Australia and New Zealand Banking Group Ltd. — Annual Report 2013

Nov 27, 2013

Australia and New Zealand Banking Group Limited - New Zealand Branch Disclosure Statement FOR THE YEAR ENDED 30 SEPTEMBER 2013 | NUMBER 20 ISSUED NOVEMBER 2013

Australia and New Zealand Banking Group Limited - New Zealand Branch

Disclosure Statement

For the year ended 30 September 2013

Contents

General Disclosures	1
Summary of Financial Statements	4
Income Statement	5
Statement of Comprehensive Income	5
Statement of Changes in Equity	6
Balance Sheet	7
Cash Flow Statement	8
Notes to the Financial Statements	9
Directorate and Auditors	66
Conditions of Registration	68
Directors’ Statement	69
Independent Auditor’s Report	70
Index	72

General Disclosures

General Matters

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

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

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.

Credit Rating Information

As at 27 November 2013 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.

Glossary of Terms

In this Disclosure Statement unless the context otherwise requires:

• (a) “Bank” means ANZ Bank New Zealand Limited;

• (b) “Banking Group” means ANZ Bank New Zealand Limited and all its subsidiaries;

• (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 subsidiaries;

• (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, from 22 November 2013, Ground Floor, ANZ Centre, 23-29 Albert Street, Auckland, 1010, New Zealand, which is also ANZ New Zealand’s address for Service;

The Ultimate Parent Bank’s credit ratings are:

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

Changes in credit ratings over the last two years:

On 1 December 2011, Standard and Poor’s downgraded the Ultimate Parent Bank’s long-term senior unsecured debt and deposit ratings from AA outlook stable to AAoutlook stable. This occurred simultaneously to a similar downgrade of other major Australian banks.

On 30 January 2012, Fitch changed the Outlook on the Ultimate Parent Bank’s long-term senior unsecured debt and deposit ratings from positive to negative. This occurred simultaneously to a similar change in the outlook of ratings of other major Australian banks.

On 24 February 2012, Fitch changed the Outlook on the Ultimate Parent Bank’s long-term senior unsecured debt and deposit ratings from negative to stable.

There were no other changes to the Parent Bank’s credit ratings or qualifications during the two years ended 30 September 2013.

• (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 2) 2013; 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

2

General Disclosures

The following table describes the credit rating grades available:

	Standard & Moody's	Fitch
	Poor's Investors	Ratings
	Service
The following grades display investment grade
characteristics:
Ability to repay principal AAA Aaa		AAA
and interest is extremely strong. This is the highest investment category.
Very strong ability to repay AA Aa		AA
principal and interest.
Strong ability to repay	A A	A
principal and interest
although somewhat
susceptible to adverse
changes in economic,
business or financial
conditions.
Adequate ability to repay BBB Baa		BBB
principal and interest. More vulnerable to adverse changes.
The following grades have predominantly
speculative characteristics:
Significant uncertainties BB Ba		BB
exist which could affect the payment of principal and interest on a timely basis.
Greater vulnerability and B B		B
therefore greater likelihood of default.
Likelihood of default now CCC Caa		CCC
considered high. Timely repayment of principal and interest is dependent on favourable financial conditions.
Highest risk of default. CC to C Ca to C		CC to C
Obligations currently in D -		RD & D
default.

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

Certain claims on the Australian assets of the Ultimate Parent Bank are given a statutory priority under Australian law. Unsecured creditors of the NZ Branch could be expected to rank behind such claims.

Specifically, pursuant to section 13A(3) of the Banking Act of the Commonwealth of Australia (“Banking Act”), if an Authorised Deposit-Taking Institution (“ADI”) (which includes the Ultimate Parent Bank) 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:

• (a) first, the ADI's liabilities (if any) to APRA because of the rights APRA has against the ADI because of section 16AI of the Banking Act;

• (c) third, the ADI's liabilities (if any) in Australia in relation to protected accounts that account-holders keep with the ADI. Broadly, this includes, among other things, certain deposit accounts with the Ultimate Parent Bank that are situated in Australia;

• (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)).

Unsecured creditors of the NZ Branch could be expected to rank as a creditor pursuant to paragraph (f), together with other unsecured creditors of the Ultimate Parent Bank that do not otherwise have a priority claim under paragraphs (a) to (e) above.

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, are a debt due to APRA and have priority in a winding-up of the ADI over all other unsecured debts.

Section 86 of the Reserve Bank Act 1959 of the Commonwealth of Australia 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.

Section 13A(3) of the Banking Act affects all of the unsecured liabilities of the NZ Branch, which as at 30 September 2013, amounted to $nil (30/09/2012 $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 and any assets or other amount excluded by the prudential standards for the purposes of that subsection) 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 2013, the Ultimate Parent 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 Ultimate Parent 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 the Banking Act have the potential to impact the management of the liquidity of ANZ New Zealand.

• (b) second, the ADI's debts (if any) to APRA under section 16AO the Banking Act;

Australia and New Zealand Banking Group Limited - New Zealand Branch

3

General Disclosures

Guarantors

No material obligations of the NZ Branch are guaranteed as at 27 November 2013.

ANZNZ Covered Bond Trust

Certain debt securities (“Covered Bonds”) issued by the Bank’s wholly owned subsidiary, ANZ New Zealand (Int’l) Limited, are guaranteed by ANZNZ Covered Bond Trust Limited (the “Covered Bond Guarantor”), solely in its capacity as trustee of ANZNZ Covered Bond Trust. The Covered Bond Guarantor has guaranteed the payment of interest and principal of Covered Bonds with a carrying value as at 30 September 2013 of $3,925 million, pursuant to a guarantee which is secured over a pool of assets. The Covered Bond Guarantor’s address for service is Level 10, 141 Willis Street, Wellington, New Zealand. The Covered Bond Guarantor is not a member of the Banking Group and has no credit ratings applicable to its long term senior unsecured obligations payable in New Zealand dollars. The Covered Bonds have been assigned a long term rating of Aaa and AAA by Moody’s Investors Service and Fitch Ratings respectively. Details of the pool of assets that secure this guarantee are provided in Note 36.

Australia and New Zealand Banking Group Limited - New Zealand Branch

4

Summary of Financial Statements

		ANZ New Zealand
	Year to	Year to Year to Year to Year to
$ millions	30/09/2013 30/09/2012 30/09/2011 30/09/2010 30/09/2009
Interest income	6,461 6,568 6,757 6,447 7,578
Interest expense	3,820 3,859 4,157 3,952 5,181
Net interest income	2,641 2,709 2,600 2,495 2,397
Non-interest income	795 905 809 745 581
Operating income	3,436 3,614 3,409 3,240 2,978
Operating expenses	1,508 1,743 1,688 1,565 1,479
Provision for credit impairment	66 202 190 456 883
Profit before income tax	1,862 1,669 1,531 1,219 616
Income tax expense	490 404 446 352 422
Profit after income tax	1,372 1,265 1,085 867 194
Dividends paid	(720) (485) (421) (492) (1,000)
	As at As at As at As at As at
$ millions	30/09/2013 30/09/2012 30/09/2011 30/09/2010 30/09/2009
Total impaired assets	929 1,405 1,792 2,047 1,188
Total assets	129,847 130,975 131,511 127,029 126,314
Total liabilities	120,092 121,798 123,046 119,208 118,999
Non-controlling interests	- - - 1 -
Equity & head office account	9,755 9,177 8,465 7,821 7,315

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

5

Income Statement

Income Statement
		ANZ New Zealand		NZ Branch
		Year to	Year to	Year to		Year to
$ millions	Note	30/09/2013	30/09/2012	30/09/2013		30/09/2012
Interest income	4	6,461	6,568	509		546
Interest expense	5	3,820	3,859	398		422
Net interest income		2,641	2,709	111		124
Net trading gains	4	163	131	-		-
Net funds management and insurance income	4	234	298	-		-
Other operating income / (loss)	4	391	472	(12)		(19)
Share of associates' profit		7	4	-		-
Operating income		3,436	3,614	99		105
Operating expenses	5	1,508	1,743	26		27
Profit before provision for credit impairment and income tax		1,928	1,871	73		78
Provision for credit impairment	14	66	202	3		9
Profit before income tax		1,862	1,669	70		69
Income tax expense	6	490	404	20		19
Profit after income tax		1,372	1,265	50		50

Statement of Comprehensive Income

	ANZ New Zealand4154 7 ANZ New Zealand4118 2	NZ Branch4154 7 NZ Branch4118 2
	ANZ New Zealand	NZ Branch
	Year to Year to	Year to Year to
$ millions	30/09/2013 30/09/2012 30/09/2013 30/09/2012
Profit after income tax	1,372 1,265 50 50
Items that will not be reclassified to profit or loss
Actuarial gain / (loss) on defined benefit schemes	55 (25) - -
Income tax credit / (expense) relating to items not reclassified (15) 6 - -
Total items that will not be reclassified to profit or loss 40 (19) - -
Items that may be reclassified subsequently to profit or loss
Unrealised gains / (losses) recognised directly in equity (138) 46 - -
Realised gains transferred to the income statement (21) (95) - -
Income tax credit relating to items that may be reclassified 45 - - -
Total items that may be reclassified subsequently to profit or loss (114) (49) - -
Total comprehensive income for the year 1,298 1,197 50 50

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

6

Statement of Changes in Equity

Statement of Changes in	Equity	Equity	Equity	Equity
	ANZ New Zealand
	Share capital and initial head Available- for-sale revaluation Cash flow hedging Retained
	and initial head
$ millions	office account	reserve reserve earnings Total equity
As at 1 October 2011	6,424	46 141 1,854 8,465
Profit after income tax	-	- - 1,265 1,265
Unrealised gains recognised directly in equity	-	34 12 - 46
Realised gains transferred to the income statement	-	(83) (12) - (95)
Actuarial loss on defined benefit schemes	-	- - (25) (25)
Income tax credit on items recognised directly in
equity	-	- - 6 6
Total comprehensive income for the year	-	(49) - 1,246 1,197
Ordinary dividend paid	-	- - (400) (400)
Preference dividend paid	-	- - (85) (85)
As at 30 September 2012	6,424	(3) 141 2,615 9,177
Profit after income tax	-	- - 1,372 1,372
Unrealised gains / (losses) recognised directly in
equity	-	1 (139) - (138)
Realised gains transferred to the income statement	-	- (21) - (21)
Actuarial gain on defined benefit schemes	-	- - 55 55
Income tax credit / (expense) on items recognised
directly in equity	-	- 45 (15) 30
Total comprehensive income for the year	-	1 (115) 1,412 1,298
Ordinary dividend paid	-	- -	(720) (720)
As at 30 September 2013	6,424	(2) 26	3,307	9,755

			NZ Branch
		Available-
		for-sale	Cash flow
	Initial head	revaluation	hedging Retained
$ millions	office account	reserve	reserve earnings Total equity
As at 1 October 2011	11	-	- 166 177
Profit after income tax	-	-	- 50 50
As at 30 September 2012	11	-	- 216 227
Profit after income tax	-	-	- 50 50
As at 30 September 2013	11	-	- 266 277

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

7

Balance Sheet

Balance Sheet	Balance Sheet	Balance Sheet	Balance Sheet	Balance Sheet	Balance Sheet
ANZ New Zealand NZ Branch
$ millions Note 30/09/2013 30/09/2012 30/09/2013 30/09/2012
Assets
Liquid assets 8 2,496 2,831 - -
Due from other financial institutions 9 1,711 1,760 141 38
Trading securities 10 10,320 12,338 - -
Derivative financial instruments 11 9,508 12,709 12 52
Current tax assets 1 24 - -
Available-for-sale assets 12 782 57 - -
Net loans and advances 13 99,765 96,094 9,256 9,396
Due from the Bank 25 - - 314 304
Investments backing insurance policy liabilities 172 142 - -
Insurance policy assets 399 408 - -
Investments in associates 16 98 99 - -
Other assets 17 735 596 1 -
Deferred tax assets 6 36 92 6 8
Premises and equipment 376 323 - -
Goodwill and other intangible assets 18 3,448 3,502 - -
Total assets 129,847 130,975 9,730 9,798
Interest earning and discount bearing assets 115,297 113,565 9,410 9,450
Liabilities
Due to other financial institutions 19 9,871 11,012 8,372 9,273
Deposits and other borrowings 20 77,696 73,652 - -
Due to Immediate Parent Company 25 1,766 1,766 - -
Derivative financial instruments 11 11,208 14,085 1,021 222
Payables and other liabilities 21 1,473 1,588 42 57
Current tax liabilities - - 18 19
Provisions 22 229 339 - -
Bonds and notes 23 16,407 18,188 - -
Loan capital 24 1,442 1,168 - -
Total liabilities (excluding head office account) 120,092 121,798 9,453 9,571
Net assets (excluding head office account) 9,755 9,177 277 227
Equity
Share capital and initial head office account 27 6,424 6,424 11 11
Reserves 24 138 - -
Retained earnings 3,307 2,615 266 216
Total equity & head office account 9,755 9,177 277 227
Interest and discount bearing liabilities 101,470 100,543 8,372 9,273

For and on behalf of the Board of Directors:

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John Morschel Chairman Australia and New Zealand Banking Group Limited

27 November 2013

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==> picture [96 x 25] intentionally omitted <==

Michael Smith Executive Director

Australia and New Zealand Banking Group Limited 27 November 2013

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

8

Cash Flow Statement

Cash Flow Statement	Cash Flow Statement
ANZ New Zealand		NZ Branch
Year to Year to		Year to Year to
$ millions Note 30/09/2013 30/09/2012 30/09/2013 30/09/2012
Cash flows from operating activities
Interest received 6,432 6,549 516 553
Dividends received 4 4 - -
Net funds management & insurance income 236 196 - -
Fees and other income received 612 619 - 1
Interest paid (3,859) (3,845) (413) (438)
Operating expenses paid (1,551) (1,616) (26) (27)
Income taxes paid (381) (393) (19) (20)
Cash flows from operating profits before changes in operating
assets and liabilities	33 1,493 1,514 58 69
Net changes in operating assets and liabilities:
Change in due from other financial institutions - term 101 264 - -
Change in trading securities 1,558 (3,761) - -
Change in derivative financial instruments 1,306 2,204 847 225
Change in available-for-sale assets (714) 391 - -
Change in insurance investment assets (30) (44) - -
Change in loans and advances (3,830) (2,829) 3,253 2,896
Loans and advances purchased from the Bank - - (3,144) (2,397)
Change in due from the Bank - - (10) 34
Change in due to the Bank - - - (51)
Change in other assets 12 87 - -
Change in due to other financial institutions (1,141) (2,710) (901) (738)
Change in deposits and other borrowings 3,780 3,813 - -
Change in payables and other liabilities 99 29 - -
Net changes in operating assets and liabilities 1,141 (2,556) 45 (31)
Net cash flows provided by / (used in) operating
activities	2,634 (1,042) 103 38
Cash flows from investing activities
Proceeds from sale of shares in associates and joint venture 1 5 - -
Proceeds from sale of intangible assets - 11 - -
Proceeds from sale of subsidiary 68 - - -
Purchase of intangible assets (27) (40) - -
Purchase of premises and equipment (115) (55) - -
Net cash flows used in investing activities (73) (79) - -
Cash flows from financing activities
Proceeds from issue of bonds and notes 2,167 5,678 - -
Proceeds from issue of loan capital 312 - - -
Redemptions of bonds and notes (4,611) (5,445) - -
Redemptions of loan capital - (816) - -
Dividends paid (720) (485) - -
Net cash flows used in financing activities (2,852) (1,068) - -
Net increase / (decrease) in cash and cash equivalents (291) (2,189) 103 38
Cash and cash equivalents at beginning of the year 3,293 5,482 38 -
Cash and cash equivalents at end of the year 33 3,002 3,293 141 38

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

9

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 and associates.

