FILE NO 1-9945

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON DC 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

For the month of March 2006

National Australia Bank Limited

ACN 004 044 937

(Registrant’s Name)

Level 24

500 Bourke Street

MELBOURNE   VICTORIA   3000

AUSTRALIA

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82

ASX Announcement

Melbourne, Monday 20 March 2006

Bank of New Zealand General Disclosure Statement

National Australia Bank today released the General Disclosure Statement for the Bank of New Zealand that is prepared to meet a regulatory requirement.

The Bank of New Zealand General Disclosure Statement this year reflects the transition to the International Financial Reporting Standards.

Due to the adoption of NZ IAS 32 Financial Instruments: Disclosure and Presentation, NZ IAS 39 Financial Instruments: Recognition and Measurement and NZ IFRS 4 Insurance Contracts on 1 October 2005, some numbers included in the income statement on page 6 in the current financial period may not be comparable to the prior period.

Please refer to Note 1 contained in the General Disclosure Statement covering Principal Accounting Policies and Note 29 Transition to New Zealand Equivalents to International Financial Reporting Standards for further details.

For further information:

Bank of New Zealand
General Short Form Disclosure Statement

For the three months ended 31 December 2005

No. 40

General Short Form Disclosure Statement

For the three months ended 31 December 2005

This General Short Form Disclosure Statement has been issued by Bank of New Zealand for the three months ended 31 December 2005 in accordance with the Registered Bank Disclosure Statement (Off-Quarter – New Zealand Incorporated Registered Banks) Order 2005 (the “Order”).

In this General Short Form Disclosure Statement, unless the context otherwise requires:

a)              “Banking Group” means Bank of New Zealand and all of its controlled entities; and

b)             Words and phrases defined by the Order have the same meanings.

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Bank of New Zealand Corporate Information

Address for Service

The name of the Registered Bank is Bank of New Zealand (referred to either by its full name or as the “Bank” or the “Company”) and its address for service is Level 14, BNZ Tower, 125 Queen Street, Auckland, New Zealand.

Details of Incorporation

The Bank was incorporated on 29 July 1861 under The New Zealand Bank Act 1861. On 14 March 1989, the Bank became, by virtue of an Order in Council made pursuant to section 4 of the Bank of New Zealand Act 1988, a company limited by shares incorporated and registered under the Companies Act 1955. On 24 March 1997, the Bank was reregistered under the Companies Act 1993.

Voting Securities and Power to Appoint Directors

National Australia Group (NZ) Limited, National Australia Bank Limited and National Equities Limited are the only holders of a direct or indirect qualifying interest in the voting securities of the Bank. There are 2,470,997,499 voting securities of the Bank. National Australia Group (NZ) Limited is the registered and beneficial holder of 2,470,997,499 voting securities. Neither National Australia Bank Limited (the ultimate parent company) nor National Equities Limited (the immediate parent company of National Australia Group (NZ) Limited) is the registered or the beneficial holder of any of the voting securities of the Bank but each has a relevant interest in all of such securities by virtue of National Australia Group (NZ) Limited being related to them in terms of section 5(7) of the Securities Markets Act 1988.

The ultimate parent company has the power under the Bank’s constitution to appoint any person as Director of the Bank or to remove any person from the office of Director, from time to time by giving written notice to the Bank. All appointments of Directors must be approved by the Reserve Bank of New Zealand.

Guarantors

The material obligations of the Bank are not guaranteed.

Insurance Business

The Banking Group does not conduct any Insurance Business, as defined in clause 3(i) of Bank of New Zealand’s Conditions of Registration set out on pages 50 and 51.

Ultimate Parent Bank

Ultimate Parent Bank and Address for Service

The ultimate parent bank of Bank of New Zealand is National Australia Bank Limited whose address for service is Level 24, 500 Bourke Street, Melbourne, Victoria 3000, Australia.

Legally Enforceable Restrictions that may Materially Inhibit National Australia Bank Limited’s Legal Ability to Provide Material Financial Support to Bank of New Zealand

National Australia Bank Limited does not guarantee the obligations of Bank of New Zealand.

Pursuant to the Banking Act 1959 (Cth), the Australian Prudential Regulation Authority has issued a legally enforceable prudential standard which restricts associations between an authorised deposit-taking institution (such as National Australia Bank Limited) and its related entities.

Any provision of material financial support to Bank of New Zealand by National Australia Bank Limited would need to comply with the following pertinent requirements of the prudential standard:

1.               National Australia Bank Limited should not undertake any third-party dealings with the prime purpose of supporting the business of Bank of New Zealand. National Australia Bank Limited must avoid giving any impression of its support unless there are formal legal arrangements in place providing for such support.

2.               National Australia Bank Limited should not hold unlimited exposures to Bank of New Zealand.

3.               National Australia Bank Limited should not enter into cross-default clauses whereby a default by Bank of New Zealand on an obligation (whether financial or otherwise) is deemed to trigger a default of National Australia Bank Limited in its obligations.

4.               In determining limits on acceptable levels of exposure to Bank of New Zealand, the Board of Directors of National Australia Bank Limited should have regard to the level of exposures which would be approved for unrelated entities of broadly equivalent credit status, and the impact on National Australia Bank Limited’s stand-alone capital and liquidity positions, as well as its ability to continue operating, in the event of a failure of any related entity to which National Australia Bank Limited is exposed.

