# ANZ BANK NEW ZEALAND LIMITED ANNUAL REPORT AND REGISTERED BANK DISCLOSURE STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2024 *** # CONTENTS **Annual report and glossary 2** ## DISCLOSURE STATEMENT **Financial statements 3** - Consolidated financial statements 4 - Notes to the financial statements 8 - Assurance report on the financial statements 67 **Registered bank disclosures 72** **Directors’ statement 108** **Assurance reports on the registered bank disclosures 109** ## ANNUAL REPORT **FOR THE YEAR ENDED 30 SEPTEMBER 2024** 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 subsection (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 2024 and the assurance report on those financial statements. For and on behalf of the Board of Directors: Scott St John, Chair, 7 November 2024 Antonia Watson, Executive Director, 7 November 2024 ## GLOSSARY 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 Non-Bank Holding Company, ANZGHL** means ANZ Group Holdings Limited. **ANZ Group** means the worldwide operations of ANZGHL including its controlled entities. **Ultimate Parent Bank** means Australia and New Zealand Banking Group Limited. **Overseas Banking Group** means the worldwide operations of the Ultimate Parent Bank 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. **ANZBGL New Zealand** means the New Zealand business of the Overseas Banking Group. **ANZ New Zealand** means the New Zealand business of the ANZ Group. **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 the 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. *** # FINANCIAL STATEMENTS ## 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 financial statements ### Basis of preparation - 1. About our financial statements 8 ### Financial performance - 2. Operating income 10 - 3. Operating expenses 12 - 4. Income tax 13 - 5. Dividends 14 - 6. Segment reporting 15 ### Financial assets - 7. Cash and cash equivalents 17 - 8. Trading securities 18 - 9. Derivative financial instruments 19 - 10. Investment securities 24 - 11. Net loans and advances 25 - 12. Allowance for expected credit losses 26 ### Financial liabilities - 13. Deposits and other borrowings 32 - 14. Debt issuances 33 ### Financial instrument disclosures - 15. Financial risk management 35 - 16. Fair value of financial assets and financial liabilities 48 - 17. Assets charged as security for liabilities and collateral accepted as security for assets 51 - 18. Offsetting 52 ### Non-financial assets - 19. Goodwill and other intangible assets 53 ### Non-financial liabilities - 20. Other provisions 56 ### Equity - 21. Shareholders' equity 57 - 22. Capital management 59 ### Consolidation and presentation - 23. Controlled entities 60 - 24. Structured entities 61 - 25. Transfers of financial assets 63 ### Other disclosures - 26. Related party disclosures 63 - 27. Commitments and contingent liabilities 65 - 28. Auditor fees 66 *** # INCOME STATEMENT | For the year ended 30 September | Note | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | --- | | Interest income | | 11,914 | 10,215 | | Interest expense | | (7,512) | (5,922) | | **Net interest income** | 2 | **4,402** | **4,293** | | Other operating income | 2 | 480 | 619 | | **Operating income** | | **4,882** | **4,912** | | Operating expenses | 3 | (1,760) | (1,663) | | **Profit before credit impairment and income tax** | | **3,122** | **3,249** | | Credit impairment charge | 12 | (44) | (183) | | **Profit before income tax** | | **3,078** | **3,066** | | Income tax expense | 4 | (870) | (849) | | **Profit for the year** | | **2,208** | **2,217** | # STATEMENT OF COMPREHENSIVE INCOME | For the year ended 30 September | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Profit after tax** | **2,208** | **2,217** | | **Other comprehensive income** | | | | **Items that will not be reclassified subsequently to profit or loss** | | | | Actuarial gain on defined benefit schemes | 3 | 7 | | **Items that may be reclassified subsequently to profit or loss** | | | | Reserve movements: | | | | Unrealised gains / (losses) recognised directly in equity | 164 | (181) | | Realised gains transferred to the income statement | (2) | (16) | | Income tax attributable to the above items | (46) | 54 | | **Other comprehensive income after tax** | **119** | **(136)** | | **Total comprehensive income for the year** | **2,327** | **2,081** | *** # BALANCE SHEET | As at 30 September | Note | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | --- | | **Assets** | | | | | Cash and cash equivalents | 7 | 11,634 | 13,094 | | Settlement balances receivable | | 574 | 401 | | Collateral paid | | 1,041 | 801 | | Trading securities | 8 | 5,576 | 5,921 | | Derivative financial instruments | 9 | 10,181 | 8,753 | | Investment securities | 10 | 13,295 | 10,958 | | Net loans and advances | 11 | 151,666 | 149,321 | | Deferred tax assets | 4 | 418 | 397 | | Goodwill and other intangible assets | 19 | 3,094 | 3,119 | | Premises and equipment | | 363 | 371 | | Other assets | | 1,334 | 1,153 | | **Total assets** | | **199,176** | **194,289** | | **Liabilities** | | | | | Settlement balances payable | | 5,367 | 2,920 | | Collateral received | | 525 | 1,500 | | Deposits and other borrowings | 13 | 142,645 | 141,630 | | Derivative financial instruments | 9 | 11,179 | 8,326 | | Current tax liabilities | | 279 | 76 | | Payables and other liabilities | | 2,415 | 1,938 | | Employee entitlements | | 121 | 122 | | Other provisions | 20 | 212 | 209 | | Debt issuances | 14 | 17,623 | 19,147 | | **Total liabilities** | | **180,366** | **175,868** | | **Net assets** | | **18,810** | **18,421** | | **Shareholders' equity** | | | | | Share capital | 21 | 17,680 | 12,438 | | Reserves | 21 | 24 | (93) | | Retained earnings | 21 | 1,106 | 6,076 | | **Total shareholders' equity** | 21 | **18,810** | **18,421** | *** # CASH FLOW STATEMENT | For the year ended 30 September | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Profit after income tax** | **2,208** | **2,217** | | **Adjustments to reconcile to net cash provided by/(used in) operating activities:** | | | | Depreciation and amortisation | 109 | 114 | | Loss/(gain) on sale and impairment of premises and equipment and lease remeasurements | 1 | (7) | | Net derivatives/foreign exchange adjustment | 713 | 543 | | Other non-cash movements | (88) | (146) | | **Net (increase)/decrease in operating assets:** | | | | Collateral paid | (240) | 871 | | Trading securities | 345 | 1,307 | | Net loans and advances | (2,345) | (2,254) | | Other assets | (352) | 254 | | **Net increase/(decrease) in operating liabilities:** | | | | Deposits and other borrowings (excluding items included in financing activities) | 2,087 | 988 | | Settlement balances payable | 2,447 | (2,013) | | Collateral received | (975) | (462) | | Other liabilities | 660 | 366 | | **Total adjustments** | **2,362** | **(439)** | | **Net cash provided by operating activities$^1$** | **4,570** | **1,778** | | **Cash flows from investing activities** | | | | Investment securities: | | | | Purchases | (4,297) | (4,768) | | Proceeds from sale or maturity | 2,905 | 5,414 | | Other assets | (35) | (28) | | **Net cash provided by/(used in) investing activities** | **(1,427)** | **618** | | **Cash flows from financing activities** | | | | Deposits and other borrowings$^2$ | (1,072) | 1,000 | | Debt issuances: $^3$ | | | | Issue proceeds | 1,707 | 3,020 | | Redemptions | (3,250) | (4,407) | | Proceeds from issue of perpetual preference shares | 1,138 | - | | Redemption of perpetual preference shares | (300) | - | | Repayment of lease liabilities | (50) | (46) | | Dividends paid$^4$ | (2,776) | (1,444) | | **Net cash used in financing activities** | **(4,603)** | **(1,877)** | | **Net change in cash and cash equivalents** | **(1,460)** | **519** | | **Cash and cash equivalents at beginning of year** | **13,094** | **12,575** | | **Cash and cash equivalents at end of year** | **11,634** | **13,094** | $^1$ Net cash provided by operating activities includes income taxes paid of NZ$734 million (2023: NZ$1,064 million). $^2$ Movement in deposits and other borrowings include repayments of repurchase transactions entered into with the RBNZ under the Term Lending Facility of NZ$72 million and NZ$1,000 million under the Funding for Lending Programme (2023: amount drawn under the Funding for Lending Programme of NZ$1,000 million). $^3$ Movement in debt issuances (Note 14 Debt issuances) also includes a NZ$794 million decrease (2023: NZ$574 million decrease) from the effect of foreign exchange rates, a NZ$811 million increase (2023: NZ$82 million increase) from changes in fair value hedging instruments and a NZ$2 million increase (2023: NZ$3 million increase) from other changes. $^4$ Non-cash dividends paid to the Immediate Parent Company of NZ$900 million in June 2024 and NZ$3,500 million in August 2024 were used to purchase ordinary shares in the Bank. *** # STATEMENT OF CHANGES IN EQUITY | | Share capital (NZ$m) | Reserves (NZ$m) | Retained earnings (NZ$m) | Total shareholders' equity (NZ$m) | | --- | --- | --- | --- | --- | | **As at 1 October 2022** | **12,438** | **48** | **5,298** | **17,784** | | Profit for the year | - | - | 2,217 | 2,217 | | Other comprehensive income for the year | - | (141) | 5 | (136) | | **Total comprehensive income for the year** | **-** | **(141)** | **2,222** | **2,081** | | **Transactions with equity holders in their capacity as equity owners:** | | | | | | Ordinary dividends paid | - | - | (1,400) | (1,400) | | Perpetual preference dividends paid | - | - | (44) | (44) | | **As at 30 September 2023** | **12,438** | **(93)** | **6,076** | **18,421** | | Profit for the year | - | - | 2,208 | 2,208 | | Other comprehensive income for the year | - | 117 | 2 | 119 | | **Total comprehensive income for the year** | **-** | **117** | **2,210** | **2,327** | | **Transactions with equity holders in their capacity as equity owners:** | | | | | | Ordinary shares issued | 4,400 | - | - | 4,400 | | Ordinary dividends paid | - | - | (7,125) | (7,125) | | Perpetual preference shares issued (net of issue costs) | 1,142 | - | (4) | 1,138 | | Perpetual preference shares redeemed | (300) | - | - | (300) | | Perpetual preference dividends paid | - | - | (51) | (51) | | **As at 30 September 2024** | **17,680** | **24** | **1,106** | **18,810** | *** # NOTES TO THE FINANCIAL STATEMENTS ## 1. ABOUT OUR FINANCIAL STATEMENTS ### GENERAL INFORMATION These are the consolidated financial statements for ANZ Bank New Zealand Limited (the Bank) and its controlled entities (together, the Banking Group) for the year ended 30 September 2024. The Bank is incorporated and domiciled in New Zealand. The address of the Bank's registered office and its principal place of business is Ground Floor, ANZ Centre, 23-29 Albert Street, Auckland, New Zealand. On 7 November 2024, the Directors resolved to authorise the issue of these financial statements. 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 amount is significant in size (quantitative factor); - the information 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 or other regulatory requirements. 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 the financial statements. ### 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 (NZ GAAP), 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. Certain comparative amounts have been restated to conform with the basis of presentation in the current year. ### BASIS OF MEASUREMENT AND PRESENTATION We have prepared the financial information in accordance with the historical cost basis - except for the following assets and liabilities which we have stated at their fair values: - derivative financial instruments and in the case of fair value hedging, a fair value adjustment made to the underlying hedged items; - financial instruments held for trading; - financial assets and financial liabilities designated at fair value through profit or loss (FVTPL); and - financial assets at fair value through other comprehensive income (FVOCI). ### 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 Banking Group when we determine that the Banking Group 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 classified as FVTPL and report them as part of the fair value gain or loss on these items. For non-monetary items classified as investment securities measured at FVOCI, translation differences are included in other comprehensive income. ### FIDUCIARY ACTIVITIES The Banking Group provides fiduciary services to third parties including custody, nominee and trustee services. This involves the Banking Group holding assets on behalf of third parties and making decisions regarding the purchase and sale of financial instruments. If the Banking Group is not the beneficial owner or does not control the assets, then we do not recognise these transactions in these financial statements, except when required by accounting standards or another legislative requirement. ## 1. ABOUT OUR FINANCIAL STATEMENTS (continued) ### KEY JUDGEMENTS AND ESTIMATES In the process of applying the Banking Group’s accounting policies, management has made a number of judgements and applied estimates and assumptions about past and future events. Further information on the key judgements and estimates that we consider material to the financial statements are contained within each relevant note to the financial statements. The global economy continues to face challenges associated with inflation and interest rate uncertainties, continuing trade and geopolitical tensions, and impacts from climate change, which contribute to an elevated level of estimation uncertainty involved in the preparation of these financial statements. The Banking Group is exposed to climate risk either directly through its operations or indirectly, for example, through lending to customers. Climate risk may also be a driver of other risks within our risk management framework. Our most material climate risks arise from lending to business and retail customers, which contributes to credit risk. The Banking Group has made various accounting estimates in these financial statements based on forecasts of economic conditions which reflect expectations and assumptions at 30 September 2024 about future events considered reasonable in the circumstances. Thus, there is a considerable degree of judgement involved in preparing these estimates. Actual economic conditions are likely to be different from those forecast since anticipated events frequently do not occur as expected, and the effect of these differences may significantly impact accounting estimates included in these financial statements. The significant accounting estimates impacted by these forecasts and associated uncertainties are predominantly related to expected credit losses and recoverable amounts of non-financial assets. The impact of these uncertainties on each of these accounting estimates is discussed further in the relevant notes of these financial statements, along with assumptions and judgements made in relation to other key estimates. Readers should consider these disclosures in light of the inherent uncertainties described above. ### ACCOUNTING STANDARDS ADOPTED IN THE PERIOD Accounting policies have been consistently applied, unless otherwise noted. #### DEFERRED TAX RELATED TO ASSETS AND LIABILITIES ARISING FROM A SINGLE TRANSACTION Amendments to New Zealand Accounting Standards – Deferred Tax related to Assets and Liabilities arising from a Single Transaction amends NZ IAS 12 Income Taxes (NZ IAS 12). It clarifies that entities are required to recognise deferred tax on transactions for which there is both an asset and a liability and that give rise to equal taxable and deductible temporary differences which may apply to leases and decommissioning or restoration obligations. This amendment was effective for the Banking Group from 1 October 2023 and did not have a material impact on the Banking Group. #### INTERNATIONAL TAX REFORM – PILLAR TWO MODEL RULES The Organisation for Economic Co-Operation and Development published the Pillar Two Model Rules in December 2021 which are designed to ensure large multinational enterprises pay a minimum level of tax of 15% in each of the jurisdictions where they operate. A number of countries in which the ANZ Group operates have implemented or announced the proposed implementation of the Pillar Two rules including New Zealand. Pillar Two legislation was enacted in New Zealand in March 2024 and will be effective for the Banking Group from 1 October 2025. The External Reporting Board (XRB) issued International Tax Reform – Pillar Two Model Rules (Amendments to NZ IAS 12) in July 2023 to address the Pillar Two Model rules. The Banking Group has applied the mandatory exemption in para 4A of this standard and has not recognised or disclosed any associated deferred taxes. The Banking Group has assessed the potential impact from the Pillar Two legislation and does not expect a material exposure, if any, once the Pillar Two legislation becomes effective. ### 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 2024 and have not been applied by the Banking Group in preparing these financial statements. Further details of these are set out below. #### NZ IFRS 18 PRESENTATION AND DISCLOSURE IN FINANCIAL STATEMENTS In May 2024, the XRB issued NZ IFRS 18 Presentation and Disclosure in Financial Statements (NZ IFRS 18) which updates and replaces requirements for the presentation and disclosure of information in financial statements. NZ IFRS 18 introduces new defined subtotals to be presented in the consolidated income statement, disclosure of management-defined performance measures and requirements for grouping of information. This standard will be effective for the financial year beginning 1 October 2027. We are currently assessing the impact of adopting this standard. #### CLASSIFICATION AND MEASUREMENT AMENDMENTS TO NZ IFRS 9 FINANCIAL INSTRUMENTS (NZ IFRS 9) In June 2024, the XRB issued Amendments to the Classification and Measurement of Financial Instruments which amends requirements related to settling financial liabilities using an electronic payment system and assessing contractual cash flow characteristics of financial assets with environmental, social and corporate governance and similar features. The amendments will be effective for the financial year beginning 1 October 2026. We are currently assessing the impact of adopting the amendments. #### LEASE LIABILITY IN A SALE AND LEASEBACK Amendments to New Zealand Accounting Standards – Lease Liability in a Sale and Leaseback amends NZ IFRS 16 Leases and specifies the accounting for variable lease payments by seller-lessees in sale and leaseback transactions. The amendment is effective from 1 October 2024 and will not have a material impact on the Banking Group. *** ## 2. OPERATING INCOME | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Net interest income** | | | | **Interest income by type of financial asset** | | | | Financial assets at amortised cost | 11,226 | 9,645 | | Trading securities | 249 | 246 | | Investment securities | 409 | 304 | | Financial assets at FVTPL | 30 | 20 | | **Interest income** | **11,914** | **10,215** | | **Interest expense by type of financial liability** | | | | Financial liabilities at amortised cost | (7,284) | (5,711) | | Financial liabilities designated at FVTPL | (228) | (211) | | **Interest expense** | **(7,512)** | **(5,922)** | | **Net interest income** | **4,402** | **4,293** | | **Other operating income** | | | | **Fee and commission income** | | | | Lending fees | 19 | 28 | | Non-lending fees | 715 | 729 | | Commissions | 29 | 33 | | Funds management income | 246 | 244 | | **Fee and commission income** | **1,009** | **1,034** | | Fee and commission expense | (515) | (530) | | **Net fee and commission income** | **494** | **504** | | **Other income** | | | | Net foreign exchange earnings and other financial instruments income$^1$ | (26) | 71 | | Loss on sale of mortgages to the NZ Branch | - | (1) | | Adjustment to gain on sale of UDC Finance Ltd | 2 | 25 | | Gain on sale of premises and equipment | 1 | 10 | | Other | 9 | 10 | | **Other income** | **(14)** | **115** | | **Other operating income** | **480** | **619** | | **Operating income** | **4,882** | **4,912** | $^1$ Includes fair value movements (excluding realised and accrued interest) on derivatives not designated as accounting hedges entered into to manage interest rate and foreign exchange risk, ineffective portions of cash flow hedges, and fair value movements in financial assets and liabilities designated at FVTPL. ## 2. OPERATING INCOME (continued) ### RECOGNITION AND MEASUREMENT #### NET INTEREST INCOME ##### Interest income and expense We recognise interest income and expense in net interest income for all financial instruments, including those classified as held for trading, assets measured at FVOCI, and assets and liabilities designated at FVTPL. We use the effective interest rate method to calculate the amortised cost of assets held at amortised cost and to recognise interest income on financial assets measured at amortised cost and FVOCI. 