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

Feb 16, 2015

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

FOR THE THREE MONTHS ENDED 31 DECEMBER 2014 | NUMBER 25 ISSUED FEBRUARY 2015

Australia and New Zealand Banking Group Limited - New Zealand Branch

Registered Bank Disclosure Statement For the three months ended 31 December 2014

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' and New Zealand Chief Executive Officer's
Statement	16

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 8, 1 Victoria Street, Wellington, New Zealand, which is also ANZ New Zealand’s address for service;

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

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

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

2

General Disclosures

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

Credit Rating Information

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

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

Guarantors

No obligations of the NZ Branch are guaranteed as at 16 February 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 31 December 2014 of $3,743 million, pursuant to a guarantee which is secured over a pool of assets. The Covered Bond Guarantor’s address for service is Level 35, Vero Centre, 48 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.

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 the 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.

Directorate

As at 16 February 2015 there have been no changes to the Directors of the Ultimate Parent Bank since 30 September 2014, the balance date of the last full year disclosure statement.

Auditor

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

3

Income Statement

Income Statement
	Unaudited Unaudited Audited
	3 months to 3 months to Year to
$ millions	Note 31/12/2014 31/12/2013 30/09/2014
Interest income	1,868 1,630 6,799
Interest expense	1,151 942 4,034
Net interest income	717 688 2,765
Net trading gains	64 64 210
Net funds management and insurance income	101 68 325
Other operating income	2 101 75 525
Share of associates' profit	1 1 3
Operating income	984 896 3,828
Operating expenses	384 372 1,490
Profit before credit impairment and income tax	600 524 2,338
Credit impairment charge / (release)	5 13 (19) (9)
Profit before income tax		587 543 2,347
Income tax expense		162 150 636
Profit after income tax		425 393 1,711
Statement of Comprehensive Income
		Unaudited Unaudited Audited
		3 months to 3 months to Year to
$ millions		31/12/2014 31/12/2013 30/09/2014
Profit after income tax		425 393 1,711
Items that will not be reclassified to profit or loss
Actuarial gain on defined benefit schemes		- - 35
Income tax expense relating to items that will not be reclassified		- - (10)
Total items that will not be reclassified to profit or loss		- - 25
Items that may be reclassified subsequently to profit or loss
Unrealised gains / (losses) recognised directly in equity		14 (19) (2)
Realised gains transferred to income statement		(12) (11) (41)
Income tax credit / (expense) relating to items that may be reclassified		(1) 8 12
Total items that may be reclassified subsequently to profit or loss		1 (22) (31)
Total comprehensive income		426 371 1,705

Statement of Comprehensive Income
		Unaudited	Unaudited	Audited
		3 months to	3 months to	Year to
$ millions		31/12/2014	31/12/2013	30/09/2014
Profit after income tax		425	393	1,711
Items that will not be reclassified to profit or loss
Actuarial gain on defined benefit schemes		-	-	35
Income tax expense relating to items that will not be reclassified		-	-	(10)
Total items that will not be reclassified to profit or loss		-	-	25
Items that may be reclassified subsequently to profit or loss
Unrealised gains / (losses) recognised directly in equity		14	(19)	(2)
Realised gains transferred to income statement		(12)	(11)	(41)
Income tax credit / (expense) relating to items that may be reclassified		(1)	8	12
Total items that may be reclassified subsequently to profit or loss		1	(22)	(31)
Total comprehensive income		426	371	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 - New Zealand Branch

4

Statement of Changes in Equity

Statement of Changes in Equity
	Share capital and Available- for-sale Cash flow
	head office revaluation hedging Retained Total
$ millions	account reserve reserve earnings equity
As at 1 October 2013 (Audited)	6,424 (2) 26 3,294 9,742
Profit after income tax	- - - 393 393
Unrealised gains / (losses) recognised directly in equity	- 3 (22) - (19)
Realised gains transferred to the income statement	- - (11) - (11)
Income tax credit / (expense) on items recognised directly in equity	- (1) 9 - 8
Total comprehensive income	- 2 (24) 393 371
As at 31 December 2013 (Unaudited)	6,424 - 2 3,687 10,113
As at 1 October 2013 (Audited)	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	- 2 (33) 1,736 1,705
Preference shares issued	969 - - - 969
Ordinary dividend paid	- - - (2,335) (2,335)
As at 30 September 2014 (Audited)	7,393 - (7) 2,695 10,081
Profit after income tax	- - - 425 425
Unrealised gains recognised directly in equity	- - 14 - 14
Realised gains transferred to the income statement	- - (12) - (12)
Income tax expense on items recognised directly in equity	- - (1) - (1)
Total comprehensive income	- - 1 425 426
As at 31 December 2014 (Unaudited)	7,393 - (6) 3,120 10,507

