FILE NO 1-9945

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON   DC   20549


 

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the month of May 2007

National Australia Bank Limited

ACN 004 044 937

(Registrant’s Name)

Level 24

500 Bourke Street

MELBOURNE   VICTORIA   3000

AUSTRALIA

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F x            Form 40-F o

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o            No x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82

“ This Report on Form 6-K shall be deemed to be incorporated by reference in the prospectus included in the Registration Statement on Form F-3 (No. 333-6632) of National Australia Bank Limited and to be part thereof from the date on which this Report, is filed, to the extent not superseded by documents or reports subsequently filed or furnished.”

 




Appendix 4D

National Australia Bank Limited

Half year consolidated report

For the six months ended 31 March 2007

National Australia Bank Limited ABN 12 004 044 937 (the ‘Company’)

A reference in this Appendix 4D to the ‘Group’ is a reference to the Company and its controlled entities.

This half year consolidated report is given to Australian Stock Exchange Limited (ASX) under Listing Rule 4.2A.

This half year consolidated report is to be read in conjuction with the annual financial report 2006.

All currency amounts are expressed in Australian dollars unless otherwise stated.

References in this document to the March 2007 half year are references to the six months ended 31 March 2007.

Other six month periods are referred to in a corresponding manner.

1




Results for announcement to the market

Reporting period

Previous corresponding period

 

 

6 months ended 31 March 2007

6 months ended 31 March 2006

 

 

 

 

 

 

 

 

 

31 March 2007

 

 

 

 

 

 

 

 

 

$m

 

Revenue from ordinary activities

 

up

 

8.5

%

to

 

22,038

 

 

 

 

 

 

 

 

 

 

 

Profit after tax from ordinary activities attributable to members of the Company

 

up

 

7.1

%

to

 

2,136

 

 

 

 

 

 

 

 

 

 

 

Net profit attributable to members of the Company

 

up

 

7.1

%

to

 

2,136

 

 

Dividends

 

 

 

 

Franked

 

 

 

Amount

 

amount

 

 

 

per

 

per

 

 

 

share

 

share

 

Interim dividend

 

87 cents

 

90

%

 

 

 

 

 

 

Record date for determining entitlements to the interim dividend

 

 

 

7 June 2007

 

 

Net profit attributable to members of the Company has increased 7.1% to $2,136 million for the six months ended 31 March 2007.

Performance reflects a range of factors including good revenue growth and cost control in the current period, with the comparison to the previous corresponding period being impacted by one off income as a result of reforms made to the UK defined benefit funds.

The increase in revenue is primarily due to growth in interest income.

2




National Australia Bank Limited

ABN 12 004 044 937

TABLE OF CONTENTS

Report of the Directors

4

Consolidated Income Statement

19

Consolidated Balance Sheet

20

Consolidated Statement of Recognised Income and Expense

21

Consolidated Cash Flow Statement

22

Notes to the Financial Report

 

1.     Principal Accounting Policies

24

2      Segment Information

25

3.     Income

26

4.     Operating Expenses

27

5.     Income Tax Expense

28

6.     Dividends and Distributions

29

7.     Net Tangible Assets

29

8.     Loans, Advances & Acceptances

30

9.     Doubtful Debts

33

10.   Asset Quality

34

11.   Deposits & Other Borrowings

36

12.   Contributed Equity and Reserves

38

13.   Notes to the Cash Flow Statement

41

14.   Contingent Liabilities and Commitments

43

Directors’ declaration

45

Independent review report

46

Supplementary information

 

Capital Adequacy

47

 

3




REPORT OF THE DIRECTORS

The directors of National Australia Bank Limited (hereinafter referred to as the ‘Company’) present their report, together with the financial statements of the Group, being the Company and its controlled entities, for the half year ended 31 March 2007.

In this report, the period commencing 1 October 2006 and ending 31 March 2007 is referred to as the “March 2007 half”  and other half year periods are referred to in a corresponding manner.

The directors of the Company have a significant responsibility with respect to the integrity of external reporting.  This involves reviewing and monitoring, with the assistance of the Audit Committee and management, the processes, controls and procedures which are in place to maintain the integrity of the Group’s financial statements.  Further details of the role of the Board of Directors and its Committees can be found in the Corporate Governance section of the Group’s 2006 Annual Financial Report or on the Group’s website www.nabgroup.com

Directors

Directors in office at the date of this report are:

Michael A Chaney
Chairman since September 2005 and Director since December 2004

Patricia A Cross  
Director since December 2005

Peter JB Duncan
Director since November 2001

Ahmed Fahour
Director since October 2004

Daniel T Gilbert   
Director since September 2004

Thomas (Kerry) McDonald
Director since December 2005

Paul J Rizzo
Director since September 2004

Jillian S Segal
Director since September 2004

John M Stewart
Director since August 2003. Managing Director and Group Chief Executive Officer since February 2004

John G Thorn
Director since October 2003

Geoffrey A Tomlinson
Director since March 2000

Michael J Ullmer
Director since October 2004

G Malcolm Williamson
Director since May 2004

Rounding of Amounts

Pursuant to Class Order 98/100 made by the Australian Securities and Investments Commission on 10 July 1998, the Company has rounded off amounts in this report and the accompanying financial statements to the nearest million dollars, except where indicated.

Review of Operations and Group Results

Profit before Income Tax Expense

Group profit before income tax expense increased 9.5% to $4,032 million from the September 2006 half, and increased 12.2% from the March 2006 half.

Net Profit attributable to members of the Company

Financial performance – movement on September 2006 half

Net profit attributable to members of the Company of $2,136 million for the half year ended 31 March 2007, decreased $262 million or 10.9% compared with the half year ended 30 September 2006. This result was largely impacted by the one-off items set out below. Taking these items into account, net profit improved during the March 2007 half.

The September 2006 half year result included the impacts of the accounting profit after tax of $171 million on the sale of the Group’s Custom Fleet business, accounting loss after tax of $63 million on the sale of the

4




Group’s MLC Asia businesses and $117 million earnings up to their dates of sale of 31 July 2006 and 8 May 2006 respectively.

The above performance included:

·                  Net interest income increased by $289 million or 6.4%. This reflects lending and deposit growth and the maintenance of the overall Group net interest margin, which increased 2 basis points to 2.33%.

·                  Net life insurance income increased by $557 million reflecting strong equity market conditions globally, particularly Australian equity markets.

·                  Gains less losses on financial instruments at fair value decreased by $11 million or 4.1% mainly due to reduced trading income from securities and derivatives of $44 million, offset by a $35 million increase in net fair value movements of assets and liabilities at fair value and the derivatives matched against them, plus the impact of hedge ineffectiveness.

·                  Other operating income decreased by $348 million or 15.3% to $1,925 million.  Excluding the impact of the disposed entities from the September 2006 half, other operating income decreased by $102 million or 5.0% primarily reflecting:

·                  decreases in: Profit on sale of property, plant and equipment and other assets of $26 million and Investment management fees of $25 million and increased losses on Revaluation of exchangeable capital units of $107 million; offset by

·                  an increase in Fees and commissions of $88 million.

·                  Operating expenses decreased by $52 million or 1.4% to $3,643 million.  Including the ongoing costs of the Group’s defined benefit pension plans in the September 2006 half (refer to note 3) operating expenses decreased by $66 million or 1.8%.  Excluding the impact of disposed operations from the September 2006 half, operating expenses were held broadly flat, decreasing by $18 million or 0.5%.  This is driven by:

·                  decreases in: Other general expenses of $58 million, Professional fees of $44 million, and Fees and commissions expense of $10 million due to cost control and efficiency initiatives;

·                  decreased Depreciation on leased vehicle assets of $33 million due to cessation of depreciation on assets classified as held for sale; offset by

·                  an increase in Personnel expenses of $165 million (8.5% growth), driven by EBA increases, an increase in the number of staff and higher performance based remuneration.

·                  Charge to provide for doubtful debts increased by $54 million or 16.1% to $390 million. The increase was primarily due to deterioration identified in specific consumer segments in Australia, volume growth and a reduction in the level of write backs.

Financial performance – movement on March 2006 half

Net profit attributable to members of the Company of $2,136 million for the half year ended 31 March 2007, increased by $142 million or 7.1% compared with the half year ended 31 March 2006.

The March 2006 half year result included one off income of $270 million after tax in respect of past service revenue arising out of reform made to the UK defined benefit pension fund, offset by an on-going expense of the Group’s UK defined benefit plans of $38 million after tax.

Excluding these items net profit for the half year ended 31 March 2007 increased $374 million or 21.2% compared with the half year ended 31 March 2006.

The above performance included:

·                  Net interest income increased by $591 million or 14.1%.  This reflects lending and deposit growth and the maintenance of the overall Group net interest margin, which increased by 2 basis points to 2.33%.

·                  Net life insurance income increased by $226 million or 25.9% reflecting strong equity market conditions globally, particularly Australian equity markets.

·                  Gains less losses on financial instruments at fair value increased by $54 million or 26.6% mainly due to higher net fair value movements of assets and liabilities at fair value and the derivatives matched against them, plus the increased hedge ineffectiveness of $161 million, offset by reduced trading income from securities and derivatives of $114 million.

·                  Other operating income decreased by $221 million or 10.3% to $1,925 million.  Excluding the impact of the disposed entities from the March 2006 half, other operating income increased by $158 million or 8.9% primarily reflecting:

·                  increases in: Investment management fees of $55 million from wealth management activities and Loan fees from banking of $41 million, and reduced losses on Revaluation of exchangeable capital units of $77 million; offset by

·                  a decrease in and Fees and commissions of $10 million.

5




·                  Operating expenses decreased by $241 million or 6.2% to $3,643 million. Including the ongoing costs of the Group’s defined benefit plans of $54 million (refer to note 3), operating expenses fell $295 million or 7.5%. Excluding the impact of disposed operations, operating expenses increased $4 million or 0.1% reflecting:

·                  increased Personnel expenses of $157 million (8.0% growth) as a result of increases in performance based remuneration and EBA related increases; offset by

·                  decreases in: Charge to provide for operational risk event losses of $71 million, Other general expenses of $34 million and Depreciation on leased vehicle assets of $34 million.

·                  Charge to provide for doubtful debts increased by $120 million or 44.4% to $390 million. The increase was primarily due to the deterioration identified in specific consumer segments in Australia and the United Kingdom from the March 2006 half, and a return to normal provisioning levels.

Average Interest Earning Assets

Volumes by Division

 

 

Half year to

 

Fav/ (Unfav)
Change on Sep 06

 

Average interest-earning assets including
disposed operations

 

Mar 07
$m

 

Sep 06
$m

 

Mar 06
$m

 

%

 

Ex FX %(1)

 

Australian Banking

 

222,826

 

209,078

 

194,533

 

6.6

 

6.6

 

UK Region

 

63,283

 

55,260

 

48,312

 

14.5

 

10.9

 

New Zealand Region

 

34,032

 

31,893

 

31,525

 

6.7

 

6.1

 

nabCapital

 

145,348

 

140,707

 

135,613

 

3.3

 

2.5

 

Other (2)

 

(53,268

)

(49,676

)

(45,863

)

(7.2

)

(3.5

)

Group average interest-earning assets

 

412,221

 

387,262

 

364,120

 

6.4

 

6.1

 

 


(1)       Change expressed at constant foreign exchange rates.

(2)       Other includes the Wealth Management and Asia regional operations, Group Funding, Corporate Centre and Inter-divisional eliminations.

Average interest-earning assets increased $24,959 million, or 6.4% on the September 2006 half year.  This was driven primarily by a $22,741 million increase in loans and advances and $4,480 million in bill acceptances.

Adjusting for disposed operations, average interest-earning assets increased $25,141 million, or 6.5% on the September 2006 half year.  Key factors contributing to this outcome were:

·                  Australian Banking average business lending increased 10.7% on the September 2006 half year, whilst growth in mortgage volumes slowed to 3.1%, particularly in the broker channel;

·                  Average housing loans in UK Region increased 9.3% at constant exchange rates on the September 2006 half year, largely driven by the growing momentum of the Financial Solutions Centres and the continued growth of the Third Party Distribution channel.  Average business lending volumes grew 12.6% at constant exchange rates, whilst credit cards and personal loans declined 1.3% over the half;

·                  In New Zealand’s intensely competitive market, average mortgage and business lending increased by 6.0% and 6.2% respectively, at constant exchange rates on the September 2006 half year; and

·                  nabCapital’s average core lending (which includes loans at amortised cost and fair value) increased 4.2% on the September 2006 half year due to the growth in origination activity in higher yielding businesses.

Bill acceptances increased $4,480 million, or 11.2% as business customers continued to favour this product due to favourable pricing and flexibility.

Net Interest Margin

Group net interest margin increased 2 basis points to 2.33% on both the September 2006 and March 2006 half years.

Excluding disposed operations in previous periods, Group net interest margin remains flat on the both the September 2006 and March 2006 half years.

Segment net interest margin movements on the September 2006 half year, on an ongoing basis are summarised as follows:

·                  Australian Banking margin increased by 2 basis points, with higher deposit margins due to pricing, offset by lending margin contraction and portfolio mix impacts (mainly deposits);

6




·                  UK Region margin declined by 25 basis points and reflects the planned shift from higher margin credit card and personal lending to lower margin products;

·                  NZ Region margin remained steady over the half.  The benefit of the recent 25 basis points rise in the Official Cash Rate on deposit margins has been offset by lower lending product margins and an increased reliance on wholesale funding;

·                  nabCapital’s margin increased by 3 basis points due to increased lending to higher yielding businesses and was partly offset by lower income in Markets as a result of the Group’s reduced level of short term funding requirements; and

·                  Group Funding’s net interest income has remained flat compared to the September 2006 half, with increased capital returns offset by increased capital benefit distributed to regions.

As a result, on a weighted basis, the key contributors to the Group’s 2 basis point net interest margin increase were Australian and New Zealand Regions due to strong volume growth at steady margins in the March 2007 half year and the sale of Custom Fleet in the September 2006 half year, offsetting the managed reduction of UK Region margins.

Asset Quality

Summary

·                  Sound lending growth continues, broadly in line with system growth over the period.

·                  Underwriting standards have been maintained with themed credit portfolio reviews & portfolio stress testing being undertaken in each region on an ongoing basis.

·                  Globally, softer economic conditions that emerged in the September 2006 half are continuing.

