.40%	17	18
HKD	150m	fixed rate notes	2014	2.04%	25	-
HKD	150m	fixed rate notes	2014	2.02%	25	-
JPY	500m	fixed rate notes	2014	1.40%	9	8
JPY	3,000m	fixed rate notes	2014	1.50%	51	49
CHF	250m	fixed rate notes	2014	2.01%	363	347
CHF	300m	fixed rate notes	2014	2.01%	435	417

Australia and New Zealand Banking Group Limited - New Zealand Branch

41

Notes to the Financial Statements

USD	250m	floating rate notes	2015	3 month LIBOR + 0.90%	327	340
USD	1,000m	fixed rate notes	2015	3.13%	1,308	1,359
USD	5m	floating rate notes	2015	3 month LIBOR + 1.25%	7	-
HKD	105m	fixed rate notes	2015	3.30%	18	18
JPY	500m	floating rate notes	2015	3 month JPY LIBOR + 0.50%	9	8
JPY	11,800m	fixed rate notes	2015	1.54%	201	192
JPY	7,200m	floating rate notes	2015	3 month JPY LIBOR + 1.00%	123	117
SGD	200m	fixed rate notes	2015	2.95%	201	206
CHF	150m	fixed rate notes	2016	2.13%	218	-
					15,087	16,604
Issued by Samson Funding Limited
USD	750m	fixed rate notes3	2053	5.36%	1,066	1,138
Total bonds	and notes				18,472	19,899

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

• 1 These notes were issued to subsidiaries of the Overseas Banking Group.

• 2 As well as being guaranteed by the Bank these notes also benefit from a supporting guarantee from the NZ Crown.

• 3 These notes were issued by Samson Funding Limited on 26 November 2003. The notes are ‘stapled’ to preference shares issued by the Ultimate Parent Bank and, prior to a conversion event, may not be traded separately from them. The notes can be redeemed for cash on 15 December 2013. Interest is payable half yearly in arrears at a fixed rate of 5.36% p.a. with interest payments due 15 June and 15 December.

25. Loan Capital

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
AUD 265,740,000 perpetual subordinated floating rate loan	338	349	-	-
AUD 43,767,507 term subordinated floating rate loan	-	58	-	-
AUD 169,520,000 term subordinated floating rate loan	216	223	-	-
Term subordinated fixed rate bonds	600	950	-	-
Perpetual subordinated bond	835	835	-	-
Total loan capital issued	1,989	2,415	-	-
Less loan capital instruments held by ANZ New Zealand	(1)	(8)	-	-
Total loan capital	1,988	2,407	-	-

AUD 265,740,000 loan

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

AUD 43,767,507 loan

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

AUD 169,520,000 loan

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

NZD subordinated bonds

Term subordinated fixed rate bonds
Issue 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

On 15 September 2011 the Bank fully redeemed the bonds that were originally issued on 15 September 2006.

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

42

Notes to the Financial Statements

As at 30 September 2011, these bonds carried an AA- rating by Standard & Poor's.

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 bond on 18 April 2013, 18 April 2018 or any interest payment date subsequent to 18 April 2018. Interest is payable half yearly in arrears on 18 April and 18 October each year, beginning on 18 October 2008, up to and including the Second Call Date and then quarterly thereafter. If the bond is not called at the First Call Date, the coupon rate will reset to the five year interest swap rate plus 2.00%. Should the bond not be called at the Second Call Date, the Coupon 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 2011, this bond carried an A+ rating by Standard and Poor's and an A3 rating by Moody’s.

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

All of the NZD subordinated bonds are listed on the New Zealand Exchange (“NZX”). The Market Surveillance Panel of the NZX granted the Bank a waiver from the requirements of Listing Rules 10.4 (relating to the provision of preliminary announcements of half yearly and annual results to the NZX) and 10.5 (relating to preparing and providing a copy of half yearly and annual reports to the NZX).

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

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

26. Related Party Transactions

		ANZ New Zealand	NZ Branch
$ thousands		Year to Year t	o Year to Year to
Key management personnel		30/09/2011 30/09/2010 30/09/2011 30/09/2010
Key management personnel compensation
Salaries and short-term employee benefits		13,557 12,857 - -
Post-employment benefits		344 352 - -
Other long-term benefits		153 78 - -
Termination benefits		2,656 931 - -
Share-based payments		2,080 3,911 - -
Total compensation of key management personnel		18,790 18,129 - -
Loans to key management personnel		3,300 4,056 - -
Deposits from key management personnel		6,387 7,539 - -

Key management personnel are defined as being Directors and senior management of ANZ New Zealand - those persons having the authority and responsibility for planning, directing and controlling the activities of the entity. The information above relating to key management personnel includes transactions with those individuals, their close family members and their controlled entities.

Loans made to and deposits held by key management personnel are made in the course of ordinary business on normal commercial terms and conditions no more favourable than those given to other employees or customers. Loans are on 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.

All transactions with key management personnel (including personally related parties) are conducted on an arm's length basis in the ordinary course of business and on commercial terms and conditions. These transactions principally consist of the provision of financial and investment services.

Transactions with other related parties

The NZ Branch and ANZ New Zealand undertake transactions with the Immediate Parent Company, Ultimate Parent Bank, other members of the Overseas Banking Group, associates and joint ventures.

These transactions principally consist of funding and hedging transactions, the provision of other financial and investment services, technology and process support, and compensation for share based payments made to ANZ New Zealand employees. Transactions with related parties outside of ANZ New Zealand are conducted on an arm’s length basis and on normal commercial terms.

Australia and New Zealand Banking Group Limited - New Zealand Branch

43

Notes to the Financial Statements

In addition the Bank undertakes similar transactions with controlled entities, which are eliminated in the consolidated ANZ New Zealand financial statements. Included within the Bank’s transactions with controlled entities is the provision of administrative functions to some controlled entities for which no payments have been made.

Transactions with related parties	ANZ New Zealand	ANZ New Zealand	NZ Branch
	Year to	Year to	Year to	Year to
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Interest income
Received from associates	6	7	-	-
Received from joint ventures	-	2	-	-
Interest expense
Paid to Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand	509	481	444	416
Paid to Immediate Parent Company	68	72	-	-
Paid to associates	2	2	-	-
Other operating income
Dividends received from associates	2	2	-	-
Commission received from joint ventures	-	6	-	-
Operating expenses
Paid to Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand	80	86	-	-
Paid to the Bank	-	-	29	26
Balances with related parties
	ANZ New Zealand		NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Due from other financial institutions
Due from Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand	133	1,507	-	-
Derivative financial assets
Due from related entities	2,754	2,548	172	500
Net loans and advances
Due from associates	4	151	-	-
Due from joint ventures	33	36	-	-
Due from related entities	-	-	338	302
Shares in controlled entities, associates and joint ventures	100	144	-	-
Other assets
Due from Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand	57	37	-	-
Total due from related parties	3,081	4,423	510	802
Due to other financial institutions
Due to Ultimate Parent Bank	10,786	10,482	10,011	10,481
Deposits and other borrowings
Due to associates	85	85	85	-
Due to controlled entities	-	-	52	-
Derivative financial liabilities
Due to related entities	4,210	2,658	117	142
Payables and other liabilities
Due to Bank	-	-	69	67
Due to Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand	75	77	-	-
Bonds and notes
Due to Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand	3,356	4,743	-	-
Term funding due to Immediate Parent Company	1,766	1,766	-	-
Loan capital
Due to Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand	554	630	-	-
Total due to related parties	20,832	20,441	10,334	10,690

Balances due from / to related parties are unsecured other than that ANZ New Zealand and the Bank have provided guarantees and commitments to related parties as follows:

Australia and New Zealand Banking Group Limited - New Zealand Branch

44

Notes to the Financial Statements

	ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011		30/09/2010
Financial guarantees provided to the Ultimate Parent Bank	1,296	1,660	-		-

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

27. Current and Non-current Assets and Liabilities

	ANZ New Zealand NZ Branch
$ millions	30/09/2011 30/09/2010 30/09/2011 30/09/2010
	Non- Non-
	Current current Current Non-current Current current Current Non-current
Assets
Liquid assets	2,455 - 2,239 - - - - -
Due from other financial institutions	3,633 - 3,496 - - - - -
Trading securities	9,466 - 6,757 - - - - -
Derivative financial instruments	14,294 - 10,854 - 172 - 500 -
Available-for-sale assets	393 18 1,882 269 - - - -
Net loans and advances	28,105 65,508 25,570 70,445 201 9,730 396 9,663
Due from related entities	- - - - 338 - 302 -
Investments relating to insurance
business	71 26 70 17 - - - -
Insurance policy assets	- 200 - 138 - - - -
Shares in controlled entities,
associates	- 100 - 144 - - - -
Current tax assets	- - 18 - - - - -
Other assets	800 57 913 57 - - 3 -
Deferred tax assets	- 125 - 304 - 8 - 7
Premises and equipment	- 325 - 311 - - - -
Goodwill and other intangible assets	- 3,507 - 3,545 - - - -
Total assets	59,217 69,866 51,799 75,230 711 9,738 1,201 9,670
Liabilities
Due to other financial institutions	4,684 7,563 4,342 7,951 2,585 7,426 2,559 7,922
Deposits and other borrowings	66,659 2,579 68,314 1,981 - - - -
Due to related parties	- - - - 51 - - -
Derivative financial instruments	14,178 - 10,727 - 117 - 142 -
Payables and other liabilities	2,302 114 1,452 54 73 - 70 -
Current tax liabilities	4 - - - 20 - 45 -
Provisions	211 98 228 87 - - - -
Bonds and notes	4,882 13,590 3,747 16,152 - - - -
Term funding	1,766 - 1,766 - - - - -
Loan capital	- 1,988 - 2,407 - - - -
Total liabilities	94,686 25,932 90,576 28,632 2,846 7,426 2,816 7,922

Assets and liabilities are classified as current if:

• it is expected they will be realised, consumed or settled in the normal operating cycle or within twelve months after the end of the reporting date; or

• they are held primarily for trading; or

• they are assets that are cash or a cash equivalent; or

• they are liabilities where there is no unconditional right to defer settlement for at least twelve months.

Non-current assets include premises and equipment and intangible assets as well as financial assets of a long-term nature. Non-current liabilities include financial and non-financial liabilities which are expected to be settled after twelve months from balance date.

For the purposes of this disclosure, the fair value of both trading and hedging derivatives has been classified as current. For more information on the contractual timing of expected outflows and inflows in relation to hedging derivatives refer to Note 30.

Australia and New Zealand Banking Group Limited - New Zealand Branch

45

Notes to the Financial Statements

28. Share Capital and Head Office Account

	ANZ New	Zealand	NZ Branch
	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Issued share capital
Number of shares
Ordinary shares at beginning and end of the year	381,655,112	381,655,112	-	-
Redeemable preference shares at beginning and end of
the year	4,005,295,229	4,005,295,229	-	-
Total number of issued shares	4,386,950,341	4,386,950,341	-	-
Share capital & head office account
$ millions
Ordinary share capital at beginning and end of the year	1,453	1,453	-	-
Redeemable preference share capital at beginning and
end of the year	4,960	4,960	-	-
Paid in share capital at end of the year	6,413	6,413	-	-
Head office account	11	11	11	11
Total capital & head office account at end of the year	6,424	6,424	11	11

Ordinary shares

All ordinary shares share equally in dividends and any proceeds available to ordinary shareholders on winding up. On a show of hands every member who is present at a meeting in person or by proxy or by representative is entitled to one vote, and upon a poll every member shall have one vote for each share held.

During the year ended 30 September 2011 ANZ Holdings (New Zealand) Limited (“ANZH”) paid an ordinary dividend of $215 million (30/09/2010 $nil) to the Immediate Parent Company (equivalent to $0.57 per share).

Redeemable preference shares

All redeemable preference shares (“RPS”) were issued by ANZH to members of the Overseas Banking Group. RPS carry no voting rights and are redeemable by ANZH providing notice in writing to holders of the RPS. Dividends are payable at the discretion of the directors of ANZH and are non-cumulative.

There are five classes of RPS, relating to issues in 1988, 2005, 2007, 2008 and 2009. During the year ended 30 September 2011 ANZH paid dividends on the 2007 class of RPS of $206 million (equivalent to $0.10 per share). (30/09/2010 ANZH paid $492 million of dividends on the 2007 class of RPS (equivalent to $0.25 per share)).

In a liquidation, holders of RPS are entitled to available subscribed capital per share, pari passu with all holders of existing RPS but in priority to all holders of ordinary shares. They have no entitlement to participate in further distribution of profits or assets.

Head office account

The head office account comprises funds provided by the Ultimate Parent Bank. It is non-interest bearing and there is no fixed date of repayment.

29. Capital Adequacy

Capital management policies

ANZ New Zealand’s core capital objectives are to:

• Protect the interests of depositors, creditors and shareholders;

• Ensure the safety and soundness of ANZ New Zealand’s capital position; and

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

The Board holds ultimate responsibility for ensuring that capital adequacy is maintained. This includes: setting, monitoring and obtaining assurance for ANZ New Zealand’s Internal Capital Adequacy Assessment Process (“ICAAP”) policy and framework; standardised risk definitions for all material risks; materiality thresholds; capital adequacy targets; internal economic risk capital principles; and risk appetite.

