Australia and New Zealand Banking Group Ltd. — Annual Report 2015

Dec 14, 2015

Australia and New Zealand Banking Group Limited - ANZ New Zealand Registered Bank Disclosure Statement

FOR THE YEAR ENDED 30 SEPTEMBER 2015 | NUMBER 28 ISSUED DECEMBER 2015

Australia and New Zealand Banking Group Limited - ANZ New Zealand

Registered Bank Disclosure Statement

For the year ended 30 September 2015

Contents

Glossary of Terms	2	Non-financial Assets
		23. Other Assets	47
Consolidated Financial Statements		24. Goodwill and Other Intangible Assets	47
Income Statement	3
Statement of Comprehensive Income	3	Non-financial Liabilities
Balance Sheet	4	25. Payables and Other Liabilities	47
Cash Flow Statement	5	26. Provisions	47
Statement of Changes in Equity	6
		Equity
Notes to the Financial Statements		27. Share Capital	48
Basis of Preparation		28. Capital Adequacy	49
1. Significant Accounting Policies	7
2. Critical Estimates and Judgements Used in	12	Consolidation and Presentation
Applying Accounting Policies		29. Subsidiaries	51
		30. Structured Entities, Transferred Financial Assets,	52
Financial Performance		Fiduciary Activities and Insurance
3. Income	14
4. Expenses	15	Other Disclosures
5. Income Tax	16	31. Related Party Transactions	54
6. Segment Analysis	17	32. Capital Expenditure and Operating Lease	55
7. Notes to the Cash Flow Statements	19	Commitments
		33. Compensation of Auditors	56
Financial Assets		34. Concentrations of Credit Risk to Individual	56
8. Cash	19	Counterparties
9. Trading Securities	20	35. Risk Management Framework	57
10. Derivative Financial Instruments	20	36. NZ Branch and Overseas Banking Group	58
11. Available-for-sale Assets	22	Information
12. Net Loans and Advances	22
13. Provision for Credit Impairment	23	Other Registered Bank Disclosures
		Historical Summary of Financial Statements	59
Financial Liabilities		General Disclosures	60
14. Deposits and Other Borrowings	24	Conditions of Registration	62
15. Debt Issuances	24	Directorate and Auditor	64
16. Subordinated Debt	25
		Directors’ and New Zealand Chief Executive Officer’s	66
Financial instrument disclosures		Statement
17. Financial Risk Management	27	Independent Auditor’s Report	67
18. Classification of Financial Instruments and Fair	41
Measurements
19. Maturity Analysis of Assets and Liabilities	43
20. Assets Charged as Security and Collateral	44
Accepted as Security for Assets
21. Offsetting	45
22. Credit Related Commitments, Guarantees and	46
Contingent Liabilities

Australia and New Zealand Banking Group Limited - ANZ New Zealand

Other Registered Bank Disclosures

Other disclosures as required by the Order are set out on pages 59 to 66, including, on page 61, recent developments in APRA's requirements related to non-equity and contingent funding provided by the Ultimate Parent Bank to ANZ New Zealand.

Glossary of Terms

In this Registered Bank Disclosure Statement (Disclosure Statement) unless the context otherwise requires:

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

• (b) Banking Group means the Bank and all its controlled entities;

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

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

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

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

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

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

(i) Registered Office is Level 10, 171 Featherston Street, Wellington, New Zealand, which is also ANZ New Zealand’s address for service;

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

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

• (l) the Order means the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order 2014; 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 - ANZ New Zealand

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Income Statement

		Year to	Year to
NZ$ millions	Note	30/09/2015	30/09/2014
Interest income	3	7,417	6,799
Interest expense	4	4,537	4,034
Net interest income		2,880	2,765
Net trading gains	3	262	210
Net funds management and insurance income	3	385	325
Other operating income	3	505	525
Share of associates' profit		5	3
Operating income		4,037	3,828
Operating expenses	4	1,513	1,490
Profit before credit impairment and income tax		2,524	2,338
Credit impairment charge / (release)	13	76	(9)
Profit before income tax		2,448	2,347
Income tax expense	5	677	636
Profit after income tax		1,771	1,711

Statement of Comprehensive Income

NZ$ millions Profit after income tax Items that will not be reclassified to profit or loss Actuarial gain / (loss) on defined benefit schemes Income tax credit / (expense) relating to items not reclassified Total items that will not be reclassified to profit or loss Items that may be reclassified subsequently to profit or loss Unrealised gains / (losses) recognised directly in equity Realised gains transferred to the income statement Income tax credit relating to items that may be reclassified Total items that may be reclassified subsequently to profit or loss Total comprehensive income for the year	Year to Year to 30/09/2015 30/09/2014 1,771 1,711 (33) 35 9 (10)
	(24) 25 12 (2) (16) (41) 1 12
	(3) (31)
	1,744 1,705

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 - ANZ New Zealand

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Balance Sheet

Balance Sheet
NZ$ millions	Not	e 30/09/2015 30/09/2014
Assets
Cash	8 2,435 2,248
Settlement balances receivable	309 855
Collateral paid	1,929 783
Trading securities	9 12,139 11,750
Investments backing insurance contract liabilities	151 190
Derivative financial instruments	10 17,587 11,421
Available-for-sale assets	11 1,428 772
Net loans and advances	12 114,376 105,485
Other assets	23 740 632
Life insurance contract assets	552 470
Investments in associates	4 88
Premises and equipment	388 380
Goodwill and other intangible assets	24 3,492 3,454
Total assets	155,530 138,528
Interest earning and discount bearing assets	132,869 121,539
Liabilities
Settlement balances payable	1,469 1,992
Collateral received	1,687 800
Deposits and other borrowings	14 99,736 94,527
Derivative financial instruments	10 17,769 10,961
Current tax liabilities	81 68
Deferred tax liabilities	5 124 59
Payables and other liabilities	25 1,527 1,352
Provisions	26 191 204
Debt issuances	15 19,403 17,042
Subordinated debt	16 2,683 1,442
Total liabilities (excluding head office account)	144,670 128,447
Net assets (excluding head office account)	10,860 10,081
Equity
Share capital and initial head office account	27 8,058 7,393
Reserves	(10) (7)
Retained earnings	2,812 2,695
Total equity & head office account	10,860 10,081
Interest and discount bearing liabilities	118,026 108,614

For and on behalf of the Board of Directors:

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David Gonski, AC Chairman Australia and New Zealand Banking Group Limited 15 December 2015

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Michael Smith, OBE Executive Director

Australia and New Zealand Banking Group Limited 15 December 2015

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 - ANZ New Zealand

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Cash Flow Statement

		Year to	Year to
NZ$ millions	Note	30/09/2015	30/09/2014
Cash flows from operating activities
Interest received		7,357	6,724
Dividends received		89	4
Net funds management & insurance income		303	261
Fees and other income received		566	682
Interest paid		(4,482)	(3,945)
Operating expenses paid		(1,390)	(1,431)
Income taxes paid		(589)	(464)
Cash flows from operating profits before changes in operating assets and liabilities		1,854	1,831
Net changes in operating assets and liabilities:
Change in settlements receivable		4	167
Change in collateral paid		(1,146)	219
Change in trading securities		(208)	(1,025)
Change in derivative financial instruments		2,559	(676)
Change in available-for-sale assets		(634)	188
Change in insurance investment assets		39	(18)
Change in loans and advances		(8,875)	(5,396)
Change in settlements payable		293	34
Change in collateral received		887	362
Change in deposits and other borrowings		5,205	5,851
Net changes in operating assets and liabilities		(1,876)	(294)
Net cash flows provided by / (used in) operating activities	7	(22)	1,537
Cash flows from investing activities
Proceeds from sale of shares in associates and jointly controlled entities		-	9
Proceeds from sale of premises and equipment		-	9
Purchase of intangible assets		(73)	(43)
Purchase of premises and equipment		(59)	(77)
Net cash flows used in investing activities		(132)	(102)
Cash flows from financing activities
Proceeds from issue of debt issuances		4,212	4,431
Proceeds from issue of subordinated debt		1,482	-
Proceeds from issue of preference shares		675	969
Redemptions of debt issuances		(4,008)	(4,589)
Redemptions of subordinated debt		(297)	-
Redemptions of preference shares		(10)	-
Dividends paid		(1,630)	(2,335)
Net cash flows provided by / (used in) financing activities		424	(1,524)
Net increase / (decrease) in cash and cash equivalents		270	(89)
Cash and cash equivalents at beginning of the year		2,256	2,345
Cash and cash equivalents at end of the year	7	2,526	2,256

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 - ANZ New Zealand

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Statement of Changes in Equity

Statement of Changes in Equity
			Available-
		Share capital	for-sale	Cash flow
		and initial head	revaluation	hedging	Retained
NZ$ millions	Note	office account	reserve	reserve	earnings	Total equity
As at 1 October 2013		6,424	(2)	26	3,294	9,742
Profit after income tax		-	-	-	1,711	1,711
Unrealised gains / (losses) recognised directly in equity		-	3	(5)	-	(2)
Realised gains transferred to the income statement		-	-	(41)	-	(41)
Actuarial gain on defined benefit schemes		-	-	-	35	35
Income tax credit / (expense) on items recognised directly in equity		-	(1)	13	(10)	2
Total comprehensive income for the year		-	2	(33)	1,736	1,705
Preference shares issued	27	969	-	-	-	969
Ordinary dividend paid	27	-	-	-	(2,335)	(2,335)
As at 30 September 2014		7,393	-	(7)	2,695	10,081
Profit after income tax		-	-	-	1,771	1,771
Unrealised gains recognised directly in equity		-	-	12	-	12
Realised gains transferred to the income statement		-	-	(16)	-	(16)
Actuarial loss on defined benefit schemes		-	-	-	(33)	(33)
Income tax credit on items recognised directly in equity		-	-	1	9	10
Total comprehensive income for the year		-	-	(3)	1,747	1,744
Preference shares issued	27	675	-	-	-	675
Preference shares redeemed	27	(10)	-	-	-	(10)
Ordinary dividend paid	27	-	-	-	(1,630)	(1,630)
As at 30 September 2015		8,058	-	(10)	2,812	10,860

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 - ANZ New Zealand

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Notes to the Financial Statements

1. Significant Accounting Policies

(a) Basis of preparation

(i) Statement of compliance

These financial statements have been prepared in accordance with the requirements of the Companies Act 1993, the Financial Markets Conduct Act 2013 and the Order. The financial statements are for the Overseas Banking Group’s consolidated New Zealand business, which includes its subsidiaries and associates.

These financial statements comply with

• New Zealand Generally Accepted Accounting Practice, as defined in the Financial Reporting Act 2013;

• New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as appropriate for publicly accountable profit-oriented entities; and

• 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

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

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

(iii) Basis of measurement

The financial information has 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;

• 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 are consistent with those of the previous financial year.

(v) Rounding

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

(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. An entity, including a structured entity, is considered a subsidiary of

ANZ New Zealand when it is determined that control over the entity exists. Control is deemed to exist when ANZ New Zealand is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Power is assessed by examining existing rights that give ANZ New Zealand the current ability to direct the relevant activities of the entity.

At times, the determination of control can be judgemental. Further detail on the judgements involved in assessing control has been provided in note 2.

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

Associates

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

(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.

• (b) Income recognition

(i) Interest income

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

The effective interest method calculates the amortised 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. This is assessed on a regular basis.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

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Notes to the Financial Statements

(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.

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.

(c) Expense recognition

(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.

(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.

(ii) Current tax

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

(iii) Deferred tax

Deferred tax is accounted for using the comprehensive tax balance sheet method. It is generated by 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.

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 shortterm 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:

• 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 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.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

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Notes to the Financial Statements

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 effective as a hedging instrument and designated as such, the timing of the recognition of any resultant gain or loss in the income statement is dependent on the hedging designation. These hedging designations and associated accounting are as follows:

Fair value hedge

Where 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.

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. For qualifying cash flow hedges, the fair value gain or loss associated with the effective portion of the cash flow hedges is recognised

initially in other comprehensive income and then recycled to the income statement in the periods when the hedged item will affect profit or loss. Any ineffective portion is recognised immediately in the income statement. When the hedging instrument 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 availablefor-sale but which are not deemed to be held principally for trading purposes, and include equity investments and debt securities.

They are initially recognised at fair value plus transaction costs. Subsequent gains or losses arising from changes in 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.

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 and finance lease receivables.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

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Notes to the Financial Statements

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.

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

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

When a loan is uncollectible, either partially or in full, it is written off against the related provision for loan impairment. Unsecured facilities are normally written-off when they become 180 days past due or earlier in the event of the customer's bankruptcy or similar legal release from the obligation. However, a certain level of recoveries is expected after the write-off, which is reflected in the amount of the provision for credit losses. In the case of secured facilities, remaining balances are written-off after proceeds from the realisation of collateral have been received, if 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 to be onerous.

