ANZ Bank New Zealand Disclosure Statement

ANZ BANK NEW ZEALAND LIMITED
ANNUAL REPORT AND REGISTERED BANK DISCLOSURE STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2018
NUMBER 90 | ISSUED NOVEMBER 2018

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT
CONTENTS
Annual Report and Glossary of Terms 2
DISCLOSURE STATEMENT SUPPLEMENTARY INFORMATION
Financial Statements Bank Financial Strength Dashboard 89
Consolidated Financial Statements 4 Other Information 92
Notes to the Financial Statements 8
Registered Bank Disclosures 58
Directors’ Statement 83
Independent Auditor’s Report
84
ANNUAL REPORT
FOR T HE YEAR ENDED 30 SEPTEMBER 2018
Pursuant to section 211(3) of the Companies Act 1993, the shareholder of the Bank has agreed that the Annual Report of the Banking
Group need not comply with any of the paragraphs (a), and (e) to (j) of subsection (1) and s ubsection (2) of section 211.
Accordingly, there is no information to be provided in this Annual Report other than the financial statements for the year ended 30
September 2018 and the audit report on those financial statements.
For and on behalf of the B oard of Directors:
Rt H
on Sir John Key, GNZM AC David Hisco
Chair Executive Director
15 November 2018 15 November 2018
GLOSSARY OF TERMS
In this Registered Bank Disclosure Statement (Disclosure Statement) unless the context otherwise requires:
Bank means ANZ Bank New Zealand Limited.
Banking Group, We or Our means the Bank and all its controlled entities.
Immediate Parent Company means ANZ Holdings (New Zealand) Limited.
Ultimate Parent Bank means Australia and New Zealand Banking Group Limited.
Overseas Banking Group means the worldwide operations of Australia and New Zealand Banking Group Limited including its controlled
entities.
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.
NZ Branch means the New Zealand business of the Ultimate Parent Bank.
ANZ New Zealand means the New Zealand business of the Overseas Banking Group.
OnePath means OnePath Life (NZ) Limited.
UDC means UDC Finance Limited.
Registered Office is Ground Floor, ANZ Centre, 23-29 Albert Street, Auckland, New Zealand, which is also the Banking Group’s address for
service.
RBNZ means the Reserve Bank of New Zealand.
APRA means t he Australian Prudential Regulation Authority.
the Order means the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014.
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.
2

FINANCIAL
STATEMENTS
In 2018, we have redesigned our Financial
Statements to better communicate our performance
to stakeholders by reducing complexity
and simplifying our financial note disclosures.
Consolidated Financial Statements
Income Statement 4
Statement of Comprehensive Income
4
Balance Sheet 5
Cash Flow Statement
6
Statement of Changes in Equity 7
Notes to the Consolidated Financial Statements
Basis of Preparation Financial Instrument Disclosures
1. About our Financial Statements
8
15. Financial Risk Management
28

16. Fair Value of Financial Assets and Financial Liabilities
40
Financial Performance

17. Assets Charged as Security for Liabilities
43
2. Operating Income
10
and Collateral Accepted as Security for Assets
3. Operating Expenses
12
18. Offsetting
44
4. Income Tax
13
5. Dividends
14
Non-Financial Assets
6. Segment Reporting
14
19. Goodwill and Other Intangible Assets
45
Financial Assets Equity
7. Cash and Cash Equivalents
16
20. Shareholders' Equity
47
8. Trading Securities
17
21. Capital Management
48
9. Derivative Financial Instruments
18
10. Available-for-sale Assets
21 Consolidation and Presentation
11. Net Loans and Advances
22
22. Controlled Entities
49
12. Provision for Credit Impairment
23
23. Structured Entities
50

24. Transfers of Financial Assets
51
Financial Liabilities
25. Assets and Liabilities Held for Sale
52
13. Deposits and Other Borrowings
25
14. Debt Issuances
26

Other Disclosures
26. Related Party Disclosures
53
27. Commitments and Contingent Liabilities
54
28. Compensation of Auditors
56
3

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT
FINANCIAL STATEMENTS
INCOME STATEMENT
2018 2017
For the year ended 30 September Note NZ$m NZ$m
Interest income 6,390 6,198
Interest expense
(3,240)
(3,161)
Net interest income 2 3,150 3,037
Other operating income 2
716
604
Net funds management and insurance income 2
405
329
Share of associates' profit 2 5 5
Operating income
4,276
3,975
Operating expenses 3
(1,517)
(1,468)
Profit before credit impairment and income tax 2,759 2,507
Credit impairment charge 12
(55)
(62)
Profit before income tax 2,704 2,445
Income tax expense 4
(751)
(680)
Profit for the year 1,953
1,765
STATEMENT OF COMPREHENSIVE INCOME
2018 2017
For the year ended 30 September NZ$m NZ$m
Profit for the year 1,953
1,765
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss 1
15
Items that may be reclassified subsequently to profit or loss
Reserve movements:
Unrealised losses recognised directly in equity
(27)
(32)
Realised losses transferred to the income statement 5 12
Income tax attributable to the above items 7
6
Other comprehensive income after tax (14)1
Total comprehensive income for the year 1,939
1,766
The notes appearing on pages 8 to 56 form an integral part of these financial statements
4

FINANCIAL STATEMENTS
The notes appearing on pages 8 to 56 form an integral part of these financial statements
5
BALANCE SHEET
2018 2017
As at 30 September Note NZ$m NZ$m
Assets
Cash and cash equivalents 7
2,200
2,338
Settlement balances owed to the Banking Group 656 536
Collateral paid
1,919
1,415
Trading securities 8 8,024 7,663
Derivative financial instruments 9
8,086
9,878
Available-for-sale assets 10
6,502
6,360
Net loans and advances 11 126,466 117,627
Assets held for sale 25
897
3,065
Life insurance contract assets
-
636
Investments in associates 6 7
Goodwill and other intangible assets 19
3,289
3,275
Investments backing insurance contract liabilities -123
Premises and equipment
325
367
Other assets
642
683
Total assets 159,012 153,973
Liabilities
Settlement balances owed by the Banking Group
2,161
1,840
Collateral received 845 613
Deposits and other borrowings 13
108,008
101,657
Derivative financial instruments 9 8,095 9,826
Current tax liabilities
161
39
Deferred tax liabilities
21
187
Liabilities held for sale 25 334 1,088
Payables and other liabilities
947
1,151
Employee entitlements
120
119
Other provisions 76 66
Debt issuances 14
25,135
24,606
Total liabilities 145,903 141,192
Net assets 13,109
12,781
Equity
Share capital 20 11,888 8,888
Reserves
33
48
Retained earnings
1,188
3,845
Total equity 13,109 12,781
For and on behalf of the Board of Directors:
Rt H
on Sir John Key, GNZM AC David Hisco
Chair Executive Director
15 November 2018 15 November 2018

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

FINANCIAL STATEMENTS

CASH FLOW STATEMENT


2018 2017
For the year ended 30 September NZ$m NZ$m
Profit after income tax 1,953 1,765




Adjustments to reconcile to net cash provided by/(used in) operating activities:



Depreciation and amortisation 88 80
Loss on sale of premises and equipment
4
2
Impairment of goodwill
-
3
Net derivatives/foreign exchange adjustment 1,150 (662)
Other non-cash movements
(22)
88




Net (increase)/decrease in operating assets:


Collateral paid (504) 895
Trading securities
(361)
4,316
Net loans and advances
(5,927)
(5,916)
Other assets (266) (27)



Net increase in operating liabilities:


Deposits and other borrowings
5,312
3,630
Settlement balances owed by the Banking Group 390 4
Collateral received
232
84
Other liabilities
48
120
Total adjustments

144
2,617
Net cash flows provided by operating activities
1


2,097
4,382
Cash flows from investing activities
Available-for-sale assets:
2



Purchases
(4,368)
(10,803)
Proceeds from sale or maturity 4,246 7,266
Other assets
3
(49)
Net cash flows used in investing activities (119)
(3,586)
Cash flows from financing activities



Debt issuances
3



Issue proceeds 3,385 4,922
Redemptions
(3,991)
(3,899)
Proceeds from issue of ordinary shares
3,000
-
Dividends paid (4,611) (1,695)
Net cash flows used in financing activities

(2,217)
(672)
Net increase / (decrease) in cash and cash equivalents
(239)
124
Cash and cash equivalents at beginning of year 2,439 2,315
Cash and cash equivalents at end of year

2,200
2,439

1
Net cash provided by operating activities includes income taxes paid of NZ$619 million (2017: NZ$605 million).
2
We have reassessed the composition of operating, investing and financing cash flows. Cash flows from available-for-sale assets were previously included in operating activities, and
comparative amounts have been reclassified.
3
Movement in debt issuances (Note 14) also includes an NZ$1,365 million increase (2017: NZ$510 million increase) from the effect of foreign exchange rates, a NZ$246 million decrease
(2017: NZ$247 million decrease) from changes in fair value hedging instruments and a NZ$16 million increase (2017: NZ$24 million increase) of other changes.

The notes appearing on pages 8 to 56 form an integral part of these financial statements

6

FINANCIAL STATEMENTS



STATEMENT OF CHANGES IN EQUITY

Share
capital
Available-
for-sale
revaluation
reserve
Cash flow
hedging
reserve
Retained
earnings
Total
equity
Note NZ$m NZ$m NZ$m NZ$m NZ$m
As at 1 October 2016
8,888 - 62 3,760 12,710
Profit or loss - - - 1,765 1,765
Unrealised gains / (losses) recognised directly in equity - 7 (39) - (32)
Realised losses transferred to the income statement - - 12 - 12
Actuarial gain on defined benefit schemes - - - 21 21
Income tax credit / (expense) on items recognised directly in equity - (2) 8 (6) -
Total comprehensive income for the year
- 5 (19) 1,780 1,766
Transactions with Immediate Parent Company in its capacity as owner:
Ordinary dividends paid 5 - - - (1,684) (1,684)
Preference dividends paid 20 - - - (11) (11)
Transactions with Immediate Parent Company in its capacity as owner - - - (1,695) (1,695)
As at 30 September 2017
8,888 5 43 3,845 12,781
Profit or loss - - - 1,953 1,953
Unrealised gains / (losses) recognised directly in equity
- 8 (35) - (27)
Realised losses transferred to the income statement
- - 5 - 5
Actuarial gain on defined benefit schemes - - - 2 2
Income tax credit / (expense) on items recognised directly in equity
- (2) 9 (1) 6
Total comprehensive income for the year - 6 (21) 1,954 1,939
Transactions with Immediate Parent Company in its capacity as owner:


Ordinary shares issued 20
3,000 - - - 3,000
Ordinary dividends paid 5 - - - (4,600) (4,600)
Preference dividends paid 20
- - - (11) (11)
Transactions with Immediate Parent Company in its capacity as owner

3,000 - - (4,611) (1,611)
As at 30 September 2018

11,888 11 22 1,188 13,109


The notes appearing on pages 8 to 56 form an integral part of these financial statements

7

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

1. ABOUT OUR FINANCIAL STATEMENTS
These are the financial statements for ANZ Bank New Zealand Limited (the Bank) and its controlled entities (together, the ‘Banking Group’) for the year
ended 30 September 2018. The Bank is incorporated and domiciled in New Zealand. The address of the Bank’s registered office and its principal place
of business is ANZ Centre, 23-29 Albert Street, Auckland, New Zealand.
On 15 November 2018, the Directors resolved to authorise the issue of these financial statements.
In 2018, we reviewed the content and structure of the financial statements with the aim of increasing their relevance to stakeholders. This review has
resulted in a number of changes to the financial statements from previous years, including:
• moving disclosures required by the Order to a separate ‘Registered Bank Disclosures’ section of the Disclosure Statement;
• information about the Banking Group’s recognition and measurement policies and key judgements and estimates has been relocated and is
now disclosed within the relevant notes to the financial statements;
• removing immaterial disclosures; and
• aggregating prior year numbers in certain disclosures.
Information in the financial statements is included only to the extent we consider it material and relevant to the understanding of the financial
statements. A disclosure is considered material and relevant if, for example:
• the dollar amount is significant in size (quantitative factor);
• the dollar amount is significant by nature (qualitative factor);
• the user cannot understand the Banking Group’s results without the specific disclosure (qualitative factor);
• the information is critical to a user’s understanding of the impact of significant changes in the Banking Group’s business during the period – for
example: business acquisitions or disposals (qualitative factor);
• the information relates to an aspect of the Banking Group’s operations that is important to its future performance (qualitative factor); and
• the information is required under legislative requirements of the Financial Markets Conduct Act 2013 or by the Banking Group’s principal
regulator, RBNZ.
This section of the financial statements:
• outlines the basis upon which the Banking Group’s financial statements have been prepared; and
• discusses any new accounting standards or regulations that directly impact financial statement disclosure requirements.
BASIS OF PREPARATION
These financial statements are general purpose (Tier 1) financial statements prepared by a ‘for profit’ entity, in accordance with the requirements of
the Financial Markets Conduct Act 2013. These financial statements comply with:
• New Zealand Generally Accepted Accounting Practice, as defined in the Financial Reporting Act 2013;
• New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as
appropriate for publicly accountable for-profit entities; and
• International Financial Reporting Standards (IFRS).
We present the financial statements of the Banking Group in New Zealand dollars, which is the Banking Group’s functional and presentation currency.
We have rounded values to the nearest million dollars (NZ$m), unless otherwise stated.
BASIS OF MEASUREMENT
We have prepared the financial information in accordance with the historical cost basis - except the following assets and liabilities which we have
stated at their fair value:
• derivative financial instruments;
• available-for-sale financial assets;
• financial instruments held for trading; and
• financial instruments designated at fair value through profit and loss.
BASIS OF CONSOLIDATION
The consolidated financial statements of the Banking Group comprise the financial statements of the Bank and all its subsidiaries. An entity, including
a structured entity, is considered a subsidiary of the group when we determine that the Bank has control over the entity. Control exists when the
Banking Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power over the entity. We assess power by examining existing rights that give the Banking Group the current ability to direct the relevant activities
of the entity. We have eliminated, on consolidation, the effect of all transactions between entities in the Banking Group.
FOREIGN CURRENCY TRANSLATION
TRANSACTIONS AND BALANCES
Foreign currency transactions are translated into the relevant functional currency at the exchange rate prevailing at the date of the transaction. At the
reporting date, monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the relevant spot rate.
Any foreign currency translation gains or losses that arise are included in profit or loss in the period they arise.
We measure translation differences on non-monetary items at fair value through profit or loss and report them as part of the fair value gain or loss on
these items. We include any translation differences on non-monetary items classified as available-for-sale financial assets in the available-for-sale
revaluation reserve in equity.




