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Preliminary Final Report

Document date:  Thu 24 Oct 2002
Published:  Thu 24 Oct 2002 14:36:18
Document No:  196680
Document part:  N
Market Flag:  Y
Classification:  Preliminary Final Report , Periodic Reports - Other , Dividend Record Date , Dividend Pay Date , Dividend Rate

AUSTRALIA AND NEW ZEALAND BANKING GROUP       2002-10-24  ASX-SIGNAL-G

HOMEX - Melbourne                                                     

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CHIEF FINANCIAL OFFICER'S REVIEW (continued)

CONSUMER FINANCE
Brian Hartzer

Provides consumer and commercial credit cards, ePayment products,
personal loans, and merchant payment facilities in Australia, New
Zealand, and selected overseas markets

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

Net interest income                      389      334      16%
Other external operating income          388      329      18%
Net inter business unit fees             (86)     (70)     23%

OPERATING INCOME                         691      593      17%

External operating expenses             (234)    (205)     14%
Net inter business unit expenses         (74)     (61)     21%

OPERATING EXPENSES                      (308)    (266)     16%

PROFIT BEFORE DEBT PROVISION             383      327      17%

Provision for doubtful debts            (161)    (171)     -6%

PROFIT BEFORE INCOME TAX                 222      156      42%

Income tax expense and 
outside equity interests                 (73)     (57)     28%

NET PROFIT ATTRIBUTABLE 
TO MEMBERS OF THE COMPANY                149       99      51%

Operating expenses to 
operating income                       43.6%    43.7%       -

Net specific provisions                  132      139      -5%

Net non-accrual loans                      2        1     100%

Total employees                        1,156    1,070       8%


2002 RESULTS

Profit before tax grew by 42% and after the benefit of the Australian
tax rate change, profit after tax was 51% higher. A significant
improvement in the risk profile of the personal loan portfolio led to
a reduction in the provision for doubtful debts. Operating income
grew by 17%, driven by higher transaction volumes and increased cards
outstandings and growth in the cards portfolio following the collapse
of competitor airline loyalty programs. Expenses were 16% higher,
reflecting the growth in volume of business and significant
investment in new technology.


FEATURES OF THE SECOND HALF

* Operating income was 3% lower. Cards outstandings grew by 8%, but
interest margin reduced due to the interest rate rises during the
half. These rises increased funding costs, which could not be fully
passed on due to a portion of the balances that do not pay interest.
Personal loan volumes reduced by 1.5% as higher risk balances
continue to run off.

* Other income fell slightly; merchant turnover and card spend both
increased significantly, but the benefit was offset by a significant
increase in the cost of providing loyalty programs, competitive
pressure on margins and a one-time writedown of our investment in
Ecard ($6 million).

* The mass issue of new chip cards to customers, amortisation and
implementation costs of the new cards processing system introduced in
March, and higher non-lending losses, combined to increase operating
expenses by 7%.

* Provision for doubtful debts and specific provisions reduced
significantly, with continuing improvement in personal loan losses
and stable card losses. Delinquencies continue to improve.


ACHIEVEMENTS

* Highest customer satisfaction of card customers among major
competitors.

* Launched innovative "Sphere" loyalty program for ANZ First
cardholders.

* Won "Best International Affinity Credit Card" for the second
consecutive year. 

* Continued growth in acquiring business, including rollout of 30,000
"MultiPos" chip enabled terminals.


BUSINESS ENVIRONMENT AND OUTLOOK

* Non-housing consumer lending in Australia totalled $84 billion as
at July 2002, of which credit card debt represents $21 billion. In
card issuing, ANZ has a share of approximately 29% by turnover, and
approximately 18% by balances outstanding. In card acquiring, ANZ has
a share by turnover of approximately 23%.

* economics@anz is forecasting consumer credit growth of 4.8% in the
year to September 2003, down from an estimated 6.3% in the current
year. In line with ANZ's strategy to grow its consumer franchise, ANZ
expects to achieve lending growth exceeding system growth, leading to
further increases in market share.

* In August, the Reserve Bank of Australia announced a new
interchange standard for the credit card industry. Changes associated
with this new standard, and recent increases in the cost of frequent
flyer points, are likely to lead to a net reduction in ANZ's
Australian credit card annual profit by approximately $40 million by
2004.

* ANZ Consumer Finance has a small credit card operation in Hong
Kong. The credit environment in that market is not expected to have a
material adverse impact on the profits of ANZ Consumer Finance.


