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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:  D
Market Flag:  Y

HOMEX - Melbourne                                                     


At the Annual General Meeting, I outlined the priorities for ANZ over
the coming years:

* Deliver superior growth and financial performance
* Transform the way we do business
* Make dealing with ANZ a memorable experience
* Create an environment where people excel
* Build a truly unique financial company

I am pleased to tell shareholders that we have made good progress on
these areas during the first half.


Shareholders should expect ANZ to deliver above-average earnings
growth, a high return on equity, high levels of productivity, low
risk, and high added value.

Earnings: Profit after tax of $625 million was up 8% before abnormal
items, and total assets up 9% over the same period.

Return: A high return on equity was maintained at 17.1%.

Cost: The cost to income ratio was reduced by 3.2% to 59.9% from the
full-year level of 63.1% in 1997, and total operating expenses were
down on last year's average.

Risk: Economic loss provision of $237 million was sufficient to cover
specific provisions of $216 million, including $159 million for Asia.
We reduced our overall Asian exposure by 38% from $US11.5 billion to
$US7.1 billion during the first half, with further modest reductions
since March. Capital ratios have been maintained.

Value:  A new risk adjusted return on capital (RAROC) hurdle rate of
15% was introduced, and for the first half, the group RAROC
materially exceeded this. All business lines are now operating above
the minimum hurdle rate.

To ensure that we deliver superior performance, we must accelerate
the pace and upgrade the capability of the Bank in a number of
important areas including the focus on customers and staff:

Customers:  We are in business to serve customers. We aim to make
dealing with ANZ an enjoyable customer experience, and this is
getting considerable management attention. To improve the
productivity of our domestic branch network, and to leverage the
distribution capability of our branches, we have begun the rollout of
the "Branch of the Future" programme. The Qantas Telstra Visa Card,
which now exceeds 1 million cards on issue, and the recent AFL and
Westfield cards, demonstrate our leadership in co-branded cards. In
Funds Management, we launched "Gateway" in conjunction with the Frank
Russell Company, to offer superior investment performance through the
"manager of managers" concept. Our emerging markets debt funds
continue to be market leaders. In Corporate and Investment Banking we
won a number of high profile customer mandates.

Community: The changes underway in the banking industry in Australia
are having profound effects on many communities, especially in the
country areas. We are aware that when we withdraw our physical
presence from an area that this is only partially offset by the use
of banking facilities such as ATMs, telephone banking and computer
online banking.

We are very supportive of the efforts of the House of Representatives
Standing Committee on Financial Institutions and Public
Administration led by David Hawker MP to focus attention on this
issue, and we have offered assistance to the Committee. Larry
Crawford, Managing Director Australasian Branch Network has been
designated to lead our action on this issue. We have also raised it
with the Australian Bankers' Association to foster a collective
solution to the problem. We are exploring the possibility of joint
services with other banks, a co-operative agreement under which the
responsibility is shared, the use of Australia Post, and other
alternatives. We will make a separate announcement on this matter
when more tangible progress has been made.

Management:  At ANZ we aim to create an environment where people 
excel. As a first step, we have made a number of changes to our senior
management through internal promotion and external recruitment. A
list of the new Senior Management Group is given on page 65. I am
confident that we are building a world-class team. We have also made
good progress in improving our management process and teamwork at the
top. A more robust process to bring issues through to the Board via
the Board Committee structure has been introduced. The four-member
management Executive Committee meets weekly to discuss strategy,
provide direction, monitor management performance, resolve issues,
allocate resources, and make key decisions. The Senior Management
Group meets monthly to review group performance and quarterly
off-site to advance the implementation of group priorities. To date
this group has reviewed revenue opportunities, costs, people, and
technology. Through this process, we are building a common vision and
a set of shared values for the Bank.

Technology:  We have initiated a complete transformation of our core
banking systems under the ANZ Global programme, key amongst these
being the Year 2000 work. The implementation of these projects will
provide a stronger and more productive foundation for the 21st

Cost: The management of cost has received considerable attention this
this commitment, a 3.2% reduction was achieved in the half-year,
demonstrating focus and progress in this area.

Risk: The avoidance of unnecessary loss is fundamental to banking.
With the Asian crisis, this period presented a unique challenge.
Nevertheless, we took decisive action to reduce our non-strategic
exposure to Asia, and we will be continuing this process, whilst
maintaining capacity to serve our most important customers. We also
took key decisions to reduce the concentration of risk in our credit
and trading portfolios. Our risk management systems are highly
advanced. Economic Value Added (EVA) principles are in use throughout
the group, and risk-adjusted capital is allocated and charged against
individual businesses, customers and transactions. EVA financial
targets are used to motivate management behaviour that is consistent
with shareholders interests, and these form the basis of the annual
performance incentive for the Senior Management Group.


The principle underpinning ANZ's strategic development is the
enhancement of long term shareholder value. Consistent with this is
the need to earn and sustain a unique position in the financial
services industry. As a medium-scale bank in a consolidating
industry, we know we cannot be everything to everyone. Nor can we
compete head-to-head with the largest. We must focus, and become
truly excellent in a few key areas, identifying those real
opportunities which are attractive, and where we have the greatest
chance of winning. We must also decide precisely where and how we
will compete and excel.

ANZ already has several wins under its belt, and these provide a good
foundation on which to build for the future. We are the leader in
credit cards in Australia, the leader in automobile finance in
Australia and New Zealand through Esanda and UDC, and a leader in
business banking and property finance in Australia and in
international services for corporations. As Australia and New
Zealand's international bank, ANZ has the broadest network overseas
and has the largest foreign bank presence in the Indian
sub-continent. ANZIB is the leader in Foreign Exchange in Australia,
and is a major force in emerging markets debt and structured finance.

Looking to the future, we aim to develop ANZ strategically in three
directions as opportunities present themselves:

To develop a stronger and more sustainable strategic position in our
traditional businesses in Australia and New Zealand.

To build a leading position in selected high-growth product niches.

To develop our franchise in emerging markets and cautiously add
selected new markets.


Our major challenge is to deliver superior performance, in an
environment of moderate economic growth. To achieve this, we will
invest in businesses that offer higher growth, margin and return, by
organic growth, by acquisition and joint venture. Whilst investing,
we do not intend to increase costs in our existing business, instead
we intend saving capital and expense in areas of lower growth, margin
and return, and reallocating them to attractive organic growth
opportunities. At the same time, we will lower our overheads, and
will drive more volumes and revenues through our fixed-cost network.

For the second half we look forward to further progress. Moderate
asset growth and further delivery of benefits from our transformation
programmes should offset the risk of margin pressure and market
volatility in capital markets. On provisioning, whilst we anticipate
further specific provisions, particularly relating to Indonesia, it
remains our view that the aggregate specific provision for the year
level of general reserves which are substantially in excess of our
expected portfolio risk.

Looking further forward, moderate growth, increases in productivity,
and a reduction in risks, together with our consistent economic loss
provisioning approach, should enable us to continue to deliver
superior performance.