ANZ New Zealand has minimum, trigger and operating range targets for both tier one and total capital that ensure sufficient capital is maintained to:

• Meet minimum prudential requirements imposed by regulators;

• Ensure consistency with ANZ New Zealand’s overall risk profile and financial positions, taking into account its strategic focus and business plan; and

• Support the economic risk capital requirements of the business.

Australia and New Zealand Banking Group Limited - New Zealand Branch

46

Notes to the Financial Statements

ANZ New Zealand’s Asset & Liability Committee and its related Capital Management sub-committee are responsible for developing, implementing and maintaining ANZ New Zealand's ICAAP framework, including ongoing monitoring, reporting and compliance. ANZ New Zealand’s ICAAP is subject to independent and periodic review conducted by Internal Audit.

ANZ New Zealand has complied with all externally imposed capital requirements to which it is subject during the current and comparative periods.

Overseas Banking Group Basel II capital adequacy ratio (unaudited)

		Overseas Banking Group		Ultimate Parent Bank
		30/09/2011 30/09/2010		30/09/2011 30/09/2010
Tier One Capital		10.9% 10.1%		11.5% 11.0% 12.3% 12.3%
Total Capital		12.1% 11.9%

For calculation of minimum capital requirements under Pillar I of the Basel II Accord, APRA has accredited the Overseas Banking Group to use the Advanced Internal Ratings Based ("AIRB") methodology for calculation of credit risk weighted assets and the Advanced Measurement Approach ("AMA") for the operational risk weighted asset equivalent.

Under prudential regulations, the Ultimate Parent Bank is required to hold a minimum Prudential Capital Ratio ("PCR") as determined by APRA. The Overseas Banking Group exceeded the minimum capital adequacy requirements set by APRA as at 30 September 2011 and for the comparative prior period.

The Overseas Banking Group is required to publicly disclose Pillar III financial information as at 30 September 2011. The Overseas Banking Group's Basel II Pillar 3 Disclosure document for the year ended to 30 September 2011, prepared in accordance with APS 330, discloses capital adequacy ratios calculated under the Basel II methodology. These documents can be accessed at the website anz.com.

Risk weighted credit risk exposures

Risk weighted exposures for ANZ New Zealand and the NZ Branch have been derived in accordance with the RBNZ document entitled 'Capital Adequacy Framework (Basel I Approach)' ("BS2") dated June 2011. The credit equivalent amounts for market related contracts are calculated using the current exposure method.

Total Risk Weighted Exposures of ANZ New Zealand as at 30 September 2011 (Unaudited)

	Principal amount Risk weight Risk weighted exposure
On-balance sheet exposures
	$m $m
Cash and short term claims on Government 3,551 0% -
Long term claims on Government 5,251 10% 525
Claims on banks 6,229 20% 1,246
Claims on public sector entities 855 20% 171
Residential mortgages 53,216 50% 26,608
Other 42,190 100% 42,190
Non risk weighted assets 17,791 n/a -
129,083 70,740

		Credit	Credit	Average
	Principal	conversion	equivalent	counterparty	Risk weighted
Off-balance sheet exposures	amount	factor	amount	risk weight	exposure
	$m		$m		$m
Direct credit substitutes	1,813	100%	1,813	47%	856
Commitments with certain drawdown	540	100%	540	56%	302
Transaction related contingent items	673	50%	337	62%	209
Short term, self liquidating trade related contingencies	110	20%	22	100%	22
Other commitments to provide financial services which
have an original maturity of 1 year or more	5,040	50%	2,520	100%	2,520
Other commitments with an original maturity of less
than 1 year or which can be unconditionally cancelled
at any time	17,324	0%	-	n/a	-
Market related contracts
- Foreign exchange	193,622		12,108	22%	2,657
- Interest rate	762,490		10,288	23%	2,389
- Other	182		31	39%	12
	981,794		27,659		8,967
Total on and off balance sheet exposures					79,707

Australia and New Zealand Banking Group Limited - New Zealand Branch

47

Notes to the Financial Statements

Market risk

The aggregate market risk exposures below have been calculated in accordance with BS2B.

The peak end-of-day market risk exposures are for the half-years ended 30 September 2011 and 2010. They are calculated separately for each category of exposure and may not have occurred at the same time.

	Implied risk weighted
	exposure Aggregate capital charge
	As at Peak As at Peak
	$m $m $m $m
30/09/2011
Interest rate risk	3,544 6,262 284 501
Foreign currency risk	6 72 - 6
Equity risk	123 126 10 10
	3,673 294
30/09/2010
Interest rate risk	3,733 4,745 299 380
Foreign currency risk	25 101 2 8
Equity risk	78 96 6 8
	3,836 307

Retail mortgages by loan-to-valuation ratio (“LVR”)

As required by the RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided by ANZ New Zealand's valuation of the security property at origination of the exposure. Off-balance sheet exposures include undrawn and partially undrawn residential mortgage loans as well as commitments to lend. Commitments to lend are formal offers for housing lending which may or may not be accepted by the customer.

	Retail mortgages by LVR for ANZ New Zealand as at 30 September 2011
	(Unaudited)	On-balance	Off-balance
	$ millions	sheet	sheet	Total
LVR range
0% - 80%		40,164	4,937	45,101
80% - 90%		6,380	643	7,023
Over 90%		4,626	271	4,897
Total		51,170	5,851	57,021

Australia and New Zealand Banking Group Limited - New Zealand Branch

48

Notes to the Financial Statements

Reconciliation of mortgage related amounts

	ANZ New Zealand
	Unaudited
$ millions	Note 30/09/2011
Total residential mortgage exposures (Basel I approach)	29 53,216
Adjustments between Basel I approach and financial reporting presentation:
Less: fair value hedge adjustment	(134)
Less: accrued interest on housing loans	(210)
Plus: impaired housing loans	566
Plus: other adjustments	258
Term loans - housing	13 53,696
Plus: short-term housing loans classified as overdrafts	339
Less: housing loans made to corporate customers	(2,865)
On-balance sheet retail mortgage exposures / Gross retail mortgage loans	30 51,170
Plus: off-balance sheet retail mortgage exposures	5,851
Total retail mortgage exposures as per LVR analysis	29 57,021
Gross retail mortgage loans	51,170
Provisions for credit impairment	(295)
Fair value hedge adjustment	134
Deferred fees and expenses / capitalised fees	2
Maximum exposure to credit risk	30 51,011

30. Financial Risk Management

Strategy in using financial instruments

Financial instruments are fundamental to ANZ New Zealand’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 ANZ New Zealand. Financial instruments create, modify or reduce the credit, market and liquidity risks of ANZ New Zealand’s balance sheet. These risks and ANZ New Zealand’s policies and objectives for managing such risks are outlined below. ANZ New Zealand’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of ANZ New Zealand.

The risk management and policy control framework applicable to the entities comprising ANZ New Zealand has been set by the Board and Risk Committee of the Bank or the Ultimate Parent Bank, as appropriate. Likewise oversight and monitoring of material risk exposures of ANZ New Zealand is undertaken by the Risk Management functions of the Bank and also the Ultimate Parent Bank. Throughout this document, references to the Risk Management of the operations within the entities comprising ANZ New Zealand, implicitly involves oversight by both related entities.

Credit risk

Credit risk is the risk of financial loss from counterparties being unable to fulfil their contractual obligations. ANZ New Zealand 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.

ANZ New Zealand has an overall lending objective of sound growth for appropriate returns. The credit risk objectives of ANZ New Zealand are set by each Board and are implemented and monitored within a tiered structure of delegated authority, designed to oversee multiple facets of credit risk, including business writing strategies, credit policies/controls, single exposures, portfolio monitoring and risk concentrations.

Credit risk management

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

An independent Risk Management function is staffed by risk specialists. In regard to credit risk management, the objective is for Risk Management to provide robust credit policies, to make independent credit decisions, and to provide

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

strong support to front line staff in the application of sound credit practices. In addition to providing independent credit assessment on lending decisions, Risk Management also performs key roles in portfolio management by development and validation of credit risk measurement systems, loan asset quality reporting, and development of credit standards and policies.

The credit risk management framework is top down. Where required, the framework is defined firstly by ANZ New Zealand's values and vision, and secondly, by credit principles and policies. The effectiveness of the credit risk management framework is validated through the compliance and monitoring processes.

Risk Management's responsibilities for credit risk policy and management are executed through dedicated departments, which support the business units. All major Business Unit credit decisions require approval from both business writers 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. For the key operating entities within ANZ New Zealand credit risk policy and management is executed through the Chief Risk Officer who is responsible for various dedicated areas within the Risk Management division. A formal outsourcing agreement provides for credit risk functions to be provided to a number of ANZ New Zealand entities by staff of ANZ National Bank Limited.

The credit risk review function within Global Internal Audit also provides a further independent check mechanism to ensure the quality of credit decisions. This includes providing independent periodic checks on asset quality and compliance with the agreed standards and policies across ANZ New Zealand.

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 ANZ New Zealand incurs country risk and have a direct bearing on ANZ New Zealand'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 ANZ New Zealand's capital pricing model for cross border flows.

The recording of country limits provides ANZ New Zealand with a means to identify and control country risk. Country limits ensure that there is a country-by-country ceiling on exposures that involve country risk. They are recorded by time to maturity and purpose of exposure, e.g., trade, markets and project finance. Country limits are managed centrally by the Ultimate Parent Bank, through a global country risk exposure management system managed by a specialist unit within Institutional Risk.

Portfolio stress testing

Stress testing is integral to strengthening the predictive approach to Risk Management and is a key component to managing risk appetite and business writing strategies. It creates greater understanding of impacts on financial performance through modelling relationships and sensitivities between geographic, industry and business unit exposures under a range of macro economic scenarios.

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

Portfolio analysis and reporting

Credit portfolios are actively monitored at each layer of the risk structure to ensure credit deterioration is quickly detected and mitigated through the implementation of remediation strategies.

Businesses incurring credit risk undertake regular and comprehensive analysis of their credit portfolios. Issue identification and adherence to performance benchmarks are reported to risk and business executives through a series of reports including monthly ‘asset quality’ reporting. This process is undertaken by or overseen by Risk Management ensuring an efficient and independent conduit exists to quickly identify and communicate emerging credit issues to ANZ New Zealand executives and each Board.

Collateral management

ANZ New Zealand credit principles specify lending only what the counterparty has the capacity and ability to repay and ANZ New Zealand 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 where appropriate. ANZ New Zealand 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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

In the event of customer default, any loan security is usually held as mortgagee in possession while action is taken to realise it. Therefore ANZ New Zealand does not usually hold any real estate or other assets acquired through the enforcement of security.

ANZ New Zealand 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 ANZ New Zealand's preferred practice to include all products covered by the ISDA in the Credit Support Annex ("CSA") in order to achieve further credit exposure reduction. Under a CSA, collateral is passed between the parties, depending on the aggregate mark-to-market (positive or negative) of derivative trades between the two entities, to mitigate the market contingent counterparty risk inherent in the outstanding positions.

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.

ANZ New Zealand 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 ANZ New Zealand's top corporate exposures. The ANZ Credit and Market Risk Committee and Board Risk Committee regularly review a comprehensive list of single customer concentration limits and customers’ adherence to these limits.

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

Concentrations of credit risk analysis

			ANZ New Zealand	ANZ New Zealand	ANZ New Zealand
$ millions
	Liquid assets	Trading
	and due from	securities and	Derivative				Credit related
	other financial	available-for-	financial	Net loans and	Other	financial	commitments
30/09/2011	institutions	sale assets	instruments	advances		assets	3	Total
Industry
Agriculture	38	-	95	17,322		125	1,477	19,057
Forestry, fishing and mining	9	-	12	484		4	326	835
Business & property services	24	-	19	8,575		62	2,054	10,734
Construction	-	-	4	930		7	863	1,804
Entertainment, leisure and tourism	-	-	43	1,118		8	419	1,588
Finance and insurance	3,908	3,501	12,780	1,011		258	1,505	22,963
Government and local authority1	1,887	6,253	537	1,442		10	1,070	11,199
Manufacturing	41	10	197	2,558		19	3,304	6,129
Personal lending	-	-	38	55,328		332	9,577	65,275
Retail trade	75	2	32	1,552		11	878	2,550
Transport and storage	19	57	42	1,584		11	639	2,352
Wholesale trade	51	-	106	1,174		8	1,306	2,645
Other2	36	54	389	1,849		13	2,278	4,619
	6,088	9,877	14,294	94,927		868	25,696	151,750
Provisions for credit impairment	-	-	-	(1,183)		-	-	(1,183)
Fair value hedge adjustment	-	-	-	134		-	-	134
Unearned finance income and
deferred / capitalised fees	-	-	-	(265)		-	-	(265)
Total financial assets	6,088	9,877	14,294	93,613		868	25,696	150,436
Geography
New Zealand	4,939	8,017	2,605	91,895		868	25,696	134,020
Overseas	1,149	1,860	11,689	1,718		-	-	16,416
Total financial assets	6,088	9,877	14,294	93,613		868	25,696	150,436

