1、Annual Financial Report 2002National Australia Bank LimitedABN 12 004 044 937This Annual Financial Report 2002 is lodgedwith the Australian Securities and InvestmentsCommission and Australian Stock ExchangeLimited.It is also filed with the United StatesSecurities and Exchange Commission as anannual
2、report on Form 20-F.Nothing in this Annual Financial Report 2002is,or should be taken as,an offer of securitiesin National Australia Bank Limited for issue orsale,or an invitation to apply for the issue orfor the purchase of such securities.All figures in this document are in Australiandollars unles
3、s otherwise stated.Table of contents1Presentation of information25 Profit from ordinary activities before incomeFinancial highlights3 tax expense90Selected financial data46 Income tax expense94Business overview77 Dividends and distributions94Introduction78 Earnings per share95Strategy79 Cash assets9
4、6Business operating model710 Due from other financial institutions96Introduction to Financial Services811 Due from customers on acceptances96Financial Services Australia812 Trading securities97Financial Services Europe913 Available for sale securities97Financial Services New Zealand1014 Investment s
5、ecurities99Wholesale Financial Services1015 Investments relating to life insurance business103Wealth Management1116 Loans and advances103Other1117 Provisions for doubtful debts106Competition1218 Asset quality disclosures108Regulation of the financial services system1319 Mortgage servicing rights111
6、Changing regulatory environment1320 Shares in entities and other securities111European Economic and Monetary Union1421 Regulatory deposits111Organisational structure1422 Property,plant and equipment112Description of property1423 Income tax assets113Certain legal proceedings1424 Goodwill114Financial
7、review1525 Other assets114Summary1526 Due to other financial institutions116Economic outlook1627 Deposits and other borrowings116Critical accounting policies1728 Life insurance policy liabilities117Net interest income2029 Income tax liabilities118Net life insurance income2230 Provisions118Other bank
8、ing and financial services income2331 Bonds,notes and subordinated debt118Mortgage servicing and origination revenue2432 Other debt issues120Movement in the excess of net market value over net assets of33 Other liabilities121 life insurance controlled entities2534 Contributed equity121Significant re
9、venue2635 Reserves124Operating expenses2636 Retained profits125Charge to provide for doubtful debts2737 Outside equity interest125Significant expenses2838 Total equity reconciliation125Net profit by segment3039 Employee share,bonus and option plans126Employees3640 Average balance sheets and related
10、interest131Assets and equity3741 Maturity analysis133Return on average equity3842 Interest rate risk134Earnings and dividends per share3843 Notes to the statement of cash flows139Shareholder value3944 Particulars in relation to controlled entities142Liquidity and funding3945 Contingent liabilities a
11、nd credit commitments143Capital resources4246 Derivative financial instruments147Gross loans and advances4547 Fair value of financial instruments152Impaired assets,provisions and allowance for loan losses4648 Superannuation commitments154Deposits and other borrowings4949 Operating lease commitments1
12、55Assets under management and administration5050 Capital expenditure commitments156Risk management5151 Financing arrangements156Transactions with related and other non-independent parties5752 Related party disclosures156Risk factors5753 Remuneration of directors159Accounting developments5854 Remuner
13、ation of executives160Corporate governance5955 Remuneration of auditors161Report of the directors6456 Fiduciary activities162Financial report7357 Life insurance business disclosures162Statement of financial performance7458 Reconciliation with US GAAP169Statement of financial position7559 Events subs
14、equent to balance date177Statement of cash flows76Directors declaration178Notes to the financial statements77Auditors report1791 Principal accounting policies77Shareholder information1802 Supplementary statement of financial position85Form 20-F cross reference index1953 Segment information86Principa
15、l establishments1974 Revenue from ordinary activities89Presentation of information2Basis of presentationThis annual financial report is prepared in accordance with generally acceptedaccounting principles(GAAP)applicable in Australia(Australian GAAP),which differs in some respects from GAAP in the Un
16、ited States(US GAAP)(as set out in note 58 in the financial report).Comparative amounts have beenreclassified to accord with changes in presentation made in 2002,except whereotherwise stated.Currency of presentationAll currency amounts are expressed in Australian dollars unless otherwisestated.Merel
17、y for the convenience of the reader,this annual financial reportcontains translations of certain Australian dollar amounts into US dollars atspecified rates.These translations should not be construed as representationsthat the Australian dollar amounts actually represent such US dollar amountsor cou
18、ld be converted into US dollars at the rate indicated.Unless otherwisestated,the translations of Australian dollars into US dollars have been made atthe rate of US$0.5429=A$1.00,the noon buying rate in New York City forcable transfers in Australian dollars as certified for customs purposes by theFed
19、eral Reserve Bank of New York(noon buying rate)on September 30,2002.Certain definitionsNational Australia Bank Limited is herein referred to as the Company and,together with its controlled entities,as the Group.The Companys fiscal yearends on September 30.As used herein,the fiscal year ended Septemb
20、er 30,2002 is referred to as 2002 and other fiscal years are referred to in acorresponding manner.The abbreviations$m and$bn represent millions andthousands of millions(ie.billions)of Australian dollars respectively.Financialstatements means the Companys consolidated financial statements for theyear
21、 ended September 30,2002,September 30,2001 and September 30,2000included herein at pages 73 to 178.Any discrepancies between total and sumsof components in tables contained in this annual financial report are due torounding.Consistency of informationThe Company is required to lodge a separate prelim
22、inary final report(Appendix 4B)with Australian Stock Exchange Limited(ASX)for the yearended September 30,2002.That Appendix 4B is in the form,and contains theinformation,required by the ASX Listing Rules and does not contain all of theinformation in this annual financial report.Otherwise,there is no
23、 materialdifference between the information in the audited financial report and theinformation in the Appendix 4B.Forward-looking statementsThis annual financial report contains certain forward-looking statementswithin the meaning of section 21E of the United States Securities ExchangeAct of 1934.Th
24、e United States Private Securities Litigation Reform Act of1995 provides a safe harbour for forward-looking information to encouragecompanies to provide prospective information about themselves without fearof litigation,so long as the information is identified as forward-looking and isaccompanied by
25、 meaningful cautionary statements identifying importantfactors that could cause actual results to differ materially from those projectedin the information.The words anticipate,believe,expect,project,estimate,intend,should,could,may,target,goal,objective,plan and other similarexpressions are used in
26、connection with forward-looking statements.In this annual financial report,forward-looking statements may,withoutlimitation,relate to statements regarding:economic and financial forecasts,including but not limited to statementsunder the financial review and report of the directors;anticipated implem
27、entation of certain control systems and programs,including,but not limited to those described under the financial review-risk management;andcertain plans,strategies and objectives of management.Such forward-looking statements are not guarantees of future performance andinvolve known and unknown risk
28、s,uncertainties and other factors,many ofwhich are beyond the control of the Group,that may cause actual results todiffer materially from those expressed in the statements contained in thisannual financial report.For example:the economic and financial forecasts contained in this annual financialrepo
29、rt will be affected by movements in interest and foreign currencyexchange rates,which may vary significantly from current levels,as wellas by general economic conditions in each of the Groups major markets.Such variations,if adverse,may materially impact the Groups financialcondition and results of
30、operations;the implementation of control systems and programs will be dependent onsuch factors as the Groups ability to acquire or develop necessarytechnology or systems,its ability to attract and retain qualified personneland the co-operation of customers and third party vendors;andthe plans,strate
31、gies and objectives of management will be subject to,among other things,government regulation,which may change at anytime and over which the Group has no control.In addition,the Group willcontinue to be affected by general economic conditions in Australia andworldwide,movements and conditions in cap
32、ital markets,the competitiveenvironment in each of its markets and political and regulatory policies.There can be no assurance that actual outcomes will not differ materially fromthe forward-looking statements contained in this annual financial report.Financial highlights3ProfitabilityNet profit att
33、ributable to members of the Company increased 61.9%to$3,373 million.Net profit before significant items decreased 5.9%to$3,785 million.The current years result includes the following significant items:net restructuring costs of$412 million;andnet profit on sale of SR Investment,Inc.(formerly known a
34、sHomeSide International,Inc.)of$6 million.The 2001 result included the following significant items:net profit from the sale of Michigan National Corporation of$1,681million;andnet write-downs of mortgage servicing rights and goodwill relatingto HomeSide Lending,Inc,totalling$3,617 million.Internatio
35、nal activities contributed$1,672 million of net profit($1,516million after significant items),compared to$1,776 million in 2001(lossof$160 million after significant items).Shareholder returnsCash earnings per share more than doubled to 222.0 cents.Excludingsignificant items,cash earnings per share i
36、ncreased 4.9%to 248.2 cents.Earnings per share increased 69.3%to 205.7 cents.Excludingsignificant items,earnings per share decreased 6.3%to 231.9 cents.Return on average equity increased from 9.0%to 15.1%.Excludingsignificant items,return on average equity decreased from 18.4%to17.0%.Dividends were
37、147 cents per share compared with 135 cents per sharelast year.The final dividend of 75 cents was 90%franked.Economic Value Added(EVA)increased 13.7%to$1,284 million.EVA is a registered trademark of Stern Stewart&Co.EVA measures theeconomic profit earned in excess of the Groups cost of capital.Growt
38、h and diversificationNet assets grew by 7.9%in local currency terms.Total assets grew by 2.7%in local currency terms.Movements in exchange rates decreased total assets(in Australian dollarterms)by$7.1 billion.Gross loans and advances increased 12.0%in local currency terms.Assets under management and
39、 administration(off-balance sheet assets)increased 1.2%to$64.6 billion.Assets under custody and administration(off-balance sheet assets)increased 5.8%to$365 billion.Selected financial dataThe information hereunder has been derived from the audited financial report of the Group,or where certain items
40、 are not shown in the Groups financial report,has been prepared for the purpose of this annual financial report and should be read in conjunction with and qualified in their entirety by reference to thefinancial report.Comparative amounts have been reclassified to accord with changes in presentation
41、 made in 2002,except where otherwise stated.20022002(1)2001(2)2000(3)19991998(4)$mUS$m$m$m$m$mSummary statement of financial performanceAustralian GAAPNet interest income7,222 3,921 6,960 6,371 6,066 5,858 Net life insurance income(10)(5)128 332 -Other banking and financial services income7,006 3,80
42、3 4,749 4,124 4,027 3,630 Mortgage servicing and origination revenue378 205 810 640 536 323 Movement in the excess of net market value over net assets of life insurance controlled entities(155)(84)510 202 -Significant revenue2,671 1,450 5,314 -Operating expenses8,707 4,727 6,470 5,807 5,701 5,320 Am
43、ortisation of goodwill101 55 167 197 206 181 Charge to provide for doubtful debts697 379 989 588 581 587 Significant expenses3,266 1,773 6,866 204 -749 Profit from ordinary activities before income tax expense4,341 2,356 3,979 4,873 4,141 2,974 Income tax expense relating to ordinary activities962 5