(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 deposits and other borrowings. 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 cash or net loans and advances if original maturity is greater than 90 days. 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 or a portion of the risks and rewards of the transferred assets. 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. This involves using the discounted cash flows methodology to determine the expected future benefits of the cash-generating units to which the goodwill relates. Where the assessment results in the goodwill balance exceeding the value of expected future benefits, the

Australia and New Zealand Banking Group Limited - ANZ New Zealand

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Notes to the Financial Statements

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, UDC secured investments, commercial paper and other related interest and non-interest bearing financial instruments. Deposits and other borrowings, excluding commercial paper, are initially recognised at fair value plus transaction costs and subsequently measured at amortised cost. The interest expense is recognised using the effective interest method. Commercial paper is designated at fair value through profit or loss, with fair value movements recorded directly in the income statement, which reflects the basis on which it is managed.

(ii) Debt issuances and subordinated debt

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

(iii) Financial guarantee contracts

Financial guarantee contracts are contracts that require 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.

(ii) Reserves

Available-for-sale revaluation reserve

This reserve includes changes in the fair value of availablefor-sale financial assets, net of tax. These changes are transferred to the income statement (in other operating 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 noninterest 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. The cumulative deferred gain or loss on the hedge is recognised in the income statement when the hedged transaction impacts the income statement.

(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 and nostro balances included in settlement balances receivable and settlement balances payable.

(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.

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

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

(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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

12

Notes to the Financial Statements

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 are not recognised in the balance sheet but disclosed in note 22 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 standard was available for early adoption but has not been applied in these financial statements.

Standards and amendments effective for periods commencing after 1 January 2018

NZ IFRS 9 Financial Instruments

The External Reporting Board issued the final version of NZ IFRS 9 Financial Instruments in September 2014. When operative, this standard will replace NZ IAS 39 Financial Instruments: Recognition and Measurement . NZ IFRS 9 addresses recognition and measurement requirements for financial assets and financial liabilities, impairment requirements that introduce an expected credit loss impairment model and general hedge accounting requirements which more closely align with risk management activities undertaken when hedging financial and non-financial risks. NZ IFRS 9 is not mandatorily effective for the Banking Group until 1 October 2018. The Banking Group is in the process of assessing the impact of application of NZ IFRS 9 and is not yet able to reasonably estimate the impact on its financial statements.

2. Critical Estimates and Judgements Used in Applying Accounting Policies

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 13 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

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 is 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.

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 nontrading 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.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

13

Notes to the Financial Statements

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).

Structured entities

A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding who controls the entity, such as when voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. Structured entities are generally created to achieve a narrow and well defined objective with restrictions around their ongoing activities and are often thinly capitalised with a reliance on debt financing for support.

ANZ New Zealand assesses, at inception and periodically, whether a structured entity should be consolidated based on the accounting policy outlined in note 1. Such assessments are predominantly securitisation activities and involvement with managed funds. When assessing whether ANZ New Zealand controls (and therefore consolidates) a structured entity, judgement is required about whether ANZ New Zealand has power over the relevant activities as well as exposure to variable returns of the structured entity. All involvement, rights and exposure to returns are considered when assessing if control exists.

ANZ New Zealand is deemed to have power over a managed fund when it performs the function of Manager of that managed fund. Whether ANZ New Zealand controls the managed fund depends on whether it holds that power as principal, or as an agent for other investors. ANZ New Zealand is considered the principal, and thus controls the managed fund, when it cannot be easily removed from the position of Manager by other investors and has variable returns through significant aggregate economic interest in that managed fund. In all other cases ANZ New Zealand is considered to be acting in an agency capacity and does not control the managed fund.

Structured entities are consolidated when control exists. In other cases ANZ New Zealand may simply have an interest in or may sponsor a structured entity but not consolidate it.

ANZ New Zealand considers itself the sponsor of an unconsolidated structured entity where it is the primary party involved in the design and establishment of that structured entity and:

• where ANZ New Zealand is the major user of that structured entity; or

• ANZ New Zealand’s name appears in the name of that structured entity or on its products; or

• ANZ New Zealand provides implicit or explicit guarantees of that entity’s performance.

Goodwill

Refer to note 24 for details of goodwill held by ANZ New Zealand.

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

Goodwill has been allocated for impairment purposes to the cash generating units at which the goodwill is monitored for internal reporting purposes. 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 cash-generating 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 2015 when the last valuation was prepared, a discount rate of 10.05% 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.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

14

Notes to the Financial Statements

3. Income

NZ$ millions Interest income Financial assets at fair value through profit or loss Trading securities Financial assets not at fair value through profit or loss Cash Available-for-sale assets Net loans and advances Other Total interest income Net trading gains Net gain on foreign exchange trading Net gain on trading securities Net loss on trading derivatives Net trading gains Net funds management and insurance income Net funds management income Net insurance income Total funds management and insurance income Other operating income Lending and credit facility fee income Other fee income Total fee income Direct fee expense Net fee income Net loss on financial liabilities designated at fair value Net ineffectiveness on qualifying fair value hedges Net gain / (loss) on derivatives not qualifying for hedge accounting Net cash flow hedge gain transferred to income statement Insurance settlement proceeds Other income Total other operating income	Year to Year to 30/09/2015 30/09/2014 488 474 102 72 37 33 6,760 6,204 30 16
	6,929 6,325
	7,417 6,799
	201 157 384 57 (323) (4)
	262 210
	165 139 220 186
	385 325
	54 55 591 543
	645 598 (264) (216)
	381 382 (1) - 7 14 48 (40) 16 41 - 91 54 37
	505 525

Australia and New Zealand Banking Group Limited - ANZ New Zealand

15

Notes to the Financial Statements

4. Expenses

		Year to Year to
NZ$ millions		30/09/2015 30/09/2014
Interest expense Financial liabilities at fair value through profit or loss Commercial paper Financial liabilities not at fair value through profit or loss Deposits and other borrowings Debt issuances Subordinated debt Other Total interest expense Operating expenses Personnel costs Employee entitlements Superannuation costs Share-based payments expense Building occupancy costs Depreciation of premises and equipment Leasing and rental costs Technology expenses Amortisation of software and other intangible assets Administrative expenses Charges from Ultimate Parent Bank Other costs Total operating expenses
		280 229
		3,248 2,906
		855 799
		122 73
		32 27
		4,257 3,805
		4,537 4,034
		733 716
		88 69
		31 38
		22 22
		42 41
		50 55
		80 78
		151 137
		35 30
		162 170
		64 81
		55 53
		1,513 1,490

Australia and New Zealand Banking Group Limited - ANZ New Zealand

16

Notes to the Financial Statements

5. Income Tax

		Year t	o Year to
NZ$ millions		30/09/2015 30/09/2014
Reconciliation of the prima facie income tax payable on profit
Profit before income tax		2,448 2,347
Prima facie income tax at 28%		685 657
Imputed and non-assessable dividends		(3) (3)
Change in tax provisions		- (10)
Non assessable income and non deductible expenditure		(5) (9)
Income tax under provided in prior years		- 1
Total income tax expense		677 636
Effective tax rate (%)		27.7% 27.1%
Amounts recognised in the income statement
Current tax		602 532
Deferred tax		75 104
Total income tax expense recognised in the income statement		677 636
Imputation credits available		2,989 2,341

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.

NZ$ millions	30/09/2015 30/09/2014
Deferred tax assets / (liabilities) comprise the following temporary differences:
Provision for credit impairment	176 193
Premises and equipment, software and intangibles	(8) 2
Provisions and accruals	60 61
Insurance policy assets	(146) (127)
Financial instruments	4 3
Carried forward losses	- 9
Lease finance	(203) (191)
Other deferred tax assets and liabilities (including tax provisions)	(7) (9)
Net deferred tax liabilities1	(124) (59)

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 - ANZ New Zealand

17

Notes to the Financial Statements

6. Segment Analysis

ANZ New Zealand is organised into four major business segments for segment reporting purposes - 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.

During the year ended 30 September 2015, Business Banking was integrated with Retail, having been included in Commercial previously. Segment reporting has been updated to reflect this change and other minor changes to ANZ New Zealand’s structure. Comparative data has been adjusted to be consistent with the current year’s segment definitions.

Retail

Retail provides products and services to Retail and Business Banking customers via the branch network, mortgage specialists, business managers, the contact centre and a variety of self service channels (internet banking, phone banking, ATMs, website and mobile phone banking). Retail customers have personal banking requirements and Business Banking customers consist primarily of small enterprises with annual revenues of less than NZ$5 million. Core products include current and savings accounts, unsecured lending (credit cards, personal and business loans and overdrafts) and home and business loans secured by mortgages over property. The Retail segment distributes insurance and investment products on behalf of the Wealth segment.

Commercial

Commercial provides services to Commercial & Agri (CommAgri) and UDC customers. CommAgri customers consist of primarily privately owned medium to large enterprises. Commercial’s relationship with these businesses ranges from simple banking requirements 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 comprises the Private Wealth, Funds Management and Insurance businesses, which provide private banking, investment, superannuation and insurance products and services.

Institutional

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

Other

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

18

Notes to the Financial Statements

Business segment analysis1
NZ$ millions	Retail Commercial Wealth2 Institutional Other Total
30/09/2015
External interest income External interest expense Net intersegment interest Net interest income Other external operating income Share of associates' profit Operating income Operating expenses Profit before credit impairment and income tax Credit impairment charge Profit before income tax Income tax expense Profit after income tax Other information Depreciation and amortisation Goodwill Other intangible assets Investment in associates Total external assets Total external liabilities	3,856 2,441 112 989 19 7,417 (1,697) (388) (208) (498) (1,746) (4,537) (585) (1,149) 164 (184) 1,754 -
	1,574 904 68 307 27 2,880 380 17 255 360 140 1,152 3 - - - 2 5
	1,957 921 323 667 169 4,037 880 257 144 189 43 1,513
	1,077 664 179 478 126 2,524 58 - - 18 - 76
	1,019 664 179 460 126 2,448 285 186 43 127 36 677
	734 478 136 333 90 1,771
	15 - 5 - 65 85 929 1,052 180 1,072 - 3,233 13 - 125 - 121 259 4 - - - - 4 66,796 40,561 2,887 43,772 1,514 155,530 53,736 12,390 5,866 37,002 35,676 144,670 3,490 2,230 99 968 12 6,799 (1,430) (327) (206) (475) (1,596) (4,034) (561) (1,045) 165 (163) 1,604 -
30/09/2014
External interest income External interest expense Net intersegment interest Net interest income Other external operating income Share of associates' profit Operating income Operating expenses Profit before credit impairment and income tax Credit impairment charge / (release) Profit before income tax Income tax expense Profit after income tax Other information Depreciation and amortisation Goodwill Other intangible assets Investment in associates Total external assets Total external liabilities
	1,499 858 58 330 20 2,765 369 18 318 298 57 1,060 1 - - - 2 3
	1,869 876 376 628 79 3,828 871 252 136 182 49 1,490
	998 624 240 446 30 2,338 63 (72) (1) 1 - (9)
	935 696 241 445 30 2,347 262 195 60 123 (4) 636
	673 501 181 322 34 1,711
	17 2 5 - 61 85 929 1,052 180 1,072 - 3,233 22 - 126 - 73 221 3 - - - 85 88 61,579 37,785 2,531 34,745 1,888 138,528 47,090 10,936 5,316 28,900 36,205 128,447

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

2 Wealth other external operating income for the year ended 30 September 2014 includes the NZ$91 million insurance settlement relating to the Bank’s former involvement in the ING Diversified Yield Fund and the ING Regular Income Fund.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

19

Notes to the Financial Statements

7. Notes to the Cash Flow Statement

	Year t	o Year to
NZ$ millions	30/09/2015 30/09/2014
Reconciliation of profit after income tax to net cash flows provided by / (used in) operating activities
Profit after income tax	1,771 1,711
Non-cash items:
Depreciation and amortisation	85 85
Provision for credit impairment	76 (9)
Deferred fee revenue and expenses	(3) (4)
Amortisation of capitalised brokerage / mortgage origination fees	131 75
Amortisation of premiums and discounts	60 152
Fair value gains and losses	(323) (225)
Loss on disposal and impairment of premises and equipment and intangibles	1 16
Deferrals or accruals of past or future operating cash receipts or payments:
Change in net operating assets less liabilities	(1,876) (294)
Change in interest receivable	2 (53)
Change in interest payable	(20) 20
Change in accrued expenses	14 (25)
Change in provisions	(13) (25)
Change in life insurance policy assets	(79) (67)
Change in other receivables and payables	(20) 7
Change in net income tax assets / liabilities	88 172
Dividends from associates in excess of share of profits	84 1
Net cash flowsprovided by / (used in) operating activities	(22) 1,537
NZ$ millions	30/09/2015 30/09/2014
Reconciliation of cash and cash equivalents to the balance sheet
Cash	2,435 2,248
Amounts included in settlement balances receivable / (payable):
Nostro accounts	108 38
Overdrawn nostro accounts	(17) (30)
Total cash and cash equivalents	2,526 2,256
8. Cash
NZ$ millions	30/09/2015 30/09/2014
Coins, notes and cash at bank	250 630
Balances with central banks	1,847 1,309
Securities purchased under agreements to resell	338 309
Total cash	2,435 2,248

Australia and New Zealand Banking Group Limited - ANZ New Zealand

20

Notes to the Financial Statements

9. Trading Securities

NZ$ millions Government, local body stock and bonds Certificates of deposit Promissory notes Reserve Bank bills Other bank bonds Other Total trading securities	30/09/2015 30/09/2014 6,355 6,607 190 378 259 91 200 - 5,077 4,630 58 44
	12,139 11,750

10. 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.

