2007 Annual Financial Report INFORMATION ABOUT THIS PAGE: Image Placement and Crop Is First Draft Only

2007 Annual Financial Report Report Financial Annual 2007 2007 annual financial report INFORMATION ABOUT THIS PAGE: Image placement and crop is first draft only. National Australia Bank Limited ABN 12 004 044 937 This 2007 annual financial report is lodged with the Australian Securities and Investments Commission and Australian Securities Exchange. National Australia Bank Limited (NAB) is publicly listed in Australia and overseas and, as such, must meet regulatory requirements of all jurisdictions it operates in internationally. This report contains information prepared on the basis of the Corporations Act 2001 (Cth) and Australian equivalents to International Financial Reporting Standards. The Group deregistered from the United States Securities and Exchange Commission (SEC) effective September 20, 2007. Accordingly, all SEC related disclosures have been removed from this financial report for both the current and comparative financial years. NAB is no longer obliged to produce a concise version of this report, and this year introduced a non statutory shareholder review. The shareholder review comprises information from the annual financial report and the Company’s 2007 profit disclosures. To view the annual financial report online, visit www.nabgroup.com. Alternatively, to arrange for a copy to be sent to you free of charge, call Shareholder Services on 1300 367 647 from within Australia, or +61 3 9415 4299 from outside Australia. Nothing in this report is, or should be taken as, an offer of securities in NAB for issue or sale, or an invitation to apply for the purchase of such securities. All figures in this document are in Australian dollars unless otherwise stated. Table of contents Report of the directors 2 25 Other financial liabilities at fair value 80 Remuneration report 15 26 Deposits and other borrowings 80 Corporate governance 32 27 Life policy liabilities 81 Financial report 41 28 Current and deferred tax liabilities 82 Income statement 42 29 Provisions 83 Balance sheet 43 30 Bonds, notes and subordinated debt 84 Recognised income and expense statement 44 31 Other debt issues 85 Cash flow statement 45 32 Defined benefit pension scheme assets and liabilities 86 Notes to the financial statements 47 33 Other liabilities 89 1 Principal accounting policies 47 34 Contributed equity 90 2 Segment information 60 35 Reserves 92 3 Net interest income 62 36 Retained profits 93 4 Other income 63 37 Shares, performance options and performance rights 94 5 Operating expenses 64 38 Average balance sheets and related interest 100 6 Income tax expense 65 39 Interest rate risk 102 7 Dividends and distributions 66 40 Notes to the cash flow statement 105 8 Earnings per share 67 41 Particulars in relation to controlled entities 107 9 Cash and liquid assets 67 42 Contingent liabilities and credit commitments 108 10 Due from other banks 67 43 Financial risk management 114 11 Trading and hedging derivative assets and liabilities 68 44 Fair value of financial instruments 119 12 Trading securities 70 45 Operating leases 120 13 Investments - available for sale 70 46 Capital expenditure commitments 121 14 Investments - held to maturity 70 47 Related party disclosures 121 15 Investments relating to life insurance business 71 48 Equity instrument holdings of key management personnel 124 16 Other financial assets at fair value 71 49 Remuneration of external auditor 126 17 Loans and advances 72 50 Fiduciary activities 126 National Australia Bank 18 Provisions for doubtful debts 73 51 Life insurance business disclosures 127 19 Asset quality disclosures 74 52 Capital adequacy 132 20 Property, plant and equipment 75 53 Events subsequent to balance date 134 2007 ANNUAL FINANCIAL REPORT FINANCIAL ANNUAL 2007 21 Investments in controlled entities 77 Directors’ declaration 135 22 Goodwill and other intangible assets 77 Independent audit report 136 23 Deferred tax assets 79 Shareholder information 138 24 Other assets 80 Glossary 143 1 Report of the directors The directors of National Australia Bank Limited (Company) present Other income of $4,525 million in 2007, was $895 million or 16.5% their report, together with the financial statements of the Group, being lower than 2006. This outcome is a combination of the following the Company and its controlled entities, for the year ended September factors: 30, 2007. x higher lending and account fees driven by volume growth across the Group, partly offset by customer migration to lower fee The directors of the Company have a significant responsibility with products; respect to the integrity of external reporting. This involves reviewing x a strong contribution from nabCapital, mainly within the Markets and monitoring, with the assistance of the Audit Committee and business; management, the processes, controls and procedures which are in place x significant revenue of $319 million during the 2006 year relating to maintain the integrity of the Group’s financial statements. Further