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Bank of China (New Zealand) Limited

Disclosure Statement for the nine months ended

30 September 2017

TABLE OF CONTENTS

1 GENERAL INFORMATION AND DEFINITIONS ............................................................................................................ 1

2 GENERAL MATTERS ................................................................................................................................................... 1

3 GUARANTEE ARRANGEMENTS .................................................................................................................................. 1

4 DIRECTORATE ............................................................................................................................................................ 2

5 AUDITOR ................................................................................................................................................................... 3

6 CONDITIONS OF REGISTRATION ............................................................................................................................... 3

7 PENDING PROCEEDINGS OR ARBITRATION .............................................................................................................. 3

8 CREDIT RATINGS ........................................................................................................................................................ 3

9 OTHER MATERIAL MATTERS ..................................................................................................................................... 4

10 DIRECTORS' STATEMENTS ......................................................................................................................................... 5

APPENDIX 1 - FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2017 ...................................... 6


Disclosure Statement for the nine months ended 30 September 2017

1

1 GENERAL INFORMATION AND DEFINITIONS The Disclosure Statement is for the nine months ended 30 September 2017. Certain information contained in this Disclosure

Statement is required by section 81 of the Reserve Bank of New Zealand Act 1989 (“Reserve Bank Act”) and the Registered Bank

Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (as amended) (the “Order”).

In this Disclosure Statement:

The "Bank" means Bank of China (New Zealand) Limited (Company Number 5305661);

"Banking Group" means the Bank and its subsidiaries. As at the date of this Disclosure Statement, the Bank does not have

any subsidiaries and is the only member of the Banking Group;

"BoC" means Bank of China Limited which is the ultimate parent bank of the Bank;

"Board" means the board of directors of the Bank;

"RMB" means Renminbi, being the official currency of the People's Republic of China; and

“Reserve Bank” means the Reserve Bank of New Zealand.

Words and phrases not defined in this Disclosure Statement, but defined by the Order, have the meaning given by the Order when

used in this Disclosure Statement. All amounts referred to in this Disclosure Statement are in New Zealand dollars unless otherwise

stated.

The Disclosure Statement of the Bank is available for download, free of charge, on the Bank's website (www.bankofchina.com/nz).

A printed copy will also be made available, free of charge, upon request and will be dispatched by the end of the second working

day after the day on which the request is made.

2 GENERAL MATTERS

2.1 Registered Bank

The Bank was incorporated under the Companies Act 1993 on 16 June 2014.

The Bank’s registered office and principal place of business is Level 17, Tower 1, 205 Queen Street, Auckland 1010, New Zealand.

2.2 Ultimate parent bank and ultimate holding company

The Bank is a wholly-owned subsidiary of BoC. BoC is the Bank's ultimate parent bank and ultimate holding company. BoC is

incorporated in China and is subject to regulatory oversight by the China Banking Regulatory Commission (the “CBRC”) and the

Government of the People's Republic of China (China).

At 30 September 2017, BoC (as the ultimate parent bank of the Bank) has a direct qualifying interest in 100% of the voting rights

of the Bank. In addition, BoC is able to directly appoint up to 100% of the Board. All appointments to the Board must be approved

by the Reserve Bank.

3 GUARANTEE ARRANGEMENTS

3.1 Details of the guarantor

As at the date this Disclosure Statement was signed, the obligations of the Bank are guaranteed by BoC, the ultimate parent bank.

The address for service of BoC is No.1, Fuxingmen Nei Dajie, Beijing 100818, People's Republic of China.

BoC is not a member of the Banking Group.

http://www.bankofchina.com/nz



2

As disclosed in BoC’s unaudited consolidated results for the nine months ended 30 September 2017, BoC’s net capital for capital

adequacy purposes was RMB1,674,724 million and its capital adequacy ratio was 13.87%. Capital ratios are calculated in

accordance with the Capital Rules for Commercial Banks (Provisional) (Y.J.H.L [2012] No.1) issued by CBRC.

BoC has the following credit ratings applicable to its long-term senior unsecured obligations payable in RMB as at the date this

Disclosure Statement was signed:

Rating agency Current credit rating Rating outlook

Standard & Poor's Ratings Services A Stable

Moody's Investors Services A1 Stable

Fitch Ratings A Stable

For an explanation of the credit rating scales, see the table under the “8.2 Description of credit rating scales” on page 3 of this Disclosure Statement.

3.2 Details of guaranteed obligations

The following is a summary description of the obligations of the Bank that are guaranteed by BoC under the 'Deed of Guarantee'

given by BoC in relation to the Bank's obligations dated 25 August 2014 (the "Guarantee"):

(1) The Guarantee is an unlimited, irrevocable, all monies, continuing guarantee.

(2) The Guarantee is capable of being terminated in accordance with its terms.

(3) There are no material conditions applicable to the Guarantee other than non-performance by the Bank of its

'Obligations' (as defined therein) provided claims are made in accordance with its terms and accompanied with the

relevant information set out therein.

(4) There are no material legislative or regulatory restrictions in China that would have the effect of subordinating the claims

under the Guarantee of any of the Bank’s creditors, to other claims against BoC in a winding up of BoC.

The Guarantee does not have an expiry date.

A copy of the Guarantee is enclosed in the Bank’s Disclosure Statement for the period ended 31 December 2016. A copy of the

Disclosure Statement can be obtained from the Bank’s website (www.bankofchina.com/nz).

Since the date on which the Disclosure Statement for 31 December 2016 was signed, there have been no material changes:

to the ultimate parent bank or the ultimate holding company of the Bank;

in regulations, legislation or other restrictions of a legally enforceable nature in China or New Zealand that may

materially inhibit the legal ability of BoC to provide material financial support to the Bank;

the terms of the Guarantee.

4 DIRECTORATE Shanjun Hu retired as a Director of the Bank, effective from 2 November 2017. There are no other changes to the composition of the Board since 31 December 2016.

Each of the current directors of the Board namely Hon. Christopher Tremain, Hon. Ruth Richardson, Dongyi Hua, Mang Li and Lei

Wang (the "Directors") have authorised Mr. Lei Wang in writing to sign this Disclosure Statement on their behalf in accordance

with section 82 of the Reserve Bank Act.

http://www.bankofchina.com/nz



3

5 AUDITOR

The name of the Bank's auditor whose audit or review statement is referred to in Disclosure Statement is Ernst & Young.

Ernst & Young's address is EY Building, 2 Takutai Square, Britomart, Auckland 1010, New Zealand.

This Disclosure Statement is neither a half year nor an annual disclosure statement so is not subject to an audit or review

by an external auditor.