Australia and New Zealand Banking Group Limited - New Zealand Branch

51

Notes to the Financial Statements

ANZ New Zealand

	ANZ New Zealand
	Liquid assets and due from other financial Trading securities and available-for- Derivative financial Net loans and Other financial Credit related commitments
$ millions
30/09/2010	institutions sale assets instruments advances assets 3 Total
Industry
Agriculture	2 - 118 18,546 168 1,435 20,269
Forestry, fishing and mining	46 - 9 466 5 259 785
Business and property services	32 - 80 8,354 77 1,949 10,492
Construction	- - 2 999 9 825 1,835
Entertainment, leisure and tourism	- - 39 1,099 10 501 1,649
Finance and insurance	3,756 3,103 9,590 1,793 45 1,240 19,527
Government and local authority1	1,677 5,556 317 1,425 39 807 9,821
Manufacturing	55 20 123 3,093 28 3,273 6,592
Personal lending	- - 1 55,540 503 8,819 64,863
Retail trade	105 2 70 1,438 13 961 2,589
Transport and storage	6 21 150 1,791 16 577 2,561
Wholesale trade	56 - 19 1,218 11 1,300 2,604
Other2	- 206 336 1,554 16 1,640 3,752
	5,735 8,908 10,854 97,316 940 23,586 147,339
Provisions for credit impairment	- - - (1,420) - - (1,420)
Fair value hedge adjustment	- - - 386 - - 386
Unearned finance income and
deferred / captialised fees	- - - (267) - - (267)
Total financial assets	5,735 8,908 10,854 96,015 940 23,586 146,038
Geography
New Zealand	3,131 6,617 3,122 94,123 940 23,586 131,519
Overseas	2,604 2,291 7,732 1,892 - - 14,519
Total financial assets	5,735 8,908 10,854 96,015 940 23,586 146,038
	NZ Branch
$ millions	Liquid assets and due from other financial Trading securities and available- for-sale Derivative financial Net loans and Due from related Other financial Credit related commitments
30/09/2011	institutions assets instruments advances parties assets 3 Total
Industry
Finance and insurance	- - 172 - 338 - - 510
Government and local authority1	- - - - - - - -
Personal lending	- - - 9,916 - - 88 10,004
Other2	- - - - - - - -
	- - 172 9,916 338 - 88 10,514
Provisions for credit impairment	- - - (27) - - - (27)
Fair value hedge adjustment	- - - 37 - - - 37
Unearned finance income and
deferred / capitalised fees	- - - 5 - - - 5
Total financial assets	- - 172 9,931 338 - 88 10,529
Geography
New Zealand	- - 145 9,621 338 - 88 10,192
Overseas	- - 27 310 - - - 337
Total financial assets	- - 172 9,931 338 - 88 10,529

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

				NZ Branch	NZ Branch
$ millions		Trading
	Liquid assets	securities
	and due	and
	from other	available-	Derivative	Net loans	Due from	Other	Credit related
	financial	for-sale	financial	and	related	financial	commitments
30/09/2010	institutions	assets	instruments	advances	parties	assets	3	Total
Industry
Finance and insurance	-	-	500	-	302	-	-	802
Government and local authority1	-	-	-	-	-	-	-	-
Personal lending	-	-	-	10,029	-	3	63	10,095
Other2	-	-	-	-	-	-	-	-
	-	-	500	10,029	302	3	63-	10,897
Provisions for credit impairment	-	-	-	(22)	-	-	-	(22)
Fair value hedge adjustment	-	-	-	40	-	-	-	40
Unearned finance income and
deferred / capitalised fees	-	-	-	12	-	-	-	12
Total financial assets	-	-	500	10,059	302	3	63	10,927
Geography
New Zealand	-	-	40	9,754	302	3	63	10,162
Overseas	-	-	460	305	-	-	-	765
Total financial assets	-	-	500	10,059	302	3	63	10,927

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 Credit related commitments comprise undrawn facilities, customer contingent liabilities and letters of offer.

Maximum exposure to credit risk

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

		ANZ New Zealand	ANZ New Zealand			NZ Branch	NZ Branch
$ millions				Total				Total
				maximum				maximum
	Retail	Other retail	Non-retail	exposure to	Retail	Other retail	Non-retail	exposure to
30/09/2011	mortgages	exposures	exposures	credit risk	mortgages	exposures	exposures	credit risk
On and off-balance sheet
positions
Liquid assets	-	-	2,266	2,266	-	-	-	-
Due from other financial institutions	-	-	3,633	3,633	-	-	-	-
Trading securities	-	-	9,466	9,466	-	-	-	-
Derivative financial instruments	-	-	14,294	14,294	-	-	172	172
Available-for-sale assets	-	-	295	295	-	-	-	-
Net loans and advances	51,011	4,076	38,526	93,613	9,931	-	-	9,931
Due from related entities	-	-	-	-	-	-	338	338
Other financial assets	-	-	868	868	-	-	-	-
Credit related commitments	5,851	4,919	14,926	25,696	88	-	-	88
Total exposure to credit risk	56,862	8,995	84,274	150,131	10,019	-	510	10,529
30/09/2010
On and off-balance sheet
positions
Liquid assets	-	-	2,079	2,079	-	-	-	-
Due from other financial institutions	-	-	3,496	3,496	-	-	-	-
Trading securities	-	-	6,757	6,757	-	-	-	-
Derivative financial instruments	-	-	10,854	10,854	-	-	500	500
Available-for-sale assets	-	-	2,073	2,073	-	-	-	-
Net loans and advances	50,974	4,089	40,952	96,015	10,059	-	-	10,059
Due from related entities	-	-	-	-	-	-	302	302
Other financial assets	-	-	940	940	-	-	3	3
Credit related commitments	5,324	4,575	13,687	23,586	63	-	-	63
Total exposure to credit risk	56,298	8,664	80,838	145,800	10,122	-	805	10,927

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

Credit quality

A core component of ANZ New Zealand’s credit risk management capability is the risk grading framework used across all major Business Units. A set of risk grading principles and policies is supported by a complementary risk grading methodology. Pronouncements by the International Basel Committee on Banking Supervision have been encapsulated in these principles and policies including governance, validation and modelling requirements.

ANZ New Zealand’s risk grade profile changes dynamically through new counterparty lending and existing counterparty movements in either risk or volume. All counterparty risk grades are subject to frequent review, including statistical 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

ANZ New Zealand's policy relating to the recognition and measurement of impaired assets conforms to the RBNZ's guidelines.

Loans are classified as either performing or impaired. Impaired assets are credit exposures where: there is doubt as to whether the full contractual amount (including interest) will be received; a material credit obligation is 90 days past due but not well secured; they are portfolio managed and can be held for up to 180 days past due; or concessional terms have been provided due to the financial difficulties of the customer.

An exposure is classified as past due but not impaired (less than 90 days) where the value of collateral is sufficient to repay both the principal debt and all other potential interest and there is no concern as to the creditworthiness of the counterparty in question.

The past due but not impaired (over 90 days) classification applies where contractual payments are past due by 90 days or more, or where the facility remains outside of contractual arrangements for 90 or more consecutive days, but ANZ New Zealand believes that impairment is not appropriate on the basis of the level of security/collateral available, or the facility is portfolio managed.

The provision for credit impairment represents management’s best estimate of the losses incurred in the loan portfolio at

balance date based on its experienced judgement.

Distribution of gross loans and advances assets by credit quality

The credit quality of the portfolio of loans and advances is assessed by reference to ANZ New Zealand’s risk grading principles and policies supported by a complementary risk grading methodology.

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

Distribution of gross loans and advances by credit quality

		ANZ New Zealand			NZ Branch
	Retai	l Other retail Non-retai	l	Retai	l Other retail Non-retai	l
$ millions	mortgages exposures exposure		s Tota	l mortgages exposures exposure		s Total
30/09/2011
Strong risk rating	38,881 1,071 17,297		57,249	7,919 - -		7,919
Satisfactory risk rating	8,688 2,312 16,561		27,561	1,412 - -		1,412
Substandard but not past due or
impaired	1,689 557 3,489		5,735	205 - -		205
Total neither past due nor
impaired	49,258 3,940 37,347		90,545	9,536 - -		9,536
Past due but not impaired:
1 to 5 days	433 126 545		1,104	97 - -		97
6 to 29 days	497 94 119		710	132 - -		132
1 to 29 days	930 220 664		1,814	229 - -		229
30 to 59 days	216 35 99		350	49 - -		49
60 to 89 days	77 18 24		119	17 - -		17
90 days and over	152 38 117		307	19 - -		19
Total past due but not impaired	1,375 311 904		2,590	314 - -		314
Individually impaired	537 61 1,194		1,792	66 - -		66
	51,170 4,312 39,445		94,927	9,916 - -		9,916
30/09/2010
Strong risk rating	37,457 976 16,600		55,033	7,670 - -		7,670
Satisfactory risk rating	9,528 2,349 18,300		30,177	1,693 - -		1,693
Substandard but not past due or
impaired	1,885 642 4,594		7,121	265 - -		265
Total neither past due nor
impaired	48,870 3,967 39,494		92,331	9,628 - -		9,628
Past due but not impaired:
1 to 5 days	313 92 565		970	89 - -		89
6 to 29 days	688 113 235		1,036	176 - -		176
1 to 29 days	1,001 205 800		2,006	265 - -		265
30 to 59 days	259 38 159		456	50 - -		50
60 to 89 days	79 18 66		163	22 - -		22
90 days and over	153 33 127		313	21 - -		21
Total past due but not impaired	1,492 294 1,152		2,938	358 - -		358
Individually impaired	563 81 1,403		2,047	43 - -		43
	50,925 4,342 42,049		97,316	10,029 - -		10,029

Credit quality of gross loans and advances neither past due nor impaired

The credit quality of financial assets is assessed by ANZ New Zealand using internal ratings which aim to reflect the relative ability of counterparties to fulfil, on time, their credit-related obligations, and is based on their current probability of default.

Internal ratings

Strong risk rating - Corporate customers demonstrating superior stability in their operating and financial performance over the long-term, and whose debt servicing capacity is not significantly vulnerable to foreseeable events. Retail customers with low expected loss. This rating band broadly corresponds 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 broadly corresponds to ratings "Ba2" to “Ba3” and "BB" to “BB-” of Moody's Investors Service and Standard & Poor's respectively.

Substandard but not past due or impaired - Corporate customers demonstrating some operational and financial instability, with variability and uncertainty in profitability and liquidity projected to continue over the short and possibly medium term. Retail customers with higher expected loss. This rating band broadly corresponds to ratings “B1” to “Caa” and “B+” to “CCC” of Moody's Investors Service and Standard & Poor's respectively.

These rating bands differ from the Capital Adequacy note credit risk exposures subject to the internal ratings based approach disclosures as RBNZ credit risk estimates are not used for these internal ratings. The exposures recorded in

Australia and New Zealand Banking Group Limited - New Zealand Branch

55

Notes to the Financial Statements

these rating bands in the table below also differ from the Capital Adequacy note tables as off-balance sheet exposures are excluded. Movements in the rating categories between balance dates are due to both changes in the underlying internal ratings applied to customers and to new loans written or loans rolling off.

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

Ageing analysis of past due loans is used by ANZ New Zealand to measure and manage credit quality. Financial assets that are past due but not impaired include those:

• Assessed, approved and managed on a portfolio basis within a centralised environment (for example, credit cards and personal loans);

• Held on a productive basis until they are 180 days past due; and

• Managed on an individual basis.

A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the fair value of associated security is sufficient to ensure that ANZ New Zealand will recover the entire amount owing over the life of the facility and there is reasonable assurance that collection efforts will result in payment of the amounts due in a timely manner.

Credit quality of financial assets that are individually impaired

ANZ New Zealand 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.

		ANZ New Zealand	ANZ New Zealand			NZ Branch	NZ Branch
	Retail	Other retail	Non-retail		Retail	Other retail	Non-retail
$ millions	mortgages	exposures	exposures	Total	mortgages	exposures	exposures	Total
30/09/2011
Impaired financial assets	537	61	1,194	1,792	66	-	-	66
Undrawn facilities with impaired
customers	-	-	26	26	-	-	-	-
Individual provision balance	165	36	310	511	17	-	-	17
Net impaired financial assets	372	25	910	1,307	49	-	-	49
Collective provision balance	130	147	395	672	10	-	-	10
30/09/2010
Impaired financial assets	563	81	1,403	2,047	43	-	-	43
Undrawn facilities with impaired
customers	-	-	32	32	-	-	-	-
Individual provision balance	218	50	348	616	11	-	-	11
Net impaired financial assets	345	31	1,087	1,463	32	-	-	32
Collective provision balance	122	149	533	804	11	-	-	11

Estimated value of collateral related to financial assets that are individually impaired

For the purposes of this disclosure, where security held is valued at more than the corresponding credit exposure, coverage is capped at the value of the credit exposure.

		ANZ New Zealand	ANZ New Zealand	ANZ New Zealand				NZ Branch
$ millions	Net Loans and		Credit related			Net Loans and		Credit related
		advances1	commitments2		Total	advances1		commitments2		Total
30/09/2011
Real estate		1,069		-	1,069		49		-	49
Other		216		22	238		-		-	-
Total value of collateral		1,285		22	1,307		49		-	49
Credit exposure		1,792		26	1,818		66		-	66
Unsecured portion of credit		507		4	511		17		-	17
30/09/2010
Real estate		977		-	977		32		-	32
Other		462		24	486		-		-	-
Total value of collateral		1,439		24	1,463		32		-	32
Credit exposure		2,047		32	2,079		43		-	43
Unsecured portion of credit		608		8	616		11		-	11

• 1 All individually impaired financial assets are classified as loans and advances.