·                  Increased delinquencies in the Australian region in home loans and personal credit continue to be actively managed.  UK region personal credit delinquencies have stabilised in the face of industry wide bankruptcies during the period.

·                  The level of business lending specific provision charge, while increasing continues to remain at cyclically low levels with no new nabCapital specific provisions charges in the March 2007 half.

·                  Bad and Doubtful Debt charge has increased by 16.1% on the September 2006 half.  This is the result of softening economic conditions and a reduction in the level of write backs in the current half. The total charge is within expectations for this point in the credit cycle.

·                  The Australian agribusiness portfolio remains robust despite the continuing drought.  The sector represents a small proportion (3.3%) of gross loans & acceptances and is generally well secured.

Growth and Asset composition

The volume of gross loans and acceptances for the Group grew by 5.7% in the March 2007 half to $366,502 million (13.7% year on year).  Sound growth was recorded in all regions.

Growth in the Australian region is reflective of initiatives undertaken during the financial year ended 30 September 2006 in Business & Private banking.  Market share leadership in the business segment is being maintained (Source: RBA Financial Aggregates/NAB – data as at March 2007).  Growth in Australian region housing loans has lagged system, the result of a slowing broker channel and subdued growth in NSW.

Growth in UK region business lending, in local currency terms, was 1.3 times business credit system growth over the past 12 months.  The integrated Financial Services distribution strategy continues to produce strong volume growth, particularly in the business credit segments.

Growth in the New Zealand region was predominantly in housing and agribusiness sectors, with business growth showing signs of a recovery late in 2006.

7




Against the background of this growth, softening economic conditions have seen an increase in counterparties requiring specialised review.  A comprehensive portfolio review undertaken during the March 2007 half confirmed that acceptable file management and early detection of troubled loans continues to occur, with no systemic issues evident at this time.

The Group lending portfolio composition for the March 2007 half remained in line with the September 2006 financial year end position.

Trends in the ratings of non-retail exposures and security

As foreshadowed in the September 2006 profit announcement released to the Australian Securities Exchange on 3 November 2006, the Bank has commenced measuring its loan portfolio based upon Expected Loss methodology, as part of enhancements relating to the implementation of the Basel II Capital Accord.  This methodology takes into account not only the probability of default, but also exposure at default and loss given default.  To support this approach, new models for customer risk score (probability of default) and security (loss given default) were launched in the Australian region during the 3 months to 31 December 2006.  Each model provides increased granularity with the customer risk score moving from 16 to 25 grades and security from 4 to 10 grades.  The models will be progressively implemented in the other business segments during 2007.

8




Based upon Expected Loss methodology, the volume of non-retail investment grade equivalent (AAA to
BBB-) exposures in the Australian region is 66.6%.  This is in line with pre-release model testing and analysis and management expectations.

The volume of non-retail investment grade equivalent (AAA to BBB-) exposures in the UK, New Zealand and nabCapital regions collectively declined by 2.2% to 78.8%, largely within nabCapital.  This reduction is in line with nabCapital’s business strategy of targeting higher yielding assets.

The Group makes accounting adjustments to equate to the expected loss methodology in order to comply with accounting standards.

The Group considers a loan to be well secured where bank security is greater than 100% of the exposure.

The proportion of non-retail portfolio well-secured facilities during the March 2007 half decreased by 1.2% to 49.0%.  The majority of this reduction occurred in the Australian region business lending portfolio and is in accordance with the Australian region’s credit setting strategy. The portfolio structure continues to be closely monitored with some increases in facilities warranting specific review.

Non Impaired Assets 90 days past due

Non impaired 90 days past due facilities consist of well-secured assets that are more than 90 days past due and portfolio-managed facilities that are not well secured and between 90 and 180 days past due.

The proportion of 90 days past due loans to gross loans and acceptances in the March 2007 half deteriorated by 2 basis points to 0.24% when compared to the September 2006 half, in part driven by seasonal factors and softening economic conditions in NSW.  The result is a 6 basis point improvement to the March 2006 half.  The volume of 90 days past due loans rose by $101 million to $865 million in the March 2007 half ($963 million in the March 2006 half).

Impaired Assets

Impaired assets consist of retail loans (excluding credit card loans and portfolio managed facilities) which are contractually past due 90 days with security insufficient to cover principal and arrears of interest revenue; non retail loans which are contractually past due and there is sufficient doubt about the ultimate collectability of principal and interest; and impaired off-balance sheet credit exposures where current

9




circumstances indicate that losses may be incurred.  Unsecured portfolio managed facilities when they become 180 days past due, and loans where some concerns exist as to the ongoing ability of the borrowers to comply with the present loan repayment terms, are classified as impaired assets.

The ratio of gross impaired assets to gross loans and acceptances remained relatively stable, at 0.29% compared to 0.30% in the September 2006 half (0.31% in the March 2006 half).

Gross impaired assets increased $14 million in the March 2007 half to $1,071 million ($984 million in the March 2006 half).  Excluding the impact of the exit of one large nabCapital exposure, gross impaired assets increased by $202 million during the March 2007 half year.  The increases were in the Australian region ($141 million, predominantly well secured), attributable to economic conditions being experienced in NSW; the UK region ($42 million), the movement being in line with longer run average impaired asset ratios; and New Zealand region ($24 million), with a single well secured exposure contributing to the majority of the increase.  There were no new impaired assets added in nabCapital during the current half year.

The combined level of 90 days past due and impaired assets to gross loans and acceptances has remained stable over the March 2007 half at 0.53% (0.60% in the March 2006 half).

The ratio of 90+ day delinquencies (i.e. 90 days past due and impaired retail assets) to total retail lending increased to 0.72% in the March 2007 half from 0.62% in the September 2006 half (0.63% in the March 2006 half).

Home loan delinquencies together with unsecured personal credit delinquencies in the Australian region reflect continued softening economic conditions (particularly NSW), contributing to higher 90+ day delinquencies. This position is being actively managed through improved collections processes and comprehensive portfolio reviews that commenced in the latter half of the year to 30 September 2006.

Unsecured personal credit delinquencies in the UK region have stabilised in the face of high industry wide bankruptcies. This reflects enhancements to arrears management and changes to customer scorecards (scorecards are a decision model incorporating algorithms that calculates a customer risk score, the outcome of which is used in the credit assessment process).

The gross 12-month rolling write off rate for the Group’s retail portfolio increased slightly (one basis point) to 0.32% compared to the year ended 30 September 2006. The write off rate for housing remains negligible.

10




Bad & Doubtful Debt Charge

The total charge for bad and doubtful debts grew by $54 million (16.1%) to $390m when compared to the September 2006 half.

The majority of the total charge for the March 2007 half relates to the retail credit portfolios, which is consistent with the experience in the September 2006 half.

Growth in the charge is the result of softening economic conditions and a reduction in the level of write backs in the March 2007 half. The total charge is within expectations for this point in the credit cycle.

Consistent with the year to 30 September 2006, the charge for the Group remains at historically low levels.

The increase in the specific provision charge reflects lower write backs in the business portfolio and none in nabCapital.

The increase in the collective provision charge over the March 2007 half reflects strong business credit growth across the Group, together with deteriorating trends within the Australian retail banking segment.  New Zealand region charge levels are relatively flat on the September 2006 half.

UK region charge levels have improved with lower collective provisions in the personal loan and cards portfolios offsetting growth in the collective provision charge relating to the increase in business lending volumes.

nabCapital collective provision charge growth of $23 million mainly relates to increased exposures primarily in UK and Australia.

11




Net Write Offs

The proportion of net write offs to gross loans and acceptances decreased by 1 basis point ($51 million) over the March 2007 half to 0.08%. The levels of net write offs continue to be at acceptable levels for this point in the economic cycle.

 

The majority of the net write offs during the March 2007 half occurred in the Australian and the UK regions’ unsecured personal credit segment. Enhanced arrears management activities that commenced in the second half of the financial year ended 30 September 2006 continue to be reviewed and refined.

 

Provisioning coverage

The Group’s specific provision to gross impaired asset coverage for the March 2007 half improved 80 basis points to 18.2%. Total provision coverage of impaired assets also improved from 204.0% to 210.7%.

 

The movement of both ratios was influenced by the exit of a large exposure without specific provision in the March 2007 half, partly offset by the growth in impaired assets.

 

The majority of growth in impaired assets in the Australian region has been confined to NSW.  Typically these assets have been well secured housing and business loans, with only small specific provisions recorded against them.

The UK region experienced small increases in impaired assets across a broad range of customers, similarly these assets typically are well secured and require only small specific provisions.

 

The Group’s ratio of collective provisions to credit risk weighted assets is 0.63% and has remained stable in the March 2007 half (0.65% in the September 2006 half).

 

 

 

Taxation

Total income tax expense for the March 2007 half of $1,231 million, was $438 million or 55.2% higher than the September 2006 half, however was $110 million or 8.2% lower than the March 2006 half.  This reflects movements in the taxation expense attributable to the statutory funds of the life insurance business.

The effective income tax rate excluding statutory funds attributable to the life insurance business for the March 2007 half of 29.9% compares to 28.7% for the September 2006 half and 31.2% for the March 2006 half.

There were no significant tax items during the 2006 year or during the current half that has affected the Group’s effective income tax rate excluding statutory funds attributable to the life insurance business.

The higher income tax expense for the March 2007 half compared to the September 2006 half reflects higher operating profits before tax in all of the Group’s business segments and increased tax expense attributable to the statutory funds of the life insurance business.  The income tax expense arising in the statutory funds of the life insurance business for the current half amounted to $387 million compared to an income tax benefit of $102 million during the September 2006 half.  This is mainly due to increased policyholder tax expense reflecting growth in policyholder investment earnings in the March 2007 half

12




compared to the September 2006 half.  The quantum of income tax expense attributable to the statutory funds of the life insurance business is also impacted by Wealth Management products and activities, to which a wide range of tax rates are applied.

The lower income tax expense for the March 2007 half compared to the March 2006 half was also as a result of the significant variability that occurs in the policyholder tax expense that is included in the Group’s total tax expense.

For details of the Group’s contingent tax liabilities refer to note 14 of the Financial Report.

Balance Sheet

Total assets at 31 March 2007 increased to $508,835 million from $484,785 million at 30 September 2006 and $459,213 million at 31 March 2006.  Excluding the impact of exchange rate movements, total assets grew $27,861 million or 5.8% during the March 2007 half.

The increase in total assets during the half was mainly driven by the growth in loans and advances (including loans accounted for at fair value), customer acceptances and life insurance business investments.

Total liabilities at 31 March 2007 increased to $479,268 million from $456,813 million at 30 September 2006 and $433,151 million at 31 March 2006.  Excluding the impact of exchange rate movements, total liabilities grew $25,228 million or 5.6% during the March 2007 half.

The increase in total liabilities during the March 2007 half was mainly driven by the growth in deposits and other borrowings (including deposits accounted for at fair value), liability on acceptances, life policy liabilities and bonds, notes and subordinated debt.

Total equity at 31 March 2007 increased to $29,567 million from $27,972 million at 30 September 2006 and $26,062 million at 31 March 2006.  The increase in total equity during the March 2007 half was primarily driven by the conversion of exchangeable capital units to ordinary shares amounting to $1,331 million, partly offset by the share buy back of $654 million, as well as an increase in retained profits amounting to $798 million, reflecting the net profit for the period less dividends and distributions paid during the half.

Further discussion on the significant movements in categories of the balance sheet follows:

Lending

 

 

As at

 

Fav/(Unfav)
Change on

 

 

 

31 Mar 07
$m

 

30 Sep 06
$m

 

31 Mar 06
$m

 

Sep 06
Ex FX %

 

Mar 06
Ex FX %

 

Housing

 

 

 

 

 

 

 

 

 

 

 

Australia

 

134,237

 

129,423

 

123,860

 

3.7

 

8.4

 

UK

 

24,785

 

23,976

 

20,891

 

6.5

 

19.0

 

New Zealand

 

19,273

 

17,818

 

16,431

 

6.9

 

13.3

 

Asia

 

665

 

545

 

502

 

31.7

 

49.4

 

Total housing

 

178,960

 

171,762

 

161,684

 

4.5

 

10.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Term lending (1)

 

95,077

 

88,477

 

80,663

 

8.4

 

17.6

 

Other lending (1)

 

46,513

 

44,724

 

42,805

 

5.7

 

9.3

 

Bill acceptances

 

45,952

 

41,726

 

37,266

 

10.1

 

23.3

 

Total lending (gross loans & acceptances)

 

366,502

 

346,689

 

322,418

 

6.3

 

13.5

 

 


(1)  Includes loans accounted for at fair value of $17,832 million as at 31 March 2007, $16,774 million as at 30 September 2006 and $14,396 million as at 31 March 2006. On the balance sheet, these amounts are included within other financial assets at fair value.

Housing lending has increased by $7,198 million or 4.5% (excluding foreign exchange movements) from the September 2006 half and by $17,276 million or 10.4% (excluding foreign exchange movements) from the March 2006 half.  This increase primarily reflects continued growth in residential mortgage lending across all business segments.

In Australia, housing lending increased by 3.7% from the September 2006 half and by 8.4% from the March 2006 half, reflecting the relative weakness of the New South Wales economy and a reduction in the amount of business through third party channels.  The housing lending growth reflects both variable rate products (including 100% offset accounts) as well as fixed rate-lending products as borrowers lock in interest rates during a rising interest rate environment.

13




In the UK, housing lending increased by 6.5% (excluding foreign exchange movements) from the September 2006 half and by 19.0% (excluding foreign exchange movements) from the March 2006 half, reflecting continued growth and maturity across the Financial Solution Centres (with the opening, upgrading and relocation of more centres over the past 12 months), strong growth in the third party distribution channel and the branch network.  The UK is continuing to successfully implement its strategy of increasing housing lending and other targeted volume growth expansion strategies, with significant growth in variable rate lending, particularly the highly promoted offset mortgages product offerings.

In New Zealand, housing lending increased by 6.9% (excluding foreign exchange movements) from the September 2006 half and by 13.3% (excluding foreign exchange movements) from the March 2006 half.  Although operating in an intensively competitive New Zealand banking environment, lending volumes grew during the March 2007 half.  This was driven by sound systems growth in fixed rate housing loans as borrowers lock in interest rates during a rising interest rate environment, and the continued success of Bank of New Zealand’s targeted home loan strategy, and other pricing initiatives and promotional campaigns.

