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Half Yearly Report/ASIC Half Yearly Accounts

Document date:  Thu 26 Apr 2001
Published:  Thu 26 Apr 2001 14:25:55
Document No:  175940
Document part:  L
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 (CONTINUED)

MORTGAGES
GREG CAMM

Provision of first mortgage finance secured by residential real 
estate in Australia and New Zealand.
                                                    HALF      HALF
                                                    YEAR      YEAR
                                                    MAR 01    MAR 00
                                                    $M        $M

Net interest income                                  323       238
Other external operating income                       29        31
Net inter business unit fees                         (92)      (94)
Operating income                                     260       175
External operating expenses                          (56)      (52)
Net inter business unit expenses                     (23)      (25)
Operating expenses                                   (79)      (77)
Profit before debt provision                         181        98
Provision for doubtful debts                         (12)       (9)
Income tax expense and outside equity interests      (57)      (31)
Net profit attributable to members of the Company    112        58

Operating expenses to operating income              29.2%     42.3%
Net specific provisions                                6         8
Net non-accrual loans                                 59        33
Total employees                                      845       944

Mortgages provides consumers with instalment loans and lines of
credit secured by first mortgages on residential real estate. Key
products include owner occupied home loans, residential investment
loans, and home equity loans. Products are distributed by ANZ's
Personal customer businesses and by third party mortgage introducers.
Mortgages also provides funding and processing services for mortgage
originators who market loans under their own brands.

Mortgages profit after tax increased by 40% over the September 2000 
half year to $112 million.

Key drivers of this result are as follows:
* volume growth of $2.9 billion since September 2000 and increased 
  portfolio margins of 0.07%, delivering $41 million in additional 
  net interest income
* a marginal increase in operating expenses due to the higher 
  seasonal marketing spend in March 2001 half
* economic loss provisioning levels continue to exceed specific 
  provisions by $6 million
* cost to income ratio fell by 5% to 29.2%

The increase in net non-accrual loans during the March half year is 
partly due to a change in classification procedures in New Zealand. 
This change in procedures, which brings New Zealand into line with 
Australian practice, has been made to improve management of the 
assets, and has resulted in recognition of an additional $15 million 
non-accrual loans.

Portfolio margins are expected to decrease in the second half. Key 
reasons for this expectation include the favourable impact of yield 
curve movements in the March half, and the impact of a slowing 
Australian economy on new business in the second half.

The Mortgage Group's response to the slowing economy involves
increasing focus on customer retention, product and service
innovation, risk management, productivity improvement, and
origination and servicing alliances. Specific examples in this period
include:

Product Quality      Retained Cannex 5 star key product category 
                     ratings, and improved ratings for fixed rate 
                     categories.

eTransformation      Introduced Home buying site on anz.com 
                     (HomeVillage) and self service mortgage site.

Funding              Issued second domestic securitisation tranche 
                     ($500 million).

Straight through
 processing          Implemented first two phases of new origination 
                     system.


CORPORATE
ROGER DAVIS

Comprises Corporate and Institutional Banking, Global Foreign
Exchange, Global Capital Markets, Global Structured Finance and
Global Transaction Services.
                                                    HALF      HALF
                                                    YEAR      YEAR
                                                    MAR 01    MAR 00
                                                    $M        $M

Net interest income                                 391       354
Other external operating income                     565       491
Net inter business unit fees                        (20)      (20)
Operating income                                    936       825
External operating expenses                        (291)     (277)
Net inter business unit expenses                    (77)      (69)
Operating expenses                                 (368)     (346)
Profit before debt provision                        568       479
Provision for doubtful debts                        (88)      (81)
Income tax expense and outside equity interests    (124)     (107)
Net profit attributable to members                  356       291
 of the Company

Net loans and advances including acceptances     50,804    46,854
Other external assets                            18,744    15,228
External assets                                  69,548    62,082
Deposits and other borrowings                    25,174    18,213
Other external liabilities                       30,239    23,844
External liabilities                             55,413    42,057

Net interest average margin                        1.91%     1.90%
Return on assets                                   1.05%     0.96%
Return on risk weighted assets                     1.02%     0.96%
Operating expenses to operating income             39.3%     41.9%
Operating expenses to average assets               1.09%     1.14%
Net specific provisions                              60        11
Net specific provision as a % of average net 
 advances                                          0.24%     0.05%
Net non-accrual loans                               391       184
Net non-accrual loans as a % of net advances       0.7%      0.4%
Total employees                                   3,188     3,290

The results for Corporate include the business units and the Corporate
central support unit.  The services provided by the central support 
unit are allocated to the business units and are fully recovered.  As 
a result of this allocation, the sum of individual profit and loss 
line items of the business units does not equal the corresponding line
item in the profit and loss of Corporate.