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.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

21

Notes to the Financial Statements

	30/09/2015 30/09/2014 Notional principal amount Fair values Notional principal amount Fair values Assets Liabilities Assets Liabilities 75,930 1,625 1,333 63,800 1,454 1,234 130,093 2,898 4,118 155,303 5,420 5,718 1,870 79 3 2,528 47 1 1,820 2 46 2,381 1 36
NZ$ millions
Derivatives held for trading Foreign exchange derivatives Spot and forward contracts Swap agreements Options purchased Options sold Interest rate derivatives Forward rate agreements Swap agreements Futures contracts Options purchased Options sold Commodity derivatives Total derivatives held for trading Derivatives in hedging relationships Fair value hedges Foreign exchange swap agreements Interest rate swap agreements Cash flow hedges Interest rate swap agreements Total derivatives in hedging relationships Total derivative financial instruments
	209,713 4,604 5,500 224,012 6,922 6,989 24,633 2 12 8,899 2 1 1,130,414 12,338 11,395 680,503 4,132 3,750 45,407 12 18 17,930 2 4 1,218 5 - 1,607 2 - 827 1 2 840 1 3
	1,202,499 12,358 11,427 709,779 4,139 3,758 235 29 29 346 22 21
	1,412,447 16,991 16,956 934,137 11,083 10,768
	- - - 17 - - 33,136 230 446 25,494 242 85
	33,136 230 446 25,511 242 85 21,715 366 367 18,866 96 108
	54,851 596 813 44,377 338 193
	1,467,298 17,587 17,769 978,514 11,421 10,961

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 NZ$ millions Gain / (loss) arising from fair value hedges: - hedged item - hedging instrument Net ineffectiveness on qualifying fair value hedges
	30/09/2015 30/09/2014
	189 (51) (182) 65
	7 14

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
NZ$ millions	30/09/2015 30/09/2014
Deferred gain / (loss) attributable to hedges of: Variable rate loan assets Short term re-issuances of fixed rate customer and wholesale deposit liabilities Total cash flow hedging reserve
	187 (29) (197) 22
	(10) (7)

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 ten years (30/09/2014 ten years).

Australia and New Zealand Banking Group Limited - ANZ New Zealand

22

Notes to the Financial Statements

11. Available-for-sale Assets

NZ$ millions Government, local body stock and bonds Reserve Bank bills Other debt securities Equity securities Total available-for-sale assets	30/09/2015 30/09/2014 270 522 599 - 557 248 2 2
	1,428 772

12. Net Loans and Advances

NZ$ millions	Note	30/09/2015	30/09/2014
Overdrafts		1,638	1,744
Credit card outstandings		1,688	1,580
Term loans - housing		67,456	61,918
Term loans - non-housing		42,880	39,622
Lease receivables		236	277
Hire purchase		946	837
Other		-	125
Total gross loans and advances		114,844	106,103
Less: Provision for credit impairment	13	(629)	(688)
Less: Unearned income		(214)	(212)
Add: Capitalised brokerage/mortgage origination fees		323	215
Add: Customer liability for acceptances		52	67
Total net loans and advances		114,376	105,485

Australia and New Zealand Banking Group Limited - ANZ New Zealand

23

Notes to the Financial Statements

13. Provision for Credit Impairment

Credit impairment charge / (release)

Credit impairment charge / (release)
		30/09/2015			30/09/2014
NZ$ millions	mortgages exposures exposures Total mortgages exposures exposures Total
New and increased provisions	45 107 76 228 68 120 111 299 (48) (19) (59) (126) (54) (21) (112) (187) (1) (20) (8) (29) (2) (20) (7) (29)
Write-backs
Recoveries of amounts written off previously
Individual credit impairment charge / (release)	(4) 68 9 73 12 79 (8) 83 (4) 9 (2) 3 (24) 1 (69) (92)
Collective credit impairment charge / (release)
Credit impairment charge / (release)	(8) 77 7 76 (12) 80 (77) (9)

Movement in provision for credit impairment

NZ$ millions Collective provision Balance at beginning of the year Charge / (release) to income statement Balance at end of the year Individual provision Balance at beginning of the year New and increased provisions net of write-backs Bad debts written off Discount unwind reversal / (discount unwind)1 Balance at end of the year Total provision for credit impairment	30/09/2015 30/09/2014 Retail mortgages Other retail exposures Non-retail exposures Total Retail mortgages Other retail exposures Non-retail exposures Total 91 118 255 464 115 117 324 556 (4) 9 (2) 3 (24) 1 (69) (92)
	87 127 253 467 91 118 255 464
	81 15 128 224 83 22 188 293 (3) 88 17 102 14 99 (1) 112 (10) (94) (54) (158) (10) (106) (67) (183) (6) - - (6) (6) - 8 2
	62 9 91 162 81 15 128 224
	149 136 344 629 172 133 383 688

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

Impaired assets

Impaired assets
	30/09/2015	30/09/2014
	Retail Other retail Non-retail	Retail Other retail Non-retail
NZ$ millions	mortgages exposures exposures Total mortgages exposures exposures Total
Balance at beginning of the year	223 35 410 668 214 49 673 936 121 126 155 402 218 138 299 655 (80) (7) (46) (133) (51) (4) (153) (208) (135) (28) (212) (375) (148) (42) (342) (532) (10) (94) (54) (158) (10) (106) (67) (183)
Transfers from productive
Transfers to productive
Assets realised or loans repaid
Write offs
Total impaired assets	119 32 253 404 223 35 410 668
Undrawn facilities with impaired customers	1 - 14 15 1 - 38 39

Australia and New Zealand Banking Group Limited - ANZ New Zealand

24

Notes to the Financial Statements

14. Deposits and Other Borrowings

NZ$ millions	Note	30/09/2015	30/09/2014
Certificates of deposit		745	1,376
Term deposits		34,982	34,758
Other deposits bearing interest and other borrowings		41,436	34,027
Deposits not bearing interest		6,716	6,001
Deposits from banks		47	226
Commercial paper		4,964	6,057
UDC secured investments	20	1,736	1,569
Borrowings from Ultimate Parent Bank and Immediate Parent Company	31	9,110	10,513
Total deposits and other borrowings		99,736	94,527

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.

15. Debt Issuances

NZ$ millions	Not	e 30/09/2015 30/09/2014
Domestic bonds U.S. medium term notes1 Euro medium term notes1 Covered bonds1 Index linked notes Total debt issuances Fair value hedge adjustment Less debt issuances held by the Bank Total debt issuances
		19,324 16,921 175 129 (96) (8)
		19,403 17,042

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

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

25

Notes to the Financial Statements

16. Subordinated Debt

NZ$ millions	30/09/2015 30/09/2014
ANZ Capital Notes1
AUD 970m ANZ Capital Notes 3 (ANZ CN3)2	1,052 -
NZD 500m ANZ New Zealand Capital Notes (ANZ NZ CN)3	494 -
Perpetual subordinated debt
NZD 835m perpetual subordinated bond3	835 835
AUD 266m perpetual subordinated floating rate loan4	- 298
AUD 10m perpetual subordinated floating rate loan	11 11
Dated subordinated debt
AUD 265m subordinated floating rate loan	291 298
Total subordinated debt	2,683 1,442

• 1 These instruments qualify as additional tier 1 capital of the Overseas Banking Group.

• 2 These instruments are listed on the Australian Stock Exchange.

• 3 These instruments are listed on the New Zealand Debt Market (NZDX). The Market Surveillance Panel of the NZX granted the Bank a waiver from the requirements of Listing Rules 10.3 (relating to the provision of preliminary announcements of half yearly and annual results to the NZX) and 10.4 (relating to preparing and providing a copy of half yearly and annual reports to the NZX).

• 4 This loan was repaid on 16 March 2015. Interest was payable semi-annually in arrears based on a floating rate equal to the aggregate of the Australian 6 month bank bill rate plus a 95 basis point margin.

Subordinated debt is subordinated in right of payment in the event of liquidation or wind up to the claims of depositors and all creditors of the relevant issuer or drawer of the debt.

ANZ Capital Notes

• On 5 March 2015, the NZ Branch issued 9.7 million convertible notes (ANZ CN3) at A$100 each, raising A$970 million before issue costs.

• On 31 March 2015, the Bank issued 500 million convertible notes (ANZ NZ CN) at NZ$1 each, raising NZ$500 million before issue costs.

ANZ Capital Notes (the notes) are fully paid mandatorily convertible non-cumulative perpetual subordinated notes.

As at 30 September 2015 ANZ NZ CN carried a BBB- credit rating from Standard and Poor’s.

The notes are classified as debt given there are circumstances beyond ANZ New Zealand’s control where the principal is converted into a variable number of shares of the Ultimate Parent Bank.

Distributions and interest

Distributions on ANZ CN3 and interest on ANZ NZ CN are recorded as interest expense in the statement of comprehensive income. Distributions and interest on the notes are non-cumulative and payable as follows:

• ANZ CN3: payable semi-annually in arrears in March and September in each year and will be franked in line with the franking applied to ordinary shares of the Ultimate Parent Bank. The distributions are based on a floating rate equal to the aggregate of the Australian 6 month bank bill rate plus a 360 basis point margin, multiplied by one minus the Australian company tax rate. Should the distribution not be fully-franked, the terms of the notes provide for a cash gross-up for the amount of the franking benefit not provided.

• ANZ NZ CN: payable quarterly in arrears in February, May, August and November in each year. The interest rate is fixed at 7.2% per annum until 25 May 2020, and

thereafter will be based on a floating rate equal to the aggregate of the New Zealand 3 month bank bill rate plus a 350 basis point margin.

Distributions and interest payments are subject to the Ultimate Parent Bank’s (ANZ CN3) and the Bank’s (ANZ NZ CN) absolute discretion and certain payment conditions being satisfied (including APRA and RBNZ (ANZ NZ CN only) requirements). If distributions or interest are not paid on the notes, the Ultimate Parent Bank (ANZ CN3) or the Bank (ANZ NZ CN) may not, except in limited circumstances, pay dividends or undertake a share buy-back or other capital reduction on its ordinary shares until the distributions or interest are next paid.

Conversion features

On 24 March 2025 (ANZ CN3) or 25 May 2022 (ANZ NZ CN) or an earlier date under certain circumstances, the relevant notes will mandatorily convert into a variable number of ordinary shares of the Ultimate Parent Bank based on the average market price of the Ultimate Parent Bank’s ordinary shares over a specified period prior to conversion less a 1% discount, subject to a maximum conversion number.

The mandatory conversion will be deferred for a specified period if the conversion tests are not met.

If a common equity capital trigger event, an APRA nonviability trigger event or an RBNZ non-viability trigger event (as defined in the RBNZ document Capital Adequacy Framework (Internal Models Based Approach) (BS2B)) (ANZ NZ CN only) occurs, some or all of the notes will be required to be immediately converted into ordinary shares of the Ultimate Parent Bank, subject to a maximum conversion number.

A common equity capital trigger event occurs if the:

• Overseas Banking Group’s Level 1 (ANZ CN3 only) or Level 2 common equity tier 1 capital ratio is equal to or less than 5.125%; or

Australia and New Zealand Banking Group Limited - ANZ New Zealand

26

Notes to the Financial Statements

• Banking Group’s common equity tier 1 capital ratio is equal to or less than 5.125% (ANZ CN only).

An APRA non-viability trigger event occurs if APRA notifies the Ultimate Parent Bank that, without the conversion or write-off of certain securities or a public sector injection of capital (or equivalent support), it considers that the Ultimate Parent Bank would become non-viable. An RBNZ nonviability trigger event occurs if the RBNZ directs the Bank to convert or write off the notes or a statutory manager is appointed to the Bank and decides the Bank must convert or write off the notes.

On 25 May 2020 the Bank has the right, subject to satisfying certain conditions, to redeem (subject to receiving RBNZ’s and APRA’s prior approval), or to convert into ordinary shares of the Ultimate Parent Bank, all or some of the ANZ NZ CN at its discretion on similar terms as mandatory conversion.

On 24 March 2023 the Ultimate Parent Bank has the right, subject to receiving APRA’s prior approval and satisfying certain conditions, to redeem, or to convert into ordinary shares of the Ultimate Parent Bank, all or some of the ANZ CN3 at its discretion on similar terms as mandatory conversion.

