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COMMONWEALTH BANK OF AUSTRALIA NEW ZEALAND OPERATIONS

GENERAL DISCLOSURE STATEMENT

For the year ended 30 June 2008

Commonwealth Bank of Australia NZ Operations

General Disclosure Statement

30 June 2008

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 1989. 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.

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.


30 June 2008For the year ended

COMMONWEALTH BANK OF AUSTRALIANEW ZEALAND OPERATIONS

PART A

NEW ZEALAND BANKING GROUP

Contents

1 - 5 General Disclosures6 Historical Summary of Aggregated Financial Statements7 Income Statement8 Statement of Recognised Income and Expense9 Balance Sheet

10 Cash Flow Statement11 - 63 Notes to the Financial Statements11 - 18 1 Statement of Accounting Policies

19 2 Interest Income19 3 Interest Expense19 4 Discontinued Activities

19 - 20 5 Other Income20 6 Operating Expense Disclosures20 7 Auditor's Remuneration20 8 Taxation20 9 Dividends21 10 Cash and Call Deposits with the Central Bank21 11 Due from Other Banks21 12 Money Market Advances21 13 Securities

22 - 23 14 Derivative Financial Instruments24 15 Advances to Customers

24 - 31 16 Credit Risk Management and Asset Quality31 - 32 17 Investments in Associates and Subsidiaries

32 18 Other Assets32 19 Property, Plant and Equipment33 20 Intangible Assets33 21 Goodwill34 22 Deferred Taxation (Liability) / Asset34 23 Due to Other Banks35 24 Money Market Deposits35 25 Deposits from Customers35 26 Other Liabilities

36 -37 27 Subordinated Debt38 28 Head Office Account and Contributed Capital38 29 Asset Revaluation Reserves38 30 Available for Sale Reserves38 31 Cash Flow Hedge Reserves39 32 Foreign Currency Translation Reserves39 33 Retained Earnings39 34 Minority Interests40 3540 36 Reconciliation of Cash and Cash Equivalents to the Balance Sheet40 37 Imputation and Policyholder Credit Accounts

41 - 42 38 Related Party Transactions and Balances43 39 Directors and Key Management Personnel

43 - 44 40 Credit and Capital Commitments, and Contingent Liabilities44 41 Leasing and Other Commitments45 42 Fair Value of Financial Instruments

46 - 52 43 Capital Adequacy52 44

53 45 Financial Reporting by Segments54 - 63 46 Risk Management Policies

63 47 Events after the Balance Sheet Date64 - 66 Auditor's Report

Securitisation, Funds Management, Other Fiduciary Activities and the Marketing andDistribution of Insurance Products

Reconciliation of Net Profit after Taxation to Net Cash Flows from Operating Activities

General Disclosure StatementCommonwealth Bank of Australia New Zealand Banking Group

GENERAL MATTERS

1.0 Registered Bank and Address for Service

Commonwealth Bank of Australia New Zealand BranchLevel 21, ASB Bank Centre135 Albert StreetAucklandNew Zealand

2.0 Overseas Bank and Address for Service

Commonwealth Bank of AustraliaLevel 748 Martin PlaceSydneyAustralia

3.0 Ranking of Local Creditors in a Winding-Up

3.1 Requirement for Commonwealth Bank of Australia to maintain sufficient assets in Australia to cover an ongoing obligation to paydeposit 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 Australiaof 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 holdassets of a lesser value. This requirement has the potential to impact on the management of the liquidity of the New Zealand operations of theCommonwealth Bank of Australia in extreme circumstances.

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 conductcommercial and savings bank functions. These functions were gradually expanded under continued Government ownership until September1991 when the Bank was partially privatised. In July 1996 the Commonwealth Government sold its remaining shareholding in the Bank.

Under Section 13A(3) of the Banking Act 1959 of the Commonwealth of Australia, if an Authorised Deposit-taking Institution ("ADI") (whichincludes a bank) becomes unable to meet its obligations or suspends payment, the assets of the ADI in Australia are to be available to meetthe ADI’s deposit liabilities in Australia in priority to all other liabilities of the ADI.

Section 16(1) and (2) of the Banking Act 1959 of the Commonwealth of Australia provides that, despite anything contained in any law relatingto the winding up of companies, but subject to Section 13A(3) of the Banking Act 1959, the debts of an ADI to the Australian PrudentialRegulation Authority ("APRA") in respect of APRA’s costs (including costs in the nature of remuneration and expenses) of being in control ofthe 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 otherunsecured debts.

Section 86 of the Reserve Bank Act 1959 of the Commonwealth of Australia provides that notwithstanding anything contained in any lawrelating 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 byan ADI shall, in the winding up, have priority over all other debts due to the Commonwealth of Australia. The Commonwealth Bank of Australiais an ADI.

This document comprises the General Disclosure Statement for the Commonwealth Bank of Australia New Zealand Banking Group (the "BankingGroup") of Commonwealth Bank of Australia New Zealand Operations (the "CBA NZ Operations") and Commonwealth Bank of Australia NewZealand Branch (the "Registered Bank") as at 30 June 2008. The business of the Registered Bank comprises all banking business transacted inNew Zealand through the New Zealand branch. This information is published in accordance with the Registered Bank Disclosure Statement (Fulland Half-Year Overseas Incorporated Registered Banks) Order 2008 and pursuant to Section 81(1) of the Reserve Bank of New Zealand Act 1989.

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.

A copy of the Commonwealth Bank of Australia's most recent published Financial Statements will be available immediately upon a requestbeing made to the above address. A copy of the Financial Statements may also be obtained from the Commonwealth Bank of Australia'swebsite (www.commbank.com.au) in the Shareholder Centre.

The Commonwealth Bank of Australia (the "CBA") operates as a public company under the Corporations Act in Australia. It has share capitaland is governed by a constitution. CBA was converted from a statutory corporation to a public company on 17 April 1991.

The Registered Bank has not published a supplementary disclosure statement because none of the information required to be disclosedapplies to the Banking Group.

The Overseas Bank is the Commonwealth Bank of Australia, domiciled in Australia. The Overseas Banking Group is the Commonwealth Bankof Australia including subsidiary activities worldwide.

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4.0 Guarantee Arrangements

5.0 Directorate and Auditor

5.1

Directors New Zealand Chief Executive OfficerCommonwealth Bank of Australia Commonwealth Bank of Australia New Zealand BranchLevel 7 Level 21, ASB BANK Centre48 Martin Place 135 Albert StreetSydney AucklandAustralia New Zealand

NEW ZEALAND CHIEF EXECUTIVE OFFICER

Name A.J. (Andrew) Woodward, Head of Institutional Banking NZ CBAPrimary Occupation BANK EXECUTIVEResidence Auckland, New ZealandExternal Directorships Nil

5.2 Directors of the Commonwealth Bank of Australia

EXECUTIVE DIRECTOR

Name R.J. (Ralph) Norris DCNZM, FNZIM, FNZCS (Managing Director)

Primary Occupation CHIEF EXECUTIVE OFFICERResidence New South Wales, AustraliaExternal Directorships Nil

INDEPENDENT DIRECTORS

Name J.M. (John) Schubert, BE, PhD, Name C.R. (Colin) Galbraith, LLMFIE Aust, FTS, CP(Eng) (Chairman) LLB (Hons), AM

Primary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTORResidence New South Wales, Australia Residence Victoria, AustraliaExternal Directorships G2 Therapies Limited, BHP Billiton Limited, External Directorships BHP Billiton Community Trust, OneSteel

BHP Billiton Plc, Qantas Airways Limited, Limited, Australian InstituteGreat Barrier Reef Foundation of Company Directors

Name J.S. (Jane) Hemstritch BSc, FCA, FCPA Name R.J. (Reg) Clairs AOPrimary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTORResidence Victoria, Australia Residence Queensland, AustraliaExternal Directorships The Global Foundation, Tabcorp Limited External Directorships David Jones Limited, The Cellnet Group

Name S.C.H. (Carolyn) Kay BA, LLB, FAICD Name F.D. (Fergus) Ryan Primary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTORResidence New South Wales, Australia Residence Victoria, AustraliaExternal Directorships Brambles Industries Limited, External Directorships Australian Foundation Investment Company

Starlight Foundation Limited, Clayton Utz, National Australia DayCouncil, National Library of Australia

Name Sir J.A. (John) Anderson KBE Name H.H. (Harrison) YoungPrimary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTORResidence Wellington, New Zealand Residence Victoria, AustraliaExternal Directorships Television New Zealand, New Zealand External Directorships Florey Neuroscience Institutes

Cricket, International Cricket Council, The Asia Society, AustralAsia Centre,Capital Coast District Health Board The Financial Services Volunteer Corps

Name D.J. (David) Turner FCA Name A.M. (Andrew) MohlPrimary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTORResidence New South Wales, Australia Residence New South Wales, AustraliaExternal Directorships Brambles Limited, Cobham plc External Directorships AMP Foundation

AUDIT COMMITTEE

All members in the Audit Committee are independent directors.

The Board's Audit Committee consists of Fergus Ryan (Chairman), Colin Galbraith, Carolyn Kay, and David Turner.

The material obligations of the Commonwealth Bank of Australia are not guaranteed.

On 16 May 2008 the appointment of Andrew Mohl to the Board of Directors was announced effective from 1 July 2008.

Address for Directors and the New Zealand Chief Executive Officer

There have been no other changes to Directors since the previous General Disclosure Statement (31 March 2008).

2

5.0 Directorate and Auditor (continued)

5.3 Responsible Person

G.H. (Hugh) BurrettManaging Director and Chief Executive OfficerAuckland, New Zealand

In AbsenceS.B. (Stewart) McRobieHead of Group Finance and Risk ManagementAuckland, New Zealand

5.4 Name and Address for Service of Auditor

PricewaterhouseCoopersChartered Accountants188 Quay StreetAucklandNew Zealand

5.5 Dealings with Directors

6.0as from 26 November 2007

6.1

6.2

6.3

(i)

(ii)

(a)

●

●

(b)

(c)

(d)

6.4

6.5

(i)

(ii) the Reserve Bank has advised that it has no objection to that appointment.

otherwise, the size of each insurance business conducted by any entity within the Banking Group shall equal the total liabilities relatingto that insurance business, plus the equity retained by the entity to meet the solvency or financial soundness needs of the insurancebusiness;

the amounts measured in relation to parts (a) and (b) shall be summed and compared to the total consolidated assets of the BankingGroup. All amounts in parts (a) and (b) shall relate to on balance sheet items only, and shall be determined in accordance with generallyaccepted 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 suchproducts 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:

In measuring the size of the Banking Group's insurance business:

the Reserve Bank has been supplied with a copy of the curriculum vitae of the proposed appointee; and

where insurance business is conducted by any entity whose business predominantly consists of insurance business, the size of thatinsurance 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;

The registration of the New Zealand branch of Commonwealth Bank of Australia (the "Registered Bank'') is subject to the following conditions:

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 1993.

That the Banking Group's insurance business is not greater than 1 percent of its total consolidated assets. For the purposes of this condition:

Insurance business means any business of the nature referred to in section 4 of the Insurance Companies (Ratings and Inspections) Act1994 (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 insection 3(1) of the Life Insurance Act 1908;

PricewaterhouseCoopers replaced Ernst & Young as the appointed auditor of the Banking Group for the year commencing 1 July 2007.

There have been no dealings with Directors of any entities within the Banking Group or of Commonwealth Bank of Australia or parties related tothese Directors on terms other than in the ordinary course of business. Refer to Note 39 for outstanding balances with Directors of entities withinthe Banking Group.

Directors of entities within the Banking Group are required to table all possible conflicts of interest at the Board of Directors' meetings for thoseentities, and are required to abstain from any vote on those proceedings. Entities within the Banking Group comply with all requirements of theCompanies 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")

A number of Directors of Commonwealth Bank of Australia have given written notices, stating that they hold office in specified companies andaccordingly are to be regarded as having an interest in any contract or proposed contract that may be made between the Commonwealth Bankof Australia and any of those companies.

3

6.0

6.6

6.7

–

–

6.8

6.9

6.10

7.0 Pending Proceedings or Arbitration

7.1

8.0 Credit Rating of Commonwealth Bank of Australia

8.1

Fitch Ratings

Moody's Investors Service, Inc.

Standard & Poor's (Australia) Pty Limited

8.2 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 AAAHigh quality / Very strong AA Aa AAUpper medium grade / Strong A A A

Medium grade (lowest investment grade) / Adequate BBB Baa BBBPredominantly speculative / Less near term vulnerability to default BB Ba BBSpeculative, low grade / Greater vulnerability B B B

Poor to default / Identifiable vulnerability CCC Caa CCCHighest speculations CC Ca CCLowest quality, no interest C C C

In payment default, in arrears - questionable value D - D

(a)

(b)

Fitch and S&P apply plus (+) or minus (-) signs to ratings from ‘AA’ to ‘CCC’ to indicate relative standing within the major rating categories.

Moody's applies numeric modifiers to each generic rating category from Aa to B, indicating that the counterparty is (1) in the higher end ofits letter-rating category, (2) in mid-range, (3) in lower end.

That liabilities of the Registered Bank in New Zealand, net of amounts due to related parties (including amounts due to a subsidiary or affiliateof the Registered Bank), do not exceed NZ$15 billion.

That the Commonwealth Bank of Australia complies with the following minimum capital adequacy requirements, as administered by theAustralian Prudential Regulation Authority:

That retail deposits of the Registered Bank in New Zealand do not exceed $200 million. For the purposes of this condition retail deposits aredefined as deposits by natural persons, excluding deposits with an outstanding balance which exceeds $250,000.

For the purposes of these conditions of registration, the term "Banking Group" means the New Zealand operations of the Commonwealth Bankof Australia and those subsidiaries of the Commonwealth Bank of Australia (except those which conduct life assurance business) whosebusiness is required to be reported in financial statements for the group's New Zealand business prepared in accordance with Section 9(2) ofthe Financial Reporting Act 1993.

The Banking Group is not party to any pending proceedings or arbitration which are expected to have a material adverse effect on the financialposition, or results, of the CBA NZ Operations or CBA NZ Branch.

As at the date of the signing of this General Disclosure Statement, the following ratings were assigned to the Commonwealth Bank ofAustralia's long term debt:

The Moody's rating was raised from Aa3 to Aa1 on 4 May 2007. The Standard and Poor's rating was raised from AA- to AA on 21 February2007. The Fitch rating was affirmed as AA on 24 January 2008. The outlook from all agencies is stable.

Tier One Capital of the Commonwealth Bank of Australia is not less than 4 percent of risk weighted exposures;

Aa1

AA

Rating Agency Current Long Term Rating

Capital of the Commonwealth Bank of Australia is not less than 8 percent of risk weighted exposures.

Conditions of Registration - Commonwealth Bank of Australia New Zealand Branch (the "Registered Bank") as from 26 November2007 (continued)

That the Commonwealth Bank of Australia complies with the requirements imposed on it by the Australian Prudential Regulation Authority.

AA

There have been no changes to the conditions of registration since the signing of the previous disclosure statement (for the period ending 31March 2008).

4

Historical Summary of Aggregated Financial Statements

PreviousNZ IFRS NZ IFRS NZ IFRS NZ IFRS NZ GAAP

$ millions Audited Audited Audited Audited AuditedFor the year ended 30 June 2008 2007 2006 2005 2004

INCOME STATEMENT

Interest Income 5,147 4,142 3,425 2,829 2,173

Interest Expense 4,128 3,273 2,656 2,092 1,527

Net Interest Earnings 1,019 869 769 737 646

Other Income 331 491 374 297 274

Total Operating Income 1,350 1,360 1,143 1,034 920

Impairment Losses on Advances 47 17 19 16 21

Total Operating Income after Impairment Losses 1,303 1,343 1,124 1,018 899

Total Operating Expenses 595 539 504 478 468

Net Profit before Taxation 708 804 620 540 431

Taxation 218 239 196 173 146

Net Profit after Taxation 490 565 424 367 285

Of which Impaired Asset Expense / (Recovery) 26 8 (1) (1) (1)

DIVIDENDS and REPATRIATIONS PAID

Minority Interests 34 31 30 18 10

Ordinary Dividends 510 530 689 - -

Redeemable Preference Dividends 59 30 160 - -

Distribution of Prior Period Profit 8 5 7 4 5

Total Dividends and Repatriations Paid 611 596 886 22 15


$ millions Audited Audited Audited Audited AuditedAs at 30 June 2008 2007 2006 2005 2004

BALANCE SHEET

Total Assets 66,323 58,532 48,511 41,684 35,365

Of which Impaired Assets 30 10 5 32 26

Total Liabilities 62,913 55,796 46,624 39,559 33,938

Total Shareholder's Equity 3,410 2,736 1,887 2,125 1,427

Banking Group

Banking Group

6

Income Statement

$ millionsFor the year ended 30 June Note 2008 2007 2008 2007

Interest Income 2 5,147 4,142 881 641

Interest Expense 3 4,128 3,273 849 632

Net Interest Earnings 1,019 869 32 9

Other Income 5 331 491 15 8

Total Operating Income 1,350 1,360 47 17

Impairment Losses / (Recoveries) on Advances 16 (b) 47 17 7 (1)

Total Operating Income after Impairment Losses 1,303 1,343 40 18


Salaries and Other Staff Expenses 351 318 5 4

Building Occupancy and Equipment Expenses 101 91 - -

Information Technology Expenses 54 50 - -

Other Expenses 89 80 1 2

Net Profit before Taxation 708 804 34 12

Taxation 8 218 239 12 4

Net Profit after Taxation 490 565 22 8

Less: Minority Interests 34 34 31 - -

Net Profit after Taxation Attributed to Parent Company Shareholders 456 534 22 8

Banking Group Registered Bank

These statements are to be read in conjunction with the notes on pages 11 to 63 and the Auditor's Report on pages 64 to 66.

Interest Rate Swaps which are transacted as economic hedges of interest rate risk, but which do not qualify for hedge accounting under NZ IAS 39Financial Instruments: Recognition and Measurement , are accounted for at fair value. Changes in the fair value of these swaps are reflected in theIncome Statement immediately when they occur. This can create an accounting inconsistency, as changes in the fair value of the swaps cannot beoffset against changes in the fair value or cash flows attributable to the underlying transaction.

Other Income for the year ended 30 June 2008 included a loss of $98m before tax from such swaps (30 June 2007 $153m gain).

7

Statement of Recognised Income and Expense


Items Recognised Directly in Equity:

Movement in Asset Revaluation Reserves 29 2 4 - -

Net Change in Available for Sale Reserves 30 19 - - -

Net Change in Cash Flow Hedge Reserves 31 (185) 147 2 (7)

Net Change in Investment Hedge 32 (78) - - -

Currency Translation Differences 32 78 - - -

Transfer from Asset Revaluation Reserves to Retained Earnings 33 1 - - -

Net (Expense) / Income Recognised Directly in Equity (163) 151 2 (7)


327 716 24 1

Attributable to :Parent Company Shareholders 293 685 24 1

Minority Interests 34 34 31 - -

327 716 24 1



Total Recognised Income and Expense

Total Recognised Income and Expense

8

Balance Sheet

$ millionsAs at 30 June Note 2008 2007 2008 2007

ASSETSCash and Call Deposits with the Central Bank 10 1,155 3,013 59 15Due from Other Banks 11 637 1,071 3,738 3,694Money Market Advances 12 1,223 2,264 - - Securities 13 5,402 2,766 440 329Derivative Assets 14 1,249 790 268 - Advances to Customers 15 55,773 47,776 6,530 5,513Current Taxation Asset 74 140 8 2Other Assets 18 320 242 81 67Property, Plant and Equipment 19 159 159 - - Intangible Assets 20 56 36 - - Goodwill 21 275 275 - - Deferred Taxation Asset 22 - - 4 9

Total Assets 66,323 58,532 11,128 9,629

Total Interest Earning and Discount Bearing Assets 64,070 56,852 10,708 9,536

Financed by:

LIABILITIESDue to Other Banks 23 7,800 7,039 5,341 4,201Money Market Deposits 24 20,040 16,823 - - Derivative Liabilities 14 1,193 1,589 450 605Deposits from Customers 25 27,821 24,499 851 834Other Liabilities 26 735 567 78 38Deferred Taxation Liability 22 195 342 - - Subordinated Debt 27 5,129 4,937 4,136 3,703

Total Liabilities 62,913 55,796 10,856 9,381

SHAREHOLDER'S EQUITYHead Office Contribution 28 262 254 262 254Contributed Capital - Ordinary Shareholder 28 704 534 - - Asset Revaluation Reserves 29 29 27 - - Available for Sale Reserves 30 19 - - - Cash Flow Hedge Reserves 31 6 191 (11) (13)Retained Earnings 33 569 689 21 7

Ordinary Shareholder's Equity 1,589 1,695 272 248

Contributed Capital - Redeemable Preference Shareholder 28 1,271 491 - -

Total Shareholder's Equity Attributed to Parent Company Shareholders 2,860 2,186 272 248

Minority InterestControlled Entities 34 550 550 - -

Total Shareholder's Equity 3,410 2,736 272 248

Total Liabilities and Shareholder's Equity 66,323 58,532 11,128 9,629

Total Interest and Discount Bearing Liabilities 53,263 51,343 10,328 8,738



9

Cash Flow Statement


CASH FLOWS FROM OPERATING ACTIVITIESInterest Received 5,064 4,157 865 626Other Income Received 831 40 33 14Dividends Received 3 4 - - Interest Paid (4,000) (3,111) (811) (604)Operating Expenses (528) (500) (7) (6)Net Taxation Paid (196) (289) (11) (12)Receipts from Related Parties for Tax Related Items 22 41 - -

1,196 342 69 18

Changes in Operating Assets and LiabilitiesNet Increase in Money Market Advances (1,813) (1,928) - - Net Decrease / (Increase) in Due from Other Banks (Term) 423 (237) (44) 35Net Increase in Advances to Customers (5,202) (6,614) (1,028) (2,394)Net (Increase) / Decrease in Trading Securities (1,837) 756 (110) (112)Net Increase in Customer Deposits 3,322 3,419 17 768Net Increase in Money Market Deposits 1,786 4,578 - - Net Increase in Due to Other Banks (Term) 761 1,887 1,140 1,506

Cash Flows from Operating Assets and Liabilities (2,560) 1,861 (25) (197)

Net Cash Flows from Operating Activities 35 (1,364) 2,203 44 (179)

CASH FLOWS FROM INVESTING ACTIVITIES

Cash was applied to:Net Increase in Other Securities 569 455 - - Purchase of Property, Plant and Equipment 25 38 - - Purchase of Intangible Assets 33 24 - -

627 517 - -

Net Cash Flows from Investing Activities (627) (517) - -

CASH FLOWS FROM FINANCING ACTIVITIESCash was provided from:

Head Office Contribution 8 204 8 204Issue of Ordinary Share Capital 170 36 - - Issue of Redeemable Preference Shares 27 & 28 780 699 - - Issue of Subordinated Debt 531 1,048 120 -

1,489 1,987 128 204Cash was applied to:

Net Decrease in Due to Other Banks - 53 - - Dividends Paid 540 560 - - Dividends Paid to Minority Interest 34 31 - - Repatriation of Profit 8 5 8 5Redemption of Subordinated Debt 780 904 120 -

1,362 1,553 128 5

Net Cash Flows from Financing Activities 127 434 - 199

SUMMARY OF MOVEMENTS IN CASH FLOWS

Net (Decrease) / Increase in Cash and Cash Equivalents (1,864) 2,120 44 20Add: Cash and Cash Equivalents at Beginning of Year 2,424 304 24 4Cash and Cash Equivalents at End of Year 36 560 2,424 68 24


Cash Flows from Operating Profits before Changes in Operating Assets and Liabilities

Registered BankBanking Group

10

Notes to the Financial Statements For the year ended 30 June 2008

1 Statement of Accounting Policies

GENERAL ACCOUNTING POLICIES

Basis of Preparation

Critical Accounting Estimates and Judgements

Presentation Currency and Rounding

PARTICULAR ACCOUNTING POLICIES

(a) Basis of ConsolidationSubsidiaries

AssociatesAssociates are those entities in which the Banking Group has significant influence, but not control, over the financial and operating policies. TheBanking Group has representation on the board of directors of all companies classified as Associates. Associates are accounted for under theequity method of accounting.

The measurement base adopted is that of historical cost as modified by the fair value measurement of Available for Sale Financial Assets, FinancialInstruments at Fair Value through Profit or Loss, Derivative contracts and the revaluation of certain Property, Plant and Equipment.

The functional and presentation currency of the Banking Group is New Zealand dollars. The amounts contained in this disclosure statement and thefinancial statements are presented in millions of New Zealand dollars, unless otherwise stated.

Subsidiaries are those entities controlled by CBA New Zealand Branch or the banking activities of ASB Holdings Limited. Control exists when theBanking Group has the power, directly or indirectly, to govern the financial and operating policies of entities so as to obtain benefits from theiractivities. The financial statements of subsidiaries are included in the Banking Group's financial statements from the date on which control istransferred 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 madeup to balance date, using the purchase method. All intra group balances and transactions have been eliminated in preparing the consolidatedfinancial statements.

A Glossary of Terms included within the Statement of Accounting Policies is set out on page 18.

Preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. Actual results could differ from these estimates, although it is not anticipated that such differences would bematerial.

There have been no material changes to accounting policies in the year ended 30 June 2008. All policies have been applied on a basis consistent withthat used during the financial year ended 30 June 2007.

Estimates and assumptions are continually evaluated, and are based on historical experience and other factors, including expectations of future eventsthat are believed to be reasonable under the circumstances. The Banking Group considers that the Provision for Impairment on Customer Advancesrequires significant accounting estimates and management judgement. Refer to Note 16 for details of credit risk management and the basis of theBanking Group's impairment provision model.

The critical judgements used by management in applying the accounting policies that have the most significant effect on the amounts recognised in thefinancial statements, apart from those involving estimation, are the designation of financial assets and financial liabilities as at fair value through profitor loss.

The reporting entity is Commonwealth Bank of Australia New Zealand Branch (the "Registered Bank"), which holds the banking licence for thepurposes of this disclosure statement. The reporting group (the "Banking Group") is the aggregated results of: Commonwealth Bank of Australia NewZealand Branch, ASB Holdings Limited, ASB Funding Limited, ASB Bank Limited and its subsidiaries, 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 TreasuryServices NZ Limited. The basis of aggregation is an addition of the Banking Group entities' individual financial statements. All transactions andbalances between entities within the Banking Group have been eliminated.

The Banking Group's financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice ("NZ GAAP").They comply with New Zealand equivalents to International Financial Reporting Standards ("NZ IFRS") and other applicable Financial ReportingStandards, as appropriate for profit-oriented entities. The financial statements also comply with International Financial Reporting Standards.

The Banking Group has adopted NZ IFRS 7 Financial Instruments: Disclosures and amendments to NZ IAS 1 Presentation of Financial Statements -Capital Disclosures from 1 July 2007. This has resulted in certain changes to the disclosures in the Banking Group's General Disclosure Statementbut does not have any impact on its reported profits or financial positions.

These financial statements have been drawn up in accordance with the requirements of the Companies Act 1993, the Financial Reporting Act 1993 andthe Registered Bank Disclosure Statement (Full and Half-Year - Overseas Incorporated Registered Banks) Order 2008. They were approved for issueby the Directors on 24 September 2008.

The following new standards and amendments to standards relevant to the Banking Group are not yet effective and have not yet been applied inpreparing the financial statements. Adoption of these standards will not have any impact on the Banking Group's reported profit or financial position.

NZ IAS 1 Presentation of Financial Statements (revised) will apply to the Banking Group from 1 July 2009 and will result in changes to thedisclosure of changes in Equity.

NZ IFRS 8 Operating Segments will apply to the Banking Group from 1 July 2009 and will affect the financial and descriptive informationdisclosed about the Banking Group's reportable segments.

NZ IFRS 3 Business Combinations (revised) will apply to the Banking Group from 1 July 2009 and will result in additional disclosures in the eventof a business combination.

11


1 Statement of Accounting Policies (continued)(b) Segment Reporting

(c) Foreign Currency Translation

(d) Revenue Recognition

Interest Income and Expense

Lending Fees

Commission and Other Fees

Other Income

(e) Expense Recognition

(f) Financial Instruments

BASIS OF RECOGNITION AND MEASUREMENT

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

For financial instruments measured at amortised cost, the effective interest method is used to measure the Interest Income orExpense 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 ayield to maturity basis.

Assets in this category are measured at fair value and are described on the following page.

Assets in this category are either held for trading or are managed with other assets and liabilities transacted in ASB Bank Limited'sTreasury and Financial Markets Division, which are accounted for and evaluated on a fair value basis. Fair value reporting of theseassets and liabilities reflects the Banking Group's risk management process, which includes utilising natural offsets where possibleand managing the overall risks of the Treasury portfolio on a trading basis.

The Banking Group offers an extensive range of financial instruments. Financial instruments are transacted on a commercial basis toderive an interest yield / cost with terms and conditions having due regard to the nature of the transaction and the risks involved. Allfinancial instruments are accounted for on a settlement date basis. They are classified in one of the following categories at initialrecognition: Financial Assets at Fair Value through Profit or Loss, Available for Sale Financial Assets, Loans and Receivables, Held toMaturity, 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 fairvalue. Bid prices are used to estimate fair values of assets, whereas offer prices are applied to liabilities. Where the Banking Grouphas assets and liabilities with offsetting market risk, it uses mid-market prices as a basis for establishing fair values for the offsettingrisk positions and applies a bid / offer spread adjustment to the net open position as appropriate. Where quoted market prices do notexist, fair values are estimated using present value or other market accepted valuation techniques, using methods and assumptionsthat are based on market conditions and risks existing as at balance date. If changes in these assumptions to a reasonably possiblealternative would result in a significantly different fair value this has been disclosed.

The Banking Group's primary reporting format is business segments (refer to Note 45). Segments reported are in line with theorganisational 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.

Operating lease payments are recognised in the Income Statement on a straight-line basis over the term of the lease, unless anothersystematic basis is more representative of the time pattern of the benefit received. All other expenses are recognised in the IncomeStatement on an accrual basis.

Fees and direct costs relating to loan origination, financing or restructuring and to loan commitments are deferred and amortised toInterest Income over the life of the loan using the effective interest method. Lending fees not directly related to the origination of aloan are recognised over the period of service.

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Banking Group and that the revenue canbe reliably measured. The principal sources of revenue are interest income, fees and commissions.

Financial instruments are classified in the manner described in (f). Some are measured by reference to amortised cost, others byreference to fair value.

When commissions or fees relate to specific transactions or events, they are recognised in the Income Statement when the service isprovided to the customer. When they are charged for services provided over a period, they are taken to Other Income on an accrualsbasis as the service is provided.

Dividend income is recorded in the Income Statement when the Banking Group's right to receive the dividend is established. Realisedand unrealised gains and losses from re-measurement of Financial Instruments at Fair Value through Profit or Loss are included inOther Income.

The foreign currency assets and liabilities of overseas subsidiaries are translated into the Banking Group's presentation currency atthe rate of exchange ruling as at balance date. Income Statements are translated at the weighted average rates for the year. Allresulting exchange differences are recognised in the Foreign Currency Translation Reserve ("FCTR") as a separate component ofequity. Gains or losses accumulated in the FCTR are transferred to the Income Statement upon partial or full disposal of the overseassubsidiary.

All foreign currency monetary assets and liabilities are converted at the rates of exchange ruling as at balance date. Foreign currencyforward, futures, swaps and option positions are valued at fair value as at balance date. Unrealised gains and losses arising fromthese revaluations and gains and losses arising from foreign exchange dealings are recognised immediately in the Income Statement.

12


1 Statement of Accounting Policies (continued)

Due from Other Banks

Money Market Advances

Securities

Derivative Assets


Advances to Customers

Other Assets

Derivative Liabilities

Fair value is calculated using discounted cash flow models based on the interest rate repricing and maturity of the Advances. Discount ratesapplied in this calculation are based on current market interest rates for Advances with similar credit profiles.

This category includes all financial liabilities other than those at Fair Value through Profit or Loss. Liabilities in this category are measured atamortised cost and include:

Liabilities in this category are either held for trading or are managed with other assets and liabilities transacted in ASB Bank Limited'sTreasury and Financial Markets Division, which are accounted for and evaluated on a fair value basis. Fair value reporting of these assetsand liabilities reflects the Banking Group's risk management process, which includes utilising natural offsets where possible and managingthe overall risks of the Treasury portfolio on a trading basis.

LOANS AND RECEIVABLESAssets in this category are measured at amortised cost using the effective interest method and include:

FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Assets in this category are measured at amortised cost. The Banking Group has not classified any financial assets as held to maturity.

Cash and Call Deposits with the Central Bank

Amounts Due from Other Banks booked in ASB Bank Limited are measured at Fair Value. Amounts booked by other members of theBanking Group are not managed on a fair value basis and are recorded at amortised cost.

OTHER FINANCIAL LIABILITIES

Derivative Liabilities that do not meet the criteria for hedge accounting are recorded at Fair Value through Profit or Loss. Refer to (g) formore details on derivatives.

Advances are reported net of Provisions for Impairment to reflect the estimated recoverable amounts. Refer to (l).

Liabilities in this category are measured at fair value and include:

HELD TO MATURITY INVESTMENTS

Due to Other Banks and Money Market DepositsDue to Other Banks is defined by the nature of the counterparty and includes deposits, vostro balances and settlement account balances dueto other banks. Money Market Deposits are Certificates of Deposit, Issued Paper and other deposits that are transacted in the Treasury andFinancial 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 andliabilities or recognising the gains or losses on them in different bases. These amounts are managed with other assets and liabilitiesaccounted for and evaluated on a fair value basis.

The fair value of Deposits, Certificates of Deposit and Issued Paper is calculated using discounted cash flow models based on the interestrate repricing and maturity of the instruments. The discount rates applied in this calculation are based on current market rates.

Due from Other Banks is defined by the nature of the counterparty and includes loans, nostro balances and settlement account balances duefrom other banks. Amounts Due from Other Banks booked in ASB Bank Limited are measured at Fair Value. Fair value is calculated on thesame basis as for Money Market Advances.

Cash and Call Deposits with the Central Bank include ASB Bank Limited's overnight settlement account with the Central Bank, and arebrought to account at face value.

Other Assets include the accrual of interest coupons and fees receivable. For derivatives any accrued interest is recognised and measuredas part of the derivative's fair value.

Securities included in this category are short and long term public and other debt securities, which are held for trading, as well as securitiesdesignated as at Fair Value through Profit or Loss. The fair value of Securities is based on quoted market prices, where available, orcalculated using discounted cash flow models based on current market rates.

Derivative Assets that do not meet the criteria for hedge accounting are recorded at Fair Value through Profit or Loss. Refer to (g) for moredetails on derivatives.

AVAILABLE FOR SALE FINANCIAL ASSETSAvailable for Sale Financial Assets are measured at fair value, with changes in fair value recognised directly in Equity. The Banking Grouphas classified certain equity investments (in entities over which the Banking Group has neither control nor significant influence) as Availablefor Sale Financial Assets.

Subsequent changes in the fair value of securities which are either held for trading or designated as at Fair Value through Profit or Loss, arerecognised in Other Income and may include interest income depending on the instrument. Coupon securities exclude interest income,whereas all other securities include interest income.

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.

Money Market Advances are advances transacted in ASB Bank Limited's Treasury and Financial Markets Division, which are managed withother assets and liabilities accounted for and evaluated on a fair value basis.

13



Due to Other Banks and Money Market Deposits

Deposits from Customers

Other Liabilities

Subordinated Debt

(g) Derivative Financial Instruments

Derivative Financial Instruments at Fair Value through Profit or Loss

(h) Hedge Accounting

Cash Flow Hedge Accounting

Fair Value Hedge Accounting

Net Investment Hedge AccountingHedges of Net Investments in foreign operations are accounted for in a similar manner to Cash Flow Hedges. Any gain or loss on thehedging instrument relating to the effective portion of the hedge is recognised in a separate component of equity. The gain or loss relatingto the ineffective portion is recognised in the Income Statement within Other Income. On disposal of the foreign operation, the gain orloss accumulated in equity is transferred to the Income Statement.

Other Liabilities include the accrual of interest coupons and fees payable. For derivatives any accrued interest is recognised andmeasured as part of the derivative's fair value.

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 changesin fair value related to the hedged risk.

Capital instruments are classified as financial liabilities or equity instruments in accordance with the substance of the contractual terms ofthe instrument. Where instruments are determined to contain both liability and equity components, such components are classifiedseparately. The fair value of the liability component is calculated using discounted cash flow models. This amount is recorded as afinancial liability on an amortised cost basis until extinguished on redemption of the instrument. The remainder of the proceeds of theinstrument are recognised in Equity, net of income tax effects.

Derivatives, including foreign exchange contracts, forward rate agreements, futures, options, interest rate swaps and currency swaps, areused as part of the Banking Group's financial market activities and to hedge certain assets and liabilities.

The Banking Group uses derivatives as part of its asset and liability management activities to manage exposures to interest rate, foreigncurrency and credit risks, including exposures arising from forecast transactions. The Banking Group applies either Cash Flow or FairValue Hedge accounting when transactions meet the specified criteria to obtain hedge accounting treatment. The Banking Group haspredominantly used Cash Flow Hedge accounting. The Banking Group also uses non-derivative financial instruments to hedge its netinvestment in foreign operations.

For qualifying Fair Value Hedges the change in fair value of the hedging derivative is recognised within Other Income in the IncomeStatement. Those changes in fair value of the hedged item which are attributable to the risks hedged with the derivative instrument arereflected as an adjustment to the carrying value of the hedged item, which is also recognised in Other Income. If the hedging instrumentexpires or is sold, terminated or exercised, if the hedge no longer meets the criteria for hedge accounting, or the Banking Group revokesthe hedge designation, the difference between the carrying value of the hedged item at that point and the value at which it would havebeen carried had the hedge never existed (the "unamortised fair value adjustment") is maintained as part of the carrying value of thehedged item and amortised to the Income Statement based on a recalculated effective interest rate.

The Banking Group recognises derivatives in the Balance Sheet at their fair value. Fair values are obtained from market yields anddiscounted cash flow models or option pricing models as appropriate. Derivative Assets are the fair value of derivatives which have apositive fair value. Derivative Liabilities are the fair value of derivatives which have a negative fair value.

All derivatives that do not meet the criteria for hedge accounting under NZ IAS 39 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 wellas derivatives transacted as economic hedges but not qualifying for hedge accounting. Changes in fair value are reflected in the IncomeStatement immediately when they occur.