5.               National Australia Bank Limited’s exposure to Bank of New Zealand cannot exceed 50% of National Australia Bank Limited’s stand-alone capital base, and its aggregate exposure to all related authorised deposit-taking institutions cannot exceed 150% of that capital base. Exposures in excess of these limits require the prior approval of the Australian Prudential Regulation Authority.

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The Australian Prudential Regulation Authority has broad powers under the Banking Act 1959 (Cth) to give legally enforceable directions to National Australia Bank Limited in circumstances, for example, where it considers that National Australia Bank Limited has not complied with prudential standards or that it is in the interests of National Australia Bank Limited’s deposit holders to do so. In the event that National Australia Bank Limited becomes unlikely to be able to meet its obligations or is about to suspend payments, the Australian Prudential Regulation Authority has the power to take control of National Australia Bank Limited’s business or appoint an administrator to National Australia Bank Limited’s affairs.

The priority of the creditors of National Australia Bank Limited in the event that National Australia Bank Limited is unable to meet its obligations is governed by various Australian laws, including the Banking Act 1959 (Cth). That Act provides that the assets of National Australia Bank Limited in Australia are to be available to meet its deposit liabilities in Australia in priority to all other liabilities.

Directorate and Auditor

Communications addressed to the Directors and responsible persons, or any of them, may be sent to Level 14, BNZ Tower, 125 Queen Street, Auckland, New Zealand.

Changes in Directors

The name, occupation, technical or professional qualifications, country of residence, date of appointment, and directorships of the Director of the Bank appointed since the date of the previous Disclosure Statement, being 9 December 2005, are as follows:

Non-executive Director

Cameron Anthony Clyne

Executive General Manager Group Development

National Australia Bank Limited

B.A.

Australia

Appointed as Director on 14 February 2006

Directorships:

Melcam Pty Limited

Camel Nominees Pty Limited

Responsible Persons

Messrs. Thomas Kirriemuir McDonald and Peter Leonard Thodey, whose occupations, professional qualifications, countries of residence, and directorships are disclosed in the General Disclosure Statement for the year ended 30 September 2005, have been authorised in writing to sign this Disclosure Statement in accordance with section 82 of the Reserve Bank of New Zealand Act 1989, on behalf of the other Directors, being:

Cameron Anthony Clyne

Pamela Adrienne Jefferies, O.B.E.

Edwin Gilmour Johnson

Dr Susan Carrel Macken

Ross Edward Pinney

Heughan Bassett Rennie, C.B.E., Q.C.

Janine Laurel Smith

John Douglas Storey, O.N.Z.M.

Auditor

This General Short Form Disclosure Statement has been subject to independent review by Ernst & Young. The scope of this review has been in accordance with section 15(2) of the Registered Bank Disclosure Statement (Full and Half-Year – New Zealand Incorporated Registered Banks) Order 2005 and the Review Engagement Standards issued by the Institute of Chartered Accountants of New Zealand. Ernst & Young’s independent review report can be found on page 48.

Comparative information relating to 30 September 2005 is disclosed in this General Short Form Disclosure Statement as being unaudited. This is because Ernst & Young have performed an independent review of the impact of the transition to New Zealand equivalents to International Financial Reporting Standards on this comparative information rather than a full-scope audit. The next full-scope audit will be performed for the year ending 30 September 2006.

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Income Statement

For the three months ended 31 December 2005

The accounting policies and other notes form part of, and should be read in conjunction with, these interim financial statements.

Due to the adoption of NZ IAS 32 Financial Instruments: Disclosure and Presentation, NZ IAS 39 Financial Instruments: Recognition and Measurement and NZ IFRS 4 Insurance Contracts on 1 October 2005, some numbers in the current financial period may not be comparable to the prior period. Please refer to Note 1 Principal Accounting Policies and Note 29 Transition to New Zealand Equivalents to International Financial Reporting Standards for further details.

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Statement of Recognised Income and Expense

For the three months ended 31 December 2005

The accounting policies and other notes form part of, and should be read in conjunction with, these interim financial statements.

Due to the adoption of NZ IAS 32 Financial Instruments: Disclosure and Presentation, NZ IAS 39 Financial Instruments: Recognition and Measurement and NZ IFRS 4 Insurance Contracts on 1 October 2005, some numbers in the current financial period may not be comparable to the prior period. Please refer to Note 1 Principal Accounting Policies and Note 29 Transition to New Zealand Equivalents to International Financial Reporting Standards for further details.

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Balance Sheet

As at 31 December 2005

Each of the 2,470,997,499 ordinary shares entitles the shareholder to one vote at any meeting of shareholders.

The paid in capital is included in tier one capital of the Banking Group.

The accounting policies and other notes form part of, and should be read in conjunction with, these interim financial statements.

Due to the adoption of NZ IAS 32 Financial Instruments: Disclosure and Presentation, NZ IAS 39 Financial Instruments: Recognition and Measurement and NZ IFRS 4 Insurance Contracts on 1 October 2005, some numbers in the current financial period may not be comparable to the prior period. Please refer to Note 1 Principal Accounting Policies and Note 29 Transition to New Zealand Equivalents to International Financial Reporting Standards for further details.

6

Cash Flow Statement

For the three months ended 31 December 2005

*                 The amounts shown represent the net cash flows for the interim financial period.

