BNK Banking Corporation Limited
Annual Financial Report
ABN: 63 087 651 849
30 June 2020
1
Contents
CORPORATE INFORMATION ............................................................................................................... 3
DIRECTORS’ REPORT ........................................................................................................................... 4
INDEPENDENT AUDITOR’S DECLARATION .................................................................................. 22
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME .................... 23
STATEMENTS OF FINANCIAL POSITION ....................................................................................... 24
STATEMENTS OF CHANGES IN EQUITY ....................................................................................... 25
STATEMENTS OF CASH FLOWS ..................................................................................................... 27
NOTES TO THE FINANCIAL REPORT ............................................................................................. 28
DIRECTORS’ DECLARATION ............................................................................................................. 78
INDEPENDENT AUDITOR’S REPORT .............................................................................................. 79
ADDITIONAL ASX INFORMATION .................................................................................................... 85
2
CORPORATE INFORMATION
ACN: 087 651 849
Directors
Mr. Jon Sutton
Mr. Jon Denovan
Mr. Peter Hall
Mr. Don Koch
Mr. John Kolenda
Company Secretary
Mr. Malcolm Cowell
(Chairman and Non-Executive Director)
(Non-Executive Director)
(Non-Executive Director)
(Interim Chief Executive Officer and Director)
(Executive Director)
The registered office and principal place of business of the Company is:
Level 14, 191 St George’s Terrace
Perth WA 6000
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) 6370 4203
Exchange Listing
Australian Securities Exchange Limited
Level 40, Central Park
152-158 St George’s Terrace
Perth WA 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 2020
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 2020 and the auditor’s report thereon.
DIRECTORS
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.
Current directors
Mr Jon Sutton
Mr Peter Hall
Mr Don Koch
Mr Jon Denovan
Mr John Kolenda
Former directors
Mr Peter Wallace
Mr Derek LaFerla
Mr Simon Lyons
Chairman and Non-Executive Director (appointed director 22 October 2019 and
Chairman from 26 November 2019)
Non-Executive Director
Interim Chief Executive Officer and Director (Interim Chief Executive Officer from
25 May 2020)
Non-executive Director (appointed 2 September 2019)
Executive Director
Chairman and Non-Executive Director (resigned 26 November 2019)
Non-Executive Director (resigned 30 August 2019)
Managing Director (resigned 25 May 2020)
Jon Sutton (Chairman and Non-Executive Director)
Mr Sutton was appointed a director on 22 October 2019. He has more than 25 years of experience. Jon was
the CEO and Managing Director of the Bank of Queensland (BOQ) and retired in 2018. Prior to joining BOQ he
served as CEO and Managing Director of Bankwest, and was part of the acquisition team that purchased
Bankwest from its parent HBOS. Jon has also held senior roles in CBA as the Head of Agribusiness and has
over ten years’ experience in markets experience having worked in senior roles in CBA’s Global Markets
Division. Mr Sutton is a Director of Sydney Football Club and an Advisory Board Member to SendFX.
Mr Sutton was appointed Chairman following the Company’s 2019 Annual General Meeting, is the Chair of
the Remuneration Committee and a Member of the Audit Committee, Credit Committee and Risk &
Compliance Committee.
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.
Mr Hall holds a Graduate Diploma of Management, has completed Executive Management Programs at GE’s
global management college, a former 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 and Remuneration Committee.
Don Koch (Interim Chief Executive Officer and 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 is a
Governor on the Cerebral Palsy Association Research Foundation, Advisor to the UTS Business School
Industry Advisory Board, Director of Target Fifteen and an Advisory Board Member of Glaucoma Australia
ICT Committee.
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. Mr Koch was
appointed Interim Chief Executive Officer on 25 May 2020 following the resignation of Mr Simon Lyons.
4
DIRECTORS’ REPORT (continued)
Jon Denovan (Non-Executive Director)
Mr Denovan was appointed a Director on 2 September 2019. Mr Denovan is a Special Counsel with leading
national law firm, Dentons, and is a leading industry authority on regulation and compliance for the mortgage
industry. He is regularly consulted by the Commonwealth Government and industry bodies on matters
relevant to the National Consumer Credit Protection Act, National Credit Code, best interests obligations,
amongst others.
Mr Denovan is the Chair of the Audit Committee, and a member of the Risk & Compliance Committee and
Credit Committee.
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 and resigned 20 December 2019
IBuyNew Group Limited – appointed 1 February 2013 and resigned 22 March 2017
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.
PRINCIPAL ACTIVITIES
The BNK Group 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
30 June 2020
Statutory
30 June 2019
Statutory
Net interest revenue
Net-commission income
Non-interest revenue
Net statutory 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
4,813
19,129
14,441
5,324
839,287
283,561
46,804
2,299,524
45,472,632
48,102,521
345,791
1.61%
21.22%
3,451
17,398
9,392
3,614
646,142
214,323
37,528
2,340,000
38,091,000
40,629,851
287,126
Movement %
Statutory
39.5%
9.9%
53.8%
47.3%
29.9%
32.3%
24.7%
(1.7%)
19.4%
18.2%
20.4%
1.95%
20.35%
(17.4%)
(0.60%)
* Refer to the reconciliation to statutory profit/(loss) below
The Group has recorded statutory net profit after tax for the year ended 30 June 2020 (FY20) of $5,324,000
(2019: profit of $3,614,000), a 47.3% increase over the corresponding period (a 63.1% increase on a proforma1
basis).
1 The merger between the Company and Finsure occurred on 17 September 2018. Proforma refers to the profit/loss result
had the merger occurred on 1 July 2018.
5
DIRECTORS’ REPORT (continued)
Sound result despite COVID-19
The Group’s result for FY20 represents a sound outcome in light of the impact of COVID-19 experienced by
the Australian economy. Record settlements achieved by Finsure and the Bank demonstrated the value
proposition offered to brokers and retail customers alike, whilst settlement volumes for Better Choice
reflected the shift in focus to higher margin on balance sheet loans and the impact of tightening credit
conditions imposed by its external funding partners. Repayment deferrals for BNK’s banking customers as
at 30 June 2020 were significantly below system levels at 5%, compared to 10% reported by APRA and reflects
the quality and diversification of the portfolio. The increase in NPAT demonstrates the Group’s strategy is
yielding increased operating leverage.
Closure of the Bank’s two branches in regional Western Australia was completed in Q320 and the Group is
now a branchless bank pursuing a fully digital banking strategy, complemented by a broker led lending
distribution capability through the Finsure and Better Choice brands.
Record settlements and loan-book growth
Record Finsure settlements of $15.6b represent a 23% increase and $129m in new loans onto the banking
balance sheet, represents a year-on-year growth of +73%.
Total loan-book grew to an overall balance of $48.1b, or +18% growth and Total Bank lending assets grew
from $214m in FY19 to $284m in FY20 (+33%). Additionally, the number of loan writers grew 1,740 importantly
driving further diversification of revenue streams for Finsure, whilst Better Choice distribution network
increased to a potential 6,500+ brokers after joining the PLAN Australia lending panel.
