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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:  H
Market Flag:  Y
Classification: 

HOMEX - Melbourne                                                     

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Non-accrual loans

Gross non-accruals increased by $363 million to $1,235 million, in
part due to the deterioration in Asian exposures. Net non-accruals
stand at $648 million and represent 8.8% of shareholders' equity at
31 March 1998. The Group remains well provided with a coverage ratio
of 48%.      

Income Tax Expense
                                  Half        Half        Half        
                                  year        year        year        
                                 Mar 98      Sep 97       Mar 97
                                   $M          $M           $M

Effective tax rate
- before abnormal items           32.1%       27.3%        29.4%
- after abnormal items            32.1%       25.3%        32.7%

The increase in the effective tax rate is due to significantly lower
levels of tax preferred income.

Balance sheet

Group assets grew by 7%. 

Interbank lending, particularly in Asia, was reduced. 

Solid lending growth was achieved in Australia, particularly in 
mortgage lending and business banking. 

Growth in other assets reflects increased repurchase activities and
the revaluation of off-balance sheet trading activities mainly due to
movements in exchange rates.

Funding for asset growth came from the wholesale market supplemented
by higher retail and corporate deposits. Total shareholders' equity
increased 6% to $7.4 billion and capital resources increased to $10.9
billion after the redemption of some subordinated debt.
      

BALANCE SHEET                              Mar     Sep
                                          1998    1997
                                           $B      $B
Assets                
Interbank balances                        5.7     10.9
Loan portfolio                          104.5     97.8
Trading and investment securities        11.4     10.4
Other                                    26.1     19.1
                                        147.7    138.2


Liabilities and equity
Interbank balances                        8.7     10.9
Deposits and borrowings                  95.4     89.2
Acceptances                                16       14
Other                                    16.7     13.7
Capital resources                        10.9     10.4
                                        147.7    138.2


Capital Adequacy

The Reserve Bank of Australia's 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 Group's capital adequacy ratio was up 0.1%
to 9.9%, with a total Tier 1 ratio of 6.5%, down 0.1% from September
1997. The Group seeks to maintain the Tier 1 ratio in the range of
6.5% to 7%.

Risk Management

Effective management of risk is a core competency of all major
financial institutions. The major risk areas are broadly defined as
follows:

* Credit Risk - risk of financial loss from the failure of customers
to honour fully the terms of a credit facility.

* Market Risk - comprises balance sheet and trading risk which
involve risk to earnings and capital from changes in interest rates
and liquidity, currency fluctuations, foreign currency capital
fluctuations, equity and commodity prices.

* Operating Risk - the risks of day to day business operations,
including preparedness to recover from a disaster, processing and
settling of transactions, safeguarding of assets and adherence to
laws and regulations.

These risks are managed within an overall risk management framework
that provides defined standards, policies and processes and is
coordinated by Group Risk Management.

The risk management processes are subject to oversight by the Risk
Management Committee of the Board. This includes the review of risk
portfolios and establishment of prudential policies and controls.

Specialist units within the Risk Management function assist the Risk
Management Committee in its oversight capacity and are responsible
for the strategic coordination of risk matters. For each type of
risk, the Group operates an executive committee that represent the
highest approval and policy authority of management.

With respect to credit risk, the Board has delegated authority for
credit approvals to the Credit Approvals Committee within a clear
discretions framework. Transactions that exceed the discretion of the
Credit Approvals Committee are submitted to the Risk Management
Committee of the Board for approval. The Credit Approvals Committee
is also responsible for the coordination and development of credit
policy.

The Global Funds Management Committee coordinates all policy matters
relating to market risk, covering both the global trading operations
of the Group and Global Balance Sheet Management. The Operating Risk
Executive Committee maintains and reviews operating risk policy and
monitors operating practices.


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