Due to the adoption of NZ IAS 32 Financial Instruments: Disclosure and Presentation, NZ IAS 39 Financial Instruments: Recognition and Measurement and NZ IFRS 4 Insurance Contracts on 1 October 2005, some numbers in the current financial period may not be comparable to the prior period. Please refer to Note 1 Principal Accounting Policies and Note 29 Transition to New Zealand Equivalents to International Financial Reporting Standards for further details.

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*                 The amounts shown represent the net cash flows for the interim financial period.

Due to the adoption of NZ IAS 32 Financial Instruments: Disclosure and Presentation, NZ IAS 39 Financial Instruments: Recognition and Measurement and NZ IFRS 4 Insurance Contracts on 1 October 2005, some numbers in the current financial period may not be comparable to the prior period. Please refer to Note 1 Principal Accounting Policies and Note 29 Transition to New Zealand Equivalents to International Financial Reporting Standards for further details.

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Netting of cash flows

Certain cash flows (as indicated by *) are shown net as these cash flows are received and disbursed on behalf of customers and therefore reflect the activities of customers rather than those of the Bank.

Cash and cash equivalents consist of cash and short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value.

Movements in cash and cash equivalents do not represent a cash inflow in the normal sense. Rather, they represent changes in the net inter-bank funding on the balance sheet dates. These balances fluctuate widely in the normal course of business.

The accounting policies and other notes form part of, and should be read in conjunction with, these interim financial statements.

Due to the adoption of NZ IAS 32 Financial Instruments: Disclosure and Presentation, NZ IAS 39 Financial Instruments: Recognition and Measurement and NZ IFRS 4 Insurance Contracts on 1 October 2005, some numbers in the current financial period may not be comparable to the prior period. Please refer to Note 1 Principal Accounting Policies and Note 29 Transition to New Zealand Equivalents to International Financial Reporting Standards for further details.

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Notes to and Forming Part of the Interim Financial Statements

For the three months ended 31 December 2005

Note 1 Principal Accounting Policies

The interim financial statements are general purpose financial reports prepared in accordance with the requirements of the Financial Reporting Act 1993, Companies Act 1993 and the Registered Bank Disclosure Statement (Off-Quarter – New Zealand Incorporated Registered Banks) Order 2005.

These interim financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (“NZ GAAP”). NZ GAAP comprises New Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”) and other applicable Financial Reporting Standards and Interpretations as appropriate for profit-orientated entities.

Under NZ IFRS 1 First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards, the Banking Group’s final opening balance sheet is to be prepared in accordance with the accounting policies effective as at the date of its first complete set of NZ IFRS compliant financial statements, being 30 September 2006.

These accounting policies may need to be adjusted when applied to the first complete set of NZ IFRS compliant financial statements to reflect the effects of both changes in financial reporting requirements arising from new or revised standards or interpretations subsequent to the date of preparation of these interim financial statements, or changes in the Banking Group’s circumstances or operations.

Basis of preparation

The preparation of the interim financial statements requires the use of certain estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and the disclosed amount of contingent liabilities. Assumptions made as at each balance sheet date are based on estimates at that date. Although the Banking Group has internal control systems in place to ensure that estimates can be reliably measured, actual amounts may differ from those estimates. It is not anticipated that such differences would be material.

Statement of compliance and comparative amounts

Compliance with NZ IFRS ensures that the interim financial statements and the notes thereto, comply with International Financial Reporting Standards. The interim financial statements have been prepared in accordance with NZ IFRS including NZ IAS 34 Interim Financial Reporting.

These are the first interim financial statements prepared in accordance with NZ IFRS. Comparatives for the three months ended 31 December 2004 and year ended 30 September 2005 have been restated accordingly. The Banking Group has chosen to take advantage of the exemption available within NZ IFRS 1 First-time Adoption of New Zealand Equivalents to International Financial Reporting Standards and has not restated comparatives in respect of the application of NZ IAS 39 Financial Instruments: Recognition and Measurement, NZ IAS 32 Financial Instruments: Disclosure and Presentation or NZ IFRS 4 Insurance Contracts. Reconciliations of NZ IFRS Total Equity, Net Profit and Financial Position for the year ended 30 September 2005 and the three months ended 31 December 2004 to that previously published under NZ GAAP are contained within note 29.

In preparing information to comply with the requirements of NZ IFRS 1 the Banking Group has applied exemptions relating to the following areas of transition to NZ IFRS:

•                  business combinations undertaken prior to 1 October 2004 have not been re-stated;

•                  the fair value of certain items of property, plant and equipment as at 1 October 2004 have been deemed as cost at that date;

•                  any foreign currency revaluation reserves have been set to zero as at 1 October 2004;

•                  no adjustment for share based payments granted by the Bank’s ultimate parent, National Australia Bank Limited, on or before 7 November 2002 has been reflected in the interim financial statements; and

•                  certain previously recognised financial instruments have been designated on initial recognition as at 1 October 2005 as financial assets or financial liabilities at fair value through profit or loss.

Historical cost

The interim financial statements have been prepared under the historical cost convention, modified by the application of fair value measurements.

Currency of presentation

All amounts are expressed in New Zealand dollars unless otherwise stated.

Rounding of amounts

All amounts have been rounded to the nearest million dollars except where indicated.

Changes in accounting policies

In accordance with NZ IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the Banking Group has applied a change in accounting policy on 1 October 2005 in respect of provisions for maintenance recognised on motor vehicles leased through its wholly owned controlled entity, Custom Fleet (NZ) Limited. Previously maintenance expense had been recorded through the income statement when incurred. A maintenance provision has been created to accrue the total estimated maintenance expense over the life of the lease, on a straight line basis. Actual expenditure is matched against the provision and any provision remaining at the termination of the lease is taken to the income statement.