The Banking Group discontinues hedge accounting when it is determined that a hedge has ceased to be highly effective; when thederivative expires, or is sold, terminated, or exercised; when the hedged item matures or is sold or repaid; when a forecast transaction isno longer deemed highly probable; or when the Banking Group elects to revoke the hedge designation.

This represents amounts Due to Other Banks and Money Market Deposits, apart from those designated as at Fair Value through Profit orLoss. When fair value hedge accounting is applied to fixed rate Deposits or Issued Paper, the carrying value at amortised cost is adjustedfor changes in fair value related to the hedged risk.

Deposits from Customers cover all forms of funding, apart from those classified as at Fair Value through Profit or Loss and includetransactional and savings accounts, term deposits and credit balances on cards.

A fair valuation gain or loss associated with the effective portion of a derivative designated as a Cash Flow Hedge is recognised initially inCash 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 thederivative hedge was effected) affects income or expense then the associated gain or loss on the hedging derivative is simultaneouslytransferred 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 torevoke the hedge designation, the cumulative gain or loss on the hedging derivative remains in the Cash Flow Hedge Reserve until theforecast transaction occurs and affects income, at which point it is transferred to the corresponding income or expense line. If a forecasttransaction is no longer expected to occur, the cumulative gain or loss on the hedging derivative previously reported in Cash Flow HedgeReserves is immediately transferred to Other Income.

14



(i) Leasing

(j) Repurchase and Reverse Repurchase Agreements

(k) Offsetting Financial Instruments

(l) Asset Quality

IMPAIRED ASSETS

(a)

(b)(c)

OTHER DEFINITIONS

(a)(b)

PROVISION FOR IMPAIRMENT

(m) Investments in Associates and Subsidiaries

Leases under which the Banking Group transfers substantially all of the risks and rewards of ownership are classified as Finance Leases.When assets are held subject to a Finance Lease, the present value of the lease payments is recognised as a receivable and is reportedwithin Advances to Customers. The difference between the gross receivable and the present value of the receivable is treated as unearnedfinance income. Lease Income is recognised over the lease term so as to produce a constant periodic rate of return on the net investment inthe Finance Lease.

A Renegotiated Asset is any credit exposure that would otherwise be past due or impaired whose terms have been renegotiated.

Securities sold under agreements to repurchase are retained within the relevant security portfolio and accounted for accordingly. Theobligation to repurchase is recorded as a Money Market Deposit. The difference between the sale and repurchase price represents InterestExpense and is recognised in the Income Statement over the term of the repurchase agreement. Securities held under reverse repurchaseagreements are recorded as Money Market Advances. The difference between the purchase and sale price represents Interest Income and isrecognised in the Income Statement over the term of the reverse repurchase agreement.

The Banking Group offsets financial assets and financial liabilities and reports the net balance in the Balance Sheet where there is a legallyenforceable 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.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring afterthe write-off, the write-off or provision is reversed through the Income Statement.

Financial Assets at Fair Value through Profit or Loss are not assessed for impairment as their fair valuation reflects the credit quality of theinstrument, 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 are presented net of individually assessed ("specific") and collective provisions for impairment. Provisions are made against thecarrying amount of Advances that are identified as being impaired based on regular reviews of outstanding balances, to reduce theseAdvances to their recoverable amounts. Collective provisions are maintained to reduce the carrying amount of portfolios of similar Advancesto their estimated recoverable amounts as at balance date. These provisions include incurred losses not yet specifically identified in theportfolio. The expected future cash flows for portfolios of similar assets are estimated based on previous experience and considering thecredit rating of the underlying customers and late payments of interest or penalties. Increases in the individually assessed and collectiveprovisions are recognised in the Income Statement. When a loan is known to be uncollectible, it is written off against the related provision forloan impairment. Such loans are written off after all the necessary procedures have been completed, and the amount of the loss has beendetermined.

Investments in Associates and Subsidiaries are recognised in the Balance Sheet at the lower of cost or recoverable amount.

Details of the level of provision for impairment and movements during the accounting period are set out in Note 16.


Impaired Assets consist of restructured assets, assets acquired through the enforcement of security and other impaired assets.

A restructured asset is any credit exposure for which:the original terms have been changed to grant the counterparty a concession that would not otherwise have been available, due to thecounterparty's difficulties in complying with the original terms; the revised terms of the facility are not comparable with the terms of new facilities with comparable risks; andthe 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 nototherwise 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.

Loans and Receivables are reviewed at each balance date to determine whether there is any objective evidence of impairment. Individuallysignificant assets are reviewed for impairment individually and other assets are reviewed individually or collectively. If any such indicationexists, the recoverable amount of the asset or group of assets is estimated and provision is made for the difference between the carryingamount and the recoverable amount. The recoverable amounts of Advances measured at amortised cost are calculated as the present valueof the expected future cash flows discounted at the instrument’s original effective interest rate for fixed rate Advances and the currenteffective interest rate for variable rate Advances. Short term balances are not discounted.

A Past Due Asset is any credit exposure where a counterparty has failed to make a payment when contractually due, and which is not anImpaired Asset. A 90-day Past Due Asset is any past due asset which has not been operated by the counterparty within its key terms for atleast 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:who is in receivership, liquidation, bankruptcy, statutory management or any form of administration in New Zealand; orwho is in any other equivalent form of voluntary or involuntary administration in an overseas jurisdiction.

15



(n) Property, Plant and Equipment

Buildings 10-100 yearsFurniture and Fittings 5-25 yearsComputer and Office Equipment, and Operating Software 3-10 yearsOther Property, Plant and Equipment 2-25 years

(o) Intangible Assets

(p) Goodwill

(q) Taxation

Property, Plant and Equipment other than Land and Buildings are recognised in the Balance Sheet at cost less Accumulated Depreciation andImpairment Losses.

Land and Buildings are revalued annually to reflect current market value. The valuations are carried out by independent registered valuers in Mayof each year. The valuers are all Associate Members of the New Zealand Institute of Valuers and the major valuers are Jones Lang LaSalleAdvisory 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 AssetRevaluation Reserve of any individual asset the loss is recognised in the Income Statement, and any subsequent revaluation gains are writtenback 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 usefullives on a straight line basis. The range of useful lives of the major assets are:

Intangible Assets comprise acquired Computer Software licences as well as certain acquired and internally generated application software.

Acquired Computer Software licences are capitalised on the basis of costs incurred to acquire and bring to use the specific software. These costsare amortised over their expected useful lives (three to four years) on a straight line basis.

Intangible Assets are subject to the same impairment review process as Property, Plant and Equipment. Any impairment loss is recognised underOperating Expenses in the Income Statement.

Goodwill is recognised where there is an excess of purchase consideration over the fair value of identifiable net assets acquired. Goodwill in theBanking Group arose from the initial purchase of 25% of ASB Group Limited by CBA Funding (NZ) Limited. Ownership of the 25% of ASB GroupLimited was moved to ASB Holdings Limited when Commonwealth Bank of Australia restructured their New Zealand Operations on 1 July 2001.ASB (Group) Holdings Limited and ASB Holdings Limited amalgamated with ASB Group Limited on 15 and 16 March 2006 respectively. Onamalgamation, ownership of ASB Bank Limited was transferred to ASB Group Limited (subsequently renamed ASB Holdings Limited).

Deferred tax related to fair value re-measurement of Available for Sale Financial Assets, Cash Flow Hedges and the revaluation of Non-currentAssets, which are charged or credited directly to Equity, is also credited or charged directly to Equity and is subsequently recognised in the IncomStatement if and when the deferred gain or loss on the related asset or liability affects income.

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 notbe recoverable. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than itsestimated recoverable amount. For revalued assets the write-down is treated in the same way as adjustments arising from revaluations describedabove. For other assets the impairment loss is recognised as an expense. The recoverable amount is the higher of the asset's fair value lesscosts 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 asale transaction rather than through continuing use, these assets are classified as Held for Sale.

The Banking Group generally expenses Computer Software costs in the period incurred. However, some costs associated with developingidentifiable and unique software products controlled by the Banking Group, including employee costs and an appropriate portion of relevantoverheads are capitalised and treated as Intangible Assets. These assets are amortised using the straight line method over their useful lives (notexceeding three years).

Income tax on the Net Profit for the period comprises current and deferred tax. Income tax is recognised in the Income Statement except to theextent 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 the taxable income for the period, using tax rates enacted or substantively enacted as at balance dateafter taking advantage of all allowable deductions under current taxation legislation and any adjustment to tax payable in respect of previousfinancial years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on theexpected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted atbalance 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 thannot) that a future taxable profit will be available against which the asset can be utilised. Deferred Taxation Assets are reduced to the extent that itis no longer probable that the related tax benefit will be realised.

Goodwill is not amortised but is assessed for impairment annually, or more frequently where an indication of impairment exists. If any suchindication exists, the asset's recoverable amount is estimated, and an impairment loss is recognised in the Income Statement for the differencebetween the carrying amount and the recoverable amount. Impairment losses on goodwill are not reversed. Goodwill is allocated to cashgenerating units for the purpose of impairment testing. Gains and losses on the disposal of an entity include the carrying value of goodwill relatingto the entity sold.

16



(r) Provisions

(s) Contingent Liabilities and Credit Commitments

(t) Cash Flow Statement

FAIR VALUE ESTIMATES

Due to Other Banks, Money Market Deposits, Deposits from Customers and Other Liabilities

COMPARATIVE DATA

Banking Group Registered Bank$ millions $ millions

2,131 - 3,335 -

122 - 115 -


A provision is recognised in the Balance Sheet when the Banking Group has a present legal or constructive obligation as a result of pastevents; it is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the amountof the obligation.

The Banking Group is involved in a range of transactions that give rise to contingent and / or future liabilities. The Banking Group disclosesa Contingent Liability when it has a possible obligation arising from past events, that will be confirmed by the occurrence or non-occurrenceof one or more uncertain future events not wholly within the Banking Group's control. A Contingent Liability is disclosed when a presentobligation is not recognised because it is not probable that an outflow of resources will be required to settle an obligation, or the amount ofthe 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 instrumentsattract fees in line with market prices for similar arrangements. They are not sold or traded. The items generally do not involve cashpayments other than in the event of default. The fee pricing is set as part of the broader customer credit process and reflects the probabilityof default. They are disclosed as Contingent Liabilities at their face value. The fair values of guarantees are not considered to be material.

This has been prepared using the direct approach modified by the netting of cash flows associated with Securities, Due from / to OtherBanks, Advances, Deposits and amounts Due from / to Associates and Subsidiaries. This method provides more meaningful disclosure asmany cash flows are on behalf of the Banking Group's customers and do not reflect the activities of the Banking Group.

Money Market DepositsInterest Expense on Due to Other BanksInterest Expense on Money Market Deposits

Cash and Cash Equivalents comprises Cash, Cash at Bank, Cash in Transit and Call Deposits Due from / to Other Banks, all of which areused in the day-to-day cash management of the Banking Group.

For financial instruments not presented in the Banking Group's Balance Sheet at their fair value, fair value is estimated as follows:

These assets are short term in nature and the related carrying value is equivalent to their fair value.

Amounts booked in ASB Bank Limited are carried at fair value. For other Floating Rate Advances, the carrying amount in the Balance Sheet isconsidered a reasonable estimate of their fair value after making allowances for the fair value of non-accrual and potential problem loans. Forother 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.

For Floating Rate Advances, the carrying amount in the Balance Sheet is considered a reasonable estimate of their fair value after makingallowances for the fair value of non-accrual and potential problem loans. For Fixed Rate Advances, fair value is estimated using discounted cashflow models based on the interest rate repricing of the Advances. Discount rates applied in this calculation are based on current market interestrates for Advances with similar credit and maturity profiles.

Cash and Call Deposits with the Central Bank


Certain other immaterial comparative figures have been reclassified to conform with the current year's presentation.

For Non-interest Bearing Debt, call and variable rate Deposits, the carrying amounts in the Balance Sheet are a reasonable estimate of their fairvalue. For other term Deposits and fixed rate Issued Paper, fair value is estimated using discounted cash flow models based on the maturity ofthe instruments. The discount rates applied in this calculation are based on current market interest rates for similar instruments with similarmaturity profiles. For all Other Liabilities, the carrying amount in the Balance Sheet is a reasonable estimate of their fair value.

The following amounts have been reclassified for the year ended 30 June 2007:

Due to Other Banks

In prior years certain amounts within Due to Other Banks and Money Market Deposits were presented as being classified as at Fair Value throughProfit or Loss rather than at amortised cost. As at 30 June 2008, these amounts have been reclassified to Other Financial Liabilities measured atamortised cost (refer to notes 23-24), to more accurately reflect their measurement basis. The Interest Expense paid on these amounts has alsobeen reclassified in Note 3 from Liabilities at Fair Value through Profit or Loss, to Liabilities at amortised cost. The reclassification has no impacton Net Profit after Taxation in the Income Statement. Comparative data has been restated accordingly.

For those off balance sheet items such as Direct Credit Substitutes (including acceptance and endorsement of Bills of Exchange), Trade RelatedItems and Commitments, no secondary market exists and it is therefore not practical to obtain fair values for those instruments. These itemshave therefore been excluded from fair value calculations.

Where there are publicly traded securities of similar maturity, credit and yield characteristics, the estimated fair value of Subordinated Debt isbased on quoted market rates. Otherwise, fair value is estimated using discounted cash flow models based on the maturity of the debt.

Subordinated Debt

Off Balance Sheet Items

17



GLOSSARY OF TERMS

Amortised Cost of Financial Asset or Financial Liability

Available for Sale Financial Asset

Cash Flow Hedge

Effective Interest Method

Fair Value

Fair Value Hedge

Financial Instruments at Fair Value through Profit or Loss

Hedge Effectiveness

Hedge Ineffectiveness

Hedged Item

Hedging Instrument

Held to Maturity Investments

Impairment Loss

Loans and Receivables

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 adesignated hedged item.

Non-derivative financial assets with fixed or determinable payments and a fixed maturity that the Banking Group has a positive intention andability to hold to maturity. They are measured at amortised cost using the effective interest method.

The amount by which the carrying amount of an asset exceeds its recoverable amount.

Non-derivative financial assets with fixed or determinable payments that are not quoted on an active market are measured at amortised costusing the effective interest method.

The amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus thecumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minusany reduction (directly or through the use of an allowance account) for impairment or uncollectibility.

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 orchanges in interest rates or exchange rates. They are recognised on acquisition and subsequently at fair value. Changes in the value ofAvailable for Sale Financial Assets are reported in an Available for Sale Reserve, until the assets are sold or otherwise disposed of, or untilthey 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.

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 ahighly probable forecast transaction, and could affect profit or loss.

A method of calculating the amortised cost of a financial asset or financial liability (or group of financial assets or financial liabilities) and ofallocating the Interest Income or Interest Expense over the relevant period. The effective interest rate is the rate that exactly discountsestimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to thenet carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Banking Group estimates cashflows considering all contractual terms of the financial instrument, but does not consider future credit losses. The calculation includes all feespaid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiumsor discounts. The interest income or expense is allocated through the life of the instrument and is measured for inclusion in the IncomeStatement by applying the effective interest rate to its amortised cost.

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 changesin the fair value or cash flows of the hedging instrument.

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 theamount by which the changes in the fair value of the hedging derivative differ from changes in the fair value of the hedged item. Such gainsand losses are recorded in current period earnings.

An asset, liability, firm commitment or highly probable forecast transaction that exposes the Banking Group to risk of changes in fair value orcash flows, and that is designated as being hedged.

The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

A hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portionof such an asset, liability or firm commitment, that is attributable to a particular risk and could affect 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 bythe Banking Group as at Fair Value through Profit or Loss. Assets and Liabilities in this category are measured at fair value. Gains or lossesarising from changes in fair value are recognised in Other Income.

18


$ millionsFor the year ended 30 June 2008 2007 2008 2007

2 Interest Income

Central Bank Deposits 138 139 - - Advances at Fair Value through Profit or Loss 327 175 - - Securities 334 284 28 17Due from Other Banks at Amortised Cost - - 315 289Advances to Customers 4,344 3,538 538 335Other 4 6 - - Total Interest Income 5,147 4,142 881 641

3 Interest Expense

Deposits at Fair Value through Profit or LossCertificates of Deposit 207 207 - - Issued Paper 304 268 - - Term Deposits 16 120 - - Deposits Bearing Interest (on Demand and Short Term) 112 128 - -

639 723 - -

Derivative Instruments not in Hedge Relationships 662 342 127 111

Deposits at Amortised CostDue to Other Banks 665 421 389 251Issued Paper 133 115 - - Term Deposits from Customers 1,099 843 28 103Other Interest Bearing Deposits from Customers 610 583 112 1

2,507 1,962 529 355

Subordinated Debt 319 246 193 166Other 1 - - -

Total Interest Expense 4,128 3,273 849 632

4 Discontinued Activities

5 Other Income

Services and Commission IncomeLending and Credit Facility Related Fee Income 185 162 19 16Other Fees Received 164 158 - - Total Services and Commission Income 349 320 19 16

Services and Commission ExpenseLending and Credit Facility Related Fee Expense (41) (34) - - Other Fees Paid (6) (5) - - Total Services and Commission Expense (47) (39) - -

Net Foreign Exchange Earnings and Commissions 46 42 - -

Net Foreign Exchange Translation (Loss) / Gain on Financial Instruments not measured at Fair Value (1,156) 638 (1,156) 645

Net Fair Value Gain / (Loss) from:Trading Securities 3 (4) - - Derivatives Transacted as Hedges but not Qualifying for (98) 153 (18) 7

Hedge AccountingOther Derivatives 2,021 (2,596) 1,156 (645)Financial Assets Designated as at Fair Value through Profit or Loss 193 (539) - - Financial Liabilities Designated as at Fair Value through Profit or Loss (1,022) 2,526 - - Available for Sale Financial Assets 45 - - - Total Net Fair Value Gain / (Loss) 1,142 (460) 1,138 (638)

Ineffective Portion of Hedges:Fair Value Hedge Ineffectiveness:

Gain on Hedged Items 126 50 123 56Loss on Hedging Instruments (134) (51) (123) (57)

Cash Flow Hedge Ineffectiveness 5 (10) 14 (14)Total Ineffective Portion of Hedges (3) (11) 14 (15)

There were no discontinued activities during the year ended 30 June 2008 (30 June 2007 Nil).


Interest Income on Advances to Customers for the year ended 30 June 2008 included interest earned on Impaired Assets of $3m for the BankingGroup and Nil for the Registered Bank (30 June 2007 Nil for the Banking Group and Registered Bank).

19


$ millionsFor the year ended 30 June 2008 2007 2008 2007

5 Other Income (continued)

Other Operating IncomeNet Loss on Disposal of Property, Plant and Equipment (1) (1) - - Dividends Received from Associates and Subsidiaries 1 2 - - Other Dividends Received 2 2 - - Other (2) (2) - - Total Other Operating Income - 1 - - Total Other Income 331 491 15 8

6 Operating Expense Disclosures

DepreciationBuildings 9 7 - - Furniture and Fittings 6 6 - - Computer and Office Equipment and Operating Software 20 19 - - Total Depreciation 35 32 - -

Operating Lease Rentals 42 39 - -

Amortisation of Intangible Assets 13 8 - -

7 Auditor's Remuneration

Auditing Services 1 - - - Other Services 1 - - -

8 Taxation

Current Taxation 284 188 12 6Deferred Taxation (refer to Note 22) (66) 51 - (2)

Total Income Tax Charged to the Income Statement 218 239 12 4

Net Profit before Taxation 708 804 34 12

Tax at the Domestic Rate of 33% 234 265 12 4

Tax Effect of Income not Subject to Taxation (61) (20) - - Tax Effect of Expenses not Deductible for Taxation Purposes 30 3 - - Tax Effect of Imputation Credit adjustments (10) (8) - - Tax Effect of Prior Period Adjustments 23 - - - Tax Effect of Change to Domestic Rate 2 (1) - -

Taxation Expense 218 239 12 4

Weighted Average Applicable Tax Rate 30.8% 29.7% 33.0% 33.0%

9 Dividends

Ordinary Dividends 510 530 - - Redeemable Preference Dividends 59 30 - - Total Dividends 569 560 - -

For the year ended 30 June 2008 dividends on Ordinary Shares were $510m ($0.98 per share) paid by ASB Holdings Limited (30 June 2007 $530mpaid by ASB Holdings Limited, being $1.02 per share).

For the year ended 30 June 2008 dividends on Redeemable Preference Shares were $59m (8.36 cents per share) paid by CBA Funding (NZ) Limited(30 June 2007 $30m paid by CBA Funding (NZ) Limited, being 4.23 cents per share).

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 taxeffect 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 22).

Audit Fees of $192,000 were paid to Ernst & Young during the year ended 30 June 2008 (30 June 2007 $417,000).


The Taxation Expense on the Banking Group's Net Profit before Taxation differs from the theoretical amount that would arise using the domestic taxrate as follows:

Audit fees of $1,391,000 for the Banking Group and $145,000 for the Registered Bank were paid to PricewaterhouseCoopers during the year ended 30June 2008. Additionally, Other Services charges of $643,000 for the Banking Group and $9,000 for the Registered Bank were paid toPricewaterhouseCoopers during the year ended 30 June 2008.

PricewaterhouseCoopers replaced Ernst & Young as appointed auditor of the Banking Group for the year commencing 1 July 2007.

20


$ millionsAs at 30 June 2008 2007 2008 2007

10 Cash and Call Deposits with the Central Bank

Cash and Cash at Bank 66 59 59 15Cash in Transit (1) (44) - - Cash and Call Deposits with the Central Bank 1,090 2,998 - - Total Cash and Call Deposits with the Central Bank 1,155 3,013 59 15

11 Due from Other Banks

Call 43 54 9 9Term 594 1,017 3,729 3,685Total Due from Other Banks 637 1,071 3,738 3,694

Amounts Due from Other Banks are measured as follows:

(a) At Fair Value through Profit or LossCall 43 54 - - Term 557 1,017 - - Total at Fair Value through Profit or Loss 600 1,071 - -

(b) At Amortised CostCall - - 9 9Term 37 - 3,729 3,685Total at Amortised Cost 37 - 3,738 3,694

Other Government Securities accepted 247 78 - -

Other Securities accepted 433 565 - -

No securities have been repledged as at 30 June 2008 (30 June 2007 Nil).

12 Money Market Advances

Call 51 66 - - Term 1,172 2,198 - - Total Money Market Advances 1,223 2,264 - -

Fair Value of collateral accepted for Money Market Advances, which the Banking Group is permitted to sell or repledge:

New Zealand Government Securities accepted - 49 - -

13 Securities

Trading SecuritiesLocal Authority Securities 84 103 - - New Zealand Government Securities 64 21 - - Treasury Bills 738 359 440 329Bank Bills 1,800 869 - - Other 921 404 - -

3,607 1,756 440 329Other Securities Designated as at Fair Value through Profit or LossDebt Securities 1,741 987 - - Equity Securities 18 23 - -

1,759 1,010 - - Total Securities at Fair Value through Profit or Loss 5,366 2,766 440 329

Securities Designated as Available for SaleEquity Securities 36 - - -

5,402 2,766 440 329

Fair Value of Securities pledged under repurchase agreements or other arrangements:New Zealand Government Securities 10 12 - -

For the year ended 30 June 2008 a loss of $2m was attributable to changes in credit risk for Money Market Advances designated at Fair Value throughProfit or Loss (30 June 2007 Nil). The maximum exposure to credit risk for Advances at Fair Value through Profit or Loss is represented by theircarrying values.

The Banking Group has not reclassified any financial assets as measured at fair value rather than amortised cost during the year (30 June 2007 Nil).


The Banking Group has not reclassified any financial assets as measured at amortised cost rather than fair value during the year (30 June 2007 Nil).


Fair Value of collateral accepted for Loans to Other Banks, which the Banking Group is permitted to sell or repledge:


No securities have been repledged as at 30 June 2008 (30 June 2007 Nil).

Total Securities

21


14 Derivative Financial Instruments

HEDGE ACCOUNTING

Cash Flow Hedges

Fair Value Hedges

Net Investment Hedges

Notional Notional$ millions Amount Assets Liabilities Amount Assets Liabilities

As at 30 June 2008

AT FAIR VALUE THROUGH PROFIT OR LOSS

Exchange Rate ContractsForward Contracts 13,436 224 (34) - - - Swaps 11,585 344 (301) 2,192 100 (235)Options 51 - - - - - Total Exchange Rate Contracts 25,072 568 (335) 2,192 100 (235)

Interest Rate ContractsForward Contracts 16,012 2 (2) - - - Swaps 49,856 332 (375) - - - Futures 8,883 2 (2) - - - Options 3,435 2 (2) - - - Total Interest Rate Contracts 78,186 338 (381) - - -

Equity ContractsOptions 47 9 (4) - - -

Commodity ContractsForward Contracts 3 - - - - -

Total at Fair Value through Profit or Loss 103,308 915 (720) 2,192 100 (235)

DESIGNATED AS CASH FLOW HEDGES

Exchange Rate ContractsSwaps 3,216 118 (15) 1,667 88 (13)

Interest Rate ContractsSwaps 28,243 126 (234) 284 - (4)

Total Designated as Cash Flow Hedges 31,459 244 (249) 1,951 88 (17)

DESIGNATED AS FAIR VALUE HEDGES

Exchange Rate ContractsSwaps 917 - (197) 917 - (197)

Interest Rate ContractsSwaps 4,895 90 (27) 1,694 80 (1)

Total Designated as Fair Value Hedges 5,812 90 (224) 2,611 80 (198)Total Recognised Derivative Assets / (Liabilities) 140,579 1,249 (1,193) 6,754 268 (450)

Fair Value Fair ValueBanking Group Registered Bank

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 cashflows under the hedged transactions occur.

The Banking Group hedges its net investment in a foreign subsidiary with foreign currency borrowings. Refer to Note 32 for further details.

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 anexplanation of the Banking Group's accounting policies for Derivatives.

Equity related contracts were transacted by the Banking Group to offset the equity risk associated with shares designated as at Fair Value throughProfit or Loss. Gains on contracts are offset by losses on the underlying shares.

The Banking Group hedges the forecasted interest cash flows from floating rate deposits and the roll-over of short term fixed rate fundingarrangements using Cross Currency and Interest Rate Swaps. As at 30 June 2008 there were no transactions where cash flow hedge accountingceased during the year as a result of highly probable cash flows no longer expected to occur (30 June 2007 Nil).

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. TheBanking Group has also hedged certain fixed rate funding arrangements, included in Money Market Deposits and Subordinated Debt, using InterestRate and Cross Currency Swaps.

22


14 Derivative Financial Instruments (continued)

Notional Notional$ millions Amount Assets Liabilities Amount Assets Liabilities

As at 30 June 2007

AT FAIR VALUE THROUGH PROFIT OR LOSS

Exchange Rate ContractsForward Contracts 9,229 92 (323) - - - Swaps 10,055 148 (618) 2,002 - (326)Options 181 4 (4) - - - Total Exchange Rate Contracts 19,465 244 (945) 2,002 - (326)

Interest Rate ContractsForward Contracts 5,147 1 (1) - - - Swaps 36,605 258 (188) - - - Futures 5,855 1 - - - - Options 1,492 4 (4) - - - Total Interest Rate Contracts 49,099 264 (193) - - -

Equity ContractsOptions 47 - - - - -

Credit Contracts Swaps 191 - - - - -

Commodity ContractsForward Contracts 1 - - - - -

Total at Fair Value through Profit or Loss 68,803 508 (1,138) 2,002 - (326)

DESIGNATED AS CASH FLOW HEDGES

Exchange Rate ContractsSwaps 3,774 6 (126) 1,543 - (49)

Interest Rate ContractsSwaps 25,434 268 (89) 248 - (3)

Total Designated as Cash Flow Hedges 29,208 274 (215) 1,791 - (52)

DESIGNATED AS FAIR VALUE HEDGES

Exchange Rate ContractsSwaps 910 - (203) 910 - (203)

Interest Rate ContractsSwaps 3,216 8 (33) 1,665 - (24)

Total Designated as Fair Value Hedges 4,126 8 (236) 2,575 - (227)

Total Recognised Derivative Assets / (Liabilities) 102,137 790 (1,589) 6,368 - (605)

Banking Group Registered Bank Fair Value Fair Value

23



15 Advances to Customers

Loans and Other Receivables 55,891 47,879 6,542 5,519Fair Value Hedge Adjustments 4 (6) 1 - Provisions for Impairment (122) (97) (13) (6)Total Advances to Customers 55,773 47,776 6,530 5,513

Advances to Customers include Finance Lease Receivables as follows :

Gross Investment in Finance Lease ReceivablesNo later than 1 year 115 42 8 1Later than 1 year and no later than 5 years 170 156 12 2Later than 5 years 363 393 2 3

648 591 22 6Less Unearned Future Finance Income 160 179 4 2Net Investment in Finance Leases 488 412 18 4

The Net Investment in Finance Leases may be analysed as follows :No later than 1 year 91 18 6 1Later than 1 year and no later than 5 years 89 74 10 1Later than 5 years 308 320 2 2Net Investment in Finance Leases 488 412 18 4

16 Credit Risk Management and Asset Quality

ASB Bank Limited and the Registered Bank assess the integrity and ability of debtors or counterparties to meet their contracted financial obligationsfor repayment. Collateral security in the form of real property or a security interest in personal property is generally taken for business credit exceptfor major government, bank and corporate counterparties of strong financial standing. Longer term consumer finance (e.g. housing loans), isgenerally secured against real estate while short term revolving consumer credit is generally unsecured.

Credit Risk Management

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 andlevel 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.

Collateral Security

Credit Risk Measurement

The measurement of credit risk utilises analytical tools to calculate both expected and unexpected loss possibilities for the credit portfolio. Thisincludes consideration of the probability of default ("PD"), the exposure at the time of default ("EAD") and the loss given default ("LGD") that wouldlikely 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 flowsinto the future to meet the terms of all its credit contracts with the Banking Group.

The respective Board Risk Committees of ASB Bank Limited and CBA operate under charters by which they oversee credit management policies andpractices. The Committees ensure that credit policies and portfolio standards designed to achieve portfolio outcomes consistent with the risk / returnexpectations of ASB Bank Limited and the Registered Bank respectively, are in place and maintained. In addition, the Committees review and adjustwhere appropriate the risk appetite of ASB Bank Limited and the Registered Bank. The Committees also approve large individually significantprovisions 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 ofportfolio management objectives to create a diversified portfolio avoiding significantly large concentrations of economically related credit riskexposures.

g p y p pp gincluding risk to other bank and related counterparties. Lending standards and criteria are clearly defined into different business sectors for all ASBBank Limited and Registered Bank products and incorporate income/repayment capacity, acceptable terms and security and loan documentationtests.

While ASB Bank Limited and the Registered Bank apply policies, standards and procedures in governing the credit process, the management ofcredit 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 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 BankingGroup assuming contingent liabilities, taking equity participations, participating in financial market transactions and assuming underwritingcommitments. The Banking Group is selective in targeting credit risk exposures and avoids exposures to any high risk area.

In May 2007 the Banking Group entered into a 10 year finance leasing arrangement with an airline over two 747-400 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.

24


16 Credit Risk Management and Asset Quality (continued)

1.2.3.4.5.6.

Overall Credit Grade Retail Grade Corporate Grade Banking Group Rating Classification

Low EL Pool 1 CRR 1 - 3 Corporate facilities demonstrating financial condition andcapacity to repay that are good to exceptional. Retailfacilities with low expected loss.

Moderate EL Pool 2 CRR 4 - 6 Corporate facilities demonstrating financial condition andcapacity to repay that are acceptable to good. Retail facilitieswith moderate expected loss.

High EL Pool 3 CRR 7 - 9 Corporate facilities that require varying degrees of specialattention (not necessarily contractually past due). Retailfacilities operating outside of agreed arrangements.

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

1.

2.

Collateral Security (continued)

a floating charge over a company's assets, including stock and receivables; anda charge over stock or scrip.

Credit risk is divided into the Retail segment and the Corporate segment. A different approach is used in each to determine an overall credit gradebased on EL. These ratings equate to each other as follows:

PD and LGD are determined using individual assessment tools. The CRR is determined by reference to a matrix where PD and LGD combine toproduce a numeric CRR grade which represents a range of EL.

Main collateral types include:

charge over properties being financed;

Troublesome and Impaired Assets ("TIAs") – CRR of 7 - 9. These credit facilities are not eligible for increases in exposure unless it will protector improve the Banking Group’s position by maximising recovery prospects or to facilitate rehabilitation.

CRRs fall into two categories:

The Retail segment comprises housing loans, credit cards, other personal credit facilities and most secured business lending up to $1m. Theseportfolios are managed using statistical origination and account management techniques.

Retail

The Corporate segment is subject to inspection by the Risk Asset Review unit, which is independent of the originating business units and which reportson 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.

Retail facilities are assigned to a PD, EAD and LGD pool based on observed and predicted outcomes for facilities with similar characteristics. Theoverall 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 AssetReview unit.

Corporate

Corporate exposures comprise commercial exposures, including bank and government exposures. A Credit Risk Rating ("CRR") is recorded againstevery corporate facility. Credit risk rated exposures are reviewed at least annually and the CRR reassessed.

Pass – CRR of 1 - 6. These credit facilities qualify for approval of new or increased exposure on normal commercial terms.

Asset Quality

ASB Bank Limited and the Registered Bank have policies and procedures in place setting out the circumstance where acceptable and appropriatecollateral is to be taken, including valuation parameters, review frequency and independence of valuation.

residential mortgages;

cash (usually in the form of a charge over a Term Deposit);guarantees by company directors supporting commercial lending;

These ratings equate to the rating classifications of the Reserve Bank of New Zealand ("RBNZ") as follows:

25



>

>

>

>

>

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.

Impairment and Provisioning of Financial Assets

In addition to the credit risk management processes used to manage exposures to credit risk in the credit portfolio, the internal ratings process alsoassists management in assessing the requirements of NZ IAS 39 relating to impairment and provisioning of financial assets.

A credit obligation is sold at a material credit related economic loss.

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.

ASB Bank Limited or the Registered Bank become aware that the client will not be able to meet future repayments or service alternativeacceptable 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 caseeven if all the terms of the client's credit facilities are currently being met.

Impairment losses are recognised to reduce the carrying amount of loans and advances to their estimated recoverable amounts. Individually assessedprovisions are made against individually significant financial assets when there is objective evidence that either ASB Bank Limited or the RegisteredBank will not be able to collect all amounts due. The amount of the impairment/loss is the difference between the carrying amount and the recoverableamount, 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 usingappropriate effective interest rates.

Corporate portfolios are assessed for objective evidence that the financial asset or portfolio of assets is impaired. Impaired assets in the Corporatesegment include those facilities where an individually assessed provision for impairment has been raised, the facility is maintained on a cash basis, aloss 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.

Provisions for impairment are raised where there is objective evidence of impairment and at an amount adequate to cover estimated credit relatedlosses. Credit losses arise primarily from loans but also from other credit instruments such as Bank acceptances, contingent liabilities, guarantees andother financial instruments and assets acquired through security enforcement.

26


Registered Bank

$ millionsResidential

Mortgages (1) Other Retail Corporate Total Corporate (2)


(a) Credit Quality Information for Advances to Customers

As at 30 June 2008

Gross Advances to Customers by Credit QualityNeither Past Due Nor Impaired 33,183 3,556 15,971 52,710 6,502Past Due 2,317 370 464 3,151 40Impaired 8 1 21 30 - 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

Low Expected Loss 33,015 1,770 10,558 45,343 5,784Medium Expected Loss 168 1,781 5,253 7,202 659High Expected Loss - 5 160 165 59Total Advances Neither Past Due Nor Impaired 33,183 3,556 15,971 52,710 6,502

Aging Analysis of Past Due AssetsLess than 30 days 1,886 272 335 2,493 - 30 to 59 days 252 56 77 385 4060 to 89 days 87 20 22 129 - Over 90 days 92 22 30 144 - Total Past Due Assets 2,317 370 464 3,151 40

90-day Past Due AssetsBalance at Beginning of Year 47 19 20 86 - Additions 55 5 13 73 - Less: Amounts Written Off 10 2 3 15 - Balance at End of Year 92 22 30 144 -

Impaired AssetsBalance at Beginning of Year 1 2 7 10 - Additions 7 - 24 31 - Less: Amounts Written Off - 1 10 11 - Gross Advances Individually Determined tobe Impaired 8 1 21 30 -

Less : Specific Provisions for Impairment Loss 5 1 16 22 - Net Advances Individually Determined to be Impaired 3 - 5 8 -

Other Assets Under AdministrationBalance at Beginning of Year 7 2 - 9 - Deletions (7) (1) - (8) - Balance at End of Year - 1 - 1 -

Banking Group

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 :

As at 30 June 2008 neither the Banking Group nor the Registered Bank had any restructured assets or financial assets, real estate assets or otherassets acquired through enforcement of security (30 June 2007 Nil).

There were no Undrawn balances on lending commitments to counterparties within the 90-day Past Due Asset category as at 30 June 2008 (30 June 2007 Nil) for both Banking Group and Registered Bank.

Undrawn balances on lending commitments to counterparties within the Impaired Asset category were $1m for Banking Group and Nil for Registered Bank as at 30 June 2008 (30 June 2007 Nil for both Banking Group and Registered Bank).

The facilities that are reported as impaired and past due are collateralised in terms of Banking Group policy. Refer to the Credit Risk Management and Asset Quality policies for further detail.

Undrawn balances on lending commitments to counterparties within the Other Assets Under Administration category were $1m for Banking Group and Nil for Registered Bank as at 30 June 2008 (30 June 2007 $1m for Banking Group and Nil for Registered Bank).

Interest forgone is the amount of income that would have been recorded if interest accruals on specific loans had not been set to Nil and is estimatedbased on market rates. Under NZ IFRS interest on impaired on assets is no longer reserved and therefore no interest has been forgone.

27


Registered Bank

$ millionsResidential

Mortgages (1) Other Retail Corporate Total Corporate (2)


(a) Credit Quality Information for Advances to Customers (continued)

As at 30 June 2007

Gross Advances to Customers by Credit QualityNeither Past Due Nor Impaired 30,903 3,326 11,543 45,772 5,503Past Due 1,440 293 364 2,097 16Impaired 1 2 7 10 - Total Gross Advances to Customers by Credit Quality 32,344 3,621 11,914 47,879 5,519

(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 is comprised entirely of Corporate customers.

