COMMONWEALTH BANK OF AUSTRALIA NEW ZEALAND OPERATIONS GENERAL DISCLOSURE STATEMENT

Transcription

1 COMMONWEALTH BANK OF AUSTRALIA NEW ZEALAND OPERATIONS GENERAL DISCLOSURE STATEMENT For the year ended 30 June 2009

2 Commonwealth Bank of Australia NZ Operations General Disclosure Statement 30 June 2009 The Reserve Bank Orders in Council require Registered Banks licensed in New Zealand to produce a General Disclosure Statement prepared in accordance with the Financial Reporting Act 1993 and the Orders, and that such Statements be made available to the public on request. This General Disclosure Statement has been produced in compliance with those Orders and consists of two parts: Part A - Commonwealth Bank of Australia New Zealand Banking Group (the Banking Group ) General Disclosure Statement The New Zealand banking group of the Commonwealth Bank of Australia (the CBA ) comprises: CBA New Zealand Branch (the Registered Bank ) and various 100% owned CBA subsidiaries controlled by CBA New Zealand Branch. The CBA New Zealand Branch operates independently of the ASB Group operations within New Zealand and is a separately registered financial institution in terms of the Reserve Bank of New Zealand Act The registered bank for the purposes of this Disclosure Statement is CBA New Zealand Branch. CBA New Zealand Branch was issued a registered banking licence on 23 June 2000 AND ASB Banking Operations as disclosed in the ASB Bank Limited General Disclosure Statement, together with the immediate parent of ASB Bank Limited, ASB Holdings Limited, and ASB Funding Limited, a funding company for the CBA New Zealand Operations that is 100% owned by ASB Holdings Limited. ASB Holdings Limited is the ultimate holding company in New Zealand, owned as at the date of these financial statements, 100% by the Commonwealth Bank of Australia. The assets of ASB Holdings Limited consist mainly of its investments in Subsidiaries.

3 Part B - Commonwealth Bank of Australia New Zealand Life Insurance Group (the Life Group ) Disclosures The New Zealand life insurance activities of the Commonwealth Bank of Australia have not been included in the Banking Group General Disclosure Statement. Equivalent disclosures, where applicable, have been provided to assist interested parties to understand the entire New Zealand operations of the Commonwealth Bank of Australia. The Life Group is the aggregation of the life insurance activities of ASB Group (Life) Limited, The Colonial Mutual Life Assurance Society Limited New Zealand Branch, Colonial First State Investments (NZ) Limited, Colonial First State Investment Managers (NZ) Limited and Colonial Holding Company Limited New Zealand Branch.

4 COMMONWEALTH BANK OF AUSTRALIA NEW ZEALAND OPERATIONS PART A NEW ZEALAND BANKING GROUP GENERAL DISCLOSURE STATEMENT For the year ended 30 June 2009

5 Contents 1-7 General Disclosures 8 Historical Summary of Aggregated Financial Statements 9 Income Statement 10 Statement of Recognised Income and Expense 11 Balance Sheet 12 Cash Flow Statement Notes to the Financial Statements Statement of Accounting Policies 22 2 Interest Income 22 3 Interest Expense 22 4 Discontinued Activities Other Income 23 6 Operating Expense Disclosures 23 7 Auditor's Remuneration 23 8 Taxation 23 9 Dividends Cash and Call Deposits with the Central Bank Due from Other Banks Money Market Advances Securities Derivative Financial Instruments Advances to Customers Credit Risk Management and Asset Quality Controlled Entities and Associates Other Assets Property, Plant and Equipment Intangible Assets Deferred Taxation Asset / (Liability) Due to Other Banks Money Market Deposits Deposits from Customers Other Liabilities Subordinated Debt Head Office Account and Contributed Capital Asset Revaluation Reserves Available for Sale Reserves Cash Flow Hedge Reserves Foreign Currency Translation Reserves Retained Earnings Minority Interests Reconciliation of Net Profit after Taxation to Net Cash Flows from Operating Activities Reconciliation of Cash and Cash Equivalents to the Balance Sheet Imputation and Policyholder Credit Accounts Related Party Transactions and Balances Directors and Key Management Personnel Credit and Capital Commitments, and Contingent Liabilities Leasing and Other Commitments Fair Value of Financial Instruments Capital Adequacy Securitisation, Funds Management, Other Fiduciary Activities and the Marketing and Distribution of Insurance Products Financial Reporting by Segments Risk Management Policies Events after the Balance Sheet Date Auditor's Report

6 General Disclosure Statement Commonwealth Bank of Australia New Zealand Banking Group This document comprises the General Disclosure Statement for the Commonwealth Bank of Australia New Zealand Banking Group (the "Banking Group") of Commonwealth Bank of Australia New Zealand Operations (the "CBA NZ Operations") and Commonwealth Bank of Australia New Zealand Branch (the "Registered Bank") as at 30 June The business of the Registered Bank comprises all banking business transacted in New Zealand through the New Zealand branch. This information is published in accordance with the Registered Bank Disclosure Statement (Full and Half-Year Overseas Incorporated Registered Banks) Order 2008 and pursuant to Section 81(1) of the Reserve Bank of New Zealand Act This document should be read in conjunction with the disclosures for Commonwealth Bank of Australia New Zealand Life Insurance Group (the "Life Group") of the CBA NZ Operations. GENERAL MATTERS 1.0 Registered Bank and Address for Service Commonwealth Bank of Australia New Zealand Branch Level 21, ASB Bank Centre 135 Albert Street Auckland New Zealand A copy of the Commonwealth Bank of Australia's most recent published Financial Statements will be available immediately upon a request being made to the above address. A copy of the Financial Statements may also be obtained from the Commonwealth Bank of Australia's website ( in the Shareholder Centre. The Registered Bank has not published a supplementary disclosure statement because none of the information required to be disclosed applies to the Banking Group. 2.0 Overseas Bank and Address for Service The Overseas Bank is the Commonwealth Bank of Australia, domiciled in Australia. The Overseas Banking Group is the Commonwealth Bank of Australia including subsidiary activities worldwide. Commonwealth Bank of Australia Level 7 48 Martin Place Sydney Australia The Commonwealth Bank of Australia ("CBA") operates as a public company under the Corporations Act in Australia. It has share capital and is governed by a constitution. CBA was converted from a statutory corporation to a public company on 17 April The CBA Group provides a wide range of banking, financial and related services including funds management and life and general insurance. The origins of the Bank lie in the former Commonwealth Bank of Australia which was established in 1911 by an Act of Parliament to conduct commercial and savings bank functions. These functions were gradually expanded under continued Government ownership until September 1991 when the Bank was partially privatised. In July 1996 the Commonwealth Government sold its remaining shareholding in the Bank. 3.0 Ranking of Local Creditors in a Winding-Up Under Section 13A(3) of the Banking Act 1959 of the Commonwealth of Australia, if an Authorised Deposit-taking Institution ("ADI") (which includes a bank) becomes unable to meet its obligations or suspends payment, the assets of the ADI in Australia are to be available to meet the ADI s liabilities in the following order: (a) first, the ADI's liabilities to APRA, to the extent that APRA has made, or is required to make, payments to depositors under the Financial Claims Scheme; (b) second, the ADI's debts to APRA for costs incurred by APRA in the administration of the Scheme in respect of that ADI; (c) third, in payment of the ADI's deposit liabilities in Australia (other than liabilities covered under paragraph (a)); and (d) fourth, the ADI's other liabilities. Section 16(1) and (2) of the Banking Act 1959 of the Commonwealth of Australia provides that, despite anything contained in any law relating to the winding up of companies, but subject to Section 13A(3) of the Banking Act 1959, the debts of an ADI to the Australian Prudential Regulation Authority ("APRA") in respect of APRA s costs (including costs in the nature of remuneration and expenses) of being in control of the ADI s business or of having an administrator in control of the ADI s business have priority in a winding up of the ADI over all other unsecured debts. Section 86 of the Reserve Bank Act 1959 of the Commonwealth of Australia provides that notwithstanding anything contained in any law relating to the winding up of companies, but subject to Section 13A(3) of the Banking Act 1959, debts due to the Reserve Bank of Australia by an ADI shall, in the winding up, have priority over all other debts other than debts due to the Commonwealth of Australia. The Commonwealth Bank of Australia is an ADI. 3.1 Requirement for Commonwealth Bank of Australia to maintain sufficient assets in Australia to cover an ongoing obligation to pay deposit liabilities in Australia Section 13A(4) of the Banking Act 1959 of the Commonwealth of Australia states that it is an offence for an ADI not to hold assets in Australia of a value that is equal to or greater than the total amount of its deposit liabilities in Australia, unless APRA has authorised the ADI to hold assets of a lesser value. This requirement has the potential to impact on the management of the liquidity of the New Zealand operations of the Commonwealth Bank of Australia in extreme circumstances. 1

7 4.0 Guarantee Arrangements On 12 October 2008 the Australian Government announced guarantee arrangements for deposits and wholesale funding of Australian deposit-taking institutions. Commonwealth Bank of Australia is an eligible Authorised Deposit-taking Institution ( ADI ) under the terms of the guarantee arrangements. The guarantee arrangements also apply to the Registered Bank, as a foreign branch of an eligible institution. The Australian Government Guarantee Scheme for Large Deposits and Wholesale Funding ("Guarantee Scheme") formally commenced on 28 November Interim arrangements applied until that date, with deposits and eligible wholesale borrowings guaranteed without charge in this period. Under the Guarantee Scheme, eligible ADIs can obtain guarantees for deposit balances totalling over one million Australian dollars ("AUD 1 million") per customer and for wholesale funding liabilities, in return for a fee (which is calculated to reflect the ADI's credit rating and may be passed on by the ADI). Access to the Guarantee Scheme is voluntary. Separate arrangements apply for deposit balances totalling up to and including AUD 1 million per customer per institution. Such deposits are guaranteed by the Australian Government under the Financial Claims Scheme and this guarantee is free. Eligible institutions wanting to access the Guarantee Scheme for their large deposit balances or wholesale funding from 28 November 2008 need to apply to the Scheme Administrator. 4.1 Deposits up to and including AUD 1 million The guarantee of deposits up to and including AUD 1 million is provided under Commonwealth legislation. It only applies to protected accounts with ADI's. A protected account is an account that is kept by an account holder with an ADI that is either prescribed by regulation or an account, or covered financial product, that is kept under an agreement between the account holder and the ADI requiring the ADI to pay the account holder on demand, or at an agreed time, the net credit balance. Various deposit accounts, such as saving, call, current, cheque, debit card, transaction, and mortgage offset accounts, have been declared to be covered financial products. The guarantee of deposits up to and including AUD 1 million applies without charge. The Government has stated the guarantee will operate for a period of three years from 12 October The guarantee applies to deposits denominated in any currency. 4.2 Guarantee Scheme The Guarantee Scheme applies, without limit, to deposit liabilities in excess of AUD 1 million (per customer per ADI) and to wholesale funding liabilities. The Scheme commenced on 28 November Any claim for payment must be made in accordance with the Scheme deed and rules. A liability will only be covered by the Scheme if it is the subject of an Eligibility Certificate issued in accordance with the Rules. The Rules prescribe the criteria which must be satisfied before a certificate can be issued, and the application process and fees applicable. The ADI must provide certain statements and legal documents, before it obtains coverage. The Scheme guarantee will terminate 67 calendar months after the Final Application Date notified by the Government. (i) (ii) Deposit Liabilities over AUD 1 million Deposits may be denominated in any currency and there are no restrictions on the type of depositor. Deposits may be at call or with maturities up to 60 months. Short term wholesale funding liabilities These are senior unsecured debt instruments; in any currency; with maturities up to 15 months; issued in bearer, registered or dematerialised form; which are "not complex"; and which are bank bills, certificates of deposit, transferable deposits, debentures or commercial paper. Applications can also be made for issuance programmes. (iii) (iv) Term funding liabilities These are the same as short term funding liabilities, except that the term covered must be 15 to 60 months; and the instruments must be bonds, notes or debentures. "Not Complex" The Government has published detailed guidelines at under the Guidance Note link. For example, generally, market or index linked investment products and structured products are excluded. General The Government has indicated that the guarantee arrangements may require refinement or adjustment in light of market developments, and has indicated that it will review them on an ongoing basis and will revise them if necessary. Guarantor's name and address for service under Wholesale Funding Guarantee: The Commonwealth of Australia c/o Australian Government Solicitor 50 Blackall Street BARTON ACT 2600 Attention: Director, Canberra Facsimile Further details of the guarantee arrangements, together with relevant legislation, regulations, the Scheme deed and rules, and other documents setting out the terms and conditions of the guarantee arrangements, are available at the Treasury website and at The most recent audited financial statements of the Commonwealth of Australia can be obtained at the Treasury s Budget website under the budget tab. 2

8 4.0 Guarantee Arrangements (continued) As at the date of the signing of this General Disclosure Statement, the following ratings were assigned to the Commonwealth of Australia's long term, AUD denominated debt: Rating Agency Long Term Ratings (and Any Qualifications) Fitch Ratings Moody's Investors Service, Inc. Standard & Poor's (Australia) Pty Limited AAA Aaa AAA These ratings have remained unchanged in the two preceding years. The outlook from all agencies is stable. Descriptions of the steps in the ratings scales above are set out on page New Zealand Guarantee Arrangements Also on 12 October 2008 the New Zealand Minister of Finance announced a Deposit Guarantee Scheme ("Scheme"), under which the Crown guarantees retail deposits of participating financial institutions from 12 October 2008 until 12 October The Registered Bank does not have a guarantee under the Scheme. However, ASB Bank Limited, a member of the Banking Group with its own separate banking licence is covered by the Scheme. On 25 August 2009 the Minister of Finance announced that the government intends to extend the Scheme and change some of its terms and conditions. The extension will start on 13 October 2010 and end on 31 December Information on the Scheme is available on the Treasury website ASB Bank Limited is also guaranteed under the New Zealand Wholesale Funding Guarantee Facility ("Crown Wholesale Funding Guarantee") on the terms and conditions of a Crown Wholesale Funding Guarantee Deed entered into by ASB Bank Limited and the Crown on 19 June The Crown Wholesale Funding Guarantee is available (upon application and subject to the Crown's sole and absolute discretion on each occasion) on a case by case basis for certain debt securities issued by ASB Bank Limited to the wholesale market. As at the signing of this General Disclosure Statement ASB Bank Limited had not applied for cover under the Crown Wholesale Funding Guarantee for any of its issued debt securities. The Registered Bank does not have a guarantee under the Crown Wholesale Funding Guarantee. 3

9 5.0 Directorate and Auditor There have been no changes to Directors since the 31 March 2009 General Short Form Disclosure Statement was signed. 5.1 Address for Directors and the New Zealand Chief Executive Officer Directors New Zealand Chief Executive Officer Commonwealth Bank of Australia Commonwealth Bank of Australia New Zealand Branch Level 7 Level 21, ASB Bank Centre 48 Martin Place 135 Albert Street Sydney Auckland Australia New Zealand NEW ZEALAND CHIEF EXECUTIVE OFFICER Name Primary Occupation Residence External Directorships A.J. (Andrew) Woodward, Head of Institutional Banking NZ CBA BANK EXECUTIVE Auckland, New Zealand Australian Banker's Association, Business Council of Australia and Financial Markets Foundation for Children 5.2 Directors of the Commonwealth Bank of Australia EXECUTIVE DIRECTOR Name Primary Occupation Residence External Directorships Sir R.J. (Ralph) Norris DCNZM, FNZIM, FNZCS (Managing Director) CHIEF EXECUTIVE OFFICER New South Wales, Australia Nil INDEPENDENT DIRECTORS Name J.M. (John) Schubert, BE, PhD, Name C.R. (Colin) Galbraith, LLM FIE Aust, FTS, CP(Eng) (Chairman) LLB (Hons), AM Primary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTOR Residence New South Wales, Australia Residence Victoria, Australia External Directorships G2 Therapies Limited, BHP Billiton Limited, External Directorships BHP Billiton Community Trust, OneSteel BHP Billiton Plc, Qantas Airways Limited, Limited, Australian Institute Great Barrier Reef Foundation of Company Directors Name J.S. (Jane) Hemstritch BSc, FCA, FCPA Name R.J. (Reg) Clairs AO Primary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTOR Residence Victoria, Australia Residence Queensland, Australia External Directorships The Global Foundation, Tabcorp Limited External Directorships David Jones Limited Name S.C.H. (Carolyn) Kay BA, LLB, FAICD Name F.D. (Fergus) Ryan Primary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTOR Residence New South Wales, Australia Residence Victoria, Australia External Directorships Brambles Industries Limited, External Directorships Australian Foundation Investment Company Allens Arthur Robinson, Sydney Institute Limited, National Australia Day Council, National Library of Australia, Centre for Social Impact Name Sir J.A. (John) Anderson KBE Name H.H. (Harrison) Young Primary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTOR Residence Wellington, New Zealand Residence Victoria, Australia External Directorships Television New Zealand, External Directorships Florey Neuroscience Institutes Capital Coast District Health Board, Asia Society AustralAsia Centre and Asia Link, New Zealand Venture Investment Fund, Howard Florey Institute Foundation, Hawke's Bay District Health Board Financial Services Volunteer Corps Name D.J. (David) Turner FCA Name A.M. (Andrew) Mohl Primary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTOR Residence United Kingdom Residence New South Wales, Australia External Directorships Cobham plc External Directorships AMP Foundation, Export Finance and Insurance Corporation AUDIT COMMITTEE The Board's Audit Committee consists of Fergus Ryan (Chairman), Colin Galbraith, Carolyn Kay, David Turner and Harrison Young. All members of the Audit Committee are independent directors. 4

10 5.0 Directorate and Auditor (continued) 5.3 Responsible Person C.J.S. (Charles) Pink Managing Director and Chief Executive Officer Auckland, New Zealand In Absence S.B. (Stewart) McRobie Chief Financial Officer Auckland, New Zealand 5.4 Name and Address for Service of Auditor PricewaterhouseCoopers Chartered Accountants 188 Quay Street Auckland New Zealand 5.5 Dealings with Directors There have been no dealings with Directors of any entities within the Banking Group or of Commonwealth Bank of Australia or parties related to these Directors on terms other than in the ordinary course of business. Refer to Note 38 for outstanding balances with Directors of entities within the Banking Group. A number of Directors of Commonwealth Bank of Australia have given written notices, stating that they hold office in specified companies and accordingly are to be regarded as having an interest in any contract or proposed contract that may be made between the Commonwealth Bank of Australia and any of those companies. Directors of entities within the Banking Group are required to table all possible conflicts of interest at the Board of Directors' meetings for those entities, and are required to abstain from any vote on those proceedings. Entities within the Banking Group comply with all requirements of the Companies Act 1993 in terms of registers and notices for Directors' conflict of interest Conditions of Registration - Commonwealth Bank of Australia New Zealand Branch (the "Registered Bank") as from 26 November 2007 The registration of the New Zealand branch of Commonwealth Bank of Australia (the "Registered Bank'') is subject to the following conditions: 6.2 That the Banking Group does not conduct any non-financial activities that in aggregate are material relative to its total activities, where the term material is based on generally accepted accounting practice, as defined in the Financial Reporting Act That the Banking Group's insurance business is not greater than 1 percent of its total consolidated assets. For the purposes of this condition: (i) Insurance business means any business of the nature referred to in section 4 of the Insurance Companies (Ratings and Inspections) Act 1994 (including those to which the Act is disapplied by sections 4(1)(a) and (b) and 9 of that Act), or any business of the nature referred to in section 3(1) of the Life Insurance Act 1908; (ii) In measuring the size of the Banking Group's insurance business: (a) (b) (c) (d) where insurance business is conducted by any entity whose business predominantly consists of insurance business, the size of that insurance business shall be: the total consolidated assets of the group headed by that entity; or if the entity is a subsidiary of another entity whose business predominantly consists of insurance business, the total consolidated assets of the group headed by the latter entity; otherwise, the size of each insurance business conducted by any entity within the Banking Group shall equal the total liabilities relating to that insurance business, plus the equity retained by the entity to meet the solvency or financial soundness needs of the insurance business; the amounts measured in relation to parts (a) and (b) shall be summed and compared to the total consolidated assets of the Banking Group. All amounts in parts (a) and (b) shall relate to on balance sheet items only, and shall be determined in accordance with generally accepted accounting practice, as defined in the Financial Reporting Act 1993; where products or assets of which an insurance business is comprised also contain a non-insurance component, the whole of such products or assets shall be considered part of the insurance business That the business of the Registered Bank does not constitute a predominant proportion of the business of the Commonwealth Bank of Australia. That no appointment to the position of the New Zealand chief executive officer of the Registered Bank shall be made unless: (i) the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; and (ii) the Reserve Bank has advised that it has no objection to that appointment. 6.6 That the Commonwealth Bank of Australia complies with the requirements imposed on it by the Australian Prudential Regulation Authority. 5

11 Conditions of Registration - Commonwealth Bank of Australia New Zealand Branch (the "Registered Bank") as from 26 November 2007 (continued) That the Commonwealth Bank of Australia complies with the following minimum capital adequacy requirements, as administered by the Australian Prudential Regulation Authority: Tier One Capital of the Commonwealth Bank of Australia is not less than 4 percent of risk weighted exposures; Capital of the Commonwealth Bank of Australia is not less than 8 percent of risk weighted exposures That liabilities of the Registered Bank in New Zealand, net of amounts due to related parties (including amounts due to a subsidiary or affiliate of the Registered Bank), do not exceed NZ$15 billion. That retail deposits of the Registered Bank in New Zealand do not exceed $200 million. For the purposes of this condition retail deposits are defined as deposits by natural persons, excluding deposits with an outstanding balance which exceeds $250, For the purposes of these conditions of registration, the term "Banking Group" means the New Zealand operations of the Commonwealth Bank of Australia and those subsidiaries of the Commonwealth Bank of Australia (except those which conduct life assurance business) whose business is required to be reported in financial statements for the group's New Zealand business prepared in accordance with Section 9(2) of the Financial Reporting Act There have been no changes to the conditions of registration since the signing of the previous disclosure statement (for the period ending 31 March 2009). 7.0 Pending Proceedings or Arbitration 7.1 The Banking Group is not party to any pending proceedings or arbitration which are expected to have a material adverse effect on the financial position, or results, of the CBA NZ Operations or CBA NZ Branch. 8.0 Credit Rating of Commonwealth Bank of Australia 8.1 As at the date of the signing of this General Disclosure Statement, the following ratings were assigned to the Commonwealth Bank of Australia's long term debt: Rating Agency Current Long Term Rating Outlook Fitch Ratings Moody's Investors Service, Inc. Standard & Poor's (Australia) Pty Limited AA Aa1 AA Stable Negative Stable The Fitch rating was assigned as AA and has remained unchanged since The Moody's rating was raised to Aa1 from Aa3 on 4 May The Standard and Poor's rating was raised to AA from AA- on 21 February Long Term Debt Rating Definitions Long Term Debt Rating Fitch Moody's S&P (a) (b) (a) Highest quality / Extremely strong capacity to pay interest and principal AAA Aaa AAA High quality / Very strong AA Aa AA Upper medium grade / Strong A A A Medium grade (lowest investment grade) / Adequate BBB Baa BBB Predominantly speculative / Less near term vulnerability to default BB Ba BB Speculative, low grade / Greater vulnerability B B B Poor to default / Identifiable vulnerability CCC Caa CCC Highest speculations CC Ca CC Lowest quality, no interest C C C In payment default, in arrears - questionable value D - D (a) Fitch and S&P apply plus (+) or minus (-) signs to ratings from AA to CCC to indicate relative standing within the major rating categories. (b) Moody's applies numeric modifiers to each generic rating category from Aa to B, indicating that the counterparty is (1) in the higher end of its letter-rating category, (2) in mid-range, (3) in lower end. 6

