BNK Banking Corporation Limited
Financial Report
ACN:087 651 849
30 June 2019
1
Contents
CORPORATE INFORMATION ............................................................................................................... 3
DIRECTORS’ REPORT ........................................................................................................................... 4
INDEPENDENT AUDITOR’S DECLARATION .................................................................................. 21
INCOME STATEMENTS ...................................................................................................................... 22
STATEMENTS OF COMPREHENSIVE INCOME............................................................................. 23
STATEMENTS OF FINANCIAL POSITION ....................................................................................... 24
STATEMENTS OF CHANGES IN EQUITY ....................................................................................... 25
STATEMENTS OF CHANGES IN EQUITY ....................................................................................... 26
STATEMENTS OF CASH FLOWS ..................................................................................................... 27
NOTES TO THE FINANCIAL REPORT ............................................................................................. 28
DIRECTORS’ DECLARATION ............................................................................................................. 74
INDEPENDENT AUDITOR’S REPORT .............................................................................................. 75
ADDITIONAL ASX INFORMATION .................................................................................................... 82
2
CORPORATE INFORMATION
ACN: 087 651 849
Directors
Mr. Peter Wallace
Mr. Derek LaFerla
Mr. Peter Hall
Mr. Don Koch
Mr. Simon Lyons
Mr. John Kolenda
Company Secretary
Mr. Malcolm Cowell
(Chairman and Non-executive Director)
(Non-executive Director)
(Non-executive Director)
(Non-executive Director)
(Managing Director)
(Executive Director)
The registered office and principal place of business of the Company is:
Level 14, 191 St George’s Terrace
Perth WA 6430
Phone: +(618) 9438 8888
Other Locations:
Sydney Office
Level 24, 52 Martin Place
Sydney NSW 2000
Share Registry:
Advanced Share Registry
110 Stirling Hwy
Nedlands WA 6009
Tel +(618) 9389 8033
Fax +(618) 9262 3723
Exchange Listing
Australian Securities Exchange Limited
Exchange Plaza
2 The Esplanade
Perth, Western Australia 6000
ASX Code: BBC
Auditors:
KPMG
300 Barangaroo Avenue
Sydney NSW 2000
Website Address:
www.bnk.com.au
Corporate Governance:
A copy of the Corporate Governance Policy Statement can be located using the following website address:
https://bnk.com.au/investor-centre/corporate-governance/
3
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT
Your Directors present their report on the consolidated entity comprising BNK Banking Corporation Limited
(“BNK” or the “Company”) and the entities it controlled (“the Group”) together with the consolidated financial
report for the year ended 30 June 2019 and the auditor’s report thereon.
DIRECTORS
The names of the Company’s Directors in office during the financial year and until the date of this report are
set out below. Directors were in office for the entire period unless otherwise stated.
The details of the Company’s Directors in office at any time during or since the end of the year up to the date
of this report are as follows. Directors were in office for the entire period unless otherwise stated.
Mr Peter Wallace
Mr Derek LaFerla
Mr Peter Hall
Mr Don Koch
Mr Simon Lyons
Mr John Kolenda
Chairman and Non-executive Director
Non-executive Director (resigned 30 August 2019)
Non-executive Director
Non-executive Director (appointed 11 June 2019)
Managing Director
Executive Director
Peter Wallace (Chairman and Non-executive Director)
Mr Wallace was appointed a Director in August 2014. He has more than 45 years of experience from a range
of appointments held within the banking and financial services industry. Mr. Wallace was previously the Head
of Corporate (Western Australia) for Bell Potter Securities Ltd where he directed capital raisings for several
large publicly listed companies as well as provided a variety of corporate advisory services to both private
and publicly owned companies. Over the past 30 years he also held executive management positions with
Westpac Banking Corporation, Challenge Bank Ltd and National Australia Bank Ltd. Previous public company
experience includes directorships with Tethyan Copper Ltd, Rural Aus Investments Ltd and Decmil
Engineering Ltd.
During the past three years he has served as a Director of the following listed companies:
• Katana Capital Limited – appointed 19 September 2005
• Neptune Marine Services Limited – appointed 8 July 2011
Mr Wallace is a Senior Fellow of the Financial Services Institute of Australia, a Fellow of the Australian
Institute of Company Directors and an Associate Fellow of the Australian Institute of Management. He is
Chair of the Remuneration Committee and a member of the Audit Committee, Credit Committee and Risk &
Compliance Committee.
Derek LaFerla (Non-executive Director)
Mr LaFerla was elected as a Director in November 2015. He has over 30 years’ experience as a corporate
lawyer and Company Director. He is a Non-executive Director of Sandfire Resources NL, Veris Limited and
Threat Protect Limited and is a member of the National Board of the AICD Council. He has held senior
positions with some of Australia’s leading law firms and is a Partner with large independent Western
Australian law firm, Lavan.
During the past three years he has served as a Director of the following listed companies:
• Veris Limited – appointed 28 October 2011
• Sandfire Resources NL – appointed 17 May 2010
• Threat Protect Australia Limited – appointed 3 September 2015
Mr LaFerla is Chair of the Audit Committee and a member of the Risk & Compliance Committee and
Remuneration Committee. Mr La Ferla has resigned with effect from 30 August 2019.
Peter Hall (Non-executive Director)
Mr Hall was elected as a Director in November 2015 and is an experienced financial services industry
professional. Previous Board and industry appointments include: Non-Executive Director of BLSSA Pty Ltd
(the licensing Board for Advantedge Financial Services, a NAB subsidiary), Chair of the CoreLogic RP Data
sponsored Residential Valuation Industry Advisory Group, Ministerial Advisory Board Member for NSW Housing
Minister and Chairman and Council Member of the Lenders Mortgage Insurance sub-committee. Mr Hall has
also held the senior executive position of Country Executive of Genworth Financial Aust. & NZ and Managing
Director of Genworth Financial Mortgage Insurance Aust. & NZ.
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BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT (continued)
Mr Hall holds a Graduate Diploma of Management, has completed Executive Management Programs at GE’s
global management college, a Senior Associate of the Financial Services Institute of Australia and has
received a Distinguished Service Award from the Australian Securitisation Forum.
Mr Hall is the Chair of the Risk & Compliance Committee, Chair of the Board Credit Committee and is also a
member of the Audit Committee.
Don Koch (Non-executive Director)
Mr Koch was appointed a Director on 11 June 2019. Mr Koch was CEO of ING Bank in Australia from 2009 to
2012 before transferring to become CEO of ING Bank Italy from 2012 to 2016. He most recently ran a
program for ING Asia as a joint venture with a large local bank within China, the largest digital economy in
the world. He was the former CIO and part of the team that launched ING Direct in Australia. Mr Koch has
been a Governor on the Cerebral Palsy Association Research Foundation since 2010 and was recently
appointed as an Advisor on the UTS Business School Industry Advisory Board.
He spent the early part of his career in various roles at the Commonwealth Bank of Australia and Citibank
Australia, and has completed the International Directors Program with INSEAD in Switzerland.
Simon Lyons (Managing Director)
Mr Lyons was appointed Chief Executive Officer on 18 January 2016 and Executive Director on 23 October
2017. Mr Lyons has been involved in the day to day management of financial services businesses for the last
24 years. Prior to that he served as an Army Officer with the Australian Defence Force. He commenced his
business career at Porter Western Limited as a stockbroker in 1994 and was a Director and shareholder of
Porter Western when the business was sold to Macquarie Bank in 1999. With the business under new
ownership, Mr Lyons became the State Manager for Macquarie Bank in Western Australia before transferring
to a national role as Head of Broking (Distribution and Development) in Sydney. In 2005, Mr Lyons became
the Head of Macquarie Private Wealth – Asia and spent several years working, establishing or acquiring wealth
management businesses for Macquarie Bank throughout Asia. Since leaving Macquarie Banking in 2008, Mr
Lyons established and managed wealth management businesses to service clients looking for stockbroking
or fixed income investments, and immediately prior to joining the Company, was the Director WA for the
Fixed Income Investment Group (FIIG).
John Kolenda (Executive Director)
Mr Kolenda was appointed a Director on 13 March 2018. Mr Kolenda is the Managing Director of Finsure
Group, and has extensive experience in the mortgage broking and aggregation sector. Mr Kolenda was the
General Manager Sales & Distribution at Aussie Home Loans for ten years from 1994, before founding X Inc,
which was a successful mortgage originator before its merger with the mortgage broking operations of Ray
White in 2007. Mr Kolenda founded several businesses before launching Finsure Group in 2011. Mr Kolenda
co-founded and chairs Aura Group Pty Ltd, a boutique corporate advisor and investment house. Aura Group
has more than $300 million in assets under management and advice.
During the last three years he has served as a Director of the following listed companies:
•
•
The Agency Group Australia Limited – appointed 19 December 2016
IBuyNew Group Limited – appointed 1 February 2013 and resigned 22 March 2017
Mr Kolenda is a member of the Credit Committee.
COMPANY SECRETARY
Malcolm Cowell
Mr Cowell was appointed as Company Secretary on 1 March 2017 and was the Chief Financial Officer of the
Company until 10 December 2018. He is a Chartered Accountant with 30 years’ experience in banking and
professional services, and continues to serve in the Group as General Manager, Finance.
5
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT (continued)
PRINCIPAL ACTIVITIES
The principal activities of the Group are the provision of a range of retail banking products and services to
existing and new customers. BNK is a vertically integrated banking institution regulated by the Australian
Prudential Regulation Authority (“APRA”) offering retail banking, mortgage management and broker aggregation
services.
OPERATING AND FINANCIAL REVIEW
Key operating and financial metrics for the period are as follows:
Key Metric
Amounts in thousands of AUD
Net interest revenue
Net-commission income/(expense)
Non-interest revenue
Net statutory profit/(loss) after tax
Underlying profit after tax*
Total on balance sheet assets
On balance sheet loans
Loans managed off balance sheet
Wholesale managed loan book
Aggregation commission loan book
Total loan book
Deposits
Other key banking metrics
Ave. Net Interest Margin
Capital adequacy ratio
30 June 2019
30 June 2018
Movement %
3,451
17,398
9,392
3,614
4,216
646,142
214,323
37,528
2,378,420
38,091,056
40,683,799
287,126
1.95%
20.35%
3,465
(258)
1,893
(407)
532
221,118
170,511
43,004
-
-
213,514
195,223
1.86%
21.97%
(0.4%)
Large
Large
Large
N/A
Large
25.7%
(12.7%)
Large
Large
Large
47.0%
0.09%
(1.63%)
* Refer to the reconciliation to statutory profit/(loss) below
The Group has recorded a statutory profit after income tax for the year ended 30 June 2019 of $3,614,000,
an improvement on the prior year loss of $407,000. Underlying profit after tax of $4,216,000, after accounting
for the effects of transaction costs of $860,000 incurred in relation to the merger with Finsure, was a
$3,684,000 improvement on the prior year underlying profit of $532,000 reflecting the benefit of the merged
group for the approximate 9 months since the merger was completed.
Growth strategy gains momentum
FY19 saw significant progress made on the Group’s growth strategy, through continued investment in people,
product and processes. The banking unit saw strong double-digit growth in year-on-year settlements of +61%
to deliver on-balance sheet loan portfolio growth of +26%, whereas the Group’s off-balance sheet volumes
grew by +6% to deliver loan book growth of 19%. This growth culminated in the Group surpassing a total loan
book of $40b in June 2019, and was enabled through continued investment made in the Bank’s Temenos T24
core banking system (CBS) as well as growth in the recruitment of loan writers and development of the
aggregation business’ SaaS platform Infynity.
The strong portfolio performance witnessed in FY19 resulted in continued market share gains, and has
positioned the Group well to continue growing in FY20 and in generating organic capital.
The Group sees continued investment in people, product and process as key in delivering sustained portfolio
and profit growth. Hires such as a new Group Chief Financial Officer (CFO), and subsequently a Group Chief
Operating Officer (COO), have further brought key subject matter expertise and structure to its operating
model, with the establishment of a shared services model starting to deliver Group-wide operational
synergies.
The priority for FY20 and beyond is to consolidate the Group’s operating model and further drive synergies,
whilst focusing on balance sheet loan growth. Through continued investment in technology, and the onset
of open banking, the Group looks forward to increasing its product offering and servicing a wider customer-
base.
Record settlements and loan-book growth
A record settlement volume of $75m in new loans onto the banking balance sheet, achieved during FY19,
represents a year-on-year growth of +61%. This performance was in line with stated growth strategy
expectations, and complements overall growth in settlements of 6.6% achieved across all business units,
demonstrating the resilience of the combined business model in a tough operating environment.
6
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT (continued)
The Group is happy to report that no balances were transferred off balance sheet, for capital management
purposes, supporting further profitable growth. However, as a source of funding diversification and
accelerated growth the Group is looking to grow off-balance sheet funding vehicles during FY20.
Total Bank lending assets grew from $170m in FY18 to $214m in FY19 (+26%), whereas the total loan-book
grew to an overall balance of $40.6b, or +19% growth. Additionally, the number of loan writers grew by +17%
to 1,674 importantly driving further diversification of revenue streams for the Group.
Total Settlements ($b)
CAGR 12%
12.5
H2
13.3
H2
Total Book Size ($b)
CAGR 27%
40.6
34.2
26.7
19.8
9.4
H2
H1
10.4
H2
H1
H1
H1
FY16
FY17
FY18
FY19
FY16
FY17
FY18
FY19
Net income for the period grew +492% reflecting healthy portfolio growth, whilst net interest income was
flat as a result of eliminating the Finsure loan (refer to note 7.4.6). NIM was maintained at 1.95% (within our
expected range), whilst ATM bailment fees fell somewhat during FY19 due to a contraction in the market for
ATM services.
The Bank’s credit quality has been maintained at a strong level with a loan-loss ratio (bad debt provisions as
a portion of lending asset-base) of 12bps, a reduction of (2)bps from 1H19. This is due to strong credit
assessment capability and arrears management processes. The Group has continued its objective of reducing
portfolio concentration from Western Australia (WA), as well as diversifying origination channels.
Portfolio arrears as at Jun19 were $2.14m, with the >90 day balance comprising $1.2m of the overall amount,
resulting in a total bad-debt provision for the Group of $0.3m, utilising the expected credit loss (ECL)
methodology. All lending originated within the financial year was within prescribed lending risk limits, all of
which are constantly monitored and reviewed by the executive leadership team (ELT) and Board. The Group
also maintained its general reserve for credit losses of $0.45m, as additional buffer against potential future
impairments.
Funding effectively for growth
Deposits comprise at-call accounts and term deposits which are sourced directly from retail customers and
through various deposit brokers. Portfolio growth for the year was supported by growing the bank’s deposit
base, whilst maintaining a minimum of 20% transactional account balances. No loan balances were
transferred to the receivables acquisition and servicing agreement (RASA) as capital and funding levels
comfortably supported lending growth. During the financial year the RBA lowered the cash rate by (25)bps
to 1.25%, some of which was also passed through to the Group’s liability products, as directed and managed
by the Group’s Asset and Liability Committee (ALCO).
7
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT (continued)
Historical Deposits ($m)
Funding Mix ($m)
CAGR 27%
288
193
194
139
193
37
194
35
156
159
139
30
109
Call
Deposits
Term
Deposits
288
56
232
FY16
FY17
FY18
FY19
FY16
FY17
FY18
FY19
Liquidity investments and other assets
The Group’s cash and liquidity investments predominantly comprise physical cash, at call deposits, negotiable
certificates of deposits, government (including semi-government) bonds, and floating rate notes. ATM
bailment facilities still comprise $8.0m of liquid asset investments, and whilst reducing still provide a source
of diversified revenues for the Group. The remainder of liquidity management falls under the remit of ALCO,
which ensures the Groups operates within its policy settings.
Investment in the T24 platform, including an upgrade to the most recent version (R18), as well as upgrades
to the aggregation business software platform LoanKit (re-launched as Infynity) ensure that the Group is
best positioned to deliver on its growth aspirations. Investments into the bank’s digital strategy (mainly T24)
and Infynity were $1.2m (WIP balance $1.5m) and $1.3m (WIP balance $2.0m), respectively, and were
capitalised according to the Group’s software capitalisation policy. Expenditure included in the development
of these assets include costs of the systems themselves, as well as contractor and employee costs.
Capital
The Group’s policy is to maintain a minimum capital adequacy ratio (CAR) as per APRA required levels. The
CAR at 30 June 2019 is 20.35% and presents the Group with further growth opportunity for both on-balance
sheet lending assets as well as investing in other assets that provide means for the Group to generate organic
capital.
Whilst organic capital generation is central to the Group’s strategy, it also continuously reviews its capital
treatment methods, as well as balance sheet settings, to ensure compliance with APRA requirements. During
FY19 the Group sought clarification regarding treatment of certain intangible assets, and following
consultation received confirmation that it should re-state its CAR position from September 2018 onwards.
The effect of the re-statement was a revised 23.2% CAR (as at 31 March 2019), up +5.6% as compared to the
previous reported amount of 17.6%.
Other non-interest revenue and operating expenses
Other non-interest revenue (not described elsewhere within this report) includes lending and transaction fees,
bailment facility income and aggregation service fees. This increased by $7.5m over the comparative year
reflecting the further diversification of revenue streams that the merger with Finsure has created.
Operating expenses (excluding transaction costs associated with the Finsure transaction) increased to $23.6m
reflecting the increased size and scale of the merged group.
DIVIDENDS
No dividend was paid or declared by the Company in the period and up to the date of this report. The Directors
do not recommend that any amount be paid by way of dividend, for the financial year ended 30 June 2019.
INTEREST IN SHARES AND OPTIONS OF THE COMPANY
As at the date of this report, the Directors hold shares of the Company in their own name or a related body
corporate, as notified by the Directors to the ASX in accordance with S205G(1) of the Corporations Act 2001
as follows:
8
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT (continued)
Number of ordinary shares
Number of options or
performance rights over ordinary
shares
Peter Wallace
Derek LaFerla
Peter Hall
Simon Lyons
John Kolenda
Don Koch
105,838
-
59,034
948,000
13,619,649
-
-
-
-
766,667
-
-
Interests in ordinary shares noted above were acquired by the Directors at their own expense and do not form
part of their remuneration. Mr Lyons has received performance rights as part of his remuneration of the
Company. Refer to the Remuneration Report for further details.
SHARE OPTIONS AND RIGHTS OVER SHARES
The Company previously had on issue 4,500,000 unlisted options. The options had an exercise price of $1.50
and expired unexercised in May 2019. In addition, the Company has 2,166,665 performance rights on issue to
certain key management personnel and employees. The performance rights entitle the holder to a grant of
shares subject to certain conditions being met. Refer to the Remuneration Report for further details.
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS
The Company has paid or agreed to pay a premium in relation to a contract insuring the Directors and Officers
listed in this report against those liabilities for which insurance is permitted under S199B of the Corporations
Act 2001. The terms of the policy prohibit disclosure of details of the amount of the insurance cover and the
premium paid.
The Company has not otherwise, during or since the relevant period, indemnified or agreed to indemnify an
Officer or auditor of the Company or of any related body corporate against a liability incurred as such an Officer
or auditor.
MEETINGS OF DIRECTORS
The number of Board and Committee meetings held during the financial year, and attendance by each
Director is as follows:
Board
Audit Committee
Risk & Compliance
Committee
Remuneration
Committee
Credit Committee
Attended
Eligible
Attended
Eligible
Attended
Eligible
Attended
Eligible
Attended
Eligible
P Wallace
D LaFerla
P Hall
S Lyons*
J Kolenda
D Koch
10
9
9
10
10
1
10
10
10
10
10
1
* Attendance by invitation.
3
3
3
3
-
1
3
3
3
-
-
1
4
4
4
4
-
1
4
4
4
-
-
1
1
1
1
1
1
-
1
1
1
-
-
-
1
1
1
1
-
-
1
1
1
-
-
-
CHANGES IN THE STATE OF AFFAIRS
On 7 September 2018, shareholders voted to approve the merger with Finsure Holding Pty Ltd (Finsure).
On 17 September 2018, the merger with Finsure was completed through the issuance of 40,750,000 fully paid
ordinary shares to Finsure’s shareholders.
On 28 February 2019, shareholders voted to approve the change of company name from Goldfields Money
Limited to BNK Banking Corporation Limited.
Except for the matters discussed above and elsewhere in this directors’ report, in the opinion of the Directors,
there were no other significant changes in the state of affairs of the Company that occurred during the financial
year under review.
9
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT (continued)
EVENTS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
On 26 August 2019, the Company announced the appointment of Mr Jon Denovan as non-executive director
with effect from 1 September 2019, and the retirement of Mr Derek LaFerla on 30 August 2019.
