Chief Executive's Report
International
Underlying profit before tax increased by 23% to £757m (2006 £617m). 2007 was a year of investment in our International division but despite this investment, all three businesses contributed to this strong growth. Underlying profit before tax rose by 11% in Australia to £308m (2006 £278m), by 23% in Ireland to £184m (2006 £149m) and by 39% in Europe & North America to £265m (2006 £190m).
Underlying net operating income increased by 23% reflecting strong asset growth across all geographies, with advances up 38% to £67.1bn (2006 £48.7bn). Net interest margin was slightly lower at 1.93% (2006 1.97%) with the margin in Australia the main driver. Customer deposits increased by 35% to £23.6bn (2006 £17.5bn).
Underlying operating expenses increased by 25% to £714m (2006 £573m) reflecting the investment across the division but primarily the initial phase of the Australian retail branch expansion plan.
Credit quality remains strong, as we continue to diversify the lending book across different geographies and markets. Impairment losses as a % of average advances remained stable at 0.20% (2006 0.22%).
We continue to grow our branch network. In Ireland, we have largely completed the branch opening programme and now offer a full range of retail products which positions us to take on the incumbent banks. In Australia, in July 2007, we announced plans to increase our presence on Australia’s east coast and open up to 160 branches over the next three to four years. In our European and North American businesses, we continue to invest in selective branch expansion and are growing our regional banking partnership initiative in North America.
Outlook
Whilst our International businesses profit performance will be more restrained in 2008, as we increase our investment in their future, we remain confident that this investment will also underpin stronger profit growth in future years.