Neither Past Due Nor Impaired

Low Exposure Loss 30,901 2,129 7,610 40,640 4,670Medium Exposure Loss 2 1,194 3,828 5,024 833High Exposure Loss - 3 105 108 - Total Advances Neither Past Due Nor Impaired 30,903 3,326 11,543 45,772 5,503

Aging Analysis of Past Due AssetsLess than 30 days 1,153 221 303 1,677 1630 to 59 days 186 42 26 254 - 60 to 89 days 54 11 15 80 - Over 90 days 47 19 20 86 - Total Past Due Assets 1,440 293 364 2,097 16

90-day Past Due AssetsBalance at Beginning of Year 38 14 18 70 - Additions 14 7 4 25 - Less: Amounts Written Off 5 2 2 9 - Balance at End of Year 47 19 20 86 -

Impaired AssetsBalance at Beginning of Year 1 - 4 5 - Additions - 2 5 7 - Less: Amounts Written Off - - 2 2 - Gross Advances Individually Determined tobe Impaired 1 2 7 10 -

Less : Specific Provisions for Impairment Loss 1 1 5 7 - Net Advances Individually Determined to be Impaired - 1 2 3 -

Other Assets Under AdministrationBalance at Beginning of Year 7 2 - 9 - Balance at End of Year 7 2 - 9 -

Banking Group

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 :

28

Notes to the Financial Statements

Registered Bank

$ millionsResidential Mortgages Other Retail Corporate Total Corporate


(b) Provisions for Impairment Loss

As at 30 June 2008

Collective ProvisionBalance at Beginning of Year 5 38 47 90 6Charged to Income Statement 11 (8) 7 10 7Balance at End of Year 16 30 54 100 13

Specific ProvisionsBalance at Beginning of Year 1 1 5 7 - Add / (Less):Charged to Income Statement:

New Provisions 5 1 23 29 - Amounts Recovered (1) - (2) (3) -

Write Offs Against Specific Provisions - (1) (10) (11) - Balance at End of Year 5 1 16 22 - Total Provisions for Impairment Loss 21 31 70 122 13

Movement in Collective Provision 11 (8) 7 10 7Movement in Specific Provisions 4 1 21 26 - Bad Debts Written Off 10 2 3 15 - Bad Debts Recovered (2) (1) (1) (4) - Total Impairment Losses Charged to the Income Statement 23 (6) 30 47 7

As at 30 June 2007

Collective ProvisionBalance at Beginning of Year 4 34 48 86 7Charged to Income Statement 1 4 (1) 4 (1)Balance at End of Year 5 38 47 90 6

Specific ProvisionsBalance at Beginning of Year 1 - - 1 - Add / (Less):Charged to Income Statement:

New Provisions - 1 7 8 - Write Offs Against Specific Provisions - - (2) (2) - Balance at End of Year 1 1 5 7 - Total Provisions for Impairment Loss 6 39 52 97 6

Movement in Collective Provision 1 4 (1) 4 (1)Movement in Specific Provisions - 1 7 8 - Bad Debts Written Off 5 2 2 9 - Bad Debts Recovered (2) (1) (1) (4) - Total Impairment Losses / (Recoveries) Charged to the Income Statement 4 6 7 17 (1)

Impairment Losses Charged to the Income Statement


Banking Group

Impairment Losses Charged to the Income Statement

29



(c) Concentrations of Credit Exposures

Financial Financial Financial FinancialAssets 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

Agricultural, Forestry and Fishing 6,093 61 723 6,877 249 - 20 269Government and Public Authorities 249 2,760 488 3,497 120 440 224 784Financial, Investments and Insurance 14,890 5,053 2,058 22,001 7,221 268 699 8,188Utilities 743 76 516 1,335 698 - 508 1,206Transport and Storage 1,393 84 216 1,693 837 - 172 1,009Housing (1) 29,394 - 4,142 33,536 - - - - Construction 431 56 141 628 27 - 29 56Personal 613 - 1,174 1,787 8 - - 8Other Commercial and Industrial 3,159 384 1,556 5,099 1,167 - 745 1,912

56,965 8,474 11,014 76,453 10,327 708 2,397 13,432

Auckland 34,365 907 6,992 42,264 9,077 - 1,524 10,601Rest of New Zealand 22,203 384 3,973 26,560 1,215 - 873 2,088Overseas 397 848 49 1,294 35 - - 35Uncategorised Exposures - 6,335 - 6,335 - 708 - 708

56,965 8,474 11,014 76,453 10,327 708 2,397 13,432

As at 30 June 2007

Agricultural, Forestry and Fishing 4,461 411 488 5,360 266 - 8 274Government and Public Authorities 447 775 220 1,442 347 329 98 774Financial, Investments and Insurance 13,986 4,771 2,369 21,126 6,652 - 1,069 7,721Utilities 421 162 387 970 416 - 383 799Transport and Storage 992 132 432 1,556 498 - 393 891Housing 27,192 - 4,146 31,338 - - - - Construction 300 77 141 518 - - - - Personal 528 - 1,169 1,697 8 - - 8Other Commercial and Industrial 2,462 563 1,100 4,125 1,035 - 361 1,396

50,789 6,891 10,452 68,132 9,222 329 2,312 11,863

Auckland 29,513 1,641 6,305 37,459 8,386 - 1,303 9,689Rest of New Zealand 21,276 1,436 3,833 26,545 836 - 1,009 1,845Overseas - 1 10 11 - - - - Uncategorised Exposures - 3,813 304 4,117 - 329 - 329

50,789 6,891 10,452 68,132 9,222 329 2,312 11,863

The following table presents the maximum exposure to credit risk of financial assets and other credit exposures, before taking account of anycollateral 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 Exposuresinclude irrevocable Lending Commitments, Guarantees, Standby Letters of Credit and other off balance sheet Credit Commitments. The maximumexposure to credit risk for Guarantees and Standby Letters of Credit is the maximum amount that the Banking Group would have to pay if the facilitieswere called upon. For irrevocable Lending Commitments and other Credit Commitments, the maximum exposure to credit risk is the full amount of thecommitted facilities.

Total Credit Exposures by Geographic Region

Within the Geographic analysis, Uncategorised Exposures include Due from Other Banks and Securities. The nature of these assets makes theminappropriate to categorise geographically.

Total Credit Exposures by Industry

Concentration by Industry

Concentration by Geographic Region

Taxation Assets, Property, Plant and Equipment, Intangible Assets, Goodwill, and Other Assets have been excluded from the analysis below, on thebasis 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 industrysectors.


(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.

Total Credit Exposures by Geographic Region

Total Credit Exposures by Industry



30



(d) Concentrations of Credit Exposures to Individual Counterparties

17 Investments in Associates and Subsidiaries

% Nature of Business Balance DateAssociatesThe Banking Group has an interest in the following associates:

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

SubsidiariesThe Banking Group has an interest in the following subsidiaries:

ASB Bank Limited 100 Registered Bank 30 June ASB Capital Limited 100 Finance 30 June ASB Capital No.2 Limited 100 Finance 30 June ASB Finance Limited 100 Finance 30 June ASB Funding Limited 100 Holding Company 30 June ASB Holdings Limited 100 Holding Company 30 June ASB Management Services Limited 100 Management and Payment Services 30 June ASB Nominees Limited 100 Nominee Company 30 June ASB Properties Limited 100 Property and Investment 30 June ASB Securities Limited 100 Sharebroking 30 June ASB Smartcards Limited 100 Investment Holding Company 30 June Bayswater and Bond Limited 75 Finance 30 June Bond Investments No 1 Limited 100 Finance 30 June Bond Investments UK Limited 100 Finance 30 June CBA Asset Holdings (NZ) Limited 100 Finance 30 June CBA Dairy Leasing Limited 100 Finance 30 June CBA Funding (NZ) Limited 100 Finance 30 June CBA Investments (No.4) Limited 100 Finance 30 June CBA NZ Holding Limited 100 Finance 30 June CBA Real Estate Funding (NZ) Limited 100 Finance 30 June CBA Real Estate Investments (NZ) Limited 100 Finance 30 June CBA USD Funding Limited 100 Finance 30 June Charter House Investments Limited 100 Finance 30 June Equigroup Finance Limited 100 Finance 30 June Group Treasury Services NZ Limited 100 Finance 30 June Hildon Holdings Limited 100 Non-trading 30 June Hildon Investments Limited 100 Non-trading 30 June King's Ferry Holdings Limited 100 Non-trading 30 June King's Ferry Investments Limited 100 Non-trading 30 June Kiwi Home Loans (NZ) Limited 100 Lending 30 June McCaig Investments Limited 100 Finance 30 June Pago Limited 100 Non-trading 30 June Sinatra Investments Limited 100 Finance 30 June St Giles Investments Limited 100 Finance 30 June Stockbridge Holdings Limited 100 Finance 30 June Waterloo & Victoria Limited 75 Finance 30 June

Changes in composition of the Banking Group

On 4 March 2008, IT Fleet NZ (No. 2) Limited amalgamated with Equigroup Finance Limited to become Equigroup Finance Limited. This did nothave any impact on the aggregated results or financial position of the Banking Group.

There are no credit exposures to individual counterparties greater than 10% of Commonwealth Bank of Australia's 30 June 2008 equity (30 June 2007 Nil).

Summarised financial information for Associates is not provided, as the amounts involved are immaterial.

All subsidiaries were incorporated in New Zealand except for Bayswater and Bond Limited, Bond Investments UK Limited and Waterloo & VictoriaLimited, all of which were incorporated in the Cayman Islands.

On 27 July 2007 the Banking Group purchased 100% of the ordinary capital of Bond Investments UK Limited, a company incorporated in theCayman Islands and resident in the United Kingdom, for consideration of JPY 94,400.

The consolidated financial statements previously included a controlled entity, Lighthouse Trust as an in-substance subsidiary. The BankingGroup sold its investment in Lighthouse Trust on 15 November 2007 for consideration of AUD 315m, comprising Securities with a fair value ofAUD 159m and cash of AUD 156m.

This disposal did not result in any change to the net assets of the Banking Group. All liabilities held by the subsidiary were amounts due to othermembers of the Banking Group and therefore there is no impact on aggregated liabilities.

31


17 Investments in Associates and Subsidiaries (continued)

Changes after the Balance Sheet Date

Subsidiary purchased Nature of BusinessAegis Limited Investment Administration and CustodyASB Group Investments Limited Investment Administration and ManagementInvestment Custodial Services Limited Investment CustodianJacques Martin New Zealand Limited Investment and Registry Administration


18 Other Assets

Interest Receivable 246 180 80 66Other Current Assets 74 62 1 1Total Other Assets 320 242 81 67

19 Property, Plant and Equipment

ComputerLand Buildings Buildings Furniture & Office Operating

$ millions Freehold Freehold Leasehold & Fittings Equipment Software Total

As at 30 June 2008

Cost / Valuation 24 27 82 79 134 20 366Accumulated Depreciation - - (46) (53) (96) (12) (207)Opening Net Book Value 24 27 36 26 38 8 159Additions - 1 11 6 19 - 37Disposals (1) (1) - (2) (1) - (5)Depreciation - (1) (8) (6) (17) (3) (35)Revaluation 1 2 - - - - 3Closing Net Book Value 24 28 39 24 39 5 159

Cost / Valuation 24 28 92 81 148 20 393Accumulated Depreciation - - (53) (57) (109) (15) (234)Closing Net Book Value 24 28 39 24 39 5 159

As at 30 June 2007

Cost / Valuation 21 24 93 79 161 20 398Accumulated Depreciation - - (58) (54) (125) (9) (246)Opening Net Book Value 21 24 35 25 36 11 152Additions - - 8 7 18 - 33Depreciation - - (7) (6) (16) (3) (32)Revaluation 3 3 - - - - 6Closing Net Book Value 24 27 36 26 38 8 159

Cost / Valuation 24 27 82 79 134 20 366Accumulated Depreciation - - (46) (53) (96) (12) (207)Closing Net Book Value 24 27 36 26 38 8 159

Freehold Land and Buildings are carried at revalued amounts based on independent, registered public valuers. The latest market valuations wereundertaken in April 2008 and were applied on 30 June 2008. The primary valuation approach has been based upon comparable improved sales andland sales information supported by an income approach, based on market rentals which have been capitalised at a market yield rate derived fromimproved property transactions. Under the cost model these assets would have been recognised at a carrying amount of $7m and $10m respectively(30 June 2007 $7 and $10m).

The Registered Bank has no Property, Plant and Equipment as at 30 June 2008 (30 June 2007 Nil).

Banking Group

As part of a restructuring of CBA's operations within New Zealand, on 1 July 2008 ASB Bank Limited purchased 100% of the ordinary capital of thefollowing entities from fellow subsidiaries of CBA for consideration of $58m. This will result in recognition of Net Tangible Assets of $9m and IntangibleAssets of $49m in the Banking Group for the year ending 30 June 2009.

Also on 1 July 2008 the ASB Cash Fund was established as a Portfolio Investment Entity ("PIE") managed by ASB Group Investments Limited. TheASB Cash Fund is considered to be controlled by ASB Bank Limited and will be included in the Banking Group's financial statements as an in-substance subsidiary.


32


20 Intangible Assets

InternallyGenerated External Application

Application Application Software$ millions Software Software Total

As at 30 June 2008

Cost 26 62 88Accumulated Amortisation (8) (44) (52)Opening Net Book Value 18 18 36Additions 23 10 33Amortisation (8) (5) (13)Closing Net Book Value 33 23 56

Cost 48 72 120Accumulated Amortisation (15) (49) (64)Closing Net Book Value 33 23 56

As at 30 June 2007

Cost 6 59 65Accumulated Amortisation (6) (39) (45)Opening Net Book Value - 20 20Additions 20 4 24Amortisation (2) (6) (8)Closing Net Book Value 18 18 36

Cost 26 62 88Accumulated Amortisation (8) (44) (52)Closing Net Book Value 18 18 36

The Registered Bank has no Intangible Assets as at 30 June 2008 (30 June 2007 Nil).

$ millionsAs at 30 June 2008 2007

21 Goodwill

Balance at Beginning of Year 275 275Less: Accumulated Impairment Losses - -

Balance at End of Year 275 275

The Registered Bank has no Goodwill as at 30 June 2008 (30 June 2007 Nil).

Banking Group

Banking Group

Refer to Note 17 for details of changes to the composition of the Banking Group resulting in recognition of additional Goodwill after the balance sheetdate.

33



22 Deferred Taxation (Liability) / Asset

Balance at Beginning of Year (342) (14) 9 5Taxation Benefit / (Expense) Recognised in

the Income Statement 66 (51) - 2Deferred Taxation Recognised in Equity 81 (277) (5) 2Balance at End of Year (195) (342) 4 9

Deferred Taxation relates to:Asset Revaluation Reserves (5) (5) - - Cash Flow Hedge Reserves (7) (88) - 5Contributed Capital - Redeemable Preference Shares (210) (210) - - Deferred Fees - (30) - - Depreciation 127 143 - - Holiday Pay 6 6 - - Provision for Impairment Losses 36 30 4 2Other Temporary Differences (142) (188) - 2Total Deferred Taxation (Liability) / Asset (195) (342) 4 9

Deferred Taxation Recognised in the Income Statement:Deferred Fees 30 (2) - 1Depreciation (16) 2 - - Holiday Pay - 1 - - Provision for Impairment Losses 6 2 2 - Other Temporary Differences 46 (54) (2) 1Total Deferred Taxation Recognised in

the Income Statement 66 (51) - 2

Deferred Taxation Recognised in Equity:Asset Revaluation Reserves - (1) - - Cash Flow Hedge Reserves 81 (67) (5) 2Contributed Capital - Redeemable Preference Shares - (209) - - Total Deferred Taxation Recognised in Equity 81 (277) (5) 2

23 Due to Other Banks

638 643 - - 7,162 6,396 5,341 4,201

Total Due to Other Banks 7,800 7,039 5,341 4,201

Amounts Due to Other Banks are measured as follows:

(a) At Amortised CostCall 545 545 - - Term 7,127 6,384 5,341 4,201Total at Amortised Cost through Profit or Loss 7,672 6,929 5,341 4,201

(b) At Fair Value through Profit or LossCall 93 98 - - Term 35 12 - - Total at Fair Value through Profit or Loss 128 110 - -

As at 30 June 2008 the principal at maturity of amounts Due to Other Banks designated as at fair value is $128m for the Banking Group and Nil for theRegistered Bank (30 June 2007 $110m for the Banking Group and Nil for the Registered Bank).


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.

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 DeferredTax as at 30 June 2008 and 30 June 2007.

CallTerm

34



24 Money Market Deposits

Money Market Deposits are measured as follows:

(a) At Amortised CostOther Issued Paper 3,319 3,335 - -

(b) At Fair Value through Profit or LossCall 2,380 2,720 - - Term 1,467 1,505 - - Non-interest Bearing 133 37 - - Certificates of Deposit 1,920 3,142 - - Other Issued Paper 10,821 6,084 - - Total at Fair Value through Profit or Loss 16,721 13,488 - -

Total Money Market Deposits 20,040 16,823 - -

Net Investment Hedge

25 Deposits from Customers

Retail Term Deposits 15,712 12,779 - - Other Deposits Bearing Interest 10,390 9,792 851 834Deposits Not Bearing Interest 1,719 1,928 - - Total Deposits from Customers 27,821 24,499 851 834

26 Other Liabilities

Interest Payable Accrued 418 311 75 35Employee Entitlements 63 52 - - Trade Accounts Payable and Other Liabilities 254 204 3 3Total Other Liabilities 735 567 78 38

The Registered Bank does not have any retail deposits (deposits with natural persons, excluding deposits with an outstanding balance whichexceeds $250,000) as at 30 June 2008 (30 June 2007 Nil).

Deposits from Customers are unsecured and rank equally with other unsecured liabilities of the Banking Group. In the unlikely event that ASB BankLimited or the Registered Bank was put into liquidation or ceased to trade, secured creditors and those creditors set out in the Seventh Schedule ofthe Companies Act 1993 would rank ahead of the claims of unsecured creditors.

The Banking Group has not defaulted on any principal, interest or redemption amounts on its borrowed funds during the year (30 June 2007 Nil).


For the year ended 30 June 2008 a gain of $9m was attributable to changes in credit risk for Money Market Deposits designated at Fair Valuethrough Profit or Loss (30 June 2007 Nil). All other changes in Fair Value are attributable to changes in the benchmark interest rate. Refer to Note1 for details of the fair valuation methodology.

As at 30 June 2008 the principal at maturity of Money Market Deposits designated as at fair value is $19,156m for the Banking Group and Nil forthe Registered Bank (30 June 2007 $13,584m for the Banking Group and Nil for the Registered Bank).

Included within Other Issued Paper at Fair Value through Profit or Loss is Yen denominated borrowing with a fair value of $717m (30 June 2007Nil). This borrowing, together with related forward exchange rate contracts, has been designated as a hedge of the Banking Group's net investmentin a Yen-denominated subsidiary and is hedging the Banking Group's exposure to the foreign currency risk associated with this investment. Gainsor losses on translation of this borrowing are transferred to the FCTR within equity, to offset any gains or losses on translation of the net investmentin the subsidiary.

35



27 Subordinated Debt

Issuer Face Value FootnoteASB Bank Limited NZD 200m (a) 201 201 - - ASB Bank Limited NZD 250m (b) 248 250 - - ASB Bank Limited * NZD 370m (c) 380 - - - ASB Holdings Limited NZD 780m (d) - 780 - - ASB Holdings Limited NZD 1m (e) 1 - - - ASB Holdings Limited NZD 160m (f) 160 - - - CBA Funding (NZ) Limited NZD 700m (g) 1 1 - - CBA Real Estate Funding (NZ) Limited NZD 4m (h) 2 2 - - CBA USD Funding Limited * USD 700m (i) 970 892 - - CBA New Zealand Branch AUD 750m (j) 946 824 946 824CBA New Zealand Branch * USD 550m (k) 742 704 742 704CBA New Zealand Branch AUD 1,166m (l) 1,478 1,283 1,478 1,283CBA New Zealand Branch USD 700m (m) - - 970 892

5,129 4,937 4,136 3,703Terms

ASB Bank Limited

(a)

(b)

(c)

ASB Holdings Limited(d)

(e)

(f)

CBA Funding (NZ) Limited(g)

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 amargin 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 andhave a maturity date of 29 June 2017.

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 bereset for the remaining term plus an additional 0.5% per annum. They are callable on 15 November 2012 and have a maturity date of 15November 2017.


All Subordinated Debt issued by ASB Bank Limited carried an AA- rating from Standard and Poor's Pty Limited as at 30 June 2008. It is subordinate toother general liabilities of ASB Bank Limited and qualifies as Lower Tier Two Capital for ASB Bank Limited's Capital Adequacy calculation purposes.

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 forthe remaining term plus an additional 0.5% per annum. They are callable on 15 June 2011 and have a maturity date of 15 June 2016.

Non-participating Redeemable Preference Shares (NZD 780m) issued to CBA on 29 June 2007 with a maturity date of 28 June 2012, which wererepaid in December 2007.

The dividend rate was reset quarterly against the rate for New Zealand Dollar bills of exchange for a period of three months, plus a margin.Dividends were payable quarterly on 29 March, 29 June, 29 September and 29 December, and were cumulative.

Rights of holders of the Redeemable Preference Shares ranked: in priority to all rights of ordinary shares; after the rights of all other classes ofshares; and after all rights of creditors of ASB Holdings Limited.

Redeemable Preference Shares (NZD 160m) issued to CBA on 30 June 2008 with a maturity date of 30 June 2009.

The dividend rate will be reset quarterly against the bank bill rate, plus a margin. Dividends will be payable on 30 September, 31 December, 31March and 30 June, and are cumulative.

Redeemable Preference Shares (NZD1m) issued to CBA Hong Kong branch on 16 June 2008 with a maturity date of 16 December 2008.

The dividend rate and payment dates are discretionary, and the dividends are non-cumulative. These shares do not hold any voting rights.

Non-participating Redeemable Preference Shares (NZD 700m) issued on 22 December 2006, which must be redeemed 100 years after issue orany earlier date immediately prior to the date on which the liquidation of CBA Funding (NZ) Limited commences. They can also be redeemedearlier with the consent of the holder.

Rights of holders of these shares rank in priority to all other classes of shares in ASB Holdings Limited, and after all rights of the creditors of ASBHoldings Limited.

Dividends, based on the swap rate plus a margin, are payable six-monthly on 31 December and 30 June starting from June 2007, at thediscretion 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 toany rights in respect of Ordinary Shares but after any rights in respect of all other classes of shares in CBA Funding (NZ) Limited ranking aheadof the Redeemable Preference Shares.

Under NZ IAS 32 Financial Instruments: Presentation, the Redeemable Preference Shares are considered to contain both liability and equitycomponents. The liability component of $1m is classified as Subordinated Debt and the equity component of $489m which is net of income taxeffects, has been recognised in Equity (refer to Note 28). A Deferred Taxation liability of $210m has also been recognised with respect to theseshares (refer to Note 22).

36


27 Subordinated Debt (continued)

CBA Real Estate Funding (NZ) Limited(h)

CBA USD Funding Limited(i)

CBA New Zealand Branch (Registered Bank)(j)

(k)

(l)

(m)

* Subordinated Debt is recognised in the Balance Sheet at its New Zealand dollar equivalent. The Banking Group has entered into Cash Flow andFair Value hedges relating to Subordinated Debt issued by CBA New Zealand Branch (refer to Note 14).

50 year cumulative USD Branch Note (USD 700m) issued to CBA USD Funding Limited on 15 March 2006. Interest is cumulative and is paidsemi-annually. 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 subordinated to CBA's obligations to its depositors and other creditors. On winding up of CBAthe convertible notes rank equally with Ordinary Shares.

The rights of holders of the convertible notes are subordinated to CBA's obligations to its depositors and other creditors. On winding up of CBAthe convertible notes rank equally with Ordinary Shares.

Convertible notes (USD 550m), which have no stated maturity but which will automatically convert to CBA Preference Shares on 30 June 2053.The convertible notes have a fixed coupon rate of 5.8% and are callable from 30 June 2015.

The rights of holders of the convertible notes are subordinated to the claims of senior creditors of CBA.

Non-participating Redeemable Preference Shares (NZD 4m) issued to CBA on 16 March 2006, with a maturity date of 30 September 2024.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 (referto Note 28).

Convertible notes (AUD 1,166m) which automatically convert to CBA preference shares on 23 February 2046. The coupon rate is reset againstthe AUD 90 day Bank Bill Rate minus 0.28%.

The rights of the holder of the Note are subordinate to the claims of senior creditors of CBA.

50 year USD Note (USD 700m) issued on 15 March 2006. Interest is cumulative and is paid semi-annually for the first 10 years, then quarterlyuntil 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.

Convertible notes (AUD 750m), which automatically convert to CBA preference shares on 6 January 2044. The coupon rate is reset against theAUD 90 day Bank Bill Rate plus a margin.

37



28 Head Office Account and Contributed Capital

Head Office AccountBalance at Beginning of Year 254 50 254 50Head Office Contribution 8 204 8 204Balance at End of Year 262 254 262 254

Issued and Fully Paid Ordinary SharesBalance at Beginning of Year 534 498 - - Proceeds from Shares Issued 170 36 - - Balance at End of Year 704 534 - -

Issued and Fully Paid Redeemable Preference SharesBalance at Beginning of Year 491 2 - - Proceeds from Shares Issued 780 489 - - Balance at End of Year 1,271 491 - -

Total Contributed Capital 1,975 1,025 - -

Ordinary Shares

Redeemable Preference Shares

29 Asset Revaluation Reserves

Balance at Beginning of Year 27 23 - - Revaluations 3 5 - - Deferred Income Tax - (1) - - Transferred to Retained Earnings (1) - - - Balance at End of Year 29 27 - -

30 Available for Sale Reserves

Balance at Beginning of Year - - - - Net Gain from Changes in Fair Value 64 - - - Transferred to Profit or Loss (45) - - - Balance at End of Year 19 - - -

31 Cash Flow Hedge Reserves

Balance at Beginning of Year 191 44 (13) (6)Net Gain from Changes in Fair Value 72 231 (7) (25)Transferred to Profit or Loss (342) (17) 10 16Tax Impact 85 (67) (1) 2Balance at End of Year 6 191 (11) (13)

Asset Revaluation Reserves relate to revaluation gains on land and buildings carried at valuation, except that to the extent that the gain reverses arevaluation loss on the same asset previously recognised in the Income Statement, the gain is recognised in the Income Statement.

Available for Sale Reserves include the cumulative net change in the fair value of Available for Sale Financial Assets until the investment isderecognised or impaired.

Cash Flow Hedge Reserves comprise the effective portion of the cumulative net change in the fair value of foreign exchange and interest ratederivative contracts related to hedged forecasted transactions that have not yet occurred.

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 BankLimited Perpetual Preference Shares are satisfied. Dividends are declared subject, in all cases, to the applicable Directors' resolutions being passed.

CBA Funding (NZ) Limited issued a further 780,000,000 Redeemable Preference Shares during the year ended 30 June 2008, which were classified asequity (30 June 2007 Nil). These shares are have no fixed term, carry no voting rights and are redeemable by CBA Funding (NZ) Limited providing 75days 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.

As at 30 June 2008 the Banking Group had 1,484,240,000 Issued and Fully Paid Redeemable Preference Shares (30 June 2007 704,240,000 Issuedand Fully Paid Preference Shares).

Redeemable Preference Shares includes the equity component of Redeemable Preference Shares issued by CBA Funding (NZ) Limited and CBA RealEstate Funding (NZ) Limited, net of income tax effects. These shares were issued during the year ended 30 June 2007. Refer to Note 27 (g) and (h) fora description of the terms of the Redeemable Preference Shares.


On 30 June 2008 ASB Holdings Limited issued 170,000,000 Ordinary Shares. During the year ended 30 June 2007 36,975,207 Ordinary Shares wereissued by CBA NZ Holding Limited to Commonwealth Bank of Australia.

As at 30 June 2008 the Banking Group had 727,546,881 Ordinary Shares on issue of which 100,000 were unpaid (30 June 2007 557,546,881 Issued ofwhich 100,000 were unpaid).

Head Office Account comprises funds provided by Commonwealth Bank of Australia to support its New Zealand branch. It is non-interest bearing andthere is no fixed date for repatriation.

38



32 Foreign Currency Translation Reserves

Balance at Beginning of Year - - - - Currency Translation Differences 78 - - - Net Investment Hedge (116) - - - Current Income Tax 38 - - - Balance at End of Year - - - -

33 Retained Earnings

Balance at Beginning of Year 689 720 7 4456 534 22 8

1,145 1,254 29 12Add:Transfer from Asset Revaluation Reserve 1 - - -

Less:Ordinary Dividends 510 530 - - Redeemable Preference Dividends 59 30 - - Distribution of Prior Year Profit 8 5 8 5Balance at End of Year 569 689 21 7

34 Minority Interests

Controlled Entities:

Share Capital 550 550 - -

> 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.

On 9 July 2008 the Directors of ASB Capital Limited declared a Perpetual Preference Dividend of $5m, being 2.49 cents per share. The dividend waspaid on 15 August 2008 to all registered holders of Perpetual Preference Shares as at 5.00pm on 25 July 2008.

Also, on 9 July 2008 the Directors of ASB Capital No.2 Limited declared a Perpetual Preference Dividend of $8m, being 2.26 cents per share. Thedividend was paid on 15 August 2008 to all registered holders of Perpetual Preference Shares as at 5.00pm on 5 August 2008.

Foreign Currency Translation Reserves comprise exchange differences on translation of foreign currency assets and liabilities of an overseassubsidiary. The Banking Group has hedged its net investment in the foreign subsidiary on an after tax basis.


As at 30 June 2008 the Banking Group had 550,000,000 Issued and Fully Paid Perpetual Preference Shares (30 June 2007 550,000,000 Issued andFully 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 issued350,000,000 Perpetual Preference Shares. These shares have no fixed term, are non-redeemable and carry limited voting rights. They were issued aspart 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 PerpetualPreference Shares to ASB Funding Limited. ASB Funding Limited in turn invested the proceeds in Perpetual Preference Shares issued by ASB BankLimited. ASB Funding Limited and New Zealand Guardian Trust Company Limited (the "Trustee") together with ASB Capital Limited and ASB CapitalNo.2 Limited respectively are party to Trust Deeds, whereby ASB Funding Limited provides covenants to the Trustee for the benefit of holders of theASB Capital Limited and ASB Capital No.2 Limited Perpetual Preference Shares and grants security over the ASB Bank Perpetual Preference Sharesin favour of the Trustee.

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.

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 grossdividend rate paid on the Perpetual Preference Shares for the period ended 15 November 2007 was 8.85% per annum. Rates are reset annually on15 November or the succeeding business day. The rate was reset on 15 November 2007 to 9.95% per annum. The next dividend reset date is 15November 2008.

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%. Thegross dividend rate paid on the Perpetual Preference Shares for the period ended 15 May 2008 was 9.11% per annum. Rates are reset annually on 1May or succeeding business day. The rate was reset on 15 May 2008 to 9.03% per annum. The next dividend reset date is 15 May 2009.

In the event of the liquidation of ASB Bank Limited, payment of the issue price and dividends on the ASB Bank Limited Perpetual Preference Sharesranks:

For the year ended 30 June 2008, dividends of $34m were paid by ASB Capital Limited and ASB Capital No.2 Limited (30 June 2007 $31m). Thisequated to 6.30 cents per share paid by ASB Capital Limited (30 June 2007 5.91 cents per share) and 6.10 cents per share paid by ASB Capital No.2Limited (30 June 2007 5.56 cents per share).

Net Profit after Taxation Attributed to Parent Company Shareholders

39



35 Reconciliation of Net Profit after Taxation to Net Cash Flows from Operating Activities


Add: Non-cash ItemsImpairment Losses / (Recoveries) on Advances 47 17 7 (1)Asset Revaluation Reserves - (1) - - Depreciation 35 32 - - Amortisation of Intangible Assets 13 8 - - Net Loss on Sale of Property, Plant and Equipment 1 1 - -

96 57 7 (1)Add: Movements in Balance Sheet ItemsChanges in Operating Assets and Liabilities (2,560) 1,861 (25) (197)Interest Receivable - (Increase) / Decrease (171) 9 (16) (15)Interest Payable - Increase 217 167 38 28Other Income Accrued - Decrease / (Increase) 502 (447) 18 6Operating Expenses Accrued - Increase 18 1 - - Taxation Balances - Increase / (Decrease) 44 (10) - (8)

(1,950) 1,581 15 (186)Net Cash Flows from Operating Activities (1,364) 2,203 44 (179)

36 Reconciliation of Cash and Cash Equivalents to the Balance Sheet

Cash and Call Deposits with the Central Bank 1,155 3,013 59 15Call Deposits Due from Other Banks 43 54 9 9Call Deposits Due to Other Banks (638) (643) - - Total Cash and Cash Equivalents at End of Year 560 2,424 68 24

37 Imputation and Policyholder Credit Accounts

Imputation Credit Account

Balance at Beginning of Year 79 145 - - Opening Balances of Associates Entering the ICA Group - 1 - - Transfer from the PCA 57 - Net Income Tax Paid 38 82 - - Imputation Credits Attached to Dividends Received 106 80 - - Less: Imputation Credits Attached to Dividends Paid 267 229 - - Balance at End of Year 13 79 - -

Balance at Beginning of Year 57 57 - - Transfer to ICA (57) - - - Balance at End of Year - 57 - -

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 closingimputation credit account balances of $1m and $1m respectively (30 June 2007 $1m and $1m respectively).

Policyholder Credit Account

Because a member of the ICA Group is a life insurance company, the ICA Group is required to maintain a policyholder credit account ("PCA"). Abalance in a PCA can be transferred back to an imputation credit account and is therefore available to shareholders (and shareholders of other ICAGroup members).


Dividends paid by companies may attach imputation credits representing the New Zealand tax already paid by the company or tax group on profits. NewZealand 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 ICAGroup.

40


38 Related Party Transactions and Balances

Guarantees

Derivative Transactions

Other

Receipts of $24m (30 June 2007 $19m) were received from the Commonwealth Bank of Australia New Zealand Life Insurance Group, for insurancecommission and profit share.

Receipts of $13m (30 June 2007 $17m) were received from the Commonwealth Bank of Australia New Zealand Life Insurance Group, for distributionof fund management services.

Commonwealth Bank Group provides guarantees over various lending offered by ASB Bank Limited to the value of $132m (30 June 2007 $221m).

ASB Bank Limited had foreign exchange contracts with the Commonwealth Bank of Australia New Zealand Life Insurance Group with a face value of$1,383m (30 June 2007 $2,676m) and interest rate swaps with a face value of $1,814m (30 June 2007 $1,814m) upon which interest paid amountedto $10m (30 June 2007 $2m).

ASB Bank Limited had foreign exchange contracts with Trusts managed or administered by the Commonwealth Bank of Australia New Zealand LifeInsurance Group with a face value of $776m (30 June 2007 $1,179m).

No Provisions for Impairment Loss have been recognised in respect of loans given to Related Parties (30 June 2007 Nil).

Refer to Note 9 for details of dividends paid to shareholders.

Refer to Note 27 for details of Subordinated Debt issued to Related Parties and Note 28 for details of Capital contributed by Related Parties.

The total liabilities of the Registered Bank net of amounts due to related parties is $125m as at 30 June 2008 (30 June 2007 $102m).

The ultimate parent bank is Commonwealth Bank of Australia. The Commonwealth Bank Group refers to the Commonwealth Bank of Australia andthe various companies and other entities owned and controlled by the Commonwealth Bank of Australia. Commonwealth Bank of Australia NewZealand Life Insurance Group includes Colonial Group and ASB Group (Life) Limited Group of Companies.

During the year ended 30 June 2008, the Banking Group has entered into, or had in place various financial transactions with members of theCommonwealth Bank Group, and other related parties. ASB Bank Limited provides administrative functions to some subsidiaries and relatedcompanies for which no payments have been made. In all other cases, arrangements with related parties were conducted on an arm's length basisand on normal commercial terms, and within the Banking Group's approved policies. Loans to and borrowings from related parties are unsecured.

Receipts of $23m (30 June 2007 $20m) were received from the Commonwealth Bank of Australia New Zealand Life Insurance Group, foradministrative functions provided by ASB Bank Limited.

Receipts of $22m (30 June 2007 $39m) were received from the Commonwealth Bank of Australia New Zealand Life Insurance Group for theutilisation of tax-related items.

Distribution and Administrative Services

Transactions processed during the year ended 30 June 2008 included:

The Banking Group has in place interest rate swaps with Commonwealth Bank Group with a face value of $8,565m (30 June 2007 $5,604m), interestrate options with a face value of $312m (30 June 2007 $344m), currency swaps with a face value of $8,240m (30 June 2007 $7,511m), foreignexchange contracts with a face value of $2,931m (30 June 2007 $1,843m), forward commodity contracts with a face value of $1m (30 June 2007 facevalue $1m), no credit default swaps (30 June 2007 $191m) and forward rate agreements with a face value of $1,930m (30 June 2007 $700m).

Commonwealth Bank of Australia New Zealand Life Insurance Group manages and administers 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 2008 were $1,073m (30 June2007 $1,288m) and total interest expense related to these deposits for the year ended 30 June 2008 was $94m (30 June 2007 $74m). These depositsare held on normal commercial terms and conditions.

A payment of $13m (30 June 2007 $14m) was made to the Commonwealth Bank of Australia New Zealand Life Insurance Group, for the origination ofmortgages.

A payment of $4m (30 June 2007 Nil) was made to Commonwealth Bank Group for arrangement fees.