8

NOTES TO THE FINANCIAL STATEMENTS






9
1. ABOUT OUR FINANCIAL STATEMENTS (continued)

ACCOUNTING STANDARDS NOT EARLY ADOPTED
A number of new standards, amendments to standards and interpretations have been published but are not mandatory for the financial statements
for the year ended 30 September 2018, and have not been applied by the Banking Group in preparing these financial statements.

The Banking Group has identified three standards where this applies to the Banking Group and further details are set out below.
NZ IFRS 9 Financial Instruments (NZ IFRS 9)
NZ IFRS 9 is effective for the Banking Group from 1 October 2018. NZ IFRS 9 stipulates new requirements for the impairment of financial assets,
classification and measurement of financial assets and financial liabilities and general hedge accounting. Details of the key requirements and
estimated impacts on the Banking Group are outlined below.

Impairment
NZ IFRS 9 replaces the incurred loss impairment model under NZ IAS 39: Financial Instruments: Recognition and Measurement (NZ IAS 39) with an
expected credit loss (ECL) model incorporating forward looking information. The ECL model will be applied to all financial assets measured at
amortised cost, debt instruments measured at fair value through other comprehensive income, lease receivables, certain loan commitments and
financial guarantees. Under the ECL model, the following three-stage approach is applied to measuring ECL based on credit migration between the
stages since origination:

• Stage 1: At the origination of a financial asset, a provision equivalent to 12 months ECL is recognised.
•
Stage 2: Where there has been a significant increase in credit risk since origination, a provision equivalent to lifetime ECL is recognised.
•
Stage 3: Similar to the current NZ IAS 39 requirements for individual impairment provisions, lifetime ECL is recognised for loans where there is
objective evidence of impairment.

Expected credit losses are probability weighted and determined by evaluating a range of possible outcomes, taking into account the time value of
money, past events, current conditions and forecasts of future economic conditions.

Classification and measurement
There are three measurement classifications under NZ IFRS 9: Amortised cost, Fair Value through Profit or Loss and Fair Value through Other
Comprehensive Income. Financial assets are classified into these measurement classifications taking into account the business model within which
they are managed, and their contractual cash flow characteristics.

The classification and measurement requirements for financial liabilities under NZ IFRS 9 are largely consistent with NZ IAS 39 with the exception that
for financial liabilities designated as measured at fair value, gains or losses relating to changes in the entity’s own credit risk are included in other
comprehensive income. This part of the standard was early adopted by the Banking Group on 1 October 2013.

General hedge accounting
NZ IFRS 9 introduces new hedge accounting requirements which more closely align accounting with risk management activities undertaken when
hedging financial and non-financial risks.

NZ IFRS 9 provides the Banking Group with an accounting policy choice to continue to apply the NZ IAS 39 hedge accounting requirements until the
International Accounting Standards Board’s ongoing project on macro hedge accounting is completed. The Banking Group’s current expectation is
that it will continue to apply the hedge accounting requirements of NZ IAS 39.

Transition to NZ IFRS 9
Other than as noted above under classification and measurement of financial liabilities, NZ IFRS 9 has a date of initial application for the Banking Group
of 1 October 2018. The classification and measurement, and impairment requirements, will be applied retrospectively by adjusting opening retained
earnings at 1 October 2018. The Banking Group does not intend to restate comparatives.

Impact
Impairment
Based on the portfolio of in -scope financial assets held as at 30 September 2018, economic conditions prevailing at that time and management’s
judgements and estimates, the application of NZ IFRS 9 as at 1 October 2018 has resulted in higher aggregate impairment provisions of approximately
NZ$72 million, with an associated decrease in deferred tax liabilities of approximately NZ$20 million. The net impact on total equity is a reduction of
approximately NZ$52 million. These estimates remain subject to change until the Banking Group finalises its financial statements for the year ending
30 September 2019.

Classification and measurement of financial assets
There have been no changes in classification and measurement as a result of the application of the business model and contractual cash flow
characteristics tests.





In the process of applying the Banking Group’s accounting policies, management has made a number of judgements and applied
estimates and assumptions about future events. Further information on the key judgements and estimates that we consider
material to the financial statements are contained within the notes to the financial statements.

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

1. ABOUT OUR FINANCIAL STATEMENTS (continued)
NZ IFRS 15 Revenue from Contracts with Customers (NZ IFRS 15)
NZ IFRS 15 is effective for the Banking Group from 1 October 2018 and replaces existing guidance on the recognition of revenue from contracts with
customers. The standard requires identification of distinct performance obligations within a contract, and allocation of the transaction price of the
contract to those performance obligations. Revenue is then recognised as each performance obligation is satisfied. The standard also provides
guidance on whether an entity is acting as a principal or an agent which impacts the presentation of revenue on a gross or net basis.
The Banking Group has assessed all revenue streams existing at the date of transition to the new standard and determined that the impact of NZIFRS
15 is immaterial given the majority of the Banking Group revenues are outside the scope of the standard. The Banking Group will adopt IFRS 15
retrospectively including restatement of prior period comparatives.
NZ IFRS 16 Leases (NZ IFRS 16)

The final version of NZ IFRS 16 was issued in February 2016 and is not effective for the Banking Group until 1 October 2019. NZ IFRS 16 requires a lessee
to recognise its right to use the underlying leased asset, as a right-of-use asset; and its obligation to make lease payments as a lease liability. NZ IFRS 16
substantially carries forward the lessor accounting requirements in NZ IAS 17 Leases.
The Banking Group is in the process of assessing the impact of the application of NZ IFRS 16 and is not yet able to reasonably estimate the impact on
its financial statements.
2. OPERATING INCOME
2018 2017
NZ$m NZ$m
Net Interest income

Interest income by type of financial asset



Financial assets at amortised cost
5,986
5,736
Trading securities
240
351
Available-for-sale assets
159
106
Financial assets at fair value through profit or loss
5
5
Interest income 6,390 6,198
Interest expense by type of financial liability
Financial liabilities at amortised cost (3,168) (3,023)
Financial liabilities designated at fair value through profit or loss
(72)
(138)
Interest expense
(3,240)
(3,161)
Net interest income

3,150
3,037
Other operating income
(i) Fee and commission income

Lending and credit facility fees 32 35
Non-lending fees and commissions 725 702
Fee and commission income
757
737
Fee and commission expense
(363)
(328)
Net fee and commission income
394
409
(ii) Other income

Net foreign exchange earnings and other financial instruments income
237
129
Derivative valuation adjustments
13
33
Loss on sale of mortgages to NZ Branch (1) (1)
Gain on UDC terminated transaction 20 -
Insurance proceeds 20 -
Other
33
34
Other income
322
195
Other operating income

716
604
Net funds management and insurance income

Net funds management income
217
199
Net insurance income 188 130
Net funds management and insurance income 405 329
Share of associates' profit

5
5
Operating income

4,276
3,975






10

NOTES TO THE FINANCIAL STATEMENTS



2. OPERATING INCOME (continued)





RECOGNITION AND MEASUREMENT
NET INTEREST INCOME
Interest Income and Expense
We recognise interest income and expense for all financial instruments, including those classified as held for trading, available-for-sale-
assets
or designated at fair value, in profit or loss using the effective interest rate method. This method uses the effective interest rate of a
financial asset or financial liability to calculate amortised cost. The effective interest rate is the rate that discounts the stream of estimated
future cash receipts or payments over the expected life of the financial instrument or, when appropriate, a shorter period, to the net
carrying amount of
the financial asset or liability. For assets subject to prepayment, we determine their expected life on the basis of
historical behaviour of the particular asset portfolio - taking into account contractual obligations and prepayment experience.
OTHER OPERATING INCOME
Fee and Commission Income
We recognise fees or commissions:
• that relate to the execution of a significant act (for example, advisory or arrangement services, placement fees and underwriting fees)
when the significant act has been completed; and
• charged for providing ongoing services (for example, maintaining and administering existing facilities) as income over the period the
service is provided.
Net Foreign Exchange Earnings and Other Financial Instruments Income
We recognise the following as net foreign exchange earnings and other financial instruments income:
• exchange rate differences arising on the settlement of monetary items and translation differences on monetary items translated at rates
different to those at which they were initially recognised;
• fair value movements (excluding realised and accrued interest) on derivatives not designated as accounting hedges that we use to
manage interest rate and foreign exchange risk on funding instruments;
• the ineffective portions of fair value hedges and cash flow hedges;
• fair value movements on financial assets and financial liabilities designated at fair value through profit or loss or held for trading; and
• immediately upon sale or repayment of a hedged item, the unamortised fair value adjustments in items designated as fair value hedges
and amounts accumulated in equity related to designated cash flow hedges.
NET FUNDS MANAGEMENT AND INSURANCE INCOME
Net Funds Management Income
We recognise the fees we charge to managed investment schemes and other customers when we have provided the service.
Net Insurance Income
We recognise:
• premiums with a regular due date as income on an accruals basis;
• claims on an accruals basis once our liability to the policyholder has been confirmed under the terms of the contract; and
• change in life insurance contract asset, net of liability for reinsurance, under the Margin of Service (MoS) model.
SHARE OF ASSOCIATES’ PROFIT
The equity method is applied to accounting for associates in the consolidated financial statements. Under the equity method, the Banking
Group’s share of the after tax results of associates is included in the Income Statement and the Statement of Comprehensive Income.





11

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

3. OPERATING EXPENSES
2018 2017
NZ$m NZ$m
Personnel



Salaries and related costs
820
801
Superannuation costs 29 29
Other 42 26
Personnel expenses

891
856
Premises



Leasing and rental costs
82
80
Other
71
73
Premises expenses

153
153
Technology



Licences and outsourced services 126 125
Other 99 93
Technology expenses

225
218
Other



Advertising and public relations
43
41
Professional fees
45
43
Freight, stationery, postage and telephone
44
45
Charges from Ultimate Parent Bank
52
46
Other 64 66
Other expenses 248 241
Operating expenses

1,517
1,468






RECOGNITION AND MEASUREMENT
OPERATING EXPENSES
Operating expenses are recognised as services are provided to the Banking Group over the period in which an asset is consumed or once a
liability is created.
SALARIES AND RELATED COSTS – ANNUAL LEAVE, LONG SERVICE LEAVE AND OTHER EMPLOYEE BENEFITS
Wages and salaries, annual leave, and other employee entitlements expected to be paid or settled within twelve months of employees
rendering service are measured at their nominal amounts using remuneration rates that the Banking Group expects to pay when the liabilities
are settled.
We accrue employee entitlements relating to long service leave using an actuarial calculation. It includes assumptions regarding staff
departures, leave utilisation and future salary increases. The result is then discounted using market yields at the reporting date. The market yields
are determined from a blended rate of high quality corporate bonds with terms to maturity that closely match the estimated future cash
outflows.
If we expect to pay short term cash bonuses, then a liability is recognised when the Banking Group has a present legal or constructive obligation
to pay this amount (as a result of past service provided by the employee) and the obligation can be reliably measured.





12

NOTES TO THE FINANCIAL STATEMENTS



4. INCOME TAX
INCOME TAX EXPENSE
Reconciliation of the prima facie income tax expense on pre-tax profit with the income tax expense recognised in profit or loss:
2018 2017
NZ$m NZ$m
Profit before income tax

2,704
2,445
Prima facie income tax expense at 28%
757
685
Tax effect of permanent differences:
Imputed and non-assessable dividends (1) (1)
Tax provisions no longer required
(3)
(5)
Non assessable income and non deductible expenditure
(1)
2
Subtotal

752
681
Income tax over provided in previous years
(1)
(1)
Income tax expense

751
680
Current tax expense 910 641
Adjustments recognised in the current year in relation to the current tax of previous years (1) (1)
Deferred tax expense/(income) relating to the origination and reversal of temporary differences (158) 40
Income tax expense 751
680
Effective tax rate

27.8%
27.8%






RECOGNITION AND MEASUREMENT
INCOME TAX EXPENSE
Income tax expense comprises both current and deferred taxes and is based on the accounting profit adjusted for differences in the accounting
and tax treatments of income and expenses (that is, taxable income). We recognise tax expense in profit or loss except to the extent to which it
relates to items recognised directly in equity and other comprehensive income, in which case we recognise directly in equity or other
comprehensive income respectively.
CURRENT TAX EXPENSE
Current tax is the tax we expect to pay on taxable income for the year, based on tax rates (and tax laws) which are enacted at the reporting date.
We recognise current tax as a liability (or asset) to the extent that it is unpaid (or refundable).
DEFERRED TAX ASSETS AND LIABILITIES
We account for deferred tax using the balance sheet method. Deferred tax arises because the accounting income is not always the same as the
taxable income. This creates temporary differences, which usually reverse over time. Until they reverse, we recognise a deferred tax asset, or
liability, on the balance sheet. We measure deferred taxes at th e tax rates that we expect will apply to the period(s) when the asset is realised, or
the liability settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date.
We offset current and deferred tax assets and liabilities only to the extent that: they relate to income taxes imposed by the same taxation
authority; there is a legal right and intention to settle on a net basis; and it is allowed under the tax law of the relevant jurisdiction.





