RNS Number:5006S
National Australia Bank Ld
26 November 2003
PART 5
40 Average balance sheets and related interest
The following tables set forth the major categories of interest-earning assets
and interest-bearing liabilities, together with their respective interest rates
earned or paid by the Group. Averages are predominantly daily averages.
Interest income figures include interest income on non-accruing loans to the
extent cash payments have been received (refer to note 1(q)(iii)). Amounts
classified as overseas represent interest-earning assets or interest-bearing
liabilities of the controlled entities and overseas branches. Non-accrual loans
are included with interest-earning assets within loans and advances.
Average assets and interest income
2003 2002 2001
Average Interest Average Average Interest Average Average Interest Average
balance rate balance rate balance rate
$m $m % pa $m $m % pa $m $m % pa
Average
interest-earning
assets
Due from other
financial
institutions
Australia 4,243 109 2.57 2,824 102 3.61 1,980 110 5.56
Overseas 10,050 286 2.85 12,401 337 2.72 13,332 685 5.14
Marketable debt
securities
Australia 16,433 881 5.36 13,910 712 5.12 11,813 624 5.28
Overseas 18,066 664 3.68 21,524 797 3.70 22,061 1,236 5.60
Loans and advances
Australia 130,541 8,528 6.53 112,714 7,385 6.55 101,941 7,525 7.38
Overseas 113,643 6,433 5.66 102,775 6,436 6.26 99,320 7,734 7.79
Regulatory deposits
Overseas 211 2 0.95 157 3 1.91 131 3 2.29
Other 131 197 n/a 4,222 703 n/a 6,025 2,002 n/a
interest-earning
assets (1)
Intra-Group loans
Overseas 18,076 622 3.44 13,213 455 3.44 10,248 455 4.44
Average 311,394 17,722 5.69 283,740 16,930 5.97 266,851 20,374 7.63
interest-earning
assets and interest
income including
intra-Group
Intra-Group (18,076 ) (622 ) 3.44 (13,213 ) (455 ) 3.44 (10,248 ) (455 ) 4.44
eliminations
Total average 293,318 17,100 5.83 270,527 16,475 6.09 256,603 19,919 7.76
interest-earning
assets and interest
income
Average
non-interest-earning
assets
Acceptances
Australia 21,346 21,231 22,405
Overseas 135 319 1,004
Investments relating
to life insurance
business (2)
Australia 31,246 32,178 30,642
Overseas 490 403 591
Property, plant and
equipment
Australia 1,362 1,381 1,173
Overseas 865 979 1,166
Other assets
Australia 22,454 20,972 19,422
Overseas 13,301 16,631 24,597
Total average 91,199 94,094 101,000
non-interest-earning
assets
Provision for
doubtful debts
Australia (1,200 ) (1,413 ) (1,348 )
Overseas (1,056 ) (1,258 ) (1,267 )
Total average assets 382,261 361,950 354,988
Percentage of total 40.8 % 43.7 % 47.0 %
average assets
applicable to
overseas operations
144
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2003 2002 2001
Average Interest Average Average Interest Average Average Interest Average
balance rate balance rate balance rate
$m $m % pa $m $m % pa $m $m % pa
Average liabilities
and interest expense
Average
interest-bearing
liabilities
Due to other
financial
institutions
Australia 5,750 184 3.20 4,940 180 3.64 4,178 203 4.86
Overseas 39,545 1,265 3.20 34,398 1,091 3.17 33,638 1,704 5.07
Savings deposits
Australia 8,010 337 4.21 6,035 255 4.23 5,584 290 5.19
Overseas 16,682 368 2.21 16,758 362 2.16 17,417 642 3.69
Other demand
deposits
Australia 36,290 1,041 2.87 35,022 872 2.49 30,796 1,050 3.41
Overseas 16,701 275 1.65 18,843 421 2.23 15,696 459 2.92
Time deposits
Australia 46,911 2,165 4.62 37,411 1,735 4.64 33,709 1,856 5.51
Overseas 58,116 1,940 3.34 56,525 1,972 3.49 57,850 3,062 5.29
Government and
official institution
deposits
Australia 894 36 4.03 805 31 3.85 750 36 4.80
Overseas 1,948 23 1.18 1,706 39 2.29 2,174 118 5.43
Short-term
borrowings
Overseas 3,919 46 1.17 5,036 210 4.17 7,384 523 7.08
Long-term borrowings
Australia 19,787 654 3.31 19,633 803 4.09 18,515 1,158 6.25
Overseas 577 25 4.33 3,061 105 3.43 5,412 251 4.64
Other debt issues
Australia 399 20 5.01 626 29 4.63 673 42 6.24
Overseas 1,246 125 10.03 1,167 142 12.17 1,220 150 12.30
Other 8,715 1,177 n/a 7,909 1,006 n/a 4,067 1,415 n/a
interest-bearing
liabilities(1)
Intra-Group loans
Australia 18,076 622 3.44 13,213 455 3.44 10,248 455 4.44
Average
interest-bearing
liabilities and
interest expense
including
Intra-Group 283,566 10,303 3.63 263,088 9,708 3.69 249,311 13,414 5.38
Intra-Group (18,076 ) (622 ) 3.44 (13,213 ) (455 ) 3.44 (10,248 ) (455 ) 4.44
eliminations
Total average 265,490 9,681 3.65 249,875 9,253 3.70 239,063 12,959 5.42
interest-bearing
liabilities and
interest expense
Average
non-interest-bearing
liabilities
Liability on
acceptances
Australia 21,346 21,231 22,405
Overseas 135 319 1,004
Deposits not bearing
interest
Australia 5,215 4,790 4,287
Overseas 7,049 6,733 8,160
Life insurance
policy liabilities
(2)
Australia 30,782 30,760 29,550
Overseas 530 319 514
Other liabilities
Australia 16,485 13,888 15,097
Overseas 11,118 10,188 11,481
Total average 92,660 88,228 92,498
non-interest-bearing
liabilities
Total average 358,150 338,103 331,561
liabilities
145
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2003 2002 2001
Average Interest Average Average Interest Average Average Interest Average
balance rate balance rate balance rate
$m $m % pa $m $m % pa $m $m % pa
Average equity
Ordinary shares 6,559 7,878 7,624
Preference share 730 730 730
capital
Trust Preferred 5 - -
Securities
National Income 1,945 1,945 1,945
Securities
Contributed 9,239 10,553 10,299
equity
Reserves 1,285 1,811 2,210
Retained profits 12,735 11,415 10,851
Parent entity 23,259 23,779 23,360
interest
Outside equity 852 68 67
interest in
controlled
entities
Total average 24,111 23,847 23,427
equity
Total average 382,261 361,950 354,988
liabilities and
equity
Percentage of 44.0 % 46.1 % 48.8 %
total average
liabilities
applicable to
overseas
operations
--------------------
(1) Includes interest on derivatives and escrow deposits.
(2) Included within investments relating to life insurance business are
interest-earning debt securities (refer to note 15). The interest earned from
these securities is reported in life insurance income, as shown in note 4, and
has therefore been treated as non-interest-earning for the purposes of this
note. The assets and liabilities held in the statutory funds of the Group's
Australian life insurance business are subject to restrictions of the Life
Insurance Act 1995 (Cth) (refer to note 1(p)).
41 Maturity analysis
The following tables represent a breakdown of the Group's statement of financial
position for the last two years as at September 30 by contractual maturity. The
majority of the longer-term monetary assets are variable rate products, with
actual maturities shorter than the contractual terms. Accordingly, this
information is not relied upon by the Group in its management of interest rate
risk (refer to note 42 for information on interest rate sensitivity).
Group 2003
At call Overdrafts 0 to 3 3 to 12 1 to 5 Over 5 No Total
month(s) months year(s) years specific
maturity
$m $m $m $m $m $m $m $m
Assets
Cash assets 5,032 - - - - - - 5,032
Due from other 3,390 67 5,135 611 945 235 - 10,383
financial institutions
Due from customers on - - 18,950 594 18 - - 19,562
acceptances
Trading securities - - 23,724 - - - - 23,724
Trading derivatives - - - - - - 23,644 23,644
(1)
Available for sale 52 - 2,697 2,067 1,676 21 - 6,513
securities
Investment securities - - 4,129 594 3,286 638 - 8,647
Investments relating - - - - - - 35,846 35,846
to life insurance
business
Loans and advances (2) 7,436 17,205 21,672 49,362 52,600 99,684 - 247,959
Mortgage servicing - - - - - - - -
rights
All other assets - - - - - - 16,161 16,161
Total assets 15,910 17,272 76,307 53,228 58,525 100,578 75,651 397,471
Liabilities
Due to other financial 9,779 45 25,422 7,264 1,880 738 - 45,128
institutions
Liability on - - 18,950 594 18 - - 19,562
acceptances
Trading derivatives - - - - - - 21,479 21,479
(1)
Deposits and 108,210 - 80,781 13,104 6,697 913 441 210,146
borrowings
Life insurance policy - - - - - - 32,457 32,457
liabilities
Bonds, notes and - - 1,623 2,917 12,768 5,410 (11 ) 22,707
subordinated debt
Other debt issues - - - - - - 1,743 1,743
All other liabilities - - - - - - 17,038 17,038
Total liabilities 117,989 45 126,776 23,879 21,363 7,061 73,147 370,260
Net assets (102,079 ) 17,227 (50,469 ) 29,349 37,162 93,517 2,504 27,211
146
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Group 2002
At call Overdrafts 0 to 3 3 to 12 1 to 5 Over 5 No Total
month(s) months year(s) years specific
maturity
$m $m $m $m $m $m $m $m
Assets
Cash assets 6,294 - - - - - - 6,294
Due from other 4,146 42 9,394 580 1,464 250 - 15,876
financial institutions
Due from customers on - - 18,738 701 35 - - 19,474
acceptances
Trading securities - - 19,590 - - - - 19,590
Trading derivatives - - - - - - 12,128 12,128
(1)
Available for sale - - 4,878 1,210 100 4 - 6,192
securities
Investment securities - - 7,500 2,621 3,260 160 - 13,541
Investments relating - - - - - - 31,012 31,012
to life insurance
business
Loans and advances (2) 6,296 18,765 23,637 38,558 55,760 88,284 - 231,300
Mortgage servicing - - - - - 1,794 - 1,794
rights
All other assets - - - - - - 20,186 20,186
Total assets 16,736 18,807 83,737 43,670 60,619 90,492 63,326 377,387
Liabilities
Due to other financial 8,105 2 25,769 6,852 1,628 923 - 43,279
institutions
Liability on - - 18,738 701 35 - - 19,474
acceptances
Trading derivatives - - - - - - 12,000 12,000
(1)
Deposits and 92,615 - 86,023 17,660 9,432 1,134 - 206,864
borrowings
Life insurance policy - - - - - - 30,425 30,425
liabilities
Bonds, notes and - - 1,253 3,294 11,113 6,529 3 22,192
subordinated debt
Other debt issues - - - - - - 1,866 1,866
All other liabilities - - - - - - 18,036 18,036
Total liabilities 100,720 2 131,783 28,507 22,208 8,586 62,330 354,136
Net assets (83,984 ) 18,805 (48,046 ) 15,163 38,411 81,906 996 23,251
--------------------
(1) The underlying derivative contracts have varying contractual maturity
dates, however, the fair value of these contracts at balance date is more
appropriately classified as no specific maturity. This is because the fair
value amounts at balance date do not necessarily represent the future cash flows
of the derivative contracts at their maturity dates and would therefore not be
indicative of their liquidity and solvency position. Trading derivative
positions are managed on a net basis and are highly liquid.
(2) Includes provisions for doubtful debts as disclosed in note 17 and
unearned income as disclosed in note 16.
42 Interest rate risk
The following tables represent a breakdown, by currency and repricing dates or
contractual maturity, whichever is the earlier, of the Group's statement of
financial position for the last two years at September 30. As interest rates
and yield curves change over time, the Group may be exposed to a loss in
earnings due to the effects of interest rates on the structure of the balance
sheet. Sensitivity to interest rates arises from mismatches in the repricing
dates, cash flows and other characteristics of the assets and their
corresponding liability funding. These mismatches are actively managed as part
of the overall interest rate risk management process which is conducted in
accordance with Group Balance Sheet Management policy and guidelines. In
managing the structural interest rate risk, the primary objectives are to limit
the extent to which net interest income could be impacted from an adverse
movement in interest rates and to maximise shareholder wealth.
Life insurance investment assets have been included in the following tables.
The interest income on these assets supports the life insurance policies issued
by the Group's life insurance business and does not contribute to market risk
within the Group's banking operations. The assets and liabilities held in the
statutory funds are subject to restrictions of the Life Insurance Act 1995 (Cth)
(refer to note 1(p) and (z)).
The tables below provide details of the repricing dates of all interest-earning
assets and interest-bearing liabilities of the Group. To obtain an
understanding of the effective interest earned/paid on each of the assets and
liabilities set out below, refer to note 40.
