westpac new zealand limited · westpac new zealand limited ... external directorships: director of...

Westpac New Zealand LimitedDisclosure Statement For the year ended 30 September 2013

Index 1 Generalinformationanddefinitions

1 Generalmatters

4 Creditratings

5 Guaranteearrangements

6 Pendingproceedingsorarbitration

6 Conditionsofregistration

10 Othermaterialmatters

10 Auditors

11 Historicalsummaryoffinancialstatements

12 Directors’statement

13 Indextofinancialstatements

94 Independentauditors’report

Westpac New Zealand Limited 1

General information and definitionsCertainoftheinformationcontainedinthisDisclosureStatementisrequiredbysection81oftheReserveBankofNewZealandAct1989(‘Reserve Bank Act’)andtheRegisteredBankDisclosureStatements(NewZealandIncorporatedRegisteredBanks)Order(No2)2013(‘Order’).InthisDisclosureStatement,referenceismadeto:

■■ WestpacNewZealandLimited(otherwisereferredtoasthe‘Bank’).■■ WestpacNewZealandLimitedanditscontrolledentities(otherwisereferredtoasthe‘Banking Group’).ControlledentitiesoftheBankasat30September2013aresetoutinNote25.

WordsandphrasesnotdefinedinthisDisclosureStatement,butdefinedbytheOrder,havethemeaninggivenbytheOrderwhenusedinthisDisclosureStatement.AllamountsreferredtointhisDisclosureStatementareinNewZealanddollarsunlessotherwisestated.

General matters

Registered BankTheBankwasincorporatedasWestpacNewZealandLimitedundertheCompaniesAct1993(CompanyNumber1763882)on14February2006.TheheadofficeoftheBankissituatedatWestpaconTakutaiSquare,16TakutaiSquare,Auckland1010,NewZealandandtheaddressforserviceofprocessontheBankisWestpaconTakutaiSquare,53GalwayStreet,Auckland1010,NewZealand.TheBankisasubsidiaryofWestpacNewZealandGroupLimited(‘WNZGL’),aNewZealandcompany,whichinturnisawholly-ownedsubsidiaryofWestpacOverseasHoldingsNo.2PtyLimited(‘WOHL’),anAustraliancompany.WOHLis,inturn,awholly-ownedsubsidiaryofWestpacBankingCorporation,anAustraliancompany(‘Ultimate Parent Bank’).TheUltimateParentBankisincorporatedinAustraliaundertheAustralianCorporationsAct2001anditsaddressforserviceofprocessisLevel20,WestpacPlace,275KentStreet,Sydney,NewSouthWales2000,Australia.At30September2013,WNZGLhasadirectqualifyinginterestin100%ofthevotingsecuritiesoftheBank.TheUltimateParentBankhasanindirectqualifyinginterestin100%ofthevotingsecuritiesoftheBank.WNZGLhastheabilitytodirectlyappointupto100%oftheBoardofDirectorsoftheBank(the ‘Board’)and,asindirectholdingcompaniesoftheBank,boththeUltimateParentBankandWOHLhavetheabilitytoindirectlyappointupto100%oftheBoard.Inaddition,theUltimateParentBankhasthepowerundertheBank’sconstitutiontodirectlyappointupto100%oftheBoardfromtimetotimebygivingwrittennoticetotheBank.AllappointmentstotheBoardmustbeapprovedbytheReserveBankofNewZealand(‘Reserve Bank’)(refertotheBank’sconditionsofregistrationonpage6ofthisDisclosureStatementfordetailsoftheReserveBank’sapprovalprocess).Until1November2006,theUltimateParentBankoperatedthroughabranchinNewZealand.Effective1November2006,theUltimateParentBankhasoperatedinNewZealandthroughbothabranchoftheUltimateParentBank(‘NZ Branch’)(carryingonfinancialmarketsoperations,andinstitutionalbankingactivitiesuntil1November2011)andtheBank(alocallyincorporatedsubsidiaryoftheUltimateParentBankcarryingontheUltimateParentBank’sNewZealandconsumerandbusinessbankingoperations).On1November2011,theNZBranchtransferredadditionalbusinessactivitiesandassociatedemployeestotheBank(refertoNote2Businesscombination–transferofoperationsforfurtherdetails).

Limits on material financial support by the Ultimate Parent BankTheUltimateParentBankisanauthoriseddeposit-takinginstitution(‘ADI’)undertheBankingAct1959ofAustralia(‘Australian Banking Act’)and,assuch,issubjecttoprudentialregulationandsupervisionbytheAustralianPrudentialRegulationAuthority(‘APRA’).APRAhasthepowertoprescribeprudentialrequirementswhichmayaffecttheabilityoftheUltimateParentBanktoprovidematerialfinancialsupporttotheBank.PursuanttocurrentAPRArequirements,andunlessAPRAprovidesotherwise,theUltimateParentBankmustcomplywith,amongotherprudentialrequirements,APRA’sPrudentialStandardAPS222AssociationswithRelatedEntities(‘APS 222’).APS222includesthefollowingprudentialrequirements:

■■ theUltimateParentBank’sexposuretotheBank(beingarelatedADIasdefinedinAPS222)mustnotexceed50%oftheUltimateParentBank’sLevel1capitalbase(asdefinedinAPS222);

■■ theUltimateParentBankmustnotholdunlimitedexposurestotheBank(suchasageneralguaranteecoveringanyoftheBank’sobligations);

■■ theUltimateParentBankmustnotenterintocross-defaultclauseswherebyadefaultbytheBankonanobligation(whetherfinancialorotherwise)isdeemedtotriggeradefaultoftheUltimateParentBankinitsobligations;

■■ whendetermininglimitsonacceptablelevelsofexposuretotheBank,theBoardofDirectorsoftheUltimateParentBankmusthaveregardto:■ thelevelofexposuresthatwouldbeapprovedtothirdpartiesofbroadlyequivalentcreditstatus;and■ theimpactontheUltimateParentBank’sstand-alonecapitalandliquiditypositions,anditsabilitytocontinueoperating,

intheeventofafailurebytheBankoranyotherrelatedentitytowhichitisexposed.


General matters (continued)InJanuary2013,anewprovisioninAPS222tookeffectwhichallowsAPRAtosetspecificlimitsontheUltimateParentBank’sexposurestorelatedentities,whichincludetheBank.NospecificlimitsthatmaymateriallyinhibitthelegalabilityoftheUltimateParentBanktoprovidematerialfinancialsupporttotheBankhavebeensetunderthisprovision.TheUltimateParentBankcomplieswiththerequirementssetbyAPRAinrespectoftheextentoffinancialsupportthatisprovidedtotheBank.Section13A(3)oftheAustralianBankingActprovidesthat,intheeventthattheUltimateParentBankbecomesunabletomeetitsobligationsorsuspendspayment,theassetsoftheUltimateParentBankinAustraliaaretobeavailabletosatisfytheliabilitiesoftheUltimateParentBankinthefollowingorder:

■■ first,certainobligationsoftheUltimateParentBanktoAPRA(ifany)arisingunderDivision2AAofPartIIoftheAustralianBankingActinrespectofamountspayablebyAPRAtoholdersof‘protectedaccounts’(asdefinedintheAustralianBankingAct)aspartoftheFinancialClaimsScheme(‘FCS’)fortheAustralianGovernmentguaranteeof‘protectedaccounts’(includingmostdeposits)uptoA$250,000inthewinding-upoftheUltimateParentBank;

■■ second,APRA’scosts(ifany)inexercisingitspowersandperformingitsfunctionsrelatingtotheUltimateParentBankinconnectionwiththeFCS;

■■ third,theUltimateParentBank’sliabilities(ifany)inAustraliainrelationto‘protectedaccounts’thataccount-holderskeepwiththeUltimateParentBank;

■■ fourth,theUltimateParentBank’sdebts(ifany)totheReserveBankofAustralia;■■ fifth,theUltimateParentBank’sliabilities(ifany)underan‘industrysupportcontract’thatiscertifiedbyAPRAinaccordancewiththeAustralianBankingAct;and

■■ sixth,theUltimateParentBank’sotherliabilities(ifany)intheorderoftheirpriorityapartfromtheabove.Undersection16oftheAustralianBankingAct,onthewinding-upofanADI,APRA’scostofbeingincontrolofanADI’sbusiness,orhavinganadministratorincontrolofanADI’sbusiness,isadebtduetoAPRA.DebtsduetoAPRAshallhave,subjecttosection13A(3)oftheAustralianBankingAct,priorityoverallotherunsecureddebtsofthatADI.

DirectorateTheDirectorsoftheBankatthetimethisDisclosureStatementwassignedwere:

Name:PeterDavidWilson,CANon-executive:YesCountry of Residence:NewZealandPrimary Occupation: DirectorSecondary Occupations:NoneBoard Audit Committee Member:YesIndependent Director:Yes

External Directorships:ChairmanofeachofAugustaCapitalLimited,PFOlsenLimitedandPFOlsenGroupLimited.DeputyChairmanofMeridianEnergyLimited.DirectorofFarmlandsTradingSocietyLimited.

Name:PeterGrahamClare,B.Com,MBANon-executive:NoCountry of Residence:NewZealandPrimary Occupation:ChiefExecutive,WestpacNewZealandLimitedSecondary Occupations: DirectorBoard Audit Committee Member:NoIndependent Director:No

External Directorships:DirectorofeachofWestpacNewZealandGroupLimited,BTFundsManagement(NZ)Limited,BTFinancialGroup(NZ)LimitedandBankingOmbudsmanSchemeLimited.

Name:MalcolmGuyBailey,B.Ag.Econ.Non-executive:YesCountry of Residence:NewZealandPrimary Occupation: DirectorSecondary Occupations:NoneBoard Audit Committee Member:YesIndependent Director:Yes

External Directorships:ChairmanofeachoftheDairyCompaniesAssociationofNZandRedMeatProfitPartnershipGeneralPartnerLimited.1DirectorofFonterraCo-operativeGroupLimited.BoardMemberoftheNZUSCouncil.MemberoftheInternationalFoodandAgricultureTradePolicyCouncil.DirectorofeachofBaileyAgricultureLimited,BaileyFamilyPropertiesLimited,EmbryoTechnologiesLimited,AgricoHoldingsLimited,HopkinsFarmingGroupLimitedandGleneigHoldingsLimited.


General matters (continued)Name:PhilipMatthewCoffey,BEc(Hons.)Non-executive:YesCountry of Residence:AustraliaPrimary Occupation:ChiefFinancialOfficer,WestpacBankingCorporationSecondary Occupations: DirectorBoard Audit Committee Member:YesIndependent Director:No

External Directorships:DirectorofeachofMBMCPtyLtdandMBMCFuturesPtyLtd.

Name:JaniceAmeliaDawson,B.Com,FCANon-executive:YesCountry of Residence:NewZealandPrimary Occupation: DirectorSecondary Occupations:NoneBoard Audit Committee Member:Yes,ChairIndependent Director:Yes

External Directorships:DeputyChairofCountiesManukauDistrictHealthBoard.DirectorofeachofAIGInsuranceNewZealandLimited,AirNewZealandLimited,MeridianEnergyLimited,EruaLimited,GoodmanFielderLimitedandJanDawsonLimited.MemberofeachoftheCapitalInvestmentCommitteeoftheNationalHealthBoard,theCounciloftheUniversityofAuckland,theVoyagerMaritimeMuseum,theCounciloftheInternationalSailingFederationandtheEventsCommitteeoftheInternationalSailingFederation.ChairoftheAuditCommitteeoftheInternationalSailingFederation.

Name:ChristopherJohnDavidMoller,BCADipAccounting,ACANon-executive:YesCountry of Residence:NewZealandPrimary Occupation: DirectorSecondary Occupations:NoneBoard Audit Committee Member:YesIndependent Director:Yes

External Directorships:ChairmanofeachofNewZealandTransportAgency,MeridianEnergyLimitedandSKYCITYEntertainmentGroupLimited.DirectorofUrenuiConsultantsLimited.

1 MalcolmBaileywasappointedasaDirectorandChairmanofRedMeatProfitPartnershipGeneralPartnerLimitedinNovember2013.

AllcommunicationsmaybesenttotheDirectorsattheheadofficeoftheBankatWestpaconTakutaiSquare,16TakutaiSquare,Auckland1010,NewZealand.

Changes to DirectorateTherehavebeennochangesinthecompositionoftheBoardofDirectorsoftheBanksince30September2012.

Conflicts of interest policyTheBoardhasadoptedaproceduretoensurethatconflictsandpotentialconflictsofinterestbetweentheDirectors’dutytotheBankandtheirpersonal,professionalorbusinessinterestsareavoidedordealtwith.TheBank’spolicyisconsistentwiththeconflictsofinterestpolicyoftheUltimateParentBankanditssubsidiaries.Accordingly,eachDirectormust:(a) givenoticetotheBoardofanydirectorindirectinterestinanycontractorproposedcontractwiththeBankassoonas

practicableaftertherelevantfactshavecometothatDirector’sknowledge.Alternatively,aDirectormaygivetotheBoardageneralnoticetotheeffectthattheDirectoristoberegardedasinterestedinanypresentorprospectivecontractbetweentheBankandapersonorpersonsspecifiedinthatnotice;and

(b) inrelationtoanymatterthatistobeconsideredataDirectors’meetinginwhichthatDirectorhasamaterialpersonalinterest,notvoteonthematternorbepresentwhilethematterisbeingconsideredatthemeeting(unlesstheremainingDirectorshavepreviouslyresolvedtothecontrary).

Interested transactionsTherehavebeennotransactionsenteredintobyanyDirector,oranyimmediaterelativeorclosebusinessassociateofanyDirector,withtheBank,oranymemberoftheBankingGroup:(a) ontermsotherthanonthosewhichwould,intheordinarycourseofbusinessoftheBankoranymemberoftheBanking

Group,begiventoanyotherpersonoflikecircumstancesormeans;or(b) whichcouldotherwisebereasonablylikelytoinfluencemateriallytheexerciseofthatDirector’sduties.


Credit ratingsTheBankhasthefollowingcreditratingswithrespecttoitslong-termseniorunsecuredobligations,includingobligationspayableinNewZealandinNewZealanddollarsasatthedatetheDirectorssignedthisDisclosureStatement.

Rating Agency Current Credit Rating Rating Outlook

FitchRatings AA- Stable

Moody’sInvestorsService Aa3 Stable

Standard&Poor’s AA- Stable

On30January2012,FitchRatings(‘Fitch’)placedtheBank’screditratingoutlookon‘ratingwatchnegative’.TheannouncementbyFitchformedpartofabroaderreviewofthedebtratingsFitchappliestothelargestbankinginstitutionsintheworld.On24February2012,theBank’screditratingissuedbyFitchwasdowngradedfromAAtoAA-witha‘stable’outlook.On9November2011,Standard&Poor’sreleaseditsnewglobalbankratingcriteriaandBankingIndustryCountryRiskAssessments(‘BICRA’)methodology.Alsoon9November2011,Standard&Poor’sannouncedtheBICRAscoreforNewZealandofthree,downfromascoreoftwounderthepreviousmethodology.On1December2011,asaresultoftheStandard&Poor’sbankratingcriteriachanges,theBank’screditratingwasloweredfromAAtoAA-witha‘stable’outlook.TherehavebeennootherchangestotheaboveBank’screditratingsorratingsoutlooksinthetwoyearspriorto30September2013.Acreditratingisnotarecommendationtobuy,sellorholdsecuritiesoftheBank.Suchratingsaresubjecttorevision,qualification,suspensionorwithdrawalatanytimebytheassigningratingagency.InvestorsintheBank’ssecuritiesarecautionedtoevaluateeachratingindependentlyofanyotherrating.

Descriptions of credit rating scales1

Fitch Ratings

Moody’s Investors

ServiceStandard & Poor’s

The following grades display investment grade characteristics:

Capacitytomeetfinancialcommitmentsisextremelystrong.Thisisthehighestissuercredit rating

AAA Aaa AAA

Verystrongcapacitytomeetfinancialcommitments AA Aa AA

Strongcapacitytomeetfinancialcommitmentsalthoughsomewhatsusceptibletoadversechangesineconomic,businessorfinancialconditions

A A A

Adequatecapacitytomeetfinancialcommitments,butadversebusinessoreconomicconditionsaremorelikelytoimpairthiscapacity

BBB Baa BBB

The following grades have predominantly speculative characteristics:

Significantongoinguncertaintiesexistwhichcouldaffectthecapacitytomeetfinancialcommitmentsonatimelybasis

BB Ba BB

Greatervulnerabilityandthereforegreaterlikelihoodofdefault B B B

Likelihoodofdefaultnowconsideredarealpossibility.Capacitytomeetfinancialcommitmentsisdependentonfavourablebusiness,economicandfinancialconditions

CCC Caa CCC

Highestriskofdefault CC to C Ca CC

Obligationscurrentlyindefault RDtoD C SDtoD1 ThisisageneraldescriptionoftheratingcategoriesbasedoninformationpublishedbyFitch,Moody’sInvestorsServiceandStandard&Poor’s.

CreditratingsbyFitchandStandard&Poor’smaybemodifiedbyaplus(higherend)orminus(lowerend)signtoshowrelativestandingwithinthemajorcategories.Moody’sInvestorsServiceapplynumericmodifiers1(higherend),2or3(lowerend)toratingsfromAatoCaatoshowrelativestandingwithinthemajorcategories.Ratingsstatedin boldindicatetheBank’scurrentpositionwithinthecreditratingscales.


Guarantee arrangementsCertainmaterialobligationsoftheBankareguaranteedasatthedatetheDirectorssignedthisDisclosureStatement.

Government guaranteesTheBankhasaCrownWholesaleFundingGuaranteeFacilityDeedandCrownWholesaleFundingGuaranteewiththeNewZealandGovernment(‘Crown’),eachdated23February2009(togetherthe‘Wholesale Guarantee’).TheWholesaleGuaranteeclosedon30April2010fromwhichdatenonewGuaranteeEligibilityCertificatescanbeissued.GuaranteedLiabilities(asdefinedbelow)asat30April2010werenotaffected.ThefollowingdescriptionoftheWholesaleGuaranteeisforgeneralinformationpurposesonlyanddoesnotpurporttobeexhaustive.FurtherinformationabouttheWholesaleGuaranteeisavailablefromtheTreasuryinternetsitewww.treasury.govt.nz.

Wholesale GuaranteeTheguarantoroftheBank’sobligationsundertheWholesaleGuaranteeistheCrown.TheCrown’saddressforserviceinrelationtotheWholesaleGuaranteeis:(a) MinisterofFinance,ParliamentBuildings,Wellington;or(b) NewZealandHighCommissionerinLondonattheaddressoftheNewZealandHighCommissioninLondonforthetime

being;or(c) NewZealandConsulandTradeCommissionerattheaddressoftheNewZealandConsulate-GeneralinNewYorkforthetime

being;ineachcasewithacopy(withdeliverymadebyhandorfacsimile)to:TheTreasurer,TheNewZealandDebtManagementOffice,1TheTerrace,Wellington,NewZealand.ThemostrecentauditedfinancialstatementsoftheCrowncanalsobeobtainedfromtheTreasuryinternetsitewww.treasury.govt.nz.TheCrownhasthefollowingcreditratingsinrespectofitslong-termobligationspayableinNewZealanddollarsasatthedatetheDirectorssignedthisDisclosureStatement.

Rating Agency The Crown’s Current Credit Rating Rating Outlook

FitchRatings AA+ Stable

Moody’sInvestorsService Aaa Stable

Standard&Poor’s AA+ Stable

TherehavebeennochangestoanyoftheaboveCrown’sdomesticcurrencycreditratingsorratingoutlooksinthetwoyearspriorto30September2013.Foranexplanationofthecreditratingscalesseethetableunderthesub-heading‘Descriptionsofcreditratingscales’onpage4ofthisDisclosureStatement.

Obligations guaranteedTheobligationsguaranteedbytheCrownundertheWholesaleGuaranteeareobligationsoftheBanktopaymoneytoaBeneficiary(asdefinedbelow)underaGuaranteedLiability.A‘Guaranteed Liability’isaliabilitytopayprincipalorinterestinrespectofwhichtheCrownhasissuedaGuaranteeEligibilityCertificateundertheWholesaleGuarantee.TheCrown:(a) guaranteestoeachBeneficiarythepaymentbytheBankofanyGuaranteedLiabilityowedtothatBeneficiary;and(b) undertakestoeachBeneficiarythat,iftheBankdoesnotpayanyGuaranteedLiabilityowedtothatBeneficiaryonitsdue

date,theCrownwillpaythatGuaranteedLiability.Inthiscontext,a‘Beneficiary’meanseachpersontowhomaGuaranteedLiabilityisowed,excludinga‘RelatedParty’oftheBankasthattermisdefinedintheWholesaleGuaranteeandanyoneactingasanomineeof,ortrusteefor,aRelatedParty.TheCrownhasissuedGuaranteeEligibilityCertificatesinrespectofpaymentobligationsoftheBankundercertainnotesissuedbytheBank.TheCrownhasalsoissuedGuaranteeEligibilityCertificatesinrespectofpaymentobligationsoftheBankasguarantorofcertainnotesissuedbyWestpacSecuritiesNZLimited,acontrolledentityoftheBank.CopiesoftheGuaranteeEligibilityCertificatesissued,whichprovidefurtherdetailsoftheobligationsoftheBankguaranteedbytheCrownundertheWholesaleGuarantee,areavailableontheNewZealandTreasuryinternetsitewww.treasury.govt.nz.

Limits on the amount of obligations guaranteedTheobligationsoftheCrowninrespectofaGuaranteedLiabilityarelimitedtotherelevantpaymentobligationsoftheBankinrespectofprincipalandinterestundertheparticulardebtsecuritiesthatarespecifiedintherelevantGuaranteeEligibilityCertificate.

Material conditions applicable to the guaranteeThematerialconditionsapplicabletotheWholesaleGuarantee,otherthannon-performancebytheBank,aresummarisedbelow:(a) TheCrownisnotliableinrespectofanyGuaranteedLiabilitythathasbeenamendedinanyrespectwithoutthepriorwritten

consentoftheCrown.(b) TheCrownisnotliableinrespectofanyGuaranteedLiabilityuntiltheCrownreceivesawrittendemandforthatpayment

thatcomplieswiththerequirementssetoutintheWholesaleGuarantee.(c) SpecialconditionsmaybespecifiedintheGuaranteeEligibilityCertificateinrespectofaparticularGuaranteedLiability.

http://www.treasury.govt.nz

http://www.treasury.govt.nz


Guarantee arrangements (continued)Priortoachangetotheconditionsofregistrationthattookeffecton1January2013,locallyincorporatedregisteredbankshavingthebenefitoftheWholesaleFundingGuaranteeFacilitywererequiredtomaintainanadditional2%TierOneCapitalratiobufferabovethethen4%regulatoryminimum.Followingthechange,alllocallyincorporatedregisteredbanksarerequiredtoholdaminimumTierOneCapitalratioof6%.

Expiry of the Wholesale GuaranteeForeachGuaranteedLiabilitytheguaranteeundertheWholesaleGuaranteewillexpireatmidnightonthedatefalling30daysaftertheearlierof:(a) thescheduledmaturitydateofthesecurityunderwhichthatGuaranteedLiabilityarises;and(b) thedatefallingfiveyearsaftertheissuedateofthesecurityunderwhichthatGuaranteedLiabilityarises.ThereisnoprovisionforthewithdrawaloftheWholesaleGuaranteeinrespectofaGuaranteedLiability.TherehavebeennochangestothetermsoftheWholesaleGuaranteesincethedateofsigningoftheBank’sDisclosureStatementfortheyearended30September2012.

Pending proceedings or arbitrationTherearenopendinglegalproceedingsorarbitrationatthedateofthisDisclosureStatementinvolvinganymemberoftheBankingGroup,whetherinNewZealandorelsewhere,thatmayhaveamaterialadverseeffectontheBankingGrouportheBank.InMarch2013,litigationfunder,LitigationLendingServices(NZ)Limited,announcedpotentialrepresentativeactionsagainstfiveNewZealandBanksinrelationtocertainfees.InJune2013,proceedingswerefiledagainstoneofthosebanks.AsatthedateofsigningthisDisclosureStatement,noproceedingshavebeenfiledagainstWestpacNewZealandLimited.Atthisstagetheimpactofanysuchpotentialproceedingcannotbedeterminedwithanycertainty.ThecontingentliabilitiesoftheBankingGroupandtheBankaresetoutinNote28Commitmentsandcontingentliabilities.

Conditions of registration TheconditionsofregistrationimposedontheBank,whichappliedfrom30June2013to30September2013,areasfollows:1. That:

(a)theTotalCapitalratiooftheBankingGroupisnotlessthan8percent;(b)theTierOneCapitalratiooftheBankingGroupisnotlessthan6percent;(c)theCommonEquityTierOneCapitalratiooftheBankingGroupisnotlessthan4.5percent;(d)theTotalCapitaloftheBankingGroupisnotlessthan$30million;and(e)theprocessinSubpart2HoftheReserveBankdocument:‘CapitalAdequacyFramework(InternalModelsBased

Approach)’(BS2B)datedMay2013isfollowedfortherecognitionandrepaymentofcapital.Forthepurposesofthisconditionofregistration,—

thescalarreferredtointheReserveBankdocument‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B)datedMay2013is1.06.

‘TotalCapitalratio’,‘TierOneCapitalratio’,‘CommonEquityTierOneCapitalratio’,and‘TotalCapital’mustbecalculatedinaccordancewiththeReserveBankdocument‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B)datedMay2013.

1A.That:(a)theBankhasaninternalcapitaladequacyassessmentprocess(‘ICAAP’)thataccordswiththerequirementssetoutinthe

document‘GuidelinesonaBank’sInternalCapitalAdequacyAssessmentProcess(‘ICAAP’)’(BS12)datedDecember2007;(b)underitsICAAPtheBankidentifiesandmeasuresits‘othermaterialrisks’definedasallmaterialrisksoftheBanking

GroupthatarenotexplicitlycapturedinthecalculationofCommonEquityTierOneCapitalratio,theTierOneCapitalratioandTotalCapitalratioundertherequirementssetoutinthedocument‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B)datedMay2013;and

(c)theBankdeterminesaninternalcapitalallocationforeachidentifiedandmeasured‘othermaterialrisk’.1B.ThattheBankingGroupcomplieswithallrequirementssetoutintheReserveBankdocument‘CapitalAdequacyFramework

(InternalModelsBasedApproach)’(BS2B)datedMay2013.1C.That,ifthebufferratiooftheBankingGroupis2.5%orless,theBankmust:

(a)accordingtothefollowingtable,limittheaggregatedistributionsoftheBank’searningstothepercentagelimittodistributionsthatcorrespondstotheBankingGroup’sbufferratio:

Banking Group’s buffer ratio Percentage limit to distributions of the Bank’s earnings

0%–0.625% 0%>0.625–1.25% 20%>1.25–1.875% 40%>1.875–2.5% 60%

(b)prepareacapitalplantorestoretheBankingGroup’sbufferratiotoabove2.5%withinanytimeframedeterminedbytheReserveBankforrestoringthebufferratio;and

(c)havethecapitalplanapprovedbytheReserveBank.


Conditions of registration (continued) Forthepurposesofthisconditionofregistration,— ‘bufferratio’,‘distributions’,and‘earnings’havethesamemeaningasinPart3oftheReserveBankdocument:‘Capital

AdequacyFramework(InternalModelsBasedApproach)’(BS2B)datedMay2013. thescalarreferredtointheReserveBankdocument‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B)

datedMay2013is1.06. Thisconditionofregistrationappliesonandafter1January2014.2. ThattheBankingGroupdoesnotconductanynon-financialactivitiesthatinaggregatearematerialrelativetoitstotal

activities. Inthisconditionofregistration,themeaningof‘material’isbasedongenerallyacceptedaccountingpractice.3. ThattheBankingGroup’sinsurancebusinessisnotgreaterthan1%ofitstotalconsolidatedassets. Forthepurposesofthisconditionofregistration,theBankingGroup’sinsurancebusinessisthesumofthefollowingamounts

forentitiesintheBankingGroup:(a)ifthebusinessofanentitypredominantlyconsistsofinsurancebusinessandtheentityisnotasubsidiaryofanother

entityintheBankingGroupwhosebusinesspredominantlyconsistsofinsurancebusiness,theamountoftheinsurancebusinesstosumisthetotalconsolidatedassetsofthegroupheadedbytheentity;and

(b)iftheentityconductsinsurancebusinessanditsbusinessdoesnotpredominantlyconsistofinsurancebusinessandtheentityisnotasubsidiaryofanotherentityintheBankingGroupwhosebusinesspredominantlyconsistsofinsurancebusiness,theamountoftheinsurancebusinesstosumisthetotalliabilitiesrelatingtotheentity’sinsurancebusinessplustheequityretainedbytheentitytomeetthesolvencyorfinancialsoundnessneedsofitsinsurancebusiness:

IndeterminingthetotalamountoftheBankingGroup’sinsurancebusiness:(a)allamountsmustrelatetoonbalancesheetitemsonly,andmustcomplywithgenerallyacceptedaccountingpractice;and(b)ifproductsorassetsofwhichaninsurancebusinessiscomprisedalsocontainanon-insurancecomponent,thewholeof

suchproductsorassetsmustbeconsideredpartoftheinsurancebusiness. Forthepurposesofthisconditionofregistration,— ‘insurancebusiness’meanstheundertakingorassumptionofliabilityasaninsurerunderacontractofinsurance; ‘insurer’and‘contractofinsurance’havethesamemeaningasprovidedinsections6and7oftheInsurance(Prudential

Supervision)Act2010.4. Thattheaggregatecreditexposures(ofanon-capitalnatureandnetofanyallowancesforimpairment)oftheBanking

Grouptoallconnectedpersonsdonotexceedtherating-contingentlimitoutlinedinthefollowingmatrix:

Credit rating of the Bank1 Connected exposure limit (% of the Banking Group’s Tier One Capital)

AA/Aa2andabove 75

AA-/Aa3 70

A+/A1 60

A/A2 40

A-/A3 30

BBB+/Baa1andbelow 15

1 ThistableusestheratingscalesofStandard&Poor’s,FitchRatingsandMoody’sInvestorsService(FitchRatings’scaleisidenticaltoStandard&Poor’s).

Withintherating-contingentlimit,creditexposures(ofanon-capitalnatureandnetofanyallowancesforimpairment)tonon-bankconnectedpersonsshallnotexceed15%oftheBankingGroup’sTierOneCapital.

Forthepurposesofthisconditionofregistration,compliancewiththerating-contingentconnectedexposurelimitisdeterminedinaccordancewiththeReserveBankdocumententitled‘ConnectedExposuresPolicy’(BS8)datedMay2013.

5. Thatexposurestoconnectedpersonsarenotonmorefavourableterms(e.g.asrelatestosuchmattersascreditassessment,tenor,interestrates,amortisationschedulesandrequirementforcollateral)thancorrespondingexposurestonon-connectedpersons.

6. ThattheBankcomplieswiththefollowingcorporategovernancerequirements:(a)theBoardoftheBankmusthaveatleastfivedirectors;(b)themajorityoftheBoardmembersmustbenon-executivedirectors;(c)atleasthalfoftheBoardmembersmustbeindependentdirectors;(d)analternatedirector:

(i) foranon-executivedirectormustbenon-executive;and(ii)foranindependentdirectormustbeindependent;

(e)atleasthalfoftheindependentdirectorsoftheBankmustbeordinarilyresidentinNewZealand;(f)thechairpersonoftheBoardoftheBankmustbeindependent;and(g)theBank’sconstitutionmustnotincludeanyprovisionpermittingadirector,whenexercisingpowersorperformingduties

asadirector,toactotherthaninwhatheorshebelievesisthebestinterestsofthecompany(i.e.theBank). Forthepurposesofthisconditionofregistration,‘non-executive’and‘independent’havethesamemeaningasintheReserve

Bankdocumententitled‘CorporateGovernance’(BS14)datedMarch2011.


Conditions of registration (continued)7. Thatnoappointmentofanydirector,chiefexecutiveofficer,orexecutivewhoreportsorisaccountabledirectlytothechief

executiveofficer,ismadeinrespectoftheBankunless:(a)theReserveBankhasbeensuppliedwithacopyofthecurriculumvitaeoftheproposedappointee;and(b)theReserveBankhasadvisedthatithasnoobjectiontothatappointment.

8. ThatapersonmustnotbeappointedaschairpersonoftheBoardoftheBankunless:(a)theReserveBankhasbeensuppliedwithacopyofthecurriculumvitaeoftheproposedappointee;and(b)theReserveBankhasadvisedthatithasnoobjectiontothatappointment.

9. ThattheBankhasaBoardauditcommittee,orotherseparateboardcommitteecoveringauditmatters,thatmeetsthefollowingrequirements:(a)themandateofthecommitteemustinclude:ensuringtheintegrityoftheBank’sfinancialcontrols,reportingsystemsand

internalauditstandards;(b)thecommitteemusthaveatleastthreemembers;(c)everymemberofthecommitteemustbeanon-executivedirectoroftheBank;(d)themajorityofthemembersofthecommitteemustbeindependent;and(e)thechairpersonofthecommitteemustbeindependentandmustnotbethechairpersonoftheBank.

Forthepurposesofthisconditionofregistration,‘non-executive’and‘independent’havethesamemeaningasintheReserveBankdocumententitled‘CorporateGovernance’(BS14)datedMarch2011.

10.ThatasubstantialproportionoftheBank’sbusinessisconductedinandfromNewZealand.11.ThattheBankhaslegalandpracticalabilitytocontrolandexecuteanybusiness,andanyfunctionsrelatingtoanybusiness,

oftheBankthatarecarriedonbyapersonotherthantheBank,sufficienttoachieve,undernormalbusinessconditionsandintheeventofstressorfailureoftheBankorofaserviceprovidertotheBank,thefollowingoutcomes:(a)thattheBank’sclearingandsettlementobligationsdueonadaycanbemetonthatday;(b)thattheBank’sfinancialriskpositionsonadaycanbeidentifiedonthatday;(c)thattheBank’sfinancialriskpositionscanbemonitoredandmanagedonthedayfollowinganyfailureandonsubsequent

days;and(d)thattheBank’sexistingcustomerscanbegivenaccesstopaymentsfacilitiesonthedayfollowinganyfailureandon

subsequentdays. Forthepurposesofthisconditionofregistration,theterm‘legalandpracticalabilitytocontrolandexecute’isexplainedin

theReserveBankdocumententitled‘OutsourcingPolicy’(BS11)datedJanuary2006.12.That:

(a)thebusinessandaffairsoftheBankaremanagedby,orunderthedirectionorsupervisionof,theBoardoftheBank;(b)theemploymentcontractofthechiefexecutiveofficeroftheBankorpersoninanequivalentposition(together‘CEO’)is

withtheBank,andthetermsandconditionsoftheCEO’semploymentagreementaredeterminedby,andanydecisionsrelatingtotheemploymentorterminationofemploymentoftheCEOaremadeby,theBoardoftheBank;and

(c)allstaffemployedbytheBankhavetheirremunerationdeterminedby(orunderthedelegatedauthorityof)theBoardortheCEOoftheBankandareaccountable(directlyorindirectly)totheCEOoftheBank.

13. That,forthepurposesofcalculatingtheBank’scapitalratiosonasolobasis,acreditconversionfactorofzeroisonlyappliedtoaguaranteeofafinancingsubsidiary’sfinancialobligationsif,insubstance,theguaranteedoesnotcreateariskoflossfortheBank.

14.ThattheBankingGroupcomplieswiththefollowingquantitativerequirementsforliquidity-riskmanagement:(a)theone-weekmismatchratiooftheBankingGroupisnotlessthan0%attheendofeachbusinessday;(b)theone-monthmismatchratiooftheBankingGroupisnotlessthan0%attheendofeachbusinessday;and(c)theone-yearcorefundingratiooftheBankingGroupisnotlessthan75%attheendofeachbusinessday.

Forthepurposesofthisconditionofregistration,theratiosidentifiedmustbecalculatedinaccordancewiththeReserveBankdocumentsentitled‘LiquidityPolicy’(BS13)datedMarch2011and‘LiquidityPolicyAnnex:LiquidAssets’(BS13A)datedDecember2011.

15.ThattheBankhasaninternalframeworkforliquidityriskmanagementthatisadequateintheBank’sviewformanagingtheBank’sliquidityriskataprudentlevel,andthat,inparticular:(a)isclearlydocumentedandcommunicatedtoallthoseintheorganisationwithresponsibilityformanagingliquidityand

liquidityrisk;(b)identifiesresponsibilityforapproval,oversightandimplementationoftheframeworkandpoliciesforliquidityrisk

management;(c)identifiestheprincipalmethodsthattheBankwilluseformeasuring,monitoringandcontrollingliquidityrisk;and(d)considersthematerialsourcesofstressthattheBankmightface,andpreparestheBanktomanagestressthrougha

contingencyfundingplan.


Conditions of registration (continued)16.Thatnomorethan10%oftotalassetsmaybebeneficiallyownedbyaSPV. Forthepurposesofthiscondition: ‘totalassets’meansallassetsoftheBankingGroupplusanyassetsheldbyanySPVthatarenotincludedintheBanking

Group’sassets: ‘SPV’meansaperson:

(a)towhomanymemberoftheBankingGrouphassold,assigned,orotherwisetransferredanyasset;(b)whohasgranted,ormaygrant,asecurityinterestinitsassetsforthebenefitofanyholderofanycoveredbond;and(c)whocarriesonnootherbusinessexceptforthatnecessaryorincidentaltoguaranteetheobligationsofanymemberof

theBankingGroupunderacoveredbond: ‘coveredbond’meansadebtsecurityissuedbyanymemberoftheBankingGroup,forwhichrepaymenttoholdersis

guaranteedbyaSPV,andinvestorsretainanunsecuredclaimontheissuer.17.That:

(a)nomemberoftheBankingGroupmaygiveeffecttoaqualifyingacquisitionorbusinesscombinationthatmeetsthenotificationthreshold,anddoesnotmeetthenon-objectionthreshold,unless:(i)theBankhasnotifiedtheReserveBankinwritingoftheintendedacquisitionorbusinesscombinationandatleast10

workingdayshavepassed;and(ii)atthetimeofnotifyingtheReserveBankoftheintendedacquisitionorbusinesscombination,theBankprovided

theReserveBankwiththeinformationrequiredundertheReserveBankBankingSupervisionHandbookdocument‘SignificantAcquisitionsPolicy’(BS15)datedDecember2011;and

(b)nomemberoftheBankingGroupmaygiveeffecttoaqualifyingacquisitionorbusinesscombinationthatmeetsthenon-objectionthresholdunless:(i) theBankhasnotifiedtheReserveBankinwritingoftheintendedacquisitionorbusinesscombination;(ii)atthetimeofnotifyingtheReserveBankinwritingoftheintendedacquisitionorbusinesscombination,theBank

providedtheReserveBankwiththeinformationrequiredundertheReserveBankBankingSupervisionHandbookdocument‘SignificantAcquisitionsPolicy’(BS15)datedDecember2011;and

(iii)theReserveBankhasgiventheBankanoticeofnon-objectiontothesignificantacquisitionorbusinesscombination. Forthepurposesofthisconditionofregistration,‘qualifyingacquisitionorbusinesscombination’,‘notificationthreshold’

and‘non-objectionthreshold’havethesamemeaningasintheReserveBankBankingSupervisionHandbookdocument‘SignificantAcquisitionsPolicy’(BS15)datedDecember2011.

18.ThattheBankispre-positionedforOpenBankResolutionandinaccordancewithadirectionfromtheReserveBank,theBankcan:(a)closepromptlyatanytimeofthedayandonanydayoftheweekandthateffectiveupontheappointmentofthe

statutorymanager:(i) allliabilitiesarefrozeninfull;and(ii)nofurtheraccessbycustomersandcounterpartiestotheiraccounts(deposits,liabilitiesorotherobligations)is

possible;(b)applyade minimistorelevantcustomerliabilityaccounts;(c)applyapartialfreezetothecustomerliabilityaccountbalances;(d)reopenbynolaterthan9amthenextbusinessdayfollowingtheappointmentofastatutorymanagerandprovide

customersaccesstotheirunfrozenfunds;(e)maintainafullfreezeonliabilitiesnotpre-positionedforOpenBankResolution;and(f)reinstatecustomers’accesstosomeoralloftheirresidualfrozenfunds.

19.ThattheBankhasanImplementationPlanthat:(a)isup-to-date;and(b)demonstratesthattheBank’sprepositioningforOpenBankResolutionmeetstherequirementssetoutintheReserve

Bankdocument:‘OpenBankResolutionPre-positioningRequirementsPolicy’(BS17).20.ThattheBankhasacompendiumofliabilitiesthat:

(a)attheproduct-classlevellistsallliabilities,indicatingwhichare: (i) pre-positionedforOpenBankResolution;and (ii)notpre-positionedforOpenBankResolution;(b)isagreedtobytheReserveBank;and(c)iftheReserveBank’sagreementisconditional,meetstheReserveBank’sconditions.

21. ThatonanannualbasistheBanktestsallthecomponentpartsofitsOBRsolutionthatdemonstratestheBank’sprepositioningforOpenBankResolutionasspecifiedintheirImplementationPlan.

Forthepurposesofthisconditionofregistration,‘deminimis’,‘partialfreeze’,‘customerliabilityaccount’,‘frozenandunfrozenfunds’,‘ImplementationPlan’,‘compendiumofliabilities’,and‘pre-positionedandnonpre-positionedliabilities’havethesamemeaningasintheReserveBankdocumententitled‘OpenBankResolution(OBR)Pre-positioningRequirementsPolicy’(BS17)datedJune2013.


Conditions of registration (continued)Intheseconditionsofregistration:

■■ ‘BankingGroup’meansWestpacNewZealandLimited’sfinancialreportinggroupasdefinedinsection2(1)oftheFinancialReportingAct1993;and

■■ ‘generallyacceptedaccountingpractice’hasthesamemeaningasinsection2oftheFinancialReportingAct1993.TheBank’sconditionsofregistrationwereamendedon27September2013.Theamendmentscameintoeffectfrom1October2013.Theprincipalchangewastoaddnewconditionsofregistrationrestrictinghighloan-to-valuationresidentialmortgagelending.TheReserveBankalsomadesomeminoramendmentstothe‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B),revisedthedocument‘Applicationforcapitalrecognitionorrepayment:materialtobeprovidedtotheReserveBank’(BS16),whichisreferredtoinBS2B,andamendedits‘ConnectedExposuresPolicy’(BS8)toupdateversionreferences.MinoramendmentswerealsomadetotheconditionsofregistrationrelatingtoOpenBankResolution.

Other material mattersTherearenomattersrelatingtothebusinessoraffairsoftheBankandtheBankingGroupwhicharenotcontainedelsewhereintheDisclosureStatementandwhichwould,ifdisclosed,materiallyaffectthedecisionofapersontosubscribefordebtsecuritiesofwhichtheBankoranymemberoftheBankingGroupistheissuer.

