Australia and New Zealand Banking Group Ltd. — Interim / Quarterly Report 2016

Feb 16, 2016

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED - ANZ NEW ZEALAND REGISTERED BANK DISCLOSURE STATEMENT

FOR THE THREE MONTHS ENDED 31 DECEMBER 2015 NUMBER 29 | ISSUED FEBRUARY 2016

Australia and New Zealand Banking Group Limited - ANZ New Zealand

REGISTERED BANK DISCLOSURE STATEMENT FOR THE THREE MONTHS ENDED 31 DECEMBER 2015

CONTENTS

CONTENTS
General Disclosures	2
Income Statement	3
Statement of Comprehensive Income	3
Balance Sheet	4
Condensed Cash Flow Statement	5
Statement of Changes in Equity	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 10, 171 Featherston Street, Wellington, New Zealand, which is also ANZ New Zealand’s address for service;

• (j) RBNZ means the Reserve Bank of New Zealand; (k) APRA means the Australian Prudential Regulation Authority;

• (l) the Order means the Registered Bank Disclosure Statements (Overseas Incorporated Registered Banks) Order 2014; and

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

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 2016.

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 2015 of NZ$4,828 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.

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.

Other Matters

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

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

The Ultimate Parent Bank established a New Zealand branch which was registered on 5 January 2009. The Bank sells, from time-to-time, residential loans and mortgages into the NZ Branch to provide funding for the Bank’s business. As at 31 December 2015, the NZ Branch held approximately NZ$7.5 billion of residential loans. To satisfy APRA’s requirements described above, the Bank intends to repay this funding at approximately NZ$1.6 billion per annum over the next five years.

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

Changes to Conditions of Registration

The conditions of registration applying to the Ultimate Parent Bank were amended on 1 November 2015 to reflect the full application of the Financial Reporting Act 2013. Adoption of these amendments has not resulted in any material change to ANZ New Zealand’s reported result or financial position.

Directorate

Michael Smith retired as Chief Executive Officer and Executive Director on 31 December 2015.

Shayne Elliott became Chief Executive Officer and Executive Director on 1 January 2016.

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 - ANZ New Zealand

3

INCOME STATEMENT

INCOME STATEMENT
		Unaudited	Unaudited	Audited
		3 months to	3 months to	Year to
		31/12/2015	31/12/2014	30/09/2015
	Note	NZ$m	NZ$m	NZ$m
Interest income		1,761	1,868	7,417
Interest expense		1,013	1,151	4,537
Net interest income		748	717	2,880
Net trading gains / (losses)		(9)	64	262
Net funds management and insurance income		69	101	385
Other operating income	2	65	101	505
Share of associates' profit		-	1	5
Operating income		873	984	4,037
Operating expenses		378	384	1,513
Profit before credit impairment and income tax		495	600	2,524
Credit impairment charge	5	27	13	76
Profit before income tax		468	587	2,448
Income tax expense		121	162	677
Profit after income tax		347	425	1,771

STATEMENT OF COMPREHENSIVE INCOME

	Unaudited	Unaudited	Audited
	3 months to	3 months to	Year to
	31/12/2015	31/12/2014	30/09/2015
	NZ$m	NZ$m	NZ$m
Profit after income tax	347	425	1,771
Items that will not be reclassified to profit or loss
Actuarial loss on defined benefit schemes	-	-	(33)
Income tax credit relating to items that will not be reclassified	-	-	9
Total items that will not be reclassified to profit or loss	-	-	(24)
Items that may be reclassified subsequently to profit or loss
Unrealised gains recognised directly in equity	-	14	12
Realised (gains) / losses transferred to income statement	1	(12)	(16)
Income tax credit / (expense) relating to items that may be reclassified	-	(1)	1
Total items that maybe reclassified subsequentlyto profit or loss	1	1	(3)
Total comprehensive income for the period	348	426	1,744

