westpac new zealand limited disclosure statement · westpac new zealand limited and its controlled...

Westpac New Zealand LimitedDisclosure Statement For the nine months ended 30 June 2012

Index 1 Generalinformationanddefinitions

1 Directors

1 Creditratings

1 Guaranteearrangements

2 Conditionsofregistration

2 Othermaterialmatters

3 Directors’statement

4 Indextofinancialstatements

Westpac New Zealand Limited 1

General information and definitionsCertainoftheinformationcontainedinthisDisclosureStatementisrequiredbysection81oftheReserveBankofNewZealandAct1989(‘Reserve Bank Act’)andtheRegisteredBankDisclosureStatements(NewZealandIncorporatedRegisteredBanks)Order2012(‘Order’).InthisDisclosureStatement,referenceismadeto:

■■ WestpacNewZealandLimited(otherwisereferredtoasthe‘Bank’);and■■ WestpacNewZealandLimitedanditscontrolledentities(otherwisereferredtoasthe‘Banking Group’).ControlledentitiesoftheBankasat30September2011aresetoutinNote26tothefinancialstatementsincludedintheDisclosureStatementfortheyearended30September2011.ExceptasdetailedinNotes2and10tothefinancialstatementsincludedinthisDisclosureStatement,therehavebeennootherchangesinthestructureorcompositionoftheBankingGroupsince30September2011.

WordsandphrasesnotdefinedinthisDisclosureStatement,butdefinedbytheOrder,havethemeaninggivenbytheOrderwhenusedinthisDisclosureStatement.AllamountsreferredtointhisDisclosureStatementareinNewZealanddollarsunlessotherwisestated.

DirectorsThefollowingchangesinthecompositionoftheBoardofDirectorsoftheBank(the‘Board’)havebeeneffectedsince30September2011:

■■ GeorgeFrazisresignedfromtheBoardwitheffectfrom13April2012;■■ PeterGrahamClarewasappointedtotheBoardwitheffectfrom13April2012;and■■ PeterDavidWilsonwasredesignatedfromnon-IndependentDirectortoIndependentDirector(forthepurposesoftheReserveBankdocumententitled‘CorporateGovernance’(BS14)datedMarch2011)witheffectfrom1April2012.

Credit ratingsTheBankhasthefollowingcreditratingswithrespecttoitslong-termseniorunsecuredobligations,includingobligationspayableinNewZealandinNewZealanddollars,asatthedatetheDirectorssignedthisDisclosureStatement:

Rating Agency Current Credit Rating Rating Outlook

FitchRatings AA- Stable

Moody’sInvestorsService Aa3 Stable

Standard&Poor’s AA- Stable

TherehavebeennochangestoanyoftheBank’screditratingsorratingoutlookssince31March2012.Acreditratingisnotarecommendationtobuy,sellorholdsecuritiesoftheBank.Suchratingsaresubjecttorevision,qualification,suspensionorwithdrawalatanytimebytheassigningratingagency.InvestorsintheBank’ssecuritiesarecautionedtoevaluateeachratingindependentlyofanyotherrating.

Guarantee arrangements CertainmaterialobligationsoftheBankareguaranteedasatthedatetheDirectorssignedthisDisclosureStatement.

Government Wholesale GuaranteeTheBankhasaWholesaleFundingGuaranteeFacilityDeedandWholesaleFundingGuaranteewiththeNewZealandGovernment(‘Crown’),eachdated23February2009(togetherthe‘Wholesale Guarantee’).TheWholesaleGuaranteeclosedon30April2010fromwhichdatenonewGuaranteeEligibilityCertificatescanbeissued.GuaranteeLiabilitiesexistingasat30April2010werenotaffected.

Description of Wholesale Guarantee

ThefollowingdescriptionoftheWholesaleGuaranteeisforgeneralinformationpurposesonlyanddoesnotpurporttobeexhaustive.FurtherinformationabouttheWholesaleGuaranteeisavailablefromtheTreasuryinternetsitewww.treasury.govt.nz.TheguarantoroftheBank’sobligationsundertheWholesaleGuaranteeistheCrown.TheCrown’saddressforserviceinrelationtotheWholesaleGuaranteeis:(i) MinisterofFinance,ParliamentBuildings,Wellington;or(ii) NewZealandHighCommissionerinLondonattheaddressoftheNewZealandHighCommissioninLondonforthetime

being;or(iii)NewZealandConsulandTradeCommissionerattheaddressoftheNewZealandConsulate-GeneralinNewYorkforthetime

being;ineachcasewithacopy(withdeliverymadebyhandorfacsimile)to:TheTreasurer,TheNewZealandDebtManagementOffice,1TheTerrace,Wellington,NewZealand.FurtherinformationabouttheWholesaleGuaranteeisincludedintheBank’sDisclosureStatementfortheyearended30September2011.AcopyoftheBank’sDisclosureStatementfortheyearended30September2011isavailable,freeofcharge,attheinternetaddresswww.westpac.co.nz.Aprintedcopywillalsobemadeavailable,freeofcharge,uponrequestandwillbedispatchedbytheendofthesecondworkingdayafterthedayonwhichtherequestismade.

http://www.treasury.govt.nz

http://www.westpac.co.nz


Guarantee arrangements (continued)Summary of obligations guaranteed

TheobligationsguaranteedbytheCrownundertheWholesaleGuaranteeareobligationsoftheBanktopaymoneytoaBeneficiary(asdefinedbelow)underaGuaranteedLiability.AGuaranteedLiabilityisaliabilitytopayprincipalorinterestinrespectofwhichtheCrownhasissuedaGuaranteeEligibilityCertificateundertheWholesaleGuarantee.Inthiscontext,a‘Beneficiary’meanseachpersontowhomaGuaranteedLiabilityisowed,excludinga‘RelatedParty’oftheBankasthattermisdefinedintheWholesaleGuaranteeandanyoneactingasanomineeof,ortrusteefor,aRelatedParty.TheCrownhasissuedGuaranteeEligibilityCertificatesinrespectofpaymentobligationsoftheBankundercertainnotesissuedbytheBank.TheCrownhasalsoissuedGuaranteeEligibilityCertificatesinrespectofpaymentobligationsoftheBankasguarantorofcertainnotesissuedbyWestpacSecuritiesNZLimited(‘WSNZL’),acontrolledentityoftheBank.CopiesoftheGuaranteeEligibilityCertificatesissued,whichprovidefurtherdetailsoftheobligationsoftheBankguaranteedbytheCrownundertheWholesaleGuarantee,areavailableontheNewZealandTreasuryinternetsitewww.treasury.govt.nz.

Expiry of the Wholesale Guarantee

ForeachGuaranteedLiabilitytheguaranteeundertheWholesaleGuaranteewillexpireatmidnightonthedatefalling30daysaftertheearlierof:(i) thescheduledmaturitydateofthesecurityunderwhichthatGuaranteedLiabilityarises;and(ii) thedatefallingfiveyearsaftertheissuedateofthesecurityunderwhichthatGuaranteedLiabilityarises.ThereisnoprovisionforthewithdrawaloftheWholesaleGuaranteeinrespectofaGuaranteedLiability.TherehavebeennochangestothetermsoftheWholesaleGuaranteesincethedateofsigningtheBank’sDisclosureStatementfortheyearended30September2011.