6 CONDITIONS OF REGISTRATION

Changes in conditions of registration During the reporting period there were no changes to the Bank’s conditions of registration.

7 PENDING PROCEEDINGS OR ARBITRATION

As at the date of this Disclosure Statement, there are no pending legal proceedings or arbitration concerning any member of the

Banking Group, whether in New Zealand or elsewhere, that may have a material adverse effect on the Bank or the Banking Group.

8 CREDIT RATINGS

8.1 The Bank’s credit ratings

The Bank has the following credit ratings as at the date this Disclosure Statement was signed.

Credit ratings Standard & Poor's Moody’s Investor Service

Long-term counterparty credit rating A A1

Short-term counter party credit rating A-1 Prime-1

Outlook Stable Stable

A credit rating is not a recommendation to buy, sell or hold securities of the Bank. Such ratings are subject to revision, qualification, suspension or withdrawal at any time by the assigning rating agency.

On 26 May 2017, Moody’s changed the outlook on the Bank’s rating to stable from negative.

On 23 August 2017, Standard & Poor’s Global Ratings assigned its ‘A’ long-term and ‘A-1’ short-term counterparty credit rating

and ‘Stable ‘outlook to the Bank.

Investors in the Bank’s securities are cautioned to evaluate each rating independently of any other rating.

8.2 Description of credit rating scale

The following is the description of the major rating category of each rating agency for the rating of long term senior unsecured

obligations:

Standard & Poor's

Moody’s Investors

Service Fitch Ratings Description of ratings1

8.2.1 The following grades display investment grade characteristics:

AAA Aaa AAA

Ability to repay principal and interest is extremely strong. This is the highest investment category.

AA Aa AA Very strong ability to repay principal and interest.

A A A Strong ability to repay principal and interest although susceptible to adverse changes in economic, business or financial conditions.



4

Standard & Poor's

Moody’s Investors

Service Fitch Ratings Description of ratings1

BBB Baa BBB Adequate ability to repay principal and interest. More vulnerable to adverse changes.

8.2.2 The following grades have predominantly speculative characteristics:

BB Ba BB Significant uncertainties exist which could affect the payment of principal and interest on a timely basis.

B B B Greater vulnerability and therefore greater likelihood of default.

CCC Caa CCC Likelihood of default considered high. Timely repayment of principal and interest is dependent on favorable financial conditions.

CC Ca CC to C Highest risk of default.

SD to D C RD to D Obligation currently in default.

((1) This is a general description of the rating categories based on information published by Moody’s Investors Service.

Moody’s Investors Service apply numeric modifiers 1, 2 and 3 to show relative standing within the major ratings categories with

1 indicating the higher end of that category and 3 indicating the lower end.

Credit ratings by Standard & Poor’s Ratings Services and Fitch Ratings may be modified by the addition of a plus or minus sign to

show relative standing within the major rating categories.

9 OTHER MATERIAL MATTERS

There are no matters relating to the business or affairs of the Banking Group which are not contained elsewhere in the

Disclosure Statement and which would materially affect the decision of a person to subscribe for debt securities of which the

Bank or any member of the Banking Group is the issuer.



6

APPENDIX 1 - FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED 30 September 2017 STATEMENT OF COMPREHENSIVE INCOME ..................................................................................................................... 7

STATEMENT OF FINANCIAL POSITION .............................................................................................................................. 8

STATEMENT OF CHANGES IN EQUITY ............................................................................................................................... 9

STATEMENT OF CASH FLOWS ......................................................................................................................................... 10

1 ACCOUNTING POLICIES ........................................................................................................................................... 11

2 INTEREST INCOME ................................................................................................................................................... 12

3 OTHER OPERATING INCOME/(EXPENSE) ................................................................................................................ 12

4 OPERATING EXPENSES ............................................................................................................................................ 12

5 PROVISION FOR IMPAIRMENT LOSSES ................................................................................................................... 13

6 CASH AND CASH EQUIVALENTS .............................................................................................................................. 14

7 RECEIVABLES DUE FROM OTHER FINANCIAL INSTITUTIONS .................................................................................. 15

8 LOANS AND ADVANCES ........................................................................................................................................... 15

9 ASSET QUALITY ........................................................................................................................................................ 16

10 PAYABLES DUE TO OTHER FINANCIAL INSTITUTIONS ......................................................................................... 19

11 CUSTOMER DEPOSITS ......................................................................................................................................... 19

12 CONTRIBUTED EQUITY ........................................................................................................................................ 19

13 ADDITIONAL INFORMATION ON STATEMENT OF FINANCIAL POSITION ............................................................ 20

14 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES ........................................................................................... 20

15 COMMITMENTS AND CONTINGENCIES .............................................................................................................. 23

16 RELATED PARTY TRANSACTIONS ......................................................................................................................... 24

17 CONCENTRATION OF CREDIT EXPOSURES .......................................................................................................... 25

18 CONCENTRATION OF FUNDING .......................................................................................................................... 28

19 INSURANCE BUSINESS, SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIES AND THE

MARKETING AND DISTRIBUTION OF INSURANCE PRODUCTS........................................................................................ 29

20 CAPITAL ADEQUACY (UNAUDITED) ..................................................................................................................... 29

21 RISK MANAGEMENT POLICIES .............................................................................................................................. 33

22 EVENTS SUBSEQUENT TO THE REPORTING DATE ............................................................................................... 33



7

STATEMENT OF COMPREHENSIVE INCOME

For the period ended

Note

Unaudited Audited Unaudited

nine months ended

Year ended nine months

ended

30 September 2017 31 December 2016 30 September 2016

$000 $000 $000

Interest income 2 16,448 11,992 8,206

Interest expense (8,872) (6,712) (4,288)

Net interest income 7,576 5,280 3,918

Other operating income/(expense) 3 6,738 3,443 2,021

Net Operating Income 14,314 8,723 5,939

Operating expenses 4 (8,238) (10,071) (6,445)

Impairment losses 5 (824) (501) (344)

Profit before Tax 5,252 (1,849) (850)

Income tax expense 261 222 10

Profit after income Tax 5,513 (1,627) (840)

Other comprehensive income, net of tax

Items that will not be reclassified to profit or loss

- - -

Items that may be reclassified to profit or loss:

Net change in available-for sale revaluation reserve (net of tax)

- - -

Net change in cash flow hedge reserve (net of tax)

- - -

Total other comprehensive income for the period, net of tax

- - -

Total comprehensive income for the period

5,513 (1,627) (840)

The above statement of comprehensive income should be read in conjunction with the accompanying notes.