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. We recognise fees and costs, which form an integral part of the financial instrument (for example loan origination fees and costs), using the effective interest rate method. These are presented as part of interest income or expense depending on whether the underlying financial instrument is a financial asset or financial liability. #### OTHER OPERATING INCOME ##### Fee and commission income We recognise fee and commission revenue arising from contracts with customers (a) over time when the performance obligation is satisfied across more than one reporting period or (b) at a point in time when the performance obligation is satisfied immediately or is satisfied within one reporting period. - lending fees exclude fees treated as part of the effective yield calculation of interest income. Lending fees include certain guarantee and commitment fees where the loan or guarantee is not likely to be drawn upon, and other fees charged for providing customers a distinct good or service that are recognised separately from the underlying lending product. - non-lending fees include fees associated with deposit and credit card accounts, interchange fees and fees charged for specific customer transactions such as international transaction fees. Where the Banking Group provides multiple goods or services to a customer under the same contract, the Banking Group allocates the transaction price of the contract to distinct performance obligations based on the relative stand-alone selling price of each performance obligation. Revenue is recognised as each performance obligation is satisfied. - commissions represent fees from third parties where we act as an agent by arranging a third party (such as an insurance provider) to provide goods and services to a customer. In such cases, we are not primarily responsible for providing the underlying good or service to the customer. If the Banking Group collects funds on behalf of a third party when acting as an agent, we only recognise the net commission retained as revenue. When the commission is variable based on factors outside our control (such as a trail commission), revenue is only recognised if it is highly probable that a significant reversal of the variable amount will not be required in future periods. - funds management income represents fees earned from customers for providing financial advice and asset management services. Revenue is recognised either at the point the financial advice is provided or over the period in which the asset management services are delivered. ##### 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; - immediately upon sale or repayment of a hedged item, the unamortised fair value adjustments to items designated as fair value hedges and amounts accumulated in equity related to designated cash flow hedges; - fair value movements on financial assets and financial liabilities designated at FVTPL or held for trading; - amounts released from the FVOCI reserve when a debt instrument classified as FVOCI is sold; and - the gain or loss on derecognition of financial assets or liabilities measured at amortised cost. *** ## 3. OPERATING EXPENSES | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Personnel** | | | | Salaries and related costs | 1,021 | 974 | | Superannuation costs | 31 | 29 | | Other | 38 | 19 | | **Personnel** | **1,090** | **1,022** | | **Premises** | | | | Rent | 19 | 17 | | Depreciation | 74 | 78 | | Other | 40 | 37 | | **Premises** | **133** | **132** | | **Technology** | | | | Depreciation and amortisation | 35 | 36 | | Subscription licences and outsourced services | 193 | 186 | | Other | 29 | 22 | | **Technology** | **257** | **244** | | **Other** | | | | Advertising and public relations | 39 | 38 | | Professional fees | 76 | 80 | | Freight, stationery, postage and communication | 43 | 46 | | Charges from ANZ Group | 68 | 63 | | Other | 54 | 38 | | **Other** | **280** | **265** | | **Operating expenses** | **1,760** | **1,663** | ### 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 government 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. *** ## 4. INCOME TAX ### INCOME TAX EXPENSE | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Profit before income tax** | **3,078** | **3,066** | | Prima facie income tax expense at 28% | 862 | 859 | | **Tax effect of permanent differences:** | | | | Tax provisions no longer required | - | (3) | | Non-assessable income and non-deductible expenditure | 8 | (7) | | **Income tax expense** | **870** | **849** | | Current tax expense | 933 | 857 | | Adjustments recognised in the current year in relation to the current tax of prior years | (1) | (4) | | Deferred tax expense/(income) relating to the origination and reversal of temporary differences | (62) | (4) | | **Income tax expense** | **870** | **849** | | **Effective tax rate** | **28.3%** | **27.7%** | ### DEFERRED TAX ASSETS AND LIABILITIES | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Deferred tax assets balances comprise temporary differences attributable to:** | | | | Amounts recognised in the income statement: | | | | Collectively assessed allowances for expected credit losses | 222 | 222 | | Individually assessed allowances for expected credit losses | 19 | 18 | | Provision for employee entitlements | 55 | 52 | | Other provisions | 21 | 24 | | Software | 130 | 146 | | Lease liabilities$^1$ | 67 | 61 | | Other | 12 | 12 | | **Total** | **526** | **535** | | **Amounts recognised directly in other comprehensive income:** | | | | Cash flow hedge reserve | - | 21 | | **Total** | **-** | **21** | | **Total deferred tax assets (before set-off)** | **526** | **556** | | Set-off of deferred tax balances pursuant to set-off provisions | (108) | (159) | | **Net deferred tax assets** | **418** | **397** | | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Deferred tax liabilities balances comprise temporary differences attributable to:** | | | | Amounts recognised in the income statement: | | | | Finance leases | - | 83 | | Fixed assets | 6 | 3 | | Right of use assets$^1$ | 54 | 46 | | Other | 28 | 27 | | **Total** | **88** | **159** | | **Amounts recognised directly in other comprehensive income:** | | | | Cash flow hedge reserve | 20 | - | | **Total** | **20** | **-** | | **Total deferred tax liabilities (before set-off)** | **108** | **159** | | Set-off of deferred tax balances pursuant to set-off provisions | (108) | (159) | | **Net deferred tax liabilities** | **-** | **-** | $^1$ Comparative amounts have been adjusted to reflect the adoption of amendments to NZ IAS 12 related to right-of-use assets and lease liabilities that arise from a single transaction. *** ## 4. INCOME TAX (continued) ### 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 when the tax relates to items recognised directly in equity and other comprehensive income, in which case we recognise the tax directly in equity or other comprehensive income respectively. #### CURRENT TAX EXPENSE Current tax expense 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 the 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 substantively 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. ## 5. DIVIDENDS ### ORDINARY SHARE DIVIDENDS | Dividends | Amount per share | Total dividend (NZ$m) | | --- | --- | --- | | **Financial Year 2023** | | | | Dividend paid in March 2023 | 14.2 cents | 900 | | Dividend paid in September 2023 | 7.9 cents | 500 | | **Dividends paid during the year ended 30 September 2023** | | **1,400** | | **Financial Year 2024** | | | | Dividend paid in March 2024 | 17.7 cents | 1,125 | | Dividend paid in June 2024 | 12.4 cents | 900 | | Dividend paid in August 2024 | 32.6 cents | 3,500 | | Dividend paid in September 2024 | 14.9 cents | 1,600 | | **Dividends paid during the year ended 30 September 2024** | | **7,125** | ### IMPUTATION CREDIT ACCOUNT | | Banking Group 2024 (NZ$m) | Banking Group 2023 (NZ$m) | Bank$^1$ 2024 (NZ$m) | Bank$^1$ 2023 (NZ$m) | | --- | --- | --- | --- | --- | | Imputation credits available as at 30 September | 8,951 | 8,872 | 830 | 1,396 | $^1$ Imputation credits available to the Bank are shown separately as this is relevant for holders of perpetual preference shares (refer to Note 21 Shareholders’ equity) issued by the Bank. The imputation credit balance for the Banking Group includes the imputation credit balance in relation to the New Zealand resident imputation group, the Bank consolidated imputation group and other companies in the Banking Group that are not in either of these imputation groups. The imputation credit balance available to the Banking Group includes imputation credits that will arise from the payment of the amount of provision for income tax as at the reporting date. The imputation credit balance for the Bank reflects the imputation credit balance of the Bank consolidated imputation group. The imputation credit balance available to the Bank 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 ### DESCRIPTION OF SEGMENTS The Banking Group is organised into three major business segments for segment reporting purposes - Personal, Business & Agri 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 amounts have been adjusted to be consistent with the current period’s segment definitions. **Personal** Personal provides a full range of banking and wealth management services to consumer and private banking customers. We deliver our services via our internet and app-based digital solutions and a network of branches, mortgage specialists, private bankers and contact centres. **Business & Agri** Business & Agri provides a full range of banking services through our digital, branch and contact centre channels, and traditional relationship banking and sophisticated financial solutions through dedicated managers. These cover privately owned small, medium and large enterprises, the agricultural business segment, government and government related entities. **Institutional** The Institutional division services governments, global institutional and corporate customers via the following business units: - Transaction Banking provides customers with working capital and liquidity solutions including documentary trade, supply chain financing, commodity financing as well as cash management solutions, deposits, payments and clearing. - Corporate Finance provides customers with loan products, loan syndication, specialised loan structuring and execution, project and export finance, debt structuring and acquisition finance, and sustainable finance solutions. - Markets provides customers with risk management services in foreign exchange, interest rates, credit, commodities, and debt capital markets in addition to managing the Banking Group’s interest rate exposure and high quality liquid asset portfolio. **Other** Other includes treasury and back office support functions, none of which constitutes a separately reportable segment. *** ## 6. SEGMENT REPORTING (continued) ### OPERATING SEGMENTS | Year ended 30 September | Personal 2024 | Personal 2023 | Business & Agri 2024 | Business & Agri 2023 | Institutional 2024 | Institutional 2023 | Other 2024 | Other 2023 | Total 2024 | Total 2023 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | NZ$m | NZ$m | NZ$m | NZ$m | NZ$m | NZ$m | NZ$m | NZ$m | NZ$m | NZ$m | | Net interest income | 2,380 | 2,386 | 1,013 | 1,014 | 753 | 701 | 256 | 192 | 4,402 | 4,293 | | **Net fee and commission income** | | | | | | | | | | | | - Lending fees | 8 | 7 | - | 1 | 11 | 20 | - | - | 19 | 28 | | - Non-lending fees | 449 | 437 | 217 | 243 | 51 | 51 | (2) | (2) | 715 | 729 | | - Commissions | 28 | 32 | - | - | 1 | 1 | - | - | 29 | 33 | | - Funds management income | 246 | 244 | - | - | - | - | - | - | 246 | 244 | | - Fee and commission expense | (345) | (341) | (170) | (189) | - | - | - | - | (515) | (530) | | **Net fee and commission income** | **386** | **379** | **47** | **55** | **63** | **72** | **(2)** | **(2)** | **494** | **504** | | Other income | - | 1 | - | - | 242 | 271 | (256) | (157) | (14) | 115 | | **Other operating income** | **386** | **380** | **47** | **55** | **305** | **343** | **(258)** | **(159)** | **480** | **619** | | **Operating income** | **2,766** | **2,766** | **1,060** | **1,069** | **1,058** | **1,044** | **(2)** | **33** | **4,882** | **4,912** | | Operating expenses | (1,213) | (1,149) | (276) | (241) | (248) | (235) | (23) | (38) | (1,760) | (1,663) | | **Profit before credit impairment and income tax** | **1,553** | **1,617** | **784** | **828** | **810** | **809** | **(25)** | **(5)** | **3,122** | **3,249** | | Credit impairment release / (charge) | 17 | (49) | (47) | (73) | (14) | (61) | - | - | (44) | (183) | | **Profit before income tax** | **1,570** | **1,568** | **737** | **755** | **796** | **748** | **(25)** | **(5)** | **3,078** | **3,066** | | Income tax expense | (442) | (439) | (207) | (211) | (223) | (210) | 2 | 11 | (870) | (849) | | **Profit / (loss) after income tax** | **1,128** | **1,129** | **530** | **544** | **573** | **538** | **(23)** | **6** | **2,208** | **2,217** | | **Financial position** | | | | | | | | | | | | Goodwill | 1,042 | 1,042 | 695 | 695 | 1,269 | 1,269 | - | - | 3,006 | 3,006 | | Net loans and advances | 110,149 | 106,138 | 23,952 | 24,424 | 17,565 | 18,759 | - | - | 151,666 | 149,321 | | Customer deposits | 91,814 | 88,086 | 17,996 | 18,345 | 26,353 | 26,098 | - | - | 136,163 | 132,529 | ### OTHER SEGMENT The Other segment profit after income tax comprises: | For the year ended 30 September | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | Personal and Business & Agri central functions | 6 | 3 | | Group Centre | 156 | 125 | | Economic hedges | (185) | (122) | | **Total** | **(23)** | **6** | *** ## FINANCIAL ASSETS Outlined below is a description of how we classify and measure financial assets as they apply to the note disclosures that follow. ### CLASSIFICATION AND MEASUREMENT #### Financial assets - general There are three measurement classifications for financial assets under NZ IFRS 9: amortised cost, FVTPL and FVOCI. Financial assets are classified into these measurement classifications on the basis of two criteria: - the business model within which the financial asset is managed; and - the contractual cash flow characteristics of the financial asset (specifically whether the contractual cash flows represent solely payments of principal and interest). The resultant financial asset classifications are as follows: - **Amortised cost**: Financial assets with contractual cash flows that comprise solely payments of principal and interest and which are held in a business model whose objective is to collect their cash flows; - **FVOCI**: Financial assets with contractual cash flows that comprise solely payments of principal and interest and which are held in a business model whose objective is to collect their cash flows or to sell the assets; and - **FVTPL**: Any other financial assets not falling into the categories above are measured at FVTPL. #### Fair value option for financial assets A financial asset may be irrevocably designated on initial recognition: - at FVTPL when the designation eliminates or significantly reduces an accounting mismatch that would otherwise arise; or - at FVOCI for investments in equity securities, where that instrument is neither held for trading nor contingent consideration recognised by an acquirer in a business combination. ## 7. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash on hand and other balances, as outlined below, that are convertible into cash with an insignificant risk of changes in value and with remaining maturities of three months or less, including reverse repurchase agreements. | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | Coins, notes and cash at bank | 149 | 155 | | Securities purchased under agreements to resell in less than 3 months | 1,762 | 668 | | Balances with central banks | 9,451 | 12,139 | | Settlement balances receivable within 3 months | 272 | 132 | | **Cash and cash equivalents** | **11,634** | **13,094** | *** ## 8. TRADING SECURITIES | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | Government securities | 4,869 | 5,249 | | Corporate and financial institution securities | 707 | 672 | | **Trading securities** | **5,576** | **5,921** | ### 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 change in fair value recognised in profit or loss. Assets disclosed as trading securities are subject to the general classification and measurement policy for financial assets outlined on page 17. ### KEY JUDGEMENTS AND ESTIMATES Judgement is required when applying the valuation techniques used to determine 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. *** ## 9. DERIVATIVE FINANCIAL INSTRUMENTS | | Assets 2024 (NZ$m) | Liabilities 2024 (NZ$m) | Assets 2023 (NZ$m) | Liabilities 2023 (NZ$m) | | --- | --- | --- | --- | --- | | Derivative financial instruments - held for trading | 9,251 | (10,135) | 7,528 | (6,632) | | Derivative financial instruments - designated in hedging relationships | 930 | (1,044) | 1,225 | (1,694) | | **Derivative financial instruments** | **10,181** | **(11,179)** | **8,753** | **(8,326)** | ### 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 risks in the Banking Group that are not in a designated hedge accounting relationship, and undertake market making and positioning activities. - **Designated in hedging relationships**: Derivatives designated into hedge accounting relationships in order to minimise profit or loss volatility by matching movements in underlying positions relating to hedges of interest rate risk and currency risk and hedges of other exposures relating to non-trading positions. ### TYPES - **Forwards**: A contract documenting the rate of interest, or the currency exchange rate, to be paid or received on a notional principal amount at a future date. - **Futures**: An exchange traded contract in which the parties agree to buy or 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 two parties exchange 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 (call option) or sell (put option) an asset or instrument at a set price on a future date. ### RISKS MANAGED - **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 (agricultural products) and hard commodities (mined products). - **Credit**: Risk of default by customers or third parties. *** ## 9. DERIVATIVE FINANCIAL INSTRUMENTS (continued) The Banking Group uses central clearing counterparties and exchanges to settle derivative transactions. Different arrangements for posting of collateral exist with these exchanges: - some transactions are subject to clearing arrangements which result in separate recognition of collateral assets and liabilities. - other transactions are legally settled by the payment or receipt of collateral which reduces the carrying values of the related derivative instruments. ### DERIVATIVE FINANCIAL INSTRUMENTS – HELD FOR TRADING | | Assets 2024 (NZ$m) | Liabilities 2024 (NZ$m) | Assets 2023 (NZ$m) | Liabilities 2023 (NZ$m) | | --- | --- | --- | --- | --- | | **Interest rate contracts** | | | | | | Forward rate agreements | - | - | 1 | (2) | | Futures contracts | 3 | (70) | 38 | (2) | | Swap agreements | 3,015 | (2,903) | 1,522 | (1,640) | | Options | 1 | (1) | - | (10) | | **Total** | **3,019** | **(2,974)** | **1,561** | **(1,654)** | | **Foreign exchange contracts** | | | | | | Spot and forward contracts | 2,356 | (2,954) | 1,856 | (1,739) | | Swap agreements | 3,797 | (4,127) | 4,050 | (3,183) | | Options | 33 | (33) | 29 | (27) | | **Total** | **6,186** | **(7,114)** | **5,935** | **(4,949)** | | **Commodity contracts and credit default swaps** | **46** | **(47)** | **32** | **(29)** | | **Derivative financial instruments - held for trading** | **9,251** | **(10,135)** | **7,528** | **(6,632)** | ### DERIVATIVE FINANCIAL INSTRUMENTS – DESIGNATED IN HEDGING RELATIONSHIPS Under the accounting policy choice provided by NZ IFRS 9, the Banking Group has continued to apply the hedge accounting requirements of NZ IAS 39 Financial Instruments: Recognition and Measurement (NZ IAS 39). | 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 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 the 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. | *** ## 9. DERIVATIVE FINANCIAL INSTRUMENTS (continued) The fair value of derivative financial instruments designated in hedging relationships are: | | 2024 Nominal amount (NZ$m) | 2024 Assets (NZ$m) | 2024 Liabilities (NZ$m) | 2023 Nominal amount (NZ$m) | 2023 Assets (NZ$m) | 2023 Liabilities (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | | Fair value hedges | | | | | | | | Interest rate swap agreements | 28,106 | 661 | (721) | 27,328 | 988 | (1,285) | | Cash flow hedges | | | | | | | | Interest rate swap agreements | 30,383 | 269 | (323) | 36,022 | 237 | (409) | | **Derivative financial instruments - designated in hedging relationships** | **58,489** | **930** | **(1,044)** | **63,350** | **1,225** | **(1,694)** | The maturity profile of the nominal amounts of our hedging instruments held is: | Nominal amount | Average interest rate | Less than 3 months (NZ$m) | 3 to 12 months (NZ$m) | 1 to 5 years (NZ$m) | After 5 years (NZ$m) | Total (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | | **As at 30 September 2024** | | | | | | | | Fair value hedges: Interest rate | 2.03% | 373 | 1,880 | 16,843 | 9,010 | 28,106 | | Cash flow hedges: Interest