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The revised accounting policy matches the lease revenue and expense. The change had the following impact on the interim financial statements:

It is not practicable to determine the amount of the adjustment that would be required had the policy been applied to periods other than those presented in the interim financial statements, as retrospective information is not available from management information systems.

Principles of consolidation

Controlled entities are all entities (including special purpose vehicles) over which the Bank has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Bank controls another entity.

Controlled entities are fully consolidated from the date on which control is transferred to the Bank. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of controlled entities by the Bank. The cost of an acquisition is measured as the fair value of the assets, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the company’s share of the identifiable net assets, including contingent liabilities, acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the controlled entity acquired, the difference is recognised directly in the income statement.

Inter-company balances and transactions, including income, expenses and dividends are eliminated in full.

The accounting policies of controlled entities have been changed where necessary to ensure consistency with the policies adopted by the Bank.

Foreign currency translation

i)                Functional and presentation currency

Items included in the interim financial statements of each of the Banking Group’s foreign operations are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The General Short Form Disclosure Statement is presented in New Zealand dollars, which is the Bank’s functional and presentation currency.

ii)            Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Translation differences on non-monetary items held at fair value through profit or loss, such as equity securities, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, classified as available for sale financial assets, are included in a fair value reserve in equity.

iii)        Foreign operations

The results and financial position of all of the Banking Group’s operations that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

•                  assets and liabilities for each balance sheet presented are translated at the closing rate as at the balance sheet date;

•                  income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

•                  all resulting exchange differences are recognised as a separate component of equity in the foreign currency translation reserve.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and from borrowings and other currency instruments designated as hedges of such investments, are taken to shareholder’s equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.

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As at 1 October 2004, in accordance with the exemption available within NZ IFRS 1, the foreign currency translation reserves of the Banking Group entities were set to zero.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Segment reporting

A business segment is a group of assets and operations engaged in providing products and services that are subject to risks and returns that are different from those of other business segments.

A geographical segment is a group of assets and operations engaged in providing products and services within a particular economic environment that are subject to risks and returns that are different from those segments operating in other economic environments.

Fair value measurement

Fair value is defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

Where the classification of a financial asset or liability requires it to be stated at fair value, this is determined by reference to independently quoted market prices wherever possible.

Where no ready liquid market price exists for a particular asset or liability, the Banking Group uses standard market valuation techniques to arrive at the fair value, utilising independent valuation inputs wherever possible. The fair value incorporates a credit risk adjustment.

ASSETS

Cash and cash equivalents

Cash and cash equivalents consist of cash and short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value.

Financial assets

Financial assets comprise items such as Balances with central banks, Due from other financial institutions, Trading securities, Other money market placements, Investments – available for sale, Investments – held to maturity, Loans and advances to customers, Derivative financial instruments and Amounts due from related entities.

i)                Due from other financial institutions

Due from other financial institutions include certain loans, reverse repurchase agreements, nostros balances, and settlement account balances due from other financial institutions.

ii)            Other money market placements

Other money market placements include certain money market placements with non-financial institutions and reverse repurchase agreements with non-financial institutions.

iii)        Loans and advances to customers

Loans and advances to customers include overdrafts, credit card lending, housing loans, lease finance, redeemable preference shares and certain other term lending. Unearned income represents interest not yet earned on the Banking Group’s leasing and is calculated on an actuarial basis. Interest is recognised as revenue when interest is earned. Loans to customers made through equity type instruments that have been classified as debt are included in the balance sheet as Loans and advances to customers. Dividends and other distributions received or receivable on such equity instruments are included in the income statement as part of Interest income.

Under IAS 39, financial assets are required to be classified as fair value through profit or loss, available for sale, held to maturity or loans and receivables.

Prior to 1 October 2005 (the date at which the Banking Group applied NZ IAS 32 and NZ IAS 39), securities were classified as either trading securities, available for sale securities or investment securities. The accounting policies applied to these assets are outlined in Note 1 Principal Accounting Policies within the General Disclosure Statement for the year ended 30 September 2005.

Items designated at fair value through profit or loss

In accordance with NZ IAS 39 and NZ IAS 32, on 1 October 2005, certain financial instruments were designated at fair value through profit or loss.

Items at fair value through profit or loss include financial assets held for trading, financial assets designated at fair value through profit or loss and derivative financial instruments.

Purchases and sales of financial assets designated at fair value through profit or loss are recognised on trade date, being the date that the Banking Group is committed to purchase or sell an asset.

Held for trading financial assets are measured at fair value. Gains or losses are recognised through profit or loss as they arise.

i)                Trading securities

A financial asset is classified as held for trading if it is acquired principally for the purposes of selling in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short term profit taking, or it is a derivative (not in a qualifying hedge relationship). The Banking Group has classified certain public and other debt securities as held for trading.

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ii)            Financial assets designated at fair value through profit or loss

Upon initial recognition financial assets may be designated at fair value through profit or loss. This classification can only be used in the following circumstances:

•                  where designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets and liabilities (not only financial assets and liabilities) or recognising the gains or losses on them on different bases;

•                  those that are part of a group of financial assets, financial liabilities or both, that are managed and their performance is evaluated by management on a fair value basis in accordance with the documented risk management or investment strategy; or

•                  those that contain one or more embedded derivatives, except if the embedded derivative does not modify significantly the associated cash flows or it is clear with little or no analysis that separation is prohibited.

