FILE NO 1-9945

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON   DC   20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

For the month of May 2005

National Australia Bank Limited

ACN 004 044 937
(Registrant’s Name)

Level 24
500 Bourke Street
MELBOURNE   VICTORIA   3000
AUSTRALIA

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82

This Report on Form 6-K shall be deemed to be incorporated by reference into the Registration Statement on Forms S-8 (No. 333-103443) and Form F3 (No. 333-6632) of National Australia Bank Limited and to be part thereof from the date on which this Report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

Appendix 4D
National Australia Bank Limited
Half year consolidated report
For the six months ended March 31, 2005

National Australia Bank Limited ABN 12 004 044 937 (the ‘Company’)
A reference in this Appendix 4D to the ‘Group’ is a reference to the Company and its controlled entities.

This half year consolidated report is given to Australian Stock Exchange Limited (ASX) under Listing Rule 4.2A.
This half year consolidated report is to be read in conjuction with the annual financial report 2004.
All currency amounts are expressed in Australian dollars unless otherwise stated.
References in this document to the March 2005 half year are references to the six months ended March 31, 2005.
Other six month periods are referred to in a corresponding manner.

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Results for announcement to the market

Dividends

Net profit attributable to members of the Company has increased 17.0% to $2,535 million for the six months ended March 31, 2005.

Performance has been impacted by a range of factors and a number of significant items including the net profit on the sale of Northern Bank Limited and National Irish Bank Limited (the ‘Irish Banks’) and restructuring expenses.

The sale of the Irish Banks to Danske Bank A/S was completed on February 28, 2005 and generated a profit on sale of $1,073 million (after tax).

The increase in revenue from ordinary activities includes the proceeds from the sale of the Irish Banks of $2,514 million and solid growth in interest income, partly offset by the proceeds from the sale of strategic shareholdings in the prior corresponding period of $993 million.

For further details refer to the report of the directors on page 4.

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Table of contents

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Report of the directors

The directors of National Australia Bank Limited (hereinafter referred to as the ‘Company’) present their report, together with the financial statements of the Group, being the Company and its controlled entities, for the half year ended March 31, 2005.

Directors

Directors in office at the date of this report are:

Board changes

Mr Ahmed Fahour and Mr Michael J Ullmer were appointed as executive directors on October 7, 2004.  Mr Michael Chaney was appointed as a non-executive director on December 6, 2004, and will be appointed Chairman in September 2005.  All other directors were in office for the entire period covered by this report.

Rounding of amounts

Pursuant to Class Order 98/100 made by the Australian Securities and Investments Commission on July 10, 1998, the Company has rounded off amounts in this report and the accompanying financial statements to the nearest million dollars, except where indicated.

Performance summary

(1)          After deducting profit attributable to outside equity interest.

Cash earnings is a key performance measure and financial target used by the Group.  Dividends paid by the Company are based on after-tax cash earnings (adjusted for significant items).  Cash earnings per share is a key performance measure used in the investment broking community, as well as by those Australian peers of the Group with a similar business portfolio.  Management considers that the exclusion of the items detailed above from net profit is a prudent and useful indicator of the Group’s underlying operating performance.  Cash earnings does not refer to, or in any way purport to represent the cash flows, funding or liquidity position of the Group.  It does not refer to any amount represented on a statement of cash flows.

Review of operations and Group results

Net profit attributable to members of the Company of $2,535 million for the half year ended March 31, 2005, increased $369 million or 17.0% compared with the corresponding period in 2004.

Significant items are those individually significant items included in profit from ordinary activities.  The March 2005 half year result included the following significant items:

•                  net profit on sale of Northern Bank Limited and National Irish Bank Limited (the ‘Irish Banks’) after all disposal costs including taxation of $1,073 million;

•                  restructuring expenses of $(282) million (after-tax);

•                  reversal of a provision in relation to foreign currency options trading losses of $24 million (after-tax); and

•                  reversal of prior year restructuring provisions of $6 million (after-tax).

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The March 2004 half year result included the following significant items:

•                  $315 million profit relating to the sale of strategic shareholdings in St George Bank Limited, AMP Limited and HHG Plc.;

•                  $64 million profit from the writeback of a provision for SR Investment, Inc. (the parent entity of HomeSide Lending, Inc.) in respect of selling-related costs; and

•                  $252 million loss (after-tax) attributable to foreign currency options trading losses.

Net profit before significant items of $1,714 million in the March 2005 half, decreased $325 million or 15.9% compared with the March 2004 half year.  Cash earnings (before significant items) of $1,618 million at March 31, 2005, decreased $232 million or 12.5% compared with the corresponding period in 2004.

Net interest income of $3,553 million during the March 2005 half, was $32 million or 0.9% lower than for the same period in 2004.  This was driven by a decrease in the net interest margin from 2.40% to 2.19%, partly offset by lending growth, primarily in relation to housing.  The fall in margin largely resulted from the strong growth in lower margin mortgages and fixed rate lending within the banking business, as well as a reduction in contribution from the Interest Rate Markets division of Institutional Markets & Services.

Net life insurance income increased by $103 million to $558 million for the March 2005 half, from $455 million in the March 2004 half year.  This was driven by an increase in investment earnings resulting from improved performance in global equity markets, partly offset by an increase in policy liabilities.

Other banking and financial services income of $2,490 million in the March 2005 half, was $34 million or 1.4% higher than the March 2004 half year.  This outcome reflects:

•                  fees and commissions grew $29 million (5%) to $612 million reflecting higher activity and an increase in creditor insurance profit share in the UK;

•                  loan fees from banking grew $15 million (2%) to $742 million, reflecting solid bill fee growth in Australian Banking as a result of a 16.5% increase in bill acceptance volumes over the half;

•                  fleet service fees grew $13 million (22%) to $73 million reflecting business growth and a change in accounting presentation of fleet vehicle registration costs;

•                  investment management fees grew $5 million (3%) to $172 million reflecting growth in average funds under management and administration; partly offset by:

•                  dividend income of $22 million in the March 2004 half no longer received following the sale of investments; and

•                  money transfer fees declined $9 million (2%) to $479 million due to a change in the mix of transactions as customers migrate to lower cost channels.