Term lending has increased by $6,600 million or 8.4% (excluding foreign exchange movements) from the September 2006 half and by $14,414 million or 17.6% (excluding foreign exchange movements) from the March 2006 half.  Term lending volumes have grown in the Group’s business segments during the year, reflecting a combination of continued strong economic conditions in all business segments, good lending growth in Australia, continued growth and maturity in the UK across the Financial Solution Centres and New Zealand’s core strength in business banking.

Bill acceptances increased by $4,226 million or 10.1% from the September 2006 half and by $8,686 million or 23.3% from the March 2006 half year.  Excluding acceptances repurchased by the Company, volumes have grown 11.1% over the half as bill acceptances continue to be a product favoured by business customers due to favourable pricing and flexibility.

Marketable Debt Securities

Marketable debt securities (trading, available for sale and held to maturity investments) amounted to $16,870 million at 31 March 2007 and have remained relatively consistent with the balances at 30 September 2006 and 31 March 2006, of $16,621 million and $16,225 million respectively.

Life insurance business investments and life policy liabilities

Life insurance business investments increased by $4,272 million or 7.8% during the March 2007 half to $59,056 million from $54,784 million at 30 September 2006 and by $4,983 million or 9.2% from $54,073 million at 31 March 2006.  The continued increase during the March 2007 half in life insurance business investments primarily reflects continued strong equity market conditions in relevant markets, particularly Australian equity markets, as well as growth in funds under management.

The increase in life insurance business investments was largely offset by an increase in life policy liabilities as the movement in investment assets primarily reflects returns made on policyholder contributions to the investment linked businesses.  As a result, life policy liabilities have increased by $3,905 million or 8.4% to $50,380 million from $46,475 million at 30 September 2006 and by $4,034 million or 8.7% from $46,346 million at 31 March 2006.

Deposits and other borrowings

Total deposits and other borrowings (including deposits and other borrowings at fair value) increased by $2,544 million or 2.1% (excluding foreign exchange movements) during the March 2007 half to $235,443 million from $232,899 million at 30 September 2006 and by $19,137 million or 9.4% (excluding foreign exchange movements) from $216,306 million at 31 March 2006.

Total deposits (including deposits at fair value) increased by $5,998 million or 3.9% (excluding foreign exchange movements) during the March 2007 half to $213,743 million from $207,745 million at 30 September 2006 and by $23,438 million or 12.6% (excluding foreign exchange movements) from $190,305 million at 31 March 2006.

This continued increase reflects sound growth in retail deposit volumes (i.e. on-demand and short-term deposits) in all business segments, as well as term deposit growth in Australia, UK and New Zealand.  In Australia, growth has resulted from the continued success of the Business Cash Maximiser and iSaver products that were introduced in late 2005.  Growth in the UK region was primarily in retail and term deposits; this resulted from the continued expansion and maturity of the Financial Solutions Centres across South East England, and improved sales focus and pricing initiatives.  The increase in on-demand and short-term deposits and term deposits has been partly offset by a decrease in certificates of deposits and

14




borrowings (mainly in Australia), primarily reflecting the Group’s strategy of reducing its reliance on wholesale borrowings and lengthening its debt maturity profile.

Bonds, notes and subordinated debt

Bonds, notes and subordinated debt increased by $5,732 million or 8.8% during the March 2007 half to $70,738 million from $65,006 million at 30 September 2006 and by $15,016 or 26.9% from $55,722 million at 31 March 2006.  The continued increase during the year substantially reflects the issuance undertaken to fund asset growth and strengthen the balance sheet structure.  This is achieved through utilising various debt issuance programs available to the Group.

Clydesdale Bank PLC and Bank of New Zealand have continued to issue debt under the Group’s US$75 billion global medium term program.  Issuing by these entities in their own name, unguaranteed by National Australia Bank Limited, has continued to increase the Group’s access to a diverse and liquid investor base within the global capital markets.

Capital Position

Capital ratios and risk-weighted assets are set out below:

 

 

Target

 

As at

 

 

 

Ratio (1)

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

 

 

%

 

%

 

%

 

%

 

ACE ratio

 

4.25 - 5.0

 

5.46

 

5.35

 

5.77

 

Tier 1 ratio

 

6.25 - 7.0

 

7.33

 

7.35

 

8.05

 

Total capital ratio

 

10.0 -10.5

 

10.51

 

10.81

 

10.73

 

 

 

 

As at

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

 

 

$m

 

$m

 

$m

 

Risk-weighted assets – credit risk

 

327,027

 

304,771

 

288,350

 

Risk-weighted assets – market risk(2)

 

3,430

 

13,552

 

13,474

 

Total risk-weighted assets

 

330,457

 

318,323

 

301,824

 

 


(1)  The target ACE and Tier 1 capital ratios were revised during the second half of 2006. The previous targets were ACE of 4.75% to 5.25% and Tier 1 of 7.0% to 7.5%.

(2)  APRA re-accredited the Group’s internal method to calculate the market risk component of risk-weighted assets during the March 2007 half.

15




Capital movements during the period

The Group’s ACE and Tier 1 ratios remain above the top end of the target ranges. The marginal decrease in the Tier 1 ratio reflected the growth in credit risk weighted assets and the impact of the on-market share buyback, offset by exchangeable capital unit (EXCAP) conversions and the return to the internal method to calculate the market risk component of risk-weighted assets. The increase in the ACE ratio reflects lower total capital deductions which do not impact Tier 1 capital. The total capital ratio was supported by subordinated debt issuance of approximately $0.5 billion by Clydesdale Bank PLC during the March 2007 half.

During the March 2007 half year the Group purchased $164 million shares on-market to neutralise the capital impact of shares issued under the dividend reinvestment plan and various employee share plans.  It is intended to repeat this capital neutralisation strategy in the September 2007 half.

In addition, the Group successfully completed a $500 million on-market share buy-back during the March 2007 half and extended the buy-back by $700 million.  Overall, 16.3 million shares were bought back by 31 March 2007 at an average price of $40.18, resulting in a reduction in ordinary equity of $654 million.  The remaining $546 million is expected to be bought back in the September 2007 half.

During the March 2007 half, APRA closed the remaining remedial actions associated with the foreign exchange options trading issue.  Therefore, APRA approved the return to the use of the internal method to calculate the market risk component of risk-weighted assets from 1 January 2007.

The conversion of ExCaps into ordinary shares during the March 2007 half, increased the ACE and Tier 1 ratios by $658 million.  This brought the total ExCaps conversions at 31 March 2007 to $1,255 million.

Other Matters

Change to credit rating

During the March 2007 half the Group’s long term credit rating was raised by Standard & Poor’s to ‘AA’ from ‘AA-’ with short-term ratings affirmed at ‘A-1+’.

Statement of position regarding Office of Fair Trading (OFT) investigation

In the United Kingdom the OFT intends to conduct an enquiry into the pricing of current accounts. The timescales for this investigation are currently uncertain and there is a possibility that it may result in wider consumer claims being received by the United Kingdom banking industry as a whole.

New York Stock Exchange delisting and US Securities and Exchange Commission deregistration

On 10 May 2007, the Group notified the New York Stock Exchange (NYSE) of its intention to withdraw the listing of its American Depositary Shares, evidenced by American Depositary Receipts, and the underlying ordinary shares from the NYSE.

This is another step in the Group’s simplification programme and continues the Group’s review of foreign listings and follows the delisting from the London Stock Exchange and Tokyo Stock Exchange during the 2006 calendar year, as well as reducing administrative burdens and costs.

On 5 April 2007, the US Securities and Exchange Commission (SEC) published final rules that will make it easier for foreign companies, such as the National, to terminate their SEC registration.  These rules will become effective on 4 June 2007.  The Group proposes to deregister from the SEC once those rules become effective.

Conversion of Exchangeable Capital Units

Following the 10-year anniversary of the issue of the ExCaps, the Group announced a final redemption date of 26 March 2007.  ExCaps converted by unitholders have been or will be redeemed through the issue of ordinary shares throughout the 10-year period.  Any unconverted units were redeemed with cash by the Group at a rate of US$25.4648, being capital of US$25 plus interest.

16




Australian Stock Exchange Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations

Consistent with recommendations 4.1 and 7.2 of the ASX Principles of Good Corporate Governance and Best Practice Recommendations, the Group Chief Executive Officer and the Group Chief Financial Officer, have provided the Board with a written statement that the accompanying Financial Report for the period ended 31 March 2007 represents a true and fair view, in all material respects, of the Company’s financial condition and operational results as at 31 March 2007 and its financial performance for the half year ended 31 March 2007. The statement also confirms that the Financial Report has been prepared in accordance with relevant accounting standards and the Corporations Act 2001 (Cth), and is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board, and that the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required by section 307C of the Corporations Act 2001 (Cth) is set out on the following page and forms part of this report.

Directors’ signatures

Signed in accordance with a resolution of the directors:

 

Michael A Chaney

 

John M Stewart

 

 

 

Chairman

 

Group Chief Executive Officer

 

 

 

10 May 2007

 

 

 

17




 

·

Ernst & Young Building

·

Tel 61 3 9288 8000

 

 

8 Exhibition Street

 

Fax 61 3 8650 7777

 

 

Melbourne VIC 3000

 

 

 

 

Australia

 

 

 

 

 

 

 

 

 

GPO Box 67

 

 

 

 

Melbourne VIC 3001

 

 

 

Auditor’s Independence Declaration to the Directors of National Australia Bank Limited

In relation to our review of the half year financial report of National Australia Bank Limited for the half year ended 31 March 2007, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct.

Ernst & Young

SJ Aldersley

Partner

Melbourne

10 May 2007

Liability limited by a scheme approved under

 

Professional Standards Legislation.

 

18




 

CONSOLIDATED INCOME STATEMENT

 

 

 

 

 

Half Year to

 

 

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

 

 

Note

 

$m

 

$m

 

$m

 

Interest income

 

 

 

14,590

 

13,362

 

12,191

 

Interest expense

 

 

 

(9,807

)

(8,868

)

(7,999

)

Net interest income

 

 

 

4,783

 

4,494

 

4,192

 

 

 

 

 

 

 

 

 

 

 

Premium and related revenue

 

 

 

383

 

427

 

460

 

Investment revenue

 

 

 

4,883

 

1,399

 

4,976

 

Claims expense

 

 

 

(234

)

(303

)

(262

)

Change in policy liabilities

 

 

 

(3,530

)

(565

)

(3,891

)

Policy acquisition and maintenance expense

 

 

 

(392

)

(401

)

(390

)

Investment management expense

 

 

 

(10

)

(14

)

(19

)

Net life insurance income

 

 

 

1,100

 

543

 

874

 

 

 

 

 

 

 

 

 

 

 

Gains less losses on financial instruments at fair value

 

3

 

257

 

268

 

203

 

Other operating income

 

3

 

1,925

 

2,273

 

2,146

 

Net profit from the sale of controlled entities

 

 

 

 

196

 

 

Significant revenue

 

 

 

 

 

 

 

 

 

Pensions revenue/(expenses)

 

3

 

 

(14

)

333

 

Net profit from the sale of National Europe Holdings (Ireland) Limited

 

 

 

 

15

 

 

Total other income

 

 

 

2,182

 

2,738

 

2,682

 

 

 

 

 

 

 

 

 

 

 

Personnel expenses

 

4

 

(2,115

)

(1,949

)

(1,920

)

Occupancy-related expenses

 

4

 

(253

)

(261

)

(262

)

General expenses

 

4

 

(1,275

)

(1,485

)

(1,702

)

Charge to provide for doubtful debts

 

9

 

(390

)

(336

)

(270

)

Net loss from the sale of controlled entities

 

 

 

 

(63

)

 

Total operating expenses

 

 

 

(4,033

)

(4,094

)

(4,154

)

 

 

 

 

 

 

 

 

 

 

Profit before income tax expense

 

 

 

4,032

 

3,681

 

3,594

 

Income tax expense

 

5

 

(1,231

)

(793

)

(1,341

)

Net profit

 

 

 

2,801

 

2,888

 

2,253

 

Net profit attributable to minority interest

 

 

 

(665

)

(490

)

(259

)

Net profit attributable to members of the Company

 

 

 

2,136

 

2,398

 

1,994

 

 

 

 

 

 

cents

 

cents

 

cents

 

Basic earnings per share (cents)

 

 

 

125.2

 

143.5

 

118.8

 

Diluted earnings per share (cents)

 

 

 

124.6

 

140.4

 

118.4

 

 

19




 

CONSOLIDATED BALANCE SHEET

 

 

 

 

 

As at

 

 

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

 

 

Note

 

$m

 

$m

 

$m

 

Assets

 

 

 

 

 

 

 

 

 

Cash and liquid assets

 

 

 

13,761

 

12,768

 

10,903

 

Due from other banks

 

 

 

20,608

 

24,372

 

21,880

 

Trading derivatives

 

 

 

15,615

 

13,384

 

16,188

 

Trading securities

 

 

 

12,826

 

13,740

 

11,440

 

Investments - available for sale

 

 

 

2,134

 

1,493

 

3,080

 

Investments - held to maturity

 

 

 

1,910

 

1,388

 

1,705

 

Investments relating to life insurance business

 

 

 

59,056

 

54,784

 

54,073

 

Other financial assets at fair value

 

 

 

23,103

 

22,123

 

19,387

 

Hedging derivatives

 

 

 

728

 

480

 

166

 

Loans and advances

 

8

 

298,226

 

283,777

 

266,442

 

Due from customers on acceptances

 

8

 

45,952

 

41,726

 

37,266

 

Property, plant and equipment

 

 

 

1,888

 

1,877

 

3,794

 

Investments in joint venture entities

 

 

 

 

 

15

 

Goodwill and other intangible assets

 

 

 

5,268

 

5,203

 

5,429

 

Deferred tax assets

 

 

 

1,433

 

1,631

 

1,667

 

Other assets

 

 

 

6,327

 

6,039

 

5,778

 

Total assets

 

 

 

508,835

 

484,785

 

459,213

 

Liabilities

 

 

 

 

 

 

 

 

 

Due to other banks

 

 

 

38,262

 

37,489

 

38,964

 

Trading derivatives

 

 

 

15,125

 

12,008

 

14,246

 

Other financial liabilities at fair value

 