13

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

5. DIVIDENDS
ORDINARY SHARE DIVIDENDS


Amount
per share
Total
Dividend
NZ$m
Dividends
Financial Year 2017
Dividend paid in March 2017 23.5 cents 785
Dividend paid in September 2017 26.9 cents 899
Dividends paid during the year ended 30 September 2017
1,684
Financial Year 2018



Dividend paid in March 2018
23.9 cents 800
Dividend paid in April 2018
44.8 cents 1,500
Dividend paid in April 2018 31.0 cents 1,500
Dividend paid in September 2018 12.6 cents 800
Dividends paid during the year ended 30 September 2018

4,600

IMPUTATION CREDIT ACCOUNT






2018 2017
NZ$m NZ$m
Imputation credits available
4,919
4,196

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


6. SEGMENT REPORTING
OPERATING SEGMENTS
The Banking Group is organised into three major business segments for segment reporting purposes - Retail, Commercial 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.
Segment 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 year’s segment definitions.
Retail
Retail provides a full range of banking and wealth management services to consumer, private banking and small business banking customers. We
deliver our services via our internet and app-based digital solutions and network of branches, mortgage specialists, relationship managers and contact
centres.
Commercial
Commercial provides a full range of banking services including traditional relationship banking and sophisticated financial solutions through
dedicated managers focusing on privately owned medium to large enterprises and the agricultural business segment.
Institutional
The Institutional division services global institutional and corporate customers across three product sets: Transaction Banking, Loans & Specialised
Finance and Markets.
• Transaction Banking provides working capital and liquidity solutions including documentary trade, supply chain financing as well as cash
management solutions, deposits, payments and clearing.
• Loans & Specialised Finance provides loan products, loan syndication, specialised loan structuring and execution, project and export finance,
debt structuring and acquisition finance and corporate advisory.
• Markets provide risk management services on foreign exchange, interest rates, credit, commodities, debt capital markets in addition to
managing the Banking Group’s interest rate exposure and liquidity position.
Other
Other includes treasury and back office support functions, none of which constitutes a separately reportable segment.



14

NOTES TO THE FINANCIAL STATEMENTS



6. SEGMENT REPORTING (continued)

Operating segment analysis







Retail Commercial Institutional Other Total
Year ended 30 September 2018 NZ$m NZ$m NZ$m NZ$m NZ$m
Interest income
3,538 2,139 719 (6) 6,390
Interest expense (1,761) (1,169) (394) 84 (3,240)
Net interest income 1,777 970 325 78 3,150
Other operating income 680 21 265 155 1,121
Share of associates' profit
5 - - - 5
Operating income
2,462 991 590 233 4,276
Operating expenses
(1,036) (258) (182) (41) (1,517)
Profit before credit impairment and income tax
1,426 733 408 192 2,759
Credit impairment (charge) / release
(50) 41 (46) - (55)
Profit before income tax 1,376 774 362 192 2,704
Income tax expense (384) (217) (101) (49) (751)
Profit after income tax 992 557 261 143 1,953
Other information
Goodwill
1

1,109 1,052 1,069 - 3,230
Net loans and advances
76,843 42,446 7,166 11 126,466
Customer deposits
70,259 16,842 16,954 - 104,055


Year ended 30 September 2017
Interest income 3,430 2,070 699 (1) 6,198
Interest expense (1,727) (1,170) (339) 75 (3,161)
Net interest income 1,703 900 360 74 3,037
Other operating income 688 21 302 (78) 933
Share of associates' profit 5 - - - 5
Operating income 2,396 921 662 (4) 3,975
Operating expenses (1,005) (259) (189) (15) (1,468)
Profit before credit impairment and income tax 1,391 662 473 (19) 2,507
Credit impairment (charge) / release (35) (51) 24 - (62)
Profit before income tax
1,356 611 497 (19) 2,445
Income tax expense (379) (172) (140) 11 (680)
Profit after income tax
977 439 357 (8) 1,765
Other information

Goodwill
1
1,109 1,052 1,069 - 3,230
Net loans and advances
1
71,942 40,963 7,589 45 120,539
Customer deposits
1
67,796 14,059 14,974 - 96,829
1
Including items reclassified as held for sale.



15

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

6. SEGMENT REPORTING (continued)
OTHER SEGMENT
The Other segment profit/(loss) after income tax comprises:

2018 2017


NZ$m NZ$m
Central functions
1

15
1
Technology and Group Centre
65
59
Economic hedges
48
(43)
Revaluation of insurance policies from changes in interest rates
15
(25)
Total

143
(8)
1
Central functions’ external revenues for the year ended 30 September 2018 includes the $20 million insurance proceeds (Note 2 Operating Income) that were received from a member of
the Overseas Banking Group.


7. CASH AND CASH EQUIVALENTS

2018 2017
NZ$m NZ$m
Coins, notes and cash at bank
204
202
Securities purchased under agreements to resell in less than 3 months
136
360
Balances with central banks
1,734
1,776
Settlement balances owed to the Banking Group within 3 months
1
126
-
Cash and cash equivalents 2,200
2,338

Reconciliation of cash and cash equivalents to the balance sheet


2018 2017
NZ$m NZ$m
Cash and cash equivalents per the balance sheet
2,200
2,338
Amounts included in settlement balances receivable / (payable):


Nostro accounts
1

-
170
Overdrawn nostro accounts - (69)
Cash and cash equivalents as per the cash flow statement 2,200 2,439
1
Settlement balances due within 3 months have been recognised in cash and cash equivalents on the balance sheet from 30 September 2018.



16

NOTES TO THE FINANCIAL STATEMENTS






17
8. TRADING SECURITIES

2018 2017
NZ$m NZ$m
Government securities
4,696
3,299
Corporate and financial institution securities
3,328
4,364
Trading securities 8,024 7,663






















Judgement is required when applying the valuation techniques used to measure the fair value of trading securities not valued using
quoted market prices. Refer to Note 16 Fair Value of Financial Assets and Financial Liabilities for further details.




RECOGNITION AND MEASUREMENT
Trading securities are financial instruments we either:
• acquire principally for the purpose of selling in the short-term; or
• hold as part of a portfolio we manage for short-term profit making.
We recognise purchases and sales of trading securities on trade date:
• initially, we measure them at fair value; and
• subsequently, we measure them in the balance sheet at their fair value with any revaluation recognised in the profit or loss.

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

9. DERIVATIVE FINANCIAL INSTRUMENTS


Assets Liabilities Assets Liabilities

2018 2018 2017 2017
Fair value NZ$m NZ$m NZ$m NZ$m
Derivative financial instruments - held for trading 7,746 (7,023) 9,490 (8,992)
Derivative financial instruments - designated in hedging relationships 340 (1,072) 388 (834)
Derivative financial instruments 8,086 (8,095)
9,878 (9,826)
FEATURES
Derivative financial instruments are contracts:
• whose value is derived from an underlying price index (or other variable) defined in the contract – sometimes the value is derived from more
than one variable;
• that require little or no initial net investment; and
• that are settled at a future date.
Movements in the price of the underlying variables, which cause the value of the contract to fluctuate, are reflected in the fair value of the derivative.
PURPOSE
The Banking Group’s derivative financial instruments have been categorised as follows:
Trading
Derivatives held in order to:
• meet customer needs for managing their own risks.
• manage risk in the Banking Group’s positions that are not part of a designated hedge accounting relationship.
• undertake market making and positioning activities to generate profits from short-term fluctuations in prices or
margins.
Designated in Hedging
Relationships
Derivatives designated into hedge accounting relationships in order to minimise profit or loss volatility by matching
movements to underlying positions relating to:
• hedges of the Banking Group’s exposures to interest rate risk and currency risk.
• hedges of other exposures relating to non-trading positions.
TYPES
The Banking Group offers and uses four different types of derivative financial instruments:
Forwards
A contract documenting the rate of interest, or the currency exchange rate, to be paid or received on a notional
principal obligation at a future date.
Futures
An exchange traded contract in which the parties agree to buy and sell an asset in the future for a price agreed on
the transaction date, with a net settlement in cash paid on the future date without physical delivery of the asset.
Swaps
A contract in which one party exchanges one series of cash flows for another.
Options
A contract in which the buyer of the contract has the right - but not the obligation - to buy (known as a “call option”)
or to sell (known as a “put option”) an asset or instrument at a set price on a future date. The seller has the
corresponding obligation to fulfil the transaction to sell or buy the asset or instrument if the buyer exercises the
option.
RISKS MANAGED
The Banking Group offers and uses the instruments described above to manage fluctuations in the following market factors:
Foreign Exchange
Currencies at current or determined rates of exchange.
Interest Rate
Fixed or variable interest rates applying to money lent, deposited or borrowed.
Commodity
Soft commodities (that is, agricultural products such as wheat, coffee, cocoa, and sugar) and hard commodities (that
is, mined products such as gold, oil and gas).
Credit
Counterparty risk in the event of default.



18

NOTES TO THE FINANCIAL STATEMENTS



9. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
DERIVATIVE FINANCIAL INSTRUMENTS – HELD FOR TRADING
The majority of the Banking Group’s derivative financial instruments are held for trading. The fair value of derivative financial instruments held for
trading are:

Assets Liabilities Assets Liabilities

2018 2018 2017 2017
Fair value NZ$m NZ$m NZ$m NZ$m
Interest rate contracts
Forward rate agreements 5 (4) - -
Futures contracts 7 (10) 5 (24)
Swap agreements 4,242 (3,920) 7,062 (6,335)
Options purchased
3 -
3 -
Options sold
- (1)
- (1)
Total 4,257 (3,935)
7,070 (6,360)
Foreign exchange contracts
Spot and forward contracts
1,179 (889)
615 (696)
Swap agreements 2,248 (2,146) 1,773 (1,895)
Options purchased 34 (3) 17 -
Options sold 2 (24) 2 (27)
Total 3,463 (3,062)
2,407 (2,618)
Commodity contracts and credit default swaps 26 (26)
13 (14)
Derivative financial instruments - held for trading 7,746 (7,023)
9,490 (8,992)

DERIVATIVE FINANCIAL INSTRUMENTS – DESIGNATED IN HEDGING RELATIONSHIPS
The Banking Group utilises two types of hedge accounting relationships:

Fair value hedge Cash flow hedge
Objective of this
hedging
arrangement
To hedge our exposure to changes to the fair value of a
recognised asset or liability or unrecognised firm
commitment caused by interest rate or foreign currency
movements.
To hedge our exposure to variability in cash flows of a
recognised asset or liability, a foreign exchange
component of a firm commitment or a highly probable
forecast transaction caused by interest rate, foreign
currency and other price movements.
Recognition of
effective hedge
portion
The following are recognised in profit or loss at the same
time:
• all changes in the fair value of the underlying item
relating to the hedged risk; and
• the change in the fair value of derivatives.
We recognise the effective portion of changes in the
fair value of derivatives designated as a cash flow
hedge in the cash flow hedge reserve.
Recognition of ineffective
hedge portion
Recognised immediately in other operating income.
If a hedging instrument
expires, or is sold,
terminated, or exercised;
or no longer qualifies for
hedge accounting
When we recognise the hedged item in profit or loss, we
recognise the related unamortised fair value adjustment
in profit or loss. This may occur over time if the hedged
item is amortised to profit or loss as part of the effective
yield over the period to maturity.
Only when we recognise the hedged item in profit or
loss is the amount previously deferred in the cash flow
hedge reserve transferred to profit or loss.
Hedged item sold or
repaid
We recognise the unamortised fair value adjustment
immediately in profit or loss.
Amounts accumulated in equity are transferred
immediately to profit or loss.
The fair value of derivative financial instruments designated in hedging relationships are:
Hedge Assets Liabilities Assets Liabilities
accounting 2018 2018 2017 2017
Fair value
type NZ$m NZ$m NZ$m NZ$m
Interest rate swap agreements Fair value 54 (819) 86 (618)
Interest rate swap agreements Cash flow
286 (253)
302 (216)
Derivative financial instruments - designated in hedging relationships

340 (1,072)
388 (834)



19

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS




20
9. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
The impact recognised in profit or loss arising from derivative financial instruments designated in hedge accounting relationships, is as follows:
Hedge 2018 2017
accounting type NZ$m NZ$m
Gain/(loss) recognised in other operating income
Hedged item Fair value 212 153
Hedging instrument Fair Value (221) (159)







































Judgement is required when we select the valuation techniques used to measure the fair value of derivatives, particularly the selection
of valuation inputs that are not readily observable, and the application of valuation adjustments to certain derivatives. Refer to Note 16
Fair Value of Financial Assets and Financial Liabilities for further details.




RECOGNITION AND MEASUREMENT
Recognition
Initially and at each reporting date, we recognise all derivatives at fair value. If the fair value of a derivative is:
positive, then we carry it as an asset, but if its value is negative, then we carry it as a liability.
Valuation adjustments are integral in determining the fair value of derivatives. This includes:
• a credit valuation adjustment (CVA) to reflect the counterparty risk and/or event of default; and
• a funding valuation adjustment (FVA) to account for funding costs and benefits in the derivatives portfolio.
Derecognition of
assets and liabilities
We remove derivative assets from our balance sheet when the contracts expire or we have transferred
substantially all the risks and rewards of ownership. We remove derivative liabilities from our balance sheet
when the Banking Group’s contractual obligations are discharged, cancelled or expired.
Impact on the
Income Statement
How we recognise gains or losses on derivative financial instruments depends on whether the derivative is
held for trading or is designated into a hedging relationship. For derivative financial instruments held for
trading, gains or losses from changes in the fair value are recognised in profit or loss.
For an instrument designated into a hedging relationship the recognition of gains or losses depends on the
nature of the item being hedged. Refer to the previous table on page 19 for profit or loss treatment depending
on the hedge type.
Hedge effectiveness
To qualify for hedge accounting a hedge is expected to be highly effective. A hedge is highly effective only if
the following conditions are met:
• the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows
attributable to the hedged risk during the period for which the hedge is designated (prospective
effectiveness); and
• the actual results of the hedge are within the range of 80-125% (retrospective effectiveness).
The Banking Group monitors hedge effectiveness on a regular basis but at a minimum at least at each
reporting date.