Conditions of registration TheBank’sconditionsofregistrationwereamendedinJune2012andtheamendedconditionsofregistrationapplywitheffectfromandincluding1July2012.Theamendmentsrelatedtothedeletionofsupersededconditionsandotherminorchangestoimprovetheinternalconsistencyoftheconditionsofregistration.

Other material matters TherearenomattersrelatingtothebusinessoraffairsoftheBankortheBankingGroupwhicharenotcontainedelsewhereintheDisclosureStatementandwhichwould,ifdisclosed,materiallyaffectthedecisionofapersontosubscribefordebtsecuritiesofwhichtheBankoranymemberoftheBankingGroupistheissuer.

http://www.treasury.govt.nz


Directors’ statement EachDirectoroftheBankbelieves,afterdueenquiry,that,asatthedateonwhichthisDisclosureStatementissigned,theDisclosureStatement:(a) containsallinformationthatisrequiredbytheOrder;and(b) isnotfalseormisleading.

EachDirectoroftheBankbelieves,afterdueenquiry,that,overtheninemonthsended30June2012:(a) theBankhascompliedwiththeconditionsofregistrationimposedonitpursuanttosection74oftheReserveBankAct;(b) creditexposurestoconnectedpersonswerenotcontrarytotheinterestsoftheBankingGroup;and(c) theBankhadsystemsinplacetomonitorandcontroladequatelytheBankingGroup’smaterialrisks,includingcreditrisk,

concentrationofcreditrisk,interestraterisk,currencyrisk,equityrisk,liquidityrisk,operationalriskandotherbusinessrisks,andthatthosesystemswerebeingproperlyapplied.

ThisDisclosureStatementhasbeensignedbyalltheDirectors:

PeterDavidWilson

Peter Graham Clare

PhilipMatthewCoffey

JaniceAmeliaDawson

ChristopherJohnDavidMoller

RalphGrahamWaters

Datedthis22nddayofAugust2012


Index to financial statementsPage Contents

5 Consolidatedincomestatement

6 Consolidatedstatementofcomprehensiveincome

7 Consolidatedstatementofchangesinequity

8 Consolidatedbalancesheet

9 Consolidatedstatementofcashflows

10 Notestothefinancialstatements

10 Note1Statementofaccountingpolicies

11 Note2Businesscombination–transferofoperations

14 Note3Non-interestincome

14 Note4Impairmentchargesonloans

15 Note5Tradingsecurities

15 Note6Loans

15 Note7Creditquality,impairedassetsandprovisionsforimpairmentchargesonloans

16 Note8Deposits

16 Note9Debtissues

16 Note10Relatedentities

17 Note11Commitmentsandcontingentliabilities

17 Note12Segmentinformation

18 Note13Insurancebusiness

18 Note14Capitaladequacy

20 Note15Riskmanagement

20 Note15.1Creditrisk

20 Note15.2Liquidityrisk

21 Note16Concentrationofcreditexposurestoindividualcounterparties

21 Note17Eventsafterthereportingdate


Consolidated income statement fortheninemonthsended30June2012

The Banking Group

Nine Months NineMonths Year Ended Ended Ended 30-Jun-12 30-Jun-11 30-Sep-11$ millions Note Unaudited Unaudited Audited

Interestincome 2,882 2,642 3,521Interestexpense (1,765) (1,691) (2,205)

Net interest income 1,117 951 1,316

Non-interestincome: Feesandcommissions 3 251 223 299 Netineffectivenessonqualifyinghedges 3 (1) 3 1 Othernon-interestincome 3 17 1 8

Total non-interest income 267 227 308

Net operating income 1,384 1,178 1,624Operatingexpenses (607) (573) (771)Impairmentchargesonloans 4 (131) (189) (224)

Operating profit 646 416 629Shareofprofitofassociateaccountedforusingtheequitymethod - - 1

Profit before income tax expense 646 416 630Incometaxexpense (181) (129) (197)

Profit after income tax expense 465 287 433

Profit after income tax expense attributable to: OwnersoftheBankingGroup 463 284 429 Non-controllinginterests 2 3 4

465 287 433

Theaccompanyingnotes(numbered1to17)formpartof,andshouldbereadinconjunctionwith,thesefinancialstatements.


Consolidated statement of comprehensive income fortheninemonthsended30June2012

The Banking Group

Nine Months NineMonths Year Ended Ended Ended 30-Jun-12 30-Jun-11 30-Sep-11$ millions Unaudited Unaudited Audited


Other comprehensive income: Netunrealisedgainsfromchangesinfairvalueofavailable-for-salesecurities 68 25 6 Cashflowhedges: Netgains/(losses)fromchangesinfairvalueofcashflowhedges 57 (55) 18 Transferredtotheincomestatement 9 4 11 Actuariallossesonemployeedefinedbenefitsuperannuationschemes - - (15) Incometaxrelatingtocomponentsofothercomprehensiveincome1 (33) 9 (3)

Other comprehensive income/(expense), net of tax 101 (17) 17

Total comprehensive income 566 270 450

Total comprehensive income attributable to: OwnersoftheBankingGroup 564 267 446 Non-controllinginterests 2 3 4

566 270 450

1 Theincometaxeffectsrelatingtoeachcomponentofothercomprehensiveincomearedisclosedinthefollowingtable.

Tax effects relating to each component of other comprehensive income

The Banking Group

Tax Before Tax (Expense)/ Net of$ millions Amount Benefit Tax Amount

For the nine months ended 30 June 2012 (Unaudited)Netunrealisedgainsfromchangesinfairvalueofavailable-for-salesecurities 68 (14) 54 Cashflowhedges: Netgainsfromchangesinfairvalueofcashflowhedges 57 (16) 41 Transferredtotheincomestatement 9 (3) 6

Other comprehensive income 134 (33) 101

For the nine months ended 30 June 2011 (Unaudited) Netunrealisedgainsfromchangesinfairvalueofavailable-for-salesecurities 25 (7) 18Cashflowhedges: Netlossesfromchangesinfairvalueofcashflowhedges (55) 17 (38) Transferredtotheincomestatement 4 (1) 3

Other comprehensive expense (26) 9 (17)

For the year ended 30 September 2011 (Audited) Netunrealisedgainsfromchangesinfairvalueofavailable-for-salesecurities 6 - 6Cashflowhedges: Netgainsfromchangesinfairvalueofcashflowhedges 18 (5) 13 Transferredtotheincomestatement 11 (3) 8Actuariallossesonemployeedefinedbenefitsuperannuationschemes (15) 5 (10)

Other comprehensive income 20 (3) 17



Consolidated statement of changes in equity fortheninemonthsended30June2012

The Banking Group

Available- Total for-sale Cash Flow before Non- Non- Share Retained Securities Hedge controlling controlling $ millions Capital Profits Reserve Reserve Interests Interests Total

As at 1 October 2010 3,470 548 25 (1) 4,042 6 4,048

Nine months ended 30 June 2011

Profitafterincometaxexpense - 284 - - 284 3 287

Othercomprehensiveincome/(expense) - - 18 (35) (17) - (17)

Total comprehensive income/(expense) for

the nine months ended 30 June 2011 - 284 18 (35) 267 3 270

Transactionwithowners:

Dividendspaidonordinaryshares - - - - - (2) (2)