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13 Historical Summary of Aggregated Financial Statements Banking Group $ millions INCOME STATEMENT Interest Income 5,165 5,147 4,142 3,425 2,829 Interest Expense 4,150 4,128 3,273 2,656 2,092 Net Interest Earnings 1,015 1, Other Income Total Operating Income 1,524 1,350 1,360 1,143 1,034 Impairment Losses on Advances Total Operating Income after Impairment Losses 1,219 1,303 1,343 1,124 1,018 Total Operating Expenses Net Profit before Taxation Taxation Net Profit after Taxation Of which Impaired Asset Expense / (Recovery) (1) (1) DIVIDENDS and REPATRIATIONS PAID Dividends paid to Minority Interests Ordinary Dividends Redeemable Preference Dividends Distribution of Prior Year Profit Total Dividends and Repatriations Paid Banking Group $ millions As at 30 June BALANCE SHEET Total Assets 72,056 66,323 58,532 48,511 41,684 Of which Impaired Assets Total Liabilities 68,631 62,913 55,796 46,624 39,559 Total Shareholders' Equity 3,425 3,410 2,736 1,887 2,125 The amounts disclosed in this historical summary of aggregated financial statements have been taken from the audited financial statements of the Banking Group, which were prepared in accordance with New Zealand equivalents to International Financial Reporting Standards ("NZ IFRS") 8

14 Income Statement $ millions Banking Group Registered Bank For the year ended 30 June Note Interest Income 2 5,165 5, Interest Expense 3 4,150 4, Net Interest Earnings 1,015 1, Other Income Total Operating Income 1,524 1, Impairment Losses on Advances 16 (b) Total Operating Income after Impairment Losses 1,219 1, Total Operating Expenses Salaries and Other Staff Expenses Building Occupancy and Equipment Expenses Information Technology Expenses Other Expenses Net Profit before Taxation Taxation Net Profit after Taxation Attributable to: Parent Company Shareholders Minority Interests Net Profit after Taxation These statements are to be read in conjunction with the notes on pages 13 to 68 and the Auditor's Report on pages 69 and 70. 9

15 Statement of Recognised Income and Expense $ millions Banking Group Registered Bank For the year ended 30 June Note Items Recognised Directly in Equity: Movement in Asset Revaluation Reserves Net Change in Available for Sale Reserves 29 (4) Net Change in Cash Flow Hedge Reserves 30 (471) (185) 6 2 Net Change in Investment Hedge 31 (304) (78) - - Currency Translation Differences Transfer from Asset Revaluation Reserves to Retained Earnings Net (Expense) / Income Recognised Directly in Equity (473) (163) 6 2 Net Profit after Taxation Total Recognised Income and Expense (94) Attributable to: Parent Company Shareholders (128) Minority Interests Total Recognised Income and Expense (94) These statements are to be read in conjunction with the notes on pages 13 to 68 and the Auditor's Report on pages 69 and

16 Balance Sheet $ millions Banking Group Registered Bank As at 30 June Note ASSETS Cash and Call Deposits with the Central Bank 10 1,582 1, Due from Other Banks 11 1, ,250 3,738 Money Market Advances , Securities 13 6,773 5, Derivative Assets 14 2,517 1, Advances to Customers 15 58,846 55,773 5,648 6,530 Current Taxation Asset Other Assets Property, Plant and Equipment Intangible Assets Deferred Taxation Asset Total Assets 72,056 66,323 9,897 11,128 Total Interest Earning and Discount Bearing Assets 68,432 64,070 9,495 10,708 Financed by: LIABILITIES Due to Other Banks 22 8,851 7,800 5,262 5,341 Money Market Deposits 23 20,670 20, Derivative Liabilities 14 4,239 1, Deposits from Customers 24 29,978 27, Other Liabilities Deferred Taxation Liability Subordinated Debt 26 4,443 5,129 3,582 4,136 Total Liabilities 68,631 62,913 9,412 10,856 SHAREHOLDERS' EQUITY Head Office Contribution Contributed Capital - Ordinary Shareholder Asset Revaluation Reserves Available for Sale Reserves Cash Flow Hedge Reserves 30 (465) 6 (5) (11) Foreign Currency Translation Reserve Retained Earnings Ordinary Shareholder's Equity 1,604 1, Contributed Capital - Redeemable Preference Shareholder 27 1,271 1, Total Shareholders' Equity Attributed to Parent Company Shareholders 2,875 2, Minority Interest Controlled Entities Total Shareholders' Equity 3,425 3, Total Liabilities and Shareholders' Equity 72,056 66,323 9,897 11,128 Total Interest and Discount Bearing Liabilities 62,107 53,396 9,240 10,328 These statements are to be read in conjunction with the notes on pages 13 to 68 and the Auditor's Report on pages 69 and

17 Cash Flow Statement $ millions Banking Group Registered Bank For the year ended 30 June Note CASH FLOWS FROM OPERATING ACTIVITIES Interest Received 5,280 5, Other Income Received Dividends Received Interest Paid (4,285) (4,000) (691) (811) Operating Expenses (642) (528) (8) (7) Net Taxation Paid (125) (196) (10) (11) (Payments to) / Receipts from Related Parties for Tax Related Items (63) Cash Flows from Operating Profits before Changes in Operating Assets and Liabilities 1,001 1, Changes in Operating Assets and Liabilities Net Decrease / (Increase) in Money Market Advances 907 (1,813) - - Net Decrease / (Increase) in Due from Other Banks (Term) (44) Net (Increase) / Decrease in Advances to Customers (3,369) (5,202) 814 (1,028) Net Increase in Trading Securities (2,187) (1,837) (158) (110) Net Increase / (Decrease) in Customer Deposits 1,456 3,322 (455) 17 Net Increase in Money Market Deposits 1,412 1, Net Increase / (Decrease) in Due to Other Banks (Term) 1, (83) 1,140 Cash Flows from Operating Assets and Liabilities 528 (2,560) 597 (25) Net Cash Flows from Operating Activities 34 1,529 (1,364) CASH FLOWS FROM INVESTING ACTIVITIES Cash was provided from: Net Decrease / (Increase) in Other Securities 1,190 (569) - - 1,190 (569) - - Cash was applied to: Acquisition of Controlled Entities Net of Cash Acquired Purchase of Property, Plant and Equipment Purchase of Intangible Assets Net Cash Flows from Investing Activities 1,075 (627) - - CASH FLOWS FROM FINANCING ACTIVITIES Cash was provided from: Head Office Contribution Issue of Ordinary Share Capital Issue of Redeemable Preference Shares Issue of Subordinated Debt , Cash was applied to: Dividends Paid Dividends Paid to Minority Interests Repatriation of Profit Redemption of Subordinated Debt 1, ,198 1, Net Cash Flows from Financing Activities (998) 127 (746) - SUMMARY OF MOVEMENTS IN CASH FLOWS Net Increase / (Decrease) in Cash and Cash Equivalents 1,606 (1,864) (28) 44 Add: Cash and Cash Equivalents at Beginning of Year 560 2, Cash and Cash Equivalents at End of Year 35 2, These statements are to be read in conjunction with the notes on pages 13 to 68 and the Auditor's Report on pages 69 and

18 1 Statement of Accounting Policies GENERAL ACCOUNTING POLICIES The reporting entity is Commonwealth Bank of Australia New Zealand Branch (the "Registered Bank"), which holds the banking licence for the purposes of this disclosure statement. The reporting group (the "Banking Group") is the aggregated results of: Commonwealth Bank of Australia New Zealand Branch, ASB Holdings Limited, ASB Funding Limited, ASB Bank Limited and its controlled entities, CBA Funding (NZ) Limited and its subsidiaries, CBA NZ Holding Limited and its subsidiary, CBA Real Estate Funding (NZ) Limited and its subsidiary, CBA USD Funding Limited and Group Treasury Services NZ Limited. The basis of aggregation is an addition of the Banking Group entities' individual financial statements. All transactions and balances between entities within the Banking Group have been eliminated. These financial statements have been drawn up in accordance with the requirements of the Companies Act 1993, the Financial Reporting Act 1993 and the Registered Bank Disclosure Statement (Full and Half-Year - Overseas Incorporated Registered Banks) Order They were approved for issue by the Directors on 24 September The Banking Group's financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice ("NZ GAAP") They comply with NZ IFRS and other applicable Financial Reporting Standards, as appropriate for profit-oriented entities. The financial statements comply with International Financial Reporting Standards. The Directors do not have the power to amend the financial statements once issued. The following new standards and amendments to standards relevant to the Banking Group are not yet effective and have not yet been applied in preparing the financial statements. These standards have been adopted from 1 July 2009 and are not expected to have any impact on the Banking Group's reported profit or financial position. NZ IAS 1 Presentation of Financial Statements (revised) will result in presentation of a Statement of Comprehensive Income and a Statement of Changes in Equity. NZ IAS 27 Consolidated and Separate Financial Statements (revised) changes aspects of accounting for non-controlling interests and clarifies the accounting for changes in a parent's ownership interest in a subsidiary. NZ IFRS 3 Business Combinations (revised) will result in certain measurement changes and additional disclosures in the event of a business combination. NZ IFRS 7 Financial Instruments: Disclosures (revised) will result in additional disclosures concerning fair value measurement and liquidity risk. NZ IFRS 8 Operating Segments will affect the financial and descriptive information disclosed about the Banking Group's reportable segments. Basis of Preparation The measurement base adopted is that of historical cost as modified by the fair value measurement of Available for Sale Financial Assets, Financial Instruments at Fair Value through Profit or Loss, Derivative contracts and the revaluation of certain Property, Plant and Equipment. Critical Accounting Estimates and Judgements The critical judgements used by management in applying the accounting policies that have the most significant effect on the amounts recognised in the financial statements, apart from those involving estimation, are the designation of financial assets and financial liabilities as at fair value through profit or loss. Preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates, although it is not anticipated that such differences would be material. Estimates and assumptions are continually evaluated, and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Banking Group considers that the valuation of financial instruments, the Provision for Impairment on Customer Advances and impairment testing of Goodwill require significant accounting estimates and management judgement. Refer to (f) for details of valuation of financial instruments, Note 16 for details of credit risk management and the basis of the Banking Group's impairment provision model, and Note 20 for key assumptions used in testing Goodwill for impairment. Presentation Currency and Rounding The functional and presentation currency of the Banking Group is New Zealand dollars. The amounts contained in this disclosure statement and the financial statements are presented in millions of New Zealand dollars, unless otherwise stated. PARTICULAR ACCOUNTING POLICIES There have been no material changes to accounting policies in the year ended 30 June All policies have been applied on a basis consistent with that used during the financial year ended 30 June A Glossary of Terms included within the Statement of Accounting Policies is set out on page 21. (a) Basis of Consolidation Subsidiaries Subsidiaries are those entities controlled by CBA New Zealand Branch or the banking activities of ASB Holdings Limited. Control exists when the Banking Group has the power, directly or indirectly, to govern the financial and operating policies of entities so as to obtain benefits from their activities. The financial statements of subsidiaries are included in the Banking Group's financial statements from the date on which control is transferred to the Banking Group until the date that control ceases. Assets, liabilities and results of subsidiaries are included in the Banking Group's financial statements on the basis of financial statements made up to balance date, using the purchase method. All intra group balances and transactions have been eliminated in preparing the consolidated financial statements. Other Controlled Entities The Banking Group may invest in or establish special purpose entities ("SPE") to enable it to undertake specific transactions. The main type of specific transactions of these SPE are securitisation vehicles and structured finance entities. Where the Banking Group has established SPE which are controlled by the Banking Group to facilitate transactions undertaken for Banking Group purposes, these are consolidated in the Banking Group's financial statements (refer to Note 17). 13

19 1 Statement of Accounting Policies (continued) (a) Basis of Consolidation (continued) The Banking Group does not consolidate SPE that it does not control. As it can sometimes be difficult to determine whether the Banking Group has control of an SPE, judgements are made about its exposure to the risks and rewards and whether the majority pass to the Banking Group, as well as about its ability to make operational and financial decisions for the SPE in question. Associates Associates are those entities in which the Banking Group has significant influence, but not control, over the financial and operating policies. The Banking Group has representation on the Boards of Directors of all companies classified as Associates. Associates are accounted for under the equity method of accounting. (b) (c) Segment Reporting The Banking Group's primary reporting format is business segments (refer to Note 44). Segments reported are in line with the organisational structure of the Banking Group and take into account the nature of the products and services provided. The Banking Group operates predominantly within New Zealand. On this basis geographical segment reporting is not applicable. Foreign Currency Translation All foreign currency monetary assets and liabilities are converted at the rates of exchange ruling as at balance date. Foreign currency forward, futures, swaps and option positions are valued at fair value as at balance date. Unrealised gains and losses arising from these revaluations and gains and losses arising from foreign exchange dealings are recognised immediately in the Income Statement. The foreign currency assets and liabilities of overseas subsidiaries are translated into the Banking Group's presentation currency at the rate of exchange ruling as at balance date. Income Statements are translated at the weighted average rates for the year. All resulting exchange differences are recognised in the Foreign Currency Translation Reserve ("FCTR") as a separate component of equity. Gains or losses accumulated in the FCTR are transferred to the Income Statement upon partial or full disposal of the overseas subsidiary. (d) Revenue Recognition Revenue is recognised to the extent that it is probable that economic benefits will flow to the Banking Group and that the revenue can be reliably measured. The principal sources of revenue are interest income, fees and commissions. Interest Income and Expense Financial instruments are classified in the manner described in (f). Some are measured by reference to amortised cost, others by reference to fair value. For financial instruments measured at amortised cost, the effective interest method is used to measure the Interest Income or Expense recognised in the Income Statement. For financial instruments measured at fair value, Interest Income or Expense is recognised on an accrual basis, either daily or on a yield to maturity basis. Lending Fees Fees and direct costs relating to loan origination, financing or restructuring and to loan commitments are deferred and amortised to Interest Income over the life of the loan using the effective interest method. Lending fees not directly related to the origination of a loan are recognised over the period of service. Commission and Other Fees When commissions or fees relate to specific transactions or events, they are recognised in the Income Statement when the service is provided to the customer. When they are charged for services provided over a period, they are taken to Other Income on an accruals basis as the service is provided. Other Income Dividend income is recorded in the Income Statement when the Banking Group's right to receive the dividend is established. Realised and unrealised gains and losses from re-measurement of Financial Instruments at Fair Value through Profit or Loss are included in Other Income. (e) (f) Expense Recognition Operating lease payments are recognised in the Income Statement on a straight-line basis over the term of the lease, unless another systematic basis is more representative of the time pattern of the benefit received. All other expenses are recognised in the Income Statement on an accrual basis. Financial Instruments BASIS OF RECOGNITION AND MEASUREMENT The Banking Group offers an extensive range of financial instruments. Financial instruments are transacted on a commercial basis to derive an interest yield / cost with terms and conditions having due regard to the nature of the transaction and the risks involved. All financial instruments are accounted for on a settlement date basis. They are classified in one of the following categories at initial recognition: Financial Assets at Fair Value through Profit or Loss, Available for Sale Financial Assets, Loans and Receivables, Held to Maturity, Financial Liabilities at Fair Value through Profit or Loss and Other Financial Liabilities. Some of these categories require measurement at fair value. Where available, quoted market prices are used as a measure of fair value. Bid prices are used to estimate fair values of assets, whereas offer prices are applied to liabilities. Where the Banking Group has assets and liabilities with offsetting market risk, it uses mid-market prices as a basis for establishing fair values for the offsetting risk positions and applies a bid / offer spread adjustment to the net open position as appropriate. Where quoted market prices do not exist, fair values are estimated using present value or other market accepted valuation techniques, using methods and assumptions that are based on market conditions and risks existing as at balance date. If changes in these assumptions to a reasonably possible alternative would result in a significantly different fair value this has been disclosed. 14

20 1 Statement of Accounting Policies (continued) (f) Financial Instruments (continued) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Assets in this category are either held for trading or are managed with other assets and liabilities transacted in ASB Bank Limited's Treasury and Financial Markets Division, which are accounted for and evaluated on a fair value basis. Fair value reporting of these assets and liabilities reflects the Banking Group's risk management process, which includes utilising natural offsets where possible and managing the overall risks of the Treasury portfolio on a trading basis. Assets in this category are measured at fair value and are described below. Due from Other Banks Due from Other Banks is defined by the nature of the counterparty and includes loans, nostro balances and settlement account balances due from other banks. Amounts Due from Other Banks booked in ASB Bank Limited are measured at Fair Value. Fair value is calculated on the same basis as for Money Market Advances. Money Market Advances Money Market Advances are advances transacted in ASB Bank Limited's Treasury and Financial Markets Division, which are managed with other assets and liabilities accounted for and evaluated on a fair value basis. Fair value is calculated using discounted cash flow models based on the interest rate repricing and maturity of the Advances. Discount rates applied in this calculation are based on current market interest rates for Advances with similar credit profiles. Securities Securities included in this category are short and long term public and other debt securities, which are held for trading, as well as securities designated as at Fair Value through Profit or Loss. The fair value of Securities is based on quoted market prices, where available, or calculated using discounted cash flow models based on current market rates. Subsequent changes in the fair value of securities which are either held for trading or designated as at Fair Value through Profit or Loss, are recognised in Other Income and may include interest income depending on the instrument. Coupon securities exclude interest income, whereas all other securities include interest income. Derivative Assets Derivative Assets that do not meet the criteria for hedge accounting are recorded at Fair Value through Profit or Loss. Refer to (g) for more details on derivatives. AVAILABLE FOR SALE FINANCIAL ASSETS Available for Sale Financial Assets are measured at fair value, with changes in fair value recognised directly in Equity. The Banking Group has classified certain equity investments (in entities over which the Banking Group has neither control nor significant influence) as Available for Sale Financial Assets. LOANS AND RECEIVABLES Assets in this category are measured at amortised cost using the effective interest method and include: Cash and Call Deposits with the Central Bank Cash and Call Deposits with the Central Bank include ASB Bank Limited's overnight settlement account with the Central Bank, and are brought to account at face value. Due from Other Banks Amounts Due from Other Banks booked in ASB Bank Limited are measured at Fair Value. Amounts booked by other members of the Banking Group are not managed on a fair value basis and are recorded at amortised cost. Advances to Customers Advances cover all forms of lending to customers, other than those classified as at Fair Value through Profit or Loss, and include mortgages, overdrafts, personal loans and credit card balances. They are recognised in the Balance Sheet when cash is advanced to the customer. Advances are reported net of Provisions for Impairment to reflect the estimated recoverable amounts. Refer to (m). Other Assets Other Assets include the accrual of interest coupons and fees receivable. For derivatives any accrued interest is recognised and measured as part of the derivative's fair value. HELD TO MATURITY INVESTMENTS Assets in this category are measured at amortised cost. The Banking Group has not classified any financial assets as Held to Maturity. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS Liabilities in this category are either held for trading or are managed with other assets and liabilities transacted in ASB Bank Limited's Treasury and Financial Markets Division, which are accounted for and evaluated on a fair value basis. Fair value reporting of these assets and liabilities reflects the Banking Group's risk management process, which includes utilising natural offsets where possible and managing the overall risks of the Treasury portfolio on a trading basis. Liabilities in this category are measured at fair value and include: Due to Other Banks and Money Market Deposits Due to Other Banks is defined by the nature of the counterparty and includes deposits, vostro balances and settlement account balances due to other banks. Money Market Deposits are Certificates of Deposit, Issued Paper and other deposits that are transacted in the Treasury and Financial Markets Division of ASB Bank Limited. Certain amounts within Due to Other Banks and Money Market Deposits have been designated as at Fair Value through Profit or Loss, where designation eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets and liabilities or recognising the gains or losses on them in different bases. These amounts are managed with other assets and liabilities accounted for and evaluated on a fair value basis. 15

21 1 Statement of Accounting Policies (continued) (f) Financial Instruments (continued) The fair value of Deposits, Certificates of Deposit and Issued Paper is calculated using discounted cash flow models based on the interest rate repricing and maturity of the instruments. The discount rates applied in this calculation are based on current market rates. Derivative Liabilities Derivative Liabilities that do not meet the criteria for hedge accounting are recorded at Fair Value through Profit or Loss. Refer to (g) for more details on derivatives. OTHER FINANCIAL LIABILITIES This category includes all financial liabilities other than those at Fair Value through Profit or Loss. Liabilities in this category are measured at amortised cost and include: Due to Other Banks and Money Market Deposits This represents amounts Due to Other Banks and Money Market Deposits, apart from those designated as at Fair Value through Profit or Loss. When fair value hedge accounting is applied to fixed rate Deposits or Issued Paper, the carrying value at amortised cost is adjusted for changes in fair value related to the hedged risk. Deposits from Customers Deposits from Customers cover all forms of funding apart from Money Market Deposits and include transactional and savings accounts, term deposits and credit balances on cards. Other Liabilities Other Liabilities include the accrual of interest coupons and fees payable. For derivatives any accrued interest is recognised and measured as part of the derivative's fair value. Subordinated Debt Capital instruments are classified as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instrument. Where instruments are determined to contain both liability and equity components, such components are classified separately. The fair value of the liability component is calculated using discounted cash flow models. This amount is recorded as a financial liability on an amortised cost basis until extinguished on redemption of the instrument. The remainder of the proceeds of the instrument are recognised in Equity, net of income tax effects. Subordinated Debt is recognised in the Balance Sheet including accrued interest as both components are subordinate to other liabilities. When fair value hedge accounting is applied to fixed rate Subordinated Debt, the carrying value at amortised cost is adjusted for changes in fair value related to the hedged risk. (g) Derivative Financial Instruments Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices defined in the contract. The Banking Group enters into derivative transactions including foreign exchange contracts, forward rate agreements, futures, options, interest rate swaps, currency swaps and combinations of these instruments. The sale of derivatives to customers as risk management products and their use for trading purposes is integral to the financial markets activities of ASB Bank Limited. Derivatives are also used to manage the Banking Group s own exposure to market risk. The Banking Group recognises derivatives in the Balance Sheet at their fair value. Fair values are obtained from market yields and discounted cash flow models or option pricing models as appropriate. Derivative Assets are the fair value of derivatives which have a positive fair value. Derivative Liabilities are the fair value of derivatives which have a negative fair value. Derivative Financial Instruments at Fair Value through Profit or Loss All derivatives that do not meet the criteria for hedge accounting under NZ IAS 39 Financial Instruments: Recognition and Measurement are classified as at Fair Value through Profit or Loss. This includes derivatives transacted as part of the trading activity of ASB Bank Limited's Treasury and Financial Markets Division, as well as derivatives transacted as economic hedges, but not qualifying for hedge accounting. Changes in fair value are reflected in the Income Statement immediately when they occur. (h) Hedge Accounting The Banking Group uses derivatives as part of its asset and liability management activities to manage exposures to interest rate, foreign currency and credit risks, including exposures arising from forecast transactions. The Banking Group applies either Cash Flow or Fair Value Hedge accounting when transactions meet the specified criteria to obtain hedge accounting treatment. The Banking Group has predominantly used Cash Flow Hedge accounting. The Banking Group also uses non-derivative financial instruments to hedge its net investment in foreign operations. The Banking Group discontinues hedge accounting when it is determined that a hedge has ceased to be highly effective; when the derivative expires, or is sold, terminated, or exercised; when the hedged item matures or is sold or repaid; when a forecast transaction is no longer deemed highly probable; or when the Banking Group elects to revoke the hedge designation. Cash Flow Hedge Accounting A fair valuation gain or loss associated with the effective portion of a derivative designated as a Cash Flow Hedge is recognised initially in Cash Flow Hedge Reserves. The ineffective portion of a fair valuation gain or loss is recognised immediately in the Income Statement. When the transaction or item that the derivative is hedging (including cash flows from transactions that were only forecast when the derivative hedge was effected) affects income or expense then the associated gain or loss on the hedging derivative is simultaneously transferred from Cash Flow Hedge Reserves to the corresponding income or expense line item in the Income Statement. When a hedging derivative expires or is sold, the hedge no longer meets the criteria for hedge accounting, or the Banking Group elects to revoke the hedge designation, the cumulative gain or loss on the hedging derivative remains in the Cash Flow Hedge Reserve until the forecast transaction occurs and affects income, at which point it is transferred to the corresponding income or expense line. If a forecast transaction is no longer expected to occur, the cumulative gain or loss on the hedging derivative previously reported in Cash Flow Hedge Reserves is immediately transferred to Other Income. 16