These financial statements have 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 profitoriented 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.

(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. Actual results may differ from these estimates.

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

(iii) Basis of measurement

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

• derivative financial instruments, including in the case of fair value hedging, the fair value adjustment on the underlying hedged exposure;

• available-for sale financial assets;

• financial instruments held for trading;

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

(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. ANZ New Zealand has applied, where relevant, all new or revised NZ IFRSs and NZ IFRS Interpretations applicable to annual reporting periods commencing on or before 1 October 2012. The initial application of these standards and interpretations has only resulted in changes to disclosures.

(v) Rounding

The amounts 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. The comparative figures

in the notes to the financial statements relating to these items have been reclassified accordingly.

(vii) Principles of consolidation

Subsidiaries

The consolidated financial statements of ANZ New Zealand comprise the financial statements of the NZ Branch and all the New Zealand businesses of all the subsidiaries of the Ultimate Parent Bank (those entities where it is determined that the Ultimate Parent Bank has capacity to control).

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 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

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

The effect of all transactions between entities in ANZ New Zealand is eliminated.

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.

Associates

ANZ New Zealand applies the equity method of accounting for associates.

ANZ New Zealand’s share of results of associates is included in the consolidated income statement. Shares in associates are carried in the consolidated balance sheet at cost plus ANZ New Zealand’s share of post acquisition net assets less accumulated impairment. Interests in associates are reviewed for any indication of impairment at least at each reporting date. Where an indication of the impairment exists, the recoverable amount of the associate is determined as the higher of the associate’s fair value less costs to sell and its value in use. A discounted cash flow methodology and other methodologies, such as the capitalisation of earnings method, are used to determine the reasonableness of the valuation.

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

10

Notes to the Financial Statements

(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 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 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) Gain or loss on sale of assets

The gain or loss on the disposal of assets is determined as the difference between the carrying amount of the assets at the time of disposal and the proceeds of disposal net of incremental disposal costs. This 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 and certain customer incentive payments 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 effective 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. 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

Australia and New Zealand Banking Group Limited - New Zealand Branch

11

Notes to the Financial Statements

(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 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 subsidiaries, 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 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.

(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 not effective accounting 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:

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 one or more underlying price index or other variables. 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. Valuation adjustments are integral in determining the fair value of derivatives. This includes a credit valuation adjustment (CVA) to reflect the credit worthiness of the counterparty and funding valuation adjustment (FVA) to account for the funding cost inherent in the portfolio.

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 the period to maturity of the hedged item. If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in the income statement.

• the asset represents investments backing insurance policy liabilities;

• doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

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 ANZ New Zealand are recognised in the income statement. Under certain circumstances, the component of the fair value change in the derivative which relates to current period realised and accrued interest is included in net interest income. The remainder of the fair value movement is included in other income.

(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 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

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

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.

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.

Non-financial assets

(viii)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. 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.

(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 noninterest 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.

(g) Equity

(i) Shares

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

(ii) 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) 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.

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.

(v) Segment reporting

Operating 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 operating 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.

(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.

Standards and amendments effective for periods commencing after 1 January 2013 ANZ New Zealand does not expect any significant impact on the financial statements from the application of the following standards.

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 IAS 27 (2011) Separate Financial Statements Carries forward the existing accounting and disclosure requirements for separate financial statements.

ANZ New Zealand is still assessing the impact of the following standards on the financial statements.

Amendments to NZ IFRS 7: Disclosures – Offsetting Financial Assets and Financial Liabilities

Requires additional disclosures for financial assets and liabilities that are set off, and recognised financial instruments that are subject to an enforceable master netting agreement.

NZ IFRS 13 Fair Value Measurement

Provides a single source of guidance on fair value measurement and requires certain disclosures regarding fair value.

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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

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 structured entities.

Standards and amendments effective for periods commencing after 1 January 2015

NZ IFRS 9 Financial Instruments

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. ANZ New Zealand is assessing the impact on the financial statements.

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 and the economic cycle.

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

Individual and collective provisioning involves the use of assumptions for estimating the amounts and timing of expected future cash flows. The process of estimating the amount and timing of cash flows involves considerable management judgement. These judgements are revised regularly to reduce any differences between loss estimates and actual loss experience.

Refer to Note 14 for details of credit impairment provisions.

Critical judgements in applying ANZ New Zealand’s accounting policies

Financial instruments at fair value

ANZ New Zealand’s financial instruments measured at fair value are stated in note 1(a)(iii). In estimating fair value ANZ New Zealand uses, wherever possible, quoted market prices in an active market for the financial instrument.

In the event that there is no active market for the instrument, fair value is based on present value estimates or other market accepted valuation techniques. The valuation models incorporate the impact of bid/ask spread, counterparty credit spreads and other factors that would influence the fair value determined by a market participant. The selection of appropriate valuation techniques, methodology and inputs requires judgement. These are reviewed and updated as market practice evolves.

Derivatives and hedging

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, leaving some volatility in the income statement.

The majority of outstanding derivative positions are transacted over-the-counter and therefore need to be valued using valuation techniques. Included in the determination of the fair value of derivatives is a credit valuation adjustment (CVA) to reflect the creditworthiness of the counterparty. This is influenced by the mark-to-market of the derivative trades and by the movement in the market cost of credit. Further adjustments are made to account for the funding costs inherent in the derivative. Judgment is required to determine the appropriate cost of funding and the future expected cashflows used in this funding valuation adjustment (FVA).

Goodwill

Refer to Note 18 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

Australia and New Zealand Banking Group Limited - New Zealand Branch

16

Notes to the Financial Statements

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. Impairment testing of purchased goodwill is performed by comparing the recoverable value of each cash generating unit with the current carrying amount of its net assets, including goodwill. Judgement is required in identifying the cashgenerating units to which goodwill and other assets are allocated for the purpose of impairment testing.

The recoverable amount is based on value-in-use calculations. These calculations use cash flow projections based on a number of financial budgets within each segment approved by management covering a three year period. Cash flow projections are based on a range 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 28 February 2013 when the last valuation was prepared, a discount rate of 11.61% was applied to each cash generating unit. The main variables in the calculation of the discount rate used are the risk free rate, the beta rate and 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.

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 Boards in this function. The role of the Risk Committee is to assist the Boards 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 subcommittee of the Board of the Bank, has responsibility for reviewing for ensuring the integrity of ANZ New Zealand's financial controls, reporting systems and internal audit standards. It meets at least four times a year and reports directly to the Board of the Bank. All members of the Bank’s Audit Committee are non-executive directors.

Financial risk management

Refer to Note 29 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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

17

Notes to the Financial Statements

Business units have primary responsibility for the identification and management of operational risk with executive oversight provided by the relevant Retail and Wholesale Risk Forums. The Bank’s Operational Risk Executive Committee (“OREC”) undertakes the governance function through the bimonthly monitoring of operational risk performance across ANZ New Zealand. The Boards 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 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.

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 anti-money 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

Global Internal Audit is a function independent of management whose role is to provide the Board and management with an effective and independent appraisal of the internal controls established by management. Operating under a Board approved Charter, the reporting line for the outcomes of work conducted by Global Internal Audit is direct to the Chair of the Bank’s Audit Committee, with a direct communication line to the Chief Executive Officer of the Bank and the external auditor.

The Global Internal Audit Plan is developed utilising a risk based approach and is refreshed on a quarterly basis. The Bank’s Audit Committee approves the plan, the associated budget and any changes thereto.

All audit activities are conducted in accordance with local and international auditing standards, and the results thereof are reported to the Audit Committees of the Ultimate Parent Bank and the Bank as appropriate, Risk Committee and management. These results influence the performance assessment of business heads.

Furthermore, Global Internal Audit monitors the remediation of audit issues and highlights the current status of any outstanding audits.

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

4. Income

ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch
Year to Year to Year to Year to
$ millions Note 30/09/2013 30/09/2012 30/09/2013 30/09/2012
Interest income
Financial assets at fair value through profit or loss
Trading securities 418 446 - -
418 446 - -
Financial assets not at fair value through profit or loss
Liquid assets 71 67 - -
Other financial institutions 26 38 - -
Available-for-sale assets 12 8 - -
Lending on productive loans 5,866 5,920 508 544
Lending on impaired assets 29 53 1 2
Other 39 36 - -
6,043 6,122 509 546
Total interest income 6,461 6,568 509 546
Net trading gains
Net gain on foreign exchange trading 154 144 - -
Net gain / (loss) on trading securities (197) 101 - -
Net gain / (loss) on trading derivatives 206 (114) - -
Net trading gains 163 131 - -
Net funds management and insurance income
Net funds management income 124 115 - -
Net insurance income 110 183 - -
Total funds management and insurance income 234 298 - -
Other operating income
Lending and credit facility fee income 57 52 - 1
Other fee income 557 564 - -
Total fee income 614 616 - 1
Direct fee expense (200) (186) - -
Net fee income 414 430 - 1
Net loss on financial liabilities designated at fair value - (1) - -
Net ineffectiveness on qualifying fair value hedges 11 (1) (4) 8 (1)
Net loss on hedges not qualifying for hedge accounting (75) (69) (20) (19)
Net cash flow hedge gain transferred to income statement 21 12 - -
Net gain on available for sale equity securities transferred to
income statement	- 83 - -
Gain on sale of subsidiary, associates and joint venture 16 16 4 - -
Other income 16 17 - -
Total other operating income 391 472 (12) (19)

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Notes to the Financial Statements

5. Expenses

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
		Year to	Year to	Year to		Year to
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Interest expense
Financial liabilities at fair value through profit or loss
Commercial paper		170	174	-		-
		170	174	-		-
Financial liabilities not at fair value through profit or loss
Other financial institutions		436	467	398		422
Deposits and other borrowings		2,239	2,184	-		-
Bonds and notes		824	820	-		-
Immediate parent company		63	70	-		-
Loan capital		79	134	-		-
Other		9	10	-		-
		3,650	3,685	398		422
Total interest expense		3,820	3,859	398		422
Operating expenses
Personnel costs		702	804	-		-
Employee entitlements		71	77	-		-
Pension costs
- Defined contribution schemes		34	35	-		-
- Defined benefit schemes		4	6	-		-
Share-based payments expense		22	20	-		-
Building occupancy costs		41	66	-		-
Depreciation of premises and equipment		46	55	-		-
Leasing and rental costs		84	85	-		-
Related parties (Note 25)		84	118	-		-
Technology expenses		114	144	-		-
Impairment of intangibles and other assets		-	11	-		-
Amortisation of software and other intangible assets		52	34	-		-
Administrative expenses		188	204	-		-
Other costs		66	84	26		27
Total operating expenses		1,508	1,743	26		27
$ thousands
Fees paid to principal auditors (KPMG New Zealand)
Audit or review of financial statements		2,486	3,163	88		104
Other services		582	573	-		-
Total auditors' remuneration		3,068	3,736	88		104

It is ANZ New Zealand’s policy that, subject to the approval of the Ultimate Parent Bank’s Audit Committee, KPMG can provide assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent with the role of auditor. KPMG may 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 services include taxation services and 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

20

Notes to the Financial Statements

6. Income Tax

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
		Year to	Year to	Year to		Year to
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Reconciliation of the prima facie income tax payable on profit
Profit before income tax		1,862	1,669	70		69
Prima facie income tax at 28%		521	467	20		19
Imputed and non-assessable dividends		(5)	(6)	-		-
Change in tax provisions		(10)	(12)	-		-
Non assessable income and non deductible expenditure		(17)	(35)	-		-
Income tax under / (over) provided in prior years		1	(10)	-		-
Total income tax expense		490	404	20		19
Effective tax rate (%)		26.3%	24.2%	28.0%		28.0%
Amounts recognised in the income statement
Current tax		404	365	18		19
Deferred tax		86	39	2		-
Total income tax expense recognised in the income statement		490	404	20		19
Imputation credits available		1,852	1,457	-		-

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

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Deferred tax assets / (liabilities) comprise the following temporary differences:
Provision for credit impairment		238	303	6		8
Premises and equipment, software and intangibles		8	(2)	-		-
Provisions and accruals		71	108	-		-
Deferred acquisition costs and insurance policy assets		(108)	(112)	-		-
Financial instruments		(10)	(55)	-		-
Carried forward losses		15	16	-		-
Lease finance		(179)	(165)	-		-
Other deferred tax assets and liabilities (including tax provisions)		1	(1)	-		-
Net deferred tax assets1		36	92	6		8

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

21

Notes to the Financial Statements

7. Segmental Analysis

For segment reporting purposes, ANZ New Zealand is organised into four major business segments - Retail, Commercial, Wealth 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.

Segmental reporting has been updated to reflect 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 products and services to personal customers via the branch network, mortgage specialists, the contact centre and a variety of self service channels (internet banking, phone banking, ATMs, website and mobile phone banking). Core products include current and savings accounts, unsecured lending (credit cards, personal loans and overdrafts) and home loans secured by mortgages over property. Retail distributes insurance and investment products on behalf of the Wealth 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.

Wealth

Wealth includes private banking and investment services provided to high net worth individuals, the ANZ wealth management and OnePath insurance businesses, and other investment products.

Institutional

Institutional provides financial services through a number of specialised units to large multi-banked corporations, often global, who require sophisticated product and risk management solutions. Those financial services include loan structuring, foreign exchange, wholesale money market services and transaction banking.