2 Credit related commitments comprise undrawn facilities, customer contingent liabilities and letters of offer.

Australia and New Zealand Banking Group Limited - New Zealand Branch

56

Notes to the Financial Statements

Market risk

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

ANZ New Zealand conducts trading operations in interest rates, foreign exchange, commodities and debt securities. Trading operations largely focus on supporting customer hedging and investing activities, rather than outright proprietary trading. Consequently, each Board has set a medium market risk appetite for the Markets business which is reflected in the low/moderate market risk limit framework.

ANZ New Zealand has a detailed risk management and control framework to support its trading and balance sheet activities. The framework incorporates a risk measurement approach to quantify the magnitude of market risk within trading and balance sheet portfolios. This approach and related analysis identifies the range of possible outcomes that can be expected over a given period of time, establishes the relative likelihood of those outcomes and allocates an appropriate amount of capital to support these activities.

Market risk management and control responsibilities

ANZ New Zealand-wide responsibility for the strategies and policies relating to the management of market risk lies with each Board Risk Committee. Responsibility for day to day management of both market risks and compliance with market risk policy is delegated by the Risk Committee to the ANZ Credit and Market Risk Committee ("CMRC") and the Bank’s Asset & Liability Committee ("ALCO"). The CMRC, chaired by the ANZ Group Chief Risk Officer, is responsible for traded market risk, while the ALCO, chaired by the NZ Group Chief Executive Officer, is responsible for non-traded market risk (or balance sheet risk). All committees receive regular reporting on the range of trading and balance sheet market risks incurred.

Within overall strategies and policies, the control of market risk is the joint responsibility of Business Units and Risk Management, with the delegation of market risk limits from each Board and CMRC allocated to both Risk Management and the Business Units.

The management of market risk is supported by a comprehensive limit and policy framework to control the amount of risk that ANZ New Zealand will accept. Market risk limits are allocated at various levels and are reported and monitored by Market Risk on a daily basis. The detailed limit framework allocates individual limits to manage and control asset classes (e.g., interest rates, foreign exchange), risk factors (e.g., interest rates, volatilities) and profit and loss limits (to monitor and manage the performance of the trading portfolios).

These risks are monitored daily against a comprehensive limit framework that includes Value at Risk, aggregate market position and sensitivity, product and geographic thresholds. To facilitate the management, control, measurements and reporting of market risk, ANZ New Zealand 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 ANZ New Zealand 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 ANZ New Zealand to market risk. These include equity securities classified as available-for-sale. Regular reviews are performed to substantiate valuation of the investments within this portfolio.

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

The Bank’s Chief Risk Officer is responsible for daily review and oversight of traded market risk reports. The Chief Risk Officer has the authority for instructing the business to close exposures and withdraw limits where appropriate.

Value at Risk ("VaR") measure

A key measure of market risk is Value at Risk. VaR is a statistical estimate of the likely daily loss and is based on historical market movements.

Australia and New Zealand Banking Group Limited - New Zealand Branch

57

Notes to the Financial Statements

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.

ANZ New Zealand's standard VaR approach for both traded and non-traded risk is historical simulation. ANZ New Zealand 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 historical observations, it is not an estimate of the maximum loss that ANZ New Zealand could experience from an extreme market event. As a result of this limitation, ANZ New Zealand 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.

Traded market risks

		ANZ New Zealand	ANZ New Zealand			ANZ New Zealand	ANZ New Zealand
$ millions	Value at risk at 97.5% confidence				Value at risk at 99% confidence
		High for	Low for	Average for		High for	Low for	Average for
	As at	year	year	year	As at	year	year	year
30/09/2011
Foreign exchange
risk	0.4	0.9	0.2	0.4	0.4	1.3	0.3	0.5
Interest rate risk	1.9	4.3	1.2	2.8	2.3	7.2	1.6	3.9
Credit spread risk	0.8	1.0	0.3	0.6	0.9	1.1	0.4	0.7
Diversification
benefit	(1.1)	n/a	n/a	(1.0)	(1.4)	n/a	n/a	(1.3)
Total VaR	2.0	4.4	1.4	2.8	2.2	6.7	1.8	3.8
30/09/2010
Foreign exchange
risk	0.5	1.3	0.2	0.5	0.7	1.9	0.3	0.8
Interest rate risk	2.8	5.0	1.5	2.9	4.1	6.6	2.0	4.1
Credit spread risk	0.6	1.2	0.3	0.6	0.8	2.7	0.4	0.8
Diversification
benefit	(1.1)	n/a	n/a	(1.1)	(1.5)	n/a	n/a	(1.5)
Total VaR	2.8	5.2	1.5	2.9	4.1	7.2	2.1	4.2

VaR is calculated separately for foreign exchange and for interest rate/debt markets businesses as well as for ANZ New Zealand. The diversification benefit reflects the historical correlation between foreign exchange, interest rate and debt markets.

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

Non-traded market risks (balance sheet risk)

The principal objectives of balance sheet management are to manage net interest income sensitivity while maintaining acceptable levels of interest rate and liquidity risk and to manage the market value of ANZ New Zealand’s capital. Liquidity risk is dealt with in the next section.

Interest rate risk

The objective of balance sheet interest rate risk management is to mitigate the negative impact of movements in wholesale interest rates on the earnings of ANZ New Zealand's banking book. Non-traded interest rate risk relates to the potential adverse impact to earnings principally from changes in swap market interest rates. This risk arises from two principal sources: mismatches between the repricing dates of interest bearing assets and liabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets.

As part of normal business activity ANZ New Zealand has additional risks from fixed rate mortgage prepayments and basis risk:

• Prepayment risk is the potential risk to earnings or market value from when a customer prepays all or part of a fixed rate mortgage and where any customer fee charged is not sufficient to offset the loss in value to ANZ New Zealand of this financial asset due to movements in interest rates and other pricing factors. As far as possible the true economic cost is passed through to customers in line with their terms and conditions and relevant legislation.

• Basis risk is the potential risk to earnings or market value from differences between customer pricing and wholesale market pricing. This is managed through active review of product margins.

Non-traded interest rate risk is managed to both value and earnings at risk limits. Interest rate risk is reported using three measures: VaR; scenario analysis (to a 1% shock); and interest rate sensitivity gap. This treatment excludes the effect of prepayment and basis risk.

Australia and New Zealand Banking Group Limited - New Zealand Branch

58

Notes to the Financial Statements

a) VaR non-traded interest rate risk

		ANZ New Zealand	ANZ New Zealand
$ millions		High for	Low for	Average for
	As at	year	year	year
30/09/2011
Value at risk at 97.5% confidence	7.9	13.5	7.3	9.3
30/09/2010
Value at risk at 97.5% confidence	11.7	13.6	7.2	11.3

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. Conversely, a negative number signifies that a rate increase is negative for the next 12 months’ net interest income.

	ANZ New Zealand	ANZ New Zealand
	30/09/2011	30/09/2010
Impact of 1% rate shock
As at	1.3%	0.7%
Maximum exposure	1.4%	1.0%
Minimum exposure	-0.1%	-0.7%
Average exposure (in absolute terms)	0.7%	0.3%

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. ANZ New Zealand quantifies the potential variation in future net interest income as a result of these repricing mismatches each month using a static gap model.

The majority of ANZ New Zealand’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 ANZ New Zealand to quantify the interest rate risks associated with the balance sheet and to formulate strategies to manage current and future risk profiles.

Interest rate sensitivity gap

The interest rate sensitivity gap analysis provides information about ANZ New Zealand's exposure to interest rate risk.

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

The majority of ANZ New Zealand'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.

ANZ New Zealand'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 ANZ New Zealand's policy.

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

The repricing gaps are based upon contractual repricing information except where the contractual terms are not considered to be reflective of actual interest rate sensitivity, for example, those assets and liabilities priced at ANZ New Zealand’s discretion. In such cases, the rate sensitivity is based upon historically observed and/or anticipated rate sensitivity. This treatment excludes the effect of basis risk between customer pricing and wholesale market pricing.

Australia and New Zealand Banking Group Limited - New Zealand Branch

59

Notes to the Financial Statements

			ANZ	New Zealand
30/09/2011		Less than	3 to 6	6 to 12	1 to 2	Beyond	Not bearing
$ millions	Total	3 months	months	months	years	2 years	interest
Assets
Liquid assets	2,455	2,266	-	-	-	-	189
Due from other financial institutions	3,633	2,985	-	-	-	-	648
Trading securities	9,466	2,684	18	496	2,218	4,050	-
Derivative financial instruments	14,294	-	-	-	-	-	14,294
Available-for-sale assets	411	94	72	122	-	-	123
Net loans and advances	93,613	68,355	5,115	7,974	7,680	3,900	589
Other financial assets	868	66	4	7	14	6	771
Total financial assets	124,740	76,450	5,209	8,599	9,912	7,956	16,614
Liabilities
Due to other financial institutions	12,247	11,774	-	-	-	62	411
Deposits and other borrowings	69,238	45,869	11,227	4,427	1,080	1,517	5,118
Derivative financial instruments	14,178	-	-	-	-	-	14,178
Payables and other financial
liabilities	1,995	24	-	-	2	189	1,780
Bonds and notes	18,472	6,960	-	2,110	4,348	5,054	-
Term funding	1,766	1,766	-	-	-	-	-
Loan capital	1,988	-	250	903	835	-	-
Total financial liabilities	119,884	66,393	11,477	7,440	6,265	6,822	21,487
Hedging instruments	-	(3,707)	6,748	(4,850)	680	1,129	-
Interest sensitivity gap	4,856	6,350	480	(3,691)	4,327	2,263	(4,873)
			ANZ	New Zealand
30/09/2010		Less than	3 to 6	6 to 12	1 to 2	Beyond	Not bearing
$ millions	Total	3 months	months	months	years	2 years	interest
Assets
Liquid assets	2,239	2,079	-	-		-	160
Due from other financial institutions	3,496	1,932	-	-	-	-	1,564
Trading securities	6,757	836	26	133	1,536	4,226	-
Derivative financial instruments	10,854	-	-	-	-	-	10,854
Available-for-sale assets	2,151	703	1,061	246	23	40	78
Net loans and advances	96,015	61,639	5,549	10,208	12,313	5,688	618
Other financial assets	940	87	-	-	-	-	853
Total financial assets	122,452	67,276	6,636	10,587	13,872	9,954	14,127
Liabilities
Due to other financial institutions	12,293	10,809	-	-	-	25	1,459
Deposits and other borrowings	70,295	43,695	13,224	6,414	1,000	998	4,964
Derivative financial instruments	10,727	-	-	-	-	-	10,727
Payables and other financial
liabilities	1,075	98	-	-	-	-	977
Bonds and notes	19,899	8,100	150	458	3,207	7,984	-
Term funding	1,766	1,766	-	-	-	-	-
Loan capital	2,407	-	630	350	592	835	-
Total financial liabilities	118,462	64,468	14,004	7,222	4,799	9,842	18,127
Hedging instruments	-	8,638	(2,239)	(2,671)	(9,252)	5,524	-
Interest sensitivity gap	3,990	11,446	(9,607)	694	(179)	5,636	(4,000)

Australia and New Zealand Banking Group Limited - New Zealand Branch

60

Notes to the Financial Statements

				NZ Branch
30/09/2011		Less than	3 to 6	6 to 12	1 to 2	Beyond	Not bearing
$ millions	Total	3 months	months	months	years	2 years	interest
Assets
Derivative financial instruments	172	-	-	-	-	-	172
Net loans and advances	9,931	6,203	762	1,297	1,243	387	39
Due from related entities	338	338	-	-	-	-	-
Total financial assets	10,441	6,541	762	1,297	1,243	387	211
Liabilities
Due to other financial institutions	10,011	10,011	-	-	-	-	-
Derivative financial instruments	117	-	-	-	-	-	117
Payables and other financial
liabilities	71	-	-	-	-	-	71
Due to subsidiary companies	51	-	-	-	-	-	51
Total financial liabilities	10,250	10,011	-	-	-	-	239
Hedging instruments	-	3,263	(295)	(1,405)	(1,167)	(396)	-
Interest sensitivity gap	191	(207)	467	(108)	76	(9)	(28)
				NZ Branch
30/09/2010		Less than	3 to 6	6 to 12	1 to 2	Beyond	Not bearing
$ millions	Total	3 months	months	months	years	2 years	interest
Assets
Derivative financial instruments	500	-	-	-	-	-	500
Net loans and advances	10,059	4,784	832	1,536	2,073	813	21
Due from related entities	302	302	-	-	-	-	-
Other financial assets	3	-	-	-	-	-	3
Total financial assets	10,864	5,086	832	1,536	2,073	813	524
Liabilities
Due to other financial institutions	10,481	10,481	-	-	-	-	-
Derivative financial instruments	142	-	-	-	-	-	142
Payables and other financial
liabilities	70	-	-	-	-	-	70
Total financial liabilities	10,693	10,481	-	-	-	-	212
Hedging instruments	-	4,435	(30)	(1,679)	(2,052)	(674)	-
Interest sensitivity gap	171	(960)	802	(143)	21	139	312

Equity price risk

The portfolio of financial assets classified as available-for-sale contains equity investment holdings held for longer term strategic intentions. These equity investments are also subject to market risk which is not captured by the VaR measures for traded and non-traded market risks. The fair value of these securities as at 30 September 2011 was $116 million (30/09/2010 $78 million). A 10 per cent reduction in the value of the available-for-sale equity securities at 30 September 2011 would have reduced equity by $12 million (30/09/2010 $8 million).

