Australia and New Zealand Banking Group Ltd. — Interim / Quarterly Report 2015

May 14, 2015

ANZ Bank New Zealand Limited Registered Bank Disclosure Statement FOR THE SIX MONTHS ENDED 31 MARCH 2015 | NUMBER 77 ISSUED MAY 2015

ANZ Bank New Zealand Limited

Registered Bank Disclosure Statement For the six months ended 31 March 2015

Contents

Contents
General Disclosures	2
Income Statement	3
Statement of Comprehensive Income	3
Statement of Changes in Equity	4
Balance Sheet	5
Condensed Cash Flow Statement	6
Notes to the Financial Statements	7
Directors' Statement	28
Independent Auditor’s Review Report	29

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 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 Ground Floor, ANZ Centre, 23-29 Albert Street, Auckland, New Zealand, which is also the Banking Group’s address for service;

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

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

• (l) the Order means the Registered Bank Disclosure Statements (New Zealand 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.

ANZ Bank New Zealand Limited

2

General Disclosures

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

Credit Rating Information

The Bank has three credit ratings, which are applicable to its long-term senior unsecured obligations. The Bank’s credit ratings are:

	Current Credit
Rating Agency	Rating	Qualification
Standard & Poor’s	AA-	Outlook Stable
Moody’s Investors Service	Aa3	Outlook Stable
Fitch Ratings	AA-	Outlook Stable

Changes to Conditions of Registration

The conditions of registration applying to the Bank were amended on 1 October 2014 to refer to revised versions of the RBNZ documents Capital Adequacy Framework (Internal Models Based Approach) (BS2B), Connected Exposures Policy (BS8) and Framework for Restrictions on High-LVR Residential Mortgage Lending (BS19).

Directorate

As at 14 May 2015 there have been no changes to the Directors of the Bank since 30 September 2014, the balance date of the last full year disclosure statement.

Auditor

Guarantors

No obligations of the Bank are guaranteed as at 14 May 2015.

ANZNZ Covered Bond Trust

The Banking Group’s auditor is KPMG, Chartered Accountants, Level 9, 10 Customhouse Quay, Wellington, New Zealand.

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 31 March 2015 of $4,382 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 7.

ANZ Bank New Zealand Limited

3

Income Statement

Income Statement
		Unaudited	Unaudited	Audited
		6 months to	6 months to	Year to
$ millions	Note	31/03/2015	31/03/2014	30/09/2014
Interest income		3,445	2,998	6,272
Interest expense		2,022	1,644	3,529
Net interest income		1,423	1,354	2,743
Net trading gains		149	94	210
Net funds management and insurance income		211	149	325
Other operating income	2	230	278	547
Share of associates' profit		1	1	3
Operating income		2,014	1,876	3,828
Operating expenses		755	727	1,489
Profit before credit impairment and income tax		1,259	1,149	2,339
Credit impairment charge / (release)	5	30	(42)	(16)
Profit before income tax		1,229	1,191	2,355
Income tax expense		340	324	639
Profit after income tax		889	867	1,716

Statement of Comprehensive Income

Statement of Comprehensive Income
$ 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 that will not be 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 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 period	Unaudited Unaudited Audited 6 months to 6 months to Year to 31/03/2015 31/03/2014 30/09/2014 889 867 1,716 (27) 24 35 8 (7) (10)
	(19) 17 25 7 (16) (2) (13) (22) (41) 2 10 12
	(4) (28) (31)
	866 856 1,710

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

ANZ Bank New Zealand Limited

4

Statement of Changes in Equity

Statement of Changes in Equity
$ millions	Share capital Available- for-sale revaluation reserve Cash flow hedging reserve Retained earnings Total equity
As at 1 October 2013 (Audited)	7,243 (2) 26 4,187 11,454
Profit after income tax	- - - 867 867
Unrealised gains / (losses) recognised directly in equity	- 3 (19) - (16)
Realised gains transferred to the income statement	- - (22) - (22)
Actuarial gain on defined benefit schemes	- - - 24 24
Income tax credit / (expense) on items recognised directly in equity	- (1) 11 (7) 3
Total comprehensive income for the period	- 2 (30) 884 856
Ordinary dividend paid	- - - (540) (540)
Preference dividend paid	- - - (5) (5)
As at 31 March 2014 (Unaudited)	7,243 - (4) 4,526 11,765
As at 1 October 2013 (Audited)	7,243 (2) 26 4,187 11,454
Profit after income tax	- - - 1,716 1,716
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 period	- 2 (33) 1,741 1,710
Ordinary dividend paid	- - - (2,340) (2,340)
Preference dividend paid	- - - (13) (13)
Ordinary shares issued	970 - - - 970
As at 30 September 2014 (Audited)	8,213 - (7) 3,575 11,781
Profit after income tax	- - - 889 889
Unrealised gains recognised directly in equity	- 1 6 - 7
Realised gains transferred to the income statement	- - (13) - (13)
Actuarial loss on defined benefit schemes	- - - (27) (27)
Income tax credit on items recognised directly in equity	- - 2 8 10
Total comprehensive income for the period	- 1 (5) 870 866
Ordinary dividend paid	- - - (1,015) (1,015)
Preference dividend paid	- - - (7) (7)
As at 31 March 2015 (Unaudited)	8,213 1 (12) 3,423 11,625

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

ANZ Bank New Zealand Limited

5

Balance Sheet

Balance Sheet
		Unaudited	Unaudited	Audited
$ millions	Note	31/03/2015	31/03/2014	30/09/2014
Assets
Cash		2,457	1,717	1,822
Settlement balances receivable		601	705	855
Collateral paid		2,123	1,367	783
Trading securities		12,215	12,090	11,750
Investments backing insurance contract liabilities		210	165	190
Derivative financial instruments		10,961	8,744	11,404
Current tax assets		4	33	-
Available-for-sale assets		903	667	772
Net loans and advances	4	100,695	93,391	96,299
Other assets		711	604	648
Life insurance contract assets		554	431	470
Investments in associates		89	89	88
Premises and equipment		372	373	380
Goodwill and other intangible assets		3,462	3,449	3,454
Total assets		135,357	123,825	128,915
Interest earning and discount bearing assets		118,819	109,757	111,914
Liabilities
Settlement balances payable		1,611	1,533	2,296
Collateral received		364	452	800
Deposits and other borrowings	8	88,142	81,457	84,019
Derivative financial instruments		12,007	9,645	10,205
Current tax liabilities		-	-	67
Deferred tax liabilities		96	15	60
Payables and other liabilities		1,296	1,213	1,297
Provisions		189	211	204
Debt issuances		17,686	16,405	17,042
Subordinated debt	9	2,341	1,129	1,144
Total liabilities		123,732	112,060	117,134
Net assets		11,625	11,765	11,781
Equity
Share capital		8,213	7,243	8,213
Reserves		(11)	(4)	(7)
Retained earnings		3,423	4,526	3,575
Total equity		11,625	11,765	11,781
Interest and discount bearing liabilities		103,041	94,188	97,809