The movement in the excess of net market value over net assets of life insurance controlled entities was a profit of $54 million during the March 2005 half, an increase of $47 million from the corresponding period in 2004.  This result represents the growth in market value after allowing for changes in shareholder net assets, and is primarily driven by anticipated growth in market values utilising the assumptions adopted at the previous valuation (positive $200 million) and changes to assumptions at this valuation and/or experience since the prior valuation (negative $134 million). The adverse $134 million impact from change in assumptions and experience is due to:

•                  a negative impact from changing economic assumptions ($154 million), namely applying a higher discount rate and lower international businesses values due to a stronger Australian dollar; and

•                  a small positive impact ($20 million) from changing business assumptions.  The positive impact from items of change in the domestic business including benefits from higher than expected investment earnings, ongoing expense control and assumed attrition improvements for superannuation business, was all but offset by the impact of lower assumed margins for retail funds management products.

Personnel, occupancy related and general expenses (before significant restructuring costs) of $3,576 million for the March 2005 half were $340 million or 10.5% higher than the corresponding period in 2004.  This outcome reflects:

•                  growth in personnel expenses (excluding superannuation) of $96 million (6%), reflecting higher annual salaries and growth in contractor costs mainly associated with compliance projects;

•                  costs of $56 million associated with a Northern Bank robbery in December 2004;

•                  costs of $49 million associated with the outcome of a legal action in South Korea;

•                  higher occupancy costs of $37 million (13%) as a result of annual rent increases and the move to Docklands;

•                  higher superannuation costs of $27 million (17%), primarily due to a superannuation contribution holiday in Australia reducing the March 2004 half pension fund expenses by $17 million, and a $7 million increase in NZ pension fund expenses;

•                  a step-up in project related-spend, including regulatory and compliance projects; partly offset by:

•                  $26 million write-off of development work associated with the Integrated Systems Implementation (ISI) program in the March 2004 half; and

•                  a reduction of $27 million in the charge to provide for non-lending losses.

The charge to provide for doubtful debts of $281 million in the March 2005 half, was $24 million or 7.9% lower than the corresponding period in 2004.  The charge was impacted by the continued focus on credit quality across the business.  As at March 31, 2005 the ratio of gross non-accrual loans to gross loans and acceptances was 0.41%, an improvement from 0.57% as at March 31, 2004.  The ratio of total general and specific provisions to gross impaired assets improved to 216.8% as at March 31, 2005, as compared to 157.8% as at March 31, 2004.

Income tax expense relating to ordinary activities of $757 million in the March 2005 half year, was $58 million or 8.3% higher than the corresponding period in 2004.  This reflects higher profit from ordinary activities before income tax expense and the impact of $332 million of non-assessable profit on the sale of the Irish Banks.  Income tax expense is also impacted by the Group’s international activities to which a wide range of tax rates are applied.

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For further details of the current position with the tax authorities in Australia and New Zealand refer to note 17 of the March 2005 half year consolidated financial report.

Shareholder returns

Basic earnings per share increased 13.9% in the March 2005 half to 156.9 cents, from 137.7 cents in the prior corresponding period.  Excluding the impact of significant items, basic earnings per share decreased 19.4% in the March 2005 half to 104.1 cents, from 129.2 cents in the prior corresponding period.

Basic cash earnings per share increased 19.3% in 2005 to 156.8 cents, from 131.4 cents in the prior corresponding period.  Excluding the impact of significant items, cash earnings per share decreased 15.4% in 2005 to 104.0 cents, from 122.9 cents in the prior corresponding period.  This result has been primarily impacted by flat earnings in Australian Banking, growth in UK Banking, and two one-off costs incurred in relation to South Korea litigation and the Northern Bank robbery.

An interim dividend of 83 cents per fully-paid ordinary share was declared for the March 2005 half year and will be 80% franked.  The interim dividend paid in 2004 was also 83 cents, but was fully-franked.  The 2005 interim dividend is payable on July 13, 2005.

The Company expects to continue its policy of paying regular cash dividends; however, there is no assurance as to future dividends.  Future dividend policies will be determined by the Board with regard to the Company’s earnings, capital requirements, financial conditions and applicable government regulations and policies.

The interim dividend paid will be 80% franked.  The franked portion of these dividends carry imputation tax credits at a tax rate of 30%, the current Australian company tax rate.  For non-resident shareholders of the Company for Australian tax purposes, the dividend will not be subject to Australian withholding tax, as the unfranked portion of the dividend will carry foreign dividend account credits.

The extent to which future dividends will be franked will depend on a number of factors, including the level of the Group’s profits that will be subject to Australian income tax and any future changes to the Australian business tax systems as a result of the Australian Commonwealth Government’s tax reform initiatives.

Balance sheet

Assets

Total assets at March 31, 2005 decreased to $402,662 million from $411,309 million at September 30, 2004.  The sale of the Irish Banks removed $16,374 million of assets from the September 30, 2004 balance sheet.  Excluding this, total assets increased 2.0% from September 30, 2004.  The appreciation of the Australian dollar, primarily against British pound, decreased total assets by $5,737 million during the March 2005 half year.  Excluding the impact of the sale of the Irish Banks and exchange rate movements, total assets (in Australian dollar terms) increased $12,920 million or 3.3% during the March 2005 half year.

Excluding the impact of the sale of the Irish Banks, the growth in total assets was primarily driven by the growth in net loans and advances and due from customers on acceptances, which offset declines in trading and investment securities and due from other financial institutions.

Net loans and advances decreased $1,080 million or 0.4% from $247,836 million at September 30, 2004 to $246,756 million at March 31, 2005. At September 30, 2004, there were $13,082 million of loans and advances relating to the Irish Banks, which were sold on February 28, 2005.  Excluding this, net loans and advances increased $12,002 million or 5.1% from September 30, 2004, and the major movements were as follows:

•                  In Australia, net loans and advances increased by $9,494 million, or 6.5% to $155,456 million at March 31, 2005, with strong growth in housing lending and solid growth in other lending categories, particularly leasing.

•                  In Europe, net loans and advances decreased $11,771 million from September 30, 2004 to $52,412 million at March 31, 2005.  However, excluding the impact of the sale of the Irish Banks during the half and exchange rate movements, net loans and advances grew by 6.2%, primarily reflecting growth in housing lending and overdrafts.

