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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:  H
Market Flag:  Y
Classification: 

HOMEX - Melbourne                                                     

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CHIEF FINANCIAL OFFICER'S REVIEW (continued)

RISK MANAGEMENT (continued)

EMERGING MARKETS

Contagion effects from the Asian turmoil have been felt across other
emerging markets. Between March and September 1998, the JP Morgan
Emerging Markets Bond Index Plus fell by up to 36%, while the failure
of Russia to deal with its economic crisis led to a drop in the
Russian Country Composite Index of 85%. ANZ was exposed to the
emerging bond markets through its Capital Markets trading activities
in London, and this was the principal cause of a turnaround in
trading income of $265 million for the year.

In July, ANZ made the decision to exit all proprietary trading
activities. Exposures were reduced but some positions could not be
exited due to lack of liquidity in the global bond markets, and
losses continued to be incurred in the period between July and
August. The decision to close our London capital markets activities
has now been made as part of the program to rebalance away from
higher risk wholesale banking activities. The residual investment
portfolio was written down to market value as at 30 September 1998.

NATIONAL HOUSING BANK OF INDIA

Following the Arbitration Award handed down in the Group's favour on
29 March 1997, the National Housing Bank of India (NHB) had the award
reviewed by the Special Court in Mumbai, which on 4 February 1998
ordered that the award be set aside. ANZ has filed an appeal with the
Supreme Court of India seeking that the Special Court's order be set
aside. As the matter is sub judice comment by the parties is limited.
The Group has obtained legal advice from Senior Counsel and based on
that advice no provision has been made in respect of the claim.

ANZ, like other users of computer systems, faces the issue of the
potential disruption to business that could eventuate with the date
change from 1999 to 2000. Significant effort continues to be directed
to addressing Year 2000 issues, with cost expected to be $183
million. All of ANZ's systems have been analysed and repair and
systems testing of ANZ's internal applications are on schedule for
completion by the end of December 1998.

External testing of interbank clearing systems, with other
institutions, will commence in February 1999. This cross-industry
testing is scheduled for completion by 30 June 1999. A review of
externally provided products and services is also well underway and
testing has commenced.

Year 2000 has the potential to adversely impact the broader economy
and therefore have negative implications for credit quality. ANZ is
active in assessing the impact of Year 2000 on the creditworthiness
of our customers and in raising their awareness of the effect it
could have on their business.

EURO

ANZ has established a programme to ensure that its banking
products/services, and customers, are fully prepared for European
Economic and Monetary Union, and the new European currency, on 1
January 1999.

STRATEGIC POSITIONING

The events of the last twelve months have led to a reassessment and
strategic rebalancing of our management of risk. Tangible evidence of
this is seen in the decision to close the London capital markets
operation, wind down of interbank money market activities and
reduction in non-strategic Asian exposures. Going forward, there will
be a continuing rebalancing of our portfolio with reduced emphasis
upon wholesale activities. Our international activities will be
sharpened with greater focus upon lower risk assets reflecting our
areas of traditional strength in trade, foreign exchange and
supporting the needs of our network customers and building our
consumer franchises.


AUSTRALIA
       
                                               1998     1997     Movt
                                                $M       $M        %

Net interest income                           2,271     2,223      2%
Other operating income                        1,427     1,295     10% 
Net operating income                          3,698     3,518      5%
Operating expenses                           (2,288)   (2,360)    -3%
Operating profit before debt provisions       1,410     1,158     22%
Provision for doubtful debts                   (303)     (268)    13% 
Income tax expense                             (311)     (203)    53%
Operating profit after income tax 
(before abnormal items)                         796       687     16%
Net abnormal loss after tax                     (11)     (155)   -93%
Operating profit after income tax and 
abnormal items                                  785       532     48%
Net interest average margin                    3.55%     3.81%    n/a
Return on book equity (before abnormals)       16.3%     14.6%    n/a
Operating profit after tax as a % of average   
risk weighted assets                            1.2%      1.1%    n/a
Operating expenses to net operating income     61.9%     67.1%    n/a
Operating expenses to average assets            2.7%      3.0%    n/a 
Net specific provision as a %
of average net advances                         0.2%      0.1%    n/a
Net non-accrual loans                           561       313     79%
Net non-accrual loans as a % of net advances    0.7%      0.4%    n/a
Employees (FTE) - Permanent                  17,395    21,113    -18%
Employees (FTE) - Temporary                     756       612     24%
Total employees                              18,151    21,725    -16%
Lending growth                                 13.8%      8.9%    n/a
Total assets                                 94,194    80,321     17%
Risk weighted assets                         75,063    66,687     13%