NOTES TO THE FINANCIAL STATEMENTS






21
10. AVAILABLE-FOR-SALE ASSETS


2018 2017
Corporate Corporate
and financial and financial
Security Government institution Equity Government institution Equity
Period type securities securities securities Total securities securities securities Total
NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Less than 3 months
110 19 - 129
277 270 - 547
Between 3 and 12 months
616 162 - 778
695 158 - 853
Between 1 and 5 years 3,134 1,831 - 4,965 2,609 1,578 - 4,187
Greater than 5 years 458 171 - 629 657 115 - 772
No maturity - - 1 1 - - 1 1
Available-for-sale assets

4,318 2,183 1 6,502
4,238 2,121 1 6,360


































Judgement is required when we select valuation techniques used to measure the fair value of AFS assets not valued using quoted
market prices, particularly the selection of valuation inputs that are not readily observable. Refer to Note 16 Fair Value of Financial Assets
and Financial Liabilities for further details.




RECOGNITION AND MEASUREMENT
Available-for-sale (AFS) assets comprise non-derivative financial assets which we designate as AFS since we do not hold them principally for
trading purposes. They include both equity and debt securities. AFS assets are initially recognised at fair value plus transaction costs and are
revalued at least bi-annually. On revaluation, we include movements in fair value within the available-for-sale revaluation reserve in equity,
except for certain items which are recognised directly in profit or loss, being interest on debt securities, dividends received, foreign exchange on
debt securities and impairment charges.
When we sell the asset, any cumulative gain or loss from the available-for-sale revaluation reserve is recognised in profit or loss.
At each reporting date, we assess whether any AFS assets are impaired. We assess the impairment of any debt securities if an event has occurred
which will have a negative impact on the asset’s estimated cash flows. For equity securities, we assess if there is a significant or prolonged
decline in fair value below cost.
If an AFS asset is impaired, then we remove the cumulative loss related to that asset from the available-for-sale revaluation reserve. We then
recognise it in profit or loss for:
• debt instruments, as a credit impairment expense; and
• equity instruments, as a negative impact in other operating income.
We recognise any later reversals of impairment on debt securities in the profit or loss through the credit impairment charge line. However, we
do not make any reversals of impairment for equity securities. To the extent previously impaired equity securities recover in value, gains are
recognised directly in equity.

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

11. NET LOANS AND ADVANCES
The following table provides details of net loans and advances for the Banking Group:

2018 2017
Note NZ$m NZ$m
Overdrafts 905 1,040
Credit cards 1,644 1,638
Term loans - housing 78,395 72,524
Term loans - non-housing
44,169
44,227
Finance lease and hire purchase receivables
1,791
1,577
Subtotal 126,904
121,006
Unearned income
(239)
(222)
Capitalised brokerage/mortgage origination fees
313
334
Gross loans and advances (including assets reclassified as held for sale) 126,978 121,118
Provision for credit impairment 12 (512) (579)
Net loans and advances (including assets reclassified as held for sale)

126,466
120,539
Less: Net loans and advances reclassified as held for sale 25
-
(2,912)
Net loans and advances

126,466
117,627
Residual contractual maturity:

- within one year
26,896
23,799
- after more than one year
99,570
93,828
Net loans and advances 126,466 117,627

The Bank has sold residential mortgages to the NZ Branch with a net carrying value of NZ$2,210 million as at 30 September 2018 (2017: NZ$4,337
million). These assets qualify for derecognition as the Bank does not retain a continuing involvement in the transferred assets.




























RECOGNITION AND MEASUREMENT
Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are
facilities the Banking Group provides directly to customers or through third party channels.
Loans and advances are initially recognised at fair value plus transaction costs directly attributable to the issue of the loan or advance, which are
primarily brokerage/mortgage origination fees which we amortise over the estimated life of the loan. Subsequently, we then measure loans and
advances at amortised cost using the effective interest rate method, net of any provision for credit impairment.
We classify contracts to lease assets and hire purchase agreements as finance leases if they transfer substantially all the risks and rewards of
ownership of the asset to the customer or an unrelated third party.
The Banking Group enters into transactions in which it transfers financial assets that are recognised on its balance sheet. When the Banking
Group retains substantially all of the risks and rewards of the transferred assets, the transferred assets remain on the Banking Group’s balance
sheet, however if substantially all the risks and rewards are transferred, the Banking Group derecognises the asset.
If the risks and rewards are partially retained and control over the asset is lost, then the Banking Group derecognises the asset. If control over the
asset is not lost, the Banking Group continues to recognise the asset to the extent of its continuing involvement.
We separately recognise the rights and obligations retained, or created, in the transfer as assets and liabilities as appropriate.







22

NOTES TO THE FINANCIAL STATEMENTS



12. PROVISION FOR CREDIT IMPAIRMENT
PROVISION FOR CREDIT IMPAIRMENT – BALANCE SHEET

Net loans and
advances
Off-balance sheet credit
related commitments Total

2018 2017 2018 2017 2018 2017
Provision for credit impairment NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Individual provision
Balance at start of year 152 151 - - 152 151
New and increased provisions
213
232
-
-
213
232
Write-backs
(83)
(95)
-
-
(83)
(95)
Bad debts written off (excluding recoveries)
(149)
(133)
-
-
(149)
(133)
Discount unwind
(3)
(3)
-
-
(3)
(3)
Total individual provision 130
152
-
-
130
152
Collective provision





Balance at start of year
343
367
84
104
427
471
Release to profit or loss
(32)
(24)
(13)
(20)
(45)
(44)
Total collective provision 311 343 71 84 382 427
Total provision for credit impairment 441 495 71 84 512 579

CREDIT IMPAIRMENT CHARGE – INCOME STATEMENT
2018 2017
Credit impairment charge NZ$m NZ$m
New and increased provisions
213
232
Write-backs
(83)
(95)
Recoveries of amounts previously written-off
(30)
(31)
Individual credit impairment charge
100
106
Collective credit impairment release
(45)
(44)
Total credit impairment charge 55
62



23

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS




24
12. PROVISION FOR CREDIT IMPAIRMENT (continued)













































When we measure impairment of loans and advances, we use management’s judgement of the extent of losses at reporting date.
Individually Collectively
Key Judgements
•estimated future cash flows
•business prospects for the customer
•realisable value of any collateral
•the Banking Group’s position relative to other
claimants
•reliability of customer information
•likely cost and duration of recovering loans
•estimated future cash flows
•historical loss experience of assets with similar risk
characteristics
•impact of large concentrated losses inherent in the
portfolio
•assessment of the economic cycle
We regularly review our key judgements and update them to reflect actual loss experience.



RECOGNITION AND MEASUREMENT
The Banking Group recognises two types of impairment provisions for its loans and advances:
• individual provisions for significant assets that are assessed to be impaired; and
• collective provisions for portfolios of similar assets that are assessed collectively for impairment.
The accounting treatment for each of them is detailed below:
Individually Collectively
Assessment
If any impaired loans and advances exceed specified
thresholds and an impairment event has been
identified, then we assess the need for a provision
individually.
To allow for any small value loans and advances where
losses may have been incurred but not yet identified, and
individually significant loans and advances that we do not
assess as impaired, we assess them collectively in pools of
assets with similar risk characteristics.
Impairment
Loans and advances are assessed as impaired if we
have objective evidence that we may not recover
principal or interest payments (that is, a loss event
has been incurred).
We estimate the provision on the basis of historical loss
experience for assets with similar credit risk characteristics
to others in the respective collective pool. We adjust the
historical loss experience based on current observable
data – such as: changing economic conditions, the impact
of the inherent risk of large concentrated losses within the
portfolio and an assessment of the economic cycle.
Measurement
We measure impairment loss as the difference between the asset’s carrying amount and estimated future cash
flows discounted to their present value at the asset’s original effective interest rate. We record the result as an
expense in profit or loss in the period we identify the impairment and recognise a corresponding reduction in the
carrying amount of loans and advances through an offsetting provision.
Uncollectable
amounts
If a loan or advance is uncollectable (whether partially or in full), then we write off the balance (and also any re lated
provision for credit impairment).
We write off unsecured retail facilities at the earlier of the facility becoming 180 days past due, or the customer’s
bankruptcy or similar legal release from the obligation to repay the loan or advance. For secured facilities, write offs
occur net of the proceeds determined to be recoverable from the realisation of collateral.
Recoveries
If we recover any cash flows from loans and advances we have previously written off, then we recognise the
recovery in profit or loss in the period the cash flows are received.
Off-balance sheet
amounts
Any off-balance sheet items, such as loan commitments, are considered for impairment both on an individual and
collective basis.

NOTES TO THE FINANCIAL STATEMENTS



13. DEPOSITS AND OTHER BORROWINGS

2018 2017
Note NZ$m NZ$m
Term deposits 51,298 45,457
On demand and short term deposits 41,602 41,451
Deposits not bearing interest 10,224 8,882
UDC secured investments 17 931 1,039
Total customer deposits
104,055
96,829
Certificates of deposit
910
1,916
Commercial paper
2,486
3,721
Securities sold under repurchase agreements
517
157
Deposits from Immediate Parent Company and NZ Branch 26
40
73
Deposits and other borrowings (including liabilities reclassified as held for sale) 108,008 102,696
Less: Deposits and other borrowings reclassified as held for sale 25 - (1,039)
Deposits and other borrowings

108,008
101,657
Residual contractual maturity:



- to be settled within 1 year
103,492
97,301
- to be settled after 1 year
4,516
4,356
Deposits and other borrowings 108,008 101,657
Carried on Balance Sheet at:



Amortised cost
105,522
97,936
Fair value through profit or loss (designated on initial recognition)
2,486
3,721
Deposits and other borrowings

108,008
101,657










RECOGNITION AND MEASUREMENT
For deposits and other borrowings that:
• are not designated at fair value through profit or loss on initial recognition, we measure them at amortised cost and recognise their interest
expense using the effective interest rate method; and
• are managed on a fair value basis, reduce or eliminate an accounting mismatch or contain an embedded derivative, we designate them as
fair value through profit or loss.
Refer to Note 16 Fair Value of Financial Assets and Financial Liabilities for details of the split between amortised cost and fair value.
For deposits and other borrowings designated at fair value we recognise th e amount of fair value gain or loss attributable to changes in the
Banking Group’s own credit risk in other comprehensive income in retained earnings. Any remaining amount of fair value gain or loss we
recognise directly in profit or loss. Once we have recognised an amount in other comprehensive income, we do not later reclassify it to profit or
loss.
Securities sold under repurchase agreements represent a liability to repurchase the financial assets that remain on our balance sheet since the
risks and rewards of ownership remain with
the Banking Group. Over the life of the repurchase agreement, we recognise the difference
between the sale price and the repurchase price and charge it to interest expense in the Income Statement.





25

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

14. DEBT ISSUANCES
The Banking Group uses a variety of funding programmes to issue unsubordinated debt (including senior debt and covered bonds) and subordinated
debt. The difference between unsubordinated debt and subordinated debt is that holders of unsubordinated debt take priority over holders of
subordinated debt owed by the relevant issuer and subordinated debt will be repaid by the relevant issuer only after the repayment of claims of
depositors, other creditors and the senior debt holders.

2018 2017

NZ$m NZ$m
Senior debt 18,767 16,008
Covered bonds 3,929 5,315
Total unsubordinated debt

22,696
21,323
Subordinated debt


- Additional Tier 1 capital
2,439
2,438
- Other
-
845
Total subordinated debt

2,439
3,283
Total debt issued 25,135 24,606
TOTAL DEBT ISSUED BY CURRENCY
The table below shows the Banking Group’s issued debt by currency of issue, which broadly represents the debt holders’ base location.

2018 2017

NZ$m NZ$m
AUD Australian Dollars 45 54
EUR Euro
6,740
6,676
JPY Japanese Yen
36
38
NZD New Zealand Dollars
6,654
7,147
CHF Swiss Francs
1,658
1,672
USD United States Dollars
10,002
9,019
Total debt issued 25,135
24,606
Residual contractual maturity:
- to be settled within 1 year 3,835 4,014
- to be settled after 1 year
21,300
20,592
Total debt issued 25,135
24,606
Covered bonds 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 Trust). The Covered Bond Trust is a member of the Banking Group, whereas the Covered Bond Guarantor is not
a member of the Banking Group.
NZX Regulation has granted the Bank a waiver from NZX Debt Market Listing Rule (Rule) 7.12.1 to the extent that this Rule requires the Bank to release
to the market details of any acquisition of the Bank’s domestic bonds as a result of its market-making activities or trading on behalf of its clients. The
Bank will notify the NZX if any such domestic bonds are subsequently cancelled. Rule 7.12.1 does not extend to the Bank’s subsidiaries in this context.
The Bank will continue to comply with Rule 7.12.1 in respect of any domestic bonds that are issued, redeemed or purchased by the Bank in any other
capacity.
Senior debt includes a series of bonds quoted on the NZX Debt Market that matures on 22 March 2019 (the Bonds). NZX Regulation has granted the
Bank a waiver from the requirement in Rule 5.2.3 (as modified by NZX Regulation’s Ruling on Rule 5.2.3 issued on 29 September 2015) for the Bonds to
be held by at least 100 members of the public holding at least 25% of the Bonds issued (Spread). The effect of this waiver is that the Bonds may not be
widely held and there may be reduced liquidity in the Bonds. If there is a material reduction in the Spread of the Bonds, the Bank will notify NZX as
appropriate.
SUBORDINATED DEBT
Certain subordinated debt qualifies as regulatory capital for the Banking Group and is classified as Additional Tier 1 (AT1) capital for RBNZ’s capital
adequacy purposes depending on their term and conditions:
• AT1 Capital: perpetual capital instruments such as:
• ANZ NZ Capital Notes (ANZ NZ CN);
• ANZ NZ Internal Capital Notes 1 (ANZ NZ ICN); and
• ANZ NZ Internal Capital Notes 2 (ANZ NZ ICN2).