In the opinion of the Directors there has not arisen in the period between the end of the financial year and
the date of this report any other material item, transaction or event that is likely to significantly affect the
operations of the Company.
PROCEEDINGS ON BEHALF OF THE COMPANY
No person has applied to the Court under S237 of the Corporations Act 2001 for leave to bring proceedings on
behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of
taking responsibility on behalf of the company for all or part of those proceedings.
ENVIRONMENTAL REGULATIONS
The Company’s operations are not subject to any significant environmental regulations under either
Commonwealth or State legislation.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS
No matter, circumstance or likely development in the operations has arisen since the end of the financial year
that has significantly affected or may significantly affect:
(i) The operations of the Company;
(ii) The results of those operations; or
(iii) The state of affairs of the Company
in the financial years subsequent to this financial year.
NON-AUDIT SERVICES
The following non-audit services were provided by the entity's auditor, KPMG. The directors are satisfied that
the provision of non-audit services is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001 and APES 110 Code of Ethics for Professional Accountants. The nature
and scope of each type of non-audit service provided means that auditor independence was not
compromised.
Details of the amounts paid to the auditor of the Company, KPMG for audit and non-audit services for the
year ended:
Non audit services
Agreed upon procedures
Audit and assurance services
Audit and review of financial statements
Regulatory assurance services
Total audit and assurance services
Total amounts paid to KPMG
$
6,500
290,900
65,000
355,900
362,400
AUDITORS INDEPENDENCE DECLARATION
The lead auditor’s independence declaration provided in accordance with S307C of the Corporations Act 2001
is set out on page 21 and forms part of the directors’ report for the financial year ended 30 June 2019.
The Remuneration Report commencing on the following page forms part of this Directors’ Report.
ROUNDING OFF
The Group is a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191 and in accordance with that Instrument, amounts in the consolidated financial statements and
directors’ report have been rounded off the nearest thousand dollars, unless otherwise stated.
10
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
This Remuneration Report for the year ended 30 June 2019 outlines the remuneration arrangements of the
Group in accordance with the requirements of the Corporations Act 2001 (the Act) and its regulations. This
information has been audited as required by section 308(3C) of the Act. The Remuneration Report is
presented under the following sections:
1. Introduction
2. Remuneration governance
3. Executive remuneration arrangements
A. Remuneration principles and strategy
B. Approach to setting remuneration
C. Detail of incentive plans
4. Executive remuneration outcomes for 2019 (including link to performance)
5. Executive contracts
6. Non-executive director remuneration (including statutory remuneration disclosures)
7. Additional disclosures relating to options, performance rights and shares
8. Loans to key management personnel and their related parties
9. Other transactions and balances with key management personnel and their related parties
1. Introduction
The Remuneration Report details the remuneration arrangements for key management personnel (KMP)
who are defined as those persons having authority and responsibility for planning, directing and controlling
the major activities of the Group, directly or indirectly, including any director (whether executive or
otherwise) of the Group.
The table below outlines the KMP of the Group and their relevant changes during the year ended 30 June
2019:
(i) Non-executive
directors
Peter Wallace
Derek LaFerla
Peter Hall
Don Koch
(ii) Other
executives
Chairman (non-executive) - Appointed 8 August 2014
Director (non-executive) - Appointed 13 November 2015
Director (non-executive) - Appointed 13 November 2015
Director (non-executive) - Appointed 11 June 2019
Simon Lyons
John Kolenda
Jussi Nunes
Malcolm Cowell
Steve Ellis
Managing Director - Appointed 18 January 2016
Executive Director - Appointed 13 March 2018
Group Chief Financial Officer – Appointed 10 December 2018
Company Secretary and former Chief Financial Officer – Appointed 1 March 2017
Chief Risk Officer – Appointed 17 July 2016
2. Remuneration governance
The Board of Directors is responsible for determining and reviewing compensation arrangements for the
executive team. The Remuneration Committee assists the Board in meeting its responsibilities to ensure
that remuneration practices are appropriate with regards to the Group’s size and scale of operations, and
to ensure that the Group can continue to attract and retain high caliber individuals to key executive roles.
Remuneration Committee
The Remuneration Committee comprises three NEDs with all being independent. The Remuneration
Committee meets periodically (at least annually) and is required to make recommendations to the board
on matters related to the remuneration arrangements for NEDs and executives. The Managing Director
attends certain Remuneration Committee meetings by invitation, where management input is required.
Executives are not present during any discussions related to their own remuneration arrangements.
The Board approves the remuneration arrangements of the Managing Director and other executives and all
awards including incentive plans and other employee benefit programs. The Board also sets the aggregate
remuneration of NEDs, which is then subject to shareholder approval, and NED fee levels.
11
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT (continued)
Further information on the remuneration committee’s role, responsibilities and membership can be found
on the company website at https://bnk.com.au/investor-centre/corporate-governance/.
Use of remuneration consultants
To ensure the Remuneration Committee is fully informed when making remuneration decisions, the
Remuneration Committee may seek external remuneration advice. During the year the Group did not seek
external advice in relation to remuneration.
Remuneration Report approval at 2018 Annual General Meeting (AGM)
The 2018 Remuneration Report received positive shareholder support at the 2018 AGM with a vote of 91%.
3. Executive remuneration arrangements
3.1 Remuneration principles and philosophy
The objective of the Group’s remuneration strategy is to attract and retain executives who will create
shareholder value and fairly and responsibly reward them for performance. The Board believes it is critical
to consider how long-term sustainable value is created in the Group and link remuneration structures to
this value creation. The Group’s remuneration policy is also intended to encourage behaviors that support
an improvement in the financial performance of the business over time. To this end, the Group applies the
following principles to its remuneration framework:
(cid:1) Provide competitive rewards to attract and retain high-caliber people;
(cid:1) Link executive rewards to shareholder value; and
(cid:1) Provide for a significant proportion of the executive remuneration to be “at risk” – that is,
dependent upon meeting predetermined performance indicators.
In accordance with best practice corporate governance, the structure of NED remuneration is separate and
distinct from executive remuneration.
Remuneration is comprised of three distinct components within BNK, these are described below:
Vehicle
Purpose
Link to performance
Remuneration
component
Fixed remuneration
Short term
performance based
incentive
Represented by total
employment cost
(TEC).
Comprises base salary,
superannuation
contributions and other
benefits.
Paid in cash or
performance rights.
Long term incentive
plan (LTI)
Performance rights.
To provide competitive
fixed remuneration set
with reference to role,
market and experience.
Company and individual
performance are considered
during the annual
remuneration review.
Rewards executives for
their contribution
towards achievement
of Company outcomes,
as well as their
performance against
individual key
performance indicators
(KPIs).
Rewards executives for
their contribution to
the creation of
shareholder value over
the longer term.
Linked to other internal
financial measures, strategic
objectives, risk management,
compliance and leadership.
Vesting of incentive is
dependent on achieving key
strategic objectives,
including implementation of
products distribution
arrangements, shareholder
returns and corporate
transactions.
12
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
3.2 Approach to setting remuneration
The Group aims to reward executives with a level and mix of remuneration commensurate with their
position and responsibilities within the Group and aligned with market practice of entities of a similar size,
nature and complexity.
Remuneration levels are considered annually through a remuneration review that considers market data,
insights into remuneration trends, the performance of the Group and individual, and the broader economic
environment.
3.3 Detail of incentive plans
Short-term incentive (STI)
The Managing Director and other executives are eligible for an annual performance based incentive of up
to 60% of their base salary (excluding superannuation). In determining the extent of any performance
based incentive the Board assesses the achievement of an individual’s performance in context of the
overall Group result.
For FY19, the merger with Finsure presented a significant period of transition for the Group, with substantial
change in executive responsibilities. The Board will determine the amount, if any, of the short-term
incentive to be paid to each executive, in consultation with the Managing Director as appropriate.
Long-term incentive (LTI)
LTI awards will be made to executives in order to align remuneration with the creation of shareholder
value over the long-term. As such, LTI awards are only made to executives and other key talent who have
an impact on the Group’s performance against the relevant long-term performance measure.
Shareholders of the Company approved the BNK (previously Goldfields Money) Equity Incentive Plan (“the
Plan”) at the 2016 Annual General Meeting held on 18 November 2016. Pursuant to the terms of the Plan,
executives may be offered performance rights that entitle the executive to the Company delivering fully
paid ordinary shares, either issued by the Company or acquired on-market, at the election of the Board.
Termination and change of control provisions
Where a participant ceases employment prior to their award vesting due to resignation or termination for
cause, awards will be forfeited unless otherwise agreed by the Board. Where a participant ceases
employment for any other reason, they may retain a portion of the unvested benefit pro-rated to reflect
participant’s period of service during the LTI grant performance period. These unvested benefits only vest
subject to meeting the relevant LTI performance measures, subject to the Board’s discretion.
In the event of a change of control of the Group, the performance period end date will generally be brought
forward to the date of the change of control and awards will vest subject to performance over this
shortened period, subject to ultimate Board discretion.
Hedging of equity awards
The Group has a policy prohibiting executives from entering into arrangements to protect the value of the
equity awards. The prohibition includes entering into contracts to hedge their exposure to options awarded
as part of their remuneration package.
13
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
4.1 Executive remuneration outcomes for 2019 (including link to performance)
Group performance and its link to short-term incentives
In considering the Group’s performance and benefits for shareholder wealth, the remuneration committee
has regard to the following:
Profit/(loss)
Dividends paid
Share price
balance date
Return on capital
employed
at
2019
3,614,000
Nil
$0.64
2018
(406,000)
Nil
$1.28
2017
(996,000)
Nil
$1.00
2016
(95,000)
Nil
$0.91
2015
140,000
Nil
$0.85
3.60%
(1.65%)
(4.93%)
(0.56%)
0.94%
Profitability is one of the financial performance targets considered in setting remuneration for executives,
and has been calculated in accordance with Australian Accounting Standards. Performance to budget is
another key measure considered by the BNK Board when appropriate to the business objectives.
14
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
4.2 Remuneration of key management personnel
Short-term benefits
Post-
employment
Salary &
fees
STI (A)
Cash
bonus
Non-
monetary
benefits
(B)
Total
Superannuation
Shared-
based
payments
LTI (C)
Other
long
term
Long
service
leave
$
$
$
$
$
$
$
$
Executives
Simon Lyons
John Kolenda1
Jussi Nunes2
Steve Ellis
Year
2019
2018
2019
2019
2019
2018
429,745
319,282
518,833
194,209
218,574
185,840
-
25,452
-
-
-
-
100,000
40,000
-
-
50,000
30,000
41,000
3,078
11,792
-
-
-
570,745
387,812
530,625
194,209
268,574
215,840
Former
Executives
Malcolm
Cowell3
Total
2019
2018
2019
2018
92,360
213,625
1,453,722
718,747
-
-
-
25,452
15,000
-
165,000
70,000
1,424
3,758
54,216
6,836
108,784
217,383
1,672,938
821,035
19,615
28,500
-
17,484
24,190
16,625
8,433
19,000
69,722
64,125
20,003
8,534
-
667
1,126
634
433,749
138,385
-
-
131,194
36,509
303
977
22,099
10,145
24,159
54,473
589,101
229,367
Termination
Total
Performance
related
$
-
-
-
-
-
-
-
-
-
-
$
1,044,112
563,231
530,625
212,360
425,084
269,608
141,679
291,833
2,353,860
1,124,672
%
51%
36%
0%
0%
43%
25%
28%
19%
32%
29%
1Executive Director from 17 September 2018
2Appointed as Group Chief Financial Officer on 10 December 2018
3Ceased to be Chief Financial Officer on 10 December 2018. Remuneration information disclosed above represents the period Mr Cowell was a KMP.
(A) – The fair value of performance rights granted as a STI is determined by recognising the grant date fair value over the relevant service condition period.
(B) – Non-cash benefits comprise car parking and housing allowance
(C) – The fair value of performance rights is calculated at the grant date using the Monte-Carlo simulation model, taking into account the impact of the market and non-
market conditions attached to the performance rights.
15
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
4.3 Analysis of bonuses included in remuneration – audited
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Details of the discretionary short-term incentive cash bonus awarded as remuneration to key management
personnel are detailed below:
Short-term incentive bonus
Simon Lyons
Steve Ellis
Malcolm Cowell
Included in
remuneration
$100,000
$50,000
$15,000
% awarded in year
% forfeited in year
100
100
100
0
0
0
4.4 Equity instruments - audited
Performance rights refer to rights over ordinary shares of BNK, which vest on a one-for-one basis under
the BNK Equity Incentive Plan.
4.4.1 Rights over equity instruments granted as compensation – audited
Details on rights over ordinary shares in the Company that were granted as remuneration to each key
management personnel during the reporting period are as follows:
Number
of
rights
granted
during
FY19
Rights holder
Vesting
Fair value at
condition
Grant date
grant date ($)
Expiry date
Steve Ellis
50,000
Service
1 November 2018
$0.90
30 November 2021
4.4.2 Details of equity incentives affecting current and future remuneration – audited
Details of the vesting profiles of the performance rights held by each executive of the Group are detailed
below:
% vested % forfeited
in which grant
Financial years
Participant
Number
Grant date
in year
in year
vests
Simon Lyons
666,667 9 February 2017
100,000 30 October 2017
Malcolm Cowell
500,000 9 February 2017
Steve Ellis
200,000 9 February 2017
50,000 30 October 2017
50,000
1 November 2018
100%
100%
50%
100%
100%
0%
0%
0%
0%
0%
0%
0%
(A)
(A)
(B)
(A)
(A)
2022
(A) Performance rights previously subject to performance conditions and change of control provisions.
Amounts vested during the year based on the Board exercising its ultimate discretion following the
merger with Finsure.
(B) Ceased to be a KMP on 10 December 2018. Vesting of remaining 50% of performance rights subject to
Board approval.
16
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
4.4.3 Analysis of movements in equity instruments – audited
The value of performance rights in the Company granted during and exercised during the reporting period
is detailed below:
Participant
Simon Lyons
Steve Ellis
Granted in
year
$ (A)
-
45,000
Value of rights
exercised
in year $ (B)
485,333
-
(A) The value of rights granted in the year is the fair value of the rights calculated at grant date. This
amount is allocated to remuneration over the vesting period.
(B) The value of rights exercised during the year is calculated at the market price of shares of the Company
as at close of trading on the date the rights are exercised. During the year ended 30 June 2019, Simon
Lyons exercised 373,333 performance rights.
4.4.4 Summary of rights holdings
Participant
Simon Lyons
Malcolm Cowell
Steve Ellis
Held at 1
July
2018
1,140,000
500,000
250,000
Granted as
remuneration Exercised
(373,333)
-
-
-
-
50,000
Lapsed
-
-
-
Forfeited
-
-
-
* Ceased to be a KMP on 10 December 2018
Held at
30 June
2019
Vested
during
the year
766,667 766,667
* 250,000
300,000 250,000
Vested and
exercisable
at 30 June
2019
766,667
250,000
250,000
5. Executive Contracts
Remuneration arrangements for KMP are formalised in employment agreements. Details of these contracts
are provided below:
Executives
Salary per annum
Term for cause
Simon Lyons
John Kolenda
Jussi Nunes
Steve Ellis
$425,000 plus
superannuation up to
the Maximum
Superannuation
Contribution Base
Consultancy agreement
totaling $660,000 per
annum
$330,000 plus
superannuation up to
the Maximum
Superannuation
Contribution Base
$220,000 plus
superannuation
contributions currently
at 9.5%
None
None
None
None
Term of agreement
and notice period
Continuing with 12
months’ notice by the
Company or six
months by employee
Continuing with 1
month notice by
either party
Continuing with 3
months’ notice by
either party
Continuing with 1
month notice by
either party
17
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
6. Non-executive director remuneration arrangements - Audited
Remuneration policy
The board seeks to set aggregate remuneration at a level that provides the Group with the ability to attract
and retain directors of the highest caliber, whilst incurring a cost that is acceptable to shareholders. The
amount of aggregate remuneration sought to be approved by shareholders and the fee structure is
reviewed annually against fees paid to NEDs.
The Company’s constitution and the ASX listing rules specify that the NED fee pool shall be determined
from time to time by a general meeting. The latest determination was at the 2018 AGM held on 9 November
2018 when shareholders approved an aggregate fee pool of $650,000 per year.
Structure
The remuneration of NEDs consists of directors’ fees. The table below summarises the base NED fees
excluding superannuation contributions for the financial year ended 30 June 2019:
Type of Fee
Amount per annum
Chairman
Non-executive Director
$130,000
$70,000
NEDs receive superannuation contributions of 9.5% of earnings but do not receive any other retirement
benefits, nor do they participate in any incentive programs.
The remuneration of NEDs for the years ended 30 June 2019 and 30 June 2018 is detailed in table below.
Short-term benefits
Post-
employment
Salary &
fees $
Non-
monetary
benefits
Other5
Superannuation
Long-
term
benefits
Long
service
leave
Non-executive
directors
Peter Wallace
Derek LaFerla
Peter Hall
John Kolenda1
2019
2018
2019
2018
2019
2018
2019
2018
115,277
80,000
68,527
67,058
64,111
53,850
14,722
15,239
Don Koch2
2019
5,833
Former directors
James Austin3
Keith John4
2018
2018
16,666
34,977
- 40,000
-
-
- 20,000
-
-
10,000
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
2019
2018
268,470
267,790
- 70,000
-
-
14,751
7,600
8,410
6,371
7,041
5,116
1,399
1,448
554
1,583
3,323
32,155
25,440
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
170,028
87,600
96,937
73,429
81,152
58,966
16,121
16,687
6,387
18,249
38,300
370,625
293,230
1 Non-executive director until 17 September 2018
2 Appointed 11 June 2019
3 Ceased 23 October 2017
4 Resigned 12 March 2018
5 Additional once-off payments for additional board services in relation to the Finsure merger.
18
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
7. Additional disclosures relating to options and shares
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
The numbers of shares in the Company held during the financial year by each director of the Company and
other key management personnel, including their personally related parties, are set out below. There were
no shares granted during the reporting period as compensation.
Shareholdings of key management personnel
2019
Directors
Peter Wallace
Derek LaFerla
Peter Hall
Simon Lyons
John Kolenda
Don Koch
Executives
Jussi Nunes
Steve Ellis
Balance at the
start of the
year
Acquired
Other
movement
Balance at the end
of the year
70,838
-
13,534
258,000
2,750,480
-
35,000
-
45,500
316,667
-
-
-
-
-
373,333
11,176,998
-
105,838
-
59,034
948,000
13,927,478
-
-
-
-
-
-
-
-
-
8. Loans to key management and their related parties
(i) Details of aggregate of loans to key management personnel and their related parties:
Aggregate Balance at
beginning of
period/KMP
appointment
Interest
charged
during
KMP
period
Write-off or
allowance
for doubtful
debt
Balance at end
of
period/ceasing
to be a KMP
Number of
KMP in group
2019
2,899,133
48,200
-
2,812,141
2
The information above reflects the period that the loan was provided to Finsure Holding Pty Ltd, a
previously direct-controlled entity of Mr Kolenda until the merger with BNK on 17 September 2018.
(ii) Terms and conditions of loans to key management personnel and their related parties
Loans to key management personnel are made on terms equivalent to an arm’s length transaction, that is
terms and conditions are similar to those offered to other customers at the time a loan is funded. All loans
are secured by appropriate forms of collateral.
9. Other transactions and balances with key management personnel and their related parties
During the period, the Group incurred costs of $102,449 (2018: $364,550) to Lavan in relation to legal
services provided to the Company. Mr. Derek LaFerla is a partner of Lavan.
During the period, the Group sub-leased office space to Aura Group Pty Ltd, a related entity of Mr. John
Kolenda. Rental income received during the period totaled $635,101 and the balance receivable at 30 June
2019 was $194,495.
At period end, the Group had a receivable with Top Level Real Estate Pty Ltd, a subsidiary of The Agency
Limited, a related entity of Mr. John Kolenda totaling $47,194. Rental income recognised during the period
was $6,194.
End of Remuneration Report
19
DIRECTORS’ REPORT (continued)
Signed in accordance with a Resolution of Directors
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Peter Wallace - Chairman
Dated this 30th day of August 2019
20
Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of BNK Banking Corporation Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of BNK Banking
Corporation Limited for the financial year ended 30 June 2019 there have been:
i.
ii.