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

4

BALANCE SHEET

BALANCE SHEET
		Unaudited	Unaudited	Audited
		31/12/2015	31/12/2014	30/09/2015
	Note	NZ$m	NZ$m	NZ$m
Assets
Cash		3,023	3,622	2,435
Settlement balances receivable		235	193	309
Collateral paid		2,853	1,269	1,929
Trading securities		12,003	12,023	12,139
Investments backing insurance contract liabilities		178	199	151
Derivative financial instruments		13,949	8,511	17,587
Available-for-sale assets		2,710	708	1,428
Net loans and advances	4	115,733	107,117	114,376
Other assets		700	668	740
Life insurance contract assets		510	513	552
Investments in associates		4	89	4
Premises and equipment		391	378	388
Goodwill and other intangible assets		3,500	3,458	3,492
Total assets		155,789	138,748	155,530
Interest earning and discount bearing assets		136,741	125,132	132,869
Liabilities
Settlement balances payable		1,079	908	1,469
Collateral received		1,280	207	1,687
Deposits and other borrowings	8	105,607	97,624	99,736
Derivative financial instruments		16,078	10,467	17,769
Current tax liabilities		21	50	81
Deferred tax liabilities		117	87	124
Payables and other liabilities		1,503	1,342	1,527
Provisions		193	183	191
Debt issuances		16,059	15,972	19,403
Subordinated debt		2,644	1,401	2,683
Total liabilities(excluding head office account)		144,581	128,241	144,670
Net assets (excluding head office account)		11,208	10,507	10,860
Equity
Share capital and head office account		8,058	7,393	8,058
Reserves		(9)	(6)	(10)
Retained earnings		3,159	3,120	2,812
Total equity and head office account		11,208	10,507	10,860
Interest and discount bearing liabilities		119,559	109,551	118,026

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

5

CONDENSED CASH FLOW STATEMENT

	Unaudited	Unaudited	Audited
	3 months to	3 months to	Year to
	31/12/2015	31/12/2014	30/09/2015
	NZ$m	NZ$m	NZ$m
Cash flows from operating activities
Interest received	1,751	1,824	7,357
Interest paid	(1,060)	(1,157)	(4,482)
Other cash inflows provided by operating activities	264	228	958
Other cash outflows used in operating activities	(671)	(479)	(1,979)
Cash flows from operating profits before changes in operating assets and liabilities	284	416	1,854
Net changes in operating assets and liabilities	1,950	1,591	(1,876)
Net cash flows provided by / (used in) operating activities	2,234	2,007	(22)
Cash flows from investing activities
Cash inflows provided by investing activities	15	-	-
Cash outflows used in investing activities	(38)	(24)	(132)
Net cash flows used in investing activities	(23)	(24)	(132)
Cash flows from financing activities
Cash inflows provided by financing activities	-	325	6,369
Cash outflows used in financing activities	(1,681)	(908)	(5,945)
Net cash flows provided by / (used in) financing activities	(1,681)	(583)	424
Net increase in cash and cash equivalents	530	1,400	270
Cash and cash equivalents at beginning of the period	2,526	2,256	2,256
Cash and cash equivalents at end of the period	3,056	3,656	2,526

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

6

STATEMENT OF CHANGES IN EQUITY

	Share capital and head office account Cash flow hedging reserve Retained earnings Total equity
	NZ$m NZ$m NZ$m NZ$m
As at 1 October 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 for the period	- 1 425 426
As at 31 December 2014 (Unaudited)	7,393 (6) 3,120 10,507
As at 1 October 2014 (Audited)	7,393 (7) 2,695 10,081
Profit after income tax	- - 1,771 1,771
Unrealised gains recognised directly in equity	- 12 - 12
Realised gains transferred to the income statement	- (16) - (16)
Actuarial loss on defined benefit schemes	- - (33) (33)
Income tax credit on items recognised directly in equity	- 1 9 10
Total comprehensive income for the period	- (3) 1,747 1,744
Ordinary dividend paid	- - (1,630) (1,630)
Preference shares issued	675 - - 675
Preference shares redeemed	(10) - - (10)
As at 30 September 2015 (Audited)	8,058 (10) 2,812 10,860
Profit after income tax	- - 347 347
Realised losses transferred to the income statement	- 1 - 1
Total comprehensive income for the period	- 1 347 348
As at 31 December 2015 (Unaudited)	8,058 (9) 3,159 11,208

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

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 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 ANZ New Zealand’s financial statements for the year ended 30 September 2015.

(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 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.

(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 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

	Unaudited	Unaudited	Audited
	3 months to	3 months to	Year to
	31/12/2015	31/12/2014	30/09/2015
	NZ$m	NZ$m	NZ$m
Net fee income	101	97	381
Fair value gain / (loss) on hedging activities and financial liabilities designated at fair value	(45)	(8)	70
Other income	9	12	54
Total other operating income	65	101	505

Australia and New Zealand Banking Group Limited - ANZ New Zealand

8

NOTES TO THE FINANCIAL STATEMENTS

3. SEGMENT ANALYSIS

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

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 Retail and Business Banking 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). Retail customers have personal banking requirements and Business Banking customers consist primarily of small enterprises with annual revenues of less than NZ$5 million. Core products include current and savings accounts, unsecured lending (credit cards, personal loans and overdrafts) and home loans secured by mortgages over property. The Retail segment distributes insurance and investment products on behalf of the Wealth segment.