•                  In New Zealand, net loans and advances increased by $1,229 million, or 3.9% to $33,145 million at March 31, 2005.  However, excluding the impact of exchange rate movements, net loans and advances grew by 5.7%, reflecting housing lending growth, as well as growth in overdrafts and credit cards.

Amounts due from customers on acceptances increased $5,223 million or 32.0% from $16,344 million at September 30, 2004 to $21,567 million at March 31, 2005, and are offset by a corresponding increase in liabilities.  Excluding the impact of the buy-back of the Company’s accepted bills,

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volumes have grown 5.8% from September 30, 2004.  Bill acceptances continue to be a preferred product for business customers as a result of favourable pricing arrangements and flexibility.

Trading and investment securities declined $7,324 million or 20.5% from $35,761 million at September 30, 2004 to $28,437 million at March 31, 2005. The reduction in these securities follows the Group’s strategic decision to release capital invested in low-yielding assets so as to improve returns in the Institutional Markets & Services business.

Due from other financial institutions declined $4,974 million or 21.2% from $23,494 million at September 30, 2004 to $18,520 million at March 31, 2005. At September 30, 2004, there were $1,159 million of due from other financial institutions relating to the Irish Banks, which were sold on February 28, 2005.  Excluding this, due from other financial institutions decreased $3,815 million or 17.1% from September 30, 2004.  The decrease was primarily driven by a decrease in reverse repurchase agreements with financial institutions following the Group’s strategic decision to release capital invested in low-yielding assets.

Liabilities

Total liabilities at March 31, 2005 decreased to $370,661 million from $381,543 million at September 30, 2004. The sale of the Irish Banks removed $15,272 million of liabilities from the September 30, 2004 balance sheet.  Excluding this, total liabilities increased 1.2% from September 30, 2004.  The appreciation of the Australian dollar, primarily against the British pound, decreased total liabilities by $4,649 million during the March 2005 half year.  Excluding the impact of the sale of the Irish Banks and exchange rate movements, total liabilities (in Australian dollar terms) grew $8,426 million or 2.3% during the March 2005 half year.

Excluding the impact of the sale of the Irish Banks, the growth in total liabilities was primarily driven by growth in liability on acceptances, bonds notes and subordinated debt, which offset declines in due to other financial institutions.

Liability on acceptances have increased $5,223 million or 32.0% from $16,344 million at September 30, 2004 to $21,567 million at March 31, 2005.  Refer to discussion under ‘assets’ above.

Bonds, notes and subordinated debt has increased $3,963 million or 12.2% to $36,536 million at March 31, 2005, compared with $32,573 million at September 30, 2004. The Group has a number of funding programs available, and the increase reflects further issues of the Group’s Euro and Domestic medium-term notes programs undertaken to fund asset growth and re-finance of maturing short-term and long-term debt.  The increase also reflects the Group’s current strategy of lengthening the maturity profile of the Group’s debt issues.

Due to other financial institutions declined $8,748 million or 20.0% from $43,768 million at September 30, 2004 to $35,020 million at March 31, 2005. At September 30, 2004, there were $1,774 million of due to other financial institutions relating to the Irish Banks, which were sold on February 28, 2005.  Excluding this, due from other financial institutions decreased $6,974 million or 16.6% from September 30, 2004.  The decrease was primarily driven by a decrease in repurchase agreements with financial institutions, and is consistent with the Group’s strategic decision to release capital invested in low-yielding assets, which has reduced funding requirements.

Equity

Total equity in the Group increased from $29,766 million at September 30, 2004 to $32,001 million at March 31, 2005.  Total parent entity interest in equity grew from $25,900 million at September 30, 2004 to $27,894 million at March 31, 2005, primarily as a result of the issue of Trust Preferred Securities II on March 23, 2005.  The movement in total equity also included an increase in retained profits of $1,255 million to $15,770 million at March 31, 2005 (September 30, 2004: $14,515 million) and an increase in outside equity interest of $241 million to $4,107 million at March 31, 2005 (September 30, 2004: $3,866 million).  These factors were offset by the impact of negative movements in the foreign currency translation reserve of $300 million as a result of the strengthening Australian dollar compared to foreign currencies, primarily against the British pound.

Issue of Trust Preferred Securities II

On March 23, 2005, the Group raised US$800 million (A$1,014 million net of issue costs) through the issue of 800,000 Trust Preferred Securities of US$1,000 each.  The securities qualify as Tier 1 capital of the Group on a standalone and consolidated basis.  Each Trust Preferred Security pays a semi-annual non-cumulative distribution, in arrears, equal to 5.486% per annum until March 23, 2015.  After that date the securities will pay a quarterly non-cumulative distribution at the annual rate of 1.5375% over 3 month US$ LIBOR.

Capital ratios

The increase in the capital ratios at March 31, 2005 principally reflects the sale of the Irish Banks, which occurred on 28 February 2005 and generated a net profit on sale after all disposal costs including taxation of $1,073 million. In addition to the profit component, the sale also increased the capital ratios as a result of the reduction in risk-weighted assets of approximately $12,450 million. The capital ratios also reflect the growth in retained earnings and contributed equity as a result of the issue of Trust Preferred Securities II on March 23, 2005. As directed by APRA, the Group currently

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uses the standard method to calculate the market risk capital component of risk-weighted assets.  During the March 2005 half there was a reduction of $1,322 million in the market risk component of risk-weighted assets, which had the impact of increasing the capital ratios.  Refer to supplementary information for further details.

Sale of Northern Bank Limited and National Irish Bank Limited

The sale of the Irish Banks to Danske Bank A/S was completed on February 28, 2005, generating a profit on sale after all disposal costs including taxation of $1,073 million.  There will be a post-closing adjustment in accordance with terms of the sale agreement and the Company will have certain indemnification obligations and standard warranties that survive the completion of the sale.  Transitional services will be provided to Danske Bank A/S in respect of the Irish Banks to assist in the smooth transition of ownership of those businesses.  These transitional services will be provided at cost and are expected to be in place for up to eighteen months.

Restructuring expenses

During the March 2005 half, the Group incurred restructuring expenses and provisions totalling $403 million.

