1997 Annual Report National Australia Bank Limited ACN004044937 Our Vision Financial calendar Annual General Meeting • Financial year ends on The Annual General Meeting of the To be the world’s leading financial ser- September 30 annually. members of National Australia Bank vices company. • Full year results announced Limited will be held at 10.00am November 6, 1997. (Melbourne time) on Thursday Our Mission • Shares to be quoted ex-dividend December 18, 1997 in the John Batman Theatre, Level 3, Melbourne Convention We tailor financial services to help on the Australian Stock Exchange on November 20, 1997. and Exhibition Centre, corner Spencer individuals, families, businesses and and Flinders Streets, Melbourne, communities to achieve their goals. • Record date (books closing date) for Victoria, Australia. final dividend is November 28, 1997 for shareholders on the Australian register. Shareholder gatherings Our Values • Final dividend payable on Gatherings of members of National • Service to our customers December 17, 1997 (49c per share). Australia Bank Limited will be held • Quality in everything we do • First quarter results for the 1997/98 at 9.45am (Sydney time) on Thursday • Professionalism and ethics in all financial year currently scheduled to be December 18, 1997 in the Grand our actions announced on January 22, 1998. Ballroom at The Wentworth A Rydges • Competitiveness and a will to win • First half results for the 1997/98 finan- Hotel, 61–101 Philip Street, Sydney; and • Growth and development of cial year currently scheduled to be at 8.45am (Brisbane time) on our people announced on May 7, 1998. Thursday December 18, 1997 in the • Shares currently scheduled to be quoted Grand Ballroom at the Brisbane Hilton, • Continuous productivity improve- 190 Elizabeth Street, Brisbane. ment ex-dividend on the Australian Stock Exchange on June 25, 1998. These gatherings are not formal meetings • Growing profit for our stakeholders • Record date (books closing date) for of shareholders and therefore no votes interim dividend currently scheduled to can be taken on the business before the The National today be July 3, 1998 for shareholders on the Annual General Meeting at these venues. Australian register. From humble beginnings in Melbourne, Australia, in 1858, the National has grown • Interim dividend for the 1997/98 finan- Group credit ratings to be the largest financial institution in cial year currently scheduled Australia and a company of world stand- to be payable on July 22, 1998. The Group is rated by a number of rating ing. • Third quarter results for the 1997/98 agencies. At the date of this Annual financial year currently scheduled to be Report, the following ratings were applic- The Group’s approach to building share- able to the Group. holder wealth has been based on a dual announced on July 23, 1998. strategy of controlled organic growth • Full year results for the 1997/98 finan- Short term Long term cial year currently scheduled to be combined with regular value-adding Standard & Poors A1+ AA acquisitions. This approach has created a announced on November 5, 1998. IBCA A1+ AA strong core franchise and a significant • Final dividend for the 1997/98 financial diversification of its earnings base year currently scheduled to be payable Moody’s Investor Services P-1 Aa3 through the acquisition of full service December, 1998. retail banks in selected markets. Dates may be subject to change. Bankwatch TBW-1 AA The National is now an international financial services company with the aim of providing a comprehensive and inte- grated range of financial services to its customers, enabling the Group to further diversify its non-interest income streams. Today, the National has an asset base of $202 billion and around 9 million cus- tomers. Contents Group Financial Highlights 2 Board of Directors 3 Summary of Key Business Units 4 Year in Review 6 Australia 12 Europe 18 New Zealand 26 United States 28 Asia 30 Global Wholesale Financial Services 31 Group Structure 32 Financial Information and Analysis 33 Description of Business 34 Registered office Financial Review 38 24th Floor, 500 Bourke Street, Melbourne Victoria 3000 Corporate Governance 65 Australia Postal address Report of the Directors 69 GPO Box 2333V Melbourne Vic 3001 Financial Statements 73 Telephone: (03) 9641 4200 Notes to and Forming Part of Freecall: 1800 033 408 the Financial Statements 78 Fax: (03) 9641 4927 Telephone (from outside Australia): +61 3 9641 4200 Statement by the Directors 148 Information about the Auditors’ Report 148 National Australia Bank Group is also available on the Internet at Form 20-F Cross Reference Index 149 http://www.national.com.au/ Shareholder Information 150 All figures in this report are in Australian dollars except when otherwise indicated. Principal Establishments 157 Group Financial Highlights Profit Dividend Group Operating Profit Group operating profit increased by 5.8% to Directors increased the annual dividend from $m 1129 1708 1969 2102 2223 $2,223 million – the fifth consecutive year 87 cents to 94 cents per share. Dividends 2500 of record earnings. continue to be fully franked. 