22 1 Statement of Accounting Policies (continued) (h) Hedge Accounting (continued) Fair Value Hedge Accounting For qualifying Fair Value Hedges the change in fair value of the hedging derivative is recognised within Other Income in the Income Statement. Those changes in fair value of the hedged item which are attributable to the risks hedged with the derivative instrument are reflected as an adjustment to the carrying value of the hedged item, which is also recognised in Other Income. If the hedging instrument expires or is sold, terminated or exercised, if the hedge no longer meets the criteria for hedge accounting, or the Banking Group revokes the hedge designation, the difference between the carrying value of the hedged item at that point and the value at which it would have been carried had the hedge never existed (the "unamortised fair value adjustment") is maintained as part of the carrying value of the hedged item and amortised to the Income Statement based on a recalculated effective interest rate. Net Investment Hedge Accounting Hedges of Net Investments in foreign operations are accounted for in a similar manner to Cash Flow Hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in a separate component of equity. The gain or loss relating to the ineffective portion is recognised in the Income Statement within Other Income. On disposal of the foreign operation, the gain or loss accumulated in equity is transferred to the Income Statement. (i) Leasing Leases under which the Banking Group transfers substantially all the risks and rewards of ownership of an asset to the lessee or a third party are classified as Finance Leases. When assets are held subject to a Finance Lease, the present value of the lease payments including any guaranteed residual value is recognised as a receivable and is reported within Advances to Customers. The difference between the gross receivable and the present value of the receivable is treated as unearned finance income. Lease Income is recognised over the lease term so as to produce a constant periodic rate of return on the net investment in the Finance Lease. Leases where the Banking Group retains substantially all the risks and rewards of ownership of an asset are classified as Operating Leases. Operating Lease rental revenue and expense is recognised in the Income Statement on a straight line basis over the term of the lease, unless another systematic basis is more representative of the time pattern of the benefit received. The Banking Group classifies assets leased out under Operating Leases as Property, Plant and Equipment. The assets are depreciated over their useful lives on a basis consistent with similar assets. (j) (k) (l) (m) Repurchase and Reverse Repurchase Agreements Securities sold under agreements to repurchase are retained within the relevant security portfolio and accounted for accordingly. The obligation to repurchase is recorded as a Money Market Deposit or Due to Other Banks, depending on the counterparty. The difference between the sale and repurchase price represents Interest Expense and is recognised in the Income Statement over the term of the repurchase agreement. Securities held under reverse repurchase agreements are recorded as Money Market Advances or Due from Other Banks, depending on the counterparty. The difference between the purchase and sale price represents Interest Income and is recognised in the Income Statement over the term of the reverse repurchase agreement. Offsetting Financial Instruments The Banking Group offsets financial assets and financial liabilities and reports the net balance in the Balance Sheet where there is a legally enforceable right to set-off and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously. Derecognition of Financial Instruments Financial assets are derecognised either when sold, or when the rights to receive cash flows from the financial assets have expired or have been transferred, or when the Banking Group has transferred substantially all the risks and rewards of ownership. In transactions where substantially all the risk and rewards are neither retained nor transferred, the Banking Group derecognises assets when control is no longer retained, or when control is retained the assets are recognised to the extent of the Banking Group's continuing involvement. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires. Asset Quality IMPAIRED ASSETS Impaired Assets consist of restructured assets, assets acquired through the enforcement of security and other impaired assets. A restructured asset is any credit exposure which is impaired and for which: (a) the original terms have been changed to grant the counterparty a concession that would not otherwise have been available, due to the counterparty's difficulties in complying with the original terms; (b) the revised terms of the facility are not comparable with the terms of new facilities with comparable risks; and (c) the yield on the asset following restructuring is equal to, or greater than, the Banking Group's average cost of funds, or that a loss is not otherwise expected to be incurred. Assets acquired through the enforcement of security are those real estate and other assets acquired in full or partial satisfaction of a debt. Other impaired assets means any Credit Exposure for which an impairment loss is required in accordance with NZ IAS 39. OTHER DEFINITIONS A Past Due Asset is any credit exposure where a counterparty has failed to make a payment when contractually due, and which is not an Impaired Asset. A 90day Past Due Asset is any past due asset which has not been operated by the counterparty within its key terms for at least 90 days and which is not an Impaired Asset. An Asset under Administration is any credit exposure which is not an Impaired Asset or a Past Due Asset but which is to a counterparty: (a) who is in receivership, liquidation, bankruptcy, statutory management or any form of administration in New Zealand; or (b) who is in any other equivalent form of voluntary or involuntary administration in an overseas jurisdiction. A Renegotiated Asset is any credit exposure that would otherwise be past due or impaired whose terms have been renegotiated. 17

23 1 Statement of Accounting Policies (continued) (m) Asset Quality (continued) PROVISION FOR IMPAIRMENT Loans and Receivables are reviewed at each balance date to determine whether there is any objective evidence of impairment. Individually significant assets are reviewed for impairment individually and other assets are reviewed individually or collectively. If any such indication exists, the recoverable amount of the asset or group of assets is estimated and provision is made for the difference between the carrying amount and the recoverable amount. The recoverable amounts of Advances measured at amortised cost are calculated as the present value of the expected future cash flows discounted at the instrument s original effective interest rate for fixed rate Advances and the current effective interest rate for variable rate Advances. Short term balances are not discounted. Objective evidence that a financial asset or portfolio of assets is impaired includes, but is not limited to, observable data that comes to the attention of the Banking Group about the following loss events: (a) (b) (c) (d) (e) significant financial difficulty of the issuer or obligor, or; a breach of contract, such as a default or delinquency in interest or principal payments, or; the Banking Group, for economic or legal reasons relating to the borrower's financial difficulty, granting to the borrower a concession that the lender would not otherwise consider, or; it becoming probable that the borrower will enter bankruptcy or other financial reorganisation, or; the disappearance of an active market for the financial asset because of financial difficulties. Financial Assets at Fair Value through Profit or Loss are not assessed for impairment as their fair valuation reflects the credit quality of the instrument, and changes in fair value are recognised in Other Income. Allowances for credit losses on off balance sheet items such as commitments are reported in Other Liabilities. Advances to Customers Advances are presented net of individually assessed and collective provisions for impairment. Provisions are made against the carrying amount of Advances that are identified as being impaired based on regular reviews of outstanding balances, to reduce these Advances to their recoverable amounts. Collective provisions are maintained to reduce the carrying amount of portfolios of similar Advances to their estimated recoverable amounts as at balance date. These provisions include incurred losses not yet specifically identified in the portfolio. The expected future cash flows for portfolios of similar assets are estimated based on previous experience and considering the credit rating of the underlying customers and late payments of interest or penalties. Increases in the individually assessed and collective provisions are recognised in the Income Statement. When a loan is known to be uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed, and the amount of the loss has been determined. If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the write-off, the write-off or provision is reversed through the Income Statement. Details of the level of provision for impairment and movements during the accounting period are set out in Note 16. (n) Investments in Controlled Entities and Associates Investments in Controlled Entities and Associates are recognised in the Balance Sheet at the lower of cost or recoverable amount. (o) Property, Plant and Equipment Property, Plant and Equipment other than Land and Buildings are recognised in the Balance Sheet at cost less Accumulated Depreciation and Impairment Losses. Land and Buildings are revalued annually to reflect current market value. The valuations are carried out by independent registered valuers in May of each year. The valuers are all Associate Members of the New Zealand Institute of Valuers and the major valuers are Jones Lang LaSalle Advisory Limited (Auckland), Perry Heavey & Company Limited (Auckland) and Robisons (Whangarei). Changes in valuations are transferred directly to Asset Revaluation Reserves. Where such a transfer results in a debit balance in the Asset Revaluation Reserve of any individual asset the loss is recognised in the Income Statement, and any subsequent revaluation gains are written back through the Income Statement to the extent of past losses written off. The cost or revalued amount of Property, Plant and Equipment (excluding Land) less the estimated residual value is depreciated over their useful lives on a straight line basis. The range of useful lives of the major assets are: Buildings years Furniture and Fittings 5-25 years Computer and Office Equipment, and Operating Software 3-10 years Other Property, Plant and Equipment 2-25 years The assets' residual values, useful lives and depreciation methods are reviewed and adjusted if appropriate at each balance date. Assets are reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. For revalued assets the write-down is treated in the same way as adjustments arising from revaluations described above. For other assets the impairment loss is recognised as an expense. The recoverable amount is the higher of the asset's fair value less costs to sell and value in use. Where the Banking Group expects the carrying amount of assets held within Property, Plant and Equipment to be recovered principally through a sale transaction rather than through continuing use, these assets are classified as Held for Sale. 18

24 1 Statement of Accounting Policies (continued) (p) Intangible Assets Intangible Assets comprise Goodwill acquired in a business combination, and acquired Computer Software licences as well as certain acquired and internally generated application software. GOODWILL Goodwill, representing the excess of the purchase consideration over the fair value of the identifiable net assets of a controlled entity at the date of gaining control, is capitalised and recognised in the Balance Sheet. Goodwill has an indefinite life. The carrying value of Goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. If any such indication exists, the asset's recoverable amount is estimated, and an impairment loss is recognised under Operating Expenses in the Income Statement for the difference between the carrying amount and the recoverable amount. Impairment losses on Goodwill are not reversed. For the purposes of impairment testing, Goodwill is allocated to cash generating units or groups of units. A cash generating unit is the smallest identifiable group of assets that generate independent cash flows. Goodwill is allocated by the Banking Group to cash generating units or groups of units based on how Goodwill is monitored by management. Gains and losses on the disposal of an entity include the carrying value of Goodwill relating to the entity sold. COMPUTER SOFTWARE Acquired Computer Software licences are capitalised on the basis of costs incurred to acquire and bring to use the specific software. These costs are amortised over their expected useful lives (three to four years) on a straight line basis. The Banking Group generally expenses Computer Software costs in the period incurred. However, some costs associated with developing identifiable and unique software products controlled by the Banking Group, including employee costs and an appropriate portion of relevant overheads are capitalised and treated as Intangible Assets. These assets are amortised using the straight line method over their useful lives (not exceeding three years). Computer Software is subject to the same impairment review process as Property, Plant and Equipment. Any impairment loss is recognised under Operating Expenses in the Income Statement. (q) Taxation Income tax on Net Profit for the year comprises current and deferred tax. Income tax is recognised in the Income Statement except to the extent that it relates to items recognised directly within Equity, in which case it is recognised directly in Equity. Current tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted as at balance date after taking advantage of all allowable deductions under current taxation legislation and any adjustment to tax payable in respect of previous financial years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at balance date. In accordance with NZ IAS 12 Income Taxes, a Deferred Taxation Asset is recognised only to the extent that it is probable (i.e. more likely than not) that a future taxable profit will be available against which the asset can be utilised. Deferred Taxation Assets are reduced to the extent that is no longer probable that the related tax benefit will be realised. Deferred tax related to fair value re-measurement of Available for Sale Financial Assets, Cash Flow Hedges and the revaluation of Non-current Assets, which are charged or credited directly to Equity, is also credited or charged directly to Equity and is subsequently recognised in the Income Statement if and when the deferred gain or loss on the related asset or liability affects income. (r) (s) Provisions A provision is recognised in the Balance Sheet when the Banking Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. Contingent Liabilities and Credit Commitments The Banking Group is involved in a range of transactions that give rise to contingent and / or future liabilities. The Banking Group discloses a Contingent Liability when it has a possible obligation arising from past events, that will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the Banking Group's control. A Contingent Liability is disclosed when a present obligation is not recognised because it is not probable that an outflow of resources will be required to settle an obligation, or the amount of the obligation cannot be measured with sufficient reliability. The Banking Group issues commitments to extend credit, letters of credit, guarantees and other credit facilities. These financial instruments attract fees in line with market prices for similar arrangements. They are not sold or traded. The items generally do not involve cash payments other than in the event of default. The fee pricing is set as part of the broader customer credit process and reflects the probability of default. They are disclosed as Contingent Liabilities at their face value. The fair values of guarantees are not considered to be material. (t) Securitisation, Funds under Management and Other Fiduciary Activities Certain subsidiaries of ASB Bank Limited act as manager for a number of unit trusts and superannuation investment funds. The assets and liabilities of these trusts and funds are not included in the consolidated financial statements as the Banking Group does not have direct or indirect control of the trusts and funds. Commissions and fees earned in respect of the activities are included in Total Operating Income. Securitised assets are derecognised when the right to receive cash flows have expired or the Banking Group has transferred substantially all the risks and rewards of ownership. 19

25 1 Statement of Accounting Policies (continued) (u) Cash Flow Statement This has been prepared using the direct approach modified by the netting of cash flows associated with Securities, Due from / to Other Banks, Advances and Deposits. This method provides more meaningful disclosure as many cash flows are on behalf of the Banking Group's customers and do not reflect the activities of the Banking Group. Cash and Cash Equivalents comprises Cash, Cash at Bank, Cash in Transit and Call Deposits Due from / to Other Banks, all of which are used in the day-to-day cash management of the Banking Group and are subject to an insignificant risk of changes in value. FAIR VALUE ESTIMATES For financial instruments not presented in the Banking Group's Balance Sheet at their fair value, fair value is estimated as follows: Cash and Call Deposits with the Central Bank These assets are short term in nature and the related carrying value is equivalent to their fair value. Due from Other Banks Amounts booked in ASB Bank Limited are carried at fair value. For other Floating Rate Advances, the carrying amount in the Balance Sheet is considered a reasonable estimate of their fair value after making allowances for the fair value of non-accrual and potential problem loans. For other Fixed Rate Advances, fair value is estimated using discounted cash flow models based on the interest rate repricing of the Advances. Discount rates applied in this calculation are based on current market interest rates for Advances with similar credit and maturity profiles. Advances to Customers For Floating Rate Advances, the carrying amount in the Balance Sheet is considered a reasonable estimate of their fair value after making allowances for the fair value of non-accrual and potential problem loans. For Fixed Rate Advances, fair value is estimated using discounted cash flow models based on the interest rate repricing of the Advances. Discount rates applied in this calculation are based on current market interest rates for Advances with similar credit and maturity profiles. Due to Other Banks, Money Market Deposits, Deposits from Customers and Other Liabilities For Non-interest Bearing Debt, call and variable rate Deposits, the carrying amounts in the Balance Sheet are a reasonable estimate of their fair value For other term Deposits and fixed rate Issued Paper, fair value is estimated using discounted cash flow models based on the maturity of the instruments. The discount rates applied in this calculation are based on current market interest rates for similar instruments with similar maturity profiles. For all Other Liabilities, the carrying amount in the Balance Sheet is a reasonable estimate of their fair value. Subordinated Debt Where there are publicly traded securities of similar maturity, credit and yield characteristics, the estimated fair value of Subordinated Debt is based on quoted market rates. Otherwise, fair value is estimated using discounted cash flow models based on the maturity of the debt. Off Balance Sheet Items For those off balance sheet items such as Direct Credit Substitutes (including acceptance and endorsement of Bills of Exchange), Trade Related Items and Commitments, no secondary market exists and it is therefore not practical to obtain fair values for those instruments. These items have therefore been excluded from fair value calculations. COMPARATIVE DATA From 1 May 2009 the organisation design of ASB Bank Limited has been restructured, resulting in changes to internal financial reporting. Business Segments in Note 44 have been updated to reflect the new structure. Comparative data for the year ended 30 June 2008 has been restated on the same basis. Certain other comparative figures have been reclassified to conform with the current year's presentation. 20

26 1 Statement of Accounting Policies (continued) GLOSSARY OF TERMS Amortised Cost of Financial Asset or Financial Liability The amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility. Available for Sale Financial Asset Non-derivative financial assets intended to be held for an indefinite period of time, and which may be sold in response to needs for liquidity or changes in interest rates or exchange rates. They are recognised on acquisition and subsequently at fair value. Changes in the value of Available for Sale Financial Assets are reported in an Available for Sale Reserve, until the assets are sold or otherwise disposed of, or until they are impaired. On disposal the accumulated change in fair value is transferred to the Income Statement and reported under Other Income. Interest, premiums and discounts are amortised through the Income Statement using the effective interest method. Cash Flow Hedge A hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction, and could affect profit or loss. Effective Interest Method A method of calculating the amortised cost of a financial asset or financial liability (or group of financial assets or financial liabilities) and of allocating the Interest Income or Interest Expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Banking Group estimates cash flows considering all contractual terms of the financial instrument, but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. The interest income or expense is allocated through the life of the instrument and is measured for inclusion in the Income Statement by applying the effective interest rate to its amortised cost. Fair Value The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. Fair Value Hedge A hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. Financial Instruments at Fair Value through Profit or Loss All financial assets and financial liabilities held for trading and any financial asset or financial liability that on initial recognition is designated by the Banking Group as at Fair Value through Profit or Loss. Assets and Liabilities in this category are measured at fair value. Gains or losses arising from changes in fair value are recognised in Other Income. Hedge Effectiveness The degree to which changes in the fair value or cash flows of the hedged items that are attributable to the hedged risk are offset by changes in the fair value or cash flows of the hedging instrument. Hedge Ineffectiveness The amount by which changes in the cash flow of the hedging derivative differ from changes in the cash flow of the hedged item, or the amount by which the changes in the fair value of the hedging derivative differ from changes in the fair value of the hedged item. Such gains and losses are recorded in current period earnings. Hedged Item An asset, liability, firm commitment or highly probable forecast transaction that exposes the Banking Group to risk of changes in fair value or cash flows, and that is designated as being hedged. Hedging Instrument A designated derivative, the changes in fair value or cash flows of which are expected to offset changes in the fair value or cash flows of a designated hedged item. Held to Maturity Investments Non-derivative financial assets with fixed or determinable payments and a fixed maturity that the Banking Group has a positive intention and ability to hold to maturity. They are measured at amortised cost using the effective interest method. Impairment Loss The amount by which the carrying amount of an asset exceeds its recoverable amount. Loans and Receivables Non-derivative financial assets with fixed or determinable payments that are not quoted on an active market are measured at amortised cost using the effective interest method. 21

27 $ millions Banking Group Registered Bank Interest Income Central Bank Deposits Advances at Fair Value through Profit or Loss Securities Due from Other Banks at Amortised Cost Advances to Customers 4,678 4, Other Total Interest Income 5,165 5, Interest Income on Advances to Customers for the year ended 30 June 2009 included interest earned of $20.6m on Impaired Assets and $0.5m on Restructured Assets for the Banking Group and Nil for the Registered Bank (30 June 2008 $3m and Nil respectively for the Banking Group and the Registered Bank). 3 Interest Expense Deposits at Fair Value through Profit or Loss Certificates of Deposit Issued Paper Term Deposits Deposits Bearing Interest (on Demand and Short Term) Derivative Instruments not in Hedge Relationships Deposits at Amortised Cost Certificates of Deposit Due to Other Banks Issued Paper Term Deposits from Customers 1,275 1, Other Interest Bearing Deposits from Customers ,616 2, Subordinated Debt Other Total Interest Expense 4,150 4, Discontinued Activities There were no discontinued activities during the year ended 30 June 2009 (30 June 2008 Nil). 5 Other Income Services and Commission Income Lending and Credit Facility Related Fee Income Other Fees Received Total Services and Commission Income Services and Commission Expense Lending and Credit Facility Related Fee Expense (44) (41) - - Other Fees Paid (12) (6) - - Total Services and Commission Expense (56) (47) - - Net Foreign Exchange Earnings and Commissions Net Foreign Exchange Translation Gain / (Loss) on Financial Instruments not measured at Fair Value 658 (1,156) 658 (1,156) Net Fair Value Gain / (Loss) from: Trading Securities Derivatives Transacted as Hedges but not Qualifying for (130) (82) 10 (2) Hedge Accounting Other Derivatives 1,704 2,021 (658) 1,156 Financial Assets Designated as at Fair Value through Profit or Loss Financial Liabilities Designated as at Fair Value through Profit or Loss (2,619) (1,022) - - Available for Sale Financial Assets Total Net Fair Value (Loss) / Gain (698) 1,158 (648) 1,154 Ineffective Portion of Hedges: Fair Value Hedge Ineffectiveness: Loss on Hedged Items (235) (120) (142) (123) Gain on Hedging Instruments Cash Flow Hedge Ineffectiveness 13 (11) - (2) Total Ineffective Portion of Hedges 9 (19) - (2) 22

28 $ millions Banking Group Registered Bank Other Income (continued) Other Operating Income Net Loss on Disposal of Property, Plant and Equipment (2) (1) - - Dividends Received from Controlled Entities and Associates Other Dividends Received Other (2) (2) - - Total Other Operating Income (2) Total Other Income Operating Expense Disclosures Depreciation Buildings Furniture and Fittings Computer and Office Equipment and Operating Software Total Depreciation Operating Lease Rentals Amortisation of Intangible Assets Auditor's Remuneration PricewaterhouseCoopers is the appointed auditor of the Banking Group. Audit fees of $1,789,000 for the Banking Group and $129,000 for the Registered Bank were paid to PricewaterhouseCoopers during the year ended 30 June 2009 (30 June 2008 $1,391,000 and $145,000). Fees for Other Services of $1,072,000 for the Banking Group and Nil for the Registered Bank were paid to PricewaterhouseCoopers during the year ended 30 June 2009 (30 June 2008 $643,000 and $9,000). 8 Taxation Current Taxation Deferred Taxation (refer to Note 21) (66) (66) (15) - Total Income Tax Charged to the Income Statement The Taxation Expense on the Banking Group's Net Profit before Taxation differs from the theoretical amount that would arise using the domestic tax rate as follows: Net Profit before Taxation Tax at the Domestic Rate of 30% (33% in Comparative Periods) Tax Effect of Income not Subject to Taxation (41) (61) - - Tax Effect of Expenses not Deductible for Taxation Purposes Tax Effect of Imputation Credit adjustments (2) (10) - - Tax Effect of Prior Period Adjustments Tax Effect of Change to Domestic Rate Taxation Expense Weighted Average Applicable Tax Rate 34.5% 30.8% 32.4% 34.4% In May 2007 legislation was passed to reduce the New Zealand corporate tax rate from 33% to 30%, effective for the 2009 income tax year. The tax effect shown is the impact on the value of Deferred Tax as a result of the reduction in the corporate tax rate from 1 July 2008 (refer to Note 21). 9 Dividends Ordinary Dividends Redeemable Preference Dividends Total Dividends , no dividends on Ordinary Shares were paid by members of the Banking Group (30 June 2008 $510m paid by ASB Holdings Limited, being $0.98 per share and $1.4m paid by CBA Funding (NZ) Limited, being $2.49 per share.) dividends on Redeemable Preference Shares were $57m (8.16 cents per share) paid by CBA Funding (NZ) Limited (30 June 2008 $57m paid by CBA Funding (NZ) Limited being 8.16 cents per share). 23

