1999 Third Quarter Financial Results

National Reports Solid Third Quarter Result

The National Australia Bank today reported a June quarter profit after tax of $697 million, an increase of 12.6 per cent compared with the June 1998 quarter of $619 million (before abnormals) and 4.7 per cent higher than the March quarter of $666 million.

The solid June quarter has lifted the Group operating profit after tax to $2,087 million for the nine months to 30 June 1999. The result is $359 million or 20.8 per cent higher than the $1,728 million (before abnormals) earned in the nine months to June 1998. There are no abnormal items included in the June 1999 result.

Underlying profit (before tax, doubtful debts and abnormals) for the June 1999 quarter was 1.2 per cent higher than the March quarter. For the nine months to June 1999, underlying profit rose 15.7 per cent to $3,587 million.

The return on average ordinary shareholders' funds increased from 16.8 per cent for the March quarter to 17.6 per cent for the June quarter.

On a cash earnings basis (earnings before goodwill and abnormal items) the return on average tangible ordinary shareholders' funds increased from 22.4 per cent for the March quarter to 23.6 per cent for June 1999.

The National's Managing Director, Frank Cicutto said the latest performance reflects the benefits of the National's income diversification deriving from a broad geographic and business spread, operating efficiency and risk management.

The National continued to record solid quarterly growth in other operating income which increased by $67 million to $1,155 million for the June quarter. This increase was due to higher treasury related income and fees associated with increased activity. The share of other operating income to total income increased from 41.7 per cent to 43.7 per cent during the June quarter.

Group net interest income was slightly down during the quarter due to an easing of margins and a stronger Australian dollar, which were partly offset by growth in loans and advances.

The Group's cost to income ratio was steady for the June quarter and for the nine months to June 1999 was 52.9 per cent compared with 54.5 per cent for the nine months to June 1998.

A key measure of success for the National is the generation of shareholder value as measured by economic profit, which is based on cash earnings in excess of the cost of capital for the period plus the value of franking benefits generated.

Economic profit for the June 1999 quarter was 15.2 per cent higher than the June 1998 quarter. For the nine months to June 1999, economic profit is 34.5 per cent higher than the previous corresponding period.

Australia

Australian Financial Services recorded a 9.4 per cent growth in profit after tax from $342 million for the March 1999 quarter to $374 million for the June 1999 quarter.

Growth in the June quarter reflects increased revenue from bill acceptances and credit facilities, higher treasury income and a number of new structured finance transactions.

Loans and advances rose by 2.6 per cent in the June quarter, predominantly from increased housing and overdraft facilities.

For the nine months ended June 1999 profit after tax was $1,102 million, up 12.4 per cent from the $980 million recorded in the nine months to June 1998.

International

In the June quarter, the Group earned $339 million from its international operations which represented 48.6 per cent of the profit after tax.

Profit after tax from the European Group of $175 million was down 14.2 per cent from $204 million for the March quarter 1999. This largely reflected the impact of the stronger Australian dollar and seasonally lower insurance income. The impact of lending growth has been largely offset by lower margins.

Profit after tax for the nine months to June 1999 of $582 million is 15.7 per cent higher than for the previous corresponding period (before abnormals) but would be 21.9 per cent higher if the impact of exchange rate movements was excluded.

In the United States, Michigan National increased its quarterly profit by 9.7 per cent from $62 million for the March 1999 quarter to $68 million for the June 1999 quarter. The impact of higher interest income and higher other operating income has been partly offset by the appreciation of the Australian dollar. Net interest margins increased in the June quarter compared with March 1999.

HomeSide contributed $37 million to Group profit for the June quarter, consistent with prior quarters.

Profit after tax from the Bank of New Zealand was up 7.1 per cent to $75 million, primarily due to growth in other operating income. Net interest margins decreased slightly in the June quarter.

The operations in Asia recorded a profit of $21 million for the quarter compared with a loss of $9 million in the previous quarter, reflecting higher income from wholesale trading activities and reduced provisioning.

General

The charge for doubtful debts for the nine months to June 1999 of $433 million was down $37 million or 7.9 per cent over the previous corresponding period.

The Group's impaired asset portfolio remains modest with a ratio of non accrual loans to risk weighted assets of 0.8 per cent at June 1999.

During the quarter the National Income Securities issue was successfully concluded. The issue was strongly supported by Australian investors and raised $2 billion of cost effective Tier 1 capital. This innovative instrument has strengthened the National's balance sheet. The Tier 1 capital ratio at June 1999 was 7.6 per cent compared with March 1999 of 6.5 per cent. The total capital ratio is 10.3 per cent at June 1999.

Mr Cicutto said the pleasing features of the latest results included the strong growth in lending and the continued increase in non interest income.

Mr Cicutto also noted the progress of the Group's global wholesale financial services business and the rapid development of its product specialists such as HomeSide and other financial services.

"Looking ahead, we will continue to focus on diversification of our businesses and the capturing of the benefits of our global structure.

"The National is well placed to take advantage of the positive economic and financial environment in most of the markets in which we operate, " Mr Cicutto said.

Melbourne, 22 July 1999

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