147
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Non-interest- Total Weighted
earning/ average
Repricing period bearing effective
interest
0 to 3 3 to 12 1 to 5 Over rate
month(s) month(s) year(s) 5 years
$m $m $m $m $m $m % pa
Australian dollars - 2003
Financial assets
Cash assets 1,087 - - - 1,758 2,845 4.7 %
Due from other financial 4,079 3 9 - 51 4,142 3.1 %
institutions
Due from customers on - - - - 19,496 19,496 -
acceptances
Trading securities 21,438 - - - - 21,438 5.0 %
Trading derivatives - - - - 10,875 10,875 -
Available for sale and 5,635 188 - 8 - 5,831 7.2 %
investment securities
Investments relating to 2,704 239 1,150 959 20,717 25,769 5.1 %
life insurance business
Loans and advances 103,018 16,731 19,767 608 688 140,812 6.7 %
Other assets 24 - - - 11,691 11,715 -
Total financial assets 137,985 17,161 20,926 1,575 65,276 242,923 n/a
Financial liabilities
Due to other financial 6,167 62 - - 327 6,556 3.0 %
institutions
Liability on acceptances - - - - 19,496 19,496 -
Trading derivatives - - - - 8,643 8,643 -
Deposits and other 106,988 5,527 575 10 5,724 118,824 3.4 %
borrowings
Life insurance policy - - - - 31,994 31,994 -
liabilities
Bonds, notes and 3,022 2,070 11,641 5,358 - 22,091 5.2 %
subordinated debt
Other debt issues 1,630 - - 113 - 1,743 5.0 %
Other liabilities 1 - - 1 12,426 12,428 -
Total equity - - - - 15,769 15,769 -
Total financial liabilities 117,808 7,659 12,216 5,482 94,379 237,544 n/a
Off-balance sheet items (19,977 ) 745 13,988 5,244 - -
attracting interest rate
sensitivity
Total interest rate 200 10,247 22,698 1,337 (29,103 ) 5,379
repricing gap
Cumulative interest rate 200 10,447 33,145 34,482 5,379
repricing gap
Australian dollars - 2002
Financial assets
Cash assets 1,273 - 3 6 1,346 2,628 4.3 %
Due from other financial 5,218 2 5 - 889 6,114 2.5 %
institutions
Due from customers on - - - - 19,246 19,246 -
acceptances
Trading securities 16,148 - - - - 16,148 6.3 %
Trading derivatives - - - - 6,569 6,569 -
Available for sale and 3,226 101 25 - - 3,352 5.9 %
investment securities
Investments relating to 1,386 555 1,381 2,601 17,430 23,353 4.4 %
life insurance business
Loans and advances 84,856 14,346 20,545 648 560 120,955 6.9 %
Other assets 167 - - - 15,489 15,656 -
Total financial assets 112,274 15,004 21,959 3,255 61,529 214,021 n/a
Financial liabilities
Due to other financial 8,357 217 - - 594 9,168 3.3 %
institutions
Liability on acceptances - - - - 19,246 19,246 -
Trading derivatives - - - - 5,973 5,973 -
Deposits and other 86,202 8,083 585 3 4,973 99,846 3.3 %
borrowings
Life insurance policy - - - - 30,118 30,118 -
liabilities
Bonds, notes and 3,966 2,798 7,170 6,906 - 20,840 5.5 %
subordinated debt
Other debt issues 460 - - - 1,406 1,866 3.6 %
Other liabilities - 6 6 - 11,680 11,692 -
Total equity - - - - 11,355 11,355 -
Total financial liabilities 98,985 11,104 7,761 6,909 85,345 210,104 n/a
Off-balance sheet items (10,302 ) (2,696 ) 6,167 6,831 - -
attracting interest rate
sensitivity
Total interest rate 2,987 1,204 20,365 3,177 (23,816 ) 3,917
repricing gap
Cumulative interest rate 2,987 4,191 24,556 27,733 3,917
repricing gap
148
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Non-interest- Total Weighted
earning/ average
Repricing period bearing effective
interest
0 to 3 3 to 12 1 to 5 Over rate
month(s) month(s) year(s) 5 years
$m $m $m $m $m $m % pa
British pounds and Euros -
2003
Financial assets
Cash assets (219 ) - - - 2,167 1,948 -
Due from other financial 2,650 - - - 83 2,733 2.1 %
institutions
Due from customers on - - - - 66 66 -
acceptances
Trading securities 992 - - - - 992 -
Trading derivatives - - - - 10,302 10,302 -
Available for sale and 1,518 15 590 17 1 2,141 3.3 %
investment securities
Investments relating to 3 25 100 114 2,106 2,348 3.2 %
life insurance business
Loans and advances 53,449 9,976 6,673 1,003 (239 ) 70,862 5.0 %
Regulatory deposits 135 - - - 51 186 1.2 %
Other assets - - 1 1 2,454 2,456 -
Total financial assets 58,528 10,016 7,364 1,135 16,991 94,034 n/a
Financial liabilities
Due to other financial 15,300 3,458 491 - 45 19,294 2.8 %
institutions
Liability on acceptances - - - - 66 66 -
Trading derivatives - - - - 10,131 10,131 -
Deposits and other 41,217 5,587 738 2 5,870 53,414 2.1 %
borrowings
Life insurance policy - - - - 142 142 -
liabilities
Bonds, notes and - 616 - - - 616 5.0 %
subordinated debt
Other liabilities 321 - (1 ) 1 5,301 5,622 -
Total equity - - - - 4,200 4,200 -
Total financial liabilities 56,838 9,661 1,228 3 25,755 93,485 n/a
Off-balance sheet items (2,954 ) (4,406 ) 12,496 (1,548 ) - 3,588
attracting interest rate
sensitivity
Total interest rate (1,264 ) (4,051 ) 18,632 (416 ) (8,764 ) 4,137
repricing gap
Cumulative interest rate (1,264 ) (5,315 ) 13,317 12,901 4,137
repricing gap
British pounds and Euros -
2002
Financial assets
Cash assets 430 - - - 2,757 3,187 -
Due from other financial 2,971 26 - - 206 3,203 3.2 %
institutions
Due from customers on - - - - 145 145 -
acceptances
Trading securities 397 - - - - 397 -
Trading derivatives - - - - 1,907 1,907 -
Available for sale and 3,815 1,082 186 - 11 5,094 3.6 %
investment securities
Investments relating to 3 31 250 628 1,497 2,409 3.8 %
life insurance business
Loans and advances 55,074 9,447 7,476 1,214 - 73,211 6.2 %
Regulatory deposits 69 - - - 32 101 2.2 %
Other assets 36 - - - 3,268 3,304 -
Total financial assets 62,795 10,586 7,912 1,842 9,823 92,958 n/a
Financial liabilities
Due to other financial 8,626 4,658 579 - 16 13,879 3.6 %
institutions
Liability on acceptances 1 - - - 144 145 -
Trading derivatives - - - - 2,073 2,073 -
Deposits and other 48,128 6,328 717 64 7,170 62,407 2.0 %
borrowings
Life insurance policy - - - - 303 303 -
liabilities
Other liabilities 619 - - 440 5,294 6,353 -
Total equity - - - - 5,022 5,022 -
Total financial liabilities 57,374 10,986 1,296 504 20,022 90,182 n/a
Off-balance sheet items (7,728 ) 1,492 7,877 (1,642 ) - (1 )
attracting interest rate
sensitivity
Total interest rate (2,307 ) 1,092 14,493 (304 ) (10,199 ) 2,775
repricing gap
Cumulative interest rate (2,307 ) (1,215 ) 13,278 12,974 2,775
repricing gap
149
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Non-interest- Total Weighted
earning/ average
Repricing period bearing effective
interest
0 to 3 3 to 12 1 to 5 Over rate
month(s) month(s) year(s) 5 years
$m $m $m $m $m $m % pa
New Zealand dollars - 2003
Financial assets
Cash assets 8 - - - 453 461 -
Due from other financial 575 - - - - 575 3.9 %
institutions
Trading securities 730 - - - - 730 5.5 %
Trading derivatives - - - - 842 842 -
Available for sale and 793 7 7 - - 807 4.8 %
investment securities
Investments relating to 5 - 1 - 11 17 5.6 %
life insurance business
Loans and advances 13,939 5,064 8,305 506 28 27,842 7.2 %
Other assets (1 ) - (1 ) - 1,203 1,201 -
Total financial assets 16,049 5,071 8,312 506 2,537 32,475
Financial liabilities
Due to other financial 2,085 7 - - - 2,092 3.8 %
institutions
Trading derivatives - - - - 982 982 -
Deposits and other 17,863 2,974 747 93 930 22,607 4.1 %
borrowings
Life insurance policy - - - - 3 3 -
liabilities
Other liabilities 1 - - - 969 970 -
Total equity - - - - 2,025 2,025 -
Total financial liabilities 19,949 2,981 747 93 4,909 28,679 n/a
Off-balance sheet items 8,682 (2,654 ) (5,577 ) (451 ) - -
attracting interest rate
sensitivity
Total interest rate 4,782 (564 ) 1,988 (38 ) (2,372 ) 3,796
repricing gap
Cumulative interest rate 4,782 4,218 6,206 6,168 3,796
repricing gap
New Zealand dollars - 2002
Financial assets
Cash assets 4 - - - 69 73 -
Due from other financial 544 - - - - 544 5.0 %
institutions
Trading securities 2,154 8 - - - 2,162 5.8 %
Trading derivatives - - - - 606 606 -
Available for sale and 838 7 8 - - 853 6.1 %
investment securities
Investments relating to - - - 18 13 31 6.4 %
life insurance business
Loans and advances 14,177 3,590 7,246 515 31 25,559 7.6 %
Other assets 2 - - - 863 865 -
Total financial assets 17,719 3,605 7,254 533 1,582 30,693 n/a
Financial liabilities
Due to other financial 1,600 86 - - - 1,686 5.1 %
institutions
Trading derivatives - - - - 682 682 -
Deposits and other 17,146 2,650 597 - 845 21,238 4.3 %
borrowings
Life insurance policy - - - - 4 4 -
liabilities
Other liabilities - - - - 920 920 -
Total equity - - - - 1,786 1,786 -
Total financial liabilities 18,746 2,736 597 - 4,237 26,316 n/a
Off-balance sheet items 5,537 (1,197 ) (3,969 ) (371 ) - -
attracting interest rate
sensitivity
Total interest rate 4,510 (328 ) 2,688 162 (2,655 ) 4,377
repricing gap
Cumulative interest rate 4,510 4,182 6,870 7,032 4,377
repricing gap
150
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Non-interest- Total Weighted
earning/ average
Repricing period bearing effective
interest
0 to 3 3 to 12 1 to 5 Over rate
month(s) month(s) year(s) 5 years
$m $m $m $m $m $m % pa
United States dollars and
other currencies - 2003
Financial assets
Cash assets 7 - - - (229 ) (222 ) (0.2 )%
Due from other financial 2,933 - - - - 2,933 1.5 %
institutions
Trading securities 564 - - - - 564 0.4 %
Trading derivatives - - - - 1,625 1,625 -
Available for sale and 4,620 1,668 93 - - 6,381 2.0 %
investment securities
Investments relating to 120 56 184 185 7,167 7,712 2.9 %
life insurance business
Loans and advances 4,370 1,277 1,934 862 - 8,443 2.2 %
Regulatory deposits 75 - - - (36 ) 39 -
Other assets - - - 181 383 564 -
Total financial assets 12,689 3,001 2,211 1,228 8,910 28,039 n/a
Financial liabilities
Due to other financial 14,757 2,429 - - - 17,186 1.2 %
institutions
Trading derivatives - - - - 1,723 1,723 -
Deposits and other 12,337 2,362 73 - 529 15,301 1.3 %
borrowings
Life insurance policy - - - - 318 318 -
liabilities
Other liabilities (1 ) - - - (1,981 ) (1,982 ) -
Total equity - - - - 5,217 5,217 -
Total financial liabilities 27,093 4,791 73 - 5,806 37,763 n/a
Off-balance sheet items 1,853 (4,045 ) (1,380 ) (16 ) - (3,588 )
attracting interest rate
sensitivity
Total interest rate (12,551 ) (5,835 ) 758 1,212 3,104 (13,312 )
repricing gap
Cumulative interest rate (12,551 ) (18,386 ) (17,628 ) (16,416 ) (13,312 )
repricing gap
United States dollars and
other currencies - 2002
Financial assets
Cash assets 406 - - - - 406 0.1 %
Due from other financial 5,988 2 - - 25 6,015 1.5 %
institutions
Due from customers on - - - - 83 83 -
acceptances
Trading securities 802 81 - - - 883 0.6 %
Trading derivatives - - - - 3,046 3,046 -
Available for sale and 8,404 2,017 13 - - 10,434 1.2 %
investment securities
Investments relating to 80 53 442 1,168 3,476 5,219 4.3 %
life insurance business
Loans and advances 6,650 1,564 2,843 518 - 11,575 1.1 %
Mortgage loans held for 85 - - - - 85 6.9 %
sale
Mortgage servicing rights - - - - 1,794 1,794 -
Regulatory deposits 28 - - - - 28 -
Other assets 1,317 - - 18 (1,188 ) 147 -
Total financial assets 23,760 3,717 3,298 1,704 7,236 39,715 n/a
Financial liabilities
Due to other financial 16,583 1,963 - - - 18,546 1.7 %
institutions
Liability on acceptances - - - - 83 83 -
Trading derivatives - - - - 3,272 3,272 -
Deposits and other 16,667 6,022 - - 684 23,373 1.2 %
borrowings
Bonds, notes and 460 524 368 - - 1,352 4.1 %
subordinated debt
Other liabilities 2,343 - - - (3,272 ) (929 ) -
Total equity - - - - 5,088 5,088 -
Total financial liabilities 36,053 8,509 368 - 5,855 50,785 n/a
Off-balance sheet items (21,450 ) 4,493 16,937 20 - -
attracting interest rate
sensitivity
Total interest rate (33,743 ) (299 ) 19,867 1,724 1,381 (11,070 )
repricing gap
Cumulative interest rate (33,743 ) (34,042 ) (14,175 ) (12,451 ) (11,070 )
repricing gap
151
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43 Notes to the statement of cash flows
(a) Reconciliation of net profit attributable to members of the Company to net
cash provided by/(used in) operating activities
Group Company
2003 2002 2001 2003 2002
$m $m $m $m $m
Net profit attributable to members of the 3,955 3,373 2,083 5,720 2,502
Company
Add/(deduct): Non-cash items
Decrease/(increase) in interest receivable 460 (755 ) 242 (51 ) 161
Increase/(decrease) in interest payable (512 ) (51 ) (61 ) 51 (305 )
Depreciation and amortisation of plant and 401 419 382 223 202
equipment
Loss/(profit) on sale of controlled entities - 15 (2,477 ) - (139 )
Loss on sale of operating assets - 8 - - -
Impairment loss on mortgage servicing rights - - 1,643 - -
Impairment loss on goodwill - - 858 - -
Charge to provide for doubtful debts 633 697 989 373 259
Charge to provide for mortgage servicing rights - - 1,436 - -
valuation adjustment
Charge to provide for restructuring costs - 265 - - 146
Movement in the excess of net market value over 160 155 (510 ) - -
net assets of life insurance controlled
entities
Amortisation of goodwill 98 101 167 - -
Increase in life insurance policy liabilities 2,281 170 600 - -
Write-off of property, plant and equipment - 132 - - 106
Decrease/(increase) in life insurance (1,593 ) 2,359 2,310 - -
investment assets
Increase/(decrease) in provision for income tax (54 ) (287 ) (328 ) (201 ) 491
Net increase/(decrease) in provision for 19 (882 ) (106 ) (11 ) (220 )
deferred income tax and future income tax
benefits
Net decrease/(increase) in trading securities (4,345 ) 136 (4,400 ) (5,653 ) 789
Unrealised (gain)/loss on trading derivatives (2,010 ) 875 1,634 (2,030 ) 808
(1)
Net movement in mortgage loans held for sale 50 1,304 (763 ) - -
Other provisions and non-cash items (24 ) 83 610 128 150
Net cash/(used in) provided by operating (481 ) 8,117 4,309 (1,451 ) 4,950
activities
--------------------
(1) In line with the reclassification of trading derivative financial
instruments on the face of the statement of financial position, cash flows from
these activities have also been reclassified.