Based on the above criteria, the Banking Group has designated at fair value through profit or loss certain amounts Due from other financial institutions, Other money market placements with non-financial institutions and Loans and advances to customers.

Once a financial instrument has been designated at fair value through profit or loss upon initial recognition, the Banking Group cannot subsequently change the designation.

Investments – available for sale

From 1 October 2005 (the date at which the Banking Group applied NZ IAS 32 and NZ IAS 39), available for sale investments comprised non-derivative financial assets that are designated as available for sale and are not categorised into any of the categories of (i) fair value through profit or loss, (ii) loans and receivables or (iii) held to maturity.

Available for sale investments are initially recognised at fair value including direct and incremental transaction costs. They are subsequently held at fair value. Gains and losses arising from changes in fair value are included as a separate component of equity until sale when the cumulative gain or loss is transferred to the income statement.

Interest income is determined using the effective interest method. Impairment losses, and translation differences on monetary items, are recognised in the income statement. Available for sale investments are derecognised when the rights to receive cash flows have expired or the Banking Group has transferred substantially all the risks and rewards of ownership.

The accounting policies applied to available for sale investments prior to 1 October 2005 are outlined in the General Disclosure Statement for the year ended 30 September 2005.

Investments – held to maturity

Held to maturity investments comprise non-derivative financial assets, that the Banking Group’s management has the intention and ability to hold to maturity. From 1 October 2005, the date on which the Banking Group applied the principles of NZ IAS 39, they are initially recognised at fair value and subsequently recorded at amortised cost. Held to maturity investments are derecognised when the rights to receive cash flows have expired. Prior to 1 October 2005 held to maturity investments were recorded at original cost adjusted for the amortisation of premiums, accretion of discounts to maturity and other than temporary diminutions in their value. Unrealised losses relating to other than temporary diminutions in the value of investment securities were recognised in the income statement and the recorded values of those securities adjusted accordingly.

Repurchase and reverse repurchase agreements

Securities sold under agreements to repurchase are classified in the investment or trading portfolios and accounted for accordingly. The Bank’s obligation is classified under Due to central banks and other financial institutions or Other money market deposits. The difference between the sale and repurchase price represents interest expense and is recognised in the income statement over the term of the repurchase agreement.

Securities purchased under agreements to resell are recorded as Due from other financial institutions or Other money market placements. The difference between the sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the interim financial statements.

Loans and receivables

Loans and receivables are non-derivative financial assets, with fixed or determinable payments, that are not quoted in an active market and which are not classified as available for sale or designated at fair value through profit or loss. They arise when the Banking Group provides money or services directly to a customer with no intention of trading the loan.

Loans and receivables are initially recognised at fair value including direct and incremental transaction costs. They are subsequently recorded at amortised cost, using the effective interest method, adjusted for impairment losses and unearned income. They are derecognised when the rights to receive cash flows have expired or the Banking Group has transferred substantially all of the risks and rewards of ownership.

Loans and receivables comprise Balances with central banks, certain amounts Due from other financial institutions, Other money market placements and Loans and advances to customers.

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Impairment of financial assets

From 1 October 2005, the Banking Group will assess as at each balance sheet date whether there is evidence that a financial asset or a portfolio of financial assets is impaired. A financial asset or portfolio of financial assets held at amortised cost is impaired and impairment losses are incurred if, and only if:

•                  there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset and prior to the balance sheet date (a “loss event”); and

•                  that loss event has had an impact on the estimated future cash flows of the financial asset or the portfolio that can be reliably estimated.

Financial assets at fair value through profit or loss are not assessed for impairment as their fair value reflects the credit quality of the instrument and changes in fair value are recognised in the income statement.

The Banking Group assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Banking Group determines that no objective evidence of impairment exists for an individually assessed financial asset (whether significant or not), it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

For Loans and advances to customer and Investments – held to maturity, the amount of impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at either the asset’s original effective interest rate or, where the original effective interest rate is not available, at the asset’s contractual interest rate. Cash flows relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of the loss is recognised using an allowance account and the amount of the loss is included in the income statement.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar risk characteristics, taking into account asset type, industry, geographical location, collateral type, past-due status and other relevant factors. These characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the counterparty’s ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based, and to remove the effects of conditions in the historical period that do not currently exist. In addition, the Banking Group uses its experienced judgement to estimate the amount of an impairment loss. This incorporates amounts calculated to overcome model limitations and systemic risks where appropriate and supported by historical loss experience data. The use of such judgements and reasonable estimates is considered by management to be an essential part of the process and does not impact reliability.

The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

Following impairment, interest income is recognised using the original effective rate of interest, which was also used to discount the future cash flows for the purpose of measuring the impairment loss.

When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are recognised through the income statement.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement.

In the case of equity instruments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether impairment exists. Where such evidence exists, the cumulative net loss that has been previously recognised directly in equity is removed from equity and recognised in the income statement. In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as all other financial assets. Reversals of impairment of debt securities classified as available for sale are recognised in the income statement. Reversals of impairment of equity shares classified as available for sale are not recognised in the income statement. Increases in the fair value of equity shares classified as available for sale after impairment are recognised directly in equity.