As at 30 June 2011 (Unaudited) 3,470 832 43 (36) 4,309 7 4,316

Year ended 30 September 2011


Othercomprehensive(expense)/income - (10) 6 21 17 - 17

Total comprehensive income for the

year ended 30 September 2011 - 419 6 21 446 4 450

Transactionwithowners:

Dividendspaidonordinaryshares - - - - - (2) (2)

As at 30 September 2011 (Audited) 3,470 967 31 20 4,488 8 4,496

Nine months ended 30 June 2012


Othercomprehensiveincome - - 54 47 101 - 101

Total comprehensive income for the

nine months ended 30 June 2012 - 463 54 47 564 2 566

Transactionswithowners:

Sharecapitalissued 1,130 - - - 1,130 - 1,130

Dividendspaidonordinaryshares - (480) - - (480) (4) (484)

As at 30 June 2012 (Unaudited) 4,600 950 85 67 5,702 6 5,708



Consolidated balance sheet asat30June2012

The Banking Group

30-Jun-12 30-Jun-11 30-Sep-11$ millions Note Unaudited Unaudited Audited

AssetsCashandbalanceswithcentralbanks 1,347 434 1,215Duefromotherfinancialinstitutions 308 34 699Derivativefinancialinstruments 11 17 85Tradingsecurities 5 3,395 2,847 3,261Available-for-salesecurities 2,658 1,116 1,518Loans 6,7 58,725 50,671 51,250Duefromrelatedentities 1,921 537 1,517Currenttaxassets - 33 -Investmentinassociate 48 48 48Goodwillandotherintangibleassets 585 559 567Property,plantandequipment 156 153 154 Deferredtaxassets 201 241 194 Otherassets 225 197 148

Total assets 69,580 56,887 60,656

Liabilities Duetootherfinancialinstitutions - - 100Deposits 8 41,845 33,581 34,886Derivativefinancialinstruments 300 75 84Debtissues 9 15,887 15,138 17,630Currenttaxliabilities - - 45Provisions 79 66 70Otherliabilities 515 497 569

Total liabilities excluding related entities liabilities 58,626 49,357 53,384Perpetualsubordinatednotes 970 970 970Duetorelatedentities 4,276 2,244 1,806

Total related entities liabilities 5,246 3,214 2,776

Total liabilities 63,872 52,571 56,160

Net assets 5,708 4,316 4,496

Equity Sharecapital 4,600 3,470 3,470Retainedprofits 950 832 967Available-for-salesecuritiesreserve 85 43 31 Cashflowhedgereserve 67 (36) 20

Total equity attributable to owners of the Banking Group 5,702 4,309 4,488Non-controllinginterests 6 7 8

Total equity 5,708 4,316 4,496

Interestearninganddiscountbearingassets 68,730 55,944 59,737Interestanddiscountbearingliabilities 59,487 47,348 52,060



Consolidated statement of cash flows fortheninemonthsended30June2012

The Banking Group


Cash flows from operating activitiesInterestincomereceived 2,876 2,645 3,527Interestexpensepaid (1,816) (1,730) (2,205)Non-interestincomereceived 218 168 306Netdecrease/(increase)intradingsecurities 1,823 (260) (674)Netmovementinderivativefinancialinstruments 296 75 16Operatingexpensespaid (574) (517) (682)Incometaxpaid (220) (153) (151)

Net cash provided by operating activities 2,603 228 137

Cash flows from investing activities Netincreaseinavailable-for-salesecurities (1,072) (1,047) (1,468)Netloansadvancedtocustomers (1,270) (826) (1,440)Net(increase)/decreaseinduefromrelatedentities (404) 293 (687)Purchaseofcapitalisedcomputersoftware (45) (25) (44)Purchaseofproperty,plantandequipment (22) (46) (55)Netcashacquiredfromthetransferofadditionalbankingoperations (154) - -

Net cash used in investing activities (2,967) (1,651) (3,694)

Cash flows from financing activities Issueofordinarysharecapital 1,130 - -Netincreaseindeposits 1,899 1,115 2,420Net(decrease)/increaseindebtissues (1,743) (301) 2,191Net(decrease)/increaseinduetorelatedentities (597) 554 237Paymentofdividends (484) (2) (2)

Net cash provided by financing activities 205 1,366 4,846

Net (decrease)/increase in cash and cash equivalents (159) (57) 1,289Cashandcashequivalentsatbeginningoftheperiod/year 1,814 525 525

Cash and cash equivalents at end of the period/year 1,655 468 1,814

Cash and cash equivalents comprise: Cashandbalanceswithcentralbanks 1,347 434 1,215 Duefromotherfinancialinstitutions(net) 308 34 599

1,655 468 1,814

Reconciliation of profit after income tax expense to net cash provided by operating activities Profitafterincometaxexpense 465 287 433Adjustments: Impairmentchargesonloans 131 189 224 Computersoftwareamortisationcosts 29 33 42 Depreciationonproperty,plantandequipment 20 19 22 Loss/(gain)ondisposalofproperty,plantandequipment - 1 (7) Lossondisposalofcomputersoftware - - 2 Share-basedpayments 5 12 15 Movementinotherassets (55) (53) 8 Movementinotherliabilities (72) (51) 15 Movementincurrentanddeferredtax (52) (31) 94 Taxlossestransferredfrom/(to)relatedentities 46 - (45) Taxoncashflowhedgereserve (19) 14 (8) Taxonavailable-for-salesecuritiesreserve (14) (7) - Movementintradingsecurities 1,823 (260) (674) Movementinderivativefinancialinstruments 296 75 16

Net cash provided by operating activities 2,603 228 137



Notestothefinancialstatements

Note 1 Statement of accounting policies

Statutory baseTheseconsolidatedfinancialstatementshavebeenpreparedandpresentedinaccordancewiththeOrderandtheReserveBankAct.ThesefinancialstatementshavealsobeenpreparedinaccordancewithGenerallyAcceptedAccountingPracticeinNewZealand(‘NZ GAAP’),asappropriateforprofit-orientedentities,andtheNewZealandEquivalenttoInternationalAccountingStandard(‘NZ IAS’)34Interim Financial ReportingandshouldbereadinconjunctionwiththeDisclosureStatementsfortheyearended30September2011andperiodsended31December2011and31March2012.ThesefinancialstatementscomplywithInternationalAccountingStandard34Interim Financial ReportingasissuedbytheInternationalAccountingStandardsBoard.Asaresultofthenewandrevisedaccountingstandardswhichbecameoperativefortheannualreportingperiodcommencing1October2011,thefollowingstandards,interpretationsandamendmentshavebeenadoptedwitheffectfrom1October2011:

■■ NewZealandEquivalenttoInternationalFinancialReportingStandard(‘NZ IFRS’)7Financial Instruments: Disclosures (‘NZ IFRS 7’):■ Theamendmentsaddanexplicitstatementthatqualitativedisclosureshouldbemadeinthecontextofthequantitative

disclosurestobetterenableuserstoevaluateanentity’sexposuretorisksarisingfromfinancialinstruments.Inaddition,certaindisclosurerequirementshavebeenamendedorremoved.

■ Amendments to NZ IFRS 7 Disclosures – Transfers of Financial Assets–Theamendmentsrequireadditionaldisclosuresaboutthetransferoffinancialassets,includinginrespectofthenatureofthefinancialassetsinvolvedandtherisksassociatedwiththem.