8

STATEMENT OF FINANCIAL POSITION

As at

Note



$000 $000 $000

Assets

Cash and cash equivalents 6 41,915 86,105 55,231

Receivables due from other financial institutions

7 35,304 79,740 91,311

Financial assets held for trading - - -

Derivative assets 14 405 10 -

Available-for-sale financial assets - - -

Loans and advances 8,9 774,604 344,982 271,157

Property and equipment 615 814 893

Tax recoverable - - -

Deferred tax assets 1,300 1,039 827

Other assets 3,929 1,844 1,612

Total assets

858,072 514,534 421,031

Liabilities

Payable due to other financial institutions 10 434,407 240,495 139,961

Derivative liabilities 14 66 7 1

Customer deposits 11 196,506 214,180 221,574

Debt securities on issue

- - -

Current tax liabilities - - -

Deferred tax liabilities - - -

Other liabilities 6,886 5,158 4,014

Total liabilities 637,865 459,840 365,550

Equity

Contributed equity 12 223,307 63,307 63,307

Reserves - - -

Retained losses (3,100) (8,613) (7,826)

Total equity 220,207 54,694 55,481

Total interest earning and discount bearing assets

853,601 511,735 418,399

Total interest and discount bearing liabilities

629,983 453,985 361,040

The above statement of financial position should be read in conjunction with the accompanying notes.



9

STATEMENT OF CHANGES IN EQUITY

For nine months ended 30 September 2017 Unaudited

Note

Contributed equity

$000 Reserves

$000

Retained losses

$000 Total equity

$000

Balance as at 1 January 2017 12 63,307 - (8,613) 54,694

Capital injection from shareholders 160,000 - 160,000

Total comprehensive income for the period - - 5,513 5,513

Balance as at 30 September 2017 223,307 - (3,100) 220,207

For year ended 31 December 2016 Audited

Note

Contributed equity

$000 Reserves

$000

Retained losses

$000 Total equity

$000

Balance as at 1 January 2016 63,307 - (6,986) 56,321

Capital injection from shareholders - - - -

Total comprehensive income for the period - - (1,627) (1,627)

Balance as at 31 December 2016 63,307 - (8,613) 54,694

For nine months ended 30 September 2016 Unaudited

Note

Contributed equity

$000 Reserves

$000

Retained losses

$000 Total equity

$000

Balance as at 1 January 2016 63,307 - (6,986) 56,321

Capital injection from shareholders - - - -

Total comprehensive income for the period - - (840) (840)

Balance as at 30 September 2016 63,307 - (7,826) 55,481

The above statement of changes in equity should be read in conjunction with the accompanying notes.



10

STATEMENT OF CASH FLOWS


Note


nine months ended

Year ended nine months

ended 30 September

2017 31 December

2016 30 September

2016

$000 $000 $000

Cash flows from operating activities

Interest received

15,216 11,306 7,277

Interest paid

(8,286) (5,420) (3,400)

Other operating income received

6,402 2,682 1,249

Operating expenses paid

(7,994) (9,755) (6,209)

Income taxes paid

- - -

Net cash flows from operating activities before changes in operating assets and liabilities

5,337 (1,187) (1,083)

Net changes in operating assets and liabilities:

Net change in loans and advances

(430,446) (200,768) (126,772)

Net change in financial assets held for trading

- - -

Net change in derivative assets and liabilities

- - -

Net change in customer deposits

(17,674) 179,359 186,753

Net change in payable due to other financial institutions

193,672 126,832 26,494

Net change in receivables due from other financial institutions

44,417 (34,922) (46,490)

Net change in tax recoverable

- - -

Net change in current tax liabilities

- - -

Net change in other assets

(834) (508) (36)

Net change in other liabilities

1,383 1,073 138

Net cash flow from operating activities

(204,145) 69,879 39,004

Cash flow from investing activities

Purchase of property and equipment

(45) (32) (31)

Purchase of available-for-sale assets

- - -

Net cash flow from investing activities

(45) (32) (31)

Cash flow from financing activities

Issuance of ordinary shares

160,000 - -

Funding from the ultimate parent (BoC)

- - -

Proceeds from the issuance of debt securities

- - -

Net cash flow from financing activities

160,000 - -

Net change in cash and cash equivalents

(44,190) 69,847 38,973

Cash and cash equivalents at beginning of the period

86,105 16,258 16,258

Cash and cash equivalents at end of the period 6 41,915 86,105 55,231

The above statement of cash flows should be read in conjunction with the accompanying notes.


Notes to the Financial Statement for the nine months ended 30 September 2017

11

1 ACCOUNTING POLICIES

1.1 Reporting Entity

The reporting entity is the Bank. The Bank does not prepare group financial statements as it does not have any subsidiaries.

The Bank is a company incorporated in New Zealand under the Companies Act 1993 on 16 June 2014 and is registered under

Company Number 5305661. The Bank’s principal place of business is Level 17, Tower 1, 205 Queen Street, Auckland 1010,

New Zealand. The principal activity of the Bank is the provision of a range of banking products and services to business,

retail, corporate and institutional customers.

The financial statements are for the period from 1 January 2017 to 30 September 2017 and have been prepared in

accordance with Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 (as

amended) (“the Order”). They were approved for issue by the Board of Directors of the Bank (the “Board”) on 29 November

2017.

1.2 Basis of preparation

These general purpose financial statements have been prepared in accordance with Generally Accepted Accounting Practice

in New Zealand ("NZ GAAP") and comply with New Zealand equivalent to International Accounting Standards ("NZ IAS") 34

Interim Financial Reporting and the Order as appropriate for profit-oriented entities, and should be read in conjunction with

the Disclosure Statement for the year ended 31 December 2016.

1.3 Basis of measurement

These financial statements have been prepared on a going concern basis in accordance with historical cost concepts except

that the following assets and liabilities are stated at their fair value:

• derivative financial instruments, including in the case of fair value hedging, the fair value of any applicable underlying

exposure;

• financial instruments held for trading;

• financial assets treated as available-for-sale; and

• financial instruments designated at fair value through profit or loss.

1.4 Comparative figures

Certain comparative information has been revised where appropriate to conform to changes in the current year to enhance

comparability. These reclassifications have no impact on the overall financial performance or financial position for the

comparative year.

1.5 Presentation currency and rounding

Items included in the financial statements of the Bank are measured using the currency of the primary economic

environment in which the Bank operates (“the functional currency”). All amounts contained in the financial statements are

presented in thousands of New Zealand dollars, which is the Bank’s functional and presentation currency, unless otherwise

stated.

1.6 Changes in accounting policies

During the period ended 30 September 2017, there were no changes in accounting policies. The same accounting policies

and methods of computation have been followed in preparing these financial statements as were used in preparing the

financial statements for the year ended 31 December 2016.