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

5

Balance Sheet

Balance Sheet
		Unaudited	Unaudited	Audited
$ millions	Note	31/12/2014	31/12/20131	30/09/2014
Assets
Cash		3,622	3,337	2,248
Settlement balances receivable		193	613	855
Collateral paid		1,269	623	783
Trading securities		12,023	11,498	11,750
Investments backing life insurance contract liabilities		199	180	190
Derivative financial instruments		8,511	7,670	11,421
Available-for-sale assets		708	1,115	772
Net loans and advances	4	107,117	101,636	105,485
Other assets		668	545	632
Life insurance contract assets		513	408	470
Investments in associates		89	89	88
Deferred tax assets		-	20	-
Premises and equipment		378	377	380
Goodwill and other intangible assets		3,458	3,446	3,454
Total assets		138,748	131,557	138,528
Interest earning and discount bearing assets		125,132	118,673	121,539
Liabilities
Settlement balances payable		908	1,017	1,992
Collateral received		207	805	800
Deposits and other borrowings	8	97,624	92,325	94,527
Derivative financial instruments		10,467	9,017	10,961
Current tax liabilities		50	28	68
Deferred tax liabilities		87	-	59
Payables and other liabilities		1,342	1,231	1,352
Provisions		183	218	204
Debt issuances		15,972	15,381	17,042
Subordinated debt		1,401	1,422	1,442
Total liabilities (excluding head office account)		128,241	121,444	128,447
Net assets (excluding head office account)		10,507	10,113	10,081
Equity
Share capital and head office account		7,393	6,424	7,393
Reserves		(6)	2	(7)
Retained earnings		3,120	3,687	2,695
Total equity and head office account		10,507	10,113	10,081
Interest and discount bearing liabilities		109,551	104,518	108,614

1 Comparative amounts have changed. Refer to notes 1 and 17 for details.

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

6

Condensed Cash Flow Statement

Condensed Cash Flow Statement
	Unaudited Unaudited Audited
	3 months to 3 months to Year to
$ millions	31/12/2014 31/12/20131 30/09/2014
Cash flows from operating activities
Interest received	1,824 1,601 6,724
Interest paid	(1,157) (959) (3,945)
Other cash inflows provided by operating activities	228 225 947
Other cash outflows used in operating activities	(479) (519) (1,895)
Cash flows from operating profits before changes in operating assets and liabilities	416 348 1,831
Net changes in operating assets and liabilities	1,591 2,141 (294)
Net cash flows provided by operating activities	2,007 2,489 1,537
Cash flows from investing activities
Cash inflows provided by investing activities	- 10 18
Cash outflows used in investing activities	(24) (21) (120)
Net cash flows used in investing activities	(24) (11) (102)
Cash flows from financing activities
Cash inflows provided by financing activities	325 1,179 5,400
Cash outflows used in financing activities	(908) (2,582) (6,924)
Net cash flows used in financing activities	(583) (1,403) (1,524)
Net increase / (decrease) in cash and cash equivalents	1,400 1,075 (89)
Cash and cash equivalents at beginning of the period	2,256 2,345 2,345
Cash and cash equivalents at end of the period	3,656 3,420 2,256

1 Comparative amounts have changed. Refer to notes 1 and 17 for details.

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

Australia and New Zealand Banking Group Limited - New Zealand Branch

7

Notes to the Financial Statements

1. Significant Accounting Policies

• (i) Reporting entity and statement of compliance

These interim financial statements are for ANZ New Zealand for the three months ended 31 December 2014. 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 ANZ New Zealand’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;

• financial instruments held for trading;

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

• (iii) Changes in accounting policies

The accounting policies adopted by ANZ New Zealand 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

Certain amounts in the comparative information have been reclassified to ensure consistency with the current period’s presentation. Further information on changes to comparative information is included in note 17.