2000 Underlying profit (earnings before tax and Income 1500 charges to provide for doubtful debts) rose 1000 7.5% to $3,648 million. Group net interest income rose 4.0% to 500 $5,259 million. 0 Basic earnings per share increased from 1993 1994 1995 1996 1997 144.8 cents to 151.6 cents, reflecting the Non-interest income recorded a solid increase Group’s share buy-back program and of 14.1% to $3,334 million, as the Group Dividend continued to increase the proportion and the rise in profitability. Cents 50 74 83 87 94 contribution of non-interest income. 100 Return on shareholders’ funds (year end 80 balance) rose from 16.8% to 17.7%. Expenses 60 Non-interest expenses rose by 7.8% to Profit by region 40 $4,945 million. Non-interest expenses as a Net operating profit for Australian operations 20 proportion of income (cost-to-income ratio) 0 decreased by 8.2% to $1,329 million, rose marginally from 55.8% to 55.9%. 1993 1994 1995 1996 1997 reflecting the competitive nature of the Australian market. Assets Total Assets European operations lifted net operating Assets increased by 16.3% to $202 billion $b 118 130 148 174 202 200 profit by 43.1% to $488 million, or by 34.5% as a result of growth in lending volumes, in local currency terms. principally in the areas of housing loans, 150 New Zealand operations net operating profit lease finance and credit cards. 100 rose 22.4% to $197 million, or by 5% in local Capital resources 50 currency terms. Average shareholders’ equity grew by 11.5% 0 1993 1994 1995 1996 1997 United States operations achieved an to $13.7 billion. Capital risk asset ratio increase in net operating profit of 38.2% remained solid at 8.6%. to $181 million. Average Shareholders’ Equity $b 8.5 9.5 10.9 12.3 13.7 The Group’s Asian operations contributed a Credit quality 15 net operating profit of $28 million, up 33.3%. Credit quality continued to improve, with gross impaired assets declining from 10 $1,517 million to $1,298 million. Non-accrual loans (net of specific provisions) decreased by 5 12.1% to $706 million. 0 1993 1994 1995 1996 1997 Wealth Index $8000 Creating wealth for shareholders is a primary objective of the 7000 National Australia Bank Group. The graph shows how an Banking Index 6000 investment of $1,000 in National All Ordinaries Index Australia Bank shares in 1987 has 5000 increased in value to more than 4000 $7,000, assuming reinvestment of all dividends. Cumulative returns 3000 from National shares have 2000 exceeded returns from an equivalent investment in the 1000 banking sector generally, and the 0 Australian share market. 9/87 9/88 9/89 9/90 9/91 9/92 9/93 9/94 9/95 9/96 9/97 Board of Directors MR Rayner DR Argus (Chairman) (Managing Director and Chief Executive Officer) BT Loton DK Macfarlane (Vice-Chairman) (Vice-Chairman) DCK Allen PJW Cottrell CM Deeley GJ Kraehe TP Park CM Walter Sir Bruce Watson Summary of Key Business Units National Australia Bank Group Australian Financial Services is a geographically diverse • Largest financial institution in Australia with assets of banking and financial $107.3 billion services group. It provides a • Provides an integrated range of financial services to personal, comprehensive range of services business, rural and wholesale markets throughout Australia in its core markets of Australia, • Head office located in Melbourne New Zealand, the United Bank of New Zealand Kingdom, Ireland, the United States and Asia. • Second largest financial institution in New Zealand, with assets of $21.0 billion As at September 30, 1997 • Provides an integrated range of financial services to personal, 46.7% of the Group’s assets were business, rural and wholesale markets throughout New Zealand • Head office located in Wellington located outside of Australia. Michigan National Corporation Geographic distribution • The principal business, Michigan National Bank, is the fifth largest of assets, September 1997 bank in Michigan, with assets of $13.0 billion Australia • Strong in its preferred commercial, small business and consumer 53.3% segments in central and southern Michigan Europe • Head office located in Farmington Hills 23.4% Clydesdale Bank • Third largest retail bank in Scotland with assets of $16.1 billion • Substantial base in business and consumer lending; increasing share of the corporate market • Located throughout Scotland with some penetration of England • Head office located in