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPM_INI_01
KPMG
Nicholas Buchanan
Partner
Sydney
30 August 2019
21
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
INCOME STATEMENTS
For the year ended 30 June 2019
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
In thousands of AUD
Note
2019
2018
2019
2018
Consolidated
Bank
Interest revenue from banking activities
Interest expense on banking activities
Net interest income
Commission income
Commission expense
Net commission income/(expense)
Other income
Total net revenue
Impairment reversal/(expense) on loans and
advances
Operating expenses
Transaction expenses
Profit/(Loss) before income tax from continuing
operations
Income tax (expense)/benefit
Profit/(Loss) for the period attributable to equity
holders of the parent
2.2
2.2
2.2
2.2
2.2
2.2
$
$
$
$
8,793
8,251
8,912
8,251
(5,342)
(4,786)
(5,181)
(4,786)
3,451
3,465
3,731
3,465
187,042
(169,644)
17,398
9,392
-
(258)
(258)
1,893
30,241
5,100
-
(253)
(253)
1,623
5,101
(20)
(5)
(20)
-
(258)
(258)
1,893
5,100
(5)
2.3
(23,652)
(4,574)
(6,635)
(4,574)
(860)
(938)
(860)
5,709
(417)
(2,414)
2.4.1
(2,095)
11
571
(938)
(417)
11
3,614
(406)
(1,843)
(406)
Basic earnings per share (cents)
Diluted earnings per share (cents)
5.3
5.3
5.14
5.05
(1.80)
(1.80)
The accompanying notes form part of these financial statements
22
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
STATEMENTS OF COMPREHENSIVE INCOME
For the year ended 30 June 2019
In thousands of AUD
Note
2019
2018
2019
2018
Consolidated
Bank
Profit/(loss) for the year
Other comprehensive income, net of income tax
Items that may be reclassified subsequently to
profit or loss
Net change in fair value of financial assets
Total comprehensive income for the year
attributable to equity holders of the parent
$
3,614
$
(406)
$
(1,843)
$
(406)
(297)
3,317
-
(205)
-
(406)
(2,048)
(406)
The accompanying notes form part of these financial statements
23
STATEMENTS OF FINANCIAL POSITION
As at 30 June 2019
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
In thousands of AUD
Note
2019
2018
2019
2018
Consolidated
Bank
ASSETS
Cash and cash equivalents
Trade and other receivables
Due from other financial institutions
Loans and advances
Other financial assets
Investment in subsidiaries
Property, plant and equipment
Goodwill and other intangible assets
Deferred tax assets
TOTAL ASSETS
LIABILITIES
Deposits
Trade and other payables
Current tax liability
Provisions
Deferred tax liabilities
TOTAL LIABILITIES
4.1.1
4.4.1
4.2
3.1
4.2
6.1.1
7.1
7.2
2.4.2
4.3
4.4.2
7.3
2.4.2
$
$
$
$
19,381
285,485
32,344
214,323
46,194
-
1,197
47,218
-
646,142
14,529
712
24,507
170,511
7,458
-
786
1,949
666
221,118
17,431
3,378
32,344
216,891
46,032
61,925
735
3,104
1,766
383,606
14,529
712
24,507
170,511
7,458
-
786
1,949
666
221,118
287,126
245,225
-
1,292
12,063
545,706
195,223
1,040
7
282
-
196,552
287,126
1,033
-
374
-
288,533
195,223
1,040
7
282
-
196,552
NET ASSETS
100,436
24,566
95,073
24,566
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS
Contributed equity
Issued capital, net of raising costs
Other contributed equity
Reserves
Retained earnings
TOTAL EQUITY
5.2.2
5.2.3
96,568
-
1,074
2,794
100,436
22,450
1,830
1,002
(716)
24,566
96,568
-
1,168
(2,663)
95,073
22,450
1,830
1,002
(716)
24,566
The accompanying notes form part of these financial statements
24
STATEMENTS OF CHANGES IN EQUITY
For the year ended 30 June 2019
In thousands of AUD
Attributable to equity holders
Note
Balance at 1 July 2017
Loss for the period
Other comprehensive income
Total comprehensive income
Transactions with owners of the Company
Issue of share capital
Equity raising costs, net of tax
Cost of share-based payments
Balance at 30 June 2018
Balance at 1 July 2018
Profit for the period
Other comprehensive income
Total comprehensive income
Transactions with owners of the Company
Issue of share capital
Equity raising costs, net of tax
5.2.2
5.2.4
73,278
-
Transfers
Cost of share-based payments
Balance at 30 June 2019
1,830
(1,830)
-
99,188
-
-
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Consolidated
Issued
Capital
Other
Contributed
Equity
Equity
Raising
Costs
Property,
Plant and
Equipment
Revaluation
Reserve
Financial
Assets
Revaluation
Reserve
General
Reserve
for
Credit
Losses
Share-
based
Payments
Reserve
Retained
Earnings
Total
Equity
$
$
$
$
$
$
$
19,349
1,830
(1,394)
97
205
342
87
-
-
-
4,731
-
-
-
-
-
-
-
-
-
-
-
-
(236)
-
24,080
1,830
(1,630)
24,080
1,830
(1,630)
-
-
-
-
-
-
-
-
-
-
-
-
(990)
-
-
-
-
-
-
-
-
97
97
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
205
342
-
-
-
-
-
271
358
205
-
(297)
(297)
-
-
-
-
342
358
-
-
-
-
-
104
-
446
-
-
-
(301)
-
-
568
625
$
(309)
(406)
-
$
20,207
(406)
-
(406)
(406)
-
-
-
4,731
(236)
271
(716)
24,566
(716)
3,614
-
3,614
-
-
(104)
-
24,566
3,614
(297)
3,317
72,977
(990)
-
568
2,794
100,436
(2,620)
97
(92)
The accompanying notes form part of these financial statements
25
STATEMENTS OF CHANGES IN EQUITY
For the year ended 30 June 2019
In thousands of AUD
Attributable to equity holders
Note
Balance at 1 July 2017
Profit for the period
Other comprehensive income
Total comprehensive income
Transactions with owners of the Company
Issue of share capital
Equity raising costs, net of tax
Cost of share-based payments
Balance at 30 June 2018
Balance at 1 July 2018
Profit for the period
Other comprehensive income
Total comprehensive income
Transactions with owners of the Company
Issue of share capital
Equity raising costs, net of tax
Transfers
Cost of share-based payments
Balance at 30 June 2019
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Bank
Issued
Capital
Other
Contributed
Equity
Equity
Raising
Costs
Property,
Plant and
Equipment
Revaluation
Reserve
Financial
Assets
Revaluation
Reserve
General
Reserve
for
Credit
Losses
Share-
based
Payments
Reserve
Retained
Earnings
Total
Equity
$
$
$
$
$
$
$
$
$
19,349
1,830
(1,394)
97
205
342
87
-
-
-
4,731
-
-
-
-
-
-
-
-
-
-
-
-
(236)
-
24,080
1,830
(1,630)
24,080
1,830
(1,630)
-
-
-
73,278
-
-
-
-
-
-
1,830
(1,830)
-
99,188
-
-
-
-
-
-
(990)
-
-
-
-
-
-
-
-
97
97
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
205
342
-
-
-
-
-
271
358
205
-
(205)
(205)
-
-
-
-
-
-
-
-
-
-
104
-
446
-
-
-
(301)
-
-
568
625
(309)
(406)
-
20,207
(406)
-
(406)
(406)
-
-
-
4,731
(236)
271
(716)
24,566
(1,843)
-
24,566
(1,843)
(205)
(1,843)
(2,047)
-
-
(104)
-
72,977
(990)
-
568
(2,663)
95,074
342
358
(716)
(2,620)
97
The accompanying notes form part of these financial statements
26
STATEMENTS OF CASH FLOWS
For the year ended 30 June 2019
In thousands of AUD
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received
Fees and commissions received
Interest and other costs of finance paid
Other income
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Consolidated
Bank
Note
2019
2018
2019
2018
$
$
$
$
8,793
128,434
7,964
1,718
8,912
365
7,964
1,718
(5,342)
(3,489)
(5,182)
(3,489)
338
528
168
528
Payments to suppliers and employees
(134,024)
(4,623)
(7,636)
(4,623)
Net increase in loans, advances and other receivables
(43,699)
(12,850)
(47,619)
(12,850)
Net (decrease)/increase in deposits and other borrowings
91,903
(207)
91,903
Net (payments)/receipts for investments
(46,692)
6,436
(46,692)
(207)
6,436
Net cash provided by/(used in) operating activities
(289)
(4,523)
(5,781)
(4,523)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in a business combination
Investment in subsidiary
Payments for property, plant and equipment
Payments for intangible assets
294
-
(212)
-
-
-
(8,950)
-
-
(95)
(56)
(95)
(2,962)
(1,520)
(1,335)
(1,520)
Net cash from/(used in) investing activities
(2,880)
(1,615)
(10,341)
(1,615)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issue of capital
Payments for equity raising costs
Repayment of borrowings
20,302
(1,278)
(11,003)
4,730
20,302
(286)
(1,278)
-
-
4,730
(286)
-
Net (used in)/cash from financing activities
8,021
4,444
19,024
4,444
Net increase/(decrease) in cash held
4,852
(1,694)
2,902
(1,694)
Cash and cash equivalents at beginning of the year
14,529
16,223
14,529
16,223
Cash and cash equivalents at end of the year
19,381
14,529
17,431
14,529
The accompanying notes form part of these financial statements
27
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
1.
BASIS OF PREPARATION
1.1
Corporate information
BNK Banking Corporation Limited (the “Company” or “BNK”) is a for-profit entity and provides a range of
retail banking products and financial services to the public. The Company was previously known as
Goldfields Money Limited
The Company is a publicly listed company limited by shares, incorporated and domiciled in Australia. Its
registered office and principal place of business is Level 14, 191 St George’s Terrace, Perth. BNK is listed on
the Australian Securities Exchange (ASX:BBC).
The financial report for BNK and its controlled entities (the Group) for the year ended 30 June 2019 was
authorised for issue in accordance with a resolution of the directors on 30 August 2019.
1.2
Basis of accounting
(a) Basis of preparation
The financial report includes the consolidated and stand-alone financial statements of the Group and the
Bank, respectively. This financial report is a general purpose financial report, which has been prepared in
accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other
authoritative pronouncements of the Australian Accounting Standards Board.
The financial report has been prepared on a going concern basis and is stated at historical costs, not taking
into account changing money values, except where stated. Cost is based on the fair values of the
consideration given in exchange for assets.
The report is presented in Australian dollars with all values rounded to the nearest thousand dollars ($’000)
in accordance with ASIC Corporations Instrument 2016/191 unless otherwise indicated.
This is the first set of financial statements in which AASB 15 Revenue from Contracts with Customers and
AASB 9 Financial Instruments have been applied. Refer to note 8.2 for further information regarding the
impact upon transition to these standards. Where required, comparative information has been represented
for consistency with the current year’s presentation in the financial report.
The Company presents its statement of financial position in order of liquidity. An analysis regarding recovery
or settlement within 12 months after the reporting date (current) and more than 12 months after the
reporting date (non–current) is presented in the notes to the financial statements.
(b) Statement of compliance
The financial report complies with the Corporations Act 2001, Australian Accounting Standards and
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board.
1.3
Significant accounting judgements and estimates
The preparation of financial statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period on which the estimate is revised and in any future periods affected. The most significant use of
judgements and estimates has been applied to the following areas. Refer to the respective notes for
additional details:
Identification and measurement for impairment of loans and receivables
Derecognition of financial assets, sale of loans
Utilisation of carry forward tax losses, recognition of deferred tax asset
Capitalisation of intangible assets
Net present value of future trail commissions
Acquisition accounting
Impairment of goodwill and other intangibles
Reference_________
3.2
3.3
2.4
7.2
4.4
6.1.1
7.2
28
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
2.
FINANCIAL PERFORMANCE
2.1
Operating segments
The Group has three operating businesses, which are its reportable segments. AASB 8 requires operating segments to
be identified on the basis of internal information provided to the chief decision maker, the Managing Director, in
relation to the business activities of the Group. In the comparative year, the Company was a single segment (Banking).
Following the acquisition of Finsure in September 2018, the Group has determined it has three segments for which
information is provided regularly to the Board of Directors. The following describes the operations of each of the
Group’s reportable segments:
Banking
The Group’s banking business refers to the provision of banking products and services such as loans and deposits
under the Goldfields Money brand. Loans are distributed through the Company’s existing branch network, via online
applications, accredited brokers and through the Group’s Wholesale mortgage management division. The segment
earns net interest income and service fees from providing a range of services to its retail and small business
customers.
Wholesale mortgage management
The Wholesale mortgage management segment offers prime and commercial loans under the Better Choice Home
Loans brand, funded by a range of third party wholesale funding providers (white label products). During the year
ended 30 June 2019, Goldfields Money was added as a funder to the Wholesale mortgage management business and
competes with the existing range of funders. The segment earns fees for services, largely in the form of upfront and
trail commissions as well as mortgage management administration fees.
Aggregation
The Aggregation segment provides contracted administrative and infrastructure support to in excess of 1,600
mortgage brokers, connecting them with a panel of approximately 60 lenders. The segment is branded as Finsure
and derives revenue in the form of fees for service (software, compliance, professional development, etc). Fees
include upfront commissions which are earned upon each loan settlement, and ongoing trail commissions. The Group
collects the upfront and trail commission and processes the contractual portion through to its accredited brokers.
In thousands of AUD
Revenue
Interest income
Inter-segment interest income
Total interest income
Commission and other non-interest income
Inter-segment commission income
Total segment revenue
Interest expense
Deposits
Other
Total interest expense
Commission expense
Inter-segment commission expense
Segment profit/(loss) before tax
Material non-cash expenses:
Depreciation and amortisation
Share-based payments
Segment assets
Segment liabilities
29
Total
$
9,053
(260)
8,793
Banking Aggregation Wholesale
$
$
$
8,912
(260)
8,652
1,623
-
1,623
136
-
136
5
-
5
183,805
-
183,805
12,561
(1,555)
11,006
197,989
(1,555)
196,434
10,275
183,941
12,982
205,227
5,181
-
5,181
253
-
253
-
161
161
-
-
-
5,181
161
5,342
163,763
(1,555)
162,208
7,183
-
7,183
171,199
(1,555)
169,644
(2,413)
10,189
(2,067)
5,709
288
402
678
79
6
52
972
534
321,133
286,484
292,722
245,499
32,287
13,723
646,142
545,706
NOTES TO THE FINANCIAL REPORT
2.
FINANCIAL PERFORMANCE (CONTINUED)
2.2
Income
Net interest income
In thousands of AUD
Interest income
Loans and advances
Due from other institutions
Total interest income
Interest expense
Deposits
Other
Total interest expense
Net interest income
Net commission income
Commission income
Upfront commission
Trail commission income
Net present value of future trail commissions
receivable
Total commission income
Commission expense
Upfront commission expense
Trail commission expense
Net present value of future trail commission
payable
Total commission expense
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Consolidated
2018
$
2019
$
7,618
1,175
8,793
5,182
160
5,342
7,298
953
8,251
4,786
-
4,786
2019
$
7,821
1,091
8,912
5,181
-
5,181
Bank
2018
$
7,298
953
8,251
4,786
-
4,786
3,451
3,465
3,731
3,465
63,438
55,075
68,529
187,042
60,021
47,089
62,534
169,644
-
-
-
-
-
258
-
258
-
-
-
-
-
253
-
253
-
-
-
-
-
258
-
258
Net commission income/(expense)
17,398
(258)
(253)
(258)
Other income
Service fees and other residual income
Software license fee income
Broker flat fee income
Compliance fee income
Lending fees
Transaction fees
Sponsorship
Cash convenience income
Dividends received
Other
Total other income
1,327
1,504
1,671
1,215
600
26
1,881
830
6
332
9,392
211
-
-
-
60
163
-
1,150
11
298
1,893
249
-
-
-
181
26
-
830
6
331
1,623
211
-
-
-
60
163
-
1,150
11
298
1,893
The Group has applied AASB 9 and AASB 15 with effect from 1 July 2018. Information about the effect of initially
applying these standards is described in Note 8.2.
30
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
2.
FINANCIAL PERFORMANCE (CONTINUED)
2.2
Income (continued)
Accounting policy - recognition and measurement
Banking
Interest income and expense - policy effective from 1 July 2018
Interest income and expense is recognised in profit or loss using the effective interest rate method. This is the rate
that exactly discounts the estimated future cash receipts or payments over the expected life of the financial
instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. The
calculation of the effective interest rate includes transaction costs (such as payments made to brokers for the
introduction of loans) and fees and points paid or received that are an integral part of the interest rate. Transaction
costs include incremental costs that are directly attributable to acquisition or issue of a financial asset or financial
liability.
The ‘amortised cost’ of a financial asset or financial liability is the amount at which the financial asset or financial
liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation
using the effective interest method of any difference between that initial amount and the maturity amount and, for
financial assets, adjusted for any expected credit loss allowance (or impairment allowance before 1 July 2018).
The ‘gross carrying amount of a financial asset’ is the amortised cost of a financial asset before adjusting for any
expected credit loss allowance.
The effective interest rate of a financial asset or financial liability is calculated on initial recognition of a financial
asset or a financial liability. In calculating interest income and expense, the effective interest rate is applied to the
gross carrying amount of the asset (when the asset is not credit- impaired) or to the amortised cost of the liability.
The effective interest rate is revised as a result of periodic re-estimation of cash flows of floating rate instruments
to reflect movements in market rates of interest.
Banking fees and commissions
Fee and commission income and expense that are integral to the effective interest rate on a financial asset or
financial liability are included in the effective interest rate (refer above).
Other fee and commission income including account servicing fees, cash convenience income is recognised as the
related services are performed. If a loan commitment is not expected to result in the draw-down of a loan, then the
related loan commitment fee is recognised on a straight-line basis over the commitment period.
Service and residual income
A contract with a customer that results in a recognised financial instrument in the Group’s financial statements may
be partially in the scope of AASB 9 and partially in the scope of AASB 15. If this is the case, then the Group first
applies AASB 9 to separate and measure the part of the contract that is in the scope of AASB 9 and then applies
AASB 15 to the residual.
Service fees and residual income arises from the management of loans and receivables which have previously been
originated by BNK and sold to other parties. Service fees are recognised from rendering of services principally for
the management of the loans, and residual income is recognised from the residual amount collected from customers
after transferring to the legal owner of the loans a contractually agreed return.
Other fee and commission expenses relate mainly to transaction and service fees, which are expensed as the services
are incurred.
Dividends
Revenue is recognised when the Company’s right to receive the payment is established, which is generally when the
dividend has been declared.
Rental income
Rental income arising from operating leases is accounted for on a straight-line basis over the lease terms and is
included in revenue in the statement of comprehensive income due to its operating nature.
31
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
2.
FINANCIAL PERFORMANCE (CONTINUED)
2.2
Income (continued)
Accounting policy - recognition and measurement (continued)
Aggregation and Wholesale
Commissions revenues
The Group provides loan origination services and receives upfront origination commission on the settlement of loans.
Additionally the lender normally pays a trailing commission over the life of the loan. Commission revenue is
recognised as follows:
Origination commissions
Origination commissions are recognised upon the loans being settled and receipt of commission net of clawbacks.
Trailing commissions
The Group receives trailing commissions from lenders on loans they have settled that were originated by the Group.
The trailing commissions are received over the life of the loans based on the individual loan balance outstanding.
The Group also makes trailing commission payments to authorised mortgage originators (brokers) based on the
individual loan balance outstanding.
On initial recognition, trailing commission revenue and receivables are recognised at the transaction price using the
expected value approach as a contract asset under AASB 15, being the expected future trailing commission
receivables discounted to their net present value. In addition, an associated payable and expense to the relevant
brokers are also recognised, initially measured at fair value being the future trailing commission payable to relevant
brokers discounted to their net present value. These calculations require the use of assumptions which are
determined by management with the assistance of external actuaries.
Subsequent to initial recognition and measurement both the trailing commission asset and trailing commission
liability are measured at amortised cost. The carrying amount of the trailing commission asset and trailing
commission payable are adjusted to reflect actual and revised estimated cash flows by recalculating the carrying
amount with reference to the present value of estimated future cash flows at the original effective interest rate. The
resulting adjustment is recognised as income or expense in the Consolidated Statement of Profit or Loss.
Broker flat fee income
The Group offers contracts to brokers based upon their settlement volumes. Brokers with high volume transactions
receive 100% distribution of all commissions and are charged a monthly fee in arrears for the aggregation service.
Revenue from flat fees is recognised at the point in time the service is provided.
Technology and Compliance fee income
The Group earns Software as a Service income for subscription to its proprietary loan origination platform "LoanKit"
and also provides compliance and licensing services to its brokers. The Group charges a fee for both of these
services, with revenue recognised at the point in time the service is provided.