As the effects of COVID-19 became more apparent to the Australian economy, BNK adopted a prudent
response and took steps to deliberately moderate loan originations through Q420. BNK has slowly reactivated
loan originations from June 2020 onwards and the pipeline is indicating improved opportunities to cautiously
grow the on balance sheet loan portfolio.
Net income for the period grew +27% reflecting healthy portfolio growth. Net commission income grew +10%
for the period reflecting continued growth in Finsure’s trail commission loan book. Aggregation service fees
increased +39% as the shift in commission model to fee based income streams continues. Service fees and
residual income received by Better Choice and the BNK increased +22%. Net interest margin declined to 1.61%
(2019: 1.95%) as a result of the two official rate cuts passed on during the year, and elevated liquidity levels
held following the onset of COVID-19.
The Bank’s credit quality has been maintained at a sound level with a loss coverage ratio (bad debt provisions
as a portion of lending asset-base) of 25bps, an increase from 12bps in FY19 as additional overlays were
applied to modelled outcomes. There were no lending write-offs in FY20 however loss provisions increased
as a result of the growth in the loan book. BNK’s close contact with customers and proactive approach has
led to a number of customers returning to full performing status ahead of agreed deferral timeframes. The
Group has continued its objective of reducing portfolio concentration from Western Australia (WA), as well
as diversifying origination channels with the on balance sheet for WA reducing from 67% in FY19 to 46% at
30 June 2020.
6
DIRECTORS’ REPORT (continued)
Funding effectively for growth
Deposits comprise at-call accounts and term deposits which are sourced directly from retail customers and
through various deposit brokers. The Bank continues to successfully achieve a key objective to increase its
growing the Bank’s deposit base, and transform its funding mix. Transactional accounts now account for 36%
of total deposits and the Bank leveraged its Mozo awards through promotion of the Retire Style and Cash
Management Accounts through new platforms, contributing to this funding diversification. As part of the
Commonwealth Government’s industry support response to COVID-19, BNK became eligible to $8m of low
cost funding under the RBA’s Term Funding Facility. This amount has been subsequently drawn down and
is repayable in August 2023.
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. Liquidity
management falls under the remit of Asset & Liability Committee (ALCO), which ensures the Group operates
within its policy settings. ALCO also reviews and approves changes in product level interest rates and the
implementation of new products. BNK maintained elevated liquidity levels through H220, which are
progressively being reduced which is having a positive impact to the overall cost of funds (COF). For FY21,
BNK is targeting COF sub 1%.
Investment in technology continues to be critical to the Group. Successful completion and rollout of the
innovative Infynity CRM platform was completed in Q220. Infynity is an industry leading cloud based CRM
with open API connectivity enabling Finsure’s marketplace to integrate with more products and services
offered by 3rd parties. Better Choice continued to consolidate legacy books onto its new Loanworks platform
and BNK continued to engage with Temenos for delivery of its R18 core banking system upgrade.
Operating expenses
The Group continued to invest in its people and processes, with operating expenses increasing 17% to $27.8m.
This included redundancy and closure costs for the two branches in regional Western Australia, legal costs
associated with the investigation and process of the ATM insurance claim, and termination costs. The Group
responded to the impact of COVID-19 through temporary board and executive salary reductions, and a critical
review of operating expenses. Disciplined cost management processes have been reinforced across the Group
and discretionary expenditure curtailed where possible without undue detriment to the business.
Capital
The Group’s policy is to maintain a minimum capital adequacy ratio (CAR) as per APRA required levels. The
CAR at 30 June 2020 of 21.22% 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.
The Group completed a placement in February 2020, raising $7m of new share capital, and approval has been
received from APRA to issue a Tier 2 hybrid equity instrument, which will provide funding diversity once
completed. The Group has recently appointed Bell Potter as Corporate Advisor to assist with raising the Tier
2 hybrid instrument.
7
DIRECTORS’ REPORT (continued)
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 2020.
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:
Number of ordinary shares
Number of options or
performance rights over ordinary
shares
Jon Sutton
Don Koch
Peter Hall
Jon Denovan
John Kolenda
60,000
-
72,034
-
13,302,952
-
-
-
-
-
Interests in ordinary shares noted above were acquired by the Directors at their own expense and do not form
part of their remuneration.
SHARE OPTIONS AND RIGHTS OVER SHARES
The Company has 1,791,666 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
J Sutton
D Koch
P Hall
J Denovan
J Kolenda
P Wallace
D LaFerla
S Lyons
17
21
21
21*
19
5
2
17
18
21
21
19
21
5
2
17
* Attendance by invitation.
4
5
5
5
-
2
1
4
5
5
4
-
2
1
3
4
4
3
-
1
-
3
3
4
3
-
1
-
4*
4*
3*
3*
2
2
5
-
1*
3
1
4*
2
2
5
-
-
3
1
4*
2
2*
2
1
-
-
-
-
2
2*
2
2
-
-
-
-
8
DIRECTORS’ REPORT (continued)
CHANGES IN THE STATE OF AFFAIRS
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.
EVENTS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR
On 14 July 2020 the Company received partial indemnification from the insurer in respect of $1,197,750 of
the ATM fraud claim.
On 7 August 2020, the Company announced the appointment of Mr. Brett Morgan as Chief Executive Officer
of the Banking and Wholesale divisions with Mr. John Kolenda to assume the position of Chief Executive
Officer of the Aggregation divisions.
On 28 August 2020, the Company issued 450,000 performance rights to certain executives and employees.
Other than the matters noted above, 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
On 14 July 2020 the Company received partial indemnification from the insurer in respect of $1,197,750 of the
ATM fraud claim. On 11 August 2020, the Company submitted the remaining information to its insurer in relation
to the balance of the claim. The outcome of the claim has not been finalised at the date of this report.
Since balance date, the number of customers subject to COVID-19 repayment deferral arrangements has
decreased with approved deferral arrangements now comprising 4.5% of the loan portfolio, a reduction from
5.0% at 30 June 2020.
No other 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.
9
DIRECTORS’ REPORT (continued)
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 30 June 2020:
Non audit services
Accounting and tax opinions
Audit and assurance services
Audit and review of financial statements
Regulatory assurance services
Total audit and assurance services
Total amounts paid to KPMG
$
50,000
292,270
108,000
400,270
450,270
AUDITORS INDEPENDENCE DECLARATION
The lead auditor’s independence declaration provided in accordance with S307C of the Corporations Act 2001
is set out on page 22 and forms part of the Directors’ report for the financial year ended 30 June 2020.