(b) Reconciliation of cash and cash equivalents
For the purposes of reporting cash flows, cash and cash equivalents include cash
assets, due from other financial institutions and due to other financial
institutions.
Cash and cash equivalents at the end of the year as shown in the statement of
cash flows is reconciled to the related items on the statement of financial
position as follows:
Cash assets 5,032 6,294 7,993 779 1,515
Due from other financial institutions 10,383 15,876 16,472 7,820 12,579
Due to other financial institutions (45,128 ) (43,279 ) (42,873 ) (41,466 ) (39,983 )
Total cash and cash equivalents (29,713 ) (21,109 ) (18,408 ) (32,867 ) (25,889 )
(c) Non-cash financing and investing
activities
New share issues
Dividend reinvestment plan 170 323 610 170 323
Bonus share plan 105 89 74 105 89
Movement in assets under finance lease (11 ) (2 ) 10 (11 ) (2 )
(d) Financing arrangements
Refer to note 51.
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(e) Acquisitions of controlled entities
The following acquisitions have been made during the last three years to
September 30, 2003:
* on June 16, 2003, MLC Limited acquired the remaining 50% of
the share capital of Plum Financial Services Group to take its interest to 100%
for cash consideration;
* on May 1, 2003, MLC Limited and a Thai company in the Group
subscribed for an additional 10.9% of the share capital of Advance MLC Assurance
Co. Limited for cash consideration to take the Group's interest to 65.9%;
* on November 1, 2002, BNZ acquired 100% of the share capital
of New Zealand-based Hertz Fleetlease Limited for cash consideration;
* on April 2, 2001, NAFiM acquired 100% of the share capital of
Deutsche Funds Management Limited for cash consideration. As part of this
transaction, Godfrey Pembroke Limited acquired all other assets of Deutsche Bank
AG's Australian financial planning and portfolio management businesses for cash
consideration;
* on December 18, 2000, NAFiM acquired 100% of the share
capital of John A Nolan & Associates Pty Ltd for cash consideration; and
* on October 25, 2000, MLC Limited acquired the remaining 25%
of the share capital of Medfin for cash consideration.
The operating results of the acquired entities have been included in the Group's
statement of financial performance from their acquisition dates. Details of the
acquisitions were as follows:
Group Company
2003 2002 2001 2003 2002
$m $m $m $m $m
Fair value of net assets acquired
Cash assets 1 - 2 - -
Due from other financial institutions 7 - - - -
Loans and advances 320 - 3 - -
Property, plant and equipment 2 - - - -
Other assets 39 - 1 - -
Deposits and other borrowings (323 ) - - - -
Life insurance policy liabilities (2 ) - - - -
Income tax liabilities (5 ) - - - -
Provisions (1 ) - (1 ) - -
Other liabilities (35 ) - (2 ) - -
Total net assets acquired 3 - 3 - -
Goodwill 61 - - - -
Excess of net market value over net assets 19 - 128 - -
at acquisition
Total acquisition cost 83 - 131 - -
Cash consideration paid 83 - 131 - -
During 2003, the Group's life insurance statutory funds reorganised their
business operating model to increase the level of investments held through
registered schemes rather than directly held investments in debt and equity
securities. As the statutory funds are considered to have the capacity to
control certain of these registered schemes, the Group has consolidated them.
The financial effect of the consolidation of the registered schemes as at
September 30, 2003 was to increase cash by $20 million, debt and equity
investments (included within investments relating to life insurance business) by
$2,525 million and outside equity interest by $2,545 million in the statement
of financial position. The financial effect on the statement of financial
performance for the year ended September 30, 2003 was to decrease investment
revenue by $28 million, decrease net profit by $28 million and increase net
profit attributable to outside equity interest by $28 million. There was no
impact on net profit attributable to members of the Company.
The names of the registered schemes for which the Group gained control, are as
follows:
* MLC (NCIT) Global Share Trust;
* MLCI Pool - NAM Cash Trust;
* MLCI Pool - Private Equity Trust;
* MLCI Pool - Australian Equity Trust;
* MLCI Pool - Global Fixed Interest Trust;
* MLCI Pool - Australian Fixed Interest Trust;
* MLCI Pool - Diversified Debt (All) Trust;
* National Asset Management Managed Investor International
Trust;
* National Diversified Managers Australian Share Fund;
* National Short Term Money Market Fund; and
* NCIT - Property Securities Trust.
153
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(f) Sales of controlled entities
The following sales were made during the last three years to September 30, 2003:
* on October 1, 2002, MSRA Holdings, Inc. sold 100% of the
share capital of SR Investment, Inc. to Washington Mutual Bank, FA. for cash
consideration of US$1,453 million;
* on April 1, 2001, National Americas Holdings Limited sold
100% of the share capital of Michigan National Corporation to ABN AMRO North
America, Inc., a controlled entity of ABN AMRO NV, for cash consideration of
US$2,750 million; and
* on December 20, 2000, NAFiM sold 100% of the share capital of
County Investment Management Limited for cash consideration.
The operating results of the controlled entities have been included in the
Group's statement of financial performance up to the date of sale. Details of
the sales were as follows:
Group Company
2003 2002 2001 2003 2002
$m $m $m $m $m
Cash consideration received 2,671 - 5,415 - -
Net assets of controlled entities sold
Cash assets - - 353 - -
Due from other financial institutions 37 - 683 - -
Due from customers on acceptances - - 1 - -
Trading securities - - 5 - -
Available for sale securities - - 220 - -
Investment securities - - 3,724 - -
Investments relating to life insurance - - 11 - -
business
Loans and advances - - 17,264 - -
Mortgage loans held for resale 85 - - - -
Mortgage servicing rights 1,794 - - - -
Regulatory deposits - - 30 - -
Property, plant and equipment - - 227 - -
Goodwill - - 716 - -
Other assets 2,156 - 930 - -
Due to other financial institutions - - (2,865 ) - -
Liability on acceptances - - (1 ) - -
Deposits and other borrowings - - (17,215 ) - -
Life insurance policy liabilities - - (6 ) - -
Income tax liabilities - - (75 ) - -
Provisions (28 ) - (132 ) - -
Due to controlled entities - - (708 ) - -
Bonds, notes and subordinated debt (1,351 ) - - - -
Other liabilities (7 ) - (224 ) - -
Total net assets of controlled entities 2,686 - 2,938 - -
sold
Profit/(loss) on sale of controlled (15 ) - 2,477 - -
entities before income tax expense/
(credit) (1)
--------------------
(1) The loss on sale before income tax credit of $15 million in 2003
relates to the sale of SR Investment, Inc. and was recognised in 2002 (refer to
note 5(a)).
44 Particulars in relation to controlled entities
The following table highlights those controlled entities with annual
contributions to Group net profit or loss of $5 million or more, or those that
are deemed to be of particular interest:
Entity name Ownership % Incorporated/formed in
National Australia Bank Limited Australia
National Equities Limited (1) 100 Australia
National Australia Group (NZ) Limited 100 New Zealand
Bank of New Zealand 100 New Zealand
BNZ Investments Limited 100 New Zealand
BNZ International Limited 100 New Zealand
Amber Liquid Investment Limited 100 Cayman Islands
BNZ Branch Properties Limited 100 New Zealand
BNZI Securities No. 2 Limited 100 New Zealand
Income Trust No. 1 100 United States
154
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Entity name Ownership % Incorporated/formed in
National Americas Investment, Inc. 100 United States
MSRA Holdings, Inc. 100 United States
National Wealth Management Holdings Limited 100 Australia
National Australia Financial Management Limited 100 Australia
MLC Holdings Limited 100 Australia
MLC Lifetime Company Limited 100 Australia
MLC Investments Limited 100 Australia
MLC Limited 100 Australia
MLC (Hong Kong) Limited 62 Hong Kong
FlexiPlan Australia Limited 100 Australia
MLCI Pool - Australian Equity Trust (2) 87 Australia
MLCI Pool - Diversified Debt (All) Trust (2) 88 Australia
NCIT - Property Securities Trust (2) 66 Australia
BNZ Investment Management Limited 100 New Zealand
BNZ Life Insurance Limited 100 New Zealand
Clydesdale Bank Insurance Brokers Limited 100 Scotland
National Australia Fund Management Limited 100 Australia
MLC Trust Management Co Limited 100 England
National Australia Life Company Limited 100 England
National Australia Insurance Services Limited 100 England
Yorkshire Bank Financial Services Limited 100 England
National Corporate Investment Services Limited 100 Australia
National Asset Management Managed Investor 76 Australia
International Trust (2)
MLC (NCIT) Global Share Trust (2) 88 Australia
MLCI Pool - NAM Cash Trust (2) 61 Australia
National Australia Group Europe Limited 100 England
Clydesdale Bank PLC 100 Scotland
Clydesdale Europe Finance Limited 100 Jersey
Clydesdale Bank Asset Finance Limited 100 Scotland
National Australia Group Europe Services Limited 100 Scotland
National Australia Group Europe Investments Limited 100 Scotland
Angara Limited 100 Hong Kong
PMJI Incorporated 100 United States
NAGEO BV 100 Netherlands
National Australia Group Europe Finance BV 100 Netherlands
NAB Investment Limited 100 England
NAGE Asset Investments Limited 100 England
National Irish Bank Limited 100 Republic of Ireland
National Irish Investment Bank Limited 100 Republic of Ireland
Northern Bank Limited 100 Northern Ireland
Northern Bank Executor & Trustee Company Limited 100 Northern Ireland
Northern Asset Finance Limited 100 Northern Ireland
Northern Bank Financial Services Limited 100 Northern Ireland
Yorkshire Bank PLC 100 England
Yorkshire Bank Home Loans Limited 100 England
Northern and General Finance Limited 100 England
National Australia Group Services Limited 100 Australia
Custom Service Leasing Limited (3) 100 Australia
Fleet Systems Pty Limited 100 Australia
NBA Properties Limited (1) 100 Australia
National Australia Merchant Bank (Singapore) Limited 100 Singapore
National Australia Corporate Services Limited (1) 100 Australia
Nautilus Insurance Pte Limited 100 Singapore
Nautilus Insurance (Europe) Limited 100 Republic of Ireland
National Markets Group Limited 100 Australia
Australian Market Automated Quotation (AUSMAQ) System 100 Australia
Limited
National Australia Finance (Asia) Limited 100 Hong Kong
National Australia Trustees Limited 100 Australia
BOACT Pty Limited 100 Australia
National Australia Capital Markets (Japan) Co., Limited 100 Japan
155
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--------------------
(1) These controlled entities and those listed hereunder have entered into
a deed of cross guarantee (refer to note 45 for details) with the Company
pursuant to ASIC Class Order 98/1418 dated August 13, 1998. The controlled
entities and the Company form a closed group (a closed group is defined as a
group of entities comprising a holding entity and its related wholly-owned
entities). Relief, therefore, was granted to these controlled entities from the
Corporations Act 2001 (Cth) requirements for preparation, audit and publication
of an annual financial report.