 

 

21,566

 

17,680

 

16,891

 

Hedging derivatives

 

 

 

468

 

333

 

587

 

Deposits and other borrowings

 

11

 

222,456

 

222,277

 

206,607

 

Liability on acceptances

 

 

 

35,678

 

32,114

 

31,794

 

Life policy liabilities

 

 

 

50,380

 

46,475

 

46,346

 

Current tax liabilities

 

 

 

572

 

532

 

209

 

Provisions

 

 

 

1,291

 

1,618

 

1,612

 

Bonds, notes and subordinated debt

 

 

 

70,738

 

65,006

 

55,722

 

Other debt issues

 

 

 

971

 

2,274

 

1,681

 

Defined benefit pension scheme liabilities

 

 

 

39

 

313

 

571

 

Managed fund units on issue

 

 

 

7,875

 

7,249

 

6,111

 

Deferred tax liabilities

 

 

 

1,701

 

1,490

 

1,574

 

Other liabilities

 

 

 

12,146

 

9,955

 

10,236

 

Total liabilities

 

 

 

479,268

 

456,813

 

433,151

 

Net assets

 

 

 

29,567

 

27,972

 

26,062

 

Equity

 

 

 

 

 

 

 

 

 

Contributed equity

 

12

 

12,916

 

12,279

 

11,897

 

Reserves

 

12

 

1,061

 

1,064

 

714

 

Retained profits

 

12

 

15,259

 

14,461

 

13,451

 

Total equity (parent entity interest)

 

 

 

29,236

 

27,804

 

26,062

 

Minority interest in controlled entities

 

 

 

331

 

168

 

 

Total equity

 

 

 

29,567

 

27,972

 

26,062

 

 

20




CONSOLIDATED RECOGNISED INCOME AND EXPENSE STATEMENT

 

 

 

 

Half Year to

 

 

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

 

 

Note

 

$m

 

$m

 

$m

 

Actuarial gains and losses from defined benefit pension plans

 

12

 

271

 

151

 

56

 

Cash flow hedges

 

 

 

 

 

 

 

 

 

Gains/(losses) taken to equity

 

12

 

62

 

62

 

15

 

Transferred to income statement

 

12

 

5

 

25

 

(23

)

Revaluation of land and buildings

 

12

 

 

11

 

 

Exchange differences on translation of foreign operations

 

12

 

(258

)

67

 

290

 

Income tax on items taken directly to or transferred directly from equity

 

 

 

(109

)

(73

)

1

 

Net income recognised directly in equity

 

 

 

(29

)

243

 

339

 

Net profit

 

 

 

2,801

 

2,888

 

2,253

 

Total net income recognised

 

 

 

2,772

 

3,131

 

2,592

 

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

 

Members of the parent

 

 

 

2,107

 

2,641

 

2,333

 

Minority interest

 

 

 

665

 

490

 

259

 

Total net income recognised

 

 

 

2,772

 

3,131

 

2,592

 

 

 

 

 

 

 

 

 

 

 

Effect of change in accounting policy (1)

 

 

 

 

 

 

 

 

 

Net decrease in retained profits

 

 

 

 

 

(893

)

Net decrease in reserves

 

 

 

 

 

(420

)

Effect of change in accounting policy

 

 

 

 

 

(1,313

)

 


(1)  This represents the impact of the initial adoption of AASB 132 “Financial Instruments: Disclosure and Presentation”, AASB 139 “Financial Instruments: Recognition and Measurement” and AASB 4 “Insurance Contracts” at 1 October 2005.

21




CONSOLIDATED CASH FLOW STATEMENT

 

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

For the half year ended

 

Note

 

$m

 

$m

 

$m

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest received

 

 

 

14,713

 

13,016

 

11,485

 

Interest paid

 

 

 

(9,752

)

(7,939

)

(7,293

)

Dividends received

 

 

 

6

 

16

 

 

Life insurance

 

 

 

 

 

 

 

 

 

Premiums received

 

 

 

3,875

 

4,075

 

3,794

 

Investment and other revenue received

 

 

 

2,015

 

1,101

 

747

 

Policy payments

 

 

 

(3,325

)

(3,792

)

(3,516

)

Fees and commissions paid

 

 

 

(216

)

(206

)

(190

)

Net trading revenue received/(paid)

 

 

 

(1,020

)

(355

)

2,100

 

Other operating income received

 

 

 

2,421

 

3,340

 

2,200

 

Cash payments to employees and suppliers

 

 

 

 

 

 

 

 

 

Personnel expenses paid

 

 

 

(2,106

)

(1,846

)

(1,970

)

Other operating expenses paid

 

 

 

(1,865

)

(2,315

)

(1,820

)

Goods and services tax paid

 

 

 

30

 

(76

)

(25

)

Cash payments for income taxes

 

 

 

(542

)

(1,114

)

(826

)

Cash flows from operating activities before changes in operating assets and liabilities

 

 

 

4,234

 

3,905

 

4,686

 

Changes in operating assets and liabilities arising from cash flow movements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net placement of deposits with and withdrawal of deposits from supervisory central banks that are not part of cash equivalents

 

 

 

33

 

(60

)

59

 

Net payments for and receipts from transactions in acceptances

 

 

 

(663

)

(4,140

)

869

 

Net funds advanced to and receipts from customers for loans and advances

 

 

 

(16,413

)

(16,779

)

(13,358

)

Net acceptance from and repayment of deposits and other borrowings

 

 

 

2,665

 

14,769

 

(140

)

Net movement in life insurance business investments

 

 

 

(4,272

)

(1,481

)

(10

)

Net movement in other life insurance assets and liabilities

 

 

 

(538

)

204

 

(610

)

Net payments for and receipts from transactions in treasury bills and other eligible bills held for trading and not part of cash equivalents

 

 

 

161

 

(223

)

 

Net payments for and receipts from transactions in trading securities

 

 

 

1,053

 

(2,507

)

(1,296

)

Net payments for and receipts from trading derivatives

 

 

 

2,194

 

1,171

 

(2,678

)

Net funds advanced to and receipts from other financial assets at fair value

 

 

 

(1,411

)

(2,500

)

(138

)

Net funds advanced to and receipts from other financial liabilities at fair value

 

 

 

4,039

 

3,037

 

3,892

 

Net decrease/(increase) in other assets

 

 

 

924

 

867

 

(420

)

Net (decrease)/increase in other liabilities

 

 

 

2,091

 

(209

)

2,849

 

Net cash provided by/(used in) operating activities

 

13(a)

 

(5,903

)

(3,946

)

(6,295

)

 

22




 

 

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

For the half year ended

 

Note

 

$m

 

$m

 

$m

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Movement in investments - available for sale

 

 

 

 

 

 

 

 

 

Purchases

 

 

 

(9,733

)

(8,985

)

(9,719

)

Proceeds from disposal

 

 

 

22

 

245

 

1,109

 

Proceeds on maturity

 

 

 

9,323

 

10,287

 

9,590

 

Movement in investments - held to maturity

 

 

 

 

 

 

 

 

 

Purchases

 

 

 

(8,651

)

(13,809

)

(3,047

)

Proceeds on maturity and disposal

 

 

 

8,214

 

13,092

 

4,626

 

Proceeds from sale of controlled entities, net of cash disposed and costs to sell

 

13(e)

 

 

1,018

 

2

 

Purchase of property, plant, equipment and software

 

 

 

(333

)

(547

)

(753

)

Proceeds from sale of property, plant, equipment and software, net of costs

 

 

 

46

 

398

 

357

 

Net cash used in investing activities

 

 

 

(1,112

)

1,699

 

2,165

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments of bonds, notes and subordinated debt

 

 

 

(8,118

)

(6,479

)

(1,858

)

Proceeds from issue of bonds, notes and subordinated debt, net of costs

 

 

 

13,915

 

13,953

 

14,575

 

Proceeds from issue of ordinary shares, net of costs

 

 

 

30

 

17

 

25

 

Net proceeds from issue of National Capital Instruments, net of costs

 

 

 

 

1,076

 

 

Payments for buy back of ordinary shares

 

 

 

(654

)

 

 

Dividends and distributions paid

 

 

 

(1,431

)

(1,153

)

(1,402

)

Net cash provided by financing activities

 

 

 

3,742

 

7,414

 

11,340

 

Net increase/(decrease) in cash and cash equivalents

 

 

 

(3,273

)

5,167

 

7,210

 

Cash and cash equivalents at beginning of period

 

 

 

(306

)

(5,594

)

(12,459

)

Effects of exchange rate changes on balance of cash held in foreign currencies

 

 

 

261

 

121

 

(345

)

Cash and cash equivalents at end of period

 

13(b)

 

(3,318

)

(306

)

(5,594

)

 

23




1. PRINCIPAL ACCOUNTING POLICIES

This report is a general purpose financial report for the interim half year reporting period ended 31 March 2007 which has been prepared in accordance with the ASX listing rules, the Corporations Act 2001 (Cth) and AASB 134, Interim Financial Reporting.

This interim financial report does not contain all disclosures of the type normally found within a full annual financial report and therefore cannot be expected to provide as full an understanding of the financial position and financial performance of the Group as that given by the annual financial report. As a result, this report should be read in conjunction with the annual financial report for the year ended 30 September 2006.

This interim financial report complies with current Australian Accounting Standards, which consist of Australian equivalents to International Financial Reporting Standards (AIFRS) as it relates to interim financial reports. It has been prepared on a basis of accounting policies consistent with those applied in the 30 September 2006 annual financial report.

The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosed amount of contingent liabilities. Assumptions made at each balance sheet date are based on best estimates at that date. Although the Group has internal control systems in place to ensure that such estimates are reliably measured, actual amounts may differ from those estimated. It is not anticipated that such differences would be material.

The financial statements have been prepared under the historical cost convention, as modified by the application of fair value measurements required by the relevant accounting standards.

Currency of presentation

All amounts are expressed in Australian dollars unless otherwise stated.

24




2. SEGMENT INFORMATION

For the purposes of segment information, a business/primary operating segment is defined as a component of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in assessing performance. The Group results are based on the business segments as reviewed separately by the chief operating decision maker, the Group Chief Executive Officer, as well as other members of senior management.

The Group’s business is organised into four operating segments, which are managed along regional lines: Australia Region, United Kingdom Region and New Zealand Region, which include banking and wealth management products; as well as nabCapital (which is managed globally).  nabCapital is a global division with it’s key lines of business comprising Institutional Banking, Corporate Finance, Global Markets and Structuring and Investments. The Group’s ‘Other’ business segment includes Corporate Centre, Group Funding, and other unallocated items which are not considered to be separate reportable operating segments.

Revenues, expenses and tax directly associated with each business segment are included in determining their result.  Transactions between business segments are based on agreed recharges between segments operating within the same country and are at arm’s length between segments operating in different countries.

Business Segments

 

 

 

 

 

 

 

 

 

 

 

 

Inter-

 

 

 

 

 

Australia

 

UK

 

NZ

 

 

 

 

 

segment

 

Total

 

 

 

Region

 

Region

 

Region

 

nabCapital

 

Other

 

eliminations

 

Group

 

Half year ended 31 March 2007

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

Segment Revenue (1)

 

9,219

 

1,504

 

656

 

854

 

56

 

(58

)

12,231

 

Segment Result

 

1,376

 

332

 

220

 

343

 

(135

)

 

2,136

 

 

Half year ended 30 September 2006

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

Segment Revenue (1)

 

5,665

 

1,518

 

649

 

735

 

576

 

(85

)

9,058

 

Segment Result

 

1,322

 

374

 

222

 

299

 

181

 

 

2,398

 

 

Half year ended 31 March 2006

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

Segment Revenue (1)

 

9,244

 

1,814

 

651

 

774

 

(86

)

(87

)

12,310

 

Segment Result

 

1,193

 

494

 

167

 

319

 

(179

)

 

1,994

 

 


(1) Includes net interest income, total other income, premium and related revenue and investment revenue from net life insurance income.

25




3. INCOME

 

 

Half Year to

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

 

 

$m

 

$m

 

$m

 

Gains less losses on financial instruments at fair value

 

 

 

 

 

 

 

Trading securities

 

(7

)

10

 

46

 

Trading derivatives

 

 

 

 

 

 

 

Trading purposes

 

120

 

147

 

181

 

Risk management purposes (1) (2)

 

109

 

20

 

(14

)

Assets, liabilities and derivatives designated in hedge relationships (2)

 

76

 

88

 

(31

)

Assets and liabilities designated at fair value (2)

 

(41

)

1

 

28

 

Other

 

 

2

 

(7

)

 

 

257

 

268

 

203

 

 

 

 

 

 

 

 

 

Other operating income

 

 

 

 

 

 

 

Dividend revenue

 

6

 

15

 

1

 

Profit on sale of property, plant and equipment and other assets

 

4

 

28

 

5

 

Loan fees from banking

 

440

 

434

 

399

 

Money transfer fees

 

294

 

284

 

280

 

Foreign exchange income/(expense)

 

7

 

5

 

19

 

Fees and commissions

 

785

 

697

 

795

 

Fleet management fees

 

9

 

63

 

85

 

Rentals received on leased vehicle assets

 

77

 

276

 

378

 

Investment management fees

 

234

 

259

 

179

 

Revaluation gains/(losses) on exchangeable capital units

 

(76

)

31

 

(153

)

Other income

 

145

 

181

 

158

 

 

 

1,925

 

2,273

 

2,146

 

 

 

 

 

 

 

 

 

Significant pensions revenue

 

 

 

 

 

 

 

Current service cost

 

 

(45

)

(66

)

Interest cost

 

 

(113

)

(118

)

Expected return on assets

 

 

144

 

130

 

Past service gain

 

 

 

387

 

Significant pensions revenue (3)

 

 

(14

)

333

 

 


(1)  These trading derivatives are used to match asset and liabilities designated at fair value.

(2)  The sum of these three line items represents the net fair value movement of assets and liabilities designated at fair value and the derivatives matched against these assets and liabilities plus the impact of hedge ineffectiveness of designated hedging relationships.

(3)  Significant pensions revenue consists of the items identified above. The Group regards the current service cost, interest cost and expected return on assets as ongoing operating expenses by nature. The past service gain is considered to be of a non-recurring nature.