Australian restructuring

Restructuring expenses of $121 million have been booked in the Australian region in the March 2005 half. This includes staff redundancy costs of $91 million covering 1,036 positions, of which 210 have exited in the March half ($22 million) and 826 have been provided for ($69 million). The remaining $30 million relates to other costs incurred in restructuring and integrating the Australian businesses.  This includes costs related to reorganisation of new management teams and managing the integration process, as well as writing off the asset value of decommissioned systems.  Further restructure costs will be provisioned by the Australian region in the second half of the year as it continues to develop the integration program for its businesses.

UK restructuring

On March 30, 2005, the National announced it would book a provision of $266 million (GBP109 million) to cover restructuring initiatives underway in the UK operations. This covers costs to streamline operations, which will lead to reductions in staffing levels of 1,700 positions during the next 12 to 18 months and the reconfiguration of the distribution networks to meet the changing needs of customers.

Other restructuring

In relation to the Group’s other business segments – New Zealand, Institutional Markets & Services, and Other (Corporate Centre) – restructuring expenses of $16 million were booked in the March 2005 half.  Restructuring initiatives for these segments are currently being finalised and further provisions will be booked in the September 2005 half year.

Other matters

Buy-Back of National Income Securities

At the Company’s annual general meeting on January 31, 2005, the Company obtained shareholder approval to buy back the total of 20,000,000 National Income Securities of the Company.  National Income Securities comprise a note and a preference share.  Subject to the consent of APRA, any buy-back of these preference shares would be for nil consideration, but would be conducted simultaneously and in conjunction with the redemption of each note for $100 plus any unpaid interest.  As part of the Group’s ongoing capital management, such a buy-back may enable the Group to replace the National Income Securities with a more efficient and cost effective source of capital.  No decision to buy back the National Income Securities has yet been taken, but this could occur at any time, subject to obtaining the consent of APRA.

ASIC relief – Ernst & Young Australia bank accounts

In connection with Ernst & Young becoming the Company’s auditor for the 2005 year, ASIC granted transitional relief to Ernst & Young from certain provisions of the Corporations Act 2001 (Cth).  By virtue of Order [04/1168] dated September 30, 2004, ASIC granted Ernst & Young Australia and its partners relief from sections 324CF(1) and 324CF(2) of the Corporations Act 2001(Cth) to permit the following relationships to continue during the period October 1, 2004 to November 30, 2004:

(a)                                  a relationship that consists in one partner of Ernst & Young Australia owing an amount to the Company of more than $5,000 but less than $1,200,000 solely as a result of that partner also being a member of a certain other partnership, and where:

•                  that partner is not engaged on the audit of the Company or a related body corporate of the Company, whether having actual carriage and control of the audit or not;

•                  that partner is not involved in the management of the firm as a whole, does not undertake audits, and does not practice mainly in Melbourne;

•                  the indebtedness arose prior to July 31, 2004 upon ordinary commercial terms as to the rate of interest, the terms of repayment of principal and payment of interest, the security to be provided and otherwise; and

(b)                                 a relationship that consists in Ernst & Young Australia maintaining one deposit account with the Company, where such account is at no time overdrawn (other than by reason of the imposition of fees and taxes ordinarily applied to accounts of that type).

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The relief was granted on the following conditions:

•                  the existence of the relief and the terms of the Order must be summarised in the report of the directors of the Company for the half year ended March  31, 2005 and the year ending September 30, 2005, and in the report of the directors of any related body corporate of the Company that is required to a lodge a financial report for either or both of those periods;

•                  the Company must report to ASIC within 7 days of the occurrence of any event of default and any enforcement action taken in relation to the indebtedness of the one partner of Ernst & Young Australia referred to above;

•                  at intervals of not greater than two business days (and forthwith after expiry of the relief), Ernst & Young Australia must transfer the balance in the deposit account referred above to an account maintained by it with another Australian authorised deposit-taking institution; and

•                  within seven days after the signing of the audit report for the Company for the year ending September 30, 2005, the directors must report to ASIC whether or not, in the Audit Committee’s opinion, the above conditions have been complied with, and Ernst & Young Australia must report to ASIC whether or not the conduct of their audit or the content of their audit report has been influenced by the relationships referred to in the Order, as described above.

Australian Banking

During the March 2005 half, the Company entered into an enforceable undertaking with Australian Securities & Investments Commission (ASIC) requiring, inter alia, a review of training and breach reporting.  A report has been submitted to ASIC and independently reviewed.  Agreed actions are being implemented.  A breach relating to the collection of BAD tax was identified during the half and the estimate of $10 million of refunds required provided for.  A potential breach relating to the collection of certain fees was identified in late April 2005.  The financial effect of any refunds due has not yet been fully quantified, but management is of the view that it will not be material in the context of the half year results and financial position of the Group.

Re-opening of foreign exchange options desk

The Group re-opened its foreign exchange options desk on May 9, 2005.  The re-opening of the foreign exchange options desk has been approved by the Australian Prudential Regulation Authority (APRA) and follows the completion of the specific requirements stipulated for re-opening the desk.  In respect of the overall APRA remedial actions program, 72 of the 81 requirements have been submitted to APRA as at March 31, 2005.  Of these, 30 items have been closed to APRA’s satisfaction.  The Group will continue to work closely with APRA to complete the program and envisage that it will take some time to close out the remaining actions.

Australian Stock Exchange Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations

Under Recommendation 7.2 of the ASX Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations, the Managing Director and Chief Executive Officer, and the Chief Financial Officer are required to state to the Board in writing that the certifications they give to the Board under Recommendation 4.1 (as to the integrity of the Company’s financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board, and that the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

In relation to the 2004 financial year, these certifications given by the Managing Director and Chief Executive Officer, and the Chief Financial Officer referred to certain issues relating to controls and procedures and internal control over financial reporting as at September 30, 2004 (as set out on pages 63-65 of the Company’s 2004 Annual Financial Report, and summarised below).

Whilst progress has been made in addressing each of these matters, they remain reported in the certifications given for the March 2005 half year. Reference should be made to the 2004 Annual Financial Report for further information.