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)
This Remuneration Report for the year ended 30 June 2020 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 philosophy
B. Approach to setting remuneration
C. Detail of incentive plans
4. Executive remuneration outcomes for 2020 (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
10. Remuneration incentives approved subsequent to balance date
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
2020:
Non-Executives
Director
Jon Sutton
Don Koch1
Jon Denovan
Peter Hall
Peter Wallace
Derek La Ferla
Position
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Chairman
Non-Executive Director
Appointment date
22 October 2019
11 June 2019
2 September 2019
13 November 2015
8 August 2014
16 November 2015
Resignation date
-
-
-
-
26 November 2019
30 August 2019
1 Non-Executive Director until 25 May 2020. Mr Koch is currently fulfilling the role of Interim Chief Executive
Officer. Mr Brett Morgan will commence on 12 October 2020 as Chief Executive Officer of the Banking and
Wholesale divisions, and Mr Koch will revert to his role as Deputy Chairman and Chair of the Audit
Committee.
Executives
Executive
Don Koch
John Kolenda
Allan Savins1
Simon Bednar1
Jussi Nunes
Steve Ellis
Lisa Stedman
Simon Lyons
Position
Interim Chief Executive Officer
Executive Director and Chief
Executive Officer of Finsure
General Manager, Banking &
Wholesale
General Manager, Aggregation
Chief Financial Officer
Chief Risk Officer
Chief Operating Officer
Managing Director
Appointment date
26 May 2020
13 March 2018
17 September 2018
17 September 2018
10 December 2018
17 July 2016
10 July 2019
18 January 2016
Resignation date
-
-
-
-
-
-
-
25 May 2020
1 Key Management Personnel from 1 July 2019
11
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
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 Non-Executive Directors (NEDs) with all being independent.
The Remuneration Committee meets periodically and is required to make recommendations to the board
on matters related to the remuneration arrangements for NEDs and executives. The Chief Executive Officer
(or previously 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 executive leadership team 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.
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 Remuneration
Committee engaged BDO Reward Pty Ltd (BDO) to review the Group’s remuneration framework, and provide
advice in relation to remuneration benchmarking, variable remuneration schemes and balanced scorecard
structures. This engagement was undertaken given the significant change in the Group’s structure over
the preceding two years and to ensure the Group would comply with the requirements of the Banking
Executive Accountability Regime (BEAR) that now applies to the Group.
BDO was paid $101,750 for these services.
The engagement by the Remuneration Committee was based on an agreed set of protocols that would be
followed by BDO, members of the Remuneration Committee and members of the key management
personnel for the way in which remuneration recommendations would be developed and provided to the
Board.
The protocols included the prohibition of BDO providing advice or recommendations to key management
personnel prior to the advice or recommendations being provided to the Remuneration Committee and not
unless BDO had approval from the Remuneration Committee. These arrangements were implemented to
ensure that BDO would be free to carry out its work free from undue influence by members of the key
management personnel about whom the recommendations may relate.
The Board is satisfied that the recommendations by BDO were free from undue influence of members of
the key management personnel about whom the recommendations may relate. The recommendations
and advice provided by BDO are being considered by the Remuneration Committee and Board for
implementation in the 2021 financial year.
Remuneration Report approval at 2019 Annual General Meeting (AGM)
The 2019 Remuneration Report received positive shareholder support at the 2019 AGM with a vote of 98%.
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 behaviours that support
an improvement in the financial performance of the business over time, sound risk management practices
and positive customer service experiences. To this end, the Group applies the following principles to its
remuneration framework:
12
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
Provide competitive rewards to attract and retain high-caliber people;
Link executive rewards to shareholder value; and
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 (refer to section 6 of this Remuneration Report for information on
NED 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 (STI)
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.
Group 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.
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 the
performance of the Group and individual, and the broader economic environment.
3.3 Detail of incentive plans
Short-term incentive (STI)
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. Incentives are awarded in accordance with
the requirements of the Banking Executive Accounting Regime (BEAR). The BEAR was implemented in
Australia to establish clear and heightened expectations of accountability for directors and executives of
Authorised Deposit-taking Institutions, and to ensure there are clear consequences in the event of a
material failure to meet those expectations. BEAR applies to BNK from 1 July 2019 and results in a
proportion of variable remuneration for a year being deferred for a period of 4 years from grant date.
13
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
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 continuation of the BNK Equity Incentive Plan (“the Plan”) at
the 2019 Annual General Meeting held on 26 November 2019. 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.
4.1 Executive remuneration outcomes for 2020 (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
2020
5,324,000
Nil
$0.43
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
4.70%
3.60%
(1.65%)
(4.93%)
(0.56%)
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.
During the year ended 30 June 2020, the fixed remuneration of the Group’s Board and executive leadership
team was reduced by 20% on a temporary basis in response to the impact of COVID-19 on the Group.
This initiative was adopted to maximise the Group’s ability to retain its valued team of employees and in
order to ensure the Group was well positioned to come out of COVID-19 and progress its growth objectives
strongly.
Subsequent to balance date, the Remuneration Committee considered and the Board approved
recommendations for remuneration outcomes for members of the executive leadership in relation to the
year ended 30 June 2020 as set out in section 10 of the Remuneration Report.
14
BNK Banking Corporation Limited
Annual Financial Report
30 June 2020
Termination
Total
Performance
related
Shared-
based
payments
LTI (C)
Other
long
term
Long
service
leave
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
4.1 Remuneration of key management personnel
Short-term benefits
Post-
employment
Salary &
fees
STI (A)
Cash
bonus
Total
Superannuation
Jussi Nunes2
Executives
Don Koch1
John Kolenda
Year
2020
2020
2019
2020
2019
2020
2019
Lisa Stedman3
2020
Allan Savins4
2020
Simon Bednar4 2020
Steve Ellis
$
33,720
627,000
518,833
344,846
194,209
223,385
218,574
282,692
358,327
281,568
Former
Executives
Simon Lyons
Malcolm
Cowell5
Total
2020
2019
448,557
429,745
92,360
2019
2020 2,600,095
1,453,722
2019
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Non-
monetary
benefits
(B)
$
-
15,000
11,792
7,500
-
-
-
-
-
5,010
$
-
-
-
25,000
-
-
50,000
-
20,000
-
33,720
642,000
530,625
377,346
194,209
223,385
268,574
282,692
383,327
286,578
50,000
100,000
76,137
41,000
574,694
570,745
15,000
100,000
165,000
1,424
103,647
54,216
108,784
2,803,742
1,672,938
$
$
$
$
-
-
-
834
667
171
1,126
-
4,828
16,151
-
-
-
-
-
27,140
131,194
-
66,057
66,057
$
-
-
-
-
-
-
-
-
-
-
$
36,923
642,000
530,625
410,941
212,360
271,918
425,084
309,548
491,053
396,099
(40,129)
20,003
40,680
433,749
303
(18,145)
22,099
24,159
199,934
589,101
212,500
-
-
212,500
-
826,030
1,044,112
141,679
3,384,511
2,353,860
%
0%
0%
0%
6%
0%
10%
43%
0%
19%
17%
11%
51%
28%
9%
32%
3,203
-
-
32,760
17,484
21,222
24,190
26,856
36,841
27,313
38,285
19,615
8,433
186,480
69,722
1 Interim Chief Executive Officer from 26 May 2020
2 Appointed as Group Chief Financial Officer on 10 December 2018
3 Appointed as Chief Operating Officer on 10 July 2019
4 Assessed as KMP from 1 July 2019
5 Ceased 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 generally comprise housing allowance and/or car parking benefits
(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
BNK Banking Corporation Limited
Annual Financial Report
30 June 2020
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
4.2 Analysis of bonuses included in remuneration – audited
Details of the short-term incentive cash bonus awarded as remuneration to key management personnel
are detailed below:
Short-term incentive bonus
Simon Lyons
Allan Savins
Jussi Nunes
Included in
remuneration
$50,000
$25,000
$25,000
% awarded in year
% forfeited in year
29
-
-
71
-
-
4.3 Equity instruments - audited
Performance rights refer to rights over ordinary shares of BNK, which vest on a one-for-one basis under
the BNK Equity Incentive Plan.