12

2 INTEREST INCOME



Nine months ended Year ended Nine months ended


$000 $000 $000

Cash and liquid assets 784 773 527

Loans and advances 14,086 10,376 7,101

Available-for-sale securities - - -

Receivable due from other financial institutions

1,578 843 578

Total interest income 16,448 11,992 8,206

3 OTHER OPERATING INCOME/(EXPENSE)





$000 $000 $000

Lending and credit facility related fee income

3,030 1,762 1,097

Other fees and commissions 2,773 409 9

Gains/(losses) on foreign exchange contracts

935 1,272 915

Total other operating income 6,738 3,443 2,021

4 OPERATING EXPENSES





$000 $000 $000

Professional fees 296 329 170

Rent expense on operating leases 252 242 191

Depreciation 249 323 242

Promotion and marketing cost 653 655 534

Personnel expenses 6,302 7,702 4,742

Other administrative expenses 486 820 567

Total operating expenses 8,238 10,071 6,445



13

5 PROVISION FOR IMPAIRMENT LOSSES

For nine months ended 30 September 2017

Unaudited

Residential mortgages

Corporate exposures

Other exposures excluding

sovereigns and central banks

Total credit

exposures

$000 $000 $000 $000

Balance as at 1 January 2017 - 937 - 937

Movement in collectively assessed provisions - 824 - 824

Movement in individually assessed provisions - - - -

Bad debts written-off directly to the profit or loss - - - -

Bad debts recovered - - - -

Effect of exchange rate changes - - - -

Total provision for impairment losses - 1,760 - 1,760

For year ended 31 December 2016

Audited


Corporate exposures



Total credit

exposures

$000 $000 $000 $000







Total provision for impairment losses - 937 - 937

For nine months ended 30 September 2016

Unaudited


Corporate exposures



Total credit

exposures

$000 $000 $000 $000







Total provision for impairment losses - 766 - 766



14

6 CASH AND CASH EQUIVALENTS

As at



$000 $000 $000

Cash and balances with central banks 31,138 75,284 49,053

Current deposits in other institutions 2,184 2,038 2,161

Transaction balances with other institutions 8,593 8,783 4,017

Total cash and cash equivalents 41,915 86,105 55,231

Reconciliation from net profit before tax to the net cash flows from operating activities





$000 $000 $000

Net profit/loss for the period from operating activities

5,252 (1,849) (850)

Adjustments for non-cash items:

Provisions for loans and advances 824 501 330

Net gain/loss on disposal of available-for-sales financial assets

- -

Valuation assets/liabilities on financial instruments

(336) (761) (757)

Depreciation expense 243 316 236

Total adjustments for non-cash items 731 56 (191)

Changes in assets and liabilities

Net change in payables due to other financial institutions

193,912 127,395 26,861

Net change in receivables due from other financial institutions

44,436 (34,882) (46,453)

Net change in loans and advances (430,446) (200,768) (126,772)

Net change in tax recoverable 0 - -

Net change in other assets (2,086) (1,233) (1,002)

Net change in current tax liabilities - -

Net change in customer deposits (17,674) 179,359 186,753

Net change in other liabilities 1,728 1,803 659

Net Changes in assets and liabilities (210,129) 71,674 40,046

Net cash flows from operating activities (204,145) 69,879 39,004



15

7 RECEIVABLES DUE FROM OTHER FINANCIAL INSTITUTIONS

As at



$000 $000 $000

Due from other financial institutions-term 4,828 75,411 76,298

Due from related entities-term 30,476 4,329 15,013

Total receivables due from other financial institutions

35,304 79,740 91,311

8 LOANS AND ADVANCES

As at



$000 $000 $000

Gross loans and advances: 776,364 345,919 271,923

Mortgage loans 189,600 33,759 16,767

Corporate loans 582,205 309,387 252,215

Overdrafts 4,559 2,773 2,940

Provision for impairment: 1,760 937 766

Collective provision 1,760 937 766

Individually assessed provision - - -

Net loans and advances 774,604 344,982 271,157



16

9 ASSET QUALITY

As at 30 September 2017


Other Retail exposures

Corporate exposures

Total credit exposures

Unaudited $000 $000 $000 $000

Neither past due nor individually impaired 189,600 - 586,764 776,364

Past due but not individually impaired - - - -

Less than 30 days past due - - - -

At least 30 days but less than 60 days past due - - - -


At least 90 days past due - - - -

Total past due assets not individually impaired - - - -

Movements in individually impaired assets

Pre-allowance opening balance at beginning of the period

- - - -

Additions - - - -

Amounts written off - - - -

Deletions - - - -

Pre-allowance closing balance at end of the period - - - -

Total gross loans and advances 189,600 - 586,764 776,364

Movements in balances of total Individual credit impairment allowances

Balance at beginning of the period - - - -

The charge (credit) to the statement of financial performance for an increase or decrease in individual credit impairment allowances

- - - -


Recoveries of amounts written off in previous period

- - - -

Reversals of previously recognised impairment losses

- - - -

Other movements - - - -

Balance at end of the period - - - -

Movements in balance of collective credit impairment allowances

Balance at beginning of the period - - 937 937

The charge (credit) to the statement of financial performance for an increase or decrease in the collective credit impairment allowances

- - 824 824


Balance at end of the period - - 1,760 1,760

Total provision for credit impairment - - 1,760 1,760

Total net loans and advances 189,600 - 585,004 774,604

Note:

1. No collective provision has been recognised in respect of residential mortgages as the bank does not have historical loss experience for these loans, the

likelihood of default has been assessed as low as the loans are performing and the loans are appropriately secured to mitigate loss at default.



17

2. Undrawn balances on lending commitments to counterparties for whom drawn balances are classified as individually impaired were $nil as at 30 September

2017. The Bank did not have other assets under administration as at 30 September 2017.

As at 31 December 2016



Corporate exposures


Audited $000 $000 $000 $000


Past due but not individually impaired





Total past due assets not individually impaired - - - -

Movements in individually impaired assets


- - - -

Additions - - - -


Deletions - - - -


Total gross loans and advances 33,759 - 312,160 345,919




- - - -



- - - -


- - - -






- - 501 501


Balance at end of the period - - 937 937

Total provision for credit impairment - - 937 937




18

Note:


likelihood of default has been assessed as low as the loans are performing and the loans are appropriately secured to mitigate loss at default. All loan to value

ratios are below 70%.

2. Undrawn balances on lending commitments to counterparties for whom drawn balances are classified as individually impaired were $nil as at 31 December 2016. The Bank did not have other assets under administration as at 31 December 2016.