AuditorsPricewaterhouseCoopersPricewaterhouseCoopersTower188QuayStreetAuckland,NewZealand


Historical summary of financial statements

The Banking Group Year Ended YearEnded YearEnded YearEnded YearEnded$ millions 30-Sep-13 30-Sep-12 30-Sep-11 30-Sep-10 30-Sep-09

Income statementInterestincome 3,768 3,881 3,521 3,501 3,988Interestexpense (2,232) (2,382) (2,205) (2,337) (2,672)

Net interest income 1,536 1,499 1,316 1,164 1,316Non-interestincome 371 356 308 291 363

Net operating income 1,907 1,855 1,624 1,455 1,679Operatingexpenses (810) (807) (771) (704) (708)Impairmentchargesonloans (107) (190) (224) (334) (620)

Operating profit 990 858 629 417 351Shareofprofitofassociateaccountedforusingtheequitymethod 1 1 1 1 -

Profit before income tax expense 991 859 630 418 351Incometaxexpense (277) (246) (197) (132) (103)

Profit after income tax expense 714 613 433 286 248

Profit after income tax expense attributable to: OwnersoftheBankingGroup 711 610 429 283 245 Non-controllinginterests 3 3 4 3 3

714 613 433 286 248

Dividends paid or provided (4) (484) (2) (4) (328)

Balance sheetTotalassets 70,512 68,822 60,656 55,179 54,509Totalimpairedassets 573 867 794 742 670Totalliabilities 63,946 63,026 56,160 51,131 50,745Totalequity 6,566 5,796 4,496 4,048 3,764

Theamountsfortheyearsended30SeptemberhavebeenextractedfromtheauditedfinancialstatementsoftheBankingGroup.


Directors’ statementEachDirectoroftheBankbelieves,afterdueenquiry,that,asatthedateonwhichthisDisclosureStatementissigned,theDisclosureStatement:(a) containsalltheinformationthatisrequiredbytheOrder;and(b) isnotfalseormisleading.EachDirectoroftheBankbelieves,afterdueenquiry,that,overtheyearended30September2013:(a) theBankhascompliedwiththeconditionsofregistrationimposedonitpursuanttosection74oftheReserveBankAct;(b) creditexposurestoconnectedpersonswerenotcontrarytotheinterestsoftheBankingGroup;and(c) theBankhadsystemsinplacetomonitorandcontroladequatelytheBankingGroup’smaterialrisks,includingcreditrisk,

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

ThisDisclosureStatementhasbeensignedbyalltheDirectors:

PeterDavidWilson

Peter Graham Clare

MalcolmGuyBailey

PhilipMatthewCoffey

JaniceAmeliaDawson

ChristopherJohnDavidMoller

Datedthis21stdayofNovember2013


Index to financial statements

Page Contents14 Incomestatements15 Statementsofcomprehensiveincome16 Statementsofchangesinequity18 Balancesheets19 Statementsofcashflows20 Notestothefinancialstatements20 Note1Statementofaccountingpolicies34 Note2Businesscombination–transferofoperations37 Note3Netinterestincome37 Note4Non-interestincome38 Note5Operatingexpenses38 Note6Auditors’remuneration39 Note7Impairmentchargesonloans39 Note8Incometaxexpense39 Note9Imputationcreditaccount40 Note10Duefromotherfinancialinstitutions40 Note11Tradingsecurities40 Note12Available-for-salesecurities41 Note13Loans42 Note14Creditquality,impairedassetsandprovisionsforimpairmentchargesonloans44 Note15Goodwillandotherintangibleassets44 Note16Deferredtaxassets45 Note17Otherassets45 Note18Duetootherfinancialinstitutions45 Note19Deposits46 Note20Debtissues46 Note21Provisions46 Note22Otherliabilities47 Note23Perpetualsubordinatednotes47 Note24Sharecapital48 Note25Relatedentities50 Note26Derivativefinancialinstruments54 Note27Fairvalueoffinancialinstruments60 Note28Commitmentsandcontingentliabilities61 Note29Segmentinformation62 Note30Superannuationcommitments63 Note31Keymanagementpersonnel64 Note32Securitisation,fundsmanagementandotherfiduciaryactivities64 Note33Insurancebusiness65 Note34Capitaladequacy68 Note35Riskmanagement70 35.1Complianceandoperationalrisk71 35.2Fundingandliquidityrisk77 35.3Creditrisk87 35.4Marketrisk90 Note36Concentrationoffunding91 Note37Concentrationofcreditexposures92 Note38Creditexposurestoconnectedpersonsandnon-bankconnectedpersons93 Note39Reconciliationofprofitafterincometaxexpensetonetcashprovidedbyoperatingactivities93 Note40Eventsafterthereportingdate94 Independentauditors’report


Income statementsfortheyearended30September The Banking Group The Bank Year Ended YearEnded Year Ended YearEnded$ millions Note 30-Sep-13 30-Sep-12 30-Sep-13 30-Sep-12

Interestincome 3 3,768 3,881 4,097 4,187Interestexpense 3 (2,232) (2,382) (2,578) (2,704)

Net interest income 1,536 1,499 1,519 1,483Non-interestincome 4 371 356 358 344

Net operating income 1,907 1,855 1,877 1,827Operatingexpenses 5 (810) (807) (814) (809)Impairmentchargesonloans 7 (107) (190) (104) (180)

Operating profit 990 858 959 838Shareofprofitofassociateaccountedforusingtheequitymethod 1 1 - -

Profit before income tax expense 991 859 959 838Incometaxexpense 8 (277) (246) (268) (236)

Profit after income tax expense 714 613 691 602

Profit after income tax expense attributable to: OwnersoftheBankingGroup 711 610 691 602 Non-controllinginterests 3 3 - -

714 613 691 602

Theaccompanyingnotes(numbered1to40)formpartof,andshouldbereadinconjunctionwith,thesefinancialstatements.


Statements of comprehensive income fortheyearended30September The Banking Group The Bank Year Ended YearEnded Year Ended YearEnded$ millions 30-Sep-13 30-Sep-12 30-Sep-13 30-Sep-12

Profit after income tax expense 714 613 691 602

Other comprehensive income which may be reclassified to the income statement: Available-for-salesecurities: Netunrealisedgainsfromchangesinfairvalueofavailable-for-salesecurities 23 66 23 66 Exchangedifferences 1 (6) 1 (6) Income tax effect 2 (11) 2 (11) Cashflowhedges: Netgainsfromchangesinfairvalueofcashflowhedges 30 18 30 18 Transferredtotheincomestatement (22) (4) (22) (4) Income tax effect (2) (4) (2) (4)

Total other comprehensive income which may be reclassified to the income statement 32 59 32 59

Other comprehensive income/(expense) which will not be reclassified to the income statement: Actuarialgains/(losses)onemployeedefinedbenefitobligations 39 (25) 39 (25) Income tax effect (11) 7 (11) 7

Total other comprehensive income/(expense) which will not be reclassified to the income statement 28 (18) 28 (18)

Total other comprehensive income, net of tax 60 41 60 41

Total comprehensive income 774 654 751 643

Total comprehensive income attributable to: OwnersoftheBankingGroup 771 651 751 643 Non-controllinginterests 3 3 - -

774 654 751 643



Statements of changes in equityfortheyearended30September 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 2011 3,470 967 31 20 4,488 8 4,496

Year ended 30 September 2012Profitafterincometaxexpense - 610 - - 610 3 613Netgainsfromchangesinfairvalue - - 66 18 84 - 84 Incometaxeffect - - (11) (5) (16) - (16)Exchangedifferences - - (6) - (6) - (6) Incometaxeffect - - - - - - -Transferredtotheincomestatement - - - (4) (4) - (4) Incometaxeffect - - - 1 1 - 1Actuariallossesonemployeedefinedbenefit obligations - (25) - - (25) - (25) Incometaxeffect - 7 - - 7 - 7

Total comprehensive income for the year ended 30 September 2012 - 592 49 10 651 3 654

Transactionwithowners: Ordinarysharecapitalissued 1,130 - - - 1,130 - 1,130 Dividendspaidonordinaryshares - (480) - - (480) (4) (484)As at 30 September 2012 4,600 1,079 80 30 5,789 7 5,796

Year ended 30 September 2013Profitafterincometaxexpense - 711 - - 711 3 714 Netgainsfromchangesinfairvalue - - 23 30 53 - 53 Income tax effect - - 2 (8) (6) - (6) Exchangedifferences - - 1 - 1 - 1 Income tax effect - - - - - - - Transferredtotheincomestatement - - - (22) (22) - (22) Income tax effect - - - 6 6 - 6 Actuarialgainsonemployeedefined benefitobligations - 39 - - 39 - 39 Income tax effect - (11) - - (11) - (11)

Total comprehensive income for the year ended 30 September 2013 - 739 26 6 771 3 774

Transactionwithowners: Dividendspaidonordinaryshares - - - - - (4) (4) As at 30 September 2013 4,600 1,818 106 36 6,560 6 6,566



Statements of changes in equity (continued)fortheyearended30September The Bank Available- for-sale Cash Flow Share Retained Securities Hedge$ millions Capital Profits Reserve Reserve Total

As at 1 October 2011 3,470 905 31 20 4,426

Year ended 30 September 2012Profitafterincometaxexpense - 602 - - 602Netgainsfromchangesinfairvalue - - 66 18 84 Incometaxeffect - - (11) (5) (16)Exchangedifferences - - (6) - (6) Incometaxeffect - - - - -Transferredtotheincomestatement - - - (4) (4) Incometaxeffect - - - 1 1Actuariallossesonemployeedefinedbenefitobligations - (25) - - (25) Incometaxeffect - 7 - - 7

Total comprehensive income for the year ended 30 September 2012 - 584 49 10 643

Transactionwithowners: Ordinarysharecapitalissued 1,130 - - - 1,130 Dividendspaidonordinaryshares - (480) - - (480)

As at 30 September 2012 4,600 1,009 80 30 5,719

Year ended 30 September 2013Profitafterincometaxexpense - 691 - - 691 Netgainsfromchangesinfairvalue - - 23 30 53 Income tax effect - - 2 (8) (6) Exchangedifferences - - 1 - 1 Income tax effect - - - - - Transferredtotheincomestatement - - - (22) (22) Income tax effect - - - 6 6 Actuarialgainsonemployeedefinedbenefitobligations - 39 - - 39 Income tax effect - (11) - - (11)

Total comprehensive income for the year ended 30 September 2013 - 719 26 6 751

As at 30 September 2013 4,600 1,728 106 36 6,470



Balance sheets asat30September

The Banking Group The Bank$ millions Note 2013 2012 2013 2012

AssetsCashandbalanceswithcentralbanks 1,804 1,595 1,804 1,595Duefromotherfinancialinstitutions 10 173 322 173 322 Derivativefinancialinstruments 26 8 10 8 10 Tradingsecurities 11 1,578 2,040 1,578 2,040Available-for-salesecurities 12 2,715 2,694 2,715 2,694Loans 13,14 61,585 59,422 61,479 59,303Duefromrelatedentities 25 1,376 1,527 11,019 10,377Investmentsincontrolledentities - - 281 281Investmentinassociate 25 48 48 - -Goodwillandotherintangibleassets 15 660 598 660 598Property,plantandequipment 169 162 14 15 Deferredtaxassets 16 180 209 161 189Otherassets 17 216 195 214 171

Total assets 70,512 68,822 80,106 77,595

LiabilitiesDuetootherfinancialinstitutions 18 100 3 100 3 Deposits 19 48,182 43,390 46,866 42,670Derivativefinancialinstruments 26 178 360 178 360 Debtissues 20 11,645 12,914 3,741 2,674Currenttaxliabilities 19 48 12 37Provisions 21 77 83 77 83Otherliabilities 22 548 579 475 503

Total liabilities excluding related entities liabilities 60,749 57,377 51,449 46,330Perpetualsubordinatednotes 23 - 970 - 970Duetorelatedentities 25 3,197 4,679 22,187 24,576

Total related entities liabilities 3,197 5,649 22,187 25,546

Total liabilities 63,946 63,026 73,636 71,876

Net assets 6,566 5,796 6,470 5,719

EquitySharecapital 24 4,600 4,600 4,600 4,600Retainedprofits 1,818 1,079 1,728 1,009Available-for-salesecuritiesreserve 106 80 106 80Cashflowhedgereserve 36 30 36 30

Total equity attributable to owners of the Banking Group 6,560 5,789 6,470 5,719Non-controllinginterests 6 7 - -

Total equity 6,566 5,796 6,470 5,719

Interestearninganddiscountbearingassets 69,476 67,935 78,855 76,558Interestanddiscountbearingliabilities 59,359 57,999 68,934 66,834


SignedonbehalfoftheBoardofDirectors.

P.D.Wilson J.A.Dawson21November2013 21November2013


Statements of cash flows fortheyearended30September

The Banking Group The Bank Year Ended YearEnded Year Ended YearEnded$ millions 30-Sep-13 30-Sep-12 30-Sep-13 30-Sep-12

Cash flows from operating activitiesInterestincomereceived 3,778 3,866 4,108 4,171Interestexpensepaid (2,236) (2,388) (2,579) (2,690)Non-interestincomereceived 358 347 321 344 Netloansadvancedtocustomers (2,270) (2,026) (2,280) (2,040)Netincreaseindeposits 4,792 3,444 4,196 3,220Netdecreaseintradingsecurities 449 3,178 449 3,178Netmovementinderivativefinancialinstruments (188) 339 (188) 339 Operatingexpensespaid (735) (761) (759) (785)Income tax paid (273) (220) (268) (215)

Net cash provided by operating activities1 3,675 5,779 3,000 5,522

Cash flows from investing activitiesPurchaseofavailable-for-salesecurities (23) (1,179) (23) (1,179)Proceedsfrommaturitiesofavailable-for-salesecurities 26 63 26 63 Netdecrease/(increase)induefromrelatedentities 151 (10) (642) (866)Purchaseofcapitalisedcomputersoftware (97) (67) (97) (67)Purchaseofproperty,plantandequipment (37) (35) (4) (4)Netcashacquiredfromthetransferofadditionalbankingoperations - (154) - (154)

Net cash provided by/(used in) investing activities1 20 (1,382) (740) (2,207)

Cash flows from financing activitiesIssueofordinarysharecapital - 1,130 - 1,130Net(decrease)/increaseindebtissues (1,269) (4,716) 1,067 1,076Netdecreaseinduetorelatedentities (1,489) (227) (2,394) (4,941)Decreaseinperpetualsubordinatednotes (970) - (970) -Paymentofdividends (4) (484) - (480)

Net cash used in financing activities1 (3,732) (4,297) (2,297) (3,215)

Net (decrease)/increase in cash and cash equivalents (37) 100 (37) 100 Cashandcashequivalentsatbeginningoftheyear 1,914 1,814 1,914 1,814

Cash and cash equivalents at end of the year 1,877 1,914 1,877 1,914

Cash and cash equivalents at end of the year comprise: Cashandbalanceswithcentralbanks 1,804 1,595 1,804 1,595 Duefromotherfinancialinstitutions(net) 73 319 73 319

1,877 1,914 1,877 1,9141 ThepresentationoftheStatementsofcashflowshasbeenrevisedthisyeartobetterreflectthenatureofourbusiness.Cashflowsfromloansanddepositshavebeen

reclassifiedfrominvestingandfinancingactivities,respectively,tooperatingactivities.Comparativefigureshavebeenrevisedinordertoensureconsistency.Thesechangeshavehadnoimpactonthereportednet(decrease)/increaseincashandcashequivalents.



Notestothefinancialstatements

Note 1 Statement of accounting policies

1.1 General accounting policiesStatutory baseInthesefinancialstatements,referenceismadeto:

■■ WestpacNewZealandLimited(otherwisereferredtoasthe‘Bank’).■■ WestpacNewZealandLimitedanditscontrolledentities(otherwisereferredtoasthe‘Banking Group’).ThesefinancialstatementshavebeenpreparedandpresentedinaccordancewiththeFinancialReportingAct1993,theReserveBankofNewZealandAct1989andtheRegisteredBankDisclosureStatements(NewZealandIncorporatedRegisteredBanks)Order(No2)2013(‘Order’).TheBank’sfinancialstatementsareforWestpacNewZealandLimitedasaseparateentityandtheconsolidatedfinancialstatementsarefortheBankingGroup,whichcomprisestheBankanditscontrolledentities.ThesefinancialstatementscomplywithGenerallyAcceptedAccountingPracticeinNewZealand(‘NZ GAAP’),applicableNewZealandequivalentstoInternationalFinancialReportingStandards(‘NZ IFRS’)andotherauthoritativepronouncementsoftheExternalReportingBoard,asappropriateforprofit-orientedentities.ThesefinancialstatementsalsocomplywithInternationalFinancialReportingStandards(‘IFRS’),asissuedbytheInternationalAccountingStandardsBoard(‘IASB’).ThesefinancialstatementswereauthorisedforissuebytheBoardofDirectorsoftheBank(the‘Board’)on21November2013.TheBoardhasthepowertoamendthefinancialstatementsaftertheyareauthorisedforissue.

Basis of preparationThefinancialstatementsarebasedonthegeneralprinciplesofhistoricalcostaccounting,asmodifiedbythefairvalueaccountingforavailable-for-salefinancialassets,financialassetsandfinancialliabilitiesatfairvaluethroughprofitorlossandallfinancialderivativecontracts.Thegoingconcernconceptandtheaccrualbasisofaccountinghavebeenadopted.AllamountsinthesefinancialstatementshavebeenroundedinmillionsofNewZealanddollarsunlessotherwisestated.Thesameaccountingpoliciesandmethodsofcomputationhavebeenfollowedinpreparingthesefinancialstatementsthatwereusedinpreparingthefinancialstatementsfortheyearended30September2012,exceptasamendedforthechangesrequiredduetotheadoptionofthenewandrevisedaccountingstandardsasexplainedinNote1.3Changesinaccountingpolicies.Certaincomparativeinformationhasbeenrestatedtoensureconsistenttreatmentwiththecurrentreportingperiod.Wheretherehasbeenamaterialrestatementofcomparativeinformationthenatureof,andthereasonfor,therestatementisdisclosedintherelevantnote.

Principles of consolidationTheconsolidatedfinancialstatementsincorporatetheassetsandliabilitiesofallsubsidiaries(includingspecialpurposeentities)controlledbytheBankandtheresultsofthosesubsidiaries.TheeffectsofalltransactionsbetweenentitiesintheBankingGroupareeliminated.ControlexistswhentheBankhasthepower,directlyorindirectly,togovernthefinancialandoperatingpoliciesofanentitysoastoobtainbenefitsfromitsactivities.Thedefinitionofcontrolisbasedonthesubstanceratherthanthelegalformofanarrangement.Inassessingcontrol,potentialvotingrightsthatarepresentlyexercisableorconvertiblearetakenintoaccount.Subsidiariesarefullyconsolidatedfromthedateonwhichcontrolcommencesandtheyarede-consolidatedfromthedateonwhichthatcontrolceases.TheacquisitionmethodofaccountingisusedtoaccountfortheacquisitionofsubsidiariesbytheBankingGroup.ChangesintheBankingGroup’sownershipinterestinasubsidiaryaftercontrolisobtainedthatdonotresultinalossofcontrolareaccountedforastransactionswithequityholdersintheircapacityasequityholders.Anydifferencebetweentheamountbywhichthenon-controllinginterestisadjustedandthefairvalueoftheconsiderationpaidorreceivedisrecogniseddirectlyinequity.WhentheBankingGroupceasestocontrolasubsidiary,anyretainedinterestintheentityisremeasuredtoitsfairvalue,withanyresultinggainorlossrecognisedintheincomestatement.TheBankingGroupmayinvestinorestablishspecialpurposeentitiestoenableittoundertakespecifictypesoftransactions.WheretheBankingGroupcontrolssuchentities,theyareconsolidatedintotheBankingGroup’sfinancialresults.Theinterestofnon-controllingshareholdersisstatedattheirproportionofthenetprofitandnetassetsofasubsidiaryattributabletoequityintereststhatarenotowned,directlyorindirectlybytheBank.Lossesareattributedtothenon-controllinginterestevenifthatresultsinadeficitbalance.

Foreign currencyItemsincludedinthefinancialstatementsofeachoftheBankingGroup’sentitiesaremeasuredusingthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates(the‘functional currency’).ThefinancialstatementsoftheBankandtheBankingGrouparepresentedinNewZealanddollars,whichistheBank’sfunctionalandpresentationcurrency.ForeigncurrencymonetaryassetsandliabilitieshavebeentranslatedintoNewZealanddollarsattherateofforeignexchangeprevailingasatreportingdate.TransactionsdenominatedinaforeigncurrencyareconvertedtoNewZealanddollarsattheexchangeratesineffectatthedateofthetransaction.ForeignexchangedifferencesrelatingtomonetaryitemsandgainsandlossesarisingfromforeignexchangedealingsbytheBankingGrouphavebeenincludedintheincomestatement,exceptwheredeferredinequityasqualifyingcashflowhedges.



Note 1 Statement of accounting policies (continued)1.2 Particular accounting policiesRevenue recognitionInterest income Interestincomeforallinterestearningfinancialassetsincludingthoseatfairvalueisrecognisedintheincomestatementusingtheeffectiveinterestmethod.Theeffectiveinterestmethodisamethodofcalculatingtheamortisedcostofafinancialassetorafinancialliabilityandofallocatingtheinterestincomeorinterestexpenseovertherelevantperiod.Theeffectiveinterestrateistheratethatexactlydiscountsestimatedfuturecashpaymentsorreceiptsthroughtheexpectedlifeofthefinancialinstrumenttothenetcarryingamountofthefinancialassetorfinancialliability.Whencalculatingtheeffectiveinterestrate,cashflowsareestimatedbaseduponallcontractualtermsofthefinancialinstrument(e.g.prepaymentoptions),butdonotconsiderfuturecreditlosses.Thecalculationincludesallfeesandotheramountspaidorreceivedbetweenpartiestothecontractthatareanintegralpartoftheeffectiveinterestrate,transactioncostsandallotherpremiumsordiscounts.Interestrelatingtoimpairedloansisrecognisedusingtheloan’soriginaleffectiveinterestratebasedonthenetcarryingvalueoftheimpairedloanaftergivingeffecttoimpairmentchargesorforavariablerateloan,thecurrenteffectiveinterestratedeterminedunderthecontract.Thisrateisalsousedtodiscountthefuturecashflowsforthepurposeofmeasuringtheimpairmentcharges.Forloansthathavebeenimpaired,thismethodresultsincashreceiptsbeingapportionedbetweeninterestandprincipal.

LeasingFinanceleasesareaccountedforunderthenetinvestmentmethodwherebyincomerecognitionisbasedonapatternreflectingaconstantperiodicrateofreturnonthenetinvestmentinthefinanceleaseandisincludedaspartofinterestincome.

Fee and commission incomeFeesandcommissionsaregenerallyrecognisedonanaccrualbasisovertheperiodduringwhichtheserviceisperformed.Allfeesrelatingtothesuccessfuloriginationorsettlementofaloan(togetherwiththerelateddirectcosts)aredeferredandrecognisedasanadjustmenttotheeffectiveinterestrateontheloan.

Other dividend incomeDividendsonquotedsharesarerecognisedontheex-dividenddate.Dividendsonunquotedsharesarerecognisedwhenthecompany’srighttoreceivepaymentisestablished.

Gain or loss on sale of property, plant and equipment Thegainorlossarisingonthedisposalorretirementofproperty,plantandequipmentisdeterminedasthedifferencebetweenthesaleproceedslesscostsofdisposalandthecarryingamountoftherespectiveassetandisrecognisedintheincomestatementasnon-interestincome.

Expense recognitionInterest expenseInterestexpense,includingpremiumsordiscountsandassociatedexpensesincurredontheissueoffinancialliabilities,isrecognisedintheincomestatementusingtheeffectiveinterestmethod.

Impairment charges on loans and receivables carried at amortised costThechargerecognisedintheincomestatementforimpairmentonloansandreceivablescarriedatamortisedcostreflectsthenetmovementintheprovisionsforindividuallyassessedandcollectivelyassessedloans,write-offsandrecoveriesofimpairmentspreviouslywrittenoff.

LeasingOperatingleasepaymentsarerecognisedintheincomestatementasanexpenseonastraight-linebasisovertheleasetermunlessanothersystematicbasisismorerepresentativeofthetimepatternofthebenefitreceived.Incentivesreceivedonenteringintooperatingleasesarerecognisedasliabilitiesandamortisedasareductionofrentalexpenseonastraight-linebasisovertheleaseterm.

Commissions and other feesExternalcommissionsandothercostspaidtoacquireloansarecapitalisedandamortisedusingtheeffectiveinterestmethod.Allotherfeesandcommissionsarerecognisedintheincomestatementovertheperiodinwhichtherelatedserviceisreceived.

Share-based payment CertainemployeesareentitledtoparticipateinoptionandshareownershipschemesgrantedbytheUltimateParentBank.Thefairvalueofperformanceoptions,performancesharerightsandunhurdledsharerightsprovidedtoemployeesasshare-basedpaymentsisrecognisedasanexpensewithacorrespondingamountpayabletotheUltimateParentBank.Thefairvalueismeasuredatthegrantdateandisrecognisedovertheperiodinwhichtheservicesarereceivedwhichistheexpectedvestingperiodduringwhichtheemployeeswouldbecomeentitledtoexercisetheperformanceoption,performancesharerightorunhurdledshareright.Thefairvalueofperformanceoptions,performancesharerightsandunhurdledsharerightsisestimatedatgrantdateusingaBinomial/MonteCarlosimulationpricingmodelincorporatingthevestingandperformancehurdlefeaturesofthegrants.Thefairvalueoftheperformanceoptions,performancesharerightsandunhurdledsharerightsexcludestheimpactofanynon-marketvestingconditionssuchastheparticipants’continuedemploymentwiththeBankingGroup.Thenon-marketvestingconditionsareincludedinassumptionsusedwhendeterminingthenumberofperformanceoptions,performancesharerightsandunhurdledsharerightsexpectedtobecomeexercisableforwhichanexpenseisrecognised.Asateachreportingdatetheseassumptionsarerevisedandtheexpenserecognisedineachyeartakesintoaccountthemostrecentestimates.



Note 1 Statement of accounting policies (continued)TaxationIncome taxIncometaxexpenseontheprofitfortheyearcomprisescurrenttaxandmovementindeferredtaxbalances.Currenttaxistheexpectedtaxpayableonthetaxableincomeforthefinancialyearusingtaxratesthathavebeenenactedorsubstantivelyenactedasatthebalancedate,andanyadjustmenttotaxpayableinrespectofpreviousyears.Deferredtaxisaccountedforusingthebalancesheetmethod,providingfortemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesinthefinancialstatementsandthecorrespondingamountsusedfortaxationpurposes.Deferredtaxassetsandliabilitiesarenotrecognisedifthetemporarydifferencearisesfromgoodwill,theinitialrecognitionofassetsandliabilitiesthataffectneitheraccountingnortaxableprofit(otherthaninabusinesscombination),ordifferencesrelatingtoinvestmentsinsubsidiariestotheextentthattheywillprobablynotreverseintheforeseeablefuture.Theamountofdeferredtaxprovidedisbasedontheexpectedmannerofrealisationorsettlementofthecarryingamountofassetsandliabilities,usingtaxratesthathavebeenenactedorsubstantivelyenactedasatthebalancedatethatareexpectedtoapplywhentheliabilityissettledortheassetisrealised.Currentanddeferredtaxesattributabletoamountsrecognisedinothercomprehensiveincomearealsorecognisedinothercomprehensiveincome.Exceptasnotedabove,deferredtaxliabilitiesarerecognisedforalltaxabletemporarydifferencesanddeferredtaxassetsarerecognisedtotheextentthatitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheassetcanbeutilised.ForpresentationpurposesdeferredtaxassetsanddeferredtaxliabilitieshavebeenoffsetwheretheyrelatetoincometaxesleviedbythesametaxationauthorityonthesametaxableentityorgroupofentitiesintheBankingGroup.

Goods and services taxRevenue,expensesandassetsarerecognisednetofgoodsandservicestax(‘GST’)excepttotheextentthatGSTisnotrecoverablefromtheInlandRevenue.Inthesecircumstances,GSTisrecognisedaspartoftheexpenseorthecostoftheasset.

Business combinationsExternal acquisitionsTheacquisitionmethodofaccountingisusedtoaccountforexternalbusinesscombinations.Costismeasuredasthefairvalueoftheassetsgiven,equityinstrumentsissuedorliabilitiesincurredorassumedatthedateofexchange.Acquisition-relatedcostsareexpensedasincurred.Whereequityinstrumentsareissuedinanacquisition,thevalueoftheinstrumentsistheirpublishedmarketpriceasatthedateofexchange.Transactioncostsarisingontheissueofequityinstrumentsarerecogniseddirectlyinequity.Identifiableassetsacquiredandliabilitiesandcontingentliabilitiesassumedinabusinesscombinationaremeasuredinitiallyattheirfairvalueattheacquisitiondate.Foreachbusinesscombination,thenon-controllinginterestismeasuredeitheratfairvalueorattheproportionateshareoftheacquiree’sidentifiablenetassets.Theexcessofthecostofacquisition, the amount of anynon-controllinginterestintheacquireeandtheacquisitiondatefairvalueofanypreviousequityinterestintheacquireeoverthefairvalueoftheidentifiablenetassetsacquiredisrecordedasgoodwill.Wheresettlementofanypartofcashconsiderationisdeferred,theamountspayableinthefuturearediscountedtotheirpresentvalueasatthedateofexchange.ThediscountrateusedistheBankingGroup’sincrementalborrowingrate.

Common control transactionsThepredecessormethodofaccountingisusedtoaccountforbusinesscombinationsbetweenentitiesintheBankingGroup.AssetsacquiredandliabilitiesassumedinacommoncontroltransactionaremeasuredinitiallyattheacquisitiondateatthecarryingvaluefromtheUltimateParentBank’sperspective.Theexcessofcostofacquisitionovertheinitialcarryingvaluesoftheentity’sshareofthenetassetsacquiredisrecordedaspartofacommoncontrolreserve.

AssetsFinancial assetsTheBankingGroupclassifiesitsfinancialassetsinthefollowingcategories:financialassetsatfairvaluethroughprofitorloss,loansandreceivablesandavailable-for-salesecurities.Managementdeterminestheclassificationofitsfinancialassetsatinitialrecognition.

■■ Financial assets at fair value through profit or loss Thiscategoryhastwosub-categories:first,financialassetsheldfortradingandsecond,thosedesignatedatfairvaluethroughprofitorlossatinception.Afinancialassetisclassifiedinthiscategoryifacquiredprincipallyforthepurposeofsellingitinthenearterm,ifitispartofaportfoliooffinancialassetsthataremanagedtogetherandforwhichthereisevidenceofarecentpatternofshort-termprofittaking,ifitisaderivativethatisnotadesignatedhedginginstrument,orifsodesignatedonacquisitionbymanagement.Thisdesignationmayonlybemadeifthefinancialassetcontainsanembeddedderivative,itismanagedonafairvaluebasisinaccordancewithadocumentedriskmanagementstrategy,orifdesignatingitatfairvaluereducesanaccountingmismatch.

■■ Loans and receivables Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket.TheyarisewhentheBankingGroupprovidesmoney,goodsorservicesdirectlytoadebtorwithnointentionoftradingthereceivable.

■■ Available-for-sale securities Available-for-salesecuritiesarenon-derivativefinancialassetsthataredesignatedasavailable-for-saleorthatarenotclassifiedaseitherfinancialassetsatfairvaluethroughprofitorlossorloansandreceivables.

Otherinvestments,whichcompriseunlistedequitysecuritiesthatdonothaveaquotedpriceinanactivemarketandwherefairvaluecannotbeestimatedwithinareasonablerangeofprobableoutcomes,arecarriedatcost.



Note 1 Statement of accounting policies (continued)Recognition and measurement of financial assetsPurchasesandsalesoffinancialassetsatfairvaluethroughprofitorlossandavailable-for-salearerecognisedonthetrade-date,thedateonwhichtheBankingGroupcommitstopurchaseorselltheasset.Loansandreceivablesarerecognisedwhencashisadvancedtotheborrower.Financialassetsatfairvaluethroughprofitorlossarerecognisedinitiallyatfairvalue.Allotherfinancialassetsarerecognisedinitiallyatfairvalueplusdirectlyattributabletransactioncosts.Available-for-salefinancialassetsandfinancialassetsatfairvaluethroughprofitorlossaresubsequentlycarriedatfairvalue.Loansandreceivablesaresubsequentlycarriedatamortisedcostusingtheeffectiveinterestmethod.Realisedandunrealisedgainsorlossesarisingfromchangesinthefairvalueoffinancialassetsatfairvaluethroughprofitorlossareincludedintheincomestatementintheperiodinwhichtheyarise.Gainsandlossesarisingfromchangesinthefairvalueofavailable-for-salefinancialassetsarerecognisedinothercomprehensiveincomeuntilthefinancialassetisderecognisedorimpaired,atwhichtimethecumulativegainorlosspreviouslyrecognisedinothercomprehensiveincomeisrecognisedintheincomestatement.Dividendsonavailable-for-saleequityinstrumentsarerecognisedintheincomestatementwhentherighttoreceivepaymentisestablished. Foreignexchangegainsorlossesandinterest,calculatedusingtheeffectiveinterestratemethod,onavailable-for-saledebtinstrumentsarealsorecognisedintheincomestatement.Thefairvaluesofquotedinvestmentsinactivemarketsarebasedoncurrentbidprices.Ifthemarketforafinancialassetisnotactive,theBankingGroupestablishesfairvalueusingvaluationtechniques.Theseincludetheuseofrecentarm’slengthtransactions,discountedcashflowanalysis,optionpricingmodelsandothervaluationtechniquescommonlyusedbymarketparticipants.

Derecognition of financial assetsAfinancialasset(or,whereapplicable,apartofafinancialassetorpartofagroupofsimilarfinancialassets)isderecognisedwhere:

■■ therightstoreceivecashflowsfromtheassethaveexpired;or■■ theentityhastransferreditsrightstoreceivecashflowsfromtheassetorhasassumedanobligationtopaythereceivedcashflowsinfull,withoutmaterialdelay,toathirdpartyundera‘pass-through’arrangementandcannotsellorre-pledgetheassetotherthantothetransferee;and

■■ eithertheBankingGrouphastransferredsubstantiallyalltherisksandrewardsoftheasset,ortheBankingGrouphasneithertransferrednorretainedsubstantiallyalltherisksandrewardsoftheasset,buthastransferredcontroloftheasset.

WheretheBankingGrouptransfersitsrighttoreceivecashflowsfromanassetorhasenteredintoapass-througharrangementwithouttransferringnorretainingsubstantiallyalltherisksandrewardsofownershipnortransferredcontroloftheseassets,theassetcontinuestoberecognisedonthebalancesheettotheextentoftheBankingGroup’scontinuinginvolvementintheasset.

Cash and balances with central banksCashandbalanceswithcentralbanksincludecashatbranches,centralbanksettlementaccountbalancesandnostrobalances.Theyarebroughttoaccountatthefacevalueorthegrossvalueoftheoutstandingbalance,whereappropriate.Thesebalanceshaveamaturityoflessthanthreemonths.

Due from other financial institutionsDuefromotherfinancialinstitutionsincludescollateralplaced,loansandsettlementaccountbalancesduefromotherfinancialinstitutions.Theyareaccountedforasloansandreceivablesandsubsequentlymeasuredatamortisedcostusingtheeffectiveinterestmethod.

Derivative financial instrumentsDerivativefinancialinstruments,includingforwards,futures,swapsandoptions,arerecognisedinthebalancesheetatfairvalue.Fairvalueisobtainedfromquotedmarketprices,independentdealerpricequotations,discountedcashflowmodelsandoptionpricingmodels,whichincorporatecurrentmarketandcontractualpricesfortheunderlyinginstrument,timetoexpiry,yieldcurvesandvolatilityoftheunderlyinginstrument.Alsoincludedinthedeterminationofthefairvalueofderivativesisacreditvaluationadjustment(‘CVA’).Wherethederivativehasapositivefairvalue(asset),thiscreditadjustmentistoreflectthecreditworthinessofthecounterparty.Wherethederivativehasanegativefairvalue(liability),thiscreditadjustmentreflectstheBankingGroup’sowncreditrisk.Thesecreditadjustmentsaretakenintoaccountafterconsideringanyrelevantcollateralormasternettingagreements.

Trading securities Tradingsecuritiesincludedebtandequityinstrumentswhichareactivelytradedandsecuritiespurchasedunderanagreementtoresell.Theyareaccountedforasfinancialassetsatfairvaluethroughprofitorloss.Certainbonds,notesandcommercialbillsaredesignatedatfairvaluethroughprofitorloss.Thisdesignationmayonlybemadeifthefinancialassetcontainsanembeddedderivative,itismanagedonafairvaluebasisinaccordancewithadocumentedriskmanagementstrategy,orifdesignatingitatfairvaluereducesanaccountingmismatch.

Available-for-sale securitiesAvailable-for-salesecuritiesarepublicandotherdebtandequitysecuritiesthataredesignatedasavailable-for-saleorthatarenotclassifiedaseitherfinancialassetsatfairvaluethroughprofitorlossorloansandreceivables.Theaccountingpolicyforavailable-for-salesecuritiesissetoutabove.

LoansLoansincludeadvances,overdrafts,housingloans,creditcardandotherpersonallending,termloansandleasingreceivables.Theaccountingpolicyforloansandreceivablesissetoutabove.Securityisobtainedif,basedonanevaluationofthecustomer’screditworthiness,itisconsiderednecessaryforthecustomer’soverallborrowingfacility.Securitywouldnormallyconsistofassetssuchascashdeposits,receivables,inventory,plantandequipment,realestateorinvestments.Loanproductsthathavebothamortgageanddepositfacilityarepresentedonagrossbasisinthebalancesheet,segregatingtheloananddepositcomponentintotherespectivebalancesheetlineitems.Interestearnedonthisproductispresentedonanetbasisintheincomestatementasthisreflectshowthecustomerischarged.



Note 1 Statement of accounting policies (continued)Due from related entitiesThisamountincludesamountsduefromcontrolledentitiesoftheBankingGroupandallotherentitiescontrolledbytheUltimateParentBank.

Impairment of financial assetsImpairedfinancialassetsinclude:

■■ individuallyimpairedassets,whicharedefinedasassetswhereanindividualprovisionhasbeenraisedtocovertheexpectedlossforwhichfullrecoveryofprincipalisdoubtful;and

■■ restructuredassets,whicharedefinedasassetsinwhichtheoriginalcontractualtermshavebeenformallymodifiedtoprovideforconcessionsofinterestorprincipalforreasonsrelatedtothefinancialdifficultiesofthecustomer.

Assetsthatareinarrearsbasedupontheircontractualterms,butnotyetimpaired,arereportedseparatelyas‘pastdueassets’.Assets,notclassifiedasimpairedassetsorpastdueassets,inwhichthecounterpartyis(a)inreceivership,liquidation,bankruptcy,statutorymanagementoranyformofadministrationinNewZealand;or(b)inanyotherequivalentformofvoluntaryorinvoluntaryadministrationinanoverseasjurisdiction,arereportedseparately.Theseareknownas‘otherassetsunderadministration’.Thefollowingaccountingpoliciesapplytotheimpairmentoffinancialassets:

i) Assets carried at amortised costTheBankingGroupassessesateachbalancedatewhetherthereisobjectiveevidencethatafinancialassetorgroupoffinancialassetsisimpaired.Afinancialassetoragroupoffinancialassetsisimpairedandimpairmentchargesarerecognisedifthereisobjectiveevidenceofimpairmentasaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionoftheasset(a‘loss event’)andthatlossevent(orevents)hasanimpactontheestimatedfuturecashflowsofthefinancialassetorgroupoffinancialassetsthatcanbereliablyestimated.ObjectiveevidencethatafinancialassetorgroupoffinancialassetsisimpairedincludesobservabledatathatcomestotheattentionoftheBankingGroupaboutthefollowinglossevents:(a) significantfinancialdifficultyoftheissuerorobligor;(b) abreachofcontract,suchasadefaultordelinquencyininterestorprincipalpayments;(c) theBankingGroupgrantingtotheborrower,foreconomicorlegalreasonsrelatingtotheborrower’sfinancialdifficulty,a

concessionthattheBankingGroupwouldnototherwiseconsider;(d) itbecomingprobablethattheborrowerwillenterbankruptcyorotherfinancialreorganisation;(e) thedisappearanceofanactivemarketforthatfinancialassetbecauseoffinancialdifficulties;or(f) observabledataindicatingthatthereisameasurabledecreaseintheestimatedfuturecashflowsfromagroupoffinancial

assetssincetheinitialrecognitionofthoseassets,althoughthedecreasecannotyetbeidentifiedwiththeindividualfinancialassetsintheBankingGroup,including:(i) adversechangesinthepaymentstatusofborrowersinthegroup;or(ii)nationalorlocaleconomicconditionsthatcorrelatewithdefaultsontheassetsinthegroup.

TheBankingGroupfirstassesseswhetherobjectiveevidenceofimpairmentexistsindividuallyforfinancialassetsthatareindividuallysignificant,andindividuallyorcollectivelyforfinancialassetsthatarenotindividuallysignificant.IftheBankingGroupdeterminesthatnoobjectiveevidenceofimpairmentexistsforanindividuallyassessedfinancialasset,whethersignificantornot,itincludestheassetinagroupoffinancialassetswithsimilarcreditriskcharacteristicsandcollectivelyassessesthemforimpairment.Assetsthatareindividuallyassessedforimpairmentandforwhichanimpairmentlossis,orcontinuestobe,recognisedarenotincludedinacollectiveassessmentofimpairment.Ifthereisobjectiveevidencethatanimpairmentonloansandreceivableshasbeenincurred,theamountofthechargeismeasuredasthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows(excludingfuturecreditlossesthathavenotbeenincurred)discountedatthefinancialasset’soriginaleffectiveinterestrate.Thecarryingamountoftheassetisreducedthroughtheuseofaprovisionaccountandtheamountofthelossisrecognisedintheincomestatement.Ifaloanhasavariableinterestrate,thediscountrateformeasuringanyimpairmentisthecurrenteffectiveinterestratedeterminedunderthecontract.Thecalculationofthepresentvalueoftheestimatedfuturecashflowsofacollateralisedfinancialassetreflectsthecashflowsthatmayresultfromforeclosurelesscostsforobtainingandsellingthecollateral,whetherornotforeclosureisprobable.Forthepurposesofacollectiveevaluationofimpairment,financialassetsaregroupedonthebasisofsimilarcreditriskcharacteristics(i.e.onthebasisoftheBankingGroup’sgradingprocessthatconsidersassettype,industry,geographicallocation,collateraltype,pastduestatusandotherrelevantfactors).Thosecharacteristicsarerelevanttotheestimationoffuturecashflowsforgroupsofsuchassetsbybeingindicativeofthedebtors’abilitytopayallamountsdueaccordingtothecontractualtermsoftheassetsbeingevaluated.Futurecashflowsforagroupoffinancialassetsthatarecollectivelyevaluatedforimpairmentareestimatedonthebasisofthecontractualcashflowsoftheassetsinthegroupandhistoricallossexperienceforassetswithcreditriskcharacteristicssimilartothoseinthegroup.Historicallossexperienceisadjustedonthebasisofcurrentobservabledatatoreflecttheeffectsofcurrentconditionsthatdidnotaffecttheperiodonwhichthehistoricallossexperienceisbasedandtoremovetheeffectsofconditionsinthehistoricalperiodthatdonotexistcurrently.Estimatesofchangesinfuturecashflowsforgroupsofassetsreflect,andaredirectionallyconsistentwith,changesinrelatedobservabledatafromperiodtoperiod(e.g.changesinunemploymentrates,propertyprices,paymentstatus,orotherfactorsindicativeofchangesintheprobabilityoflossesinthegroupandtheirmagnitude).ThemethodologyandassumptionsusedforestimatingfuturecashflowsarereviewedregularlybytheBankingGrouptoreduceanydifferencesbetweenlossestimatesandactuallossexperience.Whenaloanorpartofaloanisuncollectable,itiswrittenoffagainsttherelatedprovisionforloanimpairment.Suchloansarewrittenoffafterallthenecessaryprocedureshavebeencompletedandtheamountofthelosshasbeendetermined.Subsequentrecoveriesofamountspreviouslywrittenoffdecreasetheamountofthechargeforloanimpairmentintheincomestatement.If,inasubsequentperiod,theamountoftheimpairmentchargedecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentwasrecognised(suchasanimprovementinthedebtor’screditrating),thepreviouslyrecognisedimpairmentchargeisreversedbyadjustingtheprovisionaccount.Theamountofthereversalisrecognisedintheincomestatement.