Sponsorship income
Sponsorship income is the income generated from sponsorship arrangements with other lenders, supporting the
continuous education of the Group's brokers. The income is brought to account when services relating to the income
have been performed over time.
32
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
2.
FINANCIAL PERFORMANCE (CONTINUED)
2.3
Operating Expenses
In thousands of AUD
Depreciation and amortisation
Information technology
Banking services delivery
Employee benefits
Professional services
Marketing
Occupancy
Other administration expenses
Total operating expenses
Consolidated
2019
$
972
1,308
355
12,985
1,588
2,212
1,277
2,955
23,652
2018
$
152
696
278
2,325
325
99
201
498
4,574
2019
$
288
826
355
3,882
615
109
261
299
6,635
Accounting policy - recognition and measurement
The Group recognises an expense when it has an obligation to settle for goods or services received.
2.4
Income tax
2.4.1 The major components of income tax expense/(benefit) are:
In thousands of AUD
Recognised in profit or loss
Current tax
Deferred tax
Income tax expense/(benefit) recognised in
Profit or Loss
Recognised in equity
Revaluation of available for sale financial assets
Equity raising costs
Income tax expense/(benefit) recognised in
Other Comprehensive Income
Tax reconciliation
Profit/(Loss) before tax
Prima facie income tax expense/(benefit) on
profit before income tax at 30% (2018:27.5%)
Adjust for tax effect of:
Non-deductible expenses
Change in corporate tax rate
Other
Income tax expense/(benefit) recognised in
Profit or Loss
Consolidated
2018
$
2019
$
-
2,095
2,095
(116)
-
(116)
7
(18)
(11)
-
(50)
(50)
2019
$
-
(571)
(571)
(77)
-
(77)
5,709
(417)
(2,414)
1,712
(115)
(723)
325
(60)
118
2,095
67
-
36
(11)
80
(60)
132
(571)
Bank
2018
$
152
696
278
2,325
325
99
201
498
4,574
Bank
2018
$
7
(18)
(11)
-
(50)
(50)
(417)
(115)
67
-
36
(11)
33
NOTES TO THE FINANCIAL REPORT
2.
FINANCIAL PERFORMANCE (CONTINUED)
2.4
Income tax (continued)
2.4.2 Deferred tax assets and liabilities
In thousands of AUD
Deferred tax assets comprise temporary
differences attributable to:
Provision for doubtful debts
Accrued expenses
Provisions
Equity raising costs
Net present value of trail commission payable
Capitalised expenditure
Carry forward losses and R&D offsets
Total deferred tax assets
Deferred tax liabilities comprise temporary
differences attributable to:
Prepayments and other assets
Intangible assets
Financial assets at fair value through OCI
Net present value of trail commission
receivable
Deferred commission expense
Property, plant and equipment
Total deferred tax liabilities
Set-off against total deferred tax assets
Net deferred tax asset/(liability)
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Consolidated
2018
$
2019
$
77
282
404
612
69,125
75
4,201
74,777
32
5,730
-
80,808
218
52
86,840
(74,777)
(12,063)
66
48
78
164
-
180
428
964
57
-
78
-
116
47
298
(298)
666
2019
$
77
139
112
355
-
666
688
2,037
1
-
-
-
217
52
271
(271)
1,766
Bank
2018
$
66
48
78
164
-
180
428
964
57
-
78
-
116
47
298
(298)
666
Accounting policy - Recognition and measurement
The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax
expense (income) recognised in profit or loss except to the extent that it relates to items recognised in other
comprehensive income.
Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities
(assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority.
Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the
year as well as unused tax losses.
Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the
asset is realised or the liability is settled and their measurement also reflects the manner in which management
expects to recover or settle the carrying amount of the related asset or liability.
The Company has formed a tax consolidated group (TCG) under the tax consolidation regime. The members of the
TCG have entered into tax funding and tax sharing agreements, which set out the funding obligations and members.
Any current tax liabilities/assets and deferred tax assets from unused tax losses from subsidiaries in the tax
consolidated group are recognised by the Bank as utilised and funded in line with the tax funding agreement.
The measurement and disclosure of deferred tax assets and liabilities have been performed on a “separate taxpayer
within a group” approach in accordance with UIG 1052.
Use of judgements and estimates
Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that
it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be
utilised. Management assesses the probability through the consideration of factors leading to losses and the
preparation of forecasts that indicate the Group’s ability to generate taxable profits in the future.
34
NOTES TO THE FINANCIAL REPORT
3. LOANS AND OTHER ADVANCES
3.1 Loans and advances
In thousands of AUD
Residential loans
Term loans
Personal loans
Overdrafts
Add: Unamortised broker commissions
Gross loans and advances
Provision for credit losses
Loans and advances net of provisions
Maturity analysis – gross loans and advances
Overdrafts
Not longer than 1 year
Longer than 1 and not longer than 5 years
Longer than 5 years
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
2019
$
190,030
22,377
1,313
444
214,164
418
214,582
(259)
214,323
Consolidated
2018
$
146,358
21,373
2,291
443
170,465
285
170,750
(239)
170,511
2019
$
190,030
24,748
1,313
444
216,535
615
217,150
(259)
216,891
Bank
2018
$
146,358
21,373
2,291
443
170,465
285
170,750
(239)
170,511
445
1,548
11,540
201,049
214,582
443
2,181
5,670
162,456
170,750
445
4,116
11,540
201,049
217,150
443
2,181
5,670
162,456
170,750
Accounting policy - Recognition and measurement
All loans are initially recognised at fair value, net of transaction costs incurred and inclusive of loan origination fees.
Loans are subsequently measured at amortised cost based on the Group’s business model objective is to originate
loans and advances on its balance sheet and hold to collect repayments of principal and interest. Any difference
between the proceeds (net of transaction costs) and the redemption amount is recognised in the statement of
comprehensive income over the period of the loans using the effective interest method.
Loans and advances are reported at their recoverable amount representing the aggregate amount of principal and
unpaid interest owing to the Group at the reporting date, less any allowance or provision for impairment.
All loans and advances greater than 30 days in arrears are reviewed and graded according to the anticipated level of
credit risk. Expected credit loss provisions are recognised as set out in note 3.2. The classification adopted is
described below:
•
•
•
Non-accrual loans - are loans and advances where the recovery of all interest and principal is considered to
be reasonably doubtful and hence provisions for impairment are recognised.
Restructured loans - arise when the borrower is granted a concession due to continuing difficulties in meeting
the original terms. Loans with revised terms are included in non-accrual loans when impairment provisions
are required.
Past-due loans - are loans where payments of principal and/or interest are at least 90 days in arrears but
due to mortgage security available full recovery of both principal and interest is expected.
Refer to note 5.1.4 for further information regarding credit risk.
35
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Consolidated
2018
$
239
-
239
2019
$
-
258
258
-
-
-
-
239
19
-
258
234
5
-
239
-
-
-
-
2019
$
-
258
258
-
-
-
-
239
19
-
258
Bank
2018
$
239
-
239
234
5
-
239
-
-
-
-
NOTES TO THE FINANCIAL REPORT
3. LOANS AND ADVANCES
3.2 Provision for credit losses
In thousands of AUD
Collective provision
Expected credit loss provision
Total provisions for credit losses
Collective provision for impairment
Opening balance
Bad debts provided for during the year
Bad debts written off during the year
Closing balance
Expected credit loss provision
Opening balance upon adoption of AASB 9
Bad debts provided for during the year
Bad debts written off during the year
Closing balance
Accounting policy - Recognition and measurement
Financial assets – policy applicable from 1 July 2018
Expected credit loss provision
AASB 9 replaces the ‘incurred loss’ model in AASB 139 with an ‘expected credit loss’ (ECL) model. The new impairment
model applies to financial assets measured at amortised cost, but not to investments in equity instruments. Under
AASB 9, credit losses are recognised earlier than under AASB 139.
The financial assets at amortised cost consist of cash and cash equivalents, amounts due from other financial
institutions, investment securities and loans and advances.
Under AASB 9, loss allowances are measured on either of the following bases:
• 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting
date (Stage 1); and
• lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial
instrument (Stages 2 and 3).
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and
when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available
without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the
Group’s historical experience and informed credit assessment and including forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past
due. The Group considers a financial asset to be in default when:
• the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to
actions such as realising security (if any is held); or
• the financial asset is more than 90 days past due.
The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is
exposed to credit risk.
The key inputs into the measurement of ECL are the term structure of the following variables:
• probability of default (PD);
• loss given default (LGD); and
• exposure at default (EAD).
36
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
3. LOANS AND ADVANCES
3.2 Provision for credit losses (continued)
ECL for exposures in Stage 1 is calculated by multiplying the 12-month PD by LGD and EAD. Lifetime ECL is calculated
by multiplying the lifetime PD by LGD and EAD.
LGD is the magnitude of the likely loss if there is a default. The Group estimates LGD parameters based on the
history of recovery rates of claims against defaulted counterparties. The LGD models consider the structure,
collateral, seniority of the claim, counterparty industry and recovery costs of any collateral that is integral to the
financial asset. For loans secured by residential properties, LVR ratios are a key parameter in determining LGD. They
are calculated on a discounted cash flow basis using the effective interest rate as the discounting factor.
EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure
to the counterparty and potential changes to the current amount allowed under the contract and arising from
amortisation. The EAD of a financial asset is its gross carrying amount at the time of default. For lending
commitments, the EADs are potential future amounts that may be drawn under the contract, which are estimated
based on historical observations and forward-looking forecasts.
As described above, and subject to using a maximum of a 12-month PD for Stage 1 financial assets, the Group
measures ECL considering the risk of default over the maximum contractual period (including any borrower’s
extension options) over which it is exposed to credit risk, even if, for credit risk management purposes, the Group
considers a longer period. The maximum contractual period extends to the date at which the Group has the right to
require repayment of an advance or terminate a loan commitment or guarantee.
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all
cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the
cash flows that the Group expects to receive).
ECLs are discounted at the effective interest rate of the financial asset.
Financial assets – policy applicable prior to 30 June 2018
Collective provision
Previously under AASB 139 Financial Instruments: Recognition and Measurement, a collective provision was made for
groups of loans with similar credit risk characteristics. Loans that are individually assessed for impairment and for
which an impairment loss is or continue to be recognised are not included in a collective assessment of impairment.
The amount of impairment loss is based upon estimated losses incurred within the portfolio, based upon objective
evidence of impairment, the estimated probability of default and the expected loss given default having regard to
the historical experience of the Company. The provision increase or decrease is recognised in profit or loss.
General reserve for credit losses
In addition to the above provisions, in line with prudential requirements the Board has recognised the need to make
an allocation from retained earnings to ensure there is adequate protection for equity holders against the prospect
that some loans and advances will experience loan repayment difficulties. The reserve is based on estimation of
potential risk in the loan portfolio based upon the level of security taken as collateral as determined by APS 220.
Use of judgements and estimates
The Company determines whether loans are impaired on an ongoing basis. This requires an estimation of the value
of the future cash flows and associated collateral. The Company writes off a loan when it has determined that the
loan is uncollectable. This determination is reached after considering information such as the occurrence of
significant changes in the borrower’s financial condition such that the borrower can no longer pay the obligation or
that proceeds from collateral will not be sufficient to repay the entire exposure.
3.3 Derecognition of loans and advances
The Company is party to a Receivables Acquisition & Servicing Agreement (RASA) with Bendigo & Adelaide Bank
Limited (BEN) that enables the Company to sell residential loans (owner occupied and investment) to BEN as required
to assist with regulatory capital and/or liquidity management requirements.
37
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
3. LOANS AND ADVANCES
3.3 Derecognition of loans and advances (continued)
Loans sold to BEN have to meet certain criteria and are derecognised on the basis that the risks and rewards
associated with the loans have been substantially transferred. The Company retains the servicing responsibilities
and is entitled to the residual income from the loans once the funder’s cost of funds and other costs have been met.
Service fee and residual income is recognised in profit and loss as noted in Note 2.2.
The RASA has a limit of $60,000,000 and is subject to annual review by BEN. In the event that the RASA program
criteria were not to BEN’s satisfaction, the limit could be reduced or cancelled and/or BEN may appoint an alternative
servicer of the loans. The Company is not obligated to repurchase the loans subsequent to their sale. Loans sold in
to the RASA are sold at their carrying amount inclusive of accrued interest, with no gain or loss recognised by the
Company. The RASA is utilised primarily for capital management purposes and the Group’s business model has been
determined as originating loans to hold and collect principal and interest repayments. Previous loan sales have
occurred prior to a capital raising in order to ensure the Group complies with its capital adequacy requirements. No
loan sales were required during the year ended 30 June 2019.
The balance of loans serviced by the Company at reporting date:
In thousands of AUD
2019
$
26,599
10,929
37,528
2018
$
30,350
12,654
43,004
Date of sale
Nil
24 November 2017
31 January 2018
29 March 2018
Number of loans
Proceeds $
-
26
37
3
-
10,211
10,039
635
Owner occupier loans
Investment loans
Loan sales:
Year ended
30 June 2019
30 June 2018
Accounting policy - Recognition and measurement
The Company derecognises loans when the contractual rights to the cash flows from the loan expire, or it transfers
the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards
of ownership of the loans are transferred. On derecognition of the loans, the difference between the carrying amount
of the asset and the consideration received is recognised in profit or loss. Any interest in transferred financial assets
that qualify for derecognition that is created or retained by the Company is recognised as a separate asset or liability.
38
NOTES TO THE FINANCIAL REPORT
4. LIQUIDITY AND FUNDING
4.1.1 Cash and cash equivalents
In thousands of AUD
Cash at bank and on hand
Total cash and cash equivalents
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Consolidated
2018
$
14,529
14,529
2019
$
19,381
19,381
2019
$
17,431
17,431
Bank
2018
$
14,529
14,529
Recognition and measurement
Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid
investments with original maturities of 3 months or less, and bank overdrafts. Bank overdrafts are shown within
short-term borrowings in current liabilities on the statement of financial position.
Cash flows on net basis
For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents
as defined above, net of outstanding bank overdrafts. Cash flows arising from loans, deposits, and investments are
presented on a net basis in the Statement of Cash Flows.
4.1.2 Reconciliation to the Statement of Cash Flows
In thousands of AUD
Consolidated
2018
$
2019
$
2019
$
Bank
2018
$
Operating profit/(loss) after income tax
3,614
(407)
(1,842)
(407)
Non-cash items
Depreciation and amortisation
Change in fair value of NPV asset
Change in fair value of NPV liability
Impairment of receivables
Leave provisions
Share-based payments
Movement in assets and liabilities
Loans and receivables
Investments
Deposits
Other assets
Deferred tax assets
Deferred tax liabilities
Current tax receivable/payable
Payables
Provisions
Net cash flow from operating activities
972
(68,529)
62,534
19
183
292
(43,699)
(46,692)
91,903
1,002
667
805
(7)
(3,170)
(183)
(289)
152
-
-
5
57
236
288
-
-
19
91
266
(12,872)
6,436
1,089
45
18
-
7
654
57
(4,523)
(46,069)
(46,692)
91,903
(2,665)
(1,099)
-
(7)
119
(91)
(5,781)
152
-
-
5
57
236
(12,872)
6,436
1,089
45
18
-
7
654
57
(4,523)
Material non-cash transactions
On 17 September 2018, the Company acquired 100% of the share capital of Finsure Holdings Pty Ltd and its
controlled entities through the issuance of 40,750,000 ordinary shares in the Company. Refer to note 6.1.2 for
further details.
39
NOTES TO THE FINANCIAL REPORT
4. LIQUIDITY AND FUNDING
4.2 Financial assets
In thousands of AUD
Due from other financial institutions at
amortised cost
Investment securities at amortised cost (a)
Investment in Cuscal Limited at fair value
through OCI (b)
Investments in listed companies at fair value
Maturity analysis
Due from other financial institutions
- Not longer than 3 months
- 3 months to 1 year
Investment securities
- Not longer than 3 months
- 3 months to 1 year
- 1 year to 5 years
- More than 5 years
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Consolidated
2018
$
2019
$
32,344
45,890
142
162
78,538
32,344
-
32,344
-
13,766
22,088
10,038
45,890
24,507
7,034
424
-
31,965
20,457
4,050
24,507
-
2,527
4,507
-
7,034
2019
$
32,344
45,890
142
-
78,376
32,344
-
32,344
-
13,766
22,088
10,038
45,890
Bank
2018
$
24,507
7,034
424
-
31,965
24,457
4,050
24,507
-
2,527
4,507
7,034
(a) Investment securities are investments in debt securities comprising floating rate notes issued by other banks,
and bonds issued by Commonwealth and state-governments, and are initially recognised at fair value and
subsequent at amortised cost.
(b) The shareholding in Cuscal Ltd (“Cuscal”) is classified as at fair value through other comprehensive income. These
shares are held to enable the Company to receive essential banking services - refer to Note 7.9. Cuscal operates
an off market exchange whereby financial institutions holding Cuscal shares are able to trade with each other.
The investment in Cuscal is considered a Level 2 investment in the fair value hierarchy and fair value has been
determined using the market comparison technique with reference to recent sales transacted by financial
institutions.
Accounting policy - Recognition and measurement
Financial assets – policy applicable from 1 July 2018
On initial recognition, a financial asset is classified as measured at: amortised cost, fair value through profit or loss
(FVTPL) or fair value value through other comprehensive income (FVOCI).
A financial asset is measured at amortised cost if it meets both of the following conditions and is not
designated as at FVTPL:
•
•
the asset is held within a business model whose objective is to hold assets to collect
contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest (SPPI).
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to
present subsequent changes in fair value in OCI .This election is made on an investment-by-investment
basis. In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise
meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or
significantly reduces an accounting mismatch that would otherwise arise.
40
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
4. LIQUIDITY AND FUNDING
4.2 Financial assets (continued)
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset
expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of
the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor
retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying
amount allocated to the portion of the asset derecognised) and the sum of:
(i) the consideration received (including any new asset obtained less any new liability assumed) and
(ii) any cumulative gain or loss that had been recognised in OCI.
From 1 July 2018 any cumulative gain/loss recognised in OCI in respect of equity investment securities designated
as at FVOCI is not recognised in profit or loss on derecognition of such securities. Any interest in transferred financial
assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or
liability.
In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership
of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of
its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred
asset.
Financial assets – policy applicable prior to 1 July 2018
Prior to 1 July 2018, financial assets that are not classified as loans and receivables, were designated as either:
• Held to maturity;
• Available for sale; or
• At fair value through profit or loss.
Held to maturity investments
This category includes non-derivative financial assets with fixed or determinable payments and a fixed maturity that
the Company has a positive intention and ability to hold to maturity. They are measured at amortised cost.
Available for sale assets
This category includes investments in equity instruments. Available-for-sale financial assets are recognised on
acquisition at cost on a trade date basis and thereafter at fair value. Changes in the fair value of available-for-sale
assets are reported in the revaluation reserve net of applicable income taxes until the investments are sold, collected
or otherwise disposed of, or until such investments are impaired. On disposal the accumulated change in fair value
is transferred to the statement of comprehensive income.
Refer to notes 5.1.2, 5.1.4 and 5.1.5 for further details on interest rate risk, credit risk and liquidity risk.
4.3 Deposits
In thousands of AUD
Call deposits
Term deposits
Maturity analysis
- At call
- Not longer than 3 months
- Longer than 3 months but less than 12 months
- Longer than 12 months but less than 5 years
2019
$
55,517
231,609
287,126
Consolidated
2018
$
35,511
159,712
195,223
55,517
105,249
121,082
5,278
287,126
35,511
105,916
45,301
8,495
195,223
2019
$
55,517
231,609
287,126
55,517
105,249
121,082
5,278
287,126
Bank
2018
$
35,511
159,712
195,223
35,511
105,916
45,301
8,495
195,223
Accounting policy - Recognition and measurement
Call deposits and term deposits are initially recognised at fair value, net of any directly attributable transaction
costs. Subsequent to initial measurement, they are measured at amortised cost using the effective interest rate
method.
