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Half Yearly Report/ASIC Half Yearly Accounts

Document date:  Thu 26 Apr 2001
Published:  Thu 26 Apr 2001 11:23:48
Document No:  175940
Document part:  H
Market Flag:  Y
Classification:  Half Yearly Report , Half Year Audit Review , Half Year Directors' Statement , Half Year Accounts , Dividend Record Date , Dividend Pay Date , Dividend Rate , Other

AUSTRALIA AND NEW ZEALAND BANKING GROUP       2001-04-26  ASX-SIGNAL-G

HOMEX - Melbourne                                                     

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CHIEF FINANCIAL OFFICER'S REVIEW

OVERVIEW

Australia and New Zealand Banking Group Limited (ANZ) recorded a
profit after tax of $895 million for the half-year ended 31 March
2001. Earnings per ordinary share were 55.8 cents, and return on
ordinary shareholders' equity was 19.6%.

The September 2000 half year result included $59 million principally 
from the Grindlays operations sold on 31 July 2000, together with $44 
million net abnormals.  The following overview compares the current 
half-year with the continuing operating results of the September 2000 
half-year excluding net abnormals (refer table on page 2).

The Group's continuing operations recorded a profit of $907 million, 
up 10% over the September 2000 half-year.  This result reflects the 
success of the Group's focus on Specialisation, eTransformation, and 
the Growth strategy which was announced on 18 July 2000.

Balance sheet growth has slowed, due to slowing mortgage growth and 
securitisation of mortgage assets and deliberately limiting growth in 
Corporate assets (focus has been on fee income).

Income grew 6% with costs flat after allowing for GST, the 
acquisition of NZ EFTPOS, and exchange rates.

The cost income ratio from the continuing operations reduced to 49.4% 
from 51.2% in the half-year to September 2000, reflecting income 
growth and the results of efficiency initiatives.  This result 
represents significant progress towards the Group's aim of a cost 
income ratio in the mid 40's.

A gain of $99 million ($65 million after tax) on the sale of ANZ's 
strategic holding in St George Bank was offset by a writedown of 
investments of $84 million (no tax effect).

INCOME

Net interest income increased by $84 million over the previous 
half-year.  The 5% increase has been driven by increased lending 
volume growth and margin growth of 2 basis points for the continuing 
businesses.  Mortgage lending in Australia and New Zealand accounted 
for the majority of the lending growth with mortgage margins 
strengthening as interest rates fell ahead of customer lending rates, 
following two consecutive half years of rising interest rates.

Growth in fee income at 6% reflected increased fee volumes in Cards, 
Structured Finance and Institutional Banking.  Transaction fees in all
areas continue to be reviewed and repriced as necessary to reflect the
changing cost of providing services.

EXPENSES

Operating expenses were well contained, with the increase resulting 
from acquisitions including EFTPOS New Zealand ($6 million), the 
introduction of GST ($18 million), and exchange rates ($8 million).  
Cost efficiency initiatives saw staff numbers reduce by 1.4%.

RESTRUCTURING INITIATIVES

During the September 2000 half-year, a $361 million provision was 
recognised for a 2-year program to restructure the technology, 
premises and operational infrastructure across the Group.  Spend 
against the provision to the end of March 2001 was $65 million.  
Progress on these initiatives includes:

* significant work has been undertaken in conjunction with external 
advisors to determine the optimal branch configuration 

* progress has been made on the delivery of our new sales and 
service platform

* the imaging technology pilot has been completed and is now being 
rolled out to improve productivity of processes and workflow

* strategic re-positioning of the EFTPOS network to facilitate the 
introduction of smart card technology is underway 

* Esanda back office processes are being re-engineered as planned 
and operations are being moved towards web based platforms

* the simplification of Asia Pacific business platforms is 
progressing

* the decommissioning of mid range IT systems, workflow improvements 
and hardware upgrades is on schedule, including the development of 
Common Administration Systems where software has been selected and 
implementation partners and the ANZ project team have commenced work

The benefits of this extensive restructuring program will emerge 
progressively, but principally in 2002 and beyond.  These savings will
be used to maintain our philosophy of costs that are 'flat' and enable
investment in growth options.