rate | 4.62% | 6,025 | 6,495 | 15,727 | 2,136 | 30,383 | | **As at 30 September 2023** | | | | | | | | Fair value hedges: Interest rate | 1.76% | 434 | 2,695 | 14,261 | 9,938 | 27,328 | | Cash flow hedges: Interest rate | 3.59% | 4,747 | 9,389 | 19,462 | 2,424 | 36,022 | The impacts of ineffectiveness from our designated hedge relationships by type of hedge relationship and type of risk being hedged are: | | Change in value of hedging instrument$^2$ 2024 (NZ$m) | Change in value of hedging instrument$^2$ 2023 (NZ$m) | Change in value of hedged item 2024 (NZ$m) | Change in value of hedged item 2023 (NZ$m) | Hedge ineffectiveness recognised in profit or loss$^3$ 2024 (NZ$m) | Hedge ineffectiveness recognised in profit or loss$^3$ 2023 (NZ$m) | Amount reclassified from the cash flow hedge reserve to profit or loss$^4$ 2024 (NZ$m) | Amount reclassified from the cash flow hedge reserve to profit or loss$^4$ 2023 (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Fair value hedges$^1$** | | | | | | | | | | Interest rate | (65) | (54) | 68 | 77 | 3 | 23 | - | - | | **Cash flow hedges$^1$** | | | | | | | | | | Interest rate | 149 | (114) | (150) | 114 | - | (1) | (1) | 1 | $^1$ All hedging instruments are classified as derivative financial instruments. $^2$ Changes in value of hedging instruments is before any adjustments for Settle to Market clearing arrangements. $^3$ Recognised in other operating income. $^4$ Recognised in net interest income and other operating income. *** ## 9. DERIVATIVE FINANCIAL INSTRUMENTS (continued) The hedged items in relation to the Banking Group’s fair value hedges are: | | Balance sheet presentation | Hedged risk | Carrying amount Assets (NZ$m) | Carrying amount Liabilities (NZ$m) | Accumulated fair value hedge adjustments on the hedged item Assets (NZ$m) | Accumulated fair value hedge adjustments on the hedged item Liabilities (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | | **As at 30 September 2024** | | | | | | | | Fixed rate debt issuance | Debt issuances | Interest rate | - | (15,313) | - | 412 | | Fixed rate investment securities at FVOCI$^1$ | Investment securities | Interest rate | 12,443 | - | 39 | - | | **Total** | | | **12,443** | **(15,313)** | **39** | **412** | | **As at 30 September 2023** | | | | | | | | Fixed rate debt issuance | Debt issuances | Interest rate | - | (17,630) | - | 1,223 | | Fixed rate investment securities at FVOCI$^1$ | Investment securities | Interest rate | 9,395 | - | (837) | - | | **Total** | | | **9,395** | **(17,630)** | **(837)** | **1,223** | $^1$ The carrying amount of debt instruments at FVOCI does not include the fair value hedge adjustment. The fair value hedge adjustment is included in other comprehensive income. The hedged items in relation to the Banking Group’s cash flow hedges are: | | Hedged risk | Continuing hedges 2024 (NZ$m) | Continuing hedges 2023 (NZ$m) | Discontinued hedges 2024 (NZ$m) | Discontinued hedges 2023 (NZ$m) | | --- | --- | --- | --- | --- | --- | | Floating rate loans and advances | Interest rate | 186 | (358) | - | - | | Floating rate customer deposits | Interest rate | (114) | 283 | - | (1) | All cash flow hedges relate to hedges of interest rate risk and the movements in the cash flow hedge reserve are shown in the statement of changes in equity on page 7. *** ## 9. DERIVATIVE FINANCIAL INSTRUMENTS (continued) ### 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. With respect to derivatives cleared through a central clearing counterparty or exchange, derivative assets or liabilities may be derecognised in accordance with the principle above when collateral is settled, depending on the legal arrangements in place for each instrument. | | **Impact on the income statement** | The recognition of gains or losses on derivative financial instruments depends on whether the derivative is held for trading or is designated into a hedge accounting 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 in a hedge accounting relationship, the recognition of gains or losses depends on the nature of the item being hedged. Sources of hedge accounting ineffectiveness may arise from differences in the interest rate reference rate, margins, or rate set differences and differences in discounting between the hedged items and the hedging instruments. | | **Hedge effectiveness** | To qualify for hedge accounting under NZ IAS 39, a hedge relationship is expected to be highly effective. A hedge relationship 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 each reporting date. | ### KEY JUDGEMENTS AND ESTIMATES Judgement is required when we select the valuation techniques used to determine 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. *** ## 10. INVESTMENT SECURITIES | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Investment securities measured at FVOCI** | | | | Debt securities | 13,290 | 10,957 | | Equity securities | 5 | 1 | | **Total** | **13,295** | **10,958** | The maturity profile of investment securities is as follows: | As at 30 September 2024 | Less than 3 months (NZ$m) | 3 to 12 months (NZ$m) | 1 to 5 years (NZ$m) | After 5 years (NZ$m) | No maturity (NZ$m) | Total (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | | Government securities | 126 | 829 | 7,326 | 4,543 | - | 12,824 | | Corporate and financial institution securities | 1 | 50 | 415 | - | - | 466 | | Equity securities | - | - | - | - | 5 | 5 | | **Total** | **127** | **879** | **7,741** | **4,543** | **5** | **13,295** | | **As at 30 September 2023** | | | | | | | | Government securities | 492 | 512 | 6,423 | 3,115 | - | 10,542 | | Corporate and financial institution securities | 29 | - | 386 | - | - | 415 | | Equity securities | - | - | - | - | 1 | 1 | | **Total** | **521** | **512** | **6,809** | **3,115** | **1** | **10,958** | ### RECOGNITION AND MEASUREMENT Investment securities are those financial assets in security form (that is, transferable debt or equity instruments) that are not held for trading purposes. By way of exception, bills of exchange (a form of security/transferable instrument) which are used to facilitate the Banking Group’s customer lending activities are classified as loans and advances (rather than investment securities) to better reflect the substance of the arrangement. Equity investments not held for trading purposes may be designated at FVOCI on an instrument by instrument basis. If this election is made, gains or losses are not reclassified from other comprehensive income to profit or loss on disposal of the investment. However, gains or losses may be reclassified within equity. Assets disclosed as investment securities are subject to the general classification and measurement policy for financial assets outlined on page 17. Additionally, expected credit losses associated with ‘Investment securities - debt securities at FVOCI’ are recognised and measured in accordance with the accounting policy outlined in Note 12 Allowance for expected credit losses, and the allowance for expected credit loss is recognised in the FVOCI reserve in equity with a corresponding charge to profit or loss. ### KEY JUDGEMENTS AND ESTIMATES Judgement is required when we select valuation techniques used to determine the fair value of 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. *** ## 11. NET LOANS AND ADVANCES The following table provides details of net loans and advances for the Banking Group: | | Note | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | --- | | Overdrafts | | 1,091 | 973 | | Credit cards | | 1,243 | 1,262 | | Term loans - housing | | 110,807 | 107,040 | | Term loans - non-housing | | 38,755 | 40,345 | | **Subtotal** | | **151,896** | **149,620** | | Unearned income | | (21) | (28) | | Capitalised brokerage and other origination costs | | 516 | 459 | | **Gross loans and advances** | | **152,391** | **150,051** | | Allowance for expected credit losses | 12 | (725) | (730) | | **Net loans and advances** | | **151,666** | **149,321** | | **Residual contractual maturity:** | | | | | Within one year | | 25,259 | 27,922 | | More than one year | | 126,407 | 121,399 | | **Net loans and advances** | | **151,666** | **149,321** | The Bank has sold residential mortgages to the NZ Branch with a net carrying value of NZ$298 million as at 30 September 2024 (2023: NZ$306 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 and other origination costs 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 allowance for expected credit losses. 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, then 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 of assets as appropriate. Assets disclosed as net loans and advances are subject to the general classification and measurement policy for financial assets outlined on page 17. Additionally, expected credit losses associated with loans and advances at amortised cost are recognised and measured in accordance with the accounting policy outlined in Note 12 Allowance for expected credit losses. *** ## 12. ALLOWANCE FOR EXPECTED CREDIT LOSSES | | Collectively assessed 2024 (NZ$m) | Individually assessed 2024 (NZ$m) | Total 2024 (NZ$m) | Collectively assessed 2023 (NZ$m) | Individually assessed 2023 (NZ$m) | Total 2023 (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | | Net loans and advances at amortised cost | 661 | 64 | 725 | 670 | 60 | 730 | | Off-balance sheet commitments | 133 | 3 | 136 | 122 | 5 | 127 | | **Total** | **794** | **67** | **861** | **792** | **65** | **857** | The following tables present the movement in the allowance for expected credit losses (ECL) for the year. ### Net loans and advances Allowance for ECL is included in net loans and advances. | | Stage 1 (NZ$m) | Stage 2 (NZ$m) | Stage 3 Collectively assessed (NZ$m) | Stage 3 Individually assessed (NZ$m) | Total (NZ$m) | | --- | --- | --- | --- | --- | --- | | **As at 1 October 2022** | **199** | **311** | **59** | **77** | **646** | | Transfer between stages | 19 | (19) | - | - | - | | New and increased provisions (net of releases) | (25) | 106 | 20 | 94 | 195 | | Write-backs | - | - | - | (22) | (22) | | Bad debts written-off (excluding recoveries) | - | - | - | (86) | (86) | | Discount unwind | - | - | - | (3) | (3) | | **As at 30 September 2023** | **193** | **398** | **79** | **60** | **730** | | Transfer between stages | 36 | (40) | (1) | 5 | - | | New and increased provisions (net of releases) | (42) | 12 | 26 | 99 | 95 | | Write-backs | - | - | - | (49) | (49) | | Bad debts written-off (excluding recoveries) | - | - | - | (41) | (41) | | Discount unwind | - | - | - | (10) | (10) | | **As at 30 September 2024** | **187** | **370** | **104** | **64** | **725** | ### Off-balance sheet commitments - undrawn and contingent facilities Allowance for ECL is included in other provisions. | | Stage 1 (NZ$m) | Stage 2 (NZ$m) | Stage 3 Collectively assessed (NZ$m) | Stage 3 Individually assessed (NZ$m) | Total (NZ$m) | | --- | --- | --- | --- | --- | --- | | **As at 1 October 2022** | **66** | **31** | **3** | **5** | **105** | | Transfer between stages | 2 | (2) | - | - | - | | New and increased provisions (net of releases) | 12 | 10 | - | - | 22 | | **As at 30 September 2023** | **80** | **39** | **3** | **5** | **127** | | Transfer between stages | 4 | (4) | - | - | - | | New and increased provisions (net of releases) | (10) | 21 | - | (2) | 9 | | **As at 30 September 2024** | **74** | **56** | **3** | **3** | **136** | The collectively assessed allowance for ECL increased by NZ$2 million attributable to: increases of NZ$12 million for downside risks associated with the economic outlook, NZ$70 million due to portfolio credit risk profile changes reflecting the revised economic scenario weightings and enhanced model methodology, NZ$23 million in large exposure, model risk and other adjustment allowances, offset by a release of NZ$103 million management temporary adjustments. ### CREDIT IMPAIRMENT CHARGE – INCOME STATEMENT | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **New and increased provisions (net of releases)** | | | | - Collectively assessed | 2 | 123 | | - Individually assessed | 102 | 94 | | Write-backs | (49) | (22) | | Recoveries of amounts previously written-off | (11) | (12) | | **Total credit impairment charge** | **44** | **183** | *** ## 12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued) ### RECOGNITION AND MEASUREMENT #### EXPECTED CREDIT LOSS MODEL The measurement of expected credit losses reflects an unbiased, probability weighted prediction which evaluates a range of scenarios and takes into account the time value of money, past events, current conditions and forecasts of future economic conditions. Expected credit losses are either measured over 12 months or the expected lifetime of the financial asset, depending on credit deterioration since origination, according to the following three-stage approach: - **Stage 1**: At the origination of a financial asset, and where there has not been a Significant Increase in Credit Risk (SICR) since origination, an allowance for ECL is recognised reflecting the expected credit losses resulting from default events that are possible within the next 12 months from the reporting date. For instruments with a remaining maturity of less than 12 months, expected credit losses are estimated based on default events that are possible over the remaining time to maturity. - **Stage 2**: Where there has been a SICR since origination, an allowance for ECL is recognised reflecting expected credit losses resulting from all possible default events over the expected life of a financial instrument. If credit risk were to improve in a subsequent period such that the increase in credit risk since origination is no longer considered significant, the exposure returns to a Stage 1 classification with ECL measured accordingly. - **Stage 3**: Where there is objective evidence of impairment, an allowance equivalent to lifetime ECL is recognised. Expected credit losses are estimated on a collective basis for exposures in Stage 1 and Stage 2, and on either a collective or individual basis when transferred to Stage 3. #### MEASUREMENT OF EXPECTED CREDIT LOSS ECL is calculated as the product of the following credit risk factors at a facility level, discounted to incorporate the time value of money: - Probability of default (PD) – the estimate of the likelihood that a borrower will default over a given period; - Exposure at default (EAD) – the expected balance sheet exposure at default taking into account repayments of principal and interest, expected additional drawdowns and accrued interest; and - Loss given default (LGD) – the expected loss in the event of the borrower defaulting, expressed as a percentage of the facility’s EAD, taking into account direct and indirect recovery costs. These credit risk factors are adjusted for current and forward-looking information through the use of macroeconomic variables. #### EXPECTED LIFE When estimating ECL for exposures in Stage 2 and 3, the Banking Group considers the expected lifetime over which it is exposed to credit risk. For non-retail portfolios, the Banking Group uses the maximum contractual period as the expected lifetime for non-revolving credit facilities. For non-retail revolving credit facilities, such as corporate lines of credit, the expected life reflects the Banking Group’s contractual right to withdraw a facility as part of a contractually agreed annual review, after taking into account the applicable notice period. For retail portfolios, the expected lifetime is determined using a behavioural term, taking into account expected prepayment behaviour and events that give rise to substantial modifications. #### DEFINITION OF DEFAULT, CREDIT IMPAIRED AND WRITE-OFFS The definition of default used in measuring ECL is aligned to the definition used for internal credit risk management purposes across all portfolios. This definition is also in line with the regulatory definition of default. Default occurs when there are indicators that a debtor is unlikely to fully satisfy contractual credit obligations to the Banking Group, or the exposure is 90 days past due. Financial assets, including those that are well secured, are considered credit impaired for financial reporting purposes when they default. When there is no realistic probability of recovery, loans are written off against the related impairment allowance on completion of the Banking Group’s internal processes and when all reasonably expected recoveries have been collected. In subsequent periods, any recoveries of amounts previously written-off are recorded as a release to the credit impairment charge in the income statement. #### MODIFIED FINANCIAL ASSETS If the contractual terms of a financial asset are modified or an existing financial asset is replaced with a new one for either credit or commercial reasons, an assessment is made to determine if the changes to the terms of the existing financial asset are considered substantial. This assessment considers both changes in cash flows arising from the modified terms as well as changes in the overall instrument risk profile; for example, changes in the principal (credit limit), term, or type of underlying collateral. Where a modification is considered non-substantial, the existing financial asset is not derecognised and its date of origination continues to be used to determine SICR. Where a modification is considered substantial, the existing financial asset is derecognised and a new financial asset is recognised at its fair value on the modification date, which also becomes the date of origination used to determine SICR for this new asset. *** ## 12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued) ### RECOGNITION AND MEASUREMENT #### SIGNIFICANT INCREASE IN CREDIT RISK (SICR) Stage 2 assets are those that have experienced a SICR since origination. In determining what constitutes a SICR, the Banking Group considers both qualitative and quantitative information: i. **Internal credit rating grade**: For the majority of portfolios, the primary indicator of a SICR is a significant deterioration in the internal credit rating grade of a facility since origination and is measured by application of thresholds. For non-retail portfolios, a SICR is determined by comparing the Customer Credit Rating (CCR) applicable to a facility at reporting date to the CCR at origination of that facility. A CCR is assigned to each borrower which reflects the PD of the borrower and incorporates both borrower and non-borrower specific information, including forward-looking information. CCRs are subject to review at least annually or more frequently when an event occurs which could affect the credit risk of the customer. For retail portfolios, a SICR is determined, depending on the type of facility, by either comparing the scenario weighted lifetime PD at the reporting date to that at origination, or by reference to customer behavioural score thresholds. The scenario weighted lifetime probability of default may increase significantly if: - there has been a deterioration in the economic outlook, or an increase in economic uncertainty; or - there has been a deterioration in the customer’s overall credit position, or ability to manage their credit obligations. ii. **Backstop criteria**: The Banking Group uses 30 days past due arrears as a backstop criterion for both non-retail and retail portfolios. For retail portfolios only, facilities are required to demonstrate three to six months of good payment behaviour prior to being allocated back to Stage 1. #### FORWARD-LOOKING INFORMATION Forward-looking information is incorporated into both our assessment of whether a financial asset has experienced a SICR since origination and in our estimate of ECL. In applying forward-looking information for estimating ECL, the Banking Group considers four probability weighted forecast economic scenarios as follows: i. **Base case scenario**: The base case scenario is our view of future macroeconomic conditions. It reflects the same basis of assumptions used by management for strategic planning and budgeting, and also informs the Banking Group’s Internal Capital Adequacy Assessment Process which is the process the Banking Group applies in strategic and capital planning over a 3-year time horizon; ii. **Upside and iii. Downside scenarios**: The upside and downside scenarios are fixed by reference to average economic cycle conditions (that is, they are not based on the economic conditions prevailing at balance date) and are based on a combination of more optimistic (in the case of the upside) and pessimistic (in the case of the downside) economic events and uncertainty over long term horizons; and iv. **Severe downside scenario**: The severe scenario assumes a deep economic downturn, both domestically and globally. We forecast macroeconomic variables for such a scenario, reflecting a plausible scenario unfolding over a 5-year period given current economic conditions. These assumptions have been revised in 2024, reflecting an escalation of geopolitical tensions, persistent inflation, and worsening national budget positions. The four scenarios are described in terms of macroeconomic variables used in the PD, LGD and EAD models (collectively the ECL models) depending on the lending portfolio and country of the borrower. Examples