Reflecting the initial benefits of our restructuring and business
initiatives in Australia, profit before abnormals was up $109
million, an increase of 16%.

The cost income ratio for the Australian operations was reduced from
67.1% to 61.9%. Operating expenses were down 3% with cost savings
flowing from:

* restructuring programs implemented during the year, in particular
the roll out of Branch of the Future and Operations & Technology and
head office restructuring 

* FTEs down 3,574 or 16%. 

A 2% increase in net interest income reflected: 

* strong growth in lending, particularly in mortgages and business 
  banking 

* partly offset by a 26 basis point decline in net interest margin. 

Non-interest income was up with:

* higher transaction and cards fee income in Personal Banking 

* higher commercial bill volumes, offsetting a contraction in 
  commercial bill margins 

* strong foreign exchange earnings 

* gain arising on the demutualisation of the Credit Reference 
  Association of Australia; offset by 

* the decision to switch Funds Management capital out of equities to 
  lower the risk profile of the Group. Last year's earnings of $90 
  million reflected bull market conditions. 

Asset quality remains sound in Australia, with increased non-accruals
reflecting the downgrading of a limited number of larger exposures in
Business Banking.

NEW ZEALAND

                                               1998     1997     Movt
                                                $M       $M       % 


Net interest income                             479       501     -4%
Other operating income                          314       284     11%
Net operating income                            793       785      1%
Operating expenses                             (511)     (560)    -9%
Operating profit before debt provisions         282       225     25%
Provision for doubtful debts                    (53)      (57)    -7%
Income tax expense                              (71)      (45)    58%
Operating profit after income tax 
(before abnormal items)                         158       123     28%
Net abnormal loss after tax                       -       (41)  -100%
Operating profit after income tax and 
abnormal items                                  158        82     93%

Net interest average margin                    2.76%     3.01%    n/a
Return on book equity (before abnormal items)  21.1%     18.7%    n/a
Operating profit after tax as a % of average   
risk weighted assets                            1.1%      0.9%    n/a
Operating expenses to net operating income     64.4%     71.3%    n/a
Operating expenses to average assets            2.6%      3.0%    n/a
Net specific provision as a %                   
of average net advances                         0.2%     (0.1%)   n/a
Net non-accrual loans                            83        74     12%
Net non-accrual loans as a % of net advances    0.5%      0.5%    n/a
Employees (FTE) - Permanent                   4,273     5,564    -23% 
Employees (FTE) - Temporary                     226       107    111%
Total employees                               4,499     5,671    -21%
Lending growth (including FX impact)            2.0%      6.0%    n/a
Lending growth (excluding FX impact)            7.4%     12.9%    n/a
Total assets                                 20,155    18,831      7%
Risk weighted assets                         13,766    14,332     -4% 

New Zealand's profit before abnormals was up 28%, with lower costs
and higher non-interest income offsetting tighter margins and a
higher effective tax rate. The cost income ratio improved by 6.9%.

Net interest income was lower due to: 

*competitive pressures and interest rate volatility leading to a 25
basis point contraction in margin

*partially offset by lending growth (albeit masked by the impact of a
weaker New Zealand dollar)

Increased non-interest income reflected higher current account fees
and foreign exchange profits. Operating costs were reduced 
significantly: 

* lower FTEs (down 1,172 or 21%) following the continuing
implementation of major restructuring programmes to improve
efficiency including the rollout of Branch of the Future

* lower premises and other expenses

MORE TO FOLLOW

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