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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:  G
Market Flag:  Y
Classification: 

HOMEX - Melbourne                                                     

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CHIEF FINANCIAL OFFICER'S REVIEW (continued)

Asset quality

The charge for doubtful debts was determined under economic loss
provisioning principles ("ELP") and derived from our risk management
to $487 million reflects: 

* lending asset growth (11%) 
* deterioration in the risk profile of the Asian portfolio.

The charge equates to 45 basis points on net loans and advances.

Actual loss experience or net specific provisions during the year
amounted to $512 million including:     

* $263 million on Asian exposures
* $113 million on Australian exposures
*  $60 million on Middle East exposures
*  $34 million relating to emerging markets capital markets 
   activities in London. 

Net specific provisions were lower than the expected loss in our 
Australian businesses and higher in our International markets. 

The Group's aggregate Asian exposure reduced by 47% (in US dollar 
terms) over the year, from US$11.5 billion to US$6.1 billion (refer 
page 59). The reduction was achieved mainly by contracting 
non-strategic lending, principally in the interbank market.

At 30 September 1998, the general provision stood at $1,401 million,
a surplus of $492 million over the 0.5% of risk weighted assets
guideline indicated by the Australian Prudential Regulation
Authority.

Non-accrual loans

Gross non-accruals increased by $790 million to $1,662 million with 
exposures relating to: 

* Asia up $339 million 
* Australia up $194 million (mainly in the first half) 
* Middle East up $170 million.     
           
The Group remains well provided with the coverage ratio stable at 
46%. 

Net non-accruals stand at $900 million and represent 10.7% of
shareholders' equity at 30 September 1998.

Income Tax Expense
                                                1998           1997
Effective tax rate

- before abnormal items                         31.2%           28.3%
- after abnormal items                          31.1%           29.5%

The tax expense on profit before abnormals increased by $71 million 
with a 2.9% increase in the effective tax rate, due to:

* significantly lower levels of tax preferred income
* the impact of emerging markets debt trading losses incurred in 
  lower tax jurisdictions. 

Abnormal Items
                                                1998           1997
                                                 $M             $M
Restructuring costs                               -            (327)

Decision to exit businesses
Restructuring                                    (32)             -

Write down of residual emerging markets securities
(previously classified as investment portfolio)  (70)             -

National Housing Bank interest receipt             -            145

                                                (102)          (182)
Income tax benefit                                33             35

Abnormal loss after tax                          (69)          (147)

The 1998 abnormal item includes the costs associated with exiting
institutional broking and the London capital markets operations. As a
consequence of the latter, the residual emerging markets securities
portfolio (previously classified as investment) was transferred to


Balance sheet

Group assets grew by 8% (or 4% excluding foreign exchange impact). 

Interbank lending, particularly to Asian institutions, was reduced. 

Solid lending growth was achieved in Australia: 

* Personal Banking up $3.4 billion, with mortgages up $2.8 billion 
(13%).
* Business Banking up $3.0 billion. 

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

Total shareholders' equity increased 20% to $8.4 billion, aided by 
the issue of US$400 million preference shares in September.

BALANCE SHEET
                                1998            1997
                                 $B              $B

Assets                    

Interbank balances               4.2             10.9
Loan Portfolio                 110.1             97.8
Trading and Investment 
Securities                      10.0             10.4
Other                           25.4             19.1

                               149.7            138.2

Liabilities and Equity

Interbank balances              10.8             10.9
Deposits and borrowings         94.6             89.2
Capital Resources               12.1             10.4

                               149.7            138.2

CAPITAL ADEQUACY

The Group remains well capitalised. 

The Australian Prudential Regulation Authority (APRA) 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 0.9% to 10.7%,

* total Tier 1 ratio of 7.2%, up 0.6% from September 1997,
  substantially due to the issue of US$400 million preference shares 
  in September 1998.

RISK MANAGEMENT

The last 12 months have tested our risk management systems and
procedures. While our record is not unblemished, we did reduce the
amplitude of the impact as 1998 turned out to be one of the most
turbulent years in financial markets since the 1930s with the crisis
in Asia unfolding in a way that few economists or governments
predicted.

Four of the 20 largest declines in exchange rates since 1970 have
occurred in Asia since mid 1997. Economic activity in the region has
gone from an annual growth rate of 7% in the period 1992-1997 to a
likely contraction of 5% in 1998. The region continues to be burdened
by high levels of bad debt with non performing loans expected to peak
between 45% and 75% in Korea, Thailand and Indonesia.

ASIA

ANZ through its long established international franchise was
adversely affected by the Asian turmoil. To address the situation and
manage our exposures down the Group established a specialist team
early in the year.

This enabled the Group to provide early comfort that the situation
was well controlled and that credit losses could be absorbed within
the Economic Loss Provisioning policy.

At the Annual General Meeting in January the Chairman indicated the
Group's specific provisions for the year would be contained "around
$500 million". Specific provisions for the year were $512 million,
including $263 million for Asia.

The Group has significantly reduced its non-strategic assets in Asia.
This resulted in a reduction in total exposure to the region of 47%
in US dollar terms. Lending policies have been reviewed and tightened
to focus on network business, particularly trade finance, rather than
foreign currency lending to local entities.

Looking forward, the region continues to be under stress and further
problem exposures can be expected. However, with the actions taken to
reduce the level of outstandings, these are likely to be well below
1998 levels.

MORE TO FOLLOW

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