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Half Yearly Report and Accounts

Document date:  Wed 27 May 1998
Published:  Wed 27 May 1998 00:00:00
Document No:  137675
Document part:  F
Market Flag:  Y
Classification: 

HOMEX - Melbourne                                                     

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CHIEF FINANCIAL OFFICER'S REVIEW

Overview

Australia and New Zealand Banking Group Limited (ANZ) recorded an
operating profit after tax of $625 million for the half-year ended 31
March 1998. There were no abnormal items. This was an 8% increase on
operating profit after tax before abnormals for the corresponding
half-year in 1997 and an increase of 6% on operating profit after tax
before abnormals for the half-year ended 30 September 1997. The
return on shareholders' equity was 17.1% and earnings per share were
41.3 cents.

The result reflects good growth over the half-year from the general
banking business offset by a lower contribution from investment
banking and markets activities.

Solid lending growth and stable margins drove a 3% increase in net
interest income. Asian volatility adversely affected trading profits,
particularly in the first quarter, but benefited foreign exchange
income which grew strongly.

Operating costs were marginally down. At 59.9%, the cost to income
ratio was 3.2% down on 1997 full year. 

The economic loss provisioning charge has increased, reflecting asset 
growth and an increase in the risk profile of the Asian portfolio.

The Group's aggregate Asian exposure reduced by 33% (38% in US dollar
terms in which most of the lending was made) over the six months to
31 March 1998, from $16.0 billion to $10.8 billion (refer page 62).
This reduction has been achieved mainly by contracting non-strategic
lending, principally in the interbank market. ANZ remains committed
to its core services in the region as Australia and New Zealand's
international bank and continues to support strategic network and
trade relationships across Asia.

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 (Trial of Offences Relating to
Transactions in Securities) at Bombay, 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 firm legal advice from Senior Counsel
and based on that advice no provision has been made in respect of the
claim.

The directors have decided to increase the interim dividend by 9%
from 22 to 24 cents per share. The interim dividend will be 60%
franked, with the decline in the franking rate reflecting the level
of restructuring costs incurred in Australia to set the foundation
for stronger earnings growth next year. We expect franking to remain
at this level in the second half, and to increase next year.

ANZ is putting a significant effort into addressing the Year 2000
issue. With the assistance of external consultants, all our systems
have been analysed and work is underway to develop, implement and
test the required changes. Repair and full systems testing of our
internal applications are on schedule to be completed and implemented
by December 1998. We are an active participant in industry testing
programmes. Work is also in progress with external suppliers and
customers to address their Year 2000 readiness.

The consolidated financial statements reflect the revised measurement
approach to the provision charge (refer page 41), as well as changes
to accounting policies for operating leases and certain costs
representing expenditure reimbursed under a contractual agreement
(refer page 30). Prior period data has been restated to ensure
comparability.


PROFIT AND LOSS
                                         Half      Half      Half
                                         year      year      year
                                        Mar 98    Sep 97    Mar 97
                                          $M        $M        $M

Net interest income                      1,773    1,719     1,718
Operating expenses                      (1,737)  (1,808)   (1,694)
Operating profit before debt provisions  1,164    1,021     1,024
Provisions for doubtful debts             (237)    (203)     (197)
Income tax expense                        (298)    (223)     (243)
Outside equity interests                    (4)      (4)       (4)
Operating profit after income tax
Income tax benefit(expense) - abnormal 
items                                        -       61       (26)    
Abnormal loss after tax                      -     (116)      (31)
Operating profit
attributable to members of the Company     625      475       549 


Net interest income
                                        
Interest income                          4,741    4,710     4,745
Interest expense                        (2,968)  (2,991)   (3,027)
Net interest income                      1,773    1,719     1,718


Interest spread and net interest 
average margin                              %        %         %

Gross interest spread                     2.36     2.46      2.56
Interest forgone on impaired assets      (0.04)   (0.06)    (0.07)
Net interest spread                       2.32     2.40      2.49
Interest attributable to net non-
interest bearing items                    0.63     0.57      0.66
Net interest average margin               2.95     2.97      3.15

Average interest earning assets ($M)   120,757  115,914   109,951 


The 3% increase in interest income has been driven by lending growth
in Australia, notably in mortgage lending up 5.1%, with the Group
being the largest writer of new mortgages in Australia in the
half-year, and in the Business Bank up 7.7%.

More modest growth in New Zealand was masked by the impact of a
weaker New Zealand dollar.

Average assets showed solid growth in South Asia and Middle East.
Group margins were stable. A small decline was seen in Australian
spreads and a more marked decline in New Zealand. This was offset by
higher net non-interest bearing liabilities.


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