Corporate and Institutional Banking

Corporate & Institutional Banking (CIB) is responsible for managing the Group's relationships with large corporate clients and financial institutions worldwide. CIB operates through an international network of offices in Australia, Europe, New Zealand, North America and Asia.

CIB comprises Corporate Banking, Markets, Specialised Finance, Financial Institutions Group, and a Support Services unit. The business also incorporates Custodian Services, which provides custody and related services to institutions within the Australian, NZ and UK markets.

Performance Summary

	Half year to		Fav/ (unfav) change on		Year to		Fav/ (unfav) change on
	Sep 03 $m	Mar 03 $m	Mar 03 %		Sep 03 $m	Sep 02 $m	Sep 02 %	Sep 02 Ex FX %
Net interest income	373	434	(14.1)		807	1,051	(23.2)	(20.3)
Other operating income	585	505	15.8		1,090	887	22.9	26.3
Total income	958	939	2.0		1,897	1,938	(2.1)	1.0
Other operating expenses	(380)	(374)	(1.6)		(754)	(759)	0.7	(3.0)
Underlying profit	578	565	2.3		1,143	1,179	(3.1)	(0.3)
Charge to provide for doubtful debts	(40)	(23)	(73.9)		(63)	(167)	62.3	59.3
Cash earnings before tax	538	542	(0.7)		1,080	1,012	6.7	9.5
Income tax expense	(99)	(126)	21.4		(225)	(194)	(16.0)	(18.7)
Cash earnings before significant items (1)	439	416	5.5		855	818	4.5	7.3
Net profit attributable to outside equity interest	(5)	(4)	(25.0)		(9)	-	large	large
Cash earnings before significant items and after outside equity interest	434	412	5.3		846	818	3.4	6.2

⁽¹⁾ Refer to Note 1 (Performance Summary By Division) for a reconciliation of Corporate & Institutional Banking's result to Group net profit.

Key Performance Measures

Performance & profitability
Return on average risk-weighted assets (annualised) (%)	2.8%	2.8%			2.8%	2.8%
Cost to income ratio	39.7%	39.8%			39.7%	39.2%
Cash earnings per average FTE (annualised) ($'000) (2)	338	330			333	315
Net interest income
Net interest margin	0.53%	0.58%			0.56%	0.77%
Average balance sheet ($bn)
Core lending	35.7	37.5	(4.8)%		36.6	36.2	1.1%
Core lending and acceptances	41.4	43.3	(4.4)%		42.3	43.4	(2.5)%
Gross loans and acceptances	59.2	60.4	(2.0)%		59.8	52.1	14.8%
Interest-earning assets	141.0	148.7	(5.2)%		144.8	136.3	6.2%
Risk-weighted assets	68.4	66.2	3.3%		67.3	68.3	(1.5)%

⁽²⁾ Cash earnings before significant items and after outside equity interest

	As at
	Sep 03	Mar 03	Sep 02
Asset quality
Gross non-accrual loans ($m)	539	427	370
Gross loans and acceptances ($bn)	58.3	60.7	53.9
Gross non-accrual loans to gross loans and acceptances	0.92%	0.70%	0.69%
Specific provision to gross impaired assets	36.1%	43.3%	55.0%
Full-time equivalent employees (FTE)	2,612	2,537	2,564

Financial performance

Cash earnings of $846 million increased 3.4% for the year with September 2003 half growth of 5.3% on the March 2003 half year.

• Approximately 50% of Corporate & Institutional Banking's cash earnings are generated from offshore markets. Year on year performance has been adversely affected by the strong appreciation in the Australian dollar. At constant exchange rates cash earnings increased by 6.2%.
• Total income was marginally lower than 2002, but up 1% at constant exchange rates. However, the focus of building strong relationships with clients over the past 12 months has improved the quality of earnings.
• Growth in customer-related banking income of 10.7%, or 14.4% at constant exchange rates, helped mitigate the impact of lower Markets risk and trading income arising from a flat yield curve environment and reduced volatility in foreign exchange markets. The increase in other operating income in the second half was influenced by strong deal flows, particularly in structured finance.
• Net interest income decreased 23.2% for the year largely due to a reduction in money markets income. Other operating income continues to show strong growth reflecting improved client fee income streams from a larger customer base. The split of net interest income and other operating income can vary considerably depending on market activity and economic conditions.
• The underlying margin on core lending business has stayed relatively stable over the year. However, the overall margin reduced primarily due to product mix, with a reduction in contribution from money markets and growth in securities under reverse repurchase agreements.
• Expenses rose marginally at constant exchange rates, reflecting investment in strategies to support the ongoing growth in client revenue. The cost to income ratio remained relatively stable.
• Asset quality improved with the level of exposures rated investment grade equivalent or above increasing from 87.6% at September 2002 to 91.4% at September 2003. The charge for doubtful debts reduced considerably from 2002, which included two large provisions. The level of non-accrual loans is distorted by a NZ facility for which restructuring has been finalised since September 2003 and on which settlement is imminent. Excluding this facility, the level of gross non-accrual loans to gross loans and acceptances reduced to 0.58% and the level of provision coverage on impaired assets improved to 51.4%.

Key achievements

• Strong growth in customer-related banking income of 10.7%, or 14.4% at constant exchange rates, with 325 new clients joining during the year.
• Debt market sales increased 18.4%. Product offerings, particularly in securitisation and commodity derivatives, have been a key enabler of the growth.
• Acquisition of custody client contracts from CBA will significantly increase market share in Australia.
• Maintained No. 1 status for Corporate Bonds and significantly improved the position in the Securitisation Markets.