29 $ millions As at 30 June Banking Group Registered Bank Cash and Call Deposits with the Central Bank Cash and Cash at Bank Cash in Transit 35 (1) - - Cash and Call Deposits with the Central Bank 1,439 1, Total Cash and Call Deposits with the Central Bank 1,582 1, Due from Other Banks Call 1, Term ,250 3,729 Total Due from Other Banks 1, ,250 3,738 Amounts Due from Other Banks are measured as follows: (a) At Fair Value through Profit or Loss Call 1, Term Total at Fair Value through Profit or Loss 1, (b) At Amortised Cost Call Term ,250 3,729 Total at Amortised Cost ,250 3,738 Fair Value of collateral accepted for Loans to Other Banks, which the Banking Group is permitted to sell or repledge: Other Government Securities accepted Other Securities accepted No securities have been repledged as at 30 June 2009 (30 June 2008 Nil). ASB Bank Limited has entered into Credit Support Annexes ("CSA") in respect of certain credit exposures relating to derivative transactions. As at 30 June 2009 $1,124m included in Due from Other Banks at Call was advanced as collateral to offset Derivative Liabilities (30 June 2008 Nil). The Banking Group has not reclassified any amounts Due from Other Banks as measured at amortised cost rather than fair value during the year ended 30 June 2009 (30 June 2008 Nil). 12 Money Market Advances Call Term 73 1, Total Money Market Advances 159 1, ASB Bank Limited has entered into CSA's in respect of certain credit exposures relating to derivative transactions. As at 30 June 2009 $46m included in Money Market Advances at Call was advanced as collateral to offset Derivative Liabilities (30 June 2008 Nil). No collateral has been accepted for Money Market Advances (30 June 2008 Nil). No securities have been repledged as at 30 June 2009 (30 June 2008 Nil). no loss was attributable to changes in credit risk for Money Market Advances designated at Fair Value through Profit or Loss (30 June 2008 $2m). The maximum exposure to credit risk for Advances at Fair Value through Profit or Loss is represented by their carrying values. 13 Securities Trading Securities Local Authority Securities New Zealand Government Securities Treasury Bills 2, Bank Bills 1,918 1, Other 1, ,056 3, Other Securities Designated as at Fair Value through Profit or Loss Debt Securities 685 1, Equity Securities , Total Securities at Fair Value through Profit or Loss 6,741 5, Securities Designated as Available for Sale Equity Securities Total Securities 6,773 5, Fair Value of Securities pledged under repurchase agreements or other arrangements: New Zealand Government Securities The Banking Group has not reclassified any Securities as measured at amortised cost rather than fair value or as measured at fair value rather than amortised cost during the year ended 30 June 2009 (30 June 2008 Nil). 24

30 14 Derivative Financial Instruments Derivatives not qualifying for hedge accounting treatment are classified as at Fair Value through Profit or Loss. Refer to Note 1(g) and (h) for an explanation of the Banking Group's accounting policies for Derivatives. ASB Bank Limited has entered into CSA in respect of certain derivative counterparties. These CSA s compel ASB Bank Limited or the Counterparty to collateralise the market value of outstanding derivative transactions. As at 30 June 2009 ASB Bank Limited had placed $1,170m of cash collateral against Derivative Liabilities and taken $24m of collateral against Derivative Assets (30 June 2008 Nil). HEDGE ACCOUNTING Cash Flow Hedges The Banking Group hedges the forecasted interest cash flows from floating rate deposits and the roll-over of short term fixed rate funding arrangements using Cross Currency and Interest Rate Swaps. As at 30 June 2009 there were no transactions where cash flow hedge accounting ceased during the year as a result of highly probable cash flows no longer expected to occur (30 June 2008 Nil). Fair valuation gains and losses deferred in Cash Flow Hedge Reserves will be transferred to Profit or Loss over the next one to five years, as the cash flows under the hedged transactions occur. Fair Value Hedges ASB Bank Limited uses Interest Rate Swaps to hedge the interest rate risk exposure of a portion of its portfolio of fixed rate mortgage loans. Interest Rate and Cross Currency Swaps have also been used to hedge certain fixed rate funding arrangements, included in Money Market Deposits and Subordinated Debt. Net Investment Hedges The Banking Group previously hedged its net investment in a foreign subsidiary with foreign currency borrowings. Refer to Note 31 for further details. Notional Fair Value Notional Fair Value $ millions Amount Assets Liabilities Amount Assets Liabilities As at 30 June 2009 AT FAIR VALUE THROUGH PROFIT OR LOSS Exchange Rate Contracts Forward Contracts 12, (688) Swaps 10, (314) 2, Options 75 2 (1) Total Exchange Rate Contracts 23, (1,003) 2, Interest Rate Contracts Forward Contracts 5,604 2 (1) Swaps 78,055 1,751 (2,054) Futures 14,304 1 (2) Options (5) Total Interest Rate Contracts 98,951 1,759 (2,062) Commodity Contracts Forward Contracts Total at Fair Value through Profit or Loss 122,101 1,986 (3,065) 2, DESIGNATED AS CASH FLOW HEDGES Exchange Rate Contracts Swaps 2,230 - (169) (117) Interest Rate Contracts Swaps 25, (907) Total Designated as Cash Flow Hedges 27, (1,076) (117) DESIGNATED AS FAIR VALUE HEDGES Banking Group Registered Bank Exchange Rate Contracts Swaps 1,074 - (29) 1,074 - (29) Interest Rate Contracts Swaps 4, (69) 2, (5) Total Designated as Fair Value Hedges 5, (98) 3, (34) Total Recognised Derivative Assets / (Liabilities) 155,295 2,517 (4,239) 6, (151) 25

31 14 Derivative Financial Instruments (continued) Banking Group Registered Bank Notional Fair Value Notional Fair Value $ millions Amount Assets Liabilities Amount Assets Liabilities As at 30 June 2008 AT FAIR VALUE THROUGH PROFIT OR LOSS Exchange Rate Contracts Forward Contracts 13, (34) Swaps 11, (301) 2, (235) Options Total Exchange Rate Contracts 25, (335) 2, (235) Interest Rate Contracts Forward Contracts 16,012 2 (2) Swaps 49, (375) Futures 8,883 2 (2) Options 3,435 2 (2) Total Interest Rate Contracts 78, (381) Equity Contracts Options 47 9 (4) Commodity Contracts Forward Contracts Total at Fair Value through Profit or Loss 103, (720) 2, (235) DESIGNATED AS CASH FLOW HEDGES Exchange Rate Contracts Swaps 3, (15) 1, (13) Interest Rate Contracts Swaps 28, (234) (4) Total Designated as Cash Flow Hedges 31, (249) 1, (17) DESIGNATED AS FAIR VALUE HEDGES Exchange Rate Contracts Swaps (197) (197) Interest Rate Contracts Swaps 4, (27) 1, (1) Total Designated as Fair Value Hedges 5, (224) 2, (198) Total Recognised Derivative Assets / (Liabilities) 140,579 1,249 (1,193) 6, (450) 26

32 $ millions Banking Group Registered Bank As at 30 June Advances to Customers Loans and Other Receivables 59,114 55,891 5,706 6,542 Fair Value Hedge Adjustments Provisions for Impairment (323) (122) (62) (13) Total Advances to Customers 58,846 55,773 5,648 6,530 During the year ended 30 June 2009 ASB Bank Limited established an in house residential mortgage backed securities ("RMBS") facility, which can issue securities that are acceptable as collateral for borrowing from the Reserve Bank of New Zealand ("RBNZ"). As at 30 June 2009 housing loans to the value of $4.1b had been internally securitised through the Medallion NZ Series Trust R. The securitised assets remain on the Banking Group's Balance Sheet and are included in Advances to Customers, as ASB Bank Limited retains a continuing involvement in the transferred assets (funding, liquidity and credit risk remains with ASB Bank Limited). As at 30 June 2009 the Banking Group had undertaken repurchase agreements of $200m with the RBNZ, with underlying RMBS of $245m provided as collateral under this arrangement. Advances to Customers include Finance Lease Receivables as follows: Gross Investment in Finance Lease Receivables No later than 1 year Later than 1 year and no later than 5 years Later than 5 years Less Unearned Future Finance Income Net Investment in Finance Leases The Net Investment in Finance Leases may be analysed as follows : No later than 1 year Later than 1 year and no later than 5 years Later than 5 years Net Investment in Finance Leases In May 2007 the Banking Group entered into a 10 year finance leasing arrangement with an airline over two freighter aircraft. Under this arrangement the lessee bears the risk associated with changes in the fair value of the aircraft. In June 2007 the Banking Group also entered into a 9 year leasing arrangement of a ferry. The lessee has provided an indemnity covering any loss the Banking Group may bear upon the sale of the ferry at the end of the lease term. 16 Credit Risk Management and Asset Quality Credit Risk Management Credit risk is the potential risk for loss arising from failure of a debtor or counterparty to meet their contractual obligations. Credit risk principally arises within the Banking Group from its core business in providing lending facilities. Credit risk also arises from the Banking Group assuming contingent liabilities, taking equity participations, participating in financial market transactions and assuming underwriting commitments. The Banking Group is selective in targeting credit risk exposures and avoids exposures to any high risk area. The respective Board Audit and Risk Committees of ASB Bank Limited and CBA operate under charters by which they oversee credit management policies and practices. The Committees ensure that credit policies and portfolio standards designed to achieve portfolio outcomes consistent with the risk / return expectations of ASB Bank Limited and the Registered Bank respectively, are in place and maintained. In addition, the Committees review and adjust where appropriate the risk appetite of ASB Bank Limited and the Registered Bank. The Committees also approve large individually significant provisions or write offs, and impairment provisioning amounts each half year. A system of industry limits and a large credit exposure policy assist in the diversification of the credit portfolio. These policies are an important part of portfolio management objectives to create a diversified portfolio avoiding significantly large concentrations of economically related credit risk exposures. ASB Bank Limited and the Registered Bank have comprehensive, clearly defined credit policies for the approval and management of all credit risk including risk to other bank and related counterparties. Lending standards and criteria are clearly defined into different business sectors for all ASB Bank Limited and Registered Bank products and incorporate income/repayment capacity, acceptable terms and security and loan documentation tests. While ASB Bank Limited and the Registered Bank apply policies, standards and procedures in governing the credit process, the management of credit risk also relies on the application of judgement and the exercise of good faith and due care of relevant staff within their delegated authority. Credit Risk Measurement The measurement of credit risk utilises analytical tools to calculate both expected and unexpected loss possibilities for the credit portfolio. This includes consideration of the probability of default ("PD"), the exposure at the time of default ("EAD") and the loss given default ("LGD") that would likely be experienced as a consequence. The PD is the estimate of the probability that a client will default within the next 12 months. It reflects a client's ability to generate sufficient cash flows into the future to meet the terms of all its credit contracts with the Banking Group. EAD is the proportion of a facility that may be outstanding in the event of default. It is expressed as a percentage of the facility limit. LGD is the proportion of a facility estimated likely to be lost in the event of default. It is expressed as a percentage. LGD is impacted by the type and level of any collateral held. The Expected Loss ("EL") is the product of the PD, EAD and the LGD. An EL will be recorded for every facility including those that are retail. 27

33 16 Credit Risk Management and Asset Quality (continued) Collateral Security ASB Bank Limited and the Registered Bank assess the integrity and ability of debtors or counterparties to meet their contracted financial obligations fo repayment. Collateral security in the form of real property or a security interest in personal property is generally taken for business credit except for major government, bank and corporate counterparties of strong financial standing. Longer term consumer finance (e.g. housing loans), is generally secured against real estate while short term revolving consumer credit is generally unsecured. ASB Bank Limited and the Registered Bank have policies and procedures in place setting out the circumstance where acceptable and appropriate collateral is to be taken, including valuation parameters, review frequency and independence of valuation. Main collateral types include: residential mortgages; charge over properties being financed; cash (usually in the form of a charge over a Term Deposit); guarantees by company directors supporting commercial lending; a floating charge over a company's assets, including stock and receivables; and a charge over stock or scrip. Asset Quality Credit risk is divided into the Retail segment and the Corporate segment. A different approach is used in each to determine an overall credit grade based on EL. These ratings equate to each other as follows: Overall Credit Grade Retail Grade Corporate Grade Banking Group Rating Classification Low EL Pool 1 CRR* 1-3 Corporate facilities demonstrating financial condition and capacity to repay that are good to exceptional. Retail facilities with low expected loss. Moderate EL Pool 2 CRR 4-6 Corporate facilities demonstrating financial condition and capacity to repay that are acceptable to good. Retail facilities with moderate expected loss. High EL Pool 3 CRR 7-9 Corporate facilities that require varying degrees of special attention (not necessarily contractually past due). Retail facilities operating outside of agreed arrangements. These ratings equate to the rating classifications of the RBNZ as follows: RBNZ Classification Retail Grade Corporate Grade Banking Rating Classification Pass Grades Pool 1-2 CRR 1-6 Pass Grades Special Mention Past Due CRR 7 Troublesome Substandard Past Due CRR 8 Troublesome Doubtful / Non-accrual Default CRR 9 Impaired / Loss *Credit Risk Rating ("CRR") Retail The Retail segment comprises housing loans, credit cards, other personal credit facilities and most secured business lending up to $1m. These portfolios are managed using statistical origination and account management techniques. Retail facilities are assigned to a PD, EAD and LGD pool based on observed and predicted outcomes for facilities with similar characteristics. The overall credit grading pool is based on the EL that results from the product of PD, EAD and LGD for each facility. Facilities in the Retail segment become classified for remedial management by centralised units based on delinquency status. Retail origination processes are reviewed by the relevant Quality Assurance unit. Credit process overview is provided by the independent Risk Asset Review unit. Corporate Corporate exposures comprise commercial exposures, including bank and government exposures. A Credit Risk Rating ("CRR") is recorded against every corporate facility. Credit risk rated exposures are reviewed at least annually and the CRR reassessed. PD and LGD are determined using individual assessment tools. The CRR is determined by reference to a matrix where PD and LGD combine to produce a numeric CRR grade which represents a range of EL. CRRs fall into two categories: Pass CRR of 1-6. These credit facilities qualify for approval of new or increased exposure on normal commercial terms. Troublesome and Impaired Assets ("TIAs") CRR of 7-9. These credit facilities are not eligible for increases in exposure unless it will protect or improve the Banking Group s position by maximising recovery prospects or to facilitate rehabilitation. The Corporate segment is subject to inspection by the Risk Asset Review unit, which is independent of the originating business units and which reports on its findings to the Board Risk Committee. Credit processes, including compliance with policy and portfolio standards, and application of risk ratings, are examined, and reported where cases of non-compliance are observed. 28

34 16 Credit Risk Management and Asset Quality (continued) Impairment and Provisioning of Financial Assets Default is defined as any one of the following: > A contractual payment is overdue by more than 90 days. > An approved overdraft limit has been exceeded for more than 90 days. > ASB Bank Limited or the Registered Bank become aware that the client will not be able to meet future repayments or service alternative acceptable repayment arrangements e.g. the client has been declared bankrupt. > ASB Bank Limited or the Registered Bank have determined that full recovery of both principal and interest is unlikely. This may be the case even if all the terms of the client's credit facilities are currently being met. > A credit obligation is sold at a material credit related economic loss. In addition to the credit risk management processes used to manage exposures to credit risk in the credit portfolio, the internal ratings process also assists management in assessing the requirements of NZ IAS 39 relating to impairment and provisioning of financial assets. Provisions for impairment are raised where there is objective evidence of impairment and at an amount adequate to cover estimated credit related losses. Credit losses arise primarily from loans but also from other credit instruments such as Bank acceptances, contingent liabilities, guarantees and other financial instruments and assets acquired through security enforcement. Impairment losses are recognised to reduce the carrying amount of loans and advances to their estimated recoverable amounts. Individually assessed provisions are made against individually significant financial assets when there is objective evidence that either ASB Bank Limited or the Registered Bank will not be able to collect all amounts due. The amount of the impairment/loss is the difference between the carrying amount and the recoverable amount, calculated as the present value of expected cash flows, including amounts recoverable from guarantees and collateral (and cost of recovery), discounted at the original effective interest rate. Interest continues to be accrued on impaired loans based on the revised carrying amounts and using appropriate effective interest rates. Corporate portfolios are assessed for objective evidence that the financial asset or portfolio of assets is impaired. Impaired assets in the Corporate segment include those facilities where an individually assessed provision for impairment has been raised, the facility is maintained on a cash basis, a loss of principal or interest is anticipated, facilities have been restructured or other assets have been accepted in satisfaction of an outstanding debt. ASB Bank Limited and the Registered Bank recognise collective provisions for impairment where there is objective evidence that components of a loan portfolio with similar credit risk characteristics contain probable losses at the balance sheet date that will be individually identified in the future, or where insufficient data exists to reliably determine whether such losses exist. The estimated probable losses are based upon historical patterns of losses. The calculations are based on statistical methods of credit risk measurement. The provisions for impairment take into account current cyclical developments as well as economic conditions in which the borrowers operate and are subject to management review, experienced judgement, and adjustment where necessary to reflect these and other relevant factors in individual portfolios. 29

35 $ millions Banking Group Registered Bank Residential Mortgages (1) Other Retail Corporate Total Corporate (2) 16 Credit Risk Management and Asset Quality (continued) (a) Credit Quality Information for Advances to Customers As at 30 June 2009 Gross Advances to Customers by Credit Quality Neither Past Due Nor Impaired 34,120 3,681 17,436 55,237 5,638 Past Due 2, ,457 - Impaired Total Gross Advances to Customers by Credit Quality 36,951 4,055 18,108 59,114 5,706 (1) The Residential Mortgages asset class consists of mortgages which are secured by residential properties. (2) Total Gross Advances to Customers for the Registered Bank comprises Corporate customers only. Neither Past Due Nor Impaired The credit quality of advances that were neither past due nor impaired can be assessed by reference to the Banking Group's internal rating system : Low Expected Loss 33, ,620 43,874 4,460 Medium Expected Loss 340 3,186 6,847 10,373 1,115 High Expected Loss Total Advances Neither Past Due Nor Impaired 34,120 3,681 17,436 55,237 5,638 Aging Analysis of Past Due Assets Less than 30 days 1, , to 59 days to 89 days Over 90 days Total Past Due Assets 2, , day Past Due Assets Balance at Beginning of Year Additions Less: Amounts Written Off Balance at End of Year There were no Undrawn balances on lending commitments to counterparties within the 90-day Past Due Asset category as at 30 June 2009 (30 June 2008 Nil) for both Banking Group and Registered Bank. IMPAIRED ASSETS Restructured Assets Balance at Beginning of Year Additions Balance at End of Year Other Individually Impaired Assets Balance at Beginning of Year Additions Less: Amounts Written Off Gross Advances Individually Determined to be Impaired Less: Individually Assessed Provisions Net Advances Individually Determined to be Impaired Total Impaired Assets Undrawn balances on lending commitments to counterparties within the Impaired Asset category were $8m for Banking Group and Nil for Registered Bank as at 30 June 2009 (30 June 2008 $1m and Nil). The facilities that are reported as impaired and past due are collateralised in terms of Banking Group policy. For further details refer to the Credit Risk Management and Asset Quality policies. Other Assets Under Administration Balance at Beginning of Year Additions Balance at End of Year

36 $ millions Banking Group Registered Bank Residential Mortgages (1) Other Retail Corporate Total Corporate (2) 16 Credit Risk Management and Asset Quality (continued) (a) Credit Quality Information for Advances to Customers (continued) As at 30 June 2009 (continued) Undrawn balances on lending commitments to counterparties within the Other Assets Under Administration category were $2m for Banking Group and Nil for Registered Bank as at 30 June 2009 (30 June 2008 $1m for Banking Group and Nil for Registered Bank). As at 30 June 2009 neither the Banking Group nor the Registered Bank had any restructured assets or financial assets, real estate assets or other assets acquired through enforcement of security (30 June 2008 Nil). As at 30 June 2008 Gross Advances to Customers by Credit Quality Neither Past Due Nor Impaired 33,183 3,556 15,971 52,710 6,502 Past Due 2, , Impaired Total Gross Advances to Customers by Credit Quality 35,508 3,927 16,456 55,891 6,542 (1) The Residential Mortgages asset class consists of mortgages which are secured by residential properties. (2) Total Gross Advances to Customers for the Registered Bank comprises Corporate customers only. Neither Past Due Nor Impaired The credit quality of advances that were neither past due nor impaired can be assessed by reference to the Banking Group's internal rating system: Low Exposure Loss 33,015 1,770 10,558 45,343 5,784 Medium Exposure Loss 168 1,781 5,253 7, High Exposure Loss Total Advances Neither Past Due Nor Impaired 33,183 3,556 15,971 52,710 6,502 Aging Analysis of Past Due Assets Less than 30 days 1, , to 59 days to 89 days Over 90 days Total Past Due Assets 2, , day Past Due Assets Balance at Beginning of Year Additions Less: Amounts Written Off Balance at End of Year IMPAIRED ASSETS Other Individually Impaired Assets Balance at Beginning of Year Additions Less: Amounts Written Off Gross Advances Individually Determined to be Impaired Less: Individually Assessed Provisions Net Advances Individually Determined to be Impaired As at 30 June 2008, neither the Banking Group nor the Registered Bank had any Restructured Assets Other Assets Under Administration Balance at Beginning of Year Additions / (Deletions) 2 (1) Balance at End of Year

