EARNINGS MOMENTUM UNDERPINS STRONG FIRST HALF RESULT

Key components of the result include:

• Continuing success of the customer focus strategy, with the Group retaining (for a period of 12 months) its position as the number one in customer satisfaction (relative to peers) in its Australian retail banking business, while maintaining its leadership position in business customer satisfaction;
• Group net interest income and other banking income up 8 and 6 per cent respectively in the banking businesses, with average interest earning assets up $41 billion to $690 billion and retail and business average interest bearing deposits^{([1]) _} up $29 billion to $405 billion;
• Net interest margin (NIM) declined 3 basis points (to 2.14 per cent) on the prior half primarily as a result of continued funding and liquidity pressure;
• Growth in Wealth Management’s earnings as average Funds Under Administration grew by 22 per cent and 89 per cent of funds performed above benchmark;
• Cash earnings growth in New Zealand (including ASB Bank) and Bankwest of 16 and 37 per cent respectively;
• Continuing progress in Indonesia and China;
• An improvement of 90 basis points in the Group’s cost to income ratio, achieved in large part through the Group-wide productivity focus, which delivered savings of $234 million over the past twelve months;
• The ratio of cash loan impairment expense (LIE) to gross loans and acceptances improved 6 basis points (to 16 basis points) compared with the prior comparative period and was flat compared with the prior half, reflecting a benign credit environment;
• Investment of $589 million in long term growth through a tightly managed set of initiatives that focused on technology, productivity and risk;
• Continuing conservative provisioning, with total provisions of $4.3 billion, and the ratio of provisions to credit risk weighted assets at a sector-leading 1.52 per cent. Collective provisions include a management overlay of almost $900 million and an unchanged economic overlay;
• On-going organic capital generation leading to Basel III Common Equity Tier 1 (CET1) (Internationally Harmonised) ratio of 11.4 per cent, up 80 basis points.  CET 1 (APRA) increased 40 basis points to 8.5 per cent; and
• Continuation of the Group’s position as one of only a limited number of global banks in the ‘AA’ ratings category.

(1)  Includes transactions, savings and investment average interest bearing deposits.

Strong deposit growth during the period has seen the Group satisfy a significant proportion of its funding requirements from customer deposits, with deposits remaining at 63 per cent of total Group funding. However, competition for domestic deposits remained strong and continued to have a negative impact on margins. During the period the Group took advantage of improving conditions in wholesale markets, issuing $17 billion of long term debt in multiple currencies.

While some of the Group’s customers are facing challenges, this is not translating into a deterioration of credit quality.  However, given the uncertain outlook for both the global and domestic economies, the Group remains cautious, maintaining a strong balance sheet with high levels of capital and provisioning. Liquidity was $137 billion as at 31 December 2013.

On the outlook for the 2014 calendar year, Ian Narev said: "We remain cautiously optimistic about the economic environment for this year. We have seen, in recent weeks, that there is still volatility in global markets. The risks presented by that volatility continue to supress business confidence. As a result, there is little real evidence, so far, of a meaningful increase in investment in the rest of the non-resource sector of the Australian economy, other than in housing."

"However, growth forecasts for developed economies have improved, consumer spending over the holiday season was generally higher than last year, corporate balance sheets remain strong, there is positive activity in the housing sector, and the Australian dollar has become more competitive."

"So all in all, we continue to assume that any improvements in economic activity in the next year will be gradual rather than dramatic. We will stick to our proven strategy, and maintain business settings that reflect both the risks and the opportunities of this economic environment."

Ends