Commercial

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

Wealth

Wealth comprises the Private Wealth, Funds Management and Insurance businesses, which provide private banking, investment, superannuation and insurance products and services.

Institutional

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

Other

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

Business segment analysis[1]

	Retail	Commercial	Wealth	Institutional	Other2	Total
	NZ$m	NZ$m	NZ$m	NZ$m	NZ$m	NZ$m
Unaudited 3 months to 31/12/2015
External revenues	664	491	33	91	(406)	873
Intersegment revenues	(159)	(263)	40	13	369	-
Total revenues	505	228	73	104	(37)	873
Profit / (loss) after income tax	196	107	31	39	(26)	347
Unaudited 3 months to 31/12/2014
External revenues	628	527	34	218	(423)	984
Intersegment revenues	(140)	(292)	42	(63)	453	-
Total revenues	488	235	76	155	30	984
Profit after income tax	188	129	31	67	10	425
Audited year to 30/09/2015
External revenues	2,541	2,070	159	851	(1,584)	4,037
Intersegment revenues	(583)	(1,149)	164	(184)	1,752	-
Total revenues	1,958	921	323	667	168	4,037
Profit after income tax	735	478	136	333	89	1,771

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

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

9

NOTES TO THE FINANCIAL STATEMENTS

4. NET LOANS AND ADVANCES

4. NET LOANS AND ADVANCES
		Unaudited Unaudited Audited
	Not	e 31/12/2015 31/12/2014 30/09/2015
		NZ$m NZ$m NZ$m
Overdrafts		1,417 1,489 1,638
Credit card outstandings		1,753 1,664 1,688
Term loans - housing		68,673 62,749 67,456
Term loans - non-housing		43,147 40,589 42,880
Lease receivables		232 261 236
Hire purchase		978 857 946
Other		- 125 -
Totalgross loans and advances		116,200 107,734 114,844
Less: Provision for credit impairment	5 (623) (682) (629)
Less: Unearned income	(217) (219) (214)
Add: Capitalised brokerage/mortgage origination fees	342 238 323
Add: Customer liability for acceptances	31 46 52
Total net loans and advances	115,733 107,117 114,376

5. PROVISION FOR CREDIT IMPAIRMENT

	Retail Other retail Non-retail
	mortgages exposures exposures Total
	NZ$m NZ$m NZ$m NZ$m
Unaudited 31/12/2015
Collective provision	87 124 254 465 55 7 96 158
Individual provision
Total provision for credit impairment	142 131 350 623
	- (3) 1 (2) (5) 17 17 29
Collective credit impairment charge / (release)
Individual credit impairment charge / (release)
Credit impairment charge / (release)	(5) 14 18 27
Unaudited 31/12/2014
Collective provision	89 114 261 464 78 14 126 218
Individual provision
Total provision for credit impairment	167 128 387 682
	(2) (4) 6 - (1) 15 (1) 13
Collective credit impairment charge / (release)
Individual credit impairment charge / (release)
Credit impairment charge / (release)	(3) 11 5 13
Audited 30/09/2015
Collective provision	87 127 253 467 62 9 91 162
Individual provision
Total provision for credit impairment	149 136 344 629
	(4) 9 (2) 3 (4) 68 9 73
Collective credit impairment charge / (release)
Individual credit impairment charge / (release)
Credit impairment charge / (release)	(8) 77 7 76

Australia and New Zealand Banking Group Limited - ANZ New Zealand

10

NOTES TO THE FINANCIAL STATEMENTS

6. IMPAIRED AND PAST DUE ASSETS

6. IMPAIRED AND PAST DUE ASSETS
	Retail	Other retail	Non-retail
	mortgages	exposures	exposures	Total
	NZ$m	NZ$m	NZ$m	NZ$m
Unaudited 31/12/2015
Total impaired assets	92	29	246	367
Loans that are at least 90 days past due but not impaired	116	32	29	177
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
Audited 30/09/2015
Total impaired assets	119	32	253	404
Loans that are at least 90 days past due but not impaired	128	32	62	222

7. ASSETS CHARGED AS SECURITY FOR LIABILITIES

7. ASSETS CHARGED AS SECURITY FOR LIABILITIES
	Carrying Amount
	Unaudited	Unaudited	Audited
	31/12/2015	31/12/2014	30/09/2015
	NZ$m	NZ$m	NZ$m
Cash collateral given on derivative financial instruments	2,853	1,269	1,929
Securities sold under agreements to repurchase	538	764	47
Residential mortgages pledged as security for covered bonds	7,643	7,631	7,547
Assets pledged as collateral for UDC secured investments	2,498	2,372	2,441
Total financial assetspledged as collateral	13,532	12,036	11,964