26

NOTES TO THE FINANCIAL STATEMENTS



14. DEBT ISSUANCES (continued)
AT1 Capital
AT1 capital notes are fully paid convertible non-cumulative perpetual subordinated notes. The AT1 capital notes rank equally with each other and with
the Bank’s preference shares. Holders of AT1 capital notes do not have any right to vote in general meetings of the Bank.
As at 30 September 2018, ANZ NZ CN carried a BB+ credit rating from S&P Global Ratings.
AT1 capital notes are classified as debt given there are circumstances beyond the Bank’s control where the principal is converted into a variable
number of ordinary shares of the Bank (ANZ NZ ICN and ANZ NZ ICN2) or the Ultimate Parent Bank (ANZ NZ CN).
Interest payments on the AT1 capital notes are non-cumulative and subject to the issuer’s absolute discretion and certain payment conditions
(including regulatory requirements).
Where specified, AT1 capital notes provide the Bank with an early redemption or conversion option on a specified date and in certain other
circumstances (such as a tax or regulatory event). This option is subject to RBNZ’s and, in respect of the ANZ NZ CN, APRA’s prior written approval.

Each of the AT1 capital notes will immediately 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 and ANZ NZ ICN2); or
• Ultimate Parent Bank based on the average market price of the Ultimate Parent Bank’s ordinary shares immediately prior to conversion less a 1%
discount, subject to a maximum conversion number (ANZ NZ CN)
if:
• the Banking Group’s, or in the case of the ANZ NZ CN the Overseas Banking Group’s Level 2, common equity tier 1 capital ratio is equal to or less
than 5.125% - known as a Common Equity Capital Trigger Event; or
• RBNZ directs the Bank to convert or write-off the notes or a statutory manager is appointed to the Bank and decides that the Bank must convert
or write-off the notes or, in the case of the ANZ NZ CN, APRA notifies the Ultimate Parent Bank that, without the conversion or write-off of certain
securities or a public injection of capital (or equivalent support), it considers that the Ultimate Parent Bank would become non-viable – known
as a Non-Viability Trigger Event.

Where specified, AT1 capital notes mandatorily convert into a variable number of ordinary shares of the Bank (ANZ NZ ICN and ANZ NZ ICN2) (based
on the net assets per share in the Bank’s most recently published Disclosure Statement) or the Ultimate Parent Bank (ANZ NZ CN) (based on the
average market value of the shares immediately prior to conversion less a 1% discount):
• on a specified mandatory conversion date; or
• on an earlier date under certain circumstances as set out in the terms.
However, the mandatory conversion is deferred for a specified period if certain conversion tests are not met.
The table below show the key details of the AT1 capital notes on issue at 30 September in both the current and the prior year:
ANZ NZ CN ANZ NZ ICN ANZ NZ ICN2
Issuer The Bank The Bank The Bank
Issue date 31 March 2015 5 March 2015 15 June 2016
Issue amount NZ$500 million NZ$1,003 million NZ$938 million
Face value NZ$1 NZ$100 NZ$100
Interest frequency Quarterly in arrears Semi-annually in arrears Semi-annually in arrears
Interest rate
Fixed at 7.2% p.a. until 25
May 2020. Resets in May
2020 to a floating rate: (New
Zealand 3 month Bank bill
rate + 3.5%)
Floating rate: (New Zealand
6 month Bank Bill rate +
3.8%)
Floating rate: (New Zealand
6 month Bank Bill rate +
6.29%)
Issuer's early redemption or conversion option 25 May 2020 24 March 2023
15 June 2026 and each 5th
anniversary
Mandatory conversion date 25 May 2022 24 March 2025 n/a
Common equity capital trigger event Yes Yes Yes
Non-viability trigger event Yes Yes Yes
Carrying value as at 30 September 2018 (net of issue costs) NZ$498 million NZ$1,003 million NZ$938 million









RECOGNITION AND MEASUREMENT
Debt issuances are measured at amortised cost. Where the Banking Group enters into a hedge accounting relationship, the fair value
attributable to the hedge risk is reflected in adjustments to the carrying value of the debt. Interest expense is recognised using the effective
interest rate method.
Subordinated debt with capital-based conversion features (i.e. Common Equity Capital Trigger Event or Non-Viability Trigger Events) are
considered to contain embedded derivatives that we account for separately at fair value through profit and loss. The embedded derivatives arise
because the amount of shares issued on conversion following any of those trigger events is subject to the maximum conversion number,
however they have no value as of the reporting date given the remote nature of those triggering events.





27

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT
RISK MANAGEMENT FRAMEWORK AND MODEL
INTRODUCTION
The use of financial instruments is fundamental to the Banking Group’s businesses of providing banking and other financial services to our customers.
The associated financial risks (primarily credit, market, and liquidity risks) are a significant portion of the Banking Group’s principal risks.
This note details the Banking Group’s financial risk management policies, processes and quantitative disclosures in relation to the key financial risks:
Principal financial risks Key sections applicable to this risk
Overview
• An overview of our Risk Management Framework
Credit risk
Credit risk is the risk of financial loss from a customer, or counterparty,
failing to meet their financial obligations – including the whole and
timely payment of principal, interest, collateral, and other receivables.
• Credit risk overview, management and control responsibilities
• Maximum exposure to credit risk
• Credit quality
• Concentrations of credit risk
• Collateral management
Market risk
Market risk is the risk of loss arising from potential adverse changes in
the value of the Banking Group’s assets and liabilities and other trading
positions from fluctuations in market variables. These variables include,
but are not limited to interest rates, foreign exchange, equity prices,
commodity prices, credit spreads, implied volatilities, and asset
correlations.
• Market risk overview, management and control responsibilities
• Measurement of market risk
• Traded and non-traded market risk
• Foreign currency risk – structural exposure
Liquidity and funding risk
Liquidity risk is the risk that the Banking Group is unable to meet its
payment obligations when they fall due; or does not have the
appropriate amount, tenor and composition of funding and liquidity to
fund increases in its assets.
• Liquidity risk overview, management and control responsibilities
• Key areas of measurement for liquidity risk
• Liquidity portfolio management
• Funding position
• Residual contractual maturity analysis of the Banking Group’s liabilities
OVERVIEW
AN OVERVIEW OF OUR RISK MANAGEMENT FRAMEWORK
This overview is provided to aid the users of the financial statements to understand the context of the financial disclosures required under NZ IFRS 7
Financial Instruments: Disclosures.
The Board is responsible for establishing and overseeing the Banking Group’s Risk Management Framework (RMF). The Board has delegated authority
to the Bank’s Board Risk Committee (BRC) to develop and monitor compliance with the Banking Group’s financial risk management policies. The BRC
reports regularly to the Board on its activities.
The Board approves the strategic objectives of the Banking Group including:
• the Risk Appetite Statement (RAS), which sets out the Board’s expectations regarding the degree of risk that the Banking Group is prepared to
accept in pursuit of its strategic objectives and business plan; and
• the Risk Management Strategy (RMS), which describes the Banking Group’s strategy for managing risks and the key elements of the RMF that
gives effect to this strategy. This includes a description of each material risk, and an overview of how the RMF addresses each risk, with reference
to the relevant policies, standards and procedures. It also includes information on how the Banking Group identifies measures, evaluates,
monitors, reports and controls or mitigates material risks.
The Banking Group, through its training and management standards and procedures, aims to maintain a disciplined and robust control environment
in which all employees understand their roles and obligations. At the Banking Group, risk is everyone’s responsibility.
The Banking Group has an independent risk management function, headed by the Chief Risk Officer who:
• is responsible for overseeing the risk profile and the ri sk management framework;
• can effectively challenge activities and decisions that materially affect the Banking Group’s risk profile; and
• has an independent reporting line to the BRC to enable the appropriate escalation of issues of concern.
The Internal Audit Function reports directly to the Bank’s Board Audit Committee (BAC). Internal Audit provides:
• an independent evaluation of the Banking Group’s RMF annually and undertakes a comprehensive review every three years;
• assurance on the appropriateness, effectiveness and adequacy of the risk management framework, which includes assurance the framework is
operating effectively; and
• recommendations to improve the framework and/or work practices to strengthen the effectiveness of day to day operations.



28

NOTES TO THE FINANCIAL STATEMENTS



15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT RISK
CREDIT RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Granting credit facilities to customers is one of the Banking Group’s major sources of income. As this activity is also a principal risk, the Banking Group
dedicates considerable resources to its management. The Banking Group assumes credit risk in a wide range of lending and other activities in diverse
markets and in many jurisdictions. Credit risks arise from traditional lending to customers as well as from inter-bank, treasury, trade finance and capital
markets activities around the world.
Our credit risk management framework ensures we apply a consistent approach across the Banking Group when we measure, monitor and manage
the credit risk appetite set by the Board. The Board is assisted and advised by the BRC in discharging its duty to oversee credit risk. The BRC:
• sets the credit risk appetite and credit strategies; and
• approves credit transactions beyond the discretion of executive management.
We quantify credit risk through an internal credit rating system (masterscales) to ensure consistency across exposure types and to provide a consistent
framework for reporting and analysis. The system uses models and other tools to measure the following for customer exposures:
Probability of Default (PD) Expressed by a Customer Credit Rating (CCR), reflecting the Banking Group’s assessment of a customer’s
ability to service and repay debt.
Exposure at Default (EAD) The expected amount of loan outstanding at the time of default.
Loss Given Default (LGD) Expressed by a Security Indicator (SI) ranging from A to G. The SI is calculated by reference to the
percentage of loan covered by security which the Banking Group can realise if a customer defaults. The
A-G scale is supplemented by a range of other SIs which cover such factors as cash cover and sovereign
backing. For retail and some small business lending, we group exposures into large homogenous pools
– and the LGD is assigned at the pool level.
Our specialist credit risk teams develop and validate the Banking Group’s PD and LGD rating models. The outputs from these models drive our day-to-
day credit risk management decisions including origination, pricing, approval levels, regulatory capital adequacy, economic capital allocation, and
credit provisioning.
All customers with whom the Banking Group has a credit relationship are assigned a CCR at origination via either of the following assessment
approaches:
Large and more complex lending Retail and some small business lending
Rating models provide a consistent and structured assessment, with
judgement required around the use of out-of-model factors. We
handle credit approval on a dual approval basis, jointly with the
business writer and an independent credit officer.
Automated assessment of credit applications using a combination of
scoring (application and behavioural), policy rules and external credit
reporting information. If the application does not meet the automated
assessment criteria, then it is referred out for manual assessment.
We use the Banking Group’s internal CCRs to manage the credit quality of financial assets neither past due nor impaired. To enable wider comparisons,
the Banking Group’s CCRs are mapped to external rating agency scales as follows:
Internal Rating The Banking Group Customer Requirements Moody’s Rating S&P Global Ratings
Strong credit profile Demonstrated superior stability in their operating and financial
performance over the long-term, and whose earnings capacity is not
significantly vulnerable to foreseeable events.
Aaa – Baa3 AAA – BBB-
Satisfactory risk Demonstrated sound operational and financial stability over the
medium to long-term — even though some may be susceptible to
cyclical trends or variability in earnings.
Ba1 – B1 BB+ – B+
Sub-standard but not
past due nor impaired
Demonstrated some operational and financial instability, with
variability and uncertainty in profitability and liquidity projected to
continue over the short and possibly medium term.
B2 – Caa B - CCC





29

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
MAXIMUM EXPOSURE TO CREDIT RISK
For financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances there may
be differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below. Principally, these
differences arise in respect of financial assets that are subject to risks other than credit risk, such as equity instruments which are primarily subject to
market risk, or bank notes and coins.
For undrawn facilities, this maximum exposure to credit risk is the full amount of the committed facilities. For contingent exposures, the maximum
exposure to credit risk is the maximum amount the Banking Group would have to pay if the instrument is called upon.
For the purpose of this note, assets presented as assets held for sale in the Balance Sheet have been reallocated to their respective Balance Sheet
categories.
The table below shows our maximum exposure to credit risk of on-balance sheet and off-balance sheet positions before taking account of any
collateral held or other credit enhancements.

Reported Excluded
1
/ Other
2

Maximum exposure to
credit risk


2018 2017 2018 2017 2018 2017

NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
On-balance sheet positions





Net loans and advances
2,3

126,466
120,539
(71)
(84)
126,537
120,623
Other financial assets:
Cash and cash equivalents 2,200 2,338 204 198 1,996 2,140
Settlement balances owed to the Banking Group
656
536
-
-
656
536
Collateral paid
1,919
1,415
-
-
1,919
1,415
Trading securities
8,024
7,663
-
-
8,024
7,663
Derivative financial instruments
8,086
9,878
-
-
8,086
9,878
Available-for-sale assets
6,502
6,360
-
-
6,502
6,360
Other financial assets
4

719
744
-
-
719
744
Total other financial assets 28,106 28,934 204 198 27,902 28,736
Subtotal 154,572 149,473 133 114 154,439 149,359
Off-balance sheet positions





Undrawn and contingent facilities
2,5

30,105
29,377
71
84
30,034
29,293
Total 184,677
178,850
204
198
184,473
178,652
1 Excluded comprises bank notes and coins and cash at bank within cash and cash equivalents.
2 Other relates to the transfer of individual and collective provisions related to off-balance sheet facilities held in net loans and advances. The provisions are transferred for the purposes of
showing the maximum exposure to credit risk by relevant facility type in this and the following tables.
3 Including items reclassified as held for sale.
4 Other financial assets mainly comprise accrued interest, insurance receivables and acceptances.
5 Undrawn facilities and contingent facilities include guarantees, letters of credit and performance related contingencies.



30

NOTES TO THE FINANCIAL STATEMENTS



15. FINANCIAL RISK MANAGEMENT (continued)
CREDIT QUALITY
The table below provides an analysis of the credit quality of the maximum exposure to credit risk split by:
• neither past due nor impaired financial assets by credit quality;
• past due but not impaired assets by ageing; and
• impaired assets presented as gross amounts and net of provision for credit impairment.