to reforms made to the United Kingdom defined benefit pension details of the role of the Board and its committees can be found on the funds resulting in the recognition of past service revenue; and Group’s website www.nabgroup.com. x a net profit from the sale of controlled entities of $196 million Principal activities and significant changes in nature of activities before tax in the 2006 year from the sale by the Group of its Custom Fleet business on July 31, 2006. Rentals received on The principal activities of the Group during the year were banking leased assets vehicles of $161 million in the 2007 year are $493 services, credit and access card facilities, leasing, housing and general million lower than in 2006. finance, international banking, investment banking, wealth management, funds management, life insurance, and custodian, trustee and nominee Operating expenses, excluding the charge to provide for doubtful debts, services. of $7,412 million in 2007 were $230 million or 3.0% lower than 2006. This outcome reflects: Review of operations and Group results x lower general expenses as the benefits from the 2005 restructuring programme and ongoing efficiency initiatives are realised across the Group; Financial performance summary x lower professional fees as major compliance and litigation matters were finalised during the 2007 year; Group x operating expenses of $347 million in the 2006 year relating to the 2007 2006 Group’s Custom Fleet and MLC Asia businesses up to their $m $m respective sale dates; Net interest income 9,746 8,686 x a net loss of $63 million from the sale by the Group of its life Net life insurance income 1,758 1,417 insurance and related wealth management companies in Asia Other income 4,525 5,420 (MLC Asia) on May 8, 2006; and Operating expenses (7,412) (7,642) x a lower charge to provide for operational risk event losses mainly Charge to provide for doubtful debts (790) (606) due to customer overcharging in the 2006 year; partially offset by Profit before income tax expense 7,827 7,275 - higher depreciation and amortisation expense reflecting the Income tax expense (2,255) (2,134) continued investment in strategic priorities across the Group; Net profit 5,572 5,141 and Net profit attributable to minority interests (994) (749) - higher personnel expenses reflecting salary rate increases and Net profit attributable to members of the higher performance based remuneration. This has been Company 4,578 4,392 partly offset by a reduction in pension expense as a result of the 2006 reforms to the United Kingdom defined benefit Net profit attributable to members of the Company of $4,578 million in pension funds. 2007, increased $186 million or 4.2% compared with 2006. The charge to provide for doubtful debts of $790 million in 2007, was Net interest income of $9,746 million in 2007, was $1,060 million or $184 million or 30.4% higher than 2006. The increase was primarily as 12.2% higher than 2006. This result reflects continued strong growth in a result of strong growth in lending volumes, softening credit conditions lending along with growth in customer deposits. This has been partly and a reduction in the level of specific write backs from the prior year. offset by a decrease in the net interest margin from 2.31% to 2.28%. Income tax expense of $2,255 million in 2007, was $121 million or Net life insurance income increased $341 million from $1,417 million in 5.7% higher than 2006. The increase in income tax expense in 2007 2006 to $1,758 million in 2007. This was driven by an increase in reflects higher operating profits before tax in all businesses, and an investment earnings resulting from strong equity markets and a increase in tax expense attributable to the statutory funds of the life favourable global economic environment along with favourable claims insurance business. experience, partly offset by an increase in policy liabilities. 2007 ANNUAL FINANCIAL REPORT FINANCIAL ANNUAL 2007 National Australia Bank 2 Report of the directors Balance sheet summary Deposits and other borrowings increased by $31,948 million or 14.4% Group during the year to $254,225 million. This increase reflects sound 2007 2006 growth in on-demand and savings deposits. $m $m Assets Bonds, notes and subordinated debt increased by $15,977 million or Cash and liquid assets 12,796 12,768 24.6% to $80,983 million at September 30, 2007. The Group has a number of funding programs available, and the increase reflects further Due from other banks 25,144 24,372 issues of the Group’s Euro and domestic medium-term notes programs Trading derivatives 23,019 13,384 undertaken to fund asset growth and re-finance maturing short-term and Trading securities 21,272 13,740 long-term debt. Investments – available for sale 1,345 1,493 Investments – held to maturity 5,016 1,388 Total equity in the Group increased from $27,972 million at September Investments relating to life insurance business 62,630 54,784 30, 2006 to $29,885 million at September 30, 2007.

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