of the macroeconomic variables include unemployment rates, Gross Domestic Product (GDP) growth rates, residential property price indices, commercial property price indices and consumer price indices. Probability weighting of each scenario is determined by management considering the risks and uncertainties surrounding the base case economic scenario, as well as specific portfolio considerations where required. Where applicable, temporary adjustments may be made to account for situations where known or expected risks have not been adequately addressed in the modelling process. *** ## 12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued) ### KEY JUDGEMENTS AND ESTIMATES #### Collectively assessed allowance for expected credit losses In estimating collectively assessed ECL, the Banking Group makes judgements and assumptions in relation to: - the selection of an estimation technique or modelling methodology; and - the selection of inputs for those models, and the interdependencies between those inputs. The following table summarises the key judgements and assumptions in relation to the model inputs and the interdependencies between those inputs, and highlights significant changes during the current period. | Judgement / assumption | Description | Considerations for the year ended 30 September 2024 | | --- | --- | --- | | Determining when a SICR has occurred or reversed | In the measurement of ECL, judgement is involved in determining whether there has been a SICR since initial recognition of a loan, which would result in it moving from Stage 1 to Stage 2. This is a key area of judgement since transition from Stage 1 to Stage 2 increases the ECL from an allowance based on the PD in the next 12 months, to an allowance for lifetime ECL. Subsequent decreases in credit risk resulting in transition from Stage 2 to Stage 1 may similarly result in significant changes in the ECL allowance. | The determination of SICR was consistent with prior periods. | | Measuring both 12-month and lifetime ECL | The PD, LGD and EAD factors used in determining ECL are point-in-time measures reflecting the relevant forward-looking information determined by management. Judgement is involved in determining which forward-looking information is relevant for particular lending portfolios and for determining each portfolio’s point-in-time sensitivity. In addition, judgement is required where behavioural characteristics are applied in estimating the lifetime of a facility which is used in measuring ECL. | The PD, LGD and EAD models are subject to the Banking Group’s model risk policy that stipulates periodic model monitoring and re-validation, and defines approval procedures and authorities according to model materiality. There were no material changes to the policy. | | Base case economic forecast | The Banking Group derives a forward-looking ‘base case’ economic scenario which reflects our view of future macroeconomic conditions. | There have been no changes to the types of forward looking variables (key economic drivers) used as model inputs. As at 30 September 2024, the base case assumptions have been updated to reflect a moderation in inflation and an easing in labour market conditions. The economy is forecast to continue to grow below trend. Despite increased household disposable incomes, limited flow-through to household consumption is forecast. The expected outcomes of key economic drivers for the base case scenario at 30 September 2024 are described below under the heading ‘Base case economic forecast assumptions’. | *** ## 12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued) ### KEY JUDGEMENTS AND ESTIMATES | Judgement / assumption | Description | Considerations for the year ended 30 September 2024 | | --- | --- | --- | | Probability weighting of each economic scenario (base case, upside, downside and severe downside scenarios)$^1$ | Probability weighting of each economic scenario is determined by management considering the risks and uncertainties surrounding the base case economic scenario at each measurement date. The assigned probability weightings are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. | Probability weightings shifted from downside to upside scenarios during the current period reflecting increasing confidence in economic recovery with high-frequency data providing early indication that the economy is responding to monetary easing. The probability weightings for current and prior periods are as detailed in the section below under the heading on ‘Probability weightings’. | | Management temporary adjustments | Management temporary adjustments to the ECL allowance are used in circumstances where it is judged that our existing inputs, assumptions and model techniques do not capture all the risk factors relevant to our lending portfolios. | Management have continued to apply adjustments to accommodate uncertainty associated with higher inflation and interest rates. Management overlays have been made for risks particular to mortgages and commercial lending. Management temporary adjustments total NZ$73 million (September 2023: NZ$176 million). Management has considered and concluded no temporary adjustment is required at 30 September 2024 to the ECL allowance in relation to climate- or weather-related events during the period. | $^1$ The upside and downside scenarios are fixed by reference to average economic cycle conditions (that is, they are not based on the economic conditions prevailing at balance date) and are based on a combination of more optimistic (in the case of the upside) and pessimistic (in the case of the downside) economic conditions. #### Base case economic forecast assumptions Continuing uncertainties described above increase the risk of the economic forecast resulting in an understatement or overstatement of the ECL balance. The economic drivers of the base case economic forecasts, reflective of our view of future macroeconomic conditions, used at 30 September 2024 are set out below. For years following the near term forecasts below, the ECL models apply simplified assumptions for the economic conditions to calculate lifetime loss. | Forecast calendar year | 2024 | 2025 | 2026 | | --- | --- | --- | --- | | GDP (annual % change) | -0.1% | 0.8% | 2.2% | | Unemployment rate (annual average) | 4.7% | 5.4% | 5.4% | | Residential property prices (annual % change) | -1.0% | 4.5% | 5.0% | | Consumer price index (CPI) (annual % change) | 3.1% | 2.2% | 1.8% | *** ## 12. ALLOWANCE FOR EXPECTED CREDIT LOSSES (continued) ### KEY JUDGEMENTS AND ESTIMATES #### Probability weightings Probability weightings for each scenario are determined by management considering the risks and uncertainties surrounding the base case economic scenario including the uncertainties described above. The upside scenario weighting has increased to 3.75% (2023: 0.0%), and the downside scenario weighting has decreased to 33.75% (2023: 37.5%). The assigned probability weightings are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. The Banking Group considers these weightings to provide estimates of the possible loss outcomes and taking into account short and long term inter-relationships within the Banking Group’s credit portfolios. The weightings applied are set out below: | | 2024 | 2023 | | --- | --- | --- | | Base | 50.0% | 50.0% | | Upside | 3.75% | 0.0% | | Downside | 33.75% | 37.5% | | Severe downside | 12.5% | 12.5% | #### ECL - Sensitivity analysis Given current economic uncertainties and the judgement applied to factors used in determining the expected default of borrowers in future periods, ECL reported by the Banking Group should be considered as a best estimate within a range of possible estimates. The table below illustrates the sensitivity of collectively assessed ECL to key factors used in determining it at 30 September 2024: | | ECL (NZ$m) | Impact on ECL (NZ$m) | | --- | --- | --- | | If 1% of Stage 1 facilities were included in Stage 2 | 803 | 9 | | If 1% of Stage 2 facilities were included in Stage 1 | 793 | (1) | | 100% upside scenario | 284 | (510) | | 100% base scenario | 420 | (374) | | 100% downside scenario | 757 | (37) | | 100% severe downside scenario | 1,961 | 1,167 | #### Individually assessed allowance for expected credit losses In estimating individually assessed ECL, the Banking Group makes judgements and assumptions in relation to expected repayments, the realisable value of collateral, business prospects for the customer, competing claims and the likely cost and duration of the work-out process. Judgements and assumptions in respect of these matters have been updated to reflect amongst other things, the uncertainties described above and in Note 1 About our financial statements. *** ## FINANCIAL LIABILITIES Outlined below is a description of how we classify and measure financial liabilities relevant to the note disclosures that follow. ### CLASSIFICATION AND MEASUREMENT #### Financial liabilities Financial liabilities are measured at amortised cost, or FVTPL when they are held for trading. Additionally, financial liabilities can be designated at FVTPL where: - the designation eliminates or significantly reduces an accounting mismatch which would otherwise arise; - a group of financial liabilities are managed and their performance are evaluated on a fair value basis, in accordance with a documented risk management strategy; or - the financial liability contains one or more embedded derivatives unless: a) the embedded derivative does not significantly modify the cash flows that otherwise would be required by the contract; or b) the embedded derivative is closely related to the host financial liability. Where financial liabilities are 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, except where doing so would create or enlarge an accounting mismatch in profit or loss. ## 13. DEPOSITS AND OTHER BORROWINGS | | Note | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | --- | | Term deposits | | 59,308 | 54,198 | | On demand and short term deposits | | 60,983 | 60,673 | | Deposits not bearing interest | | 15,872 | 17,658 | | **Total customer deposits** | | **136,163** | **132,529** | | Certificates of deposit | | 1,174 | 2,328 | | Commercial paper | | 1,419 | 2,253 | | Securities sold under repurchase agreements | | 3,750 | 4,429 | | Deposits from Immediate Parent Company and NZ Branch | 26 | 139 | 91 | | **Deposits and other borrowings** | | **142,645** | **141,630** | | **Residual contractual maturity:** | | | | | Within one year | | 136,741 | 135,360 | | More than one year | | 5,904 | 6,270 | | **Deposits and other borrowings** | | **142,645** | **141,630** | | **Carried on balance sheet at:** | | | | | Amortised cost | | 140,204 | 138,748 | | Fair value through profit or loss (designated on initial recognition) | | 2,441 | 2,882 | | **Deposits and other borrowings** | | **142,645** | **141,630** | ### RECOGNITION AND MEASUREMENT For deposits and other borrowings that: - are not designated at FVTPL 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 measured at FVTPL. Refer to Note 16 Fair value of financial assets and financial liabilities for further details. For deposits and other borrowings designated at fair value we recognise the 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 profit or loss. *** ## 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, in a winding up of the issuer, holders of unsubordinated debt rank in priority to holders of subordinated debt. Subordinated debt will be repaid only after the repayment of claims of depositors and other creditors (including holders of unsubordinated debt) of that issuer. | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | Senior debt | 12,349 | 13,466 | | Covered bonds | 2,156 | 3,373 | | **Total unsubordinated debt** | **14,505** | **16,839** | | **Subordinated debt** | | | | - Additional tier 1 capital | 938 | 938 | | - Tier 2 capital | 2,180 | 1,370 | | **Total debt issued** | **17,623** | **19,147** | | **Residual contractual maturity:** | | | | Within one year | 3,213 | 3,488 | | More than one year | 14,410 | 15,659 | | **Total debt issued** | **17,623** | **19,147** | ### 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. | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | AUD Australian dollars | 43 | 42 | | EUR Euro | 5,892 | 6,053 | | NZD New Zealand dollars | 2,035 | 2,584 | | CHF Swiss Francs | 743 | 1,117 | | USD United States dollars | 8,910 | 9,351 | | **Total debt issued** | **17,623** | **19,147** | The Bank has guaranteed the payment of interest and principal of covered bonds issued by its subsidiary ANZ New Zealand (Int’l) Limited. This obligation is 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. The Covered Bond Guarantor is not a member of the Banking Group and has no credit ratings applicable to its long term senior unsecured obligations. The covered bonds have been assigned a long term rating of Aaa and AAA by Moody’s Investors Service and Fitch Ratings respectively. Refer to page 51 for the amount of assets of the ANZ Covered Bond Trust pledged as security for covered bonds. ### SUBORDINATED DEBT All subordinated debt is issued by the Bank and qualifies as regulatory capital for the Banking Group. Each subordinated debt instrument is classified as either additional tier 1 (AT1) capital, in the case of the ANZ NZ Internal Capital Notes (ANZ NZ ICN), or tier 2 capital for RBNZ’s capital adequacy purposes depending on the terms and conditions of the instruments. #### AT1 capital notes AT1 capital notes are convertible non-cumulative perpetual subordinated debt securities. Holders of AT1 capital notes do not have any right to vote in general meetings of the Bank. 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. Interest payments on AT1 capital notes are discretionary, non-cumulative and subject to conditions. In the event of liquidation, holders of AT1 capital notes are entitled to claim an amount equal to the issue price of the AT1 capital notes. Holders of AT1 capital notes rank behind the claims of all depositors and other creditors of the Bank (other than creditors that rank equally with the AT1 capital notes), equally with the rights of holders of perpetual preference shares, and other equal ranking securities and obligations, and in priority to the rights of holders of ordinary shares. The Bank issued NZ$938 million of AT1 capital notes to NZ Branch in 2016 (ANZ NZ ICN). The key terms of the ANZ NZ ICN notes are as follows: The interest amount is based on a floating rate equal to the aggregate of the New Zealand 6 month bank bill rate plus 6.29% per annum. *** ## 14. DEBT ISSUANCES (continued) ANZ NZ ICN notes provide the Bank with a redemption option on specified dates and a redemption or conversion to equity option in certain other circumstances. Redemption is subject to RBNZ’s prior written approval. The ANZ NZ ICN notes will immediately convert into ordinary shares of the Bank if: - the Banking Group’s 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 to equity or write-off the ANZ NZ ICN notes, or a statutory manager is appointed to the Bank and decides that the Bank must convert to equity or write-off the ANZ NZ ICN notes. ### Transitional AT1 capital RBNZ has revised its capital adequacy requirements for New Zealand banks. Under the revised requirements, the ANZ NZ ICN are subject to a progressive reduction in their regulatory capital recognition and will not be recognised from 1 July 2028. However, the ANZ NZ ICN are expected to fully contribute to the Bank’s capital adequacy requirements until at least their next optional call date. The Bank has determined that a regulatory event has occurred in respect of the ANZ NZ ICN. The occurrence of a regulatory event means that the Bank may choose to redeem the ANZ NZ ICN at its discretion, subject to certain conditions including the prior written approval of RBNZ. As at 7 November 2024, no decision has been made on whether the Bank will redeem the ANZ NZ ICN. ### Tier 2 capital Tier 2 capital notes are fully paid unsecured subordinated notes. Interest payments are subject to the Bank being solvent at the time of, and immediately following, the payment. Unpaid interest accumulates, and will be paid at the earlier of when the Bank is solvent again or at maturity. The Bank may repay the notes early (the next optional call dates are specified below), or in certain other circumstances (such as a tax or regulatory event). Early repayment is subject to certain conditions, including prior written approval from RBNZ. The table below shows the tier 2 capital subordinated notes on issue at 30 September 2024 and 30 September 2023: | Currency | Face value | Issue date | Maturity | Next optional call date - subject to RBNZ's approval | Interest rate | Interest reset date | Credit rating$^2$ | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | NZD | 600m | Sep 2021 | Sep 2031 | Sep 2026 | 2.999% | Sep 2026 | A | 597 | 596 | | USD | 500m | Aug 2022 | Aug 2032 | Aug 2027 | 5.548% | Aug 2027 | A | 771 | 774 | | USD | 500m | Jul 2024 | Jul 2034 | Jul 2029 | 5.898% | Jul 2029 | A | 812 | - | | **Total tier 2 capital$^1$** | | | | | | | | **2,180** | **1,370** | $^1$ Carrying amounts are net of issuance costs and, where applicable, include fair value hedge accounting adjustments. $^2$ Credit rating assigned by S&P Global Ratings. The credit rating of the tier 2 capital notes was upgraded to A from A- on 2 April 2024. ### RECOGNITION AND MEASUREMENT Debt issuances are initially recognised at fair value and are subsequently measured at amortised cost, except where designated at FVTPL. Interest expense on debt issuances is recognised using the effective interest rate method. Where the Banking Group enters into a fair value hedge accounting relationship, the fair value attributable to the hedged risk is reflected in adjustments to the carrying value of the debt. Subordinated debt with capital-based conversion features (i.e. Common Equity Capital Trigger Events or Non-Viability Trigger Events) are considered to contain embedded derivatives that we account for separately at FVTPL. 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 significant value as of the reporting date given the remote nature of those trigger events. *** ## 15. FINANCIAL RISK MANAGEMENT ### RISK MANAGEMENT FRAMEWORK AND MODEL #### INTRODUCTION The use of financial instruments is fundamental to the Banking Group’s business 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 material risks. This note details the Banking Group’s financial risk management policies, processes and quantitative disclosures in relation to the material financial risks: | Material financial risks | Key sections applicable to this risk | | --- | --- | | **Credit risk**: The risk of financial loss resulting from: a counterparty failing to fulfil its obligations; or a decrease in credit quality of a counterparty resulting in a financial loss. Credit risk incorporates the risks associated with us lending to customers who could be impacted by climate change, changes to laws, regulations, or other policies adopted by governments or regulatory authorities. Climate change impacts include both physical risks (climate- or weather-related events) and transition risks resulting from the adjustment to a low emissions economy. Transition risks include resultant changes to laws, regulations and policies noted above. | - Credit risk overview, management and control responsibilities; - Maximum exposure to credit risk; - Credit quality; - Concentrations of credit risk; - Collateral management | | **Market risk**: The risk to the Banking Group’s earnings arising from: changes in interest rates, foreign exchange rates, credit spreads, volatility and correlations; or fluctuations in bond, commodity or equity prices. | - 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**: The risk that the Banking Group is unable to meet its payment obligations as they fall due, including: repaying depositors or maturing wholesale debt; or the Banking Group having insufficient capacity to fund increases in 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 in understanding 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 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 give 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 risk 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. *** ## 15. FINANCIAL RISK MANAGEMENT (continued) ### Internal Audit Function Internal Audit is a function independent of management whose role is to provide the Board and management with an effective and independent appraisal of the internal controls established by management. Operating under a Board approved Charter, the reporting line for the outcomes of work conducted by Internal Audit is direct to the Chair of the Audit Committee, with a direct communication line to the Chief Executive Officer and the external auditor. The Internal Audit Plan is developed using a risk based approach and is reviewed quarterly. The Audit Committee approves the plan. All audit activities are conducted in accordance with international internal auditing standards, and the results of the activities are reported to the Audit Committee and management. These results influence the performance assessment of business heads. Furthermore, Internal Audit monitors the remediation of audit issues and reports the current status of any outstanding audits. ### 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 interbank, treasury, trade finance and capital markets activities. 