2009 Shareholder Review

The Group achieved solid revenue growth, with Australia Banking and nabCapital making particularly strong contributions. We remained very disciplined about costs and, importantly, maintained a strong balance sheet.

Keeping the bank safe

A strong balance sheet, in terms of capital, funding and liquidity, remains a core priority. At 30 September 2009, our Tier 1 capital ratio was 8.96%, reflecting capital raisings and other capital initiatives during the year. While recent data might suggest global economic conditions are improving, we still see a significant need for capital, not least for potential regulatory changes.

During 2009, we exceeded our funding target of $19 billion and put ourselves in a strong position to support customer needs in 2010. We also increased the average maturity of term funding, recommenced the issuance of non-Government guaranteed debt and delivered strong deposit growth across all franchises. Conservative levels of liquidity were retained at all times.

A solid performance in challenging times

Solid revenue growth was seen, despite rapidly emerging weakness across relevant economies. Group revenue increased by 9.7% to $16.9 billion (excluding Great Western Bank which was acquired in June 2008, revenue increased by 8.5%).

Australia Banking and nabCapital's Global Markets and Treasury Division were particular areas of strength. Australia Banking achieved robust business lending growth and effective margin management, while nabCapital's Global Markets and Treasury Division benefited from market volatility, which drove increased client demand for risk management products, improved margins and a strong trading performance.

These results were partially offset by lower revenues in the UK Region and MLC, the latter reflecting declining funds under management and adverse claims experience. All of our franchises have continued to reprice lending portfolios to align pricing to underlying risks.

Tight management of costs

We remain focused on tight cost management and realising efficiencies across each of our businesses. Strong discipline has been maintained, with cost growth remaining at around inflation. Across the Group, cost growth was 2.9% (excluding Great Western Bank, which was under our ownership for only four months of the prior year).

Our Efficiency, Quality and Service (EQS) agenda was accelerated during 2009. These initiatives focused on reshaping the business to increase efficiency, reduce duplication and position the Group to better serve our customers. One-off costs associated with the acceleration of this agenda are incremental to the underlying cost performance of the businesses and are excluded from cash earnings. For the full year, $254 million of costs have been accelerated, and are expected to deliver $336 million of annualised benefits in the 2010 year.

Asset quality

Asset quality softened across the Group reflecting deteriorating business conditions in all markets. The bad and doubtful debt charge was $3.8 billion, an increase of $2.3 billion excluding the charges for ABS CDOs (Asset Backed Security Collateralised Debt Obligations) booked in the previous year. This increase was due to higher specific provisions in business lending in all regions and higher collective provisions consistent with deteriorating economic conditions. The rate of increase in both the bad and doubtful debts expense and total provisions moderated during the second half of the year.

The year ahead

Looking forward, we are seeing positive signs emerge but there remains a high degree of uncertainty around the globe. We will continue to focus on balance sheet strength, target sustainable growth in deposits, and continue to manage our efficiency and cost agenda in a disciplined way.

Mark Joiner
Executive Director Finance