ANZ Financial Performance Overview

SECTION 3 Banking industry profit growth will be more challenging Future growth within the financial services sector will be more challenging than in the last five years, largely due to the following: . There is greater penetration of the industry by non bank institutions and third party distributors. The early win productivity gains of the last five years are largely over with the focus now turning to end to end process improvement from which the benefits emerge over a longer term. Given the prospect of a slowing housing market, future banking industry growth will rely more on other asset classes. Other market factors which are likely to affect near term growth potential for the industry include: - - The recent interest rate environment has been a challenging one for the banking industry. In the current period low interest rates have adversely impacted the expected return on free funds invested by Treasury. Movements in interest rates in future periods will impact both the return on free funds, and the level of lending and deposit activity in both the retail and corporate markets. The stronger AUD will adversely affect USD denominated offshore earnings and domestic trade income. % change 40 55 35 Housing credit growth likely to be lower 30 25 Housing credit 20 15 10 Forecast* 5 House prices 0 88 90 92 94 96 98 00 02 04 06 Strengthening A$ delivering challenges USD/AUD 0.9 Reserve Bank imposed credit card interchange fee reductions have forced financial institutions to reassess their strategy in this market following the loss of a substantial revenue stream. Through the creation of strategic alliances we believe that the impact on growth of these changes has been marginalised. 0.8 0.7 0.6 0.5 Given the above challenges and the prevailing market conditions ANZ's focus for growth going forward will be primarily organic, complemented by the possibility of strategic moves in core markets should opportunities arise. 0.4 0.3 15 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 *Source - RBA, Economics @ANZ ANZ

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