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

ANZ Bank New Zealand Limited

6

Condensed Cash Flow Statement

Condensed Cash Flow Statement
	Unaudited Unaudited Audited
	6 months to 6 months to Year to
$ millions	31/03/2015 31/03/2014 30/09/2014
Cash flows from operating activities
Interest received	3,384 2,955 6,189
Interest paid	(2,072) (1,649) (3,429)
Other cash inflows provided by operating activities	450 505 951
Other cash outflows used in operating activities	(1,085) (1,012) (1,898)
Cash flows from operating profits before changes in operating assets and liabilities	677 799 1,813
Net changes in operating assets and liabilities	(1,195) (984) (536)
Net cash flows provided by / (used in) operating activities	(518) (185) 1,277
Cash flows from investing activities
Cash inflows provided by investing activities	- 10 18
Cash outflows used in investing activities	(44) (44) (120)
Net cash flows used in investing activities	(44) (34) (102)
Cash flows from financing activities
Cash inflows provided by financing activities	3,971 2,918 5,401
Cash outflows used in financing activities	(2,764) (3,178) (6,950)
Net cash flows provided by / (used in) financing activities	1,207 (260) (1,549)
Net increase / (decrease) in cash and cash equivalents	645 (479) (374)
Cash and cash equivalents at beginning of the period	1,830 2,204 2,204
Cash and cash equivalents at end of the period	2,475 1,725 1,830

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

ANZ Bank New Zealand Limited

7

Notes to the Financial Statements

1. Significant Accounting Policies

(i) Reporting entity and statement of compliance

These interim financial statements are for the Banking Group for the six months ended 31 March 2015. They have been prepared in accordance with New Zealand Generally Accepted Accounting Practice as appropriate for profit oriented entities, the requirements of NZ IAS 34 Interim Financial Reporting, IAS 34 Interim Financial Reporting and the Order, and should be read in conjunction with the Banking Group’s financial statements for the year ended 30 September 2014.

(ii) Basis of measurement

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

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

(iii) Changes in accounting policies

The accounting policies adopted by the Banking Group are consistent with those adopted and disclosed in the previous full year Disclosure Statement.

(iv) Presentation currency and rounding

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

(v) Comparatives

Amounts in the cash flow statement for cash and cash equivalents and net changes in operating assets and liabilities have been updated for the revised definition of cash and cash equivalents applied in the previous full year Disclosure Statement.

(vi) Principles of consolidation

The financial statements consolidate the financial statements of the Bank and its subsidiaries.

• financial instruments held for trading;

• financial assets treated as available-for-sale; and

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

2. Other Operating Income

$millions Net fee income Fair value gain / (loss) on hedging activities and financial liabilities designated at fair value Insurance settlement relating to ING Diversified Yield Fund and ING Regular Income Fund Loss on sale of mortgages to NZ Branch Other income Total other operating income	Unaudited Unaudited Audited 6 months to 6 months to Year to 31/03/2015 31/03/2014 30/09/2014 203 207 408 7 (15) 35 - 91 91 (2) (14) (23) 22 9 36
	230 278 547

ANZ Bank New Zealand Limited

8

Notes to the Financial Statements

3. Segment Analysis

The Banking Group 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.

Segmental reporting has been updated to reflect minor changes to the Banking Group’s structure. Comparative data has been adjusted to be consistent with the current period’s segment definitions.

Retail

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

Commercial

Commercial provides services to Business Banking, Commercial & Agri, and UDC customers. Business Banking

services are offered to small enterprises (typically with annual revenues of less than $5 million). Commercial & Agri customers consist of primarily privately owned medium to large enterprises. The Banking Group's relationship with these businesses ranges from simple banking requirements with revenue from deposit and transactional facilities, and cash flow lending, to more complex funding arrangements with revenue sourced from a wider range of products. UDC is principally involved in the financing 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.

Business segment analysis[1]

$ millions	Retail Commercial Wealth2 Institutional Other3 Total
Unaudited 6 months to 31/03/2015
External revenues Intersegment revenues Total revenues Profit after income tax Unaudited 6 months to 31/03/2014 External revenues Intersegment revenues Total revenues Profit after income tax Audited year to 30/09/2014 External revenues Intersegment revenues Total revenues Profit after income tax	476 1,556 72 461 (551) 2,014 159 (789) 84 (127) 673 -
	635 767 156 334 122 2,014 223 365 67 166 68 889
	513 1,356 152 397 (542) 1,876 93 (642) 76 (79) 552 -
	606 714 228 318 10 1,876 207 370 121 164 5 867
	991 2,850 211 802 (1,026) 3,828 225 (1,395) 165 (177) 1,182 -
	1,216 1,455 376 625 156 3,828 412 717 181 320 86 1,716

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

2 Wealth external revenues for the six months to 31 March 2014 and year to 30 September 2014 includes the $91 million insurance settlement relating to the Bank’s former involvement in the ING Diversified Yield fund and the ING Regular Income Fund.

3 This segment has negative external revenues as this segment incurs funding costs on behalf of the Banking Group and is reimbursed internally.

ANZ Bank New Zealand Limited

9

Notes to the Financial Statements

4. Net Loans and Advances

Unaudited Unaudited Audited	Unaudited Unaudited Audited
$ millions Note 31/03/2015 31/03/2014 30/09/2014
Overdrafts 1,640 1,789 1,744
Credit card outstandings 1,639 1,525 1,580
Term loans - housing 55,679 51,396 52,717
Term loans - non-housing 41,017 38,521 39,622
Lease receivables 255 112 277
Hire purchase 878 768 837
Other 125 125 125
Total gross loans and advances 101,233 94,236 96,902
Less: Provision for credit impairment 5 (638) (722) (666)
Less: Unearned income	(215) (351) (212)
Add: Capitalised brokerage/mortgage origination fees	253 176 208
Add: Customer liability for acceptances	62 52 67
Total net loans and advances	100,695 93,391 96,299

The Bank has sold residential mortgages to the NZ Branch with a net carrying value of $8,323 million as at 31 March 2015 (31/03/2014 $9,175 million, 30/09/2014 $9,176 million). These assets qualify for derecognition as the Bank does not retain a continuing involvement in the transferred assets.

