1998 First Quarter Financial Results

Message From Managing Director

National Profit Tracks Plan

National Australia Bank today reported a Group operating profit after tax of $522 million for the three months to 31 December, 1997.

This compares with $580 million earned in the previous three months to 30 September and $582 million for the December 1996 quarter.

The decline is partly attributable to a higher charge for doubtful debts in the December 1997 quarter and the inclusion of previously unrecognised tax losses of $49million in the September 1997 quarter.

Underlying profit (before tax and doubtful debts charge) was $932 million, an increase of 4.4 per cent over the $893 million earned in the September quarter.

The National's Managing Director, Mr Don Argus said the latest result met Group expectations.

Underlying profitability was in line with the current plan and the Group's performance is tracking above that of the previous three quarters.

"Our latest result reflects the combined impact of continued margin reductions due to competition and higher expenses associated with projects currently underway," Mr Argus said.

"Our expenses are under pressure due to the need to rapidly progress a number of important projects including the Year 2000 program, standardisation of credit processes and the first element of the migration to a new business model.

"During the quarter, the Group introduced a new staff share scheme. The $16 million cost of acquiring shares under this scheme is included in personnel expenses.

"The fact that our underlying profit continued to improve in these circumstances is particularly pleasing," Mr Argus said.

Net interest income was $1,385 million. This compares with $1,353 million for the September quarter and $1,316 million in the December 1996 quarter. The rise in net interest income demonstrates the success in continuing to build the business.

Non interest income also continued to rise strongly to $928 million. This was 2.4 per cent higher than the September quarter and 14.1 per cent higher than in December 1996.

"The growth of our non interest income is also highly encouraging," Mr Argus said.

"Asset quality continued to improve over the quarter and we are comfortable with our current level of provisioning which reflects credit policies that have served us well over the last two decades," he said.

The Group has increased its charge for doubtful debts to $120 million compared with $105 million in September and $39 million (net of specific provision recoveries) in December 1996.

The Group's actual provisioning coverage has increased from 45.8% to 50.1% over the quarter with total coverage (reflecting current period write-offs and the level of general provisioning) increasing from 104.6% to 114.5%.

"The increased provisioning reflects our view of the current stage of the business cycle in Australia and other economies, including Asia," Mr Argus said.

"There is much speculation on Asian credit exposure. Our credit exposure in Asia is modest and well diversified. Over 70 per cent of our Asian exposure is short term in nature with a maturity of less than 12 months.

"Looking ahead the Group is confident that the underlying strength of its earnings will continue," he said.

Mr Argus also emphasised that the implementation of the major projects across the Group has been accelerated, particularly the migration to the new business model. This is critical to position the Group for the future.

"Our income continues to grow in key market areas, particularly Europe, Australia and the United States.

"We will soon complete the HomeSide Inc acquisition in the United States which will add another valuable earnings source to the Group," Mr Argus said.

Melbourne, 22 January 1998.

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