37 $ millions Banking Group Registered Bank Residential Mortgages Other Retail Corporate Total Corporate 16 Credit Risk Management and Asset Quality (continued) (b) Provisions for Impairment Loss As at 30 June 2009 Collective Provision Balance at Beginning of Year Charged to Income Statement Balance at End of Year Individually Assessed Provisions Balance at Beginning of Year Add / (Less): Charged to Income Statement: New Provisions Amounts Recovered - (1) (11) (12) - Write Offs Against Individually Assessed Provisions (9) (3) (40) (52) (18) Balance at End of Year Total Provisions for Impairment Loss Impairment Losses Charged to the Income Statement Movement in Collective Provision Movement in Individually Assessed Provisions Bad Debts Written Off Bad Debts Recovered (2) (1) (1) (4) - Total Impairment Losses Charged to the Income Statement As at 30 June 2008 Collective Provision Balance at Beginning of Year Charged to Income Statement 11 (8) Balance at End of Year Individually Assessed Provisions Balance at Beginning of Year Add / (Less): Charged to Income Statement: New Provisions Amounts Recovered (1) - (2) (3) - Write Offs Against Individually Assessed Provisions - (1) (10) (11) - Balance at End of Year Total Provisions for Impairment Loss Impairment Losses Charged to the Income Statement Movement in Collective Provision 11 (8) Movement in Individually Assessed Provisions Bad Debts Written Off Bad Debts Recovered (2) (1) (1) (4) - Total Impairment Losses Charged to the Income Statement 23 (6)

38 16 Credit Risk Management and Asset Quality (continued) (c) Concentrations of Credit Exposures The following table presents the maximum exposure to credit risk of financial assets and other credit exposures, before taking account of any collatera held or other credit enhancements unless such credit enhancements meet the offsetting criteria in NZ IAS 32 Financial Instruments: Presentation. For financial assets recognised on the Balance Sheet, the maximum exposure to credit risk equals their carrying values. Other Credit Exposures include irrevocable Lending Commitments, Guarantees, Standby Letters of Credit and other off balance sheet Credit Commitments. The maximum exposure to credit risk for Guarantees and Standby Letters of Credit is the maximum amount that the Banking Group would have to pay if the facilities were called upon. For irrevocable Lending Commitments and other Credit Commitments, the maximum exposure to credit risk is the full amount of the committed facilities. Taxation Assets, Property, Plant and Equipment, Intangible Assets and Other Assets have been excluded from the analysis below, on the basis that any credit exposure is insignificant or Nil. Australian and New Zealand Standard Industrial Classification ("ANZSIC") codes have been used as the basis for disclosing customer industry sectors. Banking Group Registered Bank Financial Financial Financial Financial Assets at Assets at Other Total Assets at Assets at Other Total Amortised Fair Credit Credit Amortised Fair Credit Credit $ millions Cost Value Exposures Exposures Cost Value Exposures Exposures As at 30 June 2009 Concentration by Industry Agricultural, Forestry and Fishing 6, , Government and Public Authorities 698 2, , ,028 Financial, Investments and Insurance 15,726 7,958 1,962 25,646 5, ,724 Utilities , ,444 Transport and Storage 1, , ,013 Housing (1) 30,325-4,042 34, Construction Personal 966-1,573 2, Other Commercial and Industrial 3, ,444 5,156 1, ,320 Total Credit Exposures by Industry 60,531 10,604 11,477 82,612 8, ,246 13,093 (1) The Housing sector for Financial Assets at Amortised Cost includes advances which are used for the purchase of residential properties that are owner-occupied. Advances which are used for the purchase of investment properties are included in the Financial, Investments and Insurance sector under Financial Assets at Amortised cost. Concentration by Geographic Region Auckland 37, ,293 44,592 7,217-2,040 9,257 Rest of New Zealand 23,351 5,350 4,181 32,882 1, ,206 3,425 Overseas 107 5, , Total Credit Exposures by Geographic Region 60,531 10,604 11,477 82,612 8, ,246 13,093 33

39 16 Credit Risk Management and Asset Quality (continued) (c) Concentrations of Credit Exposures (continued) Banking Group Registered Bank Financial Financial Financial Financial Assets at Assets at Other Total Assets at Assets at Other Total Amortised Fair Credit Credit Amortised Fair Credit Credit $ millions Cost Value Exposures Exposures Cost Value Exposures Exposures As at 30 June 2008 Concentration by Industry Agricultural, Forestry and Fishing 6, , Government and Public Authorities 249 2, , Financial, Investments and Insurance 14,890 5,053 2,058 22,001 7, ,188 Utilities , ,206 Transport and Storage 1, , ,009 Housing (1) 29,394-4,142 33, Construction Personal 613-1,174 1, Other Commercial and Industrial 3, ,556 5,099 1, ,912 Total Credit Exposures by Industry 56,965 8,474 11,014 76,453 10, ,397 13,432 Concentration by Geographic Region Auckland 34,365 1,493 6,992 42,850 9,077-1,524 10,601 Rest of New Zealand 22,203 2,557 3,973 28,733 1, ,528 Overseas 397 4, , Total Credit Exposures by Geographic Region 56,965 8,474 11,014 76,453 10, ,397 13,432 (d) Concentrations of Credit Exposures to Individual Counterparties There are no credit exposures to individual counterparties greater than 10% of Commonwealth Bank of Australia's 30 June 2009 equity (30 June 2008 Nil). 34

40 17 Controlled Entities and Associates % Nature of Business Subsidiaries Aegis Limited 100 Investment Administration and Custody ASB Bank Limited 100 Registered Bank ASB Capital Limited 100 Finance ASB Capital No.2 Limited 100 Finance ASB Finance Limited 100 Finance ASB Funding Limited 100 Holding Company ASB Group Investments Limited 100 Investment Administration and Management ASB Holdings Limited 100 Holding Company ASB Management Services Limited 100 Management, Payment Services and Property Investment ASB Nominees Limited 100 Nominee Company ASB Securities Limited 100 Sharebroking ASB Smart Cards Limited 100 Investment Holding Company Bond Investments No 1 Limited 100 Finance Bond Investments UK Limited 100 Finance CBA Asset Finance (NZ) Limited 100 Finance CBA Asset Holdings (NZ) Limited 100 Finance CBA Dairy Leasing Limited 100 Finance CBA Funding (NZ) Limited 100 Finance CBA Investments (No.4) Limited 100 Finance CBA NZ Holding Limited 100 Finance CBA Real Estate Funding (NZ) Limited 100 Finance CBA Real Estate Investments (NZ) Limited 100 Finance CBA USD Funding Limited 100 Finance Charter House Investments Limited 100 Finance Group Treasury Services NZ Limited 100 Finance Hildon Holdings Limited 100 Non-trading Hildon Investments Limited 100 Non-trading Investment Custodial Services Limited 100 Investment Custodian Jacques Martin New Zealand Limited 100 Investment and Registry Administration King's Ferry Holdings Limited 100 Non-trading King's Ferry Investments Limited 100 Non-trading Kiwi Home Loans (NZ) Limited 100 Lending McCaig Investments Limited 100 Finance Pago Limited 100 Non-trading Securitisation Management Services Limited 100 Securitisation Management Sinatra Investments Limited 100 Finance St Giles Investments Limited 100 Finance Stockbridge Holdings Limited 100 Finance All Subsidiaries were incorporated in New Zealand except for Bond Investments UK Limited, which was incorporated in the Cayman Islands. Other Controlled Entities ASB Cash Fund - Portfolio Investment Entity ASB Term Fund - Portfolio Investment Entity Medallion NZ Series Trust U - Residential Mortgage Backed Securities Medallion NZ Series Trust R - Residential Mortgage Backed Securities Mortgage Holding Trust Company Limited - Nominee Company All Subsidiaries and other Controlled Entities have a balance date of 30 June. Associates Balance Date Cards NZ Limited 15 Financial Services 30 September Electronic Transaction Services Limited 25 EFTPOS 31 March Interchange and Settlement Limited 11 Interchange and Settlement 31 March Mondex New Zealand Limited 20 Smartcard Operations 31 December Summarised financial information for Associates is not provided, as the amounts involved are immaterial. Associates do not have the same balance date as Controlled Entities as they are not controlled by the Banking Group. 35

41 17 Controlled Entities and Associates (continued) Changes in composition of the Banking Group On 1 July 2008 ASB Bank Limited purchased 100% of the ordinary capital of Aegis Limited, ASB Group Investments Limited, Investment Custodial Services Limited and Jacques Martin New Zealand Limited from fellow subsidiaries of CBA for consideration of $58m. This resulted in recognition of Net Tangible Assets of $10m (Cash of $12m, Taxation Assets of $5m, Property, Plant and Equipment of $1m and Other Receivables of $3m less Other Liabilities of $11m) and Goodwill of $48m in the Banking Group during the year ended 30 June From 1 July 2008 Mortgage Holding Trust Company Limited has been considered to be controlled by the Banking Group and, as such, has been included in the consolidated financial statements of the Banking Group. This did not have any impact on the aggregated results or financial position of the Banking Group. Mortgage Holding Trust Company Limited was previously considered to be controlled by Sovereign Limited, a fellow subsidiary of CBA. ASB Cash Fund and ASB Term Fund were established on 1 July 2008 and 9 December 2008 respectively. Both funds are Portfolio Investment Entities ("PIE") managed by ASB Group Investments Limited and considered to be controlled by ASB Bank Limited. As such they are included in the Banking Group's financial statements as in-substance subsidiaries. On 22 September 2008, Equigroup Finance Limited changed its name to CBA Asset Finance (NZ) Limited. This did not have any impact on the aggregated results or financial position of the Banking Group. On 4 November 2008 ASB Properties Limited, a wholly owned subsidiary of ASB Bank Limited amalgamated with fellow subsidiary ASB Management Services Limited to become ASB Management Services Limited. This did not have any impact on the aggregated results or financial position of the Banking Group. On 13 November 2008 Securitisation Management Services Limited was incorporated as a wholly owned subsidiary of ASB Bank Limited. This did not have any impact on the aggregated results or financial position of the Banking Group. Medallion NZ Series Trust U and Medallion NZ Series Trust R were established on 14 November 2008 and 2 April 2009 respectively to provide an in house residential mortgage backed securities facility that could issue securities that can be used as collateral for borrowing from the RBNZ (refer to Note 43). The Medallion NZ Series Trust U programme was unwound on 25 June The establishment of the facility did not have any impact on the Consolidated financial statements of the Banking Group. The Banking Group sold its investments in Waterloo & Victoria Limited and Bayswater and Bond Limited on 15 and 18 June 2009 respectively. This did not have any impact on the aggregated results or financial position of the Banking Group. $ millions Banking Group Registered Bank As at 30 June Other Assets Interest Receivable Other Current Assets Total Other Assets Amounts due for Settlement within 12 months Amounts due for Settlement over 12 months Total Other Assets

42 19 Property, Plant and Equipment Banking Group Computer Land Buildings Buildings Furniture & Office Operating $ millions Freehold Freehold Leasehold & Fittings Equipment Software Total As at 30 June 2009 Cost / Valuation Accumulated Depreciation - - (53) (57) (109) (15) (234) Opening Net Book Value Additions Disposals (2) - (2) Depreciation - (1) (9) (6) (16) (3) (35) Revaluation Closing Net Book Value Cost / Valuation Accumulated Depreciation - - (61) (63) (123) (18) (265) Closing Net Book Value Banking Group Computer Land Buildings Buildings Furniture & Office Operating Freehold Freehold Leasehold & Fittings Equipment Software Total As at 30 June 2008 Cost / Valuation Accumulated Depreciation - - (46) (53) (96) (12) (207) Opening Net Book Value Additions Disposals (1) (1) - (2) (1) - (5) Depreciation - (1) (8) (6) (17) (3) (35) Revaluation Closing Net Book Value Cost / Valuation Accumulated Depreciation - - (53) (57) (109) (15) (234) Closing Net Book Value Freehold land and buildings are carried at revalued amounts based on market valuations provided by independent, registered, public valuers. The latest market valuations were undertaken in April 2009 and were applied on 30 June The primary valuation approach has been based upon comparable improved sales and land sales information supported by an income approach, based on market rentals which have been capitalised at a market yield rate derived from improved property transactions. As at 30 June 2009 under the cost model these assets would have been recognised at a carrying amount of $7m and $13m respectively (30 June 2008 $7m and $10m). The Registered Bank has no Property, Plant and Equipment as at 30 June 2009 (30 June 2008 Nil). 37

43 $ millions Banking Group As at 30 June Intangible Assets Goodwill Internally Generated Application Software External Application Software Total Intangible Assets Goodwill Balance at Beginning of Year Additions 48 - Balance at End of Year Goodwill of $275m arose from the initial purchase of 25% of ASB Group Limited by CBA Funding (NZ) Limited. Ownership of the 25% of ASB Group Limited was moved to ASB Holdings Limited when Commonwealth Bank of Australia restructured their New Zealand Operations on 1 July ASB (Group) Holdings Limited and ASB Holdings Limited amalgamated with ASB Group Limited on 15 and 16 March 2006 respectively. On amalgamation, ownership of ASB Bank Limited was transferred to ASB Group Limited (subsequently renamed ASB Holdings Limited). Additional Goodwill of $48m arose from the purchase of Aegis Limited and ASB Group Investments Limited by ASB Bank Limited from fellow subsidiaries of CBA on 1 July 2008 (refer to Note 17). During the year ended 30 June 2009 the Banking Group did not identify any events or circumstances that would indicate that Goodwill may be impaired. Impairment Tests for Goodwill For the purpose of impairment testing, Goodwill of $275m has been allocated to the Retail Banking Segment of ASB Bank Limited and $48m was allocated to cash generating units within the Customers, Markets and Products Segment of ASB Bank Limited - $38m to Aegis Limited and $10m to ASB Group Investments Limited. To assess whether Goodwill is impaired the carrying amount of a cash generating unit is compared to the recoverable amount, determined based either on net selling price less costs to sell or on value in use. No impairment losses were recognised against the carrying amount of Goodwill for the year ended 30 June 2009 (30 June 2008 Nil). Key Assumptions used in Recoverable Amount Calculations The recoverable amount relating to the cash generating unit within the Retail Banking Segment was calculated based on net selling price less costs to sell, using an earnings multiple applicable to that type of business. > The recoverable amounts for Aegis Limited and ASB Group Investments Limited were calculated based on their value in use. Value in use for each cash generating unit was determined by discounting the future cash flows expected to be generated from the continuing use of the unit, based on the following assumptions: > > Earnings multiples are sourced from publicly available data associated with recent valuations performed on businesses displaying similar characteristics to those cash-generating units, and are applied to current earnings. Cash flows were projected based on management's assessment of product profitability, forecasted growth in revenues and expenses to suppor the business, covering a five year period. Cash flows beyond five years were extrapolated based on a conservative view of growth at a 2.5% rate of inflation. A post-tax discount rate of 11% was applied in determining the recoverable amounts of the investments, in line with the rate used internally by the Banking Group to assess the net present value of business cases for new products or projects. The key assumptions described above may change as economic and market conditions change. The Banking Group estimates that reasonably possible changes in these assumptions are not expected to cause the recoverable amount of any unit to decline below the carrying amount of Goodwill. Internally Generated Application Software Cost Accumulated Amortisation (15) (8) Opening Net Book Value Additions Amortisation (16) (8) Closing Net Book Value Cost Accumulated Amortisation (31) (15) Closing Net Book Value External Application Software Cost Accumulated Amortisation (49) (44) Opening Net Book Value Additions 4 10 Amortisation (7) (5) Closing Net Book Value Cost Accumulated Amortisation (58) (49) Closing Net Book Value No impairment losses have been recognised against the carrying amount of Computer Software for the year ended 30 June 2009 (30 June 2008 Nil). The Registered Bank had no Intangible Assets as at 30 June 2009 (30 June 2008 Nil). 38

44 $ millions Banking Group Registered Bank As at 30 June Deferred Taxation Asset / (Liability) Balance at Beginning of Year (195) (342) 4 9 Taxation Benefit Recognised in the Income Statement Taxation Benefit Recognised in Equity (5) Balance at End of Year 75 (195) 19 4 Deferred Taxation relates to: Asset Revaluation Reserves (6) (5) - - Cash Flow Hedge Reserves 198 (7) - - Contributed Capital - Redeemable Preference Shares (210) (210) - - Depreciation Holiday Pay Provision for Impairment Losses Other Temporary Differences (119) (142) - - Total Deferred Taxation Asset / (Liability) 75 (195) 19 4 The reduction in the corporate tax rate from 33% to 30% with effect from 1 July 2008 has been taken into account in calculating the value of Deferred Tax as at 30 June 2009 and 30 June Deferred Taxation Recognised in the Income Statement: Deferred Fees Depreciation (18) (16) - - Provision for Impairment Losses Other Temporary Differences (2) Total Deferred Taxation Recognised in the Income Statement Deferred Taxation Recognised in Equity: Asset Revaluation Reserves (1) Cash Flow Hedge Reserves (5) Total Deferred Taxation Recognised in Equity (5) As at 30 June 2009 Deferred Taxation of $(43)m for the Banking Group and $12m for the Registered Bank is expected to crystallise after more than 12 months (30 June 2008 $(220)m Banking Group, $3m Registered Bank). 22 Due to Other Banks Call Term ,282 7,162 5,258 5,341 Total Due to Other Banks 8,851 7,800 5,262 5,341 Amounts Due to Other Banks are measured as follows: (a) At Amortised Cost Call Term 7,617 7,127 5,258 5,341 Total at Amortised Cost 8,162 7,672 5,262 5,341 (b) At Fair Value through Profit or Loss Call Term Total at Fair Value through Profit or Loss ASB Bank Limited has entered into CSA in respect of certain credit exposures relating to derivative transactions. As at 30 June 2009 deposits of $24m relating to collateral received were included in Due to Other Banks (30 June 2008 Nil). Securities sold under repurchase agreements with the RBNZ of $200m (30 June 2008 Nil) are included in Term amounts at Fair Value through Profit or Loss (refer to Note 15). All changes in fair value are attributable to changes in the benchmark interest rate. Refer to Note 1 for details of the fair valuation methodology. As at 30 June 2009 the principal at maturity of amounts Due to Other Banks designated as at fair value through Profit or Loss was $689m for the Banking Group and Nil for the Registered Bank (30 June 2008 $128m for the Banking Group and Nil for the Registered Bank). 39

45 $ millions Banking Group Registered Bank As at 30 June Money Market Deposits Money Market Deposits are measured as follows: (a) At Amortised Cost Call Term Certificates of Deposit Other Issued Paper 3,563 4, Total at Amortised Cost 4,386 4, (b) At Fair Value through Profit or Loss Call 2,559 2, Term 806 1, Certificates of Deposit 2,649 1, Other Issued Paper 10,270 10, Total at Fair Value through Profit or Loss 16,284 15, Total Money Market Deposits 20,670 20, a loss of $8m was attributable to changes in credit risk for Money Market Deposits designated as at Fair Value through Profit or Loss (30 June 2008 gain of $9m). All other changes in Fair Value are attributable to changes in the benchmark interest rate. Refer to Note 1 for details of the fair valuation methodology. As at 30 June 2009 the principal at maturity of Money Market Deposits at Fair Value through Profit or Loss was $15,986m for the Banking Group and Nil for the Registered Bank (30 June 2008 $19,156m for the Banking Group and Nil for the Registered Bank). The Banking Group has not defaulted on any principal, interest or redemption amounts on its borrowed funds during the year ended 30 June 2009 (30 June 2008 Nil). Net Investment Hedge As at 30 June 2009 the Banking Group had no borrowings designated as net investment hedges. In previous periods Yen denominated borrowing included within Other Issued Paper at Fair Value through Profit or Loss, together with related forward exchange rate contracts, was designated as a hedge of the Banking Group's net investment in a subsidiary and hedged the Banking Group's exposure to the foreign currency risk associated with this investment. The fair value of the borrowing was $717m as at 30 June Gains or losses on translation of this borrowing to the date of the termination of the hedge have been transferred to FCTR within equity, to offset any gains or losses on translation of the net investment in the subsidiary. 24 Deposits from Customers Retail Term Deposits 15,909 15, Other Deposits Bearing Interest 12,235 10, Deposits Not Bearing Interest 1,834 1, Total Deposits from Customers 29,978 27, Deposits from Customers are unsecured and rank equally with other unsecured liabilities of the Banking Group. In the unlikely event that ASB Bank Limited or the Registered Bank was put into liquidation or ceased to trade, secured creditors and those creditors set out in the Seventh Schedule of the Companies Act 1993 would rank ahead of the claims of unsecured creditors. Refer to General Matters on page 1 for details of the rights of New Zealand creditors of the Registered Bank relative to the classes of creditors of CBA. The Registered Bank does not have any retail deposits (deposits with natural persons, excluding deposits with an outstanding balance which exceeds $250,000) as at 30 June 2009 (30 June 2008 Nil). 25 Other Liabilities Interest Payable Accrued Employee Entitlements Trade Accounts Payable and Other Liabilities Total Other Liabilities Amounts due for Settlement within 12 months Amounts due for Settlement over 12 months Total Other Liabilities

46 $ millions Banking Group Registered Bank As at 30 June Subordinated Debt Issuer Face Value Footnote ASB Bank Limited NZD 200m (a) ASB Bank Limited NZD 250m (b) ASB Bank Limited * NZD 370m (c) ASB Holdings Limited NZD 1m (d) ASB Holdings Limited NZD 160m (e) CBA Funding (NZ) Limited NZD 700m (f) CBA Real Estate Funding (NZ) Limited NZD 4m (g) CBA USD Funding Limited * USD 700m (h) 1, CBA New Zealand Branch AUD 750m (i) CBA New Zealand Branch * USD 550m (j) CBA New Zealand Branch AUD 1,166m (k) 1,441 1,478 1,441 1,478 CBA New Zealand Branch USD 700m (l) - - 1, ,443 5,129 3,582 4,136 Terms ASB Bank Limited All Subordinated Debt issued by ASB Bank Limited carried an AA- rating from Standard and Poor's Pty Limited as at 30 June It is subordinate to other general liabilities of ASB Bank Limited and qualifies as Lower Tier Two Capital for ASB Bank Limited's Capital Adequacy calculation purposes. (a) (b) (c) Subordinated Notes (NZD 200m) issued on 15 June 2006, with a coupon rate of 7.03% until 15 June 2011, after which the rate will be reset for the remaining term plus an additional 0.5% per annum. They are callable on 15 June 2011 and have a maturity date of 15 June Subordinated Notes (NZD 250m) issued to CBA on 29 June 2007, which carry a coupon rate based on the bank bill rate reset quarterly plus a margin of 0.25% per annum until 29 June 2012, after which the margin will increase by 0.5% per annum. They are callable on 29 June 2012 and have a maturity date of 29 June Subordinated Notes (NZD 370m) issued on 1 November 2007, with a coupon rate of 8.771% until 15 November 2012, after which the rate will be reset for the remaining term plus an additional 0.5% per annum. They are callable on 15 November 2012 and have a maturity date of 15 November ASB Holdings Limited (d) Redeemable Preference Shares (NZD1m) issued to CBA Hong Kong branch on 16 June 2008 which matured on 16 December The dividend rate and payment dates were discretionary, and the dividends were non-cumulative. These shares did not hold any voting rights. (e) Redeemable Preference Shares (NZD 160m) issued to CBA on 30 June 2008 which matured on 30 June The dividend rate reset quarterly against the bank bill rate, plus a margin. Dividends were payable on 30 September, 31 December, 31 March and 30 June, and were cumulative. Rights of holders of these shares ranked in priority to all other classes of shares in ASB Holdings Limited, and after all rights of the creditors of ASB Holdings Limited. CBA Funding (NZ) Limited (f) Non-participating Redeemable Preference Shares (NZD 700m) issued on 22 December 2006, which must be redeemed 100 years after issue or any earlier date immediately prior to the date on which the liquidation of CBA Funding (NZ) Limited commences. They can also be redeemed earlier with the consent of the holder. Dividends, based on the swap rate plus a margin, are payable six-monthly on 31 December and 30 June starting from June 2007, at the discretion of the Directors of CBA Funding (NZ) Limited. Dividends are non-cumulative. On liquidation of CBA Funding (NZ) Limited, the holder of the Redeemable Preference Shares will be entitled to the redemption price in priority to any rights in respect of Ordinary Shares but after any rights in respect of all other classes of shares in CBA Funding (NZ) Limited ranking ahead of the Redeemable Preference Shares. Under NZ IAS 32 the Redeemable Preference Shares are considered to contain both liability and equity components. The liability component of $1m is classified as Subordinated Debt and the equity component of $489m which is net of income tax effects, has been recognised in Equity (refer to Note 27). A Deferred Taxation liability of $210m has also been recognised with respect to these shares (refer to Note 21). CBA Real Estate Funding (NZ) Limited (g) Non-participating Redeemable Preference Shares (NZD 4m) issued to CBA on 16 March 2006, with a maturity date of 30 September Dividends are payable at the discretion of the Directors of CBA Real Estate Funding (NZ) Limited. Under NZ IAS 32 the Redeemable Preference Shares are considered to contain both liability and equity components. The liability component of $2m is classified as Subordinated Debt and the equity component of $2m which is net of income tax effects, has been recognised in Equity (refer to Note 27). 41