Corporate exposures


Unaudited $000 $000 $000 $000


Past due but not individually impaired - - - -





Total past due assets not individually impaired

Movements in individually impaired assets - - - -


- - - -

Additions - - - -


Deletions - - - -


Total gross loans and advances - - - -


16,767 - 255,156 271,923



- - - -



- - - -


- - - -






- - 330 330

Other movements - - -

Balance at end of the period - - 765 765

Total provision for credit impairment - - 765 765



19




Corporate exposures


Unaudited $000 $000 $000 $000


Note:


likelihood of default has been assessed as low as the loans are performing and the loans are appropriately secured to mitigate loss at default. All loan to value

ratios are below 70%.

2. Undrawn balances on lending commitments to counterparties for whom drawn balances are classified as individually impaired were $nil as at 30 September 2016. The Bank did not have other assets under administration as at 30 September 2016.

10 PAYABLES DUE TO OTHER FINANCIAL INSTITUTIONS

As at


30 September 2017 31 December 2016 30 September

2016

$000 $000 $000

Due to other financial institutions 155,554 25,445 6,862

Due to related financial institutions 278,853 215,050 133,099

Total payables due to other financial institutions

434,407 240,495 139,961

11 CUSTOMER DEPOSITS

As at


30 September 2017 31 December 2016 30 September

2016

$000 $000 $000

Term deposits 138,561 188,788 191,518

Saving/Demand deposits 53,682 21,828 28,016

Margin deposits 4,263 3,564 2,040

Total customer deposits 196,506 214,180 221,574

12 CONTRIBUTED EQUITY

As at

Unaudited Unaudited

30 September 2017 30 September 2017

$000 Number of shares

Ordinary shares

Balance as at the start of period 63,307 63,307,266

Shares issued during the period 160,000 160,000,000

Balance as at the end of period 223,307 223,307,266

The authorised ordinary share capital of the Bank comprises 223,307,266 shares, which do not have a par value. On 16 June

2014, the Bank issued 100 ordinary shares without consideration when the Bank was first incorporated. On 30 October 2014



20

and 10 April 2017, the Bank further issued 63,307,166 ordinary shares and 160,000,000 ordinary shares to BoC respectively,

being its ultimate parent bank for $1.00 per share, which have been fully paid.

Each of the 223,307,266 ordinary shares entitles the shareholders to one vote at meetings of shareholders and share equally

in dividends authorised in respect of the ordinary shares and any proceeds available to ordinary shareholders on winding up

of the Bank.

During the nine months ended 30 September 2017 the Bank paid dividends of $nil to its ultimate parent bank, namely BoC

(equivalent to $nil per share).

13 ADDITIONAL INFORMATION ON STATEMENT OF FINANCIAL POSITION

As at


30 September 2017

31 December 2016 30 September

2016

$000 $000 $000

Total interest earning and discount bearing assets 853,601 511,735 418,399

Total interest and discount bearing liabilities 629,983 453,985 361,040

Financial assets pledged as collateral - - -

Total amount due from related entities 40,518 15,888 19,796

Total amount due to related entities 278,854 215,050 133,099

14 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure

purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading

and available-for-sale securities) is based on quoted market prices at the reporting date. The quoted market price used for

financial assets held by the Bank is the current bid price. Derivative contracts classified as held for trading are fair valued by

comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity. The fair

value of currency swaps and forwards are calculated using an interpolation method which is a method of constructing new

data points within the range of a discrete set of known data points determined by using forward exchange market rates at

the reporting date.

Fair value hierarchy of financial instruments measured at fair value

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the

fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as

a whole:

(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)

(b) Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or

indirectly observable (level 2), and

(c) Valuation techniques for which the lowest level input that is significant to the fair value measurement is

unobservable (level 3).

The bank considers transfers between levels of the fair value hierarchy, if any, to have occurred at the beginning of the

respective reporting period.

http://en.wikipedia.org/wiki/Discrete_set



21

As at 30 September 2017 (Unaudited)

Level 1 Level 2 Level 3 Total

$000 $000 $000 $000

Financial assets

Derivative financial assets - 404 - 404

Available-for-sale securities - - - -

Total financial assets carried at fair value - 404 - 404

Financial liabilities

Derivative financial liabilities - 66 - 66

Debt securities issued at fair value - - - -

Total financial liabilities carried at fair value

- 66 - 66

As at 31 December 2016 (Audited)


$000 $000 $000 $000

Financial assets

Derivative financial assets - 10 - 10


Total financial assets carried at fair value - 10 - 10




Total financial liabilities carried at fair value

- 7 - 7

As at 30 September 2016 (Unaudited)


$000 $000 $000 $000

Financial assets

Derivative financial assets - - - -


Total financial assets carried at fair value - - - -




Total financial liabilities carried at fair value - 1 - 1

Fair value of financial instrument not measured at fair value

Financial assets and financial liabilities are measured on an ongoing basis either at fair value or at amortised cost. NZ IFRS 7

requires the disclosure of fair value of those financial instruments not already carried at fair value in the balance sheet. Fair

value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date under current market conditions. The fair value disclosure does not cover



22

those assets and liabilities that are not considered to be financial instruments from an accounting perspective, such as fixed

assets.

The following table summarises the carrying amounts and the estimated fair values of those financial instruments not

measured at fair value:

As at



Fair Value

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Carrying Amount

$000 $000 $000 $000 $000 $000

Financial Assets

Cash and liquid assets 41,915 41,915 86,105 86,105 55,231 55,231

Receivables due from other financial institutions

35,304 35,304 79,740 79,740 91,311 91,311

Loans and advances 769,939 774,604 344,333 344,982 271,097 271,157

Other financial assets 2,431 2,431 1,180 1,180 1,421 1,421

Total financial assets 849,589 854,254 511,358 512,007 419,060 419,120


Payable due to other financial institutions 434,407 434,407 240,495 240,495 139,940 139,961

Customer deposits 196,501 196,506 214,187 214,180 221,573 221,573

Other financial liabilities 1,082 1,082 737 737 529 529

Total financial liabilities 631,990 631,995 455,419 455,142 362,042 362,063

The following methods and assumptions were used to estimate the fair values:

Due from central banks and other institution, Due to central banks and other institution

These assets and liabilities are primarily short term in nature or are receivable or payable on demand. In such

cases the carrying amounts approximate their fair value or have been determined using discounting cash flow

models based on observable market prices as appropriate.

Trading securities, Available for sale investments and Trading liabilities.

Trading securities include treasury bills, bank bills and bonds, promissory notes, and government and other

securities. Trading liabilities include short sales of securities. Available for sale investments include listed equity

securities and other securities. These assets and liabilities are recorded at fair value based on quoted closing

market prices as at the reporting date. Where quoted market prices are not available, the Bank obtains the fair

value by means of discounted cash flows and other valuation techniques based on observable market prices.