44、22 1,891 1,632 1,321 959 Net profit3,379 1,834 2,088 3,241 2,820 2,015 Net profit/(loss)attributable to outside equity interest6 3 5 2 (1)1 Net profit attributable to members of the Company3,373 1,831 2,083 3,239 2,821 2,014 Dividends paid/payable(5)2,266 1,230 2,080 1,858 1,655 1,467 Adjusted to ac
45、cord with US GAAPNet income3,499 1,899 1,866 3,051 2,862 2,099 20022002(1)2001(2)2000(3)19991998(4)$mUS$m$m$m$m$mSummary statement of financial positionAustralian GAAPInvestments relating to life insurance business31,012 16,836 31,381 31,103 -Loans and advances(after provisions for doubtful debts)23
46、1,300 125,573 207,797 195,492 165,620 160,001 Total assets377,387 204,883 374,720 343,677 254,081 251,714 Total risk-weighted assets247,838 134,551 257,513 238,589 197,096 199,476 Deposits and other borrowings206,864 112,306 190,965 185,097 162,468 158,084 Life insurance policy liabilities30,425 16,
47、518 30,257 29,879 -Bonds,notes and subordinated debt22,192 12,048 24,984 21,051 13,437 15,115 Perpetual floating rate notes460 250 507 461 383 421 Exchangeable capital units(6)1,262 685 1,262 1,262 1,262 1,262 Net assets23,251 12,623 23,557 21,407 18,520 15,764 Contributed equity9,931 5,391 10,725 9
48、,855 9,286 6,675 Ordinary shares7,256 3,939 8,050 7,180 6,611 5,942 Equity instruments(7)2,675 1,452 2,675 2,675 2,675 733 Total equity(excludes outside equity interest)23,184 12,587 23,489 21,361 18,520 15,761 Adjusted to accord with US GAAPTotal assets380,280 206,452 377,167 344,227 258,791 256,75
49、3 Total equity24,005 13,030 23,987 21,836 19,226 16,359 GroupGroup4Selected financial dataGroup20022002(1)2001(2)2000(3)19991998(4)$US$Shareholder informationAustralian GAAPCash earnings per share before significant items(8)2.48 1.35 2.37 2.15 2.01 1.87 Cash earnings per share(8)2.22 1.21 1.11 2.06
50、2.01 1.53 Earnings per share before significant items(9)Basic2.32 1.26 2.47 2.11 1.87 1.75 Diluted2.21 1.20 2.43 2.08 1.83 1.72 Earnings per share(9)Basic2.06 1.12 1.22 2.02 1.87 1.40 Diluted2.03 1.10 1.23 1.99 1.83 1.39 Dividends per share(5)1.47 0.80 1.35 1.23 1.12 1.02 Dividends per American Depo
51、sitary Share(ADS)(5)7.35 3.99 6.75 6.15 5.60 5.10 Dividend payout ratio(%)(5)71.12 38.61 111.23 61.10 60.25 73.09 Net assets per share15.11 8.20 15.15 14.12 12.46 10.87 Share price at year-end33.48 18.18 25.66 25.51 22.43 20.39 Number of shares at year-end(No.000)1,534,840 n/a1,551,575 1,516,111 1,4
52、86,295 1,450,427 Adjusted to accord with US GAAPNet income per share(9)Basic2.14 1.16 1.07 1.90 1.89 1.46 Diluted2.08 1.13 1.09 1.84 1.84 1.44 Dividends per ADS(US$)(5)(10)n/an/a3.51 3.50 3.62 3.17 Dividends as percentage of net income(%)64.76 35.16 111.47 60.90 57.83 69.89 Group20022001200019991998
53、%Selected financial ratiosAustralian GAAPNet profit before significant items as a percentage of Average total assets(excluding statutory funds)1.2 1.3 1.2 1.1 1.1 Average equity17.0 18.4 18.1 17.3 17.8 Net profit as a percentage of Average total assets(excluding statutory funds)1.0 0.7 1.2 1.1 0.8 A
54、verage equity15.1 9.0 17.3 17.3 14.3 Average equity to average total assets(excluding statutory funds)7.2 7.3 7.3 6.7 5.9 Average net interest spread2.4 2.3 2.4 2.5 2.6 Average net interest margin2.7 2.7 2.9 3.0 3.2 Net profit before significant items per average full-time equivalent employee($000)8
55、3.5 82.9 71.5 59.9 n/aGross non-accrual loans to gross loans and acceptances0.62 0.75 0.66 0.82 0.79 Net impaired assets to total equity4.7 5.1 4.9 6.1 6.9 Total provisions for doubtful debts to gross impaired assets1.6 1.6 1.8 1.6 1.7 Capital-risk asset ratios(11)Tier 17.8 7.5 6.6 7.8 6.4 Tier 23.7
56、 3.9 4.0 2.9 3.1 Deductions(1.3)(1.2)(1.3)(0.3)(0.3)Total10.2 10.2 9.3 10.4 9.2 Ratio of earnings to fixed charges(12)1.5 1.3 1.4 1.5 1.3 Adjusted to accord with US GAAPNet income as a percentage ofAverage total assets(excluding statutory funds)1.0 0.5 1.2 1.1 0.9 Average equity14.7 8.0 14.9 16.4 14
57、.4 Total equity as percentage of total assets(excluding statutory funds)6.9 7.0 7.0 7.4 6.4 Ratio of earnings to fixed charges(12)1.5 1.3 1.4 1.5 1.3 5Selected financial dataGroup20022001200019991998Other informationTotal staffFull-time and part-time46,64249,71051,87951,56650,973Full-time equivalent
58、(core)(13)41,42844,98347,41745,67646,300Full-time equivalent(14)43,20247,59749,51446,837n/aExchange rates(average and closing per A$1.00)AverageBritish pound0.36220.36260.39020.39340.3914Euro0.57980.58800.63100.58250.5840United States dollar0.53240.52270.61020.64040.6468New Zealand dollar1.19921.247
59、41.26481.20121.1576ClosingBritish pound0.34740.33540.37100.36970.3480Euro0.55280.53930.61660.61460.5041United States dollar0.54400.49280.54270.65280.5934New Zealand dollar1.15651.21351.33511.25891.1880Group2003(15)20022001200019991998(US$per A$1.00)Average(16)0.54730.53220.52210.60910.64040.6571Sept
60、ember 300.54290.49150.54150.65280.5930On November 7,2002 the noon buying rate was US$0.5660 per A$1.00.Group 2002OctoberSeptemberAugustJulyJuneMayUnited States dollar(per A$1.00)High0.55000.55180.55340.56880.57480.5660Low0.54220.54190.52800.53700.55830.5365(1)Translated at the noon buying rate on Se
61、ptember 30,2002 of US$0.5429=A$1.00.(2)Includes amounts relating to Michigan National Corporation and its controlled entities to March 31,2001.The Group sold this entity on April 1,2001.(3)Includes amounts relating to the MLC group from July 1,2000.The Group acquired these entities on June 30,2000.(
62、4)Includes amounts relating to SR Investment,Inc.(formerly known as HomeSide International,Inc.)from February 10,1998,the date on which the Group acquired thisentity.(5)Dividend amounts are for the year for which they are declared and includes issues under the bonus share plan in lieu of cash and sc
63、rip dividends.Dividends andbook value per ordinary share and per American Depositary Share(ADS)calculations are based on year-end fully paid equivalent ordinary shares,adjusted forloans and rights issues as appropriate.Net profit is based on amounts attributable to ordinary shareholders after deduct
64、ing distributions to other equityholders.(6)The exchangeable capital units of US$1 billion are recorded in this annual financial report at the historical rate of US$0.7922=A$1.00.(7)Equity instruments incorporate preference shares and National Income Securities.(8)Cash earnings are based on earnings
65、 attributable to ordinary shareholders excluding the movement in the excess of net market value over net assets of life insurancecontrolled entities and goodwill amortisation.(9)Refer to notes 8 and 58 in the financial report for an explanation of earnings per share.(10)Dividend amounts are translat
66、ed into US dollars per ADS(representing five fully paid ordinary shares)at the exchange rate on each of the respective payment datesfor interim and final dividends.The 2002 final dividend of A$0.75 per ordinary share is not payable until December 11,2002.Accordingly,the total US dollardividend per A
67、DS cannot be determined until that date.(11)As defined by Australian Prudential Regulation Authority(refer to capital resources on page 42 and regulation of the financial services system on page 13).(12)For the purpose of calculating these ratios,fixed charges are comprised of interest on all indebt
68、edness including interest on deposits,and one-third of rental charges(which is used to be representative of an interest factor).Earnings are calculated after all operating and income deductions,except fixed charges,extraordinaryitems and tax based on profit and are stated before outside equity inter
69、est.(13)Full-time equivalent includes part-time staff(pro-rated).Core excludes contractors and casual staff.(14)Full-time equivalent includes part-time staff(pro-rated).Comparative information in relation to full-time equivalents has been restated to include contractors andcasual staff.(15)Through t
70、o October 18,2002.(16)The daily average of the noon buying rates.6Business overviewIntroductionThe Group is an international financial services group that provides acomprehensive and integrated range of financial products and services.The Company traces its history back to the establishment of The N
71、ationalBank of Australasia in 1858.National Australia Bank Limited is a publiclimited company,incorporated on June 23,1893 in Australia,which is theCompanys main domicile.Its registered office is 24th floor,500 BourkeStreet,Melbourne,Victoria 3000,Australia.The Company operates under therequirements
72、 of the Banking Act 1959(Cth)and Corporations Act 2001(Cth).Globally,as at September 30,2002,the Group had:total assets of$377 billion;almost$65 billion in assets under management and administration;$365 billion in assets under custody and administration;andalmost 8 million banking customers and mor
73、e than 2.8 million wealthmanagement customers.The Company is the largest financial services institution(by marketcapitalisation)listed on the stock market of Australian Stock ExchangeLimited.It is one of the worlds top 50 financial services companies byrevenues,as listed in the July 2002 edition of
74、Fortune Magazine.StrategyThe Group operates as one international financial services group,deliveringadvice and solutions to help customers achieve their goals.Moving forward,the focus for the Group will be on creating growth through excellentrelationships.To achieve this the Group will:deliver solut
75、ions that meet customers financial needs;build and sustain a high performance culture;build trusted relationships with all stakeholders;build and manage the Groups portfolio of businesses to achieve strongand sustainable shareholder returns;andcreate and leverage strategic assets and capabilities fo
76、r competitiveadvantage.Positioning for Growth strategic reviewIn October 2001,the Group launched a program to drive long-term growth,termed Positioning for Growth.Positioning for Growth was designed toensure that the Group continued to meet its performance objectives whilstmaking the investments nec
77、essary to underpin future growth.The program looked to strengthen and invigorate the Group through thesimplification of its structure,systems and processes,and the development ofits talent base.It also examined opportunities to maximise revenue,reducecost structures and use resources more efficientl
78、y.In January 2002,the Group announced plans for a new corporate structurebased around its principal areas of operation and designed to support cleareraccountability,greater customer focus,simpler reporting and reducedbureaucracy.The new structure creates regional integrated financial servicesteams w
79、ith broader authority and more control over distribution,products andservices.The key elements of the new structure are:creating three regional financial services business units-Australia,Europe and New Zealand;Wholesale Financial Services and Wealth Management remain as globalbusinesses(while under
80、going an internal restructure);the previous global divisions of Business and Personal FinancialServices,Specialist and Emerging Businesses and National SharedServices have been integrated into the three regional financial servicesbusiness units;andthe support functions of Finance,Technology,Group Fu
81、nding,Peopleand Culture,Risk Management,Corporate Development and Office ofthe CEO are organised on a global basis;however,much of theirfunctionality is integrated within the business units.Business operating modelIn recent years,the Groups operating model has been a combination of globaland regiona
82、lly-oriented businesses.Where managing or transferring coreskills or products between geographical markets gives the Group a competitiveedge,a global management model has existed and where regional focus ismore important,a regional management structure has existed.This approachcontinues;however,alig
83、nment with customers,rather than along product lines,has been strengthened to enhance the Groups relationship-based customeradvocacy stance.This enables improved integration of banking,investmentand insurance offerings at the customer interface.The Group consists of five lines of business:Financial
84、Services Australia;Financial Services Europe;Financial Services New Zealand;Wholesale Financial Services;andWealth Management.These business lines are supported by the following global functions-Finance,Technology,Group Funding,People and Culture,Risk Management,Corporate Development and Office of t
85、he CEO.In September 2001,a decision was taken by the Board of directors of theCompany to pursue the sale of HomeSide Lending,Inc.(HomeSide US).Following this,the operating assets and operating platform of HomeSide USwere sold on March 1,2002.HomeSide US retained the mortgage servicingrights.However,