• (vi) Principles of consolidation

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

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

2. Other Operating Income

	Unaudited Unaudited Audited
	3 months to 3 months to Year to
**$millions **	31/12/2014 31/12/2013 30/09/2014
Net fee income	97 98 382
Fair value gain / (loss) on hedging activities	(8) (28) 15
Insurance settlement relating to ING Diversified Yield Fund and ING Regular Income Fund	- - 91
Other income	12 5 37
Total other operating income	101 75 525

Australia and New Zealand Banking Group Limited - New Zealand Branch

8

Notes to the Financial Statements

3. Segmental 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.

Segmental reporting has been updated to reflect minor changes to ANZ New Zealand’s structure. Comparative data has been adjusted to be consistent with the current 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. ANZ New Zealand's relationship with these businesses ranges from simple banking requirements with revenue from deposit and transactional facilities, and cash flow lending, to more complex funding arrangements with revenue sourced from a wider range of products. UDC is principally involved in the financing and leasing of plant, vehicles and equipment, mainly for small and medium sized businesses, as well as investment products.

Wealth

Wealth 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 analysis1 **
$ millions Retail Commercial Wealth2 Institutional Other3 Total
Unaudited 3 months to 31/12/2014
External revenues 344 809 34 217 (420) 984
Intersegment revenues (14) (418) 42 (62) 452 -
Total revenues 330 391 76 155 32 984
Profit after income tax 125 192 31 68 9 425
Unaudited 3 months to 31/12/2013
External revenues 363 710 30 212 (419) 896
Intersegment revenues (37) (342) 38 (36) 377 -
Total revenues 326 368 68 176 (42) 896
Profit / (loss) after income tax 127 183 26 98 (41) 393
Audited year to 30/09/2014
External revenues 1,410 2,941 211 791 (1,525) 3,828
Intersegment revenues (134) (1,473) 165 (163) 1,605 -
Total revenues 1,276 1,468 376 628 80 3,828
Profit after income tax 451 725 181 322 32 1,711

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

2 Wealth external revenue for the year ended 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 revenue as this segment incurs funding costs on behalf of ANZ New Zealand and is reimbursed internally.

Australia and New Zealand Banking Group Limited - New Zealand Branch

9

Notes to the Financial Statements

4. Net Loans and Advances

	Unaudited Unaudited Audited	Unaudited Unaudited Audited
$ millions	Note 31/12/2014 31/12/2013 30/09/2014
Overdrafts	1,489 1,496 1,744
Credit card outstandings	1,664 1,541 1,580
Term loans - housing	62,749 59,745 61,918
Term loans - non-housing	40,589 38,434 39,622
Lease receivables	261 335 277
Hire purchase	857 746 837
Other	125 125 125
Total gross loans and advances	107,734 102,422 106,103
Less: Provision for credit impairment	5 (682) (798) (688)
Less: Unearned income		(219) (216) (212)
Add: Capitalised brokerage/mortgage origination fees		238 175 215
Add: Customer liability for acceptances		46 53 67
Total net loans and advances		107,117 101,636 105,485

5. Provision for Credit Impairment

	Retail Other retail Non-retail
$ millions	mortgages exposures exposures Total
Unaudited 31/12/2014
Collective provision	89 114 261 464
Individual provision	78 14 126 218
Total provision for credit impairment	167 128 387 682
Collective credit impairment charge / (release)	(2) (4) 6 -
Individual credit impairment charge / (release)	(1) 15 (1) 13
Credit impairment charge / (release)	(3) 11 5 13
Unaudited 31/12/2013
Collective provision	113 110 306 529
Individual provision	75 22 172 269
Total provision for credit impairment	188 132 478 798
Collective credit impairment release	(2) (7) (18) (27)
Individual credit impairment charge / (release)	(6) 24 (10) 8
Credit impairment charge / (release)	(8) 17 (28) (19)
Audited 30/09/2014
Collective provision	91 118 255 464
Individual provision	81 15 128 224
Total provision for credit impairment	172 133 383 688
Collective credit impairment charge / (release)	(24) 1 (69) (92)
Individual credit impairment charge / (release)	12 79 (8) 83
Credit impairment charge / (release)	(12) 80 (77) (9)