Note 1 Statement of accounting policies (continued)ii) Available-for-saleTheBankingGroupassessesateachreportingdatewhetherthereisobjectiveevidencethatafinancialassetoragroupoffinancialassetsisimpaired.Fordebtinstrumentsclassifiedasavailable-for-sale,impairmentisdeterminedusingthesamemethodologyasNote1–Impairmentoffinancialassets(i)Assetscarriedatamortisedcost.Forequityinvestmentsclassifiedasavailable-for-sale,asignificantorprolongeddeclineinthefairvalueofthesecuritybelowitscostisalsoconsideredindeterminingwhethertheassetsareimpaired.Ifanysuchevidenceexistsforavailable-for-salefinancialassets,thecumulativeloss–measuredasthedifferencebetweentheacquisitioncostandthecurrentfairvalue,lessanyimpairmentchargeonthatfinancialassetpreviouslyrecognisedintheincomestatement–isremovedfromothercomprehensiveincomeandrecognisedintheincomestatement.If,inasubsequentperiod,thefairvalueofadebtinstrumentclassifiedasavailable-for-saleincreasesandtheincreasecanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentchargewasrecognisedintheincomestatement,theimpairmentchargeisreversedthroughtheincomestatement.Subsequentreversalofimpairmentchargesonequityinstrumentsisnotrecognisedintheincomestatement.

Non-financial assets

Investments in controlled entities and associatesInvestmentsincontrolledentitiesareinitiallyrecordedbytheBankingGroupinthebalancesheetatcost.Thecostofanacquisitionismeasuredatthefairvalueoftheassetsgivenup,sharesissuedorliabilitiesundertakenatthedateofacquisition.Investmentsincontrolledentitiesarewritten-downtotheirrecoverableamount,whereappropriate.AssociatesareentitiesoverwhichtheBankingGrouphassignificantinfluencebutnotcontrol.Investmentsinassociatesareaccountedforintheparententityfinancialstatementsatcostandsubsequentlyheldatthelowerofcostandrecoverableamount.Intheconsolidatedfinancialstatements,investmentsinassociatesareaccountedforusingtheequitymethodofaccounting,afterinitiallybeingrecognisedatcost.TheBankingGroup’sshareofitsassociates’post-acquisitionprofitsorlossesisrecognisedintheincomestatement,anditsshareofpost-acquisitionmovementsinreservesisrecognisedinreserves.Thecumulativepost-acquisitionmovementsareadjustedagainstthecarryingamountoftheinvestment.Dividendsreceivablefromassociatesarerecognisedasdividendincomeintheparententity’sincomestatement,whileintheconsolidatedfinancialstatementstheyreducethecarryingamountoftheinvestment.

Goodwill and other intangible assetsGoodwillrepresentsamountsarisingontheacquisitionofbusinesses.PriortotherevisedNZIFRS3Business Combinations (‘NZ IFRS 3’),goodwillrepresentedtheexcessofpurchaseconsideration,includingdirectlyattributableexpensesassociatedwiththeacquisition,overthefairvalueoftheBankingGroup’sshareoftheidentifiablenetassetsoftheacquiredbusiness.GoodwillarisingontheacquisitionofabusinesssubsequenttotheadoptionoftherevisedNZIFRS3representstheexcessofthepurchaseconsideration,theamountofanynon-controllinginterestintheacquireeandtheacquisitiondatefairvalueofanypreviousequityinterestintheacquiree,overtheacquisitiondatefairvalueofnetidentifiableassetsacquired.Allgoodwillisconsideredtohaveanindefinitelife.Goodwillistestedforimpairmentannuallyandwheneverthereisanindicationthatitmaybeimpaired,andiscarriedatcostlessanyaccumulatedimpairment.Gainsorlossesonthedisposalofanentityincludethecarryingamountofgoodwillrelatingtotheentitysold.Goodwillisallocatedtocash-generatingunitsforthepurposeofimpairmenttesting.Cash-generatingunits(‘CGU’)arethesmallestidentifiablegroupsofassetsthatgeneratecashinflowsthatarelargelyindependentofthecashinflowsfromotherassetsorgroupsofassets.Goodwillwaslasttestedforimpairmentasat30September2013andnoimpairmenthasbeenrecognisedintheincomestatement.Otherintangibleassetsarestatedatcostlessaccumulatedamortisationandimpairment.Otherintangibleassetsconsistofacquiredandinternallydevelopedcomputersoftware.Acquiredcomputersoftwarelicencesarecapitalisedonthebasisofthecostsincurredtoacquireandbringtousethespecificsoftware.Internalandexternalcostsdirectlyincurredinthepurchaseordevelopmentofcomputersoftware,includingsubsequentupgradesandenhancements,arerecognisedasintangibleassetswhenitisprobablethattheywillgeneratefutureeconomicbenefitsattributabletotheBankingGroup.Theseassets(bothacquiredandinternallydevelopedcomputersoftware)areamortisedusingthestraight-linemethodtoallocatethecostoftheassetlessanyresidualvalueovertheirestimatedusefullivesofthreeyears.

Property, plant and equipmentProperty,plantandequipmentarecarriedatcostlessaccumulateddepreciationandimpairment.Costisthefairvalueoftheconsiderationprovidedplusincidentalcostsdirectlyattributabletotheacquisition.Othersubsequentexpenditureiscapitalisedonlywhenitincreasesthefutureeconomicbenefitsembodiedintheitemofproperty,plantandequipment.Allotherexpenditureisrecognisedintheincomestatementasanexpenseasincurred.Impairmentisrecognisedasanoperatingexpenseintheincomestatement.Depreciationiscalculatedusingthestraight-linemethodtoallocatethecostofassetslessanyresidualvalueovertheirestimatedusefullivesasfollows:

■■ Leaseholdimprovements Upto10years■■ Furnitureandequipment 3to15years

Other assetsOtherassetsincludeaccruedinterestreceivable,tradedebtorsandprepayments.



Note 1 Statement of accounting policies (continued)Impairment of non-financial assetsThecarryingamountoftheBankingGroup’snon-financialassets,otherthandeferredtaxassets,arereviewedateachbalancedatetodeterminewhetherthereisanyindicationofimpairment.Ifsuchanindicationexists,theasset’srecoverableamountisestimated.AnimpairmentisrecognisedwheneverthecarryingamountofanassetortheCGUtowhichitisallocatedexceedsitsrecoverableamount.Withtheexceptionofgoodwill(forwhichimpairmentchargesarenotreversed),whereanimpairmentchargesubsequentlyreverses,thecarryingamountoftheasset(orCGU)isincreasedtotherevisedestimateofitsrecoverableamount,suchthattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentchargebeenrecognisedfortheasset(orCGU)inprioryears.Impairmentchargesandreversalsofimpairmentchargesarerecognisedintheincomestatement.Therecoverableamountofanassetisthegreaterofitsfairvaluelesscosttosellandvalue-in-use.Inassessingvalue-in-use,estimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.Foranassetthatdoesnotgeneratelargelyindependentcashinflows,therecoverableamountisdeterminedfortheCGUtowhichtheassetbelongs.

LiabilitiesFinancial liabilitiesTheBankingGroupclassifiesitsfinancialliabilitiesinthefollowingcategories:financialliabilitiesatfairvaluethroughprofitorlossandfinancialliabilitiesatamortisedcost.

■■ Financial liabilities at fair value through profit or loss Thiscategoryhastwosub-categories:first,financialliabilitiesheldfortradingandsecond,thosedesignatedatfairvaluethroughprofitorlossatinception.Afinancialliabilityisclassifiedinthiscategoryifincurredprincipallyforrepurchasingitinthenearterm,ifitispartofaportfoliooffinancialliabilitiesthataremanagedtogetherandforwhichthereisevidenceofarecentpatternofshort-termprofittaking,ifitisaderivativethatisnotadesignatedhedginginstrument,orifsodesignatedoninitialrecognitionbymanagement.Thisdesignationmayonlybemadeifthefinancialliabilitycontainsanembeddedderivative,itismanagedonafairvaluebasisinaccordancewithadocumentedriskmanagementstrategy,orifdesignatingitatfairvaluereducesanaccountingmismatch.

■■ Financial liabilities at amortised cost Thiscategoryincludesallfinancialliabilitiesotherthanthoseatfairvaluethroughprofitorloss.Liabilitiesinthiscategoryaremeasuredatamortisedcost.

Recognition and measurement of financial liabilitiesFinancialliabilitiesareinitiallyrecognisedatfairvaluelesstransactioncostsexceptwheretheyaresubsequentlymeasuredatfairvalue,inwhichcasetransactioncostsareexpensedasincurred.Theyaresubsequentlymeasuredatamortisedcostexceptforderivativesandliabilitiesatfairvalue,whichareheldatfairvaluethroughprofitorloss.Financialliabilitiesarerecognisedwhenanobligationarises.Derecognition of financial liabilitiesAfinancialliabilityisderecognisedwhentheobligationundertheliabilityisdischarged,cancelledorexpires.Whereanexistingfinancialliabilityisreplacedbyanotherfromthesamelenderonsubstantiallydifferentterms,orthetermsofanexistingfinancialliabilityaresubstantiallymodified,suchanexchangeormodificationistreatedasaderecognitionoftheoriginalliabilityandtherecognitionofanewliability,andthedifferenceintherespectivecarryingamountsisrecognisedintheincomestatement.Due to other financial institutionsDuetootherfinancialinstitutionsincludesdeposits,vostrobalances,collateralreceivedandsettlementaccountbalancesduetootherfinancialinstitutions.Theyaremeasuredatamortisedcost.Deposits at fair valueDepositsatfairvaluerepresentcertificatesofdeposits.Theyareclassifiedatfairvaluethroughprofitorlossastheyaremanagedaspartofatradingportfolio.Deposits at amortised costDepositsatamortisedcostincludenon-interestbearingdepositsrepayableatcallandinterestbearingdeposits.Theyaremeasuredatamortisedcost.Derivative financial instrumentsDerivativefinancialinstruments,includingforwards,futures,swapsandoptions,arerecognisedinthebalancesheetatfairvalue.Fairvaluesareobtainedfromquotedmarketprices,independentdealerpricequotations,discountedcashflowmodelsandoptionpricingmodels,whichincorporatecurrentmarketandcontractualpricesfortheunderlyinginstrument,timetoexpiry,yieldcurvesandvolatilityoftheunderlyinginstrument.AlsoincludedinthedeterminationofthefairvalueofderivativesisaCVA.Wherethederivativehasapositivefairvalue(asset),thiscreditadjustmentistoreflectthecreditworthinessofthecounterparty.Wherethederivativehasanegativefairvalue(liability),thiscreditadjustmentreflectstheBankingGroup’sowncreditrisk.Thesecreditadjustmentsaretakenintoaccountafterconsideringanyrelevantcollateralormasternettingagreements.Trading liabilities Securitiessoldunderrepurchaseagreementsandsecuritiessoldshortareclassifiedastradingliabilities.Theyareaccountedforasfinancialliabilitiesatfairvaluethroughprofitorloss.Debt issuesDebtissuesarebonds,notesandcommercialpaperthathavebeenissuedbytheBankingGroup.Theyareeitheraccountedforatamortisedcostoratfairvaluethroughprofitorloss.Iftheliabilityisaccountedforatamortisedcostitisinitiallyrecordedatcost,whichisthefairvalueoftheconsiderationreceived,netoftransactioncosts.Subsequently,thedebtismeasuredusingtheeffectiveinterestmethod.Iftheliabilityisaccountedforatfairvaluethroughprofitorloss,thedebtissueisinitiallyrecognisedatthefairvalueoftheconsiderationreceived.Debtissuesaremeasuredatfairvaluethroughprofitorlosstoreduceanaccountingmismatch,whicharisesfromassociatedderivativesbeingexecutedforriskmanagementpurposes.



Note 1 Statement of accounting policies (continued)Financial guaranteesFinancialguaranteecontractsarerecognisedasfinancialliabilitiesatthetimetheguaranteeisissued.TheliabilityisinitiallymeasuredatfairvalueandsubsequentlyatthehigheroftheamountdeterminedinaccordancewithNewZealandInternationalAccountingStandard(‘NZ IAS’)37Provisions, Contingent Liabilities and Contingent Assetsandtheamountinitiallyrecognisedlesscumulativeamortisation,whereappropriate.Thefairvalueofafinancialguaranteecontractisdeterminedasthepresentvalueofthedifferenceinnetcashflowsbetweenthecontractualpaymentsunderthedebtinstrumentandthepaymentsthatwouldberequiredwithouttheguarantee,ortheestimatedamountthatwouldbepayabletoathirdpartyforassumingtheobligation.

Other liabilitiesOtherliabilitiesincludeaccruedinterestpayable,amountsoutstandingonthecreditcardloyaltyprogramme,tradecreditors,otheraccruedexpensesandthedeficitarisingfromthedefinedbenefitsuperannuationscheme.

Perpetual subordinated notesPerpetualsubordinatednotesaremeasuredatamortisedcostandqualifiedasUpperTierTwoCapital,asdefinedbytheReserveBankofNewZealand(‘Reserve Bank’)forcapitaladequacypurposes.

Due to related entitiesThisamountincludesamountsduetocontrolledentitiesoftheBankingGroupandallotherentitiescontrolledbytheUltimateParentBank.

Employee entitlementsWages and salaries, annual leave and sick leaveLiabilitiesforwagesandsalaries,includingnon-monetarybenefitsandannualleaveexpectedtobesettledwithin12monthsofthebalancedate,arerecognisedasprovisionsinrespectofemployees’servicesuptothebalancedateandaremeasuredattheamountsexpectedtobepaidwhentheliabilitiesaresettled.Noprovisionismadefornon-vestingsickleaveasthepatternofsickleavetakenindicatesthatnoadditionalliabilitywillarisefornon-vestingsickleave.

Long service leaveLiabilitiesforlongserviceleaveexpectedtobesettledwithin12monthsofthebalancedatearerecognisedintheprovisionforlongserviceleaveandaremeasuredattheamountsexpectedtobepaidwhentheliabilitiesaresettled.Liabilitiesforlongserviceleaveandotherdeferredemployeebenefitsexpectedtobesettledmorethan12monthsfromthebalancedatearerecognisedintheprovisionforlongserviceleaveandaremeasuredatthepresentvalueoffuturepaymentsexpectedtobemadeinrespectofservicesprovidedbyemployeesuptothebalancedate.Considerationisgiventoexpectedfuturewageandsalarylevels,experienceofemployeedepartureandperiodsofservice.Expectedfuturepaymentsarediscountedtotheirnetpresentvalueusingmarketyieldsatthebalancedateongovernmentbondswithtermsthatmatchascloselyaspossibletotheestimatedtimingoffuturecashflows.

Superannuation obligationsObligationsforcontributionstothedefinedcontributionsuperannuationschemearerecognisedasanexpenseintheincomestatementasincurred.Theassetorliabilityrecognisedinthebalancesheetinrespectofthedefinedbenefitsuperannuationschemeisthepresentvalueofthedefinedbenefitobligationasatthereportingdatelessthefairvalueofthescheme’sassets.Thepresentvalueofthedefinedbenefitobligationisdeterminedbydiscountingtheestimatedfuturecashflowsusinginterestratesofgovernmentbondsthathavetermstomaturityapproximatingthetermsoftherelatedsuperannuationliability.Thecalculationisperformedannuallybyanindependentqualifiedactuaryusingtheprojectedunitcreditmethod.Theactuarialvaluationofschemeobligationsisdependentuponaseriesofassumptions,thekeyonesbeingpriceinflation,earningsgrowth,mortality,morbidityandinvestmentreturnsassumptions.Differentassumptionscouldsignificantlyaltertheamountofdifferencebetweenschemeassetsandobligations,andthesuperannuationcostchargedtotheincomestatement.Actuarialgainsandlossesrelatedtothedefinedbenefitsuperannuationschemearerecordeddirectlyinretainedearnings.Thenetdeficitwithintheschemeisrecognisedanddisclosedseparatelyin‘Otherliabilities’asaretirementbenefitobligation.

Termination benefitsLiabilitiesforterminationbenefitsarerecognisedwhenadetailedplanforterminationshasbeendeveloped(andiswithoutrealisticpossibilityofwithdrawal)andavalidexpectationhasbeenraisedinthoseemployeesaffectedthattheterminationswillbecarriedout.Liabilitiesforterminationbenefitsarerecognisedwithin‘Otherliabilities’unlessthetimingoramountisuncertain,inwhichcasetheyarerecognisedasprovisions.Liabilitiesforterminationbenefitsexpectedtobesettledwithin12monthsaremeasuredatamountsexpectedtobepaidwhentheyaresettled.Amountsexpectedtobesettledmorethan12monthsfromthebalancedatearemeasuredattheestimatedcashoutflows,discountedusingmarketyieldsatthebalancedateongovernmentbondswithtermstomaturitythatmatch,ascloselyaspossible,theestimatedfuturepayments,wheretheeffectofdiscountingismaterial.

ProvisionsProvision for litigation and non-lending lossesAprovisionforlitigationisrecognisedwhereitisprobablethattherewillbeanoutflowofeconomicresources.Non-lendinglossesareanylossesthathavenotarisenasaconsequenceofanimpairedcreditdecision.Thoseprovisionsincludelitigationandassociatedcosts,fraudsandthecorrectionofoperationalissues.



Note 1 Statement of accounting policies (continued)Provision for impairment on credit commitmentsProvisionismadeforlossesincurredasaresultofthecommitmenttoextendcredit.

Provision for restructuringAprovisionforrestructuringisrecognisedwherethereisademonstrablecommitmentandadetailedplansuchthatthereislittleornodiscretiontoavoidpaymentstootherpartiesandtheamountcanbereliablyestimated.

Provision for leasehold premisesTheprovisionforleaseholdpremisescoversnetoutgoingsoncertainunoccupiedleasedpremisesorsub-letpremiseswhereprojectedrentalincomefallsshortofrentalexpense.Theliabilityisdeterminedonthebasisofthepresentvalueofnetfuturecashflows.

Equity and reservesOrdinary sharesOrdinarysharesarerecognisedattheamountpaidupperordinaryshare,netofdirectlyattributableissuecosts.

Available-for-sale securities reserveTheavailable-for-salesecuritiesreservecomprisesthechangesinthefairvalueofavailable-for-salesecurities,netoftax.Thesechangesaretransferredtotheincomestatementinnon-interestincomewhentheassetiseitherderecognisedorimpaired.

Cash flow hedge reserveThecashflowhedgereservecomprisesthefairvaluegainsandlossesassociatedwiththeeffectiveportionofdesignatedcashflowhedginginstruments.

Non-controlling interestsNon-controllinginterestsrepresenttheshareinthenetassetsofsubsidiariesattributabletoequityintereststhatarenotowneddirectlyorindirectlybytheparententity.

HedgingTheBankingGroupusesderivativeinstrumentsaspartofitsassetandliabilitymanagementactivitiestomanageexposurestointerestrateandforeigncurrency,includingexposuresarisingfromforecasttransactions.TheBankingGroupentersintoderivativetransactionsthatprovideeconomichedgesforriskexposures,butdonotmeettherequirementsforhedgeaccountingtreatment.Gainsandlossesonthesederivativetransactionsarerecordedintheincomestatement.TheBankingGroupalsoentersintoderivativetransactionsthataredesignatedandqualifyaseitherfairvaluehedgesorcashflowhedgesforrecognisedassetsandliabilitiesorforecasttransactions.Themethodofrecognisingthefairvaluegainorlossonderivativesdependsonthenatureofthehedgingrelationship.Hedgingrelationshipsareoftwotypes:

■■ fairvaluehedge:ahedgeofthechangeinfairvalueofrecognisedassetsorliabilitiesorunrecognisedfirmcommitments;and■■ cashflowhedge:ahedgeofvariabilityinhighlyprobablefuturecashflowsattributabletoarecognisedassetorliability,orahighlyprobableforecasttransaction.

TheBankingGroupuseshedgeaccountingforderivativesdesignatedinthiswaywhencertaincriteriaaremet.Atthetimeafinancialinstrumentisdesignatedasahedge,theBankingGroupformallydocumentstherelationshipbetweenthehedginginstrumentandhedgeditem,togetherwiththemethodsthatwillbeusedtoassesstheeffectivenessofthehedgingrelationship.TheBankingGroupformallyassesses,bothattheinceptionofthehedgeandonanongoingbasis,whetherthehedgingderivativeshavebeenhighlyeffectiveinoffsettingchangesinthefairvalueorcashflowsofthehedgeditems.Ahedgeisregardedashighlyeffectiveif,atinceptionandthroughoutitslife,theBankingGroupcanexpectchangesinthefairvalueorcashflowsofthehedgeditemtobealmostfullyoffsetbythechangesinthefairvalueorcashflowsofthehedginginstrument,andactualresultsofthehedgearewithinarangeof80%to125%ofthesechanges.Hedgeineffectivenessrepresentstheamountbywhichthechangesinthefairvalueofthehedgingderivativedifferfromchangesinthefairvalueofthehedgeditemortheamountbywhichchangesinthecashflowsofthehedgingderivativedifferfromchanges(orexpectedchanges)inthepresentvalueofthecashflowsofthehedgeditem.

Fair value hedgeChangesinthefairvalueofderivativesthataredesignatedandqualifyasfairvaluehedgesarerecordedintheincomestatement,togetherwithanychangesinthefairvalueofthehedgedassetorliabilitythatareattributedtothehedgedrisk.Ifthehedgenolongermeetsthecriteriaforhedgeaccounting,anypreviousadjustmenttothecarryingamountofahedgeditemrecognisedatamortisedcostisamortisedtotheincomestatementovertheperiodtomaturity.

Cash flow hedgeTheeffectiveportionofchangesinthefairvalueofderivativesthataredesignatedandqualifyascashflowhedgesisrecognisedinothercomprehensiveincome.Thegainorlossrelatingtoanyineffectiveportionisrecognisedimmediatelyintheincomestatement.Whenahedginginstrumentexpiresorissold,terminatedorexercised,orwhenthehedgenolongermeetsthecriteriaforhedgeaccounting,anycumulativegainorlossexistinginothercomprehensiveincomeatthattimeremainsinothercomprehensiveincomeandisrecognisedintheperiodinwhichthehedgeditemaffectsprofitorloss.Whenaforecasttransactionisnolongerexpectedtooccur,thecumulativegainorlossthatwasreportedinothercomprehensiveincomeisimmediatelytransferredtotheincomestatement.

Embedded derivativesIncertaininstancesaderivativemaybeembeddedinahostcontract.Ifthehostcontractisnotcarriedatfairvaluethroughprofitorloss,theembeddedderivativeisseparatedfromthehostcontractandaccountedforasastand-alonederivativeinstrumentatfairvaluewheretheeconomiccharacteristicsandrisksoftheembeddedderivativearenotcloselyrelatedtotheeconomiccharacteristicsandrisksofthehostcontract.



Note 1 Statement of accounting policies (continued)Recognition of deferred day one profit or lossThebestevidenceoffairvalueatinitialrecognitionisthetransactionprice,unlessthefairvalueofthatinstrumentisevidencedbycomparisonwithotherobservablecurrentmarkettransactionsinthesameinstrument,orbasedonavaluationtechniquewhosevariablesincludeonlydatafromobservablemarkets.TheBankingGroupmayenterintotransactionswherefairvalueisdeterminedusingvaluationmodelsforwhichnotallsignificantinputsaremarketobservablepricesorrates.Suchafinancialinstrumentisinitiallyrecognisedatthetransactionpricewhichisthebestindicatoroffairvalue,althoughthevalueobtainedfromtherelevantvaluationmodelmaydiffer.Thedifferencebetweenthetransactionpriceandthemodelvalue,commonlyreferredtoas‘dayoneprofitorloss’,isnotrecognisedimmediatelyinprofitorloss.Thetimingofrecognitionofdeferreddayoneprofitorlossisdeterminedindividually.Itiseitheramortisedoverthelifeofthetransaction,deferreduntiltheinstrument’sfairvaluecanbedeterminedusingmarketobservableinputs,orrealisedthroughsettlement.Thefinancialinstrumentissubsequentlymeasuredatfairvalue,adjustedforthedeferreddayoneprofitorloss.Subsequentchangesinfairvaluearerecognisedimmediatelyintheincomestatementwithoutreversalofdeferreddayoneprofitsorlosses.

Loan securitisationTheBankingGroup,throughitsloansecuritisationprogramme,packagesandsellsloans(principallyhousingmortgageloans)assecuritiestoinvestors.Insuchtransactions,theBankingGroupprovidesanequitableinterestintheloanstoinvestorswhoprovidefundingtotheBankingGroup.Securitisedloansthatdonotqualifyforderecognitionandtheassociatedfundingareincludedinloansanddebtissuesrespectively.

LeasesLeasesareclassifiedaseitherfinanceleasesoroperatingleases.Underafinancelease,substantiallyalltherisksandrewardsincidentaltolegalownershiparetransferredtothelessee.Incontrast,anoperatingleaseexistswheretherisksoftheleasedassetsremainwiththelessor.Initscapacityasalessor,theBankingGroupprimarilyoffersfinanceleases.TheBankingGrouprecognisestheassetsheldunderfinanceleaseinthebalancesheetasloansatanamountequaltothenetinvestmentinthelease.TherecognitionoffinanceincomeisbasedonapatternreflectingaconstantperiodicreturnontheBankingGroup’snetinvestmentinthefinancelease.Financeleaseincomeisincludedwithinnetinterestincomeintheincomestatement.Initscapacityasalessee,theBankingGroupmainlyleasesproperty,plantandequipmentunderoperatingleases.Paymentsduetothelessorunderoperatingleasesarechargedtoequipmentandoccupancyexpenseonastraight-linebasisoverthetermofthelease.

OffsettingFinancialassetsandfinancialliabilitiesareoffsetandthenetamountreportedinthebalancesheetwhenthereisalegallyenforceablerighttosetofftherecognisedamountsandthereisanintentiontosettleonanetbasis,ortorealisetheassetandsettletheliabilitysimultaneously.

Securities borrowed or lent and repurchase or reverse repurchase agreementsTheBankingGrouplendsandborrowssecuritiesonacollateralisedbasis.Thesecuritiessubjecttotheborrowingorlendingarenotderecognisedfromthebalancesheet,astherisksandrewardsofownershipremainwiththeinitialholder.Wherecashisprovidedascollateral,thecashpaidtothirdpartiesonsecuritiesborrowedisrecordedasareceivable,whilecashreceivedfromthirdpartiesonsecuritieslentisrecordedasaborrowing.Repurchasetransactions,wheretheBankingGroupsellssecuritiesunderanagreementtorepurchase,andreverserepurchasetransactions,wheretheBankingGrouppurchasessecuritiesunderanagreementtoresell,areconductedonacollateralisedbasis.Tradingsecuritiessold,butsubjecttorepurchaseagreementsaredisclosedaspartoftradingliabilities.Feesandinterestrelatingtostockborrowingorlendingandrepurchaseorreverserepurchaseagreementsarerecognisedininterestincomeandinterestexpenseintheincomestatement,usingtheeffectiveinterestratemethod,overtheexpectedlifeoftheagreements.TheBankingGroupcontinuallyreviewsthefairvalueoftheunderlyingsecuritiesand,whereappropriate,requestsorprovidesadditionalcollateraltosupportthetransactions.

Segment reportingOperatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothechiefoperatingdecision-maker.Thechiefoperatingdecision-makeristhepersonorgroupthatallocatesresourcestoandassessestheperformanceoftheoperatingsegmentsofanentity.TheBankingGrouphasdeterminedthattheBank’sexecutiveteamisitschiefoperatingdecision-maker.Alltransactionsbetweenbusinesssegmentsareconductedonanarm’slengthbasis,withinter-segmentrevenueandcostsbeingeliminatedatheadoffice.Incomeandexpensesdirectlyassociatedwitheachsegmentareincludedindeterminingbusinesssegmentperformance.

Statement of cash flowsBasis of presentationThestatementofcashflowshasbeenpresentedinaccordancewithNZIAS7Statement of Cash Flows withnettingofcertainitemsasdisclosedbelow.

Cash and cash equivalentsCashandcashequivalentsreflectthebalanceofcashandliquidassetsusedintheday-to-daycashmanagementoftheBankingGroup,whicharereadilyconvertibleattheinvestor’sorcustomer’soptionandincludetheinterbankbalancesarisingfromthedailyReserveBanksettlementprocess.



Note 1 Statement of accounting policies (continued)Netting of cash flowsCertaincashflowshavebeennettedinordertoprovidemoremeaningfuldisclosure,asmanyofthecashflowsarereceivedanddisbursedonbehalfofcustomersandreflecttheactivitiesofthosecustomersratherthantheBankingGroup.

1.3 Changes in accounting policiesFrom1October2012,theBankingGroupappliedPresentation of Items of Other Comprehensive Income(AmendmentstoNZIAS1Presentation of Financial Statements).Thechangeonlyrelatestodisclosuresandhashadnoimpactonconsolidatednetincome.ThechangeshavebeenappliedretrospectivelyandrequiretheBankingGrouptoseparatelypresentthoseitemsofothercomprehensiveincomethatmaybereclassifiedtoprofitorlossinthefuturefromthosethatwillneverbereclassifiedtoprofitorloss.Thesechangesareincludedinthestatementsofcomprehensiveincome.

1.4 Future accounting developmentsThefollowingnewstandards,interpretationsandamendmentshavebeenissued,butarenotyeteffectiveandhavenotbeenearlyadoptedbytheBankingGroup:

■■ Disclosures–Offsetting Financial Assets and Financial Liabilities(AmendmentstoNZIFRS7Financial Instruments: Disclosures (‘NZ IFRS 7’))wasissuedinFebruary2012andwillbeeffectivetotheBankingGroupinthe2014financialyear.Theamendmentrequiresdisclosureofinformationthatwillenableuserstoevaluatetheeffectorpotentialeffectofnettingarrangements,includingrightsofset-offassociatedwithrecognisedfinancialassetsandfinancialliabilitiesontheBankingGroup’sbalancesheet.Theamendmentisexpectedtoresultinadditionaldisclosures.

■■ NZIFRS9Financial Instruments–IfthisstandardisnotearlyadopteditwillbeeffectivetotheBankingGroupinthe2016financialyear.Themajorchangesunderthestandardarethat:■ itreplacesthemultipleclassificationandmeasurementmodelsinNZIAS39Financial Instruments: Recognition and

Measurementwithasinglemodelthathastwoclassificationcategories:amortisedcostandfairvalue;■ afinancialassetismeasuredatamortisedcostiftwocriteriaaremet:a)theobjectiveofthebusinessmodelistohold

thefinancialassetsforthecollectionofthecontractualcashflows;andb)thecontractualcashflowsundertheinstrumentsolelyrepresentthepaymentofprincipalandinterest;

■ ifafinancialassetiseligibleforamortisedcostmeasurement,anentitycanelecttomeasureitatfairvalueifiteliminatesorsignificantlyreducesanaccountingmismatch;

■ therewillbenoseparationofanembeddedderivativewheretheinstrumentisafinancialasset;■ equityinstrumentsmustbemeasuredatfairvalue,however,anentitycanelectoninitialrecognitiontopresentthefair

valuechangesonanequityinvestmentdirectlyinothercomprehensiveincome.Thereisnosubsequentrecyclingoffairvaluegainsandlossestoprofitorloss,however,dividendsfromsuchinvestmentswillcontinuetoberecognisedinprofitorloss;

■ ifanentityholdsaninvestmentinasset-backedsecuritiesitmustdeterminetheclassificationofthatinvestmentbylookingthroughtotheunderlyingassetsandassessthecreditqualityoftheinvestmentcomparedwiththeunderlyingportfolioofassets.Ifanentityisunabletolookthrough,thentheinvestmentmustbemeasuredatfairvalue;and

■ theportionofachangeoffairvaluerelatingtotheentity’sowncreditriskforfinancialliabilitiesmeasuredatfairvalueutilisingthefairvalueoptionispresentedinothercomprehensiveincome,exceptwhenthatwouldcreateanaccountingmismatch.Ifsuchamismatchwouldbecreatedorenlarged,theentityisrequiredtopresentallchangesinfairvalue(includingtheeffectsofchangesinthecreditriskoftheliability)inprofitorloss.

TheIASBcurrentlyhasanactiveprojectthatmayresultinlimitedamendmentstotheclassificationandmeasurementrequirementsofNZIFRS9andaddnewrequirementstoaddresstheimpairmentoffinancialassetsandhedgeaccounting.

ThestandardwillimpacttheclassificationandmeasurementoftheBankingGroup’sfinancialinstrumentswhenadopted.■■ NZIFRS10Consolidated Financial Statements(‘NZ IFRS 10’),NZIFRS11Joint Arrangements (‘NZ IFRS 11’)andNZIFRS12Disclosure of Interests in Other Entities (‘NZ IFRS 12’)–ThesenewstandardswereissuedinJune2011andwillbeeffectivetotheBankingGroupinthe2014financialyear.■ NZIFRS10changesthedefinitionofcontrolandrequiresthatitbeappliedtoallentitiestodeterminewhethercontrol

exists.Thenewdefinitionfocusesontheneedforbothpowerandexposuretovariabilityofreturnsinorderforcontroltobepresent.

NZIFRS10replacesguidanceoncontrolandconsolidationinNZIAS27Consolidated and Separate Financial Statements (‘NZ IAS 27’)andNZEquivalenttoStandingInterpretationsCommitteeInterpretation12Consolidation – Special Purpose Entities(‘NZ SIC 12’).Thecoreprinciplethataconsolidatedentitypresentsaparentanditssubsidiariesasiftheyareasingleeconomicentityremainsunchanged,asdothemechanicsofconsolidation.

Thestandardintroducesasingledefinitionofcontrolthatappliestoallentities.Itfocusesontheneedtohavebothpowerandrightsorexposuretovariablereturns.Poweristhecurrentabilitytodirecttheactivitiesthatsignificantlyinfluencereturns.Returnsmustvaryandcanbepositive,negativeorboth.

Controlexistswhentheinvestorcanuseitspowertoaffecttheamountofitsreturns.Thereisalsonewguidanceonparticipatingandprotectiverightsandonagent/principalrelationships.

TheBankingGroupdoesnotexpectNZIFRS10tohaveamaterialimpactonthecompositionofitscontrolledentities.■ NZIFRS11introducesaprinciples-basedapproachtoaccountingforjointarrangements.Thefocusisnolongeronthe

legalstructureofjointarrangements,butratheronhowrightsandobligationsaresharedbythepartiestothejointarrangement.Basedontheassessmentofrightsandobligations,ajointarrangementwillbeclassifiedaseitherajointoperationorajointventure.Jointventuresareaccountedforusingtheequitymethod,andthechoicetoproportionatelyconsolidatewillnolongerbepermitted.Partiestoajointoperationwillaccountfortheirshareofrevenues,expenses,assetsandliabilitiesinmuchthesamewayasunderthepreviousstandard.ApplicationofNZIFRS11isnotexpectedtohaveamaterialimpactontheBankingGroup.



Note 1 Statement of accounting policies (continued)■ NZIFRS12setsouttherequireddisclosuresforentitiesreportingunderthetwonewstandards,NZIFRS10andNZ

IFRS11,andreplacesthedisclosurerequirementscurrentlyfoundinNZIAS27Consolidated and Separate Financial Statements andNZIAS28Investments in Associates(‘NZ IAS 28’).ApplicationofthisstandardbytheBankingGroupwillnotaffectanyoftheamountsrecognisedinthefinancialstatements,butwillimpactthetypeofinformationdisclosedinrelationtotheBankingGroup’sinvestments.

■■ NZIFRS13Fair Value Measurement(‘NZ IFRS 13’)–ThenewstandardwasissuedinJune2011andwillbeeffectivetotheBankingGroupinthe2014financialyear.Thenewstandardreplacesexistingguidanceonfairvaluemeasurementinseveralstandardswithasingle,unifieddefinitionoffairvalueandaframeworkformeasuringanddisclosingfairvalues.NZIFRS13appliestoallassetsandliabilitiesmeasuredatfairvalue,notjustfinancialinstruments.ThenewstandardisnotexpectedtohaveamaterialimpactontheBankingGroup.

■■ NZIAS19Employee Benefits(‘NZ IAS 19’)–TheamendmentswereissuedinAugust2011andwillbeeffectivetotheBankingGroupinthe2014financialyear.Theamendmentsrequireentitiestoaccountimmediately,inretainedearnings,forallestimatedchangesinthecostofprovidingthesebenefitsandallchangesinthevalueofplanassets(oftenreferredtoastheremovalofthe‘corridoramount’).ItisestimatedthattheadoptionoftherevisionstoNZIAS19willhavethefollowingimpactonthefinancialstatements:

The Banking Group and the Bank

$ millions 2013 2012

Decreaseindeferredtaxassetsat30September 5 6 Decreaseindefinedbenefitobligationat30September 18 22Increasetoequityat1October 13 16

■■ NZIAS27Separate Financial Statements–TheamendmentswereissuedinJune2011andwillbeeffectivetotheBankingGroupinthe2014financialyear.TheamendmentsremovetheaccountinganddisclosurerequirementsforconsolidatedfinancialstatementsasaresultoftheissuanceofNZIFRS10andNZIFRS12.ItisnotexpectedtohaveamaterialimpactontheBankingGroup.

■■ NZIAS28Investments in Associates and Joint Ventures (‘Revised NZ IAS 28’) –ThestandardwasissuedinJune2011andwillbeeffectivetotheBankingGroupinthe2014financialyear.ThisstandardsupersedesNZIAS28asaresultoftheissuanceofNZIFRS12.ItisnotexpectedtohaveamaterialimpactontheBankingGroup.

■■ Offsetting Financial Assets and Financial Liabilities (AmendmentstoNZIAS32Financial Instruments: Presentation (‘NZ IAS 32’))wasissuedinFebruary2012andwillbeeffectivetotheBankingGroupinthe2015financialyear.TheamendmentprovidesapplicationguidancetoaddressinginconsistenciesappliedtooffsettingcriteriaprovidedinNZIAS32,includingclarifyingthatthemeaningof‘currentlegalenforceablerightsofset-off’islegallyenforceableinallcircumstancesandthatsomegrosssettlementsystems(suchasthroughaclearinghouse)maybeconsideredastheequivalenttonetsettlement.TheamendmentisnotexpectedtohaveamaterialimpactontheBankingGroup.

■■ Annual Improvements 2009 – 2011 CyclewasissuedinJune2012andwillbeeffectivetotheBankingGroupinthe2014financialyear.Theamendmentsrelatetothefollowing:■ NZIAS1–clarifiesthedifferencebetweenvoluntaryadditionalcomparativeinformationandtheminimumrequired

comparativeinformation.Generally,theminimumrequiredcomparativeperiodisthepreviousperiod.■ NZIAS32–clarifiesthatincometaxesarisingfromdistributionstoequityholdersareaccountedforinaccordancewith

NZIAS12Income Taxes.■ NZIAS34–clarifiestherequirementsinNZIAS34relatingtosegmentinformationfortotalassetsandliabilitiesforeach

reportablesegmenttoenhanceconsistencywiththerequirementsinNZIFRS8Operating Segments. TheamendmentsarenotexpectedtohaveamaterialimpactontheBankingGroup.

1.5 Critical accounting estimates, judgments and assumptionsTheapplicationoftheBankingGroup’saccountingpoliciesnecessarilyrequirestheuseofestimates,judgmentandassumptions.Shoulddifferentestimates,judgmentsorassumptionsbeapplied,theresultingvalueswouldchange,impactingthenetassetsandincomeoftheBankingGroup.

Critical accounting estimates, judgments and assumptionsThenatureofestimatesandassumptionsusedandthevalueoftheresultingassetandliabilitybalancesareincludedinthepoliciesbelow.

Fair value of financial instrumentsFinancialinstrumentsclassifiedasheldfortradingordesignatedatfairvaluethroughprofitorlossandfinancialassetsclassifiedasavailable-for-salearerecognisedinthefinancialstatementsatfairvalue.Allderivativesaremeasuredandrecognisedatfairvalue.Thefairvalueofafinancialinstrumentistheamountatwhichtheinstrumentcouldbeexchangedinacurrenttransactionbetweenwillingparties,otherthaninaforcedorliquidationsale.Financialinstrumentsareeitherpricedwithreferencetoaquotedmarketpriceforthatinstrumentorbyusingavaluationmodel.Wherethefairvalueiscalculatedusingfinancialmarketpricingmodels,themethodologyusedistocalculatetheexpectedcashflowsunderthetermsofeachspecificcontractandthendiscountthesevaluesbacktothepresentvalue.Thesemodelsuseastheirbasisindependentlysourcedmarketparametersincluding,forexample,interestrateyieldcurves,equitiesandcommoditiesprices,optionvolatilitiesandcurrencyrates.Mostmarketparametersareeitherdirectlyobservableorareimpliedfrominstrumentprices,however,profitsorlossesarerecogniseduponinitialrecognitiononlywhensuchprofitscanbemeasuredbyreferencetoobservablecurrentmarkettransactionsorvaluationtechniquesbasedonobservablemarketinputs.Intheeventthatinputsintovaluationtechniquesarenon-marketobservableanyday-oneprofitorlossisamortisedoverthelifeofthetransaction.