5. Provision for Credit Impairment

Credit impairment charge / (release)

	Retail mortgages Other retail exposures Non-retail exposures Total
$ millions
Unaudited 31/03/2015
New and increased provisions	12 50 41 103 (16) (9) (31) (56) (1) (10) (1) (12)
Write-backs
Recoveries of amounts written off previously
Individual credit impairment charge / (release)	(5) 31 9 35 - (1) (4) (5)
Collective credit impairment release
Credit impairment charge / (release)	(5) 30 5 30
Unaudited 31/03/2014
New and increased provisions	22 62 45 129 (26) (10) (60) (96) (1) (9) (5) (15)
Write-backs
Recoveries of amounts written off previously
Individual credit impairment charge / (release)	(5) 43 (20) 18 (11) (3) (46) (60)
Collective credit impairment release
Credit impairment charge / (release)	(16) 40 (66) (42)
Audited 30/09/2014
New and increased provisions	50 120 111 281 (44) (21) (112) (177) (2) (20) (7) (29)
Write-backs
Recoveries of amounts written off previously
Individual credit impairment charge / (release)	4 79 (8) 75 (23) 1 (69) (91)
Collective credit impairment charge / (release)
Credit impairment charge / (release)	(19) 80 (77) (16)

ANZ Bank New Zealand Limited

10

Notes to the Financial Statements

Notes to the Financial Statements
Movement in provision for credit impairment
	Retail mortgages Other retail exposures Non-retail exposures Total
$ millions
Unaudited 31/03/2015
Collective provision	78 118 255 451 - (1) (4) (5)
Balance at beginning of the period
Release to income statement
Balance at end of the period	78 117 251 446
Individual provision
Balance at beginning of the period	72 15 128 215 (4) 41 10 47 - (44) (21) (65) (2) - (3) (5)
New and increased provisions net of write-backs
Bad debts written off
Discount unwind
Balance at end of the period	66 12 114 192
Total provision for credit impairment	144 129 365 638
Unaudited 31/03/2014
Collective provision
Balance at beginning of the period	101 117 324 542 (11) (3) (46) (60)
Release to income statement
Balance at end of the period	90 114 278 482
Individual provision
Balance at beginning of the period	74 22 188 284 (4) 52 (15) 33 - (55) (25) (80) (2) - 5 3
New and increased provisions net of write-backs
Bad debts written off
Discount unwind reversal / (discount unwind)
Balance at end of the period	68 19 153 240
Total provision for credit impairment	158 133 431 722
Audited 30/09/2014
Collective provision
Balance at beginning of the year	101 117 324 542 (23) 1 (69) (91)
Charge / (release) to income statement
Balance at end of theyear	78 118 255 451
Individual provision
Balance at beginning of the year	74 22 188 284 6 99 (1) 104 (3) (106) (67) (176) (5) - 8 3
New and increased provisions net of write-backs
Bad debts written off
Discount unwind reversal / (discount unwind)
Balance at end of theyear	72 15 128 215
Total provision for credit impairment	150 133 383 666

ANZ Bank New Zealand Limited

11

Notes to the Financial Statements

6. Impaired Assets and Past Due Assets

	Retail	Other retail	Non-retail
$ millions	mortgages	exposures	exposures	Total
Unaudited 31/03/2015
Balance at beginning of the period	189	35	410	634
Transfers from productive	39	61	59	159
Transfers to productive	(46)	(4)	(33)	(83)
Assets realised or loans repaid	(53)	(13)	(105)	(171)
Write offs	-	(44)	(21)	(65)
Total impaired assets	129	35	310	474
Undrawn facilities with impaired customers	1	-	19	20
Unaudited 31/03/2014
Balance at beginning of the period	179	49	666	894
Transfers from productive	88	78	129	295
Transfers to productive	(19)	(1)	(60)	(80)
Assets realised or loans repaid	(68)	(19)	(171)	(258)
Write offs	-	(55)	(25)	(80)
Total impaired assets	180	52	539	771
Undrawn facilities with impaired customers	-	1	34	35
Audited 30/09/2014
Balance at beginning of the year	179	49	673	901
Transfers from productive	178	138	299	615
Transfers to productive	(41)	(4)	(153)	(198)
Assets realised or loans repaid	(124)	(42)	(342)	(508)
Write offs	(3)	(106)	(67)	(176)
Total impaired assets	189	35	410	634
Undrawn facilities with impaired customers	1	-	38	39

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

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

Ageing analysis of loans that are past due but not impaired

Ageing analysis of loans that are past due but not impaired
	Retail	Other retail	Non-retail	Total
$ millions	mortgages	exposures	exposures
Unaudited 31/03/2015
1 to 5 days	351	116	569	1,036
6 to 29 days	212	99	80	391
1 to 29 days	563	215	649	1,427
30 to 59 days	158	37	103	298
60 to 89 days	65	17	38	120
90 days or over	115	37	50	202
	901	306	840	2,047

ANZ Bank New Zealand Limited

12

Notes to the Financial Statements

7. Financial Assets Pledged as Collateral

	Unaudited	Unaudited	Audited
$ millions	31/03/2015	31/03/2014	30/09/2014
Cash collateral given on derivative financial instruments	2,123	1,367	783
Trading securities encumbered through repurchase agreements	43	32	47
Residential mortgages pledged as security for covered bonds	7,010	6,780	7,283
Total assets of UDC Finance Limited pledged as collateral for UDC secured investments	2,423	2,272	2,354
Total financial assets pledged as collateral	11,599	10,451	10,467

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.

The Banking Group 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.

8. Deposits and Other Borrowings

Unaudited Unaudited Audited	Unaudited Unaudited Audited
$ millions Note 31/03/2015 31/03/2014 30/09/2014
Certificates of deposit 1,462 1,604 1,376
Term deposits 34,855 34,869 34,758
Other deposits bearing interest and other borrowings 37,591 31,833 34,027
Deposits not bearing interest 6,263 5,833 6,001
Deposits from banks 43 361 226
Commercial paper 6,273 5,401 6,057
UDC secured investments 7 1,629 1,534 1,569
Deposits from other members of ANZ New Zealand	26 22 5
Total deposits and other borrowings	88,142 81,457 84,019

ANZ Bank New Zealand Limited

13

Notes to the Financial Statements

9. Subordinated Debt

	Unaudited Unaudited Audited
$ millions	31/03/2015 31/03/2014 30/09/2014
ANZ Capital Notes1
ANZ New Zealand Internal Capital Notes (ANZ NZ ICN)	1,003 - -
ANZ New Zealand Capital Notes (ANZ NZ CN)2	494 - -
Perpetual subordinated debt
NZD 835,000,000 perpetual subordinated bond2,3	835 835 835
AUD 265,740,000 perpetual subordinated floating rate loan3,4	- 283 298
AUD 10,000,000 perpetual subordinated floating rate loan	10 11 11
Total subordinated debt issued	2,342 1,129 1,144
Less subordinated debt instruments held by the Bank	(1) - -
Total subordinated debt	2,341 1,129 1,144

1 These instruments qualify as additional tier 1 capital.

2 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).

3 These instruments qualify as tier 2 capital under RBNZ’s transitional rules. Refer to Note 11 for further details.

4 This loan was repaid on 16 March 2015. Interest was payable half yearly in arrears at BBSW + 0.95% p.a.

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 Bank.

ANZ Capital Notes

• On 5 March 2015, the Bank issued 10.0 million convertible notes (ANZ NZ ICN) to the NZ Branch at $100 each, raising $1,003 million.

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

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

As at 31 March 2015, ANZ NZ CN carried a BBB- credit rating from Standard and Poor’s.

The notes are classified as debt given there are circumstances where the principal is converted into a variable number of shares of the Bank (ANZ NZ ICN) or the Ultimate Parent Bank (ANZ NZ CN) beyond the Bank’s control.