OBJECTIVES

* Build new revenue streams through continued product innovation and
controlled geographic expansion in Asia.

* Grow at above system, particularly in the Acquiring business.

* Leverage new processing platform to make a quantum leap in customer
experience and cost efficiency.

* Improve cross selling, with an emphasis on the 1 million customers
who do not have an ANZ product other than a credit card.

* Restructure product features and pricing to minimise impact of new
interchange standard whilst maximising customer choice.


ASSET FINANCE
Elizabeth Proust

Operating under the Esanda and UDC brands, our vision is to be the
leading provider of vehicle and equipment finance and rental
services. This means delivering superior shareholder returns, fast,
convenient and excellent customer experience, an environment for our
people to excel, value for our channel partners and a contribution to
our community.

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

Net interest income                      336     338        -1%

Other external operating income           69      59        17%

Net inter business unit fees              (8)     (9)       -11%

OPERATING INCOME                         397     388          2%

External operating expenses             (150)   (158)        -5%

Net inter business unit expenses         (29)    (30)        -3%

OPERATING EXPENSES                      (179)   (188)        -5%

PROFIT BEFORE DEBT PROVISION             218     200          9%

Provision for doubtful debts             (69)    (65)         6%

PROFIT BEFORE INCOME TAX                 149     135         10%

Income tax expense and 
outside equity interests                 (47)    (43)         9%

NET PROFIT ATTRIBUTABLE 
TO MEMBERS OF THE COMPANY                102      92         11%

Operating expenses to 
operating income                       44.6%    47.9%        -7%

Net specific provisions                   58       86       -33%

Net non-accrual loans                     56       66       -15%

Total employees                        1,303    1,270         3%


2002 RESULTS 

Profit after tax grew by 11%. The impact from the Australian tax rate
change was limited due to tax credits in 2001. Income was 2% higher,
with new business stronger in the second half and a growing
contribution from fleet management services. Efficiency initiatives
achieved a further 4% reduction in expenses. Provision for doubtful
debts was higher in 2002.


FEATURES OF THE SECOND HALF

* Operating income grew by 4%, driven by increased lending fees and
fleet management income.

* Lending volumes showed growth, as new business improved in the
second half. Margins were largely unchanged in a very competitive
market.

* Fleet management income increased significantly, with a greater
range of services provided and the successful integration of a
business acquired in the first half.

* Strict cost control resulted in flat operating expenses. Headcount
was virtually unchanged and rent increases were offset by further
rationalisation of property space.

* Provision for doubtful debts were relatively stable. Specific
provisions were slightly higher than the first half due to a
provision made against a large individual account within our rental
usage business.


ACHIEVEMENTS

* Strong growth was achieved in the Fleet and Vendor Finance
businesses.

* Esanda Investments captured an increased share of debenture
investments following the exit of AGC from the market. In addition,
new products were introduced to provide greater flexibility to our
existing investors, as well as to attract new customers.

* Over 70% of our customers rated our service very highly (refer
chart above).

* A franchise model for Relationship Managers was successfully
piloted by UDC within the NZ market.


BUSINESS ENVIRONMENT AND OUTLOOK

* Asset Finance operates principally in the area of motor vehicle and
equipment finance and fleet management services, for which the new
lending market in Australasia is approximately $40 billion annually.
Asset Finance has a market share of approximately 15%, making it one
of the larger players in our key domestic markets.

* Vehicle-finance margins have been under pressure for several years,
with strong competition from factory-based financiers and other
lenders. Improved risk pricing disciplines should lead to a reduction
in the rate of margin decline.

* Asset Finance is also involved in equipment financing, which
represents approximately 20% of total assets. Growth within this
market segment is relatively strong, particularly through the
provision of equipment management services in the Vendor Finance
business.

* The full impact for the market of GE Capital's acquisition of AGC
remains uncertain, however Esanda's share of debenture sales has
improved.


OBJECTIVES

* Position our business to capture growth opportunities in the asset
finance market and further improve profitability.

* Provide an operationally excellent platform to our customers and
business partners, such as automotive dealers and finance brokers.

* Attract and retain talented people to our business.