INVESTMENT BANK
GRAHAME MILLER

ANZ Investment Bank, comprising Global Capital Markets, Global Foreign
Exchange, and Global Structured Finance is headed by Grahame Miller.


CORPORATE BANKING
BOB EDGAR

Managing customer relationships and developing product strategies for 
medium sized businesses.
                                                    HALF      HALF
                                                    YEAR      YEAR
                                                    MAR 01    MAR 00
                                                    $M        $M

Net interest income                                 122       117
Other external operating income (1)                  71        70
Net inter business unit fees                         (5)       (4)
Operating income                                    188       183
External operating expenses                         (45)      (45)
Net inter business unit expenses                    (20)      (19)
Operating expenses                                  (65)      (64)
Profit before debt provision                        123       119
Provision for doubtful debts                        (25)      (24)
Income tax expense and outside equity interests     (33)      (34)
Net profit attributable to members of the Company    65        61

Operating expenses to operating income             34.6%     35.0%
Net specific provisions                              27         8
Net non-accrual loans                               322       114
Total employees                                     756       762

(1) Includes commercial bill income

Corporate Banking manages the relationship with medium to large sized 
corporate customers (turnover $10 million to $100 million) by 
developing and distributing lending, corporate leasing, deposit and 
transaction products.  Corporate Banking also utilises specialist 
product offerings from ANZ Investment Bank, Investment Management and 
Cards to ensure complete financial solutions are provided to its 
customers.

The Corporate Banking result increased 8% over the September half year
to $65 million.  This result reflects the contribution to profit from 
lending, leasing and deposit products, with revenues from other ANZ 
products used by corporate clients being booked in Corporate product 
business units (for example, foreign exchange, capital markets and 
trade services).  Approximately 50% of total customer profitability is
booked in these other business units.

Corporate Banking manages its middle market customer base on a 
geographic basis and has a high proportion of sole bank relationships.
A heavy emphasis on cross selling and solution selling has enabled ANZ
to build and maintain overall market share at just under one third of 
all primary bank relationships of middle market companies (2).

Key drivers of the result are:

* flat income due to deliberately constrained balance sheet growth in 
a slowing economy

* stable risk profile; prudent provisioning for some larger customers 
increased net specific provisions from the below average levels of 
prior periods

* flat costs due to the ongoing focus on technology driven process 
efficiencies

Going forward, the economic slowdown may impact certain sectors of the
corporate market and therefore the continuation of current risk 
monitoring and mitigation strategies will be key in order to minimise 
potential losses.


INSTITUTIONAL BANKING
BOB EDGAR

Managing customer relationships and developing financial services 
solutions and strategies for large businesses and specialised industry
segments (including property lending)
                                                    HALF      HALF
                                                    YEAR      YEAR
                                                    MAR 01    MAR 00
                                                    $M        $M

Net interest income                                  93        72
Other external operating income (1)                 116       100
Net inter business unit fees                          -        (1)
Operating income                                    209       171
External operating expenses                         (32)      (26)
Net inter business unit expenses                    (12)      (12)
Operating expenses                                  (44)      (38)
Profit before debt provision                        165       133
Provision for doubtful debts                        (32)      (29)
Income tax expense and outside equity interests     (45)      (37)
Net profit attributable to members of the Company    88        67

Operating expenses to operating income             21.1%     22.2%
Net specific provisions                              11          -
Net non-accrual loans                                21         31
Total employees                                     422        430

(1) Includes commercial bill income

Institutional Banking manages the relationship with large 
institutional customers (turnover greater than $100 million) and 
specialist industry groups by developing and distributing lending and 
corporate leasing products.  In addition, Institutional Banking also 
utilises specialist product offerings from ANZ Investment Bank and 
Investment Management to ensure complete financial solutions are 
provided to its customers.

Institutional Banking profit increased 26% over the September half 
year to $88 million.  This result reflects the contribution to profit
from lending based products, with revenues from other products used by
institutional clients being booked in other CFS business units (for 
example, foreign exchange, capital markets, trade and transaction 
services).

Institutional Banking's primary focus is to develop and grow the 
overall value of its customer relationships across all ANZ Group 
financial products with the above results representing approximately 
one third of total customer profitability.

Institutional Banking's customer management strategy is based around 
nine specialist industry segments, being:
* Business Services, Contracting and Health
* Financial Institutions and Government
* Food, Beverages and Agribusiness
* Utilities and Infrastructure
* Manufacturing
* Property and Construction Finance
* Natural Resources
* Retail and Distribution
* Telecommunications, Media and Entertainment

Institutional Banking has consolidated its leading market position, 
with a 43% share of significant bank institutional customer 
relationships(2).

Key drivers of the result were:
* increased net interest income resulting from increased margins, with
  improving pricing for risk
* a focus on fee based income
* tight cost control as evidenced by the decline in cost to income 
  ratio
* risk profile held constant with non-performing assets being very low

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