Foreign currency related 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 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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

61

Notes to the Financial Statements

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Net open position
Australian dollar	(3)	20	1	2
Euro	-	(1)	-	-
Japanese yen	-	(2)	-	-
Pound sterling	-	1	-	-
US dollar	2	(3)	-	-
Total net open position	(1)	15	1	2

Liquidity risk

Liquidity risk is the risk that ANZ New Zealand is unable to meet its payment obligations as they fall due. The timing mismatch of cash flows and the related liquidity risk is inherent in all banking operations and is closely monitored by ANZ New Zealand.

ANZ New Zealand’s liquidity and funding risks are governed by a detailed policy framework which is approved by the Risk Committees of the Bank’s and Ultimate Parent Bank’s Boards. The core objective of ANZ New Zealand’s framework is to manage liquidity to meet obligations as they fall due, without incurring unacceptable losses.

Central to ANZ New Zealand’s liquidity risk management approach is the establishment of a liquidity risk appetite framework to which ANZ New Zealand must conform at all times. The risk appetite for liquidity has been set as low, and this objective is achieved by ANZ New Zealand managing liquidity risks within the boundaries of the following requirements and principles:

• Maintaining the ability to meet all payment obligations in the immediate term.

• Ensuring the ability to meet "survival horizons" under a range of ANZ New Zealand specific and general market liquidity stress scenarios.

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

• Limiting the potential earnings at risk associated with unexpected increases in funding costs or the liquidation of assets under stress.

• Ensuring the liquidity management framework is compatible with regulatory requirements.

• Daily liquidity reporting and scenario analysis, quantifying ANZ New Zealand’s positions.

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

• Holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-today operations.

• Establishing detailed contingency plans to cover different liquidity crisis events.

Management of liquidity and funding risks are overseen by ALCO.

Scenario Modelling

A key component of ANZ New Zealand’s liquidity management framework is scenario modelling. Liquidity is assessed under different scenarios, including "going-concern", "name-crisis" and various "survival horizons".

"Going-concern": reflects the normal behaviour of cash flows in the ordinary course of business. ANZ New Zealand must be able to meet all commitments and obligations under a going concern scenario, within ANZ New Zealand normal funding capacity (‘available to fund’ limit), over at least the following 30 calendar days. In estimating the funding requirement, ANZ New Zealand models expected cash flows by reference to historical behaviour and contractual maturity data.

"Name-crisis": refers to a potential name-specific liquidity crisis scenario which models the behaviour of cash flows where there is a problem (real or perceived) which may include, but is not limited to, operational issues, doubts about the solvency of ANZ New Zealand, or adverse rating changes. Under this scenario ANZ New Zealand may have significant difficulty rolling over or replacing funding. Under the liquidity policy ANZ New Zealand must be cash flow positive over an eight calendar day period.

"Survival horizons": The global financial crisis has highlighted the importance of differentiating between stressed and normal market conditions in a name-specific crisis and the different behaviour that offshore and domestic wholesale funding markets can exhibit during market stress events. ANZ New Zealand has linked its liquidity risk appetite to defined liquidity "survival horizons" (i.e. the time period under which ANZ New Zealand must maintain a positive cash flow position). The following stressed scenarios are modelled:

• Extreme Short Term Crisis Scenario: A name-specific stress during a period of market stress.

• Short Term Crisis Scenario: A name-specific stress during a period of normal markets conditions.

• Global Funding Market Disruption: Stressed global wholesale funding markets leading to a closure of domestic and offshore markets.

• Offshore Funding Market Disruption: Stressed global wholesale funding markets leading to a closure of offshore markets only.

As of 30 September 2011 ANZ New Zealand was in compliance with all of the above scenarios.

Australia and New Zealand Banking Group Limited - New Zealand Branch

62

Notes to the Financial Statements

Funding Composition

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

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Funding composition
Customer deposits1
New Zealand	55,044	52,183	-	-
Overseas	6,950	7,560	-	-
Total customer deposits	61,994	59,743	-	-
Wholesale funding
Bonds and notes	18,472	19,899	-	-
Loan capital	1,988	2,407	-	-
Certificates of deposit	2,454	3,245	-	-
Commercial paper	4,790	7,307	-	-
Due to related entities	-	-	51	-
Term funding	1,766	1,766	-	-
Due to other financial institutions	12,247	12,293	10,011	10,481
Total wholesale funding	41,717	46,917	10,062	10,481
Total funding	103,711	106,660	10,062	10,481
Concentrations of funding by industry
Households	40,595	37,968	-	-
Agriculture	2,240	1,993	-	-
Forestry, fishing and mining	504	527	-	-
Manufacturing	2,464	2,772	-	-
Entertainment, leisure and tourism	668	596	-	-
Finance and insurance	48,801	53,395	10,062	10,481
Retail trade	690	670	-	-
Wholesale trade	873	677	-	-
Business and property services	3,281	3,754	-	-
Transport and storage	507	620	-	-
Construction	762	731	-	-
Government and local authority	1,347	1,967	-	-
Other2	979	990	-	-
Total funding	103,711	106,660	10,062	10,481
Concentrations of funding by geography3
New Zealand	61,132	59,983	34	-
Australia	15,480	14,326	9,936	9,445
United States	14,198	17,325	-	-
Europe	7,776	8,708	-	-
Other countries	5,125	6,318	92	1,036
Total funding	103,711	106,660	10,062	10,481

1 Represents term deposits, demand deposits bearing interest, deposits not bearing interest and secured debenture stock. 2 Other includes exposures to electricity, gas and water, communications and personal services.

3

Funding of ANZ New Zealand 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.

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

Wholesale funding

ANZ New Zealand’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.

ANZ New Zealand also uses maturity concentration limits under the wholesale funding and liquidity management framework. Maturity concentration limits ensure that ANZ New Zealand does not become reliant on issuing large volumes

Australia and New Zealand Banking Group Limited - New Zealand Branch

63

Notes to the Financial Statements

of new wholesale funding within a short time period. Funding instruments used to meet the wholesale borrowing requirement must be on a pre-established list of approved products.

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. ANZ New Zealand 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 ANZ New Zealand’s senior management. The plan is supplemented by monthly updates and is linked to ANZ New Zealand’s three year strategic planning cycle.

Liquidity portfolio management

ANZ New Zealand holds a diversified portfolio of cash and high-quality highly-liquid securities to support liquidity risk management. The size of ANZ New Zealand’s liquidity portfolio is based on the amount required to meet its liquidity policy.

Total liquidity portfolio	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Balances with central banks	1,765	1,015	-	-
Securities purchased under agreement to resell	992	266	-	-
Certificates of deposit	1,562	687	-	-
Govt, local body stock and bonds	4,329	3,631	-	-
Government treasury bills	169	1,915	-	-
Other bonds	3,269	2,698	-	-
Total liquidity portfolio	12,086	10,212	-	-

Assets held for managing liquidity risk include short term cash held with the RBNZ, New Zealand government securities, securities issued by supranational agencies, securities issued by highly rated banks and securities issued by State Owned Enterprises, Local Authorities and highly rated NZ domestic corporates. These assets are accepted as collateral by the RBNZ in repurchase transactions. At 30 September 2011 ANZ New Zealand would be eligible to enter into repurchase transactions with a value of $11,634 million. The Banking Group also held unencumbered internal residential mortgage backed securities (“RMBS”) which would entitle ANZ New Zealand to enter into repurchase transactions with a value of $4,963 million at 30 September 2011 (the RBNZ has imposed a cap limiting the amount of RMBS deemed as eligible in the liquidity portfolio to 4% of total assets).

Liquidity crisis contingency planning

ANZ New Zealand maintains liquidity crisis contingency plans defining an approach for analysing and responding to a liquidity-threatening event on a group wide basis. The framework includes:

• the establishment of crisis severity/stress levels;

• clearly assigned crisis roles and responsibilities;

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

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

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

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

• assigned responsibilities for internal and external communications.

Contractual maturity analysis of financial assets and liabilities

The tables below present ANZ New Zealand's financial assets and liabilities within relevant contractual maturity groupings, based on the earliest date on which the NZ Branch or ANZ New Zealand may be required to realise an asset or settle a liability. The amounts disclosed in the tables represent undiscounted future principal and interest cash flows and may differ to the amounts reported on the balance sheet.

The contractual maturity analysis for off-balance sheet commitments and contingent liabilities has been prepared using the earliest date at which ANZ New Zealand or the NZ Branch can be called upon to pay. The liquidity risk of credit related commitments and contingent liabilities may be less than the contract amount, and does not necessarily represent future cash requirements as many of these facilities are expected to be only partially used or to expire unused.

ANZ New Zealand does not manage its liquidity risk on the basis of the information below.

Australia and New Zealand Banking Group Limited - New Zealand Branch

64

Notes to the Financial Statements

			ANZ	New Zealand	New Zealand
$ millions			Less than	3 to 12			Beyond	No maturity
30/09/2011	Total	At call	3 months	months	1	to 5 years	5 years	specified
Financial assets
Liquid assets	2,455	2,455	-	-		-	-	-
Due from other financial institutions	3,641	972	2,669	-		-	-	-
Trading securities	10,220	-	1,797	851		6,984	588	-
Derivative financial assets (trading)	12,426	-	12,426	-		-	-	-
Available-for-sale assets	418	-	73	201		-	21	123
Net loans and advances	130,422	-	10,473	22,116		34,392	63,441	-
Other financial assets	525	-	494	11		14	6	-
Total financial assets	160,107	3,427	27,932	23,179		41,390	64,056	123
Financial liabilities
Due to other financial institutions	13,549	726	2,412	2,074		8,275	62	-
Deposits and other borrowings	70,611	26,340	24,483	16,785		2,887	116	-
Derivative financial liabilities
(trading)	12,574	-	12,574	-		-	-	-
Other financial liabilities	1,345	-	1,104	6		198	37	-
Bonds and notes	19,663	-	1,450	3,751		14,139	323	-
Term funding	1,841	-	19	1,822		-	-	-
Loan capital	3,135	-	40	120		797	1,005	1,173
Total financial liabilities	122,718	27,066	42,082	24,558		26,296	1,543	1,173
Net financial assets / (liabilities)	37,389	(23,639)	(14,150)	(1,379)		15,094	62,513	(1,050)
Derivative financial instruments
used for balance sheet
management
- gross inflows	30,523	-	3,596	7,375		19,482	70	-
- gross outflows	(29,602)	-	(3,781)	(7,223)		(18,521)	(77)	-
Net financial assets / (liabilities)
after balance sheet management	38,310	(23,639)	(14,335)	(1,227)		16,055	62,506	(1,050)

Contractual maturity of off-balance sheet commitments and contingent liabilities

	ANZ New Zealand	ANZ New Zealand
$ millions		Less than	Beyond
30/09/2011	Total	1 year	1 year
Non-credit related commitments	257	93	164
Credit related commitments	22,891	22,891	-
Contingent liabilities	2,805	2,805	-
Total	25,953	25,789	164

Australia and New Zealand Banking Group Limited - New Zealand Branch

65

Notes to the Financial Statements

			ANZ	New Zealand	New Zealand
$ millions			Less than	3 to 12		Beyond	No maturity
30/09/2010	Total	At call	3 months	months	1 to 5 years	5 years	specified
Financial assets
Liquid assets	2,239	2,239	-	-	-	-	-
Due from other financial institutions	3,496	457	2,956	83	-	-	-
Trading securities	7,991	-	924	396	6,501	170	-
Derivative financial assets (trading)	8,683	-	8,683	-	-	-	-
Available-for-sale assets	2,221	-	634	1,309	54	146	78
Net loans and advances	136,900	-	10,121	19,966	37,657	69,156	-
Other financial assets	490	-	469	4	11	6	-
Total financial assets	162,020	2,696	23,787	21,758	44,223	69,478	78
Liabilities
Due to other financial institutions	13,802	690	2,048	2,132	8,932	-	-
Deposits and other borrowings	71,974	23,678	23,649	22,326	2,280	41	-
Derivative financial liabilities
(trading)	9,013	-	9,013	-	-	-	-
Other financial liabilities	380	-	380	-	-	-	-
Bonds and notes	21,502	-	1,830	2,426	17,137	109	-
Term funding	1,849	-	21	1,828	-	-	-
Loan capital	3,781	-	48	144	960	1,445	1,184
Total financial liabilities	122,301	24,368	36,989	28,856	29,309	1,595	1,184
Net financial assets / (liabilities)	39,719	(21,672)	(13,202)	(7,098)	14,914	67,883	(1,106)
Derivative financial instruments
used for balance sheet
management
- gross inflows	32,644	-	1,206	7,842	23,573	23	-
- gross outflows	(34,199)	-	(1,387)	(7,767)	(25,020)	(25)	-
Net financial assets / (liabilities)
after balance sheet management	38,164	(21,672)	(13,383)	(7,023)	13,467	67,881	(1,106)

Contractual maturity of off-balance sheet commitments and contingent liabilities

	ANZ New Zealand
	Less than Beyond
$ millions
	Total 1 year 1 year
30/09/2010
	303 108 195
Non-credit related commitments
	20,845 20,845 -
Credit related commitments
	2,741 2,741 -
Contingent liabilities
	23,889 23,694 195
Total