Australia and New Zealand Banking Group Limited - New Zealand Branch

10

Notes to the Financial Statements

6. Impaired and Past Due Assets

	Retail Other retail Non-retail
$ millions	mortgages exposures exposures Total
Unaudited 31/12/2014
Total impaired assets	168 34 354 556
Loans that are at least 90 days past due but not impaired	123 34 60 217
Unaudited 31/12/2013
Total impaired assets	195 49 599 843
Loans that are at least 90 days past due but not impaired	108 37 65 210
Audited 30/09/2014
Total impaired assets	223 35 410 668
Loans that are at least 90 days past due but not impaired	110 30 32 172

7. Financial Assets Pledged as Collateral

	Unaudited Unaudited Audited
$ millions	31/12/2014 31/12/2013 30/09/2014
Cash collateral given on derivative financial instruments	1,269 623 783
Trading securities encumbered through repurchase agreements	764 748 47
Residential mortgages pledged as security for covered bonds	7,631 6,364 7,283
Total assets of UDC Finance Limited pledged as collateral for UDC secured investments	2,372 2,266 2,354
Total financial assets pledged as collateral	12,036 10,001 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.

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.

8. Deposits and Other Borrowings

		Unaudited Unaudited Audited
$ millions	Not	e 31/12/2014 31/12/2013 30/09/2014
Certificates of deposit		2,154 1,594 1,376
Term deposits		34,201 34,254 34,758
Other deposits bearing interest and other borrowings		35,729 30,948 34,027
Deposits not bearing interest		6,371 6,135 6,001
Deposits from banks		757 746 226
Commercial paper		7,378 6,567 6,057
UDC secured investments	7 1,562 1,575 1,569
Borrowings from Ultimate Parent Bank and Immediate Parent Company		9,472 10,506 10,513
Total deposits and other borrowings		97,624 92,325 94,527

9. Related Party Transactions

	Unaudited Unaudited Audited
$ millions	31/12/2014 31/12/2013 30/09/2014
Total due from related parties	3,347 1,647 4,539
Total due to related parties	14,560 16,229 16,137

Australia and New Zealand Banking Group Limited - New Zealand Branch

11

Notes to the Financial Statements

10. Capital Adequacy

Basel III capital ratios				Ultimate Parent Bank	Ultimate Parent Bank
	Overseas	Banking Group		(Extended Licensed Entity)
	31/12/2014	31/12/2013	30/09/2014	30/09/2014	30/09/2013
Unaudited
Common equity tier 1 capital	8.4%	7.9%	8.8%	9.1%	8.5%
Tier 1 capital	9.9%	9.6%	10.7%	11.3%	10.6%
Total capital	11.8%	11.2%	12.7%	13.4%	12.5%

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 December 2014 and for the comparative prior periods.

The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 31 December 2014. The Overseas Banking Group’s Pillar 3 disclosure document for the quarter ended 31 December 2014, 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.

	Implied risk Notional
	weighted capital
$ millions	exposure charge
Unaudited 31/12/2014
Interest rate risk	5,882 471
Foreign currency risk	25 2
Equity risk	2 -
	5,909 473

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.

lending which have been accepted by the customer.
	31/12/2014
Unaudited	On-balance Off-balance
$ millions	sheet sheet Total
LVR range
Does not exceed 60%	22,534 3,749 26,283
Exceeds 60% and not 70%	11,149 1,058 12,207
Exceeds 70% and not 80%	18,014 1,611 19,625
Does not exceed 80%	51,697 6,418 58,115
Exceeds 80% and not 90%	5,920 233 6,153
Exceeds 90%	3,071 253 3,324
Total	60,688 6,904 67,592