41



38 Related Party Transactions and Balances (continued)

Related Party Balances (continued)Commonwealth Bank Group (100% Ultimate Shareholder)

Due from Other BanksBalance at Beginning of Year 297 292 3,709 3,724Net Movement (128) 5 87 (15)Balance at End of Year 169 297 3,796 3,709

Interest Income on Due from Other Banks 10 7 356 289

Advances to CustomersBalance at Beginning of Year - - 479 73Net Movement - - 688 406Balance at End of Year - - 1,167 479

Other Assets 4 2 37 33

Due to Other BanksBalance at Beginning of Year 7,086 5,130 4,202 2,696Net Movement 611 1,956 1,139 1,506Balance at End of Year 7,697 7,086 5,341 4,202

Interest Expense on Due to Other Banks 270 408 504 251

Subordinated DebtBalance at Beginning of Year 4,771 4,100 2,777 3,121Net Movement (221) 671 1,359 (344)Balance at End of Year 4,550 4,771 4,136 2,777

Interest Expense on Subordinated Debt 247 170 191 164

Derivative Liabilities / (Assets)Balance at Beginning of Year 738 (68) 605 125Net Movement (509) 806 (154) 480Balance at End of Year 229 738 451 605

Deposits from CustomersBalance at Beginning of Year - - 1,644 1,182Net Movement - - (916) 462Balance at End of Year - - 728 1,644

Other Liabilities 134 85 75 51

Commonwealth Bank of Australia New Zealand Life Insurance Group (Subsidiaries of Commonwealth Bank Group)

Derivative Assets / (Liabilities)Balance at Beginning of Year (76) 23 - - Net Movement 90 (99) - - Balance at End of Year 14 (76) - -

Other Assets 8 5 - -

Deposits from CustomersBalance at Beginning of Year 494 260 - - Net Movement 43 234 - - Balance at End of Year 537 494 - -

Interest Expense on Deposits from Customers 47 41 - -

Money Market DepositsBalance at Beginning of Year - - - - Net Movement 30 - - - Balance at End of Year 30 - - -

Other Liabilities 1 2 - -

Derivative Assets / (Liabilities)Balance at Beginning of Year (23) 14 - - Net Movement 45 (37) - - Balance at End of Year 22 (23) - -

Other assets and liabilities include sundry debtors and creditors and accrued interest.


Trusts Managed or Administered by the Commonwealth Bank of Australia New Zealand Life Insurance Group (Subsidiaries of Commonwealth Bank Group)

42



39 Directors and Key Management Personnel

Key Management Compensation

Short Term Employee Benefits 6 6Other Long Term Benefits 5 5Total Key Management Compensation 11 11

Loans to Directors and Key Management Personnel

Balance at Beginning of Year 9 10Adjustment due to change in Key Management Personnel (1) 2Received During the Year 8 21Repaid During the Year (8) (24)Balance at End of Year 8 9

Interest Income* - 1

Deposits from Directors and Key Management Personnel

Balance at Beginning of Year 6 3Received During the Year 31 37Repaid During the Year (30) (34)Balance at End of Year 7 6

Interest Expense* - -

*

As at 30 June$ millions Notional Credit Notional Credit

Amount Equivalent Amount Equivalent

40 Credit and Capital Commitments, and Contingent Liabilities

(a) Credit and Capital CommitmentsLending Commitments Approved but Not Yet Advanced 10,702 2,199 10,217 2,196Capital Expenditure Commitments 4 4 8 8

Total Credit and Capital Commitments 10,706 2,203 10,225 2,204

Credit and Capital CommitmentsLending Commitments Approved but Not Yet Advanced 2,397 881 2,312 659

(b) Contingent LiabilitiesGuarantees 57 57 71 71Standby Letters of Credit 152 152 89 89Other Credit Facilities 103 46 75 29Other Contingent Liabilities 1 - 12 6

Total Contingent Liabilities 313 255 247 195

2007

Banking Group

The Registered Bank has no contingent liabilities as at 30 June 2008 (30 June 2007 Nil).

2008

Registered Bank

Banking Group

Banking Group

All loans were made in the ordinary course of business of the Bank on an arm's length basis and on normal commercial terms and conditions. Theinterest rates applicable were between 7.3% and 20.75% (30 June 2007 6.7% and 19.75%). Terms of repayment range between variable, fixedrates up to three years, and interest only loans, all of which have been in accordance with the Bank's lending policies.

Deposits consist of on call, savings, cheque, term investments and cash management balances, all lodgements being made and conducted on anarm's length basis in the normal course of business and on commercial terms and conditions.

Interest is received and paid on Loans and Deposits respectively at market rates but is reported as Nil in most periods, as a result ofrounding to the nearest million.

Interest rates are from 0% to 9.25% (30 June 2007 0% to 8.36%), terms of repayment ranging between on call and six months.

43


40 Credit and Capital Commitments, and Contingent Liabilities, (continued)

(c)


41 Leasing and Other Commitments

Leasing Commitments

The following non-cancellable operating lease commitments existed at the end of the period:

Within One Year of Balance Date 36 32 - - Between One and Two Years 32 28 - - Between Two and Five Years 69 62 - - Over Five Years 24 30 - -

Total Leasing Commitments 161 152 - -

Other Commitments 7 10 - -

Should NOPAs or assessments also be issued to ASB Bank Limited for all similar transactions, and for all tax years from 2001 onward, thecombined assessments and adjustments proposed by the IRD would result in a net potential tax liability of $277m up to 30 June 2008(including use of money interest charges).

ASB Bank Limited has taken extensive independent tax advice and is confident the tax treatment it has adopted for the transactions to whichthe NOPAs relate is correct.

In November 2006 the Commerce Commission issued proceedings against Visa, MasterCard and 11 financial institutions, including ASBBank Limited, for alleged price fixing in relation to interchange fees. Also in November 2006, similar proceedings were issued against thesame defendants by 11 retailers. No provisions have been made relating to these claims.

As previously disclosed in the General Disclosure Statement for the year ended 30 June 2007, the New Zealand Inland Revenue Department("IRD") is carrying out an industry-wide review of structured finance transactions. ASB Bank Limited has received Notices of ProposedAdjustments ("NOPAs") from the IRD in respect of structured finance transactions for the years ended 30 June 2001 to 30 June 2006.

A NOPA is not an amended assessment of tax. It is the first step in New Zealand's tax disputes process, under which the IRD formallyadvises a taxpayer that they are proposing to amend a tax assessment. Notices of amended assessment have now been received in relationto one of these transactions for the 2001 year and two of these transactions for the 2002 and 2003 years. These assessments would result ina tax liability of $104m if upheld (including use of money interest charges).

The Banking Group has other contingent liabilities in respect of actual and potential claims and proceedings. An assessment of the BankingGroup's likely loss in respect of these matters has been made on a case-by-case basis and provision made where appropriate.

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 Note6).

ASB Bank Limited has entered into certain sub-leasing arrangements. Sub-leasing income of $1m for the period ended 30 June 2008 (30 June2007 $1m) was included in the Income Statement.


44


42 Fair Value of Financial Instruments

Carrying Fair Carrying Fair$ millions Amount Value Amount Value

Balance Sheet Items

As at 30 June 2008

Cash and Call Deposits with the Central Bank 1,155 1,155 59 59Due from Other Banks at Amortised Cost 37 37 3,738 3,738Advances to Customers 55,773 55,192 6,530 6,476Other Assets 320 320 81 81

Due to Other Banks at Amortised Cost 7,672 7,447 5,341 5,341Money Market Deposits at Amortised Cost 3,319 3,253 - - Deposits from Customers 27,821 27,787 851 851Other Liabilities 735 735 78 78Subordinated Debt 5,129 4,907 4,136 3,940

As at 30 June 2007

Cash and Call Deposits with the Central Bank 3,013 3,013 15 15Due from Other Banks at Amortised Cost - - 3,694 3,694Advances to Customers 47,776 46,962 5,513 5,513Other Assets 242 242 67 67

Due to Other Banks at Amortised Cost 6,929 6,929 4,201 4,201Money Market Deposits at Amortised Cost 3,335 3,346 - - Deposits from Customers 24,499 24,464 834 834Other Liabilities 567 567 38 38Subordinated Debt 4,937 4,929 3,703 3,703

Off Balance Sheet Items

Registered Bank

The following table summarises the carrying amounts and fair values of those financial assets and financial liabilities not presented in the BankingGroup's Balance Sheet at their fair value. Refer to Note 1 for a description of how fair values are estimated.

Banking Group

There are no fair values for Direct Credit Substitutes, Trade and Performance Related Items and Commitments as no secondary market exists.

45


43 Capital Adequacy

Regulatory Changes - Basel II

>>> Capital must not be less than NZ$15m

The objective of the Basel II Framework is to develop capital adequacy guidelines that are more accurately aligned with the individual risk profile ofbanks. Basel II consists of three pillars: Pillar One covers capital requirements for banks for credit, operational, and market risks; Pillar Two covers allother material risks not already included in Pillar One; and Pillar Three relates to market disclosure. Pillar Three has resulted in increased disclosuresin the General Disclosure Statement of ASB Bank Limited from 31 March 2008. However, under RBNZ Orders in Council, CBA New Zealand Branchwill continue to report under the previous Basel framework ("Basel I" approach) and there will be little change to the disclosures in the BankingGroup's General Disclosure Statement.

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 exposuresTier One Capital must not be less than 4% of risk weighted exposures

Capital Management Policies

The Banking Group’s objectives for the management of capital adequacy are to comply at all times with the regulatory capital requirements set by theRBNZ; to maintain a strong capital base to cover the inherent risks of the business in excess of that required by rating agencies to maintain theinvestment credit gradings within the group; and to support the future development and growth of the business to maximise shareholders’ value.

Regulatory capital is divided into Tier One and Tier Two Capital. Tier One Capital primarily consists of Shareholder’s Equity and other capitalinstruments acceptable to the RBNZ, less Intangible Assets and other prescribed deductions. Tier Two Capital consists of two levels, with Upper TierTwo Capital comprising Asset Revaluation Reserves and Lower Tier Two Capital comprising Subordinated Debt. Tier Two Capital also includes otherhybrid and debt instruments acceptable to the RBNZ and is subject to prescribed deductions. The tangible element of investments in subsidiaries thatare not wholly owned or funded is deducted from the sum of Tier One and Tier Two Capital to arrive at Total Regulatory Capital.

The Capital Adequacy table on page 52 summarises the capital adequacy ratios for the Overseas Banking Group as at 30 June 2008. Risk WeightedExposures for the Banking Group are set out on the following pages. During the year ended 30 June 2008 and the comparative period shown, theBanking Group complied with all of the RBNZ capital requirements to which it is subject. No changes have been made to the Board approved levelsof regulatory capital to be held during the year for either ASB Bank Limited or CBA. However, ASB Bank Limited internal capital risk models andmeasures have been reviewed in connection with implementation of the new regulatory capital adequacy regime commencing in 2008 as part of theRBNZ implementation of Basel II capital requirements.

The Boards of Directors for ASB Bank Limited and CBA (the Overseas Bank) have ultimate responsibility for capital adequacy, and approve capitalpolicy and minimum capital levels and limits. These are typically at a higher level than required by the regulator to reduce the risk of breachingconditions of registration. ASB Bank Limited and CBA each operate an Asset and Liability Management Committee (“ALCO”) that actively monitorsthe respective capital adequacy, and reports this on a regular basis to senior management and the respective Board risk committees. This includesforecasting capital requirements so that any capital requirements can be executed in a timely manner. The capital adequacy process considers otherstakeholder requirements (including rating agencies and taxation requirements), and uses a mix of capital instruments to reduce single sourcereliance and to optimise capital efficiency.

The conditions of registration with which CBA New Zealand Branch must comply are set out on pages 3-4.

The Basel Committee has issued a revised framework for the calculation of capital adequacy for banks, commonly known as Basel II. The ASBBanking Group was accredited by the RBNZ to adopt the internal ratings based approach for calculating regulatory capital requirements under Basel IIfrom the first quarter of 2008. The Overseas Bank, CBA has also been accredited by APRA to calculate regulatory capital under Basel II from 2008.

Under the Basel II internal models based approach, Risk Weighted Exposures represent risks associated with the Banking Group's Credit RiskExposures, as well as operational risk and both traded and non-traded market risk, estimated in accordance with RBNZ banking supervisionguidelines.

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 Limitedand its subsidiaries (the “ASB Banking Group”), and another for the New Zealand branch of CBA (the Registered Bank for the purposes of thisdisclosure statement). The RBNZ registration requirements set out, among other things, minimum regulatory capital requirements for banks that areconsistent with the internationally agreed framework developed by the Basel Committee on Banking Supervision. These capital requirements definewhat is acceptable as qualifying regulatory capital and provide for methods of measuring the risks incurred. The ASB Banking Group and CBA NewZealand Branch must comply with RBNZ registration requirements, including any minimum capital adequacy ratios under the Conditions ofRegistration for each respective banking licence.

Regulatory capital adequacy ratios are calculated by expressing capital (Tier One, Tier Two or Total Capital) as a percentage of Risk WeightedExposures.

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 riskweightings may not be consistent with the loss experience of the Banking Group. In addition there are RBNZ banking supervision guidelines forstandard market risk measurement and disclosure for both traded and non traded banking assets.

46


43 Capital Adequacy (continued)

RISK WEIGHTED EXPOSURES

As at 30 June 2008

RiskPrincipal Risk WeightedAmount Weight Exposure

$ millions % $ millions

Balance Sheet ExposuresCash and Short Term Claims on Government 2,349 - - Long Term Claims on Government 677 10 68Claims on Banks 3,839 20 768Claims on Public Sector Entities 221 20 44Claims Secured by Residential Mortgages 36,437 50 18,219Other 21,217 100 21,217Non-risk Weighted Assets 1,252 - - Total Balance Sheet Exposures 65,992 40,316(excludes Intangible Assets and Goodwill)

Credit Credit Average RiskPrincipal Conversion Equivalent Counterparty WeightedAmount Factor Amount Risk Weight Exposure

$ millions % $ millions % $ millions

Off Balance Sheet ExposuresDirect Credit Substitutes 209 100 209 100 209Commitments with Certain Drawdown 1,088 100 1,088 60 654Underwriting and Sub-underwriting Facilities 1 50 1 100 1Transaction Related Contingent Items 83 50 42 100 42Short Term, Self-liquidating Trade Related Contingencies 20 20 4 100 4

One Year or More 2,230 50 1,115 100 1,115 Less Than One Year or Can Be Cancelled at Any Time 7,388 - - - -

Market Related Contracts (Current Exposure):Foreign Exchange Contracts 27,638 4 1,199 25 300Interest Rate Contracts 122,306 1 807 22 181Other 27 26 7 100 7

Total Off Balance Sheet Exposures 2,513

Total Risk Weighted Exposures 42,829

Banking Group

Other Commitments to Provide Financial Services with Original Maturity of:

47



RISK WEIGHTED EXPOSURES (continued)

As at 30 June 2007



Balance Sheet ExposuresCash and Short Term Claims on Government 3,538 - - Long Term Claims on Government 196 10 20Claims on Banks 2,780 20 555Claims on Public Sector Entities 192 20 38Claims Secured by Residential Mortgages 33,300 50 16,650Other 17,431 100 17,431Non-risk Weighted Assets 784 - - Total Balance Sheet Exposures 58,221 34,694(excludes Intangible Assets and Goodwill)



Off Balance Sheet ExposuresDirect Credit Substitutes 160 100 160 100 160Commitments with Certain Drawdown 1,427 100 1,427 60 859Underwriting and Sub-underwriting Facilities 7 50 4 100 4Transaction Related Contingent Items 53 50 27 100 27Short Term, Self-liquidating Trade Related Contingencies 27 20 5 100 5

One Year or More 1,554 50 777 100 777 Less Than One Year or Can Be Cancelled at Any Time 7,243 - - - -

Market Related Contracts (Current Exposure):Foreign Exchange Contracts 24,058 3.8 911 28 257Interest Rate Contracts 77,003 1.1 831 23 187Other 25 8.0 2 100 2

Total Off Balance Sheet Exposures 2,278


Banking Group

Other Commitments to Provide Financial Services with Original Maturity of:

48




As at 30 June 2008



Balance Sheet ExposuresCash and Short Term Claims on Government 499 - - Claims on Banks 3,738 20 748Other 6,623 100 6,623Non-risk Weighted Assets 268 - - Total Balance Sheet Exposures 11,128 7,371



Off Balance Sheet ExposuresOther Commitments to Provide Financial Services with Original Maturity of:

One Year or More 1,763 50 881 100 881 Less Than One Year or Can Be Cancelled at Any Time 634 - - - -

Market Related Contracts (Current Exposure):Foreign Exchange Contracts 4,776 5 239 29 69Interest Rate Contracts 1,978 1 11 29 3

Total Off Balance Sheet Exposures 953


Registered Bank

49




As at 30 June 2007



Balance Sheet ExposuresCash and Short Term Claims on Government 344 - - Claims on Banks 3,694 20 739Other 5,591 100 5,591Non-risk Weighted Assets - - - Total Balance Sheet Exposures 9,629 6,330



Off Balance Sheet ExposuresOther Commitments to Provide Financial Services with Original Maturity of:

One Year or More 1,317 50 659 100 659 Less Than One Year or Can Be Cancelled at Any Time 995 - - - -

Market Related Contracts (Current Exposure):Foreign Exchange Contracts 4,455 7.0 313 30 95Interest Rate Contracts 1,913 2.2 43 37 16

Total Off Balance Sheet Exposures 770


Registered Bank

50



RESIDENTIAL MORTGAGES BY LOAN-TO-VALUATION RATIO ("LVR")

$millionsAs at 30 June 2008

LVR Range 0%-59% 60%-69% 70%-79% 80%-89% 90%-100% Total

Value of Exposures 12,794 7,766 14,215 4,627 1,641 41,043

Expressed as a Percentage of Total Exposures 31.2% 18.9% 34.6% 11.3% 4.0% 100%

Percentage of Exposures: with 100% LMI 1.0% 0.8% 1.0% 0.5% 0.1% 0.8% with top 20% LMI 5.1% 7.7% 7.5% 23.3% 26.6% 9.3%

MARKET RISK EXPOSURE

Exposures as at 30 JuneInterest Foreign Interest Foreign

Rate Currency Equity Rate Currency Equity$ millions Risk Risk Risk Risk Risk Risk

Implied Risk-weighted Exposure 2,313 213 36 1,263 88 -

Notional Capital Charge 185 17 3 101 7 -

Notional Capital Charge as a % of Overseas Banking Group's Balance Date Equity 0.7% 0.1% 0.0% 0.4% 0.0% 0.0%

Interest Foreign Interest ForeignRate Currency Equity Rate Currency Equity

$ millions Risk Risk Risk Risk Risk Risk

Implied Risk-weighted Exposure 2,613 350 38 1,263 125 -

Notional Capital Charge 209 28 3 101 10 -

Notional Capital Charge as a % of Overseas Banking Group's Balance Date Equity 0.8% 0.1% 0.0% 0.4% 0.0% 0.0%

2008 2007

LVR data has been derived in accordance with the RBNZ Capital Adequacy Framework The Standardised Approach (BS2A). Exposures compriseBalance Sheet claims secured by residential mortgages and undrawn commitments that when drawn down will be secured by mortgage overresidential property.

Banking Group

Certain loans within the above table are insured by third parties. Exposures with Lender's Mortgage Insurance ("LMI") within each LVR range are setout below.

Market Risk Exposures have been prepared on the basis of actual exposures derived in accordance with the process prescribed by the RBNZ. TheMarket Risk Methodology is intended to attribute a dollar value amount to the market risk to which a registered bank is exposed.

Banking Group

Banking GroupPeak Exposures for Three Months ended 30 June

2008 2007

51



CAPITAL ADEQUACY OF OVERSEAS BANK

$ millions Basel II Basel I Basel II Basel IAs at 30 June 2008 2007 2008 2007

Tier One Capital as a % of Risk Weighted Exposures 8.4% 7.1% 8.2% 7.1%Minimum Tier One Capital (%) required by APRA 4.0% 4.0% 4.0% 4.0%

Total Capital as a % of Risk Weighted Exposures 10.3% 10.5% 11.6% 9.8%Minimum Total Capital (%) required by APRA 8.0% 8.0% 8.0% 8.0%

44 Securitisation, Funds Management, Other Fiduciary Activities and the Marketing and Distribution of Insurance Products

Securitisation, Funds Management and Other Fiduciary Activities

Insurance Business, Marketing and Distribution of Insurance Products

Risk Management

>

>

–––

>

>–––

> Application forms for funds management products contain acknowledgements to be signed by a purchaser which are consistent with thedisclosures for funds management products noted above.

Application forms for insurance products contain acknowledgements to be signed by a purchaser which are consistent with the disclosures forinsurance products noted above.

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; andASB Bank Limited and its subsidiaries do not guarantee the capital value or performance of the policies.

that the securities are subject to investment risk including possible loss of income and principal invested; andthat ASB Bank Limited does not guarantee the capital value or performance of the securities.

The Banking Group does not conduct any insurance business. However, general and life insurance products are marketed through ASB Bank Limited'sbranch network. The life insurance products are underwritten by Sovereign Assurance Company Limited, a 100% owned subsidiary of ASB Group (Life)Limited.

The Banking Group provides limited custodial services relating to holding interest bearing instruments and equity securities on behalf of clients.

ASB Bank Limited markets and distributes Funds Management products which are issued by ASB Group Investments Limited, a 100% ownedsubsidiary of ASB Group (Life) Limited. Funds Under Management distributed by ASB Bank Limited totalled $1,900m as at 30 June 2008 (30 June2007 $2,241m). ASB Bank Limited provides banking services for trusts managed or administered by ASB Group Investments Limited and sells financialassets to some of the trusts.

that the securities do not represent deposits or other liabilities of ASB Bank Limited;Prospectuses, investment statements and brochures for funds management products include disclosures:

The Banking Group has in place policies and procedures to ensure that the activities identified above are conducted in an appropriate manner. Shouldadverse conditions arise, it is considered that the Banking Group's policies and procedures will minimise the possibility that these conditions willadversely 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 notguarantee 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 includedisclosures that:

In addition, the following measures have been taken to manage any risk to ASB Bank Limited of marketing and distributing fund management products:

The Overseas Bank is Commonwealth Bank of Australia ("CBA"). The Overseas Banking Group is CBA and the various companies and otherworldwide 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 2008.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 theaccreditation to take effect from 1 July 2008.

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 (www.commbank.com.au), with the aim of allowing the market to betterassess the Overseas Banking Group’s risk and reward assessment process.

(1) June 2008 regulatory capital is calculated in accordance with Basel II rules and methodology which was effective from 1 January 2008. The Basel IIratios quoted in the table above do not make allowance for interest rate risk in the banking book, which is not effective until 1 July 2008. The June 2007regulatory capital is reported in accordance with Basel I rules and methodology.

Overseas Bank Overseas Banking Group

The Overseas Bank and the Overseas Banking Group's Capital Ratios (1) throughout the 2007 and 2008 financial years exceeded both APRA minimumcapital adequacy requirements.

52


45 Financial Reporting by Segments

$ millions Retail Relationship Wholesale Other Unallocated Total

Primary Segment Information: Business

As at 30 June 2008

Total Operating Income 649 417 161 123 - 1,350Net Profit before Taxation 307 319 127 (45) - 708

Total Assets 32,892 24,346 8,035 976 74 66,323Total Liabilities 21,436 9,346 28,055 3,881 195 62,913

46 14 4 3 - 67Depreciation and Amortisation Expense 35 8 2 3 - 48

As at 30 June 2007

Total Operating Income 614 349 123 274 - 1,360Net Profit before Taxation 297 246 109 152 - 804

Total Assets 29,911 20,062 7,816 603 140 58,532Total Liabilities 18,730 7,604 26,397 2,723 342 55,796

40 13 3 1 - 57Depreciation and Amortisation Expense 30 8 1 1 - 40

Secondary Segment Information: Geographical

Banking Group

Acquisition of Property, Plant and Equipmentand Intangible Assets

The Relationship Banking Segment provides services to commercial, business, corporate, institutional and rural

The Wholesale Banking Segment incorporates transactions booked through ASB Bank Limited's Treasury and FinancialMarkets Division, including financial instruments trading, foreign currency transactions, debt issues and Certificates ofDeposit, and structured financing.

The Retail Banking Segment provides services to private individuals. Its range of products includes loans and deposits,current accounts and credit cards.

Acquisition of Property, Plant and Equipmentand Intangible Assets

Retail Banking:

Relationship Banking:Wholesale Banking:

Other: The Other Segment comprises other operations, none of which constitutes a separately reportable segment.

The Banking Group operates predominantly in the banking industry within New Zealand. The Banking Group has very limited exposure to risksassociated with operating in different economic environments or political conditions. On this basis no geographical segment information is provided.

Operating Income in each segment includes transfer pricing adjustments to reflect intersegment funding arrangements. Intersegment pricing isdetermined on an arm's length basis. Charges are eliminated within the Banking Group.

Unallocated: Income Tax Assets and Liabilities.

53


46 Risk Management Policies

Introduction

The following sections describe the risk management framework components.

Credit Risk

Market risk

Traded Market Risk

VaR at 97.5% confidence level

$ millions

As at 30 June

Interest Rate Risk 0.69 0.43Exchange Rate Risk 0.16 0.13Diversification Benefit (0.11) (0.10)

Total Market Risk 0.74 0.46

In the trading book VaR is used to capture interest rate, exchange rate, volatility, equity and commodities risk. VaR is calculated using a historicsimulation model with 520 days of data over a 1-day holding period, at a 97.5% confidence interval.

2008 2007

Banking Group

Average VaR

The Banking Group is committed to the management of risk to achieve sustainability of service, employment and profits, and therefore, takes oncontrolled amounts of risk when considered appropriate. The risk management framework identifies, assesses, manages and reports risk and riskadjusted returns using an economic equity framework. This is targeted at ensuring that the Banking Group has sufficient capital to maintain aninvestment credit grading.

The risk management strategy of ASB Bank Limited is set by its Board of Directors through the Board Risk Committee. All of the Directors aremembers of the Board Risk Committee, which is chaired by the Chairman of the Board. Implementation of risk management strategy is theresponsibility of the Managing Director and is facilitated through formal executive committee forums for credit, market and operational risk. The Headof Group Finance and Risk Management has day-to-day responsibility for the management of risk across ASB Bank Limited.

The Banking Group has management structures and information systems to manage individual risks. Risk initiation and monitoring tasks areseparated where feasible, and all material systems are subjected to regular internal audit. Periodic reviews of all risk management systems areundertaken by internal audit and, in respect of market risk, by CBA.

The Banking Group's external auditor may also review parts of the Banking Group's risk management framework that impact on significant aspects ofthe 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 BankingGroup's annual results. With effect from the financial year beginning 1 July 2007 the Banking Group's external auditor has changed from Ernst &Young to PricewaterhouseCoopers.

The primary risks are those of credit, liquidity / funding, market (price, interest rate, foreign exchange) and operational risk.

CBA has in place an integrated risk management framework to identify, assess, manage and report risks and risk adjusted returns on a consistentand 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.

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.

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.

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 Tradingbook is carried out and reported on a weekly basis. Stress tests capture a range of scenarios plus the VaR basis on 5 years of price data.

The following table provides a summary of VaR by risk type for the trading book.

Market risk arises from the mismatch between assets and liabilities, both on and off balance sheet, and from controlled trading undertaken in pursuitof profit. The Banking Group is exposed to diverse financial markets including interest rates, foreign currencies, equities and commodities, andtransacts 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 forTreasury and Financial Markets trading activities, and for the ASB Bank Limited's balance sheet management.

For the purposes of market risk management, ASB Bank Limited makes a distinction between traded and non-traded market risks. Traded marketrisk covers market risk arising from trading activity. Non-traded market risk covers market risks related to balance sheet management which ispredominantly interest rate risk.

Market risk includes liquidity, funding, price, interest rate, foreign exchange and equity risk. Details of the Banking Group’s policies for management ofthese risks are set out below.

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 itsholdings of financial instruments.

ASB Bank Limited uses Value-at-Risk (VaR) models as the principal measure of market risk in both the traded and non-traded portfolios. For thetrading risk actual results are back tested to check the validity of the VaR model. In addition, because the VaR model cannot encompass all possibleoutcomes, tests covering a variety of stress scenarios are regularly performed to simulate the effect of extreme market conditions.

54


46 Risk Management Policies (continued)

(a)

Percentage of NIE 30-Jun-08 30-Jun-07

Exposure at End of Period 2.10% 0.45%Past 12 Month Exposure - Average 0.98% 0.50%Past 12 Month Exposure - High 2.11% 0.74%Past 12 Month Exposure - Low 0.27% 0.17%

(b) Economic VaR

$ millions 30-Jun-08 30-Jun-07

Exposure at End of Period 3.8 4.3 Past 12 Month VaR (97.5 percentile) - Average 4.0 2.6 Past 12 Month VaR (97.5 percentile) - High 6.5 4.3 Past 12 Month VaR (97.5 percentile) - Low 2.2 1.1

Some of the Banking Group’s assets and liabilities have interest rate risk that is not fully captured within a measure of risk to the next 12 monthsearnings. To measure this longer-term sensitivity, ASB Bank Limited utilises an economic VaR analysis. This analysis measures the potentialchange in the net present value of cash flows of assets and liabilities. Cash flows for fixed rate products are included on a contractual basis,after adjustment for forecast prepayment activities. Cash flows for products repriced at the discretion of the Banking Group are based on theexpected 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 ratescenarios are based on actual interest rate movements that have occurred over a six year historical observation period. The measured VaRexposure 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 heldunchanged for a one month holding period. For example, VaR exposure of $1m means that in 97.5 cases out of 100, the expected net presentvalue 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 future earnings due to interestrate change calculated to a 97.5% percentile basis for the remaining term of all existing Banking Book assets and liabilities.

Risk associated with ASB Bank Limited's Balance Sheet is monitored daily by its Treasury and Financial Markets Division and monthly by the MarketRisk Committee. Gap analysis and gap limits provide the day-to-day management tool, while regular simulation of Banking Group activity and analysisof expected maximum changes in market value as a percentage of capital provide the key management information and limits.

Two major limits are imposed. The sensitivity to interest rate changes must be such that expected net interest earnings under different interest ratescenarios remain within a set percentage of the central forecast and, similarly, expected maximum market value changes remain within a setpercentage of capital. These limits are set by ASB Bank Limited's Board of Directors and are monitored by the Market Risk Committee. The methodsof calculating exposures under these limits is discussed in more detail below.

Next 12 Months' EarningsThe 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 monthlybasis. Risk is measured assuming an immediate 1% parallel movement in interest rates across the whole yield curve. Potential variations inNIE 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 onthe other assets and liabilities (those priced at the discretion of the Banking Group) is measured by taking into account both the manner in whichthe products have repriced in the past, as well as the expected change in price based on the current competitive market environment.

The figures in the following table express current and historic exposure of a 1% parallel shock to NIE as a percentage of average forecast NIEfor a 12 month period.

Cash flow interest rate risk is the potential for a change in interest rates to change net interest earnings, in the current reporting period and in futureyears. Fair value interest rate risk arises from the potential for a change in interest rates to cause a fluctuation in the fair value of financialinstruments. Interest rate risk arises from the structure and characteristics of the Banking Group's assets, liabilities and equity, and in the mismatch ofrepricing dates of its assets and liabilities. The Banking Group's objective is to manage interest rate risk to achieve stable and sustainable net interestearnings in the long term.

The Banking Group reduces interest rate risk by seeking to match the repricing characteristics of its assets and liabilities. This is achieved bychanging the mix of assets and liabilities through marketing and pricing initiatives, by buying and selling long term securities, and through the use ofderivatives such as interest rate swaps and forward rate agreements. In managing this risk, ASB Bank Limited seeks to achieve a balance betweenreducing risk to earnings and market value from adverse interest rate movements, and enhancing net interest income through correct anticipation ofthe direction and extent of interest rate changes.

Non-traded Market Risk - Interest Rate Risk in the Banking BookASB Bank Limited manages all non-traded market risk for the Banking Group, which covers all non-traded products (the Banking Book).

Overall strategic direction is provided by the Market Risk Committee which meets monthly. On a day-to-day basis, interest rate risk is monitored andmanaged within the Treasury and Financial Markets Division of ASB Bank Limited.

Future net interest earnings are regularly estimated employing existing interest rates, rates 1% above and below current levels and rates based onhistorical rate analysis. ASB Bank Limited manages the known and assumed repricing characteristics of its assets and liabilities as well as futurecommitments to put the Banking Group in a position to benefit from anticipated interest rate movements and to limit the risk of adverse interest ratemovements.

Repricing mismatches and the simulation results on the market value of ASB Bank Limited’s assets and liabilities, including derivatives, are reportedmonthly by management to the Market Risk Committee and the Board Risk Committee, along with associated limits.

The Banking Group measures and manages Balance Sheet interest risk from two perspectives:

55



Interest Rate Repricing Schedule

Within Between Between Between Over Non-6 6-12 1-2 2-5 5 interest

$ millions Months Months Years Years Years Bearing Total

As at 30 June 2008

AssetsCash and Call Deposits with the Central Bank 1,076 - - - - 79 1,155Due from Other Banks 637 - - - - - 637Money Market Advances 1,168 38 8 8 1 - 1,223Securities 2,920 566 851 922 89 54 5,402Derivative Assets - - - - - 1,249 1,249Advances to Customers 24,040 8,043 10,775 11,503 1,534 (122) 55,773Other Assets - - - - - 884 884Total Assets 29,841 8,647 11,634 12,433 1,624 2,144 66,323

LiabilitiesDue to Other Banks 7,800 - - - - - 7,800Money Market Deposits 16,358 1,590 1,009 940 10 133 20,040Derivative Liabilities - - - - - 1,193 1,193Deposits from Customers 22,499 2,874 457 272 - 1,719 27,821Other Liabilities - - - - - 930 930Subordinated Debt 2,838 - - 570 1,712 9 5,129Total Liabilities 49,495 4,464 1,466 1,782 1,722 3,984 62,913

Lending Commitments (87) 77 494 234 27Net Derivative Notional Principals 19,303 (3,446) (8,517) (8,760) 1,421

As at 30 June 2007

AssetsCash and Call Deposits with the Central Bank 2,998 - - - - 15 3,013Due from Other Banks 1,071 - - - - - 1,071Money Market Advances 2,222 29 7 6 - - 2,264Securities 1,889 444 37 309 64 23 2,766Derivative Assets - - - - - 790 790Advances to Customers 18,691 5,629 11,371 12,166 16 (97) 47,776Other Assets - - - - - 852 852Total Assets 26,871 6,102 11,415 12,481 80 1,583 58,532

LiabilitiesDue to Other Banks 7,039 - - - - - 7,039Money Market Deposits 14,689 1,322 161 593 21 37 16,823Derivative Liabilities - - - - - 1,589 1,589Deposits from Customers 20,254 2,111 125 81 - 1,928 24,499Other Liabilities - - - - - 909 909Subordinated Debt 3,145 - - 200 1,591 1 4,937Total Liabilities 45,127 3,433 286 874 1,612 4,464 55,796

Lending Commitments (146) 51 276 887 230Net Derivative Notional Principals 21,267 (2,953) (9,391) (10,359) 1,436

The following tables include the Banking Group's assets and liabilities at their carrying amounts, categorised by the earlier of contractual repricing ormaturity dates. The carrying amounts of derivative financial instruments, which are principally used to reduce the Banking Group's exposure tointerest rate movements, are included under the heading "Non-interest Bearing".

Banking Group

56



Interest Rate Repricing Schedule (continued)

Within Between Between Between Over Non-6 6-12 1-2 2-5 5 interest

$ millions Months Months Years Years Years Bearing Total

As at 30 June 2008

AssetsCash and Call Deposits with the Central Bank 59 - - - - - 59Due from Other Banks 3,738 - - - - - 3,738Securities 440 - - - - - 440Derivative Assets - - - - - 268 268Advances to Customers 6,489 3 4 5 42 (13) 6,530Other Assets - - - - - 93 93Total Assets 10,726 3 4 5 42 348 11,128

LiabilitiesDue to Other Banks 5,341 - - - - - 5,341Money Market Deposits - - - - - - - Derivative Liabilities - - - - - 450 450Deposits from Customers 846 5 - - - - 851Other Liabilities - - - - - 78 78Subordinated Debt 2,424 - - - 1,712 - 4,136Total Liabilities 8,611 5 - - 1,712 528 10,856

Net Derivative Notional Principals (665) - (3) (3) 671

As at 30 June 2007

AssetsCash and Call Deposits with the Central Bank - - - - - 15 15Due from Other Banks 3,694 - - - - - 3,694Securities 329 - - - - - 329Derivative Assets - - - - - - - Advances to Customers 5,510 8 1 - - (6) 5,513Other Assets - - - - - 78 78Total Assets 9,533 8 1 - - 87 9,629

LiabilitiesDue to Other Banks 4,201 - - - - - 4,201Money Market Deposits - - - - - - - Derivative Liabilities - - - - - 605 605Deposits from Customers 830 4 - - - - 834Other Liabilities - - - - - 38 38Subordinated Debt 2,115 - - - 1,588 - 3,703Total Liabilities 7,146 4 - - 1,588 643 9,381

Net Derivative Notional Principals (1,625) - - - 1,625

Registered Bank

57



>>>

As at 30 June 2008 2007$ millions

Total Liquid Assets 6,758 6,582 Total Liquid Assets Expressed as a Percentage of Total General Liabilities 11.12% 13.27%

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.

The key liquidity measures are described below:

Liquidity Risk

The table below shows the key liquidity measures as at the end of the period.

Run-Off Risk is calculated based on estimates of investor behaviour in a crisis scenario. Funding is weighted to reflect the sensitivity of differentclasses 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 groupsfalling to 5% for some retail funds. Additional liquid asset requirements are added to allow for undrawn commitments to lend based upon thelikelihood of drawdown.

ASB Bank Limited and the Registered Bank monitor liquidity risk primarily by forecasting future daily cash requirements. To provide for anyunexpected patterns in cash movements, ASB Bank Limited and the Registered Bank hold a pool of readily tradable investment assets anddeposits 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 offshorefunding, as well as on the amount of wholesale funding that may mature in any period.

ASB Bank Limited and the Registered Bank's methodology requires that qualifying liquid assets are greater than the Run-Off Risk of funding andcommitments, with a minimum holding of qualifying liquid assets of 10% of general liabilities.

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 :

Qualifying liquid assets are of high credit quality and include short term cash held with the RBNZ or other banks, government securities and othersecurities that are readily acceptable in Repurchase agreements with the RBNZ and other New Zealand banks, prime corporate bonds and shortterm paper and assets issued by offshore Supranationals and highly rated banks.