■■ NZIAS1Presentation of Financial Statements–Theamendmentsclarifythatananalysisofothercomprehensiveincomebyitemisrequiredtobedisclosedeitherinthestatementofchangesinequityorinthenotestothefinancialstatements.

■■ NZIAS24Related Party Disclosures–Themainchangestothestandardsimplifythedefinitionofarelatedpartyandclarifyitsintendedmeaning.

■■ NZIAS34Interim Financial Reporting–TheamendmentsaddexamplestothelistofsignificanteventsortransactionsthatrequiredisclosureunderNZIAS34.

■■ NewZealandEquivalenttoInternationalFinancialReportingInterpretationsCommittee(‘NZ IFRIC’)13Customer Loyalty Programmes–Theamendmentsclarifythefairvalueofawardcreditsandtakeintoaccounttheamountofdiscountsorincentivesthatotherwisewouldbeofferedtocustomersthathavenotearnedtheawardcredits.

■■ NZIFRIC14The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction–Theamendmentsremovetheunintendedconsequencearisingfromthetreatmentofprepaymentswhenthereisaminimumfundingrequirement.Theseamendmentsresultinprepaymentsofcontributionsincertaincircumstancesbeingrecognisedasanassetratherthananexpense.

■■ Amendments to NZ IFRS 7: Disclosure Amendments to Appendix E New Zealand-specific additional disclosure requirements applicable to financial institutions–Theamendmentsreplacetheterm‘financialinstitutions’withtheterm‘deposittakers’.TheamendmentsalsoremoveregisteredbanksfromitsscopeasthedisclosurerequirementshavebeenrelocatedtotheOrder.

■■ Amendments to NZ IFRSs to Harmonise with IFRS and Australian Accounting Standards –TheamendmentsremovecertainNewZealand-specificdisclosuresandrelocatecertaindisclosurerequirementstoanewstandard.TheBankingGrouphaschosentocontinuedisclosingcertaininformationnolongerrequiredasaresultofthisjointTrans-TasmanConvergenceproject.

■■ FinancialReportingStandard44New Zealand Additional Disclosures–ThisnewstandardisapplicableonlytoNewZealandandisaconsequenceofthejointTrans-TasmanConvergenceprojectoftheAustralianAccountingStandardsBoardandFinancialReportingStandardsBoard.ThisstandardrelocatescertainNewZealand-specificdisclosuresfromotherNZIFRSandalsorevisescertaindisclosures.

AdoptionofthesenewandrevisedaccountingstandardshasnotresultedinanymaterialchangetotheBankingGroup’sreportedresultorfinancialposition.Inthesefinancialstatementsreferenceismadetothefollowingreportingentities:

■■ WestpacNewZealandLimited(otherwisereferredtoasthe‘Bank’);and■■ WestpacNewZealandLimitedanditscontrolledentities(otherwisereferredtoasthe‘Banking Group’).ControlledentitiesoftheBankingGroupasat30September2011aresetoutinNote26totheBankingGroup’sfinancialstatementsincludedintheDisclosureStatementfortheyearended30September2011.ExceptasdetailedinNotes2and10tothesefinancialstatements,therehavebeennootherchangestothecompositionoftheBankingGroupsince30September2011.ThesefinancialstatementswereauthorisedforissuebytheBoardon22August2012.TheBoardhasthepowertoamendthefinancialstatementsaftertheyareauthorisedforissue.

Basis of preparationThesefinancialstatementsarebasedonthegeneralprinciplesofhistoricalcostaccounting,asmodifiedbyfairvalueaccountingforavailable-for-salefinancialassets,financialassetsandfinancialliabilitiesatfairvaluethroughprofitorlossandallfinancialderivativecontracts.Thegoingconcernconceptandtheaccrualbasisofaccountinghavebeenadopted.AllamountsareexpressedinNewZealanddollarsunlessotherwisestated.



Note 1 Statement of accounting policies (continued)Thesameaccountingpoliciesandmethodsofcomputationhavebeenfollowedinpreparingthesefinancialstatementsaswereusedinpreparingthefinancialstatementsfortheyearended30September2011,exceptasamendedforthechangesrequiredduetotheadoptionofthenewandrevisedaccountingstandardsasexplainedinthe‘Statutorybase’section.Certaincomparativeinformationhasbeenrestatedtoensureconsistenttreatmentwiththecurrentreportingperiod.Wheretherehasbeenamaterialrestatementofcomparativeinformationthenatureof,andthereasonfor,therestatementisdisclosedintherelevantnote.

Principles of consolidationTheconsolidatedfinancialstatementsincorporatetheassetsandliabilitiesofallsubsidiaries(includingspecialpurposeentities)controlledbytheBankandtheresultsofthosesubsidiaries.TheeffectsofalltransactionsbetweenentitieswithintheBankingGroupareeliminated.Controlexistswhentheparententityhasthepower,directlyorindirectly,togovernthefinancialandoperatingpoliciesofanentitysoastoobtainbenefitsfromitsactivities.Inassessingcontrol,potentialvotingrightsthatarepresentlyexercisableorconvertiblearetakenintoaccount.Subsidiariesarefullyconsolidatedfromthedateonwhichcontrolcommencesandarede-consolidatedfromthedateonwhichcontrolceases.TheacquisitionmethodofaccountingisusedtoaccountfortheacquisitionofsubsidiariesbytheBankingGroup.TheBankingGroupmayinvestinorestablishspecialpurposeentitiestoenableittoundertakespecifictypesoftransactions.WheretheBankingGroupcontrolssuchentitiestheyareconsolidatedintotheBankingGroup’sfinancialresults.Non-controllinginterestsarestatedattheproportionofthenetprofitandnetassetsofasubsidiaryattributabletoequityintereststhatarenotowned,directlyorindirectlybytheBank.Lossesareattributedtothenon-controllinginterestevenifthatresultsinadeficitbalance.

Common control transactionsThepredecessormethodofaccountingisusedtoaccountforbusinesscombinationsbetweenentitieswithintheBankingGroup.AssetsacquiredandliabilitiesassumedinacommoncontroltransactionaremeasuredinitiallyattheacquisitiondateatthecarryingvaluefromtheWestpacBankingCorporation’s(‘Ultimate Parent Bank’)perspective.Theexcessofthecostofacquisitionovertheinitialcarryingvaluesoftheentity’sshareofthenetassetsacquiredisrecordedaspartofacommoncontrolreserve.