In addition, the certificates have been qualified with respect to the extent of manual processes necessary in order to compensate for the identified system deficiencies.

In summary, the matters disclosed in the 2004 Annual Financial Report related to:

•                  the discovery of unauthorised trading in foreign currency options: In January 2004, the Company announced that it had identified losses relating to unauthorised trading in foreign currency options.  In the investigation of those losses it was found that, in the Corporate & Institutional Banking Markets division, there was inadequate management supervision, significant gaps in back office monitoring functions, escalation processes that did not work properly, weaknesses in control procedures, failure in risk management systems and an absence of appropriate financial controls.  It was also found that there was not a suitable compliance culture within this area of the Company and a tendency to suppress bad news rather than be open and transparent about problems.  Warning signals, both inside the Company and from the regulators and other market participants, were not properly acted upon.  The Company is implementing the remedial issues required by APRA to address these issues;

•                  reporting of non-accrual loans and 90 days past due loans: The Company is implementing procedures to improve its data collection procedures used to establish its 90 days past due exposures, as weaknesses in these procedures had been identified;

•                  cross-border outstandings: The Group is continuing to strengthen the internal control over the reporting of cross border outstandings; and

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•                  organisational and cultural change: Since the discovery of the foreign currency option losses, as described above, the Company has embarked upon a journey of revitalisation across all levels of the organisation, including the Board and senior management.  There is recognition that the Group’s results, and its reputation, have been adversely impacted by compliance issues, insufficient accountability, and the lack of a clear cultural framework.  As part of this revitalisation program, the Company is restructuring its finance and risk management functions to provide clear accountabilities at both a regional and group level.  While the core financial information systems of the Company are considered to be sound and controlled effectively, the Company is making a range of improvements to its disclosure controls and procedures and internal control over financial reporting, as evidenced by the foreign currency option losses and other matters referred to above.  This involves projects to address these specific issues, and projects such as the Sarbanes-Oxley internal control over financial reporting project, but also involves significant change in the culture of the organisation and in the visibility and accountability of its leadership group.  The Company has already taken steps to address these cultural issues by introducing new Corporate Principles and performance assessments specifically tied to the achievement of the behaviours required by those Principles.

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required by section 307C of the Corporations Act 2001 (Cth) is set out on the following page and forms part of this report.

Directors’ signatures

Signed in accordance with a resolution of the directors:

May 11, 2005

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Copy of lead auditor’s independence declaration under section 307C of the Corporations Act 2001 (Cth)

Auditor Independence Declaration to the Directors of National Australia Bank Limited

In relation to our review of the financial report of National Australia Bank Limited for the half year ended on March 31, 2005, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 (Cth) or any applicable code of professional conduct.

Ernst & Young


B R Meehan
Partner

Melbourne

May 11, 2005

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Consolidated statement of financial performance

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Consolidated statement of financial position

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Consolidated statement of cash flows

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Notes to the half year financial report

1 Principal accounting policies

This report is a general purpose financial report prepared in accordance with the ASX listing rules and AASB 1029 ‘Interim Financial Reporting’.  It should be read in conjunction with the September 30, 2004 annual financial report and any public announcements to the market made by the Company since that date.

This report is National Australia Bank Limited’s half year financial report for the purpose of complying with Australian Accounting Standard AASB 1029 ‘Interim Financial Reporting’.  The half year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and investing activities of the economic entity as the annual financial report.

The half year financial report has been prepared in accordance with the requirements of the Corporations Act 2001 Cth, the recognition and measurement requirements of applicable accounting standards and Urgent Issues Group Consensus Views.

The accounting policies adopted in this report are the same as those applied in the annual financial report as at September 30, 2004.

Comparative amounts have been reclassified to accord with changes in presentation made in 2005, except where otherwise stated.

All amounts are expressed in Australian dollars unless otherwise stated.

Reclassification of financial information

During the year the Group introduced a common chart of general ledger accounts across its business operations and subsidiaries globally.  In preparation for the introduction of this global chart of accounts, an extensive and detailed Group-wide review of general ledger account classfication was undertaken.  As a result changes have been made to the classification between certain categories in the Group’s consolidated statement of financial position to more appropriately reflect the nature of specific products, as follows:

•                  transfer of certain loans from overdrafts to term lending totalling $5,346 million at September 30, 2004;

•                  transfer of certain loans from overdrafts to market rate advances totalling $450 million at September 30, 2004;

•                  transfer of certain exposures from on-demand & short-term deposits to due to other financial institutions of $2,663 million and securities sold under agreements to repurchase of $694 million at September 30, 2004; and

•                  transfer of certain exposures from due to other financial institutions to on-demand & short-term deposits totalling $939 million at September 30, 2004.

Corresponding reclassifications have also been made to the consolidated statement of cash flows.

The basis for classifying certain available for sale cash flow disclosures have been revised within ‘cash flows from investing activities’ in the consolidated statement of cash flows to ensure this more accurately represents the nature of the cash flows.  As a result of this change, $1,345 million has been reclassified from ‘proceeds on maturity’ in the 2004 comparatives. There is no overall financial effect on net cash used in investing activities as a result of this classification.

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2 Transition to Australian equivalents to International Financial Reporting Standards

In July 2002, the Financial Reporting Council in Australia formally announced that Australian reporting entities would be required to comply with Australian accounting standards equivalent to International Financial Reporting Standards (AIFRS) and other pronouncements set by the International Accounting Standards Board (IASB) for financial years commencing on or after January 1, 2005.

The Group will be required to adopt these standards for the financial year commencing October 1, 2005 and they will be first reflected in the Group’s financial statements for the half year ending 31 March 2006.  Comparative financial information prepared in compliance with AIFRS will be required for the year commencing October 1, 2004.  Comparative information is not required for AASB 132 “Financial Instruments: Disclosure and Presentation” (AASB 132), AASB 139 “Financial Instruments: Recognition and Measurement” (AASB 139) and AASB 4 “Insurance Contracts” (AASB 4).

A program board is monitoring the Group’s AIFRS implementation.  Dedicated work streams are responsible for evaluating the impact of specific accounting changes and how the necessary changes will be made.  The program is well progressed through these phases and is achieving scheduled plan milestones.  There are several future changes expected to AIFRS that the Group will need to address, including Phase II of the IASB’s insurance project and proposed further amendments to IAS 39 “Financial Instruments: Recognition and Measurement”.  The Group continues to monitor these and other developments, including emerging industry interpretations and practice.

