Bank of New Zealand Ltd

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1 Bank of New Zealand Ltd Unsecured Unsubordinated Bonds 21 MARCH 2013 Key Features Issue Ticker Amount on Issue $000,000 Maturity Date Coupon %pa Coupon Payment Date BNZ /05/ May / Nov BNZ /03/ Mar / Sep BNZ /05/ May / Nov BNZ /08/ Feb / Aug BNZ /05/ May / Nov BNZ /07/ Jan / Jul BNZ /09/ Mar / Sep BNZ210* /03/ Mar / Sep BNZ /12/ Jun / Dec BNZ /06/ Jun / Dec, First NZ Capital Issuer: (*) new issue Bank of New Zealand Ltd ( BNZ ), a wholly owned subsidiary of the National Australia Bank Ltd ( NAB ). Minimum holding: $10,000 plus increments of $1,000 Type of Security: Issue Credit Rating: Listing: Registry: Unsecured unsubordinated bonds AA- (Standard & Poor s) Not listed Computershare Investor Services 1 First NZ Capital Securities Limited NZX Firm

2 Key Issuer Information Issuer Profile Bank of New Zealand Ltd ( BNZ ) is a wholly owned subsidiary of National Australia Bank Ltd ( NAB ). However, NAB does not guarantee the obligations of BNZ. Prior to giving any material financial support to BNZ, NAB would have to comply with various prudential standards which are enforced by the Australian Prudential Regulation Authority. BNZ is a registered bank in New Zealand. BNZ provides a range of financial services to business, agribusiness and individual customers. Corporate lending, leveraged lending, project and structured finance and financial market activities are provided by the BNZ to corporate and institutional clients. BNZ s parent, NAB, is incorporated in Australia and listed on the Australian Stock Exchange (current market capitalisation A$71 billion). NAB has a AA- credit rating from Standard & Poor s. Capital Adequacy Tier 1 / Risk Weighted Assets % 8.1% 8.1% 8.9% 9.0% 11.3% Total Capital / Risk Weighted Assets % 10.8% 10.9% 11.8% 11.8% 13.3% The capital ratios above are calculated under Basel II and were well in excess of the regulatory minimums which previously existed. BNZ has significantly improved their capital ratios in 2012 in preparation for the implementation of Basel III capital requirements in New Zealand which came into effect on 1 January Banks must have a minimum Tier 1 capital ratio of 6% and a total capital ratio of 8%. On top of this, as at 1 January 2014 banks must retain a 2.5% buffer to these minimum ratios otherwise they will face restrictions on distributions. BNZ has an Internal Capital Adequacy Assessment Process (ICAAP), and appears well placed to comply with the new Basel III requirements. Asset Quality Impaired Assets $m Impaired Assets / Gross Loans % 0.38% 1.14% 1.39% 1.15% 0.77% Total Provision $m Total Provision / Gross Loans % 0.54% 0.83% 0.93% 0.88% 0.79% The level of impaired assets has fallen from the higher levels recorded in FY10 during the Global Financial Crisis. In FY12 the level is still not back to pre-global Financial Crisis levels but the trend downward is expected to continue into the future as the economic recovery progresses. As the level of impaired assets has declined so has the level of provisioning for bad debts and the bad debt charge expensed. 2 First NZ Capital Securities Limited NZX Firm

3 Profit Result Net Interest Income $m Other Income $m Total Operating Income $m NPAT Pre Abnormals $m Reported NPAT $m Total Assets $m 64,209 69,862 69,647 74,085 73,111 Net Interest income / Average Total Assets % 2.2% 2.0% 1.8% 1.9% 2.0% Operating Expense / Total Income % 39.6% 47.0% 49.8% 41.0% 48.3% NPAT / Average Shareholder Funds % 22.8% 14.7% 14.2% 20.5% 14.9% BNZ saw a further increase in net interest income in FY12 as a result of an expansion of the net interest margin. However, due to a loss incurred on changes in the fair value of financial instruments (incorporated in other income ), total operating income and reported NPAT were down on FY11. In dollar terms the BNZ s operating costs have been held almost unchanged over the past five years. Hence the volatility in the ratio of operating expenses / total income reflects changes in income in particular other income which includes changes in fair value of financial instruments. However, over the past year BNZ has concentrated on improving their capital position (shareholder funds excluding perpetual preference shares increased by 27%), which can be seen with an increase in equity and net assets in order to prepare for the Basel III requirements. This and the volatility in other income explains the decline of the return on shareholder funds. Given these changes the achievement of a 14.9% return is a good achievement. Conclusion Bank of New Zealand Ltd ( BNZ ) is a wholly owned subsidiary of National Australia Bank Ltd ( NAB ). BNZ is a registered bank in New Zealand. BNZ provides a range of financial services to business, agribusiness and individual customers. Corporate lending, leveraged lending, project and structured finance and financial market activities are provided by the BNZ to corporate and institutional clients. BNZ has significantly improved its capital ratios in 2012 in preparation for the implementation of the Basel III capital requirements in New Zealand which came into effect on 1 January 2013, and appears well placed to comply with the new Basel III requirements. With the improvement in the New Zealand economy,the level of impaired assets has fallen from the higher levels recorded in FY10 as a result of the Global Financial Crisis. Management have kept a lid on costs and improved the net interest margin which has resulted in a sound return on shareholder funds, despite the significant increase in shareholder funds in FY12. 3 First NZ Capital Securities Limited NZX Firm

4 The BNZ currently has a AA- credit rating from Standard & Poor s which we expect to be maintained based on current financials. John Norling Wealth Management Research 4 First NZ Capital Securities Limited NZX Firm

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