1997 Half Year Financial Results

Message from Managing Director

National Strategy Lifts Profit

National Australia Bank today announced a 14.1 per cent increase in Group operating profit to $1,139 million in the six months to 31 March, 1997.

Directors have declared an interim dividend of 45 cents per share fully franked. This compares with 43 cents per share in the previous corresponding period.

It was also announced that the National would extend the current on market buy back of ordinary shares. The extension is to cover the purchase of shares expected to be issued under the July 1997 dividend reinvestment, bonus share and share top up plans. It is estimated that an additional 14 million shares will be purchased.

The result followed a strong performance by the National's overseas banks and continued growth in sales in Australia.

Group Managing Director, Mr Don Argus said the result was at the "top end" of most market forecasts. It demonstrated the continued success of the Group's commitment to a consistently applied growth strategy.

"The share of our profit that has come from our overseas operations jumped from 28.8 per cent to 36.7 per cent in the latest half," Mr Argus said.

"That is a clear reflection of the value we are deriving from our strategy of organic and acquisition growth in Australia and overseas.

"We managed to boost our underlying profit nearly 11 per cent in a period of intense competition in all markets.

"That reflects the fact that we continue to gain customers and provide quality products and services more cost effectively than our competitors, including those outside our industry.

"The recent improvements in our capital management programs, together with the latest result, position us well for further growth," Mr Argus said.

Highlights of the latest result include:

• the continued strength in the Group's underlying profit, up 10.9 per cent from $1,673 million to $1,855 million
• impressive growth in non interest income, up 14.6 per cent to $1,613 million
• strong results from Europe, New Zealand and the United States

In Australia, Group profit rose 1.4 per cent from $711 million to $721 million.

This was a creditable result considering the environment of intense competition, tight margins and a relatively sluggish economy.

Revenue increases from lending volumes were offset to a significant extent by declining margins.

Sales increased in major markets. Following cuts to standard variable interest rates and other initiatives, the National's home loan portfolio grew by $3.7 billion compared with the previous corresponding period.

The introduction of a range of new products in the business sector, including small business and the rural sector, resulted in an increase in total lending volumes from $87 billion in March 1996 to $99 billion in the latest period.

One of the fastest growing areas for the Australian Bank was in telephone banking. The number of subscribers to the National's FlexiPhone service in the 12 months to March 31 rose from 150,000 to nearly 600,000.

Improved results were also achieved by National Australia Financial Management, National Australia Asset Management, National Custodian Services and National Australia Trustees.

International

The Group performance internationally was strong. The highlights included:

• a 33.5 per cent increase in profit contribution from the United Kingdom/Republic of Ireland. This rose from $161 million to $215 million. Yorkshire and Clydesdale Banks benefited from reductions in their costs and increases in operating income. Northern increased income from mortgage and term lending. Both Northern and Yorkshire reduced their charges for bad and doubtful debts.
• a 31.3 per cent increase in Bank of New Zealand Group profit from $131 million to $172 million. BNZ's net interest income benefited from increased lending in both the home loan and business markets.
• an increase in the contribution from Michigan National Corporation with profit after tax up from $69 million to $92 million. (The March 1996 result for Michigan included only five months results. Adjusted to six months on a pro-rata basis, the latest result represents an increase of about 11 per cent).
• sustained improvement in Asia with profit up from $6 million to $15 million. Treasury, corporate banking and insurance activities all contributed to the higher result.

Looking ahead, Mr Argus said competition in all markets would be unrelenting and would place increasing pressure on the ability of the Group to sustain its record profits.

"Another challenge facing the National and banks in general is the clear divergence between the reality of the quality of the products provided and the perception of government, consumer groups and the like.

"Our figures clearly show we continue to increase and retain customers. We operate in a system with substantial foreign bank share of key markets such as business lending. Government sets interest rates and accounts for the greatest share of transaction account fees.

"Yet we are confronted with concerns by Government and others about the cost of services and the need for more competition, particularly from foreign interests.

"In addition to focussing on the fundamentals of our business during the next six months we will also be addressing the misconceptions relating to our industry.

"We are hopeful of progress in both of these issues because we firmly believe they are integral to our long term success," Mr Argus said.

Melbourne, 15 May, 1997.

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