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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:  G
Market Flag:  Y

HOMEX - Melbourne                                                     

Other operating income                                                
                                           Half        Half    Half
                                           year        year    year
                                         Mar 98      Sep 97  Mar 97
                                             $M          $M      $M  
Fee income
Lending                                     286         295      75
Other including commisions                  454         438     385
Foreign exchange earnings                   196         126     111
<~>  130         149     149

Fee income reflected continued growth in commercial bill volumes and
in transaction and card fee income, moderated by lower corporate
advisory, portfolio performance and structured finance fee levels.

Asian volatility adversely affected trading profits, particularly in
the first quarter, but benefited foreign exchange income which grew
strongly. Other income reflected the strategic decision to reduce the
risk profile of the Group by transferring Funds Management capital,
previously principally in equities, into the money markets reducing
earnings by $36 million after tax, given the lower yields on money
market investments.

Operating expenses

Personnel expenses                         972         995       954
Premises expenses                          172         178       184
Computer expenses                          168         157       173
Other expenses                             385         388       383
Restructuring (1)                           40          90         -
Total operating expenses                 1,737       1,808     1,694
Employees (FTE) - Permanent             34,695      35,926    37,807
Employees (FTE) - Temporary              1,243         904       665
Total employees                         35,938      36,830    38,472

<~>on were treated as abnormal in the September 1997 and March 1997

half-years respectively.

Operating expenses are trending down, notwithstanding business

Significant progress has been made in transforming the organisation
through the Group's restructuring programmes. Permanent FTEs are down
1,231 and premises expenses are lower, both mainly as a result of the
restructuring programmes underway. During the half-year,
restructuring expenditure was $113 million and with the charge for
the half-year of $40 million, this leaves a restructuring provision
balance at 31 March 1998 of $202 million. The current roll out of
Branch of the Future, together with Operations & Technology and head
office restructuring will result in a greater expenditure in the
second half.

Personnel expenses reflected lower performance related bonuses in
investment banking and markets.

Computer expenses are up with increased expenditure required for Year
2000 compliance related work.

Provisions for doubtful debts

The charge for doubtful debts has been determined using economic loss
provisioning (ELP) and derived from our risk management models. The 
economic loss provision has increased from $203 million to $237 
million reflects asset growth and a deterioration in the risk profile
of the Asian portfolio. 

ELP charges profit with the expected average annual loss on principal
over the economic cycle based on the current lending portfolio. This
is credited to the general provision. The specific provision
requirement (representing new and increased specific provisions less
specific provision releases) is transferred from the general
provision to the specific provision. Over the cycle there will be
periods where the ELP charge exceeds the net specific provision (SP)
and the general provision will increase. The general provision is
then available to cover subsequent periods when the economic cycle
would suggest higher defaults can be expected. Through this
mechanism, a more realistic assessment of the result for the period
is achieved, matching expected credit losses with the revenues over
the life of the loan rather than in arrears at default.

In the first half of 1998, the deterioration in Asia (principally 
Indonesia) caused significantly higher defaults resulting in a 
transfer to the specific provision of $159 million for Asia. Other net
specific provisions were $57 million resulting in a total of $216 
million, up from $49 million in the second half of 1997.

Further Asia losses are likely in the second half as the full effect 
of the crisis emerges. Nonetheless, it is expected that the full year 
net specific provision will be contained within the estimated economic
loss provision charge of $500 million, as was indicated at the Annual
General Meeting in January.