Loans and advances to customers

The carrying value of loans and advances is net of allowance for impairment losses, credit risk adjustment,

unearned and deferred income. Floating rate loans to customers generally reprice within six months, therefore,

their fair value is assumed to equate their carrying value. For fixed rate loans, the fair value is estimated by

discounting the expected future cash flows based on maturity of the loans and advances, using current market

interest rates of similar types of loans and advances or interest rate swap rates.



23

Derivative financial instruments

The fair value of trading and hedging derivative, including foreign exchange contracts, interest rate swap,

interest rate and currency option contracts, and currency swaps, are obtained from observable market prices as

at the reporting date, discounted cash flow models or option pricing models as appropriate.

Deposits from customers

With respect to Deposits from customers, the fair value of non-interest-bearing, call and variable rate deposits

and fixed rate deposits repricing within six months is approximated as the carrying value as at the reporting date.

For other fixed rate term deposits, the fair value is estimated by discounting the cash flow based on the maturity

of the deposit, using current market rates.

Bonds and notes

Bonds and notes are recorded at fair value based on a discounted cash flow model using a yield curve

appropriate to the remaining maturity of the instruments. This is based on observable market prices as at the

reporting date where available, otherwise alternative observable market source data is used.

Other financial assets and liabilities

For these balances, such as receivable and payable accrued interest, the carrying amount is considered to

approximate the fair value, as they are short term in nature or are receivable / payable on demand.

15 COMMITMENTS AND CONTINGENCIES

As at



$000 $000 $000

Lease commitments:

One year or less 254 226 234

Between one and five years 827 741 745

Over five years 411 509 556

Total lease commitments 1,493 1,476 1,535

Capital commitments:

Due within one year - - -

Due within two year or more - - -

Total capital commitments - - -

Credit related commitments and contingencies:

Commitments to extend credit 422,543 143,397 104,736

Trade letters of credit

Standby letters of credit 17,838 9,748 8,247

Total credit related commitments and contingencies

440,382 153,145 112,983

Other contingent liabilities - - -

Total commitments and contingencies 441,875 154,621 114,518



24

16 RELATED PARTY TRANSACTIONS The Bank is a wholly owned subsidiary of Bank of China Limited (BoC), a company incorporated in China. The ultimate parent

bank of the Bank is also BoC. The Ultimate Parent Banking Group refers to BoC and its subsidiaries. As at 30 September 2017,

the Bank had no controlled entities.

Transactions with related parties





$000 $000 $000

Interest income Received from related parties

184 76 52

Interest expense Paid to related parties

5,188 3,529 2,372

Non-interest income Received from related parties

666 16 -

Operating expenses Paid to related parties

3 11 -

There were no debts with any related parties written off or forgiven during the nine months ended 30 September 2017.

Balances with related parties

As at



$000 $000 $000

Due from Ultimate Parent Bank 39,055 15,041 3,969

Due from other related parties 1,463 847 15,827

Total related party assets 40,518 15,888 19,796

Due to Ultimate Parent Bank 278,676 186,913 104,840

Due to other related parties 177 28,137 28,259

Total related party liabilities 278,854 215,050 133,099

No provisions for impairment loss have been recognised in respect of loans given to related parties as at 30 September 2017.

The Bank undertakes transactions with BoC and other members of the Ultimate Parent Banking Group.

The Bank issued 100 ordinary shares, 63,307,166 ordinary shares and 160,000,000 ordinary shares on 16 June 2014, 30

October 2014 and 10 April 2017 respectively, to BoC. Refer to Note 12 for further details of the rights and preference

attached to the shares.



25

17 CONCENTRATION OF CREDIT EXPOSURES

Concentration of credit exposure to individual counterparties

Credit exposure is calculated on the basis of actual credit exposures net of individual credit impairment provision. In addition, credit exposures to individual counterparties (not being members of a group of closely related counterparties) and to groups of closely related counterparties exclude credit exposures to connected persons, to the central government of any country with a long-term credit rating of A- or A3 or above, or its equivalent, or to any bank with a long-term credit rating of A- or A3 or above, or its equivalent.

The peak-of-day aggregate credit exposure to an individual counterparty or a group of closely related counterparties for the period between the reporting date for the previous disclosure statement and the reporting date for the disclosure statement is derived by determining the maximum end-of-day aggregate amount of credit exposure over the period, and then dividing that amount by the Bank’s equity as at the reporting date for the disclosure statement.

The number of individual bank counterparties (which are not (i) members of a group of closely related counterparties or (ii) a group of closely related counterparties of which a bank is the parent) to which the Banking Group has an aggregate credit exposure or peak end-of-day aggregate credit exposure that equals or exceeds 10% of the Banking Group’s equity:

As at 30 September 2017 was nil; and

In respect of peak end-of-day aggregate credit exposure for the three months ended 30 September 2017 was nil.

The following table shows the number of individual non-bank counterparties (which are not (i) members of a group of

closely related counterparties or (ii) a group of closely related counterparties of which a bank is the parent) to which the

Banking Group has an aggregate credit exposure or peak end-of-day aggregate credit exposure that equals or exceeds 10%

of the Banking Group’s equity:

Peak End of Day Credit Exposures during the three months ended

30 September 2017 Number of Non-Bank Counterparties

Unaudited

As at the Reporting Date Number of Non-Bank Counterparties

Unaudited

Percentage of Shareholder’s Equity “A”

Rated “B”

Rated Unrated Total “A”

Rated “B”

Rated Unrated Total

10-15% - - 6 6 - - 6 6

16-20% - - 1 1 - - 1 1

21-25% - - 2 2 - - 2 2

26-30% - - 1 1 - - 1 1

31-35% - - - - - - - -

36-40% - - - - - - - -

41-45% 1 - - 1 1 - - 1

46-50% 1 - 1 2 1 - 1 2

Note: “A” Rated – those counterparties that have a long-term credit rating of A- or A3 or above, or its equivalent.

“B” Rated – those counterparties that have long-term credit rating of at least BBB- or Baa3, or its equivalent, and at most BBB+ or Baa1, or its equivalent.

Unrated – those counterparties that do not have a long-term credit rating for the reporting period.



26


As at 31 December 2016, there was one bank counterparty with “B” rated and credit exposure 10%-15% of shareholder’s equity; and

In respect of peak end-of-day aggregate credit exposure for the three months ended 31 December 2016, there was

one bank counterparty with “B” rated and credit exposure 10%-15% of shareholder’s equity.