86、on May 31,2002,HomeSide US sold mortgage servicingrights of approximately US$12.8 billion of mortgages.On August 27,2002,the Company entered into a contract for the sale of SR Investment,Inc.,theholding company of HomeSide US.The sale closed on October 1,2002.Refer to page 11 for a detailed discussi
87、on.7Business overviewIntroduction to Financial ServicesThe Groups Financial Services businesses,or the retailing arms of the Group,provide a range of financial products and services tailored to the needs of theircustomers.The recent restructure has created regional businesses with broader authoritya
88、nd more control over distribution,products and services.Each region ismanaged separately with a distinct focus-Financial Services Australia,Financial Services Europe and Financial Services New Zealand.The Financial Services businesses in each region are organised aroundcustomer segments,with product
89、s,services and the skills of staff matched tothe needs of a similar group of customers in each region.This reflects theGroups core strategy of creating growth through excellent relationships.The aim is to develop mutually beneficial,long-term relationships withcustomers in each region.The segment-ba
90、sed businesses include Business,Personal,Agribusiness,Cards,Payments and Asset Finance.The segment-based businesses aresupported by the specialist units of Business Development and Strategy,Channel and Process Optimisation,and Shared Services.BusinessBusiness provides tailored financial solutions to
91、 its customers,which rangefrom sole traders to multi-national businesses.This segment provides totalfinancial solutions that span the range of products and services of the Group.PersonalPersonal supports both retail and premium(higher net worth)customers,witha strong focus on tailoring financial sol
92、utions to meet all its customerspersonal financial needs.This segment is committed to having the mosteffective sales organisation and highest standards of service.AgribusinessAgribusiness is dedicated to serving the agricultural sector and concentratessolely on meeting the needs of primary producers
93、,service providers toagriculture and processors of agricultural produce.With this focus,Agribusiness has a strong understanding of the financial needs of agriculturalbusiness.CardsCards manages the Groups credit card business(predominantly Visa andMasterCard).PaymentsPayments is responsible for the
94、processing and completion of paymenttransactions and the development of payment processes and systems,particularly in e-commerce.Asset Finance and Fleet ManagementAsset Finance and Fleet Management specialises in plant,equipment andmotor vehicle leasing,as well as the broader area of fleet managemen
95、t.WhileAsset Finance is a segment-based business,Fleet Management is run on aglobal management model.On September 28,2002,a controlled entity of theCompany,Custom Fleet(NZ)Limited,entered into an agreement to purchasethe New Zealand-based Hertz Fleetlease Limited and its Australian-basedcontrolled e
96、ntity,Hertz Lease Ltd.This transaction settled on November 1,2002.The purchase provides Fleet Management with a solid position in boththe Australian and New Zealand markets.Business Development and StrategyBusiness Development and Strategy represents the centralisation of strategy,marketing and prod
97、uct development within the retailing operations in eachregion.Channel and Process OptimisationChannel and Process Optimisation is responsible for the back office offeringsand quality delivery of retail products and services.It focuses on distributionand channel management.Shared ServicesShared Servi
98、ces enables the Group to more readily take an end-to-endperspective on what it does and to give greater control over the servicesprovided to meet the needs of local customers more effectively.It comprisesoperational services-Collections,Corporate Real Estate,Lending Services,Strategic Sourcing and T
99、ransaction and Business Services.Within SharedServices,the Group undertakes a number of specialised business activitiesthrough its controlled entities and its business units.These include a propertyowning company,NBA Properties Limited,which,with its subsidiarycompanies,is primarily an owner of the
100、Groups business-related properties.Financial Services AustraliaFinancial Services Australia is the Australian retailing arm of the Group thatprovides a range of financial products and services that consistently meet thefull financial needs of its 3.4 million customers in Australia.At September 30,20
101、02,Financial Services Australia had 19,100 full-timeequivalent employees.The Group is one of the largest providers of financial services in Australia.Itis the largest provider of financial services to business(measure:creditoutstandings,source:Greenwich Associates,date:June 2002).8Business overviewT
102、he Groups strong position in business markets is the result of initiatives overa number of years,centred on a relationship management model.Theseinitiatives have included the development of Business and Agribusinessbanking teams with specialist knowledge and a sound understanding of thefinancial nee
103、ds of businesses.Services to business customers comprise a range of deposit,lending andpayment facilities supplemented with a number of other financial services.These services include treasury,asset finance,equity finance,nominee andcustodian services,corporate trustee services and insurance and inv
104、estmentproducts.Business customer sales and relationship management are primarily conductedthrough a network of business banking centres and business banking suites.In the personal segments,the Group has implemented a relationshipmanagement approach for the top 20%of the customer base,withresponsibi
105、lity for managing different wealth segments allocated betweenWealth Management and Financial Services Australia.Financial ServicesAustralia has dedicated bankers to pro-actively manage the portfolios of thesecustomers,and uses a range of specialists such as financial advisers and estateplanners to m
106、eet their more complex needs.Retail customers are able toaccess the Groups products and services through the branch network,contactcentres,certain Australia Post outlets,automatic teller machines(ATMs)andthe internet.The acquisition and integration of the MLC group has resulted in the provisionof ad
107、ditional expertise and services to both staff and customers.This has beenreflected in the continued strong performance of the financial planning force,which is now established in all consumer and business segments.Customer transactions,sales and enquiry services are provided through anetwork of bran
108、ches and electronic distribution channels.The Group hasalmost 800 branches and 152 banking centres in Australia and in addition tothose outlets personal customers are able to conduct transactions at over 2,900Australia Post outlets.The number of ATMs has also increased to over 1,650.Customers are al
109、so able to conduct a range of product purchases andtransactions and source information services via the internet,by telephone,byemail,through contact centres,or through an extensive network of point ofsale(EFTPOS)terminals.Only 9%of all transactions(by value)are nowcarried out through the branch net
110、work,reflecting changing customerpreferences.These channels are supported by customer relationship management systems,data warehouses and lead generation systems.These provide bankers withintegrated customer information to better service and meet the needs ofcustomers.Refer to page 30 for detailed i
111、nformation of the financial performance ofFinancial Services Australia.Financial Services EuropeFinancial Services Europe is the European retailing arm of the Group thatprovides a range of financial products and services tailored to the needs of its3.5 million customers in Great Britain and Ireland.
112、At September 30,2002,Financial Services Europe had 11,900 full-timeequivalent employees.The Groups retailing activities in Europe(Great Britain and Ireland)operateunder four brands.A brief discussion of the activities in Great Britain andIreland follows.Great BritainThe focus of the Group in Great B
113、ritain has been to grow the business andconsumer segments by implementing relationship management models,whichhave been successfully adopted elsewhere in the Group.This is supported bythe introduction of innovative products and services(such as Rapid Repaymortgages),and continued investment in alter
114、native channels to assistcustomers by extending the range of channels with which they can choose tomanage their financial affairs.The Group has 491 outlets in Great Britain(of which three are located inLondon),including 89 business banking centres and premium outlets.Theseare supported by two custom
115、er contact centres(which also service the GroupsIrish operations),internet facilities and 933 ATMs.The Groups regional banks in Great Britain are Clydesdale Bank in Scotlandand Yorkshire Bank in northern England.Each bank offers a broad range offinancial services to both retail and business customer
116、s.Clydesdale Bank is one of the major banks in Scotland,with a strong businesscustomer franchise,and has been part of the Group since 1987.YorkshireBank was acquired in 1990 and is a significant player in its natural marketingarea of Yorkshire and the surrounding counties.Yorkshire Bank has a strong
117、consumer franchise,with a growing business segment.IrelandThe primary aims of the Group in Ireland are consistent with those in GreatBritain:to grow the relationship management segments while investing inintegrated channels.The focus over the past year has been on continuing theintegration of suppor
118、t areas to better use the Groups resources and achievescale economies.The Group has 154 outlets in Ireland,including 21 business banking centresand premium outlets.These are supplemented with a network of 264 ATMs,an internet presence and access to the customer contact centres in GreatBritain.The Gr
119、oup has owned Northern Bank in Northern Ireland and National IrishBank in the Republic of Ireland since 1987.Each bank offers a broad range offinancial services.Northern Bank is one of the largest banks in Northern Ireland(measure:maincurrent accounts,source:MORI/MRC,date:March 2002),and over recent
120、years has expanded its profile in the consumer segment.National Irish Banks primary strength is in the consumer segment.It hasbenefited from the introduction of innovative financial products and stronggrowth in the economy of the Republic of Ireland during the past three years.Refer to page 30 for d
121、etailed information of the financial performance ofFinancial Services Europe.9Business overviewFinancial Services New ZealandFinancial Services New Zealand is the New Zealand retailing arm of the Groupthat provides a range of financial products and services tailored to the needs ofits more than 960,
122、000 customers in New Zealand.At September 30,2002,Financial Services New Zealand had 3,900 full-timeequivalent employees.The Groups retailing activities in New Zealand operate under the Bank ofNew Zealand(BNZ)brand.BNZ was acquired by the Group in 1992.BNZ has a strong brand position inthe New Zeala
123、nd market with comprehensive coverage across the country.Itoffers a range of financial services and is one of the largest financial serviceproviders in New Zealand(measure:credit outstandings,source:Reserve Bankof New Zealand,date:June 2002).BNZ enjoys a leadership position in thecards market with i
124、nnovative solutions including GlobalPlus(measure:outstandings,source:ACNielsen,date range:January-June 2002).Growth in these segments is being driven through BNZs customerrelationship management strategy called TOPS.TOPS is a computer-basedsystem that notifies staff of trigger events from customer t
125、ransactional activityand milestone attainment,resulting in customers being contacted by BNZ at atime when they need it.The system has been developed from the Groupsleading and award-winning customer relationship management platform.The ongoing enhancement of the physical distribution network,coupled
126、 withimproved technology,automation and functionality through electronic andremote channels,continues to be a core strategy.BNZs vision is to providecustomers with tailored financial solutions,which are deliverable through arange of convenient and cost-effective channels.The distribution network is
127、comprised of 183 outlets including 19 businessbanking centres,383 ATMs,and shared access to an extensive nationwideEFTPOS network.BNZ also has well-established telephone bankingcapabilities and in 2002 launched an improved internet banking service nowcatering for almost 100,000 active users.Refer to
128、 page 31 for detailed information of the financial performance ofFinancial Services New Zealand.Wholesale Financial ServicesWholesale Financial Services manages the Groups relationships with largecorporations,banks,financial institutions,supranationals(such asdevelopment banks)and government bodies.