Note 1 Statement of accounting policies (continued)Thecalculationoffairvalueforanyfinancialinstrumentmayalsorequireadjustmentofthequotedpriceormodelvaluetoreflectthecostofcreditrisk(wherenotembeddedinunderlyingmodelsorpricesused).Theprocessofcalculatingfairvalueonilliquidinstrumentsorfromavaluationmodelmayrequireestimationofcertainpricingparameters,assumptionsormodelcharacteristics.Theseestimatesarecalibratedagainstindustrystandards,economicmodelsandobservedtransactionprices.ThefairvalueoffinancialinstrumentsisprovidedinNote27aswellasthemechanismbywhichfairvaluehasbeenderived.AnegligibleproportionoftheBankingGroup’stradingderivativesarevalueddirectlyfromquotedprices,themajoritybeingvaluedusingappropriatevaluationtechniques,usingobservablemarketinputs.Thefairvalueofsubstantiallyallsecuritiespositionscarriedatfairvalueisdetermineddirectlyfromquotedpricesorobservablemarketinputs.

Provisions for impairment charges on loans and credit commitmentsTheBankingGroup’sloanimpairmentprovisionsareestablishedtorecogniseincurredimpairmentinitsportfolioofloans.Aloanisimpairedwhenthereisobjectiveevidencethateventsoccurringsincetheloanwasrecognisedhaveaffectedexpectedcashflowsfromtheloan.Theimpairmentchargeisthedifferencebetweenthecarryingvalueoftheloanandthepresentvalueofestimatedfuturecashflowscalculatedattheloan’soriginaleffectiveinterestrateforfixedrateloansandtheloan’scurrenteffectiveinterestrateforvariablerateloans.Provisionsforloanimpairmentrepresentmanagement’sestimateoftheimpairmentchargesincurredintheloanportfoliosasatthebalancedate.Changestotheprovisionsforloanimpairmentandchangestotheprovisionsforundrawncontractuallycommittedfacilitiesandguaranteesprovidedarereportedintheincomestatementaspartoftheimpairmentchargesonloans.TherearetwocomponentstotheBankingGroup’sloanimpairmentprovisions,individualandcollective,asfollows:(a) Individualcomponent–allimpairedloansthatexceedspecifiedthresholdsareindividuallyassessedforimpairment.

IndividuallyassessedloansprincipallycomprisetheBankingGroup’sportfolioofcommercialloanstomediumandlargebusinesses.Impairmentisrecognisedasthedifferencebetweenthecarryingvalueoftheloanandthediscountedvalueofmanagement’sbestestimateoffuturecashrepaymentsandproceedsfromanysecurityheld(discountedattheloan’soriginaleffectiveinterestrateforfixedrateloansandtheloan’scurrenteffectiveinterestrateforvariablerateloans).Relevantconsiderationsthathaveabearingontheexpectedfuturecashflowsaretakenintoaccount,includingthebusinessprospectsforthecustomer,therealisablevalueofcollateral,theBankingGroup’spositionrelativetootherclaimants,thereliabilityofcustomerinformationandthelikelycostanddurationofthework-outprocess.Subjectivejudgmentsaremadeinthisprocess.Furthermore,judgmentscanchangewithtimeasnewinformationbecomesavailableoraswork-outstrategiesevolve,resultinginrevisionstotheimpairmentprovisionasindividualdecisionsaretaken.

(b) Collectivecomponent–thisismadeupoftwoelements:loanimpairmentprovisionsforimpairedloansthatarebelowindividualassessmentthresholds(collectiveimpairedloanprovisions)andforloanimpairmentsthathavebeenincurredbuthavenotbeenseparatelyidentifiedatthebalancedate(incurredbutnotreportedprovisions).Theseareestablishedonaportfoliobasistakingintoaccountthelevelofarrears,collateral,pastlossexperienceanddefaultsbasedonportfoliotrends.Themostsignificantfactorsinestablishingtheseprovisionsaretheestimatedlossratesandtherelatedemergenceperiod.Theemergenceperiodforeachloanproducttypeisdeterminedthroughdetailedstudiesoflossemergencepatterns.Loanfileswherelosseshaveemergedarereviewedtoidentifytheaveragetimeperiodbetweenobservablelossindicatoreventsandthelossbecomingidentifiable.Theseportfoliosincludecreditcardreceivablesandotherpersonaladvancesincludingmortgages.Thefuturecreditqualityoftheseportfoliosissubjecttouncertaintiesthatcouldcauseactualcreditlossestodiffermateriallyfromreportedloanimpairmentprovisions.Theseuncertaintiesincludetheeconomicenvironment,notablyinterestratesandtheireffectoncustomerspending,unemploymentlevels,paymentbehaviourandbankruptcyrates.

TheprovisionsforimpairmentchargesonloansaredisclosedinNote13andNote14whilsttheprovisionsforimpairmentoncreditcommitmentsaredisclosedinNote21.TheimpairmentchargereflectedintheincomestatementisdisclosedinNote7.

GoodwillGoodwillrepresentsamountsarisingontheacquisitionofbusinesses.PriortotherevisedNZIFRS3Business Combinations,goodwillrepresentedtheexcessofpurchaseconsideration,includingdirectlyattributableexpensesassociatedwiththeacquisition,overthefairvalueoftheBankingGroup’sshareoftheidentifiablenetassetsoftheacquiredbusiness.GoodwillarisingontheacquisitionofabusinesssubsequenttotheadoptionoftherevisedNZIFRS3representstheexcessofthepurchaseconsideration,theamountofanynon-controllinginterestintheacquireeandtheacquisitiondatefairvalueofanypreviousequityinterestintheacquiree,overtheacquisitiondatefairvalueofidentifiablenetassetsacquired.Thedeterminationofthefairvalueofassetsandliabilitiesoftheacquiredbusinessesrequirestheexerciseofmanagementjudgment.Differentfairvalueswouldresultinchangestothegoodwillbalanceandtothepost-acquisitionperformanceoftheacquisition.Todetermineifgoodwillisimpaired,thecarryingvalueoftheidentifiedCGUtowhichthegoodwillisallocated,includingtheallocatedgoodwill,iscomparedtoitsrecoverableamount.RecoverableamountisthehigheroftheCGU’sfairvaluelesscoststosellanditsvalue-in-use.Value-in-useisthepresentvalueofexpectedfuturecashflowsfromtheCGU.Determinationofappropriatecashflowsanddiscountratesforthecalculationofvalue-in-useissubjective.FairvalueistheamountobtainableforthesaleoftheCGUinanarm’slengthtransactionbetweenknowledgeableandwillingparties.Theassumptionsappliedtodetermineifanyimpairmentexistsalongwiththecarryingamountofgoodwill,areoutlinedinNote15.

Superannuation obligationsTheBankingGroupoperatesadefinedbenefitsuperannuationschemeforstaffinNewZealand.Forthisscheme,actuarialvaluationofthescheme’sobligationsandthefairvaluemeasurementsofthescheme’sassetsareperformedannuallyinaccordancewiththerequirementsofNZIAS19.Theactuarialvaluationofschemeobligationsisdependentuponaseriesofassumptions,thekeyonesbeingpriceinflation,earningsgrowth,mortality,morbidity,investmentreturnsassumptionsanddiscountrate.Differentassumptionscouldsignificantlyaltertheamountofthedifferencebetweenschemeassetsandobligations,andthesuperannuationcostchargedtotheincomestatement.



Note 1 Statement of accounting policies (continued)ThecarryingamountandtheprimaryassumptionsusedinthecalculationofsuperannuationdefinedbenefitobligationaredisclosedinNote22andNote30.

Provisions (other than loan impairment losses)Provisionsareheldinrespectofarangeofobligationssuchasemployeeentitlements,restructuringcosts,litigationprovisions,non-lendinglossesandonerouscontractsasdisclosedinNote21.Someoftheprovisionsinvolvesignificantjudgmentaboutthelikelyoutcomeofvariouseventsandestimatedfuturecashflows.Paymentswhichareexpectedtobeincurredaftermorethanoneyeararediscountedataratewhichreflectsbothcurrentinterestratesandtherisksspecifictothatprovision.

Income taxesTheBankingGroupissubjecttoincometaxesinNewZealandandjurisdictionswhereithasforeignoperations.Significantjudgmentisrequiredindeterminingtheprovisionforincometaxes.Therearemanytransactionsandcalculationsundertakenduringtheordinarycourseofbusinessforwhichtheultimatetaxoutcomeisunclear.Provisionsfortaxareheldtoreflecttheseuncertainties.TheBankingGroupestimatesitstaxliabilitiesbasedontheBankingGroup’sunderstandingofthetaxlaw.Wherethefinaloutcomeofthesemattersisdifferentfromtheamountsthatwereinitiallyrecorded,suchdifferenceswillimpactthecurrentanddeferredtaxprovisionsintheperiodwhensuchdeterminationsaremade.RefertoNote16fordetailsoftheBankingGroup’sdeferredtaxbalances.

Securitisation and the consolidation of special purpose vehiclesTheBankingGroupsponsorstheformationofspecialpurposevehicles(‘SPV’)intheordinarycourseofbusiness,primarilytoprovidefundingandfinancialservicesproductstoitscustomers.SPVsaretypicallysetupforasingle,pre-definedpurpose,havealimitedlifeandgenerallyarenotoperatingentitiesnordotheyhaveemployees.ThemostcommonformofSPVstructureinvolvestheacquisitionoffinancialassetsbytheSPVthatarefundedbytheissuanceofsecuritiestoexternalinvestors(securitisation).RepaymentofthesecuritiesisdeterminedbytheperformanceoftheassetsacquiredbytheSPV.UnderNZGAAP,anSPVisconsolidatedandreportedaspartoftheBankingGroupifitiscontrolledbytheparententityinlinewithNZIAS27 ordeemedtobecontrolledinapplyingNZSIC12.Thedefinitionofcontrolisbasedonthesubstanceratherthanthelegalformofthearrangement.AsitcansometimesbedifficulttodeterminewhethertheBankingGroupcontrolsanSPV,managementmakesjudgmentsabouttheBankingGroup’sexposuretotheassociatedrisksandrewards,aswellasitsabilitytomakeoperationaldecisionsfortheSPV.



Note 2 Business combination – transfer of operationsUntil1November2006,theUltimateParentBankconducteditsoperationsinNewZealandthroughabranchstructure.Onthatdate,andafterextensiveconsultationwiththeReserveBank,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.TheacquisitioninvolvedthetransfertotheBankof$6,446millionofassetsconsistingprimarilyofloanstocorporatecustomersof$6,336millionand$5,303millionofliabilitiesconsistingprimarilyofdepositsof$5,060million.

Funding of acquisitionTofundthepurchaseoftheassetsandliabilitiesrelatingtothebusinessactivitiestransferredfromtheNZBranch(aswellastheadditionalliquidassetsrequiredtobeheldbytheBankingGroupasaresultofthetransfer),aloanof$3.1billionwasprovidedtotheBankbytheNZBranchandtheBankraised$1,130millioninadditionalsharecapital.Theloanof$3.1billionwasforaperiodofthreeyearsandwaspricedattheNewZealandBankBillReferenceRateplusamarginthatreflectedmarketpricingon1November2011(refertoNote25).TheBankissuedatotalof1,130millionadditionalordinarysharesfor$1persharetotheBank’simmediateparentcompany,WestpacNewZealandGroupLimited(‘WNZGL’),inconnectionwiththetransfer.On28October2011,theBankissued900millionordinarysharesfor$1pershare,andon31October2011,theBankissuedanadditional230millionordinarysharesfor$1pershare.Immediatelypriortotheissuanceoftheseadditional230millionordinaryshares,theBankpaidadividendtoWNZGLof$230million.

Compliance with condition of registration 14 and BS13 requirements (unaudited) Asaresultofthetransferofthebusinessactivitiessetoutabove,theBankingGroupisrequiredtoholdadditionalliquidassetsinordertocomplywithconditionofregistration14,whichrelatestoliquidity,andtheReserveBankdocument‘LiquidityPolicy’ (BS13).TheseliquidassetswereacquiredthroughacombinationofonmarketpurchasesandapurchaseofliquidassetsfromtheNZBranch.TheBankingGroupwascompliantwithbothconditionofregistration14andBS13immediatelyfollowingthetransferon1November2011.



Note 2 Business combination – transfer of operations (continued)Assets and liabilities transferred from NZ Branch to the Bank as at 1 November 2011

Assets and Liabilities Transferred As at 1 November $ millions 2011

AssetsCashandbalanceswithcentralbanks 58 Loans 6,336 Deferredtaxassets 28 Otherassets 24

Total assets 6,446

LiabilitiesDuetootherfinancialinstitutions 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$ millions 2011

Contingent liabilities and commitmentsTransaction-relatedcontingentitems 421 Short-term,self-liquidatingtrade-relatedcontingentliabilities 107 Othercommitmentstoprovidefinancialservices 6,464

Total contingent liabilities and commitments 6,992

Consideration paid for the business transferred from the NZ Branch to the Bank on 1 November 2011 The Bank As at 1 November $ millions 2011

Consideration transferredIntragrouppayables 3,100 Tradingsecurities (1,957)

Total consideration transferred 1,143



Note 2 Business combination – transfer of operations (continued)Impact of the transferred business activities on the Banking Group

The Banking Group Pre-existing Transferred$ millions Note Operations Operations1 Total

For the year ended 30 September 2012Net interest income 3 1,362 137 1,499

Non-interestincome: Feesandcommissions 4 302 34 336 Netineffectivenessonqualifyinghedges 4 1 - 1 Othernon-interestincome 4 19 - 19

Total non-interest income 322 34 356

Net operating income 1,684 171 1,855 Operatingexpenses (788) (19) (807) Impairmentchargesonloans 7 (178) (12) (190) Shareofprofitofassociateaccountedforusingequitymethod 1 - 1

Profit before income tax expense 719 140 859 Incometaxexpense (206) (40) (246)

Profit after income tax expense 513 100 6131 Representsthe11monthresultofthetransferredbusinessoperationssincetheacquisitiondateon1November2011,asincludedintheBankingGroup’sconsolidated

incomestatement.

Impact of the transferred business activities on the Bank The Bank Pre-existing Transferred$ millions Note Operations Operations1 Total

For the year ended 30 September 2012Net interest income 3 1,346 137 1,483

Non-interestincome: Feesandcommissions 4 301 34 335 Netineffectivenessonqualifyinghedges 4 1 - 1 Othernon-interestincome 4 8 - 8


Net operating income 1,656 171 1,827 Operatingexpenses (790) (19) (809) Impairmentchargesonloans 7 (168) (12) (180)


Profit after income tax expense 502 100 6021 Representsthe11monthresultofthetransferredbusinessoperationssincetheacquisitiondateon1November2011,asincludedintheBank’sincomestatement.

Transferred business activities for the year ended 30 September 2012 The Banking Group and the Bank Pre-acquisition Transferred$ millions result1 Operations2 Total

For the year ended 30 September 2012Net interest income 16 137 153

Non-interestincome: Feesandcommissions 4 34 38


Net operating income 20 171 191 Operatingexpenses (2) (19) (21) Impairmentchargesonloans 2 (12) (10)


Profit after income tax expense 15 100 1151 Representsthepre-acquisitionresultofthetransferredbusinessoperationsfrom1October2011through31October2011.2 Representsthe11monthresultofthetransferredbusinessoperationssincetheacquisitiondateon1November2011,asincludedintheBankingGroup’sconsolidated

incomestatement.



Note 3 Net interest income The Banking Group The Bank Year Ended YearEnded Year Ended YearEnded $ millions 30-Sep-13 30-Sep-12 30-Sep-13 30-Sep-12

Interest incomeCashandbalanceswithcentralbanks 40 30 40 30 Tradingsecurities 75 94 75 94 Available-for-salesecurities 113 104 113 104 Loans 3,469 3,557 3,457 3,540Impairedassets 43 51 40 51 Relatedentities 28 45 372 368

Total interest income1 3,768 3,881 4,097 4,187

Interest expenseDuetootherfinancialinstitutions - 2 - 2 Deposits 1,475 1,364 1,438 1,338Debtissues 352 392 157 144 Other2 405 624 983 1,220

Total interest expense3 2,232 2,382 2,578 2,704

Net interest income 1,536 1,499 1,519 1,483

1 Totalinterestincomeforfinancialassetsthatarenotatfairvaluethroughprofitorlossis$3,682million(30September2012:$3,787million)fortheBankingGroupand$4,011million(30September2012:$4,093million)fortheBank.

2 Includesinterestexpenseduetorelatedentities(includingperpetualsubordinatednotes)andthenetimpactofTreasurybalancesheetmanagementactivities(refertonote25).

3 Totalinterestexpenseforfinancialliabilitiesthatarenotatfairvaluethroughprofitorlossis$2,109million(30September2012:$2,215million)fortheBankingGroupand$2,517million(30September2012:$2,660million)fortheBank.

Inthecurrentyear,thepresentationofinterestincomeandinterestexpenserelatingtocertainrelatedentitytransactionshasbeenrevisedtobetterreflectthenetimpactoftheunderlyingtransactions.Toimprovepresentation,comparativefigureshavebeenrevisedforinterestincome–relatedentitiesfortheBankingGroup(2012:$45million)andtheBank(2012:$368million)respectivelyandinterestexpense–otherfortheBankingGroup(2012:$624million)andtheBank(2012:$1,220million)respectively.Therevisedpresentationhasnoimpactontotalnetinterestincomefortheyearended30September2012.

Note 4 Non-interest income The Banking Group The Bank Year Ended YearEnded Year Ended YearEnded$ millions 30-Sep-13 30-Sep-12 30-Sep-13 30-Sep-12

Fees and commissionsTransactionfeesandcommissions 262 244 256 239 Lendingfees(loanandrisk) 62 56 61 56 Managementfeesreceivedfromrelatedentities 4 3 6 6 Othernon-riskfeeincome 30 33 31 34

Total fees and commissions 358 336 354 335

Net ineffectiveness on qualifying hedges 1 1 1 1

Other non-interest incomeNetgainsonderivativesheldfortrading - 3 - 3 Dividendincome 2 2 2 1 Other 10 14 1 4

Total other non-interest income 12 19 3 8

Total non-interest income 371 356 358 344

Inthecurrentyear,thepresentationofcertaintransactionsoftheBankingGroupandtheBankhasbeenrevisedtobetterreflectthenatureoftheunderlyingtransactions.Therevisedpresentationhasnoimpactontotalnon-interestincomefortheyearended30September2012.



Note 5 Operating expenses The Banking Group The Bank Year Ended YearEnded Year Ended YearEnded$ millions 30-Sep-13 30-Sep-12 30-Sep-13 30-Sep-12

Salaries and other staff expensesSalariesandwages 371 360 370 358Employeeentitlements 11 10 11 10 Superannuationcosts: Definedcontributionscheme 27 25 27 25 Share-basedpayments 4 5 4 5 Restructuringcosts 5 4 5 4 Other 9 6 9 6

Total salaries and other staff expenses 427 410 426 408

Equipment and occupancy expensesOperatingleaserentals: Relatedentities(refertoNote25) - - 101 98 Other 65 62 8 8Depreciation: Leaseholdimprovements 15 16 - - Furnitureandequipment 12 11 5 4 Equipmentrepairsandmaintenance 9 9 4 3 Electricity,waterandrates 2 2 - -Other 9 6 2 1

Total equipment and occupancy expenses 112 106 120 114

Other expensesSoftwareamortisationcosts 35 38 35 38Non-lendinglosses(refertoNote21) 2 3 2 3 Consultancyfeesandotherprofessionalservices 59 67 56 63 Auditors’remuneration(refertoNote6) 2 2 1 2 Stationery 13 12 13 12 Postageandfreight 18 18 15 15 Advertising 28 28 28 28Training 3 3 3 3 Travel 6 10 6 10 Outsourcing 88 93 88 93 Relatedentities-managementfees(refertoNote25) 3 4 9 9 Other 14 13 12 11

Total other expenses 271 291 268 287

Total operating expenses 810 807 814 809

Note 6 Auditors’ remuneration The Banking Group The Bank Year Ended YearEnded Year Ended YearEnded $'000s 30-Sep-13 30-Sep-12 30-Sep-13 30-Sep-12

Auditor of the parent entityAuditandreviewoffinancialreport 1,022 968 869 784Otherauditrelatedwork1 179 165 179 165 Otherassuranceservices2 84 278 84 278

Total audit and other assurance services 1,285 1,411 1,132 1,227

Taxationcomplianceandadvice - 30 - 30 Otherservices3 260 267 260 267

Total non-audit fees 260 297 260 297

Total remuneration for audit and non-audit services 1,545 1,708 1,392 1,5241 Sarbanes-OxleyreportingtotheUltimateParentBankanditssubsidiaries(‘Ultimate Parent Bank Group’).2 Primarilyassuranceprovidedoncertainfinancialinformation,includingtheissueofcomfortlettersinrelationtodebtissuanceprogrammes.3 Assuranceandadvisoryservicesrelatingtootherregulatoryandcompliancematters.

ItistheBankingGroup’spolicytoengagetheexternalauditorsonassignmentsadditionaltotheirstatutoryauditdutiesonlyiftheirindependenceisnoteitherimpairedorseentobeimpaired,andwheretheirexpertiseandexperiencewiththeBankingGroupisimportant.



Note 7 Impairment charges on loans The Banking Group The Bank For the year ended For the year ended 30 September 2013 30 September 2013 Other Other Loans for Loans for Loans for Loans for Residential Consumer Business Residential Consumer Business$ millions Mortgages Purposes Purposes Total Mortgages Purposes Purposes Total

Collectivelyassessedprovisions 7 4 (21) (10) 8 4 (21) (9) Individuallyassessedprovisions 27 - 55 82 27 - 55 82 Baddebtswritten-offdirectlytothe incomestatement 3 39 21 63 3 36 20 59 Interestadjustments (4) (10) (14) (28) (5) (9) (14) (28) Total impairment charges on loans 33 33 41 107 33 31 40 104

The Banking Group The Bank Fortheyearended Fortheyearended 30September2012 30September2012 Other Other Loansfor Loansfor Loansfor Loansfor Residential Consumer Business Residential Consumer Business$ millions Mortgages Purposes Purposes Total Mortgages Purposes Purposes Total

Collectivelyassessedprovisions (5) (6) (57) (68) (6) (5) (57) (68)Individuallyassessedprovisions 23 - 192 215 23 - 182 205Baddebtswritten-offdirectlytothe incomestatement 2 43 29 74 2 42 29 73Interestadjustments (4) (10) (17) (31) (4) (9) (17) (30)

Total impairment charges on loans 16 27 147 190 15 28 137 180

Note 8 Income tax expense The Banking Group The Bank Year Ended YearEnded Year Ended YearEnded$ millions 30-Sep-13 30-Sep-12 30-Sep-13 30-Sep-12

Income tax expenseCurrenttax: Currentyear 261 230 251 216 Prioryearadjustments 2 (1) - -Deferredtax(refertoNote16): Currentyear 15 16 18 19 Prioryearadjustments (1) 1 (1) 1

Total income tax expense 277 246 268 236

Profit before income tax expense 991 859 959 838

Taxcalculatedattaxrateof28% 277 241 269 235 Expensesnotdeductiblefortaxpurposes (2) 1 - 1 Prioryearadjustments 1 - (1) 1 Otheritems 1 4 - (1)

Total income tax expense 277 246 268 236

Note 9 Imputation credit account The Banking Group The Bank$ millions 2013 2012 2013 2012

Imputationcreditsavailableforuseinsubsequentreportingperiods 644 836 622 816

TheNZBranchandtheBankformedanimputationgroupwitheffectfrom1April2012.



Note 10 Due from other financial institutions The Banking Group and the Bank$ millions 2013 2012

Loansandadvancestootherbanks 173 322

Total due from other financial institutions 173 322

Duefromotherfinancialinstitutions: At call 173 322 Term - -


Amountsexpectedtoberecoveredwithin12months 173 322 Amountsexpectedtoberecoveredafter12months - -


Note 11 Trading securities The Banking Group and the Bank$ millions 2013 2012

Trading securitiesCertificatesofdeposit 892 1,549Corporatebonds 337 255NZGovernmentsecurities 1 61Localauthoritysecurities 348 175

Total trading securities 1,578 2,040

Amountsexpectedtoberecoveredwithin12months 1,311 1,742Amountsexpectedtoberecoveredafter12months 267 298

Total trading securities 1,578 2,040

Asat30September2013notradingsecuritiesintheBankingGroupandtheBank(30September2012:nil)wereencumberedthroughrepurchaseagreements.

Note 12 Available-for-sale securities The Banking Group and the Bank$ millions 2013 2012

NZGovernmentsecurities 1,993 2,122Localauthoritysecurities 109 32 NZdebtsecurities 80 56 Overseasdebtsecurities 433 414 Overseasequitysecurities 100 70

Total available-for-sale securities 2,715 2,694

Amountsexpectedtoberecoveredwithin12months 165 26 Amountsexpectedtoberecoveredafter12months 2,550 2,668

Total available-for-sale securities 2,715 2,694

Asat30September2013,noavailable-for-salesecuritieswerepledgedascollateralfortheBankingGrouportheBank’sliabilities(30September2012:nil).



Note 13 Loans The Banking Group The Bank$ millions 2013 2012 2013 2012

Overdrafts 1,281 1,460 1,281 1,460Creditcardoutstandings 1,352 1,311 1,284 1,240Moneymarketloans 997 1,165 997 1,165Termloans: Housing 37,594 35,986 37,553 35,935 Non-housing 20,515 19,769 20,504 19,760Other 398 336 398 334

Total gross loans 62,137 60,027 62,017 59,894Provisionsforimpairmentchargesonloans (552) (605) (538) (591)

Total net loans 61,585 59,422 61,479 59,303

Amountsexpectedtoberecoveredwithin12months 7,714 7,611 7,649 7,543Amountsexpectedtoberecoveredafter12months 53,871 51,811 53,830 51,760

Total net loans 61,585 59,422 61,479 59,303

Asat30September2013,$4.2billionofhousingloansareusedbytheBankingGrouptosecuretheobligationsofWestpacSecuritiesNZLimited(‘WSNZL’)undertheBank’sGlobalCoveredBondProgramme(‘CB Programme’)(30September2012:$3.1billion).ThesehousingloanswerenotderecognisedfromtheBank’sbalancesheetinaccordancewiththeaccountingpolicesoutlinedinNote1(refertoNote25fordetailsoftheCBProgramme).Asat30September2013,theNewZealanddollarequivalentofbondsissuedbyWSNZLundertheCBProgrammewas$2.2billion(30September2012:$2.0billion).MovementsinimpairedassetsandprovisionsforimpairmentchargesonloansareoutlinedinNote14.



Note 14 Credit quality, impaired assets and provisions for impairment charges on loans The Banking Group The Bank 2013 2013 Other Other Loans for Loans for Loans for Loans for Residential Consumer Business Residential Consumer Business$ millions Mortgages Purposes Purposes Total Mortgages Purposes Purposes Total

Neither past due nor impaired 36,403 1,717 21,905 60,025 36,362 1,656 21,905 59,923

Past due assetsLessthan30dayspastdue 916 108 217 1,241 916 104 217 1,237 Atleast30daysbutlessthan60days pastdue 90 20 5 115 90 19 5 114 Atleast60daysbutlessthan90days pastdue 42 10 2 54 42 9 2 53 Atleast90dayspastdue 50 15 64 129 50 14 64 128

Total past due assets1 1,098 153 288 1,539 1,098 146 288 1,532

Individually impaired assets2

Balanceatbeginningoftheyear 124 - 743 867 124 - 733 857 Additions 154 - 215 369 154 - 214 368 Amountswrittenoff (35) - (95) (130) (35) - (95) (130) Returnedtoperformingorrepaid (150) - (383) (533) (150) - (383) (533)

Balance at end of the year 93 - 480 573 93 - 469 562

Total gross loans3 37,594 1,870 22,673 62,137 37,553 1,802 22,662 62,017

Individually assessed provisionsBalanceatbeginningoftheyear 38 - 238 276 38 - 228 266 Impairmentchargesonloans: Newprovisions 50 - 107 157 50 - 107 157 Recoveries (13) - (4) (17) (13) - (4) (17) Reversalofpreviouslyrecognised impairmentchargesonloans (10) - (48) (58) (10) - (48) (58) Amountswrittenoff (35) - (95) (130) (35) - (95) (130) Interestadjustments - - 5 5 - - 4 4


Collectively assessed provisionsBalanceatbeginningoftheyear 61 63 240 364 59 61 240 360 Impairmentchargesonloans 7 4 (21) (10) 8 4 (21) (9)

Balance at end of the year 68 67 219 354 67 65 219 351

Totalprovisionsforimpairmentcharges onloansandcreditcommitments 98 67 422 587 97 65 411 573 Provisionforcreditcommitments (refertoNote21) - - (35) (35) - - (35) (35)

Total provisions for impairment charges on loans 98 67 387 552 97 65 376 538

Total net loans 37,496 1,803 22,286 61,585 37,456 1,737 22,286 61,4791 PastdueassetsarenotimpairedassetsunderNZIFRS.2 TheBankandBankingGrouphadundrawncommitmentsof$27milliontocounterpartiesforwhomdrawnbalancesareclassifiedasindividuallyimpairedassetsunder

loansforbusinesspurposesasat30September2013.3 TheBankandBankingGroupdidnothaveotherassetsunderadministrationasat30September2013.



Note 14 Credit quality, impaired assets and provisions for impairment charges on loans (continued)

The Banking Group The Bank 2012 2012 Other Other Loansfor Loansfor Loansfor Loansfor Residential Consumer Business Residential Consumer Business$ millions Mortgages Purposes Purposes Total Mortgages Purposes Purposes Total

Neither past due nor impaired 34,733 1,660 21,008 57,401 34,682 1,595 21,008 57,285

Past due assetsLessthan30dayspastdue 917 105 348 1,370 917 101 348 1,366Atleast30daysbutlessthan60days pastdue 99 20 13 132 99 19 13 131Atleast60daysbutlessthan90days pastdue 48 10 15 73 48 9 15 72Atleast90dayspastdue 65 15 104 184 65 14 104 183

Total past due assets1 1,129 150 480 1,759 1,129 143 480 1,752

Individually impaired assets2

Balanceatbeginningoftheyear 196 - 598 794 196 - 598 794Additions 201 - 389 590 201 - 379 580Amountswrittenoff (51) - (189) (240) (51) - (189) (240)Individuallyimpairedassetsacquiredina businesscombination - - 118 118 - - 118 118Returnedtoperformingorrepaid (222) - (173) (395) (222) - (173) (395)


Total gross loans3 35,986 1,810 22,231 60,027 35,935 1,738 22,221 59,894

Individually assessed provisionsBalanceatbeginningoftheyear 64 - 160 224 64 - 160 224Impairmentchargesonloans: Newprovisions 59 - 217 276 59 - 207 266 Recoveries (17) - (9) (26) (17) - (9) (26) Reversalofpreviouslyrecognised impairmentchargesonloans (19) - (16) (35) (19) - (16) (35)Amountswrittenoff (49) - (160) (209) (49) - (160) (209)Interestadjustments - - 6 6 - - 6 6Individuallyassessedprovisionsacquired inabusinesscombination - - 40 40 - - 40 40


Collectively assessed provisionsBalanceatbeginningoftheyear 66 69 240 375 65 66 240 371Impairmentchargesonloans (5) (6) (57) (68) (6) (5) (57) (68)Collectivelyassessedprovisionsacquired inabusinesscombination - - 57 57 - - 57 57

Balance at end of the year 61 63 240 364 59 61 240 360

Totalprovisionsforimpairmentcharges onloansandcreditcommitments 99 63 478 640 97 61 468 626Provisionforcreditcommitments (refertoNote21) - - (35) (35) - - (35) (35)

Total provisions for impairment charges on loans 99 63 443 605 97 61 433 591

Total net loans 35,887 1,747 21,788 59,422 35,838 1,677 21,788 59,3031 PastdueassetsarenotimpairedassetsunderNZIFRS.2 TheBankandBankingGrouphadundrawncommitmentsof$14milliontocounterpartiesforwhomdrawnbalancesareclassifiedasindividuallyimpairedassetsunder

loansforbusinesspurposesasat30September2012.3 TheBankandBankingGroupdidnothaveotherassetsunderadministrationasat30September2012.



Note 15 Goodwill and other intangible assets The Banking Group and the Bank $ millions 2013 2012

GoodwillCost 477 477Accumulated impairment - -

Net carrying amount of goodwill 477 477

Computer softwareCost 479 382Accumulatedamortisationandimpairment (296) (261)

Net carrying amount of computer software 183 121

Total goodwill and other intangible assets 660 598

GoodwillisallocatedtoandtestedatleastannuallyforimpairmentasapartofitsidentifiedCash-generatingunits(‘CGU’).TheoperatingsegmentofRetailBankingistheCGUtowhichthegoodwillhasbeenallocated.TherecoverableamountoftheCGUisdeterminedannuallybasedonvalue-in-usecalculations.Thesecalculationsusediscountedcashflowprojectionsbasedonanapprovedtwo-yearstrategicbusinessplan.Whilethestrategicbusinessplanassumescertaineconomicconditions,theforecastisnotreliantononeparticularassumption.Thesebusinessforecastsappliedbymanagementareconsideredappropriateastheyarebasedonpastexperienceandareconsistentwithobservablecurrentmarketinformation.Thegrowthratesafter2015areassumedtobezeroforallCGUsforthepurposeofgoodwillimpairmenttesting.ThediscountrateusedisthebeforetaxequivalentoftheBankingGroup’scostofcapitalof15.3%asat30September2013(30September2012:15.3%).AreasonablypossiblechangeinthesekeyassumptionswouldnotcausetheCGU’scarryingamounttoexceeditsrecoverableamount.

Note 16 Deferred tax assets The Banking Group The Bank$ millions 2013 2012 2013 2012

Deferred tax assets are attributable to the following: Property,plantandequipment 9 9 (2) (1) Provisionsforimpairmentchargesonloans 164 179 161 175 Provisionforemployeeentitlements 16 29 16 29 Cashflowhedges (15) (15) (15) (15) Othertemporarydifferences 6 7 1 1

Balance at end of the year 180 209 161 189

Toberecoveredwithin12months 126 156 117 147Toberecoveredafter12months 54 53 44 42

Balance at end of the year 180 209 161 189

The deferred tax charge in income tax expense comprises the following temporary differences: Property,plantandequipment - 2 (1) 3 Provisionsforimpairmentchargesonloans (15) (17) (14) (19) Provisionforemployeeentitlements (2) (4) (2) (4) Othertemporarydifferences 3 2 - -

Total deferred tax charge (14) (17) (17) (20)

Deferredtaxacquiredinbusinesscombination - 28 - 28 Other (4) (2) - (1)

Total deferred tax charge - other (4) 26 - 27

The deferred tax charge in equity comprises the following temporary differences: Cashflowhedges - (1) - (1) Provisionforemployeeentitlements (11) 7 (11) 7

Total deferred tax charge in equity (11) 6 (11) 6

Asat30September2013,theaggregatetemporarydifferencesassociatedwithinvestmentsinsubsidiariesforwhichdeferredtaxliabilitieshavenotbeenrecognisedwerenil(30September2012:nil).



Note 17 Other assets The Banking Group The Bank$ millions 2013 2012 2013 2012

Accruedinterestreceivable 140 150 139 150 Securitiessoldnotyetdelivered 13 - 13 -Tradedebtorsandprepayments 21 39 20 15 Accountfeesandcommissionsreceivable 3 3 3 3 Other 39 3 39 3

Total other assets 216 195 214 171

Amountsexpectedtoberecoveredwithin12months 216 195 214 171Amountsexpectedtoberecoveredafter12months - - - -

Total other assets 216 195 214 171

IncludedinaccruedinterestreceivableoftheBankandtheBankingGroupasat30September2013werebalancesthatamountedto$6million(30September2012:$5million)whichrelatedtoaccruedinterestonhousingloanssoldtoaspecialpurposeentityundertheCBProgramme(refertoNote25fordetailsoftheCBProgramme).

Note 18 Due to other financial institutions The Banking Group and the Bank$ millions 2013 2012

Interestbearing 100 3

Total due to other financial institutions 100 3

Duetootherfinancialinstitutions: At call - 3 Term 100 -


Amountsexpectedtobesettledwithin12months 100 3 Amountsexpectedtobesettledafter12months - -


Note 19 Deposits The Banking Group The Bank$ millions 2013 2012 2013 2012

Deposits at fair valueCertificatesofdeposit 1,534 1,423 1,534 1,423

Total deposits at fair value 1,534 1,423 1,534 1,423

Deposits at amortised costNon-interestbearing,repayableatcall 3,271 2,969 3,271 2,969Otherinterestbearing: At call 18,488 15,931 17,967 15,931 Term 24,889 23,067 24,094 22,347

Total deposits at amortised cost 46,648 41,967 45,332 41,247

Total deposits 48,182 43,390 46,866 42,670

Amountsexpectedtobesettledwithin12months 46,670 41,385 45,386 40,666Amountsexpectedtobesettledafter12months 1,512 2,005 1,480 2,004

Total deposits 48,182 43,390 46,866 42,670

Priority of financial liabilities in the event of liquidationIntheunlikelyeventthattheBankwasputintoliquidationorceasedtotrade,claimsofsecuredcreditorsandthosecreditorssetoutintheSeventhScheduleoftheCompaniesAct1993wouldrankaheadoftheclaimsofunsecuredcreditors.DepositsfromcustomersareunsecuredandrankequallywithotherunsecuredliabilitiesoftheBank,andsuchliabilitiesrankaheadofanysubordinatedinstrumentsissuedbytheBank.



Note 20 Debt issues The Banking Group The Bank$ millions 2013 2012 2013 2012

Short-term debtCommercial paper 2,776 4,033 - -

Total short-term debt 2,776 4,033 - -

Long-term debtNon-domesticmedium-termnotes 5,128 6,207 - -Domesticmedium-termnotes 3,741 2,674 3,741 2,674

Total long-term debt 8,869 8,881 3,741 2,674

Total debt issues 11,645 12,914 3,741 2,674

Debtissuesatamortisedcost 8,869 8,851 3,741 2,674Debtissuesatfairvalue 2,776 4,063 - -


Movement in debt issuesBalanceatbeginningoftheyear 12,914 17,630 2,674 1,598Issuanceduringtheyear 7,641 12,589 1,153 1,386Repaymentsduringtheyear (9,094) (16,196) (75) (310)Effectofforeignexchangemovementsduringtheyear 277 (1,188) - -Effectoffairvaluemovementsandfairvaluehedgeadjustmentsduringtheyear (93) 79 (11) -

Balance at end of the year 11,645 12,914 3,741 2,674

Amountsexpectedtobesettledwithin12months 5,067 5,284 1,079 69 Amountsexpectedtobesettledafter12months 6,578 7,630 2,662 2,605


Asat30September2013,theBankingGroupandtheBankhadNewZealandGovernmentguaranteeddebtof$1,881millionand$670milliononissue(30September2012:$1,970millionand$674million)respectively.ForfurtherinformationonNewZealandGovernmentguaranteeddebtrefertoGuaranteearrangementsonpage5.ForinformationrelatingtofundingandliquidityriskrefertoNote35.2.

Note 21 Provisions The Banking Group and the Bank Annual Leave Impairment Long Service and Other Non-lending on Credit$ millions Leave Staff Benefits Losses Commitments Total

For the year ended 30 September 2013Balanceasat1October2012 5 41 2 35 83 Additionalprovisionsrecognised 1 25 2 - 28 Utilisedduringtheyear - (31) (3) - (34)

Balance as at 30 September 2013 6 35 1 35 77

For the year ended 30 September 2012Balanceasat1October2011 7 35 2 26 70Additionalprovisionsrecognised - 23 3 9 35Utilisedduringtheyear (2) (17) (3) - (22)

Balance as at 30 September 2012 5 41 2 35 83

ProvisionsrepresentcoststheBankingGroupandtheBankexpecttoincurasaresultofpastevents,wherethetimingofpaymentisuncertain.Provisionsexpectedtobeutilisedbeyond12monthsasat30September2013are$41million(30September2012:$40million)fortheBankingGroupandtheBank.

Note 22 Other liabilities The Banking Group The Bank$ millions 2013 2012 2013 2012

Accruedinterestpayable 334 338 274 275Creditcardloyaltyprogramme 28 31 28 31 Retirementbenefitobligations(refertoNote30) 32 77 32 77Tradecreditorsandotheraccruedexpenses 66 80 63 79Other 88 53 78 41

Total other liabilities 548 579 475 503

Amountsexpectedtobesettledwithin12months 516 502 443 426 Amountsexpectedtobesettledafter12months 32 77 32 77

Total other liabilities 548 579 475 503



Note 23 Perpetual subordinated notesPerpetualsubordinatednoteshadbeenissuedbytheBanktoWNZGL(theBank’simmediateparentcompany)in2006andconstitutedUpperTierTwoCapitaloftheBankingGroup.Thenoteshadnomaturitydate,butwereabletoberedeemedatparonlyattheoptionoftheBank.ThenotespaidquarterlydistributionsprovidedthatatthetimepaymentwasmadetheBankwouldbesolventimmediatelyafterpayment.ThenotesweredirectandunsecuredobligationsoftheBankandweresubordinatedtotheclaimsofallcreditors(includingdepositors)oftheBankotherthanthosecreditorswhoseclaimsagainsttheBankareexpressedtorankequallywithoraftertheclaimsofthenoteholder.On29November2012,theBankrepaid$470millionoftheperpetualsubordinatednotesandon29May2013,theBankrepaidtheremaining$500millionofperpetualsubordinatednotes.

The Banking Group and the Bank$ millions 2013 2012

Perpetualsubordinatednotes - 970

Total perpetual subordinated notes - 970

Note 24 Share capitalOrdinary shares fully paid

The Banking Group and the Bank 2013 2012 Number of Numberof Shares Issued SharesIssued and Authorised andAuthorised

Balanceatbeginningoftheyear 4,600,001,000 3,470,001,000Sharesissuedduringtheyear - 1,130,000,000

Balance at end of the year 4,600,001,000 4,600,001,000

InaccordancewiththeReserveBankdocument‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B)ordinarysharecapitalisclassifiedasCommonEquityTierOneCapital.Theordinaryshareshavenoparvalue.SubjecttotheconstitutionoftheBank,eachordinaryshareoftheBankcarriestherighttoonevoteonapollatmeetingsofshareholders,therighttoanequalshareindividendsauthorisedbytheBoardandtherighttoanequalshareinthedistributionofthesurplusassetsoftheBankintheeventofliquidation.Intheyearended30September2012,theBankissuedatotalof1,130millionadditionalordinarysharesfor$1persharetotheBank’simmediateparentcompany,WNZGL(refertoNote2).On28October2011,theBankissued900millionordinarysharesfor$1pershare,andon31October2011,theBankissuedanadditional230millionordinarysharesfor$1pershare,eachtoWNZGL.Immediatelypriortotheissuanceoftheseadditional230millionordinaryshares,theBankpaidadividendtoWNZGLof$230million(5.26centspershare).On30May2012,theDirectorsoftheBankpaidadividendof$250millionontheordinarysharesonissuetoWNZGL(5.44centspershare).TheaggregateamountofdividendspaidbytheBankontheordinarysharesfortheyearended30September2013wasnil(30September2012:$480million).DividendspaidperordinarysharebytheBankfortheyearended30September2013werenil(30September2012:10.70centspershare).