4.3.1 Rights over equity instruments granted as compensation – audited
Details on rights over ordinary shares in the Company that were granted as remuneration to each key
management personnel during the reporting period are as follows:
Vesting
condition
Number
of
rights
granted
during
FY20
50,000 Service and
performance1
50,000 Service and
performance1
50,000 Service and
performance1
Rights holder
Allan Savins
Jussi Nunes
Simon Bednar
Fair value at
Grant date
grant date ($)
Expiry date
5 December 2019
5 December 2019
5 December 2019
0.58
0.58
0.58
29 November 2023
29 November 2023
29 November 2023
1 Refer to note 7.4.2 for further information of the vesting conditions.
4.3.2 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 Lyons1
666,667 9 February 2017
100,000 30 October 2017
Steve Ellis
200,000 9 February 2017
50,000 30 October 2017
50,000
1 November 2018
0%
0%
0%
0%
0%
Allan Savins
66,666
16 April 2019
100%
66,667
16 April 2019
66,667
16 April 2019
16,667 5 December 2019
16,667 5 December 2019
16,666 5 December 2019
0%
0%
0%
0%
0%
16
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
(A)
(A)
(A)
(A)
2021
2020
2021
2022
2021
2022
2023
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
4.3.2 Details of equity incentives affecting current and future remuneration – audited (continued)
% vested % forfeited
in which grant
Financial years
Participant
Number
Grant date
in year
in year
Simon Bednar
66,666
16 April 2019
100%
66,667
16 April 2019
66,667
16 April 2019
16,667 5 December 2019
16,667 5 December 2019
16,666 5 December 2019
Jussi Nunes
16,667 5 December 2019
16,667 5 December 2019
16,666 5 December 2019
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
vests
2020
2021
2022
2021
2022
2023
2021
2022
2023
1 Ceased to be an executive on 25 May 2020.
(A) Performance rights previously subject to performance conditions and change of control provisions.
Amounts vested during 2019 based on the Board exercising its ultimate discretion following the merger
with Finsure.
4.3.3 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
Allan Savins
Simon Bednar
Jussi Nunes
Granted in
year
$ (A)
29,000
29,000
29,000
Value of rights
exercised
in year $ (B)
45,100
45,100
-
(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.
4.3.4 Summary of rights holdings
Participant
Simon Lyons1
Steve Ellis
Jussi Nunes
Allan Savins
Simon Bednar
Held at 1
July
2019
766,667
300,000
-
200,000
200,000
Granted as
remuneration Exercised
-
-
50,000
50,000
50,000
-
(125,000)
-
(66,666)
(66,666)
Lapsed
-
-
-
-
-
Forfeited
-
-
-
-
-
1 Ceased to be a KMP on 25 May 2020.
Held at
30 June
2020
766,667
175,000
50,000
183,334
183,334
Vested
during
the year
-
-
-
66,666
66,666
Vested and
exercisable
at 30 June
2020
766,667
175,000
-
-
-
17
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
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
Don Koch
John Kolenda
Jussi Nunes
Steve Ellis
Lisa Stedman
Allan Savins
Simon Bednar
$400,000 plus
superannuation for the
period he is acting as
Interim Chief Executive
Officer
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%
$300,000 plus
superannuation
contributions currently
at 9.5%
$350,000 plus
superannuation
contributions currently
at 9.5%
$300,000 plus
superannuation
contributions currently
at 9.5%
None
None
None
None
None
None
None
Term of agreement
and notice period
Fixed term for 3
months ending 26
August 2020
Continuing with 1
month notice by
either party
Continuing with 3
months’ notice by
either party
Continuing with 1
month notice by
either party
Continuing with 1
month notice by
either party
Continuing with 1
month notice by
either party
Continuing with 1
month notice by
either party
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 2020:
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.
18
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
6. Non-executive director remuneration arrangements – Audited (continued)
The remuneration of NEDs for the years ended 30 June 2020 and 30 June 2019 is detailed in table below.
Short-term benefits
Post-
employment
Salary &
fees $
Non-
monetary
benefits
Other7
Superannuation
Long-
term
benefits
Long
service
leave
Non-executive
directors
Jon Sutton1
Don Koch2
Peter Hall
Jon Denovan3
2020
79,717
2020
2019
2020
2019
2020
63,000
5,833
67,667
64,111
56,000
John Kolenda4
2019
14,722
Former directors
Peter Wallace5
Derek La Ferla6
Total
2020
2019
2020
2019
2020
2019
54,167
115,277
11,667
68,527
332,217
268,470
-
-
-
-
-
-
-
-
-
-
-
10,000
-
-
-
-
- 40,000
-
-
- 20,000
-
-
- 70,000
7,573
5,985
554
6,428
7,041
5,320
1,399
5,146
14,751
1,108
8,410
31,561
32,155
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
87,290
68,985
6,387
74,095
81,152
61,320
16,121
59,313
170,028
12,775
96,937
363,777
370,625
1 Appointed 22 October 2019
2 Remuneration for the period 1 July 2019 to 25 May 2020
3 Appointed 2 September 2019
4 Non-Executive Director until 17 September 2018
5 Retired as a Director on 26 November 2019
6 Retired as a Director on 30 August 2019
7 Additional once-off payments for additional board services in relation to the Finsure merger.
7. Additional disclosures relating to options and shares
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
2020
Directors
Peter Wallace
Derek LaFerla
Peter Hall
Simon Lyons
John Kolenda
Don Koch
Jon Sutton
Jon Denovan
Balance at the
start of the
year or
commencement
date
105,838
-
59,034
948,000
13,927,478
-
-
-
Acquired
Other
movement
Balance at the end
of the year or date
of resignation
-
-
-
-
(624,526)
-
-
-
105,838
-
72,034
948,000
13,302,952
-
60,000
-
-
-
13,000
-
-
-
60,000
-
19
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
2020
Executives
Jussi Nunes
Steve Ellis
Lisa Stedman
Allan Savins
Simon Bednar
Balance at the
start of the
year or
commencement
date
Acquired
through
exercise of
vested
performance
rights
Other
movement
Balance at the end
of the year or date
of resignation
-
-
-
1,062,719
1,153,333
-
125,000
-
66,666
66,666
-
-
-
-
-
-
125,000
-
1,394,605
1,219,999
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
2020
499,487
Interest
charged
during
KMP
period
36,386
Write-off or
allowance
for doubtful
debt
Balance at end
of period
Number of KMP in
group
-
492,354
1
(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 sub-leased office space to Aura Group Pty Ltd, a related entity of Mr. John
Kolenda. Rental income and recharges received during the period totaled $446,325 (2019:$635,101) and the
balance receivable at 30 June 2020 was $79,825.