Interest

Interest on the notes is non-cumulative and payable as follows:

• ANZ NZ ICN: payable semi-annually in arrears in March and September in each year. The interest rate is based on a floating rate equal to the aggregate of the New Zealand 6 month bank bill rate plus a 380 basis point margin.

• 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.

Interest payments are subject to the Bank’s absolute discretion and certain payment conditions being satisfied (including RBNZ and APRA (ANZ NZ CN only) requirements). If interest is not paid on the notes the Bank may not, except in limited circumstances, pay dividends on its ordinary shares

or undertake a share buy-back or other capital reduction until interest is next paid.

Conversion features

On 24 March 2025 (ANZ NZ ICN) 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:

• Bank based on the net assets per share in the Bank’s most recently published Disclosure Statement (ANZ NZ ICN); or

• 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 (ANZ NZ CN).

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

The Bank may be required to convert some or all of the notes if a common equity capital trigger event, or an RBNZ or APRA (ANZ NZ CN only) non-viability trigger event occurs. The ANZ ICN will convert into ordinary shares of the Bank and the ANZ CN will convert into ordinary shares of the Ultimate Parent Bank.

A common equity capital trigger event occurs if the:

• Banking Group’s common equity tier 1 capital ratio is equal to or less than 5.125%; or

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

An RBNZ non-viability 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. 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

ANZ Bank New Zealand Limited

14

Notes to the Financial Statements

considers that the Ultimate Parent Bank would become nonviable.

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

Rights of holders in event of liquidation

The notes rank equally with each other and with the Bank’s preference shares and lower than perpetual subordinated debt. Holders of the notes do not have any right to vote in general meetings of 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 half yearly 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 set on a quarterly basis to the three month FRA rate plus 3.00%.

As at 31 March 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 was 9.66% until 18 April 2013 when it reset to 5.28% for the five year period to 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 half yearly 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 BBSW + 2.4% p.a., increasing to BBSW + 4.4% p.a. from 15 September 2018.

10. Related Party Balances

	Unaudited	Unaudited	Audited
$ millions	31/03/2015	31/03/2014	30/09/2014
Total due from related parties	2,960	2,921	4,116
Total due to related parties	4,173	4,999	4,834

ANZ Bank New Zealand Limited

15

Notes to the Financial Statements

11. Capital Adequacy

Basel III capital ratios		Banking Group			Bank
	31/03/2015	31/03/2014	30/09/2014	31/03/2015	31/03/2014	30/09/2014
Unaudited
Common equity tier 1 capital	10.1%	10.7%	10.7%	8.8%	9.3%	9.4%
Tier 1 capital	12.4%	11.1%	11.1%	11.2%	9.8%	9.8%
Total capital	13.3%	12.4%	12.3%	12.2%	11.1%	11.1%
Buffer ratio	5.3%	4.4%	4.3%
RBNZ minimum ratios:
Common equity tier 1 capital	4.5%	4.5%	4.5%
Tier 1 capital	6.0%	6.0%	6.0%
Total capital	8.0%	8.0%	8.0%
Buffer requirement	2.5%	2.5%	2.5%

Capital of the Banking Group
	Unaudited
$ millions	31/03/2015
Tier 1 capital
Common equity tier 1 capital
Paid up ordinary shares issued by the Bank	7,913
Retained earnings (net of appropriations)	3,423
Accumulated other comprehensive income and other disclosed reserves	(11)
Less deductions from common equity tier 1 capital
Goodwill and intangible assets, net of associated deferred tax liabilities	(3,449)
Cash flow hedge reserve	12
Expected losses to the extent greater than total eligible allowances for impairment	(229)
Common equity tier 1 capital	7,659
Additionaltier 1 capital
Preference shares	300
ANZ Capital Notes2	1,503
Additional tier 1 capital	1,803
Total tier 1 capital	9,462
Tier 2 capital
Qualifying tier 2 capital instruments subject to phase-out under RBNZ Basel III transition arrangements
NZD 835,000,000 perpetual subordinated bond2	835
Less deductions from tier 2 capital
Basel III transition adjustment1	(133)
Total tier 2 capital	702
Total capital	10,164

1 Certain instruments issued by the Bank qualify as tier 2 capital instruments subject to phase-out under RBNZ Basel III transition arrangements. Fixing the base at the nominal amount of such instruments outstanding at 31 December 2012, their recognition is capped at 60% of that base from 1 January 2015; 40% from 1 January 2016; 20% from 1 January 2017; and from 1 January 2018 onwards these instruments will not be included in regulatory capital.

2 A summary of the terms of these instruments is included in note 9.

ANZ Bank New Zealand Limited

16

Notes to the Financial Statements

Terms of ordinary share capital

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

Terms of preference shares

All preference shares were issued on 25 September 2013 by the Bank to the Immediate Parent and do not carry any voting rights. The preference shares are wholly classified as equity instruments as there is no contractual obligation for the Bank to either deliver cash or another financial instrument or to exchange financial instruments on a potentially unfavourable basis. The key terms of the preference shares are as follows:

Dividends

Dividends are payable at the discretion of the Directors of the Bank and are non-cumulative. The Bank must not resolve to pay any dividend or make any other distribution on its ordinary shares until the next preference share dividend payment date if the Directors elect to not pay a dividend on the preference shares.

Should the Bank elect to pay a dividend, the dividend is payable at 72% of BKBM + 3.25% p.a., with dividend payments scheduled to be made in March and September each year.

Redemption features

The preference shares are redeemable, subject to prior written approval of the RBNZ, by the Bank providing notice in writing to holders of the preference shares:

• on any date on or after a change to laws or regulations that adversely affects the regulatory capital or tax treatment of the preference shares; or

• on any dividend payment date on or after 1 March 2019; or

• on any date after 1 March 2019 if the Bank has ceased to be a wholly owned subsidiary of the Ultimate Parent Bank.

The preference shares may be redeemed for nil consideration should an RBNZ non-viability trigger event, as defined in the RBNZ document Capital Adequacy Framework (Internal Models Based Approach) (BS2B), occur.

Rights of holders in event of liquidation

In the event of a liquidation of the Bank, holders of preference shares are entitled to available subscribed capital per share, pari passu with all holders of existing preference shares and ANZ Capital notes but in priority to all holders of ordinary shares. They have no entitlement to participate in further distribution of profits or assets.

Capital requirements of the Banking Group

Capital requirements of the Banking Group
$ millions	Exposure at default Risk weighted exposure or implied risk weighted exposure1 Total capital requirement
Unaudited 31/03/2015
Exposures subject to internal ratings based approach	136,722 53,614 4,289 9,479 8,812 705 1,731 337 27 91 386 31 3,736 1,602 128
Specialised lending exposures subject to slotting approach
Exposures subject to standardised approach
Equity exposures
Other exposures
Total credit risk	151,759 64,751 5,180 n/a 5,496 440 n/a 5,946 475
Operational risk
Market risk
Total	151,759 76,193 6,095

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

ANZ Bank New Zealand Limited

17

Notes to the Financial Statements

Implementation of the advanced internal ratings based approach to credit risk measurement

The Banking Group adheres to the standards of risk grading and risk quantification as set out for Internal Ratings Based (IRB) banks in the RBNZ document Capital Adequacy Framework (Internal Models Based Approach) (BS2B).

