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Preliminary Final Report

Document date:  Thu 24 Oct 2002
Published:  Thu 24 Oct 2002 14:06:13
Document No:  196680
Document part:  M
Market Flag:  Y
Classification:  Preliminary Final Report , Periodic Reports - Other , Dividend Record Date , Dividend Pay Date , Dividend Rate


HOMEX - Melbourne                                                     



Provision of complex financing and advisory services, structured
financial products, leasing, private equity, project, export and
leveraged finance and infrastructure investment

                                           FULL     FULL     MOVT
                                           YEAR     YEAR     SEP 02 
                                          SEP 02    SEP 01   SEP 02
                                           $M         $M       %

Net interest income                        49         4       large
Other external operating income            64        75       -15%
Net inter business unit fees              (14)      (12)       17%
Operating income                           99        67        48%
External operating expenses               (25)      (21)       19%
Net inter business unit expenses          (14)      (14)        -
Operating expenses                        (39)      (35)       11%
Profit before debt provision               60        32        88%
Provision for doubtful debts              (12)      (13)       -8%
Profit before income tax                   48        19       large
Income tax expense and outside             31        53       -42%
equity interests 
Net profit attributable to members         79        72        10%
of the Company 

Operating expenses to operating income    39.4%     52.2%     -25%
Net specific provisions                    38        30        27%
Net non-accrual loans                      21        26       -19%
Total employees                           103        97         6%


Profit after tax grew by 10%, driven by strong growth in revenue from
project and structured financings together with the private equity
investment strategy. A rebalancing of the portfolio during the last
12 months resulted in strong interest income, with a lower level of
structured transactions. Core costs were well controlled, enabling
substantial investment to be made in growth initiatives. Provision
for doubtful debts was slightly lower, and there has been a
heightened focus on risk management in a less predictable credit


* Second half results include a tax charge of $2.8 million relating 
to a prior period transaction. Excluding this, second half net profit
was driven by a particularly strong performance from corporate
advisory and cross border leasing.

* The 5% increase in operating expenses was the result of further 
investment in the Infrastructure funds growth initiative, with other
costs held to first half levels.

* Provision for doubtful debts was unchanged. There were no new
non-accrual loans in the half and specific provisions returned to
expected levels, following provisions relating to Enron in the first



* Awarded Asia Pacific Deal of the Year/Infrastructure Deal of the
Year for our role as Lead Arranger, Agent and Bookrunner for the
Alice Springs to Darwin Railway project (Project Finance and Global
Finance magazines).

* Successfully executed the Regional Investment Banking strategy
"Wall Street to Main Street" involving the delivery of private equity
and other products to this customer segment.

* Diversified the product offerings to insulate earnings from
volatility occasioned by the current climate. This resulted in strong
fee income from leading roles in a number of major transactions
across product lines.

* For the period Jan-June 2002 CF&A was rated in the top five Asia
Pacific Lead Arrangers for Project Finance (Infrastructure Journal)
and fifth by number of announced transactions for Australian
corporate finance advisory (Thomson Financial).

* No 1 in power and utility structured finance capabilities amongst
large companies doing business in Australia (Greenwich Association


* World events combined with political uncertainty will undoubtedly
impact large project financing activity going forward although
investment and other opportunities will arise as overseas investors
such as power companies withdraw from the Australian and New Zealand
markets. The outlook for a range of products (advisory, private
equity, export finance) particularly directed to the corporate
segment remains positive and as a consequence there is cause for some


* CF&A is a distinctive combination of products - the linkage being
the provision of specialist financing and advisory services based on
a complimentary set of technical skills and experience. Its strategy
is to develop and expand mature franchises such as project finance
whilst building niche products for distribution into the
corporate/small business segments and the launch of specialist
wholesale funds.


Provides a full range of banking services for metropolitan based
small to medium business in Australia and New Zealand with turnover
up to $10 million

                                           FULL     FULL     MOVT
                                           YEAR     YEAR     SEP 02 
                                          SEP 02    SEP 01   SEP 02
                                           $M         $M       %

Net interest income                         319      303       5%
Other external operating income              80       68      18%
Net inter business unit fees                (33)     (38)    -13%
Operating income                            366      333      10%
External operating expenses                (124)    (113)     10%
Net inter business unit expenses             -        (8)   -100%
Operating expenses                         (124)    (121)      2%
Profit before debt provision                242      212      14%
Provision for doubtful debts                (16)     (17)     -6%
Profit before income tax                    226      195      16%
Income tax expense and outside              (69)     (65)      6%
equity interests 
Net profit attributable to members          157      130      21%
 of the Company 

Operating expenses to operating income     33.9%     36.3%    -7%
Net specific provisions                     14        22     -36%
Net non-accrual loans                        9         8      13%
Total employees                            1,265     1,171     8%


Profit before tax grew strongly by 16% and with the benefit of the
Australian tax rate change, profit after tax was 21% higher.
Significant investment has been made in industry specialisation and
increasing geographical coverage. This helped to generate good growth
in loans and deposits. Expense growth was contained to only 2%
despite the increased investment.


* Operating income grew strongly, showing encouraging initial
benefits from our investment in increased geographical coverage and
industry specialisation.

* Net interest income was 7% higher and other external income grew by
11% in large part due to strong growth in lending volumes. Deposit
volumes also grew with some margin improvement due to interest rate

* Operating expenses were up 7% on a low base in the first half.
Investment in our growth strategy increased by $4 million, mainly in
additional people and training.