Australia and New Zealand Banking Group Limited - New Zealand Branch

12

Notes to the Financial Statements

11. Liquidity Portfolio

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

	Trading Available-for-
Unaudited 31/12/2014
$ millions	Cash Securities sale assets Total
Balances with central banks	1,999 - - 1,999
Certificates of deposit	- 478 100 578
Government, local body stock and bonds	- 5,392 518 5,910
Government treasury bills	- 271 - 271
Other bonds	- 4,956 - 4,956
Total liquidity portfolio	1,999 11,097 618 13,714

The Bank also held unencumbered internal residential mortgage backed securities which would entitle ANZ New Zealand to enter into repurchase transactions with a value of $5,791 million at 31 December 2014.

12. 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
	31/12/2014		31/12/2013		30/09/2014
**$ millions **	Carrying amount	Fair value	Carrying amount	Fair value	Carrying amount	Fair value
**Assets **
Net loans and advances1	107,117	107,387	101,636	101,664	105,485	105,600
**Liabilities **
Deposits and other borrowings2	97,624	97,768	92,325	92,452	94,527	94,665
Debt issuances1	15,972	16,127	15,381	15,584	17,042	17,225
Subordinated debt	1,401	1,403	1,422	1,341	1,442	1,443

• 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

ANZ New Zealand 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 2 fair value measurements in the following table are derived by using modelled valuation 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.

• 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).

Australia and New Zealand Banking Group Limited - New Zealand Branch

13

Notes to the Financial Statements

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

**Valuation hierarchy **
**Unaudited 31/12/2014 **
	Unaudited	Unaudited	Audited
	31/12/2014	31/12/2013	30/09/2014
**$ millions **	Level 1 Level 2 Level 3 Total	Level 1 Level 2 Level 3 Total	Level 1 Level 2 Level 3 Total
**Financial assets **
Trading securities	12,018 5 - 12,023	11,386 112 - 11,498	11,659 91 - 11,750
Derivative financial instruments	4 8,507 - 8,511	12 7,658 - 7,670	2 11,419 - 11,421
Available-for-sale assets	706 - 2 708	1,113 - 2 1,115	712 58 2 772
Investments backing life insurance contract
	136 63 - 199	125 55 - 180	129 61 - 190
liabilities
Total financial assets held at fair value	12,864 8,575 2 21,441	12,636 7,825 2 20,463	12,502 11,629 2 24,133
**Financial liabilities **
Deposits and other borrowings	- 7,378 - 7,378	- 6,567 - 6,567	- 6,057 - 6,057
Derivative financial instruments	3 10,464 - 10,467	4 9,013 - 9,017	4 10,957 - 10,961
Payables and other liabilities	177 - - 177	201 - - 201	226 - - 226
Total financial liabilities held at fair value	180 17,842 - 18,022	205 15,580 - 15,785	230 17,014 - 17,244

13. Concentrations of Credit Risk to Individual Counterparties

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

For the three months ended 31 December 2014 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.

14. Insurance business

ANZ New Zealand 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.

ANZ New Zealand’s aggregate amount of insurance business comprises the total consolidated assets of OnePath Life (NZ) Limited of $902 million (31/12/2013: $796 million; 30/09/2014 $850 million), which is 0.7% (31/12/2013: 0.6%; 30/09/2014 0.6%) of the total consolidated assets of ANZ New Zealand.

Australia and New Zealand Banking Group Limited - New Zealand Branch

14

Notes to the Financial Statements

15. Credit Related Commitments, Guarantees and Contingent Liabilities

		Face or contract value
		Unaudited Unaudited Audited
$ millions		31/12/2014 31/12/2013 30/09/2014
Credit related commitments
Commitments with certain drawdown due within one year		884 724 764
Commitments to provide financial services		28,998 25,064 27,166
Total credit related commitments		29,882 25,788 27,930
Guarantees and contingent liabilities
Financial guarantees		878 982 925
Standby letters of credit		67 40 79
Transaction related contingent items		1,300 1,179 1,321
Trade related contingent liabilities		87 97 111
Total guarantees and contingent liabilities		2,332 2,298 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. 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.

ANZ New Zealand 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 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.