ARDB Limited Commercial Nominees Pty Limited NBA Leasing Pty Limited
Australian Banks' Export Re-Finance Groundsel Limited NBA Properties (Qld) Limited
Corporation Limited National Australia Investment Brokers NBA Properties (Vic) Limited
Limited
C.B.C. Holdings Limited National Australia Leasing (Qld) Pty VPL Securities Pty Limited
Limited
C.B.C. Properties Limited National Nominees (London) Limited
(2) The percentage ownership above for registered schemes reflects
ownership as at September 12, 2003. Due to the nature of the Group's investment
in such registered schemes, the percentage ownership changes on a regular basis.
(3) Custom Service Leasing Limited has entered into a deed of cross
guarantee with National Australia Group Services Limited pursuant to ASIC Class
Order 98/1418 dated August 13, 1998. The Class Order provides relief to Custom
Service Leasing Limited from the Corporations Act 2001 (Cth) requirements for
preparation, audit and publication of an annual financial report.
45 Contingent liabilities and credit commitments
Group Company
Notional amount Credit equivalent Notional amount Credit equivalent
(1) (2) (1) (2)
2003 2002 2003 2002 2003 2002 2003 2002
$m $m $m $m $m $m $m $m
Contingent liabilities
Guarantees 3,274 3,029 3,274 3,029 4,473 4,489 4,473 4,489
Standby letters of credit 5,247 3,731 5,247 3,731 5,063 3,562 5,063 3,562
(3)
Documentary letters of 624 519 113 79 387 298 72 47
credit (3)
Performance-related 2,269 2,563 1,135 1,282 1,702 1,815 851 908
contingencies
Other 117 325 117 324 115 201 115 201
Total contingent liabilities 11,531 10,167 9,886 8,445 11,740 10,365 10,574 9,207
(4)
--------------------
(1) The notional amount represents the maximum credit risk.
(2) The credit equivalent amount records the estimated maximum or total
potential loss if the counterparty were to default, and is determined in
accordance with APRA's risk-weighted capital adequacy guidelines. These credit
equivalents are then weighted in the same manner as balance sheet assets
according to counterparty for capital adequacy purposes. (For additional
information, refer to capital adequacy information in the financial review
section of the annual report.)
(3) The Group has shared its exposure on letters of credit with other
financial institutions to the extent of $8 million credit equivalent (2002: $15
million). This amount is not included in the above figures.
(4) The maximum potential amount of future payments disclosed is
undiscounted and not reduced by any amounts that may be recovered under the
recourse provisions that are outlined below.
Credit-related commitments
Outright forward purchases - 4 - 4 - - - -
and forward deposits
Other binding credit 70,383 76,788 16,521 14,651 53,927 58,431 15,391 13,307
commitments (1)
Total credit-related 70,383 76,792 16,521 14,655 53,927 58,431 15,391 13,307
commitments
--------------------
(1) Includes the notional amount and the credit equivalent for credit
derivatives where the Group has sold credit protection.
Investment commitments
Statutory funds (1) 454 638 454 638 - - - -
Total investment commitments 454 638 454 638 - - - -
--------------------
(1) In the normal course of business of the Group's life insurance
business statutory funds, various types of investment contracts are entered into
that give rise to contingent or future obligations.
(a) Contingent liabilities
The Group's exposure to potential loss in the event of non-performance by a
counterparty to a financial instrument for commitments to extend credit, letters
of credit and financial guarantees written, is represented by the contractual
notional principal amount of those instruments. The Group uses the same credit
policies and assessment criteria in making commitments and conditional
obligations for off-balance sheet risks as it does for on-balance sheet loan
assets.
156
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(i) Guarantees
The Group provides guarantees in its normal course of business on behalf of its
customers. Guarantees written are conditional commitments issued by the Group
to guarantee the performance of a customer to a third party. Guarantees are
primarily issued to support direct financial obligations such as commercial
bills or other debt instruments issued by a counterparty. It is the rating of
the Group as a guarantee provider that enhances the marketability of the paper
issued by the counterparty in these circumstances. Guarantees are also provided
on behalf of counterparties as performance bonds and on going obligations to
government entities. The Group has four principal types of guarantees:
* bank guarantees - a financial guarantee that is an agreement
by which the Group agrees to pay an amount of money on demand on behalf of a
customer to a third party during the life of the guarantee;
* standby letters of credit - an obligation of the Group on
behalf of a customer to make payment to a third party in the event that the
customer fails to meet an outstanding financial obligation;
* documentary letters of credit - a guarantee that is
established to indemnify exporters and importers in their trade transactions
where the Group agrees to make certain trade payments on behalf of a specified
customer under specific conditions; and
* performance related contingencies - a guarantee given by the
Group that undertakes to pay a sum of money to a third party where the customer
fails to carry out certain terms and conditions of a contract.
The credit risk involved in issuing letters of credit and financial guarantees
is essentially the same as that involved in extending loan facilities to
customers. Apart from the normal documentation for a facility of this type, the
customer must also provide the Group with a written indemnity, undertaking that,
in the event the Group is called upon to pay, the Group will be fully reimbursed
by the customer.
Fees in relation to guarantees are collected over the life of the contract.
Revenue is recognised on an accruals basis.
In accordance with the rules governing clearing arrangements contained in the
Regulations of the Australian Paper Clearing System and in the Regulations of
the Bulk Electronic Clearing System under Australian Payments Clearing
Associated Limited, the Company is subject to a commitment to provide liquidity
support to the clearing system in the event of a failure of another clearing
financial institution.
(ii) Legal proceedings
Entities within the Group are defendants from time to time in legal proceedings
arising from the conduct of their business. The Company does not consider that
the outcome of any proceedings, either individually or in aggregate, is likely
to have a material effect on its financial position. Where appropriate,
provisions have been made.
There are contingent liabilities in respect of claims, potential claims and
court proceedings against entities in the Group. The aggregate of potential
liability in respect thereof cannot be accurately assessed.
(iii) Contingent liability on the sale of SR Investment, Inc.
The Company and its controlled entity, MSRA Holdings, Inc., have a contingent
liability arising in connection with the sale of SR Investment, Inc. (which was
the direct holding company of HomeSide US at the time of the sale) to Washington
Mutual Bank, FA. (WaMu), which was completed on October 1, 2002. Under the sale
agreement, the Company and MSRA Holdings, Inc. have given customary
representations, warranties and indemnities in respect of SR Investment, Inc.
and HomeSide US and their business, assets and liabilities. The majority of
these representations, warranties and indemnities expire after four years,
however, some have differing time and liability limitations and some are
uncapped in terms of time and amount. The maximum potential loss arising from
the contingent liability to WaMu will depend upon the type of warranty or
indemnity claimed by WaMu, if any. As such, it is not practicable to estimate
the maximum potential loss arising from the contingent liability to WaMu. It is
not envisaged that any material unrecorded loss is likely to arise from this
contingent liability.
(iv) Contingent liability on the sale of HomeSide operating assets
The Company has a contingent liability arising in connection with the sale of
certain assets to WaMu. Under the sale agreement and related transaction
documentation, the Company has given customary representations, warranties and
indemnities to WaMu. The majority of the representations, warranties and
indemnities expired on June 30, 2003. However, some are uncapped in terms of
time and amount. The maximum potential loss arising from the contingent
liability to WaMu will depend upon the type of warranty or indemnity claimed by
WaMu, if any. As such, it is not practicable to estimate the maximum potential
loss arising from the contingent liability to WaMu. It is not envisaged that
any material unrecorded loss is likely to arise from this contingent liability.
(v) Indemnities under the agreement for sale of Michigan National Corporation
The Company and its controlled entity, National Americas Holdings Limited
(NAHL), have contingent liabilities which relate to certain indemnities given
under an agreement for the sale of Michigan National Corporation (which was the
direct holding company of Michigan National Bank at the time of the sale) to ABN
AMRO North America, Inc. for any breach of representations and warranties by the
Company and NAHL as sellers. Some of the indemnities relate to potential
environment liability relating to certain branch premises of Michigan National
Bank. The maximum liability of the Company and NAHL under some of the
indemnities is subject to various caps.
157
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(b) Credit-related commitments
Binding commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee by the customer. Since many of the commitments
are expected to expire without being drawn down, the total commitment amounts do
not necessarily represent future cash requirements. The Group evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Group upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies, but
may include:
* a floating charge over all assets and undertakings of an
entity, including uncalled capital and called but unpaid capital;
* specific or interlocking guarantees;
* specific charges over defined assets of the counterparty; and
* loan agreements which include affirmative and negative
covenants and in some instances guarantees of counterparty obligations.
(c) Parent entity guarantees and undertakings
Excluded from the Group amounts disclosed above are the following guarantees and
undertakings to entities in the Group:
* commercial paper issued by National Australia Funding
(Delaware), Inc. totalling $3,915 million (2002: $5,283 million) is guaranteed
by the Company;
* the Company has agreed to guarantee existing debentureholders
secured under Broadbank Corporation Limited's (now National Australia Bank (NZ)
Limited) Trust Deed as at December 31, 1987 until maturity. The outstanding
liability as at September 30, 2003 was immaterial;
* under arrangements with the Financial Services Authority of
the United Kingdom, a letter has been issued by the Company to Clydesdale Bank
PLC (Clydesdale) undertaking to maintain Clydesdale's capital base at regulatory
levels in the event that losses are incurred on exposures to individual
customers whose facilities exceed 25% of Clydesdale's regulatory capital base;
* the Company will indemnify each customer of National Nominees
Limited against any loss suffered by reason of National Nominees Limited failing
to perform any obligation undertaken by it to a customer; and
* pursuant to ASIC Class Order 98/1418 dated August 13, 1998,
relief was granted to certain controlled entities (refer to note 44, footnote
(1)) from the Corporations Act 2001 (Cth) requirements for preparation, audit
and publication of annual financial reports. It is a condition of the Class
Order that the Company and each of the controlled entities enter into a deed of
cross guarantee. The effect of the deed is that the Company guarantees to each
creditor payment in full of any debt in the event of winding-up of any of the
controlled entities under certain provisions of the Corporations Act 2001 (Cth).
If a winding-up occurs under other provisions of the Act, the Company will only
be liable in the event that after six months any creditor has not been paid in
full. The controlled entities have also given similar guarantees in the event
that the Company is wound up. Table 1 below presents consolidated pro forma
statements of financial performance and financial position for the Company and
controlled entities which are party to the deed, after eliminating all
transactions between parties to the deed, which is known as a closed group.
It is not envisaged that any material unrecorded loss is likely to arise from
any of the transactions described in this note.
Table 1 Closed group
2003 2002
$m $m
Pro forma statement of financial performance
For the year ended September 30
Profit from ordinary activities before income tax expense 4,446 4,312
Income tax expense relating to ordinary activities (958 ) (745 )
Net profit 3,488 3,567
Net debit to foreign currency transalation reserve (433 ) -
Total changes in equity other than those resulting from transactions with 3,055 3,567
owners as owners
158
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2003 2002
$ m $ m
Pro forma statement of financial position
As at September 30
Assets
Cash assets 793 1,534
Due from other financial institutions 7,820 12,579
Due from customers on acceptances 19,496 19,400
Trading securities 22,952 17,471
Trading derivatives 22,773 11,498
Available for sale securities 6,503 6,150
Investment securities 3,668 9,644
Loans and advances 165,902 143,689
Shares in controlled entities, joint venture entities and other securities 11,303 13,054
Regulatory deposits 93 38
Property, plant and equipment 1,293 1,325
Income tax assets 679 741
Other assets 29,157 31,917
Total assets 292,432 269,040
Liabilities
Due to other financial institutions 41,466 39,983
Liability on acceptances 19,496 19,400
Trading derivatives 20,479 11,293
Deposits and other borrowings 144,761 134,964
Income tax liabilities 637 1,029
Provisions 768 2,123
Bonds, notes and subordinated debt 22,093 20,841
Other debt issues 367 460
Other liabilities 23,024 19,579
Total liabilities 273,091 249,672
Net assets 19,341 19,368
Equity
Contributed equity 8,754 9,931
Reserves 1,103 747
Retained profits 9,484 8,690
Total equity 19,341 19,368
46 Derivative financial instruments
The purpose of the following discussion is to inform users of the financial
report of the type of instruments used by the Group, the reasons for using them,
the accompanying risks, and how those risks are managed.