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: - approves the credit risk appetite and credit strategies; and - approves policies and control frameworks for the management of the Banking Group’s credit risk. The BRC delegates responsibility for day-to-day management of credit risk and compliance with credit risk policies to the Bank’s Credit Risk Management Committee (CRMC). We quantify credit risk through an internal credit rating system (Master Scale) 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 balance sheet exposure at default taking into account repayments of principal and interest, expected additional drawdowns and accrued interest 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 homogeneous 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, internal 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 subject to manual assessment. | *** ## 15. FINANCIAL RISK MANAGEMENT (continued) We use the Banking Group’s internal CCR to manage the credit quality of financial assets. To enable wider comparisons, the Banking Group’s CCRs are mapped to external rating agency scales as follows: | Credit quality description | Internal CCR | The Banking Group customer requirements | Moody’s Ratings | S&P Global Ratings | | --- | --- | --- | --- | --- | | **Strong** | CCR 0+ to 4- | 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** | CCR 5+ to 6- | 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+ | | **Weak** | CCR 7+ to 8= | 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 | | **Defaulted** | CCR 8- to 10 | When doubt arises as to the collectability of a credit facility, the financial instrument (or ‘the facility’) is classified as defaulted. | n/a | n/a | ### 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. 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 2024 (NZ$m) | Reported 2023 (NZ$m) | Excluded$^1$ 2024 (NZ$m) | Excluded$^1$ 2023 (NZ$m) | Maximum exposure to credit risk 2024 (NZ$m) | Maximum exposure to credit risk 2023 (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | | **On-balance sheet positions** | | | | | | | | Net loans and advances | 151,666 | 149,321 | - | - | 151,666 | 149,321 | | Other financial assets: | | | | | | | | Cash and cash equivalents | 11,634 | 13,094 | 130 | 155 | 11,504 | 12,939 | | Settlement balances receivable | 574 | 401 | - | - | 574 | 401 | | Collateral paid | 1,041 | 801 | - | - | 1,041 | 801 | | Trading securities | 5,576 | 5,921 | - | - | 5,576 | 5,921 | | Derivative financial instruments | 10,181 | 8,753 | - | - | 10,181 | 8,753 | | Investment securities | 13,295 | 10,958 | - | - | 13,295 | 10,958 | | Other financial assets$^2$ | 1,113 | 995 | - | - | 1,113 | 995 | | **Total other financial assets** | **43,414** | **40,923** | **130** | **155** | **43,284** | **40,768** | | **Subtotal** | **195,080** | **190,244** | **130** | **155** | **194,950** | **190,089** | | **Off-balance sheet positions** | | | | | | | | Undrawn and contingent facilities$^3$ | 28,511 | 28,797 | - | - | 28,511 | 28,797 | | **Total** | **223,591** | **219,041** | **130** | **155** | **223,461** | **218,886** | $^1$ Coins, notes and cash at bank within cash and cash equivalents were excluded as they do not have credit risk exposure. $^2$ Other financial assets mainly comprise accrued interest and acceptances. $^3$ Undrawn and contingent facilities include guarantees, letters of credit and performance related contingencies, net of collectively assessed and individually assessed allowance for expected credit losses. *** ## 15. FINANCIAL RISK MANAGEMENT (continued) ### CREDIT QUALITY An analysis of the Banking Group’s credit risk exposure is presented in the following tables based on the Banking Group’s internal credit quality rating by stage without taking account of the effects of any collateral or other credit enhancements. #### Net loans and advances | | Stage 1 (NZ$m) | Stage 2 (NZ$m) | Stage 3 Collectively assessed (NZ$m) | Stage 3 Individually assessed (NZ$m) | Total (NZ$m) | | --- | --- | --- | --- | --- | --- | | **As at 30 September 2024** | | | | | | | Strong | 73,623 | 1,549 | - | - | 75,172 | | Satisfactory | 59,827 | 6,901 | - | - | 66,728 | | Weak | 4,903 | 3,470 | - | - | 8,373 | | Defaulted | - | - | 1,253 | 370 | 1,623 | | **Subtotal** | **138,353** | **11,920** | **1,253** | **370** | **151,896** | | Allowance for ECL | (187) | (370) | (104) | (64) | (725) | | **Net loans and advances at amortised cost** | **138,166** | **11,550** | **1,149** | **306** | **151,171** | | Coverage ratio | 0.14% | 3.10% | 8.30% | 17.30% | 0.48% | | Unearned income | | | | | (21) | | Capitalised brokerage and other origination costs | | | | | 516 | | **Net carrying amount** | | | | | **151,666** | | **As at 30 September 2023** | | | | | | | Strong | 116,859 | 3,646 | - | - | 120,505 | | Satisfactory | 19,979 | 5,025 | - | - | 25,004 | | Weak | 504 | 2,430 | - | - | 2,934 | | Defaulted | - | - | 890 | 287 | 1,177 | | **Subtotal** | **137,342** | **11,101** | **890** | **287** | **149,620** | | Allowance for ECL | (193) | (398) | (79) | (60) | (730) | | **Net loans and advances at amortised cost** | **137,149** | **10,703** | **811** | **227** | **148,890** | | Coverage ratio | 0.14% | 3.59% | 8.88% | 20.91% | 0.49% | | Unearned income | | | | | (28) | | Capitalised brokerage and other origination costs | | | | | 459 | | **Net carrying amount** | | | | | **149,321** | #### Other financial assets | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | Strong | 43,245 | 40,598 | | Satisfactory | 32 | 52 | | Weak | 7 | 118 | | Defaulted | - | - | | **Total carrying amount** | **43,284** | **40,768** | *** ## 15. FINANCIAL RISK MANAGEMENT (continued) | Off-balance sheet commitments - undrawn and contingent facilities | Stage 1 (NZ$m) | Stage 2 (NZ$m) | Stage 3 Collectively assessed (NZ$m) | Stage 3 Individually assessed (NZ$m) | Total (NZ$m) | | --- | --- | --- | --- | --- | --- | | **As at 30 September 2024** | | | | | | | Strong | 23,508 | 196 | - | - | 23,704 | | Satisfactory | 3,530 | 1,087 | - | - | 4,617 | | Weak | 30 | 260 | - | - | 290 | | Defaulted | - | - | 26 | 10 | 36 | | **Gross undrawn and contingent facilities** | **27,068** | **1,543** | **26** | **10** | **28,647** | | Allowance for ECL included in other provisions (refer to Note 20) | (74) | (56) | (3) | (3) | (136) | | **Net undrawn and contingent facilities** | **26,994** | **1,487** | **23** | **7** | **28,511** | | Coverage ratio | 0.27% | 3.63% | 11.54% | 30.00% | 0.47% | | **As at 30 September 2023** | | | | | | | Strong | 24,408 | 202 | - | - | 24,610 | | Satisfactory | 3,343 | 701 | - | - | 4,044 | | Weak | 8 | 234 | - | - | 242 | | Defaulted | - | - | 15 | 13 | 28 | | **Gross undrawn and contingent facilities** | **27,759** | **1,137** | **15** | **13** | **28,924** | | Allowance for ECL included in other provisions (refer to Note 20) | (80) | (39) | (3) | (5) | (127) | | **Net undrawn and contingent facilities** | **27,679** | **1,098** | **12** | **8** | **28,797** | | Coverage ratio | 0.29% | 3.43% | 20.00% | 38.46% | 0.44% | *** ## 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. Composition of financial instruments that give rise to credit risk by industry group are presented below: | | Loans and advances 2024 (NZ$m) | Loans and advances 2023 (NZ$m) | Other financial assets 2024 (NZ$m) | Other financial assets 2023 (NZ$m) | Off-balance sheet credit related commitments 2024 (NZ$m) | Off-balance sheet credit related commitments 2023 (NZ$m) | Total 2024 (NZ$m) | Total 2023 (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **New Zealand residents** | | | | | | | | | | Agriculture | 15,489 | 15,400 | 82 | 73 | 745 | 926 | 16,316 | 16,399 | | Forestry and fishing, agriculture services | 557 | 549 | 4 | 6 | 94 | 100 | 655 | 655 | | Mining | 158 | 181 | 2 | 12 | 226 | 250 | 386 | 443 | | Manufacturing | 2,444 | 2,486 | 94 | 185 | 1,952 | 1,943 | 4,490 | 4,614 | | Electricity, gas, water and waste services | 589 | 659 | 290 | 274 | 1,383 | 1,335 | 2,262 | 2,268 | | Construction | 961 | 904 | 6 | 4 | 969 | 951 | 1,936 | 1,859 | | Wholesale trade | 1,439 | 1,572 | 39 | 50 | 1,578 | 1,580 | 3,056 | 3,202 | | Retail trade and accommodation | 2,902 | 2,944 | 28 | 18 | 621 | 606 | 3,551 | 3,568 | | Transport, postal and warehousing | 1,042 | 1,155 | 89 | 77 | 706 | 591 | 1,837 | 1,823 | | Finance and insurance services | 864 | 972 | 13,004 | 15,473 | 1,465 | 1,981 | 15,333 | 18,426 | | Rental, hiring & real estate services | 37,098 | 37,679 | 1,960 | 2,024 | 1,996 | 1,948 | 41,054 | 41,651 | | Professional, scientific, technical, administrative and support services | 1,054 | 980 | 8 | 9 | 440 | 422 | 1,502 | 1,411 | | Public administration and safety | 209 | 201 | 10,938 | 8,910 | 845 | 776 | 11,992 | 9,887 | | Health care and social assistance | 915 | 1,117 | 9 | 26 | 294 | 270 | 1,218 | 1,413 | | Households | 82,871 | 79,342 | 427 | 370 | 13,760 | 13,814 | 97,058 | 93,526 | | Other$^1$ | 1,153 | 1,335 | 109 | 112 | 1,384 | 1,362 | 2,646 | 2,809 | | **Subtotal** | **149,745** | **147,476** | **27,089** | **27,623** | **28,458** | **28,855** | **205,292** | **203,954** | | **Overseas** | | | | | | | | | | Finance and insurance services | 66 | 76 | 16,170 | 13,092 | 189 | 69 | 16,425 | 13,237 | | Households | 1,508 | 1,485 | 8 | 7 | - | - | 1,516 | 1,492 | | All other non-residents | 577 | 583 | 17 | 46 | - | - | 594 | 629 | | **Subtotal** | **2,151** | **2,144** | **16,195** | **13,145** | **189** | **69** | **18,535** | **15,358** | | **Gross subtotal** | **151,896** | **149,620** | **43,284** | **40,768** | **28,647** | **28,924** | **223,827** | **219,312** | | Allowance for ECL | (725) | (730) | - | - | (136) | (127) | (861) | (857) | | **Subtotal** | **151,171** | **148,890** | **43,284** | **40,768** | **28,511** | **28,797** | **222,966** | **218,455** | | Unearned income | (21) | (28) | - | - | - | - | (21) | (28) | | Capitalised brokerage and other origination | 516 | 459 | - | - | - | - | 516 | 459 | | **Maximum exposure to credit risk** | **151,666** | **149,321** | **43,284** | **40,768** | **28,511** | **28,797** | **223,461** | **218,886** | $^1$ Other includes exposures to information media and telecommunications; education and training; arts and recreation services; and other services. *** ## 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. Where there is sufficient collateral, an expected credit loss is not recognised. This is largely the case for certain lending products, such as margin loans and reverse repurchase agreements that are secured by the securities purchased using the lending. 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. During the period there was no change in our collateral policies. 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, such as guarantees, standby letters of credit or derivative protection. | | **Other financial assets** | | | Trading securities, investment securities, 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 will have large individual exposures to single name counterparties such as central clearing houses, financial institutions, and other institutional clients. Open derivative positions with these counterparties are aggregated and cash collateral (or other forms of eligible collateral) is exchanged daily through the respective Credit Support Annex (CSA) agreements. 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). Credit risk will remain where the full amount of the derivative exposure is not covered by any collateral. | | **Off-balance sheet positions** | | | Undrawn and contingent facilities | Collateral for off-balance sheet positions is mainly held against undrawn facilities, and they are typically performance bonds or 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: | | Maximum exposure to credit risk 2024 (NZ$m) | Maximum exposure to credit risk 2023 (NZ$m) | Total value of collateral$^1$ 2024 (NZ$m) | Total value of collateral$^1$ 2023 (NZ$m) | Unsecured portion of credit exposure 2024 (NZ$m) | Unsecured portion of credit exposure 2023 (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | | Net loans and advances | 151,666 | 149,321 | 144,547 | 141,874 | 7,119 | 7,447 | | Other financial assets | 43,284 | 40,768 | 3,605 | 3,232 | 39,679 | 37,536 | | Off-balance sheet positions | 28,511 | 28,797 | 15,700 | 15,542 | 12,811 | 13,255 | | **Total** | **223,461** | **218,886** | **163,852** | **160,648** | **59,609** | **58,238** | $^1$ In estimating the value of collateral for housing loans, customers are assumed to be meeting their insurance obligations for the properties over which the mortgages are secured. *** ## 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 and the impact of changes and correlations between interest rates, foreign exchange rates, credit spreads, commodities, equities and the volatility within these asset classes. The BRC delegates responsibility for day-to-day management of both market risk and compliance with market risk policies to the Bank’s Asset & Liability Management 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 & Treasury 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: Currency risk, Interest rate risk, Credit spread risk, Commodity risk, Equity risk. | 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 measures 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 a one-day holding period. 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 for the relevant holding period. *** ## 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: | | 2024 As at (NZ$m) | 2024 High for year (NZ$m) | 2024 Low for year (NZ$m) | 2024 Average for year (NZ$m) | 2023 As at (NZ$m) | 2023 High for year (NZ$m) | 2023 Low for year (NZ$m) | 2023 Average for year (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Traded value at risk 99% confidence** | | | | | | | | | | Foreign exchange | 0.8 | 1.4 | 0.3 | 0.8 | 0.8 | 1.6 | 0.5 | 0.9 | | Interest rate | 1.7 | 3.8 | 0.8 | 1.5 | 1.7 | 6.2 | 1.1 | 2.0 | | Credit | 0.9 | 1.1 | 0.1 | 0.7 | 1.0 | 1.1 | 0.4 | 0.7 | | Diversification benefit$^1$ | (1.8) | n/a | n/a | (1.0) | (1.8) | n/a | n/a | (1.3) | | **Total VaR** | **1.6** | **4.8** | **1.2** | **2.0** | **1.7** | **6.7** | **1.2** | **2.3** | $^1$ 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 meaningful 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 and 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. | | 2024 As at (NZ$m) | 2024 High for year (NZ$m) | 2024 Low for year (NZ$m) | 2024 Average for year (NZ$m) | 2023 As at (NZ$m) | 2023 High for year (NZ$m) | 2023 Low for year (NZ$m) | 2023 Average for year (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Non-traded value at risk 99% confidence** | | | | | | | | | | Total VaR | 29.4 | 37.5 | 26.3 | 28.8 | 31.2 | 35.3 | 24.3 | 30.7 | 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. | | 2024 | 2023 | | --- | --- | --- | | **Impact of 1% rate shock on the next 12 months' net interest income** | | | | As at period end | -0.4% | 0.1% | | Maximum exposure | 1.1% | 1.4% | | Minimum exposure | -0.6% | -0.7% | | Average exposure (in absolute terms) | 0.4% | 0.2% | #### FOREIGN CURRENCY RISK – STRUCTURAL EXPOSURES Where it is considered appropriate, the Banking Group takes out economic hedges against larger foreign exchange denominated expenditure streams (primarily Australian Dollar, US Dollar and US Dollar correlated). The primary objective of hedging these streams is to protect against a significant decrease in shareholder value due to negative impacts of foreign exchange rate movements. *** ## 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 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 fund increases in its assets. Management of liquidity and funding is overseen by ALCO following delegation from the BRC. Within an overall framework established by the BRC, Treasury and Market & Treasury Risk have responsibility for the control of funding and liquidity risk at the Banking Group level. 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 that 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 AND FUNDING 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 of a range of regulatory and internal liquidity metrics. Potential severe liquidity crisis scenarios that 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 credit 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 one month under the modelled scenarios. As at 30 September 2024, the Banking Group was operating above the required minimums for the modelled scenarios. **Structural balance sheet metrics** The Banking Group’s liquidity management framework also encompasses structural balance sheet metrics such as the RBNZ’s core funding ratio. The core funding ratio is designed to limit the amount of wholesale funding required to be rolled over within a one year timeframe and so interacts with the modelled 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 with targeting diversification by markets, investors, currencies, maturities and funding structures. Short-term and long-term wholesale funding is managed and executed by Treasury. 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. *** ## 15. FINANCIAL RISK MANAGEMENT (continued) ### LIQUIDITY PORTFOLIO MANAGEMENT The Banking Group holds a diversified portfolio of cash and high quality liquid securities primarily to support liquidity risk management. The size of the Banking Group’s liquidity portfolio is determined with consideration of the amount required to meet the requirements of its internal and regulatory liquidity scenario metrics. | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | Central and local government bonds | 9,684 | 6,739 | | Government treasury bills | 207 | 1,190 | | Certificates of deposit | 359 | 318 | | Other bonds | 8,205 | 8,193 | | Securities eligible to be accepted as collateral in repurchase transactions | 18,455 | 16,440 | | Cash and balances with central banks | 9,723 | 12,362 | | **Total liquidity portfolio** | **28,178** | **28,802** | Assets held in the Banking Group’s liquidity portfolio are all denominated in New Zealand dollars and include balances held with RBNZ and securities issued by the New Zealand Government, supranational agencies, highly rated banks, state owned enterprises, local authorities (including through a funding authority) and highly rated corporates. The Bank also held unencumbered internal residential mortgage backed securities (RMBS) which would be accepted as collateral by RBNZ in repurchase transactions. These holdings would entitle the Bank to enter into repurchase transactions with RBNZ with a value of NZ$10,480 million at 30 September 2024 (2023: NZ$10,776 million). **RBNZ Term Lending Facility (TLF) and Funding for Lending Programme (FLP)** - Between May 2020 and July 2021, RBNZ made funds available under the TLF to promote lending to businesses. The TLF is a five-year secured funding facility for New Zealand banks at a fixed rate of 0.25%. - Between December 2020 and December 2022, RBNZ made funds available under the FLP to lower the cost of borrowing for New Zealand businesses and households. The FLP is a three-year secured funding facility for New Zealand banks at a floating rate of the New Zealand Official Cash Rate (OCR). As at 30 September 2024, the Bank had drawn NZ$228 million (2023: NZ$300 million) under the TLF and NZ$2,500 million (2023: NZ$3,500 million) under the FLP. These amounts are included in securities sold under repurchase agreements in Note 13 Deposits and other borrowings. **Liquidity crisis contingency planning** The Banking Group maintains a liquidity crisis contingency plan to define an approach for analysing and responding to a liquidity-threatening event. The framework includes: - the establishment of crisis severity/stress levels; - clearly assigned crisis roles and responsibilities; - early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals; - action plans, and courses of action for altering asset and liability behaviour; - procedures for crisis management reporting, and covering cash-flow shortfalls; and - assigned responsibilities for internal and external communications. ### FUNDING POSITION The Banking Group actively uses balance sheet disciplines to prudently manage the funding mix. The Banking Group employs funding metrics to ensure that an appropriate proportion of its assets are funded from stable sources, including customer liabilities, longer-dated wholesale debt (with remaining term exceeding one year) and equity. | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Funding composition** | | | | Customer deposits | 136,163 | 132,529 | | **Wholesale funding** | | | | Debt issuances | 17,623 | 19,147 | | Certificates of deposit | 1,174 | 2,328 | | Commercial paper | 1,419 | 2,253 | | Other borrowings | 3,889 | 4,520 | | **Total wholesale funding** | **24,105** | **28,248** | | **Total deposits and wholesale funding** | **160,268** | **160,777** | *** ## 15. FINANCIAL RISK MANAGEMENT (continued) Analysis of funding liabilities by industry is based on ANZSIC codes. The significant categories shown are the