Note 25 Related entitiesBanking GroupTheBankisacontrolledentityofWNZGL.TheUltimateParentBankoftheBankisWestpacBankingCorporation.TheBankingGroupconsistsoftheBankandallofitscontrolledentities.Asat30September2013theBankhadthefollowingcontrolledentities:

Name of Entity Principal Activity Notes

WestpacNZOperationsLimited

AotearoaFinancialServicesLimited

Number120Limited

TheHomeMortgageCompanyLimited

TheWarehouseFinancialServicesLimited

Westpac(NZ)InvestmentsLimited

WestpacNZLeasingLimited

WestpacSecuritiesNZLimited

WestpacNZCoveredBondHoldingsLimited

WestpacNZCoveredBondLimited

WestpacNZSecuritisationHoldingsLimited

WestpacNZSecuritisationLimited

WestpacNZSecuritisationNo.2Limited

WestpacCashPIEFund

WestpacTermPIEFund

Holdingcompany

Non-activecompany

Financecompany

Residentialmortgagecompany

Financialservicescompany

Propertycompany

Non-activecompany

Fundingcompany

Holdingcompany

Guarantor

Holdingcompany

Fundingcompany

Non-activecompany

Portfolioinvestmententity

Portfolioinvestmententity

51%owned

9.5%owned1

9.5%owned1

9.5%owned2

9.5%owned2

9.5%owned–Established2November2012.2

Notowned–Established14November2012.3

Notowned3

1 TheBankingGroup,throughitssubsidiary,WestpacNZOperationsLimited(‘WNZO’),hasaqualifyinginterestof9.5%inWestpacNZCoveredBondHoldingsLimited(‘WNZCBHL’)anditswholly-ownedsubsidiarycompany,WestpacNZCoveredBondLimited(‘WNZCBL’).TheBankisconsideredtocontrolbothWNZCBHLandWNZCBLbasedoncontractualarrangementsputinplace,andassuchbothWNZCBHLandWNZCBLareconsolidatedwithinthefinancialstatementsoftheBankingGroup.

2 TheBankingGroup,throughitssubsidiaryWNZO,hasaqualifyinginterestof9.5%inWestpacNZSecuritisationHoldingsLimited(‘WNZSHL’)anditswholly-ownedsubsidiarycompanies,WestpacNZSecuritisationLimited(‘WNZSL’)andWestpacNZSecuritisationNo.2Limited(‘WNZSL2’).TheBankisconsideredtocontrolWNZSHL,WNZSLandWNZSL2basedoncontractualarrangementsputinplace,andassuchWNZSHL,WNZSLandWNZSL2areconsolidatedwithinthefinancialstatementsoftheBankingGroup.

3 WestpacTermPIEFund(‘Term PIE’)andWestpacCashPIEFund(‘Cash PIE’)wereestablishedasunittrustsundertheUnitTrustsAct1960.TermPIEandCashPIEarePortfolioInvestmentEntities(‘PIE’),whereBTFundsManagement(NZ)Limited(‘BTNZ’)(anindirectlywholly-ownedsubsidiaryoftheUltimateParentBank)isthemanagerandissuer.ThemanagerhasappointedtheBanktoperformallcustomermanagementandaccountadministrationforTermPIEandCashPIE.TheBankistheTermPIEandCashPIE’sregistrarandadministrationmanager.TheBankdoesnotholdanyunitsinTermPIEorCashPIEandisconsideredtocontrolthembasedoncontractualarrangementsputinplace,andassuchthesefundsareconsolidatedinthefinancialstatementsoftheBankingGroup.

AllentitiesintheBankingGroupare100%ownedunlessotherwisestated.AlltheentitieswithintheBankingGrouphaveabalancedateof30SeptemberandareincorporatedinNewZealand,exceptTermPIEandCashPIEwhichhaveabalancedateof31March.Transactionsandbalanceswithrelatedpartiesaredisclosedseparatelyinthesefinancialstatements.

Investment in associateTheBankholds18.8%(30September2012:18.8%)ofCardsNZLimited’sequityplusoneVisaInc.accesspreferenceshareissuedbyCardsNZLimited.CardsNZLimitedhasabalancedateof30September.TheBankingGrouphasonissueapromissorynotetoCardsNZLimitedinrelationtothepurchaseofVisaInc.shares.Thepromissorynotebearsinterestatmarketratesandwillbedefeasedthroughanin-kinddistributionuponliquidationofCardsNZLimited.

Nature of transactions TheBankingGrouphasintragrouptransactionswithmembersoftheUltimateParentBankGrouponcommercialterms,includingtheprovisionofmanagementandadministrativeservicesanddataprocessingfacilities.Suchtransactionsarenotconsideredtobematerialeitherindividuallyorinaggregate.LoanfinanceandcurrentaccountbankingfacilitiesareprovidedbytheBankandtheUltimateParentBanktomembersoftheBankingGrouponnormalcommercialterms.Theinterestpaidontheseloansandtheinterestearnedonthesedepositsareatmarketrates.

Transactions with the Ultimate Parent BankManagementfeesarepaidbytheBanktotheUltimateParentBankformanagementandadministrationservices(consistingofsalariesandotherheadofficeexpenses)providedbytheUltimateParentBank.ThetotalamountchargedbytheUltimateParentBankfortheyearended30September2013was$3million(30September2012:$4million).DerivativetransactionsareenteredintobytheBankingGroupwiththeNZBranch.Managementsystemsandoperationalcontrolsareinplacetomanageanyresultinginterestrateorcurrencyrisk.Accordingly,itisnotenvisagedthatanyliabilityresultinginmateriallosswillarisefromthesetransactions.TheNZBranchprovidesfinancialmarketservices,foreigncurrency,tradeandinterestrateriskproductstothecustomersoftheBank.TheBankreceivescommissionfromthesesales.Commissionreceivedfortheyearended30September2013was$11million(30September2012:$11million).ManagementfeesarepaidbytheNZBranchforcertainoperatingcostsincurredbytheBank.ManagementfeespaidtotheBankfortheyearended30September2013were$1million(30September2012:$1million).



Note 25 Related entities (continued)InSeptember2013,theBankrepaid$1.0billionofthe$3.1billionfundingprovidedbytheNZBranchtofinancetheBank’sacquisitionofbusinessactivitiestransferredtoitbytheNZBranch(refertoNote2).Theloan’stermwasalsoextendedandthemarginwaschangedtoreflectmarketpricing.Includedininterestexpense–otherfortheyearended30September2013isinterestexpenseof$135million(30September2012:$125million)onrelatedentityborrowingsinrelationtothetransferofadditionalbankingoperations(refertoNote2).

Transactions with controlled entities of the Banking GroupRentalexpensesarepaidbytheBanktoWestpac(NZ)InvestmentsLimited(‘WNZIL’).Thetotalchargefortheyearended30September2013was$101million(30September2012:$98million).WestpacSecuritiesNZLimited(‘WSNZL’)providesoffshorefundingtotheBank.ManagementfeesarepaidbytheBankfortheseservices.Managementfeespaidfortheyearended30September2013were$6million(30September2012:$5million).TheBankguaranteesallpaymentobligationsinrespectofdebtsecuritiesissuedbycontrolledentitiesoftheBankingGroup,otherthanWestpacNZSecuritisationLimited(‘WNZSL’).ManagementfeesarepaidbymembersoftheBankingGroupforcertainoperatingcostsincurredbytheBank.ManagementfeespaidtotheBankfortheyearended30September2013were$2million(30September2012:$3million).InOctober2008,WNZSLwassetupaspartoftheBank’sinternalmortgage-backedsecuritisationprogramme.UnderthisprogrammetheBanksoldtherightsbutnottheobligationsonapoolofhousingloanstoWNZSL(refertoNote32).ThepurchasewasfundedbyWNZSL’sissuanceofresidentialmortgage-backedsecurities(‘RMBS’).TheseRMBSarecurrentlyheldbytheBankandareincludedin‘Duefromrelatedentities’.ThehousingloanswerenotderecognisedfromtheBank’sfinancialstatementsinaccordancewiththeaccountingpolicesoutlinedinNote1.Accordingly,anequivalentamountofliabilitiesassociatedwiththetransferredrightsofthepoolofhousingloansisrecognised(intheformofa‘deemedloan’fromWNZSL)whichisincludedin‘Duetorelatedentities’.TheRMBSandtheliabilitytoWNZSLarefullyeliminatedintheBankingGroup’sfinancialstatements.RefertoNote28foradescriptionoftheBankingGroup’sobligationtorepurchasetherightsonthepoolofhousingloanssoldtoWNZSL.WNZCBLisaspecialpurposeentityestablishedtopurchasefromtimetotime,andhold,therightsandnottheobligationsofapoolofhousingloans(‘cover pool’)andtoprovideafinancialguarantee(inadditiontothatoftheBank)inrespectofobligationsunderthecoveredbondsissuedfromtimetotimebyWSNZLundertheCBProgramme.ThatfinancialguaranteeissupportedbyWNZCBLgrantingsecurityinfavourofthecoveredbondholdersoverthecoverpool.Theinitialcoverpoolcomprisedhousingloanswithavalueof$2.75billion,thepurchaseofwhichwasfundedbyanintercompanyloanmadebytheBanktoWNZCBL.Theamountofthecoverpoolwasincreasedto$3.75billioninMarch2012andwasfurtherincreasedto$4.5billioninAugust2013.TheintercompanyloanmadebytheBanktoWNZCBLtofundtheinitialpurchase(andsubsequentfurtherpurchaseswhichincreasedthecoverpool)isincludedintheBank’s‘Duefromrelatedentities’.ThehousingloanspurchasedbyWNZCBLwerenotderecognisedfromtheBank’sfinancialstatements(andthereforetheBankandtheBankingGrouprecognisesthesehousingloans)inaccordancewiththeaccountingpoliciesoutlinedinNote1.Forthisreason,theBankrecognisesaliabilityowedtoWNZCBL(intheformofa‘deemedloan’fromWNZCBL)ofanamountequivalenttothesumofthevalueofthehousingloans,cashandunpaidaccruedinterestarisingfrom,andinrespectof,thehousingloansandtheassetperformancefee,andisincludedintheBank’s‘Duetorelatedentities’.Overtime,thecompositionofthecoverpoolwillinclude,inadditiontohousingloans,accruedinterest(representingaccruedandunpaidinterestontheoutstandinghousingloans)andcash(representingcollectionsofprincipalandinterestfromtheunderlyinghousingloans).Asat30September2013,theassetsofWNZCBLwere$4.52billion(30September2012:$3.76billion),comprisinghousingloans,accruedinterestandcash.RefertoNote13andNote17fortheamountsofhousingloansandaccruedinterestreceivablerespectivelyrelatingtotheassetssecuringtheobligationsofWSNZLundertheCBProgramme.RefertoNote28foradescriptionoftheBankingGroup’sobligationtorepurchasehousingloanssoldtoWNZCBL.AllloanssoldbytheBanktoWNZSLandWNZCBLarelegallyownedbyWNZSLandWNZCBLrespectively,andthereforetheBankdoesnothaveanyrighttosellorgrantsecurityoverthoseloans.

Transactions with other controlled entities of the Ultimate Parent BankManagementfeesarepaidbymembersoftheUltimateParentBankGroupforcertainoperatingcostsincurredbytheBank.ManagementfeespaidtotheBankfortheyearended30September2013were$3million(30September2012:$2million).ManagedfundproductsaresoldbytheBankonbehalfofmembersoftheUltimateParentBankGroup.TheBankreceivescommissionfromthesesales.Commissionreceivedfortheyearended30September2013was$9million(30September2012:$5million).LifeandgeneralinsuranceproductsaresoldbytheBankonbehalfofothermembersoftheUltimateParentBankGroup.TheBankreceivescommissiononthesesales.Lifeandgeneralinsurancecommissionsreceivedfortheyearended30September2013were$25millionand$12millionrespectivelyfromWestpacLife-NZ-Limited(30September2012:$23millionand$12million).RefertoNote23fordetailsofthesettlementoftheperpetualsubordinatednotes.

Transactions with associatesIn2008,theBankingGrouppurchasedVisaIncsharesfromCardsNZLimitedatfairvaluetotalling$48million.Thepurchasewassatisfiedthroughtheissueofaninterestbearingpromissorynote.$1millioninterestwaspaidonthepromissorynoteduringtheyearended30September2013(30September2012:$1million).



Note 25 Related entities (continued)Due from and to related entities

The Banking Group The Bank $ millions 2013 2012 2013 2012

Due from related entitiesParentcompanies1 1,365 1,509 1,365 1,509ControlledentitiesoftheBankingGroup - - 9,643 8,850OthermembersoftheOverseasBankingGroup 11 18 11 18

Total due from related entities 1,376 1,527 11,019 10,377

Amountsexpectedtoberecoveredwithin12months 1,376 1,527 1,519 1,593Amountsexpectedtoberecoveredafter12months - - 9,500 8,784

Total due from related entities 1,376 1,527 11,019 10,377

Due to related entitiesParentcompanies1 3,148 4,631 3,081 4,622ControlledentitiesoftheBankingGroup - - 19,058 19,906OthermembersoftheOverseasBankingGroup 1 - - -AssociatesoftheBankingGroup 48 48 48 48

Total due to related entities 3,197 4,679 22,187 24,576

Amountsexpectedtobesettledwithin12months 942 1,068 6,705 7,135Amountsexpectedtobesettledafter12months 2,255 3,611 15,482 17,441

Total due to related entities 3,197 4,679 22,187 24,576

1 ParentcompaniesincludetheUltimateParentBank(includingtheNZBranch)andallintermediateparentcompaniesoftheBank.

Other group investmentsTheBankingGrouphadsignificantnon-controllingshareholdingsinthefollowingNewZealandbasedentitiesasat30September2013:

Name Shares Held by Beneficial Interest Nature of Business

PaymarkLimited WestpacNZOperationsLimited 25% EFTPOSSettlementsPaymentsNZLimited WestpacNewZealandLimited 23% PaymentsRules

TheBankingGroupdoesnothavesignificantinfluenceovertheseentitiesandthereforetheyarenotclassifiedasassociates.ThetotalcarryingamountoftheBankingGroup’ssignificantnon-controllingshareholdingsintheaboveinvestments,andtheircontributiontotheresultsoftheBankingGroup,arenotmaterialeitherindividuallyorinaggregate.InterchangeandSettlementLimited(‘ISL’)wasremovedfromtheNewZealandCompaniesRegisteron25February2013.TheremovalofISLdidnothaveasignificantimpactontheBankingGroup’sfinancialpositionorresultsofoperationsfortheyearended30September2013.

Note 26 Derivative financial instrumentsDerivativecontractsincludeforwards,futures,swapsandoptions,allofwhicharebilateralcontractsorpaymentexchangeagreementswhosevaluesderivefromthevalueofanunderlyingasset,referencerateorindex.Aforwardcontractobligesonepartytobuyandtheothertosell,aspecificunderlyingproductorinstrumentataspecificprice,amountanddateinthefuture.Aforwardrateagreementisanagreementbetweentwopartiesestablishingacontractinterestrateonanotionalprincipaloveraspecifiedperiodcommencingataspecificfuturedate.Afuturescontractissimilartoaforwardcontract.Afuturescontractobligesitsownertobuyaspecificunderlyingcommodityorfinancialinstrumentataspecifiedpriceonthecontractmaturitydate(ortosettlethevalueforcash).Futuresareexchangetraded.Aswaptransactionobligesthetwopartiestothecontracttoexchangeaseriesofcashflowsatspecifiedintervalsknownaspaymentorsettlementdates.Anoptioncontractgivestheoptionholdertheright,butnottheobligation,tobuyorsellaspecifiedamountofagivencommodityorfinancialinstrumentataspecifiedpriceduringacertainperiodoronaspecificdate.Thewriteroftheoptioncontractisobligedtoperformiftheholderexercisestherightcontainedtherein.Thenotionalamountisameasureofthevolumewhichmaybeusedforexaminingchangesinderivativeactivityovertime.Thenotionalamountisthefacevalueofthecontractanddoesnotreflecttheamountatrisk,whichisgenerallyonlyasmallfractionofthisvalue.Thenotionalamountsofcertaintypesoffinancialinstrumentsprovideabasisforcomparisonwithinstrumentsrecognisedonthebalancesheet,butdonotnecessarilyindicatetheamountsoffuturecashflowsinvolvedorthecurrentfairvalueoftheinstrumentsand,therefore,donotindicatetheBankingGroup’sexposuretocreditorpricerisks.Certainleveragedderivativesincludeanexplicitleveragefactorinthepaymentformula.Theleveragefactorhastheeffectofmultiplyingthenotionalamountsuchthattheimpactofchangesintheunderlyingpriceorpricesmaybegreaterthanthatindicatedbythenotionalamountalone.TheBankingGrouphasnosignificantexposuretothosetypesoftransactions.Thederivativeinstrumentsbecomefavourable(assets)orunfavourable(liabilities)asaresultoffluctuationsinthereferencerateorindexrelativetotheirterms.Theaggregatecontractualornotionalamountofderivativefinancialinstrumentsonhand,theextenttowhichinstrumentsarefavourableorunfavourableandthustheaggregatefairvaluesofderivativefinancialassetsandliabilities,canfluctuatesignificantlyfromtimetotime.



Note 26 Derivative financial instruments (continued)TheBankingGroupusesderivativesmainlyasanend-useraspartofitsassetandliabilitymanagementactivities.Derivativeswithrelatedpartiesareincludedinduefrom/duetorelatedentities.

HedgingTheBankingGroupentersintoderivativetransactionsthataredesignatedandqualifyaseitherfairvaluehedgesorcashflowhedgesforrecognisedassetsandliabilitiesorforecasttransactions.Italsoentersintoderivativetransactionsthatprovideeconomichedgesforriskexposures,butdonotmeettherequirementsforhedgeaccountingtreatment.

Fair value hedgesTheBankingGrouphedgespartofitsinterestrateriskresultingfromanypotentialchangesinthefairvalueoffixedrateassetsdenominatedinlocalcurrencyusingswaps.TheBankingGroupalsohedgespartofitsinterestrateriskexposurefrommedium-termdebtissuancesdenominatedinlocalcurrencythroughtheuseofinterestratederivatives.FortheBankingGroupandtheBank,thechangeinthefairvalueofhedginginstrumentsdesignatedasfairvaluehedgesfortheyearended30September2013wasa$75milliongain(30September2012:$7millionloss)whilethechangeinthefairvalueofthehedgeditemsattributedtothehedgeriskfortheyearended30September2013wasa$74millionloss(30September2012:$8milliongain).

Cash flow hedgesTheBankingGrouphedgesaportionofthecashflowsfromfloating-ratecustomerdeposits,termdepositsandloansusingswaps.TheBankingGroupalsohedgesexposuretoforeigncurrencyprincipalandinterestcashflowsfromfloating-ratemedium-termdebtissuancethroughtheuseofcross-currencyswaps.Underlyingcashflowsfromcashflowhedges,asaproportionoftotalcashflows,areexpectedtooccurinthefollowingperiods:

The Banking Group and the Bank 2013 Less Than 1 Month to 3 Months to 1 Year to 2 Years to 3 Years to 4 Years to Over% 1 Month 3 Months 1 Year 2 Years 3 Years 4 Years 5 Years 5 Years

Cashinflows(assets) 3 5 26 42 11 7 5 1 Cashoutflows(liabilities) 4 5 25 44 10 6 5 1

The Banking Group and the Bank 2012 LessThan 1Monthto 3Monthsto 1Yearto 2Yearsto 3Yearsto 4Yearsto Over% 1Month 3Months 1Year 2Years 3Years 4Years 5Years 5Years

Cashinflows(assets) 1 5 39 12 39 2 1 1Cashoutflows(liabilities) 2 4 38 12 40 2 1 1

Fortheyearended30September2013,thehedgeineffectivenessrecognisedinrelationtocashflowhedgeswasnil(30September2012:nil)intheBankingGroupandtheBank.

Dual fair value and cash flow hedgesTheBankingGrouphedgesfixedrateforeigncurrencydenominatedmedium-termdebtissuanceusingcross-currencyswaps,designatedasfairvaluehedgesofforeigninterestratesandcashflowhedgesofforeignexchangerates.



Note 26 Derivative financial instruments (continued)Derivatives held with external counterparties

The Banking Group and the Bank 2013 Fair Value Fair Value $ millions Notional Asset (Liability)

Held for trading derivativesInterest rate derivativesSwaps 159 6 -

Total held for trading derivatives 159 6 -

Fair value hedging derivativesInterest rate derivativesSwaps 2,705 2 (115) Foreign exchange derivativesSwaps1 1,630 - (55)

Total fair value hedging derivatives 4,335 2 (170)

Cash flow hedging derivativesInterest rate derivativesSwaps 25 - - Foreign exchange derivativesSwaps 434 - (8)

Total cash flow hedging derivatives 459 - (8)

Total derivatives 4,953 8 (178)

Amountsexpectedtobesettledwithin12months - (2) Amountsexpectedtobesettledafter12months 8 (176)

Total derivatives 8 (178)1 Includedwithinforeignexchangeswapsarederivativesdesignatedinbothcashflowandfairvaluehedgerelationshipsunderthedualdesignationstrategy.

The Banking Group and the Bank 2012 FairValue FairValue$ millions Notional Asset (Liability)

Held for trading derivativesInterest rate derivativesSwaps 216 9 -

Total held for trading derivatives 216 9 -

Fair value hedging derivativesInterest rate derivativesSwaps 2,550 1 (234)Foreign exchange derivativesSwaps1 1,548 - (101)


Cash flow hedging derivativesForeign exchange derivativesSwaps 416 - (25)

Total cash flow hedging derivatives 416 - (25)


Amountsexpectedtobesettledwithin12months - -Amountsexpectedtobesettledafter12months 10 (360)




Note 26 Derivative financial instruments (continued)Derivatives held with related entities

The Banking Group and the Bank 2013 Fair Value Fair Value $ millions Notional Asset (Liability)

Held for trading derivativesInterest rate derivativesForwards 11,450 - (1) Swaps 14,076 4 (13) Foreign exchange derivativesSwaps 3,454 15 (59)

Total held for trading derivatives 28,980 19 (73)

Fair value hedging derivativesInterest rate derivativesSwaps 5,040 1 (22) Foreign exchange derivativesSwaps1 2,902 9 (457)


Cash flow hedging derivativesInterest rate derivativesSwaps 22,522 105 (36) Foreign exchange derivativesSwaps - - -

Total cash flow hedging derivatives 22,522 105 (36)


Amountsexpectedtobesettledwithin12months 59 (406) Amountsexpectedtobesettledafter12months 75 (182)


The Banking Group and the Bank 2012 FairValue FairValue$ millions Notional Asset (Liability)

Held for trading derivativesInterest rate derivativesForwards 6,350 - -Swaps 5,388 5 (34)Foreign exchange derivativesSwaps 5,316 2 (318)

Total held for trading derivatives 17,054 7 (352)

Fair value hedging derivativesInterest rate derivativesSwaps 8,070 - (69)Foreign exchange derivativesSwaps1 3,413 10 (585)


Cash flow hedging derivativesInterest rate derivativesSwaps 9,742 130 (62)Foreign exchange derivativesSwaps 284 - (22)

Total cash flow hedging derivatives 10,026 130 (84)

Total derivatives 38,563 147 (1,090)

Amountsexpectedtobesettledwithin12months 24 (504)Amountsexpectedtobesettledafter12months 123 (586)

Total derivatives 147 (1,090)1 Includedwithinforeignexchangeswapsarederivativesdesignatedinbothcashflowandfairvaluehedgerelationshipsunderthedualdesignationstrategy.



Note 27 Fair value of financial instrumentsFair valuation control frameworkTheBankingGroup’scontrolenvironmentusesawell-establishedFairValuationControlFrameworktoensurethatfairvalueiseitherdeterminedorvalidatedbyafunctionthatisindependentofthepartythatundertakesthetransaction.ThisframeworkformalisesthepoliciesandproceduresusedbytheBankingGrouptoensurecompliancewithrelevantaccounting,industryandregulatorystandards.Theframeworkincludesspecificcontrolsrelatingtotherevaluationoffinancialinstruments,independentpriceverification,fairvalueadjustmentsandfinancialreporting.ThemethodofdeterminingafairvalueaccordingtotheFairValuationControlFrameworkdiffersdependingontheinformationavailable.Quoted price in an active marketThebestevidenceoffairvalueisaquotedpriceinanactivemarket.WhereverpossibletheBankingGroupdeterminesthefairvalueofafinancialinstrumentbasedonthequotedprice.Valuation techniquesWherenodirectquotedpriceinanactivemarketisavailable,theBankingGroupappliespresentvalueestimatesorothermarketacceptedvaluationtechniques.Theuseofamarketacceptedvaluationtechniquewilltypicallyinvolvetheuseofavaluationmodelandappropriateinputstothemodel.ThemajorityofmodelsusedbytheBankingGroupemployonlyobservablemarketdataasinputs.However,forcertainfinancialinstrumentsdatamaybeemployedwhichisnotreadilyobservableincurrentmarkets.Typicallyintheseinstancesvaluationinputswillbederivedusingalternativemeans(includingextrapolationfromotherrelevantmarketdata)andtestedagainsthistorictransactions.Theuseoftheseinputswillrequireahighdegreeofmanagementjudgment.Inordertodetermineareliablefairvalue,whereappropriate,managementmayapplyadjustmentstothetechniquesusedabove.TheseadjustmentsreflecttheBankingGroup’sassessmentoffactorsthatmarketparticipantswouldconsiderinsettingthefairvalue.Whendeterminingthefairvalueoffinancialinstruments,adjustmentsaremadetothemid-marketvaluationstocovercreditriskandbid-offerspreads.

■■ Creditvaluationadjustment(‘CVA’) Somemarketandmodelderivedvaluationsassumesimilarcreditqualityforallcounterparties.Tocorrectforthisassumption,

aCVAisemployedonthemajorityofderivativepositionswhichreflectsthemarketviewofthecounterpartycreditrisk.Adebitvaluationadjustment(‘DVA’)isemployedtoadjustforourowncreditrisk.

TheBankingGroupusesaMonteCarlosimulationmethodologytocalculatetheexpectedfuturecreditexposureforallderivativeexposuresincludinginputsregardingprobabilitiesofdefault(‘PDs’)andlossgivendefault(‘LGD’).PDsarederivedfrommarketobservedcreditspreadsbyreferencetocreditdefaultswap(‘CDS’)forindividualorsectorcurvesfortherelevanttenorstocalculateCVA,andtheUltimateParentBank’sCDScurvefortherelevanttenorstocalculateDVA.PDsarethenappliedtothehorizonofpotentialexposurestoderiveboththeCVAandDVA.

■■ Bid-offerspreads Thefairvalueoffinancialassetsandfinancialliabilitiesshouldreflectbidpricesforassetsandofferpricesforliabilities.Prices

areadjustedtoreflectcurrentbid-offerspreads.Thefairvaluesoflargeholdingsoffinancialinstrumentsarebasedonamultipleoftheestimatedvalueofasingleinstrumentanddonotincludeblockadjustmentsforthesizeoftheholding.

Fair value hierarchyTheBankingGroupcategorisesallfairvaluemeasurementsaccordingtothefollowingfairvaluehierarchy:

■■ Quotedmarketprice(‘Level 1’) Financialinstrumentsvaluedusingrecentunadjustedquotedpricesinactivemarketsforidenticalassetsorliabilities.An

activemarketisoneinwhichpricesarereadilyandregularlyavailableandthosepricesrepresentactualandregularlyoccurringmarkettransactionsonanarm’slengthbasis.

ValuationofLevel1instrumentsrequireslittleornomanagementjudgment. FinancialinstrumentsincludedintheLevel1categoryareexchangetradedequities.

■■ Valuationtechniqueusingobservableinputs(‘Level 2’) Valuationtechniquesutilisingobservablemarketpricesappliedtotheseassetsorliabilitiesincludetheuseofdiscounted

cashflowanalysis,optionpricingmodelsandothervaluationtechniqueswidelyusedandacceptedbymarketparticipants.Managementjudgmentwillbeusedintheapplicationofthesetechniques(e.g.theselectionoftheappropriatediscountratetovalueabond).

Thefinancialinstrumentsincludedinthiscategoryaremainlyover-the-counter(‘OTC’)derivativeswithobservablemarketinputsandfinancialinstrumentswithfairvaluederivedfromconsensuspricingwithsufficientcontributors.FinancialinstrumentsincludedintheLevel2categoryare:■ tradingsecurities–includinggovernmentbonds,stategovernmentbonds,corporatefixedratebondsandfloatingrate

bonds;and■ derivatives–includinginterestrateswaps,interestrateforwards,interestratefutures,interestrateoptionsandforeign

exchange(‘FX’)swaps.



Note 27 Fair value of financial instruments (continued)■■ Valuationtechniquewithsignificantnon-observableinputs(‘Level 3’) Financialinstrumentsvaluedusingatleastoneinputthatcouldhaveasignificanteffectontheinstrument’svaluationwhich

isnotbasedonobservablemarketdata(unobservableinput).Unobservableinputsarethosenotreadilyavailableinanactivemarketduetoilliquidityorcomplexityoftheproduct.Theseinputsaregenerallyderivedandextrapolatedfromotherrelevantmarketdataandcalibratedagainstcurrentmarkettrendsandhistorictransactions.

Thesevaluationsarecalculatedusingahighdegreeofmanagementjudgment.FinancialinstrumentsincludedintheLevel3categoryarenil(30September2012:nil).Afinancialinstrument’scategorisationwithinthevaluationhierarchyisbasedonthelowestlevelinputthatissignificanttothefairvaluemeasurement.

Valuation techniquesThespecificvaluationtechniques,theobservabilityoftheinputsusedinvaluationmodelsandthesubsequentclassificationforeachsignificantproductcategoryareoutlinedbelow:

■■ Interest rate (‘IR’) products Theseareproductslinkedtointerestrates(e.g.BankBillMid-MarketSettlementRate(‘BKBM’)orLIBOR)orinflationindices.

Thisincludesinterestrateswaps,interestrateforwards,exchangetradedinterestratefuturesandinterestrateoptions. Exchangetradedinterestratefuturesaretradedinliquid,activemarketswherepricesarereadilyobservable.Nomodellingor

assumptionsareusedinthevaluation.ExchangetradedinterestratefuturesareclassifiedasLevel1instruments. Interestratederivativecashflowsarevaluedusinginterestratecurveswherebyobservablemarketdataisusedtoconstruct

thetermstructureofforwardrates.Thistermstructureisusedtoprojectanddiscountfuturecashflowsbasedonthetermsofthetrade.Instrumentswithvolatilityarevaluedusingvolatilitiesimpliedfrommarketobservableorconsensusprovidedinputs.Exoticinterestratederivativesarevaluedusingindustrystandardmodelsbasedonmarketobservableinputswhicharedeterminedseparatelyforeachparameter.Whereunobservable,inputswillbesetwithreferencetoanobservableproxy.

Ingeneral,interestratederivativesareclassifiedaslevel2instruments.■■ FX products Theseareproductslinkedtotheforeignexchangemarket.ThisincludesFXspot,FXforward contractsandFXswaps. Thereareobservablemarketsforspotcontractsinmajorglobalcurrencies.Nomodellingorassumptionsareusedinthe

valuationoftheseinstruments.TheseassetsarethereforecategorisedasLevel1instruments. FXswapsandforwardsarenottradedonexchanges.FXswapandforwardvaluationsarederivedfromconsensusdata

providers.Bothsimpleandcomplexderivativesarevaluedusingindustrystandardmodels.Ingeneral,theseinputsusemarketobservabledataordataprovidedbyconsensusprovidersforFXspotrates,interestratesandFXvolatilities.Whereunobservable,inputswillbesetwithreferencetoanobservableproxy.

FXswapsandFXforwardsarecategorisedasLevel2instruments.■■ Debt market products Governmentbonds,localgovernmentbonds,corporatebonds,commercialpaperandcertificatesofdepositarevaluedusing

observablemarketpriceswhicharesourcedfrombrokerquotes,inter-dealerpricesorconsensuspricingservices. Fairvaluednotesarevaluedusingdiscountedcashflowtechniquesandindustrystandardmodelsincorporatingvarious

observableinputparametersdependingonthetermsoftheinstrument. ThesedebtmarketproductsareclassifiedasLevel2instruments.

■■ Certificates of deposit Thefairvalueofcertificatesofdepositaredeterminedusingadiscountedcashflowanalysisusingmarketratesofferedfor

depositsofsimilarremainingmaturitiesandareclassifiedasLevel2instruments.■■ Debt issues at fair value Whereaquotedpriceisnotavailable,thefairvalueofdebtissuesusesadiscountedcashflowapproach,usingadiscount

ratewhichreflectsthetermsoftheinstrumentandthetimingofcashflowsadjustedformarketobservablechangesintheapplicablecreditratingoftheBank.TheseinstrumentsarethereforeclassifiedasLevel2instruments.



Note 27 Fair value of financial instruments (continued)Thefollowingtablesummarisestheattributionoffinancialinstrumentstothefairvaluehierarchybasedonthemeasurement basisafterinitialrecognition:

The Banking Group The Bank 2013 2013$ millions Level 1 Level 2 Total Level 1 Level 2 Total

Financial assetsDerivativefinancialinstruments - 8 8 - 8 8 Tradingsecurities - 1,578 1,578 - 1,578 1,578 Available-for-salesecurities 100 2,615 2,715 100 2,615 2,715 Duefromrelatedentities - 460 460 - 460 460

Total financial assets carried at fair value 100 4,661 4,761 100 4,661 4,761

Financial liabilitiesDeposits - 1,534 1,534 - 1,534 1,534 Derivativefinancialinstruments - 178 178 - 178 178 Debtissuesatfairvalue - 2,776 2,776 - - - Duetorelatedentities - 454 454 - 3,230 3,230

Total financial liabilities carried at fair value - 4,942 4,942 - 4,942 4,942

The Banking Group The Bank 2012 2012$ millions Level1 Level2 Total Level1 Level2 Total

Financial assetsDerivativefinancialinstruments - 10 10 - 10 10Tradingsecurities - 2,040 2,040 - 2,040 2,040Available-for-salesecurities 70 2,624 2,694 70 2,624 2,694Duefromrelatedentities - 393 393 - 393 393

Total financial assets carried at fair value 70 5,067 5,137 70 5,067 5,137

Financial liabilitiesDeposits - 1,423 1,423 - 1,423 1,423Derivativefinancialinstruments - 360 360 - 360 360Debtissuesatfairvalue - 4,063 4,063 - - -Duetorelatedentities - 943 943 - 5,010 5,010

Total financial liabilities carried at fair value - 6,789 6,789 - 6,793 6,793

Therewerenomaterialamountsofchangesinfairvalueestimatedusingavaluationtechniqueincorporatingsignificantnon-observableinputs,thatwererecognisedintheincomestatementsoftheBankingGroupandtheBankduringtheyearended30September2013(30September2012:nomaterialchangesinfairvalue).TherehavebeennosignificanttransfersbetweenLevels1and2duringtheyearended30September2013(30September2012:nil).Therehavealsobeennosignificanttransfersinto/outofLevel3duringtheyearended30September2013(30September2012:nil).



Note 27 Fair value of financial instruments (continued)Classification of financial instruments and estimates of fair valueFinancialassetsandfinancialliabilitiesaremeasuredonanongoingbasiseitheratfairvalueoratamortisedcost.NZIFRS7requiresthedisclosureofthefairvalueofthosefinancialinstrumentsnotalreadycarriedatfairvalueinthebalancesheet.Thefairvalueistheamountforwhichanassetcouldbeexchanged,oraliabilitysettled,inanarm’slengthtransactionbetweenknowledgeable,willingparties.Thefairvaluedisclosuredoesnotcoverthoseinstrumentsthatarenotconsideredtobefinancialinstrumentsfromanaccountingperspective,suchasincometaxandintangibleassets.ThetablesbelowsummarisethecategoriesoffinancialinstrumentsandthecarryingvalueandfairvalueofallfinancialinstrumentsoftheBankingGroupandtheBank:

The Banking Group 2013 Classified at Fair Value through Profit or Loss Designated Available- Financial Held upon for-sale Liabilities at Total for Initial Loans and Financial Amortised Carrying Estimated$ millions Trading Recognition Hedging Receivables Assets Cost Amount Fair Value

Financial assetsCashandbalanceswithcentralbanks - - - 1,804 - - 1,804 1,804 Duefromotherfinancialinstitutions - - - 173 - - 173 173 Derivativefinancialinstruments 6 - 2 - - - 8 8 Tradingsecurities 1,578 - - - - - 1,578 1,578 Available-for-salesecurities - - - - 2,715 - 2,715 2,715 Loans - - - 61,585 - - 61,585 61,488 Duefromrelatedentities 460 - - 916 - - 1,376 1,376 Otherassets - - - 190 - - 190 190

Total financial assets 2,044 - 2 64,668 2,715 - 69,429 69,332

Financial liabilitiesDuetootherfinancialinstitutions - - - - - 100 100 100 Deposits 1,534 - - - - 46,648 48,182 48,255 Derivativefinancialinstruments - - 178 - - - 178 178 Debtissues - 2,776 - - - 8,869 11,645 11,897 Otherliabilities - - - - - 434 434 434 Duetorelatedentities 54 - 400 - - 2,743 3,197 3,197

Total financial liabilities 1,588 2,776 578 - - 58,794 63,736 64,061

The Banking Group 2012 ClassifiedatFairValue throughProfitorLoss Designated Available- Financial Held upon for-sale Liabilitiesat Total for Initial Loansand Financial Amortised Carrying Estimated$ millions Trading Recognition Hedging Receivables Assets Cost Amount FairValue

Financial assetsCashandbalanceswithcentralbanks - - - 1,595 - - 1,595 1,595Duefromotherfinancialinstitutions - - - 322 - - 322 322Derivativefinancialinstruments 9 - 1 - - - 10 10Tradingsecurities 2,040 - - - - - 2,040 2,040Available-for-salesecurities - - - - 2,694 - 2,694 2,694Loans - - - 59,422 - - 59,422 59,537Duefromrelatedentities 393 - - 1,134 - - 1,527 1,527Otherassets - - - 186 - - 186 186


Financial liabilitiesDuetootherfinancialinstitutions - - - - - 3 3 3Deposits 1,423 - - - - 41,967 43,390 43,474Derivativefinancialinstruments - - 360 - - - 360 360Debtissues - 4,063 - - - 8,851 12,914 12,902Otherliabilities - - - - - 415 415 415Perpetualsubordinatednotes - - - - - 970 970 970Duetorelatedentities 345 - 598 - - 3,736 4,679 4,679




Note 27 Fair value of financial instruments (continued) The Bank 2013 Classified at Fair Value through Profit or Loss Designated Available- Financial Held upon for-sale Liabilities at Total for Initial Loans and Financial Amortised Carrying Estimated$ millions Trading Recognition Hedging Receivables Assets Cost Amount Fair Value

Financial assetsCashandbalanceswithcentralbanks - - - 1,804 - - 1,804 1,804 Duefromotherfinancialinstitutions - - - 173 - - 173 173 Derivativefinancialinstruments 6 - 2 - - - 8 8 Tradingsecurities 1,578 - - - - - 1,578 1,578 Available-for-salesecurities - - - - 2,715 - 2,715 2,715 Loans - - - 61,479 - - 61,479 61,382 Duefromrelatedentities 460 - - 10,559 - - 11,019 11,019 Otherassets - - - 188 - - 188 188


Financial liabilitiesDuetootherfinancialinstitutions - - - - - 100 100 100 Deposits 1,534 - - - - 45,332 46,866 46,936 Derivativefinancialinstruments - - 178 - - - 178 178 Debtissues - - - - - 3,741 3,741 3,850 Otherliabilities - - - - - 372 372 372 Duetorelatedentities 54 2,776 400 - - 18,957 22,187 22,332


The Bank 2012 ClassifiedatFairValue throughProfitorLoss Designated Available- Financial Held upon for-sale Liabilitiesat Total for Initial Loansand Financial Amortised Carrying Estimated$ millions Trading Recognition Hedging Receivables Assets Cost Amount FairValue

Financial assetsCashandbalanceswithcentralbanks - - - 1,595 - - 1,595 1,595Duefromotherfinancialinstitutions - - - 322 - - 322 322Derivativefinancialinstruments 9 - 1 - - - 10 10Tradingsecurities 2,040 - - - - - 2,040 2,040Available-for-salesecurities - - - - 2,694 - 2,694 2,694Loans - - - 59,303 - - 59,303 59,418Duefromrelatedentities 393 - - 9,984 - - 10,377 10,377Otherassets - - - 163 - - 163 163


Financial liabilitiesDuetootherfinancialinstitutions - - - - - 3 3 3Deposits 1,423 - - - - 41,247 42,670 42,752Derivativefinancialinstruments - - 360 - - - 360 360Debtissues - - - - - 2,674 2,674 2,771Otherliabilities - - - - - 352 352 352Perpetualsubordinatednotes - - - - - 970 970 970Duetorelatedentities 345 4,067 598 - - 19,566 24,576 24,467




Note 27 Fair value of financial instruments (continued)Fairvaluesoffinancialinstrumentsnotcarriedatfairvalueinthebalancesheethavebeendeterminedasfollows:

■■ Certain short-term financial instruments Forcashandshort-termliquidassets,amountsduefromotherfinancialinstitutionswithmaturitiesoflessthanthreemonths

andothertypesofshort-termfinancialinstrumentsrecognisedinthebalancesheetunder‘otherassets’and‘otherliabilities’,thecarryingamountisequivalenttofairvalue.

■■ Floating rate financial instruments Forfloatingratefinancialinstruments,includingvariablerateloans,withnosignificantchangeincreditrisk,thecarrying

amountisareasonableestimateoffairvalue.■■ Due from other financial institutions and fixed rate loans Thefairvaluesforamountsduefromotherfinancialinstitutionswithmaturitiesofthreemonthsormoreandfullyperforming

fixedrateloanshavebeenestimatedbyreferencetocurrentratesatwhichsimilaradvanceswouldbemadetofinancialinstitutionsandotherborrowerswithasimilarcreditratingandthesameremainingmaturities.Foramountsduefromotherfinancialinstitutionswithmaturitiesoflessthanthreemonths,thecarryingvalueisareasonableestimateoffairvalue.

■■ Due to other financial institutions, deposits and debt issues Thefairvalueofdemanddepositsistheamountpayableondemandasatbalancedate.Forotherliabilitieswithmaturitiesof

lessthanthreemonths,thecarryingamountisareasonableestimateoffairvalue. Forliabilitieswithmaturitiesofthreemonthsorlonger,fairvalueshavebeenbasedonquotedmarketprices,wheresuchprices

exist.Otherwise,fairvalueshavebeenestimatedusingtheratescurrentlyofferedforsimilarliabilitiesofsimilarremainingmaturities.

■■ Other financial assets and liabilities Forallotherfinancialassetsandliabilities,thecarryingamountapproximatesfairvalue.Theseitemsareeithershort-termin

nature,repricefrequentlyorareofahighcreditrating.