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

8. DEPOSITS AND OTHER BORROWINGS
		Unaudited	Unaudited	Audited
		31/12/2015	31/12/2014	30/09/2015
	Note	NZ$m	NZ$m	NZ$m
Term deposits		36,324	34,201	34,982
Other deposits bearing interest and other borrowings		42,984	35,729	41,436
Deposits not bearing interest		7,154	6,371	6,716
UDC secured investments	7	1,726	1,562	1,736
Total customer deposits		88,188	77,863	84,870
Certificates of deposit		2,642	2,154	745
Commercial paper		5,858	7,378	4,964
Deposits from banks		539	757	47
Borrowings from Ultimate Parent Bank and Immediate Parent Company		8,380	9,472	9,110
Total deposits and other borrowings		105,607	97,624	99,736

9. RELATED PARTY BALANCES

	Unaudited	Unaudited	Audited
	31/12/2015	31/12/2014	30/09/2015
	NZ$m	NZ$m	NZ$m
Total due from related parties	3,815	3,347	4,179
Total due to related parties	12,995	14,560	14,093

Australia and New Zealand Banking Group Limited - ANZ New Zealand

11

NOTES TO THE FINANCIAL STATEMENTS

10. CAPITAL ADEQUACY

Basel III capital ratios Overseas Banking Group Ultimate Parent Bank (Extended Licensed Entity)	Basel III capital ratios Overseas Banking Group Ultimate Parent Bank (Extended Licensed Entity)
31/12/2015 31/12/2014 30/09/2015	30/09/2015 30/09/2014
Unaudited
Common equity tier 1 capital 9.4% 8.4% 9.6% Tier 1 capital 11.2% 9.9% 11.3% Total capital 13.3% 11.8% 13.3%	9.6% 9.1% 11.6% 11.3% 13.7% 13.4%

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

Under prudential regulations, the Overseas Banking Group is required to maintain a Prudential Capital Ratio (PCR) as determined by APRA. The Overseas Banking Group exceeded the PCR set by APRA as at 31 December 2015 and for the comparative prior periods.

The Overseas Banking Group is required to publicly disclose Pillar 3 financial information as at 31 December 2015. The Overseas Banking Group’s Pillar 3 disclosure document for the quarter ended 31 December 2015, in accordance with APS 330: Public Disclosure of Prudential Information , discloses capital adequacy ratios and other prudential information. This document can be accessed at the website anz.com.

Market risk

ANZ New Zealand’s aggregate market risk exposures below have been calculated in accordance with the RBNZ document BS2B.

	Implied risk	Implied risk
	weighted		Notional
	exposure		capital charge
	NZ$m		NZ$m
Unaudited 31/12/2015
Interest rate risk	7,111		569
Foreign currency risk	72		6
Equity risk	2		-
	7,185		575

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.

accepted by the customer.
		31/12/2015
	On-balance	Off-balance
	sheet	sheet		Total
Unaudited	NZ$m	NZ$m		NZ$m
LVR range
Does not exceed 60%	25,420	4,259		29,679
Exceeds 60% and not 70%	13,338	1,321		14,659
Exceeds 70% and not 80%	19,855	1,785		21,640
Does not exceed 80%	58,613	7,365		65,978
Exceeds 80% and not 90%	5,426	214		5,640
Exceeds 90%	2,392	254		2,646
Total	66,431	7,833		74,264

Australia and New Zealand Banking Group Limited - ANZ New Zealand

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.

cash and those classified as operating assets in the Condensed Cash Flow Statement.
Unaudited 31/12/2015	NZ$m
Cash and balances with central banks	2,255
Certificates of deposit	1,368
Government, local body stock and bonds	5,399
Government treasury bills	876
Reserve Bank bills	792
Other bonds	5,902
Total liquidity portfolio	16,592

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 NZ$5,874 million at 31 December 2015.

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 31/12/2015 31/12/2014 30/09/2015 Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m	Unaudited Unaudited Audited 31/12/2015 31/12/2014 30/09/2015 Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m	Unaudited Unaudited Audited 31/12/2015 31/12/2014 30/09/2015 Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Assets Net loans and advances1 115,733 116,229 Liabilities Deposits and other borrowings2 105,607 105,780 Debt issuances1 16,059 16,152 Subordinated debt 2,644 2,638	107,117 107,387 97,624 97,768 15,972 16,127 1,401 1,403	114,376 114,899 99,736 99,947 19,403 19,516 2,683 2,640

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 non-recurring 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.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