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

Probability of Default (PD): An estimate of the level of risk of borrower default graded by way of rating models used both at loan origination and for ongoing monitoring;

Exposure at Default (EAD): The expected facility exposure at default. Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration; and

Loss Given Default (LGD): An estimate of the potential economic loss on a credit exposure, incurred as a consequence of obligor default and expressed as a percentage of the facility’s EAD. For Retail Mortgage exposures the Bank is required to apply the downturn LGDs according to loan to value (LVR) bands as set out in BS2B. For farm lending exposures the Banking Group is required to adopt RBNZ prescribed downturn LVR based LGDs, along with a minimum maturity of 2.5 years and the removal of the firm-size adjustment.

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

The exceptions to IRB treatment are three minor portfolios where, due to systems constraints, determining these IRB risk estimates is not currently feasible or appropriate. Risk weights for these exposures are calculated under a separate treatment as set out in the RBNZ document Capital Adequacy Framework (Standardised Approach) (BS2A).

Capital requirements by asset class under the IRB approach

	Total exposure or principal amount Exposure at default Exposure- weighted LGD used for the capital calculation Exposure- weighted risk weight Risk weighted exposure Total capital requirement
Unaudited 31/03/2015	$m $m % % $m $m
On-balance sheet exposures
Corporate	34,497 34,408 36 54 19,663 1,573
Sovereign	10,328 10,152 5 1 112 8
Bank	4,695 3,353 60 26 922 74
Retail mortgages	53,693 53,951 21 25 14,195 1,136
Other retail	4,859 4,962 76 98 5,135 411
Total on-balance sheet exposures	108,072 106,826 28 35 40,027 3,202
Off-balance sheet exposures
Corporate	12,396 10,218 50 49 5,357 429
Sovereign	73 34 5 1 - -
Bank	1,376 967 50 16 161 13
Retail mortgages	7,307 7,651 18 17 1,367 109
Other retail	5,665 5,315 79 56 3,151 252
Total off-balance sheet exposures	26,817 24,185 46 39 10,036 803
Market related contracts
Corporate	93,567 2,030 61 83 1,793 143
Sovereign	10,355 391 5 32 131 11
Bank	611,692 3,290 62 47 1,627 130
Total market related contracts	715,614 5,711 58 59 3,551 284
Total credit risk exposures subject to the IRB approach	850,503 136,722 32 37 53,614 4,289

ANZ Bank New Zealand Limited

18

Notes to the Financial Statements

IRB exposures by customer credit rating

IRB exposures by customer credit rating
Probability of default Exposure at default Exposure- weighted LGD used for the capital calculation	Exposure- weighted risk weight Risk weighted exposure Total capital requirement
Unaudited 31/03/2015 % $m %	% $m $m
Corporate
0 - 2 0.05 5,353 63	35 1,963 157
3 - 4 0.31 24,841 37	41 10,859 869
5 1.01 10,368 37	66 7,234 579
6 2.23 4,367 38	82 3,812 305
7 - 8 7.58 1,283 42	145 1,972 158
Default 100.00 444 48	207 973 77
Total corporate exposures 1.77 46,656 40	54 26,813 2,145
Sovereign
0 0.01 10,463 5	2 241 19
1 - 8 0.02 114 5	2 2 -
Total sovereign exposures 0.01 10,577 5	2 243 19
Bank
0 0.03 31 65	12 4 -
1 0.03 6,223 59	31 2,052 164
2 - 4 0.08 1,336 61	45 631 50
5 - 8 1.26 20 65	108 23 3
Total bank exposures 0.04 7,610 60	34 2,710 217
Retail mortgages
0 - 3 0.20 13,784 12	5 702 56
4 0.46 21,383 19	15 3,319 265
5 0.92 20,351 25	33 7,152 572
6 2.03 5,158 29	65 3,566 285
7 - 8 5.28 517 29	110 602 48
Default 100.00 409 25	51 221 19
Total retail mortgages exposures 1.39 61,602 20	24 15,562 1,245
Other retail
0 - 2 0.10 652 78	48 334 27
3 - 4 0.26 4,398 78	55 2,544 203
5 0.99 1,880 72	72 1,428 114
6 2.36 1,782 77	96 1,813 145
7 - 8 8.92 1,478 86	132 2,068 165
Default 100.00 87 80	105 99 9
Total other retail exposures 2.84 10,277 78	76 8,286 663
Total credit risk exposures subject to the IRB approach 1.44 136,722 32	37 53,614 4,289

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

ANZ Bank New Zealand Limited

19

Notes to the Financial Statements

Specialised lending subject to the slotting approach

Exposure at default Risk weight Risk weighted exposure	Total capital requirement
Unaudited 31/03/2015 $m % $m	$m
On-balance sheet exposures
Strong 2,666 70 1,978	158
Good 4,823 90 4,601	368
Satisfactory 668 115 815	65
Weak 149 250 394	32
Default 97 - -	-
Total on-balance sheet exposures 8,403 87 7,788	623

	Exposure	Exposure at	Average risk	Risk weighted	Total capital
	amount	default	weight	exposure	requirement
	$m	$m	%	$m	$m
Off-balance sheet exposures
Undrawn commitments and other off balance sheet exposures	1,328	987	87	911	73
Market related contracts	2,241	89	120	113	9
Total off-balance sheet exposures	3,569	1,076	90	1,024	82

Specialised lending exposures subject to the slotting approach have been calculated in accordance with BS2B.

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

Credit risk exposures subject to the standardised approach

		Exposure at		Risk weighted	Total capital
		default	Risk weight	exposure	requirement
Unaudited 31/03/2015		$m	%	$m	$m
On-balance sheet exposures
Corporates		58	100	61	5
Default		1	150	1	-
Total on-balance sheet exposures		59	101	62	5

		Average
		credit
	Exposure	conversion	Exposure at	Average risk	Risk weighted	Total capital
	amount	factor	default	weight	exposure	requirement
	$m	%	$m	%	$m	$m
Off-balance sheet exposures
Undrawn commitments and other off balance sheet exposures	545	48	260	89	244	20
Market related contracts	395,774	-	1,412	2	31	2
Total off balance sheet	396,319	n/a	1,672	16	275	22

Credit exposures subject to the Standardised Approach have been calculated in accordance with BS2A.

Equity exposures

	Exposure at default Risk weight Risk weighted exposure Total capital requirement
Unaudited 31/03/2015	$m % $m $m
All equity holdings not deducted from capital	91 400 386 31

Equity exposures have been calculated in accordance with BS2B.

ANZ Bank New Zealand Limited

20

Notes to the Financial Statements

Other exposures
		Exposure at default Risk weight Risk weighted exposure Total capital requirement
Unaudited 31/03/2015		$m % $m $m
Cash		271 - - -
New Zealand dollar denominated claims on the Crown and the RBNZ		1,953 - - -
Other assets		1,512 100 1,602 128
Total other IRB credit risk exposures		3,736 40 1,602 128

Other exposures have been calculated in accordance with BS2B.