level one NZSIOC. | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Customer deposits by industry - New Zealand residents** | | | | Agriculture, forestry and fishing | 3,949 | 4,535 | | Mining | 313 | 204 | | Manufacturing | 3,091 | 2,809 | | Construction | 2,911 | 2,926 | | Wholesale trade | 2,326 | 2,361 | | Retail trade and accommodation | 2,195 | 2,124 | | Transport, postal and warehousing | 1,530 | 1,572 | | Financial and insurance services | 13,773 | 13,899 | | Rental, hiring and real estate services | 3,441 | 3,498 | | Professional, scientific, technical, administrative and support services | 6,750 | 6,377 | | Public administration and safety | 1,855 | 1,515 | | Health care and social assistance | 1,587 | 1,375 | | Arts, recreation and other services | 2,466 | 2,502 | | Households | 77,164 | 74,511 | | All other New Zealand residents$^1$ | 2,577 | 2,719 | | **Subtotal** | **125,928** | **122,927** | | **Customer deposits by industry - overseas** | | | | Households | 9,488 | 8,807 | | All other non-NZ residents | 747 | 795 | | **Subtotal** | **10,235** | **9,602** | | **Total customer deposits** | **136,163** | **132,529** | | **Wholesale funding (financial and insurance services industry)** | | | | New Zealand | 6,547 | 9,201 | | Overseas | 17,558 | 19,047 | | **Total wholesale funding** | **24,105** | **28,248** | | **Total deposits and wholesale funding** | **160,268** | **160,777** | | **Concentrations of funding by geography** | | | | New Zealand | 132,475 | 132,128 | | Australia | 1,575 | 1,220 | | United States | 11,156 | 12,234 | | Europe | 7,747 | 8,379 | | Other countries | 7,315 | 6,816 | | **Total deposits and wholesale funding** | **160,268** | **160,777** | $^1$ Other includes electricity, gas, water and waste services; information media and telecommunications; and education and training. *** ## 15. FINANCIAL RISK MANAGEMENT (continued) ### RESIDUAL CONTRACTUAL MATURITY ANALYSIS OF THE BANKING GROUP’S FINANCIAL LIABILITIES The tables below provide residual contractual maturity analysis of financial liabilities at 30 September 2024 and 30 September 2023 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. The management of this risk is detailed on page 44. | 2024 | On demand (NZ$m) | Less than 3 months (NZ$m) | 3 to 12 months (NZ$m) | 1 to 5 years (NZ$m) | After 5 years (NZ$m) | Total (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | | Settlement balances payable | 3,772 | 1,620 | - | - | - | 5,392 | | Collateral received | - | 525 | - | - | - | 525 | | Deposits and other borrowings | 76,860 | 25,392 | 36,705 | 6,458 | 2 | 145,417 | | Derivative financial liabilities (trading) | - | 11,109 | - | - | - | 11,109 | | Debt issuances$^1$ | - | 400 | 3,284 | 14,692 | 1,191 | 19,567 | | Lease liabilities | - | 14 | 41 | 156 | 46 | 257 | | Other financial liabilities | - | 454 | 32 | 152 | 296 | 934 | | **Derivative financial instruments (balance sheet management)** | | | | | | | | - gross inflows | - | 1,731 | 7,194 | 4,307 | 1,203 | 14,435 | | - gross outflows | - | (1,798) | (7,365) | (4,345) | (1,096) | (14,604) | | 2023 | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | Settlement balances payable | 2,425 | 522 | - | - | - | 2,947 | | Collateral received | - | 1,500 | - | - | - | 1,500 | | Deposits and other borrowings | 78,336 | 25,822 | 33,091 | 7,005 | - | 144,254 | | Derivative financial liabilities (trading) | - | 8,292 | - | - | - | 8,292 | | Debt issuances$^1$ | - | 408 | 3,552 | 15,790 | 2,261 | 22,011 | | Lease liabilities | - | 14 | 40 | 149 | 17 | 220 | | Other financial liabilities | - | 260 | 7 | 236 | 253 | 756 | | **Derivative financial instruments (balance sheet management)** | | | | | | | | - gross inflows | - | 2,434 | 4,443 | 8,366 | 935 | 16,178 | | - gross outflows | - | (2,341) | (4,375) | (8,748) | (942) | (16,406) | $^1$ 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 2024, NZ$28,647 million (2023: NZ$28,924 million) of its credit related commitments and contingent liabilities mature in less than 1 year, based on the earliest date on which the Banking Group may be required to pay. *** ## 16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES ### CLASSIFICATION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES The Banking Group recognises and measures financial instruments at either fair value or amortised cost, with a significant number of financial instruments on the balance sheet at fair value. Fair value is the best estimate of the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The following tables set out the classification of financial assets and liabilities according to their measurement bases together with their carrying amounts as recognised on the balance sheet. | | Note | 2024 At amortised cost (NZ$m) | 2024 At fair value (NZ$m) | 2024 Total (NZ$m) | 2023 At amortised cost (NZ$m) | 2023 At fair value (NZ$m) | 2023 Total (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | --- | | **Financial assets** | | | | | | | | | Cash and cash equivalents | 7 | 9,872 | 1,762 | 11,634 | 12,426 | 668 | 13,094 | | Settlement balances receivable | | 574 | - | 574 | 401 | - | 401 | | Collateral paid | | 1,041 | - | 1,041 | 801 | - | 801 | | Trading securities | 8 | - | 5,576 | 5,576 | - | 5,921 | 5,921 | | Derivative financial instruments | 9 | - | 10,181 | 10,181 | - | 8,753 | 8,753 | | Investment securities | 10 | - | 13,295 | 13,295 | - | 10,958 | 10,958 | | Net loans and advances | 11 | 151,666 | - | 151,666 | 149,321 | - | 149,321 | | Other financial assets | | 1,113 | - | 1,113 | 995 | - | 995 | | **Total** | | **164,266** | **30,814** | **195,080** | **163,944** | **26,300** | **190,244** | | **Financial liabilities** | | | | | | | | | Settlement balances payable | | 5,367 | - | 5,367 | 2,920 | - | 2,920 | | Collateral received | | 525 | - | 525 | 1,500 | - | 1,500 | | Deposits and other borrowings | 13 | 140,204 | 2,441 | 142,645 | 138,748 | 2,882 | 141,630 | | Derivative financial instruments | 9 | - | 11,179 | 11,179 | - | 8,326 | 8,326 | | Debt issuances | 14 | 17,623 | - | 17,623 | 19,147 | - | 19,147 | | Other financial liabilities | | 1,692 | 372 | 2,064 | 1,249 | 371 | 1,620 | | **Total** | | **165,411** | **13,992** | **179,403** | **163,564** | **11,579** | **175,143** | ### FINANCIAL ASSETS AND FINANCIAL LIABILITIES MEASURED AT FAIR VALUE The fair valuation of financial assets and financial liabilities is generally determined at the individual instrument level. If the Banking Group holds offsetting risk positions, then the portfolio exception in NZ IFRS 13 Fair Value Measurement (NZ IFRS 13) is used to measure the fair value of such groups of financial assets and financial liabilities. The Banking Group measures 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 assets and liabilities for recognition, measurement and disclosure purposes where no quoted price in an active market exists for that asset or liability. *** ## 16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued) ### FAIR VALUE HIERARCHY The Banking Group categorises assets and liabilities carried at fair value into a fair value hierarchy in accordance with NZ IFRS 13 based on the observability of inputs used to measure the fair value: - **Level 1** – valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities; - **Level 2** – valuations using inputs other than quoted prices included within Level 1 that are observable for a similar asset or liability, either directly or indirectly; and - **Level 3** – valuations where significant unobservable inputs are used to measure the fair value of the asset or liability. The following table presents assets and liabilities carried at fair value in accordance with the fair value hierarchy: | | Quoted price in active markets (Level 1) 2024 (NZ$m) | Quoted price in active markets (Level 1) 2023 (NZ$m) | Using observable inputs (Level 2) 2024 (NZ$m) | Using observable inputs (Level 2) 2023 (NZ$m) | Using unobservable inputs (Level 3) 2024 (NZ$m) | Using unobservable inputs (Level 3) 2023 (NZ$m) | Total 2024 (NZ$m) | Total 2023 (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Assets** | | | | | | | | | | Cash and cash equivalents | - | - | 1,762 | 668 | - | - | 1,762 | 668 | | Trading securities$^1$ | 4,653 | 3,989 | 923 | 1,932 | - | - | 5,576 | 5,921 | | Derivative financial instruments | 3 | 38 | 10,177 | 8,715 | 1 | - | 10,181 | 8,753 | | Investment securities$^1$ | 12,184 | 7,796 | 1,106 | 3,161 | 5 | 1 | 13,295 | 10,958 | | **Total** | **16,840** | **11,823** | **13,968** | **14,476** | **6** | **1** | **30,814** | **26,300** | | **Liabilities** | | | | | | | | | | Deposits and other borrowings | - | - | 2,441 | 2,882 | - | - | 2,441 | 2,882 | | Derivative financial instruments | 70 | 2 | 11,108 | 8,314 | 1 | 10 | 11,179 | 8,326 | | Other financial liabilities | 358 | 367 | 14 | 4 | - | - | 372 | 371 | | **Total** | **428** | **369** | **13,563** | **11,200** | **1** | **10** | **13,992** | **11,579** | $^1$ During 2024, no assets were transferred from Level 1 to Level 2 (2023: NZ$1,685 million transferred from level 1 to Level 2) and NZ$2,390 million of assets were transferred from Level 2 to Level 1 (2023: NZ$338 million transferred from Level 2 to Level 1) for the Banking Group due to a change of the observability of valuation inputs. ### FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOT MEASURED AT FAIR VALUE The financial assets and financial liabilities listed below are carried at amortised cost on the Banking Group’s balance sheet. | | At amortised cost 2024 (NZ$m) | At amortised cost 2023 (NZ$m) | Quoted price in active markets (Level 1) 2024 (NZ$m) | Quoted price in active markets (Level 1) 2023 (NZ$m) | Using observable inputs (Level 2) 2024 (NZ$m) | Using observable inputs (Level 2) 2023 (NZ$m) | With significant non-observable inputs (Level 3) 2024 (NZ$m) | With significant non-observable inputs (Level 3) 2023 (NZ$m) | Total fair value 2024 (NZ$m) | Total fair value 2023 (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **Financial assets** | | | | | | | | | | | | Net loans and advances | 151,666 | 149,321 | - | - | 69 | 95 | 151,973 | 148,167 | 152,042 | 148,262 | | **Total** | **151,666** | **149,321** | **-** | **-** | **69** | **95** | **151,973** | **148,167** | **152,042** | **148,262** | | **Financial liabilities** | | | | | | | | | | | | Deposits and other borrowings | 140,204 | 138,748 | - | - | 140,382 | 138,647 | - | - | 140,382 | 138,647 | | Debt issuances | 17,623 | 19,147 | 2,705 | 2,367 | 15,106 | 16,819 | - | - | 17,811 | 19,186 | | **Total** | **157,827** | **157,895** | **2,705** | **2,367** | **155,488** | **155,466** | **-** | **-** | **158,193** | **157,833** | *** ## 16. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued) The following table sets out the Banking Group’s basis of estimating the fair values of financial assets and liabilities carried at amortised cost where the carrying value is not typically a reasonable approximation of fair value. | 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’s 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. | ### KEY JUDGEMENTS AND ESTIMATES A significant portion of financial instruments are carried on the Banking Group’s balance sheet at fair value. The Banking Group therefore regularly evaluates the key valuation assumptions used in the determination of the fair valuation of financial instruments incorporated within the financial statements, as this can involve a high degree of judgement and estimation in determining the carrying values at the balance sheet date. In determining the fair valuation of financial instruments, the Banking Group has considered the impact of related economic and market conditions on fair value measurement assumptions and the appropriateness of valuation inputs in these estimates, notably valuation adjustments, as well as the impact of these matters on the classification of financial instruments in the fair value hierarchy. Most of the valuation models the Banking Group uses employ only observable market data as inputs. 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 also considers any required valuation adjustments in determining the fair value. We may apply adjustments (such as credit valuation adjustments and funding valuation adjustments – refer Note 9 Derivative financial instruments to reflect the Banking Group’s assessment of factors that market participants would consider in determining fair value of a particular financial instrument. *** ## 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. ### 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; - specified residential mortgages provided as security for notes and bonds issued to investors as part of the Banking Group’s covered bond programmes; and - collateral provided to RBNZ under the TLF and FLP. The carrying amounts of assets pledged as security are as follows: | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | Securities sold under arrangements to repurchase$^1$ | 768 | 626 | | Residential mortgages provided as security for repurchase agreements with RBNZ | 3,559 | 4,844 | | Total assets of the ANZNZ Covered Bond Trust pledged as security for covered bonds | 10,563 | 10,926 | ### COLLATERAL ACCEPTED AS SECURITY FOR ASSETS The Banking Group has received collateral associated with various financial transactions. Under certain arrangements the Banking Group has the right to sell, or to repledge, the collateral received. The fair value of collateral we have received and that which we have sold or repledged is as follows: | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | Fair value of assets which can be sold or repledged | 1,707 | 667 | | Fair value of assets sold or repledged | 697 | 432 | *** ## 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. 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. | 2024 | Total amounts recognised in the balance sheet (NZ$m) | Amounts not subject to master netting agreement or similar (NZ$m) | Total (NZ$m) | Financial instruments (NZ$m) | Financial collateral (received)/ pledged (NZ$m) | Net amount (NZ$m) | | --- | --- | --- | --- | --- | --- | --- | | Derivative financial assets | 10,181 | (1,600) | 8,581 | (8,260) | (72) | 249 | | Reverse repurchase agreements$^1$ | 1,762 | - | 1,762 | - | (1,762) | - | | **Total financial assets** | **11,943** | **(1,600)** | **10,343** | **(8,260)** | **(1,834)** | **249** | | Derivative financial liabilities | (11,179) | 1,858 | (9,321) | 8,260 | 331 | (730) | | Repurchase agreements$^2$ | (3,750) | - | (3,750) | - | 3,750 | - | | **Total financial liabilities** | **(14,929)** | **1,858** | **(13,071)** | **8,260** | **4,081** | **(730)** | | 2023 | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | Derivative financial assets | 8,753 | (1,532) | 7,221 | (5,703) | (538) | 980 | | Reverse repurchase agreements$^1$ | 668 | - | 668 | - | (668) | - | | **Total financial assets** | **9,421** | **(1,532)** | **7,889** | **(5,703)** | **(1,206)** | **980** | | Derivative financial liabilities | (8,326) | 1,593 | (6,733) | 5,703 | 223 | (807) | | Repurchase agreements$^2$ | (4,429) | - | (4,429) | - | 4,429 | - | | **Total financial liabilities** | **(12,755)** | **1,593** | **(11,162)** | **5,703** | **4,652** | **(807)** | $^1$ 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. *** ## 19. GOODWILL AND OTHER INTANGIBLE ASSETS | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | Goodwill | 3,006 | 3,006 | | Software | 19 | 37 | | Management rights | 69 | 76 | | **Goodwill and other intangible assets** | **3,094** | **3,119** | ### GOODWILL AND OTHER INTANGIBLE ASSETS ALLOCATED TO CASH-GENERATING UNITS (CGUs) Goodwill arose on the acquisition of the NBNZ Holdings Limited group on 1 December 2003, and the carrying amount reflects amortisation recognised before the application of NZ IFRS from 1 October 2004 and subsequent business disposals. Funds management rights, assessed as having indefinite useful lives, arose on the acquisition of the ING Holdings (NZ) Limited (now ANZ New Zealand Investments Holdings Limited) group on 30 November 2009. Goodwill and funds management rights are allocated to CGUs as follows: | Cash generating unit | Goodwill 2024 (NZ$m) | Goodwill 2023 (NZ$m) | Management rights 2024 (NZ$m) | Management rights 2023 (NZ$m) | | --- | --- | --- | --- | --- | | Personal | 980 | 980 | - | - | | Funds Management | 62 | 62 | 69 | 76 | | **Personal segment** | **1,042** | **1,042** | **69** | **76** | | Business & Agri | 695 | 695 | - | - | | Institutional | 1,269 | 1,269 | - | - | | **Total** | **3,006** | **3,006** | **69** | **76** | Goodwill was assessed for indicators of impairment as at 30 September 2024, taking into account the results of the February 2024 impairment test and associated sensitivity and scenario analysis performed and the forecast impact of recent economic events. There were no indicators of impairment therefore, in accordance with NZ IAS 36 Impairment of Assets, no further impairment test was required. The following information is for the annual goodwill impairment test, and reflects the CGUs and goodwill allocations as at 29 February 2024. *** ## 19. GOODWILL AND OTHER INTANGIBLE ASSETS (continued) ### VALUE-IN-USE These calculations use cash flow projections based on a number of financial budgets within each CGU covering an initial forecast period. These projections also incorporate economic assumptions including GDP, inflation, unemployment, residential and commercial property prices, and the implementation of RBNZ’s increased capital requirements. Cash flows beyond the forecast period are extrapolated using the terminal growth rate. These cash flow projections are discounted using a discount rate derived using a capital asset pricing model. | Input / assumption | Values applied in 29 February 2024 impairment test | | --- | --- | | Forecast period and projections | To 30 September 2028 - an extended forecast period was used to cover the implementation of RBNZ’s increased capital requirements over the transition period ending on 1 July 2028. | | Revenue growth over forecast period | Comprises impacts of net interest margin and volume growth, arising from planned responses to known regulatory and economic forecasts. Average annual forecast revenue growth rates are shown below. | | Credit impairment over forecast period | Varies by CGU, based on ECL modelling for 2024 and 2025, before returning to long run experience levels for 2026 to 2028. Long run experience levels are based on the Banking Group’s bad debts written off, net of recoveries, since 2004 of 0.13% of gross loans and advances. Credit impairment for each CGU as a percentage of forecast gross loans and advances for 2025 to 2028 is shown below. | | Terminal growth rate | 2.0% - based on 2026 forecast inflation from RBNZ’s February 2024 Monetary Policy Statement. | | Discount rate | Post tax: 11.7% (February 2023: 11.9%). | | Cash generating unit | Revenue growth 29 Feb 24 | Revenue growth 28 Feb 23 | Credit impairment 29 Feb 24 | Credit impairment 28 Feb 23 | Pre-tax discount rate 29 Feb 24 | Pre-tax discount rate 28 Feb 23 | | --- | --- | --- | --- | --- | --- | --- | | Personal | 4.6% | 2.2% | 0.04% | 0.07% | 25.3% | 24.1% | | Funds Management | 4.4% | 5.6% | n/a | n/a | 23.5% | 21.5% | | Business & Agri | 2.8% | 2.8% | 0.11% | 0.15% | 25.4% | 23.5% | | Institutional | 1.8% | 1.8% | 0.12% | 0.17% | 25.5% | 23.3% | We performed stress tests for key sensitivities in each CGU. A change, considered to be reasonably possible by management, in key assumptions would not cause the carrying amount of any CGU to exceed its recoverable amount. *** ## 19. GOODWILL AND OTHER INTANGIBLE ASSETS (continued) ### RECOGNITION AND MEASUREMENT | | Goodwill | Software | Other intangibles | | --- | --- | --- | --- | | **Definition** | Excess amount the Banking Group has paid in acquiring a business over the fair value of the identifiable assets and liabilities acquired. | Purchased software owned by the Banking Group is capitalised. 