GROUP TREASURY
Rick Sawers

The banker to all ANZ businesses. Charged with providing cash flow
support, ensuring liquidity, managing interest rate risk and
providing capital to the businesses

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

Net interest income                        200     124      61%

Other external operating income             (1)      8      n/a

Net inter business unit fees                 -      (1)     -100%

OPERATING INCOME                           199      131     52%

External operating expenses                (15)     (14)     7%

Net inter business unit expenses            (6)      (6)     -

OPERATING EXPENSES                         (21)     (20)     5%

PROFIT BEFORE DEBT PROVISION               178      111     60%

Provision for doubtful debts                 -        -     n/a

PROFIT BEFORE INCOME TAX                   178      111     60%

Income tax expense and 
outside equity interests                   (54)     (36)    50%

NET PROFIT ATTRIBUTABLE TO 
MEMBERS OF THE COMPANY                     124       75     65%

Total employees                             46       45      2%


2002 RESULTS

* Net profit was cyclically strong in 2002, rising to $124 million
(65% increase on the previous year). This was due to an increase in
the investment term of assets and favourable funding conditions
during the uncertain global economic environment.

* In Australia, conditions were mixed with different parts of the
business being impacted by Global events. Funding conditions for ANZ
were excellent given its strong credit rating which is attractive to
wholesale international investors. The strong demand for secure
investments in wholesale markets was mirrored in domestic markets,
consequently our retail depositor base also grew strongly leading to
a stronger overall funding base.

* The RBA changed the direction of the interest rate cycle by
increasing interest rates by 0.25% twice in mid-2002. Further
tightening was expected and built into market interest rates,
however, such tightening has now been deferred due to the
deteriorating global environment. The interest rate mismatch during
this period of interest rate volatility was managed well with risk
being contained.


FEATURES OF THE SECOND HALF

* As expected, earnings growth plateaued in line with the apparent
bottoming of the global economic cycle as funding costs began to face
upward pressure. In response to this development, the duration of
assets has been reduced for the time being given that their
attraction is diminishing due to the flatness of the yield curve.

* Looking ahead to 2003, it is expected that this period will provide
reasonable funding and earnings opportunities in treasury products,
however, there is a possibility that the uncertain conditions of 2002
will continue. Group Treasury's priority is to ensure that the
balance sheet is optimally structured for all economic scenarios so
as to ensure stability of earnings is achieved as much as is
practical.


WHOLESALE FUNDING

* ANZ's AUD $19 billion of term wholesale funding has grown from
$A3.0 billion in 1998.

* $A5.3 billion debt issued in 2002 via 81 transactions.

* Portfolio is diversified by both type and currency with a weighted
average term to maturity of 2.6 years.

* New term debt issuance for 2002/03 is planned at between AUD $6 -
$7 billion with an average term of 4 years.


LIQUIDITY PORTFOLIO

* ANZ maintains an $8.0 billion portfolio of high quality,
diversified, highly liquid securities to support payment obligations
and contingent funding in the event of a market disruption.

* The portfolio is managed on a global basis through the Group's
major funding centres, ie: Melbourne, New York, London, Wellington
and Singapore.


CAPITAL MANAGEMENT

* The Group's central capital management target is formulated around
Adjusted Common Equity with a benchmark of ACE/RWA in the range of
5.25% to 5.75%.

* Capital management at ANZ seeks to optimise return to shareholders,
ensure growth in the business and maintain low cost of capital
through prudent risk management.

* NZD$300 million subordinated debt was issued in the domestic New
Zealand market.

* AUD $500 million subordinated debt was issued in the domestic
Australian market.


ACHIEVEMENTS

* Effectively managed response to September 11, 2001 by maintaining
unrestricted access to world capital markets and increasing liquidity
portfolio while increasing earnings 65% over 2001.

* Reviewed and restructured Tier 2 capital in Australia and New
Zealand incorporating the $NZD300 million subordinated debt issued in
New Zealand, $AUD500 million subordinated debt issued in Australia
and exercised early redemption option of $USD125 million subordinated
debt issued in New Zealand.

* Investigated balance sheet efficiency through portfolio
optimisation by researching world's best practice of leading
practitioners.


OBJECTIVES

* Continuing to improve the quality of our core funding and
maintaining a minimum level of Customer to Wholesale funding in
excess of 60%.

* Enhancing the liquidity management framework.

* Developing the portfolio management initiative in order to ensure
increased access to the growing wholesale market for credit risk and
facilitate improved liquidity of bank assets.

* Stabilising income as we move into a higher interest rate
environment.

* Preparing ANZ for regulatory changes associated with Basel II and
APRA.