During the period, the Group paid $131,060 to Dentons, a related entity of Mr. Jon Denovan for legal services,
which included corporate matters and services provided in the normal course of business, and the balance
payable at 30 June 2020 was $491.
10. Remuneration incentives approved subsequent to balance date
Subsequent to 30 June 2020, the Remuneration Committee recommended to the Board the following
incentives for members of the Executive Leadership Team.
In recognition of previously unfulfilled employment contracts conditions, for two executives, the following
were approved:
Executive
Jussi Nunes (CFO)
Lisa Stedman
Award
$100,000 cash bonus payable in September 2020 in lieu of 600,000
performance rights.
300,000 performance rights subject to the following conditions:
60,000 eligible to vest immediately and 40,000 deferred for 3 years
to 10 July 2023
60,000 eligible to vest at 10 July 2021 subject to achievement of FY21
KPIs and 40,000 eligible to vest on 10 July 2024
60,000 eligible to vest at 10 July 2022 subject to achievement of FY22
KPIs and 40,000 eligible to vest on 10 July 2025
20
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT (AUDITED)
In addition to the above, the Remuneration Committee approved the following in recognition of
performance for the year ended 30 June 2020 and retention purposes:
Executive
Simon Bednar
Aggregation)
(GM
Allan Savins
Award
Increase in base salary to $325,000
Vesting of first tranche of FY19 bonus performance rights (16,667)
100,000 performance rights with 50,000 to vest immediately, and
vesting eligibility of the remaining 50,000 deferred for 4 years subject
to continued service, satisfactory performance and claw back
provisions.
Vesting of first tranche of FY19 bonus performance rights (16,667)
80,000 performance rights with 40,000 to vest immediately, and
vesting eligibility of the remaining 40,000 deferred for 4 years subject
to continued service, satisfactory performance and claw back
provisions.
The performance rights noted in this section have been issued on 28 August 2020.
John Kolenda has also been awarded 125,000 performance rights in relation to FY20. The issue of these
performance rights however is subject to shareholder approval at the 2020 Annual General Meeting.
End of Remuneration Report
Signed in accordance with a Resolution of Directors
Jon Sutton - Chairman
Dated this 28th day of August 2020
21
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 2020 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
Nic Buchanan
Partner
Sydney
28 August 2020
22
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.
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 30 June 2020
In thousands of AUD
Note
2020
2019
2020
2019
Consolidated
Bank
Interest revenue
Interest expense
Net interest income
Commission income
Commission expense
Net commission income/(expense)
Other income
Total net revenue
Operating expenses
Transaction expenses
Impairment reversal/(expense) on loans, advances
and other receivables
Impairment of bailment cash
Profit/(Loss) before income tax from continuing
operations
Income tax (expense)/benefit
Profit/(Loss) for the period attributable to equity
holders of the parent
Other comprehensive income
Items that are or may be reclassified subsequently
to profit or loss, net of income tax
2.2
2.2
2.2
2.2
2.2
2.2
$
$
$
$
10,643
8,793
10,568
8,912
(5,830)
(5,342)
(5,612)
(5,181)
4,813
3,451
4,956
3,731
290,509
187,042
(271,380)
(169,644)
19,129
14,441
17,398
9,392
-
(475)
(475)
4,951
38,383
30,241
9,432
-
(253)
(253)
1,623
5,101
2.3
(27,858)
(23,652)
(8,191)
(6,634)
-
(860)
-
(860)
(634)
(20)
(584)
4.1.1
(2,923)
-
(2,923)
(20)
-
6,968
5,709
(2,266)
(2,413)
2.4.1
(1,644)
(2,095)
(8)
571
5,324
3,614
(2,274)
(1,842)
Net change in fair value of financial assets – OCI
4.2
(48)
(297)
-
(205)
Total comprehensive income for the period
5,276
3,317
(2,274)
(2,047)
Basic earnings per share (cents)
Diluted earnings per share (cents)
5.3
5.3
6.14
6.03
5.14
5.05
The accompanying notes form part of these financial statements
23
STATEMENTS OF FINANCIAL POSITION
As at 30 June 2020
In thousands of AUD
Note
2020
2019
2020
2019
Consolidated
Bank
ASSETS
Cash and cash equivalents
Commissions 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
Commissions 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
$
$
$
$
18,122
412,620
33,335
283,561
38,231
-
3,808
49,610
-
839,287
19,381
285,485
32,344
214,323
46,194
-
1,197
47,218
-
15,853
6,559
33,335
285,206
38,138
61,925
744
4,809
1,178
646,142 447,747
17,431
3,379
32,344
216,891
46,032
61,925
735
3,104
1,766
383,607
345,791
365,636
-
1,308
13,686
726,421
287,126
245,225
-
1,292
12,063
545,706
345,791
1,785
-
219
-
347,795
287,126
1,035
-
374
-
288,535
NET ASSETS
112,866
100,436
99,952
95,072
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS
Contributed equity
Issued capital, net of raising costs
Reserves
Retained earnings
TOTAL EQUITY
5.2.2
103,516
1,232
8,118
112,866
96,567
1,075
2,794
100,436
103,516
1,372
(4,936)
99,952
96,567
1,167
(2,662)
95,072
The accompanying notes form part of these financial statements
24
STATEMENTS OF CHANGES IN EQUITY
For the year ended 30 June 2020
In thousands of AUD
Attributable to equity holders
Note
Issued
Capital
Other
Contributed
Equity
Equity
Raising
Costs
Treasury
Shares
P,P & E
Revaluation
Reserve
Consolidated
Financial
Assets
Revaluation
Reserve
General
Reserve for
Credit
Losses
Share-
based
Payments
Reserve
Retained
Earnings
Total Equity
$
$
$
$
$
$
$
$
$
$
Balance at 1 July 2018
Profit for the period
Other comprehensive income
Total comprehensive income
Transactions with owners of the
Company
24,080
1,831
(1,631)
-
-
-
Issue of share capital
5.2.2
73,277
Equity raising costs, net of tax
5.2.4
-
Transfers
1,831
(1,831)
Cost of share-based payments
Balance at 30 June 2019
Balance at 1 July 2019
Sale of branch building
Profit for the period
Other comprehensive income
Total comprehensive income
Transactions with owners of the
Company
-
99,188
99,188
-
-
-
-
Issue of share capital
5.2.2
7,082
Equity raising costs, net of tax
Acquisition of treasury shares