129、It operates in Australia,Europe,New Zealand,New York and Asia(Hong Kong,Singapore,Seoul and Tokyo).Each region has a dedicated leadership team to provide local,accessible seniormanagement for customers.At September 30,2002,Wholesale Financial Services had 2,500 full-timeequivalent employees.Wholesal
130、e Financial Services comprises Corporate Banking,Markets,Specialised Finance,Financial Institutions Group,Custodian Services and aSupport Services unit.Corporate BankingCorporate Banking is responsible for the Groups relationships with largecorporations and provides corporate lending products and ot
131、her financingsolutions.Customer teams are selected to provide the appropriate blend ofrelationship management,industry knowledge and product skills.Customer coverage is organised along industry segment lines to promotespecialist knowledge and understanding.There are five major industrysegments:consu
132、mer goods and services;telecommunications,media andtechnology;industrials,materials and health care;energy and utilities;andproperty and construction finance.MarketsMarkets focuses on traded products and risk management solutions.Itprovides foreign exchange,money market,commodities and derivativespr
133、oducts globally through a dedicated 24 hour dealing capability.Theseproducts assist both Wholesale Financial Services customers and the Groupsbusiness customers to manage their diverse financial risks.Markets is active in the debt capital markets,securitisation and loansyndications markets,helping c
134、ustomers to diversify their financingarrangements and supplying investors with a variety of asset classes.Markets also manages the liquidity portfolio for the Group in each of its majormarkets.It assists in interest rate risk management and provides short-termfunding for the Group.Specialised Financ
135、eSpecialised Finance supplies a range of financial solutions utilised in large-scale,complex transactions such as project finance,structured finance andacquisition finance.Using its specialised knowledge of the respective legal,commercial,regulatory and financial implications of these transactions,i
136、t developsinnovative financing structures for customers.Financial Institutions GroupFinancial Institutions Group manages the Groups relationships with banks,other financial institutions(insurance and fund managers),supranationals andgovernment bodies;this includes the Groups correspondent bankingrel
137、ationships.Custodian ServicesCustodian Services provides custody and related services to foreigninstitutions,superannuation funds,government bodies,fund managers,insurance companies and other entities within Australia,New Zealand andGreat Britain.The key products offered include sub-custody,global c
138、ustody,master custody,investment administration outsourcing,trustee services(Great Britain only),securities lending and cash deposit facilities.The Company,through Custodian Services,is one of the largest custodianbanks in Australia(measure:assets under custody and administration,source:Australian C
139、ustodial Services Association,date:June 2002).Globally,10Business overviewCustodian Services had assets under custody and administration of$365billion at September 30,2002.Support ServicesSupport Services is responsible for the management of the operating platformfor Wholesale Financial Services,inc
140、luding technology,operations,portfoliomanagement,human resources,finance and marketing.Technology andoperations have two regional hubs(Australia and Europe)to promoteefficiency,optimise future investment and provide common product capabilityacross five geographic regions.Refer to page 31 for detaile
141、d information of the financial performance ofWholesale Financial Services.Wealth ManagementWealth Management manages a diverse portfolio of financial servicesbusinesses.It provides financial planning,insurance,private banking,superannuation and investment solutions to both retail and corporate custo
142、mersand portfolio implementation systems and infrastructure services to financialadvisers.It operates in Australia,New Zealand,Europe(Great Britain andIreland)and Asia(Hong Kong,Thailand and Indonesia).At September 30,2002,Wealth Management had almost$65 billion in assetsunder management and adminis
143、tration and more than 2.8 million customers.Itis the second largest retail fund manager in Australia with a 14.5%marketshare(source:ASSIRT,June 2002).As at September 30,2002,Wealth Management had 5,500 full-time equivalentemployees.Wealth Management applies a manager of managers investment approach
144、thatinvolves investment manager research,selection,blending and ongoingmonitoring-using a range of specialist investment managers providing aspecific mix of strategies.It is the fourth largest pure manager of managersorganisation in the world(measure:assets under management,source:CerulliReport,date
145、:July 2002),with over 16 years experience in both advice andinvesting.Over$200 million is to be invested in the Australian operations of WealthManagement over the next three to four years.This is expected to enhance theGroups capabilities to be the preferred business partner for financial advisers,a
146、nd lead the market evolution towards the provision of quality advice acrossthe entire spectrum of a customers financial needs.This includes insurance,investment advice,debt management,tax planning and estate planning to helpcustomers achieve their financial and lifestyle goals.The Group is focused o
147、n exporting Wealth Managements domesticcapabilities across the international businesses,which are in different stages ofthe financial services market evolution.Wealth Management is dedicated to being a leading provider of financialservices to retail and corporate customers and business partner of ch
148、oice forfinancial advisers.Wealth Management is comprised of the following business units-Investments,Insurance and Other.InvestmentsInvestments provides the following business activities:funds management,covering superannuation and investment services toretail and corporate customers;funds administ
149、ration,supplying retail customers with the ability to directtheir investments to fund managers and investment products of theirchoice,through one point of service;asset management,providing investment management advisory servicesincluding research,selection and monitoring of investment managersunder
150、 a multi-manager,multi-style approach,which underpins WealthManagements investment offerings;andonline investing,providing self-directed investors with portfolio servicesand access to share trading and retail managed funds at wholesale rates.InsuranceInsurance supplies retail insurance(covering life
151、 insurance,income insuranceand general insurance agency)and group insurance for members of acorporate,business or club.OtherOther businesses within Wealth Management incorporate the Private Bank andDistribution.Private Bank focuses on relationship management using a range of specialistsincluding fin
152、ancial advisers and estate planners to meet customers morecomplex needs.Distribution provides ongoing recruitment,training and development offinancial advisers to the Groups multiple dealership groups.Further,it offersa number of business platforms and support services to financial advisers so asto
153、support the delivery of quality financial planning services and helpcustomers achieve their financial and lifestyle goals.Refer to page 32 for detailed information of the financial performance ofWealth Management.OtherSupport functionsThe Groups support functions focus on strategic and policy direct
154、ion for theGroup and incorporate the following units:Finance,Technology,GroupFunding,People and Culture,Risk Management,Corporate Development andOffice of the CEO.While these support functions are organised on a globalbasis,many of their operations are integrated within the Groups business linesand
155、their contribution to the Group is reported within the results of thosebusinesses.HomeSide USHomeSide Lending,Inc.(HomeSide US),based in Jacksonville,Florida,wasacquired by the Group in 1998.In September 2001,a strategic decision was taken by the Board of directors ofthe Company to pursue the sale o
156、f HomeSide US,after reviewing its positionwithin the Groups core strategies of banking and wealth management.11Business overviewThe Group commissioned a report by New York law firm Wachtell,Lipton,Rosen&Katz,in conjunction with US regulatory consultants PromontoryFinancial Group LLC on the events su
157、rrounding last years write-downs atHomeSide US.While the report remains confidential,the Group released thereports conclusions on January 21,2002.The review found no evidence thatthe Companys directors or executives were derelict in their duties.As a response to the conclusions in the review,the Boa
158、rd of directorsundertook the actions including the following:senior executives skilled in finance and risk management appointed toand to remain as members of the executive teams of all majorsubsidiaries,regardless of the type of business;current policies and processes were reviewed to ensure that in
159、 the futureall issues identified during due diligence investigations are approrpriatelydealt with;andinternal audit processes were revised to enhance the level of oversight bythe audit committee of controlled entity company audit issues.The operating assets and operating platform of HomeSide US were
160、 sold toWashington Mutual Bank,FA.on March 1,2002.HomeSide US retained themortgage servicing rights and outsourced the servicing of the underlying loans,through a sub-servicing agreement,to Washington Mutual Bank,FA.On May 31,2002,HomeSide US sold mortgage servicing rights ofapproximately US$12.8 bi
161、llion of mortgages,representing approximately 8%of its mortgage servicing portfolio.Further,on August 27,2002,the Group agreed to sell all of its shares in SRInvestment,Inc.(formerly known as HomeSide International,Inc.),the parententity of HomeSide US,to Washington Mutual Bank,FA.The sale hasresult
162、ed in the complete disposal of HomeSide US and the associatedmortgage servicing rights.The sale closed on October 1,2002.For furtherdetails refer to material contracts on page 186 of this annual financialreport.CompetitionThe Australian financial system is characterised by a large number oftradition
163、al and new players and well-developed equity and,more recently,corporate bond markets.There are four major national banks(including theCompany)and many other financial conglomerates with national operationsoffering a complete range of financial services as well as a number of smallerregional institu
164、tions and niche players.Mutual societies have been a force inthe Australian financial system,although many have demutualised over thepast several years to capture capital-related and other competitive advantages.These institutions have also widened their portfolio of products and servicesfrom insura
165、nce,investments and superannuation(pensions)to compete in themarkets traditionally serviced by banks.Competition also comes fromnumerous Australian and,in many cases,international non-bank financialintermediaries including investment/merchant banks,specialist retail andwholesale fund managers,buildi
166、ng societies,credit unions and financecompanies.More recently,product and functional specialists have alsoemerged as important players in,eg.household and business mortgages,creditcards and other payment services.The rapid development and acceptance ofthe internet and other technologies have increas
167、ed competition in the financialservices market and improved choice and convenience for customers.These forces are evident across all of the Groups businesses in each of itsgeographic markets.Within the broader financial services industry,increasedcompetition has led to a reduction in operating margi
168、ns only partly offset byfees and other non-interest income and increased efficiencies.The latter hasbeen largely achieved through greater investment in new technologies forprocessing,manufacturing and retailing products and services.These trendstowards increasingly contestable markets offering impro
169、ved access,widerchoice and lower prices are expected to continue in the future.In a number of countries,regulatory authorities have been reviewingcompetition issues,including the UK Competition Commission with regard tosmall business banking,the Reserve Bank of Australia(RBA)with regard tothe paymen