Other

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

22

Notes to the Financial Statements

Business segment analysis[1 ]

		ANZ New Zealand
$ millions	Retail	Commercial Wealth Institutional	Other Total
30/09/2013
External interest income	2,157	3,238 88 969	9 6,461
External interest expense	(1,056) (607) (200) (420) (1,537) (3,820)
Net intersegment interest	(176) (1,316) 148 (197) 1,541 -
Net interest income	925 1,315 36 352 13 2,641
Other external operating income	310 126 157 253 (58) 788
Share of associates' profit	- - - - 7 7
Operating income	1,235 1,441 193 605 (38) 3,436
Operating expenses	650 488 136 199 35 1,508
Profit before provision for credit impairment	585 953 57 406 (73) 1,928
Provision for credit impairment	57 (11) (1) 21 - 66
Profit before income tax	528 964 58 385 (73) 1,862
Income tax expense	148 265 4 104 (31) 490
Profit after income tax	380 699 54 281 (42) 1,372
Other information
Depreciation and amortisation	19 4 4 - 71 98
Goodwill	547 1,434 180 1,072 - 3,233
Other intangible assets	27 2 130 - 56 215
Investment in associates	- - - 9 89 98
Total external assets	37,475 56,932 1,864 31,637 1,939 129,847
Total external liabilities	32,395 20,399 4,443 28,180 34,675 120,092
30/09/2012
External interest income	2,264 3,249 79 960 16 6,568
External interest expense	(1,033) (581) (196) (419) (1,630) (3,859)
Net intersegment interest	(295) (1,331) 143 (130) 1,613 -
Net interest income	936 1,337 26 411 (1) 2,709
Other external operating income	299 122 228 228 24 901
Share of associates' profit	- - - - 4 4
Operating income	1,235 1,459 254 639 27 3,614
Operating expenses	670 505 145 200 223 1,743
Profit before provision for credit impairment	565 954 109 439 (196) 1,871
Provision for credit impairment	62 128 1 11 - 202
Profit before income tax	503 826 108 428 (196) 1,669
Income tax expense	140 229 18 113 (96) 404
Profit after income tax	363 597 90 315 (100) 1,265
Other information
Depreciation and amortisation	19 8 12 - 50 89
Goodwill	547 1,463 180 1,072 - 3,262
Other intangible assets	38 3 136 1 62 240
Investment in associates	- - - 12 87 99
Total external assets	37,201 54,427 1,819 36,172 1,356 130,975
Total external liabilities	31,133 19,246 4,530 28,325 38,564 121,798

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

23

Notes to the Financial Statements

8. Liquid Assets

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Cash and balances with central banks		1,907	2,177	-		-
Securities purchased under agreement to resell		55	325	-		-
Money at call		348	237	-		-
Bills receivable and remittances in transit		186	92	-		-
Total liquid assets		2,496	2,831	-		-

9. Due From Other Financial Institutions

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Securities purchased under agreement to resell		254	228	-		-
Security settlements		94	42	-		-
Certificates of deposit		160	100	-		-
Cash collateral given on derivative financial instruments		1,002	1,256	-		-
Other		201	134	141		38
Total due from other financial institutions		1,711	1,760	141		38
Fair value of securities purchased under agreements to resell		255	229	-		-

10. Trading Securities

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Government, local body stock and bonds		5,404	8,600	-		-
Certificates of deposit		551	455	-		-
Promissory notes		36	41	-		-
Other bank bonds		4,300	3,202	-		-
Other		29	40	-		-
Total trading securities		10,320	12,338	-		-

Australia and New Zealand Banking Group Limited - New Zealand Branch

24

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.

ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch
Notional Notional
30/09/2013 Principal Fair values Principal Fair values
$ millions Amount Assets Liabilities Amount Assets Liabilities
Derivatives held for trading
Spot and forward contracts 53,870 566 985 283 2 2
Swap agreements 139,110 3,187 5,090 8,233 - 991
Options purchased 2,982 52 - - - -
Options sold 2,973 1 70 - - -
Foreign exchange derivatives 198,935 3,806 6,145 8,516 2 993
Forward rate agreements 15,442 - 2 435 - -
Swap agreements 518,586 5,386 4,843 1,124 6 5
Futures contracts 24,857 2 6 - - -
Options purchased 1,098 4 - - - -
Options sold 1,010 - 5 - - -
Interest rate derivatives 560,993 5,392 4,856 1,559 6 5
Commodity derivatives 366 32 32 - - -
Total derivatives held for trading 760,294 9,230 11,033 10,075 8 998
Derivatives in hedging relationships
Foreign exchange swap agreements 55 2 - - - -
Interest rate swap agreements 24,718 186 76 4,443 4 23
Total fair value hedges 24,773 188 76 4,443 4 23
Interest rate swap agreements 15,240 90 99 - - -
Total cash flow hedges 15,240 90 99 - - -
Total derivatives in hedging
relationships	40,013 278 175 4,443 4 23
Total derivative financial instruments 800,307 9,508 11,208 14,518 12 1,021

Australia and New Zealand Banking Group Limited - New Zealand Branch

25

Notes to the Financial Statements

	ANZ New Zealand NZ Branch
	Notional Notional
30/09/2012 Principal Fair values Principal Fair values
$ millions Amount Assets Liabilities Amount Assets Liabilities
Derivatives held for trading
Spot and forward contracts 59,825 647 1,240 38 - -
Swap agreements 132,963 2,811 4,446 9,273 39 168
Options purchased 1,798 22 - - - -
Options sold 1,651 1 39 - - -
Foreign exchange derivatives 196,237 3,481 5,725 9,311 39 168
Forward rate agreements 45,071 3 2 1,580 - -
Swap agreements 509,981 8,628 8,032 3,013 13 19
Futures contracts 29,818 2 4 - - -
Options purchased 2,237 15 - - - -
Options sold 1,833 - 14 - - -
Interest rate derivatives 588,940 8,648 8,052 4,593 13 19
Commodity derivatives 281 44 42 - - -
Total derivatives held for trading 785,458 12,173 13,819 13,904 52 187
Derivatives in hedging relationships
Foreign exchange swap agreements 70 3 - - - -
Interest rate swap agreements 22,534 293 194 3,535 - 35
Total fair value hedges 22,604 296 194 3,535 - 35
Interest rate swap agreements 13,524 240 72 - - -
Total cash flow hedges 13,524 240 72 - - -
Total derivatives in hedging
relationships	36,128 536 266 3,535 - 35
Total derivative financial instruments 821,586 12,709 14,085 17,439 52 222

Derivatives 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 some balance sheet risk management derivatives are classified as held for trading.

Derivatives in hedging relationships

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	Gain / (loss) on fair value hedges attributable to the hedged risk	Gain / (loss) on fair value hedges attributable to the hedged risk
		ANZ New Zealand		NZ Branch
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Gain / (loss) arising from fair value hedges:
- hedged item		80	5	(20)		(20)
- hedging instrument		(81)	(9)	28		19
Net ineffectiveness on qualifying fair value hedges		(1)	(4)	8		(1)

Australia and New Zealand Banking Group Limited - New Zealand Branch

26

Notes to the Financial Statements

Cash flow hedges

ANZ New Zealand’s cash flow hedges comprise interest rate swaps that are used to protect against exposures to variability in future interest cash flows on non-trading assets and liabilities which bear interest at variable rates or which are expected to be refunded or reinvested in the future. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their forecast repricing profile. This forms the basis for identifying gains and losses on the effective portions of derivatives designated as cash flow hedges.

Analysis of the cash flow hedging reserve ANZ New Zealand NZ Branch	Analysis of the cash flow hedging reserve ANZ New Zealand NZ Branch
	30/09/2013 30/09/2012 30/09/2013 30/09/2012
Deferred gain / (loss) attributable to hedges of:
Variable rate loan assets (18) 208 - -
Variable rate liabilities 15 (29) - -
Short term re-issuances of fixed rate customer and wholesale
deposit liabilities	29 (38) - -
Total cash flow hedging reserve 26 141 - -

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 (30/09/2012 0-10 years).

12. Available-for-sale Assets

		ANZ New Zealand	NZ Branch
$ millions		30/09/2013 30/09/2012 30/09/2013 30/09/2012
Government, local body stock and bonds		742 13 - -
Other debt securities		38 41 - -
Equity securities		2 3 - -
Total available-for-sale assets		782 57 - -

13. Net Loans and Advances

		ANZ New Zealand	NZ Branch
$ millions	Note	30/09/2013 30/09/2012 30/09/2013 30/09/2012
Overdrafts		1,841 1,881 - -
Credit card outstandings		1,458 1,395 - -
Term loans - housing		58,849 55,526 9,276 9,402
Term loans - non-housing		37,832 37,749 - -
Finance lease receivables		849 806 - -
Gross loans and advances		100,829 97,357 9,276 9,402
Provision for credit impairment	14	(849) (1,081) (23) (27)
Unearned finance income		(278) (258) - -
Fair value hedge adjustment		(35) 34 (3) 17
Deferred fee revenue and expenses		(64) (60) - -
Capitalised brokerage / mortgage origination fees		162 102 6 4
Total net loans and advances		99,765 96,094 9,256 9,396

Australia and New Zealand Banking Group Limited - New Zealand Branch

27

Notes to the Financial Statements

14. Provision for Credit Impairment

Provision movement analysis ANZ New Zealand NZ Branch	Provision movement analysis ANZ New Zealand NZ Branch
Retail Other retail Non-retail Retail Other retail Non-retail
$ millions mortgages exposures exposures Total mortgages exposures exposures Total
30/09/2013
New and increased provisions 105 113 157 375 18 - - 18
Write-backs (88) (30) (104) (222) (13) - - (13)
Recoveries of amounts written off
previously	(2) (16) (5) (23) - - - -
Individual provision charge 15 67 48 130 5 - - 5
Collective provision credit (5) (8) (51) (64) (2) - - (2)
Total charge / (credit) to income
statement	10 59 (3) 66 3 - - 3
30/09/2012
New and increased provisions 130 87 267 484 20 - - 20
Write-backs (90) (15) (100) (205) (17) - - (17)
Recoveries of amounts written off
previously	(1) (17) (7) (25) - - - -
Individual provision charge 39 55 160 254 3 - - 3
Collective provision charge / (credit) (10) (22) (20) (52) 6 - - 6
Total charge to income statement 29 33 140 202 9 - - 9

Movement in provision for credit impairment	Movement in provision for credit impairment
ANZ New Zealand NZ Branch
Retail Other retail Non retail Retail Other retail Non retail
$ millions mortgages exposures exposures Total mortgages exposures exposures Total
30/09/2013
Collective provision
Balance at beginning of the year 120 125 375 620 16 - - 16
Credit to income statement (5) (8) (51) (64) (2) - - (2)
Balance at end of the year 115 117 324 556 14 - - 14
Individual provision
Balance at beginning of the year 130 26 305 461 11 - - 11
New and increased provisions net of
write-backs	17 83 53 153 5 - - 5
Bad debts written off (55) (87) (150) (292) (6) - - (6)
Discount unwind1 (9) - (20) (29) (1) - - (1)
Balance at end of the year 83 22 188 293 9 - - 9
Total provision for credit impairment 198 139 512 849 23 - - 23
30/09/2012
Collective provision
Balance at beginning of the year 130 147 395 672 10 - - 10
Charge / (credit) to income statement (10) (22) (20) (52) 6 - - 6
Balance at end of the year 120 125 375 620 16 - - 16
Individual provision
Balance at beginning of the year 165 37 309 511 17 - - 17
New and increased provisions net of
write-backs	40 72 167 279 3 - - 3
Bad debts written off (62) (83) (131) (276) (7) - - (7)
Discount unwind1 (13) - (40) (53) (2) - - (2)
Balance at end of the year 130 26 305 461 11 - - 11
Total provision for credit impairment 250 151 680 1,081 27 - - 27

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

28

Notes to the Financial Statements

15. Impaired Assets

ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch
Retail Other retail Non-retail Retail Other retail Non-retail
$ millions mortgages exposures exposures Total mortgages exposures exposures Total
30/09/2013
Balance at beginning of the year 352 44 1,009 1,405 39 - - 39
Transfers from productive 315 134 401 850 47 - - 47
Transfers to productive (93) (5) (194) (292) (2) - - (2)
Assets realised or loans repaid (305) (37) (400) (742) (43) - - (43)
Write offs (55) (87) (150) (292) (6) - - (6)
Total impaired assets 214 49 666 929 35 - - 35
Undrawn facilities with impaired
customers	- 1 24 25 - - - -
30/09/2012
Balance at beginning of the year 537 61 1,194 1,792 66 - - 66
Transfers from productive 340 110 572 1,022 55 - - 55
Transfers to productive (73) (1) (111) (185) (12) - - (12)
Assets realised or loans repaid (390) (43) (515) (948) (63) - - (63)
Write offs (62) (83) (131) (276) (7) - - (7)
Total impaired assets 352 44 1,009 1,405 39 - - 39
Undrawn facilities with impaired
customers	- - 24 24 - - - -

Australia and New Zealand Banking Group Limited - New Zealand Branch

29

Notes to the Financial Statements

16. Subsidiaries and Associates

16. Subsidiaries and Associates
	Ownership	Balance
Subsidiaries	interest %	date	Nature of business
Members of the Banking Group
ANZ Bank New Zealand Limited	100	30 September	Registered bank
ANZ Capital NZ Limited	100	30 September	Investment
ANZ Investment Services (New Zealand) Limited	100	30 September	Funds management
ANZ National Staff Superannuation Limited	100	30 September	Staff superannuation scheme trustee
ANZ New Zealand (Int'l) Limited	100	30 September	Finance
ANZ New Zealand Investments Limited1	100	30 September	Funds management
ANZ New Zealand Investments Nominees Limited2	100	30 September	Nominee
ANZ New Zealand Securities Limited	100	30 September	On-line share broker
ANZ Wealth New Zealand Limited3	100	30 September	Holding company
ANZNZ Covered Bond Trust	-	30 September	Securitisation entity
Arawata Assets Limited	100	30 September	Property
Arawata Finance Limited	100	30 September	Investment
Arawata Holdings Limited	100	30 September	Holding company
AUT Investments Limited	100	30 September	Investment
Control Nominees Limited	100	30 September	Non-operating
Direct Nominees Limited	100	30 September	Nominee
Endeavour Finance Limited	100	30 September	Investment
Harcourt Corporation Limited	100	30 September	Investment
Karapiro Investments Limited	100	30 September	Investment
Kingfisher NZ Trust 2008-1	-	30 September	Securitisation entity
Medical Properties Holding Company No.1 Limited	100	30 September	Non-operating
OneAnswer Nominees Limited	100	30 September	Nominee
OnePath Insurance Holdings (NZ) Limited	100	30 September	Holding company
OnePath Insurance Services (NZ) Limited	100	30 September	Insurance
OnePath Life (NZ) Limited	100	30 September	Insurance
Private Nominees Limited	100	30 September	Nominee
Rural Growth Fund Limited	100	30 September	Investment
South Pacific Merchant Finance Limited	100	30 September	Holding company
UDC Finance Limited	100	30 September	Asset finance
Other members of ANZ New Zealand (together with the NZ Branch, the "Relevant Members")
ANZ Capel Court Limited (New Zealand Branch)4	100	30 September	Securitisation services
ANZ Holdings (New Zealand) Limited	100	30 September	Holding company
ANZ Nominees Limited (New Zealand Branch)4	100	30 September	Nominee
ANZ Securities (NZ) Limited	100	30 September	Nominee
ANZMAC Securities (NZ) Nominees Limited	100	30 September	Nominee
Samson Funding Limited	100	30 September	Finance
Associates
Cards NZ Limited	19	30 September	Card services
Paymark Limited	25	31 March	EFTPOS settlements
UCG Investments Limited	40	31 March	Rest home operator

1 Previously known as OnePath (NZ) Limited

2 Previously known as OnePath Nominees (NZ) Limited

3 Previously known as OnePath Holdings (NZ) Limited

4 Incorporated in Australia and registered in New Zealand as an Overseas ASIC Company

All subsidiaries and associates are incorporated in New Zealand, unless stated otherwise. The ownership interest percentage equates to the voting power held for all companies. Control of Kingfisher NZ Trust 2008-1 and ANZNZ Covered Bond Trust exists as ANZ New Zealand retains substantially all the risks and rewards of the operations.