5.2.4
5.2.5
Cost of share-based payments
-
-
-
Balance at 30 June 2020
106,270
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(990)
-
-
(2,621)
(2,621)
-
-
-
-
-
(133)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(103)
-
97
-
-
-
-
-
-
-
97
97
(97)
-
-
-
-
-
-
-
-
205
-
(297)
(297)
-
-
-
-
(92)
(92)
-
-
(48)
(48)
-
-
-
-
342
357
(716)
24,565
-
-
-
-
-
104
-
446
-
-
-
(301)
-
-
568
624
3,614
3,614
-
(297)
3,614
3,317
-
-
72,976
(990)
(104)
-
-
568
2,794
100,436
446
624
2,794
100,436
-
-
-
-
-
-
-
-
-
-
-
-
(62)
-
-
467
1,029
-
(97)
5,324
5,324
-
(48)
5,324
5,179
-
-
-
-
7,020
(133)
(103)
467
8,118
112,866
(2,754)
(103)
(140)
446
The accompanying notes form part of these financial statements
25
STATEMENTS OF CHANGES IN EQUITY
For the year ended 30 June 2020
In thousands of AUD
Attributable to equity holders
Note
Issued
Capital
Other
Contributed
Equity
Equity
Raising
Costs
Treasury
Shares
$
$
$
$
24,080
1,831
(1,631)
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
5.2.2
73,277
Equity raising costs, net of tax
5.2.4
-
Transfers
1,831
(1,831)
Cost of share-based payments
Balance at 30 June 2019
Balance at 1 July 2019
Sale of branch building
Profit for the period
Other comprehensive income
Total comprehensive income
Transactions with owners of the
Company
-
99,188
99,188
-
-
-
-
Issue of share capital
5.2.2
7,082
Equity raising costs, net of tax
Acquisition of treasury shares
5.2.4
5.2.5
Cost of share-based payments
-
-
-
Balance at 30 June 2020
106,270
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(990)
-
-
(2,621)
(2,621)
-
-
-
-
-
(133)
-
-
Property,
Plant and
Equipment
Revaluation
Reserve
$
Bank
Financial
Assets
Revaluation
Reserve
General
Reserve for
Credit
Losses
Share-
based
Payments
Reserve
Retained
Earnings
Total Equity
$
$
$
$
$
97
-
-
-
-
-
-
-
97
97
(97)
-
-
-
-
-
-
-
-
205
-
(205)
(205)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
342
357
(716)
24,565
-
-
-
-
-
104
-
446
-
-
-
(301)
-
-
568
624
(1,842)
(1,842)
-
(205)
(1,842)
(2,047)
-
-
72,976
(990)
(104)
-
-
568
(2,662)
95,072
446
624
(2,662)
95,072
-
-
-
-
-
-
-
-
446
-
-
-
-
(62)
-
-
467
1,029
-
(97)
(2,274)
(2,274)
-
-
(2,274)
(2,371)
-
-
-
-
7,020
(133)
(103)
467
(4,936)
99,952
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(103)
-
(2,754)
(103)
The accompanying notes form part of these financial statements
26
STATEMENTS OF CASH FLOWS
For the year ended 30 June 2020
In thousands of AUD
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received
Fees and commissions received
Interest and other costs of finance paid
Other income received
Consolidated
Bank
Note
2020
2019
2020
2019
$
$
$
$
10,643
8,793
10,568
177,748
128,434
1,597
8,912
365
(5,830)
(5,342)
(5,612)
(5,182)
1,786
338
1,108
168
Payments to suppliers and employees
(181,392)
(134,024)
(9,005)
(7,636)
Net increase in loans, advances and other receivables
(69,400)
(43,699)
(68,216)
(47,619)
Net (decrease)/increase in deposits and other borrowings
58,665
91,903
58,665
91,903
Net (payments)/receipts for investments
6,903
(46,692)
6,903
(46,692)
Net cash provided by/(used in) operating activities
(877)
(289)
(3,992)
(5,781)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in a business combination
Investment in subsidiary
Proceeds from sale of property, plant and equipment
Payments for property, plant and equipment
-
-
506
(42)
294
-
-
(212)
-
-
506
(25)
-
(8,950)
-
(56)
Payments for intangible assets
(3,609)
(2,962)
(1,882)
(1,335)
Net cash from/(used in) investing activities
(3,145)
(2,880)
(1,401)
(10,341)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issue of capital
Payments for equity raising costs
Payments for treasury shares
Payments for lease liabilities
Repayment of borrowings
5.2.2
5.2.4
5.2.5
7,082
20,302
7,082
20,302
(133)
(103)
(1,160)
(1,278)
-
-
-
(11,003)
(133)
(103)
(108)
-
(1,278)
-
-
-
Net (used in)/cash from financing activities
5,686
8,021
6,738
19,024
Net increase/(decrease) in cash held
1,664
4,852
1,346
2,902
Cash and cash equivalents at beginning of the year
19,381
14,529
17,431
14,529
Cash and cash equivalents at end of the year
Less provision for non-recovery of ATM bailment cash
4.1.1
Total cash and cash equivalents
21,045
(2,923)
19,381
18,776
17,431
-
(2,923)
-
18,122
19,381
15,853
17,431
The accompanying notes form part of these financial statements
27
NOTES TO THE FINANCIAL REPORT
1.
BASIS OF PREPARATION
1.1
Corporate information
BNK Banking Corporation Limited (the “Company”, “the Bank” or “BNK”) is a for-profit entity and provides
a range of retail banking products and financial services directly and through third party intermediaries.
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 6000, Western
Australia. 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 2020 was
authorised for issue in accordance with a resolution of the directors on 28 August 2020.
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 16 Leases has been applied. Refer to note 8.2
for further information regarding the impact upon transition to this standard.
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 and adjusted as required. This is particularly pertinent in
the year ended 30 June 2020 where the impact of the COVID-19 pandemic has caused significant impact
to the Australian (and global) economy with inherent uncertainty as to future economic conditions.
Revisions to accounting estimates are recognised in the period on which the estimate is revised and in any
future periods affected. Specific adjustments to inputs and assumptions as a result of COVID-19 are
explained in the relevant notes to this financial report as referenced below:
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
Impairment of goodwill and other intangibles
Reference
3.2
3.3
2.4
7.2
4.4
7.2
28
NOTES TO THE FINANCIAL REPORT
1.
2.
BASIS OF PREPARATION (CONTINUED)
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 Interim Chief Executive
Officer/Managing Director, in relation to the business activities of the Group. 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 (and soon to be launched BNK Bank brand).