41
NOTES TO THE FINANCIAL REPORT
4. LIQUIDITY AND FUNDING
4.4 Receivables and payables
4.4.1 Commission and other receivables
In thousands of AUD
Net present value of future trail commission
receivable
Accrued commission income
Prepayments
Other debtors
Total commission receivable
4.4.2 Commission and other payables
In thousands of AUD
Net present value of future trail commission
payable
Accrued commission payable
Trade creditors and accrued expenses
Total commission payable
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Consolidated
2018
$
2019
$
269,361
12,826
955
2,343
285,485
-
-
207
505
712
Consolidated
2018
$
2019
$
230,415
11,652
3,158
245,225
-
-
1,040
1,040
2019
$
-
-
402
2,976
3,378
2019
$
-
-
1,033
1,033
Bank
2018
$
-
-
207
505
712
Bank
2018
$
-
-
1,040
1,040
Accounting policy - Recognition and measurement
The Group receives trailing commissions and mortgage management administration fees from lenders on loans they
have settled that were originated by the Group. The trailing commissions and mortgage management administration
fees are received over the life of the loans based on the individual loan balance outstanding. The Group also makes
trailing commission payments to authorised mortgage originators (brokers) based on the individual loan balance
outstanding.
On initial recognition, trailing commission revenue and receivables are recognised initially at transaction price using
the expected value method as a contract asset under AASB 15, being the expected future trailing commission
receivables discounted to their net present value. In addition, an associated payable and expense to the relevant
brokers are also recognised, initially measured at fair value being the future trailing commission payable to relevant
brokers discounted to their net present value. These calculations require the use of assumptions which are
determined by management.
Subsequent to initial recognition and measurement both the trailing commission asset and trailing commission
payable are measured at amortised cost. The carrying amount of the trailing commission asset and trailing
commission payable are adjusted to reflect actual and revised estimated cash flows by recalculating the carrying
amount with reference to the present value of estimated future cash flows at the original effective interest rate. The
resulting adjustment is recognised as income or expense in the Income Statement.
The key assumptions underlying the fair value calculations of trailing commission receivable and the corresponding
payable to brokers at the reporting date is summarised in the following table:
Discount rate per annum
Percentage paid to brokers
Weighted average life – Aggregation
Weighted average life – Wholesale
Weighted average life – Total portfolio
Between 4.5% and 6.5%
Between 5% and 95%
4.2 to 4.7 years
1.8 to 3.9 years
4.3 years
Liabilities for trade creditors and other amounts are non-interest bearing and carried at cost, which is the fair
value of the consideration to be paid in the future for goods and services received, whether or not billed to the
Company. The terms and conditions for creditors and other liabilities are payable between 7 and 30 days.
42
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.1 Introduction and overview
Risk is inherent in the Group’s activities but it is managed through a process of ongoing identification, measurement
and monitoring, subject to risk limits and other controls. The Group has exposure from its use of financial instruments
to market, interest rate, credit, liquidity and operational risk. This note presents information about the Group’s exposure
to each of the above risks, the objectives, policies and processes for measuring and managing those risks, and the
Company’s management of capital.
Risk management framework
The Group’s activities expose it to a variety of risks. Following the merger with Finsure in 2018, the Group engaged an
independent third party firm to undertake a comprehensive review of the Risk Management Framework to assist the
Company enhance and strengthen its risk management processes and controls. A detailed implementation plan was
developed with actions identified to address the review recommendations, and monitored for completion. Management
has continued to keep the Board and the Australian Prudential Regulation Authority (APRA) informed of the progress in
completing the actions, and internal audit engaged to validate the appropriateness of the Group’s responses and
completion. Maintaining a robust risk management framework is critical to the Group’s continued success and remains
at the forefront of the Group’s processes and business activities.
Risk management roles and responsibilities
Board of Directors
The Board of Directors is responsible for the overall risk management framework and approving risk appetite, strategies
and principles. The prudential standards issued by the (APRA) addresses risk management requirements and the Board
carries out its responsibilities in ensuring the Group maintains appropriate risk settings relative to the size and the
maturity of the Group’s businesses.
Board Risk & Compliance Committee
Risk management is overseen by the Risk & Compliance Committee comprising directors of the Company. It assists the
Board in the development of the risk strategy and implementation and managing and monitoring relevant risk decisions
including policies and limits.
Managing Director & Executive Management
The Managing Director is responsible for the ongoing management of the Risk Management Framework including its
periodic review and renewal subject to requisite Board direction and approvals. Executive Management are responsible
for implementing the Board-approved risk management strategy and for developing policies, procedures, processes and
controls for identifying and managing risks.
Chief Risk Officer
The Chief Risk Officer is responsible for managing the risk management function. This includes assisting the Board,
Board committees and divisional management risk committees to develop and maintain the risk management
framework. The position has reporting lines to the Board, Board committees and senior management to conduct risk
management activities in an effective and independent manner.
Internal Audit
Risk management and other processes in the Group are audited annually by the internal audit function, conducted by
an external service provider which examines both the adequacy of the procedures and compliance with the procedures.
The results of the work of the internal audit function are tabled to management and to the Audit Committee.
Risk Measurement and Reporting Systems
Monitoring and controlling risks is primarily performed based on limits established by the Board of the Company. These
limits reflect the business strategy and market environment of the Group as well as the level of risk the Group is willing
to accept.
Information is compiled, examined and processed in order to analyse, control and identify risks on a timely basis. This
information is presented and explained to the Risk & Compliance Committee and/or the Board. The reporting includes
aggregate counterparty credit exposures, delinquency summary, loan security summary, loan type exposures, liquidity
ratios, value at risk (VaR), and significant changes to risk profile. The Board and/or Risk & Compliance Committee receive
summarised risk reporting on key risk measures.
43
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.1 Introduction and overview (continued)
Risk Mitigation
The Group actively manages risk through a framework that includes use of collateral, delegations, limit frameworks and
credit concentrations.
Market risk
The objective of the Group’s market risk management is to minimise risk and optimise desired return by managing and
controlling market risk. Market risk is the risk that changes in interest rates, foreign exchange rates or other prices and
volatilities that will have an adverse effect on the Group’s financial condition or results. Management of market risk is
the responsibility of senior management through the Asset & Liability Committee (ALCO), who report directly to the
Board. The Group does not operate a trading book or involve itself actively in foreign exchange, commodities or equity
markets.
Interest rate risk
Interest rate risk is the risk of variability of the fair value of future cash flows arising from financial instruments due to
the changes in interest rates. The Company is exposed only to interest rate risk arising from changes in market interest
rates (Interest Rate Risk in the Banking Book).
5.1.2 Interest rate risk in the banking book
The Company is exposed to interest rate risk in its banking book due to mismatches between the repricing dates of
assets (loans and advances and investments) and liabilities (deposits). The interest rate risk in the banking book is
monitored by management. The level of mismatch on the banking book is set out in the tables below which displays
the period that each asset and liability will reprice as at the balance date.
The major classes of financial assets and liabilities that are subject to interest rate variation are loans and advances,
cash with banks, investments and deposits. The fundamental principles that the Company applies to mitigate interest
rate risk are:
-
Board approved risk appetite and limits include Value at Risk and Book Sensitivity (Present Value Basis
Point);
Forecasting and scenario modelling of growth and interest rates;
-
- Monitoring current and future interest rate yields on its loans and savings portfolio and cash and
investments and effect on profit and equity; and the interest rates on the major proportion of these assets
and liabilities can be adjusted in the short-term to minimise any significant mismatch of interest margins
- Monitoring market rates for loans and savings and amending the Company’s interest rates to remain
competitive;
Regular meetings to measure and monitor the impact of movements in interest rates.
-
44
NOTES TO THE FINANCIAL REPORT
5. RISK AND CAPITAL MANAGEMENT
5.1.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.2 Interest rate risk in the banking book (continued)
2019
Financial assets
Cash and cash on hand
Due from other financial institutions
Investment securities
Loans and advances
Commission and other receivables
Other financial assets
Total financial assets
Financial liabilities
Deposits
Commission and other payables
Total financial liabilities
Net financial assets/(liabilities)
2018
Financial assets
Cash and cash on hand
Due from other financial institutions
Investment securities
Loans and advances
Commission receivables
Other financial assets
Total financial assets
Financial liabilities
Deposits
Commissions payable
Creditors and other payables
Total financial liabilities
Net financial assets/(liabilities)
Weighted
average
effective
interest rate
0.15
1.70
1.98
4.81
-
-
-
2.23
-
-
0.50
2.13
2.65
4.84
-
-
-
2.22
-
-
-
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Consolidated
Fixed interest rate
Non-interest
Amount per
1 year
or less
1 year
or more
bearing
Floating
interest
rate
11,342
-
-
190,740
-
-
202,082
-
32,344
13,765
11,212
-
-
57,321
-
-
32,125
12,212
-
-
44,337
55,517
-
55,517
223,876
-
223,876
5,089
-
5,089
146,565
(166,555)
39,248
14,526
-
7,034
145,858
-
-
167,419
16,390
-
-
16,390
-
24,507
-
4,894
-
-
29,401
-
-
-
19,758
-
-
19,758
149,194
-
-
149,194
8,382
-
-
8,382
8,039
-
-
-
285,485
304
293,828
2,644
245,225
247,869
45,959
-
-
-
-
-
424
424
21,257
-
1,040
22,297
151.028
(119,793)
11,376
(21,824)
45
Statement of
Financial
Position
19,381
32,344
45,890
214,164
285,485
304
597,568
287,126
245,225
532,351
65,217
14,526
24,507
7,034
170,511
-
424
217,003
195,223
-
1,040
196,263
20,737
NOTES TO THE FINANCIAL REPORT
5. RISK AND CAPITAL MANAGEMENT
5.1.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.2 Interest rate risk in the banking book (continued)
2019
Financial assets
Cash and cash on hand
Due from other financial institutions
Investment securities
Loans and advances
Commission receivables
Other financial assets
Total financial assets
Financial liabilities
Deposits
Commissions payable
Creditors and other payables
Total financial liabilities
Net financial assets/(liabilities)
2018
Financial assets
Cash and cash on hand
Due from other financial institutions
Investment securities
Loans and advances
Commission receivables
Other financial assets
Total financial assets
Financial liabilities
Deposits
Commissions payable
Creditors and other payables
Total financial liabilities
Net financial assets/(liabilities)
Weighted
average
effective
interest rate
0.15
1.70
1.98
4.81
-
-
-
2.23
-
-
-
0.50
2.13
2.65
4.84
-
-
-
2.22
-
-
-
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Bank
Fixed interest rate
Non-interest
Amount per
1 year
or less
1 year
or more
bearing
Floating
interest
rate
9,392
-
-
193,111
-
-
202,503
-
32,344
13,765
11,212
-
-
57,321
-
-
32,125
12,212
-
-
44,337
55,517
-
-
55,517
223,876
-
-
223,876
5,089
-
-
5,089
Statement of
Financial
Position
17,431
32,344
45,890
216,535
-
142
312,342
287,126
-
1,033
288,159
8,039
-
-
-
-
142
8,181
2,644
-
1,033
3,677
146,986
(166,555)
39,248
4,504
24,183
14,526
-
7,034
145,858
-
-
167,419
16,390
-
-
16,390
-
24,507
-
4,894
-
-
29,401
-
-
-
19,758
-
-
19,758
149,194
-
-
149,194
8,382
-
-
8,382
-
-
-
-
-
424
424
21,257
-
1,040
22,297
151.028
(119,793)
11,376
(21,824)
14,526
24,507
7,034
170,511
-
424
217,003
195,223
-
1,040
196,263
20,737
46
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.2 Interest rate risk in the banking book (continued)
Interest rate sensitivity
Taking into account past performance, future expectations, economic forecasts and management’s knowledge and
experience of the financial markets, the Group believes the impact on profit or loss and the impact on equity in the
following table are ‘reasonably possible’ over the next 12 months, if interest rates had changed by +/- 50 basis points
(2018: +/- 25 basis points) from the year-end rates, with all other variables held constant.
Judgement of reasonably possible
movements(amounts in thousands of
AUD):
50 basis points increase (2018:25bps)
50 basis points decrease (2018: 25bps)
Consolidated
higher (lower)
Bank
higher (lower)
2019
339
(339)
2018
36
(36)
2019
339
(339)
2018
36
(36)
5.1.3 Market risk - Equity investments
The Group is exposed to market risk on the value of shares through its investments in Cuscal (refer to note 4.2) and
an ASX listed company. As set out in note 8.2, these investments were designated at FVTPL upon adoption of AASB
9 at 1 July 2018.
Market rate sensitivity
Taking into account past performance, future expectations, economic forecasts and management’s knowledge and
experience of the financial markets, the Group believes the impact on equity in the following table are ‘reasonably
possible’ over the next 12 months, if the fair value of the investment had changed by +/- 10% (2018: +/- 10%) from
the year-end rates, with all other variables held constant.
Judgement of reasonably possible
movements (amounts in thousands of
AUD):
10% increase (2018:10%)
10% decrease (2018: 10%)
Consolidated
Impact on equity
Bank
Impact on equity
2019
21
(21)
2018
30
(30)
2019
10
(10)
2018
30
(30)
Credit risk
5.1.4
Credit risk is the risk that the Group will incur a loss because its customers or counterparties failed to discharge
their contractual obligations. New or potential exposures are subject to the Group’s credit risk management
framework. The credit risk management framework includes delegated limits, approval levels, collateral
requirements, servicing criteria, concentration limits as well as other principles designed to manage the level of
credit risk exposure.
Maximum exposures to credit risk
The maximum exposure to credit risk in the Bank equals the drawn down portion in the Statement of Financial
Position and the undrawn portion of all committed facilities of loans and receivables as listed in Note 7.9. The
maximum exposure to credit risk in the Aggregation and Wholesale businesses are in respect of accrued commission
receivable and trade debtors. The major classes of financial assets that expose the Group to credit risk are loans
to customers (including undrawn and unused credit commitments), cash with banks, investments and amounts due
from other financial institutions and accrued commission receivable.
Collateral and other credit enhancements
Loans and advances, except unsecured overdrafts, are backed by collateral. The amount and type of collateral
required depends on the assessment of the credit risk of the customer. Guidelines are implemented regarding the
acceptability of types of collateral and valuation parameters.
The main types of collateral obtained are as follows:
•
•
For retail lending; mortgages over residential properties and consumer assets such as motor vehicles
For commercial lending; mortgages over real estate properties and equitable charges over business assets
47
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
5.1.4 Credit Risk (continued)
Management monitors the market value of collateral however collateral is generally not revalued except in some
circumstances where a loan is individually assessed as impaired or a customer seeks an increased loan against existing
collateral. For residential lending the Group may also require the customer to acquire Mortgage Insurance where the loan
does not meet a specified criteria, usually determined by the loan to value ratio.
The terms and conditions of collateral are specific to individual loan and security types. It is the Group’s policy to dispose
of repossessed collateral in an orderly fashion and the proceeds used to repay or reduce the outstanding claim. During
the year ended 30 June 2019, the Group did not repossess any residential properties (2018: one property with a fair value
of $270,000).
Concentrations of credit risk – Banking activities
Historically, the Bank has been exposed to credit concentration risk by lending predominately to customers in Western
Australia. Since the completion of the merger with Finsure, the Bank’s distribution capability has increased significantly,
such that broader diversification of the loan portfolio can be achieved. The Group’s objective is to continue reduce the
concentration risk to Western Australian borrowers over time in order to benefit from a diversified loan book.
The Group also monitors concentration of credit risk by purpose. An analysis of concentrations of credit risk at the
reporting date is shown below:
In thousands of AUD
Owner occupier home loans
Investment home loans
Commercial loans
Secured personal loans
Unsecured personal loans
Overdrafts
Consolidated
2018
$
92,068
54,291
21,373
1,430
861
443
170,465
2019
$
111,732
78,297
22,377
1,105
208
445
214,164
2019
$
111,732
78,297
24,748
1,105
208
445
216,535
Bank
2018
$
92,068
54,291
21,373
1,430
861
443
170,465
As at 30 June 2019 there was one borrower (2018: two) who individually has facilities which represent 10% or more of
the regulatory capital base. The total of these facilities which represent loans plus undrawn credit facilities amount to
$2,978,173 (2018: $5,894,251).
i. Credit quality – loans and receivables
The credit quality of the Group’s loans and receivables is summarised in the tables below:
In thousands of AUD
Past due but not impaired
30 days & less than 90 days
90 days & less than 182 days
182 days or more
Impaired – mortgage loans
Impaired – personal loans
Neither past due or impaired
Total loans and advances
Consolidated
2018
$
2019
$
877
542
575
1,994
-
-
1,851
621
1,320
3,792
-
18
2019
$
877
542
575
1,994
-
-
Bank
2018
$
1,851
621
1,320
3,792
-
18
212,170
214,164
166,655
170,465
214,541
216,535
166,655
170,465
48
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.4
Credit risk (continued)
ii. Collateral – loans and receivables
The Group holds collateral and other credit enhancements against certain of its credit exposures. The table below sets
out the principal types of collateral held against different types of financial assets:
Percentage of exposure that
is subject to collateral
requirements
Type of credit exposure
Deposits with banks and
short-term securities
Investment securities
Residential loans
Personal loans
Overdrafts
Term loans
2019
2018
Principal type of collateral held
-
-
100
85
90
100
-
-
100
62
90
100
Marketable securities
Marketable securities
Residential property
Residential property and/or motor vehicles
Residential property
Commercial and/or residential property,
floating charges over business assets
iii. Credit quality – Amounts due from other financial institutions and investment securities
The Group invests in short term securities and investment securities issued by other Australian banks as part of its
liquidity management process (refer to note 5.1.5). The Group’s liquidity investments are held with a range of
Australian banks or Government agencies and are selected with reference to credit ratings determined by Standard
& Poors or Moody’s credit rating agencies.
Deposits with other banks and short-term securities
In thousands of AUD
Long Term Credit Rating
1 (AAA to AA-)*
2 (A+ to A-)*
3 (BBB+ to BBB-)*
Unrated
Investment securities
In thousands of AUD
Long Term Credit Rating
1 (AAA to AA-)*
2 (A+ to A-)*
* Or equivalent rating by other rating agencies
Consolidated
2018
$
2019
$
-
26,344
2,000
4,000
32,344
15,539
7,971
997
-
24,507
Consolidated
2018
$
2019
$
45,890
-
45,890
7,034
-
7,034
2019
$
-
26,344
2,000
4,000
32,344
2019
$
45,890
-
45,890
Bank
2018
$
15,539
7,971
997
-
24,507
Bank
2018
$
7,034
-
7,034
49
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.4
Credit risk (continued)
Accrued commission receivable and other debtors
In thousands of AUD
Long Term Credit Rating
1 (AAA to AA-)*
2 (A+ to A-)*
3 (BBB+ to BBB-)*
Unrated
Consolidated
2018
$
2019
$
173,914
26,579
24,414
59,624
283,311
-
-
-
505
505
2019
$
-
-
-
1,941
1,941
Bank
2018
$
-
-
-
505
505
The Group’s other outstanding receivables arise from transactions with customers located within Australia. The
amounts owing from other financial institutions include the net present value (NPV) of future trail commission
receivable and accrued commission income.
The majority of the Group’s NPV trail commission and accrued commission receivable is from counterparties that
are rated between BBB and AA-.
Accounting policy - Recognition and measurement
Impaired loans
Loans for which the Company determines that it is probable that it will be unable to collect all principal and interest
due according to the contractual terms of the loan.
Past due but not impaired loans
Loans where contractual interest or principal payments are past due, but the Group believes that impairment is not
appropriate on the basis of the level of security / collateral available and / or the stage of collection of amounts
owed to the Group.
Loans with renegotiated terms
The Group renegotiates loans to customers in financial difficulties to maximise collection opportunities and minimise
the risk of loss. Loans that have been restructured due to deterioration in the borrower’s financial position are
considered on a selective basis where the borrower has demonstrated reasonable efforts to meet their
commitments, and where the Group has made concessions that it would not otherwise consider. Once the loan is
restructured it remains in this category for 12 months independent of satisfactory performance after restructuring.
Currently, the Group has 3 loans totalling $540,410 which have been re-negotiated (2018: $nil).
Allowances for impairment
Refer to note 3.2 for the Group’s policy with respect to provisioning for expected credit losses.
Write-off policy
Bad debts are written off as determined by management and recommended to the Board of Directors when it is
reasonable to expect that the recovery of the debt is unlikely. Bad debts are written off as expenses in the Income
Statement or against the provision for impairment.
Where the Group holds collateral against loans and advances, it is in the form of mortgage interests over property,
other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral
assessed at the time of borrowing. These estimates are generally only updated when loan is individually assessed
as impaired.
50
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.5
Liquidity risk
Liquidity risk is the risk that the company will be unable to meet its payment obligations when they fall due under
normal and stress circumstances.
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient funds
available to meet its liabilities under both normal and stressed conditions, without incurring unacceptable losses.