170、ts system,and the review of the Trade Practices Act 1974(Cth)being undertaken by a committee chaired by Sir Daryl Dawson.In March 2002,the UK Competition Commission issued its conclusion on itsinquiry into the small to medium enterprise banking market.The Commissionfound that major banks in England,
171、Scotland and Northern Ireland,includingClydesdale Bank and Northern Bank,were acting as part of a complexmonopoly.Yorkshire Bank was not named as part of the complex monopoly,due to its relatively small share of the English market.As a result of the Commissions proposals,the four largest clearing ba
172、nksoperating in England are required to comply with a pricing remedy fromJanuary 1,2003.This remedy will result in these banks offering their small tomedium enterprise banking market customers a more competitive proposition.The adoption of remedies by the four largest clearing banks may have amateri
173、al impact on the results and operations of Clydesdale and YorkshireBanks and Northern Bank,as the pricing remedies will directly influence themarket within which they operate.In the short-term this is expected to have an impact on the results andoperations of banks operating in the UK,including an a
174、dverse material impacton the results and operations of Clydesdale and Yorkshire Banks and NorthernBank.Banks operating in the UK have not stated which of the pricing optionsthey will offer their small to medium enterprise banking market customers,therefore it is not known at this time how the UK mar
175、ket will react.Clydesdale and Yorkshire Banks and Northern Banks senior managementhave worked through scenarios of the markets reaction,includingconsideration of the financial impact of these scenarios.The impact on futureresults and operations of Clydesdale and Yorkshire Bank and Northern Bankswill
176、 be dependent upon this market reaction.In August 2002,the RBA released its reforms on the credit card paymentsystem in Australia.These reforms provide merchants with the ability tosurcharge credit charge transactions,allow non-banks to issue and acquirecredit cards and significantly reduce intercha
177、nge fees(ie.the fees banks payone another to balance costs).The Group expects very little impact in 2003,asthe interchange fee reduction is not required to be implemented until October31,2003.However,the Group is currently exploring and modelling itsavailable options following the release of these r
178、eforms.In relation to 2004and future years,the impact of the reduction in interchange fees on revenuesand expenses of the Group will be dependent upon the outcome of thismodelling exercise and any strategic decisions undertaken.The Committee reviewing the Trade Practices Act 1974(Cth)had not reporte
179、dits findings as at the date of this report,but is expected to do so by the end ofNovember 2002.12Business overviewRegulation of the financial services systemAustraliaThe Australian Prudential Regulation Authority(APRA)has responsibility forthe prudential and regulatory supervision of Australian dep
180、osit takers(referredto as authorised deposit-taking institutions(ADIs),which comprise banks,building societies,and credit unions)as well as insurance companies,superannuation funds,and friendly societies.The RBA has overall responsibility for monetary policy,financial systemstability and,through a P
181、ayments System Board,payments system regulationincluding the operations of Australias real-time gross settlement system.The Australian Securities and Investments Commission(ASIC)and theAustralian Competition and Consumer Commission have responsibility forcertain consumer protection measures.ASIC has
182、 primary responsibility formarket integrity and disclosure issues.The Banking Act 1959(Cth)allows APRA to issue prudential standards that,ifbreached,can trigger legally enforceable directions.Proposed amendments tothe Act will require an ADI to inform APRA of breaches of prudentialrequirements,and a
183、lso of any materially adverse events.The amendments alsoinclude fit and proper tests for directors and senior management of ADIs.APRAs prudential framework for ADIs includes prudential standardscovering liquidity,credit quality,market risk,capital adequacy,audit andrelated arrangements,large exposur
184、es,equity associations,outsourcing,andfunds management and securitisation.APRA is also expected to finalise draftstandards covering board composition and the supervision of conglomerates,which contain an ADI.APRA carries the responsibility for depositor protection in relation to the ADIsit supervise
185、s.To achieve this,it has strong and defined powers to direct theactivities of an ADI in the interests of depositors or when an ADI hascontravened its prudential framework.These direction powers enable APRAto impose correcting action without assuming control.APRA requires banks to provide regular rep
186、orts covering a broad range ofinformation,including financial and statistical data relating to their financialposition and prudential matters.APRA gives special attention to capitaladequacy(refer to capital adequacy on page 43 for current details),sustainability of earnings,loan loss experience,liqu
187、idity,concentration ofrisks,potential exposures through equity investments,funds management andsecuritisation activities and international banking operations.In carrying out its supervisory role,APRA supplements its analysis ofstatistical data collected from banks with selective on-site visits by sp
188、ecialistteams to overview discrete areas of banks operations.These include assetquality,market risk and operational risk reviews and formal meetings withbanks senior management and external auditors.APRA has also formalised a consultative relationship with each banksexternal auditors with the agreem
189、ent of the banks.The external auditorsprovide additional assurance to APRA that prudential standards agreed withthe banks are being observed,and that statutory and other bankingrequirements are being met.External auditors also undertake targeted reviewsof specific risk management areas selected at t
190、he annual meeting between thebank,its external auditors and APRA.In addition,each banks chief executiveofficer attests to the adequacy and operating effectiveness of the banksmanagement systems to control exposures and limit risks to prudent levels.There are no formal prohibitions on the diversifica
191、tion by banks throughequity involvements or investments in subsidiaries.However,without theconsent of the Treasurer of the Commonwealth of Australia,no bank mayenter into any agreement or arrangement for the sale or disposal of its business(by amalgamation or otherwise),or for the carrying on of bus
192、iness inpartnership with an ADI,or effect a reconstruction.Non-Australian jurisdictionsAPRA,under the international Basel framework,now assumes the role ofhome banking supervisor and maintains an active interest in overseeing theoperations of the Group,including its offshore branches and subsidiarie
193、s.The Groups branches and banking subsidiaries in Europe(Great Britain andIreland),New Zealand and the US are subject to supervision by the FinancialServices Authority,Central Bank of Ireland,Reserve Bank of New Zealand(RBNZ),and the Office of the Comptroller of the Currency,respectively.In Great Br
194、itain and Ireland,the local regulatory frameworks are broadlysimilar to those in force in Australia.Each of the banking regulatoryauthorities in these countries has introduced risk-based capital adequacyguidelines in accordance with the framework developed by the BaselCommittee on Banking Supervisio
195、n.The emphasis of the RBNZs regulatory approach is primarily on enhanceddisclosure and directors attestations to key matters.Under conditions ofregistration,banks are required to comply with minimum prudential andcapital adequacy requirements.The RBNZ monitors banks financialcondition and conditions
196、 of registration,off-site,principally on the basis ofpublished disclosure statements.In other offshore areas of activity,the Group is subject to operatingrequirements of relevant local regulatory authorities.Changing regulatory environmentBoth within the financial services industry and more generall
197、y,businesses areworking within a changing regulatory environment.There is a heightenedemphasis on corporate governance,disclosure,accounting practices and auditoversight.During the year,the US introduced broad legislation in these areaswhich applies to the Company.The Australian Commonwealth Governm
198、enthas also released its own corporate and audit reform proposals,known asCLERP 9.The Group has an excellent record of corporate governance and hasin place standards which have been externally recognised as according withbest practice(refer to corporate governance for further details of theHorwath 2
199、002 corporate governance report).In addition to these legislative initiatives,regulators are taking actions thatindicate a more pro-active approach to regulation in these areas.The USSecurities and Exchange Commission is increasing its review of filings,ASIChas announced a new accounting surveillanc
200、e project directed to areas ofaccounting abuse recently uncovered in the US and Australian Stock ExchangeLimited(indirectly through the ASX Corporate Governance Council)and NewYork Stock Exchange,Inc.are promulgating enhanced corporate governanceguidelines.Further,APRA has recently increased its foc
201、us on corporategovernance by engaging an external party to provide rating and analysis oflarge,regulated institutions.APRA has also introduced a new internal rating13Business overviewsystem to guide supervisory resource allocation.The rating system includesexplicit assessment of corporate governance
202、 matters.ASIC is placing increased focus upon accounting for capitalised and deferredexpenses,recognition of revenue,and recognition of controlled entities andassets.The Groups accounting policies in relation to these items are disclosedin note 1 to the financial report.The Group complies with all a
203、pplicableAustralian accounting standards.Areas other than governance and audit are also the subject of substantialregulatory change.Measures have been adopted to restrict the financialcapacity of terrorists and terrorist organisations.International standards fordetermining capital adequacy are chang
204、ing under the Basel II Capital Accord.The regulation of the Australian financial sector has recently been significantlyaltered by the Financial Sector Reform Act 2001(Cth),and the AustralianBankers Association recently released a revised Code of Banking Practice,which is supported by the Group.There
205、 has also been particular regulatoryemphasis within Australia and elsewhere on privacy and the use of customerinformation.The Group manages its regulatory obligations within a global complianceframework,and has a strong culture of compliance.It intends to maintain thisstandard of compliance within t
206、he changing regulatory environment and hasappropriate measures in place to deal with the regulatory developmentsimpacting on the Group.Within the context of regulatory change,the Group will test and challenge itsexisting practices and procedures and take those steps necessary to maintain itsposition
207、 at the forefront of good governance practices.The Group is alsoenhancing its ability to manage regulatory change,implementing a newprogram to assist in the effective detection,co-ordination and implementationof change across business units and geographic regions.The aim of this newprogram is to lev
208、erage off the considerable experience accumulated in recentcompliance initiatives such as the introduction of the goods and services tax,the reform of the financial sector and the introduction of privacy principles.Inthis way,the Group will enhance its existing capabilities in handling theimpact of
209、regulatory change on the Groups operations to meet the highstandards of regulatory compliance expected by the Board of directors andmanagement.European Economic and Monetary UnionJanuary 2002 saw the successful introduction of euro notes and coin across the12 countries in the eurozone in replacement
210、 of national currencydenominations.The Groups own program as part of this historic event wasimplemented as planned in National Irish Bank and other affected businessentities.In the UK,the existing Government is committed to the entry of the UK intoEuropean Economic and Monetary Union(EMU),subject to