Loans are originated via online applications, accredited brokers and through the Group’s Wholesale mortgage
management division. Loans are held on balance sheet as well through off balance sheet arrangements. Deposits
are originated through direct marketing efforts as well as through a number of third party intermediaries. BNK’s
award winning deposits are guaranteed by the Australian Government Deposit Guarantee for up to $250,000 per
customer. 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).
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 1,740 mortgage brokers,
connecting them with a panel of approximately 65 lenders. The segment is primarily branded as Finsure and LoanKit
and is one of Australia’s largest aggregators.
Aggregation derives commissions including upfront commissions which are earned upon each loan settlement, and
ongoing trail commissions. Additional revenue in the form of fees for service including recurring software as a service
(SaaS), compliance, professional development and other support services. The implementation of the Infynity CRM
platform in the year ended 30 June 2020 provides enhanced capability for Aggregation to diversify its revenues from
third party lead generation opportunities.
29
NOTES TO THE FINANCIAL REPORT
2.
FINANCIAL PERFORMANCE (CONTINUED)
2.1
Operating segments (continued)
30 June 2020
In thousands of AUD
Revenue
Interest income
Inter-segment interest income
Total interest income
Commission and non-interest income
Inter-segment commission income
Total commission and non-interest income
Banking
$
Aggregation Wholesale
$
$
166
-
166
2
-
2
10,721
(246)
10,475
4,951
-
4,951
30 June 2019
Banking Aggregation Wholesale
$
$
$
136
-
136
5
-
5
Total
$
9,053
(260)
8,793
Total
$
10,889
(246)
10,643
8,912
(260)
8,652
1,623
-
1,623
286,870
-
286,870
14,260
(1,131)
13,129
306,081
(1,131)
304,950
183,805
-
183,805
12,561
(1,555)
11,006
197,989
(1,555)
196,434
Total segment revenue
15,426
287,036
13,131
315,593
10,275
183,941
11,011
205,227
Interest expense
Inter-segment interest expense
Other
Total interest expense
Commission expense
Inter-segment commission expense
Total commission expense
Segment profit/(loss) before tax
Material non-cash expenses:
Depreciation and amortisation
Share-based payments
5,574
-
38
5,612
627
(394)
233
-
(246)
440
194
265,281
(737)
264,544
-
-
24
24
6,603
-
6,603
5,574
(246)
502
5,830
272,511
(1,131)
271,380
5,181
-
-
5,181
253
-
253
-
(260)
421
161
163,763
(1,555)
162,208
-
-
-
-
5,181
(260)
421
5,342
7,183
-
7,183
171,199
(1,555)
169,644
(2,267)
8,989
246
6,968
(2,414)
10,189
(2,066)
5,709
421
422
1,831
-
81
-
2,333
422
288
403
678
79
6
52
972
534
Segment assets
Segment liabilities
388,169
346,018
416,332
363,380
34,786
17,023
839,287
726,421
321,133
286,484
292,722
245,499
32,287
13,723
646,142
545,706
30
NOTES TO THE FINANCIAL REPORT
2.
FINANCIAL PERFORMANCE (CONTINUED)
2.2
Income
Net interest income
In thousands of AUD
Interest revenue
Loans and advances
Sub-lease Finance lease
Due from other institutions
Total interest income
Interest expense
Deposits
Lease liabilities
Other
Total interest expense
Net interest income
Consolidated
2019
$
2020
$
9,756
134
753
10,643
5,574
248
8
5,830
7,618
-
1,175
8,793
5,182
-
160
5,342
2020
$
9,849
-
719
10,568
5,574
38
-
5,612
Bank
2019
$
7,821
-
1,091
8,912
5,181
-
-
5,181
4,813
3,451
4,956
3,731
Weighted average interest rate - loans and advances
Weighted average interest rate - deposits
Spread
3.74%
1.30%
2.44%
4.81%
2.23%
2.58%
3.74%
1.30%
2.44%
4.81%
2.23%
2.58%
Net commission income
Commission income
Upfront commission
Trail commission income
Change in net present value of future trail
commissions receivable
Total commission income
Commission expense
Upfront commission expense
Trail commission expense
Change in net present value of future trail
commission payable
Total commission expense
94,490
78,183
63,438
55,075
117,836
290,509
68,529
187,042
90,345
68,496
60,021
47,089
112,539
271,380
62,534
169,644
-
-
-
-
-
475
-
475
-
-
-
-
-
253
-
253
Net commission income/(expense)
19,129
17,398
(475)
(253)
Other income
Service fees and other residual income
Aggregation services fee income
Lending fees
Transaction fees
Sponsorship income
Cash convenience income
Insurance recovery (refer note 4.1.1)
Dividends received
Other
Total other income
1,616
6,105
679
16
1,659
261
2,898
4
1,203
14,441
1,327
4,390
600
26
1,881
830
-
6
332
9,392
442
-
128
16
-
261
2,898
4
1,202
4,951
249
-
181
26
-
830
-
6
331
1,623
The Group has applied AASB 16 Leases with effect from 1 July 2019. Information about the effect of initially applying
this standard is described in Note 8.2.
31
NOTES TO THE FINANCIAL REPORT
2.
FINANCIAL PERFORMANCE (CONTINUED)
2.2
Income (continued)
Accounting policy - recognition and measurement
Banking
Interest income and expense
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.
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 Financial Instruments and partially in the scope of AASB 15 Revenue from
Contracts with Customers. 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.
32
NOTES TO THE FINANCIAL REPORT
2.
FINANCIAL PERFORMANCE (CONTINUED)
2.2
Income (continued)
Accounting policy - recognition and measurement (continued)
Aggregation and Wholesale
Commission 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.
Aggregation service 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.
The Group earns Software as a Service income for subscription to its proprietary loan origination platform "Infynity"
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.
33
NOTES TO THE FINANCIAL REPORT
2.
FINANCIAL PERFORMANCE (CONTINUED)
2.3
Operating Expenses
In thousands of AUD
Depreciation and amortization*
Information technology
Banking services delivery
Employee benefits
Professional services
Marketing
Occupancy
Other administration expenses
Total operating expenses
Consolidated
2020
$
2,333
1,543
402
16,576
1,546
1,784
477
3,197
27,858
2019
$
972
1,308
355
12,985
1,588
2,212
1,277
2,955
23,652
2020
$
421
846
402
4,359
1,080
85
163
835
8,191
* The Group has adopted AASB 16 with respect to operating leases with effect from 1 July 2019 utilising the
modified retrospective approach. Comparative periods have not been restated, refer to note 8.2 for further
information.