Sources of liquidity risk include unforeseen withdrawals of demand deposits, increased demand for loans and
drawdown on available credit limits, and inability to liquidate a marketable asset. The Group maintains a portfolio
of short term liquid assets to ensure that sufficient liquidity is maintained for daily operational requirements.
The Group has documented its strategy to manage liquidity risk in a liquidity policy and liquidity management plan
which includes the following activities by Management:
- On a daily basis, an assessment is made of the daily cash position and the investment action to be undertaken.
- On a daily basis, a summary of the Group’s liquidity position, including movements in major liquid assets and
liabilities is reviewed.
- On a monthly basis, the liquidity position is reported to the Board, including an explanation of significant
movements and corrective action taken, where applicable.
- Regularly reporting current and emerging liquidity management trends to the Board and highlighting risk areas
and relevant market conditions/expectations.
The Group’s policy is to apply a minimum level of 13% (2018: 13%) of funds as liquid assets to maintain adequate
funds for meeting customer withdrawal requests. This ratio is checked daily. In order to minimise the risk of the
liquidity ratio falling below 13% (2018: 13%); the Board has determined a target liquidity trading range of 14% - 19%.
In the event that liquidity ratio falls below 13% or is considered to be at risk of falling below that level, specific
remedial measures are required to be taken by the Board and Management.
Deposits are the liability class that presents the major source of risk to the Group’s liquidity management.
Concentrations within this class of financial liability are measured in terms of exposures to individual depositors
and groups of related depositors. As at 30 June 2019 there were no deposits greater than 10% of total liabilities
(2018: nil).
The liquidity ratio is calculated based on the formula prescribed by APRA in APS 210 as summarised below:
In thousands of AUD
High quality liquid assets
Adjusted liability base for regulatory purposes
Liquidity ratio
Consolidated
2018
$
36,263
210,263
17.2%
2019
$
90,321
397,411
22.7%
2019
$
87,625
328,807
26.6%
Bank
2018
$
36,263
210,263
17.2%
5.1.6 Operational risk
Operational risk is a risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s
processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity
risks (such as those arising from legal and regulatory requirements and generally accepted standards of corporate
behaviour). Operational risks arise from all of the Company’s operations and are faced by all business entities.
The Group’s objective is to manage operational risk so as to balance the avoidance of financial loss and damage to
the Group’s reputation, against excessive cost and control procedures that restrict initiative and creativity.
NOTES TO THE FINANCIAL REPORT
51
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.6 Operational risk (continued)
The primary responsibility for the development and implementation of controls to address operational risk is
assigned to senior management within each business unit. This responsibility is supported by the development of
the Company’s overall standards for management of operational risk in the following areas:
- Compliance with regulatory and other legal requirements
- Third party supplier relationships
- Business continuity and contingency planning
- People and key person risk including training and professional development
- Outsourcing risk associated with materially outsourced services
- Competition risk
- Fraud risk
- Requirements for appropriate segregation of duties, including independent authorisation of transactions
- Requirements for the reconciliation and monitoring of transactions
- Documentation of controls and procedures
- Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and
procedures to address the risks identified
- Requirements for the reporting of operational losses and proposed remedial action
- Ethical and business standards
- Risk mitigation, including insurance where this is effective
5.1.7 Fair value of financial assets and liabilities
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Wherever possible, fair values are calculated by the Group
using unadjusted quoted market prices in active markets for identical instruments. A quoted price in an active
market provides the most reliable evidence of fair value. For all other financial instruments, the fair value is
determined by using other valuation techniques.
As part of the fair value measurement, the Group classifies its assets and abilities according to a hierarchy that
reflects the observability of significant market inputs. The three levels of the hierarchy are described below:
•
•
•
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable in an active market
Level 3 — Valuation techniques for which significant inputs to the fair value measurement are not based on
observable market data
The Group measures most financial instruments at amortised cost, however disclosure of fair value is made
throughout these financial statements.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data is
available to measure fair value, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair
value measurement as a whole:
52
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.7 Fair value of financial assets and liabilities (continued)
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines
whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest
level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
Fair value is determined on the basis of the present value of expected future cash flows under the terms and conditions
of each financial asset or liability. Significant assumptions used in determining the cash flows are that the cash flows
will be consistent with the contracted cash flows under the respective contracts. The information is only relevant to
circumstances at the reporting date and will vary depending on the contractual rates applied to each asset or liability,
relative to market rates and conditions at the time. No assets held are regularly traded by the Group. Investments in
listed entities are tradeable on public markets and are classified as Level 1 financial assets in the fair value hierarchy.
Amounts due from other financial institutions, investment securities and investments in Cuscal Limited can be traded in
a secondary market. The investment in Cuscal is classified as a Level 2 financial asset in the fair value hierarchy.
In thousands of AUD
Financial assets
Cash and cash equivalents
Accrued commission receivable
Due from other financial institutions
Investment securities
Loans and advances
Other receivables
Other financial assets
Total financial assets
Financial liabilities
Deposits
Accrued commission payable
Creditors and other payables
Total financial liabilities
Financial assets
Cash and cash equivalents
Due from other financial institutions
Investment securities
Loans and advances
Other receivables
Other financial assets
Total financial assets
Financial liabilities
Deposits
Creditors and other payables
Total financial liabilities
Consolidated
Fair value
Carrying amount
2019
$
2018
$
2019
$
2018
$
19,381
12,826
32,344
46,545
202,816
2,343
304
315,904
287,126
11,652
3,158
301,936
17,431
32,344
46,545
205,186
2,976
142
304,624
14,529
-
24,507
7,060
168,012
505
424
215,037
19,381
12,826
32,344
45,890
214,323
2,343
304
327,411
14,529
-
24,507
7,034
170,511
505
424
215,037
195,223
-
1,040
287,126
11,652
3,158
196,263 301,936
195,223
-
1,040
196,263
Bank
14,529
24,507
7,060
168,012
505
424
17,431
32,344
45,890
216,891
2,976
142
215,037 315,674
14,529
24,507
7,034
170,511
505
424
217,510
287,126
1,034
288,160
195,223
1,040
196,263
287,126
1,034
288,160
195,223
1,040
196,263
53
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.7 Fair value of financial assets and liabilities (continued)
The fair value estimates were determined by the following methodologies and assumptions:
Cash and Amounts Due from other financial institutions
The carrying values of cash and liquid assets and receivables due from other financial institutions redeemable within 12
months approximate their fair value as they are short term in nature or are receivable on demand.
Accrued commission receivable and other receivables
The carrying values of receivables approximate fair value as they are short term in nature and collected within 12 months.
Loans and advances
The carrying value of loans and advances is net of provisions for doubtful debts. For variable rate loans, (excluding
impaired loans) the amount shown in the statement of financial position is considered to be a reasonable estimate of
fair value. For fixed rate loans the fair values are based on cash flows discounted at a rate reflecting current market
rates adjusted for counterparty credit risk.
Investment Securities
Investment Securities comprise floating rate notes issued by Australian banks and bonds issued by the Commonwealth
and state governments. These securities can be traded in secondary markets and fair value has been determined by
indicative prices as quoted on Bloomberg.
Other financial assets
Refer to Note 4.2, the balance comprises equity instruments.
Deposits
The fair value of call and variable rate deposits, and fixed rate deposits repricing within 12 months, is the
amount shown in the statement of financial position. Discounted cash flows were used to calculate the fair value of
other term deposits, based upon the deposit type and the rate applicable to its related period maturity.
Accrued commission payable, creditors and other payables
The carrying values of payables approximate fair value as they are short term in nature.
5.2 CAPITAL MANAGEMENT
5.2.1 Overview
The Group is licensed as an Authorised Deposit-taking Institution (ADI) under the Banking Act 1959 and is subject to
prudential supervision by APRA.
The Group has documented its strategy to manage capital in its internal capital adequacy assessment process which
includes the capital management plan. The Standards include APS 110 Capital Adequacy which:
-
Imposes on the Board a duty to ensure that the Company and Group maintains an appropriate level and quality of
capital commensurate with the level and extent of the risks to which the Company and Group is exposed from its
activities; and
- Obliges the Company and Group to have in place an Internal Capital Adequacy Assessment Process (ICAAP).
Three Pillars – There are three pillars to the Basel III capital framework.
Pillar 1 – involves specific capital charges for credit risk, operational risk, and the risk of financial market trading activities.
Pillar 2 – involves the Company making an assessment of any additional capital necessary to cover other risks not
included in Pillar 1.
Pillar 3 – involves increased reporting by the Company to APRA.
54
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.2 CAPITAL MANAGEMENT
5.2.1 Overview (continued)
The Board has determined that, for the Company, the prudent level of capital is the sum of the following:
- the specific capital charge for Pillar 1 risks
- the additional capital required to cover Pillar 2 risks, where applicable
- a buffer to cover other capital factors, where applicable
Various limits are applied to elements of the capital base. The main deductions from capital include deferred tax assets,
intangible assets, equity investments in other ADI’s and goodwill.
The Group’s policy is to apply a minimum target of 17.0% capital (2018: 17.5%).
In accordance with the Group’s capital management objectives, the Company’s and Group’s regulatory minimum capital
requirements were exceeded at all times throughout the year.
In thousands of AUD
Tier 1 capital
Tier 2 capital
Total regulatory capital
Risk weighted assets
Capital adequacy ratio
Consolidated
Bank
2019
25,317
446
25,763
2018
$
20,752
342
21,094
2019
$
26,395
446
26,841
2018
$
20,752
342
21,094
126,579
20.35%
95,968
21.97%
125,849
21.33%
95,968
21.97%
Disclosures required under Prudential Standard APS 330 Public Disclosure can be located on our website at:
https://bnk.com.au/investor-centre/disclosure-statements/.
5.2.2 Share capital
In thousands of AUD
Note
Share capital
Movements in ordinary shares on issue
Beginning of the financial year
Issued during the year in a placement
Acquisition of Finsure
Exercise of performance rights
Expiry of unlisted options
Less equity raising costs
Bank
2019
$
99,188
2018
$
24,080
2018
$
19,350
4,730
-
-
-
24,080
(1,630)
22,450
2019
Number of
shares
$
25,907,066 24,080
15,385,000 20,002
52,975
40,750,000
301
373,333
1,830
-
99,188
82,415,399
-
(2,620)
- 96,568
Number of
shares
22,521,066
3,386,000
-
-
-
25,907,066
-
-
5.2.3
5.2.4
Terms and conditions of ordinary shares
The Company does not have authorised capital nor par value in respect of its issued capital.
Ordinary fully paid shares have the right to receive dividends as declared and, in the event of winding up the
Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and
amounts paid up on shares held. Ordinary fully paid shares entitle their holder to one vote, either in person
or by proxy, at a meeting of the Company.
55
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.2 CAPITAL MANAGEMENT
5.2.3 Other contributed equity
Balance at the beginning of the year
Transfer to share capital upon expiry of listed options
Balance at the end of the year
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Bank
2019
$
1,830
(1,830)
-
2018
$
1,830
-
1,830
As part of the public offer of ordinary shares in Goldfields Money Limited in May 2012, 4,500,000 options were issued,
with one option attached to every two ordinary shares subscribed to under the offer. The unlisted options had an
exercise price of $1.50 and an expiry date of 11 May 2019. The options lapsed unexercised. The fair value of the options
that was recognised as other contributed equity has been transferred to share capital.
5.2.4 Equity raising costs
Balance at the beginning of the year
Equity raising costs incurred
Deferred tax recognised directly in equity
Balance at the end of the year
Accounting policy - Recognition and measurement
Bank
2019
$
1,630
1,277
(287)
2,620
2018
$
1,394
286
(50)
1,630
The transaction costs of a new equity transaction are accounted for as a deduction from equity (net of any related
income tax benefit) to the extent they are incremental costs directly attributable to the equity transaction that
otherwise would have been avoided. Transaction costs include registration and other regulatory fees, amounts paid
to legal, accounting and other professional advisers, printing costs and stamp duties.
56
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.3 EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing the net profit or loss for the year attributable to ordinary
equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit or loss attributable to ordinary equity
holders of the Company adjusted for the weighted average number of ordinary shares outstanding during the year plus
the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
In thousands of AUD
Net profit/(loss) attributable to ordinary
share holders
Weighted average number of ordinary
shares
for basic earnings per share
for diluted earnings per share
Basic earnings per share (cents)
Diluted earnings per share (cents)
Consolidated
2019
$
2018
$
3,614
(406)
2019
2018
70,324,932
71,558,495
23,126,450
23,126,450
5.14
5.05
(1.80)
(1.80)
5.4 DIVIDENDS PAID OR PROPOSED AND FRANKING ACCOUNT
No dividend was paid or declared by the Company in the period and up to the date of this report. The Directors do not
recommend that any amount be paid by way of dividend, for the financial period ended 30 June 2019 (2018: nil).
Franking credit balance
In thousands of AUD
The amount of franking credits available for the
subsequent financial years are:
Franking account balance as at the end of the
financial year at 30% (2018: 27.5%)
Franking credits that will arise from the
payment/(receipt) of income tax payable(receivable
as at the end of the financial year
Franking credits that arise from the receipt of
franked dividends
Franking credits available for subsequent reporting
periods at 30% (2018: 27.5%)
2019
$
2018
$
2,540
2,535
-
2
-
5
2,542
2,540
57
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
6. GROUP STRUCTURE
6.1.1 Investments in subsidiaries
In thousands of AUD
Investments in subsidiaries at cost
Note
6.1.2
Bank
2019
$
2018
$
61,925
-
Subsidiaries
Subsidiary name
Finsure Holding Pty Ltd
Finsure Finance & Insurance Pty Ltd
Finsure Domain Names Pty Ltd
Finsure Wealth Pty Ltd
Beagle Finance Pty Ltd
Smart Finance & Wealth Pty Ltd
1300 Home Loan Holdings Pty Ltd
Mystro CRM Pty Ltd
Australian Asset Aggregation Pty Ltd
Fintek Pty Ltd
Iden Holdings Pty Ltd
Better Choice Home Loans Pty Ltd
Future Financial 1 Pty Ltd
Pioneer Mortgage Holdings Pty Ltd
Romavale Pty Ltd
Australian Capital Home Loans Pty Ltd
Bare 123 Pty Ltd
Segment
Aggregation
Aggregation
Aggregation
Aggregation
Aggregation
Aggregation
Aggregation
Aggregation
Aggregation
Aggregation
Wholesale
Wholesale
Wholesale
Wholesale
Wholesale
Wholesale
N/A - Dormant
2018
-
-
-
-
Ownership
2019
100%
100%
100%
100%
100%
100%
100%
100%
51%
60%
100%
100%
100%
100%
100%
100%
100%
-
-
-
-
-
-
-
-
-
-
-
100%
Accounting policy - Recognition and measurement
‘Subsidiaries’ are entities controlled by the Group. The Group ‘controls’ an entity if it is exposed to, or has rights
to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity. The Group reassesses whether it has control if there are changes to one or more of the
elements of control. This includes circumstances in which protective rights held (e.g. those resulting from a
lending relationship) become substantive and lead to the Group having power over an investee.
The financial statements of subsidiaries are included in the consolidated financial statements from the date on
which control commences until the date on which control ceases. Non-controlling interests are measured at
their proportionate share of the acquiree’s identifiable net assets at date of acquisition, and not considered
material to the Group.
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated
in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
6.1.2 Acquisition of subsidiaries
On 17 September 2018, the Company acquired 100% of the shares and voting interests in Finsure Holding Pty Ltd, and
its controlled entities (“Finsure”). Finsure is one of Australia’s largest mortgage aggregators and mortgage managers.
John Kolenda, a director of the Company was the major shareholder and chairman of Finsure.
Our aim is to become a bank of scale, underpinned by a sustainable broker and customer friendly business model. The
acquisition of Finsure will enable the Group to broaden its distribution capabilities and diversify its revenue streams.
The acquisition is expected to assist the Group increase its product offerings to the Australian market, leveraging
Finsure’s strong penetration into the broker market and benefit from its proprietary processes and systems, with the
objective of increasing lending and deposit growth from a largely branchless distribution strategy.
58
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
6. GROUP STRUCTURE
6.1.2 Acquisition of subsidiaries (continued)
For the period 17 September 2018 to 30 June 2019, Finsure contributed revenue of $197,041,000 and profit of
$5,456,000. If the acquisition had occurred on 1 July 2018, the Company estimates that consolidated revenue would
have been $230,975,000 and consolidated profit after tax would have been $6,100,000 after adjusting for transaction
costs incurred with the merger between the Company and Finsure. Subsequent to the acquisition, the Company
injected further equity of $8,950,000 into Finsure.
A. Consideration transferred
The acquisition of Finsure was effected through the Company issuing 40,750,000 ordinary shares to the shareholders
of Finsure in exchange for 100% of the fully paid ordinary shares on issue. The fair value of the shares issued was
$1.30 per share which was equal to the value of the shares issued in a placement (raising approximately $20,000,500)
as described in Note 5.2.2.
B. Acquisition-related costs
The Company incurred acquisition-related costs of $860,000 relating to external advisor and legal costs. These
costs have been expensed in accordance with the requirements of AASB 3 Business Combinations.
C. Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired and liabilities assumed at the date of
acquisition:
In thousands of AUD
Cash and cash equivalents
Trade and other receivables
Property, plant and equipment
Intangible assets
Trade and other payables
Provisions
Borrowings
Deferred tax liabilities
Total identifiable net assets acquired
D. Goodwill
Goodwill arising from the acquisition has been recognised as follows:
In thousands of AUD
Consideration transferred
Fair value of identifiable net assets
Goodwill
Accounting policy - Recognition and measurement
294
217,540
362
24,167
(185,474)
(825)
(11,003)
(11,258)
33,803
52,975
33,803
19,172
Business Combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group.
The consideration transferred in the acquisitions is generally measured at fair value, as are the identifiable net assets
acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in
profit or loss immediately. Transaction costs are expensed as incurred.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such
amounts are generally recognised in profit or loss.
59
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.1 Property, plant and equipment
In thousands of AUD
Note
Freehold land and buildings – at fair value
Accumulated depreciation
Office equipment and leasehold improvements
Accumulated depreciation
Motor vehicles
Accumulated depreciation
Computer equipment and IT hardware
Accumulated depreciation
Total property, plant and equipment
Consolidated
2018
$
520
(7)
513
2019
$
520
(14)
506
1,343
(1,019)
324
88
(31)
57
749
(439)
310
1,197
263
(185)
78
88
(21)
67
320
(191)
129
786
2019
$
520
(14)
506
280
(227)
53
88
(31)
57
357
(238)
119
735
Reconciliations of the carrying value for each class of property, plant and equipment are set out below:
In thousands of AUD
Opening written down value at 1 July 2018
Additions
Additions through acquisition of Finsure
Depreciation
Closing written down value at 30 June 2019
In thousands of AUD
Opening written down value at 1 July 2018
Additions
Depreciation
Closing written down value at 30 June 2019
Freehold
Land &
Buildings
$
513
-
-
(7)
506
Freehold
Land &
Buildings
$
513
-
(7)
506
Office
Equip &
L/H imp
$
77
26
295
(74)
324
Office
Equip &
L/H imp
$
77
20
(42)
53
Consolidated
Motor
vehicles
$
67
-
-
(10)
57
Computer
equip &
IT hardware
$
129
189
66
(74)
310
Bank
Motor
vehicles
$
67
-
(10)
57
Computer
equip &
IT hardware
$
129
37
(47)
119
Bank
2018
$
520
(7)
513
263
(185)
78
88
(21)
67
320
(191)
129
786
Total
$
786
215
362
(165)
1,197
Total
$
786
57
(108)
735
The freehold land and buildings consists of an office property in Kalgoorlie, Australia. Management determined
that this constitutes a single class of asset under AASB 13, based on the nature, characteristics and risk of the
property. The Company’s land and buildings were valued in June 2019 by an independent licensed valuer. Fair
value was determined on the basis of capitalising a fair net rental and comparable sales method (Fair Value
Hierarchy 3). At the time of valuation there were limited recent market sales of a similar style and aged style of
improvements; however the most comparable sales were used to confirm the valuation determined by calculating
a fair net rental. Significant unobservable valuation inputs:
Fair net rental $53,130 per annum
Capitalisation Rate: 10.5%
60
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.1 Property, plant and equipment (continued)
A significant increase (decrease) in estimated fair net rental in isolation would result in a significantly higher
(lower) value. A significant increase (decreases) in estimated capitalisation rate in isolation would result in a
significantly lower (higher) value. The revaluation adjustment net of applicable deferred income taxes was debited
to an asset revaluation reserve in shareholders’ equity.
Accounting policy - Recognition and measurement
Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated
depreciation and impairment losses.