Note 2 Business combination – transfer of operationsUntil1November2006,theUltimateParentBankconducteditsoperationsinNewZealandthroughabranchstructure.Onthatdate,andafterextensiveconsultationwiththeReserveBankofNewZealand(‘Reserve Bank’),theUltimateParentBankadoptedadualoperatingmodelincludingalocallyincorporatedsubsidiary,theBank,toconductitsconsumerandbusinessbankingoperationsinNewZealand,andabranchoftheUltimateParentBank(‘NZ Branch’)toconductitsinstitutionalandfinancialmarketsoperations.FollowinganindependentreviewofthestructureoftheoperatingmodeloftheUltimateParentBank’sbusinessinNewZealand,theReserveBank,theBankandtheUltimateParentBankreachedagreementonchangestotheoperatingmodel.On1November2011,assetsandliabilitiesassociatedwithcertainbusinessactivitiesformerlyconductedbytheNZBranchweretransferredtotheBank.ThetransferoccurredpursuanttotheWestpacNewZealandAct2011.ThefollowingbusinessactivitiesweretransferredtotheBank:

■■ institutionalcustomerdeposits;■■ institutionalcustomertransactionalbanking;■■ institutionalcustomerlending(otherthantradefinancingactivities);■■ debtcapitalmarketsactivitiescarriedoutinassistingcorporatecustomerstoobtainfunding,suchasloansyndicationandsecuritisationarrangements,butexcludingthedebtsecuritiesteamactivities,suchasarrangementofcommercialpaperandbondprogrammes;

■■ corporateadvisory;and■■ institutionalcustomerforeigncurrencyaccounts.TheNZBranchhasretained:

■■ financialmarketsoperationsforexternalcustomers,includingsalesandtradingofcapitalmarketsproductsandforeignexchangeforcorporateandinstitutionalcustomers;

■■ pricingandriskmanagementforinterestrate,foreignexchangeandcommodityproductsforconsumer,businessandinstitutionalcustomersoftheBank;

■■ tradingofcapitalmarketsproductsandforeignexchangeasprincipal;■■ globalintra-groupfinancingfunctions;■■ correspondentbankrelationships;■■ debtsecuritiesteamactivities,suchasarrangementofcommercialpaperandbondprogrammes;and■■ internationalbusiness,includingtradefinanceactivitiesbutexcludingcustomerforeigncurrencyaccounts.



Note 2 Business combination – transfer of operations (continued) TheacquisitioninvolvedthetransfertotheBankof$6,446millionofassetsconsistingprimarilyofloanstocorporatecustomersof$6,336millionand$5,303millionofliabilitiesconsistingprimarilyofdepositsof$5,060million.Forthefinancialyearended30September2011,thebusinessactivitiestransferredfromtheNZBranchtotheBankaccountedfornetoperatingincomeof$166million(30September2010:$163million)andprofitafterincometaxexpenseof$114million(30September2010:$103million).

Funding of acquisitionTofundthepurchaseoftheassetsandliabilitiesrelatingtothebusinessactivitiestransferredfromtheNZBranch(aswellastheadditionalliquidassetsrequiredtobeheldbytheBankingGroupasaresultofthetransfer),aloanof$3.1billionwasprovidedtotheBankbytheNZBranchandtheBankraised$1,130millioninadditionalsharecapital.Theloanof$3.1billionisforaperiodofthreeyearsandwaspricedattheNewZealandBankBillReferenceRateplusamarginthatreflectedmarketpricingon1November2011.TheBankissuedatotalof1,130millionadditionalordinarysharesfor$1persharetotheBank’simmediateparentcompany,WestpacNewZealandGroupLimited(‘WNZGL’),inconnectionwiththetransfer.On28October2011,theBankissued900millionordinarysharesfor$1pershare,andon31October2011,theBankissuedanadditional230millionordinarysharesfor$1pershare.Immediatelypriortotheissuanceoftheseadditional230millionordinaryshares,theBankpaidadividendtoWNZGLof$230million.ThesetransactionswereinaccordancewiththeBankingGroup’scapitalmanagementpolicy.

Compliance with condition of registration 14 and BS13 requirements Asaresultofthetransferofthebusinessactivitiessetoutabove,theBankingGroupisrequiredtoholdadditionalliquidassetsinordertocomplywithconditionofregistration14,whichrelatestoliquidity,andtheReserveBankdocumentLiquidity Policy (BS13).TheseliquidassetswereacquiredthroughacombinationofonmarketpurchasesandapurchaseofliquidassetsfromtheNZBranch.TheBankingGroupwascompliantwithbothconditionofregistration14andBS13immediatelyfollowingthetransferon1November2011.

Asset and liabilities transferred from the NZ Branch to the Bank as at 1 November 2011

Assets and Liabilities Transferred As at 1 November 2011 $ millions Audited

Assets Cashandbalanceswithcentralbanks 58 Loans 6,336 Deferredtaxassets 28 Otherassets 24

Total assets 6,446

Liabilities Duetootherfinancialinstitutions 212 Deposits 5,060 Provisions 12 Otherliabilities 19

Total liabilities 5,303

Net assets acquired 1,143

Contingent liabilities and commitments transferred from the NZ Branch to the Bank as at 1 November 2011

The Bank

As at 1 November 2011 $ millions Audited

Contingent liabilities and commitments Transactionrelatedcontingentitems 421 Short-term,selfliquidatingtraderelatedcontingentliabilities 107 Othercommitmentstoprovidefinancialservices 6,464

Total contingent liabilities and commitments 6,992



Note 2 Business combination – transfer of operations (continued) Consideration paid for the business transferred from the NZ Branch to the Bank on 1 November 2011

The Bank

As at 1 November 2011 $ millions Audited

Consideration transferred Intragrouppayables 3,100 Tradingsecurities (1,957)

Total consideration transferred 1,143

Impact of the transferred business activities on the Banking Group

The Banking Group

Pre-existing Transferred $ millions Note Operations Operations

1 Total

For the period ended 30 June 2012 (Unaudited) Interestincome 2,522 360 2,882 Interestexpense (1,505) (260) (1,765)

Net interest income 1,017 100 1,117

Non-interestincome: Feesandcommissions 3 225 26 251 Netineffectivenessonqualifyinghedges (1) - (1) Othernon-interestincome 3 17 - 17


Net operating income 1,258 126 1,384 Operatingexpenses (594) (13) (607)Impairmentchargesonloans 4 (128) (3) (131)

Profit before income tax expense 536 110 646 Incometaxexpense (150) (31) (181)


Transferred business activities for the nine months ended 30 June 2012

The Banking Group

Pre-acquisition Transferred $ millions result

2 Operations

1 Total

For the period ended 30 June 2012 (Unaudited) Interestincome 46 360 406 Interestexpense (30) (260) (290)

Net interest income 16 100 116

Non-interestincome: Feesandcommissions 4 26 30


Net operating income 20 126 146 Operatingexpenses (2) (13) (15)Impairmentchargesonloans 2 (3) (1)

Profit before income tax expense 20 110 130 Incometaxexpense (5) (31) (36)


1 Representstheeightmonthresultofthetransferredbusinessoperationssincetheacquisitiondateon1November2011,asincludedintheBankingGroup’sconsolidatedincomestatement.