26




4. OPERATING EXPENSES

 

 

Half Year to

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

 

 

$m

 

$m

 

$m

 

Personnel expenses

 

 

 

 

 

 

 

Salaries and related on costs

 

1,668

 

1,526

 

1,560

 

Equity-based compensation

 

122

 

81

 

62

 

Superannuation (1)

 

103

 

93

 

77

 

Other

 

222

 

249

 

221

 

 

 

2,115

 

1,949

 

1,920

 

 

 

 

 

 

 

 

 

Occupancy-related expenses

 

 

 

 

 

 

 

Operating lease rental expense

 

172

 

174

 

171

 

Other expenses

 

81

 

87

 

91

 

 

 

253

 

261

 

262

 

 

 

 

 

 

 

 

 

General expenses

 

 

 

 

 

 

 

Advertising and marketing

 

106

 

118

 

103

 

Charge to provide for operational risk event losses (2)

 

19

 

30

 

90

 

Communications, postage and stationery

 

182

 

177

 

179

 

Depreciation and amortisation

 

222

 

235

 

199

 

Depreciation on leased vehicle assets (3)

 

27

 

60

 

279

 

Fees and commission expense

 

93

 

104

 

93

 

Computer equipment and software

 

118

 

118

 

123

 

Operating lease rental expense

 

32

 

44

 

45

 

Professional fees

 

183

 

227

 

200

 

Travel

 

42

 

43

 

39

 

Freight and cartage

 

42

 

42

 

38

 

Insurance

 

14

 

11

 

18

 

Data communication and processing charges

 

44

 

42

 

51

 

Impairment of goodwill

 

 

(5

)

5

 

Other

 

151

 

239

 

240

 

 

 

1,275

 

1,485

 

1,702

 

 

 

 

 

 

 

 

 

Total

 

3,643

 

3,695

 

3,884

 

 


(1)  Superannuation expenses for the half year to 31 March 2007 includes defined benefit pension costs. These costs for the half years to 31 March 2006 and 30 September 2006 have been treated as significant items and are disclosed in note 3.

(2)  Operational risk event losses in the March 2006 half year includes $53m in costs relating to fee refunds for Choice package, BAD tax and fixed rate interest only loans.

(3)  Depreciation on leased vehicle assets owned by the Group’s Custom Fleet business ceased from 1 April 2006 following the business being designated as held for sale.  The Custom Fleet business was subsequently sold on 31 July 2006.  Depreciation on leased vehicle assets owned by the Group’s Commercial Fleet business ceased on 1 October 2006 following the business being designated as held for sale.

27




5. INCOME TAX EXPENSE

 

 

Half Year to

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

Group

 

$m

 

$m

 

$m

 

Profit before income tax expense

 

 

 

 

 

 

 

Australia

 

2,991

 

2,607

 

2,295

 

Overseas

 

1,041

 

1,074

 

1,299

 

Deduct profit before income tax expense attributable to the life insurance statutory funds and their controlled trusts

 

(1,208

)

(561

)

(976

)

Total profit excluding that attributable to the statutory funds of the life insurance business, before income tax expense

 

2,824

 

3,120

 

2,618

 

Prima facie income tax at 30%

 

847

 

936

 

785

 

Add/(deduct): Tax effect of amounts not deductible/(assessable)

 

 

 

 

 

 

 

Dividend income adjustments

 

(2

)

(3

)

(9

)

Non-allowable impairment loss on goodwill

 

 

(2

)

2

 

Assessable foreign income

 

5

 

 

2

 

Non-allowable depreciation on buildings

 

3

 

3

 

3

 

Deferred tax assets not recognised/(recognised)

 

 

4

 

(1

)

Under/(over) provision in prior years

 

(13

)

(9

)

1

 

Foreign tax rate differences

 

20

 

18

 

16

 

Non-assessable branch income

 

(26

)

(19

)

(27

)

Profit on sale of controlled entities

 

 

(19

)

 

Elimination of treasury shares

 

20

 

9

 

21

 

Non-allowable expenses - exchangeable capital units

 

30

 

 

27

 

Interest expense on exchangeable capital units

 

2

 

8

 

12

 

Other

 

(42

)

(31

)

(14

)

Total income tax expense on profit excluding that attributable to the statutory funds of the life insurance business

 

844

 

895

 

818

 

Income tax expense/(benefit) attributable to the statutory funds of the life insurance business

 

387

 

(102

)

523

 

Total income tax expense

 

1,231

 

793

 

1,341

 

Effective tax rate, excluding statutory funds attributable to the life insurance business

 

29.9

%

28.7

%

31.2

%

 

28




6. DIVIDENDS AND DISTRIBUTIONS

 

 

 

 

 

 

Conduit

 

 

 

 

 

 

 

Franked

 

foreign

 

 

 

 

 

Amount

 

amount

 

income

 

 

 

 

 

per

 

per

 

per

 

Total

 

 

 

share

 

share

 

share

 

amount

 

Dividends on ordinary shares

 

cents

 

%

 

%

 

$m

 

Interim dividend declared in respect of the six months ended 31 March 2007

 

87

 

90

 

10

 

1,419

 

 

The record date for determining entitlements to the 2007 interim dividend is 7 June 2007.

The interim dividend has been declared by the directors of the Company and is payable on 12 July 2007.

Final dividend paid in respect of the year ended 30 September 2006

 

84

 

90

 

10

 

1,370

 

Interim dividend paid in respect of the six months ended 31 March 2006

 

83

 

80

 

20

 

1,334

 

Total dividends paid or payable in respect of the year ended 30 September 2006

 

167

 

 

 

 

 

2,704

 

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

 

 

Amount

 

 

 

Amount

 

 

 

Amount

 

 

 

 

 

per

 

Total

 

per

 

Total

 

per

 

Total

 

 

 

security

 

amount

 

security

 

amount

 

security

 

amount

 

Distributions on other equity instruments

 

$

 

$m

 

$

 

$m

 

$

 

$m

 

National Income Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions for the six months ended

 

3.80

 

76

 

3.50

 

70

 

3.45

 

69

 

Trust Preferred Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions for the six months ended

 

65.00

 

26

 

65.00

 

26

 

75.00

 

30

 

Trust Preferred Securities II

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions for the six months ended

 

33.75

 

27

 

38.75

 

31

 

35.00

 

28

 

National Capital Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions for the six months ended

 

1,000.00

 

8

 

 

 

 

 

Total distributions

 

 

 

137

 

 

 

127

 

 

 

127

 

 

Dividend and distribution plans

The dividend is paid in cash or part of a dividend plan. Cash dividends are paid by way of:

a) cash or cash equivalents; and

b) direct credit.

Dividend plans in operation are:

a) Dividend Reinvestment Plan;

b) Bonus Share Plan; and

c) United Kingdom Dividend Plan (this enables a UK domiciled shareholder to receive either a dividend in British Pounds Sterling or shares via the UK Dividend Plan).

The last date for receipt of election notices for the dividend plans is 7 June 2007, 5pm (Melbourne time).

7. NET TANGIBLE ASSETS

 

 

As at

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

 

 

 

 

 

 

 

 

Net tangible assets per ordinary share ($)

 

12.03

 

11.35

 

10.41

 

 

29




8. LOANS, ADVANCES & ACCEPTANCES

 

 

As at

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

 

 

$m

 

$m

 

$m

 

Gross loans & advances at amortised cost (1)

 

302,718

 

288,189

 

270,756

 

Unearned income and deferred fee income

 

(2,380

)

(2,391

)

(2,315

)

Provision for doubtful debts

 

(2,112

)

(2,021

)

(1,999

)

Net loans & advances

 

298,226

 

283,777

 

266,442

 

Securitised loans (2)

 

6,551

 

4,771

 

2,110

 

 


(1)  Excludes loans accounted for at fair value which are included within ‘Other financial assets at fair value’ on the balance sheet. These amounts are included in the analysis below.

(2)  Securitised loans are included within the balance of Net loans & advances.

 

 

 

 

 

 

New

 

United

 

 

 

Total

 

By product &

 

Australia

 

Europe

 

Zealand

 

States

 

Asia

 

Group

 

geographic location

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

As at 31 March 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

Housing lending

 

134,237

 

24,785

 

19,273

 

 

665

 

178,960

 

Term lending

 

42,983

 

32,329

 

16,817

 

1,824

 

1,124

 

95,077

 

Overdrafts

 

5,852

 

8,483

 

1,766

 

 

2

 

16,103

 

Leasing

 

11,744

 

5,598

 

 

 

8

 

17,350

 

Credit cards

 

4,861

 

1,408

 

1,097

 

 

 

7,366

 

Other

 

4,320

 

1,066

 

84

 

 

46

 

5,516

 

Fair value adjustment

 

 

156

 

22

 

 

 

178

 

Gross loans & advances

 

203,997

 

73,825

 

39,059

 

1,824

 

1,845

 

320,550

 

Acceptances

 

45,939

 

13

 

 

 

 

45,952

 

Total gross loans, advances & acceptances

 

249,936

 

73,838

 

39,059

 

1,824

 

1,845

 

366,502

 

Gross loans & advances

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans at amortised cost

 

203,997

 

67,839

 

27,213

 

1,824

 

1,845

 

302,718

 

Loans at fair value

 

 

5,986

 

11,846

 

 

 

17,832

 

Gross loans & advances

 

203,997

 

73,825

 

39,059

 

1,824

 

1,845

 

320,550

 

 

30




 

 

 

 

 

 

 

New

 

United

 

 

 

Total

 

By product &

 

Australia

 

Europe

 

Zealand

 

States

 

Asia

 

Group

 

geographic location

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

As at 30 September 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

Housing lending

 

129,423

 

23,976

 

17,818

 

 

545

 

171,762

 

Term lending

 

39,232

 

29,696

 

16,376

 

1,815

 

1,358

 

88,477

 

Overdrafts

 

5,517

 

8,472

 

1,481

 

 

 

15,470

 

Leasing

 

11,184

 

5,747

 

10

 

 

12

 

16,953

 

Credit cards

 

4,647

 

1,539

 

1,135

 

 

 

7,321

 

Other

 

3,874

 

702

 

92

 

 

31

 

4,699

 

Fair value adjustment

 

 

227

 

54

 

 

 

281

 

Gross loans & advances

 

193,877

 

70,359

 

36,966

 

1,815

 

1,946

 

304,963

 

Acceptances

 

41,714

 

12

 

 

 

 

41,726

 

Total gross loans, advances & acceptances

 

235,591

 

70,371

 

36,966

 

1,815

 

1,946

 

346,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loans & advances

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans at amortised cost

 

193,877

 

64,994

 

25,557

 

1,815

 

1,946

 

288,189

 

Loans at fair value

 

 

5,365

 

11,409

 

 

 

16,774

 

Gross loans & advances

 

193,877

 

70,359

 

36,966

 

1,815

 

1,946

 

304,963

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 31 March 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

Housing lending

 

123,860

 

20,891

 

16,431

 

 

502

 

161,684

 

Term lending

 

36,036

 

26,042

 

15,049

 

2,497

 

1,039

 

80,663

 

Overdrafts

 

5,580

 

7,133

 

1,463

 

 

 

14,176

 

Leasing

 

10,647

 

6,204

 

22

 

 

15

 

16,888

 

Credit cards

 

4,434

 

1,513

 

1,047

 

 

 

6,994

 

Other

 

3,891

 

453

 

73

 

 

32

 

4,449

 

Fair value adjustment

 

 

223

 

75

 

 

 

298

 

Gross loans & advances

 

184,448

 

62,459

 

34,160

 

2,497

 

1,588

 

285,152

 

Acceptances

 

37,251

 

15

 

 

 

 

37,266

 

Total gross loans, advances & acceptances

 

221,699

 

62,474

 

34,160

 

2,497

 

1,588

 

322,418

 

Gross loans & advances

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans at amortised cost

 

184,448

 

57,702

 

24,521

 

2,497

 

1,588

 

270,756

 

Loans at fair value

 

 

4,757

 

9,639

 

 

 

14,396

 

Gross loans & advances

 

184,448

 

62,459

 

34,160

 

2,497

 

1,588

 

285,152

 

 

31




 

 

 

Increase / (Decrease) from 30 Sep 06

 

 

 

 

 

 

 

New

 

United

 

 

 

 

 

Movement from 30 September 2006

 

Australia

 

Europe

 

Zealand

 

States

 

Asia

 

Total

 

excluding foreign exchange

 

%

 

%

 

%

 

%

 

%

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Housing

 

3.7

 

6.5

 

6.9

 

 

31.7

 

4.5

 

Term lending

 

9.6

 

11.9

 

1.3

 

8.5

 

(10.7

)

8.4

 

Overdrafts

 

6.1

 

3.2

 

17.8

 

 

 

5.7

 

Leasing

 

5.0

 

0.4

 

large

 

 

(27.3

)

3.4

 

Credit cards

 

4.6

 

(5.8

)

(4.4

)

 

 

1.1

 

Other

 

11.5

 

56.5

 

(8.7

)

 

43.8

 

17.8

 

Total gross loans and advances

 

5.2

 

8.1

 

4.4

 

8.5

 

2.2

 

5.8

 

 

 

 

Increase / (Decrease) from 31 Mar 06

 

 

 

 

 

 

 

New

 

United

 

 

 

 

 

Movement from 31 March 2006

 

Australia

 

Europe

 

Zealand

 

States

 

Asia

 

Total

 

excluding foreign exchange

 

%

 

%

 

%

 

%

 

%

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Housing

 

8.4

 

19.0

 

13.3

 

 

49.4

 

10.4

 

Term lending

 

19.3

 

24.1

 

7.5

 

(17.6

)

22.0

 

17.6

 

Overdrafts

 

4.9

 

19.3

 

16.6

 

 

 

13.4

 

Leasing

 

10.3

 

(9.5

)

large

 

 

(38.5

)

2.9

 

Credit cards

 

9.6

 

(6.6

)

1.2

 

 

 

4.8

 

Other

 

11.0

 

large

 

10.5

 

 

43.8

 

24.0

 

Total gross loans and advances

 

10.6

 

18.6

 

10.4

 

(17.6

)

30.8

 

12.2

 

 

32




9. DOUBTFUL DEBTS

 

Half Year to

 

Total charge for doubtful debts

 

Mar 07

 

Sep 06

 

Mar 06

 

by geographic location (1)

 

$m

 

$m

 

$m

 

Australia

 

192

 

158

 

106

 

Europe

 

175

 

156

 