Credit risk mitigation

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

As at 31 March 2015, under the IRB approach, the Banking Group had $1,042 million of Corporate exposures covered by guarantees where the presence of the guarantees was judged to reduce the underlying credit risk of the exposures. Information on the total value of exposures covered by financial guarantees and eligible financial collateral is not disclosed, as the effect of these guarantees and collateral on the underlying credit risk exposures is not considered to be material.

Operational risk

The Banking Group uses the Advanced Measurement Approach for determining its regulatory capital requirement for operational risk calculated in accordance with BS2B. As at 31 March 2015 the Banking Group had an implied risk weighted exposure of $5,496 million for operational risk and an operational risk capital requirement of $440 million.

Market risk

The aggregate market risk exposures below have been calculated in accordance with BS2B. The peak end-of-day market risk exposures are for the half-year ended 31 March 2015.

exposures are for the half-year ended 31 March 2015.
	Implied risk weighted exposure	Aggregate capital charge Peak
$ millions	Period end Peak	Period end Peak occurred on
Unaudited 31/03/2015
Interest rate risk	5,863 7,615	469 609 12/11/2014
Foreign currency risk	81 132	6 11 9/12/2014
Equity risk	2 2	- - 28/01/2015
	5,946	475

Pillar II capital for other material risks

The Banking Group has an Internal Capital Adequacy Assessment Process (ICAAP) which complies with the requirements of the Bank's Conditions of Registration.

Under the Banking Group's ICAAP it identifies and measures all "other material risks", which are those material risks that are not explicitly captured in the calculation of the Banking Group's tier 1 and total capital ratios. The other material risks identified by the Banking Group include pension risk, insurance risk, strategic equity risk, fixed asset risk, deferred acquisition cost risk, value in-force risk, business retention risk and software risk.

The Banking Group's internal capital allocation for these other material risks is $437 million (31/03/2014 $471 million; 30/09/2014 $485 million).

The Banking Group regularly reviews the methodologies used to calculate the economic capital allocated to other material risks. Updated capital methodologies (particularly relating to software, strategic equity and value in-force risk) were applied in March 2015 and prior periods restated accordingly.

ANZ Bank New Zealand Limited

21

Notes to the Financial Statements

Capital adequacy of the Ultimate Parent Bank

Basel III capital ratios				Ultimate Parent Bank	Ultimate Parent Bank
	Overseas Banking Group			(Extended Licensed Entity)
	31/03/2015	31/03/2014	30/09/2014	31/03/2015	31/03/2014	30/09/2014
Unaudited
Common equity tier 1 capital	8.7%	8.3%	8.8%	8.8%	8.3%	9.1%
Tier 1 capital	10.6%	10.3%	10.7%	10.9%	10.6%	11.3%
Total capital	12.6%	12.1%	12.7%	13.1%	12.5%	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 31 March 2015 and for the comparative prior periods.

The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 31 March 2015. The Overseas Banking Group’s Pillar 3 disclosure document for the quarter ended 31 March 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.

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 the Banking Group'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.

	31/03/2015
Unaudited	On-balance sheet Off-balance sheet Total
$ millions
LVR range
Does not exceed 60%	20,241 3,823 24,064
Exceeds 60% and not 70%	10,102 1,139 11,241
Exceeds 70% and not 80%	16,711 1,858 18,569
Does not exceed 80%	47,054 6,820 53,874
Exceeds 80% and not 90%	4,378 242 4,620
Exceeds 90%	2,261 245 2,506
Total	53,693 7,307 61,000

Reconciliation of mortgage related amounts

Unaudited
$ millions	Note	31/03/2015
Term loans - housing	4	55,679
Less: fair value hedging adjustment		(65)
Add: short-term housing loans classified as overdrafts		471
Less: housing loans made to corporate customers		(2,431)
Add: Unsettled re-purchases of mortgages from the NZ Branch		39
On-balance sheet retail mortgage exposures subject to the IRB approach	11	53,693
Add: off-balance sheet retail mortgage exposures subject to the IRB approach		7,307
Total retail mortgage exposures subject to the IRB approach (as per LVR analysis)	11	61,000

ANZ Bank New Zealand Limited

22

Notes to the Financial Statements

12. Financial Risk Management

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.

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

Unaudited 31/03/2015 $ 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	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 - - 12 17,714 79 1,556 19,361 - - 15 1,087 5 903 2,010 - 1 19 9,748 43 2,815 12,626 - - 2 1,389 6 931 2,328 - - 32 1,097 5 215 1,349 3,228 5,765 9,430 1,154 355 1,387 21,319 1,953 7,302 605 1,204 5 1,139 12,208 - - 201 3,415 15 1,733 5,364 - - - 57,742 257 17,830 75,829 - - 37 1,930 9 988 2,964 - 2 64 1,434 6 653 2,159 - - 15 1,473 7 1,232 2,727 - 48 529 1,908 8 1,577 4,070
	5,181 13,118 10,961 101,295 800 32,959 164,314 - - - (557) - (81) (638) - - - (215) - - (215) - - - 253 - - 253
	5,181 13,118 10,961 100,776 800 32,878 163,714
	3,161 8,681 2,410 98,684 791 32,715 146,442 2,020 4,437 8,551 2,092 9 163 17,272
	5,181 13,118 10,961 100,776 800 32,878 163,714

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.

ANZ Bank New Zealand Limited

23

Notes to the Financial Statements

Interest rate sensitivity gap

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

Unaudited 31/03/2015 $ millions 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 2,457 2,186 - - - - 271 601 43 - - - - 558 2,123 2,123 - - - - - 12,215 1,285 1,056 564 620 8,690 - 10,961 - - - - - 10,961 903 586 10 57 - 248 2 100,695 55,390 6,583 9,784 19,994 9,390 (446) 800 175 23 7 - 5 590
	130,755 61,788 7,672 10,412 20,614 18,333 11,936
	1,611 488 - - - - 1,123 364 364 - - - - - 88,142 60,312 9,466 7,733 2,698 1,669 6,264 12,007 - - - - - 12,007 17,686 4,218 2,000 2,866 1,083 7,519 - 2,341 - 1,014 - - 1,327 - 811 42 - - 2 240 527
	122,962 65,424 12,480 10,599 3,783 10,755 19,921
	- 28,764 (12,360) 760 (16,082) (1,082) -
	7,793 25,128 (17,168) 573 749 6,496 (7,985)

Liquidity portfolio

The Banking Group holds a diversified portfolio of cash and high quality liquid securities to support liquidity risk management. The size of the Banking Group’s liquidity portfolio is based on the amount required to meet its liquidity policy and includes both items classified as cash and those classified as operating assets in the Condensed Cash Flow Statement.