211、 certain economiccriteria being met and a national referendum in favour of UK entry,while theopposition remains uncommitted.Against this uncertain background,theGroup has assessed the impact that UK entry into EMU might have and haslaid the foundations of a program to prepare for such entry should i
212、t occur.The Group continues to monitor the UK Government and industrydevelopments so that its operations will not be disrupted whatever the eventualoutcome.The Group is also seeking to ensure that it can continue to serviceits customers as the use of the euro in business evolves.Further developments
213、 in respect of EMU and possible UK entry are notexpected to have a materially adverse effect on the Group.However,it is notpossible to predict all strategic practical implications of EMU and there maybe other key potential impacts.Where the Group is relying on third parties toprovide EMU-related ser
214、vices,there can be no guarantee that they will supplythose services in a timely manner,but it is not expected that the late provisionof those services would disrupt materially the Groups operations during anytransitional period.Organisational structureNational Australia Bank Limited is the holding c
215、ompany for the Group,aswell as the main operating company.During 2002 the Company had eightmain operating subsidiaries:Bank of New Zealand,Clydesdale Bank PLC,MLC Limited,National Wealth Management Holdings Limited,National IrishBank Limited,Northern Bank Limited,SR Investment,Inc.(formerlyHomeSide
216、International,Inc.)and Yorkshire Bank PLC.On August 27,2002,the Company entered into a contract for the sale of SR Investment,Inc.Thesale closed on October 1,2002.Refer to note 44 in the financial report for details of the principal controlledentities of the Group.Description of propertyThe Group op
217、erates about 2,000 outlets and offices worldwide,of which 51%are in Australia,with the largest proportion of the remainder being in GreatBritain.Approximately 19%of the 2,000 outlets and offices are owneddirectly by the Group,with the remainder being held under commercial leases.In June 2001,the Com
218、pany announced that Lend Lease Corporation Limitedhad won the bid to develop its new office complex at Victoria Harbour in theDocklands precinct of Melbourne,Australia.The Company entered into anagreement to lease two commercial buildings in the precinct,and the leases areexpected to commence in Nov
219、ember 2003 and August 2004,respectively.Construction is now well underway,with plans for more than 3,500 staff tomove into the buildings at the commencement of the leases.The principlesbehind the design and workstyle practices employed at Docklands(ie.those ofa single working team)are to be represen
220、tative of the way that the Groupwants to operate at all its locations in the future.The Groups premises are subject to continuous maintenance and upgradingand are considered suitable and adequate for the Groups current and futureoperations.Certain legal proceedingsEntities within the Group are defen
221、dants from time to time in legalproceedings arising from the conduct of their business.For furtherinformation on contingent liabilities of the Group,including those relating toAustralian Market Automated Quotation(AUSMAQ)System Limitedlitigation,refer to note 45 in the financial report.The Group doe
222、s not considerthat the outcome of any proceedings,either individually or in aggregate,islikely to have a material effect on its financial position.Where appropriate,provisions have been made.14Financial review Group200220012000$m$m$mNet profit3,3792,0883,241Adjust for significant items:Significant r
223、evenue(2,671)(5,314)-Significant expenses3,2666,866204 Attributable income tax expense/(benefit)(189)384(68)Significant expenses after tax4061,936136Net profit before significant items3,7854,0243,377Net profit attributable to members of the Company3,3732,0833,239Adjust for:Distributions(187)(213)(19
224、8)Significant expenses after tax4061,936136 Movement in the excess of net market value over net assets of life insurance controlled entities(after tax)152(333)(146)Amortisation of goodwill101167197Cash net profit before significant items3,8453,6403,228Year ended 30 September 2002 compared with yeare
225、nded 30 September 2001Net profit of$3,379 million in 2002,increased$1,291 million or 61.8%compared with 2001.Significant items are those individually significant items included in profitfrom ordinary activities.The 2002 result included the following significantitems:$412 million(after-tax)of restruc
226、turing expenses paid/provided for;and$6 million net profit on sale of SR Investment,Inc.,including itscontrolled entity,HomeSide Lending,Inc.(HomeSide US),whichconducted the Groups mortgage servicing rights business in the US.The 2001 result included the following significant items:$1,681 million ne
227、t profit on sale of Michigan National Corporation and itscontrolled entities;and$3,617 million(after-tax)write-downs of mortgage servicing rights andgoodwill relating to HomeSide US.Net profit before significant items of$3,785 million in 2002,decreased$239million or 5.9%compared with 2001.On a cash
228、basis,net profit beforesignificant items of$3,845 million in 2002,increased$205 million or 5.6%compared with 2001.Net interest income of$7,222 million in 2002,was$262 million or 3.8%higher than 2001.This was driven by asset growth,particularly in relation tohousing lending and a 4 basis point decrea
229、se in net interest margin to 2.67%.The fall in margin largely resulted from the loss of contribution of MichiganNational Corporation following its sale and the impact of product mix inFinancial Services Australia.Net life insurance income decreased by$138 million to$(10)million in 2002,from$128 mill
230、ion in 2001.This was driven by a decline in investment revenueresulting from uncertain global equity markets in the second half of the yearand an increase in claims more than offsetting higher premium and relatedrevenue.Other banking and financial services income of$7,006 million in 2002,was$2,257 m
231、illion or 47.5%higher than 2001.Excluding the proceeds receivedfrom the sale of HomeSide USs operating assets and operating platform of$2,314 million,other banking and financial services income was down 0.1%.This was driven by a decline in treasury-related income resulting fromsubdued foreign exchan
232、ge and interest rate market volatility,partially offset byfee growth as housing and card volumes grew.Mortgage servicing and origination revenue of$378 million in 2002,was$432million or 53.3%lower than 2001.Servicing fees declined as a result ofhigher prepayment activity.Following the sale of HomeSi
233、de USs operatingassets on March 1,2002,origination revenue was no longer derived by theGroup.The movement in the excess of net market value over net assets of lifeinsurance controlled entities was a loss of$155 million in 2002,a decrease of$665 million from 2001,impacted by the effect of assumption
234、and experiencechanges underlying the valuation.Total expenses(before goodwill amortisation,significant expenses and thecharge to provide for doubtful debts)of$8,707 million in 2002,were$2,237million or 34.6%higher than 2001.Excluding the carrying value ofHomeSide USs operating assets and operating p
235、latform sold and otherexpenses attributable to the sale of$2,322 million,total expenses were down1.3%,largely driven by a reduction in employee numbers during the year.The charge to provide for doubtful debts of$697 million in 2002,was$292million or 29.5%lower than 2001.The current years charge was
236、impacted bya review of the loan portfolio with regard to reducing its risk profile.Year ended 30 September 2001 compared with yearended 30 September 2000Net profit of$2,088 million in 2001,decreased$1,153 million or 35.6%compared with 2000.The 2001 result included the following significant items:$1,
237、681 million net profit on sale of Michigan National Corporation and itscontrolled entities;and$3,617 million(after-tax)write-downs of mortgage servicing rights andgoodwill relating to HomeSide US.The 2000 result included$136 million(after-tax)of restructuring and businessintegration costs,which were
238、 classified as significant expenses.Net profit before significant items of$4,024 million in 2001,increased$647million or 19.2%compared with 2000.On a cash basis,net profit beforesignificant items of$3,640 million in 2001,increased$412 million or 12.8%compared with 2000.15SummaryFinancial reviewNet i
239、nterest income of$6,960 million in 2001,was$589 million or 9.2%higher than 2000.This was driven by asset growth and reduced funding costs,partly offset by lower deposit margins and the impact of the sale of MichiganNational Corporation and its controlled entities on April 1,2001.Net life insurance i
240、ncome of$128 million in 2001,was$204 million or 61.4%lower than 2000,primarily driven by a decline in investment revenue(offsetby a decrease in policy liabilities).Other banking and financial services income of$4,749 million in 2001,was$625 million or 15.2%higher than 2000.This was largely a reflect
241、ion of thefirst full years contribution of the MLC group,which drove higher fee,commission and other income,and increased treasury-related income.Mortgage servicing and origination revenue of$810 million in 2001,was$170million or 26.6%higher than 2000,driven by higher production volumes.The movement
242、 in the excess of net market value over net assets of lifeinsurance controlled entities of$510 million in 2001,increased$308 millionor 152.5%from 2000.Total expenses(before goodwill amortisation,significant expenses and thecharge to provide for doubtful debts)of$6,470 million in 2001,were$663million
243、 or 11.4%higher than 2000.This was driven by higher personnelexpenses,occupancy costs and software amortisation,and the first full yearscontribution from the MLC group.The charge to provide for doubtful debts of$989 million in 2001,was$401million or 68.2%higher than 2000.This mainly reflected the im
244、pact of asmall number of large corporate exposures in Australia,as well as loan growthand macro-economic conditions.Adjusted to accord with US GAAPPrepared in accordance with US GAAP,consolidated net income for the yearto September 30,2002 was$3,499 million compared to$1,866 million in 2001and$3,051
245、 million in 2000.Note 58 in the financial report disclosesreconciliations of the Groups financial statements for the last three years forany significant adjustments to Australian GAAP,which would be reported inapplying US GAAP.There were no individually material adjustmentsbetween US GAAP net income
246、 and Australian GAAP net profit attributable tomembers of the Company for the years ended September 30,2002,2001 and2000,other than those disclosed in note 58 in the financial report.Economic outlookThis section contains forward-looking statements.Refer to forward-lookingstatements on page 2.Althoug
247、h the world economy has been experiencing its worst downturn sincethe recession of the early 1990s,there have been large variations between theeconomies and markets in which the Group operates.The US,key euro-areaeconomies and much of East Asia fell into recession in 2001 and there are stillquestion
248、s around the timing,sustainability and strength of the recovery thatemerged earlier this year.By contrast,business conditions have generally been better in Australia,NewZealand and the UK-economies that contain the bulk of the Groups assets.Within that generally favourable performance,there have bee
249、n some commontrends as well as some marked disparities between regions and markets.Among the common trends have been strong house prices,particularly inAustralia and the UK,and resilient consumer spending.This has fuelledcontinued expansion in home mortgage lending and consumer credit.Manufacturing,
250、on the other hand,has fared much worse.Thecommunications,telecommunications and media sectors have also continuedto weaken following the burst of the high technology bubble.The emergence of two-track economies,with the housing and consumermarkets faring much better than industrial sectors,has been e
251、speciallyprevalent in the UK,Australia and the US.The housing market in the latterhas even stayed strong despite the recession that hit the economy last year.Within the UK,the two-track economy has had the usual consequences interms of variations in economic conditions across the regions.Those areas