58



Within Between Between Between OverAt 6 6-12 1-2 2-5 5 Carrying

$ millions Call Months Months Years Years Years Total Value

As at 30 June 2008

Financial AssetsCash and Call Deposits with the Central Bank 1,155 - - - - - 1,155 1,155Due from Other Banks 44 600 - - - - 644 637Money Market Advances 43 1,132 39 10 10 - 1,234 1,223Securities - 2,864 685 1,042 1,150 534 6,275 5,402Derivative Assets - 949 36 54 53 - 1,092 1,249Advances to Customers 2,159 13,496 2,039 5,437 11,359 59,368 93,858 55,773Other Assets - 71 2 - - - 73 320Total Financial Assets 3,401 19,112 2,801 6,543 12,572 59,902 104,331 65,759

Financial LiabilitiesDue to Other Banks 633 5,543 36 145 1,390 826 8,573 7,800Money Market Deposits 2,543 10,686 2,211 1,959 3,103 49 20,551 20,040Derivative Liabilities - 42 867 35 9 37 990 1,193Deposits from Customers 10,312 13,461 3,546 494 284 - 28,097 27,821Other Liabilities - 224 94 - - - 318 735Subordinated Debt - 87 245 333 499 9,588 10,752 5,129Total Financial Liabilities 13,488 30,043 6,999 2,966 5,285 10,500 69,281 62,718

As at 30 June 2007

Financial AssetsCash and Call Deposits with the Central Bank 3,013 - - - - - 3,013 3,013Due from Other Banks 54 1,035 - - - - 1,089 1,071Money Market Advances 66 2,178 30 8 8 - 2,290 2,264Securities - 1,729 496 189 357 247 3,018 2,766Derivative Assets - 96 67 6 36 29 234 790Advances to Customers 1,864 9,126 2,111 4,868 8,878 54,579 81,426 47,776Other Assets - 53 5 2 2 1 63 242Total Financial Assets 4,997 14,217 2,709 5,073 9,281 54,856 91,133 57,922

Financial LiabilitiesDue to Other Banks 665 4,220 1,002 871 42 637 7,437 7,039Money Market Deposits 2,767 9,897 1,582 835 2,098 37 17,216 16,823Derivative Liabilities - 470 109 74 58 537 1,248 1,589Deposits from Customers 10,023 12,297 2,132 134 85 - 24,671 24,499Other Liabilities - 95 34 - - - 129 567Subordinated Debt - 81 108 340 1,214 8,170 9,913 4,937Total Financial Liabilities 13,455 27,060 4,967 2,254 3,497 9,381 60,614 55,454

Maturity Analysis for Undiscounted Contractual Cash flows

Banking Group

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.

59



Within Between Between Between OverAt 6 6-12 1-2 2-5 5 Carrying

$ millions Call Months Months Years Years Years Total Value

As at 30 June 2008

Financial AssetsCash and Call Deposits with the Central Bank 59 - - - - - 59 59Due from Other Banks 9 817 915 184 276 2,833 5,034 3,738Securities - 440 - - - - 440 440Derivative Assets - 664 - - - - 664 268Advances to Customers 659 5,251 19 69 750 2 6,750 6,530Other Assets - - - - - - - 81Total Financial Assets 727 7,172 934 253 1,026 2,835 12,947 11,116

Financial LiabilitiesDue to Other Banks - 5,040 8 31 46 498 5,623 5,341Money Market Deposits - - - - - - - - Derivative Liabilities - - 860 - - 37 897 450Deposits from Customers - 160 17 49 74 3,046 3,346 851Other Liabilities - 2 - - - - 2 78Subordinated Debt - 66 66 265 397 8,159 8,953 4,136Total Financial Liabilities - 5,268 951 345 517 11,740 18,821 10,856

As at 30 June 2007

Financial AssetsCash and Call Deposits with the Central Bank 15 - - - - - 15 15Due from Other Banks 9 76 76 1,798 261 2,858 5,078 3,694Money Market Advances - - - - - - - - Securities - 332 - - - - 332 329Derivative Assets - - - - - - - - Advances to Customers 500 4,015 388 59 746 - 5,708 5,513Other Assets - - 1 - - - 1 67Total Financial Assets 524 4,423 465 1,857 1,007 2,858 11,134 9,618

Financial LiabilitiesDue to Other Banks - 3,874 7 28 42 511 4,462 4,201Money Market Deposits - - - - - - - - Derivative Liabilities - 20 - 33 - 537 590 605Deposits from Customers - 145 18 55 83 3,327 3,628 834Other Liabilities - - 3 - - - 3 38Subordinated Debt - 55 55 221 331 7,617 8,279 3,703Total Financial Liabilities - 4,094 83 337 456 11,992 16,962 9,381

Registered Bank

Maturity Analysis for Undiscounted Contractual Cash flows (continued)

60



Deposits at Other Total Deposits at Other Total$ millions Fair Value Funding Funding Fair Value Funding Funding

As at 30 June 2008

Agricultural, Forestry and Fishing 40 760 800 - - - Government and Public Authorities 368 301 669 - - - Financial, Investments and Insurance 14,417 20,008 34,425 - 10,206 10,206Utilities 38 88 126 - 2 2Transport and Storage 37 74 111 - - - Personal 1,410 20,866 22,276 - - - Other Commercial and Industrial 539 1,844 2,383 - 120 120Total Funding by Industry 16,849 43,941 60,790 - 10,328 10,328

New Zealand 6,964 30,037 37,001 - 224 224Overseas 9,885 13,904 23,789 - 10,104 10,104Total Funding by Geographic Region 16,849 43,941 60,790 - 10,328 10,328

As at 30 June 2007

Agricultural, Forestry and Fishing 33 463 496 - - - Government and Public Authorities 504 269 773 - - - Financial, Investments and Insurance 10,990 19,286 30,276 - 8,638 8,638Utilities 52 63 115 - 27 27Transport and Storage 263 129 392 - 53 53Personal 1,232 18,016 19,248 - - - Other Commercial and Industrial 524 1,474 1,998 - 20 20Total Funding by Industry 13,598 39,700 53,298 - 8,738 8,738

New Zealand 5,603 22,585 28,188 - 834 834Overseas 7,995 17,115 25,110 - 7,904 7,904Total Funding by Geographic Region 13,598 39,700 53,298 - 8,738 8,738



Concentrations of Funding

The following tables present the Banking Group's Concentrations of Funding which are reported by industry and geographic region. Total Fundingcomprises 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.




61



Price Risk

Material Foreign Currency Balances

Net Open Net OpenExchange Fair Amortised Fair Amortised Position Fair Amortised Fair Amortised Position

Rate Value Cost Value Cost NZ $m Value Cost Value Cost NZ $m

As at 30 June 2008

US Dollar 0.7630 340 607 8,941 1,902 3 - 264 - 1,902 - Australian Dollar 0.7929 47 440 2,631 2,816 (2) - 447 - 2,864 - Sterling 0.3827 7 - 1,104 - - - - - - - Japanese Yen 80.9407 493 2 981 - (209) - 2 - 2 - EURO 0.4833 571 70 2,226 61 - - 70 - 70 - Canadian Dollar 0.7702 56 - 38 - - - - - - - Swiss Franc 0.7765 2 - 989 - - - - - - -

As at 30 June 2007

US Dollar 0.7692 652 598 4,967 1,807 1 - 245 - 1,840 - 0.9063 65 186 951 2,285 (1) - 186 - 2,294 -

Sterling 0.3841 42 - 1,060 - (2) - - - - - Japanese Yen 94.9602 5 1 672 - - - 1 - 1 - EURO 0.5721 688 44 1,706 35 (1) - 44 - 44 - Swiss Franc 0.9484 2 - 1,677 - (1) - - - - -

Equity Risk

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 andlending activity in foreign currencies and from offshore funding by the Banking Group.

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 typetraded in the market.

LiabilitiesNZ $m

LiabilitiesNZ $m NZ $m

The material assets and liabilities denominated in foreign currencies recognised in these financial statements, and Net Open Positions are presentedin the tables below:

Registered Bank

ASB Bank Limited monitors and manages this risk through its Treasury and Financial Markets Division. Mismatches, and the contingent riskassociated with any mismatch, are reported daily. Limits, both intra-day and overnight, are set on the basis of past exchange rate volatility to ensurethat 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 within ASB Bank Limited and the Registered Bank separately.

Equity risk results from the repricing of equity investments held by the Banking Group. This is not a material risk to the Banking Group. A formalequity risk policy approved by the Board Risk Committee of ASB Bank Limited is in place, under which trading in equities is not permitted. TheRegistered Bank has no exposure to equity risk.

Banking Group

NZ $m

Australian Dollar

Differences between total monetary assets and total monetary liabilities in individual currencies are covered by contracts with other parties and / or arecontrolled within internal policy limits.

Assets Assets

62



Derivatives

Details of derivatives are shown in Note 14.

Business Continuity Management

Internal Audit

47 Events after the Balance Sheet Date

There are no other events subsequent to the balance date which would materially affect the financial statements.

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.

CBA maintains an independent Internal Audit function which is ultimately accountable to the CBA Board of Directors. CBA's Internal Audit performs asimilar role for the Registered Bank to that of the ASB Bank Limited Internal Audit function.

Internal Audit provides independent opinions on the effectiveness of risk management systems, the framework of controls and governance processeswithin ASB Bank Limited's operations. Operational, compliance and systems audits of all areas of ASB Bank Limited's operations are undertakenbased on an assessment of risk.

A comprehensive BCM programme including plan development, testing and education has been implemented across all business units.

Refer to Note 34 for details of Perpetual Preference Dividends payable to Minority Interests, declared after the balance sheet date.

Refer to Note 17 for changes in the composition of the Banking Group after the balance sheet date.

Operational and Strategic Business Risk

Derivative instruments are contracts whose value is derived from one or more underlying financial instruments or indices defined in the contract. TheBanking Group enters into derivative transactions including swaps, forward rate agreements, futures, options 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 Banking Group's financialmarkets activities. Derivatives are used to manage exposure to market risk.

The Board Audit Committee of ASB Bank Limited meets on a regular basis to consider ASB Bank Limited's financial reporting, internal control andcorporate governance issues. It reviews the interim and annual financial statements, the activities of the internal and external auditors and monitorsthe relationship between management and the external auditors.

The respective business managers of ASB Bank Limited and CBA are responsible for the identification and assessment of these risks and formaintaining appropriate internal controls, and is supported by the Banking Group's governance structures, operational risk frameworks andoperational risk policies.

The operational risk measurement methodology combines expert assessment of individual risk exposures with internal loss data to determine potentialosses and calculate operational risk economic capital.

Business Continuity Management ("BCM") within the Banking Group involves the development, maintenance and testing of action plans to respond todefined 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 operationalrisks that could have a significant impact on the Banking Group's critical processes and revenue streams. It includes both cost-effective responses tomitigate the impact of risk events or disasters and crisis management plans to respond to crisis events.

ASB Bank Limited maintains an independent Internal Audit function which is ultimately accountable to the Board of Directors through the ManagingDirector and the Board Audit Committee.

63


30 June 2008For the year ended

COMMONWEALTH BANK OF AUSTRALIANEW ZEALAND OPERATIONS

PART B

NEW ZEALAND LIFE INSURANCE GROUP

Contents

1 - 4 General Disclosure Statement5 Historical Summary of Aggregated Financial Statements6 Income Statement6 Statement of Recognised Income and Expense7 Balance Sheet

8 - 9 Cash Flow Statement10 - 51 Notes to the Financial Statements10 - 17 1 Statement of Accounting Policies18 - 19 2 Actuarial Policies and Methods

20 3 Net Profit After Taxation20 4 Premium Income20 5 Reinsurance21 6 Investment Income21 7 Other Income22 8 Claims, Surrenders and Maturities

22 - 23 9 Commission and Management Expenses23 10 Auditor's Remuneration24 11 Taxation

24 - 25 12 Imputation and Policyholder Credit Accounts 26 13 Securities 26 14 Cash and Cash Equivalents27 15 Derivative Financial Instruments28 16 Investments in Subsidiaries29 17 Property, Plant and Equipment30 18 Intangible Assets31 19 Trade and Other Receivables

31 - 32 20 Other Assets33 21 Life Insurance Contract Liabilities and Life Investment Contracts34 22 Reinsurance Assets and Liabilities34 23 Deferred Taxation Liability35 24 Borrowings35 25 Trade and Other Payables

35 - 36 26 Provisions36 27 Contributed Capital - Ordinary Shareholder36 28 Contributed Capital - Convertible Notes36 29 Retained Earnings / (Accumulated Losses)36 30 Head Office Contribution

37 - 38 31 Capital Management38 - 39 32 Related Party Transactions and Balances

39 33 Directors and Key Management Personnel39 34 Leasing Commitments39 35 Contingent Liabilities and Capital Commitments40 36 Financial Reporting by Segments41 37 Interest Rate Summary41 38 Fair Value of Financial Instruments not Carried at Fair Value42 39 Asset Quality43 40 Provisions for Impairment Loss43 41 Disaggregated Information

44 - 46 42 Risk Management Policies47 43 Events After Balance Date

47 - 48 44 Sensitivity Analysis48 - 49 45 Material Foreign Currency Balances

49 46 Concentrations of Credit Exposures by Geographic Region50 47 Maturity Analysis of Financial Liabilities51 48 Concentration of Credit Exposures by Individual Counterparties

51 - 52 49 Discontinued Activities53 - 54 Auditor's Report

Commonwealth Bank of Australia New Zealand Life Insurance Group

GENERAL MATTERS

1.0

Commonwealth Bank of Australia New Zealand Branch Level 21, ASB Bank Centre 135 Albert StreetAucklandNew Zealand

2.0 Overseas Bank and Address for Service

Commonwealth Bank of AustraliaLevel 748 Martin PlaceSydneyAustralia

3.0 Guarantee Arrangements

3.1

The Life Group has not published a supplementary disclosure statement because none of the information required to be disclosed appliesto the Life Group.

The Overseas Bank is the Commonwealth Bank of Australia, domiciled in Australia. The Overseas Banking Group is the CommonwealthBank of Australia including subsidiary activities worldwide.

The material obligations of the CBA are not guaranteed.

The Commonwealth Bank of Australia (the "CBA") operates as a public company under the Corporations Act in Australia. It has sharecapital and is governed by a constitution. The CBA was converted from a statutory corporation to a public company on 17 April 1991.

The CBA Group provides a wide range of banking, financial and related services including funds management and life and generalinsurance. The origins of the Bank lie in the former Commonwealth Bank of Australia which was established in 1911 by an Act ofParliament to conduct commercial and savings bank functions. These functions were gradually expanded under continued Governmentownership until September 1991 when the Bank was partially privatised. In July 1996 the Commonwealth Government sold its remainingshareholding in the Bank.

Colonial Holding Company Limited, a member of the Overseas Banking Group, unconditionally and irrevocably guaranteed the repaymentand interest payments, for term borrowings of GBP 70m, with a maturity of December 2007. During the year ended 30 June 2007 the LifeGroup repaid the GBP 70m in full.

General Disclosure Statement

This document comprises the disclosures for the Commonwealth Bank of Australia New Zealand Life Insurance Group (the "Life Group") of theCommonwealth Bank of Australia New Zealand Operations (the "CBA NZ Operations") as at 30 June 2008. This information is published whereapplicable, in accordance with the Registered Bank Disclosure Statement (Full and Half-Year Overseas Incorporated Registered Banks) Order2008 and pursuant to section 81(1) of the Reserve Bank of New Zealand Act 1989.

This document should be read in conjunction with the General Disclosure Statement for Commonwealth Bank of Australia New Zealand BankingGroup (the "Banking Group") of the CBA NZ Operations.

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'swebsite (www.commbank.com.au) in the Shareholder Centre.

Registered Bank and Address for Service

1

4.0 Directors and the New Zealand Chief Executive Officer

4.1 NEW ZEALAND CHIEF EXECUTIVE OFFICER

Name A.J. (Andrew) Woodward, Head of Institutional Banking NZ CBAPrimary Occupation BANK EXECUTIVEResidence Auckland, New ZealandExternal Directorships Nil

4.2 Directors of the Commonwealth Bank of Australia

EXECUTIVE DIRECTOR

Name R.J. (Ralph) Norris DCNZM, FNZIM, FNZCS (Managing Director)

Primary Occupation CHIEF EXECUTIVE OFFICERResidence New South Wales, AustraliaExternal Directorships Nil

INDEPENDENT DIRECTORS

Name J.M. (John) Schubert, BE, PhD, Name C.R. (Colin) Galbraith, LLMFIE Aust, FTS, CP(Eng) (Chairman) LLB (Hons), AM

Primary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTORResidence New South Wales, Australia Residence Victoria, AustraliaExternal Directorships G2 Therapies Limited, BHP Billiton Limited, External Directorships BHP Billiton Community Trust, OneSteel

BHP Billiton Plc, Qantas Airways Limited, Limited, Australian InstituteGreat Barrier Reef Foundation of Company Directors

Name J.S. (Jane) Hemstritch BSc, FCA, FCPA Name R.J. (Reg) Clairs AOPrimary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTORResidence Victoria, Australia Residence Queensland, AustraliaExternal Directorships The Global Foundation, Tabcorp Limited External Directorships David Jones Limited, The Cellnet Group

Name S.C.H. (Carolyn) Kay BA, LLB, FAICD Name F.D. (Fergus) Ryan Primary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTORResidence New South Wales, Australia Residence Victoria, AustraliaExternal Directorships Brambles Industries Limited, External Directorships Australian Foundation Investment Company

Starlight Foundation Limited, Clayton Utz, National Australia DayCouncil, National Library of Australia

Name Sir J.A. (John) Anderson KBE Name H.H. (Harrison) YoungPrimary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTORResidence Wellington, New Zealand Residence Victoria, AustraliaExternal Directorships Television New Zealand, New Zealand External Directorships Florey Neuroscience Institutes

Cricket, International Cricket Council, The Asia Society, AustralAsia Centre,Capital Coast District Health Board The Financial Services Volunteer Corps

Name D.J. (David) Turner FCA Name A.M. (Andrew) MohlPrimary Occupation COMPANY DIRECTOR Primary Occupation COMPANY DIRECTORResidence New South Wales, Australia Residence New South Wales, AustraliaExternal Directorships Brambles Limited, Cobham plc External Directorship AMP Foundation

4.3 Responsible Person

G.H. (Hugh) BurrettManaging Director and Chief Executive OfficerAuckland, New Zealand

In AbsenceS.B. (Stewart) McRobieHead of Group Finance and Risk ManagementAuckland, New Zealand

5.0

6.0 Capital Adequacy - Overseas Bank and Overseas Banking Group

Information concerning the Overseas Bank and Overseas Banking Group can be obtained from Part A Commonwealth Bank of AustraliaNew Zealand Banking Group (the “Banking Group”) General Disclosure Statement, Note 43 Capital Adequacy of Overseas Bank.

There have been no other changes to Directors since the previous General Disclosure Statement (31 March 2008).

On 16 May 2008 the appointment of Andrew Mohl to the Board of Directors was announced effective from 1 July 2008.

Conditions of Registration - Commonwealth Bank of Australia New Zealand Branch (the "Registered Bank") as from 26 November2007.

The Conditions of Registration are outlined in Part A Commonwealth Bank of Australia New Zealand Banking Group (the “Banking Group”)General Disclosure Statement, General Matters 6.0.

2

7.0 Credit Ratings of Commonwealth Bank of Australia

7.1

Fitch Ratings

Moody's Investors Service, Inc.

Standard & Poor's (Australia) Pty Limited

7.2 Long Term Debt Rating Definitions

Fitch Moody's S&P(a) (b) (a)

Highest quality / Extremely strong capacity to pay interest and principal AAA Aaa AAAHigh quality / Very strong AA Aa AAUpper medium grade / Strong A A A

Medium grade (lowest investment grade) / Adequate BBB Baa BBBPredominantly speculative / Less near term vulnerability to default BB Ba BBSpeculative, low grade / Greater vulnerability B B B

Poor to default / Identifiable vulnerability CCC Caa CCCHighest speculations CC Ca CCLowest quality, no interest C C C

In payment default, in arrears - questionable value D - D

7.3

A+

7.4 Insurer's Financial Strength Rating Definitions

Superior ability to meet their ongoing obligations to policyholders

Excellent ability to meet their ongoing obligations to policyholders

Good ability to meet their ongoing obligations to policyholders

Fair ability to meet their ongoing obligations to policyholders

Marginal ability to meet their ongoing obligations to policyholders

Weak ability to meet their ongoing obligations to policyholders

Poor ability to meet their ongoing obligations to policyholders

As at the date of the signing of this General Disclosure Statement, the following rating was assigned to Sovereign Assurance CompanyLimited's ability to meet its ongoing obligations to policyholders:

D

The rating was upgraded on 28 December 2007. The outlook from this agency is stable.


A.M. Best Financial Strength Rating

B++,B+

B,B-

C++,C+

C, C-

Insurer's Financial Strength Rating Definition A.M. Best Financial Strength Rating

A++, A+

A, A-

(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 and (3) in lower end.

Long Term Debt Rating

(a) Fitch and S&P apply plus (+) or minus (-) signs to ratings from ‘AA’ to ‘CCC’ to indicate relative standing within the major ratingcategories.

AA

The Moody's rating was raised from Aa3 to Aa1 on 4 May 2007. The Standard and Poor's rating was raised from AA- to AA on 21 February2007. The Fitch rating was affirmed as AA on 24 January 2008. The outlook from all agencies is stable.


AA

Aa1

As at the date of the signing of this General Disclosure Statement, the following ratings were assigned to the Commonwealth Bank ofAustralia's long term debt:

3

Historical Summary of Aggregated Financial Statements


$ millions Audited Audited Audited Audited AuditedFor the year ended 30 June 2008 2007 2006 2005 2004

INCOME STATEMENT (1)

Premium Income 448 411 374 325 296

Reinsurance Income 62 62 62 57 77

Investment Income (22) 280 440 325 280

Net Interest Income from Securitised Mortgages - - - - 2

Other Income 102 81 87 53 46

Total Operating Income 590 834 963 760 701

Impairment (Recoveries) / Losses on Advances - - (3) 1 (2)

Total Operating Income After Impairment Losses 590 834 966 759 703

Reinsurance Expenses 72 67 66 85 96

Claims, Surrenders and Maturities 299 303 265 160 172

Net Change in Policy Liabilities - - - 138 124

Net Change in Life Insurance Contract Liabilities (168) (20) 52 - -

Net Change in Life Investment Contract Liabilities (104) 37 109 - -

Commission and Management Expenses 314 268 270 232 -

Finance Costs 48 46 44 53 -

Other Operating Expenses 4 3 3 2 291


Net Profit before Taxation 125 130 157 89 20

Taxation 22 34 62 39 8

Net Profit after Taxation 103 96 95 50 12

Of which Impaired Asset (Recovery) / Expense - - (3) 3 (2)

DIVIDENDS and REPATRIATIONS PAID

Dividends and Branch Profit Repatriated 19 22 93 37 9


$ millions Audited Audited Audited Audited AuditedAs at 30 June 2008 2007 2006 2005 2004

BALANCE SHEET (1)

Total Assets 3,591 3,804 3,761 3,460 3,459

Of which Impaired Assets 1 1 1 1 4

Total Liabilities 2,673 2,965 3,362 3,146 3,147

Shareholder's Equity 918 839 399 314 312

Life Group

(1) On 1 July 2008, ASB Group Investments Limited, Aegis Limited, Investment Custodial Services Limited and Jacques Martin New Zealand Limited were sold bythe Life Group to the Banking Group. The Historical Summary of Aggregated Financial Statements and the Notes to the Financial Statements include the results ofthe entities sold on 1 July 2008 (the "Discontinued Operations") (refer Note 49).

5

Income Statement$ millionsFor the year ended 30 June Note 2008 2007

Continuing Operations: (1)

Premium Income 4 448 411

Reinsurance Income 5 62 62

Investment Income 6, 49 (23) 278

Other Income 7, 49 56 34

Total Operating Income 543 785

Total Operating Expenses 402 661

Reinsurance Expenses 5 72 67

Claims, Surrenders and Maturities 8 299 303

Other Operating Expenses 4 3

Net Change in Life Insurance Contract Liabilities 21, 22 (168) (20)

Net Change in Life Investment Contract Liabilities 21 (104) 37

Commission and Management Expenses 9, 49 251 225

Finance Costs 48 46

Net Profit before Taxation 141 124

Taxation 11, 49 27 32

Net Profit after Taxation Attributed to Parent Company Shareholders from Continuing Operations 3, 49 114 92

Discontinued Operations: (1)

Net (Loss) / Profit after Taxation of Discontinued Operations 49 (11) 4

Net Profit after Taxation Attributed to Parent Company Shareholders 103 96

Statement of Recognised Income and Expense

Net Profit after Taxation Attributed to Parent Company Shareholders 3, 49 103 96

Total Recognised Income and Expense 103 96

These statements are to be read in conjunction with the notes on pages 10 to 52 and the Auditor's Report on pages 53 and 54.

Life Group

(1) On 1 July 2008, ASB Group Investments Limited, Aegis Limited, Investment Custodial Services Limited and Jacques Martin New Zealand Limited were sold by theLife Group to the Banking Group. When an operation is classified as a Discontinued Operation the current and comparative Income Statements are restated. Pleaserefer to Note 49 to reconcile the Income Statement and Balance Sheet figures to the Notes to Financial Statements.

6

Balance Sheet$ millionsAs at 30 June Note 2008 2007

ASSETS (1)

Financial Assets

- Cash and Cash Equivalents 14, 49 559 551

- Securities 13 2,113 2,389

- Derivative Financial Instruments 15 74 88

- Trade and Other Receivables 19, 49 73 69

Reinsured Life Insurance Contracts 22 60 59

Current Taxation Asset 65 17

Property, Plant and Equipment 17 39 38

Intangible Assets 18, 49 564 563

Other Assets 20 26 30

3,573 3,804

Assets of Discontinued Operations Held for Sale (1) 49 18 -

Total Assets 3,591 3,804

Total Interest Earning and Discount Bearing Assets 1,431 1,467

Financed by:

LIABILITIES (1)

Life Insurance Contract Liabilities 21 746 924

Financial Liabilities

- Life Investment Contracts 21 1,186 1,380

- Borrowings 24 407 380

- Derivative Financial Instruments 15 25 34

- Deposited Reserves 22 40 44

- Trade and Other Payables 25, 49 152 129

Deferred Taxation Liability 23, 49 108 70

Provisions 26, 49 1 4

2,665 2,965

Liabilities of Discontinued Operations Held for Sale (1) 49 8 -

Total Liabilities 2,673 2,965

SHAREHOLDER'S EQUITY

Contributed Capital - Ordinary Shareholder 27 - 5

Contributed Capital - Convertible Notes 28 503 503

Retained Earnings 29 115 31

Head Office Contribution 30 300 300

Total Shareholder's Equity 918 839

Total Liabilities and Shareholder's Equity 3,591 3,804

Total Interest and Discount Bearing Liabilities 447 424

Life Group


(1) When an operation is classified as a Discontinued Operation the current Balance Sheet only is restated. Please refer to Note 49 to reconcile the IncomeStatement and Balance Sheet figures to the Notes to Financial Statements.

7

Cash Flow Statement$ millionsFor the year ended 30 June 2008 2007

CASH FLOWS FROM OPERATING ACTIVITIESCash was provided from:

Premium Receipts 552 519 Dividend Receipts 31 30 Forward Foreign Exchange Contract Gains - 246 Interest Receipts 99 68 Mortgage Interest Receipts 1 1 Sundry Fees and Commission Receipts 104 120 Net Tax Receipts - 8

787 992

Cash was applied to:Forward Foreign Exchange Contract Losses 11 - Claims, Surrenders and Maturities Payments 497 502 Net Reinsurance Payments 17 4 Commission Payments 122 105 Payments to Suppliers and Employees 197 180 Interest on Loan Facilities 47 43 Net Tax Payments to Related Parties 22 39 GST Payments 3 -

916 873

Net Cash Flows from Operating Activities (129) 119

CASH FLOWS FROM INVESTING ACTIVITIESCash was provided from:

Proceeds from Sale of Securities 2,636 3,210

Cash was applied to:Purchase of Investments 2 2 Purchase of Securities 2,414 3,160 Purchase and Development of Property, Plant and Equipment 17 36

2,433 3,198

Net Cash Flows from Investing Activities 203 12

CASH FLOWS FROM FINANCING ACTIVITIESCash was provided from:

Convertible Notes Issued 24 - 787

Cash was applied to: Dividends and Branch Profit Repatriated 28 57

Eurobond Repaid - 224 Repayment of Borrowings - 344 Convertible Notes Repaid 27 20 Repayment of Head Office Contribution 30 - 120

55 765

Net Cash Flows from Financing Activities (55) 22


Life Group

8

Cash Flow Statement (continued)$ millionsFor the year ended 30 June Note 2008 2007

SUMMARY OF MOVEMENTS IN CASH FLOWSNet Increase in Cash and Cash Equivalents 19 153 Add: Cash and Cash Equivalents at Beginning of Year 551 398

Cash and Cash Equivalents at End of Year 14, 49 570 551

Represented by:Cash at Bank and on Deposit 14 548 516 Foreign Currency Deposits 14 22 35

570 551

RECONCILIATION OF NET PROFIT AFTER TAXATIONTO NET CASH FLOWS FROM OPERATING ACTIVITIES

Net Profit After Taxation 103 96

Add: Non-Cash Items and Items Classified as Investing and Financing ActivitiesImpairment of Leasehold Improvements (1) 1 Impairment of Office Equipment, Furniture and Fittings and Computer Equipment - 1 Depreciation and Amortisation 6 4 Net Realised and Unrealised - Losses 135 70 Non-Cash Dividends Received / (Paid) 9 (5)Gains on Disposal of Property, Plant and Equipment (17) - Tax on Dividends 16 7 Movement in Income Tax Assets and Liabilities (26) (2)Deferred Acquisition Cost Amortisation 3 4 Net Change in Life Insurance Contract Liabilities recognised in Income Statement (168) (20)Net Change in Life Investment Contract Liabilities recognised in Income Statement (104) 37

(147) 97

Add: Movements in Balance Sheet ItemsTrade Receivables and Sundry Debtors - Increase (3) (5)Provisions - Increase 2 2 Deferred Fee Balance - (Decrease) / Increase (1) 16 Trade and Expense Creditors - Increase / (Decrease) 22 (5)Life Investment Contract Liabilities - Savings Premium, Claims, Maturities & Surrenders (Net) (90) (66)Life Insurance Contract Liabilities - Deposit Premium, Claims, Maturities & Surrenders (Net) (15) (16)

(85) (74)

Net Cash Flows from Operating Activities (129) 119

Life Group


9


1 Statement of Accounting Policies

GENERAL ACCOUNTING POLICIES

Basis of Preparation

Critical Accounting Estimates and Judgements

Presentation Currency and Rounding

PARTICULAR ACCOUNTING POLICIES

(a) Basis of ConsolidationSubsidiaries

Acquisition During the YearWhere an entity is acquired by the Life Group during the year the results of that entity are included in the Income Statement of the LifeGroup from the date that control or significant influence commenced.

NZ IAS 1 Presentation of Financial Statements (revised) will apply to the Life Group from 1 July 2009 and will result in changes to thedisclosure of changes in Equity.

The reporting entity is the Commonwealth Bank of Australia New Zealand Life Insurance Group (the "Life Group") of the CBA NZ Operations,comprising the aggregated results of ASB Group (Life) Limited ("ASBGL"), and its subsidiaries, The Colonial Mutual Life Assurance SocietyLimited - New Zealand Branch ("CMLA"), Colonial First State Investments (NZ) Limited ("CFSI") and its subsidiaries, Colonial First StateInvestment Managers (NZ) Limited ("CFSIM") and Colonial Holding Company Limited - New Zealand Branch ("CHC"). The basis of aggregationis an addition of the Life Group entities' individual financial statements. All translations and balances between entities within the Life Group havebeen eliminated.

The Life Group's aggregated financial statements have been prepared in accordance with New Zealand Generally Accepted AccountingPractice ("NZ GAAP"). They comply with the New Zealand equivalents to International Financial Reporting Standards ("NZ IFRS"), and otherapplicable Financial Reporting Standards, as appropriate for profit-oriented entities. The financial statements also comply with InternationalFinancial Reporting Standards.

The financial statements comply with the Financial Reporting Act 1993 and the Companies Act 1993 and to the extent it is applicable to the LifeGroup the Registered Bank Disclosure Statement (Full and Half-Year Overseas Incorporated Registered Banks) Order 2008. They wereapproved for issue by the Directors on 24 September 2008.

Subsidiaries are those entities controlled by the Life Group. Control exists when the Life Group has the power, to govern the financial andoperating policies of entities so as to obtain benefit from its activities. The financial statements of subsidiaries are included in the LifeGroup’s financial statements using the purchase method of consolidation. All intra-group balances and transactions have been eliminatedin preparing the consolidated financial statements.

The measurement base adopted is historical cost, modified by the fair value measurement of Financial Instruments held at Fair Value throughProfit or Loss, all Derivative contracts.

The functional and presentation currency of the Life Group is New Zealand dollars. The amounts contained in this disclosure statement and thefinancial statements are presented in millions of New Zealand dollars, unless otherwise stated.

The Life Group has adopted NZ IFRS 7 Financial Instruments: Disclosures and NZ IAS 1 Presentation of Financial Statements - CapitalDisclosures from 1 July 2007. This has resulted in some changes to the disclosures in the Life Group's financial statements, but does not haveany impact on its reported profits or financial position.

The following new standards and amendments to standards relevant to the Life Group are not yet effective and have not yet been applied inpreparing the financial statements. Adoption of these will not have any impact on the Life Group's reported profit or financial position.

NZ IFRS 8 Operating Segments will apply to the Life Group from 1 July 2009 and will affect the financial and descriptive informationdisclosed about the Life Group's reportable segments, but will not have any impact on its reported profits or financial position.

A Glossary of Terms included with the Statement of Accounting Policies is set out on page 17.

The only material change to accounting policies in the year ended 30 June 2008 is the separation of Deferred Taxation embedded in LifeInsurance and Life Investment Contract Liabilities. This component is now disclosed within Deferred Taxation in the Balance Sheet.Comparative figures have been restated resulting in the following changes to reported results for the Life Group; Taxation Expense (+$19m),Net Change in Life Insurance Contract Liabilities (-$16m), Net Change in Life Investment Contract Liabilities (+$3m), Deferred Taxation Liability(+$144m), Life Insurance Contract Liabilities (-$169m) and Life Investment Contracts (+$25m). All other policies have been applied on a basisconsistent with that used in the financial year ended 30 June 2007.

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in thefinancial statements and accompanying notes. Life Insurance Contract Liabilities, Life Investment Contracts, Goodwill and Tax provisions allrequire estimates to be made. Actual results could differ from these estimates and judgements, although other than for the computation of taxprovisions, it is not anticipated that such differences would be material. Uncertainties exist with respect to the interpretation of complex taxregulations for life insurance activities. Given the complexity of life insurance tax legislation and the assumptions involved, adjustments toincome tax expense in future periods may be required. Further information on income taxes is given in Note 35.

The critical judgements used by management in applying the accounting policies that have the most significant effect on the amountsrecognised in the financial statements, apart from those involving estimation, are the designation of financial assets and financial liabilities as atfair value through profit or loss. Critical judgements are also applied to the classification of the Life Group's life insurance business between LifeInsurance Contracts and Life Investment Contracts.

10



Goodwill on Acquisition

Life Group Companies Acting as Trustee

(b) Foreign Currency Translation

(c) Revenue Recognition

Premium Income(i) Life Insurance Contracts

(ii) Life Investment Contracts

Investment Income

Other IncomeOther Income is recognised on an accrual basis. Deferred fees are amortised on an effective interest basis.

(d) Expense Recognition

Claims, Surrenders and Maturities

Other Expenses

Commission and Management Expenses

Acquisition Costs

Acquisition Costs - Life Insurance Contracts

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Life Group, the revenue and the stage ofcompletion of the transaction can be reliably measured. The principal sources of revenue are Premium Income and Investment Income.

The assets and liabilities of the personal superannuation business, for which various Life Group companies act as a trustee, are notincluded in the Life Group financial statements.

All foreign currency monetary assets and liabilities are translated to New Zealand currency at the exchange rate ruling as at balance date.Foreign currency forward and swap positions are valued at fair value as at balance date. Unrealised gains and losses arising from therevaluations are recognised immediately in the Income Statement.

Non-monetary assets and liabilities denominated in foreign currencies, measured at fair value, are translated to New Zealand currency atthe exchange rate ruling at the dates that the values were determined. Foreign currency exchange differences relating to investments atFair Value through Profit or Loss and Derivative Financial Instruments are included in Investment Income or Other Income.

Foreign currency transactions are translated to New Zealand currency at the exchange rate ruling at the date of the transaction.

Where overall product profitability of new business written during the period is expected to support the recovery of acquisition costsincurred in that year, these costs are effectively deferred as an element of Life Insurance Contract Liabilities and amortised over the life ofthe policies written. Unamortised acquisition costs are a component of the Life Insurance Contract Liabilities. Amortisation of acquisitioncosts are recognised in the Income Statement as a component of 'Net Change in Insurance Contract Liabilities' at the same time aspolicy margins are released.

Initial entry fee income on investment contracts is recognised as revenue at the outset of the contract only if a specific initial service (forwhich the fee relates) is provided by the Life Group at that time. Otherwise initial entry fee income is deferred as a component of the LifeInvestment Contract Liability and amortised as related services are provided under the contract.

Premiums received for providing services and bearing risks are recognised as revenue on an accrual basis.

Premiums received have the fee portion of the premium recognised as revenue on an accrual basis and the deposit portionrecognised as an increase in Life Investment Contract Liabilities.

Acquisition costs are the fixed and variable costs of acquiring new business including commissions and similar distribution costs, andcosts of accepting, issuing and initially recording policies. They do not include general growth and development costs incurred by the LifeGroup as these do not directly relate to specific life insurance policies.

Other expenses incorporate all other expenditure involved in running the Life Group including costs of new business, salaries and relatedcosts, depreciation, interest and other management costs. These are recognised in the Income Statement as follows:

Commission and management expenses are categorised into acquisition, investment management or maintenance costs on the basis ofa detailed functional analysis of activities carried out by the Life Group.

Interest income is recognised in the Income Statement as it accrues. Dividend income and unit trust distributions are recognised in theIncome Statement when the Life Group's right to receive this is established. Realised and unrealised gains and losses from fair valueremeasurement of Financial Instruments at Fair Value through Profit or Loss are included in Investment Income or Other Income.

All expenses are recognised in the Income Statement on an accrual basis.

Life insurance contract claims are recognised as an expense when a liability has been established. Claims under life investmentcontracts represent withdrawals of investment deposits and are recognised as a reduction in Life Investment Contract Liabilities.

Goodwill is assessed for impairment annually or more regularly where an indication of impairment exists. If any such indication exists, theasset’s recoverable amount is estimated, and an impairment loss is recognised in the Income Statement for the difference between thecarrying amount and the recoverable amount. Goodwill is allocated to cash generating units for the purpose of impairment testing.Impairment losses on Goodwill are not reversed.

Goodwill arising on the acquisition of an entity represents the excess of purchase consideration over the fair value of identifiable netassets acquired.

Goodwill is measured at cost less impairment.