Unaudited 31/03/2015 $ millions Cash and balances with central banks Securities purchased under agreement to resell Certificates of deposit Government, local body stock and bonds Government treasury bills Other bonds Total liquidity portfolio	Cash Trading Securities Available-for- sale securities Total 2,235 - - 2,235 186 - - 186 - 17 263 280 - 4,896 524 5,420 - 1,390 26 1,416 - 5,460 - 5,460
	2,421 11,763 813 14,997

The Bank also held unencumbered internal residential mortgage backed securities which would entitle the Banking Group to enter into repurchase transactions with a value of $5,731 million at 31 March 2015.

ANZ Bank New Zealand Limited

24

Notes to the Financial Statements

Funding Composition

The Banking Group actively uses balance sheet disciplines to prudently manage the funding mix. The Banking Group employs funding metrics to ensure that an appropriate proportion of its assets are funded from stable sources, including customer liabilities, longer-dated wholesale debt (with remaining term exceeding one year) and equity.

Analysis of funding liabilities by industry sector is based on ANZSIC codes.

$ millions Funding composition 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 Households Agriculture Forestry, fishing and mining Manufacturing Entertainment, leisure and tourism Finance and insurance Retail trade Wholesale trade Business and property services Transport and storage Construction Government and local authority Other2 Total funding Concentrations of funding by geography3 New Zealand Australia United States Europe Other countries Total funding	Unaudited 31/03/2015 71,294 9,044
	80,338 17,686 2,341 1,462 6,273 69
	27,831
	108,169
	51,025 3,025 625 1,439 985 36,572 1,025 1,423 5,922 735 1,114 2,748 1,531
	108,169
	78,084 1,081 13,036 9,357 6,611
	108,169

1 Comprises term deposits, other deposits bearing interest and other borrowings, deposits not bearing interest and UDC secured investments

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

3 Funding via ANZ New Zealand (Int’l) Limited is classified as either from the United States or Europe, as the company conducts overseas funding activities through its London branch which is passed through to the Bank.

ANZ Bank New Zealand Limited

25

Notes to the Financial Statements

Contractual maturity analysis of financial assets and liabilities

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

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

The Banking Group does not manage its liquidity risk on this basis.

Unaudited 31/03/2015			Up to	Over 3 to	Over 1 to	Over	No maturity
$ millions	Total	At call	3 months	12 months	5 years	5 years	specified
Financial assets
Cash	2,458	2,224	234	-	-	-	-
Settlement balances receivable	601	43	558	-	-	-	-
Collateral paid	2,123	-	2,123	-	-	-	-
Trading securities	13,592	-	626	1,992	9,096	1,878	-
Derivative financial assets (trading)	10,280	-	10,280	-	-	-	-
Available-for-sale assets	942	-	518	49	373	-	2
Net loans and advances	139,711	223	16,387	14,648	49,158	59,295	-
Other financial assets	350	-	315	30	5	-	-
Total financial assets	170,057	2,490	31,041	16,719	58,632	61,173	2
Financial liabilities
Settlement balances payable	1,611	729	882	-	-	-	-
Collateral received	364	-	364	-	-	-	-
Deposits and other borrowings	89,772	44,132	21,319	19,465	4,856	-	-
Derivative financial liabilities (trading)	10,063	-	10,063	-	-	-	-
Debt issuances	18,420	-	368	5,588	11,167	1,297	-
Subordinated debt	3,991	-	39	117	644	850	2,341
Other financial liabilities	450	-	97	14	213	126	-
Total financial liabilities	124,671	44,861	33,132	25,184	16,880	2,273	2,341
Derivative financial instruments used for balance	sheet management
- gross inflows	15,091	-	853	3,771	8,757	1,710	-
- gross outflows	(16,115)	-	(821)	(3,875)	(9,623)	(1,796)	-
Net financial assets / (liabilities) after balance sheet management	44,362	(42,371)	(2,059)	(8,569)	40,886	58,814	(2,339)
Contractual maturity of off-balance sheet commitments and		contingent liabilities
Unaudited 31/03/2015		Less than	**Beyond **
$ millions	Total	1 year	**1 year **
Non-credit related commitments	472	63	**409 **
Credit related commitments	30,663	30,663	**- **
Contingent liabilities	2,296	2,296	**- **
Total	33,431	33,022	**409 **

ANZ Bank New Zealand Limited

26

Notes to the Financial Statements

13. Fair Value Measurements

Financial assets and financial liabilities not measured at fair value

Below is a comparison of the carrying amounts as reported on the balance sheet and fair value of financial asset and liability categories other than those categories where the carrying amount is at fair value or considered a reasonable approximation of fair value.

The fair values below have been calculated using discounted cash flow techniques 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.

	Unaudited		Unaudited		Audited
	31/03/2015		31/03/2014		30/09/2014
	Carrying		Carrying		Carrying
$ millions	amount	Fair value	amount	Fair value	amount	Fair value
Assets
Net loans and advances1	100,695	101,043	93,391	93,383	96,299	96,397
Liabilities
Deposits and other borrowings2	88,142	88,215	81,457	81,468	84,019	84,042
Debt issuances1	17,686	17,862	16,405	16,583	17,042	17,225
Subordinated debt	2,341	2,343	1,129	1,098	1,144	1,137

• 1 Fair value hedging is applied to certain financial instruments within these categories. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.

2 Includes commercial paper (note 8) designated at fair value through profit or loss.

Financial assets and financial liabilities measured at fair value in the balance sheet

The Banking Group uses a valuation method within the following hierarchy to determine the carrying amount of assets and liabilities held at fair value, all of which are recurring fair value measurements. There are no assets or liabilities measured at fair value on a nonrecurring basis.

• 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).

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

Valuation hierarchy

Valuation hierarchy
Unaudited 31/03/2015 $ millions Financial assets Trading securities Derivative financial instruments Available-for-sale assets1 Investments backing insurance contract liabilities1 Total financial assets held at fair value Financial liabilities Deposits and other borrowings Derivative financial instruments Payables and other liabilities Total financial liabilities held at fair value	Unaudited 31/03/2015	Unaudited 31/03/2014	Audited 30/09/2014
	Level 1 Level 2 Level 3 Total 12,153 62 - 12,215 12 10,949 - 10,961 581 321 1 903 3 207 - 210	Level 1 Level 2 Level 3 Total 12,062 28 - 12,090 7 8,737 - 8,744 665 - 2 667 114 51 - 165	Level 1 Level 2 Level 3 Total 11,659 91 - 11,750 2 11,402 - 11,404 712 58 2 772 129 61 - 190
	12,749 11,539 **1 24,289 **	12,848 8,816 2 21,666	12,502 11,612 2 24,116
	- 6,273 - 6,273 6 12,001 - 12,007 221 - - 221	- 5,401 - 5,401 4 9,641 - 9,645 222 - - 222	- 6,057 - 6,057 5 10,200 - 10,205 226 - - 226
	227 18,274 - 18,501	226 15,042 - 15,268	231 16,257 - 16,488

1 During the period, available-for-sale assets of $159 million and Investments backing insurance contract liabilities of $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.

ANZ Bank New Zealand Limited

27

Notes to the Financial Statements

14. Concentrations of Credit Risk to Individual Counterparties

The Banking Group measures its concentration of credit risk in respect to bank counterparties on the basis of approved exposures, and in respect to non-bank counterparties on the basis of limits.