2 Representsthepre-acquisitionresultofthetransferredbusinessoperationsfrom1October2011through31October2011.



Note 3 Non-interest income

The Banking Group


Fees and commissionsTransactionfeesandcommissions 170 157 210Lendingfees(loanandrisk) 43 41 55 Managementfeesreceivedfromrelatedentities 2 2 3 Insurancecommissionsreceived 26 22 30 Othernon-riskfeeincome 10 1 1

Total fees and commissions 251 223 299

Net ineffectiveness on qualifying hedges (1) 3 1

Other non-interest income Netgains/(losses)onderivativesheldfortrading 4 (2) (4)Dividendincome 2 2 3 (Loss)/gainondisposalofproperty,plantandequipment - (1) 7Other 11 2 2

Total other non-interest income 17 1 8


Note 4 Impairment charges on loans

The Banking Group

Other Loans Loans for Residential for Consumer Business$ millions Mortgages Purposes Purposes Total

Nine months ended 30 June 2012 (Unaudited)Collectivelyassessedprovisions (1) 4 (38) (35)Individuallyassessedprovisions 20 - 112 132 Baddebtswritten-offdirectlytotheincomestatement 4 32 21 57 Interestadjustments (2) (7) (14) (23)

Total impairment charges on loans 21 29 81 131

Nine months ended 30 June 2011 (Unaudited) Collectivelyassessedprovisions (3) (22) (33) (58)Individuallyassessedprovisions 66 - 161 227Baddebtswritten-offdirectlytotheincomestatement 3 32 14 49Interestadjustments (5) (11) (13) (29)

Total impairment charges on loans 61 (1) 129 189

Year ended 30 September 2011 (Audited) Collectivelyassessedprovisions (14) (35) (33) (82)Individuallyassessedprovisions 80 - 187 267Baddebtswritten-offdirectlytotheincomestatement 5 44 23 72Interestadjustments (6) (12) (15) (33)

Total impairment charges on loans 65 (3) 162 224



Note 5 Trading securities

The Banking Group

30-Jun-12 30-Jun-11 30-Sep-11$ millions Unaudited Unaudited Audited

Trading securitiesListed: NZGovernmentsecurities 606 1,200 1,035

Total listed securities 606 1,200 1,035

Unlisted: NZcorporatesecurities: Certificatesofdeposit 2,333 1,464 2,007 Corporatebonds 254 183 209 NZGovernmentsecurities 202 - 10

Total unlisted securities 2,789 1,647 2,226

Total trading securities 3,395 2,847 3,261

Asat30June2012notradingsecuritiesintheBankingGroup(30June2011:nil,30September2011:nil)wereencumberedthroughrepurchaseagreements.

Note 6 Loans

The Banking Group


Overdrafts 1,218 880 945Creditcardoutstandings 1,320 1,279 1,270Moneymarketloans 993 584 571Termloans: Housing 35,901 34,751 35,086 Non-housing 19,543 13,554 13,743Other 391 267 208

Total gross loans 59,366 51,315 51,823Provisionsforimpairmentchargesonloans (641) (644) (573)

Total net loans 58,725 50,671 51,250

Asat30June2012,theNewZealanddollarequivalentoftheaggregateamountofcoveredbondsissuedbyWSNZLwas$2.0billion(30June2011:$1.8billion,30September2011:$1.8billion).WestpacNZCoveredBondLimited(‘WNZCBL’)providesfinancialguaranteesinrespectofWSNZL’sobligationsunderbondsissuedfromtimetotimebyWSNZLunderitsGlobalCoveredBondProgramme.Asat30June2012,thevalueoftheassetsheldbyWNZCBL(beingtheunderlyingcollateralforthoseguarantees)was$3.76billion(30June2011:$2.75billion,30September2011:$2.75billion).TheseassetshavenotbeenderecognisedfromtheBank’sfinancialstatementsinaccordancewiththeaccountingpoliciesoutlinedinNote1tothefinancialstatementsincludedintheDisclosureStatementfortheyearended30September2011.

Note 7 Credit quality, impaired assets and provisions for impairment charges on loans

The Banking Group

Nine Months Ended 30-Jun-12 (Unaudited) Other Loans Loans for Residential for Consumer Business$ millions Mortgages Purposes Purposes Total

Total neither past due nor impaired 34,518 1,666 20,439 56,623

Past due assets: Lessthan90dayspastdue 1,149 137 306 1,592 Atleast90dayspastdue 83 17 96 196

Total past due assets 1,232 154 402 1,788 Individually impaired assets 151 - 804 955

Total gross loans 35,901 1,820 21,645 59,366

Individuallyassessedprovisions 52 - 226 278 Collectivelyassessedprovisions 65 73 259 397

Total provisions for impairment charges on loans and credit commitments 117 73 485 675 Provisionforcreditcommitments - - (34) (34)

Total provisions for impairment charges on loans 117 73 451 641

Total net loans 35,784 1,747 21,194 58,725



Note 8 Deposits

The Banking Group


Deposits at fair value Certificatesofdeposit 973 1,469 1,556

Total deposits at fair value 973 1,469 1,556

Deposits at amortised cost Non-interestbearing,repayableatcall 2,962 2,650 2,699Otherinterestbearing: At call 16,013 10,776 11,403 Term 21,897 18,686 19,228

Total deposits at amortised cost 40,872 32,112 33,330

Total deposits 41,845 33,581 34,886

Note 9 Debt issues

The Banking Group


Short-term debt Commercialpaper 7,432 5,310 7,229

Total short-term debt 7,432 5,310 7,229

Long-term debt Non-domesticmedium-termnotes 6,384 8,235 8,803Domesticmedium-termnotes 2,071 1,593 1,598

Total long-term debt 8,455 9,828 10,401

Total debt issues 15,887 15,138 17,630

Debtissuesatamortisedcost 8,423 9,368 9,903Debtissuesatfairvalue 7,464 5,770 7,727

Total debt issues 15,887 15,138 17,630

30-Jun-12 30-Jun-11 30-Sep-11$ millions Unaudited Unaudited Unaudited

Movement in debt issues Balanceatbeginningoftheperiod/year 17,630 15,439 15,439Issuancesduringtheperiod/year 11,107 13,859 17,788Repaymentsduringtheperiod/year (12,137) (12,784) (15,120)Effectofforeignexchangemovementsduringtheperiod/year (779) (1,269) (534)Effectoffairvaluemovementsduringtheperiod/year 66 (107) 57

Balance at end of the period/year 15,887 15,138 17,630

Asat30June2012,theBankingGrouphadNewZealandGovernmentguaranteeddebtof$2,039milliononissue(30June2011:$3,789million,30September2011:$4,073million).RefertoGuaranteearrangementsonpages1and2forfurtherinformationonNewZealandGovernmentguaranteeddebt.

On12July2012,theBankissued$620millionofdomesticunsecuredmediumtermnotes.

Note 10 Related entitiesOn9May2012,theBankrepurchasedall20,000BvotingsharesfromWestpacOverseasHoldingsNo.2PtyLimited(‘WOHL’)(representing12%ofthevotingsecuritiesoftheBankthatWOHLhadadirectqualifyinginterestin).Theseshareswereimmediatelycancelledonrepurchase.Followingtherepurchaseandcancellationofthe20,000Bvotingshareson9May2012,WNZGLholds100%ofthevotingsecuritiesoftheBank.On1November2011,theNZBranchtransferredadditionalbusinessactivitiesandassociatedemployeestotheBank,whichwasaccountedforasabusinesscombination(refertoNote2Businesscombination–transferofoperationsforfurtherdetails).TherehavebeennootherchangestothestructureorcompositionoftheBankingGroupsince30September2011.ControlledentitiesoftheBankasat30September2011aresetoutinNote26tothefinancialstatementsincludedintheDisclosureStatementfortheyearended30September2011.