Rights of holders in event of liquidation

In a liquidation of the Ultimate Parent Bank, ANZ CN3 rank equally with other additional tier 1 capital instruments issued by the Ultimate Parent Bank. In a liquidation of the Bank, ANZ NZ CN rank equally with the Bank’s other additional tier 1 capital instruments, including preference shares, and lower than the Bank’s perpetual subordinated debt. Holders of the notes do not have any right to vote in general meetings of the Ultimate Parent Bank or the Bank.

Perpetual subordinated debt

Perpetual subordinated debt instruments are classified as debt reflecting an assessment of the key terms and conditions of the instruments, and an assessment of the ability, and likelihood 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 may elect to redeem the bond on 18 April 2018 (the Call Date) or any interest payment date subsequent to 18 April 2018. Interest is payable semi-annually in arrears on 18 April and 18 October each year, up to and including the Call Date and then quarterly thereafter. Should the bond not be called at the Call Date, the Coupon Rate from the Call Date onwards will be based on a floating rate equal to the aggregate of the 3 month bank bill rate plus a 300 basis point margin.

As at 30 September 2015, this bond carried a BBB+ rating by Standard and Poor's and an A3 rating by Moody’s.

The coupon interest on the bond is 5.28% per annum until 18 April 2018.

AUD 10,000,000 loan

This loan was drawn down by the Bank on 27 March 2013 and has no fixed maturity. Interest is payable semi-annually in arrears on 15 March and 15 September each year. The Bank may repay the loan on any interest payment date after the NZD 835,000,000 bond has been repaid in full.

Coupon interest is based on a floating rate equal to the aggregate of the Australian 6 month bank bill rate plus a 240 basis point margin, increasing to the Australian 6 month bank bill rate plus a 440 basis point margin from 15 September 2018.

Dated subordinated debt

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 September 2023, but ANZ Holdings (New Zealand) Limited may elect to repay the loan on any interest payment date from 1 September 2018. Interest is payable semi-annually in arrears on 1 March and 1 September in each year and is based on a floating rate equal to the aggregate of the Australian 6 month bank bill rate plus a 260 basis point margin.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

27

Notes to the Financial Statements

17. 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-by-country ceiling on exposures that involve country risk. They are recorded by time to maturity and purpose of exposure, e.g., trade, markets and project finance. Country limits are managed centrally by the Ultimate Parent Bank, through a global country risk exposure management system managed by a specialist unit within Institutional Risk.

Portfolio stress testing

Stress testing is integral to strengthening the predictive approach to Risk Management and is a key component to managing risk appetite and business writing strategies. It creates greater understanding of impacts on financial

Australia and New Zealand Banking Group Limited - ANZ New Zealand

28

Notes to the Financial Statements

performance through modelling relationships and sensitivities between geographic, industry and business unit exposures under a range of macro economic scenarios.

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

Portfolio analysis and reporting

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

Businesses incurring credit risk undertake regular and comprehensive analysis of their credit portfolios. Issue identification and adherence to performance benchmarks are reported to Risk 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.

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 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. Notes on the following tables:

• 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 Net loans and advances exclude individual and collective provisions for credit impairment held in respect of credit related commitments.

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

29

Notes to the Financial Statements

30/09/2015 NZ$ millions Industry Agriculture Forestry, fishing and mining Business and property services Construction Entertainment, leisure and tourism Finance and insurance Government and local authority1 Manufacturing Personal lending Retail trade Transport and storage Wholesale trade Other2 Less: Provision for credit impairment Less: Unearned income Add: Capitalised brokerage/mortgage origination fees Total financial assets Geography New Zealand Overseas Total financial assets 30/09/2014 Industry Agriculture Forestry, fishing and mining Business and property services Construction Entertainment, leisure and tourism Finance and insurance Government and local authority1 Manufacturing Personal lending Retail trade Transport and storage Wholesale trade Other2 Less: Provision for credit impairment Less: Unearned income Add: Capitalised brokerage / mortgage origination fees Total financial assets Geography New Zealand Overseas Total financial assets	Cash, settlements receivable and collateral paid Trading securities and available-for- sale assets Derivative financial instruments Net loans and advances 3 Other financial assets Credit related commitments 4 Total - - 23 18,383 73 1,238 19,717 - - 44 931 4 1,035 2,014 - 1 23 10,818 43 2,798 13,683 - - 12 1,344 5 811 2,172 - - 47 1,069 4 268 1,388 2,631 6,956 15,069 1,246 335 1,067 27,304 1,847 6,475 1,338 1,157 5 1,408 12,230 - 31 417 3,471 14 1,993 5,926 - - - 69,390 245 19,338 88,973 - - 18 2,010 8 1,012 3,048 - 6 60 1,638 7 759 2,470 - - 17 1,468 6 1,248 2,739 - 98 519 1,971 8 1,672 4,268
	4,478 13,567 17,587 114,896 757 34,647 185,932 - - - (531) - (98) (629) - - - (214) - - (214) - - - 323 - - 323
	4,478 13,567 17,587 114,474 757 34,549 185,412
	2,582 8,673 3,585 111,991 748 34,366 161,945 1,896 4,894 14,002 2,483 9 183 23,467
	4,478 13,567 17,587 114,474 757 34,549 185,412
	- - 9 17,362 76 1,364 18,811 - - 8 1,122 5 914 2,049 - - 16 9,507 42 2,499 12,064 - - - 1,217 5 935 2,157 - - 25 1,028 5 238 1,296 2,373 5,526 10,078 972 306 1,214 20,469 1,309 6,857 630 1,256 6 1,305 11,363 - 25 177 3,031 13 2,067 5,313 - - - 63,940 241 15,106 79,287 - - 20 2,031 9 968 3,028 - 12 31 1,484 7 730 2,264 - - 15 1,384 6 1,290 2,695 - 102 412 1,836 8 1,736 4,094
	3,682 12,522 11,421 106,170 729 30,366 164,890 - - - (583) - (105) (688) - - - (212) - - (212) - - - 215 - - 215
	3,682 12,522 11,421 105,590 729 30,261 164,205
	2,992 8,339 2,630 103,165 719 30,081 147,926 690 4,183 8,791 2,425 10 180 16,279
	3,682 12,522 11,421 105,590 729 30,261 164,205

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 Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

30

Notes to the Financial Statements

Maximum exposure to credit risk

The following table presents the maximum exposure to credit risk for on and off balance sheet financial instruments before taking 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.

NZ$ millions On and off-balance sheet positions Cash Settlement balances receivable Collateral paid Trading securities Derivative financial instruments Available-for-sale assets Net loans and advances Other financial assets Credit related commitments Total exposure to credit risk

30/09/2015 30/09/2014 Maximum exposure to credit risk Financial effect of collateral Unsecured portion of credit exposure Maximum exposure to credit risk Financial effect of collateral Unsecured portion of credit exposure 2,240 338 1,902 2,044 309 1,735 309 134 175 855 746 109 1,929 - 1,929 783 - 783 12,139 - 12,139 11,750 - 11,750 17,587 1,687 15,900 11,421 800 10,621 1,428 - 1,428 772 - 772 114,474 103,482 10,992 105,590 95,066 10,524 757 382 375 729 380 349 34,549 20,108 14,441 30,261 15,373 14,888

185,412 126,131 59,281 164,205 112,674 51,531

Credit quality

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

ANZ New Zealand’s risk grade profile changes dynamically through new counterparty lending and existing counterparty movements in either risk or volume. All counterparty risk grades are subject to frequent review, including statistical and behavioural reviews in consumer and small business segments, and individual counterparty reviews in segments with larger single name borrowers.

Impairment and provisioning of financial assets

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

Loans are classified as either performing or impaired. Impaired assets are credit exposures where: there is doubt as

to whether the full contractual amount (including interest) will be received; a material credit obligation is 90 days past due but not well secured; they are portfolio managed and can be held for up to 180 days past due; or concessional terms have been provided due to the financial difficulties of the customer.

An exposure is classified as past due but not impaired (less than 90 days) where the value of collateral is sufficient to repay both the principal debt and all other potential interest or 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.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

31

Notes to the Financial Statements

Distribution of gross loans and advances assets by credit quality

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

NZ$ millions Strong risk rating Satisfactory risk rating Substandard but not past due or impaired Total neither past due nor impaired Past due but not impaired: 1 to 5 days 6 to 29 days 1 to 29 days 30 to 59 days 60 to 89 days 90 days and over Total past due but not impaired Total impaired assets Gross loans and advances	30/09/2015 30/09/2014 Retail mortgages Other retail exposures Non-retail exposures Total Retail mortgages Other retail exposures Non-retail exposures Total 55,837 1,285 23,051 80,173 49,092 1,428 21,836 72,356 7,661 3,021 19,192 29,874 8,777 2,721 17,040 28,538 649 382 1,430 2,461 709 313 1,254 2,276
	64,147 4,688 43,673 112,508 58,578 4,462 40,130 103,170 311 110 454 875 361 121 580 1,062 258 92 99 449 275 91 190 556
	569 202 553 1,324 636 212 770 1,618 134 37 88 259 176 31 116 323 98 18 11 127 84 16 52 152 128 32 62 222 110 30 32 172
	929 289 714 1,932 1,006 289 970 2,265 119 32 253 404 223 35 410 668
	65,195 5,009 44,640 114,844 59,807 4,786 41,510 106,103

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 creditrelated 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.

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.

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.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

32

Notes to the Financial Statements

Market risk

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

ANZ New Zealand conducts trading operations in interest rates, foreign exchange, commodities and debt securities.

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 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.

The confidence level is such that there is a 99% probability that the loss will not exceed the VaR estimate on any given day. Conversely there is 1% probability of the decrease in market value exceeding the VaR estimate on any given day.

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.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

33

Notes to the Financial Statements

Traded market risks

NZ$ millions Foreign exchange risk Interest rate risk Credit spread risk Diversification benefit Total VaR	30/09/2015 30/09/2014 Value at risk at 99% confidence Value at risk at 99% confidence High for Low for Average for High for Low for Average for Period end year year year Period end year year year 0.6 1.1 - 0.3 0.3 1.1 - 0.4 2.4 5.1 1.0 2.1 1.5 3.1 0.9 1.8 0.7 0.7 0.2 0.4 0.3 0.6 0.1 0.3 (2.0) n/a n/a (0.7) (0.6) n/a n/a (0.7)
	1.7 4.9 1.0 2.1 1.5 3.3 0.9 1.8

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.

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
		High for	Low for	Average for
NZ$ millions	Period end	year	year	year
30/09/2015
Value at risk at 99% confidence	7.4	12.4	7.3	10.1
30/09/2014
Value at risk at 99% confidence	10.7	10.7	8.0	8.9

Australia and New Zealand Banking Group Limited - ANZ New Zealand

34

Notes to the Financial Statements

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.

	30/09/2015	30/09/2014
Impact of 1% rate shock
Period end	1.0%	1.1%
Maximum exposure	2.3%	1.8%
Minimum exposure	-0.2%	0.7%
Average exposure (in absolute terms)	1.1%	1.3%

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

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.

NZ$ millions 30/09/2015 Assets Cash Settlement balances receivable Collateral paid Trading securities Derivative financial instruments Available-for-sale assets Net loans and advances Other financial assets Total financial assets Liabilities Settlement balances payable Collateral received Deposits and other borrowings Derivative financial instruments Debt issuances Subordinated debt Other financial liabilities Total financial liabilities Hedging instruments Interest sensitivity gap	Total Up to 3 months Over 3 to 6 months Over 6 to 12 months Over 1 to 2 years Over 2 years Not bearing interest 2,435 2,240 - - - - 195 309 141 - - - - 168 1,929 1,929 - - - - - 12,139 1,280 731 789 863 8,476 - 17,587 - - - - - 17,587 1,428 1,178 - - - 248 2 114,376 60,366 7,117 17,035 21,984 8,341 (467) 757 - 113 33 - 5 606
	150,960 67,134 7,961 17,857 22,847 17,070 18,091
	1,469 871 - - - - 598 1,687 1,687 - - - - - 99,736 70,249 9,586 9,507 2,103 1,575 6,716 17,769 - - - - - 17,769 19,403 6,001 1,587 - 2,498 9,317 - 2,683 - 1,354 - - 1,329 - 997 100 - - 6 256 635
	143,744 78,908 12,527 9,507 4,607 12,477 25,718
	- 39,841 (22,090) (3,027) (13,420) (1,304) -
	7,216 28,067 (26,656) 5,323 4,820 3,289 (7,627)

Australia and New Zealand Banking Group Limited - ANZ New Zealand

35

Notes to the Financial Statements

NZ$ millions 30/09/2014 Assets Cash Settlement balances receivable Collateral paid Trading securities Derivative financial instruments Available-for-sale assets Net loans and advances Other financial assets Total financial assets Liabilities Settlement balances payable Collateral received Deposits and other borrowings Derivative financial instruments Debt issuances Subordinated debt Payables and other liabilities Total financial liabilities Hedging instruments Interest sensitivity gap	Total Up to 3 months Over 3 to 6 months Over 6 to 12 months Over 1 to 2 years Over 2 years Not bearing interest 2,248 2,044 - - - - 204 855 53 - - - - 802 783 783 - - - - - 11,750 1,388 304 1,631 418 8,009 - 11,421 - - - - - 11,421 772 262 10 250 - 248 2 105,485 58,147 7,135 12,263 18,525 9,879 (464) 729 137 35 18 - - 539
	134,043 62,814 7,484 14,162 18,943 18,136 12,504
	1,992 512 - - - - 1,480 800 800 - - - - - 94,527 66,290 10,852 7,566 2,371 1,447 6,001 10,961 - - - - - 10,961 17,042 5,149 267 1,971 2,811 6,844 - 1,442 - 607 - - 835 - 884 130 - 10 6 146 592
	127,648 72,881 11,726 9,547 5,188 9,272 19,034
	- 12,610 2,333 1,746 (13,269) (3,420) -
	6,395 2,543 (1,909) 6,361 486 5,444 (6,530)

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 nontraded market risks. The fair value of these securities as at 30 September 2015 was $2 million (30/09/2014 $2 million). A 10 per cent reduction in the value of the available-for-sale equity securities would not be material.