Movements in subsidiaries and associates

In December 2012 ANZ Capital NZ Limited sold its interest in Wyma Engineering (NZ) Limited.

In January 2013 NBNZ Holdings Hong Kong Limited was wound up.

In May 2013 the Bank sold its interest in EFTPOS New Zealand Limited. Control Nominees Limited acquired 100% of the share capital and subsequently amalgamated with Origin Mortgage Management Services (2011) Limited.

In July 2013 Silver Fern Life Brokers Limited amalgamated with Alos Holdings Limited.

In August 2013 Alos Holdings Limited amalgamated with National Bank of New Zealand Custodians Limited. Arawata Trust Company, NBNZ Holdings Limited and National Bank of New Zealand Custodians Limited amalgamated with Control Nominees Limited. Arawata Trust was wound up.

These transactions did not have a material impact on the financial statements of ANZ New Zealand.

Australia and New Zealand Banking Group Limited - New Zealand Branch

30

Notes to the Financial Statements

17. Other Assets

ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch
$ millions 30/09/2013 30/09/2012 30/09/2013 30/09/2012
Accrued interest and prepaid discounts 368 356 1 -
Accrued commission 25 25 - -
Share-based payments asset 62 60 - -
Prepaid expenses 15 23 - -
Security settlements 160 29 - -
Other assets 105 103 - -
Total other assets 735 596 1 -

18. Goodwill and Other Intangible Assets

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Goodwill		3,233	3,262	-		-
Software		84	103	-		-
Other intangibles		131	137	-		-
		3,448	3,502	-		-

Refer to note 2 for discussion of impairment testing for goodwill.

19. Due to Other Financial Institutions

		ANZ New Zealand	NZ Branch
$ millions		30/09/2013 30/09/2012 30/09/2013 30/09/2012
Securities sold under agreements to repurchase		107 246 - -
Cash collateral received on derivative financial instruments		438 257 - -
Other		9,326 10,509 8,372 9,273
Total due to other financial institutions		9,871 11,012 8,372 9,273

20. Deposits and Other Borrowings

ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch
$ millions Note 30/09/2013 30/09/2012 30/09/2013 30/09/2012
Certificates of deposit 2,364 2,156 - -
Term deposits 33,862 33,922 - -
Demand deposits bearing interest 29,687 25,815 - -
Deposits not bearing interest 5,526 4,838 - -
Secured debenture stock 30 1,492 1,476 - -
Commercial paper 4,765 5,445 - -
Total deposits and other borrowings 77,696 73,652 - -

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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

31

Notes to the Financial Statements

21. Payables and Other Liabilities

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Creditors		61	73	-		-
Accrued interest and unearned discounts		514	616	40		55
Defined benefit schemes deficit		41	103	-		-
Share-based payments liability		39	36	-		-
Accrued charges		254	259	2		2
Security settlements and short sales		218	290	-		-
Life insurance contract liabilities - reinsurance		100	107	-		-
Other liabilities		246	104	-		-
Total payables and other liabilities		1,473	1,588	42		57

22. Provisions

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Employee entitlements1		120	135	-		-
Restructuring costs and surplus leased space2		22	111	-		-
Non-lending losses, frauds and forgeries		2	1	-		-
Other3		85	92	-		-
Total provisions		229	339	-		-

• 1 The aggregate liability for employee entitlements largely comprises provisions for annual leave and long service leave.

• 2 Restructuring costs and surplus leased space provisions arise from activities related to material changes in the scope of business undertaken by ANZ New Zealand or the manner in which that business is undertaken and includes termination benefits. Costs relating to on-going activities are not provided for. Provision is 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 2012 balance includes provisions related to the New Zealand Simplification programme, including implementation of a core banking system, a single bank brand and an optimised branch network.

• 3 Other provisions include provisions relating to make-good of leased premises, seismic obligations and the deferred settlement of obligations arising from managed funds.

23. Bonds and notes

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions	Note	30/09/2013	30/09/2012	30/09/2013		30/09/2012
Domestic bonds		2,635	2,535	-		-
U.S. medium term notes1		4,464	7,423	-		-
Euro medium term notes1		4,349	4,179	-		-
Covered bonds1	36	3,925	2,962	-		-
Trust securities2		905	898	-		-
Index linked notes		84	81	-		-
Total bonds and notes issued		16,362	18,078	-		-
Fair value hedge adjustment		77	226	-		-
Less bonds and notes held by the Bank		(32)	(116)	-		-
Total bonds and notes		16,407	18,188	-		-

Bonds and notes, other than covered bonds, are unsecured and rank equally with other unsecured liabilities of ANZ New Zealand.

• 1 These bonds and notes are issued by ANZ New Zealand (Int’l) Limited and are guaranteed by the Bank.

2 Trust Securities 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. On 7 October 2013 the Ultimate Parent Bank announced that these securities will be redeemed on the first call date being 16 December 2013.

Australia and New Zealand Banking Group Limited - New Zealand Branch

32

Notes to the Financial Statements

24. Loan Capital

	ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions	30/09/2013	30/09/2012	30/09/2013		30/09/2012
NZD 835,000,000 perpetual subordinated bond	835	835	-		-
AUD 265,740,000 perpetual subordinated floating rate loan	299	333	-		-
AUD 10,000,000 perpetual subordinated floating rate loan	11	-	-		-
AUD 265,017,668 subordinated floating rate loan	298	-	-		-
Total loan capital issued	1,443	1,168	-		-
Less loan capital instruments held by the Bank	(1)	-	-		-
Total loan capital	1,442	1,168	-		-

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.

Loan capital instruments are classified as debt reflecting an assessment of the key terms and conditions of the instruments, and an assessment of the ability, and likelihood of interest payments being deferred. Certain of these instruments have interrelationships that have been considered in this assessment.

NZD 835,000,000 bond

This bond was issued by the Bank on 18 April 2008. The Bank did not elect to redeem the bond on 18 April 2013 (the “First Call Date”). The Bank may elect to redeem the bond on 18 April 2018 (the “Second Call Date”) 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, up to and including the Second Call Date and then quarterly thereafter. 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 2013, this bond carried a BBB+ rating by Standard and Poor's and an A3 rating by Moody’s.

The coupon interest on the bond was 9.66% until 18 April 2013 when it reset to 5.28% for the five year period to 18 April 2018.

This bond is 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).

AUD 265,740,000 loan

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

AUD 10,000,000 loan

This loan was drawn down by the Bank on 27 March 2013 and has no fixed maturity. Interest is payable half yearly in arrears on 15 March and 15 September each year. The bank may repay the loan on any interest payment date after both the NZD 835,000,000 bond and AUD 265,740,000 loan have been repaid in full.

Coupon interest is BBSW + 2.4% p.a., increasing to BBSW + 4.4% p.a. from 15 September 2018.

AUD 265,017,668 loan

This loan was drawn down by ANZ Holdings (New Zealand) Limited on 25 September 2013. The loan matures on 1 March 2024, but ANZ Holdings (New Zealand) Limited may elect to repay the loan on any interest payment date from 1 March 2019. Interest is payable half yearly in arrears at BBSW + 2.60% p.a., with interest payments due on 1 March and 1 September each year.

Australia and New Zealand Banking Group Limited - New Zealand Branch

33

Notes to the Financial Statements

25. Related Party Transactions

Key management personnel

Key management personnel are defined as the 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 below includes transactions with those individuals, their close family members and their subsidiaries.

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.

the provision of financial and investment services.
		ANZ New Zealand		NZ Branch
$ thousands		Year to	Year to	Year to		Year to
		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Key management personnel compensation
Salaries and short-term employee benefits		13,210	11,605	-		-
Post-employment benefits		258	201	-		-
Other long-term benefits		76	87	-		-
Termination benefits		123	-	-		-
Share-based payments expense		5,693	4,537	-		-
Total compensation of key management personnel		19,360	16,430	-		-
Loans to and deposits held by key management personnel
Loans to key management personnel		5,741	2,726	-		-
Deposits from key management personnel		8,001	7,055	-		-

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.

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

Transactions with related parties ANZ New Zealand NZ Branch	Transactions with related parties ANZ New Zealand NZ Branch	Transactions with related parties ANZ New Zealand NZ Branch
Year to Year to Year to Year to
$ millions 30/09/2013 30/09/2012 30/09/2013 30/09/2012
Interest income
Received from the Ultimate Parent Bank and subsidiaries not part of
ANZ New Zealand		2 5 - -
Interest expense
Paid to the Immediate Parent Company 63 70 - -
Paid to the Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand		544 530 398 422
Paid to associates 2 2 - -
Other operating income
Received from the Ultimate Parent Bank and subsidiaries not
part of ANZ New Zealand	16 51 - -
Share of associates' profit 7 4 - -
Operating expenses
Paid to the Bank - - 25 26
Paid to the Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand		84 118 - -

Australia and New Zealand Banking Group Limited - New Zealand Branch

34

Notes to the Financial Statements

Balances with related parties

Balances with related parties
		ANZ New Zealand	NZ Branch
$ millions		30/09/2013 30/09/2012 30/09/2013 30/09/2012
Liquid Assets
Due from Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand		22 85 - -
Due from other financial institutions
Due from Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand		236 217 141 38
Derivative financial assets
Due from Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand		1,903 2,659 - 39
Due from the Bank		- - 12 13
Net loans and advances
Due from associates		- 4 - -
Due from the Bank		- - 314 304
Shares in subsidiaries and associates		98 99 - -
Other assets
Due from Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand		66 61 1 -
Total due from related parties		2,325 3,125 468 394
Due to other financial institutions
Due from Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand		8,409 9,478 8,372 9,273
Deposits and other borrowings
Due to associates		85 85 - -
Due to Immediate Parent Company		1,766 1,766 - -
Derivative financial liabilities
Due to Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand		3,133 3,205 991 168
Due to the Bank		- - 30 54
Payables and other liabilities
Due to Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand		66 85 40 55
Bonds and notes
Due to Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand		2,180 2,201 - -
Loan capital
Due to Ultimate Parent Bank and subsidiaries not part of ANZ New
Zealand		608 333 - -
Total due to related parties		16,247 17,153 9,433 9,550

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:

	ANZ New Zealand	ANZ New Zealand	NZ Branch
$ millions	30/09/2013	30/09/2012	30/09/2013	30/09/2012
Financial guarantees provided to the Ultimate Parent Bank	181	256	-	-

Australia and New Zealand Banking Group Limited - New Zealand Branch

35

Notes to the Financial Statements

26. Current and Non-current Assets and Liabilities

	ANZ New Zealand NZ Branch
$ millions	30/09/2013 30/09/2012 30/09/2013 30/09/2012
	Non-	Non-
	Current current	Current Non-current Current current	Current Non-current
Assets
Liquid assets	2,496 - 2,831 - - - - -
Due from other financial institutions	1,711 - 1,760 - 141 - 38 -
Trading securities	10,320 - 12,338 - - - - -
Derivative financial instruments	9,508 - 12,709 - 12 - 52 -
Current tax assets	1 - 24 - - - - -
Available-for-sale assets	407 375 16 41 - - - -
Net loans and advances	29,323 70,442 28,453 67,641 425 8,831 467 8,929
Due from related entities	- - - - 314 - 304 -
Investments backing insurance policy
liabilities	169 3 140 2 - - - -
Insurance policy assets	- 399 - 408 - - - -
Investments in subsidiaries and
associates	- 98 - 99 - - - -
Other assets	673 62 536 60 1 - - -
Deferred tax assets	- 36 - 92 - 6 - 8
Premises and equipment	- 376 - 323 - - - -
Goodwill and other intangible assets	- 3,448 - 3,502 - - - -
Total assets	54,608 75,239 58,807 72,168 893 8,837 861 8,937
Liabilities
Due to other financial institutions	3,772 6,099 3,991 7,021 2,273 6,099 2,407 6,866
Deposits and other borrowings	75,142 2,554 70,793 2,859 - - - -
Due to the Immediate Parent
Company	1,766 - 1,766 - - - - -
Derivative financial instruments	11,208 - 14,085 - 1,021 - 222 -
Payables and other liabilities	1,393 80 1,342 246 42 - 57 -
Current tax liabilities	- - - - 18 - 19 -
Provisions	137 92 240 99 - - - -
Bonds and notes	4,251 12,156 4,089 14,099 - - - -
Loan capital	- 1,442 - 1,168 - - - -
Total liabilities	97,669 22,423 96,306 25,492 3,354 6,099 2,705 6,866

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 29.

Australia and New Zealand Banking Group Limited - New Zealand Branch

36

Notes to the Financial Statements

27. Share Capital and Initial Head Office Account

ANZ New Zealand NZ Branch	ANZ New Zealand NZ Branch
30/09/2013 30/09/2012 30/09/2013 30/09/2012
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 & initial 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 - -
Initial head office account 11 11 11 11
Total share capital & initial 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 2013 ANZ Holdings (New Zealand) Limited (“ANZH”) paid an ordinary dividend of $720 million (30/09/2012 $400 million) to the Immediate Parent Company (equivalent to $1.89 (30/09/2012 $1.05) 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 2013 ANZH did not pay any dividends on RPS. (30/09/2012 ANZH paid $85 million of dividends on the 2007 class of RPS (equivalent to $0.04 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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

37

Notes to the Financial Statements

28. 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 and trigger levels for common equity tier one, 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.

ANZ New Zealand’s Asset & Liability Committee and its related Capital Management Forum 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.

Adoption of Basel III capital framework

Effective 1 January 2013, APRA has adopted the majority of Basel III capital reforms in Australia. The Basel III reforms include: increased capital deductions from common equity tier one capital, an increase in capitalisation rates (including prescribed minimum capital buffers, fully effective 1 January 2016), tighter requirements around new tier one and tier two securities and transitional arrangements for existing tier one and tier two securities that do not conform to the new regulations. Other changes include capital requirements for counterparty credit risk and an increase in the asset value correlation with respect to exposures to large and unregulated financial institutions.