Property
Freehold land and buildings are shown at their fair value (being the amount for which an asset could be exchanged
between knowledgeable willing parties in an arm's length transaction), based on periodic valuations by external
independent valuers, less subsequent depreciation for buildings. Valuations are performed with sufficient
frequency to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. A
fair value measurement of a non-financial asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.
Increases in the carrying amount arising on revaluation of land and buildings are recorded in other comprehensive
income and credited to a revaluation reserve in shareholders' equity. Decreases that offset previous increases of
the same asset are charged against fair value reserves directly in equity; all other decreases are charged to the
profit and loss.
Plant and Equipment
Plant and equipment are measured on the cost basis less depreciation and impairment losses. The carrying
amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable
amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that
will be received from the assets employment and subsequent disposal. The expected net cash flows are
discounted to their present values in determining recoverable amounts.
The cost of fixed assets constructed within the economic entity includes the cost of materials, direct labour,
borrowing costs and an appropriate proportion of fixed and variable overheads.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the company and
the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement
of comprehensive income during the financial period in which they are incurred.
61
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.1. Property, plant and equipment (continued)
Depreciation
The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold
land, is depreciated on a straight-line basis over their useful lives to the economic entity commencing from the
time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the
unexpired period of the lease or the estimated useful lives of the improvements.
The depreciation rates used for each class of depreciable assets are:
Class of fixed asset
Office plant and equipment and
Leasehold improvements
Motor vehicles
Computer equipment and programs
Depreciation rate
Method of Depreciation
15-33%
12.5%
20-50%
Straight-line
Straight-line
Straight-line
The assets' residual values and useful lives are reviewed and adjusted if appropriate, at each reporting date. An
asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is
greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or
losses are included in the statement of comprehensive income. When revalued assets are sold, amounts included
in the revaluation reserve relating to that asset are transferred to retained earnings.
7.2 Goodwill and other intangible assets
In thousands of AUD
Goodwill – at cost
Brandnames, trademarks and domain
names
Software
Accumulated amortisation
Broker relationships
Accumulated amortisation
Consolidated
2018
$
-
2019
$
19,172
16,572
-
10,646
(1,832)
8,814
4,075
(1,415)
2,660
2,070
(121)
1,949
-
-
-
2019
$
-
132
3,274
(302)
2,972
-
-
-
Bank
2018
$
-
-
2,070
(121)
1,949
-
-
-
Total goodwill and other intangibles
47,218
1,949
3,104
1,949
Reconciliation of intangible assets
In thousands of AUD
Goodwill
Opening balance at 1 July 2018
Additions
Additions through acquisitions
Depreciation
Closing balance at 30 June 2019
-
-
19,172
-
19,172
-
132
16,440
-
16,572
62
Consolidated
Software
Broker
relationships
Total
Brand
names &
trademarks
$
$
1,949
2,606
4,738
(478)
8,814
$
-
-
2,988
(329)
2,660
$
1,949
2,738
43,338
(807)
47,218
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.2 Goodwill and other intangible assets (continued)
Reconciliation of intangible assets
In thousands of AUD
Goodwill
Opening balance at 1 July 2018
Additions
Depreciation
Closing balance at 30 June 2019
-
-
-
-
Accounting policy - recognition and measurement
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Brand
names &
trademarks
$
-
132
-
132
Bank
Software
Broker
relationships
$
1,949
1,203
(180)
2,972
$
-
-
-
-
Total
$
1,949
1,335
(180)
3,104
Goodwill and other intangible assets with a finite life recognised upon acquisition of subsidiaries are measured at cost
less accumulated impairment losses.
Costs incurred in acquiring software and licenses that will contribute to future period financial benefits through
revenue generation and/or cost reduction are capitalised to computer software. Costs capitalised include external
direct costs of materials, service, consultants spent on the project and internal costs of employees directly engaged
in delivering the project. For software in the course of development, amortisation commences once development is
complete and the software is in use.
Other intangible assets are recognised at cost less accumulated amortisation and impairment losses.
Subsequent expenditure is recognised only when it increases the future economic benefits embodied in the specific
asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands is
recognised in profit or loss.
Amortisation
Amortisation is calculated to write-off the asset less its estimated residual value using the straight-line method over
their estimated useful lives, and is generally recognised in profit or loss. Goodwill is not amortised, but tested annually
for impairment.
The estimate useful lives of intangible assets with a finite useful life are as follows:
- Software
- Broker relationships
3-10 years
6 years
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted as appropriate.
Impairment testing for CGUs containing goodwill
For the purpose of impairment testing, goodwill has been allocated to the Group’s cash generating units (CGUs) as
follows:
In thousands of AUD
Aggregation
Wholesale
Banking
Total goodwill
2019
$
12,000
1,000
6,172
19,172
2018
$
-
-
-
-
63
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.2 Goodwill and other intangible assets (continued)
Each CGU was tested for impairment using the value in use approach, by discounting future cash flows estimated
from the continuing use of each CGU. The recoverable amount for each CGU was determined to be above the carrying
amount.
The key assumptions used in the estimation of the recoverable amount are set out below. The values assigned to the
key assumptions represent management’s best estimates of future CGU performance, after considering internal and
external sources of information.
Input
Discount rates (post-tax)
Terminal value growth rate
Budgeted revenue growth rates
2019
12-14%
2.5%
5-38%
2018
-
-
-
Discount rates were determined after assessing the Group’s weighted average cost of capital and adjusting for risks
specific to the CGU and/or the risks inherent to the cash flow forecasts. The cash flow projections include specific
estimates for five years and a terminal growth rate thereafter. The terminal growth rate was determined based on
management’s estimate of the long-term growth rate, consistent with the assumptions that a market participant
would expect.
Budgeted revenue was based on the Group’s plans for each CGU taking into account past experience and adjustments
regarding expectations of future outcomes.
No impairment loss has been recognised for any CGU at 30 June 2019.
Management has estimated that a reasonably possible change in two key assumptions could cause the carrying amount
to exceed the recoverable amount, being the discount rate or budgeted revenue growth rates. The following table
shows the amount by which these assumptions would need to change individually for the estimated recoverable
amount to be equal to the carrying amount.
Input
Discount rates (post-tax)
Budgeted revenue growth
7.3 Provisions
Aggregation Wholesale
0.7%
(6.2%)
3.1%
(8.3%)
Banking
1.1%
(3%)
In thousands of AUD
Note
Provision for annual leave
Provision for long service leave
Total provisions
Consolidated
2018
$
252
30
282
2019
$
973
319
1,292
2019
$
275
99
374
Bank
2018
$
252
30
282
Accounting policy - recognition and measurement
Provision is made for the Group's liability for employee benefits arising from services rendered by employees to the
reporting date. Employee benefits that are due to be settled within one year have been measured at the amounts
expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year
have been measured at the present value of the estimated future cash outflows to be made for those benefits.
Contributions are made by the Group to employee nominated superannuation funds and are charged as expenses
when incurred.
64
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.4 Related Party Disclosures
Information regarding individual Directors and Executive compensation and some equity instrument disclosures as
required by the Corporations Regulation 2M.3.03 is provided in the Remuneration Report section of the Directors’ report.
Disclosure of the compensation and other transactions with key management personnel (KMP) is required pursuant to
the requirements of Australian Accounting Standard AASB 124 Related Party Disclosures. The KMP of the Company
comprises the Non-Executive Directors and Executives.
7.4.1 Key Management Personnel (KMP)
The aggregate compensation of KMP during the year comprising amounts paid or payable or provided for was as follows:
In thousands of AUD
Short-term employee benefits
Post-employment benefits
Other long-term benefits
2019
$
2,011
102
611
2,724
2018
$
1,089
89
240
1,418
In the above table, remuneration shown as short term benefits means (where applicable) wages, salaries and other
contributions, paid annual leave and paid sick leave, and bonuses, value of fringe benefits received, but excludes out of
pocket expense reimbursements.
7.4.2 Share-Based Payments
Shareholders of the Company approved the Goldfields Money Equity Incentive Plan (now the “BNK Equity Incentive Plan”
or “the Plan”) at the 2016 Annual General Meeting. Pursuant to the terms of the Plan, executives and employees may be
offered performance rights that entitle the executive to the Company delivering fully paid ordinary shares, either issued
by the Company or acquired on market at the election of the Board. Additionally, the Plan enables the Company to grant
fully paid ordinary shares to employees from time to time.
Performance rights – grant dates
• On 3 February 2017, 40,000 performance rights were granted to Mr Simon Lyons in recognition of his performance
for the year ended 30 June 2016 (‘FY16 Bonus’). These performance rights grant Mr Lyons the opportunity to be
granted 40,000 ordinary shares in the Company subject to Mr Lyons remaining in service for a period of 12 months
from the grant date. These performance rights were exercised during the year ended 30 June 2019;
• On 9 February 2017, 1,700,000 performance rights were granted to executives in accordance with the terms of
the BNK Equity Incentive Plan (BNKEIP). Mr Lyons exercised 333,333 of these performance rights during the year
ended 30 June 2019;
• On 30 October 2017, 200,000 performance rights were granted to two executives and two employees in
recognition of their performance for the year ended 30 June 2017 (‘FY17 Bonus’). These performance rights vest
subject to the employees remaining employed by the Company until 1 July 2020.
• On 20 December 2017, 7,000 ordinary shares were issued to several employees.
• On 1 November 2018, 100,000 performance rights were granted to four employees in recognition of their
performance for the year ended 30 June 2018 (‘FY18 Bonus’). These performance rights vest subject to the
employees remaining employed by the Company until 1 July 2020.
• On 16 April 2019, 500,000 performance rights were awarded to three senior employees of Finsure as retention
rights. One third of these performance rights each vest on 1 July 2020, 1 July 2021 and 1 July 2022.
65
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.4.2 Share-Based Payments (continued)
Performance rights – fair value and vesting conditions
a)
The fair value of the FY16 Bonus performance rights of $40,600 was determined with reference to the share price
on the grant date of $1.015. The fair value of the grant was recognised over the 12 month vesting period. The amount
recognised in profit and loss for the year ended 30 June 2019 in relation to these performance rights was $nil (2018:
$25,452).
b) The fair value of the BNKEIP performance rights has been measured using a Monte Carlo simulation. The inputs
used in the measurement of the fair values at grant date of the BNKEIP performance rights are summarised below.
The key terms and conditions related to the grants under the BNKEIP are as follows; all performance rights are to
be settled by the physical delivery of shares.
The BNKEIP rights expire on the earlier of their expiry date or termination of the individual’s employment. As set
out in the Remuneration Report, the directors’ exercised their discretion to vest the performance rights in
September 2018 for Mr Lyons and Mr Ellis. Mr Cowell’s remaining 50% are subject to ongoing review.
The inputs used in the measurement of the fair values at grant date of the BNKEIP performance rights were as
follows:
Fair value at grant date
Share price at grant date
Exercise price
Expected volatility
Expected dividends
Risk free interest rate (based on government bonds)
$0.2613 to $0.7830
$1.02
Nil
31.54%
Nil
2.13%
The amount recognised for the period ended 30 June 2019 in relation to the BNKEIP performance rights was
$309,884 (2018: $185,208).
c)
The fair value of the FY17 Bonus performance rights of $236,000 was determined with reference to the share price
on the grant date of $1.18. The fair value of the grant is being recognised over the 32 month vesting period. The
amount recognised in profit and loss for the year ended 30 June 2019 in relation to these performance rights was
$88,681 (2018: $58,878).
d) The fair value of the FY18 Bonus performance rights of $90,000 was determined with reference to the share price
on the grant date of $0.90. The fair value of the grant is being recognised over the 20 month vesting period. The
amount recognised in profit and loss for the year ended 30 June 2019 in relation to these performance rights was
$35,674.
e) The fair value of the retention performance rights of $315,000 was determined with reference to the share price on
the grant date of $0.63. The fair value of the grant is being recognised over the respective vesting period of each
tranche. The amount recognised in profit and loss for the year ended 30 June 2019 in relation to these performance
rights was $131,192.
Other share based-payments: Equity settled shares
On 22 December 2017, 7,000 fully paid ordinary shares were issued to employees in connection with their performance
for the year ended 30 June 2017. The shares will be held in escrow and released to the employees subject to their
continued service until 1 July 2020. The fair value of the shares issued is $1.00 per share and the fair value of $7,000 is
being recognised over the vesting period until 30 June 2020. The amount recognised in profit and loss for the year ended
30 June 2019 in relation to these shares was $2,331 (2018: $1,226).
66
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.4.2 Share-Based Payments (continued)
Accounting policy - recognition and measurement
The grant date fair value of equity-settled share-based payment arrangements granted to employees is generally
recognised as an expense with a corresponding increase in equity over the vesting period of the awards. The amount
recognised is adjusted to reflect the number of awards for which the related service and non-market performance
conditions are expected to be met, such that the amount ultimately recognised is based on the awards that meet the
related service and non-market performance conditions at the vesting date.
7.4.3 Transactions with KMP
The Company’s policy for lending to Directors and management is that all loans are approved and deposits accepted on
the same terms and conditions that applied to the general public for each class of loan or deposit. There are no loans
that are impaired in relation to the loan balances with Directors or other KMPs.
Details of loans previously provided to KMP are detailed in the remuneration report. There were no loans to KMP at
reporting date.
The Company’s policy for receiving deposits from KMP is that all transactions are approved and deposits accepted on
the same terms and conditions that applied to the general public for each type of deposit.
Total value of term and savings
deposits from KMP at reporting
date
Total
deposits to KMP
interest paid/payable on
7.4.4 Transactions with other related parties
2019
$
44,322
2018
$
97,944
1,171
5,752
Other transactions between related parties include deposits from Director related entities or close family members of
Directors, and other KMP. The Company’s policy for receiving deposits from related parties is that all transactions are
approved and deposits accepted on the same terms and conditions that applied to customers for each type of deposit.
There are no benefits paid or payable to the close family members of the KMP.
7.4.5 Derek LaFerla– Lavan
Mr LaFerla was elected as a non-executive director in November 2015. Currently, Mr LaFerla is a Partner with Western
Australian legal firm, Lavan which payments for legal services have been made on normal commercial terms.
Legal service paid/payable during
the year to Lavan
Amounts
balance date
(owing)/payable
at
2019
$
102,449
2018
$
364,550
3,952
14,799
7.4.6 John Kolenda – Finsure Holding Pty Ltd
Mr Kolenda was appointed as a non-executive director of the Company on 13 March 2018 (executive director from 17
September 2018). Mr Kolenda was the Chairman and major shareholder of Finsure Holding Pty Ltd (Finsure), a mortgage
aggregation and broking firm. The Company provided a secured loan of $3,100,000 to Finsure on 31 January 2018 to assist
with the acquisition of a mortgage trail portfolio.
67
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.4.6 John Kolenda – Finsure Holding Pty Ltd (continued)
Information regarding the loan to Finsure for the period it was not a controlled entity are set as follows:
Interest received for the period Mr
Kolenda was a KMP
Amounts (owing)/payable
17 September 2018
$
48,201
2018
$
97,683
2,809,232 2,892,973
The Company acquired Finsure on 17 September 2018. Mr Kolenda received 12,925,393 share in the Company as
consideration for his shareholding in Finsure.
7.4.7 John Kolenda – Aura Group Holdings Pte Ltd
Mr Kolenda is Chairman and major shareholder of Aura Group Holdings Pte Ltd and its controlled entities (Aura Group).
The Group’s subsidiary, Finsure Holding Pty Ltd has a sub-lease agreement with Aura Group and in addition
pays/recoups a number of shared costs relating to the tenancy and certain employees. Amounts disclosed below
relate to the period since 17 September 2018.
Sub-lease income and other amounts
recouped for services from Aura Group
Amounts paid to Aura Group for services
Amounts receivable from Aura Group
7.4.8 John Kolenda – The Agency Limited
2019
$
635,101
263,933
194,495
2018
$
-
-
-
Mr Kolenda is a non-executive director of The Agency Limited. The Group has a receivable from Top Level Real Estate
Pty Ltd, a subsidiary of The Agency Limited relating to car parking sub-lease income of $47,149.50. Sub-lease income
recognised during the period was $6,194.
7.5
Auditor’s remuneration
Auditors of the Group – KPMG
In thousands of AUD
Audit and review of the financial statements
Regulatory audit services
Total audit and assurance services
Transaction due diligence and advisory
Other advisory services
Total advisory and other services
Total amounts paid/payable to KPMG
2019
$
267
89
356
-
7
7
363
2018
$
75
45
120
100
7
107
227
Pursuant to the Company’s policy, the Chair of the Audit Committee approves non-audit services prior to their
commencement. The Directors are satisfied the provision of non-audit services has complied with the auditor
independence requirements in Australia.
68
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.7
Standby borrowing facilities
The Company has an overdraft facility of $1,200,000 (2018: $1,200,000) with CUSCAL Ltd which is secured by a cash
deposit. As at 30 June 2019, the entire facility was unused (2018: $nil).
7.8
Material service contracts
The Company has service contracts with and is economically dependent upon the following suppliers:
(a)
(b)
CUSCAL Ltd
CUSCAL provides central banking services, chequing services, card services, settlement services, and maintains
the applications software used by the Company. This company operates the switching facilities used to link
Redicards operated through rediATMs, and other approved electronic funds transfer suppliers, to the Company's
core banking system.
TransAction Solutions Limited (TAS)
This company, an Integrated Data Processing Centre, provided and maintained the computer mainframe hardware
utilised by the Company to host the Company’s Core Banking System and Internet Banking application, as well
as providing hosted desktop management systems.
(c)
Temenos Australia Pty Ltd
Temenos provides the Company’s T24 software as a service (SaaS) based Core Banking System which is used to
record and maintain customer balances as well as providing Internet Banking and Mobile Banking applications.
7.9
Commitments and contingencies
In thousands of AUD
(a) Capital expenditure
(b) Outstanding loan commitments
Loans approved not advanced
Loan funds available for redraw
Unutilised overdraft limits
Total lending commitments
(c) Lease commitments
Due not later than one year
Due more than one year but less than five years
Due more than five years
2019
$
-
6,187
9,052
538
15,777
1,373
4,358
107
5,838
2018
$
162
4,634
6,783
649
12,066
64
28
-
92
The Group has obligations under the terms of these leases of its office premises for terms of up to 6 years, with options
to extend the leases. Lease payments are payable in advance by equal monthly instalments due on the 1st day of each
month.
Accounting policy - recognition and measurement
Transactions are classified as contingent liabilities where the Group’s obligations depend on uncertain future events and
principally consist of obligations to third parties.
Items are classified as commitments where the Company has irrevocably committed itself to future transactions. These
transactions will either result in the recognition of an asset or liability in future periods.
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at
the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of
a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly
specified in an arrangement.
69
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.9
Commitments and contingencies (continued)
Operating lease payments are recognised as an operating expense in the income statement on a straight-line basis over
the lease term. Lease incentives received are recognised as an integral part of the total lease expense, over the term of
the lease.
7.10
Events subsequent to balance date
On 26 August 2019, the Company announced the appointment of Mr Jon Denovan as non-executive director with
effect from 1 September 2019, and the retirement of Mr Derek LaFerla on 30 August 2019.
No other matters or circumstances of a material nature have arisen since the end of the financial year which in the
opinion of the Directors significantly affected or may significantly affect the operations of the Company, the results
of the operations or the state of affairs of the Group in future financial years.
8. ACCOUNTING POLICIES AND NEW STANDARDS
8.1
Accounting policies not described elsewhere in this financial report
(i)
(ii)
Borrowings
All loans and borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings
are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs)
and the redemption amount is recognised in the statement of comprehensive income over the period of the
loans and borrowings using the effective interest method.
Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST
incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as
part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in
the statement of financial position are shown inclusive of GST.
Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of
investing and financing activities, which are disclosed as operating cash flows.
8.2
New accounting standards adopted in current period
Australian Accounting Standards and Interpretations effective from the beginning of the current reporting period and
their impact upon this financial report are as follows:
8.2.1 AASB 15 Revenue from Contracts with Customers
AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised.
It replaced AASB 118 Revenue, AASB 111 Construction Contracts and related interpretations.
The Group has adopted AASB 15 using the cumulative effect method (without practical expedients) with the effect of
initially applying this standard at the date of initial application (i.e. 1 July 2018). Accordingly, the information presented
for 2018 has not been restated.
There were no material changes to the manner in which revenue is recognised by the Group under AASB 15 compared
to previous standards, and therefore no transitional adjustments.