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.

NZ$ millions Net open position Australian dollar Euro Japanese yen US dollar Swiss franc Other Total net open position	30/09/2015 30/09/2014 (1) 1 (13) 37 (4) 9 34 (14) - (37) 6 1
	22 (3)

Australia and New Zealand Banking Group Limited - ANZ New Zealand

36

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 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 normal conditions, name crisis and funding market disruption.

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

Name-crisis : refers to a potential severe name-specific liquidity crisis scenario which models the behaviour of cash flows where there is a problem (real or perceived) which may include, but is not limited to, operational issues, doubts about the solvency of 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 have sufficient high quality liquid assets to meet its liquidity needs for the following 30 calendar days under this scenario.

Funding market disruption: The global financial crisis highlighted the importance of differentiating between a name specific crisis and the different behaviour that domestic and offshore funding markets can exhibit during market disruption events. Under the liquidity policy, ANZ New Zealand must be able to meet its wholesale maturities under a scenario of protracted stress in domestic and offshore wholesale funding markets over a period of six months.

As of 30 September 2015 ANZ New Zealand was in compliance with 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.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

37

Notes to the Financial Statements

Funding capacity and debt issuance planning

ANZ New Zealand adopts a conservative approach to determine its funding capacity. Annually, a funding plan is approved by the Bank’s Board. The plan is supplemented by regular updates and is linked to ANZ New Zealand’s three year strategic planning cycle.

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, longerdated 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.

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

Funding composition NZ$ millions Customer deposits1 New Zealand Overseas Total customer deposits Wholesale funding Debt issuances Subordinated debt Certificates of deposit Commercial paper Other borrowings Total wholesale funding Total funding Concentrations of funding by industry Agriculture Forestry, fishing and mining Business and property services Construction Entertainment, leisure and tourism Finance and insurance Government and local authority Manufacturing Households Retail trade Transport and storage Wholesale trade Other2 Total funding Concentrations of funding by geography New Zealand Australia United States Europe Other countries Total funding	30/09/2015 30/09/2014 75,408 67,759 9,462 8,596
	84,870 76,355
	19,403 17,042 2,683 1,442 745 1,376 4,964 6,057 9,157 10,739
	36,952 36,656
	121,822 113,011
	2,871 2,996 656 544 6,304 5,576 1,283 1,044 1,021 922 44,728 46,133 2,910 2,434 1,913 1,458 55,239 47,600 1,064 994 745 772 1,312 1,029 1,776 1,509
	121,822 113,011
	80,564 72,964 11,472 12,041 12,332 11,518 10,388 10,464 7,066 6,024
	121,822 113,011

1 Represents term deposits, other deposits bearing interest, deposits not bearing interest and UDC secured investments. 2 Other includes exposures to electricity, gas and water, communications and personal services.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

38

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.

scenario metrics.
Total liquidity portfolio
NZ$ millions	30/09/2015 30/09/2014
Cash and balances with central banks	2,069 1,309
Certificates of deposit	468 159
Government, local body stock and bonds	5,063 6,318
Government treasury bills	1,155 380
Reserve Bank bills	799 -
Other bonds	5,930 5,135
Total liquidity portfolio	15,484 13,301

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 2015 ANZ New Zealand would be eligible to enter into repurchase transactions with a value of NZ$12,837 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 NZ$6,046 million at 30 September 2015.

Liquidity crisis contingency planning

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

• the establishment of crisis severity/stress levels;

• clearly assigned crisis roles and responsibilities;

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

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

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

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

• assigned responsibilities for internal and external communications.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

39

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 mark-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.

30/09/2015			Up to	Over 3 to	Over 1 to	Over	No maturity
NZ$ millions	Total	At call	3 months	12 months	5 years	5 years	specified
Financial assets
Cash	2,435	2,041	394	-	-	-	-
Settlement balances receivable	309	140	169	-	-	-	-
Collateral paid	1,929	-	1,929	-	-	-	-
Trading securities	13,180	-	516	1,929	9,710	1,025	-
Derivative financial assets (trading)	16,430	-	16,430	-	-	-	-
Available-for-sale assets	1,454	-	1,078	11	363	-	2
Net loans and advances	153,787	252	15,716	16,989	52,704	68,126	-
Other financial assets	331	-	180	146	5	-	-
Total financial assets	189,855	2,433	36,412	19,075	62,782	69,151	2
Financial liabilities
Settlement balances payable	1,427	1,188	239	-	-	-	-
Collateral received	1,687	-	1,687	-	-	-	-
Deposits and other borrowings	101,835	48,429	19,410	24,470	9,526	-	-
Derivative financial liabilities (trading)	14,635	-	14,635	-	-	-	-
Debt issuances	20,315	-	2,217	3,207	13,498	1,393	-
Subordinated debt	3,274	-	15	44	747	1,622	846
Other financial liabilities	583	-	212	9	107	255	-
Total financial liabilities	143,756	49,617	38,415	27,730	23,878	3,270	846
Derivative financial instruments used for balance	sheet management
- gross inflows	23,581	-	2,488	4,434	14,714	1,945	-
- gross outflows	(25,247)	-	(2,629)	(4,889)	(15,730)	(1,999)	-
Net financial assets / (liabilities) after balance sheet management	44,433	(47,184)	(2,144)	(9,110)	37,888	65,827	(844)

Contractual maturity of off-balance sheet commitments and contingent liabilities

Non-credit related commitments Credit related commitments Contingent liabilities Total	Total Less than 1 year Beyond 1 year 514 59 455 32,193 32,193 - 2,454 2,454 -
	35,161 34,706 455

Australia and New Zealand Banking Group Limited - ANZ New Zealand

40

Notes to the Financial Statements

30/09/2014			Up to	Over 3 to	Over 1 to	Over	No maturity
NZ$ millions	Total	At call	3 months	12 months	5 years	5 years	specified
Financial assets
Cash	2,250	1,513	737	-	-	-	-
Settlement balances receivable	855	514	341	-	-	-	-
Collateral paid	783	-	783	-	-	-	-
Trading securities	13,325	-	818	2,491	8,172	1,844	-
Derivative financial assets (trading)	10,727	-	10,727	-	-	-	-
Available-for-sale assets	826	-	163	279	382	-	2
Net loans and advances	151,304	350	15,922	16,622	49,452	68,958	-
Other financial assets	301	-	259	42	-	-	-
Total financial assets	180,371	2,377	29,750	19,434	58,006	70,802	2
Financial liabilities
Settlement balances payable	1,992	999	993	-	-	-	-
Collateral received	800	-	800	-	-	-	-
Deposits and other borrowings	96,802	40,271	21,076	24,473	10,982	-	-
Derivative financial liabilities (trading)	9,355	-	9,355	-	-	-	-
Debt issuances	17,935	-	1,014	3,184	13,116	621	-
Subordinated debt	2,202	-	18	54	304	682	1,144
Other financial liabilities	448	-	215	17	61	155	-
Total financial liabilities	129,534	41,270	33,471	27,728	24,463	1,458	1,144
Derivative financial instruments used for balance	sheet management
- gross inflows	24,463	-	3,205	4,418	15,956	884	-
- gross outflows	(25,365)	-	(3,261)	(4,591)	(16,613)	(900)	-
Net financial assets / (liabilities) after balance sheet management	49,935	(38,893)	(3,777)	(8,467)	32,886	69,328	(1,142)

Contractual maturity of off-balance sheet commitments and contingent liabilities

Non-credit related commitments Credit related commitments Contingent liabilities Total	Total Less than 1 year Beyond 1 year 483 102 381 27,930 27,930 - 2,436 2,436 -
	30,849 30,468 381

Australia and New Zealand Banking Group Limited - ANZ New Zealand

41

Notes to the Financial Statements

18. Classification of Financial Instruments and Fair Value Measurements

NZ$ millions 30/09/2015 Cash Settlement balances receivable Collateral paid Trading securities Derivative financial instruments1 Available-for-sale assets Net loans and advances2 Other financial assets Total financial assets Settlement balances payable Collateral received Deposits and other borrowings Derivative financial instruments1 Debt issuances2 Subordinated debt Other financial liabilities Total financial liabilities 30/09/2014 Cash Settlement balances receivable Collateral paid Trading securities Derivative financial instruments1 Available-for-sale assets Net loans and advances2 Other financial assets Total financial assets Settlement balances payable Collateral received Deposits and other borrowings Derivative financial instruments1 Debt issuances2 Subordinated debt Other financial liabilities Total financial liabilities	At amortised cost 2,435 309 1,929 - - - 114,376 606	At fair value through profit or loss Hedging Available-for- sale assets Total carrying amount Fair value Designated on initial recognition Held for trading - - - - 2,435 2,435 - - - - 309 309 - - - - 1,929 1,929 - 12,139 - - 12,139 12,139 - 16,991 596 - 17,587 17,587 - - - 1,428 1,428 1,428 - - - - 114,376 114,899 151 - - - 757 757
	119,655	151 29,130 596 1,428 150,960 151,483
	1,469 1,687 94,772 - 19,403 2,683 688	- - - - 1,469 1,469 - - - - 1,687 1,687 4,964 - - - 99,736 99,947 - 16,956 813 - 17,769 17,769 - - - - 19,403 19,516 - - - - 2,683 2,640 - 309 - - 997 997
	120,702	4,964 17,265 813 - 143,744 144,025
	2,248 855 783 - - - 105,485 539	- - - - 2,248 2,248 - - - - 855 855 - - - - 783 783 - 11,750 - - 11,750 11,750 - 11,083 338 - 11,421 11,421 - - - 772 772 772 - - - - 105,485 105,600 190 - - - 729 729
	109,910	190 22,833 338 772 134,043 134,158
	1,992 800 88,470 - 17,042 1,442 658	- - - - 1,992 1,992 - - - - 800 800 6,057 - - - 94,527 94,550 - 10,768 193 - 10,961 10,961 - - - - 17,042 17,225 - - - - 1,442 1,443 - 226 - - 884 884
	110,404	6,057 10,994 193 - 127,648 127,855

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 debt issuances. The resulting fair value adjustment means that the carrying value differs from the amortised cost.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

42

Notes to the Financial Statements

Measurement of fair value

Valuation methodologies

ANZ New Zealand has an established control framework that ensures fair value is either determined or validated by a function independent of the party that undertakes the transaction. The control framework ensures that all models are calibrated periodically to test that outputs reflect prices from observable current market transactions in the same instrument or other available observable market data.

Where quoted market prices are used, prices are independently verified from other sources. For fair values determined using a valuation model, the control framework may include, as applicable, independent development or validation of valuation models, any inputs to those models, any adjustments required outside of the valuation model and, where possible, independent validation of model outputs. In this way, continued appropriateness of the valuations is ensured.

In instances where ANZ New Zealand holds offsetting risk positions, ANZ New Zealand uses the portfolio exemption in NZ IFRS 13 Fair Value Measurement to measure the fair value of such groups of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position (that is, an asset) for a particular risk exposure or to transfer a net short position (that is, a liability) for a particular risk exposure.

The Group categorises its fair value measurements on the basis of inputs used in measuring fair value using the fair value hierarchy below:

• Level 1 – Financial instruments that have been valued by reference to unadjusted quoted prices in active markets for identical financial instruments. This category includes financial instruments valued using quoted yields where available for specific debt securities.

• Level 2 – Financial instruments that have been valued through valuation techniques incorporating inputs other than quoted prices within Level 1 that are observable for a similar financial asset or liability, either directly or indirectly.

• Level 3 – Financial instruments that have been valued using valuation techniques which incorporate significant inputs that are not based on observable market data (unobservable inputs).