16. Additional Disclosures

**NZ Branch Funding **		Unaudited
**$ millions **		31/12/2014
Total liabilities of the NZ Branch less amounts due to related parties		28
**Overseas Banking Group Profitability and Size **		Audited
**AUD millions **		30/09/2014
Profit for the year ended 30/09/20141		7,271
Net profit after tax for the year to 30/09/2014 as a percentage of average total assets		0.97%
Total assets		772,092
Percentage change in total assets in the year to 30/09/2014		9.83%
1Net profit after tax for the year includes $12 million of profit attributable to non-controlling interests.
Overseas Banking Group asset quality		Audited
AUD millions		30/09/2014
Gross impaired assets		2,889
Gross impaired assets as a percentage of total assets		0.4%
Individual provision		1,176
Individual provision as a percentage of gross impaired assets		40.7%
Collective provision		2,757

Australia and New Zealand Banking Group Limited - New Zealand Branch

15

Notes to the Financial Statements

17. Changes to Comparatives

Comparative information for the period ended 31 December 2013 has been reclassified to conform with current period financial statement presentations that were previously applied in the 30 September 2014 financial statements.

• Balance sheet classifications: The classification of the balance sheet was changed during the year ended 30 September 2014 to more consistently reflect the nature of the financial assets and liabilities. Prior to this reclassification, the balance sheet was classified according to both nature and counterparty.

• Cash and cash equivalents: Loans and advances with financial institution counterparties with original maturities of less than 90 days and remittances in transit have been removed from the definition of cash equivalents. These balances are now included in net loans and advances and settlement balances receivable respectively. The associated cash inflows/outflows form part of cash flows from operating activities.

The table below shows the impact of these changes on the balance sheet, together with the impact of the change in the definition of cash and cash equivalents. Associated amounts in the income statement, statement of comprehensive income and cash flow statement have been restated accordingly, and the impact of the changes to these statements is not material.

		31/12/2013
Unaudited		Previously	Currently
$ millions		reported Change reported
Assets
Liquid assets		3,249 (3,249) -
Due from other financial institutions		1,699 (1,699) -
Cash		- 3,337 3,337
Settlement balances receivable		- 613 613
Collateral paid		- 623 623
Available-for-sale assets		1,115 - 1,115
Net loans and advances		101,192 444 101,636
Other assets		614 (69) 545
All other assets		23,688 - 23,688
Total assets		131,557 - 131,557
Liabilities
Due to other financial institutions		11,041 (11,041) -
Settlement balances payable		- 1,017 1,017
Collateral received		- 805 805
Deposits and other borrowings		81,073 11,252 92,325
Due to immediate parent company		1,766 (1,766) -
Payables and other liabilities		1,498 (267) 1,231
All other liabilities		26,066 - 26,066
Total liabilities		121,444 - 121,444
Equity		10,113 - 10,113
Cash and cash equivalents in cash flow statement		4,040 (620) 3,420

18. Subsequent Events

On 4 February 2015, the Ultimate Parent Bank announced that the NZ Branch intends to issue ANZ Capital Notes 3 to raise A$850 million, with the ability to issue more or less. These notes are expected to be issued on 5 March 2015.

On 13 February 2015, the Bank’s Board resolved to repay an A$265,740,000 perpetual subordinated floating rate loan from the Ultimate Parent Bank on 16 March 2015.

Australia and New Zealand Banking Group Limited - New Zealand Branch

16

Directors’ and New Zealand Chief Executive Officer’s Statement

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

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

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

Over the three months ended 31 December 2014, after due enquiry, each Director of the Ultimate Parent Bank and the Chief Executive Officer – NZ Branch believes that:

• (i) The Ultimate Parent Bank has complied with all Conditions of Registration that applied during that period;

• (ii) The NZ Branch and the Bank had systems in place to monitor and control adequately the material risks of Relevant Members of ANZ New Zealand including credit risk, concentration of credit risk, interest rate risk, currency risk, equity risk, liquidity risk and other business risks, and that those systems were being properly applied.

This Disclosure Statement is dated 16 February 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.

==> picture [167 x 48] intentionally omitted <==

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

Anthony Bradshaw Chief Executive Officer – NZ Branch

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