252、dependent on manufacturing have seen much lower growth than in theprevious few years and where high technology industries have loomed large inindustrial structure(notably Central Scotland)output has slowed very sharply.The parallels in recent economic conditions between the Groups main areas ofopera
253、tion mean that there are similarities in their economic risks andvulnerabilities for the next year.Across several of the Groups main markets,there are concerns that house prices could soften after recording rapid growthin the past five years.So far,only one housing market has experienced asoftening
254、after previous strong growth(Republic of Ireland)and the end ofthat boom has not turned into a price bust.Another widespread concern centres on the accumulation of larger amounts ofhousehold debt,the result of consumers increased gearing associated withlower interest rates.In Australia,debt-servicin
255、g ratios generally remain nearhistoric levels but debt-income ratios have climbed to new records in manyeconomies.The avoidance of severe economic downturns,particularly thoseassociated with large increases in unemployment,is a crucial factor in themaintenance of credit quality in personal lending b
256、ooks.While there are several risks to the global economic recovery that started inearly calendar 2002,a moderate upturn seems likely to continue.The largedrop in global equity markets seen this year will further lower householdwealth and erode balance sheets and dampen consumer and business spending
257、.16Summary(continued)Financial reviewThe reported results of the Group are sensitive to the accounting policies,assumptions and estimates that underlie the preparation of its financialstatements.The Groups financial report has been prepared in accordance withAustralian GAAP.The Groups principal acco
258、unting policies are disclosed innote 1 to the financial statements and in note 58 with respect to policies thatdiffer to US GAAP.Certain of these policies are considered to be critical to the representation ofthe Groups financial performance and position,since they require difficult,subjective,or co
259、mplex judgements.The following disclosure is intended toprovide an enhanced level of understanding of these judgements and theirimpact on the Groups financial statements.These judgements necessarilyinvolve assumptions or estimates in respect of future events,which canfrequently vary from what is for
260、ecast.However,the Company believes that itsfinancial statements and its ongoing review of the estimates and assumptionsutilised in preparing those financial statements,is appropriate to provide a trueand fair view of the Groups financial performance and position over therelevant period.Management ha
261、s discussed the development and selection of its criticalaccounting policies with the Audit Committee and the Committee hasreviewed the Groups disclosure relating to them in this financial review.The following are considered critical accounting policies of the Group.Provision for doubtful debtsUnder
262、 Australian GAAP,loans and advances are carried at their recoverableamount,representing the gross value of the outstanding balance adjusted forprovisions for doubtful debts and unearned income.To best meet thisrequirement,the Group has adopted a statistically-based provisioningmethodology for its ge
263、neral provision for doubtful debts,which is consistentwith other large financial institutions in Australia and the US.Under thismethodology,the Group estimates the level of losses inherent,but notspecifically identified,in its existing credit portfolios based on the historicalloss experience of the
264、component exposures.The statistical provisioningmethodology is applied to existing credit portfolios,including loans andadvances drawn down in the current year.When the Group first adopted itsstatistically-based provisioning methodology,management predeterminedcertain model parameters.In applying th
265、e statistically-based provisioning methodology,two key inputsare used in a statistical model:probability of default and the level of collateralheld.For determining the probability of default,the majority of data input intothe model is based on objective,verifiable external data.A small degree ofsubj
266、ective data is input into the model,in relation to economic and industryoutlooks and assessment of the borrowers management.A change in managements assessment of the predetermined parameters oroutlook assumptions would be likely to result in a change to the Groupsgeneral provision for doubtful debts
267、.To mitigate the risk of uncertainty andvalidate assumptions,the Group regularly reviews the parameters,key inputsand assumptions.In addition,the Group undertakes periodic sensitivityanalysis to assess the impact of deterioration in credit risk on the creditportfolio.The Group considers the assumpti
268、ons used in the calculation of thegeneral provision for doubtful debts to be reasonable and supportable in theexisting economic environment.In addition to the general provision,specific provisions for doubtful debts arerecognised when there is reasonable doubt over the collectability of principaland
269、 interest in accordance with respective loan agreements.Amountsprovided for are determined by specific identification or by estimation ofexpected losses in relation to loan portfolios where specific identification isimpracticable.Upon identification of a loan requiring a specific provision(that is a
270、n impairedloan),the respective loans general provision balance is transferred to thespecific provision.An assessment is then made by management as to whetherthe transferred balance is adequate to cover the estimated credit loss on thatimpaired loan.For larger-balance,non-homogeneous loans that have
271、been individuallydetermined to be impaired,the level of specific provision required is based onan assessment of the recoverability of each loan.This takes into accountavailable evidence on the collateral and other objective and subjective factorsthat may impact the collectability of the outstanding
272、loan principal andinterest.Management judgement is required in determining the valuation ofthe loan collateral.Independent valuations are frequently obtained bymanagement to provide expert advice.Each portfolio of smaller-balance,homogenous loans,including credit cardsand personal loans,is collectiv
273、ely evaluated for impairment.The Group usesboth dynamic modelling and specific provisioning at the account level.Management considers overall portfolio indicators,including historical creditlosses and delinquency rates,in determining the level of specific provisionrequired for each portfolio.The his
274、torical experience of the Group has shown that managementsjudgement of the specific provisions required in the past has been reasonablyaccurate.The Group considers the assumptions used in the calculation of thespecific provision for doubtful debts to be reasonable and supportable in theexisting econ
275、omic environment.17Critical accounting policiesFinancial reviewValuation of life insurance controlled entitiesThe Group is required by Australian Accounting Standard AASB 1038“LifeInsurance Business”to measure all the assets and liabilities of its life insurancecontrolled entities at net market valu
276、e.Movement in the excess of net marketvalue over net assets of life insurance controlled entities is recognised in theprofit and loss account as an unrealised gain or loss.Directors bi-annual valuations of the life insurance controlled entities arecarried out by management using industry-accepted ac
277、tuarial valuationmethodologies.Value is determined in three distinct areas,being:value of each entitys net assets;value of future profits from current business contracts;andvalue of future profits from future(yet to be written)business contracts.In determining the value of all future profits to emer
278、ge from the life insurancecontrolled entities,careful consideration is given to both future business andeconomic assumptions affecting the business.Many of these assumptionsrequire significant judgement because they are dependent on a number offactors that cannot be precisely determined at the time
279、the valuation is made.The key business assumptions used relate to sales(volume and growth),profitmargin squeeze,discontinuances,expenses and claims.These assumptions aredetermined after an examination of the experience of the Groups lifeinsurance controlled entities,their short-term and long-term bu
280、siness plans,and industry experience and expectations.The key economic assumptions used relate to investment earnings,riskdiscount,inflation and tax rates.These assumptions are determined after anexamination of current market rates and future market expectations.Inaddition,the overall assumptions se
281、t and their impact on value are reviewedagainst the transactions in the market place,current prices of listed entities andother publicly-available information.Changes in managements assessment of key business factors and economicconditions(global,regional and sector specific)in the future would affe
282、ct thevaluation of life insurance controlled entities.As a result,the carrying valueof life insurance controlled entities recorded in the statement of financialposition and the movement in the excess of net market value over net assets oflife insurance controlled entities recorded in the statement o
283、f financialperformance could be materially different in the future.The Group considersthe assumptions used in the valuations to be reasonable and supportable in theexisting economic environment.Further,the valuations are supported bydiscounted cash flow valuations prepared by Tillinghast-Towers Perr
284、in and thekey business and economic assumptions are approved by a committee ofsenior management prior to recommendation of the final valuation to theWealth Management audit and compliance committee and WealthManagement board of directors.Key valuation results and assumptions are disclosed in note 25
285、 to the financialstatements.Lif e in s uran ce po licy lia bilitiesPolicy liabilities in the Groups statement of financial position and the changein policy liabilities disclosed as an expense have been calculated using theMargin on Services methodology in accordance with guidance provided by theLife
286、 Insurance Actuarial Standard Boards Actuarial Standard AS 1.02“Valuation Standard”.Policy liabilities for investment-linked business are calculated using theaccumulation method.The liability is generally the accumulation of amountsinvested by policyholders plus investment earnings less fees specifi
287、ed inpolicy contracts.Deferred acquisition costs are offset against this liability.Policy liabilities from non-investment-linked business are measured mainlyusing the projection method,which is the net present value of estimated futurepolicy cash flows.Future cash flows incorporate investment income
288、,premiums,expenses,redemptions and benefit payments(including bonuses).The measurement of policy liabilities is subject to actuarial assumptions,which involve complex judgements.Assumptions made in the calculation ofpolicy liabilities at each balance date are based on best estimates at that date.The
289、 assumptions include the benefits payable under the policies on death,disablement or surrender,future premiums,investment earnings and expenses.Best estimate means that assumptions are neither optimistic nor pessimistic butreflect the most likely outcome.The assumptions used in the calculation ofthe
290、 policy liabilities are reviewed at each balance date.A summary of thesignificant actuarial methods and assumptions used is contained in note 57 tothe financial statements.Economic assumptions are based on the prevailing interest rate and economicenvironment.Other assumptions are based on company ex
291、perience,or wherethis is insufficient,industry experience.A summary of the significant actuarialmethods and assumptions used is contained in note 57 to the financialstatements.Many of these assumptions are based on actuarial tables publishedby the Institute of Actuaries of Australia.The Group consid
292、ers the assumptions used in the calculation of life insurancepolicy liabilities to be reasonable and supportable in the existing economicenvironment.Changes in actual experience and managements assessment ofeconomic conditions(global,regional and sector specific)in the future couldaffect the level o