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. Costs incurred in planning or evaluating software proposals or in maintaining systems after implementation are not capitalised. | Management fee rights arising from acquisition of funds management business. | | **Carrying value** | Cost less any accumulated impairment losses. Allocated to the CGU to which the acquisition relates. | Initially, measured at cost. Subsequently, carried at cost less accumulated amortisation and impairment losses. | Initially, measured at fair value at acquisition. Subsequently, carried at cost less accumulated 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 2-5 years; however major core infrastructure may be amortised over 7 years subject to approval by the Audit Committee. Purchased software is amortised over 2 years unless it is considered integral to other assets with a longer useful life. | Management fee rights with an indefinite life are reviewed for impairment at least annually or when there is an indication of impairment. | | **Amortisation method** | Not applicable. | Straight-line method. | Not applicable. | ### KEY JUDGEMENTS AND ESTIMATES Management judgement is used to assess the recoverable value of goodwill and other intangible assets, and the useful economic life of an asset, or whether an asset has an indefinite life. We reassess the recoverability of the carrying value at each reporting date. **Goodwill** A number of key judgements are required in the determination of whether or not a goodwill balance is impaired including: - the level at which goodwill is allocated – consistent with prior periods the CGUs to which goodwill is allocated are the Banking Group’s revenue generating segments that benefit from relevant historical business combinations generating goodwill. - determination of the carrying amount of each CGU which includes an allocation, on a reasonable and consistent basis of corporate assets and liabilities that are not directly attributable to the CGUs to which goodwill is allocated. - assessment of the recoverable amount of each CGU used to determine whether the carrying amount of goodwill is supported is based on judgements including the selection of the model and key assumptions used to calculate the recoverable amount. The assessment of the recoverable amount of each CGU has been made within the context of the inherent uncertainty described in the key judgements and estimates section on page 9. *** ## 20. OTHER PROVISIONS | | Note | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | --- | | ECL allowance on undrawn and contingent facilities | 12 | 136 | 127 | | Customer remediation | | 24 | 36 | | Restructuring costs | | 8 | 10 | | Leasehold make good | | 22 | 21 | | Other | | 22 | 15 | | **Total other provisions** | | **212** | **209** | ### Movements in other provisions | | Customer remediation (NZ$m) | Restructuring costs (NZ$m) | Leasehold make good (NZ$m) | Other (NZ$m) | | --- | --- | --- | --- | --- | | Balance at 1 October 2023 | 36 | 10 | 21 | 15 | | New and increased provisions made during the year | 4 | 10 | 4 | 7 | | Provisions used during the year | (16) | (11) | - | - | | Unused amounts reversed during the year | - | (1) | (3) | - | | **Balance at 30 September 2024** | **24** | **8** | **22** | **22** | **Customer remediation**: Includes provisions for expected refunds to customers and other counterparties, remediation project costs and related customer, counterparty and regulatory claims, penalties and litigation costs and outcomes. **Restructuring costs**: Provisions for restructuring costs arise from activities related to material changes in the scope of business undertaken by the Banking Group or the manner in which that business is undertaken and include employee termination benefits. **Leasehold make good**: Provisions associated with leased premises where, at the end of a lease, the Banking Group is required to remove any fixtures and fittings installed in the leased property. **Other**: Various other provisions including losses arising from other legal action, operational issues, and warranties and indemnities provided in connection with various disposals of businesses and assets. ### RECOGNITION AND MEASUREMENT The Banking Group recognises provisions when there is a present obligation arising from a past event, an outflow of economic resources is probable, and the amount of the provision can be measured reliably. The amount recognised is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the timing and amount of the obligation. Where a provision is measured using the estimated cash flows required to settle the present obligation, its carrying amount is the present value of those cash flows. ### KEY JUDGEMENTS AND ESTIMATES The Banking Group holds provisions for various obligations including customer remediation, restructuring costs, leasehold make good and litigation related claims. These provisions involve judgements regarding the timing and outcome of future events, including estimates of expenditure required to satisfy such obligations. In relation to customer remediation, determining the amount of the provisions, which represent management’s best estimate of the cost of settling the identified matters, requires the exercise of significant judgement. It will often be necessary to form a view on a number of different assumptions, including the number of impacted customers, the average refund per customer, the associated remediation project costs, and the implications of regulatory exposures and customer claims having regard to their specific facts and circumstances. *** ## 21. SHAREHOLDERS' EQUITY ### SHAREHOLDERS’ EQUITY | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | Share capital | 17,680 | 12,438 | | **Reserves** | | | | FVOCI reserve | (28) | (39) | | Cash flow hedge reserve | 52 | (54) | | **Total reserves** | **24** | **(93)** | | Retained earnings | 1,106 | 6,076 | | **Total shareholders' equity** | **18,810** | **18,421** | ### SHARE CAPITAL | | 2024 Number of issued shares | 2023 Number of issued shares | 2024 NZ$ millions | 2023 NZ$ millions | | --- | --- | --- | --- | --- | | Ordinary shares at start of year | 6,345,755,498 | 6,345,755,498 | 11,588 | 11,588 | | Ordinary shares issued during the year | 4,400,000,000 | - | 4,400 | - | | **Total ordinary shares** | **10,745,755,498** | **6,345,755,498** | **15,988** | **11,588** | | **Perpetual preference shares** | | | | | | Perpetual preference shares at start of year | 850,000,000 | 850,000,000 | 850 | 850 | | Perpetual preference shares issued during the year | 1,141,720,000 | - | 1,142 | - | | Perpetual preference shares redeemed during the year | (300,000,000) | - | (300) | - | | **Total perpetual preference shares** | **1,691,720,000** | **850,000,000** | **1,692** | **850** | | **Total share capital** | **12,437,475,498** | **7,195,755,498** | **17,680** | **12,438** | ### Perpetual preference shares Perpetual preference shares (PPS) do not carry any voting rights. They are 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 PPS are entitled to an amount equal to the issue price of the PPS. Holders of PPS rank behind the claims of all depositors and other creditors of the Bank (other than creditors that rank equally with the PPS), equally with the rights of other holders of PPS, additional tier 1 (AT1) capital notes and other equal ranking securities and obligations, and in priority to the rights of holders of ordinary shares. Holders of PPS are entitled to receive dividends that are discretionary, non-cumulative and subject to conditions. The Bank has three classes of PPS: PPS issued in 2022 and 2024 that are quoted on the NZX Debt Market (Quoted PPS), and PPS issued to the Immediate Parent Company in 2024 (2024 PPS). PPS qualify as AT1 capital for RBNZ’s capital adequacy purposes. | | 2022 Quoted PPS | 2024 Quoted PPS | 2024 PPS | | --- | --- | --- | --- | | Issue date | 18 July 2022 | 19 March 2024 | 18 September 2024 | | Issue amount | NZ$550 million | NZ$275 million | NZ$867 million | | First optional redemption date | 18 July 2028 | 19 March 2030 | 18 October 2030 | | Final maturity date | Perpetual | Perpetual | Perpetual | | Dividend amount | 6.95% per annum until 18 July 2028 (after which it changes to a floating rate equal to the aggregate of the New Zealand 3-month bank bill rate plus 3.25%), multiplied by one minus the New Zealand company tax rate (where the PPS dividend is fully imputed). | 7.60% per annum until 19 March 2030 (after which it changes to a floating rate equal to the aggregate of the New Zealand 3-month bank bill rate plus 3.25%), multiplied by one minus the New Zealand company tax rate (where the PPS dividend is fully imputed). | Floating rate equal to the aggregate of the New Zealand 3-month bank bill rate plus 3.03%. | *** ## 21. SHAREHOLDERS' EQUITY (continued) ### 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 Bank, 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. | | **Perpetual preference shares** | Perpetual preference shares do not carry any voting rights. They 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 perpetual preference shares are entitled to available subscribed capital per share, pari passu with all holders of existing perpetual preference shares and AT1 capital instruments 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 together with any tax effect. | | FVOCI reserve | Includes the changes in fair value of investment securities together with any tax effect. In respect of debt securities classified as measured at FVOCI, the FVOCI reserve records accumulated changes in fair value arising subsequent to initial recognition, except for those relating to allowance for ECL, interest income and foreign currency exchange gains and losses which are recognised in profit or loss. As debt securities at FVOCI are recorded at fair value, the balance of the FVOCI reserve is net of the ECL allowance associated with such assets. When a debt security measured at FVOCI is derecognised, the cumulative gain or loss recognised in the FVOCI reserve in respect of that security is reclassified to profit or loss and presented in other operating income. In respect of the equity securities classified as measured at FVOCI, the FVOCI reserve records accumulated changes in fair value arising subsequent to initial recognition (including any related foreign exchange gains or losses). When an equity security measured at FVOCI is derecognised, the cumulative gain or loss recognised in the FVOCI reserve in respect of that security is not recycled to profit or loss. | *** ## 22. CAPITAL MANAGEMENT ### CAPITAL MANAGEMENT STRATEGY The Banking Group’s core capital objectives are to: - protect the interests of depositors, creditors and shareholders; - ensure the safety and soundness of the Banking Group’s capital position; and - ensure that the capital base supports the Banking Group’s risk appetite, and strategic business objectives, in an efficient and effective manner. The Board holds ultimate responsibility for ensuring that capital adequacy is maintained. Throughout the year, the Banking Group maintained compliance with RBNZ’s minimum capital ratios. ### REGULATORY ENVIRONMENT As the Bank is a registered bank in New Zealand, it is primarily regulated by RBNZ under the Banking (Prudential Supervision) Act 1989. The Bank must comply with the minimum regulatory capital requirements, capital ratios and specific reporting levels that RBNZ sets. | Regulatory capital definition | Minimum capital ratios | | --- | --- | | **Common equity tier 1 (CET1) capital**: Comprises ordinary share capital, retained earnings, and certain accounting reserves. Some amounts (e.g. the value of goodwill) must be deducted to determine the final value of CET1 capital. | CET1 capital divided by total risk weighted assets must be at least 4.5%. | | **Tier 1 capital**: CET1 capital plus additional tier 1 instruments that comprise high-quality capital and must: provide a permanent and unrestricted commitment of funds; be freely available to absorb losses; and provide for fully discretionary capital distributions. | Tier 1 capital divided by total risk weighted assets must be at least 7.0%. (2023: 6.0%) | | **Total capital**: Tier 1 plus tier 2 capital. Tier 2 instruments include some subordinated instruments and accounting reserves that are not included in tier 1 capital. Some amounts are deducted in determining the value of tier 2 instruments. | Total capital divided by total risk weighted assets must be at least 9.0%. (2023: 8.0%) | | **Capital buffer**: The Capital buffer is actual CET1 capital in excess of any of the minimum capital requirements imposed on the Bank. | Capital buffer divided by total risk weighted assets should be at least 4.5%. | | Reporting levels | | | --- | --- | | Solo consolidated | The registered bank plus subsidiaries which are funded exclusively and wholly owned by the registered bank. | | Banking Group | The registered bank’s consolidated group. | The Bank measures capital adequacy and reports to RBNZ on a Banking Group basis monthly, and measures capital adequacy on a Solo consolidated basis quarterly. Banking Group and Solo consolidated capital ratios are reported publicly in six-monthly disclosure statements. *** ## 22. CAPITAL MANAGEMENT (continued) ### CAPITAL ADEQUACY | Unaudited | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Qualifying capital** | | | | **Tier 1** | | | | Shareholders' equity | 18,810 | 18,421 | | Perpetual preference shares and other adjustments to shareholders' equity$^1$ | (1,699) | (857) | | Gross common equity tier 1 capital | 17,111 | 17,564 | | Deductions | (3,980) | (3,682) | | **Common equity tier 1 capital** | **13,131** | **13,882** | | Additional tier 1 capital | 2,630 | 1,788 | | **Tier 1 capital** | **15,761** | **15,670** | | Tier 2 capital | 2,170 | 1,546 | | **Total capital** | **17,931** | **17,216** | | **Capital adequacy ratios** | | | | Common equity tier 1 | 12.6% | 12.5% | | Tier 1 | 15.1% | 14.1% | | Tier 2 | 2.1% | 1.4% | | **Total** | **17.2%** | **15.5%** | | Prudential capital buffer ratio | 8.1% | 7.5% | | **Risk weighted assets** | **104,243** | **111,327** | $^1$ Includes a deduction for dividends on AT1 capital instruments approved by the Bank’s board, but not yet paid as at 30 September 2024, as required by BPR110 Capital Definitions. ## 23. CONTROLLED ENTITIES | | Nature of business | | --- | --- | | ANZ Bank New Zealand Limited | Registered bank | | ANZ Custodial Services New Zealand Limited | Custodian and nominee | | ANZ Investment Services (New Zealand) Limited | Funds management | | ANZ National Staff Superannuation Limited | Staff superannuation scheme trustee | | ANZ New Zealand (Int'l) Limited | Finance | | ANZ New Zealand Investments Holdings Limited | Holding company | | ANZ New Zealand Investments Limited | Funds management | | ANZ New Zealand Investments Nominees Limited | Custodian and nominee | | OneAnswer Nominees Limited | Wrap services provider | | ANZNZ Covered Bond Trust$^1$ | Securitisation entity | | Arawata Assets Limited | Property | | Endeavour Finance Limited | Investment | | Kingfisher NZ Trust 2008-1$^1$ | Securitisation entity | $^1$ The Banking Group does not own ANZNZ Covered Bond Trust and Kingfisher NZ Trust 2008-1. Control exists as the Banking Group retains substantially all the risks and rewards of the operations. Details of the Banking Group’s interest in consolidated structured entities is included in Note 24 Structured entities. ### RECOGNITION AND MEASUREMENT The Banking Group subsidiaries are those entities it controls through: - being exposed to, or having rights to, variable returns from the entity; and - being able to affect those returns through its power over the entity. The Banking Group assesses whether it has power over those entities by examining the Banking Group’s existing rights to direct the relevant activities of the entity. *** ## 24. STRUCTURED ENTITIES A Structured Entity (SE) is an entity that has been designed such that voting or similar rights are not the dominant factor in determining who controls the entity. SEs are generally established with restrictions on their ongoing activities in order to achieve narrow and well defined objectives. SEs are classified as subsidiaries and consolidated when control exists. If the Banking Group does not control a SE, then it is not consolidated. | Type | Details | | --- | --- | | **Securitisation** | The Banking Group uses the Kingfisher NZ Trust 2008-1 to securitise residential mortgages. The Kingfisher Trust is an internal securitisation vehicle. The Banking Group is exposed to variable returns from its involvement and has the ability to affect those returns through its power. The Kingfisher Trust is therefore consolidated. As at 30 September 2024 and 2023, the Banking Group had entered into repurchase agreements with RBNZ. | | **ANZNZ Covered Bond Trust** | Substantially all of the assets of the Covered Bond Trust are made up of certain housing loans originated by the Bank which are security for the guarantee by ANZNZ Covered Bond Trust Limited. The Bank is exposed to variable returns and has the ability to affect those returns through its power. The Covered Bond Trust is therefore consolidated. | | **Structured finance arrangements** | The Banking Group is involved with SEs established in connection with structured lending transactions to facilitate debt syndication and to own assets that are leased to customers. In all instances, the Banking Group does not control these SEs. | | **Funds management activities** | The Banking Group is the scheme manager for a number of Managed Investment Schemes (MIS). These MIS include the ANZ and OneAnswer branded KiwiSaver, retail and wholesale schemes. The Banking Group’s interests are limited to receiving fees. These interests do not create significant exposures, so these MIS are not consolidated. | *** ## 24. STRUCTURED ENTITIES (continued) ### CONSOLIDATED STRUCTURED ENTITIES **Financial or other support provided to consolidated SEs** The Bank provides lending facilities, derivatives and commitments to the Kingfisher Trust and the Covered Bond Trust and/or holds debt instruments that they have issued. The Bank did not provide any non-contractual support to consolidated SEs during the year (2023: nil). ### UNCONSOLIDATED STRUCTURED ENTITIES **The Banking Group’s interest in unconsolidated SEs** An ‘interest’ in an unconsolidated SE is any form of contractual or non-contractual involvement with a SE that exposes the Banking Group to variability of returns from the performance of that SE. These interests include, but are not limited to: holdings of debt or equity securities; derivatives that pass on risks specific to the performance of the SE; lending; loan commitments; financial guarantees; and fees from funds management activities. For the purpose of disclosing interests in unconsolidated SEs: - no disclosure is made if the Banking Group’s involvement is not more than a passive interest. - ‘interests’ do not include derivatives intended to expose the Banking Group to market risk or derivatives through which the Banking Group creates, rather than absorbs, variability of the unconsolidated SE. The Banking Group earned funds management fees from its MIS of NZ$199 million (2023: NZ$192 million) during the year. As at 30 September 2024, the Banking Group had total funds under management of NZ$39.7 billion (2023: NZ$37.1 billion) of which NZ$26.0 billion (2023: NZ$26.1 billion) related to its MIS. The Banking Group did not provide any non-contractual support to unconsolidated SEs during the year (2023: nil). ### SPONSORED UNCONSOLIDATED STRUCTURED ENTITIES The Banking Group may also sponsor unconsolidated SEs in which it has no disclosable interest. The Bank has sponsored the ANZ PIE Fund, which invests only in deposits with the Bank. The Banking Group does not provide any implicit or explicit guarantees of the capital value or performance of investments in the ANZ PIE Fund. ### KEY JUDGEMENTS AND ESTIMATES Significant judgement is required in assessing whether the Banking Group has control over SEs. Judgement is required to determine the existence of: - power over the relevant activities (being those that significantly affect the entity’s returns); and - exposure to variable returns of the entity. *** ## 25. TRANSFERS OF FINANCIAL ASSETS In the normal course of business the Banking Group enters into transactions where it transfers financial assets directly to third parties. If the Banking Group retains substantially all of the risk and rewards of a transferred asset, the transfer does not qualify for derecognition and the asset remains on the Banking Group’s balance sheet in its entirety. **Covered bonds** The Banking Group operates a covered bond programme to raise funding. **Repurchase agreements** When the Banking Group sells securities subject to repurchase agreements under which we retain substantially all the risks and rewards of ownership, then those assets do not qualify for derecognition. An associated liability is recognised for the consideration received from the counterparty. | | Covered bonds 2024 (NZ$m) | Covered bonds 2023 (NZ$m) | Repurchase agreements 2024 (NZ$m) | Repurchase agreements 2023 (NZ$m) | | --- | --- | --- | --- | --- | | Current carrying amount of assets transferred | 10,563 | 10,926 | 4,327 | 5,470 | | Carrying amount of associated liabilities | 2,156 | 3,373 | 3,750 | 4,429 | ## 26. RELATED PARTY DISCLOSURES ### Key management personnel compensation | | 2024 (NZ$000) | 2023 (NZ$000) | | --- | --- | --- | | Salaries and short-term employee benefits | 13,318 | 12,139 | | Post-employment benefits | 363 | 351 | | Other long-term benefits$^2$ | 76 | 78 | | Share-based payments | 4,200 | 3,589 | | **Total** | **17,957** | **16,157** | ### Transactions and balances with key management personnel and their related parties | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | Secured loans and advances | 12 | 24 | | Credit related commitments (undrawn loan facilities) | 4 | 3 | | Interest income | 1 | 1 | | Customer deposits$^2$ | 9 | 22 | | Payables and other liabilities (share-based payments liability) | 4 | 3 | *** ## 26. RELATED PARTY DISCLOSURES (continued) ### Transactions with other members of the ANZ Group and associates | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Transactions** | | | | **Immediate Parent Company** | | | | Interest expense | 4 | 4 | | Ordinary shares issued | 4,400 | - | | Perpetual preference shares issued | 1,142 | - | | Perpetual preference shares redeemed | 300 | - | | Dividends