CORPORATE CENTRE

David Boyles   Shane Freeman   Peter Hawkins   Mark Lawrence 
Peter Marriott
 
ANZ's Corporate Centre is a diverse range of Group functions largely
represented by Operations, Technology and Support Services with the
balance comprising Group Strategy; People Capital; Risk Management
and Chief Financial Officers Units

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

Net interest income                        87      108      -19%

Other external operating income            94        2      large

Net inter business unit fees               91       94      -3%

OPERATING INCOME                          272      204      33%

External operating expenses              (801)    (792)     1%

Net inter business unit expenses          586      581      1%

OPERATING EXPENSES                       (215)    (211)     2%

PROFIT BEFORE DEBT PROVISION               57       (7)     n/a

Provision for doubtful debts              (86)      (4)     large

PROFIT BEFORE INCOME TAX                  (29)     (11)     large

Income tax expense and 
outside equity interests                    8      (31)     n/a

NET PROFIT ATTRIBUTABLE TO 
MEMBERS OF THE COMPANY                    (21)     (42)     -50%

Total employees                         5,500    5,362        3%



2002 RESULTS

The result for Corporate Centre was a loss of $21 million, compared
with a loss of $42 million in 2001. Operating income was $68 million
higher, mainly reflecting three factors. Firstly, 2001 included $30
million losses from discontinued businesses. Secondly, the
appreciation of the Australian dollar against the US dollar and a
reduction in the level of hedging improved the impact of USD revenue
hedges by $32 million. Finally, reductions in US interest rates
resulted in higher hedge income from an interest rate swap which
covers the USD payments to holders of preference shares (TrUEPrs).
This was offset by reduced net interest income earned on the floating
rate asset pool which is part funded by the TrUEPrs proceeds.
Provision for doubtful debts was $82 million higher, including
central charges of $72 million that recognise the continued
uncertainty in the international economic outlook.


FEATURES OF THE SECOND HALF

* The loss for the second half reduced from $12 million to $9
million. Higher net interest income from earnings on capital
repatriated from Tokyo was offset by an increased central provision
for doubtful debts. This increased central provision is based on
moving the credit profile of our offshore structured finance
portfolio down one grade on our internal rating scale. Our policy is
to recognise such portfolio adjustments centrally.


GROUP RISK MANAGEMENT

* ANZ's largest corporate exposures were materially reduced in 2002.

* Industry leading operational risk measurement framework further
embedded within business units.

* Global recognition was received for ANZ's risk management framework
in 2002.

* Going forward, Group Risk Management will continue to provide
specialist risk leadership and oversight in a dynamically evolving
business environment. Our commitment is to further improve the
Group's core risk management processes to ensure that ANZ remains at
the forefront of risk management capability within the financial
services sector.


OPERATIONS, TECHNOLOGY AND SHARED SERVICES (OTSS)

* Implemented a Group-wide Common Administration System providing
access to financial information, General Ledger, HR functions,
Procurement, Accounts payable and Fixed Asset processes in Australia
and New Zealand.

* Introduced the use of cheque image archives for faster response to
customer enquiries and internal efficiency.

* Delivered major new projects for cards processing, retail sales and
service, customer transaction processing, high value payments,
customer relationship management, corporate banking, risk management
and new capabilities for mortgage originators.

* OTSS is ensuring its technology infrastructure is robust, flexible
and cost effective. Costs are being reduced and productivity
improved.


GROUP STRATEGY

* Group Strategy has continued its work on strengthening the Pacific
franchise through the Bank of Hawaii operations acquisition as well
as repositioning ANZ's Funds/Wealth Management business through the
development and commencement of the INGA joint venture.

* Group Strategy continues its focus on achieving organic
out-performance across all of the Group's businesses.


PEOPLE CAPITAL

* People Capital has continued its wide scale roll out of ANZ's
Breakout cultural change program. To date, 5,000 Managers have
attended Breakout sessions and 100 internal ANZ Breakout Champions
have been developed.

* ANZ continues to create a work environment that recognises the need
to balance work and family. Family friendly policies including paid
paternal leave for co-partners, telecommuting and job sharing have
been implemented.

* Future strength is being built by developing organisational
capability through attracting, developing and retaining ANZ's best
people.

* ANZ is one of the largest recruiters of graduates in the private
sector recruiting approximately 200 new graduates in Australia and 30
in New Zealand.


CFO UNITS

* CFO Units has implemented a new General Ledger for Australia and
New Zealand (in conjunction with Operations, Technology and Shared
Services).

* ANZ has received several awards that recognise the quality of ANZ's
financial disclosure. ANZ is committed to providing full and timely
information to all stakeholders.

* Refinements continue to be made to Group-wide strategy planning.



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