			Ultimate Parent Bank	Ultimate Parent Bank
	Overseas Banking Group		(Extended Licensed Entity)
	30/09/2013	30/09/2012	30/09/2013	30/09/2012
	Basel III	Basel III	Basel III	Basel II
Common equity tier one capital	8.5%	8.0%	8.5%	n/a
Tier one capital	10.4%	9.7%	10.6%	11.4%
Total capital	12.2%	11.7%	12.5%	12.7%

For calculation of minimum capital requirements under Pillar 1 (Capital Requirements) of the Basel Accord, APRA has accredited the Overseas Banking Group to use the Advanced Internal Ratings Based methodology for calculation of credit risk weighted assets and the Advanced Measurement Approach for the operational risk weighted asset equivalent.

Under prudential regulations, the Overseas Banking Group is required to maintain Prudential Capital Requirements ("PCRs"), which are at least equal to that specified under Basel III (previously Basel II), as determined by APRA. The Overseas Banking Group exceeded the PCRs set by APRA as at 30 September 2013 and for the comparative prior periods.

The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 30 September 2013. The Overseas Banking Group’s Pillar 3 disclosure document for the year ended 30 September 2013, in accordance with APS 330: Public Disclosure of Prudential Information, discloses capital adequacy ratios and other prudential information. This document can be accessed at the website anz.com.

Australia and New Zealand Banking Group Limited - New Zealand Branch

38

Notes to the Financial Statements

Market risk

The aggregate market risk exposures below have been calculated in accordance with the RBNZ document BS2B. The peak end-of-day market risk exposures are for the half-year ended 30 September 2013.

ANZ New Zealand	Implied risk weighted exposure	Implied risk weighted exposure	Aggregate capital charge	Aggregate capital charge		Peak
30/09/2013 (Unaudited)	Period end	Peak	Period end		Peak	occurred on
	$m	$m	$m		$m
Interest rate risk	3,633	5,299	291		424	1/07/2013
Foreign currency risk	37	98	3		8	16/08/2013
Equity risk	2	2	-		-	1/04/2013
	3,672		294

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 have been accepted by the customer.

Unaudited 30/09/2013				On-balance	Off-balance
$ millions				sheet	sheet	Total
LVR range
0% - 59%				19,761	3,103	22,864
60% - 69%				9,330	780	10,110
70% - 79%				14,044	975	15,019
Less than 80%				43,135	4,858	47,993
80% - 89%				8,654	481	9,135
Over 90%				4,792	364	5,156
Total				56,581	5,703	62,284

Reconciliation of mortgage related amounts

Reconciliation of mortgage related amounts
			ANZ New Zealand
			Unaudited
$ millions		Note	30/09/2013
Term loans - housing		13	58,849
Plus: short-term housing loans classified as overdrafts			499
Less: housing loans made to corporate customers			(2,767)
On-balance sheet retail mortgage exposures / Gross retail mortgage loans		29	56,581
Plus: off-balance sheet retail mortgage exposures			5,703
Total retail mortgage exposures as per LVR analysis		28	62,284

Australia and New Zealand Banking Group Limited - New Zealand Branch

39

Notes to the Financial Statements

29. 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. ANZ New Zealand’s overall risk management programme 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. 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

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

The credit risk management framework is top down. The framework is defined by ANZ New Zealand's credit

principles and policies. The effectiveness of the credit risk management framework is validated through the compliance and monitoring processes.

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

Credit risk is controlled through a combination of approvals, limits, reviews and monitoring procedures that are carried out on a 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 the Bank.

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-bycountry 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

Australia and New Zealand Banking Group Limited - New Zealand Branch

40

Notes to the Financial Statements

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 Management and business executives through a series of reports including monthly ‘asset quality’ reporting. This process is undertaken by or overseen by Risk Management ensuring an efficient and independent conduit exists to identify and communicate emerging credit issues to ANZ New Zealand executives and each Board.

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.

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.

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-tomarket (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

Australia and New Zealand Banking Group Limited - New Zealand Branch

41

Notes to the Financial Statements

Concentrations of credit risk analysis

ANZ New Zealand

	ANZ New Zealand
$ millions	Liquid assets and due from Trading securities and Derivative Other Credit related
30/09/2013	other financial institutions available-for- sale assets financial instruments Net loans and advances financial assets commitments 3 Total
Industry
Agriculture	1 29 22 17,469 93 1,229 18,843
Forestry, fishing and mining	14 - 11 926 5 894 1,850
Business and property services	23 1 24 8,881 47 2,363 11,339
Construction	- - - 1,035 6 709 1,750
Entertainment, leisure and tourism	- - 27 1,033 5 326 1,391
Finance and insurance	2,156 5,120 8,576 839 339 1,267 18,297
Government and local authority1	1,533 5,872 248 1,230 7 1,022 9,912
Manufacturing	54 - 69 2,917 16 1,996 5,052
Personal lending	- - - 60,675 274 11,865 72,814
Retail trade	102 - 40 1,719 9 991 2,861
Transport and storage	19 3 54 1,454 8 610 2,148
Wholesale trade	88 - 13 1,227 7 1,369 2,704
Other2	19 77 424 1,424 8 2,627 4,579
	4,009 11,102 9,508 100,829 824 27,268 153,540
Provision for credit impairment	- - - (849) - - (849)
Fair value hedge adjustment	- - - (35) - - (35)
Unearned finance income and
deferred / capitalised fees	- - - (180) - - (180)
Total financial assets	4,009 11,102 9,508 99,765 824 27,268 152,476
Geography
New Zealand	3,998 7,683 2,491 97,393 812 27,087 139,464
Overseas	11 3,419 7,017 2,372 12 181 13,012
Total financial assets	4,009 11,102 9,508 99,765 824 27,268 152,476
30/09/2012
Industry
Agriculture	- - 60 17,343 123 1,546 19,072
Forestry, fishing and mining	24 - 14 894 6 322 1,260
Business and property services	19 - 51 9,034 64 2,542 11,710
Construction	- - 2 1,017 7 1,035 2,061
Entertainment, leisure and tourism	- - 41 1,166 8 483 1,698
Finance and insurance	2,383 3,696 11,278 501 36 1,099 18,993
Government and local authority-	1,798 8,574 405 1,332 9 1,111 13,229
Manufacturing	43 6 98 2,915 21 2,509 5,592
Personal lending	- - - 56,729 335 11,093 68,157
Retail trade	28 6 43 1,774 13 1,102 2,966
Transport and storage	25 50 93 1,657 12 579 2,416
Wholesale trade	54 - 21 1,195 8 1,375 2,653
Other2	13 63 603 1,800 13 2,302 4,794
	4,387 12,395 12,709 97,357 655 27,098 154,601
Provision for credit impairment	- - - (1,081) - - (1,081)
Fair value hedge adjustment	- - - 34 - - 34
Unearned finance income and
deferred / capitalised fees	- - - (216) - - (216)
Total financial assets	4,387 12,395 12,709 96,094 655 27,098 153,338
Geography
New Zealand	3,871 10,524 3,440 94,154 642 26,842 139,473
Overseas	720 1,871 9,269 1,940 13 256 14,069
Total financial assets	4,591 12,395 12,709 96,094 655 27,098 153,542

Australia and New Zealand Banking Group Limited - New Zealand Branch

42

Notes to the Financial Statements

	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
30/09/2013 institutions assets instruments advances entities assets 3 Total
Industry
Agriculture - - - 1 - - - 1
Business and property services - - - 5 - - - 5
Construction - - - 2 - - - 2
Entertainment, leisure and tourism - - - 2 - - - 2
Finance and insurance 141 - 12 1 314 1 - 469
Government and local authority1 - - - 2 - - - 2
Manufacturing - - - 1 - - - 1
Personal lending - - - 9,257 - - 54 9,311
Retail trade - - - 2 - - - 2
Transport and storage - - - 1 - - - 1
Other2 - - - 2 - - - 2
141 - 12 9,276 314 1 54 9,798
Provision for credit impairment - - - (23) - - - (23)
Fair value hedge adjustment - - - (3) - - - (3)
Unearned finance income and
deferred / capitalised fees	- - - 6 - - - 6
Total financial assets 141 - 12 9,256 314 1 54 9,778
Geography
New Zealand - - 12 9,010 314 1 54 9,391
Overseas 141 - - 246 - - - 387
Total financial assets 141 - 12 9,256 314 1 54 9,778
30/09/2012
Industry
Agriculture - - - 1 - - - 1
Business and property services - - - 4 - - - 4
Construction - - - 2 - - - 2
Entertainment, leisure and tourism - - - 1 - - - 1
Finance and insurance 38 - 52 - 304 - - 394
Government and local authority1 - - - 1 - - - 1
Personal lending - - - 9,389 - - 103 9,492
Retail trade - - - 2 - - - 2
Other2 - - - 2 - - - 2
38 - 52 9,402 304 - 103 9,899
Provision for credit impairment - - - (27) - - - (27)
Fair value hedge adjustment - - - 17 - - - 17
Unearned finance income and
deferred / capitalised fees	- - - 4 - - - 4
Total financial assets 38 - 52 9,396 304 - 103 9,893
Geography
New Zealand - - 13 9,102 304 - 103 9,522
Overseas 38 - 39 294 - - - 371
Total financial assets 38 - 52 9,396 304 - 103 9,893

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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

43

Notes to the Financial Statements

Maximum exposure to credit risk

The following table presents the maximum exposure to credit risk for on and off balance sheet financial instruments before taking account of the financial effect of any collateral held or other credit enhancements, unless such collateral meets the offsetting criteria in NZ IAS 32 Financial Instruments: Presentation.

The table also provides a quantification of the value of the financial charges ANZ New Zealand holds over a borrower’s specific asset (or assets) where ANZ New Zealand is able to enforce the collateral in satisfying a debt in the event of the borrower failing to meet its contractual obligations. For the purposes of this disclosure, where the collateral held is valued at more than the corresponding credit exposure, the financial effect is capped at the value of the credit exposure. In respect of derivative financial instruments, the assessed collateral is the amount of cash collateral received and does not include the effect of any netting arrangements under ISDAs.

The most common types of collateral include:

• Security over real estate including residential, commercial, industrial and rural property;

• Cash deposits; and

• Other security over business assets including specific plant and equipment, inventory and accounts receivables.

ANZ New Zealand also manages its credit risk by accepting other types of collateral such as guarantees and security interests over the assets of a customer’s business. The assignable value of such credit mitigants is less certain and their financial effect has not been quantified for disclosure purposes. Credit exposures shown as not fully secured may benefit from such credit mitigants.

		ANZ New Zealand	ANZ New Zealand	ANZ New Zealand			NZ Branch
$ millions		Maximum			Unsecured	Maximum		Unsecured
		exposure to	Financial effect		portion of credit	exposure to	Financial effect	portion of credit
30/09/2013		credit risk	of collateral		exposure	credit risk	of collateral	exposure
On and off-balance sheet positions
Liquid assets		2,298	55		2,243	-	-	-
Due from other financial institutions		1,711	348		1,363	141	-	141
Trading securities		10,320	-		10,320	-	-	-
Derivative financial instruments		9,508	438		9,070	12	-	12
Available-for-sale assets		782	-		782	-	-	-
Net loans and advances		99,765	90,612		9,153	9,256	9,227	29
Due from related entities		-	-		-	314	-	314
Other financial assets		824	490		334	1	-	1
Credit related commitments		27,268	12,824		14,444	54	54	-
Total exposure to credit risk		152,476	104,767		47,709	9,778	9,281	497
30/09/2012
On and off-balance sheet positions
Liquid assets		2,627	325		2,302	-	-	-
Due from other financial institutions		1,760	270		1,490	38	-	38
Trading securities		12,338	-		12,338	-	-	-
Derivative financial instruments		12,709	257		12,452	52	-	52
Available-for-sale assets		54	-		54	-	-	-
Net loans and advances		96,094	87,779		8,315	9,396	9,318	78
Due from related entities		-	-		-	304	-	304
Other financial assets		655	351		304	-	-	-
Credit related commitments		27,098	12,410		14,688	103	103	-
Total exposure to credit risk		153,335	101,392		51,943	9,893	9,421	472

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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

44

Notes to the Financial Statements

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.

Distribution by asset class of gross loans and advances by credit quality

		ANZ New Zealand			NZ Branch
	Retail	Other retail Non-retail		Retail	Other retail Non-retail
$ millions	mortgages exposures exposures		Total	mortgages exposures exposures		Total
30/09/2013
Strong risk rating	45,713 1,342 20,697		67,752	7,614 - -		7,614
Satisfactory risk rating	8,866 2,519 15,757		27,142	1,316 - -		1,316
Substandard but not past due or
impaired	873 326 1,792		2,991	152 - -		152
Total neither past due nor impaired	55,452 4,187 38,246		97,885	9,082 - -		9,082
Past due but not impaired:
1 to 5 days	356 138 477		971	29 - -		29
6 to 29 days	246 94 148		488	69 - -		69
1 to 29 days	602 232 625		1,459	98 - -		98
30 to 59 days	141 38 57		236	30 - -		30
60 to 89 days	64 19 13		96	15 - -		15
90 days and over	108 40 76		224	16 - -		16
Total past due but not impaired	915 329 771		2,015	159 - -		159
Total impaired assets	214 49 666		929	35 - -		35
Gross loans and advances	56,581 4,565 39,683		100,829	9,276 - -		9,276
30/09/2012
Strong risk rating	40,400 1,140 19,994		61,534	7,141 - -		7,141
Satisfactory risk rating	10,335 2,466 15,590		28,391	1,700 - -		1,700
Substandard but not past due or
impaired	1,129 408 2,118		3,655	238 - -		238
Total neither past due nor impaired	51,864 4,014 37,702		93,580	9,079 - -		9,079
Past due but not impaired:
1 to 5 days	386 139 458		983	60 - -		60
6 to 29 days	522 92 181		795	159 - -		159
1 to 29 days	908 231 639		1,778	219 - -		219
30 to 59 days	164 32 67		263	37 - -		37
60 to 89 days	60 17 28		105	12 - -		12
90 days and over	107 33 86		226	16 - -		16
Total past due but not impaired	1,239 313 820		2,372	284 - -		284
Total impaired assets	352 44 1,009		1,405	39 - -		39
Gross loans and advances	53,455 4,371 39,531		97,357	9,402 - -		9,402

Australia and New Zealand Banking Group Limited - New Zealand Branch

45

Notes to the Financial Statements

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

The credit quality of financial assets is assessed by 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 “B1” and “BB” to “B+” of Moody's Investors Service and Standard & Poor's respectively.

Substandard but not past due or impaired - Corporate customers demonstrating some operational and financial instability, with variability and uncertainty in profitability and liquidity projected to continue over the short and possibly medium term. Retail customers with higher expected loss. This rating band broadly corresponds to ratings “B2” to “Caa” and “B” to “CCC” of Moody's Investors Service and Standard & Poor's respectively.