Australia and New Zealand Banking Group Limited - New Zealand Branch

66

Notes to the Financial Statements

				NZ Branch
$ millions			Less than	3 to 12		Beyond	No maturity
30/09/2011	Total	At call	3 months	months	1 to 5 years	5 years	specified
Financial assets
Net loans and advances	17,762	-	375	507	2,472	14,408	-
Due from related entities	338	-	338	-	-	-	-
Total financial assets	18,100	-	713	507	2,472	14,408	-
Financial liabilities
Due to other financial institutions	11,384	-	1,118	2,065	8,201	-	-
Due to subsidiary companies	51	-	51	-	-	-	-
Total financial liabilities	11,435	-	1,169	2,065	8,201	-	-
Net financial assets / (liabilities)	6,665	-	(456)	(1,558)	(5,729)	14,408	-
Derivative financial instruments
used for balance sheet
management
- gross inflows	11,174	-	1,025	2,048	8,101	-	-
- gross outflows	(10,743)	-	(982)	(1,938)	(7,823)	-	-
Net financial assets / (liabilities)
after balance sheet management	7,096	-	(413)	(1,448)	(5,451)	14,408	-

Contractual maturity of off-balance sheet commitments and contingent liabilities

Contractual maturity of off-balance sheet commitments and contingent liabilities
NZ Branch
$ millions Less than Beyond
30/09/2011 Total 1 year 1 year
Credit related commitments 88 88 -
Total 88 88 -
NZ Branch
$ millions Less than 3 to 12		Beyond No maturity
30/09/2010 Total At call 3 months months 1 to 5 years 5 years specified
Assets
Net loans and advances 19,321 - 304 770 3,781 14,466 -
Due from related parties 302 - 302 - - - -
Other financial assets 3 - 3 - - - -
Total financial assets 19,626 - 609 770 3,781 14,466 -
Liabilities
Due to other financial institutions 11,970 - 954 2,128 8,888 - -
Derivative financial instruments
(trading) 142 - 142 - - - -
Other financial liabilities 3 - 3 - - - -
Total financial liabilities 12,115 - 1,099 2,128 8,888 - -
Net financial assets / (liabilities) 7,511 - (490) (1,358) (5,107) 14,466 -
Derivative financial instruments used for balance sheet
management
- gross inflows 10,559 - 927 2,030 7,601 1 -
- gross outflows (12,775) - (1,132) (2,185) (9,457) (1) -
Net financial assets / (liabilities)
after balance sheet management 5,295 - (695) (1,513) (6,963) 14,466 -

Contractual maturity of off-balance sheet commitments and contingent liabilities

		NZ Branch
$ millions		Less than Beyond
30/09/2010	Total 1 year 1 year
Credit related commitments	63 63 -
Total	63 63 -

Australia and New Zealand Banking Group Limited - New Zealand Branch

67

Notes to the Financial Statements

31. Concentrations of Credit Risk to Individual Counterparties

ANZ New Zealand measures its concentration of credit risk in respect to bank counterparties on the basis of approved exposures and in respect to non-bank counterparties on the basis of limits.

For the three month period ending 30 September 2011 there were no individual counterparties (excluding connected parties, governments and banks with long term credit ratings of A- or above) where ANZ New Zealand’s period end or peak end-of-day credit exposure equalled or exceeded 10% of the Overseas Banking Group’s equity (as at the end of the period).

This credit exposure information does not include exposures to counterparties if they are booked outside New Zealand.

32. Fair Value of Financial Assets and Financial Liabilities

			ANZ New Zealand
	At amortised	At fair value through profit or		Available-for-
$ millions	cost	loss Hedging sale assets			Tota	l Fair value
		Designated on
		initial Held for
Carrying amount		recognition trading
30/09/2011
Liquid assets	2,455	- - - -			2,455	2,455
Due from other financial institutions 2,071		- - - 1,562			3,633	3,633
Trading securities -		- 9,466 - -			9,466	9,466
Derivative financial instruments1 -		- 13,634 660 -			14,294	14,294
Available-for-sale assets -		- - - 411			411	411
Net loans and advances2 93,613		- - - -			93,613	93,762
Other financial assets 771		97 - - -			868	868
Total financial assets 98,910		97 23,100 660 1,973			124,740	124,889
Due to other financial institutions 12,247		- - - -			12,247	12,453
Deposits and other borrowings 64,448		4,790 - - -			69,238	69,343
Derivative financial instruments1 -		- 13,717 461 -			14,178	14,178
Other financial liabilities 1,995		- - - -			1,995	1,995
Bonds and notes2 18,472		- - - -			18,472	18,344
Term funding 1,766		- - - -			1,766	1,766
Loan capital 1,988		- - - -			1,988	1,922
Total financial liabilities 100,916		4,790 13,717 461 -			119,884	120,001
30/09/2010
Liquid assets 2,239		- - - -			2,239	2,239
Due from other financial institutions 2,789		- - - 707			3,496	3,496
Trading securities -		- 6,757 - -			6,757	6,757
Derivative financial instruments1 -		- 10,094 760 -			10,854	10,854
Available-for-sale assets -		- - - 2,151			2,151	2,151
Net loans and advances2 96,015		- - - -			96,015	95,957
Other financial assets 853		87 - - -			940	940
Total financial assets 101,896		87 16,851 760 2,858			122,452	122,394
Due to other financial institutions 12,293		- - - -			12,293	12,486
Deposits and other borrowings 62,988		7,307 - - -			70,295	70,362
Derivative financial instruments1 -		- 10,155 572 -			10,727	10,727
Other financial liabilities 1,075		- - - -			1,075	1,075
Bonds and notes2 19,899		- - - -			19,899	19,935
Term funding 1,766		- - - -			1,766	1,766
Loan capital 2,407		- - - -			2,407	2,361
Total financial liabilities 100,428		7,307 10,155 572 -			118,462	118,712

Australia and New Zealand Banking Group Limited - New Zealand Branch

68

Notes to the Financial Statements

				NZ Branch
						Available-
	At amortised	At fair value through				for-sale
$ millions	cost	profit or loss		Hedging		assets		Total	Fair Value
		Designated
		on initial	Held for
Carrying amount		recognition	trading
30/09/2011
Derivative financial instruments1	-	-		172	-		-	172	172
Net loans and advances2	9,931	-		-	-		-	9,931	9,938
Due from subsidiary companies	338	-		-	-		-	338	338
Total financial assets	10,269	-		172	-		-	10,441	10,448
Due to other financial institutions	10,011	-		-	-		-	10,011	10,217
Due to subsidiary companies	51	-		-	-		-	51	51
Derivative financial instruments1	-	-		58	59		-	117	117
Other financial liabilities	71	-		-	-		-	71	71
Total financial liabilities	10,133	-		58	59		-	10,250	10,456
30/09/2010
Derivative financial instruments1	-	-		500	-		-	500	500
Net loans and advances2	10,059	-		-	-		-	10,059	10,081
Due from related entities	302	-		-	-		-	302	302
Other financial assets	3	-		-	-		-	3	3
Total financial assets	10,364	-		500	-		-	10,864	10,886
Due to other financial institutions	10,481	-		-	-		-	10,481	10,674
Derivative financial instruments1	-	-		72	70		-	142	142
Other financial liabilities	70	-		-	-		-	70	70
Bonds and notes2	1,516	-		-	-		-	1,516	1,545
Total financial liabilities	12,067	-		72	70		-	12,209	12,431

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 certain financial assets within loans and advances and certain financial liabilities within bonds and notes. The resulting fair value adjustment means that the carrying value differs from the amortised cost.

Estimation of fair value

Liquid assets and due from / to other financial institutions

Where these financial instruments are short-term in nature, defined as those that reprice or mature in 90 days or less, or are receivable on demand, the carrying values are considered to approximate the fair values. When longer term in nature, fair value is based on quoted market prices, or for those debt issues where quoted market prices are not available, a discounted cash flow model using a yield curve appropriate for the remaining term to maturity of that debt instrument.

Trading securities, derivative financial instruments and available for sale assets

Fair value is based on quoted market prices, broker or dealer price quotations. If this information is not available, fair value 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

Fair value has been estimated through discounting future cash flows. For fixed rate loans and advances, the discount rate applied incorporates changes in wholesale market rates, ANZ New Zealand’s cost of wholesale funding and movements in customer margin. For floating rate loans, only changes in wholesale market rates and ANZ New Zealand’s cost of wholesale funding are incorporated in the discount rate. For variable rate loans where ANZ New Zealand sets the applicable rate at its discretion, the carrying value is considered to approximate the fair value.

Other financial assets / liabilities

Included in this category are accrued interest and fees receivable / payable. For these balances the carrying value is considered to approximate the fair values, as they are short term in nature or are receivable / payable on demand.

Deposits and other borrowings

For interest bearing fixed maturity deposits and other borrowings without quoted market prices, market borrowing rates of interest for debt with a similar maturity are used to discount contractual cash flows. The fair value of a deposit liability without a specified maturity or at call is deemed to be the amount payable on demand at the reporting date. The fair value is not adjusted for any value expected to be derived from retaining the deposit for a future period of time.

Certain items included in deposits and other borrowings have been designated as financial liabilities at fair value through profit or loss and are carried at fair value.

Australia and New Zealand Banking Group Limited - New Zealand Branch

69

Notes to the Financial Statements

Bonds and notes, due to parent company and loan capital

The aggregate fair value of bonds and notes and loan capital is calculated based on quoted market prices. For those debt issues where quoted market prices are not available, a discounted cash flow model using a yield curve appropriate for the remaining term to maturity of the debt instrument is used.

Commitments and contingencies

Adjustments to fair value for commitments and contingencies that are not financial instruments recognised in the balance sheet are not included in this note.

Valuation hierarchy

In determining the carrying amount of financial instruments held at fair value ANZ New Zealand uses a valuation method within the following hierarchy:

“Level 1” - Quoted market price

Where an active market exists fair value is based on quoted market prices for identical financial instruments. The quoted market price is not adjusted for any potential impact that may be attributed to a large holding of the financial instrument.

“Level 2” - Valuation technique using observable inputs

In the event that there is no quoted market price for the instruments, fair values are based on present value estimates or other market accepted valuation techniques which include data from observable markets wherever possible.

“Level 3” - Valuation technique with significant non observable inputs

The majority of valuation techniques employ only observable market data. However, ANZ New Zealand holds some investments in unlisted funds or other investments which do not trade in an active market. For these instruments the fair value cannot be determined in whole with reference to current market transactions or valuation techniques whose variables only include data from observable markets. Where observable market data is not available, the fair value is determined using broker quotes or valuation techniques, including discounted cash flow analysis, using data derived and extrapolated from market data and tested against historic transactions and observed market trends.

Valuation technique		ANZ New Zealand	ANZ New Zealand				NZ Branch	NZ Branch
$millions	Level 1	Level 2	Level	3	Total	Level 1	Level 2	Level	3	Total
30/09/2011
Due from other financial institutions	1,562	-		-	1,562	-	-		-	-
Trading securities	5,565	3,901		-	9,466	-	-		-	-
Available-for-sale assets	334	72		5	411	-	-		-	-
Derivative financial instruments	18	14,275		1	14,294	-	172		-	172
Investments relating to insurance
business	27	70		-	97	-	-		-	-
Total financial assets held at fair
value	7,506	18,318		6	25,830	-	172		-	172
Commercial paper	-	4,790		-	4,790	-	-		-	-
Derivative financial instruments	18	14,160		-	14,178	-	117		-	117
Total financial liabilities held at fair
value	18	18,950		-	18,968	-	117		-	117
30/09/2010
Due from other financial institutions	707	-		-	707	-	-		-	-
Trading securities	3,630	3,127		-	6,757	-	-		-	-
Available-for-sale assets	1,990	42	119		2,151	-	-		-	-
Derivative financial instruments	3	10,851		-	10,854	-	500		-	500
Investments relating to insurance
business	-	87		-	87	-	-		-	-
Total financial assets held at fair
value	6,330	14,107	119		20,556	-	500		-	500
Commercial paper	-	7,307		-	7,307	-	-		-	-
Derivative financial instruments	35	10,692		-	10,727	-	142		-	142
Total financial liabilities held at fair
value	35	17,999		-	18,034	-	142		-	142

Australia and New Zealand Banking Group Limited - New Zealand Branch

70

Notes to the Financial Statements

Movements in level 3 valuations

Movements in level 3 valuations
	ANZ New Zealand		NZ Branch
$ millions	30/09/2011 30/09/2010		30/09/2011 30/09/2010
Opening balance	119 -		- -
Acquired in a business combination	- 127		- -
Purchases	11 -		- -
Revaluations	38 38		- -
Foreign exchange movements	4 (8) - -
Sales	(166) (38) - -
Closing balance	6 119 - -