136

 

New Zealand

 

23

 

23

 

23

 

United States

 

1

 

 

7

 

Asia

 

(1

)

(1

)

(2

)

Total charge to provide for doubtful debts

 

390

 

336

 

270

 

 

Movement in provisions for doubtful debts

 

 

Half Year to Mar 07

 

Half Year to Sep 06

 

 

 

Specific

 

Collective

 

Total

 

Specific

 

Collective

 

Total

 

 

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

Opening balance

 

184

 

1,838

 

2,022

 

254

 

1,746

 

2,000

 

Transfer to/(from) specific/collective provision

 

285

 

(285

)

 

267

 

(267

)

 

Bad debts recovered

 

91

 

 

91

 

125

 

 

125

 

Bad debts written off

 

(367

)

 

(367

)

(452

)

 

(452

)

Charge to income statement

 

 

390

 

390

 

 

336

 

336

 

Disposal of controlled entities

 

 

 

 

(7

)

(1

)

(8

)

Foreign currency translation and other adjustments

 

2

 

(25

)

(23

)

(3

)

24

 

21

 

Total provisions for doubtful debts(1) (2)

 

195

 

1,918

 

2,113

 

184

 

1,838

 

2,022

 

 

 

 

Half Year to Mar 07

 

Half Year to Mar 06

 

 

 

Specific

 

Collective

 

Total

 

Specific

 

Collective

 

Total

 

 

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

Opening balance

 

184

 

1,838

 

2,022

 

281

 

1,649

 

1,930

 

Transfer to/(from) specific/collective provision

 

285

 

(285

)

 

203

 

(203

)

 

Bad debts recovered

 

91

 

 

91

 

105

 

 

105

 

Bad debts written off

 

(367

)

 

(367

)

(330

)

 

(330

)

Charge to income statement

 

 

390

 

390

 

 

270

 

270

 

Foreign currency translation and other adjustments

 

2

 

(25

)

(23

)

(5

)

30

 

25

 

Total provisions for doubtful debts (1) (2)

 

195

 

1,918

 

2,113

 

254

 

1,746

 

2,000

 

 


(1)       As at 31 March 2007 the amounts included within loans recorded at fair value and trading derivatives are $144 million (30 September 2006 year $134 million; 31 March 2006 $120 million).

(2)       Specific provision includes amounts for off balance sheet credit exposures, amounting to $1 million at 31 March 2007 (30 September 2006 $1 million, 31 March 2006 $1 million).

 

33




10. ASSET QUALITY

 

 

As at

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

Summary of impaired assets

 

$m

 

$m

 

$m

 

Gross impaired assets (1)

 

1,071

 

1,057

 

984

 

Less: Specific provisions - impaired assets

 

(195

)

(184

)

(254

)

 

 

 

 

 

 

 

 

Net impaired assets

 

876

 

873

 

730

 

 

 

 

As at 31 Mar 07

 

As at 30 Sep 06

 

As at 31 Mar 06

 

Total impaired assets

 

Gross

 

Net

 

Gross

 

Net

 

Gross

 

Net

 

by geographic location

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

Australia

 

784

 

633

 

836

 

699

 

774

 

578

 

Europe

 

211

 

179

 

169

 

141

 

143

 

110

 

New Zealand

 

75

 

64

 

51

 

33

 

66

 

42

 

United States

 

 

 

 

 

 

 

Asia

 

1

 

 

1

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total impaired assets

 

1,071

 

876

 

1,057

 

873

 

984

 

730

 

 

 

 

 

 

 

 

New

 

United

 

 

 

 

 

 

 

Australia

 

Europe

 

Zealand

 

States

 

Asia

 

Total

 

Movement in gross impaired assets

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

Balance at 30 September 2005

 

761

 

137

 

103

 

25

 

1

 

1,027

 

New

 

233

 

71

 

54

 

 

 

358

 

Written off

 

(76

)

(9

)

(32

)

(26

)

 

(143

)

Returned to performing or repaid

 

(144

)

(64

)

(55

)

 

 

(263

)

Foreign currency translation adjustments

 

 

8

 

(4

)

1

 

 

5

 

Balance at 31 March 2006

 

774

 

143

 

66

 

 

1

 

984

 

New

 

408

 

56

 

29

 

 

 

493

 

Written off

 

(109

)

(33

)

(14

)

 

 

(156

)

Returned to performing or repaid

 

(237

)

(2

)

(30

)

 

 

(269

)

Foreign currency translation adjustments

 

 

5

 

 

 

 

5

 

Balance at 30 September 2006

 

836

 

169

 

51

 

 

1

 

1,057

 

New

 

494

 

128

 

67

 

 

 

689

 

Written off

 

(53

)

(11

)

(19

)

 

 

(83

)

Returned to performing or repaid

 

(493

)

(69

)

(25

)

 

 

(587

)

Foreign currency translation adjustments

 

 

(6

)

1

 

 

 

(5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross impaired assets at 31 March 2007

 

784

 

211

 

75

 

 

1

 

1,071

 

 


(1)       Impaired assets consist of retail loans (excluding credit card loans and portfolio managed facilities) which are contractually past due 90 days with security insufficient to cover principal and arrears of interest revenue; non retail loans which are contractually past due 90 days and there is sufficient doubt about the ultimate collectibility of principal and interest; and impaired off-balance sheet credit exposures where current circumstances indicate that losses may be incurred. Unsecured portfolio managed facilities when they become 180 days past due, and loans where some concerns exist as to the ongoing ability of the borrowers to comply with the present loan repayment terms, are also classified as impaired assets.

34




 

 

 

As at

 

Gross impaired assets to gross loans

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

& acceptances - by geographic location

 

%

 

%

 

%

 

Australia

 

0.31

 

0.35

 

0.35

 

Europe

 

0.29

 

0.24

 

0.23

 

New Zealand

 

0.19

 

0.14

 

0.19

 

Asia

 

0.05

 

0.05

 

0.06

 

Total gross impaired assets to gross loans & acceptances (1)

 

0.29

 

0.30

 

0.31

 

 


(1)       Includes loans at amortised cost plus those at fair value.

Group coverage ratios

Net impaired assets to total equity (2)

 

3.0

 

3.1

 

2.8

 

Net impaired assets to total equity plus collective provision (2) (3)

 

2.8

 

2.9

 

2.6

 

Specific provision to gross impaired assets

 

18.2

 

17.4

 

25.8

 

Total provision to gross impaired assets (3)

 

210.7

 

204.0

 

210.3

 

Total provision to gross loans and acceptances (3)

 

0.62

 

0.62

 

0.64

 

Collective provision to total risk-weighted assets (3)

 

0.62

 

0.62

 

0.60

 

Collective provision to credit risk-weighted assets (3)

 

0.63

 

0.65

 

0.63

 

Collective provision plus general reserve for credit losses to credit risk-weighted
assets
(3) (4) (5)

 

0.71

 

0.71

 

 

 


(2)       Total parent entity interest in equity.

(3)       Includes provision against both loans at amortised cost and at fair value.

(4)       From 1 July 2006, a General Reserve for Credit Losses has been established to align with APRA’s proposed benchmark of 0.5% of credit risk-weighted assets on a post-tax basis. As at 31 March 2007, an additional reserve of $192 million (30 September 2006 $135 million) was held for capital purposes only to meet APRA’s requirements. The General Reserve for Credit Losses has been appropriated from Retained Profits (refer Note 12 ‘Contributed Equity and Reserves’).

(5)       Includes general reserve for credit losses of $274 million before tax (30 September 2006 $193 million).

The amounts below are not classified as impaired assets and therefore are not included in the summary on the previous page.

 

 

As at

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

Non impaired loans 90 days past due - by geographic location

 

$m

 

$m

 

$m

 

Australia

 

717

 

605

 

796

 

Europe

 

129

 

138

 

136

 

New Zealand

 

19

 

20

 

30

 

Asia

 

 

1

 

1

 

 

 

 

 

 

 

 

 

Total 90 day past due loans (6)

 

865

 

764

 

963

 

 


(6)       Non impaired loans 90 days past due includes gross portfolio-managed facilities past due 90 to 180 days.

35




11. DEPOSITS & OTHER BORROWINGS

 

 

As at 31 Mar 07

 

 

 

 

 

 

 

New

 

United

 

 

 

 

 

By product &

 

Australia

 

Europe

 

Zealand

 

States

 

Asia

 

Total

 

geographic location

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits not bearing interest

 

8,102

 

3,205

 

535

 

373

 

1

 

12,216

 

On-demand and short-term deposits

 

68,488

 

31,602

 

8,458

 

2,534

 

101

 

111,183

 

Certificates of deposit

 

5,946

 

10,726

 

2,501

 

442

 

 

19,615

 

Term deposits

 

36,554

 

13,322

 

14,747

 

1,094

 

5,012

 

70,729

 

Total deposits

 

119,090

 

58,855

 

26,241

 

4,443

 

5,114

 

213,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

4,991

 

 

23

 

1,185

 

 

6,199

 

Borrowings

 

9,633

 

 

4,403

 

1,571

 

 

15,607

 

Fair value adjustment

 

 

(81

)

(25

)

 

 

(106

)

Total deposits and other borrowings

 

133,714

 

58,774

 

30,642

 

7,199

 

5,114

 

235,443

 

Total deposits and other borrowings at cost

 

133,714

 

55,661

 

20,768

 

7,199

 

5,114

 

222,456

 

Total deposits at fair value (1)

 

 

3,113

 

9,874

 

 

 

12,987

 

Total deposits and other borrowings

 

133,714

 

58,774

 

30,642

 

7,199

 

5,114

 

235,443

 

 


(1)       On the balance sheet this amount is included within “Other financial liabilities at fair value”.

 

 

As at 30 Sep 06

 

 

 

 

 

 

 

New

 

United

 

 

 

 

 

By product &

 

Australia

 

Europe

 

Zealand

 

States

 

Asia

 

Total

 

geographic location

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits not bearing interest

 

7,555

 

3,701

 

476

 

402

 

2

 

12,136

 

On-demand and short-term deposits

 

63,278

 

29,936

 

7,375

 

1,165

 

340

 

102,094

 

Certificates of deposit

 

8,180

 

12,982

 

2,866

 

484

 

 

24,512

 

Term deposits

 

34,967

 

12,186

 

13,954

 

2,586

 

5,310

 

69,003

 

Total deposits

 

113,980

 

58,805

 

24,671

 

4,637

 

5,652

 

207,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

3,629

 

968

 

 

729

 

 

5,326

 

Borrowings

 

13,101

 

 

4,544

 

2,147

 

 

19,792

 

Fair value adjustment

 

 

47

 

(11

)

 

 

36

 

Total deposits and other borrowings

 

130,710

 

59,820

 

29,204

 

7,513

 

5,652

 

232,899

 

Total deposits and other borrowings at cost

 

130,710

 

58,807

 

19,595

 

7,513

 

5,652

 

222,277

 

Total deposits at fair value (1)

 

 

1,013

 

9,609

 

 

 

10,622

 

Total deposits and other borrowings

 

130,710

 

59,820

 

29,204

 

7,513

 

5,652

 

232,899

 

 


(1)       On the balance sheet this amount is included within “Other financial liabilities at fair value”.

 

 

As at 31 Mar 06

 

 

 

 

 

 

 

New

 

United

 

 

 

 

 

By product &

 

Australia

 

Europe

 

Zealand

 

States

 

Asia

 

Total

 

geographic region

 

$m

 

$m

 

$m

 

$m

 

$m

 

$m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits not bearing interest

 

6,650

 

3,331

 

466

 

700

 

2

 

11,149

 

On-demand and short-term deposits

 

57,962

 

24,552

 

7,188

 

2,368

 

578

 

92,648

 

Certificates of deposit

 

8,981

 

10,163

 

3,060

 

506

 

 

22,710

 

Term deposits

 

33,795

 

10,116

 

12,852

 

2,685

 

4,350

 

63,798

 

Total deposits

 

107,388

 

48,162

 

23,566

 

6,259

 

4,930

 

190,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

3,168

 

2,346

 

 

824

 

 

6,338

 

Borrowings

 

10,779

 

 

3,442

 

5,408

 

 

19,629

 

Fair value adjustment

 

 

41

 

(7

)

 

 

34

 

Total deposits and other borrowings

 

121,335

 

50,549

 

27,001

 

12,491

 

4,930

 

216,306

 

Total deposits and other borrowings at cost

 

121,335

 

49,675

 

18,176

 

12,491

 

4,930

 

206,607

 

Total deposits at fair value (1)

 

 

874

 

8,825

 

 

 

9,699

 

Total deposits and other borrowings

 

121,335

 

50,549

 

27,001

 

12,491

 

4,930

 

216,306

 

 


(1)       On the balance sheet this amount is included within “Other financial liabilities at fair value”.