Movements in the rating categories between balance dates are due to both changes in the underlying internal ratings applied 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.

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. A medium market risk appetite has been set for ANZ New Zealand, which is reflected in its low/moderate market risk limit framework.

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

The Board Risk Committee has delegated responsibility for the oversight of market risk to the Asset & Liability Committee (“ALCO”), chaired by the Chief Financial Officer of the Bank. ALCO are required to ensure that market risk exposure across Traded and Non-Traded portfolios remains within the risk appetite specified by the Board Risk Committee. ALCO receive regular reporting on a range of trading and balance sheet market risk exposures.

The Risk Management division of ANZ New Zealand, through the Chief Risk Officer, is responsible for the day-to-day oversight of market risk. This includes the implementation of a comprehensive limit and policy framework to control the amount of risk that the Banking Group will accept. Market risk limits are allocated at various levels and are reported and monitored on a daily basis. The detailed limit framework allocates individual limits to manage and control asset classes (e.g., interest rates, foreign exchange), risk factors (e.g., interest rates, volatilities) and profit and loss limits (to monitor and manage the performance of the trading portfolios).

Additional oversight and monitoring of material risk exposures of ANZ New Zealand is undertaken by the Risk Management functions of the Ultimate Parent Bank.

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

These risks are monitored daily against a comprehensive limit framework that includes Value at Risk, aggregate market position 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

Australia and New Zealand Banking Group Limited - New Zealand Branch

46

Notes to the Financial Statements

due to changes in market interest rates or their implied volatilities.

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

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

This comprises the management of non-traded interest rate risk, liquidity, and the risk to capital and earnings as a result of movements in market rates.

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 the valuation of these types of instruments.

In all trading areas ANZ New Zealand has implemented models that calculate Value at Risk (“VaR”) exposures, monitor risk exposures against defined limits on a daily basis, and “stress test” trading portfolios.

VaR measure

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

estimate on any given day. Conversely there is 1% probability of the decrease in market value exceeding the VaR estimate on any given day.

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.

During the 2012 financial year, ANZ New Zealand moved to monitoring Traded and Non-Traded VaR at the 99% confidence level only, having previously also used a 97.5% confidence level, as the 99% confidence level encompasses a wider range of potential outcomes. NonTraded VaR at the 99% confidence level was not disclosed previously, so the comparative figures have been restated accordingly.

The confidence level is such that there is a 99% probability that the loss will not exceed the VaR

Traded market risks

Traded market risks	Traded market risks
ANZ New Zealand
	Value at risk at 99% confidence
High for Low for Average for
$ millions Period end year year year
30/09/2013
Foreign exchange risk 0.3 1.4 - 0.3
Interest rate risk 2.1 3.7 1.1 2.3
Credit spread risk 0.4 1.0 0.2 0.4
Diversification benefit (0.8) n/a n/a (0.7)
Total VaR 2.0 4.1 1.2 2.3
30/09/2012
Foreign exchange risk 0.2 1.4 0.2 0.4
Interest rate risk 2.7 6.4 1.6 3.6
Credit spread risk 0.4 1.2 0.2 0.7
Diversification benefit (0.7) n/a n/a (1.2)
Total VaR 2.6 6.3 1.5 3.5

Traded market risk 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 risk (or balance sheet risk)

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

47

Notes to the Financial Statements

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 from changes in market interest rates. This risk arises from two principal sources: mismatches between the repricing dates of interest bearing assets and liabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets.

As part of normal business activity 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.

a. Non-traded interest rate risk VaR

a. Non-traded interest rate risk VaR
		ANZ New Zealand
		High for	Low for	Average for
$ millions	Period end	year	year	year
30/09/2013
Value at risk at 99% confidence	9.1	14.2	7.7	11.1
30/09/2012
Value at risk at 99% confidence	10.7	15.5	8.8	11.2

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
	30/09/2013	30/09/2012
Impact of 1% rate shock
Period end	1.0%	1.0%
Maximum exposure	2.1%	2.3%
Minimum exposure	0.5%	0.8%
Average exposure (in absolute terms)	1.3%	1.7%

The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any point has implications for future net interest income.

Interest rate sensitivity gap

The interest rate sensitivity gap analysis provides information about 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 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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

48

Notes to the Financial Statements

			ANZ New Zealand	ANZ New Zealand	ANZ New Zealand
$ millions		Less than	3 to 6	6 to 12		1 to 2	Beyond	Not bearing
30/09/2013	Total	3 months	months	months		years	2 years	interest
Assets
Liquid assets	2,496	2,136	-	-		-	-	360
Due from other financial institutions	1,711	1,567	-	-		-	-	144
Trading securities	10,320	1,235	455	606		3,105	4,919	-
Derivative financial instruments	9,508	-	-	-		-	-	9,508
Available-for-sale assets	782	177	234	23		250	96	2
Net loans and advances	99,765	63,666	5,945	12,410		12,221	6,079	(556)
Other financial assets	824	104	30	36		3	-	651
Total financial assets	125,406	68,885	6,664	13,075		15,579	11,094	10,109
Liabilities
Due to other financial institutions	9,871	9,515	-	-		-	-	356
Deposits and other borrowings	77,696	51,966	9,419	8,231		1,437	1,117	5,526
Due to Immediate Parent Company	1,766	1,766	-	-		-	-	-
Derivative financial instruments	11,208	-	-	-		-	-	11,208
Bonds and notes	16,407	5,780	47	266		2,933	7,381	-
Loan capital	1,442	-	607	-		-	835	-
Other financial liabilities	996	44	-	-		-	126	826
Total financial liabilities	119,386	69,071	10,073	8,497		4,370	9,459	17,916
Hedging instruments	-	(1,881)	14,330	(4,714)		(10,828)	3,093	-
Interest sensitivity gap	6,020	(2,067)	10,921	(136)		381	4,728	(7,807)
30/09/2012
Assets
Liquid assets	2,831	2,626	-	-		-	-	205
Due from other financial institutions	1,760	1,691	-	-		-	-	69
Trading securities	12,338	1,465	161	3,042		1,121	6,549	-
Derivative financial instruments	12,709	-	-	-		-	-	12,709
Available-for-sale assets	57	46	5	3		-	-	3
Net loans and advances	96,094	70,228	3,651	7,847		10,242	4,746	(620)
Other financial assets	655	104	11	27		-	-	513
Total financial assets	126,444	76,160	3,828	10,919		11,363	11,295	12,879
Liabilities
Due to other financial institutions	11,012	10,347	-	-		-	154	511
Deposits and other borrowings	73,652	47,398	11,939	6,694		1,641	1,142	4,838
Due to Immediate Parent Company	1,766	1,766	-	-		-	-	-
Derivative financial instruments	14,085	-	-	-		-	-	14,085
Bonds and notes	18,188	6,311	-	2,495		1,152	8,230	-
Loan capital	1,168	-	333	835		-	-	-
Other financial liabilities	1,040	14	3	1		-	88	934
Total financial liabilities	120,911	65,836	12,275	10,025		2,793	9,614	20,368
Hedging instruments	-	3,023	3,865	(10,360)		2,169	1,303	-
Interest sensitivity gap	5,533	13,347	(4,582)	(9,466)		10,739	2,984	(7,489)

Australia and New Zealand Banking Group Limited - New Zealand Branch

49

Notes to the Financial Statements

	NZ Branch
30/09/2013 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
Due from other financial institutions 141 141 - - - - -
Derivative financial instruments 12 - - - - - 12
Net loans and advances 9,256 5,229 830 1,584 1,305 321 (13)
Due from related entities 314 - - - - - 314
Other financial assets 1 - - - - - 1
Total financial assets 9,724 5,370 830 1,584 1,305 321 314
Liabilities
Due to other financial institutions 8,372 8,372 - - - - -
Derivative financial instruments 1,021 - - - - - 1,021
Other financial liabilities 40 - - - - - 40
Total financial liabilities 9,433 8,372 - - - - 1,061
Hedging instruments - 3,811 (573) (1,656) (1,261) (321) -
Interest sensitivity gap 291 809 257 (72) 44 - (747)
30/09/2012
Assets
Due from other financial institutions 38 38 - - - - -
Derivative financial instruments 52 - - - - - 52
Net loans and advances 9,396 6,285 507 1,029 1,275 316 (16)
Due from subsidiaries 304 - - - - - 304
Total financial assets 9,790 6,323 507 1,029 1,275 316 340
Liabilities
Due to other financial institutions 9,273 9,273 - - - - -
Derivative financial instruments 222 - - - - - 222
Other financial liabilities 55 - - - - - 55
Total financial liabilities 9,550 9,273 - - - - 277
Hedging instruments - 1,713 999 (1,183) (1,219) (310) -
Interest sensitivity gap 240 (1,237) 1,506 (154) 56 6 63

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 2013 was $2 million (30/09/2012 $3 million). A 10 per cent reduction in the value of the available-for-sale equity securities would not be material.

Australia and New Zealand Banking Group Limited - New Zealand Branch

50

Notes to the Financial Statements

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.

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Net open position
Australian dollar		32	1	-		-
Euro		1	1	-		-
Japanese yen		(1)	1	-		-
Pound sterling		-	1	-		-
US dollar		(1)	1	-		-
Other		1	1	-		-
Total net open position		32	6	-		-

Australia and New Zealand Banking Group Limited - New Zealand Branch

51

Notes to the Financial Statements

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-to-day operations.

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

Management of liquidity and funding risks are overseen by ALCO.

Supervision and Regulation

The RBNZ requires the Bank to have a comprehensive Board approved liquidity strategy defining: policy, systems and procedures for measuring, assessing, reporting and managing domestic and foreign currency liquidity. This also includes a formal contingency plan for dealing with a liquidity crisis. The Banking Group is required to meet one week and one month liquidity mismatch ratios and a one year core funding ratio each day.

Scenario Modelling

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

“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 namespecific 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 namespecific 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 2013 ANZ New Zealand was in compliance with all of the above scenarios.

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 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

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 approved by the Bank’s Board. The plan is supplemented by monthly updates and is linked to ANZ New Zealand’s three year strategic planning cycle.

“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’s 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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

52

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	NZ Branch
$ millions		30/09/2013	30/09/2012	30/09/2013		30/09/2012
Funding composition
Customer deposits1
New Zealand		62,309	58,383	-		-
Overseas		8,258	7,668	-		-
Total customer deposits		70,567	66,051	-		-
Wholesale funding
Bonds and notes		16,407	18,188	-		-
Loan capital		1,442	1,168	-		-
Certificates of deposit		2,364	2,156	-		-
Commercial paper		4,765	5,445	-		-
Due to Immediate Parent Company		1,766	1,766	-		-
Due to other financial institutions		9,871	11,012	8,372		9,273
Total wholesale funding		36,615	39,735	8,372		9,273
Total funding		107,182	105,786	8,372		9,273
Concentrations of funding by industry
Households		44,972	42,761	-		-
Agriculture		2,439	2,259	-		-
Forestry, fishing and mining		617	488	-		-
Manufacturing		1,413	1,595	-		-
Entertainment, leisure and tourism		601	585	-		-
Finance and insurance		46,208	48,456	8,372		9,273
Retail trade		955	718	-		-
Wholesale trade		1,085	975	-		-
Business and property services		3,785	3,616	-		-
Transport and storage		637	672	-		-
Construction		882	753	-		-
Government and local authority		2,168	1,754	-		-
Other2		1,420	1,154	-		-
Total funding		107,182	105,786	8,372		9,273
Concentrations of funding by geography3
New Zealand		68,399	64,175	-		-
Australia		12,542	13,268	8,287		9,189
United States		10,122	13,231	-		-
Europe		9,918	9,291	-		-
Other countries		6,201	5,821	85		84
Total funding		107,182	105,786	8,372		9,273

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 ANZ New Zealand classifies funding via ANZ New Zealand (Int’l) as either from the United States or Europe based on the respective programmes.

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

53

Notes to the Financial Statements

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 internal and regulatory liquidity scenario metrics.

Total liquidity portfolio	ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions	30/09/2013	30/09/2012	30/09/2013		30/09/2012
Balances with central banks	1,709	1,973	-		-
Securities purchased under agreement to resell	41	105	-		-
Certificates of deposit	159	100	-		-
Government, local body stock and bonds	5,522	8,220	-		-
Government treasury bills	387	17	-		-
Other bonds	5,069	3,768	-		-
Total liquidity portfolio	12,887	14,183	-		-

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 would be accepted as collateral by the RBNZ in repurchase transactions. At 30 September 2013 ANZ New Zealand would be eligible to enter into repurchase transactions with a value of $10,759 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 $4,200 million at 30 September 2013 (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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

54

Notes to the Financial Statements

Contractual maturity analysis of financial assets and liabilities

The following tables 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, except for derivatives held for trading where the full mart-to-market amount has been included in the less than three months category. As a result, the amounts in the tables below 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 this basis.