11


1 Statement of Accounting Policies (continued)Acquisition Costs - Life Investment Contracts

Maintenance and Investment Management Expenses

(e) Dividend Recognition

(f) Financial Instruments

BASIS OF RECOGNITION AND MEASUREMENT

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSSAssets in this category are measured at fair value at inception and on an ongoing basis and include:

Securities

Assets included within Securities are as follows:

(i) Shares in Listed Companies, Unit Trusts and Managed Funds

(ii) Fixed Interest SecuritiesFixed Interest Securities are recognised at fair value based on a quoted bid market price.

(iii) Mortgages and Loans on Policies

Derivative Assets

Reinsured Life Investment Contracts

AVAILABLE FOR SALE FINANCIAL ASSETS

Available for Sale Financial Assets are measured at fair value, with changes in fair value recognised directly in Shareholder's Equity. TheLife Group has not classified any financial assets in this category.

Other expenses for the Life Group are recognised in the Income Statement on an accrual basis.Other

Dividends on Convertible Notes are recognised as a liability and movement in equity on an accrual basis. Refer to Note 24 for details ofdividend calculation and payment frequency.

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.

Refer to (m) for details on Reinsured Life Investment Contracts.

Investments held by life insurance companies are stated at fair value. The financial assets in this category have been designated atinception as Fair Value through Profit or Loss because they back life insurance liabilities or investment contract liabilities except for theannuity investment (refer below). Purchases and sales of these securities are recorded on a trade date basis. Gains and losses arisingfrom the fair value remeasurement of Securities are included as part of Investment Income in the Income Statement.

Shares and units are recognised at fair value based on the bid market price quoted by the stock exchange or fundmanager.

Mortgages and loans on policies are recognised at fair value based on a market accepted valuation technique, usingmethods and assumptions that are based on market conditions and risks existing at the balance date.

The annuity investment has been designated at inception as at Fair Value through Profit or Loss, as it covers the interest spread in aninterest rate swap derivative. Purchase and sale of this security is recorded on a trade date basis. Gains and losses arising from the fairvalue remeasurement are included as part of Investment Income in the Income Statement. The annuity investment is recognised at fairvalue based on a market accepted valuation technique, using methods, rates and assumptions that are based on market conditions andrisks existing at the balance date.

The Life Group classifies financial instruments into one of the following categories at initial recognition: Financial Assets at Fair Valuethrough Profit or Loss, Available for Sale Financial Assets, Loans and Receivables, Held to Maturity, Financial Liabilities at Fair Valuethrough 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 fairvalue. Where quoted market prices do not exist, fair values are estimated using present value or other market accepted valuationtechniques, using methods and assumptions that are based on market conditions and risks existing as at the balance date.

Financial assets that are stated at cost or amortised cost are reviewed individually at each balance date to determine whether there isobjective evidence of impairment. If any such evidence exists, the asset's recoverable amount is calculated using the present value offuture estimated cash flows discounted at the original effective interest rate. An impairment loss is recognised in the Income Statementfor the difference between the carrying amount and the recoverable amount. An impairment loss is reversed if the subsequent increase inthe recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. The impairment loss isreversed only to the extent that the financial asset's carrying amount does not exceed the carrying amount that would have beendetermined if no impairment loss had been recognised.

Maintenance costs are the fixed and variable costs of administering policies subsequent to sale. These include general growth anddevelopment costs. Maintenance costs include all operating costs other than acquisition and investment management costs.

Investment management costs are the fixed and variable costs of managing investment funds.

Maintenance and investment management costs are recognised in the Income Statement on an accrual basis.

Commission that varies with and is directly related to securing new contracts is capitalised as a deferred acquisition cost asset. All otheracquisition costs are recognised as expenses in the Income Statement when incurred. The deferred acquisition cost asset issubsequently amortised over the life of the contracts and recognised in the Income Statement.

12



LOANS AND RECEIVABLES

Cash and Cash Equivalents

Trade and Other Receivables

HELD TO MATURITY

DERECOGNITION OF FINANCIAL ASSETS

FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Investment ContractsRefer to (m) for details on Life Investment Contract Liabilities.

Derivative Liabilities

Deposited Reserves

OTHER FINANCIAL LIABILITIES

Borrowings

Trade and Other Payables

DERECOGNITION OF FINANCIAL LIABILITIES

(g) Derivative Financial Instruments

Derivative Financial Instruments at Fair Value through Profit or Loss

Derivative Financial Instruments qualifying for Hedge Accounting

Fair Value Hedge Accounting

Borrowings are recorded initially at fair value plus transaction costs that are directly attributable to the borrowings. After initial recognitionthe borrowings are measured at amortised cost on an effective interest rate basis.

Liabilities in this category are measured at fair value. Gains and losses arising from the fair value remeasurement of Financial Liabilities atFair Value through Profit or Loss are included in the Income Statement. Financial Liabilities included within Financial Liabilities at Fair Valuethrough the Profit or Loss include:

Derivative Liabilities that do not meet the criteria for hedge accounting are recorded at Fair Value through Profit or Loss. Refer to (g) formore details on derivatives.

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired.

For qualifying fair value hedges the change in fair value of the hedging derivative is recognised in the Income Statement. Changes in fairvalue of the hedged item which relate to the risks hedged by the hedging derivative are reflected as an adjustment to the carrying value ofthe hedged item. This movement is also recognised in the Income Statement.

The Life Group uses derivatives as part of its asset and liability management activities to manage exposures to interest rate and foreigncurrency risks. The Life Group applies fair value hedge accounting when transactions meet the hedge accounting criteria in NZ IAS 39. TheLife Group documents at the inception of the transaction the relationship between the hedging instruments and hedged items. The LifeGroup assesses (both at inception and on an ongoing basis), whether the derivatives are expected to be, and have been, highly effective inoffsetting changes in fair values of hedged items.

Refer to (m) for details on reinsurance Deposited Reserves.

Forward exchange contracts are used to reduce the Life Group's exposure to foreign exchange movements affecting the market value ofthe Life Group's investments denominated in foreign currencies. Derivatives, including cross currency and interest rate swaps, are used tomitigate the foreign exchange and interest rate risk on borrowings.

The Life Group recognises derivatives in the Balance Sheet at their fair value. Derivative Assets are the fair value of derivatives which havea positive fair value. Derivative Liabilities are the fair value of derivatives which have a negative fair value. Derivatives are recorded at fairvalue based on market accepted valuation techniques.

All derivatives that do not meet the criteria for hedge accounting under NZ IAS 39 Financial Instruments: Recognition and Measurementare classified as Held for Trading. This includes derivatives transacted to mitigate foreign currency and interest rate risk. Changes in fairvalue are reflected in the Income Statement immediately when they occur.

Trade and Other Payables include dividends payable, interest payable, trade creditors and accruals, deferred fees, and amounts due torelated parties. These items are recognised when due and measured on initial recognition at the fair value of consideration received lesstransaction costs. After initial recognition, they are measured at amortised cost.

This category includes all financial liabilities other than those designated by the Life Group as Fair Value through Profit or Loss. Liabilities inthis category are measured at amortised cost and include:

Cash and Cash Equivalents include cash on hand, bank current accounts and cash on deposit that is readily convertible to known amountsof cash which are subject to an insignificant risk of changes in value. They are brought to account at the face value and interest is taken tothe Income Statement when earned.

Trade and Other Receivables include securities sold but not delivered, income receivable, amounts due from related parties, amounts duefrom agents and other trade debtors.

Assets in this category are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost less anyallowance for uncollectible amounts and include:

A financial asset is derecognised when the rights to receive cash flows from the asset have expired, or the Life Group has transferred itsrights to receive cash flows from the asset.

Assets in this category are measured at amortised cost. The Life Group has not classified any financial assets as Held to Maturity.

13



(h) Offsetting Financial Instruments

(i) Property, Plant and Equipment

Leasehold Improvements and Services 5 - 18 yearsOffice Equipment, Furniture and Fittings 3 - 5 years

(j) Intangible Assets

GoodwillRefer to (a) for details on Goodwill.

Internally Developed Software

Other Intangible Assets

ImpairmentRefer to (a) for details on Goodwill impairment.

(k) Taxation

(l) Provisions

Life insurers are subject to a special tax regime. Two tax bases are maintained; the life office base which is subject to tax on investmentincome less expenses plus underwriting income, and the policyholder base which seeks to tax benefits as they accrue to policyholdersunder the policies. The life insurer pays tax on the higher of the two bases at the company tax rate of 33% (30% from 1 July 2008). The lifeinsurer is able to use accumulated imputation credits generated in the life office base to meet any tax liability arising in the policyholderbase. As the life insurer is taxed as proxy for the policyholder, returns to policyholders are tax exempt.

A provision is recognised in the Balance Sheet when: the Life Group has a present legal or constructive obligation as a result of pastevents; it is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of theamount of the obligation.

Tax losses are transferred among group companies through intercompany accounts at the current tax rate.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the amounts of assets andliabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based onthe expected manner of realisation or settlement of the amount of assets and liabilities, using tax rates enacted or substantively enacted atbalance date.

In accordance with NZ IAS 12, Income Taxes, a Deferred Taxation Benefit is recognised only to the extent that it is probable (i.e. morelikely than not) that a future taxable profit will be available against which the asset can be utilised. Deferred Taxation Benefits are reducedto the extent that it is no longer probable that the related tax asset will be realised. Any reduction is recognised in the Income Statement.

The cost of Property, Plant and Equipment less the estimated residual value is depreciated over their useful lives on a straight line basis.Depreciation of work in progress will not begin until the asset is available for use i.e. when it is in the location and condition necessary for itto be operating in the manner intended by management. The estimated useful lives of the major assets are:

The Life Group offsets financial assets and financial liabilities and reports the net balance in the Balance Sheet where there is a legallyenforceable 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.

Property, Plant and Equipment are stated at cost less accumulated depreciation and impairment losses.

Life Insurance Tax

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantially enacted at balancedate after taking advantage of all allowable deductions under current taxation legislation and any adjustment to tax liabilities in respect ofprevious years.

Income Tax on the Net Profit for the period comprises current and deferred tax. Income tax is recognised in the Income Statement exceptto the extent that it relates to items recognised directly within Shareholder's Equity, in which case it is recognised directly in Shareholder'sEquity.

The Life Group generally expenses Computer Software costs in the period incurred. However, some costs associated with developingidentifiable and unique software products controlled by the Life Group, including employee costs and an appropriate portion of relevantoverheads are capitalised and treated as Intangible Assets. These assets are amortised using the straight-line method over their usefullives (not exceeding three years).

Costs for advertising signage rights and the right to service policies have also been capitalised and treated as Intangible Assets. Theseassets are amortised using the straight-line method over their useful lives, estimated as 10 years and 30 months respectively.

Intangible Assets are reviewed for impairment annually to identify events or changes in circumstances that indicate that the carryingamount may not be recoverable. If an asset's carrying amount is greater than its estimated recoverable amount, the carrying amount iswritten down to its recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and the asset'svalue in use. Any impairment loss is recognised in the Income Statement. To assess impairment, assets are allocated to cash generating

it

Assets are reviewed for impairment indicators annually to identify events or changes in circumstances that indicate that the carryingamount may not be recoverable. If an asset's carrying amount is greater than its estimated recoverable amount, the carrying amount iswritten down to its recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and the asset'svalue in use. Any impairment loss is recognised in the Income Statement. For the purposes of assessing impairment, assets are groupedat the lowest levels for which there are separately identifiable cash flows (cash generating units).

14



(m) Life Insurance Business

Life Insurance Contract Liabilities and Margin on Services Profit

Profit is analysed into the following categories:

(i) Planned margins of revenues over expenses.

(ii) The difference between actual and assumed experience.

(iii) Changes to underlying assumptions.

(iv) Investment earnings on assets in excess of policy liabilities.

Life Investment Contract LiabilitiesInvestment contract liabilities are measured in accordance with NZ IAS 39.

Identification of Assets Backing Life Investment Contract Liabilities

Reinsurance

Life Insurance Contract Liabilities are calculated in a way that allows for the systematic release of planned profit margins as services areprovided to policy owners and the revenues relating to those services are received. Services used to determine profit recognition includethe cost of expected insurance claims and annuity payments. Life Insurance Contract Liabilities are generally determined as the presentvalue of all future expected payments, expenses, taxes and profit margins reduced by the present value of all future expected

At the time of writing a policy and as at each balance date, best estimate assumptions are used to determine all expected futurepayments (including tax) and premiums. Where actual experience replicates best estimate assumptions, the expected profitmargins will be released to profit over the life of the policy.

Experience profits / (losses) are realised where actual experience differs from best estimate assumptions. Instances giving rise toexperience profits / (losses) include variations in claims, expenses, mortality, discontinuance and investment returns (to the extentthe Shareholder assumes investment risk).

Assumptions used for measuring life insurance contract liabilities are reviewed each year. Where the review leads to a change inassumptions, the change is deemed to have occurred from the end of the year.

All contracts issued by the Life Group which are classified as Life Insurance Contracts are non linked. The assets backing unit linkedcontracts and those backing term deposit bonds are in separate investment funds from those backing non linked contracts.

The financial effect of a change in discount rates resulting from changes in market conditions, is recognised in the year that therates are changed. The financial effect of all other changes to assumptions is recognised in the Income Statement over the futureyears during which services are provided to policyholders.

If, based on best estimate assumptions, written business of a group of related products is expected to be unprofitable, the totalexpected loss for that related product group is recognised in the Income Statement immediately. When loss making businessbecomes profitable previously recognised losses are reversed.

Profits are generated from investment assets in excess of those required to meet policy liabilities. Investment earnings are directlyinfluenced by market conditions and as such this component of MoS profit will vary from year to year.

The fair value of a term deposit bond is determined as the present value of future expected cashflows payable under the bonddiscounted at the risk free rate of return appropriate to the outstanding term of the bond portfolio.

All contracts issued by the Life Group which are classified as investment contracts are unit-linked except for term deposit bonds. The fairvalue of a unit linked contract is determined using the current unit values that reflect the fair value of the financial assets backing thecontract, multiplied by the number of units attributed to the contract holder.

Reinsurance recoveries for claims are recognised as Reinsurance Income. Reinsurance premiums are recognised as ReinsuranceExpenses.Reinsured Life Insurance Contracts are the present value of future reinsurance claims receivable and premiums payable by the LifeGroup.

Reinsured Life Investment Contracts are measured at fair value. The fair value is determined using the current unit values that reflectthe fair value of the financial assets backing the contract, multiplied by the number of units attributed to the contract holder.

Contracts entered into by the Life Group with reinsurers which meet the definition of an insurance contract have been classified as anasset Reinsured Life Insurance Contracts in the Balance Sheet. Reinsurance contracts that do not meet this definition have beenclassified as a financial asset Reinsured Life Investment Contracts.

As the reinsurance agreements provide for indemnification of the Life Group by the reinsurers against loss or liability, reinsuranceincome and expenses are recognised separately in the Income Statement when they become due and payable in accordance with thereinsurance agreements.

Life insurance contracts are those contracts that transfer significant insurance risk. Life investment contracts are those contracts with nosignificant insurance risk, but which give rise to a financial asset and/or liability under NZ IAS 39.

Contracts that contain a discretionary participation feature are also classified as insurance contracts.

Life Insurance Contract Liabilities are calculated in accordance with the Margin on Services (MoS) methodology as set out in NewZealand Society of Actuaries Professional Standard 3: Determination of Life Insurance Liabilities and the requirements of NZ IFRS 4.

Life Insurance and Life Investment Contracts – ClassificationThe Life Group's life insurance business is split between Life Insurance Contracts and Life Investment Contracts. Life InsuranceContracts are accounted for in accordance with the requirements of NZ IFRS 4 Insurance Contracts . Life Investment Contracts areaccounted for in accordance with NZ IAS 18 Revenue and NZ IAS 39 Financial Instruments: Recognition and Measurement .

15



(n) Retirement Benefits Obligations

Defined Benefit Plans

Defined Contribution Plans

(o) Contingent Liabilities

(p) Transactions with CBA NZ Operations

(q) Cash Flow Statement

(r) Segment Reporting

FAIR VALUE ESTIMATES


Trade and Other Receivables

Borrowings

Trade and Other PayablesThese liabilities are short term in nature and the carrying value is approximately equivalent to their fair value.

COMPARATIVE DATA

The Life Group predominantly operates within New Zealand and has very limited exposure to risks associated with operating in differenteconomic environments or political conditions. On this basis no geographical segment information is provided, except for Concentrationsof Credit Exposures (refer to Note 46).

The Life Group discloses a Contingent Liability when it has a possible obligation arising from past events, that will be confirmed by theoccurrence or non-occurrence of one or more uncertain future events not wholly within the Life Group's control. A Contingent Liability isdisclosed when a present obligation is not recognised because it is not probable that an outflow of resources will be required to settle anobligation, or the amount of the obligation cannot be measured with sufficient reliability.

The Life Group's primary reporting format is business segments. Segments reported are in line with the organisational structure of the LifeGroup and take into account the nature of the products and services provided. Segment results include items directly attributable to asegment as well as those items that can be reasonably allocated using Activity Based Costing.

Due to the diverse nature of the Commonwealth Bank of Australia's operations in New Zealand, the New Zealand operations have beenbroken into two separate Groups, and separate disclosures compiled for each group. Transactions between the Life Group (reportingentity) and the Banking Group have not been eliminated. This will better reflect the true nature of activities within New Zealand.

This has been prepared using the direct approach. Cash and Cash Equivalents are considered to be cash on hand, bank current accounts,cash on deposit and bank overdrafts.

Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separate entity and willhave no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefitsrelating to employee service in the current and prior years.

Where the calculation results in a benefit to the Life Group, the recognised asset is limited to the present value of any future employercontributions to the plan that can be funded from the plan surplus.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited directly toRetained Earnings. Current service costs are recognised immediately in income.

Contributions to defined contribution plans are recognised as an expense in the Income Statement as incurred.

The liability or asset recognised in the Balance Sheet in respect of defined benefit superannuation plans is calculated separately for eachplan by estimating the amount of future benefit that employees have earned in return for their service in current and prior year; that benefitis discounted to determine the present value, and the fair value of the plan's assets are deducted. The discount rate is the yield at balancesheet date on government securities which have terms to maturity approximately the same as the related liability. The defined benefitcalculation is performed using the projected unit credit method.

The Life Group currently sponsors three superannuation plans for its employees and ex-employees. The assets and liabilities of theseplans are held independently of the Life Group’s assets in separate trustee administered funds. The Life Group has both defined benefitand defined contribution plans.

Defined benefit plans are formal or informal arrangements under which an entity provides post-employment benefits.

Deposited Reserves are funds the Life Group holds for reinsurers. The Deposited Reserves are backed by the Reinsured Life InsuranceContracts and the Reinsured Life Investment Contracts. They are recognised as financial liabilities. Under NZ IAS 32, Deposited Reservesare offset against Reinsured Life Investment Contracts for presentation in the Balance Sheet to the extent that the Life Group has a legalright and intent to realise the Deposited Reserves to simultaneously settle any reinsurance claims on those contracts.

Certain comparative figures have been reclassified to conform with the current year's presentation and the change in Accounting Policyreferred to on page 10.

Financial instruments classified as at Fair Value through Profit or Loss are presented in the Life Group's Balance Sheet at their fair value. ForOther Financial Assets and Financial Liabilities, fair value is estimated as follows:

These assets are short term in nature and the carrying value is approximately equivalent to their fair value.

The carrying amount in the Balance Sheet is considered a reasonable estimate of their fair value after making allowances for the fair value ofnon-accrual and potential problem loans and receivables.

For floating rate borrowings, the carrying amount in the Balance Sheet is considered a reasonable estimate of their fair value. For Fixed RateBorrowings, fair value is estimated using a discounted cash flow model.

16



GLOSSARY OF TERMS

Discretionary Participation Feature

Effective Interest Method

Fair Value

Fair Value Hedge

Financial Instruments at Fair Value through Profit or Loss

Impairment LossThe amount by which the carrying amount of an asset exceeds its recoverable amount.

Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units ofcurrency.

Loans and ReceivablesNon-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They are measured atamortised cost using the effective interest method.

Monetary Assets and Liabilities

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 adesignated hedged item.

Held to Maturity InvestmentsNon-derivative financial assets with fixed or determinable payments and a fixed maturity that the Life Group has a positive intention andability to hold to maturity. They are measured at amortised cost using the effective interest method.

Hedged ItemAn asset, liability, firm commitment or highly probable forecast transaction that exposes the Life Group to risk of changes in fair value or cashflows, and that is designated as being hedged.

Hedging Instrument

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 IneffectivenessThe amount by which changes in the cash flow of the hedging derivative differ from changes (or expected changes) in the cash flow of thehedged item, or the amount by which the changes in the fair value of the hedging derivative differ from changes in the fair value of thehedged item. Such gains and losses are recorded in the current period Income Statement.

All financial assets and financial liabilities held for trading and any financial asset or financial liability that on initial recognition is designated bythe Life Group as Fair Value through Profit or Loss. Assets and Liabilities in this category are measured at fair value. Gains or losses arisingfrom changes in fair value are recognised in Investment Income.

Hedge Effectiveness

The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's lengthtransaction.

A hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identifiedportion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss.

A contractual right to receive, as a supplement to guaranteed benefits, significant additional benefits, where the amount and timing of thoseadditional benefits is at the discretion of the Life Group.

A method of calculating the amortised cost of a financial asset or financial liability (or group of financial assets or financial liabilities) and ofallocating the Interest Income or Interest Expense over the relevant year. The effective interest rate is the rate that exactly discountsestimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to thenet carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Life Group estimates cashflows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all feespaid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all otherpremiums or discounts. The interest income or expense is allocated through the life of the instrument and is measured for inclusion in theIncome Statement by applying the effective interest rate to its amortised cost.

The amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus thecumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minusany reduction (directly or through the use of an allowance account) for impairment or uncollectibility.

Available for Sale Financial AssetsNon-derivative financial assets intended to be held for an indefinite period of time, and which may be sold in response to needs for liquidity orchanges in interest rates or exchange rates. They are recognised on acquisition at fair value plus transaction costs and thereafter at fairvalue. Changes in the value of Available for Sale Financial Assets are reported in an Available for Sale Reserve in Equity, until the assetsare sold or otherwise disposed of, or until they are impaired. On disposal the accumulated change in fair value is transferred to the IncomeStatement and reported under Other Income. Interest, premiums and discounts are amortised through the Income Statement using theeffective interest method.

Amortised Cost of Financial Asset or Financial Liability

17


2 Actuarial Policies and Methods

(a) Discount RatesBusiness where benefits are contractually linked to the performance of assets held

Other business

(b) Profit Carriers

Policy type CarrierRisk Insurance claimsSavings Business Funds under management / Investment Management ChargesTraditional Participating Business Bonuses

(c) Investment and Maintenance Expenses

(d) Taxation

(e) Rates of Growth of Unit Prices

(f) Mortality and Morbidity

(g) Rates of Discontinuance

Assumptions are reviewed based on annual experience studies. The only change to mortality assumptions since 30 June 2007 was areduction for Lifestyle Security Plan from 61% NZ97 to 55% NZ97.

The proportions of the NZ97 adopted range from 55% to 120% (30 June 2007 55% to 120%).

Policy liabilities and solvency reserves as at 30 June 2008 for Sovereign Assurance Company Limited ("SACL") and The Colonial Mutual LifeAssurance Society Ltd - New Zealand Branch were prepared by Ian Perera FNZSA.

Key assumptions used in determining Life Insurance Contract liabilities are as follows:

The discount rates used to determine Life Insurance Contract Liabilities reflect the expected future gross returns on the Life Group’scurrent asset mix. Fixed interest investments were assumed to earn 6.3% per annum (pa) (30 June 2007 6.7% pa) and equityinvestments 10.3% pa (30 June 2007 10.7% pa). The discount rates used for individual classes of business varied between 6.3% and10.3% (30 June 2007 6.7% and 10.7%).

The discount rate used to determine Life Insurance Contract Liabilities is a risk free discount rate. For annuities and traditional non-participating business a rate of 6.3% pa was used at 30 June 2008 (30 June 2007 6.7% pa). For other risk business a rate of 6.3% pawas used at 30 June 2008 (30 June 2007 7.1% pa). These rates were based on the 10 year government bond rate and the 5 yeargovernment bond rate respectively.

The Life Insurance Contract liabilities have been determined in accordance with Professional Standard 3 of the New Zealand Society ofActuaries together with the requirements of NZ IFRS 4. The actuary is satisfied as to the accuracy of the data from which the amount of LifeInsurance Contract liabilities has been determined.

Assumptions for the incidence of withdrawal, partial termination and transfer of policies to paid-up are primarily based on investigationsof the Life Group's own experience.

Most discontinuance rates used at 30 June 2008 are unchanged from those assumed at 30 June 2007.

Policies are divided into related product groups with profit carriers and profit margins as follows:

Future maintenance and investment expenses have been assumed at current levels in line with contractual fees set out in agreementwith Sovereign Services Limited and ASB Group Investments Limited. Future inflation has been assumed to be 2.5% pa (30 June 20072.5% pa) for determining future expenses and inflation linked increases in benefits and premiums.

The rates of taxation enacted or substantially enacted at the date of the valuation are assumed to continue into the future. Thecorporate tax rate used was 30%, the rate applicable from 1 July 2008. Allowance has been made for the "fair dividend rate" rules thatapply to global equities, where tax is paid on 5% of the market value of investments, regardless of the actual rate of investment income.

Future morbidity experience has been based on a combination of reinsurers tables, industry experience and internal investigations. Forsignificant classes of business, internal experience is compared with reinsurer's tables using geometric smoothing techniques or movingaverages.

There have been no changes to morbidity assumptions since 30 June 2007.

Unit price growth is assumed to be equal to the assumed investment earning rates less tax and asset based charges for each product.

Projected future rates of mortality for insured lives are based on the standard industry table NZ97 for SACL and the IA90/92 mortalitytable for CMLA. Annuitant mortality was assumed to be a proportion of the PMA92 and PMF92 tables. These are then adjusted bycomparing the standard tables with the Life Group's own experience using geometric smoothing techniques or moving averages. Forannuity business, an adjustment is also made for mortality improvements prior to and after the valuation date.

18


For the year ended 30 June 2008 2007

2 Actuarial Policies and Methods (continued)

Future rates of discontinuances classified between risk and savings policies in aggregate are:

The Colonial Mutual Life Assurance Society Limited - New Zealand Branch Whole of Life and Endowment Insurance 4% 4%Term Life Insurance 8% 9%Trauma Insurance 11% 11%Disability Income Insurance 9% 10%Wholesale Investment Account 20% 20%

Sovereign Assurance Company LimitedRate for Risk Policies 13% 13%Rate for Savings Policies 9% 10%Rate for Participating Policies 4% 5%

(h) Basis of Calculation of Surrender Values

(i) Participating business

Assumed future bonus rates per annum for the major classes of individual participating business were:

The Colonial Mutual Life Assurance Society Limited - New Zealand Branch Endowment insurance policies Bonus rate on sum assured 0.70% 0.80%

Bonus rate on existing bonus 0.70% 0.80%

Whole of life policies Bonus rate on sum assured 0.80% 1.00%Bonus rate on existing bonus 0.80% 1.00%

Sovereign Assurance Company LimitedEx-Prudential policies Bonus rate on sum assured 2.00% 2.15%

Bonus rate on existing bonus 2.00% 2.15%

Ex-NZI policies Bonus rate on sum assured 1.00% 1.23%Bonus rate on existing bonus 2.00% 2.45%

(j) Impact of Changes in Assumption

$ millions

Assumption Change

Market related changes to discount rates 34 (3)Non-market related changes to discount rates (3) - Mortality and morbidity (7) 4 Discontinuance rates 41 - Maintenance expenses (17) - Other assumptions 34 -

Effect on Future Profit Margins

Effect on Life Insurance Contract Liabilities

Life Group

Refer to Note 1(m) for an explanation of the treatment of changes in actuarial assumptions on Life Insurance Contract Liabilities. Theimpact of changes in actuarial assumptions made at 30 June 2008 are as follows:

Surrender values are based on the provisions specified in the policy contract. There have been no changes to surrender bases duringthe year (or the prior years) which would materially affect the valuation result.

For most participating business, bonus rates are set such that, over long periods, the returns to policyholders are commensurate with theinvestment returns achieved on the relevant assets, together with other sources of profit arising from this business. Distributions are splitbetween policyholders and shareholders with the valuation allowing for shareholders to share in distributions at a maximum allowablerate of 20% (30 June 2007 20%).

In applying the policyholders' share of profits to provide bonuses, consideration is given to equity between generations of policyholdersand equity between the various classes and sizes of policies in force. Assumed future bonus rates included in Life Insurance ContractLiabilities were set such that the present value of Life Insurance Contract Liabilities equates to the present value of assets supporting thebusiness together with assumed future investment returns, allowing for the shareholder's right to participate in distributions.

Ex-Metropolitan Life participating products are treated in the same manner as other investment account contracts, with bonus ratesbeing based on a gross earning rate of 8.0% pa (30 June 2007 8.0% pa), less tax and an equivalent charging structure. The supportablebonus concept does not apply.

19


$ millionsFor the year ended 30 June 2008 2007

3 Net Profit after Taxation

Net Profit after Taxation arose from:

Planned Margins of Revenues over Expenses 56 51 Difference between Actual and Assumed Experience 11 13 Losses on Groups of Related Products - - Effects of Changes in Underlying Assumptions 4 (5)

71 59

Planned Margins of Revenues over Expenses 15 18 Difference between Actual and Assumed Experience (3) -

12 18 Investment Earnings on Assets in Excess of Life Insurance and Investment Contracts Liabilities 27 25 Total Life Activities 110 102

Finance Costs (48) (46)Other 41 40

(7) (6)Net Profit after Taxation 49 103 96

4 Premium Income

Life Insurance ContractsPremiums - disclosed in the Income Statement 448 411

448 411

Life Investment ContractsDeposit Premiums - disclosed in Life Investment Contract Liabilities 21 102 111

102 111

Total PremiumsPremiums - disclosed in the Income Statement 448 411 Deposit Premiums - disclosed in Life Liabilities 102 111

550 522

5 Reinsurance

Reinsurance Recoveries - Life Insurance Contracts 30 35 Portfolio Reinsurance Recoveries 14 13 Reinsurance Recoveries - Life Investment Contracts 18 14 Total Reinsurance Income 62 62

Reinsurance Risk Premiums - Life Insurance Contracts 40 39 Portfolio Reinsurance Expenses 14 13 Reinsurance Expenses - Life Investment Contracts 18 15 Total Reinsurance Expenses 72 67

Non-life Activities

Life Group

The Life Group has also entered into a number of surplus reinsurance arrangements covering mortality and morbidity risks.

Life Investment

Life Insurance

The Life Group has reinsurance agreements with three reinsurance companies in respect of all regular premium policies issued by SACL priorto January 2001 and all policies issued by Metropolitan Life. The reinsurance of policies is principally structured on a modified risk premium co-insurance basis. In addition, risk premiums are paid in relation to benefits reinsured. Profits arising to the reinsurers on this business areshared with the Life Group.

The Life Group has reinsured 93.1% of all Metropolitan Life business. Policy reserves are deposited back by the reinsurers.

The amounts repayable to the reinsurers under these agreements are subordinated to the claims of policyholders.

The disclosure of the components of operating profit after income tax expense are required to be separated between policyholders’ andshareholder interests. We have included only one column, as any policyholder profits are an expense of the Life Group and not attributable tothe shareholders.

20


$ millionsFor the year ended 30 June Note 2008 2007

6 Investment Income

Life Insurance ContractsIncome from:Equity Securities (68) 96 Fixed Interest Securities 99 43 Mortgage Investments 1 1 Loans on Policies 3 3 Property Investments (12) 8

23 151

Life Investment ContractsIncome from:Equity Securities (78) 85 Fixed Interest Securities 26 26 Property Investments (7) 6

(59) 117

Other Investment IncomeIncome from:Interest on Cash at Bank 2 9 Interest on Interest Rate Swaps and Annuity 11 2 Other Investments 1 1

14 12

Total Investment IncomeIncome from:Equity Securities (146) 181 Fixed Interest Securities 125 69 Mortgage Investments 1 1 Loans on Policies 3 3 Property Investments (19) 14 Other Investments 14 12 Total Investment Income 49 (22) 280

Income from Equity Securities includes distributions from unit trusts.

7 Other Income

Management and Other Fees 76 72 Net (Loss) / Gain from Foreign Exchange Revaluation (52) 8 Ineffective Portion of Fair Value Hedge - 1 Net Gain / (Loss) from Movement in Fair Value of Swaps 77 (8)Income from Financing Arrangements 1 7 Other Income - 1 Total Other Income 49 102 81

Included within Equity Securities is dividend income of $50m (30 June 2007 $33m), included within Total Investment Income is interest incomeof $95m (30 June 2007 $71m) and included within Total Investment Income are net realised and unrealised losses of $168m (30 June 2007gains of $175m) including net realised and unrealised losses on Derivative Instruments of $95m (30 June 2007 gains of $330m).

Life Group

Included within Management and Other Fees is income from the provision of Fiduciary (Asset Management) services of $26m (30 June 2007$27m). There were net losses on derivative instruments in direct hedging relationships of Nil (30 June 2007 $8m).

21



8 Claims, Surrenders and Maturities

Life Insurance Contracts Death, Disability and Medical Claims 225 220 Maturities 35 38 Surrenders 48 54 Annuities 6 7

314 319

Risk Claims - disclosed in the Income Statement 299 303 Deposit Claims - disclosed in Life Insurance Contract Liabilities 21 15 16

314 319

Life Investment Contracts Deaths 3 4 Maturities 4 3 Surrenders 185 170

192 177

Deposit Claims - disclosed in Life Investment Contract Liabilities 21 192 177

Total Life Claims 506 496

Death, Disability and Medical Claims 228 224 Maturities 39 41 Surrenders 233 224 Annuities 6 7 Total Life Claims 506 496

Risk Claims - disclosed in the Income Statement 299 303 Deposit Claims - disclosed in Life Liabilities 207 193 Total Life Claims 506 496

9 Commission and Management Expenses

Life Insurance Contract Expenses

Acquisition Costs:Commission and Other Direct New Business Costs 78 68 Management Expenses 46 42

124 110 Maintenance Costs:

Commission 41 34 Management Expenses 38 36

79 70 Investment Management Costs 8 8 Total Life Insurance Contract Expenses 211 188

Life Investment Contract Expenses

Acquisition Costs:Commission and Other Direct New Business Costs 1 1 Management Expenses 1 1 Deferred Acquisition Cost Amortisation 3 4



15 16 Investment Management Costs 8 8

28 30 Total Life Investment Contract Expenses 239 218

Life Group

22


$ millionsFor the year ended 30 June Note 2008 2007

9 Commission and Management Expenses (continued)

Life Expenses

Acquisition Costs:Commission and Other Direct New Business Costs 79 69 Management Expenses 47 43 Deferred Acquisition Cost Amortisation 3 4



94 86 Investment Management Costs 16 16 Total Life Expenses 239 218

Non-Life Expenses:

Management Expenses: Superannuation 1 1 Management Expenses: Asset Management 67 43 Other Expenses 7 6 Total Non-Life Expenses 75 50 Total Commission and Management Expenses 49 314 268

Additional DisclosuresOperating Lease Costs 7 6 Impairment*

Leasehold Improvements (1) 1 Office Equipment, Furniture and Fittings & Computer Equipment - 1 Intangible Assets 9 -

Amortisation of Intangible Assets*Internally Developed Software - 1 Other 1 -

DepreciationLeasehold Improvements 3 1 Office Equipment, Furniture and Fittings & Computer Equipment 2 2

Employee Benefits Expense - Wages and Salaries 104 91 Fiduciary Expenses (Asset Management) 10 11

10 Auditor's Remuneration

PricewaterhouseCoopers replaced Ernst & Young as appointed auditor of the Life Group for the year commencing 1 July 2007.

Audit fees paid to PricewaterhouseCoopers for the year ended 30 June 2008 were $1,250k (30 June 2007 $303k). Fees incurred for OtherServices were $170k (30 June 2007 $294k), including fees for Taxation Related Services of $66k (30 June 2007 $103k).

Audit fees paid to Ernst & Young for the year ended 30 June 2007 were $333k and fees incurred for Other Services were $73k.

Life Group

* Impairment of Leasehold Improvements, Office Equipment, Furniture and Fittings, Computer Equipment and Amortisation of IntangibleAssets are included within Commission and Management Expenses in the Income Statement.

23



11 Taxation

Taxation Expense / (Benefit) comprises:Value of current year tax (losses) / profits (11) 61 Adjustment to prior periods (9) - Deferred Tax - current year 23 21 (36)Deferred Tax - prior year 23 12 - Deferred Tax - prior period issuance of Convertible Notes 23 - (124)

13 (99)

Taxation Recognised in the Income Statement 49 22 34 Recognised in Equity: Taxation on Branch Profit Repatriated 29 (9) (9) Deferred Taxation Recognition - Issuance of Convertible Notes 23 - (124)

13 (99)

Net Profit before Taxation 49 125 130 Tax at the Domestic Rate of 33% 41 43 Tax Impact of Income Not Subject to Taxation (133) (64)Tax Impact of Expenses Not Deductible for Tax Purposes 114 55 Taxation Expense 49 22 34

The weighted average applicable tax rate was: 18% 26%


$ millions ICA Group CMLA TotalAs at 30 June 2008

Imputation Credit AccountBalance at Beginning of Year 79 14 93 Net Income Tax Paid 38 9 47 Imputation Credits Attached to Dividends Received 106 1 107 Less: Imputation Credits Attached to Dividends Paid (267) - (267)Transfer from / (to) Policy Credit Account 57 (5) 52 Balance at End of Year 13 19 32

Dividends paid by companies may attach imputation credits representing the New Zealand tax already paid by the company or tax group onprofits. New Zealand resident shareholders may claim a tax credit to the value of the imputation credits attached to the dividends.

The Life Group has formed an imputation group with other members of the CBA Group (the "ICA Group"). CMLA left the ICA Group with effectfrom 1 July 2005. The closing imputation credit account balances presented below represent the imputation credits available to the ICA Groupand CMLA.

Life 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").The closing balance in the PCA can be transferred back to an imputation credit account and therefore is available to shareholders (andshareholders of other ICA Group members).

Net taxable profit of $39m (30 June 2007 $176m) has been generated by the Life Group for the year. Provisional tax payments of $25m (30June 2007 $57m) have been made.