For the six months ended 31 March 2015 there were no individual counterparties, excluding connected parties, governments and banks with long term credit ratings of A- or above, where the Banking Group’s period end or peak end-of-day credit exposure equalled or exceeded 10% of the Banking Group’s equity as at the end of the period.

15. Insurance Business

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

The Banking Group’s aggregate amount of insurance business comprises the total consolidated assets of OnePath Life (NZ) Limited of $958 million (31/03/2014: $787 million; 30/09/2014 $850 million), which is 0.7% (31/03/2014: 0.6%; 30/09/2014 0.7%) of the total consolidated assets of the Banking Group.

16. Credit Related Commitments, Guarantees and Contingent Liabilities

$ millions Credit related commitments Commitments with certain drawdown due within one year Commitments to provide financial services Total credit related commitments Guarantees and contingent liabilities Financial guarantees Standby letters of credit Transaction related contingent items Trade related contingent liabilities Total guarantees and contingent liabilities	Face or contract value Unaudited Unaudited Audited 31/03/2015 31/03/2014 30/09/2014 1,348 1,073 764 29,315 25,816 27,378
	30,663 26,889 28,142
	906 985 925 52 60 79 1,245 1,222 1,321 93 66 111
	2,296 2,333 2,436

The Banking Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties, including its Ultimate Parent Bank. To reflect the risk associated with these transactions, they are subjected to the same credit origination, portfolio management and collateral requirements as for customers that apply for loans. The contract amount represents the maximum potential amount that could be lost if the counterparty fails to meet its financial obligations. 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.

The Banking Group has other contingent liabilities in respect of actual and possible claims and court proceedings.

On 3 December 2014, the Commerce Commission and the Financial Markets Authority (FMA) announced settlements with the Bank relating to the Commission's and the FMA's investigations into the promotion, sale and offer of interest rate swaps to rural customers from 2005 to 2009; the settlement includes a payment fund of $18.5 million and a contribution to the Commission’s and the FMA's costs.

An assessment of the Banking Group’s likely loss in respect of these matters has been made on a case-by-case basis and provision made where deemed necessary.

ANZ Bank New Zealand Limited

28

Directors' Statement

As at the date on which this Disclosure Statement is signed, after due enquiry, each Director believes that:

• (i) The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014; and

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

Over the six months ended 31 March 2015, after due enquiry, each Director believes that:

• (i) ANZ Bank New Zealand Limited has complied with all Conditions of Registration that applied during that period;

• (ii) Credit exposures to connected persons were not contrary to the interests of the Banking Group;

• (iii) ANZ Bank New Zealand Limited had systems in place to monitor and control adequately the Banking Group’s material risks, including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk, operational risk and other business risks, and that those systems were being properly applied.

This Disclosure Statement is dated, and has been signed by or on behalf of all Directors of the Bank on, 14 May 2015.

Antony Carter

Shayne Elliott

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David Hisco

Mark Verbiest

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(also on behalf of John Judge, Michael Smith and Joan Withers)

Nigel Williams

(alternate director for Michael Smith)

ANZ Bank New Zealand Limited

29

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Independent Auditor’s Review Report

To the Shareholder of ANZ Bank New Zealand Limited

We have reviewed pages 3 to 27 of the interim financial statements of ANZ Bank New Zealand Limited (the Bank) and its subsidiary companies (the Banking Group) prepared and disclosed in accordance with the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (the Order) and the supplementary information prescribed in Schedules 3, 5, 7, 11, 13, 16 and 18 of the Order. The interim financial statements, and supplementary information, provide information about the past financial performance and cash flows of the Banking Group and its financial position as at 31 March 2015.

Directors' responsibility for the disclosure statement

The Directors of ANZ Bank New Zealand Limited are responsible for the preparation and presentation of the Disclosure Statement, which includes interim financial statements prepared in accordance with Clause 25 of the Order which give a true and fair view of the financial position of the Banking Group as at 31 March 2015 and its financial performance and cash flows for the six months ended on that date. The Directors are also responsible for such internal controls as the Directors determine are necessary to enable the preparation of the Disclosure Statement that is free from material misstatement whether due to fraud or error.

They are also responsible for the preparation of supplementary information in the Disclosure Statement which fairly states the matters to which it relates in accordance with Schedules 3, 5, 7, 11, 13, 16 and 18 of the Order.

Reviewer’s responsibility

We are responsible for reviewing the interim financial statements and the supplementary information, disclosed in accordance with Clause 25, Schedules 5, 7, 11, 13, 16 and 18 of the Order and presented to us by the Directors.

Our responsibility is to express a conclusion on the interim financial statements (excluding the supplementary information) 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. NZ SRE 2410 requires us to conclude whether anything has come to our attention that causes us to believe that the financial statements are not prepared, in all material respects, in accordance with NZ IAS 34: Interim Financial Reporting. As the auditor of the Banking Group, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial statements.

We are responsible for reviewing the supplementary information (excluding the supplementary information relating to capital adequacy) in order to report to you whether, in our opinion on the basis of the procedures described below, anything has come to our attention that would cause us to believe that the supplementary information does not fairly state the matters to which it relates in accordance with Schedules 5, 7, 13, 16 and 18 of the Order.

We are responsible for reviewing the supplementary information relating to capital adequacy in order to state whether, on the basis of the procedures described below, anything has come to our attention that would cause us to believe that the information disclosed in accordance with Schedule 11 is not in all material respects prepared in accordance with the Bank’s Conditions of Registration and with the Bank’s internal models for credit risk and operational risk as accredited by the Reserve Bank of New Zealand and disclosed in accordance with Schedule 11 of the Order.

A review of interim financial statements 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 those financial statements.

KPMG has also provided other audit related services to the Banking Group. In addition, certain partners and employees of our firm may also deal with the Banking Group on normal terms within the ordinary course of trading activities of the Banking Group. These matters have not impaired our independence as auditors of the Banking Group. We have no other relationship with, or interest in, the Banking Group.

Review opinion

We have examined the interim financial statements including the supplementary information and based on our review, which is not an audit, nothing has come to our attention that causes us to believe that:

• a. the interim financial statements (excluding the supplementary information) do not present fairly, in all material respects, the financial position of the Banking Group as at 31 March 2015 and its financial performance and cash flows for the six months ended on that date in accordance with NZ IAS 34: Interim Financial Reporting;

• b. the supplementary information prescribed by Schedules 5, 7, 13, 16 and 18 of the Order does not fairly state the matters to which it relates in accordance with those Schedules; and

• c. the supplementary information relating to capital adequacy as required by Schedule 11 of the Order, is not in all material respects prepared in accordance with the Bank’s Conditions of Registration and with the Bank’s internal models for credit risk and operational risk as accredited by the Reserve Bank of New Zealand, and disclosed in accordance with Schedule 11 of the Order.

Our review was completed on 14 May 2015 and our review opinion is expressed as at that date.

14 May 2015 Wellington