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Prior to 1 October 2005 (the date from which the Banking Group applied NZ IAS 39), impairment losses were provided for losses inherent in loans, and off-balance sheet credit extensions such as letters of credit, guarantees and undrawn commitments to extend credit. Details of the accounting policies applied to impairment losses prior to 1 October 2005 are contained in note 1 of the General Disclosure Statement for the year ended 30 September 2005 under the heading Bad and doubtful debts.

Asset quality

A loan is considered to be impaired when, based on current information and events, the Banking Group considers it is probable that it will be unable to collect all amounts due, according to the contractual terms of the loan agreement.

The Banking Group has disclosed, in note 14, certain components of its loan portfolio as impaired assets according to the classifications discussed below:

•                  Other impaired assets means any credit exposure for which an impairment loss is required in accordance with NZ IAS 39 paragraphs 58 to 62, but is not a restructured asset.

•                  Restructured assets are those loans on which the original contractual terms have been formally modified due to the financial difficulties of borrowers, and on which interest continues to be accrued at a rate which is equal to or greater than the Banking Group’s average cost of funds at the date of restructuring.

•                  Assets acquired through security enforcement are those assets (primarily real estate) acquired through actual foreclosure or in full or partial satisfaction of loans.

The following categories are also disclosed in note 14, but are not considered to be impaired assets:

•                  Past due assets are those loans which payments of principal or interest are contractually past due for 90 days or more and adequate security is held.

•                  Other assets under administration are those loans which are not impaired or past due, where the customer is in receivership, liquidation, statutory management or any other form of administration in New Zealand, or is in an equivalent form of voluntary or involuntary administration overseas.

Derivative financial instruments and hedge accounting

From 1 October 2005, all derivatives are recognised in the balance sheet at fair value on trade date and are classified as trading except where they are designated as part of an effective hedge relationship. The carrying value of a derivative is remeasured at fair value throughout the life of the contract. Derivatives are carried as assets when the fair value is positive and liabilities when the fair value is negative.

The method of recognising the resulting fair value gain or loss on a derivative depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Banking Group designates certain derivatives as either hedges of fair value of recognised assets and liabilities or firm commitments (fair value hedge) or hedges of highly probable future cash flows attributable to a recognised asset or liability, or a forecast transaction (cash flow hedge). Hedge accounting is used for derivatives designated in this way provided certain criteria are met.

The Banking Group documents, at inception of the transaction, the relationship between hedging instruments and hedged items, as well as the Banking Group’s risk management objective and strategy for undertaking these hedge transactions. In addition, the documents outline how effectiveness will be measured throughout the life of the hedge relationship and its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of hedged items.

The accounting policies applied to derivatives prior to 1 October 2005 are outlined in the General Disclosure Statement for the year ended 30 September 2005.

i)                Fair value hedge

Subsequent to initial designation, the carrying value of the hedged item on initial designation is adjusted for the fair value attributable to the hedged risk. Subsequent to initial designation, changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss on an effective yield basis over the remaining period to maturity of the hedged item. The adjustment to the carrying amount of a hedged item classified as available for sale remains in retained earnings until the disposal of the item.

ii)            Cash flow hedge

The effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity, while the gain or loss relating to any ineffective portion is recognised immediately in the income statement. The carrying value of the hedged item is not adjusted.

Amounts accumulated in equity are transferred to the income statement in the period in which the hedged item will affect profit or loss.

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When a hedged instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction ultimately affects profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

iii)        Net investment hedge

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. The gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity; and the gain or loss relating to any ineffective portion is recognised immediately in the income statement. Gains or losses accumulated in equity are included in the income statement when the foreign operation is disposed of.

Any derivative that is de-designated as a hedging derivative will be accounted for as trading from the time that it is de-designated, with all subsequent movements in fair value recognised in the income statement.

Certain derivatives embedded in the financial instruments, such as the prepayment option embedded in a debt instrument, are only treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are bifurcated and measured at fair value with changes in fair value recognised in the income statement.

Goodwill and other intangible assets

Goodwill arises on the acquisition of controlled entities, associated entities and joint ventures, and represents the excess of the fair value of the purchase consideration and direct costs of making the acquisition, over the fair value of the Banking Group’s share of the assets acquired and the liabilities and contingent liabilities assumed on the date of the acquisition.

For the purpose of calculating goodwill, fair values of acquired assets, liabilities and contingent liabilities are determined by reference to market values or by discounting expected future cash flows to present value. This discounting is either performed using market rates or by using risk-free rates and risk-adjusted expected future cash flows.

Goodwill is capitalised and reviewed annually for impairment, or more frequently when there are indications that impairment may have occurred. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each of these cash-generating units is represented by an individual primary reporting segment.

Gains and losses on the disposal of an entity include the carrying amount of the goodwill relating to the entity sold.

Computer software

Computer software is stated at cost, less amortisation and provision for impairment, if any.

The identifiable and directly associated external and internal costs of acquiring and developing software are capitalised where the software is controlled by the Banking Group, and where it is probable that future economic benefits will flow from its use over more than one year. Costs associated with maintaining software are recognised as an expense as incurred.

Capitalised computer software costs are amortised on a straight line basis over their expected useful lives of between three and five years.

Property, plant and equipment

All land and buildings are revalued to reflect fair values. The valuations are carried out by independent registered valuers annually for all major buildings.