ASB Group (Life) Limited, together with a number of its subsidiary companies, form a consolidated group for income tax purposes (the"Consolidated Tax Group"). The members of the Consolidated Tax Group are: ASB Group (Life) Limited, Sovereign Assurance CompanyLimited and Jacques Martin New Zealand Limited.

The decrease in the tax rate for the year ended 30 June 2008 is due to the change in the level of life premiums, claims and policyholderreserves less tax relief on dividends and the impact of Fair Dividend Rate (FDR) on non Australasian Investments.

The Taxation expense on the Life Group's Net Profit before Taxation differs from the theoretical amount that would arise using the domesticrate as follows:

The availability of income tax losses carried forward and recognised is subject to statutory requirements being met.

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 toNote 23).

24



$ millions ICA Group CMLA Total

As at 30 June 2007

Imputation Credit AccountBalance at Beginning of Year 145 12 157 Opening Balances of Associates entering the ICA Group 1 - 1 Prior Period Adjustment - (4) (4)Net Income Tax Paid 82 13 95 Imputation Credits Attached to Dividends Received 80 - 80 Less: Imputation Credits Attached to Dividends Paid (229) - (229)Transfer to Policy Credit Account - (7) (7)Balance at End of Year 79 14 93

Policyholder Credit Account

$ millions ICA Group CMLA TotalAs at 30 June 2008

Balance at Beginning of Year 57 1 58 Transfer (to) / from Imputation Credit Account (57) 5 (52)Policyholder Liability CMLA - (5) (5)Balance at End of Year - 1 1

As at 30 June 2007

Balance at Beginning of Year 57 8 65 Prior Period Adjustment - (7) (7)Transfer from Imputation Credit Account - 7 7 Policyholder Liability CMLA - (7) (7)Balance at End of Year 57 1 58

25


$ millionsAs at 30 June Note 2008 2007

13 Securities

Equity SecuritiesShares in Listed Companies 692 829 Unit Trusts and Managed Funds 478 558

1,170 1,387

Fixed Interest Securities 13a 800 831

Mortgage InvestmentsMortgages 13b 9 10 Unit Trusts and Managed Funds 28 40 Loans on Policies 29 29

66 79

Property InvestmentsUnit Trusts and Managed Funds 71 86

Annuity Investment 13c 6 6

Total Securities 2,113 2,389

Equity Securities 434 505 Debt Securities 646 744 Property Investments 67 77

1,147 1,326

13a Fixed Interest Securities

New Zealand Government Stock 59 66 Company Debentures 157 165 Medium Term Notes 30 - Foreign Government Stock 554 600

800 831 Maturity Analysis:Under One Year 16 14 Between One and Two Years 29 17 Between Two and Three Years 97 70 Between Three and Four Years 102 106 Between Four and Five Years 71 91 Greater than Five Years 485 533

800 831

13b Mortgages

Spectrum Plus New Zealand Mortgage Trust

Mortgage Valuations

13c Annuity Investment

14 Cash and Cash Equivalents

Cash at Bank and on Deposit 548 516 Foreign Currency Deposits 22 35 Total Cash and Cash Equivalents 38, 49 570 551

Securities include Mortgages carried at an estimated fair value of $9m (30 June 2007 $10m). This fair value was derived using a valuationtechnique that uses experienced judgement to estimate the credit risk component of the valuation. The experienced judgment is not supportedby observable market prices; it is based on assessments concerning economic conditions, loss experience, and the risk characteristicsassociated with the particular mortgages. These assessments are subjective in nature and the range of possible alternative assumptions isconsidered immaterial. The impact of credit risk on the fair value of mortgages as at 30 June 2008 is $1m (30 June 2007 $1m). The change infair value due to change in the credit risk for the year ended 30 June 2008 is Nil (30 June 2007 Nil).

The fair value of the Annuity Investment was derived using a valuation technique that is supported by observable market prices. The maximumcredit risk of the annuity investment is the carrying amount. The amount of change during the year that is attributable to changes in credit riskis Nil (30 June 2007 Nil).

As at 30 June 2008 no Securities were pledged under repurchase agreements or other arrangements (30 June 2007 Nil).

Life Group

Included within Securities are the following investments backing Life Insurance Contract Liabilities:

A current / non current split has not been presented as Securities are liquid assets and the timing of realisation is not known.

The Life Group invests directly in the Spectrum Plus New Zealand Mortgage Trust (managed and promoted by the Life Group), which in turninvests in the ASB Residential Mortgage Trust. The Life Group holds 90% of the Spectrum Plus New Zealand Mortgage Trust (30 June 200788%).

26


15 Derivative Financial Instruments

Non-hedge Derivatives at Fair Value through Profit or Loss

Designated as Fair Value Hedges

Notional and Fair Values

NotionalAmount Assets Liabilities

As at 30 June 2008

FAIR VALUE THROUGH PROFIT OR LOSS

Exchange Rate ContractsForward Contracts - Buy 44 1 - Forward Contracts - Sell 1,339 2 24

Total Exchange Rate Contracts 1,383 3 24

Interest Rate Swaps 1,814 71 1

Total Derivative Financial Instruments 74 25

The Life Group held the following interest rate swaps as at 30 June 2008:

Counterparty Basis Maturity Notional RatesAmount

Deutsche Bank Floating for Floating Rate 25/11/2016 Pay NZD 787 BBR FRA plus 0.68% (9.41%)Receive AUD 700 BBR BBSW plus 1% (8.78%)

ASB Bank Floating for Fixed Rate Current to 31/12/2008 NZD 340 Weighted Fixed Rate (7.43%)ASB Bank Floating for Fixed Rate 01/01/09 to 31/12/2009 NZD 347 Weighted Fixed Rate (7.71%)ASB Bank Floating for Fixed Rate 01/01/10 to 31/12/2010 NZD 340 Weighted Fixed Rate (8.09%)

1,814

Notional$ millions Amount Assets LiabilitiesAs at 30 June 2007

FAIR VALUE THROUGH PROFIT OR LOSS

Exchange Rate ContractsForward Contracts - Buy 637 - 15 Forward Contracts - Sell 2,039 78 -

Total Exchange Rate Contracts 2,676 78 15

Interest Rate Swaps 1,814 10 19

Total Derivative Financial Instruments 88 34

Life Group

$ millions Fair Value

Fair Value

The Life Group enters into derivative transactions which provide economic hedges for risk exposures but do not meet the accountingrequirements for hedge accounting treatment. As stated in Note 1, Summary of Significant Accounting Policies, Part (g) Derivative FinancialInstruments, the Life Group purchases forward currency contracts as economic hedges to manage foreign exchange risk and interest rateswaps as economic hedges to manage interest rate risk. Gains or losses on the forward contracts have been recorded in Investment Incomewith the gains or losses on the Securities they economically hedged. Gains or Losses on the interest rate swap and foreign currency couponswap have been recorded in Other Income with the Foreign Exchange Revaluation gains or losses on the Borrowings to which they relate.

The forward currency contracts taken out do not exceed 6 months. At balance date these contracts have varying maturity dates.

The notional amount is the contractual amount of the derivatives and provides a basis for comparison with instruments recognised on theBalance Sheet. This amount is not necessarily exchanged and does not indicate the Life Group’s exposure to price risk. The amountpredominantly acts as a reference value upon which interest payments and net settlements can be calculated and on which revaluation isbased. The “Face Value” of derivative financial instruments on hand, the favourable or unfavourable market values of these instruments, andthe consequent aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time. The fair values ofderivative instruments held are set out in the following table.

The Life Group had a fair value hedge consisting of a cross currency swap that was used to protect against changes in the fair value of thefixed rate Eurobond Borrowings due to foreign exchange and market interest rate changes. The Eurobond Borrowing and the swap werenovated on 26 January 2007. No gain or loss was recognised on the fair value hedge in the year ended 30 June 2008 (30 June 2007 $1m).

27


16 Investments in Subsidiaries

The Life Group has an interest in the following entities:

Entity name % Nature of business Balance Date

Aegis Limited 100 Investment Administration and Custody 30 JuneASB Group (Life) Limited 100 Holding Company 30 JuneASB Group Investments Limited 100 Investment Administration and Management 30 JuneColonial First State Investments (NZ) Ltd 100 Investment Administration 30 JuneColonial First State Investments Managers (NZ) Limited 100 Investment Administration 30 JuneColonial Holding Company Limited (NZ Branch) 100 Financial Services 30 JuneInvestment Custodial Services Limited 100 Investment Custodian 30 JuneJacques Martin New Zealand Limited 100 Investment and Registry Administration 30 JuneKiwi Income Properties Limited 100 Property Management 30 JuneKiwi Property Holdings Limited 100 Investment Administration 30 JuneKiwi Property Management Limited 100 Investment Administration 30 JuneKuranda Investments Limited 50 Non-trading 30 JuneSovereign Assurance Company Limited 100 Life Insurance 30 JuneSovereign Financial Services Limited 100 Financial Services 30 JuneSovereign Limited 100 Holding Company 30 JuneSovereign Services Limited 100 Administration Services 30 JuneSovereign Superannuation Funds Limited 100 Superannuation Scheme Manager 30 JuneSovereign Superannuation Trustees Limited

2 100 Trustee Company 30 JuneSST (2002) Limited 100 Non-trading 30 JuneSuper Trustees of New Zealand Limited 100 Trustee Company 30 JuneSylvia Park Business Centre Limited 100 Administration Services 30 JuneThe Colonial Mutual Life Assurance Society Limited (NZ Branch) 100 Life Insurance 30 JuneWestside Properties Limited 100 Asset Leasing 30 June

Securitised Mortgage SubsidiariesMortgage Holding Trust Company Limited 1 0 Trustee Company 30 June

Controlled Unit TrustsSpectrum Plus New Zealand Mortgage Trust 90 Investment 31 MarchInvestor Wholesale New Zealand Equity Trust 76 Investment 30 June

1.

2.

All entities were incorporated in New Zealand.

The Life Group considers it holds the control over Mortgage Holding Trust Company Limited and consequently this company isconsolidated.

Super Trustees of New Zealand Limited was amalgamated into Sovereign Superannuation Trustees Limited on 27 June 2008. The amalgamation did not have any impact on the net assets of the Life Group.

28


$ millions Leasehold Improvements

Office Equipment, Furniture & Fittings and

Computer Equipment Total

17 Property, Plant and Equipment

As at 30 June 2008

Cost 6 28 34 Work in Progress 33 - 33 Accumulated Impairment (1) (1) (2)Accumulated Depreciation (5) (22) (27)Opening Net Book Value 33 5 38

Additions 36 2 38 Work in progress (33) - (33)Depreciation (3) (2) (5)Impairment 1 - 1 Closing Net Book Value 34 5 39

Cost 38 13 51 Accumulated Depreciation (4) (8) (12)Closing Net Book Value 34 5 39

As at 30 June 2007

Cost 6 24 30 Work in Progress 4 - 4 Accumulated Depreciation (4) (20) (24)Opening Net Book Value 6 4 10

Additions - 4 4 Work in Progress 29 - 29 Impairment (1) (1) (2)Depreciation (1) (2) (3)Closing Net Book Value 33 5 38

Cost 6 28 34 Work in Progress 33 - 33 Accumulated Impairment (1) (1) (2)Accumulated Depreciation (5) (22) (27)Closing Net Book Value 33 5 38

Life Group

29


$ millions Note Goodwill

Internally Developed

Software Other Intangible

Assets Total

18 Intangible Assets

As at 30 June 2008

Cost 559 13 3 575 Accumulated Amortisation - (6) (2) (8)Accumulated Impairment - (4) - (4)Opening Net Book Value 559 3 1 563

Additions - 12 - 12 Impairment - (9) - (9)Amortisation - - (1) (1)Closing Net Book Value 559 6 - 565

Cost 559 24 3 586 Accumulated Amortisation - (5) (3) (8)Accumulated Impairment - (13) - (13)Closing Net Book Value 49 559 6 - 565

As at 30 June 2007

Cost 559 10 3 572 Accumulated Amortisation - (5) (2) (7)Accumulated Impairment - (4) - (4)Opening Net Book Value 559 1 1 561

Additions - 3 - 3 Amortisation - (1) - (1)Closing Net Book Value 559 3 1 563

Cost 559 13 3 575 Accumulated Amortisation - (6) (2) (8)Accumulated Impairment - (4) - (4)Closing Net Book Value 559 3 1 563

Impairment Tests for Goodwill

Goodwill arose in ASBGL and CMLA from the purchase of the Prudential Assurance Company in 1998 and the purchase of Sovereign GroupLimited in 2001. This goodwill is allocated to the Life Insurance and Superannuation cash-generating unit. Under NZ IAS 36 a cash-generatingunit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the goodwill may beimpaired. The recoverable amounts are determined based on value-in-use calculations.

Life Group

Goodwill of $52m also arose from the purchase of Kiwi Income Properties Limited and a property management business by CFSI. This goodwillis tested for impairment based on value-in-use calculations. These calculations use cash flow projections for the CFSI's underlying assetsbased on the financial budgets approved by management covering a 5 year period. Cash flows beyond 5 years are extrapolated based on pastperformance and management's expectations for the future.

The recoverable amount for the life insurance business has been determined based on a fair value calculation. The calculation requires ASBGLand CMLA to make an estimate of the total of the adjusted net worth of the life insurance business plus the value of in-force covered business.This is calculated in accordance with the embedded value principles. New business contribution represents the present value of the projectedfuture distributable profits generated from business written in a period. Growth and discount rates used are suitable rates which reflect the risksof underlying cash flows. The cash flow projections are based on best estimate assumptions of future experience for the expected duration ofpolicies. The Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill was introduced into Parliament on 2 July 2008 andincludes comprehensive changes to the current taxation of life insurance business in New Zealand. The likely impact of these proposedchanges has been considered in our assessment of impairment of goodwill.

The appraisal value methodology employed in assessing excess market value over net tangible assets of ASBGL and CMLA is deemed bymanagement to be an appropriate proxy for determining value in use. The appraisal value is a discounted cash flow valuation, taking account ofexisting and future business. The key assumptions used in the projection of cash flows are the same as those key assumptions used indetermining policy liabilities (refer to Note 2). The discount rates used at 30 June 2008 were 10.43% for life insurance business (30 June 200710.83%) and 12.35% for funds management and unit linked business (30 June 2007 12.75%).

30



19 Trade and Other Receivables

Outstanding Premiums 17 15 Agent Balances Receivable 1 - Amounts Due from Reinsurers 17 8 Amounts Due from Related Parties 32 6 8 Investment Receivables 28 30 Other Current Assets 9 8 Total Trade and Other Receivables 38, 49 78 69

20 Other Assets

Deferred Acquisition Cost - Life Investment Contract Liabilities 25 28 Retirement Benefit Obligations 20a 1 2

26 30

20a Retirement Benefit Obligations

Recognition of Actuarial Gains and Losses

Actuarial gains and losses are fully recognised each year.

Description of Plans

As at 30 June 2008 2007 2008 2007

Reconciliation of Amounts Recognised in the Balance Sheet

Present Value of Funded Obligations (4) (5) (5) (5)Fair Value of Fund Assets 4 4 10 10 (Deficit) / Surplus - (1) 5 5

Adjustment for Limit on the Use of Net Assets - - (4) (4)- (1) 1 1

Specified Superannuation Contribution Withholding Tax - - - 1 (Liability) / Asset Recognised in the Balance Sheet - (1) 1 2

Reconciliation of the Present Value of Funded Obligations

Present Value of Funded Obligations at Beginning of Year 5 6 5 6 Interest Cost - - 1 - Benefits Paid (1) (1) (1) (1)Present Value of Funded Obligations at End of Year 4 5 5 5

Reconciliation of the Fair Value of Fund Assets

Fair Value of Fund Assets at Beginning of Year 4 5 10 10 Expected Return on Assets - - 1 - Actuarial (Losses) / Gains 1 - - 1 Benefits Paid (1) (1) (1) (1)Fair Value of Fund Assets at End of Year 4 4 10 10

Income / (Expense) Recognised in the Income Statement

Interest Cost - - (1) - Expected Return on Assets - - 1 - Recognised Actuarial Gain / (Loss) 1 - (1) 1 Adjustment for Limit on the Use of Net Assets - - - (1)Superannuation Income / (Expense) 1 - (1) -

Actual Investment Income on Fund Assets - - (1) 1

Life Group

The Sovereign Staff Retirement Fund is a superannuation scheme with a defined benefit section and a defined contribution section,together with pensioners in payment. The date of the last actuarial review of the scheme was 30 June 2007.

The Prudential Assurance Co NZ Ltd Pension Scheme (PACNZ) is a defined benefit plan with only pensioners in payment now remainingin the scheme. The date of the last actuarial review of the scheme was 31 March 2007.

The next tri-annual actuarial review of both schemes is scheduled for 31 March 2010.

PACNZ Pension Scheme Sovereign Staff Retirement Fund

31



20 Other Assets (continued)

20a Retirement Benefit Obligations (continued)

Movement in the Net (Liability) / Asset Recognised in the Balance Sheet

Net (Liability) / Asset at Beginning of Year* (1) (1) 2 2 Net Income / (Expense) Recognised in the Income Statement 1 - (1) - Net (Liability) / Asset at End of Year* - (1) 1 2

* Inclusive of specified superannuation contribution withholding tax.

The PACNZ Pension Scheme is included under Other Liabilities within Employee Entitlements.

Fund AssetsThe distribution of Fund assets at the Balance Sheet date is as follows:

2008 2007 2008 2007

Australasian Shares n/a n/a 19% 19%Global Shares n/a n/a 40% 41%Global Fixed Interest 100% 100% 36% 35%Cash n/a n/a 5% 5%

Fair Value of fund Assets

2008 2007 2008 2007

Discount Rate (before tax and expenses) 6.40% pa 5.90% pa 6.43% pa 6.87% paExpected Return on Fund Assets 6.40% pa 5.90% pa 7.86% pa 6.02% paRate of increase in Salaries n/a n/a 3.50% pa 3.50% paRate of increase in Pensions 2.50% pa 2.50% pa 2.50% pa 2.50% pa

Additional salary increases in respect of promotion are assumed.

Historical Information

$ millionsFor the Year Ended 30 June 2008 2007 2006

Present Value of Funded Obligations (4) (5) (6) Fair Value of Fund Assets 4 4 5 Fund Deficit - (1) (1)

Experience Adjustments on Fund Assets - Gain 1 - -

$ millionsFor the Year Ended 30 June 2008 2007 2006

Present Value of Funded Obligations (5) (5) (6) Fair Value of Fund Assets 10 10 10 Fund Surplus 5 5 4

Experience Adjustments on Fund Assets - (Loss) / Gain - (1) 1

PACNZ Pension Scheme

Sovereign Staff Retirement Fund

PACNZ Pension Scheme Sovereign Staff Retirement Fund

Sovereign Staff Retirement Fund PACNZ Pension Scheme

Principal Actuarial Assumptions at the Balance Sheet Date (expressed as weighted averages)

Sovereign Staff Retirement Fund PACNZ Pension Scheme

The expected return on assets assumption is determined by weighting the expected long-term return for each asset class by the targetallocation of assets to each asset class. The returns used for each asset class are net of investment tax and all expense.

32



21 Life Insurance Contract Liabilities and Life Investment Contracts

Life Insurance Contract Liabilities

Opening Life Insurance Contract Liabilities 924 955 Maturities and Surrenders 8 (15) (16)Recognised in Income Statement* (163) (15)Closing Life Insurance Contract Liabilities 746 924

Life Insurance Contract LiabilitiesExpected to be Realised Within 12 Months (52) (34)Expected to be Realised in more than 12 Months 798 958

746 924

Life Insurance Contract Liabilities - Recognised in Income Statement (163) (15)Increase in Reinsurance Assets - Recognised in Income Statement 22 (1) (5)(Decrease) / Increase in Deposited Reserves - Recognised in Income Statement 22 (4) - Net Change in Life Insurance Contract Liabilities (168) (20)

Life Insurance Contracts with a Discretionary Participation Feature - the amount of the liabilities that relates to guarantees 625 715 Investment Linked Contracts - the amount of the liabilities subject to investment performance guarantees 13 18 Other Contracts with a Fixed or Guaranteed Termination Value - current termination value - 3

Life Insurance Contract Liabilities contain the following components:

Future Policy Benefits 4,473 3,487 Future Bonuses 288 303 Future Expenses 1,437 1,060 Future Planned Margins of Revenues over Expenses 853 651 Future Premiums (6,158) (4,474)Unvested Policyholder Benefits 58 66 Deferred Taxation (205) (169)

746 924

Life Investment Contracts

Opening Life Investment Contracts 1,298 1,316 Deposit Premium 4 102 111 Maturities and Surrenders 8 (192) (177)Recognised in Income Statement (96) 48 Closing Life Investment Contracts 1,112 1,298

Opening Deferred Income Reserve 82 93 Recognised in Income Statement (8) (11)Closing Deferred Income Reserve 74 82

1,186 1,380

Life Investment ContractsExpected to be Realised Within 12 Months 41 70 Expected to be Realised in more than 12 Months 1,145 1,310

1,186 1,380

The maturity value of these financial liabilities is determined by the fair value of the linked assets at maturity date.

Life Group

* The item 'Recognised in Income Statement' is stated gross of reinsurance. The reinsurance figures recognised in the Income Statement areincluded in Note 22.

The impact on the fair value of Life Investment Contracts due to changes in credit risk is Nil (30 June 2007 Nil).

33



22 Reinsurance Assets and Liabilities

Liabilities ceded under ReinsuranceBalance at Beginning of Period 59 54 Increase in Reinsurance Assets recognised in Net Change in Life Insurance Liabilities reported in the Income Statement 21 1 5 Balance at End of Year 60 59

Deposited Reserves (Life Insurance Component)Balance at Beginning of Period 44 44 Decrease in Deposited Reserves recognised in Net Change in Life Insurance Liabilities reported in the Income Statement 21 (4) - Balance at End of Year 40 44

23 Deferred Taxation Liability

Balance at Beginning of Year 70 230 Taxation Expense recognised in the Income Statement 11 33 (36)Convertible Notes issued recognised in Equity 11 - (124)Total Deferred Taxation Liability 103 70

Deferred Taxation relates to:Provision for Impairment Loss - (1)Depreciation (6) (2)Holiday Pay (1) (1)Provision for Bonuses - (3)Provision for Premiums Paid in Advance 3 1 Deferred Acquisition Costs and Other Intangible Assets 8 9 Deferred Taxation on Life Insurance Contract Liabilities and Life Investment Contracts 183 144 Unrealised (Loss) / Gain of Investments (12) 20 Unamortised Convertible Notes and Related Derivative Financial Instruments (101) (121)Accrued Expenses and Provisions 29 24 Total Deferred Taxation Liability 49 103 70

Deferred Taxation recognised in the Income Statement:Provision for Impairment Loss 1 (1)Depreciation (4) 1 Provision for Bonuses 3 - Provision for Premiums Paid in Advance 2 - Deferred Acquisition Costs and Other Intangible Assets (1) (2)Deferred Taxation on Life Insurance Contract Liabilities and Life Investment Contracts 39 19 Increase in Unrealised Investment Losses / Decrease in Unrealised Gains (32) (44)Amortisation of Convertible Notes and Increase in Unrealised Gains on Related Derivative Financial Instruments 20 3 Accrued Expenses and Provisions 5 (12)Total Deferred Taxation recognised in the Income Statement 11 33 (36)

Deferred Taxation recognised in Equity:Issuance of Convertible Notes - 135 Impact of Future Reduction in Tax Rate - (11)Total Deferred Taxation recognised in Equity 28 - 124

Life Group

The amount of Deferred Tax Liability, exclusive of Convertible Notes, that is expected to be recovered / settled after more than 12 months is$168m (30 June 2007 $163m). The Deferred Tax Benefit on Convertible Notes settled after more than 12 months is $104m (30 June 2007$111m).

On issuance of the Convertible Notes, a Deferred Tax Asset (NZD $135m) was created to recognise the future benefit of the debt componentof the Convertible Notes. The tax return includes the coupon interest paid as deductible in full on an accruals basis. For accounting purposes,the coupon payments are split between interest and principal repayment of the debt component of the Convertible Notes. The Deferred TaxAsset will reduce and be amortised as a current tax benefit as the debt component reduces. An amount of $9m will be amortised in the next 12months, and the balance has been restated to reflect the 3% tax rate change. The 30 June 2008 value remaining in Deferred Tax is $122m(30 June 2007 $121m).

All amounts remaining which will not crystallise within 12 months in Deferred Tax have been restated to reflect the 3% reduction in tax rateeffective from the 2009 tax year.

34



24 Borrowings

Current portion 30 30 Non-current portion 377 350

38 407 380

25 Trade and Other Payables

Trade Accounts Payable 25a 65 50 Sundry Creditors and Accruals 25b 47 41 Amounts Due to Related Parties 32 9 4 Employee Entitlements 17 13 Deferred Fees 25c 15 16 Dividends Payable 7 5 Total Trade and Other Payables 38, 49 160 129

25a Trade Accounts PayableAgent Balances 2 1 Deposits Held for Unissued Policies 15 13 Outstanding Claims 40 31 Amounts Due to Reinsurers 8 5

65 50

25b Sundry Creditors and AccrualsExpense Creditors 24 31 Interest Payable 8 6 Investment Creditors 15 4

47 41

25c

26 Provisions

Information Systems 26a 1 2 Marketing Costs 26b - 2 Systems Upgrade 27c 5 - Total Provisions 6 4

Current portion 6 4

26a Information Systems Balance at Beginning of Year 2 2 Less: Amounts Written Back Unused (1) - Balance at End of Year 1 2

Following the assignment of the Convertible Notes to CHC, on 25 November 2016 (or such earlier date agreed between the Life Groupand CHC), the terms and conditions of the Convertible Notes will change, with the Convertible Notes then being labelled as MandatoryConvertible Notes (“MCNs”). Each MCN will have a face value equal to the NZD equivalent of AUD100 and will bear interest quarterly inarrears at the rate of BKBM plus a margin. The MCNs will be perpetual securities and will only be repaid if they are redeemed byASBGL.

This provision is for anticipated expenses relating to the alignment of multiple business systems and processes.

There have been no defaults on payments of interest or principal during the year ending 30 June 2008 (30 June 2007 Nil).

Life Group

The fees are to compensate the Life Group for additional costs to be incurred over the terms of the restructuring arrangements and areproportionately rebatable if the related debt is assigned or novated prior to the contracted maturity. The fees have been deferred andamortised over the contractual terms of the relevant arrangement on a basis that closely matches a notional effective interest rate.

Fees were received as part of the funding restructure which incorporated the issuing of the Convertible Notes (refer to Note 24).

While any MCNs are outstanding, ASBGL must, 10 years after the transition to MCNs (or earlier if an early conversion event occurs,which includes ASBGL at its sole discretion electing to convert) apply the face value of any outstanding MCNs to subscribe forpreference shares (or alternative securities with the same rights and benefits) on the basis that one MCN will convert into onepreference share (or alternative security). The preference shares are perpetual in nature. Dividends on the preference shares will bepaid quarterly unless the directors of ASBGL resolve that it would be imprudent to do so.

The liability component of the Convertible Notes was initially measured at the value of the discounted contractual cash flows(NZD408m).

On 10 October 2006, ASB Group (Life) Limited ("ASBGL") issued 7 million AUD100 notes (AUD700m, NZD787m) to two externalcounterparties ("Convertible Notes"). The Convertible Notes carry a contractual obligation to make quarterly interest payments in AUDof BBSW plus a margin of 1% per annum, for a maximum of 10 years.

The Convertible Notes will be assigned to Colonial Holding Company Limited (“CHC”), also a subsidiary of CBA, on 10 October 2016 (orat an earlier date if a certain specified event occurs).

35



26 Provisions (continued)

26b Marketing CostsBalance at Beginning of Year 2 - Additional Provided - 2 Less: Costs Incurred (2) - Balance at End of Year - 2

26c Systems UpgradeBalance at Beginning of Year - - Additional Provided 5 - Balance at End of Year 5 -

27 Contributed Capital - Ordinary Shareholder

Issued Ordinary Share CapitalBalance at Beginning of Year 5 5 Repayment of Capital (5) - Balance at End of Year - 5

28 Contributed Capital - Convertible Notes

Convertible NotesBalance at Beginning of Year 503 - Convertible Notes Issued - 379 Convertible Notes Issued - Deferred Taxation Recognition 23 - 124 Balance at End of Year 503 503

29 Retained Earnings / (Accumulated Losses)

Balance at Beginning of Year 31 (103)Net Profit after Taxation 3, 49 103 96 Branch (Profit) / Deficit Repatriated (28) 29 Taxation on Branch Profit Repatriated 11 9 9 Balance at End of Year 115 31

30 Head Office Contribution

Balance at Beginning of Year 300 497 Utilised by Branch - (77)Repaid Head Office Contribution - (120)Balance at End of Year 300 300

The $77m contribution from Colonial First State Investments Limited to its New Zealand Branch was used to fund the operations of thebranch, which was closed during the year ended 30 June 2007.

On 16 September 2005 Colonial Holding Company Limited advanced $360m to Colonial Holding Company Limited New Zealand Branch. Afurther $60m was advanced on 23 December 2005, bringing the entire Head Office Contribution to Colonial Holding Company Limited NewZealand Branch to $420m. $120m of the Contribution issued on 16 September 2005 was subsequently repaid during the year ended 30June 2007.

On 10 October 2006 ASBGL issued Convertible Notes of which the key terms are disclosed in Note 24. The $379m equity component ofthese Convertible Notes is the residual value after deducting the fair value of the liability component from the fair value of the ConvertibleNotes as at 10 October 2006.

Share Capital includes 100 ordinary shares paid to $1.00 and 10,000,000 unpaid ordinary shares in ASBGL (30 June 2007 100 ordinaryshares paid to $1.00 and 10,000,000 unpaid ordinary shares) and 200,000 fully paid Ordinary Shares in Colonial First State Investment (NZ)Limited (30 June 2007 200,000 fully paid Ordinary Shares).

All Ordinary Shares have equal voting rights and share equally in dividends and profit on winding up in the respective companies.

There were no changes to Head Office Contribution during the year ended 30 June 2008.

The provision was for committed marketing costs relating to initiation of Kiwisaver scheme.

This provision is for required systems upgrade costs primarily for the ongoing accommodation of the KiwiSaver related business.

On 30 June 2008 Colonial First State Investment Managers (NZ) Limited repaid 4,999,999 shares to its parent company. 1 fully paidOrdinary Share remained on issue (30 June 2007 5,000,000 fully paid Ordinary Shares).

Life Group

36



31 Capital Management

The Capital of the Life Group is managed separately for ASBGL and CMLA, CFSI and its subsidiaries and CHC NZ Branch.

ASBGL and CMLA

The objectives of ASBGL and CMLA with regard to management of capital adequacy are:

(i)

(ii)(iii)

The target surplus as at 30 June 2008 was $95m (30 June 2007 $95m).

The solvency position of the life insurance entities is as follows:

Sovereign Assurance Company LimitedEquity of Shareholder 498 434 Less: Equity retained for solvency purposes (401) (327)Equity Available for Distribution 97 107

The Colonial Mutual Life Assurance Society Limited - New Zealand BranchEquity of Shareholder 31 28 Less: Equity retained for solvency purposes (13) (13)Equity available for Distribution 18 15

The equity available for distribution was determined as follows:

(a)

Sovereign Assurance Company LimitedInsured life mortality: +10% Insured life mortality: +20%Trauma claims: +30%Disability income active life claims: +50% Disability income active life claims: +50%Termination rates for disability income claims in payment: -25% Disability income claims in payment: +30%

Servicing costs: 2.5% margin Servicing costs: 5% margin

Voluntary discontinuances: 25% margin Voluntary discontinuances: +25% to +75%

The margins are unchanged from the previous year. The margins are unchanged from 30 June 2007.

(b)

(c)

(d)

(e)

(f)

(g)

CFSI

to support the future development and growth of the business to maximise shareholder value.to maintain a strong capital base to cover the inherent risks of the business; and

to comply at all times with the solvency requirements set out in the "New Zealand Society of Actuaries Professional Standard No. 5Solvency Reserving for Life Insurance Business" (PS5);

The respective Boards of Directors have ultimate responsibility for capital management, and approve capital policy and minimum capital levelsand limits. Minimum capital levels are set based on maintaining a target surplus in excess of that required by PS5. The level of target surplustakes account of management assessments of actual risk and forecasts / stress testing of future capital requirements.

The amount in (d) was increased by a resilience reserve calculated to allow for adverse changes in investment returns and exchange rates.

The amount in (e) was increased by a reserve for inadmissible assets, subject to look through provisions.

Investment Earnings: the valuation discount rates as set out in Note 2 (a) were used, but with a maximum of the mid swap rate.

Investment Earnings: the valuation discount rates as set out in Note 2 (a) were used, but with a maximum of the Australian mid swap rate.

Life Group

For each related product group a prudential reserving liability was calculated. The prudential reserving liability was determined in thesame manner as the best estimate policy liability but with prudential reserving assumptions. The prudential reserving assumptions arederived by modifying the best estimate assumptions by applying margins for adverse deviations from expected experience. Themargins applied include:

For each related product group the greater of the amount in (a) and the total of the current termination value of all policies in the related product group was taken.The amount in (b) was increased by an expense reserve based on the non-commission acquisition costs incurred in the previous twelve months.

CFSI considers Ordinary Share Capital and Retained Earnings to be capital for management purposes. CFSI has no externally imposedcapital requirements. The respective Directors of CFSI and CFSI Investment Managers (NZ) Ltd are ultimately responsible for themanagement of capital. CFSIs objectives when managing capital are to safeguard CFSIs ability to continue as a going concern in order toprovide returns to the shareholder and benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.There have been no material changes in CFSI's management of capital during the year.

The Colonial Mutual Life Assurance Society Limited - New Zealand Branch

The amount in (c) was increased by the liability to other creditors of the life insurance funds, excluding debt subordinated to the interests of policyholders.

ASBGL and CMLA actively monitor their capital adequacy and report this on a regular basis to senior management and their respectiveBoards. This includes forecasting capital requirements so that they can be executed in a timely manner.

The amount in (f) was compared with the assets of the fund to determine the equity available for distribution.

37


31 Capital Management (continued)

CHC

32 Related Party Transactions and BalancesBanking GroupAnnuity Investment

Cash and Deposits

Securities

Derivative Transactions

Expenses and Services

Insurance Commissions

Funds Management

Mortgages

Taxation

Other Fellow CBA Subsidiaries

Borrowings & Hedging

Securities

Investment Management

Transactions with Parent Company

Transactions with Superannuation, Unit and Other Trusts Managed by the Group

The Life Group has cash balances and deposits of $537m with the Banking Group (30 June 2007 $494m). The Life Group received interestincome on these deposits of $45m (30 June 2007 $39m). The Life Group manages and administers a number of Superannuation, Unit andOther Trusts. These trusts hold some of their funds with the Banking Group. Total deposits held with the Banking Group as at 30 June 2008were $1,073m (30 June 2007 $1,288m). Interest income was received on these deposits of $94m (30 June 2007 $74m). These deposits areheld on normal commercial terms and conditions.

The Life Group paid $2m (30 June 2007 $2m) to First State Investment Management (UK) Limited for the provision of investment managementservices.

The Life Group has paid insurance commissions of $24m to the Banking Group (30 June 2007 $19m).

The Life Group has CBA Equity Securities of $9m (30 June 2007 Nil) and received net income on CBA Equity Securities during the year of Nil(30 June 2007 Nil).

CHC considers the Head Office Contribution from CHC Ltd to be capital for management purposes. CHC has no externally imposed capitalrequirements. CHCs objectives when managing capital are to safeguard CHCs ability to continue as a going concern in order to provide returnsto Head Office and benefits to other stakeholders. There have been no material changes in CHC's management of capital during the year.

The Life Group paid $1m (30 June 2007 $1m) to Colonial First State Investments Limited for the provision of investment management services.

The Life Group has an annuity investment with the Banking Group (refer to Note 13). During the year the Life Group received interest incomeof $1m (30 June 2007 $1m).

The Life Group paid the Banking Group $23m (30 June 2007 $20m) for the provision of services. Services included human resource, legal,internal audit, property management, strategic research, finance, executive, computer leasing and information technology support.

The Life Group received $13m (30 June 2007 $14m) from the Banking Group for the recovery of costs relating to the origination of mortgages.

Trusts managed or administered by the Life Group have foreign exchange contracts with the Banking Group with a face value of $776m (30June 2007 $1,179m). There are net unrealised gains on these contracts of $22m (30 June 2007 gains of $23m).

The Life Group has foreign exchange forward contracts with the Banking Group with a face value of $1,383m (30 June 2007 $2,676m) andinterest rate swaps with a face value of $1,027m (30 June 2007 $1,027m). There are net unrealised losses on these contracts of $14m (30June 2007 gains of $69m). The Life Group received interest income of $10m (30 June 2007 $2m) from interest rate swaps with the BankingGroup.

The Life Group received no fees in the year ending 30 June 2008 from Colonial Holding Company Limited (30 June 2007 $21m) and TheColonial Mutual Life Assurance Society Limited (30 June 2007 $3m), in relation to debt restructuring arrangements (refer to Note 25). $15m (30 June 2007 $16m) of these fees remains deferred and will be amortised over the remaining term of the arrangement.

The Life Group holds Securities issued by the Banking Group of $34m (30 June 2007 $10m). The Life Group received interest income onSecurities issued by the Banking Group of Nil (30 June 2007 Nil).

Receipts of $9m (30 June 2007 $13m) were received from the NZ Mortgage Income Fund of which $8m (30 June 2007 $12m) were paid to theBanking Group. Payments of $5m (30 June 2007 $5m) were made to the Banking Group for distribution of fund management products.

Net payments of $22m (30 June 2007 $39m) were made to the Banking Group, relating to the utilisation of tax related items.

The Life Group had a Cross Currency Swap with CBA which was novated on 26 January 2007.

The Life Group holds Securities issued by Trusts that it manages of $120m (30 June 2007 $148m). The Life Group received interest anddividends on Securities issued by these Trusts of $13m (30 June 2007 $3m).

The Life Group holds Securities issued by other fellow CBA subsidiaries of $26m (30 June 2007 $27m). The Life Group received interest anddividends on Securities issued by other fellow CBA subsidiaries of $1m (30 June 2007 $1m).

The Life Group did not repay any borrowings to The Colonial Mutual Life Assurance Society Limited (30 June 2007 $344m) and did not incurany interest for the year ended 30 June 2008 of Nil (30 June 2007 $6m).