33. Notes to the Cash Flow Statements

	ANZ New Zealand	NZ Branch
$ millions	Year to Year t	o Year to Year to
	30/09/2011 30/09/2010 30/09/2011 30/09/2010
Reconciliation of profit after income tax to net cash flows
provided by / (used in) operating activities
Profit after income tax	1,085 867 44 94
Non-cash items:
Depreciation and amortisation	74 71 - -
Provision for credit impairment	190 456 13 20
Deferred fee revenue and expenses	4 (5) - -
Share-based payments expense	22 21 - -
Amortisation of capitalised brokerage / mortgage origination fees	42 45 9 10
Deferrals or accruals of past or future operating cash receipts or
payments:
Change in net operating assets less liabilities	1,431 (2,528) (42) (177)
Change in interest receivable	48 6 - -
Change in interest payable	(16) (37) 4 26
Change in accrued income	3 (6) - -
Change in accrued expenses	(56) 54 (1) 1
Change in provisions	(6) (63) - -
Amortisation of premiums and discounts	109 39 - -
Change in insurance policy assets	(62) (49) - -
Change in net income tax assets / liabilities	213 (235) (27) 26
Items classified as investing / financing:
Share of profit of associates and jointly controlled entities	(2) (42) - -
Impairment of associates	- 7 - -
Re-measuring existing equity interest to fair value	- 82 - -
Gain on disposal of interests in associates	(5) - - -
Loss on disposal and impairment of premises and equipment and
intangibles	8 9 - -
Net cash flows provided by / (used in) operating activities	3,082 (1,308) - -
	ANZ New Zealand NZ Branch
$ millions	30/09/2011 30/09/2010 30/09/2011 30/09/2010
Reconciliation of cash and cash equivalents to the balance
sheets
Liquid assets	2,455 2,239 - -
Due from other financial institutions - less than 90 days	3,633 1,339 - -
Total cash and cash equivalents	6,088 3,578 - -

Australia and New Zealand Banking Group Limited - New Zealand Branch

71

Notes to the Financial Statements

34. Commitments

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Contracts for outstanding capital expenditure
Not later than 1 year	13	17	-	-
Total capital expenditure commitments	13	17	-	-
Future minimum lease payments under non-cancellable operating leases
Not later than 1 year	80	91	-	-
Later than 1 year but not later than 5 years	135	166	-	-
Later than 5 years	29	29	-	-
Total lease rental commitments	244	286	-	-
Total commitments	257	303	-	-

35. Credit Related Commitments and Contingent Liabilities

	ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
	Face or contract value		Face or contract value
$ millions	30/09/2011	30/09/2010	30/09/2011	30/09/2010
Credit related commitments
Commitments with certain drawdown due within one year	527	493	-	-
Commitments to provide financial services	22,364	20,352	88	63
Total credit related commitments	22,891	20,845	88	63
Contingent liabilities
Financial guarantees	1,753	1,686	-	-
Standby letters of credit	60	60	-	-
Transaction related contingent items	882	898	-	-
Trade related contingent liabilities	110	97	-	-
Total contingent liabilities	2,805	2,741	-	-

ANZ New Zealand 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.

Other contingent liabilities

ANZ New Zealand has other contingent liabilities in respect of actual and possible claims and court proceedings. An assessment of ANZ New Zealand’s likely loss in respect of these matters has been made on a case-by-case basis and provision made where deemed necessary.

36. Securitisation, Funds Management, Other Fiduciary Activities and Insurance

The Kingfisher Trust

ANZ New Zealand has established the Kingfisher Trust as an in-house residential mortgage backed securities facility that can issue securities meeting the RBNZ criteria to use as collateral in repurchase transactions with the RBNZ.

As at 30 September 2011 the rights to cash flows associated with residential mortgages with a carrying value of $6,666 million (30/09/2010 $6,531 million) were held in this facility. These assets do not qualify for derecognition as the Bank retains substantially all of the risks and rewards of the transferred assets, therefore ANZ New Zealand’s financial statements do not change as a result of establishing this facility.

As at 30 September 2011 and 30 September 2010 ANZ New Zealand had entered into no repurchase agreements with the RBNZ for residential mortgage backed securities and therefore no collateral had been accepted by the RBNZ under this facility.

The Covered Bond Trust

On 11 February 2011, as part of the establishment of the Bank’s covered bond programme, the Covered Bond Trust was established. The assets of the Covered Bond Trust are made up of certain housing loans and related securities originated

Australia and New Zealand Banking Group Limited - New Zealand Branch

72

Notes to the Financial Statements

by the Bank and which are security for the guarantee by ANZNZ Covered Bond Trust Limited as trustee of the Covered Bond Trust of issuances of covered bonds by the Bank or its wholly owned subsidiary ANZ National (Int’l) Limited, from time to time.

As at 30 September 2011 the rights to cash flows associated with housing loans and related securities with a carrying value of $2,745 million were held in the Covered Bond Trust. The assets of the Covered Bond Trust do not qualify for derecognition as the Bank retains substantially all of the risks and rewards of the transferred assets. Therefore, the establishment of the covered bond programme and the Covered Bond Trust do not change ANZ New Zealand’s financial statements.

Funds management

Certain entities that form part of ANZ New Zealand act as trustee and/or manager for a number of unit trusts and investment and superannuation funds. ANZ New Zealand provides private banking services to a number of clients, including investment advice and portfolio management. ANZ New Zealand is not responsible for any decline in performance of the underlying assets of the investors due to market forces.

As funds under management are not controlled by ANZ New Zealand, they are not included in these financial statements. ANZ New Zealand 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. ANZ New Zealand derives commission income from the sale of third party funds management products.

Some funds under management are invested in products owned or securities issued by ANZ New Zealand and are recorded as liabilities in the balance sheet. At 30 September 2011, $2,500 million of funds under management were invested in ANZ New Zealand's own products or securities (30/09/2010 $2,888 million).

Aggregate value of funds managed by ANZ New Zealand

Aggregate value of funds managed by ANZ New Zealand
	ANZ New Zealand
$ millions	30/09/2011	30/09/2010
Funds managed by OnePath	6,709	7,430
The Bonus Bonds Trust	2,996	2,973
Other discretionary funds	5,016	4,760
Totals funds under management	14,721	15,163

Custodial services

ANZ New Zealand provides custodial services to customers in respect of assets that are beneficially owned by those customers.

Provision of financial services

Financial services provided by ANZ New Zealand 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.

Except for standard lending facilities provided in the normal course of business on arm’s length terms, ANZ New Zealand 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 ANZ New Zealand (30/09/2010 $nil).

Insurance business

ANZ New Zealand conducts an insurance business through OnePath Insurance Holdings (NZ) Limited and its subsidiaries (“OnePath Insurance”), the assets, liabilities and operations of which are fully consolidated into ANZ New Zealand. OnePath Insurance provides risk transfer and investment contract life insurance products. In addition, other entities within ANZ New Zealand market and distribute a range of insurance products which are underwritten by OnePath Insurance, or by third party insurance companies.

The aggregate insurance business conducted by OnePath Insurance comprises assets totalling $438 million (30/09/2010: $337 million), which is 0.3% (30/09/2010: 0.3%) of the total consolidated assets of ANZ New Zealand.

Risk management

The Bank and entities that form part of ANZ New Zealand 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 or ANZ New Zealand. The policies and procedures include comprehensive and prominent disclosure of information regarding products, and formal and regular review of operations and policies by management.

In addition, the following measures have been taken to manage any risk to ANZ New Zealand of marketing and distributing insurance and funds management products:

Australia and New Zealand Banking Group Limited - New Zealand Branch

73

Notes to the Financial Statements

• Investment statements, prospectuses and brochures for insurance products include disclosures that neither the Bank nor any member of ANZ New Zealand guarantees the insurer, the insurer’s subsidiaries, or any of the products issued by the insurer or the insurer’s subsidiaries.

• Investment statements, prospectuses and brochures of fund management products and insurance products subject to the Securities Act 1978 additionally include disclosures that:

• the products do not represent deposits or other liabilities of the entities within ANZ New Zealand;

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

• entities within ANZ New Zealand do not guarantee the capital value or performance of the products.

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

37. Subsequent Events

On 20 October 2011 ANZ National (Int'l) Limited, a wholly owned subsidiary of the Bank, issued fixed rate covered bonds with a face value of EUR 500 million, a coupon rate of 3.0% and a maturity date of 20 October 2016. The covered bonds are guaranteed by ANZNZ Covered Bond Trust Limited as trustee of the Covered Bond Trust under the terms of the Bank’s covered bond programme. The assets of the Covered Bond Trust are not available to creditors of the Bank, although the Bank (or its liquidator or statutory manager) may have a claim against the residual assets of the Covered Bond Trust (if any) after all prior ranking creditors of the Covered Bond Trust have been satisfied. Refer to note 36 for further details of the covered bond programme.

There have been no other material subsequent events.

38. Additional Disclosures

Overseas Banking Group profitability and size

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----- Start of picture text -----

||||
|---|---|---|
|AUD millions|30/09/2011|
|Net profit after tax for the year|[1 ]|5,363|
|Net profit after tax for the year as a percentage of average total assets|0.95%|
|Total assets|594,488|
|Percentage change in total assets over the preceding year|11.8%|

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1 Net profit after tax for the year includes $8m of profit attributable to non-controlling interests.

Overseas Banking Group asset quality

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|||
|---|---|
|AUD millions|30/09/2011|
|Gross impaired assets|5,581|
|Gross impaired assets as a percentage of total assets|0.94%|
|Total individually assessed provisions for impairment|1,697|
|Individually assessed provisions for impairment as a percentage of gross impaired assets|30.4%|
|Collective provision for credit impairment|3,176|

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Australia and New Zealand Banking Group Limited - New Zealand Branch

74

Directorate and Auditors

The address to which any document or communication may be sent to any Director or the Chief Executive Officer – NZ Branch is Australia and New Zealand Banking Group Limited – New Zealand Branch, Level 6, 1 Victoria Street, Wellington, New Zealand. The document or communication should be marked for the attention of that Director or the Chief Executive Officer.

Directors’ Interests

The Board of the Ultimate Parent Bank has adopted procedures to ensure that conflicts and potential conflicts of interest between a Director’s duties to the Ultimate Parent Bank and their own interests are avoided or dealt with. Pursuant to these procedures:

• a. each Director should disclose to all Directors any material personal interest they have in any matter which relates to the affairs of the Ultimate Parent Bank and any other interest which the Director believes is appropriate to disclose in order to avoid an actual conflict of interest or the perception of a conflict of interest. This disclosure should be made as soon as practicable after the Director becomes aware of their interest or the need to make a disclosure; and

• b. a Director who has an interest of the type referred to in a. above in a matter that is to be considered at a Directors' meeting, must not vote on the matter nor be present while the matter is considered at the meeting, unless a majority of Directors who do not have such an interest in the matter agree that the interest should not disqualify such Director from being present while the matter is being considered and from voting on the matter. The minutes of the meeting should record the decision taken by the Directors who do not have an interest in the matter.

In addition, Standing Notices about Interests are maintained for each Director. If the Director's interests change, the Director shall disclose the change as soon as practicable and an updated Standing Notice shall be tabled at the next Board meeting and recorded in the minutes of that meeting.

Transactions with Directors and the Chief Executive Officer, NZ Branch

There are no transactions entered into by any Director, the Chief Executive Officer – NZ Branch, or any immediate relative or close business associate of any Director or the Chief Executive Officer – NZ Branch, with any part of ANZ New Zealand which has been either entered into on terms other 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 Directors' or Chief Executive Officer – NZ Branch duties in respect of the NZ Branch and ANZ New Zealand.

Board Members as at 29 November 2011

The names, qualifications, occupation, country of residence and material external directorships of each director of the Ultimate Parent Bank as at the date this Disclosure Statement was signed were:

Chairman

John Powell Morschel

DipQS, FAICD Company Director Sydney, Australia

Mr Morschel is an ex-officio member of all Board Committees.

External Directorships

Director: CapitaLand Limited and Tenix Group Pty Limited.

Chief Executive Officer – Australia and New Zealand Banking Group Limited

Michael Roger Pearson Smith, OBE

BSc (Hons)

Chief Executive Officer and Executive Director Melbourne, Australia

External Directorships

Director: The Financial Markets Foundation for Children, and The Institute of International Finance.

Member: Chongqing Mayor's International Economic Advisory Council, Australian Bankers' Association Incorporated, Asia Business Council, Financial Literacy Advisory Board, Shanghai International Financial Advisory Council, and the Business Council of Australia.

Fellow: The Hong Kong Management Association.

Non-Executive Directors

Dr Gregory John Clark

BSc (Hons), PhD, FAPS, FTSE Company Director

Based in New York, United States of America and also resides in Sydney, Australia

Australia and New Zealand Banking Group Limited - New Zealand Branch

75

Directorate and Auditors

Dr Clark is Chair of the Technology Committee and a member of the Risk Committee and Human Resources Committee.

External Directorships

Chairman: KaComm Communications Pty Limited.

Peter Algernon Franc Hay

LLB (Melb), FAICD Company Director Melbourne, Australia

Mr Hay is Chair of the Governance Committee and a member of the Audit Committee and Human Resources Committee.

External Directorships

Chairman: Lazard Pty Ltd Advisory Board.

Director: Alumina Limited, Landcare Australia Limited, GUD Holdings Limited, NBN Co Limited and Myer Holdings Limited. Member: Takeovers Panel.

Lee Hsien Yang

MSc, BA

Company Director

Singapore

Mr Lee is a member of the Human Resources Committee, Risk Committee and Technology Committee.

External Directorships

Chairman: Fraser & Neave, Limited, Asia Pacific Investments Pte Ltd, and Civil Aviation Authority of Singapore. Director: Singapore Exchange Limited, The Islamic Bank of Asia Limited, and Kwa Geok Choo Pte Ltd. Member: Governing Board of Lee Kuan Yew School of Public Policy and Rolls Royce International Advisory Council. Consultant: Capital International Inc Advisory Board.