Derivative financial instruments held or issued for trading purposes
The Group maintains trading positions in a variety of derivative financial
instruments and acts primarily in the market by satisfying the needs of its
customers through foreign exchange, interest rate-related services and
credit-related contracts. In addition, the Group takes conservative positions
on its own account, and carries an inventory of capital market instruments. It
satisfies customer needs and maintains access to market liquidity by quoting bid
and offer prices on those instruments and trading with other market makers. All
positions held for trading purposes are revalued on a daily basis to reflect
market movements, and any revaluation profit or loss is recognised immediately
in the profit and loss account. It is the Group's policy from a trading risk
viewpoint to maintain a substantially matched position in assets and liabilities
in foreign currencies and net exposure to exchange risk in this respect is not
material.
Derivative financial instruments held or issued for purposes other than trading
The operations of the Group are subject to risk of interest rate fluctuations,
to the extent of the repricing profile of the Bank's statement of financial
position. Derivative financial instruments are held or issued for the purposes
of managing existing or anticipated interest rate risk from this source which is
primarily in the Group's banking operations.
The Group monitors its non-trading interest rate risk by simulating future net
interest income resulting from applying a range of possible future interest rate
environments to its projected balance sheets.
159
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The Group also holds or issues derivative financial instruments for the purpose
of hedging foreign exchange risk. Foreign exchange derivatives are used to
hedge foreign currency borrowings and anticipated cash flows such as those
relating to dividends emanating from foreign controlled entities.
In addition, the Group holds or issues derivative financial instruments for the
purpose of hedging credit risk. Credit derivatives are utilised to manage
credit risk in the loans and advances portfolio.
Risk associated with derivatives
Derivatives are used primarily as a means of transferring risk. They expose the
holder to various degrees and types of financial risk including market, credit
and liquidity risk. These risks are discussed below.
Market risk
Market risk of derivative financial instruments held or issued is the risk that
the value of derivatives will be adversely affected by changes in the market
value of the underlying instrument, reference rate or index. Not all risks
associated with intermediation can be effectively hedged. The residual market
exposures together with trading positions are managed within established limits
approved by the Board. A unit independent of the trading activities monitors
compliance within delegated limits on a daily basis.
Table 1 shows the fair value of all derivative instruments held or issued by the
Group for the last two years at September 30. The fair value of derivative
financial instruments was obtained from quoted market prices, discounted cash
flow models or option pricing models as appropriate. It should be noted that
fair value at a particular point in time gives no indication of future gain or
loss, or what the dimensions of that gain or loss are likely to be.
Table 1 Fair value of derivative financial instruments held or issued by the
Group
Other than trading Trading
fair value (1) fair value (1)
2003 2002 2003 2002
$m $m $m $m
Foreign exchange rate-related contracts
Spot and forward contracts to purchase foreign
exchange
In a favourable position 349 223 7,620 5,234
In an unfavourable position (1,130 ) (417 ) (8,101 ) (4,736 )
Cross currency swaps
In a favourable position 207 806 2,399 726
In an unfavourable position (2,769 ) (232 ) (359 ) (1,331 )
Options
Purchased 1 5 2,992 2,462
Written - - (2,866 ) (2,098 )
(3,342 ) 385 1,685 257
Interest rate-related contracts
Forward rate agreements
In a favourable position - - 20 46
In an unfavourable position - - (19 ) (8 )
Swaps
In a favourable position 867 1,405 10,131 3,449
In an unfavourable position (1,113 ) (219 ) (9,649 ) (3,676 )
Futures
In a favourable position 15 28 41 1
In an unfavourable position (13 ) (33 ) (46 ) (30 )
Options/Swaptions
Purchased (113 ) 437 290 264
Written - - (153 ) -
(357 ) 1,618 615 46
160
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Other than trading Trading
fair value (1) fair value (1)
2003 2002 2003 2002
$m $m $m $m
Credit-related contracts
Credit derivatives
In a favourable position 4 1,175 60 99
In an unfavourable position (14 ) (830 ) (70 ) (86 )
(10 ) 345 (10 ) 13
Other contracts
In a favourable position 4 2 91 32
In an unfavourable position (2 ) - (216 ) -
2 2 (125 ) 32
Total fair value of derivative financial (3,707 ) 2,350 2,165 348
instruments held or issued
--------------------
(1) The positive fair value represents the credit risk to the Group if all
the Group's counterparties were to default.
The table shows that the majority of fair value for foreign exchange-related
contracts is concentrated in foreign exchange spot and forward transactions.
These contracts are of a standardised form and are usually of a maturity of less
than 12 months.
The fair value of foreign exchange rate-related contracts held or issued for
trading purposes amounted to a net unrealised profit at September 30, 2003 of
$1,685 million (2002: profit of $257 million). Total net realised and
unrealised profits and losses on foreign exchange rate-related contracts held or
issued for trading purposes during the year amounted to a net profit of $442
million (2002: net profit of $457 million) (refer to note 4).
The table shows that the majority of fair value for interest rate-related
contracts is concentrated in interest rate swaps.
The fair value of interest rate-related contracts held or issued for trading
purposes amounted to a net unrealised profit at September 30, 2003 of $615
million (2002: profit of $46 million). Total net realised and unrealised
profits and losses on both interest rate-related contracts and physical
securities held or issued for trading purposes during the year amounted to a net
profit of $183 million (2002: net profit of $106 million) (refer to note 4).
Value at risk for derivatives held or issued for trading purposes
The use of derivatives for trading purposes within the Bank is subject to
disciplines prescribed in Corporate and Institutional Banking policy. Under this
control framework, all derivative contracts are marked-to-market at the end of
each business day.
Businesses initiating or using derivative contracts are subject to a daily Value
at Risk (VaR) process. This involves the calculation of mark-to-market changes
according to a two year history of market shifts to produce a range of loss
estimates for statistical analysis. The VaR methodology measures risk on net
open derivative exposures, and potential losses that may arise from variance in
price movements between derivatives and other transactions that the derivatives
are intended to offset.
VaR is supplemented with a program of stress testing, in which profit and loss
on contracts and portfolios are calculated in the event of extreme market
conditions.
Further detailed portfolio sensitivity analysis is conducted, to examine the
derivative portfolio risks to second order effects such as market volatility,
the change in contract sensitivity at different prices and the effect of the
passing of time.
All these processes are conducted daily. Value at Risk and portfolio sensitivity
measures are subject to limit discipline that is overseen by Market Risk units
within Group Risk Management.
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Table 2 shows the Group's VaR according to exposures in foreign exchange,
interest rate, options (volatility) and commodity markets.
Table 2 Value at risk for physical and derivative positions
Average value Minimum value Maximum value
during reporting period during reporting period during reporting period
(1) (1)
2003 2002 2003 2002 2003 2002
$m $m $m $m $m $m
Value at risk at a 99%
confidence level
Foreign exchange risk 7 7 2 2 20 26
Interest rate risk 17 15 9 9 25 23
Volatility risk 4 4 2 2 7 5
Commodities risk 1 - - - 1 1
Diversification benefit (7 ) (7 ) n/a n/a n/a n/a
Total value at risk for 22 19 14 11 35 34
physical and derivative
positions (1)
--------------------
(1) Value at risk is measured individually according to foreign
exchange risk, interest rate risk, volatility risk and commodities risk. The
individual risk categories do not sum up to the total risk number due to
portfolio effect. Risk limits are applied in these categories separately, and
against the total risk position.
Deferred gains and losses on derivative financial instruments held or issued for
other than trading purposes
Table 3 shows the net deferred realised gains and losses arising from hedging
contracts entered into by the Group to reduce the risk arising from identifiable
assets, liabilities and commitments, together with the expected term of
deferral:
Table 3 Net deferred gains and losses
Foreign exchange rate- Interest rate- Total
related contracts related contracts (1)
2003 2002 2003 2002 2003 2002
$m $m $m $m $m $m
Within 6 months - - 4 (1 ) 4 (1 )
6 months - 1 year - - 10 (1 ) 10 (1 )
1 - 2 year(s) - - 2 (3 ) 2 (3 )
2 - 5 years - - - (15 ) - (15 )
After 5 years - - - (2,199 ) - (2,199 )
Total net deferred (gains)/ - - 16 (2,219 ) 16 (2,219 )
losses (2)
--------------------
(1) Interest rate-related contracts expected to be deferred after five
years relate to hedges of mortgage servicing rights. Mortgage servicing rights
hedge contracts were included in the sale of SR Investment, Inc. (the parent
entity of HomeSide US) and are no longer recognised in the Group's balance sheet
from October 1, 2002.
(2) Net deferred gains arising from interest rate-related contracts for
2002 has been restated to correct numerical errors in the annual financial
report 2002. The amounts previously disclosed were: within 6 months $nil; 6
months - 1 year $nil; 1 - 2 years $nil; 2 - 5 years $(3) million; and after 5
years $(420) million.
Credit risk
Credit risk arises from the possibility that the counterparty to a derivative
financial instrument will not adhere to the terms of the contract with the Group
when settlement becomes due.
Notional principal is the amount of a derivative's underlying asset, reference
rate or index and is the quantum on which changes in the value of the derivative
are measured. It provides an indication of the volume of business transacted by
the Group. Changes in the value of a derivative are usually only a fraction of
the notional principal amount, and it is only those changes which have a
positive fair value to the Group that create a potential for credit risk.
The Group's credit exposure has been determined in accordance with APRA capital
adequacy guidelines. This credit equivalent is derived by taking into account
the residual maturity of each instrument, and then adding the fair value of all
contracts which have a positive fair value. Futures and option contracts which
are traded on a recognised exchange and which are subject to margin payments are
considered to have no credit exposure. Internal credit assessment applies a
conservative methodology to determine potential counterparty exposure.
162
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Table 4 shows the fair value of all derivative instruments held or issued by the
Group for the last two years at September 30. It should be noted that fair
value at a particular point in time gives no indication of future profit or
loss, or what the dimensions of that profit or loss are likely to be.
Credit risk is constantly assessed, measured and managed in strict accordance
with the Group's risk management policies. Banking entities within the Group
may take collateral to secure amounts due under treasury transactions.
Collaterisation is assessed specifically at the time facilities are approved on
a case-by-case basis.
In addition, the Group utilises credit derivatives to manage risk in the loans
and advances asset portfolio. Credit derivatives are financial instruments used
to assume or transfer the credit risk of loans and other assets to a third
party, in return for the payment of a premium or a cash flow stream. They are
over-the-counter contracts between two counterparties where the value of the
instrument is linked to measurable changes in the credit quality of a designated
reference asset.
Table 4 Notional principal, estimated credit equivalent and fair value of all
derivative financial instruments
Notional principal Credit equivalent Fair value Average fair value
(1)
2003 2002 2003 2002 2003 2002 2003 2002
$m $m $m $m $m $m $m $m
Foreign exchange
rate-related contracts
Spot and forward
contracts to purchase
foreign exchange (2)
Trading 235,393 296,895 6,808 6,590 (481 ) 498 (1,051 ) 680
Other than trading 31,142 15,618 557 482 (781 ) (194 ) - -
266,535 312,513 7,365 7,072 (1,262 ) 304 (1,051 ) 680
Cross currency swaps (2)
Trading 72,245 51,204 6,565 4,459 2,040 (605 ) (207 ) (949 )
Other than trading 18,004 13,122 298 53 (2,562 ) 574 - -
90,249 64,326 6,863 4,512 (522 ) (31 ) (207 ) (949 )
Futures trading 89 191 - - - - - -
Options
Trading 253,381 296,819 4,652 3,989 126 364 (18 ) 554
Other than trading 100 487 3 13 1 5 - -
253,481 297,306 4,655 4,002 127 369 (18 ) 554
Total foreign exchange 610,354 674,336 18,883 15,586 (1,657 ) 642 (1,276 ) 285
rate-related contracts
Interest rate-related
contracts
Forward rate agreements
Trading 85,055 41,602 38 53 1 38 (1 ) 38
Other than trading 1,253 - 1 - - - - -
86,308 41,602 39 53 1 38 (1 ) 38
Swaps
Trading 510,623 452,487 13,054 6,307 482 (227 ) 10 (31 )
Other than trading 87,532 51,819 1,101 1,608 (246 ) 1,186 - -
598,155 504,306 14,155 7,915 236 959 10 (31 )
Futures
Trading 303,522 98,524 - - (5 ) (29 ) 1 (23 )
Other than trading 3,127 2,491 - - 2 (5 ) - -
306,649 101,015 - - (3 ) (34 ) 1 (23 )
Options/Swaptions
Trading 77,401 31,060 491 225 137 264 134 275
Other than trading 22,792 25,748 91 455 (113 ) 437 - -
100,193 56,808 582 680 24 701 134 275
Total interest 1,091,305 703,731 14,776 8,648 258 1,664 144 259
rate-related contracts
163
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Notional principal Credit equivalent Fair value Average fair value
(1)
2003 2002 2003 2002 2003 2002 2003 2002
$m $m $m $m $m $m $m $m
Credit-related contracts
Credit derivatives (3)
Trading 10,997 4,850 658 317 (10 ) 13 (10 ) 13
Other than trading 532 1,939 46 46 (10 ) 345 - -
Total credit-related 11,529 6,789 704 363 (20 ) 358 (10 ) 13
contracts
Other contracts
Trading 1,662 33 143 32 (125 ) 32 41 -
Other than trading 194 108 52 69 2 2 - -
Total other contracts 1,856 141 195 101 (123 ) 34 41 -
Total derivative 1,715,044 1,384,997 34,558 24,698 (1,542 ) 2,698 (1,101 ) 557
financial instruments
Deduct: Non-consolidated 4,515 5,114 182 261 234 311 - 208
controlled entities (4)
Total derivative 1,710,529 1,379,883 34,376 24,437 (1,776 ) 2,387 (1,101 ) 349
financial instruments
reported for capital
adequacy (5)
--------------------
(1) Average fair values of other than trading contracts are not captured.