Rates used for determining fair valueThefollowingratesusedtodiscountestimatedcashflows,whereapplicable,arebasedonthewholesalemarketsyieldcurveatthereportingdateplusanappropriateconstantcreditspread:

The Banking Group and the Bank% 2013 2012

Loans 4.08 - 9.20 2.63-8.20Deposits 0.00 - 5.29 0.10-4.99Debtissues 0.00 - 5.12 0.01-3.46



Note 28 Commitments and contingent liabilities The Banking Group The Bank$ millions 2013 2012 2013 2012

Commitments for capital expenditureDuewithinoneyear 3 4 - -

Other expenditure commitments: Oneyearorless 108 95 108 95 Betweenoneandfiveyears 209 293 209 293 Overfiveyears 1 - 1 -

Total other expenditure commitments 318 388 318 388

Lease commitments (all leases are classified as operating leases)Premisesandsites 263 219 - -Motorvehicles 7 8 7 8

Total lease commitments 270 227 7 8

Lease commitments are due as follows: Oneyearorless 54 44 3 3 Betweenoneandfiveyears 145 117 4 5 Overfiveyears 71 66 - -

Total lease commitments 270 227 7 8

Other contingent liabilities and commitmentsDirectcreditsubstitutes 74 80 74 80Loancommitmentswithcertaindrawdown 205 177 205 177Transaction-relatedcontingentitems 818 796 818 796Short-term,self-liquidatingtrade-relatedcontingentliabilities 386 397 386 397Othercommitmentstoprovidefinancialservices 19,369 19,030 19,224 18,886

Total other contingent liabilities and commitments 20,852 20,480 20,707 20,336

TheBankingGroupispartytofinancialinstrumentswithoff-balancesheetcreditriskinthenormalcourseofbusinesstomeetthefinancingneedsofitscustomersandinmanagingitsownriskprofile.Thesefinancialinstrumentsincludecommitmentstoextendcredit,billendorsements,financialguarantees,standbylettersofcreditandunderwritingfacilities.TheBankingGroup’sexposuretocreditlossintheeventofnon-performancebytheotherpartytosuchfinancialinstrumentsisrepresentedbythecontractornotionalamountofthoseinstruments.However,somecommitmentstoextendcreditandprovideunderwritingfacilitiescanbecancelledorrevokedatanytimeattheBankingGroup’soption.TheBankingGroupusesthesamecreditpoliciesinmakingcommitmentsandconditionalobligationsasitdoesforon-balancesheetfinancialinstruments.TheBankingGrouptakescollateralwhereitisconsiderednecessarytosupportbothonandoff-balancesheetfinancialinstrumentswithcreditrisk.TheBankingGroupevaluateseachcustomer’screditworthinessonacase-by-casebasis.Theamountofcollateraltaken,ifdeemednecessary,ontheprovisionofafinancialfacilityisbasedonmanagement’screditevaluationofthecounterparty.Thecollateraltakenvaries,butmayincludecashdeposits,receivables,inventory,plantandequipment,realestateandinvestments.TheBankingGroupisobligedtorepurchaseanyloansoldtoand:(a) heldbytheWestpacHomeLoanTrust(‘HLT’)whereitisdiscoveredwithin120daysofsalethatthoseloanswerenoteligible

forsalewhensold;(b) heldbyWNZSL(pursuanttoitssecuritisationprogramme)wheretheloanceasestoconformtocertaintermsandconditions

oftheWNZSLsecuritisationprogramme;(c) heldbyWNZCBL(pursuanttotheCBProgramme)where:

(i) itisdiscoveredthattherehasbeenamaterialbreachofasalewarranty(oranysuchsalewarrantyismateriallyuntrue);(ii)theloanbecomesmateriallyimpairedorisenforcedpriortothesecondmonthlycoveredbondpaymentdatefallingafter

theassignmentoftheloan;or(iii)atthecut-offdaterelatingtotheloantherewerearrearsofinterestandthatloansubsequentlybecomesadelinquent

loanpriortothesecondmonthlycoveredbondpaymentdatefallingaftertheassignmentoftheloan.ItisnotenvisagedthatanyliabilityresultinginmateriallosstotheBankingGroupwillarisefromtheseobligations.TheBankguaranteesthedueandpunctualpaymentofallsumspayabletotheholdersofthedebtsecuritiesissuedbyitsindirect,wholly-ownedsubsidiary,WSNZL,theproceedsofwhichareimmediatelyon-lenttotheBank.Theaggregateamountofoutstandingprincipalandinterestasat30September2013was$7,784million(30September2012:$10,041million).Astheproceedsofthedebtissuancesareimmediatelyon-lenttotheBank,theaggregateamountguaranteedisalreadyreflectedintheBank’sBalancesheetaspartoftheamountsduetorelatedentities.Inaddition,theBankingGroup(throughWNZCBL)guaranteescoveredbondsissuedbyWSNZL(refertoNote13forfurtherdetails).

Other contingent liabilitiesTheBankingGrouphasothercontingentliabilitiesinrespectofactualandpotentialclaimsandproceedings.AnassessmentoftheBankingGroup’slikelylossinrespectofthesemattershasbeenmadeonacase-by-casebasisandprovisionhasbeenmadeinthesefinancialstatementswhereappropriate.



Note 28 Commitments and contingent liabilities (continued)WNZIL,asubsidiaryoftheBank,leasesthemajorityofthepropertiesitoccupies.Asisnormalpractice,theleaseagreementscontain‘makegood’provisionswhichrequireWNZIL,uponterminationofthelease,toreturnthepremisestothelessorintheoriginalcondition.ThemaximumamountpayablebyWNZILuponvacationofallleasedpremisessubjecttotheseprovisionsasat30September2013wasestimatedtobe$22million(30September2012:$22million).Noamounthasbeenrecognisedforthe$22millioninestimatedmaximumvacationpaymentsastheBankingGroupbelievesitishighlyunlikelythatWNZILwouldincuramaterialoperatinglossasaresultofsuch‘makegood’provisionsinthenormalcourseofitsbusinessoperations.

Other commitmentsAsat30September2013,theBankingGrouphadcommitmentsinrespectofinterestswaptransactions,provisionofcredit,underwritingfacilitiesandotherarrangementsenteredintointhenormalcourseofbusiness.TheBankingGrouphasmanagementsystemsandoperationalcontrolsinplacetomanageinterestrate,currencyandcreditrisks(refertoNote35).Accordingly,itisnotenvisagedthatanyliabilityresultinginamateriallosstotheBankingGroupwillarisefromthesetransactionstotheextentthataprovisionhasnotbeenprovidedforundertheBankingGroup’susualpractices.

Note 29 Segment informationTheBankingGroupoperatespredominantlyintheconsumer,businessandinstitutionalbankingsectorswithinNewZealand.Onthisbasis,nogeographicalsegmentinformationisprovided.Thebasisofsegmentreportingreflectsthemanagementofthebusiness,ratherthanthelegalstructureoftheBankingGroup.Thereisnodifferenceinaccountingmeasurementbetweenmanagementandlegalstructures.Theoperatingsegmentresultshavebeenpresentedonamanagementreportingbasisandconsequentlyinternalchargesandtransferpricingadjustmentshavebeenreflectedintheperformanceofeachoperatingsegment.Intersegmentpricingisdeterminedonacostrecoverybasis.TheBankingGroupdoesnotrelyonanysinglemajorcustomerforitsrevenuebase.TheBankingGroup’soperatingsegmentsaredefinedbythecustomerstheyserveandtheservicestheyprovide.TheBankingGrouphasidentifiedthefollowingmainoperatingsegments:

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

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

■■ businessunitsthatdonotmeetthedefinitionofoperatingsegmentsunderNZIFRS8;■■ eliminationentriesonconsolidationoftheresults,assetsandliabilitiesoftheBankingGroup’scontrolledentitiesinthepreparationoftheconsolidatedfinancialstatementsoftheBankingGroup;

■■ resultsofcertainentitiesincludedformanagementreportingpurposes,butexcludedfromtheconsolidatedfinancialstatementsoftheBankingGroupforstatutoryfinancialreportingpurposes;and

■■ resultsofcertainbusinessunitsexcludedformanagementreportingpurposes,butincludedwithintheconsolidatedfinancialstatementsoftheBankingGroupforstatutoryfinancialreportingpurposes.

Certaincomparativeinformationhasbeenchangedtoensureconsistentpresentationwiththecurrentreportingperiod.

1 On1November2011,theNZBranchtransferredadditionalinstitutionalbankingbusinessactivitiesandassociatedemployeestotheBank(refertoNote2forfurtherdetails).FurtherinformationontheNZBranchisavailableinWestpacBankingCorporation’smostrecentlypublishedDisclosureStatement.



Note 29 Segment information (continued) The Banking Group Consumer Business Institutional Reconciling$ millions Banking Banking Banking Items1 Total

Year ended 30 September 2013Netinterestincome 800 467 178 91 1,536 Non-interestincome 298 92 42 (61) 371

Net operating income 1,098 559 220 30 1,907

Netoperatingincomefromexternalcustomers 1,355 990 167 (605) 1,907 Netinternaloperating(expense)/income (257) (431) 53 635 -

Net operating income 1,098 559 220 30 1,907

Depreciation - - - (27) (27)Softwareamortisationcosts - - (1) (34) (35)Otheroperatingexpenses (180) (72) (20) (476) (748)

Total operating expenses (180) (72) (21) (537) (810)

Impairment(charges)/recoveriesonloans (64) 1 (45) 1 (107)Shareofprofitofassociateaccountedforusingtheequitymethod - - - 1 1

Profit before income tax expense 854 488 154 (505) 991

Total gross loans 32,959 22,390 6,950 (162) 62,137 Total deposits 26,700 11,381 8,567 1,534 48,182

Year ended 30 September 20122

Netinterestincome 800 488 155 56 1,499Non-interestincome 283 94 39 (60) 356

Net operating income 1,083 582 194 (4) 1,855

Netoperatingincomefromexternalcustomers 1,466 1,063 178 (852) 1,855Netinternaloperating(expense)/income (383) (481) 16 848 -

Net operating income 1,083 582 194 (4) 1,855

Depreciation (2) - - (25) (27)Softwareamortisationcosts - - - (38) (38)Otheroperatingexpenses (182) (73) (20) (467) (742)

Total operating expenses (184) (73) (20) (530) (807)

Impairmentchargesonloans (39) (144) (12) 5 (190)Shareofprofitofassociateaccountedforusingtheequitymethod - - - 1 1

Profit before income tax expense 860 365 162 (528) 859

Total gross loans 31,383 22,129 6,713 (198) 60,027Total deposits 24,744 10,809 6,414 1,423 43,3901 Includedinthereconcilingitemsfortotaloperatingexpensesis$573million(30September2012:$565million)ofheadofficeoperatingexpenses,whicharenot

allocatedtoabusinessunitthatmeetsthedefinitionofanoperatingsegment.2 InstitutionalBankingrepresentsthe11monthresultofthetransferredbusinessoperationssincetheacquisitiondateon1November2011,asincludedintheBankingGroup’sconsolidatedincomestatement.

Note 30 Superannuation commitmentsTheBankingGrouphasahybrid(definedcontributionanddefinedbenefit)superannuationschemeforstaffinNewZealand.Contributions,asspecifiedintherulesofthescheme,aremadebytheBankingGroupasrequired.Thedefinedbenefitschemehasbeenclosedtonewmemberssince1April1990.Anactuarialvaluationoftheschemeisundertakeneverythreeyears,withthelastactuarialassessmentofthefundingstatusundertakenasat30June2011.Contributionstothedefinedbenefitschemeareataratesufficienttokeeptheschemesolvent,andcontributionsarecurrentlybeingmadetothedefinedbenefitschemeattherateof12%(beforeemployer’ssuperannuationcontributiontax)ofmembers’salaries.TheBankingGrouphasnomaterialobligationsinrespectofpost-retirementbenefitsotherthanpensions.



Note 30 Superannuation commitments (continued)Thetablebelowdetailstheprimaryactuarialassumptionsusedinthecalculationsofthedefinedbenefitschemeobligation:

The Banking Group and the Bank % 2013 2012

Primary actuarial assumptions used in the above calculationsDiscountrate 3.4 2.5Expectedreturnonschemeassets–activemembers(endofyear) 6.0 6.0Expectedreturnonschemeassets–pensioners 6.0 6.0Rateofincreaseinsalaries 3.0 3.5Rateofincreaseforpensions 2.5 2.5

Asset allocationCash 0.5 0.9Equityinstruments 58.5 57.1Debtinstruments 41.0 42.0

Total asset allocation 100.0 100.0

ThecarryingvalueoftheretirementbenefitobligationisdisclosedaspartofNote22.

Note 31 Key management personnelKey management personnel compensation KeymanagementpersonnelaredefinedasbeingDirectorsandseniormanagementoftheBankingGroup.Theinformationrelatingtothekeymanagementpersonneldisclosedincludestransactionswiththoseindividuals,theirclosefamilymembersandtheircontrolledentities.

The Banking Group and the Bank Year Ended YearEnded $'000s 30-Sep-13 30-Sep-12

Salariesandothershort-termbenefits 10,352 11,484Post-employmentbenefits 523 653 Otherterminationbenefits - 210 Share-basedpayments 3,787 3,282

Total key management compensation 14,662 15,629

Loanstokeymanagementpersonnel 6,290 5,166Depositsfromkeymanagementpersonnel 4,284 3,598

Interestincomeonamountsduefromkeymanagementpersonnel 305 218Interestexpenseonamountsduetokeymanagementpersonnel 129 67

TheDirectorshavereceivedremunerationfromtheBankingGroupandtheseamountsareincludedinthetableabove.

Loans and deposits with key management personnelAllloansanddepositsaremadeintheordinarycourseofbusinessoftheBankandtheBankingGroup,onanarm’slengthbasisandonnormalcommercialtermsandconditions.Loansareontermsofrepaymentthatrangebetweenvariable,fixedrateuptofiveyearsandinterestonlyloans,allofwhichareinaccordancewiththeBankingGroup’slendingpolicies.Asat30September2013noprovisionshavebeenrecognisedinrespectofloansgiventokeymanagementpersonnelandtheirrelatedparties(30September2012:nil).

Other key management personnel transactionsAllothertransactionswithkeymanagementpersonnel,theirrelatedentitiesandotherrelatedpartiesareconductedonanarm’slengthbasisinthenormalcourseofbusinessandoncommercialtermsandconditions.Thesetransactionsprincipallyinvolvetheprovisionoffinancialandinvestmentservices.



Note 32 Securitisation, funds management and other fiduciary activities

SecuritisationAAsat30September2013theBankandtheBankingGrouphadsecuritisedloansamountingto$158million(30September2012:$215million),whichhadbeensoldbytheBankandtheBankingGrouptoexternalpartiesbeingtheHomeLoanTrust(‘HLT’)andtheWestpacMortgageInvestmentFund(‘MIF’)viaHLT.HLTandMIFwereestablished,pursuanttotrustdeedsbetweenBTNZandTheNewZealandGuardianTrustCompanyLimited,withtheprincipalpurposeofinvestinginhousingloans.Thepurchaseofthesehousingloanshasbeenfundedwiththeproceedsofunitssubscribedfor,andissuedto,retailinvestorsinNewZealand.TheBankandtheBankingGroupreceivefeesforvariousservicesprovidedtoHLTandMIFonanarm’slengthbasis,includingservicingfees.Thesefeesarerecognisedoverthefinancialperiodsinwhichthecostsareborne.ThesecuritisedassetshavebeenderecognisedfromthefinancialstatementsoftheBankandtheBankingGroupastherisksandrewardsoftheassetshavebeensubstantiallytransferredtoexternalparties.TheBankhasa$5.0billion(30September2012:$5.0billion)internalmortgage-backedsecuritisationprogramme.WNZSLissuedresidentialmortgage-backedsecuritiestofundthepurchaseofhousingloansfromtheBank.ThosesecuritiesarecurrentlyheldbytheBank.Themostseniorratedsecurities(30September2013:$4.75billion,30September2012:$4.75billion)qualifyaseligiblecollateralforrepurchaseagreementswiththeReserveBank.HoldingaportionofhousingloansinsecuritisedformatenablestheBanktomaintainareadilyavailablesourceofcashshouldmarketconditionsbecomedifficult.IttakesadvantageoftheReserveBank’sguidelinesforitsovernightreverserepofacilityandopenmarketoperations,whichallowsbanksinNewZealandtoofferresidentialmortgage-backedsecurities(securedbyresidentialmortgageassetsfromtheirownbalancesheets)ascollateralfortheReserveBank’srepurchaseagreements.

Funds management and other fiduciary activitiesTheBankmarketstheproductsofBTNZ,amemberoftheUltimateParentBankGroup,throughitsbranches,advisorynetworkandprivatebank.TheBankderivesdistributionfeesfromthesaleofmanagedfundproducts,superannuationandunittrustsmarketedonbehalfofBTNZ.TheBankalsoprovidesinvestmentadvicetoanumberofclients,whichincludestheprovisionofotherfiduciaryactivities.TermPIEandCashPIEareadministeredbytheBankingGroup(refertoNote25forfurtherdetails)andinvestindepositswiththeBank.TheBankisconsideredtocontrolTermPIEandCashPIE,andassuchbothareconsolidatedwithinthefinancialstatementsoftheBankingGroup.Asat30September2013$795millionand$521million(30September2012:$720millionandnil)offundsundermanagementwereinvestedbyTermPIEandCashPIE,respectively,intheBank’sdeposits.

Marketing and distribution of insurance productsTheBankmarketsanddistributesbothlifeandgeneralinsuranceproducts.ThelifeinsuranceproductsareunderwrittenbyWestpacLife-NZ-Limited,amemberoftheUltimateParentBankGroup,andbyexternalthirdpartyinsurancecompanies.Thegeneralinsuranceproductsarefullyunderwrittenbyexternalthirdpartyinsurancecompanies.DisclosurestatementsaremadeinallmarketingmaterialthattheproductsareunderwrittenbythosecompaniesandthattheBankdoesnotguaranteetheobligationsof,oranyproductsissuedby,thosecompanies.

Risk managementTheBankingGroup’sriskmanagementframework(refertoNote35)willhelpminimisethepossibilitythatanydifficultiesarisingfromtheaboveactivitieswouldimpactadverselyontheBankingGroup.Furthermore,duringtheyearended30September2013:

■■ financialservicesprovidedbyanymemberoftheBankingGrouptoentitieswhichconductthetrust,custodial,securitisation,fundsmanagementandotherfiduciaryactivitiesdescribedabove,oronwhosebehalfinsuranceproductsaremarketedordistributed,havebeenprovidedonarm’slengthtermsandconditionsandatfairvalue;and

■■ assetspurchasedbyanymemberoftheBankingGroupfromentitieswhichconductthetrust,custodial,securitisation,fundsmanagementandotherfiduciaryactivitiesspecifiedabove,oronwhosebehalfinsuranceproductsaremarketedordistributed,havebeenpurchasedonarm’slengthtermsandconditionsandatfairvalue.

Peak aggregate funding provided to entitiesTheBankingGroupdidnotprovideanyfundingtoentitiesconductingfundsmanagementandotherfiduciaryactivities,orinsuranceproductmarketinganddistributionactivitiesdescribedinthisnote,duringtheyearended30September2013(30September2012:nil).

Note 33 Insurance businessTheBankingGroupdoesnotconductanyinsurancebusiness(asthattermisdefinedintheOrder).



Note 34 Capital adequacyTheinformationcontainedinthisnotehasbeenderivedinaccordancewiththeBankingGroup’sconditionsofregistrationwhichrelatetocapitaladequacyandthedocument‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B)issuedbytheReserveBank.Effectivefrom1January2013theBankingGroupincorporatedtheReserveBank’sapplicationoftheBaselIIIcapitaladequacyrequirements.TheBankingGroupmaintainsanactivelymanagedcapitalbasetocoverrisksinherentinthebusiness.TheadequacyoftheBankingGroup’scapitalismonitoredusing,amongothermeasures,therulesandratiosestablishedbytheBaselCommitteeonBankingSupervision(‘BCBS’)andadoptedbytheReserveBankinsupervisingtheBankingGroup.Duringtheyearended30September2013theBankingGroupcompliedinfullwithallitsexternallyimposedcapitalrequirements.

Capital managementTheprimaryobjectivesoftheBankingGroup’scapitalmanagementaretoensuretheBankingGroupcomplieswithexternallyimposedcapitalrequirementsandmaintainsstrongcreditratingsandhealthycapitalratiosinordertosupportitsbusinessandmaximiseshareholders’value.TheBankingGroupmanagesitscapitalstructureandmakesadjustmentsinlightofchangesineconomicconditionsandtheriskcharacteristicsofitsactivities.Inordertomaintainoradjustthecapitalstructure,theBankingGroupmayadjusttheamountofdividendpaymentstoshareholders,reducediscretionaryexpenditure,return/issuecapitaltoshareholdersorissuecapitalsecurities.Nochangesweremadeintheobjectives,policiesandprocessesduringtheyearended30September2013.Threeindependentprocesses,undertakenbyDirectorsandseniormanagementoftheBank,aredesignedtoensurethattheBankingGroup’scapitalisadequatetosupportitscurrentandfutureactivities:1. TheBoardhasapprovedariskappetitestatement.Thisstatementoutlinesthetargetdebtrating,targetcapitalratiosand

thedegreeofearningsvolatilitythatisacceptable.Capitalratiosaresetatahigherlevelthanrequiredbytheregulator,whichbothreducestheriskofbreachingtheconditionsofregistrationandprovidesinvestorconfidence.TheBankingGroupactivelymonitorsitscapitaladequacyaspartoftheannualBankingGroupinternalcapitaladequacyassessmentprocess(‘ICAAP’)andreportsthistoseniormanagementandtheBoard.

2. TheBankingGroupcalculatesthecapitalrequiredtobeheldforitscurrentriskprofileandforecaststheestimatedcapitalpositionbasedonexpectedfutureactivities.TheforecastcapitalrequiredisassessedagainstthetargetrangesthathavebeenapprovedbytheBoardinregardtocapitalratios.

3. TheUltimateParentBankGrouptakescapitalconsiderationsintoaccountduringitsBoardStrategyReview(‘BSR’).TheBSRisanannualprocesswherethecurrentstrategicdirectionoftheUltimateParentBankGroupisreviewedandrefinementsaremade.



Note 34 Capital adequacy (continued)Summary of ICAAPTheBankingGroup’sICAAPoutlinestheBankingGroup’sapproachtoensuringithassufficientavailablecapitaltomeetminimumcapitalrequirements,evenunderstressedscenarios.TheReserveBankdocument‘GuidelinesonaBank’sInternalCapitalAdequacyAssessmentProcess(ICAAP)’(BS12)reinforcesthisinternaldisciplinebyincorporatingaspecificrequirementthattheboardofaNewZealandincorporatedbankhasadutytoensurethatcapitalheldbythebankiscommensuratewiththelevelandextentofitsrisks.TheBankingGroup’sICAAPisfoundedontheprinciplethatitstargetlevelofcapitalisdirectlyrelatedtoitsriskappetiteandcorrespondingriskprofile.TheICAAPsupplementstheminimumregulatorycapitalrequirementsinrespectofcredit,marketandoperationalriskthroughtheconsiderationofabroaderrangeofrisktypesandtheBankingGroup’sriskandcapitalmanagementcapabilities.TheICAAPalsotakesaccountofstresstesting,regulatorydevelopments,minimumprudentialcapitalratiosandpeergroupcomparatives.

The Banking Group’s capital summary The Banking Group 2013 $ millions Unaudited

Tier One CapitalCommon Equity Tier One CapitalPaid-upordinarysharesissuedbytheBankplusrelatedsharepremium 4,600 Retainedearnings(netofappropriations) 1,818 Accumulatedothercomprehensiveincomeandotherdisclosedreserves1 142 Less deductions from Common Equity Tier One CapitalGoodwill (477) Otherintangibleassets (183) Cashflowhedgereserve (36) Deferredtaxassetdeduction (180) Expectedlossexcessovereligibleallowance (163)

Total Common Equity Tier One Capital 5,521

Additional Tier One CapitalInterestsarisingfromordinarysharesissuedbyfullyconsolidatedsubsidiariesandheldbythirdparties2 2

Total Tier One Capital 5,523

Tier Two CapitalTierTwoCapitalinstruments - Revaluationreserves - Eligibleimpairmentallowanceinexcessofexpectedloss -

Total Tier Two Capital -

Total Capital 5,5231 Accumulatedothercomprehensiveincomeandotherdisclosedreservesconsistofavailable-for-salesecuritiesreserveof$106millionandcashflowhedgereserveof

$36million.2 AdditionalTierOneCapitalisrecognisedasequityintheBankingGroup’sbalancesheet.



Note 34 Capital adequacy (continued)Capital ratiosTheBaselbankingaccords(‘the Accords’)havebeendevelopedandstrengthenedovertimebytheBCBStoenhancethebankingregulatoryframework.TheAccordsaremadeupofthedifferentBaselframeworkswiththelatestbeingBaselIII.BaselIIIbuildsontheBaselIandBaselIIframeworks,andseekstoimprovethebankingsector’sabilitytodealwithfinancialandeconomicstress,improveriskmanagementandstrengthenbanks’transparency.TheBaselIIIframeworkisbuiltonthreemutuallyreinforcingpillars.Pillar1setsoutthemechanicsforminimumcapitaladequacyrequirementsforcredit,marketandoperationalrisks.Pillar2relatestotheinternalassessmentofcapitaladequacyandthesupervisoryreviewprocess.Pillar3dealswithmarketdisclosureandmarketdiscipline.ThetablebelowisdisclosedundertheReserveBank’sBaselIIIframeworkinaccordancewithClause15ofSchedule11totheOrderandrepresentsthecapitaladequacycalculationbasedontheReserveBankdocument‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B).TheinformationforthecomparativeperiodiscalculatedbasedontheReserveBank’sBaselIIframework.

The Banking Group 2013 2012 % Unaudited Unaudited

Capital adequacy ratiosCommonEquityTierOneCapitalratio 12.3 N/ATier One Capital ratio 12.3 12.0Total Capital ratio 12.3 14.1

Reserve Bank minimum ratiosCommonEquityTierOneCapitalratio 4.5 N/ATier One Capital ratio1 6.0 4.0Total Capital ratio 8.0 8.0

Buffer ratiosBufferratio2 4.3 N/ABufferratiorequirement2 2.5 N/A1 PriortoachangetotheConditionsofregistrationthattookeffecton1January2013,locallyincorporatedregisteredbankshavingthebenefitoftheWholesaleFunding

GuaranteeFacilitywererequiredtomaintainanadditional2%TierOneCapitalratiobufferabovethethen4%regulatoryminimum.Followingthechange,alllocallyincorporatedregisteredbanksarerequiredtoholdaminimumTierOneCapitalratioof6%.Seethe‘WholesaleGuarantee’sectiononpage5formoreinformation.

2 Asat30September2013,thereisnoprescribedminimumregulatorybufferratio.Aprescribedminimumregulatoryratioof2.5%willbeeffectivefrom1January2014.

Banking Group Pillar I total capital requirement 2013 Risk-weighted Total Exposure or Exposure After Implied Risk- Credit Risk weighted Total Capital Mitigation Exposure Requirement $ millions Unaudited Unaudited Unaudited

Credit riskExposuressubjecttotheinternalratingsbasedapproach 83,709 33,576 2,686 Equityexposures 100 318 25 Specialisedlendingsubjecttotheslottingapproach 5,093 4,795 384 Exposuressubjecttothestandardisedapproach 2,180 871 70

Total credit risk1 91,082 39,560 3,165 Operational risk N/A 4,500 360 Market risk N/A 833 67 Supervisory adjustment N/A - -

Total 91,082 44,893 3,5921 AsrequiredbytheBank’sconditionsofregistration,thevalueofthescalarusedindeterminingtheminimumcapitalrequirement(RequiredRegulatoryCapital)is1.06.

Capital for other material riskTheBankingGroup’sICAAPidentifies,reviewsandmeasuresadditionalmaterialrisksthatmustbecapturedwithintheBankingGroup’scapitaladequacyassessmentprocess.TheseothermaterialrisksarethosenotcapturedbyPillarIregulatorycapitalrequirementsandconsistofliquidityrisk,reputationalrisk,environmental,socialandgovernancerisk,businessrisk,modelriskandsubsidiaryrisk.TheBankingGroup’sinternalcapitalallocationforothermaterialrisksis:

The Banking Group 2013 2012 $ millions Unaudited Unaudited

Internal capital allocationOthermaterialrisk 571 517



Note 34 Capital adequacy (continued)Solo capital adequacyForthepurposesofcalculatingthecapitaladequacyratiosfortheBankonasolobasis,wholly-ownedandwholly-fundedsubsidiariesoftheBankingGroupareconsolidatedwiththeBank.Inthiscontext,wholly-fundedbytheBankmeanstherearenoliabilities(includingoff-balancesheetobligations)toanyoneotherthantheBank,theInlandRevenueortradecreditors,whereaggregateexposuretotradecreditorsdoesnotexceed5%ofthesubsidiary’sshareholders’equity.Wholly-ownedbytheBankmeansthatallequityissuedbythesubsidiaryisheldbytheBankorisultimatelyownedbytheBankthroughachainofownershipwhereeachentityis100%ownedbyitsparent.ThetablebelowrepresentsthesolocapitaladequacycalculationbasedontheReserveBank’sBaselIIIframeworkascontainedintheReserveBankdocument‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B).TheinformationforthecomparativeperiodiscalculatedbasedontheReserveBank’sBaselIcapitaladequacyframework.

The Bank 2013 2012 % Unaudited Unaudited

Capital adequacy ratiosCommonEquityTierOneCapitalratio 10.0 N/ATier One Capital ratio 10.0 8.7Total Capital ratio 10.0 10.2

Ultimate Parent Bank Group Basel III capital adequacy ratiosThetablebelowrepresentsthecapitaladequacycalculationfortheUltimateParentBankandtheUltimateParentBanktogetherwithitscontrolledentities(‘Ultimate Parent Bank Group’)basedontheAustralianPrudentialRegulationAuthority’s(‘APRA’)applicationoftheBaselIIIcapitaladequacyframework.TheinformationforthecomparativeperiodiscalculatedbasedonAPRA’sapplicationoftheBasel2.5capitaladequacyframework.

2013 2012 % Unaudited Unaudited

Ultimate Parent Bank Group1, 2

CommonEquityTierOneCapitalratio 9.1 8.4Additional Tier One Capital ratio 1.6 1.9

Tier One Capital ratio 10.7 10.3TierTwoCapitalratio 1.6 1.4

TotalRegulatoryCapitalratio 12.3 11.7

Ultimate Parent Bank (Extended Licensed Entity)1, 2

CommonEquityTierOneCapitalratio 9.3 8.1Additional Tier One Capital ratio 1.7 2.0

Tier One Capital ratio 11.0 10.1TierTwoCapitalratio 1.8 1.7

TotalRegulatoryCapitalratio 12.8 11.81 ThecapitalratiosrepresentinformationmandatedbyAPRA.2 ThecapitalratiosoftheUltimateParentBankGroupandtheUltimateParentBank(ExtendedLicensedEntity)arepubliclyavailableintheUltimateParentBankGroup’s

Pillar3report.ThisinformationismadeavailabletousersviatheUltimateParentBank’swebsite(www.westpac.com.au).

APRA’snewcapitalstandardscameintoeffecton1January2013.TheUltimateParentBankGroupisaccreditedbyAPRAtoapplytheAdvancedInternalRatingsBased(‘Advanced IRB’)approachforcreditrisk,theAdvancedMeasurementApproach(‘AMA’)foroperationalriskandtheinternalmodelapproachforinterestrateriskinthebankingbookforcalculatingregulatorycapital(knownas‘AdvancedAccreditation’)andisrequiredbyAPRAtoholdminimumcapitalatleastequaltothatspecifiedundertheAdvancedIRBandAMAmethodologies.UnderNewZealandregulationsthismethodologyisreferredtoasBaselIII(internalmodelsbasedapproach).WiththisaccreditationtheUltimateParentBankGroupisrequiredtodiscloseadditionaldetailedinformationonitsriskmanagementpracticesandcapitaladequacyonaquarterlyandasemi-annualbasis.ThisinformationismadeavailabletousersviatheUltimateParentBank’swebsite(www.westpac.com.au).TheaimistoallowthemarkettobetterassesstheUltimateParentBankGroup’sriskandrewardassessmentprocessandhenceincreasethescrutinyofthisprocess.TheUltimateParentBankGroup,andtheUltimateParentBank(ExtendedLicensedEntityasdefinedbyAPRA),exceededtheminimumcapitaladequacyrequirementsasspecifiedbyAPRAasat30September2013.APRAspecifiesaminimumprudentialcapitalratiofortheUltimateParentBankGroup,whichisnotmadepubliclyavailable.

Note 35 Risk management

GeneralTheBankingGroupregardsthemanagementofrisktobeafundamentalmanagementactivityperformedatalllevelsofitsbusiness.Supportingthisapproachisariskgovernanceframeworkthatincludescoreriskprinciplesaswellaspoliciesandprocessesformeasuringandmonitoringrisk(‘Risk Governance Framework’).

http://www.westpac.com.au



Note 35 Risk management (continued)Risk management framework and governanceTheBoardisresponsiblefordeterminingtheBank’sappetiteforrisk.TheBankisultimatelyasubsidiaryoftheUltimateParentBankand,therefore,amemberofthegroupofcompaniescomprisingtheUltimateParentBankanditssubsidiaries.Accordingly,theBankingGroup’sRiskGovernanceFrameworkiscloselyalignedwiththeUltimateParentBank’sRiskGovernanceFramework.TheBoardissupportedbytheBank’sBoardAuditCommittee(‘Bank’s BAC’)andtheBank’sBoardRiskManagementCommittee(‘Bank’s BRMC’),whicharesubcommitteesoftheBoardresponsibleformonitoringriskmanagementperformanceandcontrolsacrosstheBankingGroup.TheBank’sBACcomprisesfiveDirectorsoftheBankallofwhomarenon-executiveandofwhichfourareindependent.TheBank’sBACassiststheBoardinfulfillingitsresponsibilitiesinrelationtoexternalreportingoffinancialinformation,internalcontrolofoperationalriskandtheefficiencyandeffectivenessofauditandcompliancewithlawsandregulations.Itreviewstheinterimandannualfinancialstatements,theactivitiesoftheBankingGroup’sauditorsandmonitorstherelationshipbetweenmanagementandtheexternalauditors.TheBank’sBRMCcomprisesallofthenon-executiveDirectorsoftheBoard.TheBank’sBRMChaspowerdelegatedbytheBoardtosetriskappetitesandapproveframeworks,policiesandprocessesforthemanagementofrisk.TheBank’sBRMCapprovestheRiskGovernanceFrameworkatleasteverytwoyears.TheBank’sRiskGovernanceFrameworkisdesignedtoreflectthateveryoneintheBankisresponsibleforidentifyingandmanagingriskandoperatingwithintheBank’sdesiredriskprofile.Effectiveriskmanagementisaboutachievingabalancedapproachtoriskandreward,andenablestheBanktobothincreasefinancialgrowthopportunitiesandmitigatepotentiallossordamage.Optimisationandmitigationstrategiesareequallyimportant,alongwithmaintaininganappropriatesegregationofduties.TheRiskGovernanceFrameworkisownedbytheBank’sChiefRiskOfficer(‘CRO’).Implementationisachievedthroughdevelopingpolicies,controls,processesandproceduresforidentifyingandmanagingriskarisingfromtheBank’sactivities.

Risk typesTheBankmaintainsariskrewardorientedapproachtocreatingshareholdervalueutilisingarangeofsupportingframeworkscoveringallmaterialriskclasses.TheBankdistinguishesbetweendifferentrisktypesandtakesanintegratedapproachtomanagingthem.Thesekeyrisksare:

■■ Creditrisk:theriskoffinanciallosswhereacustomerorcounterpartyfailstomeettheirfinancialobligations;■■ Liquidityrisk:theriskthattheBankwillnotbeabletofunditsassetsandmeetobligationsastheycomedue,withoutincurringunacceptablelosses;

■■ Marketrisk:theriskofanadverseimpactonearningsresultingfromchangesinmarketfactors,suchasforeignexchangerates,interestrates,commoditypricesandequityprices.Thisincludesinterestrateriskinthebankingbook–therisktointerestincomefromamismatchbetweenthedurationofassetsandliabilitiesthatarisesinthenormalcourseofbusinessactivities;

■■ Operationalrisk:theriskoflossresultingfrominadequateorfailedinternalprocesses,humanerrorormisconduct,orfromexternalevents.Itincludes,amongotherthings,technologyrisk,modelriskandoutsourcingrisk;and

■■ Compliancerisk:theriskoflegalorregulatorysanction,andfinancialorreputationallossarisingfromtheBankingGroup’sfailuretoabidebythecomplianceobligationsrequiredoftheBankingGroup.

Otherrisksinclude:■■ Businessrisk:theriskassociatedwiththevulnerabilityofalineofbusinesstochangesinthebusinessenvironment;■■ Environmental,SocialandGovernancerisk:theriskthattheBankdamagesitsreputationorfinancialperformanceduetofailuretorecogniseoraddressmaterialexistingoremergingsustainabilityrelatedenvironmental,socialandgovernanceissues;

■■ Reputationrisk:therisktoearningsorcapitalarisingfromnegativepublicopinion,resultingfromthelossofreputationorpublictrustandstanding;and

■■ Subsidiary(contagion)risk:theriskthatproblemsarisinginothermembersoftheBankingGroupmaycompromisethefinancialpositionoftheBank.

Theessentialelementsofsoundriskmanagementinclude:■■ ahealthyriskculturewithstrongsupportfromtheBoard,theChiefExecutiveandtheExecutiveTeam;■■ observablelinkagesbetweenstrategy,riskappetite,riskandreward,andcapitaladequacy;■■ clearlydefinedaccountabilities,responsibilitiesandauthorities;■■ anappropriatelevelofriskmanagementresourceswiththeskillsrequiredtofulfiltheirresponsibilitiesandsupportthestrategy;

■■ clearlydefinedoperatingstructures,reportinglinesandgovernancestructures;■■ cleargoals,objectivesandincentives,includinganappropriaterisk-focusedcomponentofemployeeperformancemeasurement;

■■ processesandsystemsthatfacilitateeffective:■ riskidentification,analysis,evaluationandquantification;■ considerationofriskavoidanceormitigation;■ acceptanceandmanagementofresidualrisk;■ captureandreportingofriskdataforbothinternalandexternalpurposes;■ risk-adjustedmeasurementwheretherearerewardsfortakingrisk;and■ riskoversightandanalysis,includingstresstesting;and

■■ assuranceprocesseswhichensurethatrisk-relatedpracticesandcontrolsareappropriatelyembeddedandareeffective,andcomplywithinternal,regulatoryandlegislativerequirements.



Note 35 Risk management (continued)Management assurance programmeTheBankhasanExecutiveRiskandAuditCommittee(‘Bank’s ERAC’)whichmeetsquarterly,andwhichoverseescredit,operational,complianceandreputationalriskswithinthecontextoftheBank’sriskappetiteasdeterminedbytheBank’sBoardaswellasanAssetandLiabilityCommittee(‘Bank’s ALCO’)whichmeetsmonthly,thatleadsthemanagementofbalancesheetriskandoverseesmarketrisk,liquidityriskandequityriskwithinthecontextoftheBank’sriskappetiteasdeterminedbytheBank’sBoard.TheBankingGrouphasamanagementassuranceprogrammedesignedtoidentifythekeyoperationalandcompliancerisks,thecontrolsinplacetomitigatethoserisksandtoobtainassurancethatthosecontrolshavecontinuedtooperateeffectively.Thisprogrammeallowsseniormanagementtoaffirmtheirsatisfactionwiththequalityoftheprocessesundertheirresponsibilityandwiththeeffectivenessofthecontrolsthatsupportthatassurance.TheresultsofthisprocessarereportedtotheBank’sERAC.TheBank’sChiefExecutive(‘CE’)providesmanagementassurancetotheUltimateParentBankBoardRiskManagementCommittee,theUltimateParentBankBoardAuditCommitteeandtheCEOoftheUltimateParentBank.ThissystemofmanagementassuranceassiststheUltimateParentBank’sBoardinsatisfyingitselfthattheBankingGroup’sriskmanagementsystemsareadequate,thattheyoperateeffectivelyandthatanydeficiencieshavebeenidentifiedandarebeingaddressed.

Independent New Zealand Assurance unitTheBankingGrouphasanindependentassuranceunit(‘New Zealand Assurance’)comprisedofaNewZealandbasedAuditteam,supportedbytheUltimateParentBankCreditRiskAssuranceandGroupModelRiskManagementfunctions,whichreportstotheBank’sBAC,aswellastotheUltimateParentBank.NewZealandAssurance,asanindependentfunction,hasnodirectauthorityovertheactivitiesofmanagement.IthasunlimitedaccesstoalltheBankingGroup’sactivities,records,propertyandemployees.ThescopeofresponsibilityofNewZealandAssurancecoverssystemsofmanagementcontrolacrossallbusinessactivitiesandsupportfunctionsatalllevelsofmanagementwithintheBankingGroup.Thelevelofoperationalriskdeterminesthescopeandfrequencyofindividualaudits.TheHeadofNewZealandAssurancereportsonaquarterlybasis,ormoreoftenasdeemedappropriate,totheBank’sBAC,toagreethebudgetandtheannualassuranceplanandtoreportitsfindings.Inaddition,theBank’sBAChasprivatesessionswiththeHeadofNewZealandAssurance.Furthermore,theHeadofNewZealandAssurancereportstotheChairoftheBank’sBAC,andforadministrativepurposestotheNZChiefFinancialOfficer(‘CFO’)andtheUltimateParentBank’sGeneralManagerGroupAssurance. Reviews in respect of risk management systemsNewZealandAssuranceparticipatesinthesixmonthlymanagementassuranceprogrammeinordertoassesstheadequacyofthegovernanceframeworksupportingoperationalriskmanagement.GroupAssurance’sCreditRiskAssuranceandGroupModelRiskManagementfunctionshavearollingprogrammeofcreditandmodelriskreviewsthroughoutthefinancialyear.NewZealandAssurance,withsupportfromtheUltimateParentBank’sGroupAssuranceunit,alsoperiodicallyreviewstheBank’sOperational,Market,FundingandLiquidityRiskFrameworks.ThereviewsdiscussedaboveinthissectionarenotconductedbyapartywhichisexternaltotheBankingGrouportheUltimateParentBank,thoughtheyareindependentandhavenodirectauthorityovertheactivitiesofmanagement.Withaviewtocontinuouslyimprovingitsriskmanagement,anexternalreviewoftheBank’soperationalriskmanagementframeworkwasconductedduringtheyearended30September2013.

35.1 Compliance and operational riskTheBank’sERAC,chairedbytheBank’sCRO,meetsquarterlyandisresponsibleforoverseeingtheeffectivenessandimplementationoftheOperationalRiskandComplianceFrameworks.ERACmonitorstheoperationalriskprofilesandtheactionplans,andhasthediscretiontoescalatematerialmatterstotheBank’sBRMCand/ortherelevantUltimateParentBankGroupRiskCommittee.