38



32 Related Party Transactions and Balances (continued)

Subsidiaries acting as Fund Managers

Transactions with Subsidiaries

Balances with Related Parties:

Commonwealth Bank of Australia and subsidiaries:Banking Group (8) (3)Colonial First State Investments Limited 1 (1)First State Investment Management (UK) Limited (1) -

Balances with Trusts Administered and Managed by the GroupComplete Investor Plan Super 3 6 ASB Unit Trusts 2 2

(3) 4 Disclosed as follows:Amounts Due to Related Parties 25 (9) (4)Amounts Due from Related Parties 19 6 8

(3) 4

33 Directors and Key Management Personnel

Key Management Compensation Short Term Employee Benefits 10 7

The Life Group has no other transactions or balances with Key Management Personnel.

34 Leasing Commitments

The following non-cancellable operating lease commitments existed at the end of the year:

Within One Year 5 5 Between One and Two Years 5 5 Between Two and Five Years 14 15 Over Five Years 54 58 Total Leasing Commitments 78 83

35 Contingent Liabilities and Capital Commitments

Contingent Liabilities

Capital Commitments

There are no other material contingent liabilities as at 30 June 2008 (30 June 2007 Nil).

The Life Group has entered into contracts for the fit out and provision of building services in the new Sovereign head office premises atSmales Farm, Takapuna. The total estimated capital commitments for these contracts is $1m (30 June 2007 $1m).

Should the IRD issue reassessments to SACL in respect of the reinsurance arrangements for all relevant tax years and should SACL notsucceed in challenging these assessments in Court, the estimated maximum potential additional tax liability including use of money interestand excluding penalties would be $49m as at 30 June 2008 (30 June 2007 $64m). The reduction in estimated liability has arisen as a result ofthe IRD's Adjudication Unit finding in favour of SACL on certain aspects of the dispute.

Life Group

On 6 October 2005, the Life Group signed an 18 year lease on Sovereign House, its Head Office premises at Smales Farm, Auckland. Thelease term commenced in October 2007. A fixed rate of increase will be applied to the annual lease cost. The lease is being accounted for ona straight line basis over its full term. The Life Group has a number of other properties under operating leases. The leases have a variety oflease periods and a number of the leases contain options to renew.

On 30 September 2005, SACL received a reassessment from the Inland Revenue Department (IRD) in relation to the tax treatment ofreinsurance arrangements in the 2000 tax year. SACL subsequently received reassessments in respect of the arrangements for the 2001 and2002 tax years in March 2008. Based on independent tax and legal advice, SACL has lodged proceedings in the High Court to challengethese reassessments. The High Court has agreed to adjourn case management conferences to allow both parties to make further progress inresolving this dispute. The IRD has also issued Notices of Proposed Adjustment for the 2003 and 2004 years on the same basis adopted inrespect of the previous years. SACL has issued Notices of Response rejecting the proposed adjustments.

SACL is confident the tax treatment it has adopted for the transactions to which the assessment relates is correct. SACL has consistentlyapplied this tax treatment to its reinsurance arrangements since inception of the arrangements (1992 and 1996) and that tax treatment hasbeen reviewed by the IRD under previous IRD audits.

Subsidiaries of the Life Group act as fund managers for superannuation schemes, property investment schemes and investment funds.

Refer to Note 16 for details of the Life Group's Interests in Subsidiaries.

In addition to those disclosed elsewhere in these financial statements, the Life Group has generated debtor and creditor balances with relatedparties in the ordinary course of operations during the year. The balances are settled on a regular basis. The amounts due to / (from) the LifeGroup by / (to) related parties are as follows:

39


LifeInsurance and Asset

$ millions Superannuation Management Other Total

36 Financial Reporting by Segments

Primary Segment Information - Business

Operating Income Derived from Outside Life Group 518 62 25 605 Inter-Segment Operating Income - (15) - (15)Total Operating Income 518 47 25 590 Net Profit Before Taxation 127 (16) 14 125

Tax Assets 58 6 2 66 External Non Tax Assets 3,430 17 78 3,525 Total External Assets 3,488 23 80 3,591

Inter-segment Assets 3 2 - 5

Assets Under Management (Not Consolidated) 1,616 929 2,066 4,611 Assets Under Administration (Not Consolidated) 4,664 4,541 - 9,205

Tax Liabilities 104 - (1) 103 External Non Tax Liabilities 2,546 13 11 2,570 Total External Liabilities 2,650 13 10 2,673

Inter-segment Liabilities 2 3 - 5

Acquisition of Property, Plant & Equipment, Intangible Assets, & Other Non-current Assets 8 8 1 17 Depreciation & Amortisation Expense 6 - - 6 Impairment of Leasehold Improvements (1) - - (1)Impairment of Intangible Assets - 9 - 9

Operating Income Derived from Outside Life Group 763 66 22 851 Inter-Segment Operating Income - (17) - (17)Total Operating Income 763 49 22 834 Net Profit Before Taxation 111 6 13 130

Tax Assets 16 - 1 17 External Non Tax Assets 3,679 32 76 3,787 Total External Assets 3,695 32 77 3,804

Inter-segment Assets 6 1 - 7

Assets Under Management (Not Consolidated) 1,585 1,422 1,919 4,926 Assets Under Administration (Not Consolidated) 5,902 4,859 - 10,761

Tax Liabilities 72 - (2) 70 External Non Tax Liabilities 2,879 7 9 2,895 Total External Liabilities 2,951 7 7 2,965

Inter-segment Liabilities 1 6 - 7

Acquisition of Property, Plant & Equipment, Intangible Assets, & Other Non-current Assets 34 2 - 36 Depreciation & Amortisation Expense 3 1 - 4 Impairment of Leasehold Improvements 1 - - 1 Impairment of Office Equipment, Furniture & Fittings and Computer Equipment 1 - - 1

The major products/services from which the above segments derive income are:

Life Insurance and Investment Management:

Asset Management:

marketing and administration of a comprehensive range of life insurance andsuperannuation products.

marketing and administration of unit trusts and provision of asset administration servicesto financial advisers and fellow Life Group subsidiaries.

The Life Group conducts managed fund and trust activities. These are superannuation scheme management, securitised mortgage activities,trust management and asset administration. The amount of assets related to these activities not consolidated is disclosed within the segmentalinformation. Arrangements exist to ensure these activities are managed independently from the Life Group's other activities.

Life Group

As at 30 June 2008

As at 30 June 2007

40



37 Interest Rate Summary

Assets:Government Stock 4.1% 4.4%Corporate Bonds 6.0% 4.3%Mortgages 8.5% 7.3%Loans on Policies 10.0% 10.0%Annuity Investment 13.4% 13.4%

Liabilities:Borrowings 10.9% 6.8%

38 Fair Value of Financial Instruments not Carried at Fair Value

$ millions Carrying FairNote Amount Value

As at 30 June 2008

Cash & Cash Equivalents 14 570 570 Trade and Other Receivables 19 78 78

Borrowings 24 407 407 Deposited Reserves 40 40 Trade and Other Payables 25 160 160

As at 30 June 2007

Cash & Cash Equivalents 14 551 551 Trade and Other Receivables 19 69 69

Borrowings 24 380 380 Deposited Reserves 44 44 Trade and Other Payables 25 129 129

Life Group

Investment contracts which contain a discretionary participation feature have been valued as insurance contracts under NZ IFRS 4. Thesecontracts are investment account contracts where policyholder monies are accumulated in an account which earns interest at a crediting rate,the amount and timing of which is at the Life Group's discretion. The carrying amount of these contracts at 30 June 2008 is $134m (30 June2007 $145m). Due to the unknown nature of the outworkings of such a discretion, the fair value of the discretionary participation feature cannotbe reliably measured.

Information about maturity of interest bearing financial assets and liabilities is disclosed elsewhere in these financial statements (refer to Notes13 and 47).

The fair value of financial assets and liabilities that are not carried at fair value on the Balance Sheet are:

The weighted average yields at balance date on significant interest bearing financial assets and liabilities not disclosed elsewhere in thesefinancial statements are:

41



39 Asset Quality

Impaired Assets

Balance at Beginning of Year 1 1 Balance at End of Year 1 1

Past Due Assets

Balance at Beginning of Year 1 2 Deletions - (1)Balance at End of Year 1 1

Credit Quality of Financial Assets that are not Past Due or Impaired


SecuritiesThe Life Group holds Securities issued by counterparties with the following S&P credit ratings;

Ratings 2008 2007 2008 2007

AAA 84 92 450 487 AA+ 2 - 18 - AA 24 10 48 63 AA- 21 38 97 65 A+ 7 20 50 39 A - 3 5 20 Equity Securities 401 491 305 340 Managed Funds 397 488 166 193 Other Securities - - 38 40

936 1,142 1,177 1,247

Derivative Financial Instruments

Amounts Due from Reinsurers

The S&P credit ratings for the Life Group's major reinsurers (unchanged from 30 June 2007) are;

General Reinsurance Life Australia Limited AAAAssicurazioni Generali S.p.A. AARGA Reinsurance Company AA-Swiss Re Life and Health (Australia) Limited AA-Munich Reinsurance Company of Australasia Limited AA-

The counterparty for the majority of the Life Group's Derivative Financial Instruments is ASB Bank Limited, who has an S&P credit rating ofAA, except for the foreign currency interest rate swap where the counterparty is Deutsche Bank AG who also has an S&P credit rating of AA.

Included in 'Other Securities' are Mortgages, which are fully secured against property, and Loans on Policies, which are fully secured againstcustomer life investment policies. Credit ratings are not provided for equity securities and managed funds because ratings are either notavailable or are considered not an appropriate measure of asset quality.

Linked Non-Linked

Life Group

The Impaired Assets reported above include Agent Loans that are under management and overpaid commissions that are subject to externalrecovery or legal action. The amount of interest income accrued on Impaired Assets during the period was Nil (30 June 2007 Nil).

The Past Due Assets reported above include Residential Mortgages (reported in Securities) and Agent Loans (reported in Trade and OtherReceivables) where payments are one or more days overdue.

The Life Group's cash holdings are with ASB Bank Limited, which has a Standard and Poor ("S&P") credit rating of AA, and Citigroup Inc.which has an S&P rating of AA-.

Life Group

42


40 Provisions for Impairment Loss


Specific Provisions Balance at Beginning of Year 1 1

Balance at End of Year 1 1

Total Impairment Provisions 1 1

41 Disaggregated Information

Investment Non-InvestmentLinked Linked

$ millions Policies Policies Total


Investments 1,106 1,651 2,757 Reinsured Life Insurance Contracts - 60 60 Other Assets 85 689 774 Liabilities other than Policy Liabilities 5 736 741 Policy Liabilities 1,186 746 1,932 Shareholder's Retained Earnings - 115 115

Premium Income - 448 448 Investment Income (59) 37 (22)Claims Expense - 299 299 Commission and Management Expenses 28 286 314 Investment Income allocated to Policyholders (62) (19) (81)Net Profit before Taxation 8 117 125 Net Profit after Taxation 12 91 103


Investments 1,326 1,702 3,028 Reinsured Life Insurance Contracts - 59 59 Other Assets 110 607 717 Liabilities other than Policy Liabilities 54 607 661 Policy Liabilities 1,380 924 2,304 Shareholder's Retained Earnings 2 29 31

Premium Income - 411 411 Investment Income 117 163 280 Claims Expense - 303 303 Commission and Management Expenses 30 238 268 Investment Income allocated to Policyholders 119 120 239 Net Profit before Taxation 48 82 130 Net Profit after Taxation 18 78 96

NZ IFRS 4 requires disclosure of information between amounts relating to investment linked business and non-investment linked business forcategories shown below. As there are no legal requirements to maintain separate life insurance funds, the Life Group does not maintain recordsthat provide all the information required by NZ IFRS 4. Accordingly determination of the disaggregated information presented below requires theuse of significant estimates but the basis of estimation has been consistent between years.

Life Group

The Specific Provision reported above is held against Agent Loans that are under management and overpaid commissions that are subject tolegal action or external recovery.

Life Group

43


42 Risk Management Policies

Introduction

ASBGL and CMLA's objectives in managing risks arising from insurance business are:(i)(ii)(iii)(iv)(v)

- Mortality- Morbidity- Discontinuance rates- Expenses- Market rates on underlying assets

- Mortality- Morbidity- Market risk- Discontinuance- Expenses- Market rates on underlying assets

- Longevity - Market rates on underlying assets- Expenses

Concentrations of insurance risk arise due to:--

To use reinsurance as a component of insurance risk management strategy.

Non-participating life insurance contracts with fixed and guaranteed terms (Term Life and Disability, Major Medical)

Benefits paid on death, ill health or maturity that are fixed and guaranteed and not at the discretion of the issuer. Premiums may be guaranteed through the life of the contract, guaranteed for a specified term or variable at the insurer's discretion.

Benefits, defined by the insurance contract, are determined by the contract and are not directly affected by the performance of underlying assets or the performance of the contracts as a whole.

Key variables that affect the timing and uncertainty of future cash flows

Life insurance contracts with discretionary participating benefits (endowment and whole of life)

These policies include a clearly defined initial guaranteed sum assured which is payable on death. The guaranteed amount is a multiple of the amount that is increased throughout the duration of the policy by the addition of regular bonuses annually which, once added, are not removed. Regular bonuses are also added retrospectively.

Benefits arising from the discretionary participation feature are based on the performance of a specified pool of contracts or a specified type of contract.

Type of contract Detail of contract terms and conditions Nature of compensation for claims

To ensure risk appetite decisions are made within the context of corporate goals and governance structures.To ensure that an appropriate return on capital is made in return for accepting insurance risk.

To ensure that internal and external solvency and capital requirements are met.

The Life Group is exposed to risk through its financial assets, financial liabilities (investment contracts and borrowings), reinsurance assets andinsurance liabilities. Risk management policies focus on ensuring cash flows from assets are sufficient to fund obligations arising frominsurance and investment contracts. Key components of this relate to insurance risk, credit risk, market risk and liquidity risk.

ASBGL and CMLA's risk management strategy is set by the respective Board of Directors through the respective Board Risk Committees. TheBoard Risk Committees comprise members of the Board of Directors and are chaired by the respective Chairmen of the Boards.Implementation of risk management strategy is the responsibility of the Managing Director of Sovereign Assurance Company Limited.

ASBGL and CMLA have management structures and information systems to manage individual risks, have separated risk initiation andmonitoring tasks where feasible, and subject all material systems to regular internal audit. Periodic reviews of all risk management systems areundertaken by internal audit.

To ensure that strong internal controls embed underwriting to risk within the business.

Insurance Risk is measured using a sensitivity analysis to show the effects of the risks of mortality and morbidity on Life Insurance ContractLiabilities and profit (refer to Note 44).

ASBGL and CMLA

The Life Group's risk management strategy is set separately for ASBGL and its subsidiaries, CMLA, CFSIM, CFSI and its subsidiaries. CFSI,CFSIM and Colonial Holding Company Limited New Zealand Branch do not have material trading activities in the context of the Life Group andtherefore their risk management policies have not been disclosed.

Life annuity contracts These policies provide guaranteed regular payments to the life assured.

The amount of the payment is set at inception of the policy.

The following sections describe the risk management framework components:Insurance Risk

Terms and conditions of insurance contracts

The nature of terms of insurance contracts written is such that certain external variables can be identified on which related cash flows for claimpayments depend. The tables below provide an overview of these:

Variations in claim levels will affect reported profit and equity. The impact may be magnified if the variation leads to a change in actuarialassumptions which cannot be absorbed within the present value of planned margins for a group of related products.

Insurance risk may arise through the reassessment of the incidence of claims, the trend of future claims and the effect of unforeseen diseasesor epidemics. In addition, in the case of morbidity, the time to recovery may be longer than assumed. Insurance risk is controlled by ensuringunderwriting standards adequately identify potential risk, retaining the right to amend premiums on risk policies where appropriate and throughthe use of reinsurance. The experience of ASBGL's and CMLA's life insurance business is reviewed regularly.

Large sums assured on certain individuals. The largest exposures all relate to mortality. Geographic concentrations due to employee group schemes. ASBGL and CMLA participate in the CBA catastrophe cover reinsuranceprogramme which provides cover of AUD $100m for single event claims in excess of AUD $10m.

44



Credit Risk

Reinsurance credit exposures are managed by reinsurance guidelines and limits set by the Risk Committee of ASBGL.

Liquidity Risk

Market Risk

Price Risk

Foreign Exchange Risk

Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes arecaused by factors specific to the individual instrument or its issuer or factors affecting all instruments of a specific type traded in the market.

This risk is controlled by ensuring a diverse range of investments, limits on counterparty exposure and restrictions on types of instruments.

Details of material foreign currency balances are shown in Note 45.

Foreign currency borrowings are 100% hedged (refer to Note 15).

Foreign exchange risk is the risk of loss to ASBGL and CMLA's earnings and value arising from adverse changes in foreign exchange rates.

Foreign currency exposures and risks arise as ASBGL and CMLA invest or borrow from offshore. Foreign currency denominated investmentsamounted to 64% (30 June 2007 64%) of total investments. The market value of these investments is therefore affected by movements in theNew Zealand dollar relative to the currency in which the investment is denominated. ASBGL and CMLA also holds foreign currencies on shortterm deposit.

Foreign exchange contracts are used to hedge approximately 74% of currency risk (June 2007 73%). All equity fund investments denominatedin foreign currency are 50% hedged (30 June 2007 50%). All fixed interest fund investments denominated in foreign currency are 100% hedged(100%, 30 June 2007 100%).

Credit risk is the potential risk for loss arising from failure of a counterparty to meet their contractual obligations.

Credit risk principally arises within ASBGL and CMLA from investments of shareholder funds or funds where the shareholder participates ininvestment returns in cash and fixed interest securities, and reinsurer payment obligations. Credit risk also arises from a mortgage portfolio,loans to agents, foreign exchange contracts, loans made using policies as security; and trade receivables (policyholder premium debtors, agentbalances and sundry debtors).

The maximum credit risk associated with each class of recognised financial asset held by ASBGL and CMLA is the carrying value.

Market risk arises from the mismatch between assets and liabilities. ASBGL and CMLA are exposed to diverse financial instruments includinginterest rates, foreign currencies, equities, and derivative instruments. For each distinct category of liabilities, a separate portfolio of assets ismaintained and investment mandates are set that are appropriate for each.

A significant proportion of assets are held for investment linked policies where market risk is transferred to the policyholder. ASBGL and CMLAearn fees on investment linked policies that are based on the amount of assets invested. They may receive lower fees should markets fall.Asset allocation for investment linked policies is decided by the policyholder.

Market risk arises on discretionary participation business as these contracts have investment guarantees. Risk is mitigated by using anappropriate bonus/credit rate policy and a suitable growth/income investment allocation.

Both ASBGL and CMLA have a comprehensive, clearly defined credit policy, that covers the approval and management of all credit risk.

Investment concentrations for shareholder funds are managed within established guidelines and limits set by the Asset and LiabilityManagement Committee (ALCO) of ASBGL which also has responsibility for CMLA. Some criteria are referred to the Risk Committee of ASBGLfor approval. Guidelines and limits are set for security credit ratings and aggregate exposure to any single counterparty or geographic region(refer to Notes 46 and 48).

For Life Investment Linked Contracts the investments credit risk is appropriate for each particular product and the risk is borne by thePolicyholder. There is no significant credit risk assumed by ASBGL or CMLA.

Market risk is the risk of an event in the financial markets that results in a fluctuation in earnings or a fluctuation in value.

Management of liquidity risk is designed to ensure that ASBGL and CMLA have the ability to meet financial obligations as they fall due.

ASBGL and CMLA monitor this risk primarily by forecasting future daily cash requirements. The risk is managed by holding a pool of readilytradable investment assets and deposits on call.

Market risk in the asset management business is the risk of an adverse movement in market prices that leads to a reduction in the amount offunds under management and a consequent reduction of fee income.

Market risk arises from returns obtained from investing the shareholder's funds held in ASBGL and CMLA. Appropriate investment mandatesare set by ALCO for the investment of shareholder's funds. As at 30 June 2008, shareholder's funds in ASBGL and CMLA were invested 2% ingrowth assets (shares and property) and 98% in income assets (cash and fixed interest).

Market risk includes price, interest rate, foreign exchange and equity risk which are explained as follows:

ASBGL and CMLA's balance sheet risk is measured using sensitivity analysis by modelling the change in assets, liabilities, and profit fromchanges in interest rates and equity values (refer to Note 44).

45



Interest Rate Risk

Equity Risk

Internal Audit

CFSI

Credit Risk

Concentrations of Credit risk

Interest Rate Risk

Liquidity Risk

The primary risks facing CFSI with respect to balance sheet financial instruments are credit and interest rate risk.

Since the acquisition of Sovereign Limited by Sovereign Group Limited on 4 December 1998, ASBGL and CMLA have been serviced by acentralised audit function which covers ASB Bank Limited, ASB Group (Life) Limited consolidated entities and CMLA.

Internal Audit provides an assurance and consulting service, independent of the management of the respective companies designed to assistASBGL and CMLA in achieving their objectives by bringing a systematic and disciplined approach to improving the effectiveness of riskmanagement systems, the framework of controls, and governance processes. Operational, compliance, financial and systems audits of allareas of the ASBGl and CMLA operations are undertaken based on an assessment of risk. The independent Internal Audit function is ultimatelyaccountable to the Board of Directors of ASBGL through the Managing Director and Board Audit Committee.

The Board Audit Committees of ASBGL and CMLA meet on a regular basis to consider financial reporting, internal control and corporategovernance issues. They reviews the interim and annual financial statements, the activities of the internal and external auditors and monitor therelationship between management and the external auditors.

Liquidity risk is the risk that CFSI will encounter difficulty raising liquid fund to meet commitments as they fall due. CFSI evaluates its liquidityrequirements on an ongoing basis. In general sufficient cash flows are generated from operating activities to meet obligations arising fromfinancial liabilities. In the event that a shortfall arises, CFSI may draw on funds from related parties.

CFSI has no off-balance sheet financial instruments, and does not use derivatives to manage risk positions.

Exposure to credit risk is managed by placing cash and cash equivalents with high credit quality financial institutions only. Other investments arealso placed with high quality institutions. Counterparties are assessed for credit worthiness before credit is granted.

Fair value interest rate risk arises from shareholder funds invested in fixed interest investments. When fixed interest investments are held tomatch fixed interest style products selected by policyholders, the interest rate risk is borne by the policyholder.

Interest Rate Risk is measured by using sensitivity analysis to show the effects of the risks on assets, liabilities, and profit, (refer to Note 44).

Interest rate risk also arises on risk contracts where negative policy liabilities (arising from the implicit deferral of acquisition costs) are valued atcurrent risk free interest rates.

To the extent CFSI has a receivable from another party, there is credit risk in the event of non-performance by that party. Financial instrumentswhich potentially subject CFSI to credit risk, principally consist of cash and cash equivalents, advances to related entities, accounts receivableand other financial assets.

CFSI's maximum exposure to credit risk is equal to the carrying amount of these instruments.

CFSI has placed all cash and cash equivalents with ASB Bank Limited. All advances to related entities are with entities in the CBA group.

CFSI's only interest bearing asset is cash and cash equivalents which are all on call.

Interest rate risk is the risk of loss to ASBGL and CMLA arising from adverse changes in interest rates.

Fair value interest rate risk arises from the potential for a change in interest rates to cause a fluctuation in the fair value of financial instrumentsand the value of Life Insurance Contract Liabilities. Interest rate risk arises from the structure and characteristics of the assets, liabilities andequity, and in the mismatch in cash flows of assets and liabilities. The objective is to manage the interest rate risk to achieve stable andsustainable net profit.

Equity risk results from the repricing of equity investments held by ASBGL and CMLA. For investment linked contracts, this risk is borne by thepolicyholder. For assets that do not relate to investment linked contracts, the shareholder has exposure to equity risk either directly or due toperformance guarantees.

This risk is controlled by ensuring a diverse range of equity investments.

Cash flow interest rate risk is the potential for a change in interest rates to change interest expense and interest income in the current reportingperiod and in future years. Cash flow interest rate risk arises on floating rate borrowings and ASBGL and CMLA's mortgage portfolio which ispriced on a variable interest rate regime. Management regularly reviews the mortgage portfolio interest rates to ensure they are in line withmarket trends.

Interest rate risk is reduced by seeking to match the cash flows of assets and liabilities. This is achieved by changing the mix of assets andliabilities through buying and selling long term securities and through the use of derivatives such as interest rate swaps.

Overall strategic direction is provided by ALCO, which meets monthly.

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43 Events After Balance Date

44 Sensitivity Analysis

VariableExchange rate risk

Expense risk

Interest rate risk

Mortality rates

Morbidity rates

Discontinuance

Market risk

Effect on Assets

$ millions Gross of Reinsurance

Net of Reinsurance

Gross of Reinsurance

Net of Reinsurance

As at 30 June 2008

Result of Change in Assumptions

Market RisksIncrease in Interest Rates of 1% (33) (19) (19) (14) (14)Decrease in Interest Rates of 1% 33 19 19 14 14 Equity Values Increase by 10% 75 75 75 - - Equity Values Decrease by 10% (75) (75) (75) - - Favourable Movement in Foreign Exchange Rates of 10% 34 34 34 - - Adverse Movement in Foreign Exchange Rates of 10% (34) (34) (34) - -

Insurance RisksIncrease in Expenses of 10% - - - - - Improvement in Mortality by 10% - 2 2 (2) (2)Worsening of Mortality by 10% - (2) (2) 2 2 Worsening of Morbidity by 10% - (6) (5) 6 5 Worsening of Discontinuance Rate by 20% - 6 5 (6) (5)Improvement in Discontinuance Rate by 20% - - - - -

CFSI and CHC

A sensitivity analysis has not been disclosed for CFSI and CHC as neither entity has a material exposure to market risk.

On 1 July 2008, ASB Group Investments Limited, Aegis Limited, Investment Custodial Services Limited and Jacques Martin New ZealandLimited were sold by the Life Group to the Banking Group. The entities were sold for a total amount of $58m with the Life Group recognising again on sale of $49m. Summary financial results and balance sheet information for the sold entities is separately disclosed in the financialstatements and Note 49.

For insurance contracts, providing death benefits increased, greater mortality rates would lead to higher levels ofclaims occurring sooner than anticipated, increasing associated claims cost and therefore reducing profit andshareholder's equity. This is offset by increased annuitant mortality which would reduce expected future annuitypayments and therefore reduce life insurance contract liabilities.

The cost of health-related claims depends on both the incidence of policyholders becoming ill and the duration whichthey remain ill. Higher than expected incidence and duration would be likely to increase claim costs, reducing profitand shareholders’ equity.

The impact of the discontinuance rate assumption depends on a range of factors including the type of contract, thesurrender value basis (where applicable) and the duration in force. For example, an increase in discontinuance rates atearlier durations of life insurance contracts usually has a negative effect on performance and net assets. However,due to the interplay between the factors, there is not always an adverse outcome from an increase in discontinuancerates

ASBGL and CMLA conduct sensitivity analysis to quantify the exposure to risk of changes in the key underlying variables such as interest rate,exchange rate, mortality, morbidity and inflation. The valuations included in the reported results and the best estimate of future performanceare calculated using certain assumptions about these variables. The movement in any key variable will impact performance and net assets andas such represents a risk.

An increase in the level or inflationary growth of expenses over assumed levels will decrease profit and shareholder'sequity.

Depending on the profile of the investment portfolio, investment income will decrease as interest rates decrease. Thismay be offset to an extent by changes in the market value of fixed interest investments. The impact on profit andshareholder's equity depends on the relative profiles of assets and liabilities, to the extent that these are not matched.

Impact of movement in underlying variableASBGL and CMLA do not fully hedge foreign currency denominated equity instruments. Adverse movements in foreignexchange rates relate to the New Zealand dollar will subsequently reduce the value of policyholder asset and liabilities.

The table below illustrates how changes in key assumptions would impact the reported profit, liabilities and equity of ASBGL and CMLA. ForMarket risks, the effect of movements in interest rates or market values on the value of assets is also shown. The information presented belowis net of tax.

For investment contracts and life insurance contracts with discretionary participation features, liabilities depend on thevalue of underlying assets. Market risk may be entirely borne by policyholders. However, ASBGL and CMLA derive feeincome based on the value of the underlying funds; hence revenues are always sensitive to changes in market value.For assets which are not contractually linked to policy liabilities, ASBGL and CMLA are exposed to market risk.

Effect on Liabilities Profit / (Loss) and Equity

ASBGL & CMLA

47


44 Sensitivity Analysis (continued)

Effect on Assets

$ millionsGross of

ReinsuranceNet of

ReinsuranceGross of

ReinsuranceNet of

Reinsurance

As at 30 June 2007

Result of Change in Assumptions

Market RisksIncrease in Interest Rates of 1% (35) (23) (23) (12) (12)Decrease in Interest Rates of 1% 35 23 23 12 12 Equity Values Increase by 10% 88 87 87 1 1 Equity Values Decrease by 10% (88) (87) (87) (1) (1)Favourable Movement in Foreign Exchange Rates of 10% 40 40 40 - - Adverse Movement in Foreign Exchange Rates of 10% (40) (40) (40) - -

Insurance RisksIncrease in Expenses of 10% - 1 1 (1) (1)Improvement in Mortality by 10% - 2 2 (2) (2)Worsening of Mortality by 10% - (2) (2) 2 2 Worsening of Morbidity by 10% - 8 7 (8) (7)Improvement in Discontinuance Rate by 20% - (1) (1) 1 1 Worsening of Discontinuance Rate by 20% - 1 1 (1) (1)

45 Material Foreign Currency Balances

$ millions USD AUD GBP YEN EURO OTHER

As at 30 June 2008

Financial AssetsCash and Cash Equivalents 2 14 - 3 1 2 Securities 594 311 113 254 345 83 Derivative Financial Instruments 2 72 - - - -

Financial LiabilitiesBorrowings - (407) - - - - Derivative Financial Instruments - (16) (1) (1) (6) - Trade and Other Payables - (10) - - - -

Net Foreign Currency Assets / (Liabilities) 598 (36) 112 256 340 85

Derivative Financial Instruments Net Notional Principal 325 (549) 83 250 331 68

Life Group

ASBGL & CMLAProfit / (Loss) and EquityEffect on Liabilities

The table above is performed for reasonably possible movements in key assumptions with all other assumptions held constant, showing theimpact on assets, liabilities, net profit and equity. The correlation of assumptions will have a significant effect in determining the ultimate claimsliabilities, but to demonstrate the impact due to changes in assumptions, assumptions had to be changed on an individual basis. It should benoted that movements in these assumptions are non-linear.

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45 Material Foreign Currency Balances (continued)

$ millions USD AUD GBP YEN EURO OTHER

As at 30 June 2007

Financial AssetsCash and Cash Equivalents 6 14 1 10 2 2 Securities 653 268 136 274 385 98 Derivative Financial Instruments 23 7 4 18 24 2

Financial LiabilitiesBorrowings - (380) - - - - Derivative Financial Instruments (4) (20) - (6) (4) - Trade and Other Payables - (9) - - - -

Net Foreign Currency Assets / (Liabilities) 678 (120) 141 296 407 102

Derivative Financial Instruments Net Notional Principal 372 (587) 103 282 371 74

46 Concentrations of Credit Exposures by Geographic Region

$ millionsNew

ZealandNorth

AmericaAustralia Great

BritainAsia Europe Other Total

As at 30 June 2008

Financial AssetsCash and Cash Equivalents 536 - - - 34 - - 570 Securities 436 367 267 124 181 705 33 2,113 Derivative Financial Instruments 3 - - - - 71 - 74 Trade and Other Receivables 63 - 6 - - 9 - 78

Total Credit Exposures by Geographic Region 1,038 367 273 124 215 785 33 2,835

As at 30 June 2007

Financial AssetsCash and Cash Equivalents 551 - - - - - - 551 Securities 547 389 280 140 246 775 12 2,389 Derivative Financial Instruments 88 - - - - - - 88 Trade and Other Receivables 62 - 4 - - 3 - 69

Total Credit Exposures by Geographic Region 1,248 389 284 140 246 778 12 3,097

Life Group

Life Group

Geographical segments are determined by identification of a particular economic environment that are subject to risk and returns that are different from those of segments operating in other economic environments.

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47 Maturity Analysis of Financial Liabilities

$ millions

0 - 1 Month 1 - 3 Months 3 - 12 Months 1 - 5 Years Later than 5 Years

Total Carrying Value

As at 30 June 2008

Life Investment Contracts 833 3 15 148 435 1,434 1,186 Borrowings - 19 58 308 270 655 407 Derivative Financial Instruments 627 754 - - - 1,381 25 Deposited Reserves 40 - - - - 40 40 Trade and Other Payables 124 8 4 2 - 138 160 Total Financial Liabilities 1,624 784 77 458 705 3,648 1,818

Simultaneous Inflows on Derivative Financial Instruments 310 849 356 - - 1,516 6

As at 30 June 2007

Life Investment Contracts 963 3 19 170 780 1,935 1,380 Borrowings - 14 43 227 256 540 380 Derivative Financial Instruments 922 1,773 9 49 55 2,808 34 Deposited Reserves 44 - - - - 44 44 Trade and Other Payables 93 9 2 - - 104 129

Total Financial Liabilities 2,022 1,799 73 446 1,091 5,431 1,967

Simultaneous Inflows on Derivative Financial Instruments 947 1,807 - - - 2,754 34

Life Group

The above analysis is based on contractual undiscounted cash flows. Where the counterparty has discretion in requesting payment, liabilitieshave been classified according to the earliest time period in which the Group may be required to pay. Cash flows on Derivative FinancialInstruments are analysed on a gross basis, unless they are settled net. Refer to Note 42 for details of how the Life Group manages liquidityrisk.

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48 Concentration of Credit Exposures by Individual Counterparties

Balance Date Credit Exposure as at 30 June 2008 2007 2008 2007

Percentage of Shareholder's Equity

5 - 9 1 2 1 265 - 69 1 - - - 95 - 100 - 1 - -

2008 2007 2008 2007

Percentage of Shareholder's Equity

5 - 9 71 83 52 9465 - 69 562 - - - 95 - 100 - 599 - -

49 Discontinued Operations

$ millions NoteContinuing Operations

Discontinued Operations Total

For the Year Ended 30 June 2008

Premium Income 4 448 - 448Reinsurance Income 5 62 - 62Investment Income 6 (23) 1 (22)Other Income 7 56 46 102

Total Operating Income 543 47 590

Total Operating Expenses 402 63 465

Reinsurance Expenses 5 72 - 72Claims, Surrenders and Maturities 8 299 - 299Other Operating Expenses 4 - 4Net Change in Life Insurance Contract Liabilities 21, 22 (168) - (168)Net Change in Life Investment Contract Liabilities 21 (104) - (104)Commission and Management Expenses 9 251 63 314Finance Costs 48 - 48

Net Profit / (Loss) before Taxation 36 141 (16) 125

Taxation 11 27 (5) 22

Net Profit / (Loss) after Taxation 3 114 (11) 103

Life Group

On 1 July 2008, ASB Group Investments Limited, Aegis Limited, Investment Custodial Services Limited and Jacques Martin New ZealandLimited were sold by the Life Group to the Banking Group. The Notes to the Financial Statements include the results of the entities sold on 1July 2008 (the "Discontinued Operations"). Excluding intercompany amounts, the Net Profit after Taxation for the Discontinued Operations canbe analysed as follows:

Life Group

Total Exposure to Banks ($ millions)Life Group

Total Exposure to Non-banks ($ millions)

Number of Banks

A Discontinued Operation is a component of the Life Group's business that represents a separate major line of business area that has beendisposed of or is classified as held for sale, or is a subsidiary that has been disposed of or classified as held for sale.

In accordance with NZIFRS 5 Non-current Assets Held for Sale and Discontinued Activities, when an operation is classified as a DiscontinuedOperation the comparative income statement is restated as if the operation had been discontinued from the start of the comparative period.

Number of Non-banks

Percentages are calculated using the Life Group's Shareholder's Equity as at balance date.

The above tables have been compiled using gross exposures and do not include any guarantee arrangements.

Balance Date Credit Exposure as at 30 June

Only counterparties with balance date exposures exceeding 5% of Shareholder's Equity are disclosed. Government exposures are excluded.Equity securities and managed funds investing in equity securities have been excluded as the Life Group is only exposed to price risk on theseinstruments, not credit risk. Refer to Note 42 for details on how the Life Group manages price risk.

There were no credit exposures to individual or connected counterparties greater than 10% of Commonwealth Bank of Australia's equity as at30 June 2008 (30 June 2007 Nil).

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49 Discontinued Operations (continued)

$ millions NoteContinuing Operations

Discontinued Operations Total

For the Year Ended 30 June 2007

Premium Income 4 411 - 411Reinsurance Income 5 62 - 62Investment Income 6 278 2 280Other Income 7 34 47 81

Total Operating Income 785 49 834

Total Operating Expenses 661 43 704

Reinsurance Expenses 5 67 - 67Claims, Surrenders and Maturities 8 303 - 303Other Operating Expenses 3 - 3Net Change in Life Insurance Contract Liabilities 21, 22 (20) - (20)Net Change in Life Investment Contract Liabilities 21 37 - 37Commission and Management Expenses 9 225 43 268Finance Costs 46 - 46

Net Profit before Taxation 124 6 130

Taxation 11 32 2 34


As at 30 June 2008

ASSETSFinancial Assets - Cash and Cash Equivalents 14 559 11 570 - Securities 13 2,113 - 2,113 - Derivative Financial Instruments 15 74 - 74 - Trade and Other Receivables 19 73 5 78 Reinsured Life Insurance Contracts 22 60 - 60 Current Income Taxation Asset 65 1 66 Property, Plant and Equipment 17 39 - 39 Intangible Assets 18 564 1 565 Other Assets 20 26 - 26

Total Assets 3,573 18 3,591

LIABILITIESLife Insurance Contract Liabilities 21 746 - 746

Financial Liabilities - Life Investment Contracts 21 1,186 - 1,186 - Borrowings 24 407 - 407 - Derivative Financial Instruments 15 25 - 25 - Deposited Reserves 22 40 - 40 - Trade and Other Payables 25 152 8 160 Deferred Taxation Liability 23 108 (5) 103 Provisions 26 1 5 6

Total Liabilities 2,665 8 2,673

Cash Flows for the Discontinued Operations can be analysed as follows:

For the Year Ended 30 June 2008 2007

Net Cash Flows from Operating Activities (4) 7 Net Cash Flows from Investing Activities (8) (3)

Net (Decrease) / Increase in Cash and Cash Equivalents at End of Year (12) 4

Life Group

Excluding intercompany amounts, the assets and liabilities of the Discontinued Operations can be analysed as follows:

Life Group

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