AIFRS frequently require application of fair value measurement techniques.  This will potentially introduce greater volatility to the Group’s reported financial performance.  The adoption of these standards is expected to have a material effect on the Group’s reported financial performance and financial position; however, the underlying economics of the business will not change.

On the date of transition to AIFRS, the Group will effect two types of changes:

•                  those concerning recognition and measurement of items in the financial statements; and

•                  those concerning presentation and disclosure of items in the financial statements.

Any recognition and measurement adjustments that arise as a result of the transition process will be recognised in either retained earnings or an appropriate equity reserve at the date of transition.  They will affect reported profit or equity for periods after that date.

The transitional process to AIFRS must comply with the requirements of AASB 1 “First Time Adoption of Australian Equivalents to International Financial Reporting Standards” (AASB 1).  Upon transition to AIFRS, a number of the Group’s accounting policies will be altered. Based on AIFRS as currently issued, the areas of most significant impact and the known estimable transitional differences from application of AIFRS are summarised below.  The transitional adjustments identified are based on the work-in-progress of the AIFRS work streams and are best estimates as at reporting date.  The information provided in this note is focused upon material items; it does not represent a complete list of expected adjustments.

The transitional adjustments provided in this note are based upon known interpretations of AIFRS at this time.  The actual effects of transition to AIFRS may differ from the estimates disclosed due to ongoing work being undertaken by the Group or potential amendments to AIFRS or interpretive guidance.  Whilst some individual comments address tax issues, all estimates presented are on a pre-tax basis.  It should be noted therefore that the net impact of some of the AIFRS adjustments will be lessened following adjustments for tax effect accounting.  Further, the on-going impact of some adjustments (for example, pension deficit liability) will be lessened as a consequence of the sale of the Irish banks on February 28, 2005.

(a) Post-employment benefits

AIFRS requires defined benefit pension and superannuation plan surpluses and deficits to be recognised on the balance sheet.  Consequently, a transitional adjustment is required to recognise defined benefit pension surpluses and deficits on balance sheet with a corresponding entry made to retained earnings.

The estimated transitional adjustments for each of the Group’s material pension and superannuation plans in accordance with AASB 119 “Employee Benefits” (AASB 119) have been, in the case of Australia and New Zealand, calculated based on a roll-forward of the last triennial actuarial valuations performed between 2002 and 2003.  For the European funds (including those relating to the Irish Banks) the estimated transitional adjustment has been based upon the latest available information from the triennial actuarial valuations currently being undertaken in respect of the valuations as at September 30, 2004.  Work to date indicates that the Group will recognise a defined benefit pension liability in the range of $1,200 million to $1,400 million relating to the Group’s European pension plans.  As valuations performed by the actuary are currently not finalised, the defined benefit pension liability may be subject to change.

In addition, a defined benefit pension asset of approximately $100 million will be recognised relating to the Group’s New Zealand and Australian plans.

Additionally, the prepaid pension cost asset currently recognised under Australian generally accepted accounting principles (GAAP) of $582 million predominantly in respect of the Yorkshire Bank and Bank of New Zealand pension and superannuation plans will be de-recognised upon transition to AIFRS.

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In total, retained earnings is expected to decrease on a pre-tax basis within a range of $1,700 million to $1,900 million or $1,200 million to $1,300 million after allowance for the related net deferred tax asset.  Note, no change arises to the ongoing cost of the pension schemes as a result of this accounting change.  The schemes remain in actuarial surplus and compliant with all relevant regulatory requirements.

AASB 119 was amended in December 2004 to permit the application of three options for the recognition of ongoing actuarial gains and losses related to defined benefit pension and superannuation plans.  In respect of ongoing actuarial gains and losses, the standard now permits: full and immediate recognition through the income statement; deferred recognition through the income statement (corridor approach); or full and immediate recognition through retained earnings.

The Group has determined that it will recognise actuarial gains and losses directly in retained earnings.  While the choice of option will impact the income statement subsequent to transition, it will not impact the calculation of the transitional adjustment.  The amendment does not impact other components of pension expense, which will continue to be recognised in the income statement.

(b) Wealth Management revaluation – excess of market value over net assets (EMVONA)

On transition to AIFRS the Group will derecognise the asset representing the excess of net market value over net assets of life insurance controlled entities (EMVONA) and cease to recognise the movement in EMVONA in the Group’s income statement.

Broadly, EMVONA represents:

•                  acquired goodwill in respect of life insurance controlled entities remaining at balance date;

•                  increases in the value of goodwill of the controlled entities since acquisition; and

•                  the difference between the values assigned to assets and liabilities of the controlled entity within the Group’s financial report and those in the report of the controlled entity arising due to valuation methodology differences.

The whole of the EMVONA balance will be written off to retained earnings upon transition to AIFRS. Under AASB 1, EMVONA may be partially replaced by acquired goodwill and other intangible assets such as the value of business in force (VBIF) arising from the acquisition of the MLC group in 2000 and other subsequent acquisitions, directly or indirectly, by life businesses within the Group.

Based on the above, the estimated opening adjustments as at October 1, 2004 are estimated as:

•                  de-recognition of the EMVONA asset of $4,904 million;

•                  recognition of goodwill of $2,677 million;

•                  recognition of other intangible assets of $1,482 million; and

•                  a decrease in retained earnings of $746 million.

Under the rules of AASB 1, the acquired goodwill recognised does not include any notional amortisation from the date of acquisition until transition. In future periods, the goodwill will be subject to an annual impairment test. The other intangible assets recognised will be amortised over a period equivalent to their useful life.

(c) Securitisation

The combined effect of financial asset de-recognition rules and the consolidation of special purpose entity rules will impact both existing and new securitisation arrangements involving both the Group’s assets and those of its customers.  The rules provide more stringent criteria for the de-recognition of financial assets.  The interpretation of AIFRS consolidation rules will now require the Group to consolidate securitisation special purpose vehicles that were not consolidated under Australian GAAP.  In addition, special purpose entities holding assets originated outside the Group will require consolidation where the Group has access to the majority of the residual income or is exposed to the majority of the residual risk associated with the special purpose entity.