36




 

 

 

Increase / (Decrease) from 30 Sep 06

 

 

 

 

 

 

 

New

 

United

 

 

 

 

 

Movement from 30 September 2006

 

Australia

 

Europe

 

Zealand

 

States

 

Asia

 

Total

 

excluding foreign exchange

 

%

 

%

 

%

 

%

 

%

 

%

 

Deposits not bearing interest

 

7.2

 

(10.8

)

11.2

 

 

(50.0

)

1.8

 

On-demand and short-term deposits

 

8.2

 

8.8

 

13.3

 

large

 

(67.9

)

9.9

 

Certificates of deposit

 

(27.3

)

(14.9

)

(13.8

)

(1.6

)

 

(18.7

)

Term deposits

 

4.5

 

11.5

 

4.4

 

(54.3

)

1.8

 

3.5

 

Total deposits

 

4.5

 

2.9

 

5.1

 

3.4

 

(2.4

)

3.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

37.5

 

large

 

 

75.3

 

 

18.2

 

Borrowings

 

(26.5

)

 

(4.2

)

(21.1

)

 

(20.7

)

Total deposits and other borrowings

 

2.3

 

1.2

 

3.7

 

3.4

 

(2.4

)

2.1

 

 

 

 

Increase / (Decrease) from 31 Mar 06

 

 

 

 

 

 

 

New

 

United

 

 

 

 

 

Movement from 31 March 2006

 

Australia

 

Europe

 

Zealand

 

States

 

Asia

 

Total

 

excluding foreign exchange

 

%

 

%

 

%

 

%

 

%

 

%

 

Deposits not bearing interest

 

21.8

 

(3.5

)

10.8

 

(39.9

)

 

10.3

 

On-demand and short-term deposits

 

18.2

 

29.1

 

13.7

 

20.7

 

(80.3

)

20.2

 

Certificates of deposit

 

(33.8

)

5.9

 

(21.1

)

(1.6

)

 

(13.7

)

Term deposits

 

8.2

 

30.8

 

10.7

 

(54.0

)

30.0

 

11.3

 

Total deposits

 

10.9

 

22.3

 

7.5

 

(19.9

)

17.1

 

12.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

57.5

 

large

 

 

62.1

 

 

(0.6

)

Borrowings

 

(10.6

)

 

23.5

 

(67.2

)

 

(18.4

)

Total deposits and other borrowings

 

10.2

 

16.6

 

9.6

 

(35.0

)

17.1

 

9.4

 

 

37




12. CONTRIBUTED EQUITY AND RESERVES

 

 

As at

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

Contributed equity

 

$m

 

$m

 

$m

 

Issued and paid-up share capital

 

 

 

 

 

 

 

Ordinary shares, fully paid

 

8,585

 

7,948

 

7,963

 

Other contributed equity

 

 

 

 

 

 

 

National Income Securities

 

1,945

 

1,945

 

1,945

 

Trust Preferred Securities

 

975

 

975

 

975

 

Trust Preferred Securities II

 

1,014

 

1,014

 

1,014

 

National Capital Instruments

 

397

 

397

 

 

 

 

12,916

 

12,279

 

11,897

 

 

 

 

Half Year to

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

Movements in contributed equity

 

$m

 

$m

 

$m

 

Ordinary share capital

 

 

 

 

 

 

 

Balance at beginning of period

 

7,948

 

7,963

 

6,894

 

Shares issued

 

 

 

 

 

 

 

Dividend reinvestment plan (1)

 

 

99

 

99

 

Executive share option plan no. 2

 

30

 

16

 

25

 

Paying up of partly paid shares

 

 

1

 

 

Net gain/(loss) realised on treasury shares

 

8

 

2

 

4

 

Share buy back

 

(654

)

 

 

Exchangeable capital units converted (2)

 

1,331

 

40

 

932

 

(Purchase)/sale and vesting of treasury shares

 

(80

)

(176

)

(19

)

Current period equity based payments expense vested immediately

 

2

 

3

 

4

 

Transfer of vested equity based payments

 

 

 

24

 

Balance at end of period

 

8,585

 

7,948

 

7,963

 

National Income Securities

 

 

 

 

 

 

 

Balance at beginning of period

 

1,945

 

1,945

 

1,945

 

Movement during period

 

 

 

 

Balance at end of period

 

1,945

 

1,945

 

1,945

 

Trust Preferred Securities

 

 

 

 

 

 

 

Balance at beginning of period

 

975

 

975

 

975

 

Movement during period

 

 

 

 

Balance at end of period

 

975

 

975

 

975

 

Trust Preferred Securities II

 

 

 

 

 

 

 

Balance at beginning of period

 

1,014

 

1,014

 

1,014

 

Movement during period

 

 

 

 

Balance at end of period

 

1,014

 

1,014

 

1,014

 

National Capital Instruments

 

 

 

 

 

 

 

Balance at beginning of period

 

397

 

 

 

Movement during period

 

 

397

 

 

Balance at end of period

 

397

 

397

 

 

 


(1)       During the March 2007 half, dividend reinvestment plan shares were purchased on market for delivery to shareholders resulting in no issue of new shares.

(2)       During the March 2007 half, holders of 20,833,563 exchangeable capital units were converted into 33,935,306 ordinary shares as per the terms set out in the 2006 Annual Financial Report.

38




 

 

 

As at

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

Reserves

 

$m

 

$m

 

$m

 

General reserve

 

715

 

687

 

687

 

Asset revaluation reserve

 

95

 

100

 

96

 

Foreign currency translation reserve

 

(393

)

(135

)

(203

)

Cash flow hedge reserve

 

96

 

52

 

(10

)

Equity based payments reserve

 

358

 

227

 

144

 

General reserve for credit losses

 

192

 

135

 

 

Available for sale investments reserve

 

(2

)

(2

)

 

Total reserves

 

1,061

 

1,064

 

714

 

 

 

 

Half Year to

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

Movements in reserves

 

$m

 

$m

 

$m

 

General reserve

 

 

 

 

 

 

 

Balance at beginning of period

 

687

 

687

 

694

 

Transfer from/(to) retained profits

 

28

 

 

(7

)

Balance at end of period

 

715

 

687

 

687

 

Asset revaluation reserve

 

 

 

 

 

 

 

Balance at beginning of period

 

100

 

96

 

97

 

Revaluation of land and buildings

 

 

11

 

 

Transfer to retained profits

 

(5

)

(7

)

(1

)

Balance at end of period

 

95

 

100

 

96

 

Foreign currency translation reserve

 

 

 

 

 

 

 

Balance at beginning of period

 

(135

)

(203

)

(504

)

Currency translation adjustments

 

(258

)

67

 

290

 

Transfer from retained profits

 

 

(11

)

11

 

Transfer to income statement on sale of controlled entities

 

 

12

 

 

Balance at end of period

 

(393

)

(135

)

(203

)

Cash flow hedge reserve

 

 

 

 

 

 

 

Balance at beginning of period

 

52

 

(10

)

(3

)

Gains/(losses) on cash flow hedging instruments

 

62

 

62

 

15

 

Gains/(losses) transferred to the income statement

 

5

 

25

 

(23

)

Tax on cash flow hedging instruments

 

(23

)

(25

)

1

 

Balance at end of period

 

96

 

52

 

(10

)

Equity based payments reserve

 

 

 

 

 

 

 

Balance at beginning of period

 

227

 

144

 

110

 

Current period equity based payments expense not vested immediately

 

119

 

78

 

58

 

Tax on equity based payments

 

12

 

5

 

 

Transfer of vested amounts to ordinary share capital

 

 

 

(24

)

Balance at end of period

 

358

 

227

 

144

 

 

39




 

 

 

Half Year to

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

 

 

$m

 

$m

 

$m

 

General reserve for credit losses

 

 

 

 

 

 

 

Balance at beginning of period

 

135

 

 

 

Transfer from retained profits

 

57

 

135

 

 

Balance at end of period

 

192

 

135

 

 

Available for sale investments reserve

 

 

 

 

 

 

 

Balance at beginning of period

 

(2

)

 

 

Net revaluation gains/(losses)

 

 

(2

)

 

Balance at end of period

 

(2

)

(2

)

 

 

 

 

Half Year to

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

Reconciliation of Movement in Retained Profits

 

$m

 

$m

 

$m

 

Balance at beginning of period

 

14,461

 

13,451

 

12,788

 

Actuarial gains/(losses) on defined benefit plans

 

271

 

151

 

56

 

Income tax on items taken directly to or transferred directly from equity

 

(98

)

(53

)

 

Net profit attributable to members of the Company

 

2,136

 

2,398

 

1,994

 

Total available for appropriation

 

16,770

 

15,947

 

14,838

 

Transfer from/(to) general reserve

 

(28

)

 

7

 

Transfer from asset revaluation reserve

 

5

 

7

 

1

 

Transfer to foreign currency translation reserve

 

 

11

 

(11

)

Transfer to general reserve for credit losses

 

(57

)

(135

)

 

Dividends paid

 

(1,294

)

(1,242

)

(1,257

)

Distributions on other equity instruments

 

(137

)

(127

)

(127

)

Balance at end of period

 

15,259

 

14,461

 

13,451

 

 

40




13. NOTES TO THE CASH FLOW STATEMENT

(a)  Reconciliation of net profit attributable to members of the Company to net cash provided by/(used in) operating activities

 

 

Half Year to

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

 

 

$m

 

$m

 

$m

 

Net profit attributable to members of the Company

 

2,136

 

2,398

 

1,994

 

Add/(deduct): Non-cash items

 

 

 

 

 

 

 

Decrease/(increase) in interest receivable

 

110

 

(396

)

(555

)

Increase/(decrease) in interest payable

 

55

 

928

 

707

 

Increase/(decrease) in unearned income

 

12

 

50

 

(151

)

Fair value movements

 

 

 

 

 

 

 

Assets, liabilities and derivatives held at fair value

 

(1,276

)

(643

)

1,866

 

Net adjustment to bid/offer valuation

 

 

(2

)

7

 

Increase/(decrease) in personnel provisions

 

(129

)

28

 

(115

)

Increase/(decrease) in other operating provisions

 

(188

)

(28

)

(130

)

Equity based payments recognised in equity or reserves

 

121

 

81

 

62

 

Superannuation costs - defined benefit pension plans

 

17

 

14

 

(333

)

Impairment losses on non-financial assets

 

7

 

(7

)

(2

)

Charge to provide for doubtful debts

 

390

 

336

 

270

 

Depreciation and amortisation expense

 

249

 

295

 

478

 

Revaluation losses on exchangeable capital units

 

76

 

(31

)

153

 

Movement in life insurance policyholder liabilities

 

4,782

 

1,422

 

4,450

 

Unrealised (gain)/loss on investments relating to life insurance business

 

(2,867

)

(299

)

(4,229

)

Decrease/(increase) in other assets

 

64

 

84

 

(78

)

Increase/(decrease) in other liabilities

 

(10

)

157

 

(222

)

Increase/(decrease) in income tax payable

 

362

 

(35

)

144

 

Increase/(decrease) in deferred tax liabilities

 

244

 

(412

)

283

 

Decrease/(increase) in deferred tax assets

 

83

 

127

 

87

 

Add/(deduct): Operating cash flows items not included in profit

 

(10,137

)

(7,851

)

(10,981

)

Add/(deduct): Investing or financing cash flows included in profit

 

 

 

 

 

 

 

(Profit)/loss on sale of controlled entities, before income tax

 

 

(148

)

(3

)

(Profit)/loss on sale of property, plant, equipment and other assets

 

(4

)

(14

)

3

 

Net cash provided by/(used in) operating activities

 

(5,903

)

(3,946

)

(6,295

)

 

(b)  Reconciliation of cash and cash equivalents

For the purposes of reporting cash flows, cash and cash equivalents include cash and liquid assets, due from other banks and due to other banks.

Cash and cash equivalents at the end of the year as shown in the statement of cash flows is reconciled to the related items on the balance sheet as follows:

Cash and cash equivalents

Assets

 

 

 

 

 

 

 

Cash and liquid assets (excluding money at short call)

 

13,761

 

12,768

 

10,903

 

Treasury and other eligible bills

 

660

 

167

 

651

 

Due from other banks (excluding mandatory deposits with supervisory central banks)

 

20,523

 

24,248

 

21,816

 

 

 

34,944

 

37,183

 

33,370

 

Liabilities

 

 

 

 

 

 

 

Due to other banks

 

(38,262

)

(37,489

)

(38,964

)

Total cash and cash equivalents

 

(3,318

)

(306

)

(5,594

)

 

Cash comprises cash on hand and demand deposits.  Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

41




(c)  Non-cash financing and investing activities

 

 

Half Year to

 

 

 

Mar 07

 

Sep 06

 

Mar 06

 

 

 

$m

 

$m

 

$m

 

New share issues

 

 

 

 

 

 

 

Dividend reinvestment plan

 

 

99

 

99

 

Bonus share plan

 

53

 

55

 

52

 

Movement in assets under finance lease

 

13

 

22

 

 

 

(d)  Financing arrangements

The Group held no standby lines of credit or other financing arrangements for the 31 March 2007, 30 September 2006 and 31 March 2006 half years.

(e)  Sales of controlled entities

The following sales were made during the half years to 30 September 2006 and 31 March 2006 respectively:

·                  on 31 July 2006, the Group’s Custom Fleet business was sold for consideration of $571 million (the Group’s Custom Fleet business was included within the Australia Region, UK Region and New Zealand Region business segments);

·                  on 8 May 2006, the MLC Asia business was sold for cash consideration of $565 million (this business was included within the Australia Region business segment);

·                  on 31 January 2006, BNZ Investment Management Limited was sold for cash consideration of $8 million (this business was included within the New Zealand Region business segment);

The operating results of the controlled entities have been included in the Group’s consolidated income statement up to the date of sale.  Details of the sales were as follows:

 

 

Mar 07

 

Sep 06

 

Mar 06

 

 

 

$m

 

$m

 

$m

 

Cash consideration received (cash and receivables to be discharged in cash)

 

 

1,136

 

8

 

Net assets of controlled entities sold

 

 

 

 

 

 

 

Cash and liquid assets

 

 

54

 

6

 

Investments relating to life insurance business

 

 

822

 

 

Loans and advances

 

 

148

 

 

Property, plant and equipment

 

 

2,017

 

2

 

Other assets

 

 

272

 

22

 

Life policy liabilities

 

 

(583

)

 

Provisions

 

 

(65

)

 

Bonds, notes and subordinated debt

 

 

(43

)

 

Other liabilities

 

 

(2,074

)

(25

)

Total net assets of controlled entities sold

 

 

548

 

5

 

Goodwill

 

 

344

 

 

Foreign currency translation reserve relating to controlled entities sold

 

 

12

 

 

Transaction costs on disposal of controlled entities sold (including provisions and warranties recognised)

 

 

84

 

 

Total costs on disposal of controlled entities sold

 

 

988

 

5

 

Profit/(loss) on sale of controlled entities before income tax

 

 

148

 

3

 

 

There were no material entities over which the Group gained control during the half year ended 31 March 2007.

The Group holds no material interests in associates or joint venture entities as at 31 March 2007.

42




 

14. CONTINGENT LIABILITIES & COMMITMENTS

Legal proceedings

Entities within the Group are defendants from time to time in legal proceedings arising from the conduct of their business.  The Company does not consider that the outcome of any proceedings, either individually or in aggregate, are likely to have a material effect on its financial position.  Where appropriate, provisions have been made.

There are contingent liabilities in respect of claims, potential claims and court proceedings against entities in the Group.  The aggregate of potential liability in respect thereof cannot be accurately assessed.

