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Note 19: Borrowings (continued)

Kiwibank customer deposits

Actual
30 June
2017
$m
30 June
2016
$m
Kiwibank customer deposits at amortised cost 15,960 14,113
Total Kiwibank customer deposits 15,960 14,113

Kiwibank customer deposits are measured at amortised cost using the effective interest rate method. Amortisation and foreign exchange gains and losses, are recognised in the Statement of Financial Performance as is any gain or loss when the liability is derecognised.

The fair value of Kiwibank customer deposits measured at amortised cost is $15,970 million (2016: $14,127 million). For fixed term deposits by customers, fair values have been estimated using a discounted cash flow model with reference to market interest rates. For other deposits by customers, the carrying amount is a reasonable estimate of fair value.

Kiwibank customer deposits exclude deposits held by other government reporting entities and will therefore differ from the total customer deposits reported by Kiwibank.

Settlement deposits with Reserve Bank

Settlement deposits with the Reserve Bank represent the level of money deposited with the Reserve Bank by commercial banks. They act as a liquidity mechanism used to settle wholesale obligations amongst the banks and provide the basis for settling most of the retail transactions that occur every working day between corporates and individuals.

Settlement deposits with the Reserve Bank are technically a form of borrowing by the Reserve Bank, where the liability is matched by a corresponding financial asset (reported as an element of marketable securities and deposits). Settlement deposits are reported at amortised cost, which is equivalent to the amount payable to depositors given the short term (ie, overnight) nature of these liabilities.

Settlement accounts are administered through the Exchange Settlement Account System (ESAS). ESAS account holders generally receive interest at the Official Cash Rate on their end-of-day balances. The Reserve Bank provides collateralised overnight borrowing facilities for banks, at an interest rate set at a margin over the Official Cash Rate.

Treasury bills

Treasury bills are reported at amortised cost. As these are short-term sovereign-issued instruments, the carrying value is not materially affected by changes in Sovereign credit risk and the carrying value approximates the amount payable at maturity.

Other borrowings

Actual
30 June
2017
$m
30 June
2016
$m
Other borrowings measured at amortised cost 11,777 11,706
Other borrowings measured at fair value 4,463 6,005
Total other borrowings 16,240 17,711
Actual
30 June
2017
$m
30 June
2016
$m

Other borrowings measured at fair value

 
Carrying value 4,463 6,005
Amount payable on maturity 4,350 5,819
Fair value impact from changes in credit risk for the year (73) 35
Cumulative fair value impact from changes in credit risk 115 188

Other borrowings are reported at fair value, with movements in fair value reported in the statement of financial performance. When they are held for trading or they are managed, their performance is evaluated on a fair value basis.

The fair value of other borrowings measured at amortised cost is $11,556 million (2016: $11,695 million). The fair value of financial liabilities with standard terms and conditions traded on active liquid markets was determined by reference to quoted market prices. Where such prices are not available, use is made of estimated discounted cash flow models with reference to market interest rates.

For those other borrowings measured at fair value through the profit and loss, the value of these instruments will be affected by changes in interest rates due to credit risk and broader market influences.

The table above identifies the difference between the carrying amount and amount payable at maturity as well as the extent that fair value movements have resulted from changes in credit risk of the issuing entity. The carrying value can differ from the amount actually payable on maturity where the effect of discounting cash flows is material.

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