Loans
and advances
Other financial
assets
Off-balance sheet
credit related
commitments Total

2018 2017 2018 2017 2018 2017 2018 2017

NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Neither past due nor impaired
Strong credit profile 92,783 81,595 27,368 28,024 23,475 22,922 143,626 132,541
Satisfactory risk
29,335
34,283
521
702
6,186
6,016
36,042
41,001
Sub-standard but not past due or impaired 2,296 2,558 13 10 359 349 2,668 2,917
Subtotal 124,414
118,436
27,902
28,736
30,020
29,287
182,336
176,459
Past due but not impaired







≥ 1 < 30 days 1,420 1,385 - - - - 1,420 1,385
≥ 30 < 60 days
179
290
-
-
-
-
179
290
≥ 60 < 90 days
128
125
-
-
-
-
128
125
≥ 90 days 205 182 - - - - 205 182
Subtotal 1,932
1,982
-
-
-
-
1,932
1,982
Impaired
Impaired loans
321
357
-
-
-
-
321
357
Non-performing commitments
and contingencies
-
-
-
-
14
6
14
6
Gross impaired financial assets 321 357 - - 14 6 335 363
Individual provisions
(130)
(152)
-
-
-
-
(130)
(152)
Subtotal net impaired 191 205 - - 14 6 205 211
Total 126,537
120,623
27,902
28,736
30,034
29,293
184,473
178,652



31

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
CONCENTRATIONS OF CREDIT RISK
Credit risk becomes concentrated when a number of customers are engaged in similar activities, have similar economic characteristics, or have similar
activities within the same geographic region – therefore, they may be similarly affected by changes in economic or other conditions. The Banking
Group monitors its credit portfolio to manage risk concentration and rebalance the portfolio. The Banking Group also applies single customer
counterparty limits to protect against unacceptably large exposures to one single customer.
Analysis of financial assets by industry sector is based on Australian and New Zealand Standard Industrial Classification (ANZSIC) codes. The significant
categories shown are the level one New Zealand Standard Industry Output Categories (NZSIOC), except that Agriculture is shown separately as
required by the Order.

Composition of financial instruments that give rise to credit risk by industry group are presented below:

Loans
and advances
3,4

Other financial
assets
4

Off-balance sheet
credit related
commitments
5
Total
2018 2017 2018 2017 2018 2017 2018 2017
NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
New Zealand residents
Agriculture 17,844 17,686 82 83 1,373 1,436 19,299 19,205
Forestry and fishing, agriculture services 1,379 1,277 9 5 249 240 1,637 1,522
Manufacturing 2,687 2,729 284 169 1,793 1,798 4,764 4,696
Electricity, gas, water and waste services
1,403
1,602
330
457
1,576
1,522
3,309
3,581
Construction
1,713
1,635
21
18
1,358
1,119
3,092
2,772
Wholesale trade
1,404
1,630
63
54
1,521
1,357
2,988
3,041
Retail trade and accommodation
3,211
3,058
27
28
969
1,133
4,207
4,219
Transport, postal and warehousing
1,222
1,440
121
69
783
894
2,126
2,403
Finance and insurance services
872
903
5,509
5,268
1,567
1,259
7,948
7,430
Public administration and safety
1

364
412
9,654
8,099
1,043
794
11,061
9,305
Rental, hiring & real estate services
31,805
30,697
235
218
3,461
3,699
35,501
34,614
Professional, scientific, technical,
administrative and support services
1,165 1,267 9 10 633 619 1,807 1,896
Households
56,808
51,554
192
180
11,977
11,878
68,977
63,612
All other New Zealand residents
2

2,569
2,625
167
253
1,663
1,474
4,399
4,352
Subtotal 124,446 118,515 16,703 14,911 29,966 29,222 171,115 162,648
Overseas

Finance and insurance services
128
123
11,109
13,126
139
155
11,376
13,404
Households 1,512 1,454 5 5 - - 1,517 1,459
All other non-NZ residents 818 914 85 694 - - 903 1,608
Subtotal
2,458
2,491
11,199
13,825
139
155
13,796
16,471
Gross subtotal 126,904
121,006
27,902
28,736
30,105
29,377
184,911
179,119
Provision for credit impairment (441) (495) - - (71) (84) (512) (579)
Subtotal 126,463 120,511 27,902 28,736 30,034 29,293 184,399 178,540
Unearned income (239) (222) - - - - (239) (222)
Capitalised brokerage / mortgage
origination fees
313
334
-
-
-
-
313
334
Maximum exposure to credit risk 126,537
120,623
27,902
28,736
30,034
29,293
184,473
178,652
1
Public administration and safety includes exposures to local government administration and central government administration, defence and public safety.
2
Other includes exposures to mining, information media and telecommunications, education and training, health care and social assistance and arts, recreation and other services.
3
Excludes individual and collective provisions for credit impairment held in respect of credit related commitments.
4
Including items classified as held for sale.
5
Credit related commitments comprise undrawn facilities, customer contingent liabilities and letters of offer.




32

NOTES TO THE FINANCIAL STATEMENTS



15. FINANCIAL RISK MANAGEMENT (continued)
COLLATERAL MANAGEMENT
We use collateral for on and off-balance sheet exposures to mitigate credit risk if a counterparty cannot meet its repayment obligations from its
expected cashflows. For some products, the collateral provided by customers is fundamental to the product’s structuring, so it is not strictly the
secondary source of repayment - for example, lending secured by trade receivables is typically repaid by the collection of those receivables.
The nature of collateral or security held for the relevant classes of financial assets is as follows:
Net loans and advances

Loans – housing and personal Housing loans are secured by mortgage(s) over property and additional security may take the form of
guarantees and deposits.
Personal lending (including credit cards and overdrafts) is predominantly unsecured. If we take
security, then it is restricted to eligible vehicles, motor homes and other assets.
Loans – business Business loans may be secured, partially secured or unsecured. Typically, we take security by way of a
mortgage over property and/or a charge over the business or other assets.
If appropriate, we may take other security to mitigate the credit risk, for example: guarantees, standby
letters of credit or derivative protection.
Other financial assets

Trading securities, Available-for-sale
assets, Derivatives and Other financial
assets
For trading securities, we do not seek collateral directly from the issuer or counterparty. However, the
collateral may be implicit in the terms of the instrument (for example, with an asset-backed security).
The terms of debt securities may include collateralisation.
For derivatives, we typically terminate all contracts with the counterparty and settle on a net basis at
market levels current at the time of a counterparty default under International Swaps and Derivatives
Association (ISDA) Master Agreements.
Our preferred practice is to use a Credit Support Annex (CSA) to the ISDA so that open derivative
positions with the counterparty are aggregated and cash collateral (or other forms of eligible collateral)
is exchanged daily. The collateral is provided by the counterparty when their position is out of the
money (or provided to the counterparty by the Banking Group when our position is out of the money).
Off-balance sheet positions

Undrawn and contingent liabilities Collateral for off balance sheet positions is mainly held against undrawn facilities, and they are typically
performance bonds on guarantees. Undrawn facilities that are secured include housing loans secured
by mortgages over residential property and business lending secured by commercial real estate and/or
charges over business assets.
The table below shows the estimated value of collateral we hold and the net unsecured portion of credit exposures:

Credit exposure Total value of collateral
Unsecured portion of
credit exposure
2018 2017 2018 2017 2018 2017
NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Net loans and advances
1
126,537 120,623 117,337 110,914 9,200 9,709
Other financial assets
1

27,902
28,736
2,029
1,617
25,873
27,119
Off-balance sheet positions
30,034
29,293
15,124
14,526
14,910
14,767
Total 184,473
178,652
134,490
127,057
49,983
51,595
1
Including items reclassified as held for sale.



33

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
MARKET RISK
MARKET RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Market risk stems from the Banking Group’s trading and balance sheet management activities, the impact of changes and correlation between interest
rates, foreign exchange rates, credit spreads and volatility in bond, commodity or equity prices.
The BRC delegates responsibility for day-to-day management of both market risks and compliance with market risk policies to the Bank’s Asset &
Liability Committee (ALCO).
Within overall strategies and policies established by the BRC, business units and risk management have joint responsibility for the control of market
risk at the Banking Group level. The Market Risk team (a specialist risk management unit independent of the business) allocates market risk limits at
various levels and monitors and reports on them daily. This detailed framework allocates individual limits to manage and control exposures using risk
factors and profit and loss limits.
Management, measurement and reporting of market risk is undertaken in two broad categories:
Traded Market Risk Non-Traded Market Risk
Risk of loss from changes in the value of financial instruments due
to movements in price factors for both physical and derivative
trading positions. Principal risk categories monitored are:
1. Currency risk – potential loss arising from changes in foreign
exchange rates or their implied volatilities.
2. Interest rate risk – potential loss from changes in market
interest rates or their implied volatilities.
3. Credit spread risk – potential loss arising from a movement in
margin or spread relative to a benchmark.
4. Commodity risk – potential loss arising from changes in
commodity prices or their implied volatilities.
5. Equity risk – potential loss arising from changes in equity
prices.
Risk of loss associated with the management of non-traded interest rate risk,
liquidity risk and foreign exchange exposures. This includes interest rate risk
in the banking book. This risk of loss arises from adverse changes in the
overall and relative level of interest rates for different tenors, differences in
the actual versus expected net interest margin, and the potential valuation
risk associated with embedded options in financial instruments and bank
products.

MEASUREMENT OF MARKET RISK
We primarily manage and control market risk using Value at Risk (VaR), sensitivity analysis and stress testing.
VaR gauges the Banking Group’s possible daily loss based on historical market movements.
The Banking Group’s VaR approach for both traded and non-traded risk is historical simulation. We use historical changes in market rates, prices and
volatilities over:
• the previous 500 business days, to calculate standard VaR, and
• a 1-year stressed period, to calculate stressed VaR.
We calculate traded and non-traded VaR using one-day and ten-day holding periods. For stressed VaR, we use a ten-day period. Back testing is used to
ensure our VaR models remain accurate.
The Banking Group measures VaR at a 99% confidence interval which means there is a 99% chance that a loss will not exceed the VaR on any given
day.



34

NOTES TO THE FINANCIAL STATEMENTS



15. FINANCIAL RISK MANAGEMENT (continued)
TRADED AND NON-TRADED MARKET RISK
Traded market risk
The table below shows the traded market risk VaR on a diversified basis by risk categories:

30 September 2018 30 September 2017
High for Low for Average High for Low for Average
As at year year for year As at year year for year
NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Traded value at risk 99% confidence

Foreign exchange risk
0.5 1.6 0.2 0.7
0.1 1.2 0.1 0.4
Interest rate risk
1.4 3.6 0.8 1.9
3.0 5.8 1.3 2.5
Credit spread risk
0.5 0.8 0.3 0.5
0.6 0.8 0.4 0.6
Diversification benefit
1
(1.0) n/a n/a (0.9) (0.9) n/a n/a (0.9)
Total VaR 1.4 4.0 1.0 2.2 2.8 5.3 1.4 2.6
1.
The diversification benefit reflects risks that offset across categories. The high and low VaR figures reported for each factor did not necessarily occur on the same day as the high and low VaR reported for
the Banking Group as a whole. Consequently, a diversification benefit for high and low would not be meani ngful and is therefore omitted from the table.
Non-traded market risk
Balance sheet risk management
The principal objectives of balance sheet risk management are to maintain acceptable levels of interest rate and liquidity risk to mitigate the negative
impact of movements in interest rates on the earnings and market value of the Banking Group’s banking book, while ensuring the Banking Group
maintains sufficient liquidity to meet its obligations as they fall due.
Interest rate risk management
Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Banking Group’s future net interest
income. This risk arises from two principal sources, namely mismatches between the repricing dates of interest bearing assets and liabilities; and the
investment of capital and other non-interest bearing liabilities in interest bearing assets. Interest rate risk is reported using VaR and scenario analysis
(based on the impact of a 1% rate shock). The table below shows VaR figures for non-traded interest rate risk for the Banking Group.

30 September 2018 30 September 2017
As at
High for
year
Low for
year
Average
for year As at
High for
year
Low for
year
Average
for year
NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Non-traded value at risk 99% confidence
Total VaR
8.0 10.2 6.4 7.8
8.3 10.2 7.3 8.2
We undertake scenario analysis to stress test the impact of extreme events on the Banking Group’s market risk exposures. We model a 1% overnight
parallel positive shift in the yield curve to determine the potential impact on our net interest income over the next 12 months. This is a standard risk
measure which assumes the parallel shift is reflected in all wholesale and customer rates.
The table below shows the outcome of this risk measure for the current and previous financial years, expressed as a percentage of reported net
interest income. A positive number signifies that a rate increase is positive for net interest income over the next 12 months.

2018 2017
Impact of 1% rate shock
As at period end
-0.4%
0.6%
Maximum exposure
0.9%
0.9%
Minimum exposure
-1.2%
-0.3%
Average exposure (in absolute terms) 0.0%
0.4%
FOREIGN CURRENCY RISK – STRUCTURAL EXPOSURES
Where it is considered appropriate, the Banking Group takes out economic hedges against larger foreign exchange denominated revenue streams
(primarily Australian Dollar, US Dollar and US Dollar correlated). The primary objective of hedging is to ensure that, if practical, the consolidated capital
ratios are neutral to the effect of changes in exchange rates. During the current and prior years, we had selective hedges in place. Further detail on the
Banking Group’s hedging relationships is disclosed in Note 9 Derivative Financial Instruments.



