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Chairman`s & CEO`s Addresses to Shareholders at AGM

Document date:  Wed 21 Jan 1998
Published:  Wed 21 Jan 1998 00:00:00
Document No:  134200
Document part:  C
Market Flag:  N

HOMEX - Melbourne                                                     


Our Bank is widely recognised as Australia and New Zealand's 
international bank. We have branches or representative offices in 43 
countries with a strong historical position in the Middle East, 
India, Pakistan and the Pacific Islands and each of these areas we 
have had a presence for over 100 years.

We have in recent years been building out network in East Asia 
associated with increasing investment and trade Australia and New 
Zealand are doing with that region. We received a branch bank 
licence in:
Japan in 1969; Hong Kong in 1970; Singapore in 1974; Korea in 1978; 
Taiwan in 1980; China, Vietnam, and Indonesia in 1993; and the 
Philippines in 1995.

We established representative offices in Malaysia in 1971 and 
Thailand in 1985.

We have in the last five years made a start in establishing a 
presence in South America with representative offices in Mexico, 
Brazil, Chile and Argentina and this regional network is at an even 
earlier stage of development than East Asia.

In the latest year 29% of our underlying profit came from 
international operations. The contributors to the 29% were the UK 
and Europe 9%, South Asia 6%, the Middle East 4%, East Asia 4%, the 
Americas 3% and the Pacific Islands 3%.

I would like to turn to East Asia. Many of the countries that are 
today experiencing difficulties have had an extraordinary period of 
economic growth of 7% and higher per year over recent decades. This is
likely to move to negative or minimal growth for the next couple of 

These countries have been characterised not only by high growth but an
emphasis on education, a willingness to work to achieve economic 
progress, and high savings rates. They are also characterised by high 
international borrowings, much of which is short term; a high leverage
to borrowings throughout their businesses; and their expansion has to 
a significant extent been financed on the basis of rising property 

We are looking at potentially profound changes to the economic, social
and political structure of many of these countries. These are also 
countries that have strong recuperative powers. For some time it will 
be difficult to make considered judgements on the outworkings of the 
current situation.

However, the loss of international confidence in their currencies will
mean these countries will have to adopt not only to a period of lower 
growth but also to the problems of high domestic inflation and 
interest rates. In addition they must adapt to an environment in which
economic programs are imposed in exchange for international support.

Such programs will involve very different approaches to economic 
management with consequent cultural changes. Governments will also 
need to lead their nations during a period in which their people will 
not be receiving the increase in standard of living to which they 
become accustomed.

Australia is geographically located in South East Asia but has never 
been fully recognised as part of the region. In the short-term there 
will be pain but from a longer-term point of view the current 
turbulence provides us a with unique opportunity as a country to 
integrate more fully both politically and commercially into the 

All Australian companies with international aspirations should 
seriously consider the opportunities that are likely to become 
available to establish or expand in East Asia. Speaking for our Bank 
we are looking in a positive, selective and careful manner to broaden 
and deepen our network.

Turning to the immediate situation, while there is a broad effect 
across East Asia, the concern of the international banking community 
centres in three countries - Thailand, South Korea and Indonesia. I 
would like to give you as much information as I can on our current 
lending to these three countries. It is around 3% of total lending or 
$2.7 billion. However, this includes $1.1 billion of trade finance. 
Experience in similar situations has been that trade finance receives 
preferential treatment because of its essential character and thus is 
generally lower risk. After deducting this, our net position at 12 
January 1998 was $1.6 billion.

The slide on the screen behind me shows how this $1.6 billion is made 

Lending to Banks & Corporates
A$billion as at 12/01/1998

             Thailand    Sth Korea    Indonesia       Total

Total          0.3          1.6          0.8           2.7          
Trade          0.2          0.6          0.3           1.1
Net            0.1          1.0          0.5           1.6

Our lending to Thailand is modest and principally trade finance.

South Korea is our largest net position at $1.0 billion. 30% is of 
this is with banks and 70% with corporates. Of the bank lending 90% is
with with the 9 top rated banks and plans are being developed by the 
international banks to re-finance such loans. Of the corporate lending
90% is to the top six Chaebols, of which some 40% is to their entities
outside Korea.

In Indonesia, our net position is $0.5 billion. It is focused on the 
lending corporates including approximately one-third to 

However, the extent of the economic malaise in that country suggests a
higher incidence of difficulties is likely.

What does all this mean to ANZ ?

The broader impact of the East Asian crises on the quality of credit 
globally remains difficult to assess and is being closely monitored. 
Currently, assets recognised as impaired throughout East Asia remain 
low. However, it is inevitable that impaired assets will increase and 
we expect as a result provisioning will be necessary. From all that we
know at this point in time it is expected that provisioning can be 
contained within the level of the charge implicit in our approach to 
provisioning adopted last year.

Our total provisioning was $287 million after tax and as the increase 
in the general provision was not tax effected this was equivalent to a
pre-tax charge of $400 million. The expected natural growth in our 
assets will increase this figure for 1998. Taking this into account 
and the problems in East Asia, we currently estimate that this charge 
will be around $500 million pre-tax this year.

In other words, based on current knowledge, the impact of this 
regional turbulence on our profit this year will be relatively small. 
However, I must warn that this could change if events were to worsen 
and become more widespread.

Finally on this subject, there has been some loss of value in terms of
Australian currency of our capital employed in East Asia but with the 
fall in the Australian dollar against major international currencies 
there has been a net gain of $82 million during the first quarter of 
this year in the conversion of our capital employed outside Australia.


Turning now to broader issues, the challenges facing the financial 
services industry both in Australia and New Zealand, and elsewhere, 
are becoming increasingly complex.

The Wallis Committee, in its comprehensive report on the Australian 
Financial System released this year, summarised the position well when
it said:

"Rapid technological innovation and an envolving business environment 
together with longer-term changes in customer needs and profiles are 
reshaping the financial system.

The system will have a progressively greater array of participants, 
products and distribution channels which, in some cases, will expand 
beyond the traditional categories of banking, insurance and financial 

Competition is emerging from new providers of financial services and 
through the increasing globalisation of financial markets. This 
generates increasing pressure for improving efficiency and 

This accords with our own assessment. We are experiencing reductions 
in margins and increasing pressure to cut costs and remove past cross 
subsidies, notably in the provision of branch based transaction 
services. Also, to meet customers needs, banks are now providing a 
much greater range of investments and wealth management products, 
including investment funds, life and general insurance.

The combination of these trends creates the imperative to develop into
a full financial services organisation rather than remain a 
traditional bank. It also means building a culture within the Group 
that focuses on the customer, respects risk management, is sales 
orientated and cost conscious.

Before I conclude, I would like to introduce John McFarlane and ask 
him to address these issues.