Compliance riskTheBankissubjecttoregulationandregulatoryoversight.Anysignificantregulatorydevelopmentscouldhaveanadverseeffectonhowbusinessisconductedandontheresultsofoperations.BusinessandearningsarealsoaffectedbythefiscalorotherpoliciesthatareadoptedbyvariousregulatoryauthoritiesoftheNewZealandGovernment,foreigngovernmentsandinternationalagencies.ThenatureandimpactoffuturechangesinsuchpoliciesarenotpredictableandarebeyondtheBank’scontrol.TheBankhasadedicatedOperationalRiskandCompliancefunction.EffectivecomplianceriskmanagementenablestheBanktoidentifyemergingissuesand,wherenecessary,putinplacepreventativemeasures.

Operational riskOperationalriskarisesfrominadequateorfailedprocesses,peopleandsystemsorfromexternalevents.Operationalriskhasthepotential,asaresultofthewaybusinessobjectivesarepursued,tonegativelyimpacttheBankingGroup’sfinancialperformance,customerserviceand/orreputationinthecommunityorcauseotherdamagetothebusiness.TheBankhasadedicatedOperationalRiskfunctionwhichusesitsOperationalRiskManagementFramework(whichisalignedtotheUltimateParentBankGroupOperationalRiskManagementFramework)asatooltoassistitsbusinessunitsintheachievementoftheirobjectivesthroughassistingthebusinesstounderstandandmanagethoserisksthatcouldhinderprogress.Thisframeworkoutlinesthebusinessrequirementsformanagingoperationalriskwithrespecttogovernance,riskandcontrolassessments,incidentmanagementandreportingandmonitoring.TheBankhasimplementedtheAMAmethodologyforcalculatingoperationalriskcapital.Anoutlineofthismethodology,assetoutbelow,takesintoconsiderationbothinternalandexternalfactors.



Note 35 Risk management (continued)Calculating operational risk capitalThecalculationofoperationalriskcapitalisdesignedtoestimatetheamountofcapitalrequiredtowithstandlossesfromextremeunexpectedoperationalriskeventsinfutureyears.TheBankingGroupadoptsahybridapproach,relyingonavarietyofdatasourcesthatcombinesactuallossexperiencewithestimatesofpotentialfuturelossesbasedonexpertbusinessjudgment.TheOperationalRiskCapitalModel(‘ORCM’)hasbeendevelopedtoprovideareliable,reasonableandconservativeestimateofthecapitaltobeheldbytheBankingGroup’sregulatedentities.Itincludescapitalforbothexpectedandunexpectedlossesarisingfromoperationalriskevents.TheBankingGroupundertakesthreestreamsofanalysis.Eachstreamutilisesdifferentdatasetstogenerateanestimateofpotentialfinancialloss.Thethreecapitalestimatesarethenweightedandcombinedtoproduceanestimateofcapital.Threestreamsareusedtoprovideamorecomprehensiveassessmentofpossibleoperationalrisksby:

■■ coveringlarger/infrequentlossesviascenarioanalysis;■■ providingforlossesexperiencedbytheBankingGroup;and■■ utilisinglosshistoryfrompeerswithsimilarbusinessmodels.Togetherthesethreestreamsgiveanindicationofthefuturelossesthatarepossible.Thecalculationofoperationalriskcapitaldoesnotcurrentlymakeanyadjustmentordeductionforrisksthatmaybecoveredbyinsuranceoranyexpectedlossesthatarethesubjectoffinancialprovisions.Operationriskcapitaliscalculatedquarterly.TheORCMisreviewedannuallytore-assesstheappropriatenessofthemodelframework,modelmethodology,assumptionsandtheparametersusedinthemodelinlightofindustrydevelopments,advancementsinmodellingtechniquesandchangesinthebroaderOperationalRiskManagementFramework.ThefollowingtablesetsouttheBankingGroup’simpliedrisk-weightedexposuresundertheAMAmethodologyandtheoperationalriskcapitalrequirement:

2013 Total Operational Implied Risk- Risk weighted Capital Exposure Requirement $ millions Unaudited Unaudited

Methodology implementedAdvanced Measurement ApproachOperationalrisk 4,500 360

35.2 Funding and liquidity riskLiquidityriskisthepotentialinabilitytofundassetsandmeettheBank’spaymentobligationsastheycomedue,withoutincurringunacceptablelosses.LiquidityriskisinherentintheBank’sbalancesheetduetomismatchesinthematurityofassetsandliabilities.ThisriskismanagedthroughtheBank’sBRMCapprovedliquidityriskmanagementframework.ResponsibilityforliquiditymanagementisdelegatedtotheBank’sCFOundertheoversightoftheBank’sCE.TheBank’sTreasuryunitreportstotheCFOandmanagestheliquiditypositiononadaytodaybasis.Liquidityriskpositionsaremodelledandreporteddaily.IndependentoversightisprovidedbytheHeadofMarketRiskinconjunctionwiththeBank’sCRO,withexecutiveoversightprovidedbytheBank’sALCO.ReportingofliquidityandfundingriskisprovidedtotheBank’sALCO.QuarterlyreportingispresentedtotheBank’sBRMCwhoalsoapprovethefundingstrategy,liquiditylimitsstructureandliquidityriskmanagementframework.Inaddition,reportingisalsoprovidedtotheUltimateParentBank’sBankingBookRiskCommitteeandAssetandLiabilityCommittee.TheBankaimstooperateamixofretailandwholesalefunding,withemphasisonthevalueofcorefundingconsistentwiththeprinciplesinherentinBS13.Keyaspectsoftheliquiditymanagementstrategyareasfollows:

Liquidity risk management frameworkTheliquidityriskmanagementframework(the‘framework’)isownedbytheBank’sCROandapprovedbytheBank’sBRMC.Theframeworkcoversallaspectsofliquidityriskincluding:

■■ rolesandresponsibilities;■■ measurementandmodellingapproaches;■■ contingencyplanning;■■ principalframeworkcomponents,policiesandreportsalongwiththefrequencyofreviewandauthorityforapproval;■■ liquidityrisklimits;■■ scenarioscovered;■■ limitdetermination;and■■ minimumholdingsofliquidassets.TheframeworkisreviewedatleasteverytwoyearsandsubmittedtotheBank’sBRMCforendorsement.



Note 35 Risk management (continued)Daily liquidity modelling and reportingTheBankissubjecttotheconditionsoftheReserveBank’sliquiditypolicy,BS13.ThefollowingmetricsarecalculatedandreportedonadailybasisinaccordancewithBS13:

■■ thelevelofliquidassetsheld;■■ theone-weekmismatchratio;■■ theone-monthmismatchratio;and■■ theone-yearcorefundingratio.Inaddition,theBankcalculatesthefollowingliquidityratiosinaccordancewiththeUltimateParentBank’sliquidityriskframeworkunderAPS210Liquidity:

■■ agoingconcernscenario;and■■ anamecrisisscenario.ReportsarecirculateddailytotheBank’sTreasury,RiskandFinancepersonnel,includingtheBank’sCROandCFO.Exceptionstointernallimitsareescalatedimmediatelytoseniormanagement,ALCOortheBoarddependingonthestatusofthelimit.

Annual funding planEachfinancialyeartheBank’sTreasuryunitundertakesacomprehensivereviewresultinginthepreparationoftheBank’sannualfundingplan.Thisreviewoutlinesthecurrentfundingstrategy,proposesafundingstrategyforthecomingfinancialyearandcoversareassuchas:

■■ trendsinglobaldebtmarkets;■■ fundingalternatives;■■ peeranalysis;■■ estimationofwholesalefundingtask;■■ estimatedmarketcapacity;■■ fundingriskanalysis;and■■ allocationoffundingcosts.TheBank’sannualfundingplanisreviewedbytheBank’sALCOpriortoapprovalbytheBank’sBRMC.

Contingency planningTreasurymaintainsaCrisisManagementActionPlandetailingbroadactionsthatshouldbetakenintheeventofafundingcrisis.Thisactionplan:

■■ definesacommitteeofseniorexecutivestomanageacrisis;■■ allocatesresponsibilitytoindividualsforkeytasks;■■ includesamediarelationsstrategy;■■ providesacontingentfundingplan;and■■ containsdetailedcontactlistsoutliningkeyregulatory,government,ratingsagenciesanddebtinvestorcontactpoints.

Sources of liquidityTheprincipalsourcesofliquidityfortheBankare:

■■ customerdeposits;■■ wholesalefunding;■■ proceedsfromsalesofmarketablesecurities;■■ repurchaseagreements;■■ principalrepaymentsonloans;■■ interestincome;and■■ feeincome.



Note 35 Risk management (continued)Wholesale fundingThewholesalefundingbaseisdiversifiedwithrespecttoterm,investorbase,currencyandfundinginstruments.TheBankanditssubsidiary,WSNZL,maintainfundingprogrammesforbothshortandlong-termdebtinseveraljurisdictionsincludingNewZealand,EuropeandtheUnitedStates.

The Banking Group 2013 2012 Programme Programme Programme ProgrammeMarkets Issuer Type Limit Issuer Type Limit

Euro Euro Commercial Paper Commercial Paper Ultimate and Certificate Ultimate andCertificateof Parent Bank/ of Deposit Parent DepositEuromarket WSNZL1 Programme US$20 billion Bank/WSNZL1 Programme US$20billion

Programme for Programme for Issuance of Debt IssuanceofDebtEuromarket WSNZL1 Instruments US$7.5 billion WSNZL1 Instruments US$7.5billion

Global Global Covered bond CoveredbondEuromarket WSNZL1 Programme €5.0 billion WSNZL1 Programme €5.0billion

Section 4(2) US Section4(2)US Commercial Paper Commercial PaperUnitedStates WSNZL1 Programme US$10 billion WSNZL1 Programme US$10billion

Rule144AUS Medium-termUnitedStates - - - WSNZL1 NoteProgramme US$10billion

Medium-term Medium-term Note Programme NoteProgramme and Registered and Registered Certificate of Certificateof Deposit DepositNewZealand The Bank Programme No limit TheBank Programme Nolimit1 NotesissuedbyWSNZLareguaranteedbytheBank.

Liquid assetsThetablebelowshowstheBankingGroup’sholdingofliquidassetsandrepresentsthekeyliquidityinformationprovidedtomanagement.LiquidassetsincludehighqualityassetsreadilyconvertibletocashtomeettheBankingGroup’sliquidityrequirements.Inmanagement’sopinion,liquidityissufficienttomeettheBankingGroup’spresentrequirements.

The Banking Group and the Bank $ millions 2013 2012

Cashandbalanceswithcentralbanks 1,804 1,595Duefromotherfinancialinstitutions(includedinduefromrelatedentities) 467 534 Supranationalsecurities 433 414 NZGovernmentsecurities 2,454 2,575NZpublicsecurities 457 206 NZcorporatesecurities 1,309 1,861Residentialmortgage-backedsecurities 3,992 3,992

Total liquid assets 10,916 11,177



Note 35 Risk management (continued)Liquidity analysisThefollowingliquidityanalysisforfinancialassetsandfinancialliabilitiespresentsthecontractualundiscountedcashflowsreceivableandpayable,andisbasedontheremainingperiodasatbalancedatetothecontractualmaturity.Thetotalbalancesinthetablesbelowmaynotagreetothebalancesheetasthesetablesincorporateallcashflowsonanundiscountedbasis,whichincludebothprincipalandassociatedfutureinterestincome/expenseaccruals.

The Banking Group 2013 Less Than 1 Month to 3 Months to 1 Year to Over$ millions On Demand 1 Month 3 Months 1 Year 5 Years 5 Years Total

Financial AssetsCashandbalanceswithcentralbanks 1,804 - - - - - 1,804 Duefromotherfinancialinstitutions 173 - - - - - 173 Derivativefinancialinstruments: Held for trading 6 - - - - - 6 Heldforhedgingpurposes(netsettled) - - 1 (2) 3 - 2 Tradingsecurities - 362 766 202 303 - 1,633 Available-for-salesecurities - 113 23 158 1,628 1,240 3,162 Loans 6,146 5,818 4,604 6,024 21,154 46,621 90,367 Duefromrelatedentities: Non-derivativebalances 916 460 - - - - 1,376 Otherassets - 50 - - - - 50 Total undiscounted financial assets 9,045 6,803 5,394 6,382 23,088 47,861 98,573

Financial LiabilitiesDuetootherfinancialinstitutions - 100 - - - - 100 Deposits 21,759 5,378 8,604 11,501 1,635 - 48,877 Derivativefinancialinstruments: Heldforhedgingpurposes(netsettled) - 12 10 33 61 6 122 Heldforhedgingpurposes(grosssettled): Cashoutflow - - 19 61 1,955 - 2,035 Cashinflow - - - (57) (1,744) - (1,801) Debtissues - 431 1,403 3,577 6,846 248 12,505 Otherliabilities - 100 - - - - 100 Duetorelatedentities: Non-derivativebalances 508 48 29 63 2,403 - 3,051 Derivativefinancialinstruments: Held for trading 54 - - - - - 54 Heldforhedgingpurposes(netsettled) (1) 22 10 (34) (51) (1) (55) Heldforhedgingpurposes(grosssettled): Cashoutflow - 14 21 1,642 2,189 - 3,866 Cashinflow - - (1) (1,306) (1,846) - (3,153) Total undiscounted financial liabilities 22,320 6,105 10,095 15,480 11,448 253 65,701

Total contingent liabilities and commitmentsLoancommitmentswithcertaindrawdown 205 - - - - - 205 Othercommitmentstoprovidefinancialservices 19,369 - - - - - 19,369 Total undiscounted contingent liabilities and commitments 19,574 - - - - - 19,574



Note 35 Risk management (continued) The Banking Group 2012 LessThan 1Monthto 3Monthsto 1Yearto Over$ millions OnDemand 1Month 3Months 1Year 5Years 5Years Total

Financial AssetsCashandbalanceswithcentralbanks 1,595 - - - - - 1,595Duefromotherfinancialinstitutions 322 - - - - - 322Derivativefinancialinstruments: Heldfortrading 9 - - - - - 9 Heldforhedgingpurposes(netsettled) - (2) - 4 4 (3) 3Tradingsecurities - 350 1,378 35 277 52 2,092Available-for-salesecurities - 84 20 117 1,266 1,608 3,095Loans 7,378 5,691 4,792 5,298 20,209 44,228 87,596Duefromrelatedentities: Non-derivativebalances 1,527 - - - - - 1,527Otherassets - 36 - - - - 36Total undiscounted financial assets 10,831 6,159 6,190 5,454 21,756 45,885 96,275

Financial LiabilitiesDuetootherfinancialinstitutions 3 - - - - - 3Deposits 18,900 5,914 7,800 9,324 2,180 - 44,118Derivativefinancialinstruments: Heldforhedgingpurposes(netsettled) - 11 7 44 166 33 261 Heldforhedgingpurposes(grosssettled): Cashoutflow - - 18 69 2,464 - 2,551 Cashinflow - - - (57) (2,132) - (2,189)Debtissues - 1,026 642 3,938 7,848 259 13,713Otherliabilities - 77 - - - - 77Perpetualsubordinatednotes - - - - - 970 970Duetorelatedentities: Non-derivativebalances 588 48 34 99 3,273 - 4,042 Derivativefinancialinstruments: Heldfortrading 345 - - - - - 345 Heldforhedgingpurposes(netsettled) - 8 12 (5) (10) (1) 4 Heldforhedgingpurposes(grosssettled): Cashoutflow - - 46 1,112 3,815 - 4,973 Cashinflow - - (1) (986) (3,055) - (4,042)Total undiscounted financial liabilities 19,836 7,084 8,558 13,538 14,549 1,261 64,826

Total contingent liabilities and commitmentsLoancommitmentswithcertaindrawdown 177 - - - - - 177Othercommitmentstoprovidefinancialservices 19,030 - - - - - 19,030

Total undiscounted contingent liabilities and commitments 19,207 - - - - - 19,207



Note 35 Risk management (continued) The Bank 2013 Less Than 1 Month to 3 Months to 1 Year to Over$ millions On Demand 1 Month 3 Months 1 Year 5 Years 5 Years Total

Financial AssetsCashandbalanceswithcentralbanks 1,804 - - - - - 1,804 Duefromotherfinancialinstitutions 173 - - - - - 173 Derivativefinancialinstruments: Held for trading 6 - - - - - 6 Heldforhedgingpurposes(netsettled) - - 1 (2) 3 - 2 Tradingsecurities - 362 766 202 303 - 1,633 Available-for-salesecurities - 113 23 158 1,628 1,240 3,162 Loans 6,081 5,817 4,604 6,024 21,148 46,585 90,259 Duefromrelatedentities: Non-derivativebalances 1,028 476 77 280 1,490 11,666 15,017 Otherassets - 49 - - - - 49 Total undiscounted financial assets 9,092 6,817 5,471 6,662 24,572 59,491 112,105

Financial LiabilitiesDuetootherfinancialinstitutions - 100 - - - - 100 Deposits 21,238 5,225 8,396 11,080 1,602 - 47,541 Derivativefinancialinstruments: Heldforhedgingpurposes(netsettled): - 12 10 33 61 6 122 Heldforhedgingpurposes(grosssettled): Cashoutflow - - 19 61 1,955 - 2,035 Cashinflow - - - (57) (1,744) - (1,801) Debtissues - 7 437 833 2,821 248 4,346 Otherliabilities - 98 - - - - 98 Duetorelatedentities: Non-derivativebalances1 1,417 638 1,279 3,508 7,952 11,432 26,226 Derivativefinancialinstruments: Held for trading 54 - - - - - 54 Heldforhedgingpurposes(netsettled) (1) 22 10 (34) (51) (1) (55) Heldforhedgingpurposes(grosssettled): Cashoutflow - 14 21 1,642 2,189 - 3,866 Cashinflow - - (1) (1,306) (1,846) - (3,153) Total undiscounted financial liabilities 22,708 6,116 10,171 15,760 12,939 11,685 79,379

Total contingent liabilities and commitmentsLoancommitmentswithcertaindrawdown 205 - - - - - 205 Othercommitmentstoprovidefinancialservices 19,224 - - - - - 19,224 Total undiscounted contingent liabilities and commitments 19,429 - - - - - 19,4291 TheBankprovidesafinancialguaranteeinrelationtocommercialpaperandotherdebtsecuritiesissuedbyWSNZL,theproceedsofwhichareimmediatelyonlentto

theBank.Asaresult,thefinancialguaranteeprovidedbytheBankisreflectedaspartoftheamountsduetorelatedentities.



Note 35 Risk management (continued) The Bank 2012 LessThan 1Monthto 3Monthsto 1Yearto Over$ millions OnDemand 1Month 3Months 1Year 5Years 5Years Total

Financial AssetsCashandbalanceswithcentralbanks 1,595 - - - - - 1,595Duefromotherfinancialinstitutions 322 - - - - - 322Derivativefinancialinstruments: Heldfortrading 9 - - - - - 9 Heldforhedgingpurposes(netsettled) - (2) - 4 4 (3) 3Tradingsecurities - 350 1,378 35 277 52 2,092Available-for-salesecurities - 84 20 117 1,266 1,608 3,095Loans 7,310 5,691 4,792 5,298 20,202 44,183 87,476Duefromrelatedentities: Non-derivativebalances 1,627 - 44 131 696 8,996 11,494Otherassets - 13 - - - - 13Total undiscounted financial assets 10,863 6,136 6,234 5,585 22,445 54,836 106,099

Financial LiabilitiesDuetootherfinancialinstitutions 3 - - - - - 3Deposits 18,900 5,752 7,594 9,013 2,118 - 43,377Derivativefinancialinstruments: Heldforhedgingpurposes(netsettled) - 11 7 44 166 33 261 Heldforhedgingpurposes(grosssettled): Cashoutflow - - 18 69 2,464 - 2,551 Cashinflow - - - (57) (2,132) - (2,189)Debtissues - 6 21 191 2,673 259 3,150Otherliabilities - 77 - - - - 77Perpetualsubordinatednotes - - - - - 970 970Duetorelatedentities: Non-derivativebalances1 2,271 1,168 901 4,349 9,212 6,725 24,626 Derivativefinancialinstruments: Heldfortrading 345 - - - - - 345 Heldforhedgingpurposes(netsettled) - 8 12 (5) (10) (1) 4 Heldforhedgingpurposes(grosssettled): Cashoutflow - - 46 1,112 3,815 - 4,973 Cashinflow - - (1) (986) (3,055) - (4,042)Total undiscounted financial liabilities 21,519 7,022 8,598 13,730 15,251 7,986 74,106

Total contingent liabilities and commitmentsLoancommitmentswithcertaindrawdown 177 - - - - - 177Othercommitmentstoprovidefinancialservices 18,886 - - - - - 18,886

Total undiscounted contingent liabilities and commitments 19,063 - - - - - 19,0631 TheBankprovidesafinancialguaranteeinrelationtocommercialpaperandotherdebtsecuritiesissuedbyWSNZL,theproceedsofwhichareimmediatelyonlentto

theBank.Asaresult,thefinancialguaranteeprovidedbytheBankisreflectedaspartoftheamountsduetorelatedentities.

35.3 Credit riskCreditriskistheriskoffinanciallossresultingfromthefailureofcustomerstohonourfullythetermsandconditionsofacontractwiththeBankingGroup.ItarisesfromtheBankingGroup’slendingactivitiesandfrominterbank,treasuryandinternationaltradeactivities.

Credit risk managementTheBankingGroupadoptstwoapproachestomanagingcreditriskdependinguponthenatureofthecustomerandproduct:

■■ Transaction-managed approach Forlargercustomers,theBankingGroupevaluatescreditrequestsbyundertakingdetailedindividualcustomerand

transactionriskanalysis(the‘transaction-managed’approach).Suchcustomersareassignedacustomerriskgrade(‘CRG’)basedontheBankingGroup’sestimateoftheirPD.EachfacilityisassignedaLGDtakingintoaccounttherealisticdistressvalueofassetsoverwhichtheBankingGroupholdssecurityandconsideringtheseniorityofexposuresinthecapitalanddebtstructureofthecustomer.ThefinalassignmentofCRGsandLGDsareapprovedbyindependentcreditofficerswithappropriateauthority.Divisionaloperationalunitsareresponsibleforensuringaccurateandtimelyrecordingofallchangestocustomerandfacilitydata.



Note 35 Risk management (continued)■■ Program-managed approach High-volumecustomercreditportfolioswithhomogenouscreditriskcharacteristicsaremanagedonastatisticalbasis

accordingtopredeterminedobjectivecriteria(the‘program-managed’approach).Quantitativescorecardsareusedtoassignapplicationandbehaviouralscorestoenablerisk-baseddecision-makingwithintheseportfolios.Thescorecardoutcomesanddecisionsareregularlymonitoredandvalidatedagainstsubsequentcustomerperformanceandrecalibrated(orrebuilt)whenrequired.Forcapitalestimation(andotherpurposes),risk-basedcustomersegmentsarecreatedbasedonexpectedPDs,andLGDsareassignedforeachsegmentbasedonhistoricexperienceandmanagementjudgment.

TheBankingGroupisresponsibleforimplementingandoperatingwithinestablishedriskmanagementframeworksandpoliciesandhasadaptedtheUltimateParentBankGroup’screditriskpolicytotheBankingGroup’scustomerandproductset.Accordingly,theBankingGrouphasitsowncreditmanualsanddelegatedapprovalauthoritieswhichareapprovedbytheUltimateParentBankGroup.TheBankingGroupmonitorsitsportfoliotoguardagainstthedevelopmentofriskconcentrations.ThisprocessensuresthattheBankingGroup’screditriskremainswelldiversifiedthroughouttheNewZealandeconomy.TheBankingGrouphasestablishedseparatereportingandprudentiallimitsforborrowingsthatcanbeaccessedbyasinglecustomergroup.Theselimitsapplytobothborrowingequivalentsandsettlementrisk.Separatelimitsapplytocorporates,governments,financialinstitutionsandbanksandarescaledbyriskgrade.AnyexcessesoflimitsarereportedquarterlytotheBank’sBRMCalongwithastrategyaddressingtheongoingmanagementoftheexcess.Allbusinessunitsproduceregulardelinquencyreportsthatdetailexcessesanddelinquencypositions.Thesereportstriggerappropriateremedialactionconsistentwithriskmanagementproceduresalignedtocreditapprovalauthority.Delinquencyreportingisusedtomonitorportfolioperformance,originationpoliciesandcreditdecision-making.Creditpolicieswithgroup-wideimplicationsareownedbytheGroupRiskdivisionoftheUltimateParentBank(‘Ultimate Parent Bank Group Risk’)andapprovedbytheUltimateParentBankGroupCreditRiskCommittee.Compliancewiththesepoliciesisadministeredlocally.UltimateParentBankGroupRiskestablishesandmaintainsgroup-widecreditriskmanagementframework,policiesandriskconcentrationlimitswhichincorporatesoundcreditriskmanagementpractices,reflectapprovedriskappetiteandstrategyandmeetrelevantregulatoryandlegislativeobligations.WithintheseboundariestheBankingGrouphasitsowncreditapprovallimitsasdelegatedbytheUltimateParentBankGroupCreditRiskOfficer.Theseestablishahierarchyofcreditapprovallevels,alignedtocustomerriskgradesandconsistentwithnormalcustomerexposuresinthebusiness.

Credit risk mitigation, collateral and other credit enhancementsTheBankingGroupusesavarietyoftechniquestoreducethecreditriskarisingfromitslendingactivities.EnforceablelegaldocumentationestablishestheBankingGroup’sdirect,irrevocableandunconditionalrecoursetoanycollateral,securityorothercreditenhancementsprovided.TheBankingGroupincludestheeffectofcreditriskmitigationthrougheligibleguaranteeswithinthecalculationappliedtoLGD.Thevalueoftheguaranteeisnotalwaysseparatelyrecorded,andthereforenotavailablefordisclosure,underClause7ofSchedule11totheOrder.Thetablebelowdescribesthenatureofcollateralheldforfinancialassetclasses:

Cashandbalanceswithcentralbank

Theseexposuresaregenerallyconsideredtobelowriskduetothenatureofthecounterparties.Thesebalancesarenotcollateralised.

Duefromotherfinancialinstitutions

Theseexposuresaremainlytorelativelylowriskbanks(RatedA+,AA–orbetter).Thesebalancesarenotcollateralised.

Derivativefinancialinstruments Nettingagreementsaretypicallyusedtoenabletheeffectsofderivativeassetsandliabilitieswiththesamecounterpartytobeoffsetwhenmeasuringtheseexposures.Additionally,collateralisationagreementsarealsotypicallyenteredintowithmajorderivativescounterpartiestoavoidthepotentialbuildupofexcessivemark-to-marketpositions.

Tradingsecurities Theseexposuresarecarriedatfairvaluewhichreflectsthecreditrisk.Nocollateralissoughtdirectlyfromtheissuerorcounterparty.

Available-for-salesecurities Collateralisnotsoughtdirectlywithrespecttotheseexposures.

Loans Housingandotherloansforconsumerpurposesmaybesecured,partiallysecuredorunsecureddependingontheproduct.Securityistypicallytakenbyafixedand/orfloatingchargeoverpropertyorotherassets.Loansforbusinesspurposesmaybesecured,partiallysecuredorunsecured.Securityistypicallytakenbywayofafixedand/orfloatingchargeoverproperty,businessassets,orotherassets.Otherformsofcreditprotectionmayalsobesoughtortakenoutifwarranted.

Duefromsubsidiaries Theseexposuresaregenerallyconsideredtobelowriskduetothenatureofthecounterparties.Thesebalancesarenotcollateralised.

Otherassets CollateralisgenerallynotsoughtonthesebalancesexceptonaccruedinterestreceivablewhichisassumedtofollowtheprincipalamountrecordedinLoans.



Note 35 Risk management (continued)Risk reductionTheBankingGroupreducescreditriskexposuretoacustomerthrougheither:

■■ collateralisation,wheretheexposureissecuredbyeligiblefinancialcollateralorprotection;or■■ formalset-offarrangements.

Collateral valuation and managementTheBankingGrouprevaluesexposuresandcollateralrelatedtofinancialmarketspositionsonadailybasistomonitorthenetriskposition,andformalprocessesareinplacetoensurecallsforcollateraltop-uporexposurereductionaremadepromptly.Anindependentoperationalunithasresponsibilityformonitoringthesepositions.ThecollaterisationarrangementsaredocumentedviatheSupportAnnexoftheInternationalSwapsandDerivativesAssociationdealingagreements.TheBankingGrouponlyrecognisescashaseligiblecollateralforcreditriskmitigationbywayofriskreduction.

NettingRiskreductionbywayofcurrentaccountset-offsisrecognisedforexposurestocreditworthycustomersdomiciledinNewZealandonly.CustomersarerequiredtoenterintoformalagreementsgivingtheBankingGrouptheunfetteredrighttoset-offgrosscreditanddebitbalancesintheirnominatedaccountstodeterminetheBank’snetexposurewithinNewZealand.Paymentandclose-outnettingisundertakenforoff-balancesheetfinancialmarkettransactionswithcounterpartieswithwhomtheBankingGrouphasenteredintolegallyenforceablemasterdealingagreementswhichallowsuchnettinginspecifiedjurisdictions.PaymentnettingallowstheBanktonetsettlementsonanydaytoreducecashflowexchangesbetweencounterparties.Close-outnettingeffectivelyaggregatespre-settlementriskexposureatthetimeofdefault,thusreducingoverallexposure.

Risk transferFormitigationbywayofrisktransfer,theBankingGrouponlyrecognisesunconditionalirrevocableguaranteesorstandbylettersofcreditissuedby,oreligiblecreditderivativeprotectionboughtfrom,thefollowingentities,providedtheyarenotrelatedtotheunderlyingobligor:

■■ sovereignentities;■■ publicsectorentitiesinAustraliaandNewZealand;■■ ADIsandoverseasbanks;and■■ otherentitieswithaminimumriskgradeequivalentofA3/A–.

Internal credit risk rating system TheprincipalobjectiveofthecreditriskratingsystemistoproduceareliablequantitativeassessmentofthecreditrisktowhichtheBankingGroupisexposed.TheBankingGroup’sinternalcreditriskratingsystemfortransaction-managedcustomersassignsaCRGtoeachcustomer,correspondingtotheirexpectedPDandhas20riskgradesfornon-defaultedcustomersand10riskgradesfordefaultedcustomers.Non-defaultedCRGsaremappedtoMoody’sandStandard&Poor’sexternalseniorrankingunsecuredratings.ThismappingisreviewedannuallyandallowstheBankingGrouptousetheratingagencies’long-rundefaulthistorytocalculatelong-runaveragePDs.ThetablebelowshowsthecurrentalignmentbetweentheBankingGroup’sCRGsandthecorrespondingexternalrating.Notethatonlyhigh-levelCRGgroupingsareshown.

Banking Group’s CRG Standard & Poor’s rating Moody’s rating Supervisory slotting grade

A AAAtoAA- Aaa to Aa3 Strong

B A+toA- A1 to A3 Strong

C BBB+toBBB- Baa1toBaa3 Strong

D BB+toB+ Ba1toB1 Good/satisfactory

Banking Group rating

E Watchlist Weak

F Specificmention Weak

G Substandard/default Weak/default

H Default Default

Theretail(program-managed)portfolioissegmentedintopoolsofsimilarrisk.Segmentsarecreatedbyanalysingcharacteristicsthathavehistoricallyprovenpredictiveindeterminingifanaccountislikelytogointodefault.Customersarethengroupedaccordingtothesepredictivecharacteristicsofdefault.EachsegmentisassignedaquantifiedmeasureofitsPD,LGDandexposureatdefault(‘EAD’).



Note 35 Risk management (continued)TheBankingGroup’screditriskratingsystemisreviewedtoensuretheratingcriteriaandproceduresareapplicabletothecurrentportfolioandexternalconditions.TheannualreviewofthecreditriskratingframeworkisapprovedbytheUltimateParentBankBRMC.ToensurethecreditriskratingsystemisappliedconsistentlyacrosstheBankingGroup,theUltimateParentBankGroup’sCreditRiskAssuranceteamindependentlyreviewsend-to-endtechnicalandoperationalaspectsoftheoverallprocess.ModelsmateriallyimpactingtheriskratingprocessarereviewedannuallyinaccordancewiththeUltimateParentBankGroup’smodelriskpolicy.Specificcreditriskestimates(includingPD,LGDandEADlevels)areoverseenandapprovedbyERACandbytheUltimateParentBankGroupCreditRiskCommitteesforutilisationwithintheBankingGroup.

Use of internal credit risk estimatesInadditiontousingthecreditriskestimatesforregulatorycapitalpurposes,theyarealsousedforthefollowingpurposes:

Economic capitalTheBankingGroupallocateseconomiccapitaltoallexposures.Economiccapitalincludesbothcreditandnon-creditcomponents.EconomiccreditcapitalisallocatedusingaframeworkthatconsidersestimatesofPD,LGD,EAD,TotalCommittedExposure(‘TCE’)andloantenoraswellasmeasuresofportfoliocompositionnotreflectedinregulatorycapitalformulae1.2

PricingTheBankingGrouppricesloanssoastoproduceanacceptablereturnontheeconomiccapitalallocatedtotheloan,afterexpectedcreditlosses(andothercosts)areincurred.EstimatesofeconomiccapitalandexpectedcreditlossestakeintoaccountestimatesofPD,LGDandEAD.

ProvisioningImpairmentprovisionsarereservesheldbytheBankingGrouptocovercreditlossesthatareincurredintheloanportfolio.Individualprovisionsarecalculatedonimpairedloanstakingintoaccountmanagement’sbestestimateofthepresentvalueoffuturecashflows.Collectiveprovisionsareestablishedonaportfoliobasistakingintoaccountthelevelofarrears,collateral,pastlossexperienceandemergenceperiods.Transaction-managedportfolioprovisionsusetheriskgradingframeworkandsuitablePD,LGDandEADsassignedtoeachcustomer/facilityasthebasisforthecalculation.Program-managedportfoliosuseestimatedlossratesbasedonrecentpastexperienceastheprimarybasisofthecalculation.TheseestimatesarethenadjustedforthespecificrequirementsoftheNZIFRSaccountingstandards.

Credit approval authoritiesFortransaction-managedfacilities,theapprovalauthoritiesareallocatedbasedontheCRGwithlowerlimitsapplicableforcustomerswithahigherPD.Program-managedfacilitiesareapprovedonthebasisofapplicationscorecardoutcomesandproduct-basedapprovalauthorities.

Risk-adjusted performance measurementBusinessunitperformanceismeasuredusinganeconomicprofitframeworkwhichincorporateschargesforeconomiccreditcapitalaswellascapitalforotherrisktypes.

Regulatory capitalThecreditriskratingsystemisakeyinputtoevaluatethelevelofcapitaltobeheldagainstloansforregulatorypurposes.

Overview of internal credit risk ratings process by portfolio

(a) Transaction-managed approach (including business lending, corporate, sovereign and bank)TheprocessforassignmentandapprovalofindividualPDsandLGDsinvolvesbusinessunitrepresentativesrecommendingtheCRGsandLGDsundercriteriaguidelines.CreditOfficersthenindependentlyevaluatetherecommendationsandapprovethefinaloutcomes.Anexpertjudgmentdecision-makingprocessisemployedtoevaluatetheCRG.Thefollowingrepresentthetypesofbusinesslending,corporate,sovereignandbankingexposuresincludedwithinthetransaction-managedportfolioapproach:

■■ directlendingexposures;■■ contingentlendingexposures;■■ pre-settlementexposures;■■ foreignexchangesettlementexposures;and■■ transactionexposures.AlloftheaboveexposurecategoriesalsoapplytoSpecialisedLending,whichisasub-assetclassofCorporateandintheBankingGroupcomprisesPropertyFinanceandProjectFinance.Regulatoryrisk-weightsarealsoappliedtoSpecialisedLending.

Definitions, methods and data for estimation and validation of PD, LGD and EAD

(i) PDThePDisathroughthecycleassessmentofthelikelihoodofacustomerdefaultingonitsfinancialobligationswithinoneyear.PDisrepresentedinaCRG.

(ii) LGDTheLGDrepresentsanestimateoftheexpectedseverityofalosstotheBankingGroupshouldacustomerdefaultoccurduringaneconomicdownturn.TheBankingGroupassignsanLGDtoeachcreditfacility,assuminganeventofdefaulthasoccurred,andtakingintoaccountaconservativeestimateofthenetrealisablevalueofassetstowhichtheBankingGrouphasrecourseandoverwhichithassecurity.LGDsalsoreflecttheseniorityofexposuresinthecustomers’capitalanddebtstructure.1 TheBankingGroupuseseconomiccapitalasthebasisforrisk-adjusteddecision-makingacrosstheBankingGroupandallowsdifferencesbetweeneconomicand

regulatorycapitalwheresuchdifferencesdrivebettermedium-termtolong-termbusinessdecisions.2



Note 35 Risk management (continued)LGDestimatesarebenchmarkedagainstobservedhistoricalLGDsfrominternalandexternaldataandarecalibratedtoreflectlossesexpectedinaneconomicdownturn.ThecalculationofhistoricalLGDsisbasedonaneconomiclossandincludesallowancesforworkoutcostsandthediscountingoffuturecashflowstothedateofdefault.LGDvaluesrangefrom5%to100%.TherangeofLGDvaluesensuresthattheriskoflossisdifferentiatedacrossmanycreditfacilitiesextendedtocustomers.

(iii) EAD and Credit Conversion Factor (‘CCF’)EADrepresentsanestimateoftheamountofcommittedexposureexpectedtobedrawnbythecustomeratthetimeofdefault.TocalculateEAD,historicaldataisanalysedtodeterminewhatproportionofundrawncommitmentsareultimatelyutilisedbycustomerswhoendupindefault.TheproportionofundrawncommitmentsultimatelyistermedtheCCF.EADthereforeconsistsofinitialoutstandingbalancesplustheCCFmultipliedbyundrawncommitments.Fortransaction-managedexposuresCCF’sareall100%.

(b) Retail (program-managed) asset class approach (including residential mortgages, small business and other retail)Eachcustomerisratedusingdetailsoftheiraccountperformanceorapplicationdetailsandsegmentedintopoolsofsimilarrisk.Thesesegmentsarecreatedbyanalysingcharacteristicsthathavehistoricallyprovenpredictiveindeterminingifanaccountislikelytogointodefault.Customersarethengroupedaccordingtothesepredictivecharacteristicsofdefault.Theretail(program-managed)portfolioisdividedintoanumberofsegmentsperproductwitheachsegmentassignedaquantifiedmeasurementofitsPD,LGDandEAD.Retailassetclassexposuresincludedintheretail(program-managed)portfolioapproacharesplitintothefollowingcategoriesofproducts:

Asset sub–classes Product categories

Residentialmortgages ■■ Mortgages

Smallbusiness ■■ Equipmentfinance■■ Businessoverdrafts■■ Businesstermloans■■ Businesscreditcards

Other retail ■■ Creditcards■■ Personalloans■■ Overdrafts

(i) PDPDsareassignedattheretailsegmentlevelandreflectthelikelihoodofaccountswithinthatsegmenttodefault.Along-runaverageisusedtoassignaPDtoeachaccountinasegmentbasedonthesegment’scharacteristics.ThePDestimateforeachsegmentisbasedoninternaldata.Modelsareusedtohelpdetermineorestablishtheappropriateinternalratingforprogram-managedportfolios.

(ii) LGDLGDmeasurestheproportionoftheexposurethatwillbelostifdefaultoccurs.LGDismeasuredasapercentageofEAD.TheapproachtoLGDvariesdependingonwhethertheretailproductissecuredorunsecured.Adownturnperiodisusedtoreflecttheeffectonthecollateralforsecuredproducts.Forunsecuredproducts,along-runestimateisusedforLGD.

(iii) EADEADrepresentsanestimateoftheamountofcommittedexposureexpectedtobedrawnbythecustomeratthetimeofdefault.TocalculateEAD,historicaldataisanalysedtodeterminewhatproportionofundrawncommitmentsareultimatelyutilisedbycustomerswhoendupindefault.

(iv) TCETCErepresentsthesumofon-andoff-balancesheetexposures.



Note 35 Risk management (continued)Maximum exposure to credit risk

The Banking Group The Bank $ millions 2013 2012 2013 2012

Financial assetsCashandbalanceswithcentralbanks 1,804 1,595 1,804 1,595Duefromotherfinancialinstitutions 173 322 173 322 Derivativefinancialinstruments 8 10 8 10 Tradingsecurities 1,578 2,040 1,578 2,040Available-for-salesecurities 2,715 2,694 2,715 2,694Loans 61,585 59,422 61,479 59,303Duefromrelatedentities 1,376 1,527 11,019 10,377Otherassets 190 186 188 163

Total financial assets 69,429 67,796 78,964 76,504

Contingent liabilities and commitmentsDirectcreditsubstitutes 74 80 74 80Loancommitmentswithcertaindrawdown 205 177 205 177Transaction-relatedcontingentitems 818 796 818 796Short-term,self-liquidatingtrade-relatedcontingentliabilities 386 397 386 397Othercommitmentstoprovidefinancialservices 19,369 19,030 19,224 18,886

Total contingent liabilities and commitments 20,852 20,480 20,707 20,336

Total maximum credit risk exposure 90,281 88,276 99,671 96,840

Mapping of Basel categories to the Banking Group portfolios

Asset Class Sub-asset Class Banking Group Category Segmentation Criteria

Corporate Corporate Corporate Alltransaction-managedcustomersnotelsewhereclassifiedwhereannualturnoverexceeds$50million.

SMEcorporate Businesslending Alltransaction-managedcustomersnotelsewhereclassifiedwhereannualturnoveris$50millionorless.

Specialisedlending Specialisedlending-property

Appliedtotransaction-managedcustomerswheretheprimarysourceofdebtservice,securityandrepaymentisderivedfromeitherthesaleofapropertydevelopmentorincomeproducedbyoneormoreinvestmentproperties.

Specialisedlending-projectfinance

Appliedtotransaction-managedcustomerswheretheprimarysourceofdebtservice,repaymentandsecurityisrevenuesgeneratedbyaproject.

Sovereign Sovereign Appliedtotransaction-managedcustomersidentifiedbyAustralianandNewZealandStandardIndustrialClassificationcode.

Bank Bank Appliedtotransaction-managedcustomersidentifiedbyAustralianandNewZealandStandardIndustrialClassificationcode.

Residentialmortgages Residentialmortgages Allprogram-managedexposuressecuredbyresidentialmortgagesdefinedashousinglending.

Other retail Smallbusiness Program-managedbusinesslending.

Other retail Allotherprogram-managedlendingtoretailcustomers,includingNewZealandcreditcards.