47 26 Subordinated Debt (continued) CBA USD Funding Limited (h) 50 year USD Note (USD 700m) issued on 15 March Interest is cumulative and is paid semi-annually for the first 10 years, then quarterly until redemption. The interest is stepped, paying fixed at 6.024% for the first 10 years, then at LIBOR plus a margin. The rights of holders of the Convertible Notes are subordinate to the claims of senior creditors of CBA. CBA New Zealand Branch (Registered Bank) (i) Convertible notes (AUD 750m) which were repaid on 16 March These notes would have automatically converted to CBA preference shares on 6 January The coupon rate was reset against the AUD 90 day Bank Bill Rate plus a margin. The rights of holders of the convertible notes were subordinated to CBA's obligations to its depositors and other creditors. On winding up of CBA the convertible notes would have ranked equally with Ordinary Shares. (j) Convertible notes (USD 550m), which have no stated maturity but which will automatically convert to CBA Preference Shares on 30 June The convertible notes have a fixed coupon rate of 5.8% and are callable from 30 June The rights of holders of the convertible notes are subordinated to the claims of senior creditors of CBA. (k) Convertible notes (AUD 1,166m) which automatically convert to CBA preference shares on 23 February The coupon rate is reset against the AUD 90 day Bank Bill Rate minus 0.28%. The rights of holders of the convertible notes are subordinated to CBA's obligations to its depositors and other creditors. On winding up of CBA the convertible notes rank equally with Ordinary Shares. (l) 50 year cumulative USD Branch Note (USD 700m) issued to CBA USD Funding Limited on 15 March Interest is cumulative and is paid semi-annually. The interest is stepped, paying fixed at 6.024% for the first 10 years, then at LIBOR plus a margin. The rights of the holder of the Note are subordinate to the claims of senior creditors of CBA. * Subordinated Debt is recognised in the Balance Sheet at its New Zealand dollar equivalent. The Banking Group has entered into Cash Flow and Fair Value hedges relating to Subordinated Debt issued by ASB Bank Limited and CBA New Zealand Branch (refer to Note 14). 42

48 $ millions Banking Group Registered Bank As at 30 June Head Office Account and Contributed Capital Head Office Account Balance at Beginning of Year Head Office Contribution Balance at End of Year Head Office Account comprises funds provided by CBA to support its New Zealand branch. It is non-interest bearing and there is no fixed date for repatriation. Issued and Fully Paid Ordinary Shares Balance at Beginning of Year Proceeds from Shares Issued Balance at End of Year Issued and Fully Paid Redeemable Preference Shares Balance at Beginning of Year 1, Proceeds from Shares Issued Balance at End of Year 1,271 1, Total Contributed Capital 1,975 1, Ordinary Shares As at 30 June 2009 the Banking Group had 727,546,880 Ordinary Shares on issue of which 100,000 were unpaid (30 June ,546,880 Issued of which 100,000 were unpaid). No shares were issued during the year ended 30 June 2009 (30 June ,000,000 Ordinary Shares were issued by ASB Holdings Limited to Commonwealth Bank of Australia). All Ordinary Shares have equal voting rights and share equally in dividends and any profit on winding up, after the obligations to holders of ASB Bank Limited Perpetual Preference Shares are satisfied. Dividends are declared subject, in all cases, to the applicable Directors' resolutions being passed. Redeemable Preference Shares As at 30 June 2009 the Banking Group had 1,484,240,000 Issued and Fully Paid Redeemable Preference Shares (30 June ,484,240,000 Issued and Fully Paid Preference Shares). Redeemable Preference Shares includes the equity component of Redeemable Preference Shares issued by CBA Funding (NZ) Limited and CBA Real Estate Funding (NZ) Limited, net of income tax effects. These shares were issued during the year ended 30 June Refer to Note 26 (f) and (g) for a description of the terms of the Redeemable Preference Shares. No Redeemable Preference Shares were issued during the year ended 30 June During the period ended 30 June ,000,000 Redeemable Preference Shares were issued and were classified as equity. These shares have no fixed term, carry no voting rights and are redeemable by CBA Funding (NZ) Limited providing 75 days notice to the holder of the shares. Dividends are payable at the discretion of the Directors of CBA Funding (NZ) Limited and are non-cumulative. 28 Asset Revaluation Reserves Balance at Beginning of Year Revaluations Deferred Income Tax (1) Transferred to Retained Earnings - (1) - - Balance at End of Year Asset Revaluation Reserves relate to revaluation gains on land and buildings carried at valuation, except that to the extent that the gain reverses a revaluation loss on the same asset previously recognised in the Income Statement, the gain is recognised in the Income Statement. 29 Available for Sale Reserves Balance at Beginning of Year Net (Loss) / Gain from Changes in Fair Value (4) Transferred to Profit or Loss - (45) - - Balance at End of Year Available for Sale Reserves include the cumulative net change in the fair value of Available for Sale Financial Assets until the investment is derecognised or impaired. 30 Cash Flow Hedge Reserves Balance at Beginning of Year (11) (13) Net (Loss) / Gain from Changes in Fair Value (915) 72 (4) (7) Transferred to Profit or Loss : Interest Income (26) Interest Expense 268 (373) Deferred Tax (5) Current Tax (3) 4 (3) 4 Balance at End of Year (465) 6 (5) (11) Cash Flow Hedge Reserves comprise the effective portion of the cumulative net change in the fair value of foreign exchange and interest rate derivative contracts related to hedged forecasted transactions that have not yet occurred. 43

49 $ millions Banking Group Registered Bank As at 30 June Foreign Currency Translation Reserves Balance at Beginning of Year Currency Translation Differences Net Investment Hedge (419) (116) - - Current Income Tax Balance at End of Year Foreign Currency Translation Reserves comprise exchange differences on translation of foreign currency assets and liabilities of an overseas subsidiary. The Banking Group has hedged its net investment in the foreign subsidiary on an after tax basis. 32 Retained Earnings Balance at Beginning of Year Net Profit after Taxation Attributed to Parent Company Shareholders , Add :Transfer from Asset Revaluation Reserve Less: Ordinary Dividends Redeemable Preference Dividends Distribution of Prior Year Profit Balance at End of Year Minority Interests Controlled Entities: Share Capital As at 30 June 2009 the Banking Group had 550,000,000 Issued and Fully Paid Perpetual Preference Shares (30 June ,000,000 Issued and Fully Paid Perpetual Preference Shares). These shares constitute a Minority Interest in the Banking Group. In December 2002 ASB Capital Limited issued 200,000,000 Perpetual Preference Shares. In December 2004 ASB Capital Limited No.2 Limited issued 350,000,000 Perpetual Preference Shares. These shares have no fixed term, are non-redeemable and carry limited voting rights. They were issued as part of transactions with ASB Bank Limited. Under these transactions, ASB Capital Limited and ASB Capital No.2 Limited have advanced proceeds received from a public issue of their Perpetual Preference Shares to ASB Funding Limited. ASB Funding Limited in turn invested the proceeds in Perpetual Preference Shares issued by ASB Bank Limited. ASB Funding Limited and New Zealand Guardian Trust Company Limited (the "Trustee") together with ASB Capital Limited and ASB Capital No.2 Limited respectively are party to Trust Deeds, whereby ASB Funding Limited provides covenants to the Trustee for the benefit of holders of the ASB Capital Limited and ASB Capital No.2 Limited Perpetual Preference Shares and grants security over the ASB Bank Perpetual Preference Shares in favour of the Trustee. Perpetual Preference Dividends paid to Minority Interests ASB Capital Limited ASB Capital No. 2 Limited Dividends are payable quarterly in arrears and are payable at the discretion of the Directors of ASB Capital Limited and ASB Capital No.2 Limited. These dividends are non-cumulative. Dividends on Perpetual Preference Shares were 5.82 cents per share (30 June cents per share) paid by ASB Capital Limited and 6.33 cents per share (30 June cents per share) paid by ASB Capital No.2 Limited for the year ended 30 June The dividend payable on ASB Capital Limited Perpetual Preference Shares is based on the one year swap rate, plus a margin of 1.3%. The gross dividend rate paid on the Perpetual Preference Shares for the period ended 15 November 2008 was 9.95% per annum. Rates are reset annually on 15 November or the succeeding business day. The rate was reset on 15 November 2008 to 6.73% per annum. The next dividend reset date is 16 November The dividend payable on the ASB Capital No.2 Limited Perpetual Preference Shares is based on the one year swap rate, plus a margin of 1.0%. The gross dividend rate paid on the Perpetual Preference Shares for the period ended 15 May 2009 was 9.03% per annum. Rates are reset annually on 15 May or succeeding business day. The rate was reset on 15 May 2009 to 3.86% per annum. The next dividend reset date is 17 May In the event of the liquidation of ASB Bank Limited, payment of the issue price and dividends on the ASB Bank Limited Perpetual Preference Shares ranks: > before all rights of ordinary shareholders; > after all rights of holders of shares of ASB Bank Limited other than ordinary or preference shares; and > after all rights of creditors of ASB Bank Limited. Events after the Balance Sheet Date On 15 July 2009 the Directors of ASB Capital Limited declared a Perpetual Preference Dividend of $3m, being 1.68 cents per share. The dividend was paid on 17 August 2009 to all registered holders of Perpetual Preference Shares as at 5.00pm on 31 July Also, on 15 July 2009 the Directors of ASB Capital No.2 Limited declared a Perpetual Preference Dividend of $3m, being 0.97 cents per share. The dividend was paid on 17 August 2009 to all registered holders of Perpetual Preference Shares as at 5.00pm on 7 August

50 $ millions Banking Group Registered Bank As at 30 June Reconciliation of Net Profit after Taxation to Net Cash Flows from Operating Activities Net Profit after Taxation Add: Non-cash Items Impairment Losses on Advances Depreciation Amortisation of Intangible Assets Net Loss on Sale of Property, Plant and Equipment Add: Movements in Balance Sheet Items Changes in Operating Assets and Liabilities 528 (2,560) 597 (25) Interest Receivable - Decrease / (Increase) 243 (171) 46 (16) Interest Payable - (Decrease) / Increase (261) 217 (68) 38 Other Income Accrued - Decrease Operating Expenses Accrued - (Decrease) / Increase (60) 18 (1) - Taxation Balances - Increase / (Decrease) (6) (1,950) Net Cash Flows from Operating Activities 1,529 (1,364) Reconciliation of Cash and Cash Equivalents to the Balance Sheet Cash and Call Deposits with the Central Bank 1,582 1, Call Deposits Due from Other Banks 1, Call Deposits Due to Other Banks (569) (638) (4) - Total Cash and Cash Equivalents at End of Year 2, Imputation and Policyholder Credit Accounts Dividends paid by companies may attach imputation credits representing the New Zealand tax already paid by the company or tax group on profits. New Zealand resident shareholders may claim a tax credit to the value of the imputation credit attached to dividends. ASB Bank Limited and some of its subsidiaries have formed an imputation group with other members of the Commonwealth Bank of Australia Group ("ICA Group"). The closing imputation credit account balances presented below represent the imputation credits available to all members of the ICA Group. Because a member of the ICA Group is a life insurance company, the ICA Group is required to maintain a policyholder credit account ("PCA"). A balance in a PCA can be transferred back to an imputation credit account and is therefore available to shareholders (and shareholders of other ICA Group members). Imputation Credit Account Balance at Beginning of Year Opening Balances of Associates Entering the ICA Group Transfer from the PCA Net Income Tax Paid Imputation Credits Attached to Dividends Received Imputation Credits Attached to Dividends Paid (31) (267) - - Balance at End of Year Policyholder Credit Account Balance at Beginning of Year Transfer to ICA - (57) - - Balance at End of Year ASB Capital Limited and ASB Capital No.2 Limited are not members of the ICA Group. ASB Capital Limited and ASB Capital No.2 Limited had debit imputation credit account balances of $1m and $2m respectively (30 June 2008 $1m credit and $1m credit respectively). New provisional tax instalment dates applied for the year ended 30 June The final instalment date for provisional tax for the year ended 30 June 2009 was payable after balance date. The ICA balances for ASB Capital Limited and ASB Capital No.2 Limited are therefore debit balances at 30 June

51 37 Related Party Transactions and Balances The ultimate parent bank is CBA. The Commonwealth Bank Group refers to CBA and the various companies and other entities owned and controlled by CBA. Commonwealth Bank of Australia New Zealand Life Insurance Group includes Colonial Group and ASB Group (Life) Limited Group of Companies. During the year ended 30 June 2009, the Banking Group has entered into, or had in place various financial transactions with members of the Commonwealth Bank Group, and other related parties. ASB Bank Limited provides administrative functions to some subsidiaries and related companies for which no payments have been made. In all other cases, arrangements with related parties were conducted on an arm's length basis and on normal commercial terms, and within the Banking Group's approved policies. Loans to and borrowings from related parties are unsecured. Transactions processed during the year ended 30 June 2009 included: Guarantees Commonwealth Bank Group provides guarantees over various lending offered by ASB Bank Limited to the value of $186m (30 June 2008 $132m). Distribution and Administrative Services A payment of $14m (30 June 2008 $13m) was made to the Commonwealth Bank of Australia New Zealand Life Insurance Group, for the origination of mortgages. A payment of $3m (30 June 2008 $4m) was made to Commonwealth Bank Group for arrangement fees. Receipts of $17m (30 June 2008 $23m) were received from the Commonwealth Bank of Australia New Zealand Life Insurance Group, for administrative functions provided by ASB Bank Limited. Receipts of $33m (30 June 2008 $24m) were received from the Commonwealth Bank of Australia New Zealand Life Insurance Group, for insurance commission and profit share. No receipts (30 June 2008 $13m) were received from the Commonwealth Bank of Australia New Zealand Life Insurance Group, for distribution of fund management services. In comparative periods the Commonwealth Bank of Australia New Zealand Life Insurance Group managed and administered these services. Since 1 July 2008 the entity providing these services, ASB Group Investments Limited, has been a wholly owned subsidiary of ASB Bank Limited. Receipts of $12m (30 June 2008 Nil) were received from the Commonwealth Bank of Australia New Zealand Life Insurance Group, for investment management fees. Controlled Subsidiaries of the Banking Group manage and administer a number of Superannuation, Unit and Other Trusts. These trusts hold some of their funds with ASB Bank Limited. Total deposits held with ASB Bank Limited as at 30 June 2009 were $1,211m (30 June 2008 $1,073m) and total interest expense related to these deposits for the year ended 30 June 2009 was $63m (30 June 2008 $94m). These deposits are held on normal commercial terms and conditions. In comparative periods the Commonwealth Bank of Australia New Zealand Life Insurance Group managed and administered these Trusts (refer to Note 17 for changes in the Banking Group composition). Derivative Transactions The Banking Group has in place interest rate swaps with Commonwealth Bank Group with a face value of $11,798m (30 June 2008 $8,565m), interest rate options with a face value of $359m (30 June 2008 $312m), currency swaps with a face value of $7,874m (30 June 2008 $8,240m), foreign exchange contracts with a face value of $2,123m (30 June 2008 $2,931m), no forward commodity contracts (30 June 2008 face value $1m), and forward rate agreements with a face value of $246m (30 June 2008 $1,930m). ASB Bank Limited had foreign exchange contracts with the Commonwealth Bank of Australia New Zealand Life Insurance Group with a face value of $1,379m (30 June 2008 $1,383m) and interest rate swaps with a face value of $1,814m (30 June 2008 $1,814m) upon which interest paid amounted to $15m (30 June 2008 $10m). ASB Bank Limited had foreign exchange contracts with Trusts managed or administered by the Commonwealth Bank of Australia New Zealand Life Insurance Group with a face value of $578m (30 June 2008 $776m). Other Net Payments of $56m (30 June 2008 $22m) were received from the Commonwealth Bank of Australia New Zealand Life Insurance Group for the utilisation of tax-related items. No Provisions for Impairment Loss have been recognised in respect of loans given to Related Parties (30 June 2008 Nil). The total liabilities of the Registered Bank net of amounts due to related parties is $231m as at 30 June 2009 (30 June 2008 $125m). Refer to Note 9 for details of dividends paid to shareholders. Refer to Note 26 for details of Subordinated Debt issued to Related Parties and Note 27 for details of Capital contributed by Related Parties. $ millions Banking Group Registered Bank As at 30 June Commonwealth Bank Group (100% Ultimate Shareholder) Due from Other Banks Balance at Beginning of Year ,796 3,709 Net Movement (66) (128) (546) 87 Balance at End of Year ,250 3,796 Interest Income on Due from Other Banks

52 $ millions Banking Group Registered Bank As at 30 June Related Party Transactions and Balances (continued) Commonwealth Bank Group (100% Ultimate Shareholder) Advances to Customers Balance at Beginning of Year - - 1, Net Movement - - (708) 688 Balance at End of Year ,167 Other Assets Due to Other Banks Balance at Beginning of Year 7,697 7,086 5,341 4,202 Net Movement (79) 1,139 Balance at End of Year 8,539 7,697 5,262 5,341 Interest Expense on Due to Other Banks Money Market Deposits Balance at Beginning of Year Net Movement Balance at End of Year Subordinated Debt Balance at Beginning of Year 4,550 4,771 4,136 2,777 Net Movement (715) (221) (554) 1,359 Balance at End of Year 3,835 4,550 3,582 4,136 Interest Expense on Subordinated Debt Derivative Liabilities / (Assets) Balance at Beginning of Year Net Movement 280 (509) (300) (154) Balance at End of Year Deposits from Customers Balance at Beginning of Year ,644 Net Movement - - (562) (916) Balance at End of Year Other Liabilities Commonwealth Bank of Australia New Zealand Life Insurance Group (Subsidiaries of Commonwealth Bank Group) Derivative Assets / (Liabilities) Balance at Beginning of Year 14 (76) - - Net Movement (22) Balance at End of Year (8) Other Assets Deposits from Customers Balance at Beginning of Year Net Movement Balance at End of Year Interest Expense on Deposits from Customers Money Market Deposits Balance at Beginning of Year Net Movement Balance at End of Year Other Liabilities Trusts Managed or Administered by the Banking Group (Subsidiaries of Commonwealth Bank Group) Derivative Assets / (Liabilities) Balance at Beginning of Year 22 (23) - - Net Movement (19) Balance at End of Year Other assets and liabilities include sundry debtors and creditors and accrued interest. 47

53 $ millions Banking Group As at 30 June Directors and Key Management Personnel The executive management of ASB Bank Limited and the New Zealand Chief Executive of the Commonwealth Bank of Australia are considered to be Key Management Personnel. Key Management Compensation Short Term Employee Benefits 10 6 Other Long Term Benefits 8 5 Total Key Management Compensation Loans to Directors and Key Management Personnel Balance at Beginning of Year 8 9 Adjustment due to change in Key Management Personnel (1) (1) Received During the Year 4 8 Repaid During the Year (5) (8) Balance at End of Year 6 8 Interest Income* - - All loans were made in the ordinary course of business of ASB Bank Limited on an arm's length basis and on normal commercial terms and conditions. The interest rates applicable were between 5.39% and 19.95% (30 June % and 20.75%). Terms of repayment range between variable, fixed rates up to three years, and interest only loans, all of which have been in accordance with ASB Bank Limited's lending policies. Deposits from Directors and Key Management Personnel Balance at Beginning of Year 7 6 Adjustment due to change in Key Management Personnel (2) - Received During the Year Repaid During the Year (28) (30) Balance at End of Year 3 7 Interest Expense* - - Deposits consist of on call, savings, cheque, term investments and cash management balances, all lodgements being made and conducted on an arm's length basis in the normal course of business and on commercial terms and conditions. Interest rates are from 0% to 4.50% (30 June % to 9.25%), terms of repayment ranging between on call and six months. * Interest is received and paid on Loans and Deposits respectively at market rates but is reported as Nil in most periods, as a result of rounding to the nearest million. As at 30 June $ millions 2009 Notional Credit 2008 Notional Credit Amount Equivalent Amount Equivalent 39 Credit and Capital Commitments, and Contingent Liabilities (a) Banking Group Credit and Capital Commitments Lending Commitments Approved but Not Yet Advanced 11,214 2,110 10,702 2,199 Capital Expenditure Commitments Total Credit and Capital Commitments 11,217 2,113 10,706 2,203 Registered Bank Credit and Capital Commitments Lending Commitments Approved but Not Yet Advanced 3, , (b) Banking Group Contingent Liabilities Guarantees Standby Letters of Credit Other Credit Facilities Total Contingent Liabilities The Registered Bank has no contingent liabilities as at 30 June 2009 (30 June 2008 Nil). 48

54 39 Credit and Capital Commitments, and Contingent Liabilities (continued) (c) Other Contingent Liabilities The Banking Group has other contingent liabilities in respect of actual and potential claims and proceedings. An assessment of the Banking Group's likely loss in respect of these matters has been made on a case by case basis and provision made in the financial statements where appropriate. Information relating to any matter is not disclosed where it can be expected to prejudice seriously the position of the Banking Group. Commerce Commission In November 2006 the Commerce Commission issued proceedings against Visa, MasterCard and 11 financial institutions, including ASB Bank Limited, for alleged price fixing and substantially lessening competition in relation to credit card interchange fees and rules. Those proceedings seek to have the conduct declared unlawful and unspecified monetary penalties. Also in November 2006, similar proceedings were issued against the same defendants by a number of New Zealand retailers. The retailers' proceedings seek to have the conduct declared unlawful, an inquiry into damages and exemplary damages. Both proceedings are being defended by ASB Bank Limited. ASB Bank Limited has received legal advice and considers that it has good prospects of successfully defending the claims. New Zealand Structured Finance Transactions The New Zealand Inland Revenue Department ("IRD") has reviewed certain structured finance transactions undertaken in New Zealand by various financial institutions. Amended assessments for the 2001 to 2004 tax years have been issued by IRD in relation to transactions entered into by members of the Banking Group. ASB Bank Limited expects IRD in due course to issue amended assessments for all applicable tax years. ASB Bank Limited has commenced proceedings challenging the amended assessments received and intends to similarly challenge any further amended assessments received. On the basis that amended assessments will be issued for all tax years from 2001 onward in relation to all applicable transactions entered into by members of the Banking Group, the total tax in dispute is $190m ($282m including tax effected interest as at 30 June 2009). ASB Bank Limited has taken extensive independent tax and legal advice and is confident the tax treatment it has adopted for the transactions is correct. $ millions Banking Group Registered Bank As at 30 June Leasing and Other Commitments Leasing Commitments The following non-cancellable operating lease commitments existed at the end of the year: Within One Year of Balance Date Between One and Two Years Between Two and Five Years Over Five Years Total Leasing Commitments Other Commitments ASB Bank Limited leases various premises under non-cancellable operating lease agreements. The leases have varying terms and renewal rights. ASB Bank Limited also leases motor vehicles and certain office equipment. Lease expenditure is charged to the Income Statement (refer to Note 6). ASB Bank Limited has entered into certain sub-leasing arrangements. Sub-leasing income of $3m for the year ended 30 June 2009 (30 June 2008 $1m) was included in the Income Statement. 49