The estimated opening adjustments as at October 1, 2004 are:

•                  an increase in total assets of $5.6 billion;

•                  an increase in total liabilities of $5.6 billion; and

•                  a minimal decrease in retained earnings.

As a consequence of the new rules and changes to interpretation the Group is currently considering structural changes to its special purpose entities involved in various securitisation programs such that some of these entities would not then be consolidated into the Group’s financial statements from that point in time onwards.

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(d) Taxation

AASB 112 requires the Group to adopt a balance sheet approach to determining deferred tax items, based upon a comparison of accounting carrying amounts of assets and liabilities with their tax base.  This method will identify a broader range of differences than those that arise currently.  Consequently, the Group will be required to recognise additional levels of deferred tax assets and liabilities.

There are two major tasks involved in the first time application of AASB 112, the first being the need to determine the tax effect of any transitional adjustments (at both October 1, 2004 and October 1, 2005) required in the move to AIFRS.  The second major task involves applying the rules of the balance sheet method to the Group’s existing balance sheet.  This is a very complex exercise and remains work in progress for the AIFRS project.  As a consequence, in combination it is estimated that the changes will  result in a higher level of deferred tax assets and a lower level of deferred tax liabilities being recognised by the Group.

(e) Share-based payments

AIFRS introduces the requirement for the Group to recognise an expense in respect of all share-based remuneration (performance options, performance rights and shares issued to employees) determined with reference to the fair value of the equity instruments issued.  The fair value of the performance options and performance rights at grant date will be expensed over their expected vesting period on a straight-line basis.  Shares issued under the Company’s staff share schemes will be recognised as an expense when issued.

The rules require the transition adjustment at October 1, 2004 to be calculated in respect of performance options and performance rights granted from November 7, 2002 that remain unvested at January 1, 2005.

The estimated opening adjustment as at October 1, 2004 is a decrease in retained earnings of $34 million with a corresponding amount recognised in a share option reserve within shareholders’ equity.

(f) Intangible assets and impairment

On transition to AIFRS goodwill will no longer be amortised but will be assessed for any potential indication of impairment at each reporting date and tested for impairment at least annually.  If an impairment loss is identified it must be recognised immediately in the income statement.  The Group does not currently anticipate an impairment adjustment to opening retained earnings arising at 1 October 2004 in respect of this change in accounting policy but are in the process of completing the review.

This change in policy under AIFRS may result in increased volatility of future earnings where impairment losses are incurred.

Other intangibles will be amortised on a systematic basis that best reflects the expected pattern of consumption of the assets’ benefits over their respective useful lives.  In addition, application software assets with a carrying value of $655 million will be reclassified from ‘Property, Plant and Equipment’ to ‘Intangible Assets’ on transition.

(g) Foreign currency translation

Under the AIFRS transitional rules the Group will apply an exemption that permits the resetting of the foreign currency translation reserve (FCTR) to nil as at the date of transition to AIFRS.  This decision will give rise to a debit adjustment against the FCTR estimated at $166 million with a corresponding increase to retained earnings.

Translation differences in relation to foreign controlled entities subsequent to transition to AIFRS will continue to be recorded in the FCTR.  The gain or loss recognised in the income statement on a future disposal of a foreign controlled entity will include any translation differences that arose after October 1, 2004.

(h) Deferred acquisition costs

Current accounting policy allows the Group’s life insurance and funds management controlled entities to defer acquisition costs incurred to gain new business.  This deferral gives rise to an asset known as deferred acquisition costs (DAC).  Under AIFRS this treatment will change in respect of those contracts classified as investment contracts.  Costs relating to investment contracts may only be deferred if they are direct and incremental business unit costs relating to new business.  Costs relating to insurance contracts may continue to be deferred as the treatment of acquisition costs under the current “Margin on Services” (MoS) policy is effectively grandfathered under AASB 4 “Insurance Contracts”.

The application of AIFRS in this regard is currently being considered by the industry, both within Australia and internationally, and various approaches are under consideration.

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As the eventual accounting treatment is currently uncertain, the Group cannot reliably estimate the financial impact of this issue.

(i) Treasury shares

Under current accounting policy, direct investments in National Australia Bank Limited shares by the Group’s life insurance statutory funds are recognised as ‘Investments relating to life insurance business’ in the balance sheet at market value.  On transition to AIFRS, these investments will be classified as ‘treasury shares’ and deducted from share capital.

The opening adjustments at October 1, 2004 arising from the transition to AIFRS are estimated to be decreases in investments relating to life business ($551 million) and contributed equity ($645 million) and an increase in retained earnings ($94 million).

Transitional changes as at 1 October 2005

The following transitional changes relate to application of AASB 132 “Financial Instruments: Disclosure and Presentation”, AASB 139 “Financial Instruments: Recognition and Measurement” and AASB 4 “Insurance Contracts” and will occur on October 1, 2005.  No comparative adjustments are required for the 2005 year.

Work is ongoing with regard to the impact of these transitional adjustments.  Definitive impacts have yet to be quantified and in some cases are not able to be quantified until after October 1, 2005 as they will be based on market information as at that date.

(j) Recognition of derivative financial instruments and hedging

Under AIFRS, the Group will be required to recognise all derivative financial instruments at fair value on the balance sheet, irrespective of whether the instrument is used in a hedging relationship or otherwise.

Where fair value hedge accounting criteria are met, fair value changes on both the hedged item (attributable to the hedged risk) and the hedging instrument will be recognised directly in the income statement.  Where cash flow hedge accounting criteria are met, the carrying value of the hedged item is not adjusted and the fair value changes on the related hedging instrument (to the extent the hedge is effective) will be deferred in a separate equity reserve and will then be transferred to the income statement at the time the hedged item affects the income statement.  Hedge ineffectiveness is recognised in the income statement immediately.

It should be noted that the underlying economics and risks of the Group will not change.  The change affects only the manner by which the Group will account for the way it mitigates its interest rate and foreign currency risk. Under AIFRS, the Group will most likely use a hybrid of approaches with a predominance of cash flow hedge accounting.  As a consequence, this will create volatility in the balance of the cash flow hedge reserve within equity.