Ian John Macfarlane, AC

BEc (Hons), MEc, Hon DSc (Syd), Hon DSc (UNSW), Hon DCom (Melb), Hon DLitt (Macq), Hon LLD (Monash) Company Director

Sydney, Australia

Mr Macfarlane is Chair of the Risk Committee and a member of the Governance Committee and Audit Committee.

External Directorships

Director: Woolworths Limited, Leighton Holdings Limited, and Lowy Institute for International Policy.

Member: Council of International Advisors to the China Banking Regulatory Commission, International Advisory Board of Goldman Sachs JB Were, and International Advisory Board of CHAMP Private Equity.

David Edward Meiklejohn, AM

BCom, Dip Ed, FCPA, FAICD, FAIM

Company Director

Melbourne, Australia

Mr Meiklejohn is Chair of the Audit Committee and a member of the Technology Committee and Risk Committee.

External Directorships

Director: Coca Cola Amatil Limited and Mirrabooka Investments Limited.

Alison Mary Watkins

BCom, FCA, F Fin, FAICD

Chief Executive Officer – GrainCorp Limited.

Melbourne, Australia

Ms Watkins is Chair of the Human Resources Committee and a member of the Audit Committee and Governance Committee.

External Directorships

Director: The Nature Conservancy Australian Advisory Board. Member: Takeovers Panel.

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

LLB (Hons) / BA Chief Executive Officer– NZ Branch Wellington, New Zealand

Australia and New Zealand Banking Group Limited - New Zealand Branch

76

Directorate and Auditors

Auditors

KPMG

Chartered Accountants 10 Customhouse Quay P O Box 996 Wellington, New Zealand

Australia and New Zealand Banking Group Limited - New Zealand Branch

77

Conditions of Registration

Conditions of Registration, applicable as at 30 September 2011. These Conditions of Registration have applied from 30 September 2011.

Since issuance of the last Disclosure Statement dated 19 August 2011 the RBNZ has issued revised conditions of registration for the NZ Branch. Condition 2 has changed to incorporate a new definition of insurance business, and the definition of “generally accepted accounting practice” has been moved to the end of the conditions. None of the changes change the intent of the conditions.

The registration of Australia and New Zealand Banking Group Limited (the registered bank) in New Zealand is subject to the following conditions:

1. That the banking group does not conduct any non-financial activities that in aggregate are material relative to its total activities.

In this condition of registration, the meaning of “material” is based on generally accepted accounting practice.

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

2. a) If the business of an entity predominately consists of insurance business and the entity is not a subsidiary of another entity in the banking group whose business predominantly consists of insurance business, the amount of the insurance business to sum is the total consolidated assets of the group headed by the entity; and

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

4. In determining the total amount of the banking group’s insurance business:

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

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

5. For the purpose of this condition of registration:

   • “insurance business” means the undertaking or assumption of liability as an insurer under a contract of insurance;

   • “insurer” and “contract of insurance” have the same meaning as provided in sections 6 and 7 of the Insurance (Prudential Supervision) Act 2010.

6. That the business of the registered bank in New Zealand does not constitute a predominant proportion of the business of Australia and New Zealand Banking Group Limited.

7. That no appointment to the position of the New Zealand chief executive officer of the registered bank shall be made unless:

8. a) the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; and

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

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

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

12. a) tier one capital of the Australia and New Zealand Banking Group Limited is not less than 4 percent of risk weighted exposures;

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

14. That the business of the registered bank in New Zealand is restricted to: a) acquiring for fair value, and holding, mortgages originated by ANZ National Bank Limited; and

15. b) any other business for which the prior written approval of the Reserve Bank of New Zealand has been obtained; and

16. c) activities that are necessarily incidental to the business specified in paragraphs (a) and (b).

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

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

19. b) to other branches or the head office of the registered bank; and c) to trade creditors and staff; and

20. d) to ANZ National Bank Limited in respect of activities, other than borrowing, that are necessarily incidental to the business specified in paragraphs (a) and (b) of condition 7; and

21. e) any other liabilities for which the prior written approval of the Reserve Bank has been obtained.

In these conditions of registration:

Australia and New Zealand Banking Group Limited - New Zealand Branch

78

Conditions of Registration

"banking group" means the New Zealand business of the registered bank and its subsidiaries as required to be reported in the financial statements for the group's New Zealand business under section 9(2) of the Financial Reporting Act 1993; “business of the registered bank in New Zealand” means the New Zealand business of the registered bank as required to be reported in the financial statements under section 8(2) of the Financial Reporting Act 1993; “generally accepted accounting practice” has the same meaning as in section 2 of the Financial Reporting Act 1993.

Australia and New Zealand Banking Group Limited - New Zealand Branch

79

Directors’ and New Zealand Chief Executive Officer’s Statement

Each Director of the Ultimate Parent Bank and the Chief Executive Officer – NZ Branch believes, after due enquiry, that, as at the date on which this Disclosure Statement is signed:

• i. The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order (No 3) 2011;

• ii. The Disclosure Statement is not false or misleading.

Each Director of the Ultimate Parent Bank and the Chief Executive Officer – NZ Branch believes, after due enquiry, that, over the year ended 30 September 2011:

• i. The registered bank has complied with all the conditions of registration;

• ii. ANZ New Zealand had systems in place to monitor and control adequately ANZ New Zealand’s material risks, including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk and other business risks, and that those systems were being properly applied.

This Disclosure Statement is dated 29 November 2011, and has been signed by the Chairman of the Ultimate Parent Bank as agent for all Directors and by the Chief Executive Officer – NZ Branch.

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J P Morschel Chairman

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F J Brown Chief Executive Officer – NZ Branch

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Independent Auditor’s Report

To the Directors of Australia and New Zealand Banking Group Limited – New Zealand Branch

Report on the NZ Branch and ANZ New Zealand Disclosure Statement (excluding Supplementary Information relating to Credit and Market Risk Exposures and Capital Adequacy)

We have audited the accompanying Disclosure Statement and supplementary information (excluding the supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy disclosed in note 29) of Australia and New Zealand Banking Group Limited – New Zealand Branch (the “NZ Branch'') and its related entities (the “ANZ New Zealand”) on pages 5 to 73. The Disclosure Statement comprises the balance sheets as at 30 September 2011, the income statements and statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information of the NZ Branch and ANZ New Zealand. The supplementary information comprises the information that is required to be disclosed under the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order (No 3) 2011 (the “Order”).

Directors' Responsibility for the Financial Statements

The Directors are responsible for the preparation of the Disclosure Statement, which includes financial statements prepared in accordance with Clause 25 of the Order, generally accepted accounting practice in New Zealand, and International Financial Reporting Standards and that gives a true and fair view of the matters to which they relate. The Directors are also responsible for such internal controls as they determine are necessary to enable the preparation of the Disclosure Statement that is free from material misstatement whether due to fraud or error.

The Directors are responsible for the preparation and fair presentation of supplementary information, in accordance with Schedules 2, 4, 7, 10, 11, and 13 of the Order.

Auditor’s Responsibility

Our responsibility is to express an opinion on the Disclosure Statement, including the supplementary information (excluding the supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy disclosed in note 29), disclosed in accordance with Schedules 4, 7, 10, 11, and 13 of the Order and presented to us by the Directors. We conducted our audit in accordance with International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Disclosure Statement is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Disclosure Statement. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the Disclosure Statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the NZ Branch and ANZ New Zealand’s preparation of the Disclosure Statement that gives a true and fair view of the matters to which they relate in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the NZ Branch and ANZ New Zealand's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the presentation of the Disclosure Statement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Our firm has provided other services to the NZ Branch and ANZ New Zealand in relation to audit related services. Partners and employees of our firm may also deal with the NZ Branch and ANZ New Zealand on normal terms within the ordinary course of trading activities of the business of the ANZ New Zealand. These matters have not impaired our independence as auditors of the NZ Branch and ANZ New Zealand. The firm has no other relationship with, or interest in, the NZ Branch or ANZ New Zealand.

Opinion

In our opinion the Disclosure Statement of Australia and New Zealand Banking Limited – New Zealand Branch and its related entities (“the NZ Branch” and “ANZ New Zealand”) on pages 5 to 73 (excluding the supplementary information disclosed in accordance with Schedules 4, 7, 9, 10, 11 and 13 of the Order):

• complies with generally accepted accounting practice in New Zealand;

• complies with International Financial Reporting Standards; and

• gives a true and fair view of the financial position as at 30 September 2011 and of their financial performance and cash flows for the year ended on that date.

Opinion on Supplementary Information (excluding Supplementary Information relating to Credit and Market Risk Exposures and Capital Adequacy)

In our opinion, the supplementary information that is required to be disclosed in accordance with Schedules 4, 7, 10, 11 and 13 of the Order, and is included within notes 14, 30, 31, 36 and 38 of the Disclosure Statement:

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

• is in accordance with the books and records of the NZ Branch and ANZ New Zealand; and

• presents fairly, in all material respects, the matters to which it relates, in accordance with those Schedules.

Report on Other Legal and Regulatory Requirements (excluding Supplementary Information relating to Credit and Market Risk Exposures and Capital Adequacy)

In accordance with the requirements of sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993, and clauses 2(d) and 2(e) of Schedule 1 of the Order, we report that:

• we have obtained all the information and explanations we have required; and

• in our opinion, proper accounting records have been kept by the NZ Branch and ANZ New Zealand, as far as appears from our examination of those records.

Report on the Supplementary Information Relating to Credit and Market Risk Exposures and Capital Adequacy

We have reviewed the supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy, as disclosed in note 29 of the Disclosure Statement for the year ended 30 September 2011.

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Directors’ Responsibility for the Supplementary Information Relating to Credit and Market Risk Exposures and Capital Adequacy

The Directors are responsible for the preparation of supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy that is required to be disclosed under Schedule 9 of the Order and prepared in accordance with the Capital Adequacy Framework (Basel I Approach) (BS2) and Capital Adequacy Framework (Standardised Approach) (BS2A), and described in note 29 of the Disclosure Statement.

Auditor’s Responsibility

Our responsibility is to express an opinion on the supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy based on our review. We conducted our review in accordance with the Review Engagement Standards issued by the New Zealand Institute of Chartered Accountants.

We are responsible for reviewing the disclosures in order to state whether, on the basis of the procedures described below, anything has come to our attention that would cause us to believe that the supplementary information is not, in all material respects:

• prepared in accordance with Capital Adequacy Framework (Basel I Approach) (BS2) and Capital Adequacy Framework (Standardised Approach) (BS2A); and

• disclosed in accordance with Schedule 9 of the Order

and for reporting our findings to you.

A review is limited primarily to enquiries of NZ Branch and ANZ New Zealand personnel and analytical review procedures applied to the financial data, and thus provides less assurance than an audit. We have not performed an audit in respect of the Credit and Market Risk Exposures and Capital Adequacy disclosures, and accordingly, we do not express an audit opinion on these disclosures.

Opinion

Based on our review, nothing has come to our attention that causes us to believe that the supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy, disclosed in note 29 of the Disclosure Statement, is not prepared and disclosed, in all material respects, in accordance with:

• the Capital Adequacy Framework (Basel I Approach) (BS2) and Capital Adequacy Framework (Standardised Approach) (BS2A); and

• Schedule 9 of the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order (No 3) 2011.

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Wellington 29 November 2011

Australia and New Zealand Banking Group Limited - New Zealand Branch

Index

Index
Contents and Glossary of Terms	1
General Disclosures	2
Summary of Financial Statements	4
Income Statements	5
Statements of Comprehensive Income	5
Statements of Changes in Equity	6
Balance Sheets	7
Cash Flow Statements	8
1. Significant Accounting Policies	9
2. Critical Estimates and Judgement Used in Applying Accounting Policies	17
3. Risk Management Policies	19
4. Income	21
5. Expenses	22
6. Income Tax Expense	23
7. Segmental Analysis	24
8. Liquid Assets	26
9. Due from Other Financial Institutions	26
10. Trading Securities	26
11. Derivative Financial Instruments	27
12. Available-for-sale Assets	30
13. Net Loans and Advances	30
14. Impaired Assets, Past Due Assets and Other Assets Under Administration	31
15. Provision for Credit Impairment	33
16. Controlled Entities, Associates and Jointly Controlled Entities	34
17. Other Assets	37
18. Deferred Tax Assets and Liabilities	37
19. Goodwill and Other Intangible Assets	38
20. Due to Other Financial Institutions	38
21. Deposits and Other Borrowings	38
22. Payables and Other Liabilities	39
23. Provisions	39
24. Bonds and Notes	40
25. Loan Capital	41
26. Related Party Transactions	42
27. Current and Non-current Assets and Liabilities	44
28. Ordinary Share Capital	45
29. Capital Adequacy	45
30. Financial Risk Management	48
31. Concentrations of Credit Risk to Individual Counterparties	67
32. Fair Value of Financial Assets and Financial Liabilities	67
33. Notes to the Cash Flow Statements	70
34. Commitments	71
35. Credit Related Commitments and Contingent Liabilities	71
36. Securitisation, Funds Management, Other Fiduciary Activities and Insurance	71
37. Subsequent Events	73
38. Additional Disclosures	73
Directorate and Auditors	74
Conditions of Registration	77
Directors’ Statement	79
Auditors’ Report	80
Index	83