55 41 Fair Value of Financial Instruments The following table summarises the carrying amounts and fair values of those financial assets and financial liabilities not presented in the Banking Group's Balance Sheet at their fair value. Refer to Note 1 for a description of how fair values are estimated. Carrying Fair Carrying Fair $ millions Amount Value Amount Value Balance Sheet Items As at 30 June 2009 Banking Group Registered Bank Cash and Call Deposits with the Central Bank 1,582 1, Due from Other Banks at Amortised Cost ,250 3,038 Advances to Customers 58,846 59,176 5,648 5,647 Other Assets Due to Other Banks at Amortised Cost 8,162 7,957 5,262 5,260 Money Market Deposits at Amortised Cost 4,386 4, Deposits from Customers 29,978 29, Other Liabilities Subordinated Debt 4,443 3,402 3,582 2,586 As at 30 June 2008 Cash and Call Deposits with the Central Bank 1,155 1, Due from Other Banks at Amortised Cost ,738 3,738 Advances to Customers 55,773 55,192 6,530 6,476 Other Assets Due to Other Banks at Amortised Cost 7,672 7,447 5,341 5,341 Money Market Deposits at Amortised Cost 4,051 3, Deposits from Customers 27,821 27, Other Liabilities Subordinated Debt 5,129 4,907 4,136 3,940 Off Balance Sheet Items There are no fair values for Direct Credit Substitutes, Trade and Performance Related Items and Commitments as no secondary market exists. 50

56 42 Capital Adequacy Unaudited Regulatory Changes - Basel II The Banking Group is subject to regulation by the Reserve Bank of New Zealand ("RBNZ"), by way of two banking licences, one for ASB Bank Limited and its subsidiaries (the ASB Banking Group ), and another for the New Zealand branch of CBA (the Registered Bank for the purposes of this disclosure statement). The RBNZ registration requirements set out, among other things, minimum regulatory capital requirements for banks that are consistent with the internationally agreed framework developed by the Basel Committee on Banking Supervision. These capital requirements define what is acceptable as qualifying regulatory capital and provide for methods of measuring the risks incurred by banks. The ASB Banking Group and CBA New Zealand Branch must comply with RBNZ registration requirements, including any minimum capital adequacy ratios under the Conditions of Registration for each respective banking licence. The Basel Committee has issued a revised framework for the calculation of capital adequacy for banks, commonly known as Basel II. The ASB Banking Group was accredited by the RBNZ to adopt the internal ratings based approach for calculating regulatory capital requirements under Basel I from the first quarter of The Overseas Bank, CBA has also been accredited by APRA to calculate regulatory capital under Basel II from The objective of the Basel II Framework is to develop capital adequacy guidelines that are more accurately aligned with the individual risk profile of banks. Basel II consists of three pillars: Pillar One covers capital requirements for banks for credit, operational, and market risks; Pillar Two covers al other material risks not already included in Pillar One; and Pillar Three relates to market disclosure. Pillar Three has resulted in increased disclosures in the General Disclosure Statement of ASB Bank Limited from 31 March However, under RBNZ Orders in Council, CBA New Zealand Branch will continue to report under the previous Basel framework ("Basel I" approach) and there will be little change to the disclosures in the Banking Group's General Disclosure Statement. Capital Management Policies The Banking Group s objectives for the management of capital are to comply at all times with the regulatory capital requirements set by the RBNZ; to maintain a strong capital base to cover the inherent risks of the business in excess of that required by rating agencies to maintain strong or very strong credit gradings within the group; and to support the future development and growth of the business. ASB Bank Limited's capital management policies are organised into three functional areas, being Capital Adequacy (ensuring adequate capital base), Capital Performance (monitoring risk / return and shareholder value) and Capital Execution. Key attributes of the Banking Group's Capital Adequacy policy and processes as they pertain to regulatory capital are set out below. Regulatory capital is divided into Tier One and Tier Two Capital. Tier One Capital primarily consists of Shareholders' Equity and other capital instruments acceptable to the RBNZ, less Intangible Assets and other prescribed deductions. Tier Two Capital consists of two levels, with Upper Tier Two Capital comprising Asset Revaluation Reserves and Foreign Currency Translation Reserves, and Lower Tier Two Capital comprising Subordinated Debt. Tier Two Capital also includes other hybrid and debt instruments acceptable to the RBNZ and is subject to prescribed deductions The tangible element of investments in subsidiaries that are not wholly owned or funded is deducted from the sum of Tier One and Tier Two Capital to i t T t l R l t C it l Regulatory capital adequacy ratios are calculated by expressing capital (Tier One, Tier Two or Total Regulatory Capital) as a percentage of Risk Weighted Exposures. Under the Basel I approach, Risk Weighted Exposures are derived by assigning a risk weight percentage to certain categories of exposures, comprising Balance Sheet assets (excluding Intangible Assets and Capital Deductions for Investments in Subsidiaries not Wholly Owned or Funded), and Off Balance Sheet assets. There are four risk weighting categories - 0%, 20%, 50% and 100%. It should be noted that the regulatory risk weightings may not be consistent with the loss experience of the Banking Group. In addition there are RBNZ banking supervision guidelines for standard market risk measurement and disclosure for both traded and non traded banking assets. Under the Basel II internal models based approach, Risk Weighted Exposures represent risks associated with the Banking Group's Credit Risk Exposures, as well as operational risk and both traded and non-traded market risk, estimated in accordance with RBNZ banking supervision guidelines. As a Condition of Registration, the ASB Banking Group must comply with the following minimum requirements set by the RBNZ: > Total Regulatory Capital must not be less than 8% of Risk Weighted Exposures > Tier One Capital must not be less than 4% of Risk Weighted Exposures > Capital must not be less than NZ$30m The Conditions of Registration with which CBA New Zealand Branch must comply are set out on pages 5-6. The Boards of Directors for ASB Bank Limited and CBA (the Overseas Bank) have ultimate responsibility for capital adequacy, and approve capital policy and minimum capital levels and limits. These are typically at a higher level than required by the regulator, which both reduces the risk of breaching conditions of registration and provides investor confidence. ASB Bank Limited and CBA each actively monitor the respective capital adequacy, and report this on a regular basis to senior management and the respective Boards. This includes forecasting capital requirements so that any capital requirements can be executed in a timely manner. The Banking Group considers other stakeholders' requirements when managing capital, and uses a mix of capital instruments to reduce single source reliance and to optimise capital efficiency. The Capital Adequacy table on page 57 summarises the capital adequacy ratios for the Overseas Banking Group as at 30 June Risk Weighted Exposures for the Banking Group are set out on the following pages. During the year ended 30 June 2009 and the comparative year shown, the Banking Group complied with all of the RBNZ capital requirements to which it is subject. As part of the June 2009 annual policy review, the Board of ASB Bank Limited approved an increase in minimum internal policy levels for regulatory capital to be held. Both ASB Bank Limited and CBA hold surplus regulatory capital to internal policy minimums. 51

57 42 Capital Adequacy (continued) Unaudited RISK WEIGHTED EXPOSURES As at 30 June 2009 Banking Group Risk Principal Risk Weighted Amount Weight Exposure $ millions % $ millions Balance Sheet Exposures Cash and Short Term Claims on Government 4, Long Term Claims on Government Claims on Banks 4, Claims on Public Sector Entities Claims Secured by Residential Mortgages 37, ,865 Other 22, ,001 Non-risk Weighted Assets 2, Total Balance Sheet Exposures 71,662 41,843 (excludes Intangible Assets) Credit Credit Average Risk Principal Conversion Equivalent ounterparty Weighted Amount Factor Amount Risk Weight Exposure $ millions % $ millions % $ millions Off Balance Sheet Exposures Direct Credit Substitutes Commitments with Certain Drawdown 1, , Underwriting and Sub-underwriting Facilities Transaction Related Contingent Items Short Term, Self-liquidating Trade Related Contingencies Other Commitments to Provide Financial Services with Original Maturity of: One Year or More 2, , ,050 Less Than One Year or Can Be Cancelled at Any Time 8, Market Related Contracts (Current Exposure): Foreign Exchange Contracts 26, Interest Rate Contracts 128, , Other Total Off Balance Sheet Exposures 2,789 Total Risk Weighted Exposures 44,632 52

58 42 Capital Adequacy (continued) Unaudited RISK WEIGHTED EXPOSURES (continued) As at 30 June 2008 Banking Group Risk Principal Risk Weighted Amount Weight Exposure $ millions % $ millions Balance Sheet Exposures Cash and Short Term Claims on Government 2, Long Term Claims on Government Claims on Banks 3, Claims on Public Sector Entities Claims Secured by Residential Mortgages 36, ,219 Other 21, ,217 Non-risk Weighted Assets 1, Total Balance Sheet Exposures 65,992 40,316 (excludes Intangible Assets) Credit Credit Average Risk Principal Conversion EquivalentCounterparty Weighted Amount Factor Amount Risk Weight Exposure $ millions % $ millions % $ millions Off Balance Sheet Exposures Direct Credit Substitutes Commitments with Certain Drawdown 1, , Underwriting and Sub-underwriting Facilities Transaction Related Contingent Items Short Term, Self-liquidating Trade Related Contingencies Other Commitments to Provide Financial Services with Original Maturity of: One Year or More 2, , ,115 Less Than One Year or Can Be Cancelled at Any Time 7, Market Related Contracts (Current Exposure): Foreign Exchange Contracts 27, , Interest Rate Contracts 122, Other Total Off Balance Sheet Exposures 2,513 Total Risk Weighted Exposures 42,829 53

59 42 Capital Adequacy (continued) Unaudited RISK WEIGHTED EXPOSURES (continued) As at 30 June 2009 Registered Bank Risk Principal Risk Weighted Amount Weight Exposure $ millions % $ millions Balance Sheet Exposures Cash and Short Term Claims on Government Claims on Banks 3, Other 5, ,694 Non-risk Weighted Assets Total Balance Sheet Exposures 9,897 6,344 Credit Credit Average Risk Principal Conversion Equivalent Counterparty Weighted Amount Factor Amount Risk Weight Exposure $ millions % $ millions % $ millions Off Balance Sheet Exposures Other Commitments to Provide Financial Services with Original Maturity of: One Year or More 1, Less Than One Year or Can Be Cancelled at Any Time 1, Market Related Contracts (Current Exposure): Foreign Exchange Contracts 4, Interest Rate Contracts 2, Total Off Balance Sheet Exposures 916 Total Risk Weighted Exposures 7,260 54

60 42 Capital Adequacy (continued) Unaudited RISK WEIGHTED EXPOSURES (continued) As at 30 June 2008 Registered Bank Risk Principal Risk Weighted Amount Weight Exposure $ millions % $ millions Balance Sheet Exposures Cash and Short Term Claims on Government Claims on Banks 3, Other 6, ,623 Non-risk Weighted Assets Total Balance Sheet Exposures 11,128 7,371 Credit Credit Average Risk Principal Conversion Equivalent Counterparty Weighted Amount Factor Amount Risk Weight Exposure $ millions % $ millions % $ millions Off Balance Sheet Exposures Other Commitments to Provide Financial Services with Original Maturity of: One Year or More 1, Less Than One Year or Can Be Cancelled at Any Time Market Related Contracts (Current Exposure): Foreign Exchange Contracts 4, Interest Rate Contracts 1, Total Off Balance Sheet Exposures 953 Total Risk Weighted Exposures 8,324 55

61 42 Capital Adequacy (continued) Unaudited RESIDENTIAL MORTGAGES BY LOAN-TO-VALUATION RATIO ("LVR") $ millions As at 30 June 2009 Banking Group LVR Range 0%-60% 60.1%-70% 70.1%-80% 80.1%-90% 90.1%-100% Total Value of Exposures 13,680 7,843 13,665 5,196 1,984 42,368 Expressed as a Percentage of Total Exposures 32.3% 18.5% 32.2% 12.3% 4.7% 100% LVR data has been derived in accordance with the RBNZ Capital Adequacy Framework The Standardised Approach (BS2A). Exposures comprise Balance Sheet claims secured by residential mortgages and undrawn commitments that when drawn down will be secured by mortgage over residential property. Certain loans within the above table are insured by third parties. Exposures with Lender's Mortgage Insurance ("LMI") within each LVR range are set out below. Percentage of Exposures: With 100% LMI 0.7% 0.6% 0.9% 0.4% 0.1% 0.7% With top 20% LMI 3.5% 5.9% 6.3% 18.3% 23.4% 7.6% MARKET RISK EXPOSURE Market Risk Exposures have been prepared on the basis of actual exposures derived in accordance with the process prescribed by the RBNZ under the document Market Risk Guidance Notes (BS6). The Market Risk Methodology is intended to attribute a dollar value amount to the market risk to which a registered bank is exposed. Banking Group Exposures as at 30 June Interest Foreign Interest Foreign Rate Currency Equity Rate Currency Equity $ millions Risk Risk Risk Risk Risk Risk Implied Risk-weighted Exposure 1, , Notional Capital Charge Notional Capital Charge as a % of Overseas Banking Group's Balance Date Equity 0.4% % 0.1% - Peak Exposures for Three Banking Group Months ended 30 June Interest Foreign Interest Foreign Rate Currency Equity Rate Currency Equity $ millions Risk Risk Risk Risk Risk Risk Implied Risk-weighted Exposure 2, , Notional Capital Charge Notional Capital Charge as a % of Overseas Banking Group's Balance Date Equity 0.6% % 0.1% - CAPITAL ADEQUACY OF OVERSEAS BANK The Overseas Bank is CBA. The Overseas Banking Group is CBA and the various companies and other worldwide entities owned and controlled by CBA. In December 2007 the Australian Prudential Regulation Authority ("APRA") granted "advanced" Basel II accreditation to the Overseas Banking Group. As a result of the accreditation, the advanced internal ratings based approach ("AIRB") for credit risk and the advanced measurement approaches ("AMA") for operational risk have been adopted in the calculation of the Overseas Banking Group's Risk Weighted Exposures from 1 January Under New Zealand regulations, this methodology is referred to as Basel II (internal models based) approach. The Overseas Banking Group was also granted advanced accreditation for interest rate risk in the banking book ("IRRBB") in June 2008, with the accreditation taking effect from 1 July Under the advanced accreditation the Overseas Banking Group is required to disclose additional information on a quarterly and a semi-annual basis. This information is made available to users via the Overseas Bank's website ( with the aim of allowing the market to better assess the Overseas Banking Group s risk and reward assessment process. 56

62 42 Capital Adequacy (continued) Unaudited CAPITAL ADEQUACY OF OVERSEAS BANK (continued) The Overseas Bank and the Overseas Banking Group's Capital Ratios throughout the 2008 and 2009 financial years exceeded both APRA minimum capital adequacy requirements. Overseas Bank Overseas Banking Group $ millions Basel II Basel II Basel II Basel II As at 30 June Tier One Capital as a % of Risk Weighted Exposures 8.8% 8.4% 8.1% 8.2% Minimum Tier One Capital (%) required by APRA 4.0% 4.0% 4.0% 4.0% Total Capital as a % of Risk Weighted Exposures 10.5% 10.3% 10.4% 11.6% Minimum Total Capital (%) required by APRA 8.0% 8.0% 8.0% 8.0% 43 Securitisation, Funds Management, Other Fiduciary Activities and the Marketing and Distribution of Insurance Products Securitisation, Funds Management and Other Fiduciary Activities The Banking Group provides limited custodial services relating to holding interest bearing instruments and equity securities on behalf of clients. During the year ended 30 June 2009 ASB Bank Limited established an in house RMBS facility, which can issue securities that are eligible for use as collateral for borrowing from the RBNZ. As at 30 June 2009 ASB Bank Limited had internally securitised $4.1b of RMBS through the Medallion NZ Series Trust R of which $4.0b Class A floating rate notes issued by the Medallion NZ Series Trust R have been assigned a rating of AAA by Fitch Ratings. The securitised assets remain on the Banking Group's Balance Sheet, as ASB Bank Limited retains a continuing involvement in the transferred assets (funding, liquidity and credit risk remains with ASB Bank Limited). The transaction does not have any impact on the Consolidated financial statements of the Banking Group. ASB Bank Limited markets and distributes Funds Management products which are issued by its wholly owned subsidiary ASB Group Investments Limited (refer to Note 17). Funds Under Management distributed by ASB Bank Limited totalled $2,092m as at 30 June 2009 (30 June 2008 $1,900m). ASB Bank Limited provides banking services for trusts managed or administered by ASB Group Investments Limited and sells financial assets to some of the trusts. Funds Under Management issued by ASB Group Investments Limited and distributed by ASB Group (Life) Limited, a fellow subsidiary of CBA, totalled $2,360m as at 30 June Insurance Business, Marketing and Distribution of Insurance Products The Banking Group does not conduct any insurance business. However, general and life insurance products are marketed through ASB Bank Limited's branch network. The life insurance products are underwritten by Sovereign Assurance Company Limited, a wholly owned subsidiary of ASB Group (Life) Limited. Risk Management The Banking Group has in place policies and procedures to ensure that the activities identified above are conducted in an appropriate manner. Should adverse conditions arise, it is considered that these policies and procedures will minimise the possibility that these conditions will adversely impact the Banking Group. The policies and procedures include comprehensive and prominent disclosure of information regarding products, and formal and regular review of operations and policies by management and auditors. In addition, the following measures have been taken to manage any risk to ASB Bank Limited of marketing and distributing insurance products: > Investment statements, prospectuses and brochures for insurance products include disclosures that ASB Bank Limited and its subsidiaries do not guarantee the insurer, nor the insurer's subsidiaries, nor any of the products issued by the insurer or the insurer's subsidiaries. > Where the insurance products are subject to the Securities Act 1978, investment statements, prospectuses and brochures additionally include disclosures that: the policies do not represent deposits or other liabilities of ASB Bank Limited or its subsidiaries; the policies are subject to investment risk, including possible loss of income and principal; and ASB Bank Limited and its subsidiaries do not guarantee the capital value or performance of the policies. > Application forms for insurance products contain acknowledgements to be signed by a purchaser which are consistent with the disclosures for insurance products noted above. In addition, the following measures have been taken to manage any risk to ASB Bank Limited of marketing and distributing fund management products: > Prospectuses, investment statements and brochures for funds management products include disclosures: that the securities do not represent deposits or other liabilities of ASB Bank Limited; that the securities are subject to investment risk including possible loss of income and principal invested; and that ASB Bank Limited does not guarantee the capital value or performance of the securities. > Application forms for funds management products contain acknowledgements to be signed by a purchaser which are consistent with the disclosures for funds management products noted above. 57

63 44 Financial Reporting by Segments $ millions Retail Banking Relationship Banking Banking Group Treasury and Customer Financial Markets and Markets Products Services and Support Unallocated Total Primary Segment Information: Business As at 30 June 2009 Total Operating Income ,524 Net Profit before Taxation (197) Total Assets 27,187 24,854 12,293 7, ,056 Total Liabilities 22,213 7,875 37, ,631 Acquisition of Property, Plant and Equipment and Intangible Assets Depreciation and Amortisation Expense As at 30 June 2008 Total Operating Income ,350 Net Profit before Taxation (239) Total Assets 26,008 24,115 8,819 7, ,323 Total Liabilities 20,490 7,508 33, ,913 Acquisition of Property, Plant and Equipment and Intangible Assets Depreciation and Amortisation Expense Retail Banking: Relationship Banking: Treasury and Financial Markets: Customers, Markets and Products: The Retail Banking Segment provides services to private individuals. Its range of products includes loans and deposits, current accounts and credit cards. The Relationship Banking Segment provides services to commercial, business, corporate, institutional and rural customers. The Treasury and Financial Markets Segment incorporates transactions booked through ASB Bank Limited's Treasury and Financial Markets Division, including financial instruments trading, foreign currency transactions, debt issues and Certificates of Deposit, and structured financing. The Customer, Markets and Products Segment develops and manufactures products and services that are distrubuted by the Retail and Relationship Banking Segments. Services and Support: The Services and Support Segment supplies strategic support and services to the other Segments. Unallocated: Income Tax Assets and Liabilities. Operating Income in each segment includes transfer pricing adjustments to reflect intersegment funding arrangements. Intersegment pricing is determined on an arm's length basis. Charges are eliminated within the Banking Group. Secondary Segment Information: Geographical The Banking Group operates predominantly in the banking industry within New Zealand. The Banking Group has very limited exposure to risks associated with operating in different economic environments or political conditions. On this basis no geographical segment information is provided. 58

