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Chairman`s & CEO`s Address to Shareholders

Document date:  Mon 21 Dec 1998
Published:  Mon 21 Dec 1998 00:00:00
Document No:  144153
Document part:  B
Market Flag:  N

HOMEX - Melbourne                                                     


I hope all of you have taken the opportunity to read our 1998 Annual
Report. You will have seen we moved to concise financial statements
to make our report more informative to shareholders. I hope you like
the new format. Of course, you are all invited to receive the full
financial report should you so wish.

When you arrived, you received a survey form which we would like you
to complete before you leave. This will assist us to improve our
reporting to you in future.

1998 was a particularly challenging year for the Bank, but we came
through with a creditable result. Notwithstanding a deteriorating
international environment, which impacted banks worldwide, we were
able to report a net profit after tax and before abnormal items at
$1175 million, which is similar to the previous year. Net profit
after abnormal items rose 8% to $1106 million. Underlying the result
were two contrasting situations.

First the success story. Here, in Australia and New Zealand, we
produced record results with increases in profits of 16% and 28%
respectively. We experienced good growth in lending of 13% and we
improved our efficiency with a fall in the cost income ratio. We also
successfully continued to upgrade our technology and we remain on
track with our Y2K programme.

Overseas however, the story was very different. The financial turmoil
in Asia and the collapse in emerging markets bond prices led to a
fall of 39% in the profitability of our international operations,
including a loss in our London capital markets business.

The global economic situation has had a dampening effect on business
activity worldwide. Non-accrual loans increased from $872 million to
$1662 million, with the increase mainly coming from Asia.

This new environment caused us to review the viability of a number of
segments. We ceased proprietary trading, particularly of emerging
markets bonds, and exited institutional broking in Australia. Since
we were exiting these businesses completely, it was appropriate to
treat the costs of withdrawal, including the write-down of the
residual bond portfolio, as abnormal items. We also decided to reduce
the overall risk of our lending portfolio, particularly our Asian
exposure. Whilst we, like other participants in these markets, were
unable to fully anticipate the events that unfolded, we nevertheless
acted quickly to mitigate the impact on profits. Additionally,
earlier in the year, we moved some of our capital held in our life
company out of equities into less volatile money markets.

In January 1998 we advised you that we expected our provisioning for
the year to be around $500 million, and the result was very close to
this amount.

It was very pleasing to see that these actions to reduce risk were
reflected in Standard & Poor's decision last week to move us from
"negative" to "stable" outlook.

We also improved our capital position. Tier One capital rose to 7.2%,
issue of US$375 million in November 1998 which lifted our Tier One
capital at the end of November to 7.5%, giving us considerable
capital flexibility.

The directors were pleased to increase the annual dividend by 8% to
52 cents per share, franked at 60%, to reflect the underlying
strength of the core business and our future prospects.

Today, we wish to address three issues in more detail. One is risk
management, given the losses incurred in London and in Asia. Another
is the structure of the Australian Banking industry. And the third is
customer service, where I will ask our Chief Executive Officer to
outline briefly some of the programs we have put in place to improve
the way we are serving our customers.