Revaluation increments are credited directly to an asset revaluation reserve. However, the increase is recognised in the income statement to the extent that it reverses a revaluation decrement previously recognised as an expense. Revaluation decrements are charged against the asset revaluation reserve to the extent that they reverse previous revaluation increments for a specific asset and any excess is recognised as an expense in the income statement. This policy is applied to assets individually. Revaluation increases and decreases are not offset, even within a class of assets, unless they relate to the same asset.

All other items of property, plant and equipment are carried at cost, less accumulated depreciation or amortisation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount. The recoverable amount is the higher of (i) the asset’s fair value less costs to sell and (ii) the asset’s value in use.

Where a group of assets working together supports the generation of cash inflows largely independent of cash inflows from other assets or groups of assets, the recoverable amount is assessed in relation to that group of assets (cash-generating unit).

In assessing recoverable amounts, the relevant cash flows from an asset or cash-generating unit’s value in use have been discounted to their present value at a pre-tax discount rate that reflects the time value of money and the risks specific to the asset or cash-generating unit.

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With the exception of land, all property, plant and equipment is depreciated or amortised using the straight line method, at the rates appropriate to its estimated useful life to the Banking Group. The following depreciation rates have been applied.

Straight Line Rates

Profit or loss on the sale of property, plant and equipment, which is determined as the difference between the net sale proceeds and the carrying amount of property, plant and equipment at the time of disposal, is included in the income statement.

Leasing

Assets leased to customers are classified as finance leases if the lease arrangement transfers substantially all the risks and rewards of ownership to the lessee. When assets are held subject to a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is treated as unearned finance income.

Finance lease income is recognised over the term of the lease using the net investment method (before tax) reflecting a constant periodic rate of return.

Operating lease assets are included within Property, plant and equipment at cost and depreciated over the useful life of the asset after taking into account anticipated residual value. Operating lease rental income is recognised within Other operating income in the income statement on a straight line basis over the life of the lease. Depreciation is recognised within Operating expenses.

LIABILITIES

Financial liabilities

Financial liabilities comprise items such as Due to central banks and other financial institutions, Other money market deposits, Trading liabilities, Deposits from customers, Derivative financial instruments, Bonds and notes and Amounts due to related entities.

Financial liabilities may be held at fair value through profit or loss or at amortised cost. Items held at fair value through profit or loss comprise both items held for trading and items specifically designated at fair value through profit or loss at initial recognition.

Financial liabilities held at fair value through profit or loss are initially recognised at fair value with transaction costs being recognised immediately in the income statement. Subsequently, they are measured at fair value and any gains or losses are recognised in the income statement as they arise.

Liabilities may be designated at fair value through profit or loss if they meet the following criteria:

•                  where designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets and liabilities (not only financial assets and liabilities) or recognising the gains or losses on them on different bases;

•                  those that are part of a group of financial assets, financial liabilities or both, that are managed and their performance is evaluated by management on a fair value basis in accordance with the documented risk management or investment strategy; or

•                  those that contain one or more embedded derivatives, except if the embedded derivative does not modify significantly the associated cash flows or it is clear with little or no analysis that separation is prohibited.

In accordance with above criteria the Banking Group has designated Other money market deposits, Bonds and notes and certain amounts Due to central banks and other financial institutions at fair value through profit or loss.

A financial liability is classified as held for trading if it is incurred principally for the purpose of selling in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short term profit taking, or it is a derivative (not in a qualifying hedge relationship). The Banking Group has classified short sales of securities as Trading liabilities.

All other financial liabilities including Deposits from customers, Amounts due from related entities and certain amounts Due to central banks and financial institutions are measured at amortised cost using the effective interest method.

Provisions

Provisions are recognised when a legal or constructive obligation exists as a result of a past event, it is probable that an outflow or economic benefits will be required to settle the obligation and a reliable estimate can be made. Provisions are not discounted to the present value of their expected net future cash flows except where stated below.

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Employee entitlements

Employee entitlements to long service leave are accrued using an actuarial calculation based on legal and contractual entitlements and assessments having regard to staff departures, leave utilisation and future salary increases. This method does not differ significantly from calculating the amount using present value techniques.

Wages and salaries, annual leave and other employee entitlements expected to be paid or settled within 12 months of providing the service are measured at their nominal amounts using remuneration rates that the Banking Group expects to pay when the liabilities are settled.

All other employee entitlements that are not expected to be paid or settled within 12 months of the reporting date are measured at the present value of net future cash flows.

The Banking Group sponsors a pension scheme, which has both a defined benefit and defined contribution component.

The defined benefit plan provides defined lump sum benefits based on years of service and final average salary. The asset in respect of the defined benefit superannuation plan is recognised in the balance sheet and is measured as the present value of the defined benefit obligation as at the reporting date less the fair value of the superannuation fund’s assets at that date and any unrecognised past service cost.

The Banking Group’s obligation for contributions to the defined contribution plan is recognised as an expense in the income statement as incurred. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payment is available.

The present value of the defined benefit obligations for the plan is discounted by the government bond rate. The present value of the defined benefit obligation is calculated using the projected unit credit method.

Past service costs are recognised immediately in income, unless the changes to the superannuation fund are conditional on the employees remaining in service for a specified period of time (vesting period). In this case, the past service cost is amortised on a straight line basis over the vesting period.