293、f life insurance policy liabilities recorded.As a result,theamount of policy liabilities recorded in the statement of financial position andthe change in policy liabilities recorded in the statement of financialperformance could be different in the future.18Critical accounting policies(continued)Fin
294、ancial reviewM ortg ag e s erv icin g rig ht s Mortgage servicing rights(MSR)are the rights to receive a portion of theinterest coupon and fees collected from the mortgagor for performing specifiedservicing activities.The total cost of loans originated or acquired is allocatedbetween the MSR and the
295、 mortgage loans without the servicing rights,basedon relative fair values.The value of servicing rights acquired through bulktransactions is capitalised at cost.The determination of the fair value of the MSR requires significant judgement.The market value of MSR is not readily ascertainable with pre
296、cision becausethese assets are not actively traded in stand-alone markets.The Group uses available market prices of similar mortgage servicing assetsand discounted future net cash flows,considering market prepayment rates,historic prepayment rates,portfolio characteristics,interest rates and otherec
297、onomic factors to estimate fair value.The key assumptions used in thevaluation model are anticipated loan prepayments and discount rates.In determining the fair value of the MSR,the Group has incorporatedunderlying assumptions,including anticipated loan prepayments and discountrates,to compute fair
298、values.The Group reviews all major valuationassumptions periodically using the most recent empirical and market dataavailable and makes adjustments where warranted.MSR are amortised in proportion to and over the period of estimated netservicing revenue.They are evaluated for impairment by comparing
299、thecarrying amount of the MSR to their fair value.For purposes of measuringimpairment,the MSR are stratified by the predominant risk characteristicswhich include product types of the underlying loans and interest rates of themortgage.Impairment is recognised through a valuation reserve for eachimpai
300、red stratum and is generally included in amortisation of MSR.The carrying value of MSR on the Groups statement of financial position as atSeptember 30,2002 is not considered to be subject to management judgementdue to the contract for sale of SR Investment,Inc.(the parent entity ofHomeSide Lending,I
301、nc.)to Washington Mutual Bank,FA.The existence ofthis contract is evidence of the market value for this asset.Followingcompletion of this sale on October 1,2002,the Group no longer recognisesMSR on its statement of financial position and as such it will no longer be acritical accounting policy of th
302、e Group.19Critical accounting policies(continued)Financial reviewNet interest income7,222$million6,960$million6,371$millionNet interest income is the difference between interest income and interest expense.Net interest income is derived from diverse business activities,including extending credit to
303、customers,accepting deposits from customers,amounts due to andfrom other financial institutions,regulatory deposits and managing the Groups other interest-sensitive assets and liabilities,especially trading securities,available for sale securities and investment securities.Net interest income increa
304、sed by$262 million or 3.8%to$7,222 million in 2002,after increases of 9.2%in 2001 and 5.0%in 2000.During 2002,movements inexchange rates increased net interest income by$25 million,after increases of$264 million in 2001 and$20 million in 2000.Excluding the impact of exchangerate movements,the increa
305、se in 2002 was 3.4%,compared with 5.1%in 2001 and 4.7%in 2000.Growth in net interest income has been impacted by the sale of Michigan National Corporation and its controlled entities on April 1,2001.Prior to its sale,Michigan National Corporation and its controlled entities contributed$350 million o
306、f net interest income to the Group in 2001 and$636 million in 2000.Excluding both the impact of the sale and exchange rate movements,net interest income increased 8.9%during 2002.This increase was the result of lendinggrowth,particularly in relation to housing,partly offset by a reduction in deposit
307、 margins and adverse product mix.Volume and rate analysisThe following table allocates changes in net interest income between changes in volume and changes in rate for the last three years ended September 30.Volume and rate variances have been calculated on the movement in average balances and the c
308、hange in interest rates on average interest-earning assetsand average interest-bearing liabilities.The variance caused by changes of both volume and rate has been allocated in proportion to the relationship of theabsolute dollar amounts of each change to the total.AverageAverageAverageAverageAverage
309、AveragebalancerateTotalbalance rateTotalbalance rateTotal$m$m$m$m$m$m$m$m$mInterest-earning assetsDue from other financial institutionsAustralia38 (47)(9)27 4 31 20 17 37 Overseas(44)(303)(347)153 (80)73 103 70 173 Marketable debt securitiesAustralia106 (18)88 (18)4 (14)117 65 182 Overseas(29)(410)(
310、439)448 (39)409 29 68 97 Loans and advancesAustralia755 (895)(140)797 (69)728 571 413 984 Overseas261 (1,559)(1,298)883 (206)677 679 (7)672 Other interest-earning assets(489)(810)(1,299)917 (419)498 (519)825 306 Change in interest income598 (4,042)(3,444)3,207 (805)2,402 1,000 1,451 2,451 due to cha
311、nge indue to change indue to change in2000 over 1999Increase/(decrease)Increase/(decrease)2001 over 2000Increase/(decrease)2002200120002002 over 200120Financial reviewNet interest income(continued)21AverageAverageAverageAverageAverageAveragebalancerateTotalbalance rateTotalbalance rateTotal$m$m$m$m$
312、m$m$m$m$mInterest-bearing liabilitiesDue to other financial institutionsAustralia33 (54)(21)42 (9)33 11 46 57 Overseas(226)(389)(615)600 (148)452 417 (141)276 Savings depositsAustralia11 (47)(36)(18)8 (10)67 49 116 Overseas(22)(257)(279)(19)(34)(53)19 62 81 Other demand depositsAustralia138 (297)(15
313、9)100 111 211 (2)29 27 Overseas82 (120)(38)77 (19)58 70 49 119 Time depositsAustralia196 (125)71 20 75 95 205 (157)48 Overseas213 (1,305)(1,092)635 (127)508 (97)235 138 Government and official institution depositsAustralia3 (8)(5)(2)1 (1)37 -37 Overseas(20)(57)(77)34 (6)28 46 6 52 Short-term borrowi
314、ngsOverseas(136)(177)(313)16 7 23 141 10 151 Long-term borrowingsAustralia66 (421)(355)320 (6)314 209 68 277 Overseas(91)(55)(146)153 (111)42 17 51 68 Other debt issuesAustralia(3)(9)(12)15 (9)6 5 6 11 Overseas(7)(2)(9)(4)24 20 (25)32 7 Other interest-bearing liabilities796 (1,416)(620)(171)258 87 (
315、15)696 681 Change in interest expense1,033 (4,739)(3,706)1,798 15 1,813 1,105 1,041 2,146 Change in net interest income(435)697 262 1,409 (820)589 (105)410 305 Interest spreads and margins200220012000$m$m$mAustraliaNet interest income3,613 3,374 3,106 Average interest-earning assets129,458 115,747 1
316、04,806 Interest spread adjusted for interest foregone on non-accrual and restructured loans(%)2.67 2.59 2.38 Interest foregone on non-accrual and restructured loans(%)(0.04)(0.03)(0.04)Net interest spread(%)(1)2.63 2.56 2.34 Benefit of net free liabilities,provisions and equity(%)0.16 0.35 0.62 Net
317、interest margin(%)(2)2.79 2.91 2.96 OverseasNet interest income3,609 3,586 3,265 Average interest-earning assets154,282 151,104 120,580 Interest spread adjusted for interest foregone on non-accrual and restructured loans(%)2.03 2.05 2.35 Interest foregone on non-accrual and restructured loans(%)(0.0
318、2)(0.02)(0.03)Net interest spread(%)(1)2.01 2.03 2.32 Benefit of net free liabilities,provisions and equity(%)0.33 0.34 0.39 Net interest margin(%)(2)2.34 2.37 2.71 due to change indue to change indue to change in2000 over 1999Increase/(decrease)Increase/(decrease)2001 over 2000Increase/(decrease)20
319、02 over 2001Financial reviewNet interest income(continued)22200220012000$m$m$mGroupNet interest income7,222 6,960 6,371 Average interest-earning assets270,527 256,603 220,987 Interest spread adjusted for interest foregone on non-accrual and restructured loans(%)2.41 2.37 2.42 Interest foregone on no
320、n-accrual and restructured loans(%)(0.02)(0.03)(0.03)Net interest spread(%)(1)2.39 2.34 2.39 Benefit of net free liabilities,provisions and equity(%)0.28 0.37 0.49 Net interest margin(%)(2)2.67 2.71 2.88 (1)Interest spread represents the difference between the average interest rate earned and the av
321、erage interest rate incurred on funds.(2)Interest margin is net interest income as a percentage of average interest-earning assets.Net interest income increased by$262 million to$7,222 million in 2002,driven by 5.4%growth in average interest-earning assets to$270.5 billion,offsettingthe 4 basis poin
322、t decline in interest margin to 2.67%.Australian net interest income increased by 7.1%to$3,613 million,with average interest-earning assetsgrowing 11.8%to$129.5 billion and the interest margin declining 12 basis points to 2.79%.Overseas net interest income increased 0.6%to$3,609 million,withaverage
323、interest-earning assets growing by 2.1%to$154.3 billion,and the interest margin falling 3 basis points to 2.34%.VolumesAverage interest-earning assets for 2002 increased by$13.9 billion or 5.4%to$270.5 billion,from$256.6 billion in 2001 and$221.0 billion in 2000.The maincontributors to the growth we
324、re loans and advances in Australia and Europe,which increased by 10.6%and 14.6%respectively.Loan growth waspredominantly in real estate,reflecting a continuing low interest rate environment and a strong product offering,as well as in term lending.Averageinterest-earning assets were impacted by the s
325、ale of Michigan National Corporation and its controlled entities on April 1,2001.For a further discussion ofthe main factors influencing the movement in average interest-earning assets,refer to gross loans and advances on page 45.Net interest marginThe interest margin(net interest income as a percen
326、tage of average interest-earning assets),which includes the impact of non-accrual loans on net interestincome,decreased by 4 basis points to 2.67%in 2002,from 2.71%in 2001 and 2.88%in 2000.The decrease during 2002 was impacted by the loss ofcontribution of Michigan National Corporation following its
327、 sale,the recapitalisation of HomeSide Lending,Inc.following the write-downs in 2001 andlower deposit margins.The impact of these were partially offset by the steeper yield curve in the US during the year,with strong growth in funding andliquidity management activities within Wholesale Financial Ser
328、vices.The interest rate on Australian interest-earning assets decreased by 160 basis points to 6.9%in 2002,from 8.5%in 2001 and 8.2%in 2000,while the interestrate on interest-bearing liabilities decreased by 160 basis points to 4.3%from 5.9%in 2001 and 2000.Interest margins in Australia declined dur
329、ing 2002,resulting from lower deposit margins and adverse product mix.The interest rate on overseas interest-earning assets decreased by 180 basis points to 5.2%in 2002 from 7.0%in 2001 and 7.6%in 2000,while the interest rateon interest-bearing liabilities decreased by 180 basis points to 3.2%in 200
330、2,from 5.0%in 2001 and 5.3%in 2000.Overseas interest margins also reducedslightly in 2002.Net life insurance income(10)$million128$million332$millionNet life insurance income comprises those components of premiums that are revenue and interest,dividends,realised and unrealised capital gains and othe
331、rreturns on all the investments under the life insurers control,claims expense,change in policy liabilities,policy acquisition and maintenance costs,andinvestment management fees(refer to note 57 in the financial report for a definition of the life insurer).Net life insurance income decreased by$138
332、 million to$(10)million in 2002,from$128 million in 2001 and$332 million in 2000.Life insurance income decreased by$51 million to$146 million in 2002 from$197 million in 2001 and$1,557 million in 2000.This decline was impacted bya reduction in investment revenue(decrease of$111 million in 2002)arisi
333、ng from the decline in global equity markets,which was offset by a decrease inpolicy liabilities.There is a further offset within the income tax expense,which includes the tax benefits for policyholders of the reduction in investmentincome.Premium and related revenue increased$60 million or 5.6%to$1,134 million.In the prior year,an amount of$93 million of change in policy liabilitieswas included i
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