Note 35 Risk management (continued)Credit risk exposures by asset classThe Banking Group’s credit risk exposures by asset class as at 30 September 2013 (Unaudited)

Risk- weighted Required Average Assets Regulatory TCE EAD Average PD Average LGD Risk Weight (scaled)1 Capital PD Band (%) $ millions $ millions % % % $ millions $ millions

Residential mortgages0.00to0.10 - - - - - - - 0.10to0.25 2,272 1,944 - 21.59 8.49 165 13 0.25to1.0 22,162 21,233 0.56 21.59 20.33 4,317 346 1.0to2.5 15,870 15,457 1.39 21.59 38.24 5,911 473 2.5to10.0 3,986 3,936 4.63 21.59 78.10 3,074 246 10.0to99.99 - - - - - - - Default 378 375 100.00 21.59 214.40 804 64 Total 44,668 42,945 2.09 21.59 33.23 14,271 1,142

Other retail (Credit cards, personal loans, personal overdrafts)0.00to0.10 - - - - - - - 0.10to0.25 707 483 - 40.58 13.87 67 5 0.25to1.0 1,906 1,139 - 63.48 39.77 453 36 1.0to2.5 1,378 1,209 2.20 67.55 93.88 1,135 91 2.5to10.0 361 344 5.34 83.03 131.10 451 36 10.0to99.99 237 235 19.70 70.26 154.04 362 29 Default 18 21 100.00 64.50 114.29 24 2 Total 4,607 3,431 3.41 64.12 72.63 2,492 199

Small business0.00to0.10 - - - - - - - 0.10to0.25 269 195 - 73.76 26.15 51 4 0.25to1.0 578 576 0.77 22.82 21.88 126 10 1.0to2.5 - - - - - - - 2.5to10.0 1,587 1,586 2.87 18.11 29.19 463 37 10.0to99.99 24 24 19.16 25.22 58.33 14 1 Default 47 70 92.30 40.42 165.71 116 9 Total 2,505 2,451 4.87 24.35 31.42 770 611 Asrequiredbytheconditionsofregistration,thevalueofthescalarusedindeterminingtheminimumcapitalrequirement(RequiredRegulatoryCapital)is1.06.The

fulldetailsoftheBank’sconditionsofregistrationareincludedonpage6.



Note 35 Risk management (continued) Risk- weighted Required Average Risk Assets Regulatory TCE EAD Average PD Average LGD Weight (scaled)1 Capital PD Grade $ millions $ millions % % % $ millions $ millions

Banking Group - Corporate/Business lendingAAA 269 269 - 25.84 11.90 32 3 AA 1,545 1,443 - 36.89 13.24 191 15 A 3,840 3,659 - 51.38 27.47 1,005 80 BBB 6,543 6,520 - 45.92 46.60 3,038 243 BB 10,348 10,312 1.57 35.35 78.27 8,071 645 B 353 349 3.62 37.55 106.02 370 30 Other 1,068 1,067 25.75 42.27 218.84 2,335 187 Default 315 414 99.95 47.25 94.20 390 31 Total 24,281 24,033 3.66 41.19 64.21 15,432 1,234

SovereignAAA 628 628 - 10.00 3.18 20 2 AA 4,647 4,568 - 7.42 2.93 134 11 A 930 930 - 20.83 10.86 101 8 BBB 27 27 - 20.58 11.11 3 - BB 66 66 1.97 34.82 13.64 9 1 B - - - - - - - Other - - - - - - - Default - - - - - - - Total 6,298 6,219 - 10.03 4.29 267 22

BankAAA - - - - - - - AA 1,276 1,257 - 60.00 26.17 329 27 A 61 60 - 60.00 23.33 14 1 BBB 12 12 - 20.72 8.33 1 - BB - - - - - - - B 1 - - - - - - Other - - - - - - - Default - - - - - - - Total 1,350 1,329 - 59.65 25.88 344 281 Asrequiredbytheconditionsofregistration,thevalueofthescalarusedindeterminingtheminimumcapitalrequirement(RequiredRegulatoryCapital)is1.06.The


ThefollowingtablesummarisestheBankingGroup’screditriskexposuresbyassetclassarisingfromundrawncommitmentsandotheroff-balancesheetexposures.Theseunauditedamountsareincludedintheabovetables.

Undrawn Commitments and Other Off-balance Market Related Sheet Amounts Contracts$ millions Value EAD Value EAD

Residentialmortgages 7,096 5,373 - - Otherretail(Creditcards,personalloans,personaloverdrafts) 2,775 1,594 - - Smallbusiness 900 823 - - Corporate/Businesslending 8,145 7,828 - - Sovereign 1,276 1,198 - - Bank 59 42 - -

Total 20,251 16,858 - -

Risk-weighted Required Average Risk Assets Regulatory TCE EAD Average PD Average LGD Weight (scaled)1 CapitalEquity $ millions $ millions % % % $ millions $ millions

Equityholdings(notdeductedfromcapital)that arepubliclytraded 100 100 - - 318.00 318 25



Note 35 Risk management (continued)The Banking Group’s Specialised lending: Project and property finance credit risk exposures as at 30 September 2013 (Unaudited)

Risk- weighted Required Average Risk Assets Regulatory TCE EAD Weight (scaled)1 Capital Supervisory slotting grade $ millions $ millions % $ millions $ millions

Strong 1,100 1,100 74.18 816 65Good 2,560 2,560 95.39 2,442 196Satisfactory 1,008 1,008 121.92 1,229 98Weak 116 116 265.52 308 25Default 309 386 - - -

Total 5,093 5,170 92.75 4,795 384

ThefollowingtablesummarisestheBankingGroup’sSpecialisedlending:Projectandpropertyfinancecreditriskexposuresarisingfromundrawncommitmentsandotheroff-balancesheetexposures.Theseamountsareincludedintheabovetable.

Risk- weighted Required Average Risk Assets Regulatory TCE EAD Weight (scaled)1 Capital $ millions $ millions % $ millions $ millions

Undrawncommitmentsandotheroff-balancesheetexposures 601 601 88.00 529 42

The Banking Group’s credit risk exposures subject to the standardised approach as at 30 September 2013 (Unaudited)Calculation of on-balance sheet exposures

Risk- Required Average Risk weighted Regulatory TCE EAD Weight Exposure Capital $ millions $ millions % $ millions $ millions

Property,plantandequipmentandotherassets 265 265 100.00 265 21 Relatedparties 1,424 1,424 29.44 419 34

Total on-balance sheet exposures 1,689 1,689 684 55

Calculation of off-balance sheet exposures Credit Risk- Required Total Principal Equivalent Average Risk weighted Regulatory Amount Amount Weight Exposure Capital $ millions $ millions % $ millions $ millions

Market related contracts subject to the standardised approachForeignexchangecontracts 9,253 293 20.00 59 5 Interestratecontracts 55,818 198 20.00 40 3 Creditvalueadjustment 39 3

Total market related contracts subject to the standardised approach 65,071 491 138 11

Standardised subtotal 66,760 2,180 822 66

After adjustment for scalar1 871 701 Asrequiredbytheconditionsofregistration,thevalueofthescalarusedindeterminingtheminimumcapitalrequirement(RequiredRegulatoryCapital)is1.06.The


The Banking Group’s residential mortgages by loan-to-value ratio (‘LVR’) as at 30 September 2013 (Unaudited)InordertocalculateoriginationLVR,thecurrentexposureisthatusedintheinternalratingsbasedapproachformortgagelending.Forloansoriginatedfrom1January2008,theBankutilisesitsloanoriginationsystem.Forloansoriginatedpriorto1January2008,theoriginationLVRisnotseparatelyrecorded,andthereforenotavailablefordisclosureasrequiredunderClause4ofSchedule11oftheOrder.Fortheseloans,theBankutilisesitsdynamicLVRprocesstocalculateanoriginationLVR.ExposuresforwhichnoLVRisavailablehavebeenincludedinthe‘Exceeds90%’categoryinaccordancewiththerequirementsoftheOrder.

LVR range Exceeds Exceeds Exceeds Does not 60% and 70% and 80% and Exceeds$ millions Exceed 60% not 70% not 80% not 90% 90% Total

On-balancesheetexposures 14,131 6,263 8,575 5,722 2,814 37,505 Undrawncommitmentsandother off-balancesheetexposures 4,351 1,085 1,056 423 181 7,096

Value of exposures 18,482 7,348 9,631 6,145 2,995 44,601



Note 35 Risk management (continued)The Banking Group’s reconciliation of residential mortgage-related amountsThetablebelowprovidestheBankingGroup’sreconciliationofamountsdisclosedinthisDisclosureStatementthatrelatetomortgagesonresidentialproperty.

The Banking Group 30-Sep-13 $ millions Unaudited

Term loans – Housing (as disclosed in Note 13) and Residential mortgages - total gross loans (as disclosed in Note 14) 37,594 Reconciling items: Unamortiseddeferredfeesandexpenses (93) Fairvaluehedgeadjustments 4 Valueofundrawncommitmentsandotheroff-balancesheetamountsrelatingtoresidentialmortgages 7,096

Residential mortgages by LVR 44,601 Reconciling item: Accruedinterestreceivable 67

Residential mortgages - TCE (as disclosed in Credit risk exposures by asset class) 44,668

Credit quality of financial assetsAnassetisconsideredtobepastduewhenanypaymentunderthecontractualtermshasbeenmissed.Theamountincludedaspastdueistheentirecontractualbalance,ratherthantheoverdueportion.ThebreakdowninthetablesbelowdoesnotalwaysalignwiththeunderlyingbasisbywhichcreditriskismanagedwithintheBankingGroup.TheBankingGroupconsidersloansforbusinesspurposestobedelinquentafterconsideringallrelevantcircumstancessurroundingthecustomer.Residentialmortgagesandpersonalloansthataremorethanfivedayspastdueareconsideredtobedelinquent.AllthefinancialassetsoftheBankingGroupandBankasat30September2013and2012,otherthanloans(asdisclosedinNote14)areneitherpastduenorimpaired.ThefollowinganalysisshowstheBank’sassessmentofthecoverageprovidedbycollateralheldinsupportofloanbalances.Theestimatedrealisablevalueofcollateralheldisbasedonacombinationof:

■■ formalvaluationscurrentlyheldinrespectofsuchcollateral;and■■ management’sassessmentoftheestimatedrealisablevalueofallcollateralheldgivenitsexperiencewithsimilartypesofassetsinsimilarsituationsandthecircumstancespeculiartothesubjectcollateral.

Thisanalysisalsotakesintoconsiderationanyotherrelevantknowledgeavailabletomanagementatthetime.ItistheBank’spracticetoobtainupdatedvaluationswheneithermanagementconsidersthatitcannotsatisfactorilyestimatearealisablevalueorwhenitisdeterminedtobenecessarytomovetoaforcedsaleofthecollateral.Inthetablebelow,aloanisdeemedtobe‘fullysecured’wheretheratiooftheassetamounttotheBank’scurrentestimatednetpresentvalueoftherealisablecollateralislessthanorequalto100%.Suchassetsaredeemedtobe‘partiallysecured’whenthisratioexceeds100%butnotmorethan150%,and‘unsecured’wheneithernosecurityisheld(e.g.canincludecreditcards,personalloans,andexposuretohighlyratedcorporateentities)orwherethesecuredloantoestimatedrecoverablevalueexceeds150%.

The Banking Group The Bank% 2013 2012 2013 2012

Fullysecured 71 69 71 69 Partiallysecured 15 16 15 16 Unsecured 14 15 14 15

Total net loans 100 100 100 100

Financial assets that are neither past due nor impairedThecreditqualityoffinancialassetsoftheBankingGroupandtheBankthatareneitherpastduenorimpairedhavebeenassessedbyreferencetothecreditriskratingsystemadoptedinternally.AllthefinancialassetsoftheBankingGroupandtheBankthatareneitherpastduenorimpairedfallinto‘Strong’categoryexceptthosedisclosedbelow:

The Banking Group 2013 2012 Good/ Good/$ millions Strong Satisfactory Weak Total Strong Satisfactory Weak Total

Loans 18,323 40,363 1,339 60,025 17,390 38,313 1,698 57,401

The Bank 2013 2012 Good/ Good/$ millions Strong Satisfactory Weak Total Strong Satisfactory Weak Total

Loans 18,317 40,273 1,333 59,923 17,390 38,197 1,698 57,285



Note 35 Risk management (continued)35.4 Market riskMarketriskisthepotentialforlossarisingfromadversemovementsinthelevelandvolatilityofmarketfactorssuchasforeignexchangerates,interestratesandequityprices.AstheUltimateParentBank’sfinancialmarketsbusinessinNewZealandisconductedbytheNZBranch,themarketrisksfacedbytheBankingGroupareonlyofanon-tradednature(interestrateriskinthebankingbook).Withtheexceptionoftheavailable-for-saleinvestmentinVisashares(refertoNote25),neithertheBankingGroupnortheBankcarriesmaterialforeigncurrencyorequitypriceriskduetotherisksbeinghedgedwiththeUltimateParentBank.

Non-traded market risk (interest rate risk in the banking book)ApproachThebankingbookactivitiesthatgiverisetomarketriskincludelendingactivities,balancesheetfundingandcapitalmanagement.Interestrateriskandfundingandliquidityriskareinherentintheseactivities.TheBank’sTreasuryunitisresponsibleformanagingtheinterestrateriskarisingfromtheseactivities.

Asset and liability managementTheBank’sTreasuryunitmanagesthestructuralinterestratemismatchassociatedwiththetransferpricedbalancesheet,includingtheinvestmentoftheBank’scapitaltoitsagreedbenchmarkduration.Akeyriskmanagementobjectiveistohelpensurethereasonablestabilityofnetinterestincome(‘NII’)overtime.TheseactivitiesareperformedwithintheMarketRiskManagementFrameworkapprovedbytheBank’sBRMC.

NII sensitivityNIIsensitivityismanagedintermsofthenetinterestincome-at-risk(‘NaR’)modelledoveraone-yeartimehorizonusinga99%confidenceintervalformovementsinwholesalemarketinterestrates.AsimulationmodelisusedtocalculatetheBank’spotentialNaR.TheNIIsimulationframeworkcombinestheunderlyingbalancesheetdatawithassumptionsaboutrunoffandnewbusiness,expectedrepricingbehaviourandchangesinwholesalemarketinterestrates.SimulationsusingarangeofinterestratescenariosareusedtoprovideaseriesofpotentialfutureNIIoutcomes.Theinterestratescenariosmodelledincludethoseprojectedusinghistoricalmarketinterestratevolatilityaswellas100and200basispointshiftsupanddownfromthecurrentmarketyieldcurves.Additionalstressedinterestratescenariosarealsoconsideredandmodelled.AcomparisonbetweentheNIIoutcomesfromthesemodelledscenariosindicatesthesensitivitytointerestratechanges.

LimitsTheBank’sBRMChasapprovedNaRandValue-at-risk(‘VaR’)limitsforinterestrateriskmanagement.Inaddition,interestratedeltalimitsarespecifiedbytheBank’sALCOandtheBank’sMarketRiskUnit.

Risk reportingInterestrateriskinthebankingbookriskmeasurementsystemsandpersonnelarecentralisedinSydney,Australia.Theseincludefrontofficeproductsystemswhichcapturealltreasuryfundingandderivativetransactions,thetransferpricingsystemwhichcapturesallretailtransactionsinAustraliaandNewZealand,tradedandnon-tradedVaRsystemswhichcalculateVaRandtheNIIsystemwhichcalculatesNIIandNaRfortheAustralianandNewZealandbalancesheets,includingthebalancesheetoftheBank.DailymonitoringofcurrentexposureandlimitutilisationisconductedindependentlybytheHeadofMarketRisk.ManagementreportsdetailingstructuralpositionsandVaRareproducedanddistributeddailyforusebydealersandmanagementacrossallstakeholdergroups.MonthlyandquarterlyreportsareproducedfortheUltimateParentBank’sriskforumsoftheMarketRiskCommitteeandUltimateParentBankBRMC,respectively,toensuretransparencyofmaterialmarketrisksandissues.

Risk mitigationMarketriskarisinginthebankingbookstemsfromtheordinarycourseofbankingactivities,includingstructuralinterestraterisk(themismatchbetweenthedurationofassetsandliabilities)andcapitalmanagement.HedgingoftheBank’sexposuretointerestrateriskisundertakenusingderivatives.Thehedgeaccountingstrategyadoptedistoutiliseacombinationofthecashflowandfairvaluehedgeapproaches.Somederivativesheldforeconomichedgingpurposesdonotmeetthecriteriaforhedgeaccounting,andthereforeareaccountedforinthesamewayasderivativesheldfortrading.

Market risk notional capital charges TheBankingGroup’saggregatemarketriskexposureisderivedinaccordancewiththeReserveBankdocument‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B)andiscalculatedonasixmonthlybasis.Theend-of-periodaggregatemarketriskexposureiscalculatedfromtheperiodendbalancesheetinformation.Foreachcategoryofmarketrisk,theBankingGroup’speakend-of-dayaggregatecapitalchargeisderivedbydeterminingthemaximumoverthesixmonthperiodended30September2013oftheaggregatecapitalchargeforthatcategoryofmarketriskatthecloseofeachbusinessdayderivedinaccordancewiththeReserveBankdocument‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B).



Note 35 Risk management (continued)ThefollowingtableprovidesasummaryoftheBankingGroup’scapitalchargesbyrisktypeasatbalancedateandthepeakend-of-daycapitalchargesbyrisktypeforthesixmonthsended30September2013:

The Banking Group 2013 Unaudited Implied Risk- Aggregate weighted Capital$ millions Exposure Charge

End-of-periodInterestraterisk 633 51Foreigncurrencyrisk 100 8Equityrisk 100 8

833 67Peak end-of-dayInterestraterisk 1,214 97Foreigncurrencyrisk 101 8Equityrisk 101 8

VaRTheBankingGroupappliesaVaRmethodologytoitsportfolios,toestimatethemarketriskofpositionsheldandthemaximumlossesexpected,baseduponanumberofassumptionsforvariouschangesinmarketconditions.VaRisanestimateofthepotentiallossinvalue,toa99%confidencelevelassumingpositionswereheldunchangedforoneday.TheBankingGroupusesahistoricalsimulationmethodtocalculateVaRtakingintoaccountallmaterialmarketvariables.Actualoutcomesaremonitoredandthemodelisback-testeddaily.Theuseofthisapproachdoesnotpreventlossesoutsideoftheselimitsintheeventofmoresignificantmarketmovements.TheBankingGroupdoesnothaveanysignificantforeigncurrencyandequityrisk.ThefollowingtableprovidesasummaryofInterestRateRiskVaRfortheBankingGroup’snon-tradedmarketriskactivities.

$ millions 2013 2012

Interestraterisk 0.96 0.71

Interest rate sensitivitySensitivitytointerestratesarisesfrommismatchesintheinterestratecharacteristicsofassetsandtheircorrespondingliabilityfunding.Oneofthemajorcausesofthesemismatchesistimingdifferencesintherepricingofassetsandliabilities.ThesemismatchesareactivelymanagedaspartoftheoverallinterestrateriskmanagementprocesswhichisconductedinaccordancewiththeBankingGroup’spolicyguidelines.ThefollowingtablepresentsabreakdownoftheearlierofthecontractualrepricingormaturitydatesoftheBankingGroup’snetassetpositionasat30September2013.TheBankingGroupusesthiscontractualrepricinginformationasabasewhichisthenalteredtotakeaccountofconsumerbehaviourtomanageitsinterestraterisk.



Note 35 Risk management (continued) The Banking Group 2013 Over Over Over 3 Months 6 Months 1 Year and up to and up to and up to Non-interest$ millions Up to 3 Months 6 Months 1 Year 2 Years Over 2 Years Bearing Total

Financial assetsCashandbalanceswithcentralbanks 1,626 - - - - 178 1,804 Duefromotherfinancialinstitutions 169 - - - - 4 173 Derivativefinancialinstruments - - - - - 8 8 Tradingsecurities 1,578 - - - - - 1,578 Available-for-salesecurities - 25 40 489 2,061 100 2,715 Loans 37,536 3,834 8,132 8,486 4,149 (552) 61,585 Duefromrelatedentities 1,351 - - - - 25 1,376 Otherassets - - - - - 190 190

Total financial assets 42,260 3,859 8,172 8,975 6,210 (47) 69,429 Non-financialassets 1,083

Total assets 70,512

Financial liabilitiesDuetootherfinancialinstitutions 100 - - - - - 100 Deposits 32,251 6,364 4,784 918 594 3,271 48,182 Derivativefinancialinstruments - - - - - 178 178 Debtissues 4,057 905 1,879 647 4,157 - 11,645 Otherliabilities - - - - - 434 434 Duetorelatedentities 2,675 - - 9 19 494 3,197

Total financial liabilities 39,083 7,269 6,663 1,574 4,770 4,377 63,736 Non-financialliabilities 210


Net derivative notional principalsNetinterestratecontracts(notional): Receivable/(payable) 7,733 876 (2,344) (5,830) (435) - -

The Bank 2013 Over Over Over 3 Months 6 Months 1 Year and up to and up to and up to Non-interest$ millions Up to 3 Months 6 Months 1 Year 2 Years Over 2 Years Bearing Total

Financial assetsCashandbalanceswithcentralbanks 1,626 - - - - 178 1,804 Duefromotherfinancialinstitutions 169 - - - - 4 173 Derivativefinancialinstruments - - - - - 8 8 Tradingsecurities 1,578 - - - - - 1,578 Available-for-salesecurities - 25 40 489 2,061 100 2,715 Loans 37,428 3,830 8,126 8,486 4,147 (538) 61,479 Duefromrelatedentities 10,850 - - - - 169 11,019 Otherassets - - - - - 188 188

Total financial assets 51,651 3,855 8,166 8,975 6,208 109 78,964 Non-financialassets 1,142

Total assets 80,106

Financial liabilitiesDuetootherfinancialinstitutions 100 - - - - - 100 Deposits 31,377 6,126 4,612 893 587 3,271 46,866 Derivativefinancialinstruments - - - - - 178 178 Debtissues 1,754 - 666 191 1,130 - 3,741 Otherliabilities - - - - - 372 372 Duetorelatedentities 14,981 1,577 1,385 498 3,057 689 22,187

Total financial liabilities 48,212 7,703 6,663 1,582 4,774 4,510 73,444 Non-financialliabilities 192


Net derivative notional principalsNetinterestratecontracts(notional): Receivable/(payable) 7,733 876 (2,344) (5,830) (435) - -



Note 36 Concentration of funding The Banking Group The Bank $ millions 2013 2012 2013 2012

Funding consists ofDuetootherfinancialinstitutions 100 3 100 3 Deposits 48,182 43,390 46,866 42,670Debtissues1 11,645 12,914 3,741 2,674Perpetualsubordinatednotes - 970 - 970Duetorelatedentities2 2,703 3,691 21,531 23,486

Total funding 62,630 60,968 72,238 69,803

Analysis of funding by productCertificatesofdeposit 1,534 1,423 1,534 1,423Savingsaccounts 11,982 9,411 11,461 9,411Demanddeposits 8,064 7,552 8,064 7,552Otherdeposits 1,713 1,937 1,713 1,937Termdeposits 24,889 23,067 24,094 22,347Debtissues 11,645 12,914 3,741 2,674Perpetualsubordinatednotes - 970 - 970

Subtotal 59,827 57,274 50,607 46,314Duetootherfinancialinstitutions 100 3 100 3 Duetorelatedentities2 2,703 3,691 21,531 23,486

Total funding 62,630 60,968 72,238 69,803

Analysis of funding by geographical areas1

NewZealand 52,147 47,256 69,667 66,945Australia 495 869 495 853UnitedKingdom 4,928 5,891 225 128UnitedStatesofAmerica 2,986 4,454 210 213 Other 2,074 2,498 1,641 1,664

Total funding 62,630 60,968 72,238 69,803

Analysis of funding by industry sectorAccommodation,cafesandrestaurants 237 198 237 198Agriculture 996 932 996 932 Construction 1,323 1,058 1,323 1,058Financeandinsurance 21,624 21,097 13,720 10,857Forestryandfishing 146 126 146 126 Government,administrationanddefence 1,344 1,243 1,344 1,243Manufacturing 1,365 1,389 1,365 1,389Mining 85 73 85 73Propertyservicesandbusinessservices 3,918 3,394 3,918 3,394Services 4,155 3,923 4,155 3,923Trade 1,425 1,194 1,425 1,194Transportandstorage 243 258 243 258Utilities 586 387 586 387Households 18,696 17,150 18,696 17,150Other 3,784 4,855 2,468 4,135

Subtotal 59,927 57,277 50,707 46,317Duetorelatedentities2 2,703 3,691 21,531 23,486

Total funding 62,630 60,968 72,238 69,8031 Thegeographicregionusedfordebtissuesisbasedonthenatureofthedebtprogrammes.Thenatureofthedebtprogrammeisusedasaproxyforthelocationof

theoriginalpurchaser.Whenthenatureofthedebtprogrammedoesnotnecessarilyrepresentanappropriateproxy,thedebtissuesareclassifiedas‘Other’.Theseinstrumentsmayhavesubsequentlybeenon-sold.

2 Amountsduetorelatedentities,aspresentedabove,areinrespectofintragroupdepositsandborrowingsandexcludeamountswhichrelatetointragroupderivativesandotherliabilities.

AustralianandNewZealandStandardIndustrialClassifications(‘ANZSIC’)havebeenusedasthebasisfordisclosingindustrysectors.



Note 37 Concentration of credit exposures The Banking Group The Bank $ millions 2013 2012 2013 2012

On-balance sheet credit exposures consists ofCashandbalanceswithcentralbanks 1,804 1,595 1,804 1,595Duefromfinancialinstitutions 173 322 173 322 Derivativefinancialinstruments 8 10 8 10 Tradingsecurities 1,578 2,040 1,578 2,040Available-for-salesecurities 2,715 2,694 2,715 2,694Loans 61,585 59,422 61,479 59,303Duefromrelatedentities 1,376 1,527 11,019 10,377Otherassets 190 186 188 163

Total on-balance sheet credit exposures 69,429 67,796 78,964 76,504

Analysis of on-balance sheet credit exposures by geographical areasNewZealand 67,714 65,793 77,250 74,501Australia 876 993 876 993 UnitedStatesofAmerica 131 132 131 132 Other 708 878 707 878


Analysis of on-balance sheet credit exposures by industry sectorAccommodation,cafesandrestaurants 513 551 513 551 Agriculture 6,565 6,364 6,565 6,364Construction 1,346 1,440 1,346 1,440Financeandinsurance 4,125 4,915 4,115 4,905Forestryandfishing 345 234 345 234 Government,administrationanddefence 4,676 4,501 4,676 4,501Manufacturing 2,229 2,181 2,229 2,181Mining 539 490 539 490 Property 10,361 9,563 10,361 9,563Propertyservicesandbusinessservices 1,894 2,057 1,894 2,057Services 2,587 2,621 2,587 2,621Trade 3,187 3,120 3,187 3,120Transportandstorage 1,216 1,304 1,216 1,304Utilities 1,328 1,310 1,328 1,310Retaillending 27,605 26,148 27,494 26,025Other 52 39 52 39

Subtotal 68,568 66,838 68,447 66,705Provisionsforimpairmentchargesonloans (552) (605) (538) (591)Duefromrelatedentities 1,376 1,527 11,019 10,377Otherassets 37 36 36 13


Off-balance sheet credit exposuresContingentliabilitiesandcommitments 20,852 20,480 20,707 20,336

Total off-balance sheet credit exposures 20,852 20,480 20,707 20,336

Analysis of off-balance sheet credit exposures by industry sectorAccommodation,cafesandrestaurants 98 87 98 87Agriculture 677 560 677 560 Construction 418 426 418 426 Financeandinsurance 2,009 2,551 2,009 2,551Forestryandfishing 70 54 70 54 Government,administrationanddefence 991 905 991 905 Manufacturing 1,519 1,307 1,519 1,307Mining 176 290 176 290 Property 1,693 1,421 1,693 1,421Propertyservicesandbusinessservices 869 784 869 784Services 1,027 1,064 1,027 1,064Trade 1,731 1,823 1,731 1,823Transportandstorage 799 699 799 699 Utilities 1,318 1,446 1,318 1,446Retaillending 7,437 6,838 7,292 6,694Other 20 225 20 225

Total off-balance sheet credit exposures 20,852 20,480 20,707 20,336

ANZSIChavebeenusedasthebasisfordisclosingindustrysectors.



Note 37 Concentration of credit exposures (continued)Analysis of credit exposures to individual counterpartiesThefollowingcreditexposuresarebasedonactualcreditexposurestoindividualcounterpartiesandgroupsofcloselyrelatedcounterparties.Thenumberofindividualbankcounterparties(whicharenotmembersofagroupofcloselyrelatedcounterparties),andgroupsofcloselyrelatedcounterpartiesofwhichabankistheparent,towhichtheBankingGrouphasanaggregatecreditexposureorpeakend-of-dayaggregatecreditexposurethatequalsorexceeds10%oftheBankingGroup’sequity:

■■ asat30September2013wasnil;and■■ inrespectofpeakend-of-dayaggregatecreditexposureforthethreemonthsended30September2013wasnil.Thenumberofindividualnon-bankcounterparties(whicharenotmembersofagroupofcloselyrelatedcounterparties),andgroupsofcloselyrelatedcounterpartiesofwhichabankisnottheparent,towhichtheBankingGrouphasanaggregatecreditexposureorpeakend-of-dayaggregatecreditexposurethatequalsorexceeds10%oftheBankingGroup’sequity:

■■ asat30September2013wasonecounterpartywithacreditratingofA-orA3orabove,oritsequivalent,havinganaggregatecreditexposurebetween15-19%;and

■■ forthethreemonthsended30September2013wasonecounterpartywithacreditratingofA-orA3orabove,oritsequivalent,havingapeakend-of-dayaggregateexposurebetween15-19%.

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

Note 38 Credit exposures to connected persons and non-bank connected personsTheBankingGroup’screditexposuretoconnectedpersonsisderivedinaccordancewiththeBank’sconditionsofregistrationandtheReserveBankdocument‘ConnectedExposuresPolicy’(BS8),isnetofindividualcreditimpairmentallowancesandexcludesadvancestoconnectedpersonsofacapitalnature.TheReserveBankdefinesconnectedpersonstobeothermembersoftheUltimateParentBankGroupandDirectorsoftheBank.ControlledentitiesoftheBankarenotconnectedpersons.Creditexposurestoconnectedpersonsarebasedonactualcreditexposuresratherthaninternallimits.Peakend-of-dayaggregatecreditexposurestoconnectedpersonsexpressedasapercentageofTierOneCapitaloftheBankingGrouphavebeenderivedbydeterminingthemaximumend-of-dayaggregateamountofcreditexposureovertheyearended30September2013andthendividingthatamountbytheBankingGroup’sTierOneCapitalasat30September2013.Creditexposurestoconnectedpersonsreportedinthetablebelowhavebeencalculatedpartiallyonabilateralnetbasisandpartiallyonagrossbasis.Nettinghasoccurredinrespectofcertaintransactionswhicharethesubjectofabilateralnettingagreement.Onthisbasis,thereisalimitof125%oftheBankingGroup’sTierOneCapitalinrespectofthegrossamountofaggregatecreditexposuretoconnectedpersonsthatcanbenettedoffindeterminingthenetexposure.

The Banking Group Peak End-of-day for the Year As at Ended $ millions 30-Sep-13 30-Sep-13

Creditexposurestoconnectedpersons:Ongrossbasis,beforenetting 1,659 2,427 AsapercentageofTierOneCapitaloftheBankingGroupatendoftheyear 30.0% 43.9%Amountthathasbeennettedoffindeterminingthenetexposure 583 564 AsapercentageofTierOneCapitaloftheBankingGroupatendoftheyear 10.6% 10.2%Onpartialbilateralnetbasis 1,076 1,863 AsapercentageofTierOneCapitaloftheBankingGroupatendoftheyear 19.5% 33.7%Creditexposurestonon-bankconnectedpersons - - AsapercentageofTierOneCapitaloftheBankingGroupatendoftheyear 0.0% 0.0%

Asat30September2013,therating-contingentlimitapplicabletotheBankingGroupwas70%ofTierOneCapital.Thishasnotchangedduringtheyearended30September2013.Withinthisoverallrating-contingentlimitthereisasub-limitof15%ofTierOneCapitalwhichappliestotheaggregatecreditexposuretonon-bankconnectedpersons.Thelimitsonaggregatecreditexposurestoallconnectedpersonsandtonon-bankconnectedpersonsintheBank’sconditionsofregistrationhavebeencompliedwithatalltimesduringtheyearended30September2013.Whereabankisfundingalargeloanitiscommonpracticetosharetheriskofacustomerdefaultwithasyndicateofbanks.Thesearrangementsarecalledrisklay-offarrangements.Asat30September2013,theBankingGrouphadnoaggregatecontingentexposurestoconnectedpersonsarisingfromrisklay-offarrangementsinrespectofcreditexposurestocounterparties(excludingcounterpartiesthatareconnectedpersons).TheaggregateamountoftheBankingGroup’sindividualcreditprovisionsprovidedagainstcreditexposurestoconnectedpersonswasnilasat30September2013.



Note 39 Reconciliation of profit after income tax expense to net cash provided by operating activities

The Banking Group The Bank Year ended Year ended Year ended Year ended $ millions 30-Sep-13 30-Sep-12 30-Sep-13 30-Sep-12

Reconciliation of profit after income tax expense to net cash provided by operating activitiesProfitafterincometaxexpense 714 613 691 602 Adjustments: Impairmentchargesonloans 107 190 104 180 Computersoftwareamortisationcosts 35 38 35 38 Depreciationonproperty,plantandequipment 27 27 5 4 Share-basedpayments 4 5 4 5 Movementinotherassets (5) (25) (30) (20) Movementinotherliabilities 5 (30) 14 (5) Movementincurrentanddeferredtax (11) (5) (8) (6) Taxlossestransferredfromrelatedentities 16 46 8 42 Taxoncashflowhedgereserve (2) (4) (2) (4) Taxonavailable-for-salesecuritiesreserve 2 (11) 2 (11) Netloansadvancedtocustomers (2,270) (2,026) (2,280) (2,040) Netincreaseindeposits 4,792 3,444 4,196 3,220 Movementintradingsecurities 449 3,178 449 3,178 Movementinderivativefinancialinstruments (188) 339 (188) 339

Net cash flows provided by operating activities 3,675 5,779 3,000 5,522

Note 40 Events after the reporting dateTheBank’sconditionsofregistrationwereamendedon27September2013.Theamendmentscameintoeffectfrom1October2013.Theprincipalchangewastoaddnewconditionsofregistrationrestrictinghighloan-to-valuationresidentialmortgagelending.TheReserveBankalsomadesomeminoramendmentstothe‘CapitalAdequacyFramework(InternalModelsBasedApproach)’(BS2B),revisedthedocument‘Applicationforcapitalrecognitionorrepayment:materialtobeprovidedtotheReserveBank’(BS16),whichisreferredtoinBS2B,andamendedits‘ConnectedExposuresPolicy’(BS8)toupdateversionreferences.MinoramendmentswerealsomadetotheconditionsofregistrationrelatingtoOpenBankResolution.On21November2013,theDirectorsresolvedtopayanunimputeddividendof$375milliononordinaryshares.


Independent auditors’ report

Independent Auditors’ ReportTotheshareholderofWestpacNewZealandLimited

Report on the Financial Statements (excluding Supplementary Information Relating to Capital Adequacy)Wehaveauditedpages14to93oftheDisclosureStatementofWestpacNewZealandLimited(the‘Bank’)whichconsistsofthefinancialstatementsrequiredbyClause24oftheRegisteredBankDisclosureStatements(NewZealandIncorporatedRegisteredBanks)Order(No2)2013(the‘Order’)andthesupplementaryinformation(excludingthesupplementaryinformationrelatingtocapitaladequacydisclosedinNotes34and35)requiredbySchedules4,7,13,14,15and17oftheOrder.Thefinancialstatementscomprisethebalancesheetsasat30September2013,theincomestatements,statementsofcomprehensiveincome,statementsofchangesinequityandstatementsofcashflowsfortheyearthenended,andthenotestothefinancialstatementsthatincludeasummaryofsignificantaccountingpoliciesandotherexplanatoryinformationforboththeBankandtheBankingGroup.The‘BankingGroup’comprisestheBankandtheentitiesitcontrolledat30September2013orfromtimetotimeduringthefinancialyear.

Directors’ Responsibility for the Financial StatementsTheDirectorsofWestpacNewZealandLimited(the‘Directors’)areresponsiblefortheDisclosureStatement,whichincludesfinancialstatementspreparedinaccordancewithClause24oftheOrderandgenerallyacceptedaccountingpracticeinNewZealandandthatgiveatrueandfairviewofthematterstowhichtheyrelate.TheDirectorsarealsoresponsibleforsuchinternalcontrolsastheDirectorsdeterminearenecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.Inaddition,theDirectorsareresponsibleforthepreparationandfairpresentationofsupplementaryinformationintheDisclosureStatementwhichcomplieswithSchedules2,4,7,13,14,15and17oftheOrder.

Auditors’ ResponsibilityOurresponsibilityistoexpressanopiniononthefinancialstatementsandthesupplementaryinformation(excludingthesupplementaryinformationrelatingtocapitaladequacydisclosedinNotes34and35)disclosedinaccordancewithClause24andSchedules4,7,13,14,15and17oftheOrderandpresentedtousbytheDirectors.WeconductedourauditinaccordancewithInternationalStandardsonAuditing(NewZealand)andInternationalStandardsonAuditing.Thesestandardsrequirethatwecomplywithrelevantethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependontheauditors’judgement,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorsconsidertheinternalcontrolsrelevanttotheBankandBankingGroup’spreparationoffinancialstatementsthatgiveatrueandfairviewofthematterstowhichtheyrelateinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheBankandBankingGroup’sinternalcontrols.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimates,aswellasevaluatingtheoverallpresentationofthefinancialstatements.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.WecarryoutotherassignmentsonbehalfoftheBankandtheBankingGroupintheareasofotherassuranceandadvisoryservices.Inaddition,certainpartnersandemployeesofourfirmmaydealwiththeBank,theBankingGroupandWestpacBankingCorporationGrouponnormaltermswithintheordinarycourseoftradingactivitiesoftheBank,theBankingGroupandWestpacBankingCorporationGroup.ThesemattershavenotimpairedourindependenceasauditorsoftheBankandtheBankingGroup.WehavenootherinterestsintheBank,theBankingGrouporWestpacBankingCorporationGroup.

OpinionInouropinion,thefinancialstatementsonpages14to93(excludingthesupplementaryinformationdisclosedinaccordancewithSchedules4,7,11,13,14,15and17oftheOrderandincludedwithinthebalancesheetsandNotes14,32,33,34,35,37and38):(i) complywithgenerallyacceptedaccountingpracticeinNewZealand;(ii) complywithInternationalFinancialReportingStandards;and(iii) giveatrueandfairviewofthefinancialpositionoftheBankandtheBankingGroupasat30September

2013,andtheirfinancialperformanceandcashflowsfortheyearthenended.


Inouropinion,thesupplementaryinformationdisclosedinaccordancewithSchedules4,7,13,14,15and17oftheOrderandincludedwithinthebalancesheetsandNotes14,32,33,35,37and38:(i) hasbeenprepared,inallmaterialrespects,inaccordancewiththeguidelinesissuedundersection78(3)of

theReserveBankofNewZealandAct1989oranyconditionsofregistration;(ii) isinaccordancewiththebooksandrecordsoftheBankandBankingGroup;and(iii)fairlystates,inallmaterialrespects,thematterstowhichitrelatesinaccordancewiththoseSchedules.

Report on Other Legal and Regulatory Requirements (excluding Supplementary Information Relating to Capital Adequacy)WealsoreportinaccordancewiththerequirementsofSections16(1)(d)and16(1)(e)oftheFinancialReportingAct1993andClauses2(1)(d)and2(1)(e)ofSchedule1oftheOrder.Inrelationtoourauditofthefinancialstatements(excludingthesupplementaryinformationrelatingtocapitaladequacydisclosedinNotes34and35)fortheyearended30September2013:(i) wehaveobtainedalltheinformationandexplanationsthatwehaverequired;and(ii) inouropinion,properaccountingrecordshavebeenkeptbytheBankandtheBankingGroupasfaras

appearsfromanexaminationofthoserecords.

Report on the Supplementary Information Relating to Capital AdequacyWehavereviewedthesupplementaryinformationrelatingtocapitaladequacyrequiredbySchedule11oftheOrderasdisclosedinNotes34and35ofthefinancialstatementsoftheBankandtheBankingGroupfortheyearended30September2013.

Directors’ Responsibility for the Supplementary Information Relating to Capital AdequacyTheDirectorsareresponsibleforthepreparationofsupplementaryinformationrelatingtocapitaladequacythatispreparedinaccordancewiththeBank’sconditionsofregistrationandtheBank’sinternalmodelsforcreditriskandoperationalriskasaccreditedbytheReserveBankofNewZealandandisdisclosedinaccordancewithSchedule11oftheOrder.

Auditors’ ResponsibilityOurresponsibilityistoexpressanopiniononthesupplementaryinformationrelatingtocapitaladequacy,disclosedinNotes34and35,basedonourreview.Weareresponsibleforreviewingthedisclosuresinordertostatewhether,onthebasisoftheproceduresdescribedbelow,anythinghascometoourattentionthatwouldcauseustobelievethatthesupplementaryinformationisnot,inallmaterialrespects:(i) preparedinaccordancewiththeBank’sconditionsofregistration;(ii) preparedinaccordancewiththeBank’sinternalmodelsforcreditriskandoperationalriskasaccreditedby

theReserveBankofNewZealand;and(iii)disclosedinaccordancewithSchedule11oftheOrderandforreportingourfindingstoyou.WeconductedourreviewinaccordancewithreviewengagementstandardRS-1StatementofReviewEngagementStandardsissuedinNewZealand.AreviewislimitedprimarilytoenquiriesofBankandBankingGrouppersonnelandanalyticalproceduresappliedtofinancialdata,andthusprovideslessassurancethananaudit.WehavenotperformedanauditonthesupplementaryinformationrelatingtocapitaladequacydisclosedinNotes34and35and,accordingly,wedonotexpressanauditopiniononthatsupplementaryinformation.

Opinion Basedonourreviewprocedures,whicharenotanaudit,nothinghascometoourattentionthatcausesustobelievethatthesupplementaryinformationrelatingtocapitaladequacydisclosedinNotes34and35,asrequiredbySchedule11oftheOrder,isnotinallmaterialrespects:(i) preparedinaccordancewiththeBank’sconditionsofregistration;(ii) preparedinaccordancewiththeBank’sinternalmodelsforcreditriskandoperationalriskasaccreditedby

theReserveBankofNewZealand;and(iii)disclosedinaccordancewithSchedule11oftheOrder.

Restriction on Distribution or UseThisreportismadesolelytotheBank’sshareholder.OurworkhasbeenundertakensothatwemightstatetotheBank’sshareholderthosematterswhichwearerequiredtostatetotheminanauditors’reportandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthantheBankandtheBank’sshareholder,forourauditwork,forthisreport,orfortheopinionswehaveformed.

CharteredAccountants Auckland21November2013

Independent auditors’ report (continued)

Westpac New Zealand Limited

westpac new zealand limited · westpac new zealand limited ... external directorships: director of...

Documents