(2) In accordance with industry practice, notional principal amounts
disclosed for spot and forward foreign exchange contracts represent the buy leg
only and for cross currency swaps represent the receivable leg only.
(3) The credit equivalent in relation to credit derivatives where the
Group has sold credit protection is reflected in note 45, within other binding
commitments.
(4) Under APRA guidelines, life insurance and funds management activities
are excluded from the calculation of risk-weighted assets and the related
controlled entities are deconsolidated for the purposes of calculating capital
adequacy. Amounts deducted are included within other than trading.
(5) Refer to the financial review section of the annual report for further
information on capital adequacy.
Credit equivalent by maturity
As mentioned above, the credit equivalent amount includes an adjustment which
takes account of the residual maturity of contracts. This is because credit
risk is partly a function of the time over which the exposure will be held.
Table 5 provides a maturity profile of total counterparty exposure by credit
equivalent amounts for all derivative financial instruments held or issued by
the Group for the last two years at September 30. It shows that 34% (2002: 62%)
of the exposure is confined to maturities of one year or less and 73% (2002:
86%) matures within five years.
Table 5 Maturity profile of total derivative financial instruments counterparty
exposure by credit equivalent
2003
0 to 6 6 to 12 1 to 2 2 to 5 After 5 Total
month(s) months year(s) years years
$m $m $m $m $m $m
Foreign-exchange related 7,308 3,375 2,854 2,591 2,755 18,883
contracts
Interest-rate related 476 557 2,727 4,351 6,665 14,776
contracts
Credit-related contracts 50 2 7 616 29 704
Other contracts 144 - 2 49 - 195
Total derivative financial 7,978 3,934 5,590 7,607 9,449 34,558
instruments reported for
capital adequacy
2002
0 to 6 6 to 12 1 to 2 2 to 5 After 5 Total
month(s) months year(s) years years
$m $m $m $m $m $m
Foreign-exchange related 8,159 2,984 1,513 1,174 1,756 15,586
contracts
Interest-rate related 3,495 149 553 2,770 1,681 8,648
contracts
Credit-related contracts 94 195 74 - - 363
Other contracts 101 - - - - 101
Total derivative financial 11,849 3,328 2,140 3,944 3,437 24,698
instruments reported for
capital adequacy
164
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Credit equivalent by concentration
Depending on the risks associated with an individual counterparty or groups of
counterparties, a concentration of credit risk can be perceived as indicative of
more or less credit risk. In general, the Group's dealings in derivatives
involve counterparties in the banking and financial services area, together with
government and semi-government authorities and major corporates.
Table 6 shows the credit equivalent of derivatives allocated to broad sector and
geographic locations as at September 30, 2003 for the Group. It shows that 81%
(2002: 73%) of credit exposure is to government authorities and banks.
Table 6 Credit equivalent of derivative financial instruments allocated to
sectors and geographic locations of ultimate obligors
Government Banks Non-bank Corporate Total
authorities financial and all
institutions other
sectors
$m $m $m $m $m
Australia 361 10,180 2,645 2,729 15,915
Europe - 16,532 52 181 16,765
New Zealand 62 289 1 341 693
United States - 162 27 - 189
Asia - 318 672 6 996
Total credit equivalent of derivative 423 27,481 3,397 3,257 34,558
financial instruments
Liquidity risk
Liquidity risk arises from the possibility that market conditions prevailing at
some point in the future will force the Group to sell derivative positions at a
value which is far below their underlying worth, or may result in the inability
to exit from the positions. The liquidity of a derivative, or an entire market,
can be reduced substantially as a result of some market event or change in
market psychology, or the actions of individual participants.
In order to counter such risk, the Group concentrates its derivative activity in
highly liquid markets. Table 4, for example, shows that approximately 33%
(2002: 30%) of notional principal outstanding was represented by standard
foreign exchange and interest rate futures contracts.
Special considerations apply in the case of interest rate and cross currency
swaps. These are often specially tailored instruments whose cash flows are
structured to suit the particular needs of individual customers. Such
instruments have the appearance of illiquidity because hedging the position with
another counterparty with exactly offsetting requirements would be an unlikely
occurrence. However, the Group hedges the risk of customised swap structures by
using a combination of instruments. Swaps, forward rate agreements, futures
contracts, physical securities or even loans and deposits can be employed for
this purpose. Accordingly, such swaps may appear illiquid but their component
risks are not. Furthermore, other market participants will, in normal
circumstances, always be willing to provide liquidity to an instrument they are
able to hedge. In addition, value at risk utilisations (refer to table 2)
ensure that open positions are maintained at a very small level relative to
total volume. Such levels ensure that, at a time of market stress, it is very
unlikely the Group would be forced to compete for ever-diminishing liquidity in
order to dispose of, or hedge, its existing positions.
47 Fair value of financial instruments
Australian Accounting Standard AASB 1033 "Presentation and Disclosure of
Financial Instruments" requires disclosure of net fair value of on and
off-balance sheet financial instruments. Net fair value is the amount for which
an asset could be exchanged, or a liability settled, between knowledgeable,
willing parties in an arm's length transaction after deducting transaction
costs. For the purposes of this note, carrying value refers to amounts
reflected in the statement of financial position.
The estimated fair values are based on relevant information available for the
last two years at September 30. These estimates are subjective in nature and
involve matters of judgement. Changes in assumptions could have a material
impact on the amounts estimated. The methodologies and assumptions used in the
net fair value estimates are described below. These are not considered critical
accounting policies of the Group, as they do not impact the recognition and
measurement of items in the financial statements.
There are various limitations inherent in this disclosure. Not all of the
Group's financial instruments can be exchanged in an active trading market. In
addition, it is the Group's intent to hold most of its financial instruments to
maturity and therefore it is not probable that the net fair values shown will be
realised in a current transaction. The methods used to estimate fair value
exclude a wide range of intangible, franchise and relationship benefits such as
core deposits and credit card intangibles, which are integral to a complete
assessment of the Group's financial position. As a consequence, the aggregate
fair value does not represent the underlying value of the Group.
The fair value of financial instruments required to be disclosed under US
accounting standard, SFAS 107 "Disclosure about Fair Value of Financial
Instruments" is calculated without regard to estimated transaction costs. Such
costs are not material, and accordingly the net fair values shown below would
not differ materially from fair values calculated in accordance with SFAS 107.
165
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2003 2002
Footnote Carrying Net fair Carrying Net fair
value value value value
$m $m $m $m
Financial assets
Cash assets (a) 5,032 5,032 6,294 6,294
Due from other financial institutions (a) 10,383 10,383 15,876 15,876
Due from customers on acceptances (a) 19,562 19,562 19,474 19,474
Debt securities (b) 38,884 38,967 39,323 39,352
Trading derivatives (c) 23,644 23,644 12,128 12,128
Investments relating to life
insurance business
Equity securities (d) 30,399 30,399 21,979 21,979
Debt securities (d) 5,129 5,129 8,483 8,483
Loans and advances (e) 247,959 246,922 231,300 233,688
Mortgage servicing rights (f) - - 1,794 1,794
Shares in controlled entities, joint (g) 1,445 1,870 1,199 1,543
venture entities and other securities
Regulatory deposits (a), (h) 225 225 129 129
Financial liabilities
Due to other financial institutions (a) 45,128 45,128 43,279 43,279
Liability on acceptances (a) 19,562 19,562 19,474 19,474
Trading derivatives (c) 21,479 21,479 12,000 12,000
Deposits and other borrowings (i) 210,146 208,952 206,864 207,007
Life insurance policy liabilities (j) 32,457 32,457 30,425 30,425
Bonds, notes and subordinated debt (k) 22,707 26,533 22,192 23,428
Other debt issues (k) 1,743 2,627 1,866 3,044
The net fair value estimates are based on the following methodologies and
assumptions:
--------------------
(a) the carrying amounts of cash assets, due from and to other
financial institutions, due from and to customers on acceptances and regulatory
deposits approximate their net fair value as they are short term in nature or
are receivable or payable on demand;
(b) debt securities consist of trading, available for sale and
investment securities. The net fair values of debt securities, together with
related hedge contracts where applicable, are based on quoted closing market
prices at September 30;
(c) the fair values of trading derivatives, including foreign exchange
contracts, interest rate swaps, interest rate and currency option contracts, and
currency swaps, are obtained from quoted closing market prices at balance date,
discounted cash flow models or option pricing models as appropriate;
(d) the net fair values of equity and debt securities held as
investments relating to life insurance business are based on quoted closing
market prices at September 30. Where no quoted market value exists, various
valuation methods have been adopted by the directors as detailed in note 1(p).
In those instances, the values adopted are deemed equivalent to net market
value;
(e) the carrying value of loans and advances is net of specific and
general provision for doubtful debts and unearned income. The net fair values
of loans and advances that reprice within six months of year end are assumed to
equate to the carrying value. The net fair values of all other loans and
advances are calculated using discounted cash flow models based on the maturity
of the loans and advances. The discount rates applied are based on the current
interest rates at September 30 of similar types of loans and advances, if the
loans and advances were performing at balance date. The differences between
estimated net fair values of loans and advances and carrying value reflects
changes in interest rates and creditworthiness of borrowers since loan or
advance origination.
Net lease receivables with a carrying value of $14,864 million (2002: $15,626
million) and a net fair value of $14,777 million (2002: $15,748 million), are
included in loans and advances. Lease receivables are excluded from the
definition of a financial asset under SFAS 107 and have been included in the
above table for Australian reporting purposes;
(f) the net fair value of mortgage servicing rights is derived using
the contractual sale price in 2002 and using market prices of similar assets and
discounted future net cash flows based on economic factors such as market and
historic prepayment rates, portfolio characteristics and interest rates in 2001;
(g) the net fair value of shares in controlled entities, joint venture
entities and other entities and other securities is based on quoted closing
market prices at balance date where available. Where quoted market prices do
not exist, the net fair values are estimated after taking into account the
underlying financial position of the investee or quoted market prices for
similar instruments;
(h) the Group is required by law to lodge regulatory deposits with
certain central banks at a rate of interest below that generally prevailing in
the market. As the obligation between the parties is not based on contract but
on regulatory requirements, such deposits do not constitute a financial
instrument within the definition contained in SFAS 107 and have been included in
the above table for Australian reporting purposes;
(i) with respect to deposits and other borrowings, the net fair
value of non-interest-bearing, call and variable rate deposits and fixed rate
deposits repricing within six months is the carrying value at September 30. The
net fair value of other term deposits is calculated using discounted cash flow
models based on the deposit type and its related maturity;
(j) the net fair value of life insurance policy liabilities is
calculated using the Margin on Services methodology as detailed in note 1(z);
166
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(k) the net fair values of bonds, notes and subordinated debt and other
debt issues are calculated based on quoted market prices. For those debt issues
where quoted market prices are not available, a discounted cash flow model using
a yield curve appropriate to the remaining maturity of the instrumentsis used.
The fair value of off-balance sheet financial instruments that qualify as
accounting hedges for the Group's long-term debt is included in the fair value
amount of hedged debt; and
(l) commitments to extend credit, letters of credit and guarantees
and warranties and indemnities issued are considered to be financial
instruments. These financial instruments are generally not sold or traded and
estimated fair values are not readily ascertainable. Net fair value of these
items was not calculated for the following reasons. Very few of the commitments
extended beyond six months would commit the Group to a predetermined rate of
interest. Also, the fees attaching to these commitments are the same as those
currently charged to enter into similar arrangements. Finally, the quantum of
fees collected under these arrangements, upon which a fair value calculation
would be based, is not material.
48 Superannuation commitments
The Group sponsors a range of superannuation plans for employees which
principally offer two types of benefits:
* accumulation benefits which provide a lump sum benefit on
retirement or withdrawal; and
* defined benefits which provide a pension with the option of
commutation of part of the pension on retirement, or lump sum benefit.
Accumulation benefits are based on accumulated contributions and interest
earnings thereon. Entities in the Group are obliged to contribute sufficiently
to cover specified minimum benefit levels. These obligations are legally
enforceable. The relevant trust deed may allow for the cessation of these
contributions. Members and employer contributions are calculated as percentages
of member's salaries or wages. In the case of some plans, member contributions
are not required.