Valuation techniques and inputs used

In the event that there is no quoted market price for the instrument, fair value is based on valuation techniques. The valuation models incorporate the impact of bid/ask spreads, counterparty credit spreads, funding costs and other factors that would influence the fair value determined by market participants.

The majority of valuation techniques employ only observable market data. However, for certain financial instruments the valuation technique may employ some data (valuation inputs or components) which is not readily observable in the current market. In these cases valuation inputs (or components of the overall value) are derived and extrapolated from other relevant market data and tested against historic transactions and observed market trends. To the extent that valuation is based on models or inputs that are not observable in the market, the determination of fair value can be more subjective, dependent on the significance of the unobservable input to the overall valuation.

The following valuation techniques have been applied to determine the fair values of financial instruments where there is no quoted price (level1) for the instrument:

• For instruments classified as trading securities and securities short sold, derivative financial assets and liabilities, available-forsale assets, and investments backing insurance contract liabilities, fair value measurements are derived by using modelled valuations techniques (including discounted cash flow models) that incorporate market prices / yields for securities with similar credit risk, maturity and yield characteristics; and/or current market yields for similar instruments.

• For net loans and advances, deposits and other borrowings and debt issuances, discounted cash flow techniques are used where contractual future cash flows of the instrument are discounted using discount rates incorporating wholesale market rates or market borrowing rates of debt with similar maturities or a yield curve appropriate for the remaining term to maturity.

• ANZ New Zealand holds units in an unlisted fund, included in available-for sale assets which does not trade in an active market. The fair value of these units is based on the estimated cashflows from the realisation of the underlying assets.

There have been no substantial changes in the valuation techniques applied to different classes of financial instruments during the year.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

43

Notes to the Financial Statements

Valuation hierarchy for financial assets and financial liabilities measured at fair value

NZ$ millions Financial assets Trading securities Derivative financial instruments Available-for-sale assets1 Investments backing insurance contract liabilities1 Total Financial liabilities Deposits and other borrowings Derivative financial instruments Other financial liabilities Total	30/09/2015 30/09/2014 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total 11,880 259 - 12,139 11,659 91 - 11,750 12 17,575 - 17,587 2 11,419 - 11,421 900 526 2 1,428 712 58 2 772 2 149 - 151 129 61 - 190
	12,794 18,509 2 31,305 12,502 11,629 2 24,133
	- 4,964 - 4,964 - 6,057 - 6,057 18 17,751 - 17,769 4 10,957 - 10,961 309 - - 309 226 - - 226
	327 22,715 - 23,042 230 17,014 - 17,244

Valuation hierarchy for financial assets and financial liabilities not measured at fair value[2]

NZ$ millions Financial assets Net loans and advances Financial liabilities Deposits and other borrowings Debt issuances Subordinated debt Total	30/09/2015 30/09/2014 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total - 110,990 3,909 114,899 - 101,696 3,904 105,600 - 94,983 - 94,983 - 88,493 - 88,493 638 18,878 - 19,516 - 17,225 - 17,225 2,333 307 - 2,640 828 615 - 1,443
	2,971 114,168 - 117,139 828 106,333 - 107,161

1 During the period, available-for-sale assets of NZ$159 million and Investments backing insurance contract liabilities of NZ$126 million were reclassified from Level 1 to Level 2 following a reassessment of available pricing information. Transfers into and out of Level 1 and Level 2 are deemed to have occurred as of the beginning of the reporting period in which the transfer occurred.

2 Fair values, where the carrying amount is not considered a close approximation of fair value.

19. Maturity Analysis of Assets and Liabilities

The following is an analysis of asset and liability line items in the balance sheet that combine amounts expected to be realised or due to be settled within one year and after more than one year.

	30/09/2015	30/09/2015	30/09/2015		30/09/2014	30/09/2014
NZ$ millions	within one year		after more than one year	Total	within one year	after more than one year	Total
Assets
Investment backing insurance contract liabilities	146		5	151	190	-	190
Available-for-sale assets	1,071		357	1,428	437	335	772
Net loans and advances	27,442		86,934	114,376	26,932	78,553	105,485
Other assets	657		83	740	572	60	632
Liabilities
Deposits and other borrowings	90,915		8,821	99,736	84,390	10,137	94,527
Payables and other liabilities	1,419		108	1,527	1,293	59	1,352
Provisions	95		96	191	117	87	204
Debt issuances	5,237		14,166	19,403	3,944	13,098	17,042

Australia and New Zealand Banking Group Limited - ANZ New Zealand

44

Notes to the Financial Statements

20. Assets Charged as Security for Liabilities and Collateral Accepted as Security for Assets

Assets charged as security for liabilities[1]

The carrying amounts of assets pledged as security are as follows:

The carrying amounts of assets pledged as security are as follows:
	Carrying	Amount	Related	Liability
NZ$ millions	30/09/2015	30/09/2014	30/09/2015	30/09/2014
Securities sold under agreements to repurchase	47	47	47	47
Residential mortgages pledged as security for covered bonds	7,547	7,283	5,335	3,928
Assets pledged as collateral for UDC secured investments	2,441	2,354	1,736	1,569

UDC secured investments are constituted and secured by a trust deed between UDC Finance Limited and its independent trustee, Trustees Executors Limited. UDC Finance Limited has granted a charge over all its assets and undertaking, primarily net loans and advances, in favour of the Trustee.

Collateral accepted as security for assets[1]

ANZ New Zealand has received collateral in relation to reverse repurchase agreements. These transactions are governed by standard industry agreements.

The fair value of collateral received and sold or repledged is as follows:

The fair value of collateral received and sold or repledged is as follows:
NZ$ millions	30/09/2015	30/09/2014
Collateral received on standard reverse repurchase agreements
Fair value of assets which can be sold	339	308
Fair value of assets sold or repledged	269	216

1 Excludes the amounts disclosed as collateral paid and received in the balance sheet that relate to derivative liabilities and derivative assets respectively. The terms and conditions of the collateral agreements are included in the standard Credit Support Annex that forms part of the International Swaps and Derivatives Association Master Agreement.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

45

Notes to the Financial Statements

21. Offsetting

The following information relates to financial assets and liabilities which have not been set off in the balance sheet but for which ANZ New Zealand has enforceable master netting agreements in place with counterparties. No financial assets and liabilities have been set off in the balance sheet.

been set off in the balance sheet.
	Gross amount~~s~~		Related amounts not offset 1
	presented in the		Financial
NZ$ millions	balance sheet		instruments	Cash collateral	Net amounts
30/09/2015
Financial assets
Collateral paid	1,139		-	(1,112)	27
Trading securities2	47		(47)	-	-
Derivative financial instruments	6,923		(6,194)	(704)	25
Financial liabilities
Collateral received	960		-	(704)	256
Securities sold under agreements to repurchase3	47		(47)	-	-
Derivative financial instruments	7,342		(6,194)	(1,112)	36
30/09/2014
Financial assets
Collateral paid	284		-	(206)	78
Trading securities2	47		(47)	-	-
Derivative financial instruments	8,448		(7,572)	(716)	160
Financial liabilities
Collateral received	753		-	(716)	37
Securities sold under agreements to repurchase3	47		(47)	-	-
Derivative financial instruments	7,848		(7,572)	(206)	70

1 ANZ New Zealand enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master netting agreements. ANZ New Zealand holds and provides cash and securities collateral in respective of derivative transactions covered by these agreements. The right to set off balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non payment or default and, as a result, these arrangements do not qualify for offsetting under NZ IAS 32 Financial Instruments: Presentation .

2 This is the amount of trading securities encumbered through repurchase agreements, see financial assets pledged as collateral table in this note.

3 Included in deposits from banks, see note 14.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

46

Notes to the Financial Statements

22. Credit Related Commitments, Guarantees and Contingent Liabilities

	Face or co	ntract value
NZ$ millions	30/09/2015 30/09/2014
Credit related commitments
Commitments with certain drawdown due within one year	1,130 764
Commitments to provide financial services	31,063 27,166
Total credit related commitments	32,193 27,930
Guarantees and contingent liabilities
Financial guarantees	920 925
Standby letters of credit	82 79
Transaction related contingent items	1,385 1,321
Trade related contingent liabilities	67 111
Total guarantees and contingent liabilities	2,454 2,436

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

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.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

47

Notes to the Financial Statements

23. Other Assets

NZ$ millions Accrued interest and prepaid discounts Accrued commission Share-based payments asset Prepaid expenses Other assets Total other assets	30/09/2015 30/09/2014 426 428 22 19 83 60 24 15 185 110
	740 632

24. Goodwill and Other Intangible Assets

NZ$ millions Goodwill Software Other intangibles Total goodwill and other intangible assets 25. Payables and Other Liabilities NZ$ millions Creditors Accrued interest and unearned discounts Defined benefit schemes deficit Share-based payments liability Accrued charges Security settlements and short sales Life insurance contract liabilities - reinsurance Liability for acceptances Other liabilities Total payables and other liabilities 26. Provisions NZ$ millions Employee annual and long service leave Other1 Total provisions	30/09/2015 30/09/2014 3,233 3,233 139 96 120 125
	3,492 3,454
	30/09/2015 30/09/2014 121 58 514 534 43 20 65 39 243 229 309 226 107 104 52 67 73 75
	1,527 1,352
	30/09/2015 30/09/2014 129 114 62 90
	191 204

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

48

Notes to the Financial Statements

27. Share Capital and Initial Head Office Account

	Number of issued shares	Number of issued shares	NZ$ millions
	30/09/2015 30/09/2014		30/09/2015 30/09/2014
Ordinary shares
At beginning and end of the year	381,655,112 381,655,112		1,453 1,453
Redeemable preference shares
At beginning of the year	4,903,692,932 4,005,295,229		5,929 4,960
Issued during the year	611,191,597 898,397,703		675 969
Redeemed during the year	(10,000,000) -		(10) -
Redeemablepreference shares at end of theyear	5,504,884,529	4,903,692,932	6,594 5,929
Paid in share capital	5,886,539,641	5,285,348,044	8,047 7,382
NZ Branch initial head office account	-	-	11 11
Total ANZ New Zealand share capital & initial head office account	5,886,539,641	5,285,348,044	8,058 7,393

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 2015 ANZ Holdings (New Zealand) Limited (ANZH) paid ordinary dividends of NZ$1,630 million (30/09/2014 NZ$2,335 million) to the Immediate Parent Company (equivalent to NZ$4.31 (30/09/2014 NZ$6.17) 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 seven classes of RPS, relating to issues in 1988, 2005, 2007, 2008, 2009, 2014 and 2015. ANZH did not pay any dividends on RPS during the years ended 30 September 2015 and 30 September 2014.

In the event of 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 NZ Branch capital comprises the initial head office account only. The head office account is the funds provided by the Ultimate Parent Bank on the creation of the NZ Branch. It is non-interest bearing and there is no fixed date of repayment.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

49

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 1, tier 1 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.

Basel III capital ratios			Ultimate Parent Bank	Ultimate Parent Bank
	Overseas Banking	Group	(Extended Licensed Entity)
	30/09/2015	30/09/2014	30/09/2015	30/09/2014
Unaudited
Common equity tier 1 capital	9.6%	8.8%	9.6%	9.1%
Tier 1 capital	11.3%	10.7%	11.6%	11.3%
Total capital	13.3%	12.7%	13.7%	13.4%

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 (AIRB) methodology for calculation of credit risk weighted assets and the Advanced Measurement Approach (AMA) for the operational risk weighted asset equivalent.

Under prudential regulations, the Overseas Banking Group is required to maintain a Prudential Capital Ratio (PCR) as determined by APRA. The Overseas Banking Group exceeded the PCR set by APRA as at 30 September 2015 and for the comparative prior periods.

The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 30 September 2015. The Overseas Banking Group’s Pillar 3 disclosure document for the quarter ended 30 September 2015, 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.

Market risk

ANZ New Zealand’s 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 2015.

	Implied risk weighted exposure Notional capital charge Peak	Implied risk weighted exposure Notional capital charge Peak
NZ$ millions	Period end Peak Period end Peak occurred on
Unaudited 30/09/2015
Interest rate risk	6,134 10,112	491 809 6/07/2015
Foreign currency risk	41 132	3 11 20/04/2015
Equity risk	2 2	- - 30/09/2015
	6,177	494

Australia and New Zealand Banking Group Limited - ANZ New Zealand

50

Notes to the Financial Statements

Residential mortgages by loan-to-valuation ratio

As required by the RBNZ, LVRs are calculated as the current exposure secured by a residential mortgage divided by ANZ New Zealand's valuation of the security property at origination of the exposure. Off balance sheet exposures include undrawn and partially drawn residential mortgage loans as well as commitments to lend. Commitments to lend are formal offers for housing lending which have been accepted by the customer.