Note 11 Commitments and contingent liabilities

The Banking Group


Commitments for capital expenditure Duewithinoneyear 1 12 2

Other expenditure commitments: Oneyearorless 77 85 89 Betweenoneandfiveyears 285 38 306 Overfiveyears - - 34

Total other expenditure commitments 362 123 429

Lease commitments (all leases are classified as operating leases) Premisesandsites 211 257 230Motorvehicles 6 8 8

Total lease commitments 217 265 238

Lease commitments are due as follows: Oneyearorless 42 56 44 Betweenoneandfiveyears 108 120 104 Overfiveyears 67 89 90

Total lease commitments 217 265 238

Other contingent liabilities and commitments Directcreditsubstitutes 79 59 78Loancommitmentswithcertaindrawdown 192 140 164Transactionrelatedcontingentitems 803 253 257Short-term,selfliquidatingtraderelatedcontingentliabilities 386 344 339 Othercommitmentstoprovidefinancialservices 19,138 11,162 11,403

Total other contingent liabilities and commitments 20,598 11,958 12,241

Note 12 Segment informationTheBankingGroupoperatespredominantlyintheconsumer,businessandinstitutionalbankingsectorswithinNewZealand.Onthisbasis,nogeographicalsegmentinformationisprovided.Thebasisofsegmentreportingreflectsthemanagementofthebusiness,ratherthanthelegalstructureoftheBankingGroup.Thereisnodifferenceinaccountingmeasurementbetweenthemanagementandlegalstructures.Theoperatingsegmentresultshavebeenpresentedonamanagementreportingbasisandconsequentlyinternalchargesandtransferpricingadjustmentshavebeenreflectedintheperformanceofeachoperatingsegment.Intersegmentpricingisdeterminedonacostrecoverybasis.TheBankingGroupdoesnotrelyonanysinglemajorcustomerforitsrevenuebase.TheBankingGroup’soperatingsegmentsaredefinedbythecustomerstheyserveandtheservicestheyprovide.TheBankingGrouphasidentifiedthefollowingmainoperatingsegments:

■■ RetailBankingprovidesfinancialservicesforprivateindividuals;■■ Wealthprovidesfinancialservicesforhighnetworthindividuals,fundsmanagementandinsurancedistribution;■■ BusinessBankingprovidesfinancialservicesforsmalltomediumsizedenterprisecustomers,corporatesandagriculturalbusinesses.BusinessBankingalsoprovidesdomestictransactionalbankingtotheNewZealandGovernment;and

■■ InstitutionalBankingprovidesabroadrangeoffinancialservicestolargecorporate,institutionalandgovernmentcustomers1.RetailBankingandWealthhavebeenaggregatedanddisclosedastheConsumerBankingreportablesegment.BusinessBankingandInstitutionalBankingareseparatereportablesegments.Reconcilingitemsprimarilyrepresent:

■■ businessunitsthatdonotmeetthedefinitionofoperatingsegmentsunderNZIFRS8Operating Segments;■■ eliminationentriesonconsolidationoftheresults,assetsandliabilitiesoftheBankingGroup’scontrolledentitiesinthepreparationoftheconsolidatedfinancialstatementsoftheBankingGroup;

■■ resultsofcertainentitiesincludedformanagementreportingpurposes,butexcludedfromtheconsolidatedfinancialstatementsoftheBankingGroupforstatutoryfinancialreportingpurposes;and

■■ resultsofcertainbusinessunitsexcludedformanagementreportingpurposes,butincludedwithintheconsolidatedfinancialstatementsoftheBankingGroupforstatutoryfinancialreportingpurposes.

Netinterestincomeandnon-interestincomehavebeenincludedinthefollowingtabletoalignwiththeinformationprovidedtothe‘chiefoperatingdecisionmaker’.Comparativeinformationfornetoperatingincomefromexternalcustomersandnetinternaloperatingincomehasbeenchangedtoensureconsistentpresentationwiththecurrentreportingperiod.

1 On1November2011,theNZBranchtransferredadditionalinstitutionalbankingbusinessactivitiesandassociatedemployeestotheBank(refertoNote2Businesscombination–transferofoperationsforfurtherdetails).FurtherinformationontheNZBranchisavailableinWestpacBankingCorporation’smostrecentlypublishedDisclosureStatement.



Note 12 Segment information (continued) The Banking Group

Consumer Business Institutional Reconciling $ millions Banking Banking Banking

1 Items Total

Nine months ended 30 June 2012 (Unaudited) Netoperatingincomefromexternalcustomers 1,121 785 144 (666) 1,384 Netinternaloperatingincome (293) (348) (18) 659 -

Net operating income 828 437 126 (7) 1,384

Netinterestincome 609 373 100 35 1,117 Non-interestincome 219 64 26 (42) 267

Net operating income 828 437 126 (7) 1,384 Operatingexpenses (149) (55) (13) (390) (607)Impairmentchargesonloans (44) (84) (3) - (131)

Profit before income tax expense 635 298 110 (397) 646

Total gross loans 31,285 21,978 6,302 (199) 59,366 Total deposits 23,906 10,941 6,025 973 41,845

Nine months ended 30 June 2011 (Unaudited) Netoperatingincomefromexternalcustomers 1,150 808 - (780) 1,178Netinternaloperatingincome (391) (405) - 796 -

Net operating income 759 403 - 16 1,178

Netinterestincome 548 343 - 60 951Non-interestincome 211 60 - (44) 227

Net operating income 759 403 - 16 1,178Operatingexpenses (155) (56) - (362) (573)Impairmentchargesonloans (49) (128) - (12) (189)

Profit before income tax expense 555 219 - (358) 416

Total gross loans 30,368 21,173 - (226) 51,315Total deposits 22,283 9,744 - 1,554 33,581

Year ended 30 September 2011 (Audited) Netoperatingincomefromexternalcustomers 1,548 1,079 - (1,003) 1,624Netinternaloperatingincome (510) (526) - 1,036 -

Net operating income 1,038 553 - 33 1,624

Netinterestincome 755 472 - 89 1,316Non-interestincome 283 81 - (56) 308

Net operating income 1,038 553 - 33 1,624Operatingexpenses (208) (76) - (487) (771)Impairmentchargesonloans (64) (167) - 7 (224)Shareofprofitofassociateaccountedforusingequitymethod - - - 1 1

Profit before income tax expense 766 310 - (446) 630

Total gross loans 30,625 21,421 - (223) 51,823Total deposits 22,908 10,387 - 1,591 34,886

1 Representstheeightmonthresultofthetransferredbusinessoperationssincetheacquisitiondateon1November2011,asincludedintheBankingGroup’sconsolidatedincomestatement.

Note 13 Insurance businessTheBankingGroupdoesnotconductanyinsurancebusiness(asthattermisdefinedintheOrder).

Note 14 Capital adequacyTheinformationcontainedinthisnotehasbeenderivedinaccordancewiththeBankingGroup’sconditionsofregistrationwhichrelatetocapitaladequacyandthedocument‘Capitaladequacyframework(internalmodelsbasedapproach)’(BS2B)issuedbytheReserveBank.Duringtheninemonthsended30June2012,theBankingGroupcompliedinfullwithallitsexternallyimposedcapitalrequirements.



Note 14 Capital adequacy (continued)The Banking Group’s capital summary

The Banking Group

30-Jun-12 $ millions Unaudited

TierOneCapital 5,535 Less deductions from Tier One Capital (701)

Total Tier One Capital 4,834

TierTwoCapital 1,143 Less deductions from Tier Two Capital (49)

Total Tier Two Capital 1,094

Total Capital 5,928

Changes in capital structure B voting sharesOn9May2012,theBankrepurchasedtheBvotingsharesfromWOHL.Eachsharewasrepurchasedfor$1pershare.Theseshareswereimmediatelycancelledonrepurchase.TherewerenoBvotingsharesonissueasat30June2012(30June2011:20,000,30September2011:20,000)withnilaggregateparvalue(30June2011:$0.02million,30September2011:$0.02million).