The Group maintains several defined benefit superannuation and pension
arrangements world-wide. Some sponsored plans are in actuarial surplus, others
are in a position of actuarial deficiency. Surpluses and deficiencies depend on
many diverse factors and can vary significantly over time having regard, for
example, to movements in the investment markets, future salary increases and
changes in employment patterns. This note sets out the Group's position in
relation to its defined benefit plans. The disclosures contained herein are in
accordance with AASB 1028 "Employee Benefits". Plans listed below show the last
actuarial assessments, made by independent actuaries on the dates indicated.
In relation to the Group's European defined benefit plans, the plans' actuaries
have advised that using their best estimate (ie. most probable) assumptions for
the long-term, the European plans are in a combined surplus position of
approximately $737 million at June 30,2003. In contrast, applying applicable
accounting disclosure principles, these plans are currently in a combined
surplus position of $284 million on a vested benefits basis. This means the
marketvalue of plan assets exceeds the present value of benefits that are not
conditional on future employment. Further, these plans are in a combined
deficit position of $1,418 million on an accrued benefits basis. This means the
present value of future benefits exceeds the market value of plan assets at June
30, 2003, being the last assessment date. The discount rate used to determine
both the vested benefit and accrued benefit positions does not reflect the
actual asset mix and the expected earnings on the plans' assets over the
long-term. As such, these positions will change with future market conditions
at a point in time.
The actuaries' advice provides comfort to the Group that the plans will meet
their long-term obligations. In addition, the Group continues to meet the
applicable statutory minimum funding requirements set by legislation in the UK
and Republic of Ireland. The Group has no obligation to make payments in
respect of the plans' deficits over and above its annual contributions. These
contributions are only set after agreement between the Group and the plans'
trustees and actuaries. The next scheduled triennial review for this purpose is
September 30, 2004 for all UK plans and September 30, 2005 for the National
Irish Bank Pension Scheme.
The Group contributed $228 million in respect of all superannuation and pension
plans for 2003 (2002: $165 million). Included therein were contributions of $89
million in respect of the Group's European defined benefit pension plans (2002:
$71 million).
The Group's accounting policy is set out in note 1(nn). Under this accounting
policy, the Group recognised superannuation and pension expenses of $243 million
in 2003 (2002: $130 million), of which $111 million related to the Group's
European defined benefit pension plans (2002: $44 million).These expenses are
reported within personnel expenses. Under the accounting policy, the Group
recognised defined benefit pension fund surpluses as an asset in the Group's
balance sheet on acquisition of entities. This asset is subsequently adjusted
for prepayments and accruals and is referred to as a prepaid pension cost asset.
The carrying value of the prepaid pension cost asset as at September 30, 2003
was $616 million and is reported within other assets (2002: $689 million). A
provision for deferred income tax has been recognised for timing differences in
relation to prepaid pension costs as at September 30, 2003 of$189 million (2002:
$246 million).
No liabilities have been recognised in the Group's balance sheet in relation to
the current defined benefit fund deficits reflected in the table below as the
Group has no obligation to make payments in respect of those deficits over and
above its annual contributions to these plans unless required by the applicable
statutory minimum funding requirements. The Group's European defined benefit
plans are all adequately funded under the minimum funding requirements test in
the UK and the Republic of Ireland as at September 30, 2003.
167
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Listed below are details of the major plans with total assets in excess of $10
million each. The accrued benefits, plan assets at net market value, net
surplus/(deficit) and vested benefits of these plans (converted at exchange
rates at September 30) were:
2003
Name of defined benefit Last assessment Accrued Plan Net Vested Net
fund date and actuary benefits assets accrued benefits vested benefit
name benefit surplus/
surplus/ (deficit)
(deficit)
$m $m $m $m $m
National Australia Bank June 30, 2000 (1) 1,764 1,811 n/a 1,711 100
Group Superannuation Fund Mr SJ Schubert,
A (1) FIA, FIAA Towers
Perrin
Clydesdale Bank Pension June 30, 2003 1,928 1,301 (627 ) 1,272 29
Scheme (2) Watson Wyatt
Partners
Consulting
Actuaries
Northern Bank Pension June 30, 2003 1,245 946 (299 ) 825 121
Scheme (2) Watson Wyatt
Partners
Consulting
Actuaries
National Irish Bank June 30, 2003 335 317 (18 ) 186 131
Pension Scheme (2) Watson Wyatt
Partners
Consulting
Actuaries
National Australia Bank UK June 30, 2003 302 179 (123 ) 162 17
Retirement Benefits Plan Watson Wyatt
(2)(3) Partners
Consulting
Actuaries
Yorkshire Bank Pension June 30, 2003 1,577 1,226 (351 ) 1,240 (14 )
Scheme (2) Watson Wyatt
Partners
Consulting
Actuaries
Bank of New Zealand October 31, 2002 160 228 68 157 71
Officers' Provident Ms GR Spooner,
Association (4) BSc, FIAA, FNZSA
Watson Wyatt NZ
Ltd
National Wealth Management July 1, 2002 (6) 95 105 n/a 105 -
Superannuation Fund (5)(6) Mr D O'Keefe, BA,
ASA FASFA, FIAA
KPMG Actuaries
Pty Ltd
Total defined benefit 7,406 6,113 (1,350 ) 5,658 455
funds
2002
Name of defined benefit Last assessment Accrued Plan Net Vested Net
fund date and actuary benefits assets accrued benefits vested
name benefit benefit
surplus/ surplus/
(deficit) (deficit)
$m $m $m $m $m
National Australia Bank June 30, 2000 (1) 1,764 1,836 n/a 1,704 132
Group Superannuation Fund Mr SJ Schubert,
A (1) FIA, FIAA Towers
Perrin
Clydesdale Bank Pension June 30, 2002 1,848 1,659 (189 ) 1,623 36
Scheme (2) Watson Wyatt
Partners
Consulting
Actuaries
Northern Bank Pension June 30, 2002 1,192 1,222 30 1,082 140
Scheme (2) Watson Wyatt
Partners
Consulting
Actuaries
National Irish Bank June 30, 2002 302 383 81 242 141
Pension Scheme (2) Watson Wyatt
Partners
Consulting
Actuaries
National Australia Bank June 30, 2002 276 213 (63 ) 216 (3 )
UK Retirement Benefits Watson Wyatt
Plan (2)(3) Partners
Consulting
Actuaries
Yorkshire Bank Pension June 30, 2002 1,514 1,599 85 1,330 269
Scheme (2) Watson Wyatt
Partners
Consulting
Actuaries
168
--------------------------------------------------------------------------------
2002
Name of defined benefit Last assessment Accrued Plan Net Vested Net
fund date and actuary benefits assets accrued benefits vested
name benefit benefit
surplus/ surplus/
(deficit) (deficit)
$m $m $m $m $m
Bank of New Zealand October 31, 2001 158 238 80 155 83
Officers' Provident Ms GR Spooner,
Association (4) BSc, FIAA, FNZSA
Watson Wyatt NZ
Ltd
National Staff June 30, 2001 (6) 93 95 n/a 99 (4 )
Superannuation Fund (MLC) Mr SJ Schubert,
(5)(6) FIA, FIAA Towers
Perrin
Total defined benefit 7,147 7,245 24 6,451 794
funds
--------------------
(1) National Australia Bank Group Superannuation Fund A is technically a
defined benefit fund although the vast majority of members have accumulation
benefits. Accrued benefits are at the date of the last actuarial assessment,
which was June 30, 2000. Plan assets and vested benefits are as at June 30,
2003, being the date of the most recent financial statements of the fund (for
2002 comparative information, they are as at June 30, 2002). The surplus of
plan assets over accrued benefits has not been reported due to the different
measurement dates. Approximately 5.0% of disclosed accrued benefits relate to
defined benefits. Approximately 9.8% of the disclosed plan assets relate to
defined benefits.
(2) Accrued benefits, plan assets and vested benefits are at the date of
the last actuarial assessment, which was June 30, 2003. Comparative amounts are
as of theactuarial assessment date of June 30, 2002.
(3) Employees working for National Australia Bank Limited, National
Australia Group Europe Limited, National Australia Group Services Europe Limited
and National Australia Life Services Limited in Europe are eligible for
membership of the National Australia Bank UK Retirement Benefits Plan.
(4) Bank of New Zealand Officers' Provident Association has two divisions
within one fund. Division 1 is a defined benefit plan and is closed to new
members. Division 2 is a cash accumulation plan and contains the majority of
members. The division 1 component of accrued benefits is at the date of the
last actuarial assessment which was October 31, 2002. The plan assets and
vested benefits are as at October 31, 2002, being the date of the most recent
financial statements of the fund.
(5) On 30 June 2002, the National Staff Superannuation Fund (MLC) was
transferred into the Plum Financial Services Master Trust. From July 1, 2002,
TowersPerrin was replaced as actuary of this fund by KPMG Actuaries Pty Ltd and
the fund was renamed National Wealth Management Superannuation Plan.
(6) National Wealth Management Superannuation Fund is technically a
defined benefit fund although the majority of members have accumulation
benefits. Accruedbenefits are at the date of last actuarial assessment of the
fund, which was July 1, 2002 (for 2002 comparative information they were as at
June 30, 2001). Plan assets and vested benefits are as at June 30, 2003, being
the date of the most recent financial statements of the fund (for 2002
comparative information, they are as at June 30, 2002). The surplus of plan
assets over accrued benefits has not been reported due to the different
measurement dates. Approximately 60.9% of disclosed accrued benefits relate to
defined benefits. Approximately 61.9% of the disclosed plan assets relate to
defined benefits.
49 Operating lease commitments
Group Company
2003 2002 2003 2002
$m $m $m $m
Estimated minimum lease commitments
Due within 1 year 167 178 82 68
Due within 1 - 2 year(s) 193 184 116 86
Due within 2 - 3 years 150 207 82 121
Due within 3 - 4 years 153 174 91 97
Due within 4 - 5 years 171 188 116 116
Due after 5 years 958 1,020 486 440
Total operating lease commitments (1)(2)(3) 1,792 1,951 973 928
Commitments by type
Commercial and residential buildings 1,638 1,815 818 792
Data processing and other equipment 154 136 153 136
Total operating lease commitments 1,792 1,951 971 928
169
--------------------------------------------------------------------------------
Group Company
2003 2002 2003 2002
$m $m $m $m
(1) Figures include liabilities taken up for
surplus leased space and lease incentives.
(2) Includes non-cancellable operating lease
commitments consisting of:
Due within 1 year 76 66 - -
Due within 1 - 2 year(s) 70 60 - -
Due within 2 - 3 years 63 53 - -
Due within 3 - 4 years 57 48 - -
Due within 4 - 5 years 50 45 - -
Due after 5 years 427 363 - -
Total non-cancellable operating lease commitments 743 635 - -
(3) Included in this note are lease commitments resulting from the sale
and leaseback of various properties. These transactions are generally for a
term of five years, or 10 years for major properties. There is no ongoing
involvement in the properties other than rental payments.
50 Capital expenditure commitments
Land and buildings
Due within 1 year 41 102 40 99
Due within 1 - 2 year(s) - 44 - 44
Due within 2 - 5 years - 1 - 1
Data processing and other equipment
Due within 1 year 25 40 23 33
Other
Due within 1 year 5 4 - -
Total capital expenditure commitments 71 191 63 177
51 Financing arrangements
The Group held no standby lines of credit or other financing arrangements for
the 2003 and 2002 years.
52 Related party disclosures
During the year, there have been dealings between the Company and its controlled
entities and other related parties. The Company provides a range of services to
related parties including the provision of banking facilities and standby
financing arrangements. Other dealings include granting loans and accepting
deposits,and the provision of finance, forward exchange and interest rate cover.
These transactions are normally subject to commercial terms and conditions.
Other transactions with controlled entities may involve leases of properties,
plant and equipment, the provision of data processing services or access to
intellectual or other intangible property rights. Charges for these
transactions are made on the basis of equitable rates agreed between the
parties. The Company also provides various administrative services to the
Group, which may include accounting, secretarial and legal. Fees may be charged
for these services.
The aggregate of material amounts receivable from or payable to controlled
entities, at balance date are as disclosed on the statement of financial
position of the Company.
Details of directors who held office during the year are set out in the report
of the directors. Details of remuneration paid or payable to the directors and
directors of related entities are set out in the report of the directors and
note 53.
Australian banks, parent entities of Australian banks and controlled entities of
Australian banks have been exempted under ASIC Class Order 98/110 dated July 10,
1998, from providing details of certain loans or financial instrument
transactions made by banks to related parties (other than directors) in the
ordinary course of banking business and on an arm's length basis or with the
approval of shareholders of the relevant entity and its ultimate parent entity,
if any. The application of this Class Order may cause the Group's disclosure of
related party transactions to differ from that disclosed by the Company's
controlled entities in their statutory financial reports.
The Company is required under the terms of the Class Order to lodge a statutory
declaration, signed by two directors, with ASIC. The declaration must provide
confirmation that the Company has implemented systems of internal control and
procedures, which provide assurance that any loans or other financial instrument
transactions of a bank which are not entered into on normal terms and conditions
are drawn to the attention of the directors so that they may be disclosed in the
financial report.