70
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
8. ACCOUNTING POLICIES AND NEW STANDARDS
8.2.2 AASB 9 Financial Instruments (continued)
8.2.2 AASB 9 Financial Instruments
AASB 9 sets out the requirements for recognising and measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items. This standard replaces AASB 139 Financial Instruments: Recognition and
Measurement. There was no material change to the amounts previously reported at 30 June 2018 under AASB 139
upon adopting AASB 9 with effect from 1 July 2018.
AASB 9 largely retains the existing requirements in AASB 139 for the classification and measurement of financial
liabilities. However, it eliminates the previous AASB 139 categories for financial assets of held to maturity, loans and
receivables and available for sale.
The adoption of AASB 9 has not had a significant effect on the Group’s accounting policies related to financial liabilities.
The impact of AASB 9 on the classification and measurement of financial assets is set out below.
Under AASB 9, on initial recognition, a financial asset is classified as measured at:
fair value through other comprehensive income (FVOCI) – debt investment;
• amortised cost;
•
• FVOCI – equity investment; or
• Fair value through profit or loss (FVTPL).
The classification of financial assets under AASB 9 is generally based on the business model in which a financial asset
is managed and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a
financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole
is assessed for classification.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as
at FVTPL:
•
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
•
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:
•
•
it is held within a business model whose objective is achieved by both collecting contractual cash flows and
selling financial assets; and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present
subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.
All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL.
This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset
that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates
or significantly reduces an accounting mismatch that would otherwise arise.
A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at
the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are
directly attributable to its acquisition.
The Group has also adopted an expected credit loss model for credit losses in line with the requirements of AASB 9.
Refer to note 3.2 for further details.
71
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
8. ACCOUNTING POLICIES AND NEW STANDARDS
8.2.2 AASB 9 Financial Instruments (continued)
The following accounting policies apply to the subsequent measurement of financial assets.
Classification of financial asset
Financial assets at
through profit or loss (FVTPL)
Subsequent measurement accounting policy
These assets are subsequently measured at fair value. Net gains and
losses, including any interest or dividend income, are recognised in
profit or loss.
fair value
other
Debt investments at fair value
through
comprehensive
income (FVOCI)
Financial assets at amortised cost These assets are subsequently measured at amortised cost using the
effective interest method. The amortised cost is reduced by impairment
losses (see (ii) below). Interest income and impairment are recognised
in profit or loss. Any gain or loss on derecognition is recognised in profit
or loss.
These assets are subsequently measured at amortised cost using the
effective interest method. The amortised cost is reduced by impairment
losses (see (ii) below). Interest income and impairment are recognised
in profit or loss. Any gain or loss on derecognition is recognised in profit
or loss.
These assets are subsequently measured at fair value. Dividends are
recognised as income in profit or loss unless the dividend clearly
represents a recovery of part of the cost of the investment. Other net
gains and losses are recognised in OCI and are never reclassified to
profit or loss.
Equity investments at fair value
through
comprehensive
income (FVOCI)
other
The following table and the accompanying notes below explain the original measurement categories under AASB 139
and the new measurement categories under AASB 9 for each class of the Group’s financial assets as at 1 July 2018.
Financial assets
(Amounts in
thousands of AUD)
Original
classification under
AASB 139
New classification
under AASB 9
Original carrying
amount under AASB
139
New carrying
amount under AASB
9
Held to maturity
Amortised cost
24,507
24,507
Due from other
financial institutions
Investment
securities
Equity securities
Available-for-sale
Loans and advances Loans and
receivables
Other debtors and
prepayments
Loans and
receivables
Held to maturity
Amortised cost
7,034
FVOCI – equity
instrument
Amortised cost
424
170,510
170,510
7,034
424
Amortised cost
712
712
72
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
NOTES TO THE FINANCIAL REPORT
8.3
New accounting standards for application in future periods
8.3.1 AASB 16 Leases
The Group is required to adopt AASB 16 Leases from 1 July 2019. AASB 16 removes the classification of leases as
either operating leases or finance leases, effectively treating all leases as finance leases for lessees.
A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligations to make lease payments.
Short-term leases (less than 12 months) and leases of low-value assets (such as personal computers) are exempt
from the lease accounting requirements. Lessor accounting remains similar to the current standard – i.e. lessors
continue to classify leases as finance or operating leases.
Leases in which the Group is a lessee
The Group will recognise new assets and liabilities for its operating leases of office space. The nature of expenses
related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets
and interest expense on lease liabilities.
Previously, the Group regognised operating lease expense payments on a straight-line basis over the term of the lease,
and recognised assets and liabilities only to the extent there was a timing difference between actual lease payments
and the expense recognised.
In addition, the Group will not be required to recognise onerous lease provisions for leases it assesses to be onerous.
Instead, the Group will include the payments due under the lease in its lease liability.
Management estimates that upon transition to AASB 16, the Group will recognise a right of use asset of $4,501,000, a
corresponding lease liability of $5,006,000 and a deferred tax asset of $151,000. The difference is expected to be a
transitional adjustment to retained earnings.
73
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
DIRECTORS’ DECLARATION
In accordance with a resolution of the Directors of BNK Banking Corporation Limited, I declare that:
1.
In the opinion of the Directors:
a. The consolidated financial statements and notes of BNK Banking Corporation Limited for the
financial year ended 30 June 2019 are in accordance with the Corporations Act 2001, including:
i. Giving a true and fair view of its financial position as at 30 June 2019 and performance for
the financial year ended on that date;
ii. Complying with Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001.
b. The Directors draw attention to Note 2(a) to the consolidated financial statements which include a
statement of compliance with International Financial Reporting Standards.
c. There are reasonable grounds to believe that the Company will be able to pay its debts as and
when they become due and payable.
2. This declaration has been made after receiving the declarations required to be made to the Directors in
accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2019.
On behalf of the Board
Peter Wallace
Director
30 August 2019
74
Independent Auditor’s Report
To the shareholders of BNK Banking Corporation Limited
Report on the audits of the Financial Reports
Opinions
We have audited the consolidated Financial Report of
BNK Banking Corporation Limited (the Group Financial
Report). We have also audited the Financial Report of
BNK Banking Corporation Limited (the Company
Financial Report).
In our opinion, each of the accompanying Group
Financial Report and Company Financial Report are in
accordance with the Corporations Act 2001, including:
• giving a true and fair view of the Group’s and of
the Company’s financial position as at 30 June
2019 and of its financial performance for the year
ended on that date; and
•
complying with Australian Accounting Standards
and the Corporations Regulations 2001.
The respective Financial Reports of the Group and
the Company comprise:
• Statements of financial position as at 30 June
2019
• Statements of profit or loss and other
comprehensive income, statements of changes
in equity, and statements of cash flows for the
year then ended
• Notes including a summary of significant
accounting policies
• Directors’ Declaration.
The Group consists of BNK Banking Corporation
Limited (the Company) and the entities it controlled
at the year-end or from time to time during the
financial year.
Basis for opinions
We conducted our audits in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audits
of the Financial Reports section of our report.
We are independent of the Group and Company in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for
Professional Accountants (the Code) that are relevant to our audits of the Financial Reports in Australia. We
have fulfilled our other ethical responsibilities in accordance with the Code.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
75
Key Audit Matters
The Key Audit Matters we identified for the Group and
Company are:
• Loans and Advances - Provision for credit losses
Additional Key Audit Matters we identified for the
Group are:
• Acquisition Accounting
• Carrying Value of Goodwill and other intangible
assets
• Net Present Value of future trail commission
receivable and payable
Key Audit Matters are those matters that, in
our professional judgment, were of most
significance in our respective audits of the
Financial Reports of the current period.
These matters were addressed in the context of
our audits of each of the Financial Reports as a
whole, and in forming our opinions thereon, and
we do not provide a separate opinion on these
matters.
Loans and Advances - Provision for credit losses $0.3m – Group and Company
Refer to Note 3.2 to the Group and Company Financial Report
The key audit matter
How the matter was addressed in our audit
Expected credit loss (ECL) provisions for loans
and advances held at amortised cost is a key
audit matter due to the significance of loans
and advances balances, the degree of
complexity and judgement applied by the
Group and Company in determining the
provisions, and the judgement required by us
in challenging these estimates. The Group
and Company adopted AASB 9 Financial
Instruments (AASB 9) on 1 July 2018.
The Group and Company have developed an
ECL model to determine its expected credit
losses on its loans and advances. The ECL
model is reliant on numerous data inputs and
assumptions including past historical data the
Group and Company used to determine
probabilities of default as well as incorporating
forward-looking information. The Group and
Company engaged an external expert to
assist in developing its ECL model.
We used judgement to assess the ECL
model’s application of the requirements in
AASB 9 including the assumptions made by
the Group and Company in determining what
represents a significant increase in credit risk
and the method used to calculate the
probability of default and loss given default
based on the staging criteria required.
Our procedures included:
•
Evaluated the Group and Company’s processes and
tested key controls such as:
- Reconciliation of historical loan portfolio data used in
the model to the underlying core banking system to
determine probability of default; and
- Management’s review and approval of the ECL
model and key assumptions used.
• Assessed the methodology in the ECL model against the
requirements in the accounting standards and our
understanding of industry practice;
• Assessed the integrity of the ECL model, including the
accuracy of the underlying calculations;
• Assessed the scope, competence and objectivity of the
Group’s external expert;
• Tested a sample of key data elements used in
determining the probability of default such as historical
default rates to relevant source systems;
• Challenged the assumptions for calculating the
exposures at default used by the Group and Company to
determine the loss given default in the ECL model by
comparing these to our understanding of the Group’s
loans and advances portfolio and the industry and
markets the Group and Company operate in;
• Comparing the output of the ECL model to the expected
credit loss provision recorded in the financial report; and
• Assessment of the Group’s disclosures using our
understanding obtained from our testing and the
requirements of the accounting standards.
76
Acquisition Accounting $53million – Group
Refer to Note 6.1.2 Acquisition of Subsidiaries and Note 7.2 Goodwill and other intangible assets to the Group
Financial Report
The key audit matter
How the matter was addressed in our audit
During the year, the Group acquired Finsure
Holding Pty Ltd and its controlled entities
through the issue of 40,750,000 of its own
shares for a total consideration of
$52.98million.
Acquisition accounting was considered a key
audit matter due to the:
• Size of the acquisition having a pervasive
impact on the financial statements
including the recognition of Identified
Intangible Assets (IIAs) relating to Brand
names, Software and Broker relationships
of $24.2million and resulting goodwill of
$19.2million; and
• Significant judgement required to assess
the Group’s purchase price allocation
(PPA) acquisition accounting to:
-
-
value the Identified Intangible Assets
using assumptions such as royalty
rates and the cost to recreate
method, and discount rates used; and
recognise deferred tax assets relating
to carry forward losses and assess
their recoverability.
The Group engaged external experts to assist
with these assessments.
We involved our specialists to supplement our
senior audit team members in assessing this
key audit matter.
Our procedures included:
• Assessed the Scheme of Arrangement related to the
acquisition to understand the structure, key terms and
conditions, and nature of purchase consideration;
• Evaluated the accounting treatment of the purchase
consideration and transaction costs against the criteria in
the accounting standards;
• Assessed the scope, competence and objectivity of the
Group’s external experts involved in the PPA for
valuation of IIAs and recognition of tax balances;
• Worked with our specialists to:
-
-
-
assess the Group’s methodology to identify and
value the IIAs. We did this by comparing to accepted
industry practice and the requirements of the
accounting standards;
assess the Group’s assumptions used in the
valuation of IIAs such as the royalty rates and
discount rates. We compared the assumptions to
published comparable company rates, and
considered differences for the Group’s operations.
We used our knowledge of the Group, their past
performance, business and customers, and our
industry experience;
independently develop a discount rate and royalty
rate (for Brand name intangibles) range considered
comparable, using publicly available data for
comparable entities; and
-
assess the Group’s recognition of carry forward tax
losses available and tax balances recognised.
• Assessment of the Group’s disclosures in relation to the
business acquisition, by comparing these disclosures to
our understanding obtained from our testing and the
requirements of the accounting standards.
77
Carrying Value of Goodwill and other intangible assets $47.2million – Group
Refer to Note 7.2 to the Group Financial Report
The key audit matter
How the matter was addressed in our audits
A key audit matter was the Group’s annual
testing of goodwill and other intangible assets
for impairment. We focussed on the key
assumptions the Group applied in their value
in use (“VIU”) models for each CGU,
including:
• Budgeted revenue growth rates;
• Terminal value growth rates; and
• Discount rates used specific to each of
the three CGUs, Banking, Aggregation
and Wholesale.
These assumptions and rates are complicated
in nature and vary according to the conditions
and environment the specific Cash Generating
Unit (CGU) is subject to from time to time.
The assumptions and rates are based on
historical performance and forward looking
budgeting taking into account the Group’s
strategy, market conditions, emerging
regulatory changes and industry
developments making them judgemental in
nature.
The Group’s modelling is highly sensitive to
small changes in the discount rates and
terminal value growth rates used.
We focused on the Group’s determination of
CGUs and allocation of goodwill post
acquisition of Finsure Holding Pty Ltd and its
controlled entities.
We involved valuation specialists to
supplement our senior audit team members
in assessing this key audit matter.
Our procedures included:
• Considered the Group’s determination of their CGUs
based on our understanding of the operations of the
Group’s business, impact of the acquisition of Finsure
Holding Pty Ltd and its controlled entities, and how
independent cash flows were generated, against the
requirements of the accounting standards;
• Worked with our valuation specialists to:
-
-
-
assess the appropriateness of the Group’s use of the
value in use method to perform the annual test of
impairment for goodwill against the requirements of
the accounting standards;
assess the integrity of the VIU models used,
including the accuracy of the underlying calculation
formulas; and
independently develop a discount rate range
considered comparable using publicly available
market data for comparable entities, adjusted by risk
factors specific to the Group and the industry it
operates in.
• Assessed the accuracy of the budgeted revenue growth
rates contained in the VIU models by comparing Board
approved forecasts to Group budgets and actual results
to inform our evaluation of the forecasts incorporated in
the models;
• Challenged the significant budgeted revenue growth rate
assumptions and terminal value growth rates in light of
the Group’s strategy taking into account market
conditions and emerging regulatory changes. We
compared budgeted revenue growth rates and terminal
value growth rates to industry trends and expectations,
and considered differences for the Group’s operations.
We used our knowledge of the Group, their past
performance, business and customers, and our industry
experience;
• Considered the sensitivity of the models by varying key
assumptions, such as discount rates and growth rates,
within a reasonably possible range. We did this to
identify those assumptions at higher risk of bias or
inconsistency in application and to focus our further
procedures; and
• Assessed the disclosures in the financial report using our
understanding obtained from our testing and against the
requirements of the accounting standards
78
Net Present Value of future trail commission receivable $269.4million and payable $230.4million –
Group
Refer to Note 4.4 to the Group Financial Report
The key audit matter
How the matter was addressed in our audit
The Group earns and pays trail commissions
over the life of the loans resulting in a trail
commission receivable of $269 million and
trail commission payable of $230 million.
This is a key audit matter due to the
significant judgement we applied to assess
the Group’s estimation of the value of trail
commissions receivable and payable across
trail commission portfolios. We focused on
the key assumptions the Group applied in
their net present value (NPV) model,
including:
• Discount rates per annum;
• Percentage of commissions paid to
brokers across different portfolios; and
• Weighted average life of aggregation,
wholesale, and total portfolio loans.
We involved our valuation specialists in
assessing this key audit matter.
Our procedures included:
• Evaluated the Group’s processes and tested key controls
such as the review and approval of assumptions used in
the Group’s NPV model for estimating the value of the
trail commissions receivable and payable;
• Assessed the extraction of loan data used in the Group’s
NPV model for completeness and accuracy by testing a
sample of commission contract rates back to broker
agreements;
• Worked with our valuation specialists to:
-
-
-
assess the appropriateness of the methodology
adopted in the Group’s NPV model across the trail
commission portfolios against accepted industry
practice and the requirements of the accounting
standards;
evaluate the key assumptions such as discount
rates, weighted average life and percentages of
commissions paid against publicly available market
data for comparable entities; and
assess the integrity of the Group’s NPV model
including the accuracy of the underlying calculation
formulas.
• Evaluated the sensitivity of the NPV model calculations
by considering reasonably possible changes to the
discount rate and weighted average life rates. We did
this to identify those assumptions at higher risk of bias or
inconsistency in application and to focus our further
procedures; and
• Assessment of the adequacy of disclosures against the
requirements of the accounting standards.
79
Other Information
Other Information is financial and non-financial information in BNK Banking Corporation Limited’s annual
reporting which is provided in addition to the Financial Reports and the Auditor’s Report. The Directors are
responsible for the Other Information.
Our opinions on the Financial Reports do not cover the Other Information and, accordingly, we do not express
an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report
and our related assurance opinion.
In connection with our audits of the Financial Reports, our responsibility is to read the Other Information. In
doing so, we consider whether the Other Information is materially inconsistent with the Financial Reports or
our knowledge obtained in the audits, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and
based on the work we have performed on the Other Information that we obtained prior to the date of this
Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Reports
The Directors are responsible for:
• preparing the Financial Reports that give a true and fair view in accordance with Australian Accounting
Standards and the Corporations Act 2001
•
implementing necessary internal controls to enable the preparation of a Financial Report that gives a true
and fair view and is free from material misstatement, whether due to fraud or error
• assessing the Group and Company’s ability to continue as a going concern and whether the use of the
going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless they either intend to liquidate the
Group or Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audits of the Financial Reports
Our objective is:
•
•
to obtain reasonable assurance about whether each of the Financial Reports as a whole are free from
material misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinions.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the
Financial Report.
A further description of our responsibilities for the audits of the Financial Reports is located at the Auditing and
Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This
description forms part of our Auditor’s Report.
80
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of BNK
Banking Corporation Limited for the year ended 30
June 2019, complies with Section 300A of the
Corporations Act 2001.
The Directors of the Company are responsible for
the preparation and presentation of the
Remuneration Report in accordance with Section
300A of the Corporations Act 2001.
Our responsibilities
We have audited the Remuneration Report included
in pages 11 to 19 of the Directors’ report for the year
ended 30 June 2019.
Our responsibility is to express an opinion on the
Remuneration Report, based on our audit conducted
in accordance with Australian Auditing Standards.
KPMG
Nicholas Buchanan
Partner
Sydney
30 August 2019
KPM_INI_01
PAR_SIG_01
PAR_NAM_01
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
81
ADDITIONAL ASX INFORMATION
Additional information required by the Australian Stock Exchange Ltd and not shown elsewhere in this report is
as follows. The information is current as at 29 August 2018.
(a)
Distribution of equity securities
BNK Banking Corporation Limited
Annual Financial Report
30 June 2019
Spread of
holdings
1 -
1,000
1,001 - 5,000
10,000
5,001 -
10,001 -
100,000
100,001+
TOTAL
Number
of
holders
51
1,606
49
112
28
1,846
Number of
units
Percentage of
total issued
capital
44,307
3,863,599
657,408
9,627,949
68,222,136
82,415,399
0.054
4.688
0.798
11.682
82.778
100 %
(b)
Twenty largest holders of quoted equity securities
Rank
Shareholder
Number of
units
Percentage
of issued
capital
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
JOHN KOLENDA
KAR WING NG
HSBC CUSTODY NOMINEES (AUSTRALIA)
LIMITED
RESIMAC LIMITED
AOYIN GROUP LIMITED
CARPE DIEM ASSET MANAGEMENT PTY LTD
KOLEET PTY LTD
INVIA CUSTODIAN PTY LIMITED
FIRSTMAC LIMITED
CITICORP NOMINEES PTY LIMITED
HOSKING FINANCIAL INVESTMENTS PTY LTD
SAVOT 1 PTY LTD
BVC INVESTMENTS PTY LTD
MR SIMON BEDNAR + MRS JENNIFER BEDNAR
VANVAL INVESTMENTS PTY LTD
NOAH JAMES INVESTMENTS PTY LTD
SIMON PETER LYONS + JENNIFER CORAL LYONS
ZACH VENEZIANO PTY LTD
ONE MANAGED INVT FUNDS LTD
K M K SUPER HOLDINGS PTY LTD
TOTAL
13,927,478
7,674,747
5,890,724
3,725,591
2,629,996
2,430,190
1,787,163
1,769,416
1,465,376
1,440,000
1,201,454
1,153,334
1,153,334
1,153,333
1,133,721
1,133,721
948,000
855,531
808,913
745,000
16.9
9.31
7.15
4.52
3.19
2.95
2.23
2.17
2.15
1.78
1.75
1.46
1.4
1.4
1.4
1.38
1.15
1.04
0.98
0.9
53,734,444
65.2
82