Chief Financial Officer's Message

Disciplined financial performance 2002 performance highlights the underlying strength of our core financial services businesses. Richard McKinnon, Chief Financial Officer

Our financial strategy for the 2002 year was to strengthen the balance sheet, improve efficiency and invest for future growth. We have done this through:

	the sale of SR Investment, Inc. and HomeSide Lending, Inc. (both referred to as HomeSide US) which has meant the full exit of mortgage servicing rights and strengthened our regulatory capital ratios;
	the completion of the Positioning for Growth review which has restructured the Group and identified potential for significant productivity gains over the next two years; and
	an investment program focused on our Wealth Management and European operations.

The Group's net profit of $3,379 million was 62% higher than last year. Last year's result was dominated by the very large impairment write-downs relating to HomeSide US. This year's result has been adversely affected by the recapitalisation of HomeSide US, a large restructuring provision and the downturn in equity markets.

The significant items recognised in the 2002 year related to:

	$412 million after tax of restructuring expenses; and
	$6 million net profit on sale of HomeSide US.

Excluding non-cash items (goodwill amortisation and revaluation of the life insurance controlled entities), cash earnings increased 6% from the previous year.

Cash earnings per share (before significant items) increased 5% to 248.2 cents.

Return on equity (before significant items) decreased from 18.4% to 17%.

Dividends are 147 cents per share, compared with 135 cents per share last year. This represents an increase of 12 cents or 8.9%. The final dividend of 75 cents is 90% franked.

Continued strong performance of core operations
Our unique combination of business and geographic diversity is delivering profits and providing growth opportunities, creating an integrated financial services group.

Our financial services businesses conduct the retail banking operations of the Group:

	Financial Services Australia net profit* increased by 29% to $1,770 million. We have been particularly successful in the mortgage market, where housing loans increased by 21%.
	Financial Services Europe net profit* increased 13% to $850 million. Mortgage loans increased 6% for the year with the introduction of an innovative new product to the market - the Rapid Repay mortgage.
	Financial Services New Zealand net profit* increased 31% to $293 million, with strong growth in housing lending and a reduction in expenses.

Wholesale Financial Services increased net profit* by 12% to $825 million in a challenging environment, primarily as a result of reduced provisioning charges.

Wealth Management achieved a net profit* of $132 million for the year. The result was impacted by unfavourable global equity markets and, as announced in August 2002, a $64 million before tax ($45 million after tax) compensation provided for investors relating to a reduction in unit prices, which occurred in October 2001 in relation to certain products managed by National Australia Financial Management Limited NAFM).

Growth in total income
Net interest income from ongoing operations grew 8% in 2002. This was driven by growth in loans and advances to $231 billion and a fall in the net interest margin from 2.71% to 2.67%.

Non-interest income was impacted by:

	solid fee and loan volume growth in the retail businesses;
	subdued activity in foreign exchange and interest rate markets, which affected treasury income; and
	the downturn in global equity markets which impacted Wealth Management.

Progress towards efficiency targets
Our cost to income ratio for banking operations improved to 47.7% from 48.5% in 2001 and 49.9% in 2000.

During 2002, we made good progress towards achieving the 2004 efficiency targets:

	Cost to income	2001 %	2002 %	2004 target
	FSA	49.7	48.5	46.0
	FSE	50.9	49.8	48.0
	FSNZ	56.2	49.9	48.0
	Wholesale	37.2	38.4	36.0

Wealth Management is on track to achieve its targets.

Investment in the future
To capture growth opportunities, investment is being targeted to our core businesses in the form of:

	an infrastructure upgrade for customer-facing staff in banking in Great Britain;
	Wealth Management's adviser platform in Australia; and
	Wealth Management's independent financial advisers' distribution capability in Great Britain.

Over the next three years $385 million is to be invested in these three initiatives. 

Asset quality remains sound
During 2002 a strong focus on asset quality was maintained in a difficult credit environment. The proportion of gross non-accrual loans to gross loans and acceptances decreased from 0.75% to 0.62% and is now the lowest since 1986.

Total doubtful debt provisioning charges of $697 million were taken during the year, down from $989 million in 2001.

Financial strength
Total assets have grown to $377 billion.

Growth was largely driven by growth in lending assets, particularly in housing lending, which increased 18%.

As a result of the sale of HomeSide US on October 1, 2002, we have exited all mortgage servicing rights and associated hedges, and consequently reduced the Group's balance sheet and earnings risk exposure.

Continued active capital management
In May 2002, we announced our intention to extend the ongoing share buy-back program until September 30, 2003, and to increase the value of shares subject to the buy-back by an additional $1,000 million.

Our capital position was strengthened by the sale of HomeSide US, which released $490 million in capital. As a result we announced a further increase of $750 million in the value of shares subject to the buy-back.

We bought back 36.2 million shares during the year.

Tier 1 capital represents 7.8% and total capital represents 10.2% of risk-weighted assets.

We remain the only AA rated bank in the Asia Pacific region and one of a small number in the world.

	Credit Ratings
	Standards & Poor's Corporation
	Short-term	A-1+
	Long-term	AA
	Fitch, Inc
	Short-term	F1+
	Long-term	AA
	Moody's Investors Services Inc.
	Short-term	P-1
	Long-term	Aa3

Outlook
Our financial strategy positions us for the uncertainties facing the global economy. We have significantly reduced the risk in our balance sheet and have focused on our cost efficiency. Our credit risk management capabilities and financial strength are first class. Despite the uncertain outlook we continue to invest in our core businesses as they represent our future.