ANZ New Zealand	ANZ New Zealand	ANZ New Zealand	ANZ New Zealand	ANZ New Zealand
$ millions Less than 3 to 12 Beyond No maturity
30/09/2013 Total At call 3 months months 1 to 5 years 5 years specified
Financial assets
Liquid assets 2,497 2,442 55 - - - -
Due from other financial institutions 1,712 155 1,557 - - - -
Trading securities 11,528 - 412 1,617 8,429 1,070 -
Derivative financial assets (trading) 8,536 - 8,536 - - - -
Available-for-sale assets 824 - 137 271 324 90 2
Net loans and advances 138,415 - 15,743 18,385 41,940 62,347 -
Other financial assets 457 - 388 66 3 - -
Total financial assets 163,969 2,597 26,828 20,339 50,696 63,507 2
Financial liabilities
Due to other financial institutions 10,516 853 1,641 1,533 6,485 4 -
Deposits and other borrowings 79,012 34,819 21,516 19,825 2,846 6 -
Derivative financial liabilities
(trading)	9,526 - 9,526 - - - -
Bonds and notes 17,359 - 2,531 1,979 11,359 1,490 -
Term funding 1,817 - 16 1,801 - - -
Loan capital 1,885 - 15 48 317 63 1,442
Other financial liabilities 565 - 384 4 32 145 -
Total financial liabilities 120,680 35,672 35,629 25,190 21,039 1,708 1,442
Net financial assets / (liabilities) 43,289 (33,075) (8,801) (4,851) 29,657 61,799 (1,440)
Derivative financial instruments used for balance sheet management
- gross inflows 23,054 - 2,356 4,459 14,975 1,264 -
- gross outflows (23,409) - (2,379) (4,458) (15,323) (1,249) -
Net financial assets / (liabilities)
after balance sheet management	42,934 (33,075) (8,824) (4,850) 29,309 61,814 (1,440)
Contractual maturity of off-balance sheet commitments and contingent liabilities
ANZ New Zealand
$ millions Less than Beyond
30/09/2013 Total 1 year 1 year
Non-credit related commitments 429 97 332
Credit related commitments 25,067 25,067 -
Contingent liabilities 2,201 2,201 -
Total 27,697 27,365 332

Contractual maturity of off-balance sheet commitments and contingent liabilities	Contractual maturity of off-balance sheet commitments and contingent liabilities	Contractual maturity of off-balance sheet commitments and contingent liabilities	Contractual maturity of off-balance sheet commitments and contingent liabilities	Contractual maturity of off-balance sheet commitments and contingent liabilities
	ANZ New Zealand
$ millions		Less than	Beyond
30/09/2013	Total	1 year	1 year
Non-credit related commitments	429	97	332
Credit related commitments	25,067	25,067	-
Contingent liabilities	2,201	2,201	-
Total	27,697	27,365	332

Australia and New Zealand Banking Group Limited - New Zealand Branch

55

Notes to the Financial Statements

	ANZ New Zealand
$ millions Less than 3 to 12 Beyond No maturity
30/09/2012 Total At call 3 months months 1 to 5 years 5 years specified
Financial assets
Liquid assets 2,834 2,506 328 - - - -
Due from other financial institutions 1,761 177 1,584 - - - -
Trading securities 13,353 - 152 3,667 6,969 2,565 -
Derivative financial assets (trading) 11,304 - 11,304 - - - -
Available-for-sale assets 65 - 1 13 48 - 3
Net loans and advances 133,338 - 15,180 17,852 39,774 60,532 -
Other financial assets 298 - 220 76 2 - -
Total financial assets 162,953 2,683 28,769 21,608 46,793 63,097 3
Financial liabilities
Due to other financial institutions 11,976 932 1,296 2,101 7,458 189 -
Deposits and other borrowings 74,977 30,272 22,682 18,840 3,183 - -
Due to Immediate Parent Company 1,840 - 18 1,822 - - -
Derivative financial liabilities
(trading)	13,104 - 13,104 - - - -
Bonds and notes 19,403 - 1,648 2,908 12,687 2,160 -
Loan capital 1,829 - 24 71 472 94 1,168
Other financial liabilities 497 - 374 10 65 48 -
Total financial liabilities 123,626 31,204 39,146 25,752 23,865 2,491 1,168
Net financial assets / (liabilities) 39,327 (28,521) (10,377) (4,144) 22,928 60,606 (1,165)
Derivative financial instruments used for balance sheet management
- gross inflows 26,499 - 2,037 5,665 17,182 1,615 -
- gross outflows (25,671) - (1,929) (5,364) (16,773) (1,605) -
Net financial assets / (liabilities)
after balance sheet management	40,155 (28,521) (10,269) (3,843) 23,337 60,616 (1,165)

Contractual maturity of off-balance sheet commitments and contingent liabilities

	ANZ New Zealand
$ millions	Less than Beyond
30/09/2012	Total 1 year 1 year
	355 124 231
Non-credit related commitments
	25,293 25,293 -
Credit related commitments
	1,805 1,805 -
Contingent liabilities
	27,453 27,222 231
Total

Australia and New Zealand Banking Group Limited - New Zealand Branch

56

Notes to the Financial Statements

	NZ Branch
$ millions Less than 3 to 12 Beyond No maturity
30/09/2013 Total At call 3 months months 1 to 5 years 5 years specified
Financial assets
Due from other financial institutions 141 - 141 - - - -
Net loans and advances 15,282 - 220 701 3,670 10,691 -
Due from related entities 314 - 314 - - - -
Other financial assets 1 - 1 - - - -
Total financial assets 15,738 - 676 701 3,670 10,691 -
Financial liabilities
Due to other financial institutions 9,004 - 999 1,531 6,474 - -
Other financial liabilities 40 - 40 - - - -
Total financial liabilities 9,044 - 1,039 1,531 6,474 - -
Net financial assets / (liabilities) 6,694 - (363) (830) (2,804) 10,691 -
Derivative financial instruments used for balance sheet management
- gross inflows 9,062 - 1,174 1,520 6,368 - -
- gross outflows (10,091) - (1,282) (1,691) (7,118) - -
Net financial assets / (liabilities)
after balance sheet management	5,665 - (471) (1,001) (3,554) 10,691 -

Contractual maturity of off-balance sheet commitments and contingent liabilities
Bank
$ millions Less than Beyond
30/09/2013 Total 1 year 1 year
Credit related commitments 54 54 -
Total 54 54 -

	NZ Branch
$ millions Less than 3 to 12 Beyond No maturity
30/09/2012 Total At call 3 months months 1 to 5 years 5 years specified
Financial assets
Due from other financial institutions 38 - 38 - - - -
Net loans and advances 16,021 - 361 667 3,517 11,476 -
Due from related entities 304 - 304 - - - -
Total financial assets 16,363 - 703 667 3,517 11,476 -
Financial liabilities
Due to other financial institutions 10,205 - 688 2,096 7,421 - -
Other financial liabilities 55 - 55 - - - -
Total financial liabilities 10,260 - 743 2,096 7,421 - -
Net financial assets / (liabilities) 6,103 - (40) (1,429) (3,904) 11,476 -
Derivative financial instruments used for balance sheet management
- gross inflows 9,944 - 831 1,989 7,124 - -
- gross outflows (9,916) - (824) (1,951) (7,141) - -
Net financial assets / (liabilities)
after balance sheet management	6,131 - (33) (1,391) (3,921) 11,476 -

Contractual maturity of off-balance sheet commitments and contingent liabilities

		NZ Branch
$ millions		Less than	Beyond
30/09/2012	Total	1 year	1 year
Credit related commitments	103	103	-
Total	103	103	-

Australia and New Zealand Banking Group Limited - New Zealand Branch

57

Notes to the Financial Statements

30. Financial Assets Pledged as Collateral

	ANZ New Zealand NZ Branch
$ millions Note 30/09/2013 30/09/2012 30/09/2013 30/09/2012
Cash collateral given on derivative financial instruments 9 1,002 1,256 - -
Trading securities encumbered through repurchase agreements 108 252 - -
Residential mortgages pledged as security for covered bonds 23, 36 5,857 4,977 - -
Total tangible assets of UDC Finance Limited pledged as
collateral for secured stock	20 2,162 2,103 - -
Total financial assets pledged as collateral 9,129 8,588 - -

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.

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 ended 30 September 2013 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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

58

Notes to the Financial Statements

32. Fair Value of Financial Assets and Financial Liabilities

			ANZ New Zealand	ANZ New Zealand
	At amortised	At fair value through profit or			Available-for-
$ millions	cost	loss		Hedging sale assets		Total	Fair value
		Designated on
		initial	Held for
Carrying amount		recognition	trading
30/09/2013
Liquid assets	2,496	- - - -				2,496	2,496
Due from other financial institutions 1,551		- - - 160				1,711	1,711
Trading securities -		- 10,320 - -				10,320	10,320
Derivative financial instruments1 -		- 9,230 278 -				9,508	9,508
Available-for-sale assets -		- - - 782				782	782
Net loans and advances2 99,765		- - - -				99,765	99,861
Other financial assets 648		172 - - -				820	820
Total financial assets 104,460		172 19,550 278 942				125,402	125,498
Due to other financial institutions 9,868		- 3 - -				9,871	9,999
Deposits and other borrowings 72,931		4,765 - - -				77,696	77,753
Due to Immediate Parent Company 1,766		- - - -				1,766	1,766
Derivative financial instruments1 -		- 11,033 175 -				11,208	11,208
Bonds and notes2 16,407		- - - -				16,407	16,627
Loan capital 1,442		- - - -				1,442	1,342
Other financial liabilities 1,093		- 139 - -				1,232	1,232
Total financial liabilities 103,507		4,765 11,175 175 -				119,622	119,927
30/09/2012
Liquid assets 2,831		- - - -				2,831	2,831
Due from other financial institutions 1,660		- - - 100				1,760	1,760
Trading securities -		- 12,338 - -				12,338	12,338
Derivative financial instruments1 -		- 12,173 536 -				12,709	12,709
Available-for-sale assets -		- - - 57				57	57
Net loans and advances2 96,094		- - - -				96,094	96,279
Other financial assets 513		142 - - -				655	655
Total financial assets 101,098		142 24,511 536 157				126,444	126,629
Due to other financial institutions 10,957		- 55 - -				11,012	11,184
Deposits and other borrowings 68,207		5,445 - - -				73,652	73,744
Due to Immediate Parent Company 1,766		- - - -				1,766	1,766
Derivative financial instruments1 -		- 13,819 266 -				14,085	14,085
Bonds and notes2 18,188		- - - -				18,188	18,447
Loan capital 1,168		- - - -				1,168	1,030
Other financial liabilities 933		- 107 - -				1,040	1,040
Total financial liabilities 101,219		5,445 13,981 266 -				120,911	121,296

Australia and New Zealand Banking Group Limited - New Zealand Branch

59

Notes to the Financial Statements

			NZ Branch	NZ Branch
	At amortised	At fair value through profit or				Available-for-
$ millions	cost	loss			Hedging	sale assets	Total	Fair Value
		Designated on
		initial	Held for
Carrying amount		recognition	trading
30/09/2013
Due from other financial institutions	141	-	-		-	-	141	141
Derivative financial instruments1	-	-	8		4	-	12	12
Net loans and advances2	9,256	-	-		-	-	9,256	9,273
Due from the Bank	314	-	-		-	-	314	314
Other financial assets	1	-	-		-	-	1	1
Total financial assets	9,712	-	8		4	-	9,724	9,741
Due to other financial institutions	8,372	-	-		-	-	8,372	8,500
Derivative financial instruments1	-	-	998		23	-	1,021	1,021
Other financial liabilities	40	-	-		-	-	40	40
Total financial liabilities	8,412	-	998		23	-	9,433	9,561
30/09/2012
Due from other financial institutions	38	-	-		-	-	38	38
Derivative financial instruments1	-	-	52		-	-	52	52
Net loans and advances2	9,396	-	-		-	-	9,396	9,408
Due from the Bank	304	-	-		-	-	304	304
Total financial assets	9,738	-	52		-	-	9,790	9,802
Due to other financial institutions	9,273	-	-		-	-	9,273	9,445
Derivative financial instruments1	-	-	187		35	-	222	222
Other financial liabilities	55	-	-		-	-	55	55
Total financial liabilities	9,328	-	187		35	-	9,550	9,722

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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

60

Notes to the Financial Statements

Estimation of fair value

Liquid assets, due from / to other financial institutions and balances with related parties

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

Net loans and advances

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.

Bonds and notes 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.

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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

61

Notes to the Financial Statements

Notes to the Financial Statements	Notes to the Financial Statements
Valuation hierarchy ANZ New Zealand NZ Branch
$millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
30/09/2013
Due from other financial institutions 160 - - 160 - - - -
Trading securities 10,208 112 - 10,320 - - - -
Derivative financial instruments 2 9,506 - 9,508 - 12 - 12
Available-for-sale assets 780 - 2 782 - - - -
Other financial assets 140 32 - 172 - - - -
Total financial assets held at fair
value	11,290 9,650 2 20,942 - 12 - 12
Due to other financial institutions 3 - - 3 - - - -
Deposits and other borrowings - 4,765 - 4,765 - - - -
Derivative financial instruments 6 11,202 - 11,208 - 1,021 - 1,021
Other financial liabilities 139 - - 139 - - - -
Total financial liabilities held at fair
value	148 15,967 - 16,115 - 1,021 - 1,021
30/09/2012
Due from other financial institutions1 100 - - 100 - - - -
Trading securities1 12,228 110 - 12,338 - - - -
Derivative financial instruments 2 12,707 - 12,709 - 52 - 52
Available-for-sale assets 13 42 2 57 - - - -
Other financial assets1 83 58 1 142 - - - -
Total financial assets held at fair
value	12,426 12,917 3 25,346 - 52 - 52
Due to other financial institutions 55 - - 55 - - - -
Deposits and other borrowings - 5,445 - 5,445 - - - -
Derivative financial instruments 4 14,081 - 14,085 - 222 - 222
Other financial liabilities 107 - - 107 - - - -
Total financial liabilities held at fair
value	166 19,526 - 19,692 - 222 - 222

1 Due from other financial institutions of $100 million, Trading securities of $4,629 million and Other financial assets of $80 million have been reclassified from Level 2 to Level 1 because they were valued using quoted market prices.

Movements in level 3 valuations

Movements in level 3 valuations
	ANZ New Zealand NZ Branch
$ millions 30/09/2013 30/09/2012 30/09/2013 30/09/2012
Opening balance 3 6 - -
Revaluations - (3) - -
Sales (1) - - -
Closing balance 2 3 - -

Australia and New Zealand Banking Group Limited - New Zealand Branch

62

Notes to the Financial Statements

33. Notes to the Cash Flow Statements

	ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions	Year to Year to		Year to Year to
	30/09/2013 30/09/2012 30/09/2013 30/09/2012
Reconciliation of profit after income tax to net cash flows
provided by / (used in) operating activities
Profit after income tax	1,372 1,265 50 50
Non-cash items:
Depreciation and amortisation	98 89 - -
Provision for credit impairment	66 202 3 9
Deferred fee revenue and expenses	4 14 - -
Amortisation of capitalised brokerage / mortgage origination fees	51 32 8 7
Amortisation of premiums and discounts	186 235 - -
Fair value gains and losses	(108) (178) 12 20
Loss on disposal and impairment of premises and equipment and
intangibles	6 13 - -
Deferrals or accruals of past or future operating cash receipts or
payments:
Change in net operating assets less liabilities	1,141 (2,556) 45 (31)
Change in interest receivable	(12) (13) (1) -
Change in interest payable	(102) (63) (15) (16)
Change in accrued income	- (3) - -
Change in accrued expenses	(5) 4 - -
Change in provisions	(110) 20 - -
Change in insurance policy assets	2 (101) - -
Change in other receivables and payables	(33) (9) - -
Change in net income tax assets / liabilities	109 11 1 (1)
Items classified as investing / financing:
Gain on disposal of associates	- (4) - -
Gain on disposal of subsidiaries (excluding disposal costs)	(31) - - -
Net cash flows provided by / (used in) operating activities	2,634 (1,042) 103 38
	ANZ New Zealand NZ Branch
$ millions	30/09/2013 30/09/2012 30/09/2013 30/09/2012
Reconciliation of cash and cash equivalents to the balance sheet
Liquid assets 2,496 2,831 - -
Due from other financial institutions - less than 90 days 506 462 141 38
Total cash and cash equivalents 3,002 3,293 141 38

34. Commitments

	ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
$ millions	30/09/2013	30/09/2012	30/09/2013		30/09/2012
Contracts for outstanding capital expenditure
Not later than 1 year	24	43	-		-
Total capital expenditure commitments	24	43	-		-
Future minimum lease payments under non-cancellable operating leases
Not later than 1 year	73	81	-		-
Later than 1 year but not later than 5 years	167	139	-		-
Later than 5 years	165	92	-		-
Total lease rental commitments	405	312	-		-
Total commitments	429	355	-		-

Australia and New Zealand Banking Group Limited - New Zealand Branch

63

Notes to the Financial Statements

35. Credit Related Commitments, Guarantees and Contingent Liabilities

		ANZ New Zealand	ANZ New Zealand	NZ Branch	NZ Branch
		Face or contract value		Face or contract value
$ millions		30/09/2013	30/09/2012	30/09/2013	30/09/2012
Credit related commitments
Commitments with certain drawdown due within one year		817	742	-	-
Commitments to provide financial services		24,250	24,551	54	103
Total credit related commitments		25,067	25,293	54	103
Guarantees and contingent liabilities
Financial guarantees		997	731	-	-
Standby letters of credit		32	44	-	-
Transaction related contingent items		1,059	913	-	-
Trade related contingent liabilities		113	117	-	-
Total guarantees and contingent liabilities		2,201	1,805	-	-

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

In October 2012, the Commerce Commission commenced an investigation, under the Fair Trading Act 1986, into the promotion and sale of interest rate swaps by certain banks (including the Bank) to rural customers. The investigation is ongoing and the possible outcome of the investigation cannot be determined with any certainty at this stage.

