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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:  E
Market Flag:  N
Classification: 

HOMEX - Melbourne                                                     

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CHIEF FINANCIAL OFFICER'S REVIEW (continued)

CAPITAL ADEQUACY 

The Group's capital position is currently very strong. This gives the
Group considerable flexibility to pursue strategic and capital
management options.

The Australian Prudential Regulation Authority (APRA) guideline ratio
of qualifying capital to risk weighted assets is a minimum of 8% of
which Tier 1 capital must be at least 4%:

* the total Group's capital adequacy ratio increased to 10.9%, from
10.7% at September 1998

* Tier 1 ratio of 7.7%, up 0.5% from September 1998, due to the issue
of a further USD 375 million of preference shares in November 1998.


RISK MANAGEMENT

Last year, ANZ announced a strategy to rebalance the risk profile of
the Group and increase the emphasis on lower risk consumer related
activities that create a more stable earnings stream.

Good progress has been made in the first half of 1999:

* Rebalancing towards consumer related businesses continues. The
mortgage lending portfolio across Australia and New Zealand increased
by 1O%, while Personal Financial Services within domestic markets
contributed 42% to the Group's profit after tax.

* In line with our resolve to rebalance the international lending
portfolio, we have increased the share of trade finance and lower
risk assets in Asia, without growing the aggregate exposure, which at
31 March 1999 stands at USD 5.8 billion. With the new international
lending policy firmly in place, we expect the rebalancing process to
continue as part of our normal day to day activity.

* We have transferred ANZ Investment Bank management to Melbourne,
and have completed the sale of the emerging markets funds management
business. Ongoing trading limits have been reduced by approximately
50% and are directed towards customer trading businesses in Foreign
Exchange and Capital Markets.

* There has been continued improvement in the risk grading profile of
our corporate lending activities in Australia and New Zealand, and
good progress in reducing a number of risk concentrations by customer
and industry.

Some aspects of the international economic environment continue to be
weak. We announced last year that 1999 provisions should be broadly
in line with 1998 and that we expect these to be absorbed within our
normal Economic Loss Provisioning policy.

The first half results support our expectations. Net specific
provisions for the half were $234 million, 63% being driven by
additional provisions for international exposures. Net specific
provisions for Asia were $60 million. The net specific provisions
were within economic loss provisions of $258 million. Improvement in
the credit environment in several countries, including China and
Pakistan, will take some time and in some cases relies on structural
reform of the financial system. ANZ will continue to take a
conservative view of developments and make specific provisions for
defaulted assets.

NATIONAL HOUSING BANK OF INDIA

Following the Arbitration Award handed down in the Group's favour on
29 March 1997, the National Housing Bank of India (NHB) had the award
reviewed by the Special Court in Mumbai, which on 4 February 1998
ordered that the award be set aside. ANZ has filed an appeal with the
Supreme Court of India seeking that the Special Court's order be set
aside. As the matter is sub judice comment by the parties is limited.
The Group has obtained legal advice from Senior Counsel and based on
that advice no provision has been made in respect of the claim.

ANZ's Year 2000 preparations are well advanced and progressing on
target. ANZ is also implementing comprehensive plans to mitigate
risks. A central Group 2000 Project manages implementation of the
plans for ANZ's operations in 43 countries and across all its wholly
owned subsidiaries. The key components include the following:

Internal Systems - Repair and individual testing of ANZ's own
applications and core technology platforms was completed ahead of the
scheduled date of 31 December, 1998. External testing of interbank
clearing systems, with other institutions, has commenced. This
cross-industry testing is scheduled for completion by 30 June 1999.

Backup - ANZ's daily processes ensure that all customer account
details are always safely recorded and stored. ANZ is confident that
the deposits in its customers' bank accounts are safe from loss due
to Year 2000 problems.

External Vendors and Partners - The review of critical systems
provided by external suppliers, and the sourcing of replacements
where necessary, and practical has been completed. Testing of
critical third party systems is almost entirely completed. ANZ is
working with other banks and banking regulators (such as the
Australian Prudential Regulation Authority and the Reserve Bank of
Australia) to address Year 2000 issues and to test major payment
streams thoroughly.

Customers - ANZ is continuing to communicate with its customers to
help raise awareness of the Year 2000 issue. ANZ also recognises the
potential for some businesses to suffer significant disruption from
Year 2000 problems.

Premises - ANZ currently occupies both leased and owned premises in
Australia and overseas. Remediation and testing have been completed
for all ANZ's critical buildings world-wide, with one minor repair
still to be completed and this is in progress. Non-critical buildings
are on schedule for completion by 30 June 1999.

Contingency Plans - The Year 2000 issue has not been encountered
before and, whilst ANZ is working hard on this issue with the
objective of maintaining normal banking services, there remain
elements of risk regarding events and supplies; therefore, outcomes
cannot be certain. The organisational dependencies and systems which
support today's financial industry are very complex, with many
organisations reliant on services provided by external parties. ANZ
does not have control over, or direct access to, all external systems
from which Year 2000 problems might arise and consequently affect
ANZ's operations. Therefore, ANZ's risk management plans include
reviewing all Year 2000 internal and external dependencies and
establishing appropriate contingency plans.


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