35

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY AND FUNDING RISK
LIQUIDITY RISK OVERVIEW, MANAGEMENT AND CONTROL RESPONSIBILITIES
Liquidity risk is the risk that the Banking Group is either:
• unable to meet its payment obligations (including repaying depositors or maturing wholesale debt) when they fall due; or
• does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets.
Management of liquidity and funding is overseen by ALCO. The Banking Group’s liquidity and funding risks are governed by a set of principles
approved by the Risk Committees of the Bank’s and Ultimate Parent Bank’s Boards and include:
• maintaining the ability to meet all payment obligations in the immediate term;
• ensuring that the Banking Group has the ability to meet ‘survival horizons’ under Banking Group specific and general market liquidity stress
scenarios to meet cash flow obligations over the short to medium term;
• maintaining strength in the Banking Group’s balance sheet structure to ensure long term resilience in the liquidity and funding risk profile;
• ensuring the liquidity management framework is compatible with local regulatory requirements;
• preparing daily liquidity reports and scenario analysis to quantify the Banking Group’s positions;
• targeting a diversified funding base to avoid undue concentrations by investor type, maturity, market source and currency;
• holding a portfolio of high quality liquid assets to protect against adverse funding conditions and to support day-to-day operations; and
• establishing a detailed contingency plan to cover different liquidity crisis events.
KEY AREAS OF MEASUREMENT FOR LIQUIDITY RISK
Supervision and regulation
RBNZ requires the Bank to have a comprehensive Board approved liquidity strategy defining: policy, systems and procedures for measuring, assessing,
reporting and managing liquidity. This also includes a formal contingency plan for dealing with a liquidity crisis. The Banking Group is required to meet
one week and one month liquidity mismatch ratios and a one year core funding ratio each day.
Scenario modelling
A key component of the Banking Group’s liquidity management framework is scenario modelling.
Potential severe liquidity crisis scenarios which model the behaviour of cash flows where there is a problem (real or perceived) may include, but are
not limited to, operational issues, doubts about the solvency of the Banking Group, or adverse rating changes. Under these scenarios the Banking
Group may have significant difficulty rolling over or replacing funding. The Banking Group’s liquidity policy requires sufficient high quality liquid assets
to be held to meet its liquidity needs for the following 30 calendar days under the modelled scenarios.
As of 30 September 2018 the Banking Group was in compliance with the above scenarios.
Structural balance sheet metrics
The Banking Group’s liquidity management framework also encompasses structural balance sheet metrics such as the RBNZ core funding ratio. These
metrics are designed to limit the amount of funding required to be rolled over within a 1 year timeframe and so interact with the liquidity scenarios to
maintain the Banking Group‘s liquidity position.
Wholesale funding
The Banking Group’s wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency while
targeting diversification by markets, investors, currencies, maturities and funding structures. Short-term wholesale funding requirements, with a
contractual maturity of less than one year, are managed through Treasury and Markets operations. Long-term wholesale funding is managed and
executed through Treasury operations.
The Banking Group also uses maturity concentration limits under the wholesale funding and liquidity management framework. Maturity
concentration limits ensure that the Banking Group is not required to issue large volumes of new wholesale funding within a short time period to
replace maturing wholesale funding. Funding instruments used to meet the wholesale borrowing requirement must be on a pre-established list of
approved products.
Funding capacity and debt issuance planning
The Banking Group adopts a conservative approach to determine its funding capacity. Annually, a funding plan is approved by the Bank’s Board. The
plan is supplemented by regular updates and is linked to the Banking Group’s three year strategic planning cycle.



36

NOTES TO THE FINANCIAL STATEMENTS



15. FINANCIAL RISK MANAGEMENT (continued)
LIQUIDITY PORTFOLIO MANAGEMENT
The Banking Group holds a diversified portfolio of cash and high quality highly liquid securities to support liquidity risk management. The size of the
Banking Group’s liquidity portfolio is based on the amount required to meet the requirements of its internal and regulatory liquidity scenario metrics.
Total liquidity portfolio

2018 2017
NZ$m NZ$m
Cash and balances with central banks
2,026
2,102
Certificates of deposit
179
59
Central and local government bonds 7,528 6,609
Government treasury bills
794
775
Reserve Bank bills 50 -
Other bonds
5,493
6,390
Total liquidity portfolio 16,070
15,935

Assets held for managing liquidity risk include short term cash held with RBNZ, New Zealand Government securities, securities issued by supranational
agencies, securities issued by highly rated banks and securities issued by State Owned Enterprises, Local Authorities and highly rated NZ domestic
corporates. These assets would be accepted as collateral by RBNZ in repurchase transactions. At 30 September 2018 the Banking Group would be
eligible to enter into repurchase transactions with a value of NZ$14,044 million. The Banking Group also held unencumbered internal residential
mortgage backed securities (RMBS) which would entitle the Banking Group to enter into repurchase transactions with a value of NZ$7,060 million at
30 September 2018.
Liquidity crisis contingency planning
The Banking Group maintains a liquidity crisis contingency plan to define an approach for analysing and responding to a liquidity-threatening event
on a group wide basis. The framework includes:
• the establishment of crisis severity/stress levels;
• clearly assigned crisis roles and responsibilities;
• early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals;
• outlined action plans, and courses of action for altering asset and liability behaviour;
• procedures for crisis management reporting, and covering cash-flow shortfalls; and
• assigned responsibilities for internal and external communications.



37

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

15. FINANCIAL RISK MANAGEMENT (continued)
FUNDING POSITION
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 is based on ANZSIC codes. The significant categories shown are the level one New Zealand Standard Industry
Output Categories (NZSIOC).

2018 2017
Note NZ$m NZ$m
Funding composition



Customer deposits
1
13
104,055
96,829
Wholesale funding


Debt issuances
25,135
24,606
Certificates of deposit and commercial paper 3,396 5,637
Other borrowings
557
230
Total wholesale funding
29,088
30,473
Total funding

133,143
127,302
Customer deposits by industry - New Zealand residents



Agriculture, forestry and fishing 3,763 3,487
Manufacturing
2,335
2,024
Construction
2,050
1,851
Wholesale trade 1,571 1,433
Retail trade and accommodation
1,484
1,516
Financial and insurance services 10,661 8,996
Rental, hiring and real estate services
2,878
2,596
Professional, scientific, technical, administrative and support services
5,126
5,034
Public administration and safety 1,572 1,261
Arts, recreation and other services
2,027
1,928
Households
56,640
53,222
All other New Zealand residents
2
3,556 3,483

93,663
86,831
Customer deposits by industry - overseas
Households
9,876
9,461
All other non-NZ residents
516
537
10,392 9,998
Total customer deposits
104,055
96,829
Wholesale funding (financial and insurance services industry)
New Zealand
8,082
9,134
Overseas
21,006
21,339
Total wholesale funding 29,088 30,473
Total funding

133,143
127,302
Concentrations of funding by geography
New Zealand
101,745
95,965
Australia
739
796
United States 13,671 13,471
Europe
9,618
9,784
Other countries
7,370
7,286
Total funding

133,143
127,302
1
Including items reclassified as held for sale.
2
Other includes mining; electricity, gas, water and waste services; transport, postal and warehousing; information media and telecommunications; education and training; health care and
social assistance.



38

NOTES TO THE FINANCIAL STATEMENTS



15. FINANCIAL RISK MANAGEMENT (continued)
RESIDUAL CONTRACTUAL MATURITY ANALYSIS OF FINANCIAL OF THE BANKING GROUP’S LIABILITIES
The table below provides residual contractual maturity analysis of financial liabilities at 30 September 2018 within relevant maturity groupings. All
outstanding debt issuances are profiled on the earliest date on which the Banking Group may be required to pay. The amounts represent principal
and interest cash flows – so they may differ from equivalent amounts reported on the balance sheet.
It should be noted that this is not how the Banking Group manages its liquidity risk.


On demand
Less than
3 months
3 to 12
months
1 to 5
years
After
5 years Total
2018 NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Settlement balances owed by the Banking Group
1,338 837 - - - 2,175
Collateral received - 845 - - - 845
Deposits and other borrowings
1

52,016 25,701 27,008 4,854 - 109,579
Derivative financial liabilities (trading)
- 6,147 - - - 6,147
Debt issuances
2
- 930 3,676 17,810 4,596 27,012
Other financial liabilities
1

- 119 7 44 76 246
Derivative financial instruments
(balance sheet management)

- gross inflows - 1,790 2,033 9,080 1,266 14,169
- gross outflows
- (1,998) (2,218) (9,368) (1,179) (14,763)

On demand
Less than
3 months
3 to 12
months
1 to 5
years
After
5 years Total
2017 NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Settlement balances owed by the Banking Group 1,165 685 - - - 1,850
Collateral received - 613 - - - 613
Deposits and other borrowings
1
58,287 24,814 24,320 4,504 - 111,925
Derivative financial liabilities (trading) - 8,057 - - - 8,057
Debt issuances
2
- 1,604 2,950 16,496 5,424 26,474
Other financial liabilities
1
- 155 6 56 144 361
Derivative financial instruments
(balance sheet management)

- gross inflows - 2,082 2,300 8,128 2,867 15,377
- gross outflows - (2,235) (2,433) (8,328) (2,741) (15,737)
1
Including items reclassified as held for sale.
² Any callable wholesale debt instruments have been included at their next call date. Refer to Note 14 Debt Issuances for subordinated debt call dates.

At 30 September 2018, NZ$93 million (2017: NZ$88 million) of the Banking Group’s non-credit related commitments and NZ$30,105 million (2017:
NZ$29,377 million) of its credit related commitments and contingent liabilities mature in less than 1 year, based on the earliest date on which the
Banking Group may be required to pay.




39

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The Banking Group carries a significant number of financial instruments on the balance sheet at fair value. The fair value of a financial instrument is the
price that would be re ceived to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement
date.
VALUATION OF FINANCIAL INSTRUMENTS
The Banking Group has an established control framework, including an appropriate segregation of duties, to ensure that fair values are accurately
determined, reported and controlled. The framework includes the following features:
• products are approved for transacting with external customers and counterparties only where fair values can be appropriately determined;
• quoted market prices used to value financial instruments are independently verified with information from external pricing providers;
• fair value methodologies and inputs are evaluated and approved by a function independent of the party that undertakes the transaction;
• movements in fair values are independently monitored and explained by reference to underlying factors relevant to the fair value; and
• valuation adjustments (such as FVA, CVA and bid-offer) are independently validated and monitored.
If the Banking Group holds offsetting risk positions, then the Banking Group uses the portfolio exemption in NZ IFRS 13 Fair Value Measurement (NZ
IFRS 13) to measure the fair value of such groups of financial assets and financial liabilities. We measure the portfolio based on the price that would be
received to sell a net long position (an asset) for a particular risk exposure, or to transfer a net short position (a liability) for a particular risk exposure.
FAIR VALUE APPROACH AND VALUATION TECHNIQUES
We use valuation techniques to estimate the fair value of financial assets and liabilities for recognition, measurement and disclosure purposes where
no quoted price in an active market exists for that asset or liability. This includes the following:
Asset or Liability Fair Value Approach
Financial instruments classified as:
- Trading securities
- Derivative financial assets and liabilities
- Available-for-sale assets
Valuation techniques are used that incorporate observable market inputs for financial instruments
with similar credit risk, maturity and yield characteristics.
Financial instruments classified as:
- Net loans and advances
- Deposits and other borrowings
- Debt issuances
Discounted cash flow techniques in which contractual future cash flows of the instrument are
discounted using discount rates incorporating wholesale market rates, or market borrowing rates,
for debt with similar maturities or with a yield curve appropriate for the remaining term to maturity.
CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES
The following tables set out the classification of financial asset and liability categories according to measurement bases together with the carrying
amounts as reported on the balance sheet.
2018 2017

Fair value
details refer

At
amortised
cost
At fair
value Total
At
amortised
cost
At fair
value Total
to Note NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Financial assets

Cash and cash equivalents
2,200 - 2,200
2,338 - 2,338
Settlement balances owed to the Banking Group
656 - 656
536 - 536
Collateral paid
1,919 - 1,919
1,415 - 1,415
Trading securities 8
- 8,024 8,024
- 7,663 7,663
Derivative financial instruments 9 - 8,086 8,086 - 9,878 9,878
Available-for-sale assets 10 - 6,502 6,502 - 6,360 6,360
Net loans and advances
1

126,466 - 126,466
120,539 - 120,539
Other financial assets
1

592 127 719
621 123 744
Total

131,833 22,739 154,572
125,449 24,024 149,473
Financial liabilities

Settlement balances owed by the Banking Group
2,161 - 2,161
1,840 - 1,840
Collateral received
845 - 845
613 - 613
Deposits and other borrowings
1
13 105,522 2,486 108,008 98,975 3,721 102,696
Derivative financial instruments 9 - 8,095 8,095 - 9,826 9,826
Debt issuances
25,135 - 25,135
24,606 - 24,606
Other financial liabilities
1

576 110 686
608 151 759
Total

134,239 10,691 144,930
126,642 13,698 140,340
1
Including items reclassified as held for sale.




40

NOTES TO THE FINANCIAL STATEMENTS



16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FINANCIAL ASSETS AND LIABILITIES CARRIED AT FAIR VALUE ON THE BALANCE SHEET
The Banking Group categorises financial assets and liabilities carried at fair value into a fair value hierarchy as required by NZ IFRS 13 based on the
observability of inputs used to measure fair value:
• Level 1 – valuations based on quoted prices (unadjusted) in active markets for identical financial instruments;
• Level 2 – valuations using inputs other than quoted prices included within Level 1 that are observable for a similar financial asset or liability,
either directly or indirectly; and
• Level 3 – valuations using inputs for the assets or liability that are not based on observable market data (unobservable inputs).
The table below summarises the attribution of financial instruments carried at fair value to the fair value hierarchy:

Fair value measurements

Quoted market price
(Level 1)
Using observable
inputs
(Level 2)
Using unobservable
inputs (Level 3)
Total
2018 2017 2018 2017 2018 2017 2018 2017
NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Assets







Trading securities
6,795
7,276
1,229
387
-
-
8,024
7,663
Derivative financial instruments 7 5 8,076 9,870 3 3 8,086 9,878
Available-for-sale assets 6,457 5,336 44 1,023 1 1 6,502 6,360
Investments backing insurance contract liabilities
1
- - 127 123 - - 127 123
Total 13,259
12,617
9,476
11,403
4
4
22,739
24,024
Liabilities







Deposits and other borrowings
1

-
-
2,486
3,721
-
-
2,486
3,721
Derivative financial instruments
10
24
8,084
9,801
1
1
8,095
9,826
Other financial liabilities
110
151
-
-
-
-
110
151
Total 120 175 10,570 13,522 1 1 10,691 13,698
1
Including items reclassified as held for sale.
Fair value designation
We designate commercial paper (included in deposits and other borrowings) as fair value through profit or loss where they are managed on a fair
value basis to align the measurement with how the instruments are managed.