Exchangeable capital units capital raising

The Group announced in February 2004 and May 2005 that it had received amended assessments from the Australian Taxation Office (ATO) which seek to disallow interest deductions on exchangeable capital units (ExCaps) for the tax years 1997 to 2003 and deductions for certain issue costs for the years 1998 to 2001.  The ATO assessments are for $298 million of primary tax and interest and penalties of $254 million (after-tax), a total of $552 million (after-tax).  As previously advised, should the ATO also disallow issue costs claimed in 2002 and 2003, the further primary tax assessed would be approximately $2 million. Interest and penalties may also be imposed.

The Group also previously announced that the ATO was proposing to issue amended assessments to disallow deductions claimed for the payment of management fees associated with the ExCaps for years 1997 to 2003.  These assessments have now been received.  These additional ATO assessments are for $9 million of primary tax and interest and penalties of $7 million (after tax), a total of $16 million (after-tax)

In accordance with ATO practice on disputed assessments, the Group has paid 50% of the amounts owing under the amended assessments.  These payments have been recognised as an asset by the Group in its accounts, included within other assets, on the basis that the Group expects recovery of the amount paid to the ATO.  Interest may accrue on the unpaid disputed amounts.  The Group has not tax-effected interest paid on the ExCaps after 1 October 2003 whilst the tax treatment is in dispute.  As a result, an additional $2 million (2006 year: $20 million) has been recognised in determining income tax expense for the 2007 half year.

The Group disputes the amended assessments for the ExCaps and intends to pursue all necessary avenues of objection and appeal.  Objections against the amended assessments have been lodged but as yet have not been determined.  No provision has been raised for this matter. The Company continues to consider opportunities to resolve this matter.

New Zealand structured finance transactions

The New Zealand Inland Revenue Department (IRD) is carrying out a review of certain structured finance transactions in the banking industry.

As part of this review, subsidiaries of the Group have received amended tax assessments for the 1998 to 2002 years from the IRD with respect to certain structured finance transactions.  The amended assessments are for income tax of approximately NZ$256 million.  Interest will be payable on this amount, and the possible application of penalties has yet to be considered by the IRD.

The New Zealand Government introduced new legislation, effective 1 July 2005, which addresses their concerns with banks entering into these transactions. All of the structured finance transactions of the Group’s subsidiaries that are the subject of the IRD’s review were terminated by that date.

43




If the IRD issues amended assessments for all transactions for periods up to 30 June 2005, the maximum sum of primary tax, which the IRD might claim for all years is approximately NZ$416 million.

In addition, as at 31 March 2007, interest of NZ$164 million (net of tax) will be payable.

The Group is confident that its position in relation to the application of the taxation law is correct and it is disputing the IRD’s position with respect to these transactions.  The Group has obtained legal opinions that confirm that the transactions complied with New Zealand tax law.  The transactions are similar to transactions undertaken by other New Zealand banks.  The Group has commenced legal proceedings to challenge the IRD’s assessments.

The financial effect of the unpaid balance of the amounts owing under the amended assessments has not been brought to account in the financial statements for the half year ended 31 March 2007.

Wealth Management Reinsurance

The ATO is currently conducting a review of the reinsurance contract entered into by the Australian Wealth Management business in the 1998 tax year and amended in the 2000 tax year.   The ATO has issued two position papers on the matter which express the view that certain expenditure incurred under the reinsurance contract was not deductible under certain techincal provisions of the tax law.

The Group believes that the views expressed in the ATO position papers are not correct. Further the Group believes that its position in relation to the application of the tax law, applicable at that time, to this transaction is correct.

The primary tax in relation to the expenditure claimed is approximately $54 million.  Interest and penalties may be imposed should an amended assessment be issued.  An accurate assessment of any interest and penalties cannot be made at this time.  The ATO review is continuing and to date no amended assessment has been received.

No amount has been provided for in relation to this matter.

44




Directors’ declaration

The directors of National Australia Bank Limited declare that, in the directors’ opinion:

(a)          as at the date of this declaration, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and

(b)         the financial statements and the notes thereto, as set out on pages 19 to 44, are in accordance with the Corporations Act 2001 (Cth), including:

(i)             section 304, which requires that the half-year financial report comply with the Accounting Standards made by the Australian Accounting Standards Board for the purposes of the Corporations Act 2001 (Cth) and any further requirements in the Corporations Regulations 2001 (Cth); and

(ii)          section 305, which requires that the financial statements and notes thereto give a true and fair view of the financial position of the Group as at 31 March 2007, and of the performance of the Group for the six months ended 31 March 2007.

Dated this 10th day of May, 2007 and signed in accordance with a resolution of the directors.

Michael A Chaney

John M Stewart

Chairman

Group Chief Executive Officer

 

45




 

·

Ernst & Young Building

·

Tel

61 3 9288 8000

 

 

8 Exhibition Street

 

Fax

61 3 8650 7777

 

 

Melbourne VIC 3000

 

 

 

 

Australia

 

 

 

 

 

 

 

 

 

GPO Box 67

 

 

 

 

Melbourne VIC 3001

 

 

 

To the members of National Australia Bank Limited

Report on the Half Year Condensed Financial Report

We have reviewed the accompanying half year financial report of National Australia Bank Limited (the Company) and the entities it controlled during the half year period, which comprises the consolidated balance sheet as at 31 March 2007, and the consolidated income statement, consolidated recognised income and expense statement and consolidated cash flow statement for the half year ended on that date, other selected explanatory notes 1 to 14 and the directors’ declaration as set out on page 45.

Directors’ Responsibility for the Half Year Financial Report

The directors of the Company are responsible for the preparation and fair presentation of the half year financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of the half year financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility

Our responsibility is to express a conclusion on the half year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of an Interim Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the half year financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the consolidated entity’s financial position as at 31 March 2007 and its performance for the half year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001 and other mandatory financial reporting requirements in Australia. As the auditor of the Company and the entities it controlled during the half year, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report.

A review of a half year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Independence

In conducting our review, we have complied with the independence requirements of the Corporations Act 2001.  We have given to the directors of the Company a written Auditor’s Independence Declaration, a copy of which is included in the Report of the Directors.

Conclusion

Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the interim financial report of the Company and the entities it controlled during the half year, is not in accordance with:

(a)           the Corporations Act 2001, including:

(i)                                     giving a true and fair view of the consolidated entity’s financial position as at 31 March 2007 and of its performance for the six months ended on that date; and

(ii)                                  complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and

(b)           other mandatory financial reporting requirements in Australia.

Ernst & Young

SJ Aldersley

Partner

Melbourne

10 May 2007

Liability limited by a scheme approved under

Professional Standards Legislation.

46




SUPPLEMENTARY INFORMATION - CAPITAL ADEQUACY

(This supplementary information has not been subject to review by our independent auditors)

Life Insurance and Funds Management Activities

Under guidelines issued by APRA, life insurance and funds management activities are excluded from the calculation of risk-weighted assets, and the related controlled entities are deconsolidated for the purposes of calculating capital adequacy. The intangible component of the investment in these controlled entities is deducted from Tier 1 capital,  and the balance of the investment is deducted from the total of eligible Tier 1 and Tier 2 capital. Additionally, any profits from these activities included in the Group’s results are excluded from the determination of Tier 1 capital to the extent that they have not been remitted to the Company.

 

 

As at

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

Reconciliation to shareholder’s funds

 

$m

 

$m

 

$m

 

Contributed equity

 

12,916

 

12,279

 

11,897

 

Reserves

 

1,061

 

1,064

 

714

 

Retained profits

 

15,259

 

14,461

 

13,451

 

Minority interest

 

331

 

168

 

 

Total equity per consolidated balance sheet

 

29,567

 

27,972

 

26,062

 

Reversal of AIFRS effects at 31 March 2006 (1)

 

 

 

3,483

 

National Capital Instruments, €400 million (2)

 

661

 

679

 

 

Treasury shares

 

1,107

 

966

 

 

Exchangeable capital units - embedded derivative and foreign exchange movements

 

 

572

 

 

Eligible deferred fee income

 

207

 

186

 

 

Adjusted total equity

 

31,542

 

30,375

 

29,545

(1)

 

 

 

 

 

 

 

 

Estimated reinvestment under dividend reinvestment plan and bonus share plan

 

51

 

57

 

152

 

Less:

Banking goodwill

 

(553

)

(553

)

(522

)

 

Estimated final dividend

 

(1,420

)

(1,367

)

(1,331

)

 

Wealth Management goodwill and other intangibles

 

(3,905

)

(3,921

)

(2,448

)

 

Asset revaluation reserve

 

(94

)

(100

)

(33

)

 

Profit on sale arising from Wealth Management restructure (3)

 

451

 

494

 

494

 

 

Deconsolidation of Wealth Management profits (net of dividends)

 

(104

)

(110

)

(1,365

)

 

DTA (excluding DTA on the collective provision for doubtful debts) (4)

 

(114

)

(199

)

 

 

Non qualifying minority interest

 

(331

)

(168

)

 

 

Capitalised expenses (5)

 

(51

)

(69

)

(181

)

 

Capitalised software (excluding Wealth Management)

 

(759

)

(687

)

 

 

Defined benefit pension surplus

 

(199

)

(161

)

 

 

General reserve for credit losses

 

(192

)

(135

)

 

 

Cash flow hedge reserve

 

(96

)

(52

)

 

Tier 1 capital

 

24,226

 

23,404

 

24,311

 

 

47




 

 

 

As at

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

 

 

$m

 

$m

 

$m

 

Collective provision for doubtful debts (6)

 

1,443

 

1,389

 

1,600

 

General reserve for credit losses (7)

 

192

 

135

 

 

Total collective provision for doubtful debts

 

1,635

 

1,524

 

1,600

 

Asset revaluation reserve

 

42

 

45

 

33

 

Perpetual floating rate notes

 

310

 

334

 

350

 

Dated subordinated debts

 

9,713

 

9,786

 

8,378

 

Exchangeable capital units

 

 

665

 

686

 

Notional revaluation of investment securities to market

 

 

 

 

Tier 2 capital

 

11,700

 

12,354

 

11,047

 

Other deductions(8)

 

(1,194

)

(1,351

)

(2,967

)

 

 

 

 

 

 

 

 

Total regulatory capital

 

34,732

 

34,407

 

32,391

 

 

 

 

 

 

 

 

 

Risk-weighted assets - credit risk

 

327,027

 

304,771

 

288,350

 

Risk-weighted assets - market risk (9)

 

3,430

 

13,552

 

13,474

 

Total risk-weighted assets (9)

 

330,457

 

318,323

 

301,824

 

Risk adjusted capital ratios

 

 

 

 

 

 

 

Tier 1

 

7.33

%

7.35

%

8.05

%

Tier 2

 

3.54

%

3.88

%

3.66

%

Deductions

 

(0.36

)%

(0.42

)%

(0.98

)%

Total capital

 

10.51

%

10.81

%

10.73

%

 


(1)       APRA required regulatory capital to be calculated in accordance with AGAAP until 1 July 2006. As such, the effect to total equity of all material AIFRS adjustments to 31 March 2006 have been reversed for the purposes of calculating the Group’s capital position at 31 March 2006.

(2)       The400 million National Capital Instruments issued on 29 September 2006 are classified as debt for accounting purposes but qualify as Tier 1 capital for regulatory capital purposes.

(3)       Relates to profit, arising in the banking group, from the sale of the life and insurance businesses of Bank of New Zealand and National Australia Group Europe to NAFiM subsidiaries on 1 January 2002. With effect from 31 December 2007, the National expects the regulatory capital treatment to change, and for the profit on sale to be excluded from Tier 1 capital.

(4)       APRA requires any excess deferred tax assets (DTA) (excluding DTA on the collective provision for doubtful debts) over deferred tax liabilities to be deducted from Tier 1 capital.

(5)       Comprises capitalised costs associated with debt raisings and securitisations. Loan origination fees are now netted against eligible deferred fee income.

(6)       Includes $144 million (pre-tax) provision for doubtful debts classified within loans recorded at fair value and trading derivatives at 31 March 2007.  (30 September 2006 $134 million ; 31 March 2006 $120 million)

(7)       In line with APRA’s requirements, a General Reserve for Credit Losses was established at 1 July 2006. This is an appropriation from retained earnings to non distributable reserves and qualifies as Tier 2 capital. The reserve is calculated on a basis which aligns the Group’s coverage ratios with the APRA benchmark of 0.5% (post-tax effect) of total risk-weighted credit risk assets.

(8)       Includes $1,075 million investment in non-consolidated controlled entities, net of intangible component deducted from Tier 1 capital (30 September 2006 $1,223 million ; 31 March 2006 $2,922 million).

(9)       Risk-weighted assets - market risk is calculated based on the Internal Method from 1 January 2007.

48




 

 

 

As at

 

 

 

31 Mar 07

 

30 Sep 06

 

31 Mar 06

 

Adjusted common equity ratio reconciliation

 

$m

 

$m

 

$m

 

Tier 1 capital

 

24,226

 

23,404

 

24,311

 

Adjusted for:

 

 

 

 

 

 

 

National Income Securities

 

(1,945

)

(1,945

)

(1,945

)

Trust Preferred Securities

 

(975

)

(975

)

(975

)

Trust Preferred Securities II

 

(1,014

)

(1,014

)

(1,014

)

National Capital Instruments, A$

 

(397

)

(397

)

 

National Capital Instruments, €400 million

 

(661

)

(679

)

 

Other deductions

 

(1,194

)

(1,351

)

(2,967

)

Adjusted common equity

 

18,040

 

17,043

 

17,410

 

Total risk-weighted assets

 

330,457

 

318,323

 

301,824

 

Adjusted common equity ratio

 

5.46

%

5.35

%

5.77

%

 

Wealth Management capital adequacy position

The Group conservatively manages the capital adequacy and solvency position of its Wealth Management entities separately from that of the banking business by reference to regulatory and internal requirements. The principal National Wealth Management entities are separately regulated and need to meet APRA’s capital adequacy and solvency standards. In addition, internal Board policy ensures that capital is held in excess of minimum regulatory capital requirements in order to provide a conservative buffer. There are currently three entities within the Wealth Management group with credit ratings, National Wealth Management Holdings Limited which is rated AA- by Standard and Poors; and MLC Lifetime Company Limited and MLC Ltd, both of which have the same long-term credit rating as the National (AA).

49




SIGNATURE PAGE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorised.

NATIONAL AUSTRALIA BANK LIMITED

 

 

 

 

 

 

 

Signature:

/s/ Brendan T Case

Date: 17 May 2007

Name:

Brendan T Case

 

Title:

Company Secretary