Pension expense attributable to the Banking Group’s defined benefit plan comprises current service cost, interest cost, expected return on plan assets and amortisation of any past service cost which has yet to vest. The Banking Group’s policy where actuarial gains and losses arise as a result of actual experience is to fully recognise such amounts directly into retained earnings.

Non-lending losses

Provisions for non-lending losses are raised for losses to be incurred by the Banking Group, which do not relate directly to amounts of principal outstanding for loans.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation as at the reporting date, taking into account the risks and uncertainties that surround the events and circumstances that affect the provision.

Restructuring costs

Provisions for restructuring costs include provisions for expenses incurred but not yet paid and future expenses that will arise as a direct consequence of decisions already made. A provision for restructuring costs is only made where the Banking Group has made a commitment and entered into an obligation such that there is no realistic alternative, but to carry out the restructuring and make future payments to settle the obligation.

Restructuring cost provisions are only recognised when a detailed plan has been approved and the restructuring has either commenced or has been publicly announced. This includes the cost of staff termination benefits and surplus leased space. Costs related to on-going activities are not provided for.

Surplus leased space

Surplus leased space is an onerous contract and a provision is recognised when the expected benefits to be derived from the contract are less than the costs that are unavoidable under the contract. This arises where premises are currently leased under non-cancellable operating leases and either the premises are not occupied, are being sub-leased for lower rentals than the Banking Group pays, or there are no substantive benefits beyond a known future date. The provision is determined on the basis of the present value of net future cash flows.

Subordinated debt

Subordinated debt issued by the Banking Group is recorded at amortised cost.

Income tax

Income tax expense is the income tax charge (benefit) incurred on the current period profit or loss and is the aggregate of the movements in deferred tax and the amount of income taxes payable (recoverable) in respect of taxable profit (taxable loss) for the period at the applicable tax rate.

Deferred tax assets are the amounts of income taxes recoverable in future periods including unused tax losses and unused tax credits carried forward. Deferred tax liabilities are the amounts of income taxes payable in future periods. Deferred tax assets and liabilities arise when there is a temporary difference between the tax bases (amount attributable to the asset or liability for tax purposes) of assets and liabilities and their carrying amounts in the balance sheet. Deferred tax assets and liabilities are determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

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Deferred income tax liabilities are recognised for all taxable temporary differences, except:

•                  for a deferred income tax liability arising from the initial recognition of goodwill;

•                  where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

•                  in respect of taxable temporary differences associated with investments in controlled entities, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised:

•                  except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

•                  in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed as at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Income tax relating to items recognised directly in equity are recognised in equity and not in the income statement.

REVENUE AND EXPENSE RECOGNITION

Net interest income

Net interest income is reflected in the income statement using the effective interest method.

The effective interest method is a method of calculating amortisation using the effective interest rate of a financial asset or financial liability. The effective interest rate is the rate that exactly discounts the estimated stream of future cash payments or receipts over the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or liability.

When calculating the effective interest rate, the cash flows are estimated considering all contractual terms of the financial instrument (for example, prepayment, call and similar options) excluding future credit losses.

The calculation of the effective interest rate includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. Where it is not possible to reliably estimate the cash flows or the expected life of a financial instrument (or group of financial instruments), the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments) are used.

Dividend income

Dividend income is recorded in the income statement on an accruals basis when the Banking Group obtains control of the right to receive the dividend.

Fees and commissions

Unless included in the effective interest calculation, fees and commissions are recognised on an accruals basis when the service has been provided. Fees and commissions not integral to the effective interest rate arising from negotiating, or participating in the negotiation of a transaction with a third party, such as purchase or sale of businesses, are recognised on completion of the underlying transaction.

Trustee and funds management activities

Fees and commissions earned through the marketing of funds management products are included in the income statement as they are earned.

Gains less losses on financial instruments at fair value through profit or loss

From 1 October 2005, gains less losses on financial instruments at fair value through profit or loss comprises fair value gains and losses from three distinct activities:

•                  trading financial instruments;

•                  hedging instruments; and

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

Trading financial instruments recognise fair value movements on all trading financial instruments. For trading derivatives a full fair value is determined inclusive of Interest income and Interest expense arising on those derivatives. Interest income and Interest expense on Trading securities and those derivatives that form part of a designated fair value through profit or loss relationship is reported within Interest income and not included in the fair value of these instruments.

Hedging instruments recognise fair value movements on both the hedged item and hedging derivative in a fair value hedge relationship, and hedge ineffectiveness for both fair value and cash flow hedges.

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Financial instruments designated at fair value through profit or loss recognise fair value movements (including interest).

Interest income and Interest expense on hedging instruments and items designated at fair value through profit or loss at initial recognition are recognised in net interest income.

Trading income

Prior to 1 October 2005, gains and losses realised from the sale of trading securities and unrealised fair value adjustments were reflected in the income statement. Realised and unrealised gains and losses on trading derivative instruments were reflected in the income statement.

Goods and services tax

Revenues, expenses and assets are recognised net of the amount of value added tax such as goods and services tax, except where the tax incurred is not recoverable from the Inland Revenue Department. In these circumstances, the tax is recognised as part of the cost of the expense or the acquisition of the asset.

Receivables and payables are stated at an amount with tax included. The net amount of tax recoverable from, or payable to, the Inland Revenue Department is included within Other assets or Other liabilities.

Cash flows are included in the statement of cash flows on a gross basis. The tax component of cash flows for all activities are classified within operating activities.

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Income Statement Notes