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Preliminary Final Report

Document date:  Wed 04 Nov 1998
Published:  Wed 04 Nov 1998 00:00:00
Document No:  142712
Document part:  E
Market Flag:  Y

HOMEX - Melbourne                                                     



Australia and New Zealand Banking Group Limited recorded an operating
profit after tax before abnormal items of $1,175 million for the year
ended 30 September 1998, broadly similar to the result for the 1997
financial year of $1,171 million. The return on shareholders' equity
before abnormals was 15.5% (16.9%) and earnings per share was 77.2
cents (78.4 cents). The operating profit after tax and abnormals was
$1,106 million, up from $1,024 million in 1997.

Last year's profit before abnormals was maintained notwithstanding an
operating environment which was the most adverse since the Australian
recession in 1992.

Australian businesses, in particular Personal Banking, performed
extremely well achieving strong growth in key market segments whilst
reducing costs. Our foreign exchange activities globally benefited
from volatility in financial markets. Unfortunately these were offset
by a deterioration in credit quality flowing from the Asian turmoil
and the collapse in emerging markets which led to significant losses
from our investment banking activities in London. The subsequent
decision to exit the London capital markets operations (including the
writedown of the portfolio previously classified as investment) and
institutional stockbroking resulted in an abnormal loss after tax of
$69 million.

We have also made significant progress with re-engineering the Group
during the year. Risk levels were reduced with Asian exposure managed
down by 47% (in US dollar terms), all proprietary trading activities
terminated and Funds Management capital transferred out of equities
into less volatile money markets. With the benefits from numerous
programmes to improve efficiency now emerging, total costs were lower
than in 1997 and second half costs were lower than in the first half.
The cost income ratio was reduced to 60.9% from 63.1%.

The Group further strengthened its capital base and flexibility by
being the first Australian bank to issue Preference Shares in the US
retail market. The US$400 million issue increased the Group's Tier 1
capital ratio to 7.2%.

The final dividend will be increased to 28 cents per share, bringing
the full year dividend to 52 cents, up 8% on 1997. The increase
reflects the benefits of the re-engineering as well as the underlying
strength of the Group. The dividend is franked to 60% and this level
is expected to increase next year.

The 3% increase in net interest income reflects 6% growth in average
interest earning assets and a modest (7 basis point) decline in

The former reflected:

* strong lending growth in Australia (12%) - mortgages (13%) -
  commercial lending (14%)
* lending growth offshore, mainly due to exchange rate movements
* offset by a reduction in interbank lending

Margin decline was due to:

* competition in New Zealand and Australia continued to pressure
  margins offset by
* improved spreads from our international operations, reflecting a
  mix change following the winding back of lower margin money market
* a greater proportion of interest earning assets being held
  domestically where margins are higher.