Skip to content

ASIC Half Yearly Accounts/media release

Document date:  Wed 05 May 1999
Published:  Wed 05 May 1999 00:00:00
Document No:  148215
Document part:  C
Market Flag:  N
Classification: 

HOMEX - Melbourne                                                     

+++++++++++++++++++++++++
CHIEF FINANCIAL OFFICER'S REVIEW

OVERVIEW

Australia and New Zealand Banking Group Limited (ANZ) recorded an
operating profit after tax of $716 million for the half-year ended 31
March 1999. The result has been achieved against the background of
the Group rebalancing its portfolio toward lower risk consumer
related activities and the exit from proprietary trading and
institutional stockbroking businesses. Profit after tax for the
corresponding half-year in 1998 was $625 million and profit after tax

The return on ordinary shareholders' equity was 17.3% and earnings
per ordinary share were 44.7 cents, up 8% from 41.3 cents in the
March 1998 half-year.

The rebalancing of the portfolio is evident from the change in the
composition of the Group's result. Personal Financial Services within
domestic markets contributed 42% of profit after tax in March 1999
half-year, compared with 36% in March 1998 half-year.

Increased growth in the mortgage businesses within Australia and New
Zealand ($4.3 billion, including PIBA acquisition of $1.4 billion)
partially offset the impact of winding back wholesale market and
interbank activities in International markets. Personal Financial
Services fee income was up.

Operating expenses were down $94 million from March 1998 ($56 million
excluding the impact of change in software capitalisation policy and
netting of sub-rental income) reflecting the benefits of efficiency
programmes put in place last year. The cost income ratio was 55.8%.

The economic loss provision (ELP) charge was stable, compared with
the second half 1998, reflecting the Group's improved risk profile.
Actual loss experience was contained within the ELP charge and, apart
from China, in line with our expectations.

The Group strengthened its capital base by issuing a further USD 375
million of Preference Shares into the US market bringing the level of
preference share capital to USD 775 million. At 31 March 1999, the
Group Tier 1 capital ratio stood at 7.7%.

The directors propose to increase the interim dividend to 26 cents,
up from 24 cents for the March 1998 half-year. As foreshadowed, the
franking level will be increased, up from 60% to 75%.

NET INTEREST INCOME

Modest growth in net interest income on March 1998 half-year
reflected:

* 11% growth in average net lending assets, primarily in mortgage
lending in Australia and New Zealand 

* offset by wind back in wholesale banking market activities 
resulting in decreases in Due from Other Financial Institutions. 

Group margins increased slightly reflecting: 

* impact of replacing debt funding with preference shares
(4 basis points) 
* New Zealand margins increased in the falling interest rate 
environment 
* increased margins in International from the windback of low margin 
wholesale banking activities offset by:

- margins declined in Australia due to competitive pressures, strong
growth in mortgages and continued reduction in higher risk lending 

- increasing drag from interest foregone on non-accrual loans in Asia
and Middle East.


OTHER OPERATING INCOME

The success of the Group's objective to diversify income streams is
becoming apparent on the fee income lines:

* lending fees up 16% from March 1998, mainly on the back of growth
in Personal Financial Services and higher commercial bill volumes 

* higher card, transaction and funds management fee levels.

Foreign exchange income was reduced from levels early in the 1998
year, reflecting the reduction in volatility in Asian currencies.

The cessation of proprietary trading activities has impacted trading
profits and eliminated much of the volatility in earnings compared to
previous half-years. Profit and loss on trading instruments rebounded
to more normal levels after the losses in London capital markets in
the second half of 1998, and are now mostly related to customer flow
business in Australia and New Zealand.

The decline in Other Income from March 1998 half-year levels
reflects: 

- cessation of ANZ Securities institutional broking
- netting of sub-letting income in March 1999 half-year ($10 million) 
- profit on sale of residual interest in Commercial Bank of Oman 
which increased other income in March 1998 by $8 million.

In the September 1998 half-year, Other income included a $26 million
gain on the demutualisation of the Credit Reference Association of
Australia (CRAA) and a high level of profit on sale of premises ($14
million).

OPERATING EXPENSES

Operating expenses were reduced by $94 million on March 1998
half-year or by $56 million excluding the impact of the change in
software capitalisation policy and netting of sub-rental income.
Expenses were down in Australia ($90 million), and New Zealand ($36
million, $27m excluding foreign exchange impact), but were up
internationally ($32 million, $19 million excluding foreign exchange
impact).

The benefits of the Group's restructuring programs are apparent with:

* FTEs down 4,959 on March 1998 and down 1,093 on September 1998 
* personnel and premises costs down.

contractor costs.

Other expenses were up on March 1998 due mainly to increased
non-lending losses and consultants fees. Reduced costs in most other
categories, including advertising, travel and freight, reflected the
benefits of cost control programmes put in place last year.

MORE TO FOLLOW

                                                  1