41

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS




42
16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)
FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE
The following sets out the Banking Group’s basis of estimating fair values of the above financial instruments carried at amortised cost:
Financial Asset and Liability Fair Value Approach
Net loans and advances to banks Discounted cash flows using prevailing market rates for loans with similar credit quality.
Net loans and advances to customers Present value of future cash flows, discounted using a curve that incorporates changes in
wholesale market rates, the Banking Group cost of wholesale funding and the customer margin, as
appropriate.
Deposit liability without a specified maturity or
at call
The amount payable on demand at the reporting date. We do not adjust the fair value for any
value we expect the Banking Group to derive from retaining the deposit for a future period.
Interest bearing fixed maturity deposits and
other borrowings and acceptances with
quoted market rates
Market borrowing rates of interest for debt with a similar maturity are used to discount contractual
cash flows to derive the fair value.
Debt issuances Calculated based on quoted market prices or observable inputs as applicable. If quoted market
prices are not available, we use a discounted cash flow model using a yield curve appropriate for
the remaining term to maturity of the debt instrument. The fair value reflects adjustments to credit
spreads applicable to the Banking Group for that instrument.
The financial assets and financial liabilities listed in the table below are carried at amortised cost on the Banking Group’s Balance Sheet. While this is
the value at which we expect the assets will be realised and the liabilities settled, the Banking Group provides an estimate of the fair value of the
financial assets and financial liabilities at balance date in the table below.

Carrying amount Categorised into fair value hierarchy Fair value (total)

Quoted market price
(Level 1)
Using observable
inputs
(Level 2)
With significant non-
observable inputs
(Level 3)
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Financial assets









Net loans and advances
1, 2

126,466
120,539
-
-
131
136
126,614
120,452
126,745
120,588
Total 126,466
120,539
-
-
131
136
126,614
120,452
126,745
120,588
Financial liabilities









Deposits and other
borrowings
1

105,522
98,975
-
-
105,592
99,030
-
-
105,592
99,030
Debt issuances 25,135 24,606 2,533 2,855 22,929 22,163 - - 25,462 25,018
Total 130,657
123,581
2,533
2,855
128,521
121,193
-
-
131,054
124,048
1
Including items reclassified as held for sale.
2
We have reviewed the fair value of Net Loans and advances previously presented as Level 2. In line with broader industry practice Net loans and advances other than Loans to Banks are
now presented as Level 3.






The Banking Group evaluates the material accuracy of the valuations incorporated in the financial statements as they can involve a high degree
of judgement and estimation in determining the carrying values of financial assets and financial liabilities at the balance sheet date.
The majority of valuation models the Banking Group uses employ only observable market data as inputs. However, for certain financial
instruments, we may use data that is not readily observable in current markets. If we use unobservable market data, then we need to exercise
more judgement to determine fair value depending on the significance of the unobservable input to the overall valuation. Generally, we
derive unobservable inputs from other relevant market data and compare them to observed transaction prices where available.
When establishing the fair value of a financial instrument using a valuation technique, the Banking Group considers valuation adjustments in
determining the fair value. We may apply adjustments (such as bid/offer spreads, credit valuation adjustments and funding valuation
adjustments – refer Note 9 Derivative Financial Instruments) to the techniques used to reflect the Banking Group’s assessment of factors that
market participants would consider in setting fair value.

NOTES TO THE FINANCIAL STATEMENTS



17. ASSETS CHARGED AS SECURITY FOR LIABILITIES AND COLLATERAL ACCEPTED AS
SECURITY FOR ASSETS
The following disclosure excludes the amounts presented as collateral paid and received in the Balance Sheet that relate to derivative liabilities and
derivative assets respectively. The terms and conditions of those collateral agreements are included in the standard Credit Support Annex that forms
part of the International Swaps and Derivatives Association Master Agreement.
ASSETS CHARGED AS SECURITY FOR LIABILITIES
Assets charged as security for liabilities include the following types of instruments:
• Securities provided as collateral for repurchase transactions. These transactions are governed by standard industry agreements.
• UDC Secured Investments are secured by a security interest granted under a trust deed over all of UDC’s present and future assets and
undertakings, to Trustees Executors Limited, as supervisor. The assets subject to the security interest comprise mainly loans to UDC's customers
and certain plant and equipment. The security interest secures all amounts payable by UDC on the UDC Secured Investments and all other
monies payable by UDC under the trust deed.
• Specified residential mortgages provided as security for notes and bonds issued to investors as part of the Banking Group’s covered bond
programmes.
The carrying amounts of assets pledged as security are as follows:

2018 2017
NZ$m NZ$m
Securities sold under agreements to repurchase
1

517
157
Assets pledged as collateral for UDC secured investments
3,296
2,985
Residential mortgages pledged as security for covered bonds 10,747 10,595
1
The amounts disclosed as securities sold under arrangements to repurchase include both:
• assets pledged as security which continue to be recognised on the Banking Group’s balance sheet; and
• assets repledged, which are included in the disclosure below.

COLLATERAL ACCEPTED AS SECURITY FOR ASSETS
The Banking Group has received collateral associated with various financial instruments. Under certain transactions the Banking Group has the right to
sell, or to repledge, the collateral received. These transactions are governed by standard industry agreements.
The fair value of collateral we have received and that we have sold or repledged is as follows:

2018 2017
NZ$m NZ$m
Fair value of assets which can be sold or repledged
139
361
Fair value of assets sold or repledged
34
218



43

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS

18. OFFSETTING
We offset financial assets and financial liabilities in the balance sheet (in accordance with NZ IAS 32 Financial Instruments: Presentation) when there is:
• a current legally enforceable right to set off the recognised amounts in all circumstances; and
• an intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.
If the above conditions are not met, the financial assets and financial liabilities are presented on a gross basis.
The Banking Group does not have any arrangements that satisfy the conditions necessary to offset financial assets and financial liabilities within the
balance sheet. The following table identifies financial assets and financial liabilities which have not been offset but are subject to enforceable master
netting agreements (or similar arrangements) and the related amounts not offset in the balance sheet. We have not taken into account the effect of
over collateralisation.

Amount subject to master netting agreement or similar

Total amounts
recognised
in the
Balance Sheet
Amounts not
subject to
master
netting
agreement or
similar Total
Financial
instruments
Financial
collateral
(received)/
pledged Net amount
2018 NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Derivative financial instruments
8,086 (1,029) 7,057 (5,711) (481) 865
Reverse repurchase agreements
1

136 - 136 - (136) -
Total financial assets 8,222 (1,029) 7,193 (5,711) (617) 865
Derivative financial instruments
(8,095) 694 (7,401) 5,711 563 (1,127)
Repurchase agreements
2

(517) - (517) - 517 -
Total financial liabilities (8,612) 694 (7,918) 5,711 1,080 (1,127)



Amount subject to master netting agreement or similar

Total amounts
recognised
in the
Balance Sheet
Amounts not
subject to
master
netting
agreement or
similar Total
Financial
instruments
Financial
collateral
(received)/
pledged Net amount

2017 NZ$m NZ$m NZ$m NZ$m NZ$m NZ$m
Derivative financial instruments 9,878 (1,933) 7,945 (7,478) (245) 222
Reverse repurchase agreements
1
360 - 360 - (360) -
Total financial assets
10,238 (1,933) 8,305 (7,478) (605) 222
Derivative financial instruments (9,826) 1,386 (8,440) 7,478 348 (614)
Repurchase agreements
2
(157) - (157) - 157 -
Total financial liabilities
(9,983) 1,386 (8,597) 7,478 505 (614)
1
Reverse repurchase agreements are presented in the Balance Sheet within cash and cash equivalents.
2
Repurchase agreements are presented in the Balance Sheet within deposits and other borrowings.



44

NOTES TO THE FINANCIAL STATEMENTS



19. GOODWILL AND OTHER INTANGIBLE ASSETS


2018 2017
Note NZ$m NZ$m
Goodwill 3,230 3,230
Software

53 67
Other intangibles

107 111
Goodwill and other intangible assets (including assets reclassified as held for sale)
3,390
3,408
Less: Goodwill and other intangible assets reclassified as held for sale 25
(101)
(133)
Goodwill and other intangible assets

3,289
3,275

GOODWILL ALLOCATED TO CASH-GENERATING UNITS (CGUs)
An annual assessment is made as to whether the current carrying value of goodwill is impaired. For the purposes of impairment testing, goodwill is
allocated at the date of acquisition to a CGU. Goodwill is considered to be impaired if the carrying amount of the relevant CGU exceeds its recoverable
amount.
To estimate the recoverable amount of the CGU to which each goodwill component is allocated, we use a value-in -use approach.
VALUE-IN-USE
These calculations use cash flow projections based on a number of financial budgets within each segment approved by management covering a
three year period. Cash flow projections are based on a range of readily available economic assumptions including Gross Domestic Product (GDP) and
the Consumer Price Index (CPI). Cash flows beyond the three year period are extrapolated using a 3% growth rate.
These cash flow projections are discounted using a capital asset pricing model. As at 28 February 2018 when the last valuation was prepared, a
discount rate of 11.4% was applied to each cash generating unit. The main variables in the calculation of the discount rate used are the risk free rate,
the beta rate and the market risk premium. The risk free rate is based on the 10 year Government Bond Rate. The beta rate and the market risk
premium are consistent with observable and comparative market rates applied in the regional banking sector. Market observable information is not
readily available at the segment level therefore management performed stress tests for key sensitivities in each segment.
Management believes any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause the
carrying amount of goodwill for any CGU to exceed its recoverable amount.



45

ANZ BANK NEW ZEALAND LIMITED 2018 ANNUAL REPORT

NOTES TO THE FINANCIAL STATEMENTS




46
19. GOODWILL AND OTHER INTANGIBLE ASSETS (continued)















































Management judgement is used to assess the recoverable value of goodwill, and other intangible assets, and the useful economic life of
an asset (or if an asset has an indefinite life). We reassess the recoverability of the carrying value at each reporting date.
The carrying amount of goodwill is based on judgements including the basis of assumptions and forecasts used for determining earnings
for CGUs, headroom availability, and sensitivities of the forecasts to reasonably possible changes in assumptions. Goodwill is assessed for
indicators of impairment quarterly and tested for impairment annually. The level at which goodwill is allocated, the estimation of future cash
flows and the selection of discount rates or earnings multiples applied requires significant judgement.
At each balance date, software and other intangible assets are assessed for indicators of impairment. In addition, software and intangible
assets not ready for use are tested annually for impairment. In the event that an asset’s carrying amount is determined to be greater than
its recoverable amount, the carrying value of the asset is written down immediately.

In addition, the expected useful life of intangible assets, including software assets, are assessed on an annual basis. The assessment
requires management judgement, and in relation to our software assets, a number of factors can influence the expected economic useful
lives. These factors include changes to business strategy, significant divestments and the underlying pace of technological change.




RECOGNITION AND MEASUREMENT
The table below details how we recognise and measure different intangible assets:
Intangible Goodwill Software Other Intangible Assets
Definition
Excess amount the Banking
Group has paid in acquiring a
business over the fair value less
costs of disposal of the
identifiable assets and liabilities
acquired.
Purchases of off the shelf software
assets are capitalised as assets.
Internal and external costs incurred
in building software and computer
systems costing greater than
NZ$20 million are capitalised as
assets. Those less than NZ$20
million are expensed in the year in
which the costs are incurred.
Acquired portfolios of insurance
and investment business and
management fee rights.
Carrying value
Cost less any accumulated
impairment losses.
Allocated to the cash
generating unit to which the
acquisition relates.
Initially, measured at cost.
Subsequently, carried at cost less
accumulated amortisation and
impairment losses.
Costs incurred in planning or
evaluating software proposals or in
maintaining systems after
implementation are not capitalised.
Initially, measured at fair value at
acquisition.
Subsequently, carried at fair value
less accumulated amortisation and
impairment losses.
Useful life
Indefinite.
Goodwill is reviewed for
impairment at least annually or
when there is an indication of
impairment.
Except for major core
infrastructure, amortised over
periods between 3-5 years.
Major core infrastructure amortised
over periods between 7 or 10 years.
Acquired portfolios of insurance
and investment business are
amortised over 20 years.
Management fee rights have an
indefinite life and are reviewed for
impairment at least annually or
when there is an indication of
impairment.
Depreciation method Not applicable. Straight-line method.
Actuarial methods consistent with
the calculation of life insurance
contract assets.

NOTES TO THE FINANCIAL STATEMENTS



20. SHAREHOLDERS' EQUITY



Number of issued shares NZ$ millions
2018 2017 2018 2017
Ordinary shares



Ordinary shares at start of year
3,345,755,498
3,345,755,498
8,588
8,588
Ordinary shares issued during the year
3,000,000,000
-
3,000
-
Ordinary shares at end of year
1

6,345,755,498
3,345,755,498
11,588
8,588
Preference shares 300,000,000 300,000,000 300 300
Total share capital 6,645,755,498 3,645,755,498 11,888 8,888
1
Includes 650,712 (2017: 650,712) uncalled shares.

Preference shares
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 dividend payment date if the dividend on the preference shares is not paid.
Should the Bank elect to pay a dividend, the dividend is based on a floating rate equal to the aggregate of the New Zealand 6 month bank bill rate
plus a 325 basis point margin, multiplied by one minus the New Zealand company tax rate, with dividend payments due on 1 March and 1 September
each year.
Redemption features
The preference shares are redeemable, subject to prior written approval of 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 a non-viability trigger event occur.
The preference shares qualify as AT1 capital for RBNZ’s capital adequacy purposes.













RECOGNITION AND MEASUREMENT
Ordinary shares
Ordinary shares have no par value. They entitle holders to receive dividends, or proceeds available on winding
up of the Company, in proportion to the number of fully paid ordinary shares held. They are recognised at the
amount paid per ordinary share net of directly attributable costs. Every holder of fully paid ordinary shares
present at a meeting in person, or by proxy, is entitled to:
• on a show of hands, one vote; and
• on a poll, one vote, for each share held.
Preference shares
All preference shares were issued 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.
In the event of liquidation, 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.
Reserves:

Cash flow hedge
reserve
Includes fair value gains and losses associated with the effective portion of designated cash flow hedging
instruments, net of deferred taxes to be realised when the position is settled.
Available-for-sale
reserve
Includes the changes in fair value and exchange differences on our revaluation of available-for-sale financial
assets, net of deferred taxes to be realised upon disposal of the asset.





47