* Provision for doubtful debts was unchanged despite the growth in
lending. The quality of the portfolio remains sound and more than 80%
of lending is fully secured. Loss rates are at stable lows of around



* The business has grown strongly both this half and over the full

* We have expanded the business geographic coverage by increasing the
number of Relationship Managers (50) in areas where the Bank was
under-represented or where business is growing rapidly.

* A specialist Franchising team was established Australia-wide to
service this fast growing area of the SME market.

* Created a culture of "Business Ownership", devolved pricing 
responsibilities to those who manage the
customers, fostered entrepreneurship around the business expansion.

* The small business portal, "" was launched
in November 2001 and had more than 10,000 businesses registered by
end August 2002.


* Following several years of decline, ANZ has reinvigorated this
business over the past 18 months, which has resulted in a
stabilisation of market share. Improvements to the customer
proposition, increased investment in training, geographic coverage of
the business and industry specialisation provide a good platform for
growth in market position.

* Small to Medium Business manages relationships with metro-based
customers with turnover up to $10 million. The SME segment
performance tends to track the overall performance in the broader
economy (GDP as a proxy).

* Customer satisfaction in the SME market is primarily driven by
factors such as the flexibility of the bank toward customer needs,
relationship and service quality rather than specific product 


* Increase footprint and size of front line sales force, to further 
grow market share. 

* Improve the customer proposition.

* Expand the Franchise team and industry specialisation.

* Continue to simplify and transform credit processes.


Provision of mortgage finance secured by residential real estate in
Australia and New Zealand

                                           FULL     FULL     MOVT
                                           YEAR     YEAR     SEP 02 
                                          SEP 02    SEP 01   SEP 02
                                           $M         $M       %

Net interest income                        682        655      4%
Other external operating income             89         78     14%
Net inter business unit fees              (230)      (203)    13%
Operating income                           541        530      2%
External operating expenses               (119)      (108)    10%
Net inter business unit expenses           (42)       (42)     -
Operating expenses                        (161)      (150)     7%
Profit before debt provision               380        380      -
Provision for doubtful debts               (28)       (24)    17%
Profit before income tax                   352        356     -1%
Income tax expense and outside            (106)      (120)   -12%
equity interests                           
Net profit attributable to members         246        236      4%
of the Company                            

Operating expenses to operating income    28.5%      27.0%     6% 
Net specific provisions                     10         21     -52%
Net non-accrual loans                       29         50     -42%
Total employees                          1,048        903      16%


Profit before tax was slightly lower, although the benefit of the
Australian tax rate reduction led to 4% growth in profit after tax.
Mortgage lending (including securitised loans) grew 14%, resulting in
higher net interest and fee income. Funding costs rose during the
year in anticipation of interest rate rises and the resulting fall in
interest margins dampened the revenue increase from the growth in
business especially in the second half. Expenses were higher from
increasing personnel numbers to service the additional business
volumes and from higher amortisation of new mortgage origination


* Interest rate rises and market expectations of further rises
increased the cost of funding loans. The resulting fall in interest
margin meant that operating income was slightly lower despite record
business volumes. Funds under management grew by 8% during the half.

* ANZ was again named Home Lender of the Year by Personal Investor
Magazine, reflecting the quality of the product range and servicing.
Sales through brokers were particularly strong, demonstrating the
improvement in service that has been achieved.

* Sales and retention commissions paid to Wealth Management and 
Personal Banking increased in line with business volumes.

* Personnel and premises expenses increased, with higher headcount
and more space required in order to service the higher volumes.
However, overall operating expenses were 4% lower due to the
seasonally higher marketing spend in the first half of the year.

* Provision for doubtful debts was higher due to the increased size
of the loan portfolio. The loan risk profile improved, with arrears
levels falling significantly. This quality improvement is not
reflected in specific provisions, because first half provisions were
reduced by recoveries in New Zealand.



* Winner of the Home Lender of the year for the fourth consecutive 

* Award winning products, consistently receiving 5 Star Cannex 

* Judged "Best Financial Institution to do Business with" by 
Australian Mortgage Brokers.

* Continued improvement in the risk profile across the business, with 
historically low delinquency levels.

* Initiated Habitat for Humanity partnership  ANZ staff helping to 
build homes for people otherwise unable to access conventional 
housing finance.


* Lending for housing in Australia totalled $347 billion as at July 
2002, of which ANZ has a share of approximately 13%.

* economics@anz is forecasting housing credit growth of 13% in the
year to September 2003, down from an estimated 17.6% in the current
year. Over the next ten years, system housing credit growth is
expected to average between 8%-10% per annum. In line with ANZ's
strategy to grow its consumer franchise, ANZ plans to achieve
mortgage growth exceeding system growth, leading to increases in
market share.

* Brokers are a key feature of the mortgage market, with an estimated
share of new originations of 25%-30%. ANZ was an early mover in the
broker market, such that approximately 33% of ANZ's mortgages are now
sourced via brokers.

* Following several years of significant structural decline, mortgage
margins have stabilised recently. However margins continue to be
impacted by movements in the short term yield curve, with an upward
sloping yield curve tending to have an adverse impact on mortgage
margins. Mortgages are priced with reference to the cash rate,
however funding is generally priced with reference to the 90 day bill
rate. ANZ expects such an adverse environment to persist for at least
the next half.


* Maintain high levels of service quality.
* Maintain product leadership.
* Grow market share in chosen segments.
* Improve position in New Zealand.
* Re-engineer 'end to end' support functions to improve processing 
efficiency and customer experience.