The following table shows the number of individual non-bank counterparties (which are not (i) members of a group of

closely related counterparties or (ii) a group of closely related counterparties of which a bank is the parent) to which the

Banking Group has an aggregate credit exposure or peak end-of-day aggregate credit exposure that equals or exceeds 10%

of the Banking Group’s equity:


31 December 2016 Number of Non-Bank Counterparties

Unaudited


Unaudited

Percentage of Share holder’s Equity “A”

Rated “B”


Rated “B”

Rated Unrated Total

10-15% - 1 4 5 - 1 4 5

16-20% - - 7 7 - - 5 5

21-25% - - 5 5 - - 5 5

26-30% - - 3 3 - - 3 3

31-35% - - - - - - - -

36-40% - - - - - - - -

41-45% - - - - - - - -

46-50% - - 1 1 - - 1 1

51-55% - 1 2 3 - 1 2 3

56-60% - - - - - - - -

91-95% 1 - - 1 1 - - 1

111-115% 1 - - 1 1 - - 1






27


As at 30 September 2016 was nil; and

In respect of peak end-of-day aggregate credit exposure for the nine months ended 30 September 2016 was nil.

The following table shows the number of individual non-bank counterparties (which are not (i) members of a group of closely related counterparties or (ii) a group of closely related counterparties of which a bank is the parent) to which the Banking Group has an aggregate credit exposure or peak end-of-day aggregate credit exposure that equals or exceeds 10% of the Banking Group’s equity:


30 September 2016 Number of Non-Bank Counterparties

Unaudited


Unaudited

Percentage of Share holder’s Equity “A”

Rated “B”


Rated “B”

Rated Unrated Total

10-15% - - 7 7 - - 7 7

16-20% - - 7 7 - - 7 7

21-25% - - 3 3 - - 3 3

26-30% - - 2 2 - - 2 2

31-35% - - - - - - - -

36-40% - - - - - - - -

41-45% - - - - - - - -

46-50% - - - - - - - -

51-55% - - 3 3 - - 3 3

56-60% - - 1 1 - - - -

91-95% 1 - - 1 1 - - 1






28

18 CONCENTRATION OF FUNDING

The Banking Group's concentrations of funding arise where the Banking Group is funded by industries of a similar nature or in particular geographies. The following table presents the Banking Group’s concentrations of funding, which are reported by customer and industry sector and in terms of geographical area.

The analysis by customer and industry1 and by geographical location is as follows:

As at



$000 $000 $000

Funding comprises

Payable due to other financial institutions 434,407 240,495 139,961

Deposits from customers 196,506 214,180 221,573

Debt securities issued - - -

Other liabilities - - -

Total funding 630,913 454,675 361,534

Concentration of funding by industry sector

Agriculture, Forestry and Fishing 2,387 6,659 1,777

Mining - - -

Manufacturing 41,803 16,062 4,614

Electricity, Gas, Water and Waste Services 19,084 50,033 49,781

Construction 50,385 47,489 36,232

Wholesale trade 5,645 5,880 5,570

Retail trade 525 1,559 280

Accommodation and Food Services 16 - -

Transport, Postal and Warehousing 549

Financial and Insurance Services 471,083 286,524 196,963

Rental, Hiring and Real Estate Services 25,336 9,815 9,222

Professional, Scientific and Technical Services 1,074 2,832 812

Administrative and Support Services - - -

Public Administration and safety - 20,350 50,000

Households 12,986 6,431 6,278

Other Services 40 1,042 5

Total funding 630,913 454,675 361,534

Concentration of funding by geographical location

New Zealand 200,881 167,563 169,275

China 319,274 266,673 185,398

Australia 107,081 20,439 6,862

Europe - - -

Other countries 3,677 - -

Total funding 630,913 454,675 361,534

1 Australian and New Zealand Standard Industrial Classifications (‘ANZSIC’) 2006 have been used as the basis for disclosing customer industry sectors.



29

19 INSURANCE BUSINESS, SECURITISATION, FUNDS MANAGEMENT, OTHER FIDUCIARY ACTIVITIES AND THE MARKETING AND DISTRIBUTION OF INSURANCE PRODUCTS

Insurance business

The Banking Group does not conduct any insurance business.

Banking Group's involvement in securitisation, funds management, other fiduciary activities and marketing and distribution of insurance products

Since the last reporting period, there has been no material change in:

(1) the nature of the Banking Group's involvement in:

(a) The establishment, marketing, or sponsorship of trust, custodial, funds management, and other fiduciary

activities;

(b) The origination of securitised assets; and the marketing or servicing of securitisation schemes; or

(c) the marketing and distribution of insurance products.

(2) Any arrangements the Banking Group has put in place to monitor the activities described above.

Provision of Financial Services

Financial services provided by the Banking Group to entities which are involved in trust, custodial, funds management and

other fiduciary activities are provided on arm’s length terms and conditions and at fair value.

Assets purchased from entities conducting activities described above

Where the Banking Group has purchased any assets from any of the above entities (during the reporting period), such

transactions have been undertaken on arm’s length terms and conditions and at fair value.

Risk management

The Bank participating in the activities identified above has in place policies and procedures to ensure that those activities

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 Bank. The policies and procedures include

comprehensive and prominent disclosure of information regarding products, and formal and regular review of operations

and policies by management.

20 CAPITAL ADEQUACY (UNAUDITED)

The Banking Group is subject to the capital adequacy requirements for registered banks as specified by the Reserve Bank of

New Zealand (RBNZ). The RBNZ has set minimum regulatory capital requirements for banks that are consistent with the

internationally agreed framework developed by the Basel Committee on Banking Supervision. These requirements define

what is acceptable as capital and provide methods for measuring the risks incurred by the Banking Group.

The Banking Group applies the Reserve Bank’s BS2A Capital Adequacy Framework (Standardised Approach) for calculating

regulatory capital requirements. As a condition of registration, the Banking Group must comply with the following minimum

requirements set by the RBNZ:

Total capital ratio must not be less than 8% of risk weighted exposures.



30

Tier 1 capital ratio must not be less than 6% of risk weighted exposures.

Common Equity Tier 1 capital ratio must not be less than 4.5% of risk weighted exposures.

Capital of the Banking Group must not be less than $30 million.

In addition to minimum capital requirements, Basel III introduces a capital conservation buffer of 2.5 per cent of risk-

weighted assets. There are increasing constraints on capital distributions where a bank’s capital level falls within the buffer

range, which are specified in the conditions of registration.

Capital management

The Banking Group has developed a Capital Policy to enable effective and controlled management of the capital. Capital

management involves the measurement, monitoring and reporting of the capital position from both a current and future

perspective.