64 45 Risk Management Policies Introduction The Banking Group is committed to the management of risk to achieve sustainability of service, employment and profits, and therefore, takes on controlled amounts of risk when considered appropriate. The risk management framework identifies, assesses, manages and reports risk and risk adjusted returns using an economic equity framework. This is targeted at ensuring that the Banking Group has sufficient capital to maintain a string credit rating relative to the market and its peers. The primary risks are those of credit, market (interest rate, price, foreign exchange), liquidity / funding, operational and strategic business risk. Management and governance of ASB Bank Limited and its subsidiaries is separate to the Registered Bank. Although these policies are consistent, their execution is undertaken by separate management and governance. From 1 May 2009 ASB Bank Limited's organisation design was restructured to consolidate risk and control functions under a Chief Risk Officer, reporting to the Chief Executive Officer. The risk management strategy of ASB Bank Limited is set by its Board of Directors through the Board Audit and Risk Committee. All non-executive Directors are members of the Board Audit and Risk Committee. A formal executive committee is in place governing all risk types (Credit, Market, Operational and Strategic). The Chief Risk Officer is responsible for implementation of risk management strategy and all Executives have responsibility for the day to day management of risk across ASB Bank Limited. CBA has in place an integrated risk management framework to identify, assess, manage and report risks and risk adjusted returns on a consistent and reliable basis. This framework is applied by the Registered Bank and is consistent with the risk management framework of ASB Bank Limited. The components of the framework are made up of credit, market, operational and strategic business and insurance risk. The Banking Group has management structures and information systems to manage individual risks. Risk initiation and monitoring tasks are separated where feasible, and all material systems are subjected to regular internal audit. Periodic reviews of all risk management systems are undertaken by internal audit. The Banking Group's external auditor also reviews parts of the Banking Group's risk management framework that impact on significant aspects of the financial systems, but only to the extent necessary to form their review on the Banking Group's six monthly results or audit opinion on the Banking Group's annual results. The following sections describe the risk management framework components. CREDIT RISK Credit risk is the potential risk for loss arising from failure of a debtor or counterparty to meet their contractual obligations. Refer to Note 16 for detailed disclosures on the Banking Group s credit risk management policies. MARKET RISK Market risk is the risk that movements in the level or volatility of market rates and prices will affect the Banking Group's income or the value of its holdings of financial instruments. Market risk arises from reprice and maturity mismatches between assets and liabilities, differences in their respective interest rates and how they respond to changing rates, both on and off balance sheet, as well as from controlled trading undertaken in pursuit of profit. The Banking Group is exposed to diverse financial markets including interest rates, foreign currencies, equities and commodities, and transacts in both physical and derivative instruments. The Board of ASB Bank Limited sets limits on the value of market risk from market price movements that may be accepted. Specific limits are set for Treasury and Financial Markets trading activities, and for ASB Bank Limited's balance sheet management. Adherence to limits is monitored by an independent risk unit under the Chief Risk Officer. For the purposes of market risk management, ASB Bank Limited makes a distinction between traded and non-traded market risks. Traded market risk covers market risk arising from trading activity. Non-traded market risk covers market risks related to balance sheet management on customer loan and deposit activities, which is predominantly interest rate risk. ASB Bank Limited uses Value-at-Risk ("VaR") models as the principal measure of market risk in both the traded and non-traded portfolios. Because of inherent limitations in VaR, for example the VaR model cannot encompass all possible outcomes, tests covering a variety of stress scenarios are regularly performed to simulate the effect of extreme market conditions. Details of the Banking Group s policies for management of market risk are set out below. Traded Market Risk For trading activities VaR is used to capture interest rate, exchange rate, volatility, equity and commodities risk. VaR is calculated using a historic simulation model with 520 days of data over a one day holding period, at a 97.5% confidence interval. The model does not capture VaR due to credit spread changes. In addition as VaR does not produce a maximum loss, stress testing of the trading book is carried out and reported on a weekly basis. Stress tests capture a range of scenarios plus the VaR basis on five years of price data. The following table provides a summary of VaR by risk type for the trading book. VaR at 97.5% confidence level Average VaR $ millions 30-Jun Jun-08 Interest Rate Risk Exchange Rate Risk Diversification Benefit (0.09) (0.11) Total Market Risk

65 45 Risk Management Policies (continued) Non-traded Market Risk - Interest Rate Risk in the Banking Book ASB Bank Limited manages all non-traded market risk for the Banking Group, which covers all non-traded products (the Banking Book). The Banking Group's objective for managing non-traded market risk is set out in ASB Bank Limited's Board approved Non-Traded Market Risk Policy, and is to deliver consistent and enhanced net interest earnings over time. Oversight and strategic direction is provided by the Executive Leadership Team Risk and Control Committee which meets monthly. On a day to day basis, interest rate risk is measured and monitored by an independent risk team, and managed within the Bank's Treasury and Financial Markets Division. Interest rate risk arises from the structure and characteristics of the Bank's assets, liabilities and equity and their respective interest rates. Determining reprice gap profiles is a core function in identifying risk, and Treasury gap limits provide day to day risk measures. In addition to this, regular simulation of Banking Group activity and analysis of expected maximum changes in market value as a percentage of capital provide key risk sensitivity management information and incorporate other non-gap risk causes of interest rate risk including basis risk and optionality. These simulations are measured against earnings and value sensitivity limits. Regular simulation of future net interest earnings are estimated employing existing interest rates, current and forecast Balance Sheets, and rate shocks of 1, 2, and 3% above and below current levels. Market Value sensitivity is modelled using VaR historical rate analysis. The Banking Group manages the known and assumed repricing characteristics of its assets and liabilities as well as future commitments to put the Banking Group in a position to benefit from anticipated interest rate movements and to limit the risk of adverse interest rate movements. The Banking Group reduces interest rate risk by seeking to match the repricing characteristics of its assets and liabilities, by changing the mix of assets and liabilities through marketing and pricing initiatives, by buying and selling long term securities, and through the use of derivatives such as interest rate swaps and forward rate agreements. Where derivative transactions are used, cash flow hedges are used to manage the risk of the potential for a change in interest rates to change net interest earnings, in the current reporting period and in future years, and fair value hedges are used to manage the risk of potential for a change in interest rates to cause a fluctuation in the fair value of financial instruments. The earnings sensitivity to interest rate changes must be such that expected net interest earnings under different interest rate scenarios remain within a set percentage of the central forecast and, similarly, value sensitivity to expected maximum market value changes remain within a set percentage of capital. These limits are set by the Board of Directors and are monitored by the Risk and Control Committee monthly. The methods of calculating exposures under these limits are discussed in more detail below. (a) Next 12 Months' Earnings The risk to the net interest earnings ("NIE") of the Banking Book over the next 12 months for a change in interest rates is measured on a monthly basis. Risk is measured assuming an immediate 1% parallel movement in interest rates across the whole yield curve. Potential variations in NIE are measured using a simulation model that takes into account the projected change in Balance Sheet asset and liability levels and mix. Assets and liabilities with pricing directly based on market rates are repriced based on the full extent of the rate shock that is applied. Risk on the other assets and liabilities (those priced at the discretion of the Banking Group) is measured by taking into account both the manner in which the products have repriced in the past, and the full 1% change in price. The figures in the following table express current and historic exposure of a 1% parallel shock to NIE as a percentage of average forecast NIE for a 12 month period. Percentage of NIE 30-Jun Jun-08 Exposure at End of Year 0.68% 2.10% Past 12 Month Exposure - Average 1.32% 0.98% Past 12 Month Exposure - High 2.62% 2.11% Past 12 Month Exposure - Low 0.43% 0.27% (b) Economic VaR Some of the Banking Group s customer loan and deposit assets and liabilities have interest rate risk that is not fully captured within a measure of risk to the next 12 months earnings. To measure this longer term value sensitivity, the Banking Group utilises an economic VaR analysis. This analysis measures the potential change in the net present value of cash flows of customer and hedging assets and liabilities. Cash flows for fixed rate products are included on a contractual basis. Cash flows for products repriced at the discretion of the Banking Group are based on the expected repricing characteristics of those products. Total cash flows are revalued under a range of possible interest rate scenarios using a historical simulation VaR methodology. The interest rate scenarios are based on actual interest rate movements that have occurred over a six year historical observation period. The measured VaR exposure is an estimate to a 97.5% confidence level (one-tail) of the potential loss that could occur if the Balance Sheet positions were to be held unchanged for a one month holding period. For example, VaR exposure of $1m means that in 97.5 cases out of 100, the expected net present value will not decrease by more than $1m given the historical movement in interest rates. The figures in the following table represent the net present value of the expected change in the Banking Group s customer and hedging activity future earnings due to interest rate change calculated to a 97.5% percentile basis for the remaining term of all existing Banking Book assets and liabilities. $ millions 30-Jun Jun-08 Exposure at End of Year Past 12 Month VaR (97.5 percentile) - Average Past 12 Month VaR (97.5 percentile) - High Past 12 Month VaR (97.5 percentile) - Low

66 45 Risk Management Policies (continued) Interest Rate Repricing Schedule The following tables include the Banking Group's assets and liabilities at their carrying amounts, categorised by the earlier of contractual repricing or maturity dates. The carrying amounts of derivative financial instruments, which are principally used to reduce the Banking Group's exposure to interest rate movements, are included under the heading "Non-interest Bearing". Banking Group Within Between Between Between Over Non interest $ millions Months Months Years Years Years Bearing Total As at 30 June 2009 Assets Cash and Call Deposits with the Central Bank 1, ,582 Due from Other Banks 1, ,258 Money Market Advances Securities 5, ,773 Derivative Assets ,517 2,517 Advances to Customers 35,392 6,576 8,369 8, (323) 58,846 Other Assets Total Assets 43,583 6,633 9,181 9, ,301 72,056 Liabilities Due to Other Banks 8, ,851 Money Market Deposits 17, ,670 Derivative Liabilities ,239 4,239 Deposits from Customers 22,686 3,382 1, ,834 29,978 Other Liabilities Subordinated Debt 1, , ,443 Total Liabilities 50,050 5,037 2,785 1,761 2,196 6,802 68,631 Lending Commitments (100) Net Derivative Notional Principals 9,749 (2,307) (4,773) (4,641) 1,972 As at 30 June 2008 Assets Cash and Call Deposits with the Central Bank 1, ,155 Due from Other Banks Money Market Advances 1, ,223 Securities 2, ,402 Derivative Assets ,249 1,249 Advances to Customers 25,870 7,693 10,775 11, (122) 55,773 Other Assets Total Assets 31,671 8,297 11,634 12, ,144 66,323 Liabilities Due to Other Banks 7, ,800 Money Market Deposits 16,358 1,590 1, ,040 Derivative Liabilities ,193 1,193 Deposits from Customers 22,499 2, ,719 27,821 Other Liabilities Subordinated Debt 2, , ,129 Total Liabilities 49,355 4,464 1,466 1,782 1,722 4,124 62,913 Lending Commitments (87) Net Derivative Notional Principals 19,303 (3,446) (8,517) (8,760) 1,421 61

67 45 Risk Management Policies (continued) Interest Rate Repricing Schedule (continued) Within Between Between Between Over Non interest $ millions Months Months Years Years Years Bearing Total As at 30 June 2009 Registered Bank Assets Cash and Call Deposits with the Central Bank Due from Other Banks 3, ,250 Securities Derivative Assets Advances to Customers 5, (62) 5,648 Other Assets Total Assets 9, ,897 Liabilities Due to Other Banks 5, ,262 Derivative Liabilities Deposits from Customers Other Liabilities Subordinated Debt 1, , ,582 Total Liabilities 6, , ,412 Net Derivative Notional Principals (1,838) (1) (5) (9) 1,853 As at 30 June 2008 Assets Cash and Call Deposits with the Central Bank Due from Other Banks 3, ,738 Securities Derivative Assets Advances to Customers 6, (13) 6,530 Other Assets Total Assets 10, ,128 Liabilities Due to Other Banks 5, ,341 Derivative Liabilities Deposits from Customers Other Liabilities Subordinated Debt 2, , ,136 Total Liabilities 8, , ,856 Net Derivative Notional Principals (665) - (3) (3)

68 45 Risk Management Policies (continued) Price Risk Price risk for both ASB Bank Limited and CBA is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or its issuer, or factors affecting all instruments of a specific type traded in the market. Price risk is controlled by ensuring a diverse range of investments, limits on counterparty exposure and restrictions on types of instruments. Foreign Exchange Risk Foreign exchange risk is the risk to earnings and value caused by a change in foreign exchange rates. Foreign exchange mismatches can arise from the day-to-day purchase and sale of foreign currency, from trading positions taken, from deposit and lending activity in foreign currencies and from offshore funding by the Banking Group. ASB Bank Limited monitors and manages this risk through its Treasury and Financial Markets Division. Mismatches are reported daily. Limits based on VaR and outright positions, both intra-day and overnight, are set to ensure that the maximum exposure to losses from an adverse movement in exchange rates is known to agreed statistical confidence levels. Adherence to limits is monitored by an independent department under the Chief Risk Officer within ASB Bank Limited and separately for the Registered Bank. Material Foreign Currency Balances Material assets and liabilities denominated in foreign currencies recognised in these financial statements, and Net Open Positions are presented in the tables below: As at 30 June 2009 Banking Group Registered Bank Net Open Net Open Exchange Assets Liabilities Position Assets Liabilities Position Rate NZ $m NZ $m NZ $m NZ $m NZ $m NZ $m US Dollar ,642 10, ,204 - Australian Dollar , ,497 - Sterling , Japanese Yen (1) EURO ,393 (1) Canadian Dollar Swiss Franc ,231 (2) As at 30 June 2008 US Dollar , ,902 - Australian Dollar ,447 (2) 447 2,864 - Sterling , Japanese Yen (209) EURO , Canadian Dollar Swiss Franc Differences between total monetary assets and total monetary liabilities in individual currencies are covered by contracts with other parties and / or are controlled within internal policy limits. Equity Risk Equity risk results from the change in market prices of equity investments held by the Banking Group. This is not a material risk to the Banking Group. A formal equity risk policy approved by the Board Audit and Risk Committee of ASB Bank Limited is in place. The Registered Bank has no exposure to equity risk. 63

69 45 Risk Management Policies (continued) LIQUIDITY/FUNDING RISK Liquidity risk is the potential for the Banking Group to encounter difficulty meeting its financial obligations as they fall due. Policies are in place to manage liquidity on a day-to-day basis, and also under crisis scenarios. The objectives of the Banking Group s funding and liquidity policies are to : > > > Ensure all financial obligations are met when due; Provide adequate protection, even under crisis scenarios at lowest cost; and Achieve sustainable, lowest-cost funding within the limitations of funding diversification requirements. ASB Bank Limited and the Registered Bank monitor liquidity risk primarily by forecasting future daily cash requirements. To provide for any unexpected patterns in cash movements, ASB Bank Limited and the Registered Bank hold a pool of readily tradable investment assets and deposits with high credit quality counterparties, on call or maturing within seven days. They also seek a diverse and stable funding base. Limits are set to ensure that holdings of liquid assets do not fall below prudent levels. Limits are also set on the level of interbank and offshore funding, as well as on the amount of wholesale funding that may mature in any period. The Banking Group's key liquidity measures are described below: ASB Bank Limited and the Registered Bank's methodology requires that qualifying liquid assets are greater than the Run Off Risk of funding and commitments, with a minimum holding of qualifying liquid assets of 10% of General Liabilities (Total Funding excluding Subordinated Debt). Run Off Risk is calculated based on estimates of investor behaviour in a crisis scenario. Funding is weighted to reflect the sensitivity of different classes of investor during the first five days of a run. It is difficult to predict accurately how investors will behave if a bank gets into difficulties. Based on observations globally wholesale investors will act quickest by withdrawing funds whilst retail investors will be slower to withdraw funds. Interbank funding maturing in the next five days is therefore weighted at 100%, with a lesser weights being applied to differing investor groups falling to 5% for some retail funds. Additional liquid asset requirements are added to allow for undrawn commitments to lend based upon the likelihood of drawdown. Qualifying liquid assets are of high credit quality and include short term cash held with the RBNZ or other banks, government securities and other securities that are readily acceptable in Repurchase agreements with the RBNZ and other New Zealand banks, prime corporate bonds and short term paper and assets issued by offshore Supranationals and highly rated banks. During the year ended 30 June 2009 ASB Bank Limited established an in house RMBS facility, which can issue securities that can be used as collateral for borrowing from the RBNZ. As at 30 June 2009 ASB Bank Limited had internally securitised $4.1b of RMBS through the Medallion NZ Series Trust R, of which $4.0b of Class A floating rate notes have been assigned a rating of AAA by Fitch Ratings and are eligible for acceptance by the RBNZ. Whilst not intended to be used for day to day liquidity management, the RMBS form part of ASB Bank Limited's Total Core Liquid Assets. As at 30 June 2009 $245m of RMBS had been used as collateral for repurchase agreements with the RBNZ (refer to Notes 15 and 22). The table below shows the key liquidity measures as at the end of the year. As at 30 June $ millions CORE LIQUID ASSETS Qualifying Liquid Assets Cash Balances with the Central Bank 1,439 1,090 Treasury Bills 2, Government Bonds Bank Bills Prime 1,918 1,800 Other Qualifying Liquid Assets 1,369 2,613 Total Qualifying Liquid Assets 7,803 6,370 Retail Mortgage Backed Securities 3,755 - Total Core Liquid Assets 11,558 6,370 Total Qualifying Liquid Assets Expressed as a Percentage of Total General Liabilities 13.11% 11.44% 64

70 45 Risk Management Policies (continued) Maturity Analysis for Undiscounted Contractual Cash flows The tables below present the Banking Group s cash flows by remaining contractual maturities as at balance date. The amounts disclosed in the tables are the contractual undiscounted cash flows and therefore will not agree to the carrying values on the Balance Sheet. Within Between Between Between Over At Carrying $ millions Call Months Months Years Years Years Total Value As at 30 June 2009 Banking Group Financial Assets Cash and Call Deposits with the Central Bank 1, ,582 1,582 Due from Other Banks 1, ,260 1,258 Money Market Advances Securities - 5, ,039 6,773 Derivative Assets - 1,490 6 (48) 33 1,449 2,930 2,517 Advances to Customers 1,960 15,648 1,999 5,556 11,604 55,926 92,693 58,846 Other Assets Total Financial Assets 4,781 22,723 2,150 6,348 12,090 57, ,730 71,389 Financial Liabilities Due to Other Banks 669 4, , ,231 8,851 Money Market Deposits 1,748 13,361 1,967 1,277 2, ,735 20,670 Derivative Liabilities - 2, ,288 4,743 4,239 Deposits from Customers 13,359 10,845 3,922 1, ,289 29,978 Other Liabilities Subordinated Debt ,605 7,009 4,443 Total Financial Liabilities 15,810 31,122 7,063 5,086 4,553 8,530 72,164 68,631 As at 30 June 2008 Financial Assets Cash and Call Deposits with the Central Bank 1, ,155 1,155 Due from Other Banks Money Market Advances 43 1, ,234 1,223 Securities - 2, ,042 1, ,275 5,402 Derivative Assets ,092 1,249 Advances to Customers 2,159 13,496 2,039 5,437 11,359 59,368 93,858 55,773 Other Assets Total Financial Assets 3,401 19,112 2,801 6,543 12,572 59, ,331 65,759 Financial Liabilities Due to Other Banks 633 5, , ,573 7,800 Money Market Deposits 2,543 10,686 2,211 1,959 3, ,551 20,040 Derivative Liabilities ,193 Deposits from Customers 10,312 13,461 3, ,097 27,821 Other Liabilities Subordinated Debt ,268 8,563 10,496 5,129 Total Financial Liabilities 13,488 30,043 6,999 2,966 6,054 9,475 69,025 62,718 65

71 45 Risk Management Policies (continued) Maturity Analysis for Undiscounted Contractual Cash flows (continued) Within Between Between Between Over At Carrying $ millions Call Months Months Years Years Years Total Value As at 30 June 2009 Registered Bank Financial Assets Cash and Call Deposits with the Central Bank Due from Other Banks - 1, ,244 3,578 3,250 Securities Derivative Assets ,449 1, Advances to Customers 506 4, ,328 5,648 Other Assets Total Financial Assets 550 6, ,694 10,996 9,877 Financial Liabilities Due to Other Banks 4 4, ,373 5,262 Derivative Liabilities ,918 1, Deposits from Customers Other Liabilities Subordinated Debt ,599 6,057 3,582 Total Financial Liabilities 129 4, ,916 13,746 9,412 As at 30 June 2008 Financial Assets Cash and Call Deposits with the Central Bank Due from Other Banks ,833 5,034 3,738 Securities Derivative Assets Advances to Customers 659 5, ,750 6,530 Other Assets Total Financial Assets 727 7, ,026 2,835 12,947 11,116 Financial Liabilities Due to Other Banks - 5, ,623 5,341 Derivative Liabilities Deposits from Customers ,046 3, Other Liabilities Subordinated Debt ,159 8,953 4,136 Total Financial Liabilities - 5, ,740 18,821 10,856 66

72 45 Risk Management Policies (continued) Concentrations of Funding The following tables present the Banking Group's Concentrations of Funding which are reported by industry and geographic region. Total Funding comprises Due to Other Banks, Money Market Deposits, Deposits from Customers and Subordinated Debt and is presented at its carrying value. ANZSIC codes have been used as the basis for disclosing industry sectors. Banking Group Registered Bank Deposits at Other Total Deposits at Other Total $ millions Fair Value Funding Funding Fair Value Funding Funding As at 30 June 2009 Concentration by Industry Agricultural, Forestry and Fishing Government and Public Authorities Financial, Investments and Insurance 15,254 21,584 36,838-9,010 9,010 Utilities Transport and Storage Personal 1,132 22,237 23, Other Commercial and Industrial 417 2,007 2, Total Funding by Industry 16,973 46,969 63,942-9,240 9,240 Concentration by Geographic Region New Zealand 3,956 29,730 33, Overseas 13,017 17,239 30,256-8,848 8,848 Total Funding by Geographic Region 16,973 46,969 63,942-9,240 9,240 As at 30 June 2008 Concentration by Industry Agricultural, Forestry and Fishing Government and Public Authorities Financial, Investments and Insurance 13,685 20,740 34,425-10,206 10,206 Utilities Transport and Storage Personal 1,410 20,866 22, Other Commercial and Industrial 539 1,844 2, Total Funding by Industry 16,117 44,673 60,790-10,328 10,328 Concentration by Geographic Region New Zealand 4,339 31,043 35, Overseas 11,778 13,630 25,408-10,112 10,112 Total Funding by Geographic Region 16,117 44,673 60,790-10,328 10,328 67

73 45 Risk Management Policies (continued) OPERATIONAL AND STRATEGIC BUSINESS RISK Operational Risk is defined as the risk of economic loss or gain resulting from inadequate or failed internal processes and methodologies, people, systems or external events. Strategic Business Risk is defined as the risk of economic gain or loss resulting from changes in the business environment caused by economic, competitive, social trend or regulatory factors. Each respective business manager of ASB Bank Limited and CBA is responsible for the identification and assessment of these risks and for maintaining appropriate internal controls, and is supported by the Banking Group's governance structures, operational risk frameworks and operational risk policies. The Banking Group's operational risk measurement methodology combines expert assessment of individual risk exposures with internal loss data to determine potential losses and calculate operational risk economic capital. Business Continuity Management Business Continuity Management ("BCM") within the Banking Group involves the development, maintenance and testing of action plans to respond to defined risk events. This ensures that business processes continue with minimal adverse impact on customers, staff, products, services and brands. BCM constitutes an essential component of the Banking Group's risk management process by providing a controlled response to potential operational risks that could have a significant impact on the Banking Group's critical processes and revenue streams. It includes both cost-effective responses to mitigate the impact of risk events or disasters and crisis management plans to respond to crisis events. A comprehensive BCM programme including plan development, testing and education has been implemented across all business units and includes disaster recovery planning. INTERNAL AUDIT ASB Bank Limited maintains an independent Internal Audit function which is ultimately accountable to the Board of Directors through the Board Audit and Risk Committee. Internal Audit provides independent opinions on the effectiveness of risk management systems, the framework of controls and governance processes within ASB Bank Limited's operations. Operational, compliance and systems audits of all areas of ASB Bank Limited's operations are undertaken based on an assessment of risk. The Board Audit and Risk Committee of ASB Bank Limited meets on a regular basis to consider ASB Bank Limited's financial reporting, internal control and corporate governance issues. It reviews the interim and annual financial statements, the activities of the internal and external auditors and monitors the relationship between management and the external auditors. CBA maintains an independent Internal Audit function which is ultimately accountable to the CBA Board of Directors. CBA's Internal Audit performs a similar role for the Registered Bank to that of the ASB Bank Limited Internal Audit function. 46 Events after the Balance Sheet Date Refer to Note 33 for details of Perpetual Preference Dividends payable to Minority Interests, declared after the balance sheet date. There are no other events subsequent to the balance date which would materially affect the financial statements. 68

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