	30/09/2015	30/09/2015
Unaudited	On-balance Off-balance
NZ$ millions	sheet sheet Total
LVR range
Does not exceed 60%	24,518 4,155 28,673
Exceeds 60% and not 70%	12,622 1,379 14,001
Exceeds 70% and not 80%	19,893 1,934 21,827
Does not exceed 80%	57,033 7,468 64,501
Exceeds 80% and not 90%	5,602 232 5,834
Exceeds 90%	2,560 256 2,816
Total	65,195 7,956 73,151
Reconciliation of mortgage related amounts
Unaudited
NZ$ millions	Note 30/09/2015
Term loans - housing	12 67,456
Less: fair value hedging adjustment	(201)
Add: short-term housing loans classified as overdrafts	476
Less: housing loans made to corporate customers	(2,536)
Gross retail mortgage loans / On-balance sheet retail mortgage exposures	17 65,195
Add: off-balance sheet retail mortgage exposures		7,956
Total retail mortgage exposures as per LVR analysis		73,151

Australia and New Zealand Banking Group Limited - ANZ New Zealand

51

Notes to the Financial Statements

29. Subsidiaries

The following table lists the principal subsidiaries of ANZ New Zealand. Principal subsidiaries are those that have transactions or balances with parties outside ANZ New Zealand. All subsidiaries are 100% owned and incorporated in New Zealand unless stated otherwise.

Principal subsidiaries	Nature of business
Members of the Banking Group
ANZ Bank New Zealand Limited	Registered bank
ANZ Investment Services (New Zealand) Limited	Funds management
ANZ New Zealand (Int'l) Limited	Finance
ANZ New Zealand Investments Limited	Funds management
ANZ New Zealand Securities Limited	On-line share broker
ANZNZ Covered Bond Trust1	Securitisation entity
Arawata Assets Limited	Property
Arawata Finance Limited	Investment
AUT Investments Limited	Investment
Karapiro Investments Limited	Investment
Kingfisher NZ Trust 2008-11	Securitisation entity
OnePath Life (NZ) Limited	Insurance
UDC Finance Limited	Asset finance
Other operating members of ANZ New Zealand (together with the NZ Branch, the "Relevant Members")
ANZ Capel Court Limited (New Zealand Branch)2	Securitisation services
ANZ Holdings (New Zealand) Limited	Holding company
ANZ Securities (NZ) Limited	Nominee

1 ANZ New Zealand does not own ANZNZ Covered Bond Trust and Kingfisher NZ Trust 2008-1. Control exists as ANZ New Zealand retains substantially all the risks and rewards of the operations. Details of ANZ New Zealand’s interest in consolidated structured entities is included in note 30.

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

52

Notes to the Financial Statements

30. Structured Entities, Transferred Financial Assets, Fiduciary Activities and Insurance

Structured entities

ANZ New Zealand’s involvement with structured entities is mainly through securitisations and its funds management activities, which are outlined further below. ANZ New Zealand has involvement with structured entities that may be established either by ANZ New Zealand or by a third party.

Consolidated structured entities

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 2015 and 30 September 2014 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.

Unconsolidated securitisations

ANZ New Zealand also has an interest in unconsolidated securitisation entities through the provision of funding facilities or holding bonds or notes issued by such entities. ANZ New Zealand’s exposure to these entities is not material.

Transferred financial assets

Assets transferred to the Kingfisher Trust and the Covered Bond Trust

The Bank has purchased securities issued by both the Kingfisher Trust and the Covered Bond Trust in exchange for the transfer of the rights to the cash flows associated with the identified residential mortgages. As at 30 September 2015, NZ$16,071 million of assets were held in the Kingfisher Trust and the Covered Bond Trust (30/09/2014 NZ$15,270 million).

Repurchase transactions

Securities sold subject to repurchase agreements are not derecognised when substantially all the risks and rewards of ownership remain with the Bank. See note 20 for details of securities sold under agreements to repurchase. The amount of trading securities encumbered through repurchase agreements is shown in note 21. The carrying amount of the associated liabilities is not materially different to the amount of trading securities subject to the repurchase agreement.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

53

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 schemes, unit trusts and the provision of private banking services to customers. 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 2015, NZ$3,100 million of funds under management were invested in ANZ New Zealand's own products or securities (30/09/2014 NZ$2,928 million).

Custodial services

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

NZ$ millions Kiwisaver and other managed funds The Bonus Bonds Trust ANZ PIE Fund1 Other investment portfolios2 Total funds under management Funds held in custody or as nominee on behalf of customers Funds management fee income from structured entities	30/09/2015 30/09/2014 9,147 7,205 3,277 3,196 794 715 9,522 8,807
	22,740 19,923
	8,082 7,427 137 110

1 ANZ New Zealand established, and is considered to be the sponsor of, the ANZ PIE Fund. The ANZ PIE Fund invests only in deposits with the Bank. ANZ New Zealand does not receive a management fee from, and does not have an interest in, the ANZ PIE Fund.

2 These funds are not structured entities as they are investment portfolios managed on behalf of customers.

Insurance business

ANZ New Zealand conducts insurance business through its subsidiary OnePath Life (NZ) Limited (OnePath Life). OnePath Insurance Services (NZ) Limited, which was a subsidiary of OnePath Life, also conducted insurance business until it amalgamated with OnePath Life on 30 November 2014.

OnePath Life provides a range of risk transfer insurance products, including life lump sum trauma/disablement, income protection and medical cover. In addition, other entities within the Banking Group market and distribute a range of insurance products which are underwritten by OnePath Life, or by third party insurance companies.

ANZ New Zealand’s aggregate amount of insurance business comprises the total consolidated assets of OnePath Life of NZ$884 million (30/09/2014 NZ$850 million), which is 0.6% (30/09/2014 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 - ANZ New Zealand

54

Notes to the Financial Statements

31. Related Party Disclosures

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, including the term of the loan, security required and the interest rate.

NZ$ thousands Key management personnel compensation Salaries and short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments expense Total compensation of key management personnel Loans to and deposits held by key management personnel Loans to key management personnel Deposits from key management personnel	Year to Year to
	30/09/2015 30/09/2014 12,698 12,402 220 387 77 130 5,076 5,400
	18,071 18,319
	12,693 14,956 6,945 5,035

Transactions with other related parties

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

These transactions principally consist of funding and hedging transactions, the provision of other financial and investment services, technology and process support, and compensation for share based payments made to 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
	Year to	Year to
NZ$ millions	30/09/2015	30/09/2014
Ultimate Parent Bank and subsidiaries not part of ANZ New Zealand
Interest income	12	3
Interest expense	426	484
Other operating income	35	116
Operating expenses	64	81
Preference shares redeemed	(10)	-
Immediate Parent Company
Interest expense	74	66
Preference shares issued	675	969
Associates
Interest expense	3	3
Share of associates' profit	5	3

Australia and New Zealand Banking Group Limited - ANZ New Zealand

55

Notes to the Financial Statements

Balances with related parties NZ$ millions Ultimate Parent Bank and subsidiaries not part of ANZ New Zealand Cash Settlement balances receivable Collateral paid Derivative financial instruments Other assets Associates Investments in associates Total due from related parties Ultimate Parent Bank and subsidiaries not part of ANZ New Zealand Settlement balances payable Collateral received Deposits and other borrowings Derivative financial instruments Payables and other liabilities Subordinated debt Immediate Parent Company Deposits and other borrowings Payables and other liabilities Associates Deposits and other borrowings Total due to related parties	30/09/2015 30/09/2014 55 487 86 12 - 125 3,937 3,764 97 63 4 88
	4,179 4,539
	98 120 688 - 7,344 8,928 3,843 4,576 47 49 302 607 1,766 1,766 5 6 - 85
	14,093 16,137

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:

NZ$ millions	30/09/2015	30/09/2014
Financial guarantees provided to the Ultimate Parent Bank	183	180

32. Capital Expenditure and Operating Lease Commitments

NZ$ millions Contracts for outstanding capital expenditure Not later than 1 year Future minimum lease payments under non-cancellable operating leases Not later than 1 year Later than 1 year but not later than 5 years Later than 5 years Total operating lease commitments Total commitments	30/09/2015 30/09/2014 12 15 47 87 258 203 197 178
	502 468
	514 483

Australia and New Zealand Banking Group Limited - ANZ New Zealand

56

Notes to the Financial Statements

33. Compensation of Auditors

NZ$ thousands Compensation of auditors (KPMG New Zealand) Audit or review of financial statements1 Other services: Review of regulatory returns Offer documents assurance or review Other assurance services2 Total other services Total compensation of auditors relating to ANZ New Zealand Fees paid on behalf of related entities and not recharged3 Total compensation of auditors	Year to Year to 30/09/2015 30/09/2014 2,246 2,308 40 96 155 249 187 151
	382 496
	2,628 2,804
	121 147
	2,749 2,951

1 Includes fees for both the audit of the annual financial statements and reviews of interim financial statements.

2 Includes fees for controls reports, comfort letters and other agreed upon procedures engagements.

3

Amounts relate to the ANZ PIE Fund and The Bonus Bonds Trust and include fees for audits of annual financial statements and audits of summary financial statements for inclusion in offer documents, comfort letters and other agreed upon procedures engagements.

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.

34. 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 year ended 30 September 2015 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.

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57

Notes to the Financial Statements

35. Risk Management Framework

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 sub-committee 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 17 for detailed disclosures on ANZ New Zealand's financial risk management policies.

Operational Risk

Operational risk is the risk arising from day to day operational activities which may result in direct or indirect loss. These losses may result from failure to comply with policies, procedures, laws and regulations, from fraud or forgery, from a breakdown in the availability or integrity of services, systems and information, or damage to ANZ New Zealand’s reputation.

Examples include failure to comply with policy and legislation, human error, natural disasters, fraud and other malicious acts. Where appropriate, risks are mitigated by insurance.

Risk Management is responsible for establishing ANZ New Zealand’s operational risk framework and associated ANZ New Zealand-wide policies. Business units are responsible for the identification, analysis, assessment and treatment of operational risks on a day-to-day basis.

Business units have primary responsibility for the identification and management of operational risk with executive oversight provided through business unit 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 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.

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Notes to the Financial Statements

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.

All audit activities are conducted in accordance with local and international auditing standards, and the results of the activities 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.

36. NZ Branch and Overseas Banking Group Information

NZ Branch Funding
NZ$ millions	30/09/2015
Total liabilities of the NZ Branch less amounts due to related parties	1,100
Overseas Banking Group Profitability and Size
AUD millions	30/09/2015
Profit for the year ended 30/09/20151	7,507
Net profit after tax for the year to 30/09/2015 as a percentage of average total assets	0.86%
Total assets	889,900
Percentage change in total assets in the year to 30/09/2015	15.26%
1Net profit after tax for the year includes AUD 14 million of profit attributable to non-controlling interests.
Overseas Banking Group asset quality
AUD millions	30/09/2015
Gross impaired assets	2,719
Gross impaired assets as a percentage of total assets	0.3%
Individual provision	1,061
Individual provision as a percentage of gross impaired assets	39.0%
Collective provision	2,956

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Historical Summary of Financial Statements

NZ$ millions Interest income Interest expense Net interest income Non-interest income Operating income Operating expenses Credit impairment charge / (release) Profit before income tax Income tax expense Profit after income tax Dividends paid Share capital issued NZ$ millions Total impaired assets Total assets Total liabilities Equity & head office account	Year to Year to Year to Year to Year to 30/09/2015 30/09/2014 30/09/2013 30/09/2012 30/09/2011 7,417 6,799 6,461 6,568 6,757 4,537 4,034 3,820 3,859 4,157
	2,880 2,765 2,641 2,709 2,600 1,157 1,063 795 905 809
	4,037 3,828 3,436 3,614 3,409 1,513 1,490 1,513 1,743 1,688 76 (9) 66 202 190
	2,448 2,347 1,857 1,669 1,531 677 636 488 404 446
	1,771 1,711 1,369 1,265 1,085
	(1,630) (2,335) (720) (485) (421) 665 969 - - - As at As at As at As at As at 30/09/2015 30/09/2014 30/09/2013 30/09/2012 30/09/2011 404 668 936 1,405 1,792 155,530 138,528 129,853 130,983 131,511 144,670 128,447 120,111 121,827 123,046 10,860 10,081 9,742 9,156 8,465

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

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60

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.

Ranking of local creditors in liquidation

Certain creditors 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 (the 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 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;

• (b) second, the ADI's debts (if any) to APRA under section 16AO 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 and recorded in Australian dollars;

• (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 under section 11CB of the Banking Act; 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 the sixth paragraph, together with other unsecured creditors of the Ultimate Parent Bank that do not otherwise have a priority claim under preceding paragraphs.

Under section 13A(1) of the Banking Act, in certain circumstances APRA may appoint a person to investigate the affairs of an ADI, take control of an ADI’s business or appoint an administrator 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 2015, amounted to $nil (30/09/2014 $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 (excluding 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 2015, the Ultimate Parent Bank has at all times held assets (excluding 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 in the circumstances specified in that section.