13

NOTES TO THE FINANCIAL STATEMENTS

Valuation hierarchy

Valuation hierarchy
Unaudited 31/12/2015	Unaudited 31/12/2014	Audited 30/09/2015
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m **NZ$m **
	NZ$m NZ$m NZ$m NZ$m	NZ$m NZ$m NZ$m **NZ$m **
Financial assets Trading securities 11,824 179 - 12,003 Derivative financial instruments 19 13,930 - 13,949 Available-for-sale assets 1,384 1,324 2 2,710 Investments backing insurance contract liabilities 3 175 - 178	11,912 111 - 12,023 4 8,507 - 8,511 548 158 2 708 3 196 - 199	11,880 259 - 12,139 12 17,575 - 17,587 900 526 2 1,428 2 149 - 151
Total financial assets held at fair value 13,230 15,608 2 28,840	12,467 8,972 2 21,441	12,794 18,509 2 31,305
Financial liabilities Deposits and other borrowings - 5,858 - 5,858 Derivative financial instruments 2 16,076 - 16,078 Payables and other liabilities 467 - - 467	- 7,378 - 7,378 3 10,464 - 10,467 177 - - 177	- 4,964 - 4,964 18 17,751 - 17,769 309 - - 309
Total financial liabilities held at fair value 469 21,934 - 22,403	180 17,842 - 18,022	327 22,715 - 23,042

13. CONCENTRATIONS OF CREDIT RISK TO INDIVIDUAL COUNTERPARTIES

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

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

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

14. INSURANCE BUSINESS

ANZ New Zealand conducts insurance business through its subsidiary OnePath Life (NZ) Limited (OnePath Life).

ANZ New Zealand’s aggregate amount of insurance business comprises the total assets of OnePath Life of NZ$881 million (31/12/2014: NZ$902 million; 30/09/2015 NZ$884 million), which is 0.6% (31/12/2014: 0.7%; 30/09/2015 0.6%) of the total consolidated assets of ANZ New Zealand.

Australia and New Zealand Banking Group Limited - ANZ New Zealand

14

NOTES TO THE FINANCIAL STATEMENTS

15. CREDIT RELATED COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES

		Fa	ce or contract value
		Unaudited Unaudited Audited
		31/12/2015 31/12/2014 30/09/2015
		NZ$m NZ$m NZ$m
Credit related commitments
Commitments with certain drawdown due within one year		835 884 1,130 31,559 28,998 31,063
Commitments to provide financial services
Total credit related commitments		32,394 29,882 32,193
Guarantees and contingent liabilities
Financial guarantees		828 878 920 60 67 82 1,399 1,300 1,385 71 87 67
Standby letters of credit
Transaction related contingent items
Trade related contingent liabilities
Total guarantees and contingent liabilities		2,358 2,332 2,454

ANZ New Zealand guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties, including its Ultimate Parent Bank. The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers, therefore these transactions are subjected to the same credit origination, portfolio management and collateral requirements for customers applying for loans. As the facilities may expire without being drawn upon, the notional amounts do not necessarily reflect future cash requirements.

Other contingent liabilities

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

ANZ New Zealand has other contingent liabilities in respect of actual and possible claims and court proceedings.

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

Australia and New Zealand Banking Group Limited - ANZ New Zealand

15

NOTES TO THE FINANCIAL STATEMENTS

16. ADDITIONAL DISCLOSURES

NZ Branch Funding	Unaudited
	31/12/2015
	NZ$m
Total liabilities of the NZ Branch less amounts due to related parties	1,065
Overseas Banking Group Profitability and Size	Audited
	30/09/2015
	AUDm
Profit for the year ended 30/09/20151	7,507
Net profit after tax for the year to 30/09/2015 as a percentage of average total assets	0.86%
Total assets	889,900
Percentage change in total assets in the year to 30/09/2015	15.26%

1 Net profit after tax for the period includes AUD 14 million of profit attributable to non-controlling interests.

Overseas Banking Group asset quality	Unaudited
	30/09/2015
	AUDm
Gross impaired assets	2,719
Gross impaired assets as a percentage of total assets	0.3%
Individual provision	1,061
Individual provision as a percentage of gross impaired assets	39.0%
Collective provision	2,956

Australia and New Zealand Banking Group Limited - ANZ New Zealand

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 2015, 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 2016, and has been signed by the Chairman of the Ultimate Parent Bank, on behalf of all Directors, and by the Chief Executive Officer – NZ Branch.

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

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Anthony Bradshaw Chief Executive Officer – NZ Branch

Ilana Atlas Paula Dwyer Shayne Elliott Lee Hsien Yang Graeme Liebelt Ian Macfarlane, AC John Macfarlane