UNUSUAL PROFIT AND LOSS ITEMS

On 8 March 2001, ANZ announced the sale of its 8.3% stake in St George
Bank realising a profit before tax of $99 million ($65 million after 
tax).  The holding of a stake in St George was not central to the 
Group's new strategy and with significant challenges surrounding a 
future acquisition, the sale presented a good opportunity to realise 
value.

During the March 2001 half year the Group has reassessed the market 
value of certain investments recognising the continued weakness of 
Indonesian equity markets and global decline in the value of internet 
investments.  In light of this assessment the carrying value of Panin 
Bank has been written down by $43 million, E*Trade by $21 million and 
other investments by $20 million.

DISCONTINUED BUSINESS

On 5 March 2001 ANZ and OCBC Bank announced their decision to withdraw
from the joint venture to develop a web-led bank in Asia, as it became
clear that the venture's projected financial returns were not 
sufficiently compelling in light of market entry costs and the softer 
economic environment.  The results include an equity accounted loss of
$25 million, which is the Group's share of the loss.

Grindlays has successfully petitioned India's Supreme Court to 
expedite its dispute with the state-owned National Housing Bank (NHB) 
and cap its exposure to prevent further increases in potential 
liabilities.  On 19 January 2001, INR 15.3 billion was placed on 
deposit to cap interest accruals on Grindlays exposure.  Discontinued 
businesses includes interest earned on the monies in dispute prior to 
lodgement of the deposit.

RISK

Risk levels remain stable across the Group.  Whilst the Group ELP 
declined from 36 basis points to 35 basis points, for continuing 
businesses the trend in ELP has flattened at 34 basis points with some
modest increase evident in the Corporate businesses.  Risk profiles 
are being closely monitored in the current economic environment.  Non 
accrual loans reduced and net specific provisions fell $5 million over
the half-year to $181 million from $186 million in the September 2000 
half year.

Specific provisions declined in Personal but a prudent approach to 
Corporate exposures following difficulties encountered by some larger 
customers saw a modest increase.  Similarly, non accrual loans 
increased 15% in Australia driven by Corporate, but this was offset by
significant recoveries and write-offs of Asian non accruals.

The sale of the Grindlays businesses on 31 July 2000 resulted in a 
significant improvement in the Group's risk profile, with the economic
loss provisioning change as a percentage of net lending assets being 
1.13% for the sold businesses compared to 0.36% for the continuing 
businesses.

CAPITAL MANAGEMENT

The Group's Tier 1 position reduced by 0.1% to 7.3% (September 2000: 
7.4%), reflecting our continued focus on capital management.  Inner 
Tier 1 reduced by 0.2% to 6.2%, close to our target of 6.0%.  This 
includes $413 million share buy-backs.  The current $1 billion share 
buy-back was 92% completed at 31 March 2001 and is expected to be 
finalised shortly.  The total capital adequacy ratio remains strong at
10.5% with a smaller deduction from capital following the sale of our 
stake in St George.

The Group is being managed to maximise value for our shareholders.  
Performance against targets is measured through EVA(TM) (Economic 
Value Added).  EVA(TM) is a measure of economic profit and is based 
on operating profits after tax adjusted for prior year abnormals, 
the cost of equity, the assessed value of imputation credits, and 
economic credit costs.  EVA(TM) for the half-year ended 31 March 
2001 was $594 million up from $565 million for the half-year ended 
30 September 2000, using a cost of capital of 11%.

EVA(TM) principles are also used to enhance comparability of 
business unit performance.  Business unit results are equity 
standardised, by eliminating the impact of earnings on each business 
unit's book capital and attributing earnings on the business unit's 
risk adjusted capital.

During the half year the Group has implemented a new framework to 
allocate capital to business units for operating risk using a 
scorecard approach. This methodology significantly strengthens the 
Group's overall process for the management of economic capital and was
designed to drive appropriate risk management behaviour through the 
Group and particularly to line management.


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