The requirements of the Banking Act have the potential to impact the management of the liquidity of ANZ New Zealand.

Guarantors

No material obligations of the NZ Branch are guaranteed as at 15 December 2015.

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 2015 of NZ$5,335 million, pursuant to a guarantee which is secured over a pool of assets. The Covered Bond Guarantor’s address for service is Level 9, 34 Shortland Street, Auckland, New Zealand. The Covered Bond Guarantor is not 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 30.

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General Disclosures

Other Matters

APRA has reviewed the level of exposures that can be provided to the respective New Zealand banking subsidiaries and branches (New Zealand operations) of the four Australian parent banks, including the Ultimate Parent Bank.

APRA has confirmed that by 1 January 2021 no more than 5% of the Ultimate Parent Bank’s Level 1 Tier 1 capital can comprise non-equity exposures to its New Zealand operations during ordinary times. Exposures in excess of this limit must be reduced in equal percentages over the five year transition period and may not increase above the exposures as at 30 June 2015. This limit does not include holdings of capital instruments or eligible secured contingent funding support provided to the Bank during times of financial stress.

The Ultimate Parent Bank established a New Zealand branch which was registered on 5 January 2009. The Bank sells, from time-to-time, residential loans and mortgages into the NZ Branch to provide funding for the Bank’s business. As at 30 September 2015, the NZ Branch held approximately NZ$8 billion of residential loans. To satisfy APRA’s requirements described above, the Bank intends to repay this funding at approximately NZ$1.6 billion per annum over the next five years.

APRA has also clarified that contingent funding support by the Ultimate Parent Bank to the Bank during times of financial stress must be provided on terms that are acceptable to APRA and, in aggregate with all other exposures to its New Zealand operations, must not exceed 50% of the Ultimate Parent Bank’s Level 1 Tier 1 capital. At present, only covered bonds meet APRA’s criteria for contingent funding. On this basis, we believe that the Ultimate Parent Bank will continue to be able to provide financial support to the Bank.

Credit Rating Information

As at 15 December 2015 the Ultimate Parent Bank has three credit ratings, which are applicable to its long-term senior unsecured obligations which are payable in New Zealand in New Zealand dollars.

The Ultimate Parent Bank’s Credit Ratings, which have not changed in the last two years, 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

The following table describes the credit rating grades available:

available:
	Standard &	Moody's	Fitch Ratings
	Poor's	Investors
		Service
The following grades display investmentgrade characteristics:
Ability to repay principal and	AAA	Aaa	AAA
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 principal	A	A	A
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 exist	BB	Ba	BB
which could affect the payment
of principal and interest on a
timelybasis.
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 currentlyin default.	D	-	RD & D

Credit ratings from Standard & Poor's and Fitch Ratings may be modified by the addition of "+" or "-" to show the relative standing within the “AA” to “B” categories. Moody's Investors Service applies numerical modifiers 1, 2, and 3 to each of the “Aa” to “Caa” classifications, with 1 indicating the higher end and 3 the lower end of the rating category.

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Conditions of Registration

Conditions of Registration, applicable as at 30 September 2015. These Conditions of Registration have applied from 30 March 2014.

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.

For the purposes of this condition of registration,-

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

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

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

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

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

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

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

7. 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;

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

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

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

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

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

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

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

15. That the registered bank in New Zealand does not incur any liabilities except:

16. a) to the government of New Zealand in respect of taxation and other charges;

17. b) to other branches or the head office of the registered bank;

18. c) to trade creditors and staff;

19. 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

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

In these conditions of registration:-

“banking group”-

• a) means the New Zealand business of the registered bank and its subsidiaries as required to be reported in

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Conditions of Registration

group financial statements for the group’s New Zealand business under section 461B(2) of the Financial Markets Conduct Act 2013 (unless paragraph (b) applies); or

• b) if the Financial Reporting Act 1993 applies to the registered bank, means the means the New Zealand business of the registered bank and its subsidiaries as required to be reported in group 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” -

• a) means the New Zealand business of the registered bank as defined in the requirement for financial statements for New Zealand business in section

461B(2) of the Financial Markets Conduct Act 2013 (unless paragraph (b) applies); or

• b) if the Financial Reporting Act 1993 applies to the registered bank, 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”-

• a) has the same meaning as in section 8 of the Financial Reporting Act 2013 (unless paragraph (b) applies); or

• b) means generally accepted accounting practice within the meaning of section 3 of the Financial Reporting Act 1993 if the registered bank is required to prepare financial statements in accordance with that practice.

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Directorate and Auditor

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 15 December 2015

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

David Michael Gonski, AC

BCom, LLB, FAICD(LIFE), FCPA Company Director Sydney, Australia

Mr Gonski is an ex-officio member of all Board Committees, including Chair of the Governance Committee.

Chairman: Coca-Cola Amatil Limited, The University of New South Wales Foundation Limited, and Sydney Theatre Company Ltd

Director/Member: ASIC External Advisory Panel and Lowy Institute for International Policy Chancellor: University of New South Wales Council

Chief Executive Officer – Australia and New Zealand Banking Group Limited

Michael Roger Pearson Smith, OBE

BSc (Hons) (City Lond), Hon LLD (Monash), Hon DSc City Lond., SF Fin

Chief Executive Officer and Executive Director Melbourne, Australia

External Directorships

Director: ANZ Bank New Zealand Limited, the Financial Markets Foundation for Children, Financial Literacy Australia Limited and the Institute of International Finance

Member: Australian Bankers’ Association Incorporated, Asia Business Council, Australian Government Financial Literacy Advisory Board, Shanghai International Financial Advisory Council, and the Business Council of Australia, Chongqing Mayor’s International Economic Advisory Council and Monash Industry Council of Advisers Fellow: The Hong Kong Management Association

Non-Executive Directors

Ilana Rachel Atlas

BJuris (Hons), LLB (Hons), LLM Company Director Sydney, Australia

External Directorships

Chairman: The Bell Shakespeare Company Limited Director: Oakridge Wines Pty Limited, Coca-Cola Amatil Limited, Human Rights Law Centre Ltd, Treasury Corporation of New South Wales, Jawun, Westfield Corporation Limited Member: Australian Institute of Company Directors’ Corporate Governance Committee Fellow: Senate of the University of Sydney

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65

Directorate and Auditor

Paula Jane Dwyer

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

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

External Directorships

Chairman: Healthscope Limited, Tabcorp Holdings Limited and Kin Group Advisory Board Director: Lion Pty Ltd Member: Kirin International Advisory Board, and ASIC External Advisory 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: the Lowy Institute for International Policy Member: International Advisory Board of Goldman Sachs, and International Advisory Board of CHAMP Private Equity

John Thomas Macfarlane

Lee Hsien Yang

MSc, BA Company Director Singapore

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

External Directorships

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

Director: Rolls-Royce Holdings plc, General Atlantic Singapore Fund FII Pte Ltd, Singapore Exchange Limited, Caldecott Inc., and Cluny Lodge Pte Ltd Member: Governing Board of Lee Kuan Yew School of Public Policy Special Advisor: General Atlantic Consultant: Capital International Inc Advisory Board President: INSEAD South East Asia Council

BCom, MCom (Hons) Company Director Melbourne, Australia

Mr Macfarlane is a member of the Audit Committee, Risk Committee and Technology Committee.

External Directorships

Chairman: AGInvest Holdings Limited (MyFarm Limited) Director: Craigs Investment Partners Limited, Colmac Group Pty Ltd and St. Vincent’s Institute of Medical Research

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

Graeme Richard Liebelt

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

Auditor

KPMG

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

External Directorships

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

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

A ustralia and N ew Zealand Banking Group Limited - A NZ New Ze a land

6 6

Directors' and New Zealand Chief Executive Officer's Statement

A s at the date o n which this Disclosure Statement is signe d , after due en q uiry, each Dir e ctor of the Ult i mate Parent Bank and the C hief Executive Officer – NZ B r anch believes that: (i) The Discl o sure Stateme n t contains all t he informatio n that is required by the Registered Bank Di s closure State m ents (Overse a s Incorpor a ted Registere d Banks) Order 2014; and (ii) The Discl o sure Stateme n t is not false o r misleading. O ver the year e n ded 30 Septe m ber 2015, after due enquir y , each Directo r of the Ultimate Parent Bank a nd the Chief E xecutive Officer – NZ Branch be l ieves that: (i) The Ultim a te Parent Ban k has complie d with all Cond i tions of Regis t ration that ap p lied during th a t period; (ii) The NZ Br a nch and the B ank had syste m s in place to m onitor and c o ntrol adequat e ly the materi a l risks of Relevant Members o f ANZ New Z ealand inclu d ing credit risk, concentratio n of credit risk, interest rate risk, currency ris k , equity risk, li q uidity risk an d other business risks, and that those sys t ems were bei n g properly applied.

This Disclosure Statement is dated 15 December 2015, 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.

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David Gonski, AC Chairman, on behalf of the Directors:

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Anthony Bradshaw Chief Executive Officer – NZ Branch

Ilana Atlas Paula Dwyer Lee Hsien Yang Graeme Liebelt Ian Macfarlane, AC John Macfarlane Michael Smith, OBE

Australia and New Zealand Banking Group Limited - ANZ New Zealand

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Independent auditor’s report

To the Directors of Australia and New Zealand Banking Group Limited

Report on the 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 and its related entities (“ANZ New Zealand”) on pages 3 to 58 of the Disclosure Statement. The financial statements comprise the balance sheet as at 30 September 2015, 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 ANZ New Zealand. The supplementary information comprises the information that is required to be disclosed in accordance with the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order 2014 (the Order).

This report is made solely to the Directors as a body. Our audit work has been undertaken so that we might state to the Directors of Australia and New Zealand Banking Group Limited those matters we are required to state to them in the auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Directors of Australia and New Zealand Banking Group Limited as a body, for our audit work, this report or any of the opinions we have formed.

Directors' responsibility for the disclosure statement

The Directors are responsible on behalf of ANZ New Zealand for the preparation of ANZ New Zealand Disclosure Statement, including financial statements prepared in accordance with Clause 25 of the Order, generally accepted accounting practice in New Zealand and International Financial Reporting Standards 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 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 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 ANZ New Zealand financial statements (excluding the supplementary information relating to Capital Adequacy). The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to 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 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.

Opinion on the Disclosure Statement

In our opinion the Disclosure Statement of ANZ New Zealand on pages 3 to 58 (excluding the supplementary information):

• a. complies with generally accepted accounting practice in New Zealand;

• b. complies with International Financial Reporting Standards; and

• c. presents fairly, in all material respects, the financial position as at 30 September 2015 and of their financial performance and cash flows for the year ended on that date.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

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Opinion on supplementary information

In our opinion, the supplementary information (excluding supplementary information relating to Capital Adequacy) that is required to be disclosed in accordance with Schedules 4, 7, 10, 11 and 13 of the Order, and is included within notes 13, 28, 17, 30 and 36 of the Disclosure Statement:

• a. 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;

• b. is in accordance with the books and records of ANZ New Zealand in all material respects; and

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

Report on the supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy

We have reviewed the supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy information, as disclosed in note 28 of the Disclosure Statement for the year ended 30 September 2015.

Directors’ responsibility for the supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy

The Directors are responsible for the preparation of supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy that is required to be disclosed under Schedule 9 of the Order and prepared in accordance with the Capital Adequacy Framework (Standardised Approach) (BS2A) and described in note 28 of the Disclosure Statement.

Auditor’s responsibility

Our responsibility is to express an opinion on the supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy based on our review. We conducted our review in accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity issued by the New Zealand External Board. As the auditor of ANZ New Zealand, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial statements and plan and perform the review to obtain limited assurance about whether the supplementary information relating to Credit and Market Risk Exposures and Capital Adequacy information is, in all material respects:

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

• b. disclosed in accordance with Schedule 9 of the Order.

A review is limited primarily to enquiries of 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.

A review of the capital adequacy information in accordance with NZ SRE 2410 is a limited assurance engagement. The auditor performs procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

The procedures performed in a review are substantially less than those performed in an audit conducted in accordance with International Standards on Auditing (New Zealand). Accordingly we do not express an audit opinion on the supplementary information relating to capital adequacy disclosures.

Review opinion on the 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, and disclosed in note 28 of the Disclosure Statement, is not, in all material respects:

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

• b. disclosed in accordance with Schedule 9 of the Order.

Independence

Our firm has provided other services to ANZ New Zealand in relation to review of regulatory returns, internal controls reports, prospectus assurance or reviews and agreed upon procedures engagements. Subject to certain restrictions partners and employees of our firm may also deal with the ANZ New Zealand on normal terms within the ordinary course of trading activities of the business of ANZ New Zealand. There are, however, certain restrictions on dealings which the partners and employees of our firm can have with ANZ New Zealand. These matters have not impaired our independence as auditors of ANZ New Zealand. The firm has no other relationship with, or interest in, ANZ New Zealand.

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Wellington 15 December 2015