The Company will lodge such a declaration with its annual return to ASIC for the
year ended September 30, 2003.
170
--------------------------------------------------------------------------------
Loans to directors
Loans made to the directors of the Company and to the non-executive directors of
its controlled entities are made in the ordinary course of business on
commercial terms and conditions. Loans to executive directors of controlled
entities are made on similar terms and conditions to other employees within the
Group. Loans to directors and senior executives of the Company are subject to
restrictions under applicable laws and regulations including the United States
Sarbanes Oxley Act of 2002.
Under the Class Order referred to above, disclosure is limited to the aggregate
amount of loans made or guaranteed by:
* the Company and its controlled entities to directors of all
entities within the Group; and
* controlled non-banking entities to the related parties of
directors of all entities within the Group.
The aggregate amounts of such loans outstanding, loans made and repayments
received for the last two years to September 30, were:
Group Company
2003 2002 2003 2002
$'000 $'000 $'000 $'000
Balance outstanding at September 30 43,265 36,418 1,022 214
Loans made during the year
Normal terms and conditions 10,035 6,130 861 94
Employee terms and conditions 11,338 7,924 - -
Repayments received during the year
Normal terms and conditions 7,045 5,435 53 300
Employee terms and conditions 5,901 7,938 - -
The following table sets out the nature of loans made to directors of the
Company and controlled entities during the year:
Group
2003 2002
S Alomes 2,3,4 1,2,3,4
DJ Anderson 2,3,4 1,2,4
JO Anderson 1,2,3,4 2,3,4
MT Anderson 1,2,4 1,2,4
BA Baker 1,2,4 1,2,4
GLL Barnes - 1,2,4
I Barr 1,2,3 1,2,3
G Bennett 1,2,3,4 -
CJ Black 2,4 1,4
AM Boreland 2,4 1,4
DK Bould 2,4 2,4
RK Boyce 1,3 2,3
PP Boyle - 2,3,4
A Brady 2,3,4 -
D Braimbridge 2,4 1,2,4
R Brice 3 1,4
PF Brooksbank 2,4 2,4
T Burns 1,4 -
I Butler - 2,3
CR Campbell 2,4 1,2,4
K Campbell 1,2,3,4 1,2,4
PJA Carson 1,2,4 1,2,4
BT Case 2,4 -
D Cathie 1,2,4 1,2,3,4
FJ Cicutto - 2,3
AJ Clarke 1,2,4 -
JB Clark 1,2,3 -
RE Clements 1,2,3 1,2,3
WA Cole - 2,3
G Comito 2,3 1,2,3
KL Cormican 1,2,3,4 1,2,3,4
KF Courtney 2,3 3
S Cranwell 2,4 -
H Crowe 1,2,4 -
G Cullen 1,2,4 2,4
JA Docherty - 2,3
M Donohoe 2,4 1,2,4
K Doran 2,3 1,2,3
D Douglas 1,2,3,4 3,4
MC Dowland 4 1,4
J Duffield 3 -
CW Duncan 1,2,4 1,2,4
C Dundas 1,2,3 -
J Dyer 1,2,4 1,4
MM Elliott 2,3 3
RR Erdos 1,2,4 2,4
R Fawcett 1,4 -
P Fegan - 2,3,4
ID Ferguson 1,2,3,4 2,4
R Ferrari 2,4 2,4
PG Flavel 1,2,3,4 1,2,3,4
SRB Fletcher 2,3,4 1,2,3,4
E Goff - 1,2,4
B Gordon - 1,2,3
L Gray 1,2,3,4 1,2,4
GT Greer 1,2,3,4 1,2,3,4
RJ Gregory 1,2,3 1,2,3
AP Hale - 1,2,3,4
W Handley 2,3,4 2,3
CJ Harding 4 -
GDB Harkness 1,3 3
A Haslam 1,4 4
RD Henriks - 1,2,4
DC Holden - 2,3,4
A Hondros - 2,4
HL Hooi 2,3,4 1,2,3
JE Hooper 1,2,4 2,4
M Hosking 2,4 1,2,4
R Hoskins 1,2,3 -
T Hunt 2,4 -
JC Hurst 2,4 2,4
GA Hyde 2,4 2,4
PA Jefferies 1,3 1,3
M Kelly 2,3,4 2,3,4
P Kempster 2,4 -
D Keys 2,4 2,4
V Koh Yoke Har 2,4 2,4
GJ Kraehe 3 3
DM Krasnostein 1,3,4 1,2,3
MT Laing 2,4 1,2,4
R Lakin 1,2,4 1,2,4
B Lanesman 1,2,4 1,2,3
TM Lao 2,3,4 1,4
A Law 1,2,3,4 2,3,4
M Lawler 1,2,3 2,3
DIW Lawson 1,2,3,4 -
G Lefevre 1,2,3,4 2,3
C Lewis 1,2,4 -
P Leydon 1,2,3 1,2,4
SP Littlebury 1,2,3,4 1,2,3,4
B Long 2,3,4 2,3,4
D MacGregor 1,2,3 1,2,3
JT Macken 1,2,3,4 2,4
FR Mallia 2,3,4 2,3,4
K Marshman 2 1,4
RF Matrenza 2,3,4 -
171
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Group
2003 2002
IG Mattiske - 1,2,3
I McAuley 2,3 -
DJ McGee 2,3,4 1,2,3,4
RA McKimm 2,3 2,3
RE McKinnon 2,4 2,4
L McManus 2,4 -
D McPherson 4 2,4
G McSorley 1,2,4 -
SJD Melia 2,3,4 2,3,4
G Mescher - 1,2,4
H Messieh 1,2,4 -
S Mettrick 1,2,4 -
B Meyler 2,3,4 1,2,4
G Miller - 3
J Mitchell 2,4 -
R Mitchell - 1,2,4
DE Moir 2,4 2,4
S Moore 2,3,4 -
RL Morath 1,3 1,4
AF Morrison 1,2,3 2,3
KJ Moss 1,3 1,3
M Murphy 2,4 1,2,4
M Murphy 1,2,3 -
RJ Murphy 1,2,3,4 -
GF Nolan 2,4 2,4
P Norris 1,2,4 1,2,3
AJ O'Grady 2,4 1,2,4
MG O'Neill 1,2,4 2,4
DG Paton 1,2,3,4 2,3,4
GR Pellett 1,2,3,4 1,2,3,4
M Philipsen 1,2,4 -
RE Pinney 1,2,3 1,2,3,4
RH Polkinghorne 2,4 1,2,4
D Price - 2,4
RMC Prowse - 1,2,4
JE Queen 2,3,4 1,2,4
H Raby - 2,4
R Rauchenberger 2,4 1,2,4
DG Reid 2,4 1,2,4
D Richards 2,4 2,4
PD Rogan 1,2,3,4 1,2,3
GJS Rogers 1,4 -
PK Roy 2,4 2,4
CA Russell 2,4 2,4
L Ryan 1,4 -
GP Savage - 1,2,3
PB Scott 2,4 4
M Shaw 1,4 -
B Shimmins 1,4 -
I Showman 2,4 1,2,4
MJW Skilling 2,3,4 1,2,3
GR Slater 1,2,4 1,2,4
T Slater 1,4 2,4
MJ Smith - 2,4
W Somerville 2,4 1,2,4
EW Stafford 2,4 -
A Stirrup - 2,4
JD Storey 2,3 1,3
GA Targett 1,4 1,4
SC Targett - 1,3
JD Taylor 1,2,4 1,2,4
KD Thawley 1,2,3 1,2,3
H Then - 2,4
PL Thodey 2,3 4
HJ Thomson - 1,2,3
RG Thompson 2,4 1,2,4
D Thorburn 1,2,3 2,4
D Treanor 1,2,4 1,2,4
M Tredenick 1,2,4 1,2,4
J Treloar 2,4 1,2,4
J Trethowan 1,2,3,4 1,2,4
S Tucker - 1,4
RP Tuckey 2,4 2,4
P Tulloch - 2,3
DL Upton 2,4 2,4
O Vanzuyden - 2,3
M Vulic 1,2,4 -
I Walker 1,2,3,4 2,3,4
JD Walmsley 2,3 2,4
WAH Webster 1,2,4 -
E Wong 1,2,4 1,2,4
NL Youren 1,2,3,4 2,3
--------------------
1. Loan made to this person during the year. Refer to the
previous table for aggregate amounts.
2. Repayment made by this person during the year. Refer to the
previous table for aggregate amounts.
3. Loan made in ordinary course of business on commercial terms
and conditions. Refer to the previous table for aggregate amounts.
4. Loan made on employee terms and conditions. Refer to the
previous table for aggregate amounts.
Loans made by the Group in 2003 and 2002 to directors or to any associate of
such persons, as defined by SEC at no time exceeded 5% of equity.
Deposits
The value of deposits made with the Company, directly or indirectly, by
directors of the Company and by parties related to them as at September 30, 2003
was $1,985,796 (2002: $1,189,294). These deposits were transacted on normal
terms and conditions.
Shares, share options, performance rights and equity instruments
The aggregate number of shares, share options and equity instruments issued,
disposed/exercised, or held, directly, indirectly or beneficially by directors
of the Company and by parties related to them during the last two years to
September 30, 2003 is set out below. The share and share option details
represent issues under the Company's dividend reinvestment plan, bonus share
plan, UK dividend plan and, where applicable, employee share plans, executive
option plans and performance rights plans. Equity instrument details represent
issues of National Income Securities.
Issued Company Held
Disposed/exercised
2003 2002 2003 2002 2003 2002
Ordinary shares, fully paid 13,794 24,866 - - 335,040 321,246
Share options over ordinary 425,000 - - 200,000 1,825,000 1,400,000
shares
Performance rights over 131,250 - - - 131,250 -
ordinary shares
Equity instruments - - - - 1,170 1,170
All these transactions were conducted on the same terms and conditions
applicable to all ordinary shareholders, equity instrument holders or, where
applicable, to all employees or executives of the Company under employee share
plans, executive option plans and performance rights plans.
172
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Other transactions of directors
All other transactions with directors, director-related entities and other
parties are conducted on an arm's length basis in the normal course of business
and on commercial terms and conditions. These transactions generally involve
the provision of financial and investment services by non-bank controlled
entities. All such transactions that have occurred with directors,
director-related entities and other related parties have been trivial or
domestic in nature. In this context, transactions are trivial in nature when
they are considered of little or no interest to the users of the financial
report in making and evaluating decisions about the allocation of scarce
resources. Transactions are domestic in nature when they are related to the
director's personal household activities.
Controlled entities
Refer to note 20 for details of the Company's investment in controlled entities.
Refer to note 44 for details of controlled entities.
Details of amounts received from or paid to controlled entities, in the form of
dividends or interest, are set out in notes 4 and 5(b).
In the context of the Group's operations, the directors of the Company do not
consider it practicable to collate details of dealings with controlled entities
by transaction type, except to the extent that they have been collated and
disclosed in respect of the specific transaction types referred to in the
preceding paragraphs.
The Company has certain guarantees and undertakings with entities in the Group.
These are set out in note 45.
53 Remuneration of directors
Total income paid or payable, or otherwise made available, to all directors of
the Company and each entity in the Group, directly or indirectly, by the Company
or any related party consists of the following:
Group Company
2003 2002 2003 2002
$'000 $'000 $'000 $'000
Salary package 43,392 45,595 3,771 3,275
Performance-based bonuses (1) 11,639 10,403 1,931 765
Other benefits 7,218 22,821 166 201
Total remuneration of directors 62,249 78,819 5,868 4,241
--------------------
(1) Represents bonuses paid in respect of prior year performance.
For the purposes of this note, remuneration does not include the fair value of
options or performance rights issued to directors under the Company's executives
share option plan no. 2 and performance rights plan. In June 2003, ASIC issued
disclosure guidelines on valuing options in annual directors' reports. ASIC
encouraged that these guidelines be applied to all disclosures of directors' and
executives' emoluments. Due to the impracticability of applying these
guidelines to the greater than 260 directors of the Group, the guidelines have
not been applied to this note. The disclosure of senior executive emoluments in
the report of directors has been based on ASIC's guidelines.
The following table shows the number of directors of the Company whose total
income paid or payable, or otherwise made available, directly or indirectly, by
the Company or any related party, falls within each of the bands:
Company
Remuneration ($) 2003 2002
110,001 - 120,000 - 1
120,001 - 130,000 1 -
130,001 - 140,000 - 1
140,001 - 150,000 1 2
160,001 - 170,000 1 1
170,001 - 180,000 1 -
210,001 - 220,000 1 -
220,001 - 230,000 1 -
230,001 - 240,000 - 1
250,001 - 260,000 - 1
290,001 - 300,000 1 -
310,001 - 320,000 1 -
410,001 - 420,000 1 1
2,620,001 - 2,630,000 - 1
3,960,001 - 3,970,000 1 -
Total number of directors 10 9
The remuneration bands are not consistent with the specific remuneration details
set out in the report of the directors as the basis of calculation differs due
to the differing requirements of the Corporations Act 2001 (Cth) and Australian
Accounting Standards.
173
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