All hedging arrangements will be subject to rigorous effectiveness testing and where an arrangement fails effectiveness tests, hedge accounting cannot be applied and fair value changes on the hedging instrument will generally be recognised in the income statement.  This raises the potential for income statement volatility.

Whilst hedge accounting rules may alter the accounting for the Group’s interest rate risk management activities, the treatment of trading derivatives is not expected to be affected by hedge accounting.

In certain circumstances, the Group will either be unable to achieve hedge accounting or it will not be the most appropriate approach.  Where this is the case the Group will in certain circumstances seek to minimise the impact of the fair value measurement requirements by recognising both the item that is subject to an economic hedge and the accompanying derivative instrument at fair value in the balance sheet with movements in fair value recognised immediately in the income statement.  The effect of this will be to reflect the economic substance of the transaction and reduce income statement volatility.

(k) Loan provisioning

Under AIFRS, the Group will recognise loan impairment (currently referred to as provision for doubtful debts) when objective evidence is available that a loss event has occurred and as a consequence the Group will not likely receive all amounts owed to it.  Loan impairment is calculated as the difference between the carrying amount of the loan and the present value of future expected cash flows associated with the loan discounted at the loan’s original effective interest rate.

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Significant loans will be individually assessed for impairment.  Those significant loans that are not assessed as impaired will then be placed into portfolios of assets with similar risk profiles and be subjected to a collective assessment of impairment.  Smaller loans will not be individually assessed but impairment tested in portfolios based upon similar risk profiles.  Objective evidence of impairment will be based on historical experience for such portfolios adjusted to reflect the effects of current conditions at each balance date.  The impact of AIFRS on the Group’s current methodology for calculating the provision for doubtful debts is still being evaluated.

(l) Insurance contracts

Contracts that do not have significant insurance risk will no longer be treated as insurance contracts but as financial instruments.  For non-insurance contracts these changes will likely have a negative impact on accounting profit in respect of new business.  Accounting profits will be higher in later periods as a result of a greater proportion of contract acquisition expenses being recognised upfront.

For those contracts that continue to meet the definition of an insurance contract, the Group will account for those under the existing Margin on Services (MoS) approach.

These changes do not require comparatives for the 2005 financial year.  It is expected that further changes to insurance accounting will arise under Phase II of the IASB’s insurance project at which time the existing MoS approach will be phased out.

(m) Revenue recognition

At present, loan origination fee revenue is either recognised upfront or deferred in the balance sheet and amortised as an adjustment to yield over the expected life of the loan.  It is likely that a greater volume of fees will be deferred and amortised over the expected life of the respective loans under AIFRS. Revenue that is deferred must be amortised on an effective interest rate basis.  AIFRS also requires deferral of related costs where these are both direct and incremental to origination of the loan.

(n) Valuation of financial instruments using bid and offer prices

AASB 139 requires that in valuing financial instruments at fair value, the appropriate quoted market price to be used is usually the bid or offer price. Currently all financial instruments of the Group measured at fair value and transacted in an active market are valued at a mid-price.  It is acceptable to continue to use the mid-price where there is an off-setting market risk position.  Consequently, where there is no off-setting market risk position an adjustment is required to re-measure those assets and liabilities at either a bid or offer price instead of a mid price.  The impact of this change on the income statement is not expected to be significant.

(o) Available for sale securities

Under AIFRS, the Group’s available for sale debt securities and equity investments will be valued at fair value in the balance sheet with unrealised gains and losses recognised in a separate reserve account within equity.

Format of financial statements

In addition to the transitional adjustments detailed above, which will impact the measurement and recognition of certain items, the adoption of AIFRS will introduce a number of changes to the format of the income statement, balance sheet and other financial statement disclosures.  In general, these changes introduce more detail rather than less to the required disclosures.  The Group is currently evaluating these requirements.

Capital implications

The Australian Prudential Regulation Authority (APRA) released a discussion paper in February 2005, outlining their proposed approach to calculation of regulatory capital following the adoption of AIFRS.  Several of the transitional adjustments detailed above affect the calculation of the Group’s regulatory capital and are affected by APRA’s proposed approach.  The Group is working with APRA and the Australian banking industry to ensure these implications are fully understood.

It is important to note that APRA’s proposals will not take effect until January 1, 2006 and the calculation of regulatory capital will remain unchanged until then.

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3 Segment information

The following segment information is prepared in accordance with Australian Accounting Standard AASB 1005 ‘Segment Reporting’.  For the purposes of this note, a business/primary operating segment is defined as a component of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in assessing performance.  The Group results are based on the business segments as reviewed separately by the chief operating decision maker, the Managing Director and Chief Executive Officer, as well as other members of senior management.

During 2005 the Group re-organised its business into four operating segments, which are managed along regional lines: Total Australia, Total United Kingdom and Total New Zealand, which include Banking and Wealth Management products; as well as Institutional Markets & Services (which is managed globally).  Institutional Markets & Services (IMS) comprises Markets, Corporate Loan Portfolio, Structured Products, Credit Products, Financial Institutions Group and a Support Services unit, to provide products across the Group’s business base.  With the exception of Financial Institutions, the client relationships served by IMS are maintained within the regional structures across the Group.  The Group’s ‘Other’ business segment includes Corporate Centre and Group Funding, which are not considered to be separate reportable operating segments.  Corporate Centre comprises, Financial & Risk Management, Technology, People & Culture, Corporate Development and Office of the CEO.  The re-organisation of the Group aims to improve integration across divisions and build a more customer-focused organisation.

Previously, the Group’s business was organised on a divisional basis into five major operating segments: Financial Services Australia, Financial Services Europe, Financial Services New Zealand, Corporate & Institutional Banking and Wealth Management.   The Group’s ‘Other’ business segment was broadly consistent with the structure under the re-organisation.

Comparatives for the half year ended March 31, 2004 have been restated to reflect the new organisational structure.  There is no overall financial impact to the Group in respect of the change to the segment information.

Revenues and expenses directly associated with each business segment are included in determining their result.  Transactions between business segments are based on agreed recharges between segments operating within the same country and are at arm’s length between segments operating in different countries.

Business segments