The Capital Policy along with the Internal Capital Adequacy Assessment Process (“ICAAP”) forms the basis of effective capital

management within the Banking Group. The Capital Policy should be read in conjunction with the ICAAP, as it provides the

framework that is used by the Board to understand and manage capital adequacy. ICAAP uses current capital requirements,

as well as forecasted capital levels to determine whether the level of capital held by the Banking Group is adequate.

The Board holds ultimate responsibility for ensuring that capital adequacy is maintained. This includes: setting, monitoring

and obtaining assurance for the Banking Group’s capital management policy and framework; risk definitions for all material

risks; materiality thresholds; capital adequacy targets; and risk appetite. The Banking Group actively monitors its capital

adequacy as the part of the Banking Group’s Internal Capital Adequacy Assessment Process, and reports this on a regular

basis to senior management and the Board.

The capital adequacy tables set out on the following pages summarise the composition of regulatory capital, risk-weighted

assets and the capital adequacy ratios for the Banking Group as at 30 September 2017. During the period, the Banking Group

complied in full with all externally imposed RBNZ capital requirements as set out in the Bank’s or Banking Group's conditions

of registration.

Capital ratios

The information appearing in the table below is in relation to the Banking Group.

Minimum

ratio required

Unaudited 30 September

2017

Unaudited 31 December

2016

Unaudited 30 September

2016

Capital adequacy ratios

Common Equity Tier 1 capital ratio 4.50% 23.45% 12.74% 15.51%

Tier 1 capital ratio 6.00% 23.45% 12.74% 15.51%

Total capital ratio 8.00% 23.45% 12.74% 15.51%

Buffer ratio 2.50% 15.45% 4.74% 7.51%



31

Capital Summary

The table below shows the qualifying capital for the Banking Group.

As at


$000 $000 $000

Tier One Capital

Common Equity Tier One capital

Issued and fully paid-up ordinary share capital issued by the Bank plus related share premium

223,307 63,307 63,307

Retained earnings (net of appropriations)

(3,100) (8,613) (7,826)

Accumulated other comprehensive income and other disclosed reserves

1

- - -

Less: deductions from Common Equity Tier One capital:

Intangible assets - - -

Deferred tax assets (1,300) (1,039) (827)

Total Common Equity Tier One capital

218,907 53,655 54,654

Additional Tier One capital

Nil - - -

Total Additional Tier One capital - - -

Total Tier One capital 218,907 53,655 54,654

Tier Two capital

Nil - - -

Total Tier Two capital - - -

Total capital 218,907 53,655 54,654

(1) Accumulated other comprehensive income and other disclosed reserves is an available-for-sale revaluation reserve of $nil.

Capital instruments

In accordance with the Reserve Bank document BS2A Capital Adequacy Framework (Standardised Approach), ordinary share capital is classified as Common Equity Tier 1 capital. The ordinary share capital is not subject to phase-out from eligibility as capital under the Reserve Bank of New Zealand’s Basel III transition arrangements.

In relation to the ordinary shares:

(a) there are no options or facilities for early redemptions, conversion, write-down or capital repayment;

(b) there is no predetermined servicing options;

(c) there is no maturity date; and

(d) there are no options granted or to be granted pursuant to any arrangement over any equity share capital. The Banking Group does not have any other classes of capital instrument in its capital structure.

Reserves

There were no reserves as at 30 September 2017 (31 December 2016: nil, 30 September 2016: nil).



32

Pillar 1 total capital requirement

30 September 2017 Unaudited

$,000

On-balance sheet credit risk

Residential mortgage (including past due) 5,590

Corporates 46,486

Claims on banks 939

Others 400

Total on-balance sheet credit risk 53,415

Other capital requirement

Off-balance sheet credit risk 12,647

Operational risk 5,976

Market risk 2,657

Total other capital requirements 21,279

Total Pillar 1 capital requirement 74,695

Additional mortgage information

Residential mortgages by loan-to-valuation ratio

Does not exceed

80% Exceeds 80% and

not 90% Exceeds

90% Total

As at 30 September 2017 $000 $000 $000 $000

Loan-to-valuation ratio

On-balance sheet exposures 189,600 - - 189,600

Undrawn commitments and other off-balance sheet exposures

8,326 - - 8,326

Value of exposures 197,926 - - 197,926

Does not exceed 80%

Exceeds 80% and not 90%

Exceeds 90%

Total

As at 31 December 2016 $000 $000 $000 $000




- - - -


Does not exceed 80%

Exceeds 80% and not 90%

Exceeds 90% Total

As at 30 September 2016 $000 $000 $000 $000




- - - -




33

The information in the above table relates to Banking Group and is in respect of the total residential mortgage loans used to calculate the Banking Group’s Pillar 1 capital requirement for credit risk, categorised by loan-to-valuation ratio. Any residential mortgage loan for which no loan-to-valuation ratio is available is included in the category for loan-to-valuation ratios that exceed 90%.

Capital requirements for other material risks (Pillar II)

The Basel III capital adequacy regime intends to ensure that banks have adequate capital to support all material risks

inherent in their business activities. Consequently, the Bank’s ICAAP captures all material risks that the Bank faces including

those not captured by Pillar 1 regulatory capital requirements. The other risks for the Bank include balance sheet risk,

liquidity risk, credit concentration risk, strategic risk, contagion and reputational risk. Noting this, it is considered prudent to

cater for these risks through the inclusion of a buffer to cater for all Pillar II risks. This buffer has been assessed at 2% to

arrive at the board target on 30 September 2017, 31 December 2016, 30 September 2016. The inclusion of the buffer also

reflects the lack of ability to quantify the capital requirements as a result of these risks.

21 RISK MANAGEMENT POLICIES The Banking Group’s Board has approved the updated Retail Credit Policy and Wholesale Credit Policy. There have been no

material changes to the Banking Group’s other policies for managing risk, or material exposures to new categories of risk

since previous Disclosure Statement.

Liquidity portfolio management

The Banking Group held the following financial assets for the purpose of managing liquidity risk:

As at

Unaudited

30 September 2017

$000

Cash and liquid assets:

Cash and cash equivalents 41,915

Receivables due from other financial institutions 35,304

Reverse repurchase agreements, Government bonds, notes and securities -

Local and semi-government bonds, notes and securities -

Corporate and other institutions bonds, notes and securities -

Total liquidity portfolio 77,219

22 EVENTS SUBSEQUENT TO THE REPORTING DATE

On 17 October 2017, the Bank issued 150,000,000 New Zealand Dollars medium term note for 5 years, and the maturity date

is 17 October 2022.

There were no other material events that occurred subsequent to the reporting date, that require recognition or

additional disclosure in these financial statements.

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