On 11 March 2013, litigation funder Litigation Lending Services (NZ) Limited announced plans for a representative action against banks in New Zealand for certain fees charged to New Zealand customers over the past six years. Proceedings were filed against the Bank on 25 June 2013. The potential outcome of this litigation cannot be determined with any certainty at this stage.

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

Securitisation

Kingfisher NZ Trust 2008-1 (“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.

These assets do not qualify for derecognition as the Bank retains substantially all of the risks and rewards of the transferred assets.

As at 30 September 2013 and 30 September 2012 ANZ New Zealand had not entered into any repurchase agreements with the RBNZ for residential mortgage backed securities and therefore no collateral had been accepted by the RBNZ under this facility.

ANZNZ Covered Bond Trust (“the Covered Bond Trust”)

Substantially all of the assets of the Covered Bond Trust are made up of certain housing loans and related securities originated by the Bank which are security for the guarantee by ANZNZ Covered Bond Trust Limited as trustee of the Covered Bond Trust of issuances of covered bonds by the Bank, or its wholly owned subsidiary ANZ New Zealand (Int’l) Limited, from time to time. The assets of the Covered Bond Trust are not available to creditors of the Bank, although the Bank (or its liquidator or statutory manager) may have a claim against the residual assets of the Covered Bond Trust (if any) after all prior ranking creditors of the Covered Bond Trust have been satisfied.

ANZ New Zealand continues to recognise the assets of the Covered Bond Trust on its balance sheet as, although they are pledged as security for covered bonds, the Bank retains substantially all the risks and rewards of ownership.

Assets transferred to the Kingfisher Trust and the Covered Bond Trust

The Bank has purchased securities issued by both the Kingfisher Trust and the Covered Bond Trust in exchange for the transfer of the rights to the cash flows associated with the identified residential mortgages. As at 30 September 2013, $11,689 million of assets were held in the Kingfisher Trust and the Covered Bond Trust (30/09/2012 $10,079 million).

Australia and New Zealand Banking Group Limited - New Zealand Branch

64

Notes to the Financial Statements

Funds management and other fiduciary activities

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 2013, $3,054 million of funds under management were invested in ANZ New Zealand's own products or securities (30/09/2012 $3,114 million).

Custodial services

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

customers.
Funds managed and held in custody by ANZ New Zealand	ANZ New Zealand
$ millions	30/09/2013	30/09/2012
Funds managed by ANZ New Zealand Investments Limited (formerly OnePath (NZ) Limited)	8,242	7,324
The Bonus Bonds Trust	3,259	3,188
Other discretionary funds	5,451	5,173
Total funds under management	16,952	15,685
Funds held in custody on behalf of customers	6,365	5,784

Insurance business

ANZ New Zealand conducts an insurance business through its subsidiaries OnePath Life (NZ) Limited and its subsidiary OnePath Insurance Services (NZ) Limited (together “OnePath Insurance”), the assets, liabilities and operations of which are fully consolidated into ANZ New Zealand. OnePath Insurance provides a range of risk transfer insurance products, including life, lump sum trauma/disablement, income protection and medical cover. 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 $779 million (30/09/2012: $766 million), which is 0.6% (30/09/2012: 0.6%) 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.

Australia and New Zealand Banking Group Limited - New Zealand Branch

65

Notes to the Financial Statements

37. Additional Disclosures

Overseas Banking Group profitability and size	Overseas Banking Group profitability and size
AUD millions 30/09/2013
Net profit after tax for the year1 6,282
Net profit after tax for the year as a percentage of average total assets 0.93%
Total assets 702,991
Percentage change in total assets over the preceding year 9.5%

1 Net profit after tax for the year includes $10m of profit attributable to non-controlling interests.

Overseas Banking Group asset quality	Overseas Banking Group asset quality
AUD millions 30/09/2013
Gross impaired assets 4,264
Gross impaired assets as a percentage of total assets 0.61%
Total individually assessed provisions for impairment 1,467
Individually assessed provisions for impairment as a percentage of gross impaired assets 34.4%
Collective provision for credit impairment 2,887

Australia and New Zealand Banking Group Limited - New Zealand Branch

66

Directorate and Auditors

Any document or communication may be sent to any Director or the Chief Executive Officer – NZ Branch at the Registered Office. 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 27 November 2013

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: CapitaLand Limited, Tenix Group Pty Limited and Gifford Communications Pty Limited.

Chief Executive Officer – Australia and New Zealand Banking Group Limited

Michael Roger Pearson Smith, OBE

BSc (Hons) (City Lond), Hon LLD (Monash) Chief Executive Officer and Executive Director Melbourne, Australia

External Directorships

Chairman: Australian Bankers’ Association Incorporated Executive Chairman: Chongqing Mayor's International Economic Advisory Council

Director: the Financial Markets Foundation for Children, Financial Literacy Australia Limited, the International Monetary Conference and the Institute of International Finance.

Member: Asia Business Council, Australian Government 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

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 and CUDOS Advisory Board.

Member: The Royal Institution of Australia and Council of the University of Sydney Physics Foundation.

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Directorate and Auditors

Paula Jane Dwyer

BCom, FCA, SF Fin, FAICD Company Director Melbourne, Australia

Ms Dwyer is a member of the Audit Committee, Risk Committee and Human Resources Committee.

External Directorships

Chairman: Tabcorp Holdings Limited Deputy Chairman: Leighton Holdings Limited Director: Lion Pty Ltd Member: Australian Government Takeovers Panel, Kirin International Advisory Board, and ASIC External Advisory Panel.

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

Director: Alumina Limited, Landcare Australia Limited, GUD Holdings Limited, Myer Holdings Limited, Australian Institute of Company Directors, and Newcrest Mining Limited. Member: Australian Government Takeovers Panel

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 and the 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

Chairman: Manningham Centre Association Board of Governance Director: Coca Cola Amatil Limited and Mirrabooka Investments Limited.

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: Civil Aviation Authority of Singapore, The Islamic Bank of Asia Limited, and General Atlantic Singapore Fund Pte Ltd.

Director: Singapore Exchange Limited, Caldecott Inc., and Kwa Geok Choo Pte Ltd.

Member: Governing Board of Lee Kuan Yew School of Public Policy and Rolls Royce International Advisory Council.

Alison Mary Watkins

BCom, FCA, SF Fin, FAICD Chief Executive Officer and Managing Director – 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

Chairman: Allied Mills Australia Pty Limited Director: The Centre for Independent Studies Chief Executive Officer and Managing Director:

GrainCorp Limited Member: Australian Government Takeovers Panel

Special Advisor: General Atlantic Consultant: Capital International Inc Advisory Board President: INSEAD South East Asia Council

Graeme Richard Liebelt

BEc (Hons), FAICD, FTSE, FAIM Company Director Melbourne, Australia

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

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

Anthony John Bradshaw

BCA, CA Chief Executive Officer– NZ Branch Wellington, New Zealand

External Directorships

Deputy Chairman: The Global Foundation and Melbourne Business School.

Director: Amcor Limited, The Australian Foundation Investment Company Limited, and Carey Baptist Grammar School.

Auditors

KPMG

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

68

Conditions of Registration

Conditions of Registration, applicable as at 30 September 2013. These Conditions of Registration have applied from 1 January 2013.

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 nonfinancial 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:

• 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

• 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.

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 noninsurance component, the whole of such products or assets must be considered part of the insurance business.

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

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

• a) Common Equity Tier 1 capital of the Australia and New Zealand Banking Group Limited is not less than 4.5 percent of risk weighted exposures;

• b) Tier 1 capital of the Australia and New Zealand Banking Group Limited is not less than 6 percent of risk weighted exposures;

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

• That the business of the registered bank in New Zealand is restricted to:

• a) acquiring for fair value, and holding, mortgages originated by ANZ Bank New Zealand Limited; and

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

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

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

• 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

• b) to other branches or the head office of the registered bank; and

• c) to trade creditors and staff; and

• d) to ANZ Bank New Zealand 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

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

In these conditions of registration:

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.

1. That the business of the registered bank in New Zealand does not constitute a predominant proportion of the business of the registered bank.

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

“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.

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

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

69

Directors’ and New Zealand Chief Executive Officer’s Statement

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

• i. The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order (No 2) 2013;

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

Over the year ended 30 September 2013, after due enquiry, each Director of the Ultimate Parent Bank and the Chief Executive Officer – NZ Branch believes that:

• i. the Ultimate Parent Bank has complied with all the conditions of registration;

• ii. The NZ Branch and ANZ Bank New Zealand Limited had systems in place to monitor and control adequately the material risks of Relevant Members of ANZ New Zealand 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 27 November 2013, and has been signed by the Chairman of the Ultimate Parent Bank, on behalf of all Directors, and by the Chief Executive Officer – NZ Branch.

==> picture [114 x 49] intentionally omitted <==

John Morschel Chairman On behalf of the Directors:

Anthony Bradshaw

Chief Executive Officer – NZ Branch

Dr Gregory Clark Paula Dwyer Peter Hay Lee Hsien Yang Graeme Liebelt Ian Macfarlane, AC David Meiklejohn, AM Michael Smith, OBE Alison Watkins

Australia and New Zealand Banking Group Limited - New Zealand Branch

70

==> picture [77 x 31] intentionally omitted <==

Independent Auditor’s Report

To the Directors of Australia and New Zealand Banking Group Limited

Report on the NZ Branch and ANZ New Zealand Disclosure Statement

We have audited the accompanying financial statements and supplementary information of Australia and New Zealand Banking Group Limited – New Zealand Branch (the “NZ Branch”) and its related entities (“ANZ New Zealand”) on pages 5 to 65 of the Disclosure Statement. The financial statements comprise the balance sheets as at 30 September 2013, the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information of the 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 2) 2013 (the “Order”).

Directors' Responsibility for the Disclosure Statement

The Directors are responsible for the preparation of the NZ Branch and ANZ New Zealand Disclosure Statement, including financial statements prepared in accordance with Clause 25 of the Order and generally accepted accounting practice in New Zealand, and that give 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 NZ Branch and ANZ New Zealand financial statements that are 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 financial statements prepared in accordance with Clause 25 of the Order and the supplementary information disclosed in accordance with Schedules 4, 7, 10, 11 and 13 of the Order. We conducted our audit in accordance with International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the NZ Branch and ANZ New Zealand financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the NZ Branch and ANZ New Zealand financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the NZ Branch and ANZ New Zealand’s preparation of the financial statements 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 financial statements.

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

Our firm has provided other services to the 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 within the ordinary course of the business of the NZ Branch and ANZ New Zealand. There are, however, certain restrictions on dealings which the partners and employees of our firm can have with the NZ Branch and 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 on the Disclosure Statement

In our opinion the Disclosure Statement of (“the NZ Branch”) and its related entities (“ANZ New Zealand”) on pages 5 to 65 (excluding the supplemental information):

• 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 2013 and of their financial performance and cash flows for the year ended on that date.

Australia and New Zealand Banking Group Limited - New Zealand Branch

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Opinion on Supplementary Information

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 14,15, 28, 29, 31, 36 and 37 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

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

Report on 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 28 of the Disclosure Statement for the year ended 30 September 2013.

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.

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. Those standards require that we comply with ethical requirements and plan and perform the review to obtain limited assurance about whether the supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy is, in all material respects:

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

• disclosed in accordance with Schedule 9 of the Order.

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 on Supplementary Information relating to Credit and Market Risk Exposures and Capital Adequacy

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 prescribed by Schedule 9 of the Order, and disclosed in note 28 of the Disclosure Statement, is not, in all material respects:

• prepared in accordance with the Capital Adequacy Framework (Standardised Approach) (BS2A); and

• disclosed in accordance with Schedule 9 of the Order.

Report on Other Legal and Regulatory Requirements

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

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

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Wellington

27 November 2013

Australia and New Zealand Banking Group Limited - New Zealand Branch

Index

Index
Contents and Glossary of Terms	1
General Disclosures	1
Summary of Financial Statements	4
Income Statement	5
Statement of Comprehensive Income	5
Statement of Changes in Equity	6
Balance Sheet	7
Cash Flow Statement	8
1. Significant Accounting Policies	9
2. Critical Estimates and Judgement Used in Applying Accounting Policies	15
3. Risk Management Policies	16
4. Income	18
5. Expenses	19
6. Income Tax	20
7. Segmental Analysis	21
8. Liquid Assets	23
9. Due from Other Financial Institutions	23
10. Trading Securities	23
11. Derivative Financial Instruments	24
12. Available-for-sale Assets	26
13. Net Loans and Advances	26
14. Provision for Credit Impairment	27
15. Impaired Assets	28
16. Subsidiaries and Associates	29
17. Other Assets	30
18. Goodwill and Other Intangible Assets	30
19. Due to Other Financial Institutions	30
20. Deposits and Other Borrowings	30
21. Payables and Other Liabilities	31
22. Provisions	31
23. Bonds and Notes	31
24. Loan Capital	32
25. Related Party Transactions	33
26. Current and Non-current Assets and Liabilities	35
27. Share Capital	36
28. Capital Adequacy	37
29. Financial Risk Management	39
30. Financial Assets Pledged as Collateral	57
31. Concentrations of Credit Risk to Individual Counterparties	57
32. Fair Value of Financial Assets and Financial Liabilities	58
33. Notes to the Cash Flow Statements	62
34. Commitments	62
35. Credit Related Commitments and Contingent Liabilities	63
36. Securitisation, Funds Management, Other Fiduciary Activities and Insurance	63
37. Additional Disclosures	65
Directorate and Auditors	66
Conditions of Registration	68
Directors’ Statement	69
Independent Auditor’s Report	70
Index	72