Basel II ThetablebelowisdisclosedinaccordancewithClause1ofSchedule12totheOrderandrepresentsthecapitaladequacycalculationbasedontheReserveBankdocument‘Capitaladequacyframework(internalmodelsbasedapproach)’(BS2B).

The Banking Group

30-Jun-12 % Unaudited

Capital adequacy ratios TierOneCapitalratio 11.1 TotalCapitalratio 13.6

Reserve Bank minimum ratios TierOneCapitalratio¹ 4.0 TotalCapitalratio 8.0

1 LocallyincorporatedregisteredbankshavingthebenefitoftheWholesaleFundingGuaranteeFacilityarerequiredtomaintainanadditional2%TierOneCapitalratiobuffer.ForfurtherinformationabouttheWholesaleGuaranteerefertoGuaranteearrangementsonpages1and2,ortheBank’sDisclosureStatementfortheyearended30September2011.

The Banking Group Pillar 1 total capital requirement

The Banking Group

30-Jun-12 Total Capital $ millions Requirement

Credit risk Exposuressubjecttotheinternalratingsbasedapproach: Residentialmortgages 1,047 Otherretail(creditcards,personalloans,personaloverdrafts) 194 Smallbusiness 97 BankingGroup–Corporate/Businesslending 1,250 Sovereign 20 Bank 36

Total exposures subject to the internal ratings based approach 2,644

Exposuresnotsubjecttotheinternalratingsbasedapproach: Equityexposures 16 Specialisedlendingsubjecttotheslottingapproach 373 Exposuressubjecttothestandardisedapproach 89

Total exposures not subject to the internal ratings based approach 478

Total credit risk1 3,122

Operational risk 327 Market risk 50

Total 3,499

1 AsdisclosedintheBank’sconditionsofregistration,thevalueofthescalarusedindeterminingtheminimumcapitalrequirement(RequiredRegulatoryCapital)is1.06.



Note 14 Capital adequacy (continued)Pillar 2 capital for other material risk TheBankingGroup’sinternalcapitaladequacyassessmentprocessidentifiesandmeasuresall‘othermaterialrisk’,whichisacombinationofbusinessrisk,liquidityriskandotherassetrisk.Theserisksaredefinedas:

■■ Businessrisk–reflectstheriskassociatedwiththevulnerabilityofalineofbusinesstochangesinthebusinessenvironment.■■ Liquidityrisk–isthepotentialinabilitytomeetpaymentobligationsastheycomedue,withoutincurringunacceptablelosses.■■ Otherassetrisk–reflectsthestrategicriskassociatedwiththecompositionofthebalancesheetthatisnotreflectedinotherriskcategories.

TheBankingGroup’sinternalcapitalallocationfor‘othermaterialrisk’is:

The Banking Group


Internal capital allocation Othermaterialrisk 321

Note 15 Risk management

15.1 Credit risk

The Banking Group’s residential mortgages by loan-to-value ratio (‘LVR’) as at 30 June 2012 (Unaudited)InordertocalculateoriginationLVR,thecurrentexposureisthatusedintheinternalratingsbasedapproachformortgagelending.Forloansoriginatedfrom1January2008,theBankutilisesitsloanoriginationsystem.Forloansoriginatedpriorto1January2008,theoriginationLVRisnotseparatelyrecorded,andthereforenotavailablefordisclosureasrequiredunderClause7ofSchedule12totheOrder.Fortheseloans,theBankutilisesitsdynamicLVRprocesstocalculateanoriginationLVR.ExposuresforwhichnoLVRisavailablehavebeenincludedinthe‘Exceeds90%’categoryinaccordancewiththerequirementsoftheOrder.

The Banking Group

30-Jun-12 (Unaudited) Exceeds Exceeds Exceeds Does not 60% and 70% and 80% andLVR range ($ millions) Exceed 60% not 70% not 80% not 90% Exceeds 90% Total

On-balancesheetexposures 13,431 5,735 7,922 5,560 3,155 35,803 Undrawncommitmentsandotheroff-balancesheet exposures 3,963 953 917 387 216 6,436

Value of exposures 17,394 6,688 8,839 5,947 3,371 42,239

15.2 Liquidity risk

Liquid assets ThetablebelowshowstheBankingGroup’sholdingofliquidassetsandrepresentsthekeyliquidityinformationprovidedtomanagement.LiquidassetsincludehighqualityassetsreadilyconvertibletocashtomeettheBankingGroup’sliquidityrequirements.Inmanagement’sopinion,liquidityissufficienttomeettheBankingGroup’spresentrequirements.

The Banking Group


Cashandbalanceswithcentralbanks 1,347 Supranationalsecurities 410 NZGovernmentsecurities 4,064 NZpublicsecurities 234 NZcorporatesecurities 2,619 Residentialmortgage-backedsecurities 3,992

Total liquid assets 12,666



Note 16 Concentration of credit exposures to individual counterpartiesThefollowingcreditexposuresarebasedonactualcreditexposurestoindividualcounterpartiesandgroupsofcloselyrelatedcounterparties.Thenumberofindividualbankcounterparties(whicharenotmembersofagroupofcloselyrelatedcounterparties),andgroupsofcloselyrelatedcounterpartiesofwhichabankistheparent,towhichtheBankingGrouphasanaggregatecreditexposurethatequalsorexceeds10%oftheBankingGroup’sequity:

■■ asat30June2012wasnil;and■■ inrespectofpeakend-of-dayaggregatecreditexposureforthethreemonthsended30June2012wasnil.Thenumberofindividualnon-bankcounterparties(whicharenotmembersofagroupofcloselyrelatedcounterparties),andgroupsofcloselyrelatedcounterpartiesofwhichabankisnottheparent,towhichtheBankingGrouphasanaggregatecreditexposureorpeakend-of-dayaggregatecreditexposurethatequalsorexceeds10%oftheBankingGroup’sequity:

■■ asat30June2012wasonecounterpartywithacreditratingofA-orA3orabove,oritsequivalent,havinganaggregatecreditexposurebetween15%-19%;and

■■ forthethreemonthsended30June2012wasonecounterpartywithacreditratingofA-orA3orabove,oritsequivalent,havingapeakend-of-dayaggregatecreditexposurebetween15%-19%.

Thepeakend-of-dayaggregatecreditexposureshavebeencalculatedbydeterminingthemaximumend-of-dayaggregateamountofactualcreditexposureovertherelevantthree-monthperiodandthendividingthatamountbytheBankingGroup’sequityasattheendoftheperiod.Creditexposurestoindividualcounterparties(notbeingmembersofagroupofcloselyrelatedcounterparties)andtogroupsofcloselyrelatedcounterpartiesexcludeexposurestoconnectedpersons,tothecentralgovernmentofanycountrywithalong-termcreditratingofA-orA3orabove,oritsequivalent,ortoanybankwithalong-termcreditratingofA-orA3orabove,oritsequivalent.ThesecalculationsrelateonlytoexposuresheldinthefinancialrecordsoftheBankingGroupandwerecalculatednetofindividuallyassessedprovisions.

Note 17 Events after the reporting dateOn12July2012,theBankissued$620millionofdomesticunsecuredmediumtermnotes.

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