paid | 7,141 | 1,417 | | **Ultimate Parent Bank and other ANZ Group subsidiaries** | | | | Interest income | 7 | 7 | | Interest expense | 132 | 159 | | Loss on sale of mortgages to the NZ Branch | - | (1) | | Other operating income | 12 | 10 | | Operating expenses | 68 | 63 | | Mortgages sold to the NZ Branch | 65 | 72 | | Mortgages repurchased from the NZ Branch | 23 | 20 | | **Associates** | | | | Operating expenses | 3 | 3 | | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Outstanding balances** | | | | **Immediate Parent Company** | | | | Derivative financial instruments | 4 | 4 | | **Ultimate Parent Bank and other ANZ Group subsidiaries** | | | | Cash and cash equivalents | 117 | 177 | | Derivative financial instruments | 7,452 | 5,507 | | Other assets | 160 | 50 | | **Total due from related parties** | **7,733** | **5,738** | | **Immediate Parent Company** | | | | Deposits and other borrowings | 128 | 80 | | **Ultimate Parent Bank and other ANZ Group subsidiaries** | | | | Settlement balances payable | 90 | 41 | | Collateral received | - | 547 | | Deposits and other borrowings | 271 | 12 | | Derivative financial instruments | 7,473 | 4,993 | | Payables and other liabilities | 37 | 43 | | Debt issuances | 940 | 939 | | **Associates** | | | | Deposits and other borrowings | 1 | 1 | | **Total due to related parties** | **8,940** | **6,656** | Balances due from / to other members of the ANZ Group and associates are unsecured. *** ## 27. COMMITMENTS AND CONTINGENT LIABILITIES ### CREDIT RELATED COMMITMENTS AND CONTINGENCIES | | 2024 (NZ$m) | 2023 (NZ$m) | | --- | --- | --- | | **Contract amount of:** | | | | Undrawn facilities | 25,759 | 26,305 | | Guarantees and letters of credit | 1,232 | 1,029 | | Performance related contingencies | 1,656 | 1,590 | | **Total** | **28,647** | **28,924** | **OTHER CONTINGENT LIABILITIES** There are outstanding court proceedings, claims and possible claims for and against the Banking Group. Where relevant, expert legal advice has been obtained and, in the light of such advice, provisions (refer to Note 20 Other provisions) and/or disclosures as deemed appropriate have been made. **REGULATORY AND CUSTOMER EXPOSURES** The Banking Group regularly engages with its regulators. The nature of these regulatory interactions can be wide ranging and include regulatory investigations, surveillance and reviews, reportable situations, formal and informal inquiries and regulatory supervisory activities in New Zealand and globally. *** ## 27. COMMITMENTS AND CONTINGENT LIABILITIES (continued) ### LOAN INFORMATION LITIGATION In September 2021, a representative proceeding was brought against the Bank, alleging breaches of disclosure requirements under consumer credit legislation in respect of variation letters sent to certain loan customers. The Bank is defending the allegations. In July 2022, the High Court ruled that the plaintiffs may bring the proceeding as an opt-out representative action on behalf of a class, being certain customers who entered into a home loan or personal loan with the Bank between 6 June 2015 and 28 May 2016 and requested a variation to that loan during that period. Aspects of the decision were appealed by both parties, and a hearing took place at the Court of Appeal in April 2024. The decision was issued in July 2024, with the Court of Appeal confirming that the Bank’s class size, with the current representative plaintiff, remains the same. The Court of Appeal also granted the plaintiff’s application for a common fund order with immediate effect. The Bank has applied to the Supreme Court for leave to appeal the Court of Appeal’s decision as it relates to common fund orders and is awaiting the Supreme Court’s decision on whether to grant a hearing. ### WARRANTIES AND INDEMNITIES The Banking Group has provided warranties, indemnities and other commitments in various contracts for the disposal of businesses and assets and other commercial transactions, covering a range of matters and risks. It is exposed to potential claims under those warranties, indemnities and commitments, some of which are currently active. ## 28. AUDITOR FEES | | 2024 (NZ$000) | 2023 (NZ$000) | | --- | --- | --- | | **KPMG New Zealand** | | | | Audit or review of financial statements$^1$ | 2,169 | 2,120 | | **Audit related services:** | | | | Prudential and regulatory services$^2$ | 326 | 295 | | Offer documents assurance or review | 147 | 141 | | Other assurance services$^3$ | 804 | 399 | | **Total audit related services** | **1,277** | **835** | | **Total KPMG New Zealand fees relating to the Banking Group** | **3,446** | **2,955** | | Fees related to certain managed funds not recharged$^4$ | 266 | 280 | | **Total KPMG New Zealand fees** | **3,712** | **3,235** | | **KPMG Australia** | | | | Other assurance services - operational greenhouse gas emissions | - | 53 | | **Total auditor fees** | **3,712** | **3,288** | *** # ASSURANCE REPORT ## INDEPENDENT AUDITOR’S REPORT ### TO THE SHAREHOLDER OF ANZ BANK NEW ZEALAND LIMITED #### REPORT ON AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS **OPINION** We have audited the accompanying consolidated financial statements of ANZ Bank New Zealand Limited (the Bank) and its subsidiaries (the Banking Group) on pages 4 to 66 which comprise: - the consolidated balance sheet as at 30 September 2024; - the consolidated income statement, statements of comprehensive income, changes in equity and cash flows for the year then ended; and - notes, including material accounting policy information and other explanatory information. In our opinion, the accompanying consolidated financial statements: - give a true and fair view of the Banking Group’s financial position as at 30 September 2024 and its financial performance and cash flows for the year ended on that date; and - comply with New Zealand Generally Accepted Accounting Practice, which in this instance means New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) issued by the New Zealand Accounting Standards Board and International Financial Reporting Standards issued by the International Accounting Standards Board. **BASIS FOR OPINION** We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ)). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. **KEY AUDIT MATTERS** Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements in the current period. **ALLOWANCE FOR EXPECTED CREDIT LOSSES ($861 MILLION)** Refer to Note 12 of the consolidated financial statements. *** # ASSURANCE REPORT (continued) **How the matter was addressed in our audit** Our audit procedures for the allowance for ECL and disclosures included assessing the Banking Group’s significant accounting policies against the requirements of the accounting standard. Credit risk and economic specialists were used in ECL audit procedures as a core part of our audit team. We tested key controls in relation to: - The Banking Group’s ECL model governance and validation processes; - The Banking Group’s assessment and approval of the forward-looking macro-economic assumptions and scenario weightings; - Reconciliation of the data used in the ECL calculation process; - Counterparty risk grading for wholesale loans; and - IT system controls which record retail loans lending arrears. In addition to controls testing, our procedures included: - Re-performing credit assessments; - Challenging the Banking Group’s CCR and Security Indicator; - Exercising our judgement, using our understanding of relevant industries; - Evaluating the Banking Group’s ECL model methodologies; - Working with our credit risk specialists; - Working with our economic specialists; - Testing the implementation of the Banking Group’s SICR methodology; and - Assessing the accuracy of the data used in the ECL models. We also challenged key assumptions in the components of the Banking Group’s post-model adjustments. *** # ASSURANCE REPORT (continued) **VALUATION OF FINANCIAL INSTRUMENTS** Fair value of Level 2 financial instruments in asset positions $13,968 million, in liability positions $13,563 million. **How the matter was addressed in our audit** Our audit procedures for the valuation of financial instruments held at fair value included: - Performing an assessment of the population of financial instruments. - Testing the design and operating effectiveness of key controls. - With the assistance of our valuation specialists: - Assessing the reasonableness of key inputs and assumptions; - Comparing the Banking Group’s valuation methodology to industry practice; and - Independently revaluing a selection of financial instruments and FVAs. **INFORMATION TECHNOLOGY (IT) SYSTEMS AND CONTROLS** As a major New Zealand bank, the Banking Group’s businesses utilise a large number of complex, interdependent IT systems. **How the matter was addressed in our audit** Our IT specialists were used throughout the engagement. Our audit procedures included: - Assessing the governance and higher-level controls in place across the IT environment. - Design and operating effectiveness testing of controls across the User Access Management Lifecycle. - Design and operating effectiveness testing of controls in place over change management. - Design and operating effectiveness testing of controls used by the Banking Group’s technology teams to schedule system jobs. - Design and operating effectiveness testing of controls related to significant IT application programs. - Design and operating effectiveness testing of automated business process controls. *** # ASSURANCE REPORT (continued) **CARRYING VALUE OF GOODWILL ($3,006 MILLION)** Refer to Note 19 of the consolidated financial statements. **How the matter was addressed in our audit** We involved valuation specialists to supplement our senior team members. Our procedures included: - Assessing the reasonableness of the amounts allocated to the CGUs. - Considering the appropriateness of the valuation method. - Assessing the integrity of the VIU model. - Assessing the accuracy of previous Banking Group forecasts. - Stress testing key VIU assumptions. - For the Institutional CGU, assessing key assumptions. - Comparing forecast cash flows to the revised Operational forecast. - Assessing key assumptions used in the market-multiples reasonableness assessment. - Assessing the reasonableness of the Banking Group’s review for potential internal and external indicators of impairment. *** # REGISTERED BANK DISCLOSURES This section contains the additional disclosures required by the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014. | Section | Order reference | Page | | --- | --- | --- | | B1. General disclosures | Schedule 2 | 73 | | B2. Additional financial disclosures | Schedule 4 | 83 | | B3. Asset quality | Schedule 7 | 84 | | B4. Capital adequacy under the internal models based approach, and regulatory liquidity ratios | Schedule 11 | 93 | | B5. Concentration of credit exposures to individual counterparties | Schedule 13 | 100 | | B6. Credit exposures to connected persons | Schedule 14 | 101 | | B7. Insurance business, securitisation, funds management, other fiduciary activities, and marketing and distribution of insurance products | Schedule 15 | 102 | | B8. Risk management policies | Schedule 17 | 104 | *** # B1. GENERAL DISCLOSURES (UNAUDITED) **Details of ultimate parent bank and ultimate non-bank holding company** The ultimate parent bank is Australia and New Zealand Banking Group Limited. The ultimate non-bank holding company is ANZ Group Holdings Limited. **Restrictions on the Ultimate Parent Bank’s ability to provide financial support** - Effect of APRA’s Prudential Standards: The Bank is subject to APRA’s oversight. APRA's Prudential Standard APS 222 places constraints on the Ultimate Parent Bank’s ability to provide financial support to the Bank. - Effect of the level 3 framework: APRA requires the Ultimate Parent Bank to limit its financial and operational exposures to subsidiaries. - Other APRA powers: The Ultimate Parent Bank may not provide financial support in breach of the Australian Banking Act 1959. **Interests in 5% or more of voting securities of the Bank** The Immediate Parent Company (ANZ Holdings (New Zealand) Limited) holds 100% of the voting securities of the Bank. **Priority of creditors’ claims** In the event of liquidation, claims of secured creditors and those creditors set out in Schedule 7 of the Companies Act 1993 rank ahead of the claims of unsecured creditors. Customer deposits are unsecured and rank equally with other unsecured liabilities. *** # B1. GENERAL DISCLOSURES (UNAUDITED) (continued) **Guarantees** No material obligations of the Bank are guaranteed as at 7 November 2024. **Auditors** KPMG, 18 Viaduct Harbour Avenue, Auckland, New Zealand. **Directors** Policy of the Board of Directors for avoiding or dealing with conflicts of interest: The Board has adopted a protocol setting out procedures to disclose and manage conflicts of interest. *** # B1. GENERAL DISCLOSURES (UNAUDITED) (continued) **Conditions of registration** The registration of ANZ Bank New Zealand Limited as a registered bank is subject to specific conditions including: - Total capital ratio of the banking group not less than 9%; - Tier 1 capital ratio of the banking group not less than 7%; - Common Equity Tier 1 capital ratio of the banking group not less than 4.5%; - Requirements for internal capital adequacy assessment (ICAAP); - Adherence to requirements for liquidity-risk management. *** # REGISTERED BANK DISCLOSURES ## B8. RISK MANAGEMENT POLICIES ### Information about risk Constant changes and uncertainties in the macroeconomic environment, climate change and evolving geopolitical tensions continue to pose challenges to our operating conditions. ### Material risks | Risk type | Description | Managing the risk | | --- | --- | --- | | **Capital adequacy risk** | The risk of loss arising from the Banking Group failing to maintain the level of capital required by prudential regulators and other key stakeholders. | We pursue an active approach to Capital Management. | | **Credit risk** | The risk of financial loss resulting from a counterparty failing to fulfil its obligations or a decrease in credit quality. | Our Credit risk framework is top down, being defined by credit principles, policies and requirements. | | **Liquidity and funding risk** | The risk that the Banking Group is unable to meet its payment obligations as they fall due. | We recognise the inherent liquidity and funding risk in the balance sheet and have established a set of key principles. | | **Market risk** | The risk to the Banking Group’s earnings arising from changes in interest rates, foreign exchange rates, credit spreads, volatility, and correlations; or fluctuations in bond, commodity or equity prices. | We have a detailed market risk management and control framework. | *** # B8. RISK MANAGEMENT POLICIES (continued) | Risk type | Description | Managing the risk | | --- | --- | --- | | **Strategic risk** | Risk that the Banking Group is prevented from achieving strategic goals through ineffective choices or failure to execute. | Strategic risks are discussed and managed by the New Zealand Leadership Team (NZLT) through the strategic planning process. | | **Climate risk** | Risk from changing climate and transition to a low-emissions, climate-resilient global and domestic economy. | Following the elevation of climate risk to material risk during the year, we have identified and qualitatively assessed the specific climate risks. | | **Non-financial risk (operational risk)** | Risk of loss resulting from inadequate or failed internal processes, people, system and/or data, or from external events. | The Banking Group’s strategy for evolving NFR management provides a planned and proactive approach to improving the Banking Group’s NFR management. | *** # B8. RISK MANAGEMENT POLICIES (continued) **Capital adequacy** Refer to Note 22 Capital management. **Reviews of the Banking Group’s risk management systems** Refer to Note 15 Financial risk management for details of the Internal Audit Function’s reviews. **Internal Audit Function of the Banking Group** The Banking Group has an Internal Audit Function, refer to Note 15. **Measurement of impaired assets** Refer to Note 12 Allowance for expected credit losses and Note 15 Financial risk management. **Credit risk mitigation** Refer to Note 18 Offsetting for the policies and processes for, and extent of, on-balance sheet netting. *** # B8. RISK MANAGEMENT POLICIES (continued) **Additional information about credit risk** Implementation of the advanced internal ratings based approach to credit risk measurement: The Banking Group adheres to the standards of risk grading and risk quantification as set out for IRB banks in the RBNZ Banking Prudential Requirements (BPRs). **Controls surrounding credit risk rating systems** The term “Rating Systems” covers all of the methods, processes, controls, data collection and technology that support the assessment of credit risk, the assignment of internal credit risk ratings and the quantification of associated default and loss estimates. All material aspects of the Rating Systems and risk estimate processes are governed by the BRC. *** # DIRECTORS’ STATEMENT As at the date on which this Disclosure Statement is signed, after due enquiry, each Director believes that: - The Disclosure Statement contains all the information that is required by the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014; and - The Disclosure Statement is not false or misleading. Over the year ended 30 September 2024, after due enquiry, each Director believes that: - ANZ Bank New Zealand Limited has complied in all material respects with each condition of registration that applied during that period; - Credit exposures to connected persons were not contrary to the interests of the Banking Group; and - ANZ Bank New Zealand Limited had systems in place to monitor and control adequately the Banking Group’s material risks. This Disclosure Statement is dated, and has been signed by all Directors of the Bank on, 7 November 2024. Shayne Elliott Gerard Florian Alison Gerry Nagaja Sanatkumar Scott St John Mark Tume Antonia Watson Dame Joan Withers, DNZ *** # ASSURANCE REPORTS ## INDEPENDENT AUDITOR’S REPORTS TO THE SHAREHOLDER OF ANZ BANK NEW ZEALAND LIMITED ### REPORT ON THE AUDIT OF THE REGISTERED BANK DISCLOSURES IN SECTIONS B2, B3, B5, B6, B7 AND B8 **OPINION** We have audited the accompanying registered bank disclosures in sections B2, B3, B5, B6, B7 and B8 which comprise the supplementary information that is required to be disclosed in accordance with schedules 4, 7, 13, 14, 15 and 17 of the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014. In our opinion, the accompanying registered bank disclosures that are required to be disclosed in accordance with schedules 4, 7, 13, 14, 15 and 17 of the Order: - presents fairly the matters to which they relate; - are disclosed in accordance with those schedules; and - have been prepared, in all material respects, in accordance with any conditions of registration relating to the disclosure requirements, imposed under section 74(4)(c) of the Banking (Prudential Supervision) Act 1989 and any conditions of registration. *** # ASSURANCE REPORTS (continued) **INDEPENDENT LIMITED ASSURANCE REPORT TO ANZ BANK NEW ZEALAND LIMITED (THE BANK)** **CONCLUSION ON THE SUPPLEMENTARY INFORMATION RELATING TO THE CAPITAL ADEQUACY AND REGULATORY LIQUIDITY REQUIREMENTS IN SECTION B4** Based on our limited assurance engagement, nothing has come to our attention that would lead us to believe that the supplementary information relating to Capital Adequacy and Regulatory Liquidity Requirements, disclosed in section B4 on pages 93 to 99, is not, in all material respects disclosed in accordance with schedule 11 of the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (as amended). **STANDARDS WE FOLLOWED** We conducted our limited assurance engagement in accordance with Standard on Assurance Engagements 3100 (Revised) Compliance Engagements (SAE 3100 (Revised)) issued by the New Zealand Auditing and Assurance Standards Board. *** # ASSURANCE REPORTS (continued) **INHERENT LIMITATIONS** Because of the inherent limitations of an assurance engagement, together with the internal control structure it is possible that fraud, error or non-compliance with compliance requirements may occur and not be detected. A limited assurance engagement as at and for the six months ended 30 September 2024 does not provide assurance on whether compliance with schedule 11 of the Order will continue in the future. **USE OF THIS ASSURANCE REPORT** Our report is made solely for the Bank’s shareholder. Our assurance work has been undertaken so that we might state to the Bank’s shareholder those matters we are required to state to them in the assurance report and for no other purpose. **OUR RESPONSIBILITY** Our responsibility is to express a conclusion to the Bank on whether anything has come to our attention that would lead us to believe that, in all material respects, the supplementary information relating to Capital Adequacy and Regulatory Liquidity Requirements has not been disclosed in accordance with schedule 11 of the Order as at and for the six months ended 30 September 2024. KPMG, Auckland, 7 November 2024