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:
Consolidated
2019
$
2020
$
-
1,644
-
2,095
1,644
2,095
(60)
93
(33)
(116)
-
(116)
2020
$
-
8
8
-
93
(16)
6,969
5,709
(2,266)
(2,414)
2,091
1,712
(680)
(724)
138
-
(585)
325
(60)
118
126
-
562
80
(60)
133
1,644
2,095
8
(571)
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
Financial instruments at fair value through OCI
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% (2019:30%)
Adjust for tax effect of:
Non-deductible expenses
Change in corporate tax rate
Prior period adjustments
Income tax expense/(benefit) recognised in
Profit or Loss
34
Bank
2019
$
288
826
355
3,882
615
109
261
298
6,634
Bank
2019
$
-
(571)
(571)
(77)
-
(77)
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
Lease liabilities
Net present value of trail commission payable
Other
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
Net present value of trail commission
receivable
Deferred commission expense
Property, plant and equipment
Total deferred tax liabilities
Set-off
Net deferred tax asset/(liability)
Consolidated
2019
$
2020
$
1,135
232
420
560
1,360
102,886
236
2,858
109,687
77
282
404
612
-
69,125
75
4,202
74,777
6
5,418
32
5,730
116,159
410
1,380
123,373
(109,687)
(13,686)
80,808
218
52
86,840
(74,777)
(12,063)
2020
$
1,119
72
65
374
202
-
-
-
1,832
5
-
-
410
239
654
(654)
1,178
Bank
2019
$
77
139
112
355
-
-
666
688
2,037
1
-
-
218
52
271
(271)
1,766
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 Tax Consolidation Accounting.
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.
35
NOTES TO THE FINANCIAL REPORT
3. LOANS AND 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
2020
$
263,446
18,796
854
469
283,565
721
284,286
(725)
283,561
Consolidated
2019
$
190,030
22,377
1,313
444
214,164
418
214,582
(259)
214,323
2020
$
263,446
19,982
854
469
284,751
1,180
285,931
(725)
285,206
Bank
2019
$
190,030
24,748
1,313
444
216,535
615
217,150
(259)
216,891
469
20
5,863
277,934
284,286
444
1,549
11,540
201,049
214,582
469
20
7,508
277,934
285,931
444
4,117
11,540
201,049
217,150
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; this 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 including detail around the loans subject to COVID-
19 repayment deferrals.
36
NOTES TO THE FINANCIAL REPORT
3. LOANS AND ADVANCES
3.2 Provision for credit losses
In thousands of AUD
Expected credit loss provision
Total provisions for credit losses
Expected credit loss provision
Opening balance
Bad debts provided for during the year
Bad debts written off during the year
Closing balance
Consolidated
Bank
2020 2019 2020 2019
$
$
$
$
725
725
259
259
725
725
259
259
258
467
-
725
240
19
-
259
258
467
-
725
240
19
-
259
On 23 March 2020, APRA advised ADIs that for customers who chose to defer loan repayments as part of a
COVID-19 support package, ADIs are not required to treat the period of a repayment holiday as a loan in arrears.
Similarly, loans that have been granted a repayment deferral as part of a COVID-19 support package, are not
required to be considered as restructured. APRA noted however that ADIs would need to consider these loans
with regards to credit loss provisioning under AASB 9. Refer to note 5.1.4 for further information on the expected
credit loss provisions recognised at balanced date including detail around the loans subject to COVID-19
repayment deferrals.
Accounting policy - Recognition and measurement
Financial assets
Expected credit loss provision
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).
If 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
in determining to reclassify it from Stage 1 to Stage 2 or 3. 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.
Upon determination that a customer is in default, an assessment is made whether the loan is to be classified as past
due or impaired. The maximum period considered when estimating ECLs is the maximum contractual period over
which the Group is exposed to credit risk.
37
NOTES TO THE FINANCIAL REPORT
3. LOANS AND ADVANCES
3.2 Provision for credit losses (cont’d)
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).
Management overlays take into account factors such as borrower industry, unemployment rates and further
collateral declines.
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.
38
NOTES TO THE FINANCIAL REPORT
3. LOANS AND ADVANCES
3.2 Provision for credit losses
Reconciliation of expected credit loss provision
In thousands of AUD
Stage 1
Stage 2
Consolidated
Stage 3
Opening balance – 1 July 2019
Transfers to/(from)
Stage 1
Stage 2
Stage 3
Net financial assets originated
New and increased provisions
Bad debts written off
Closing balance – 30 June 2020
In thousands of AUD
Opening balance – 1 July 2019
Transfers to/(from)
Stage 1
Stage 2
Stage 3
Net financial assets originated
New and increased provisions
Bad debts written off
Closing balance – 30 June 2020
Gross
exposure
212,432
(14,616)
-
-
69,704
-
-
267,520
Provision
188
-
-
-
-
17
-
205
Gross
exposure
1,420
-
61
-
-
-
-
1,481
Provision
30
-
7
-
-
-
-
37
Stage 1
Stage 2
Gross
exposure
214,077
(14,616)
-
-
69,704
-
-
269,165
Provision
188
-
-
-
-
17
-
205
Gross
exposure
1,420
-
61
-
-
-
-
1,481
Provision
30
-
7
-
-
-
-
37
Gross
exposure
730
-
-
711
-
-
-
1,441
Provision
41
-
-
46
-
-
-
87
Bank
Stage 3
Gross
exposure
730
-
-
711
-
-
-
1,441
Provision
41
-
-
46
-
-
-
87
39
Management overlay
Provision
Gross
exposure
-
Management overlay
Provision
Gross
exposure
-
-
-
-
-
13,844
-
13,844
-
-
-
-
13,844
-
13,844
Total
Gross
exposure
214,582
(14,616)
61
711
69,704
13,844
-
284,286
Provision
259
-
7
46
-
413
-
725
Total
Gross
exposure
216,227
(14,616)
61
711
69,704
13,844
-
285,931
Provision
259
-
7
46
-
413
-
725
-
-
-
-
-
396
-
396
-
-
-
-
-
396
-
396
NOTES TO THE FINANCIAL REPORT
3. LOANS AND ADVANCES
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.
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 $90,000,000 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. Loan
sales in current and previous periods have occurred prior to a capital raising in order to ensure the Group complies
with its capital adequacy requirements. The Company’s objective is to originate and hold as many loans on balance
sheet as possible, given the higher yields derived from on balance sheet loans compared to loans sold to the RASA.
Sales therefore only occur when the Company is nearing its prudential capital ratio.
The balance of loans serviced by the Company at reporting date:
In thousands of AUD
2020
$
2019
$
Owner occupier loans
Investment loans
Loan sales:
Year ended
30 June 2020
Date of sale
3 October 2019
19 December 2019
22 January 2020
30 June 2019
Nil
28,336
18,471
46,807
26,599
10,929
37,528
Number of loans
8
14
15
-
Proceeds $(‘000s)
3,711
5,684
5,009
-
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.
40
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
Less provision for non-recovery of bailment cash
Total cash and cash equivalents
Consolidated
2019
$
19,381
-
19,381
2020
$
21,045
(2,923)
18,122
2020
$
18,776
(2,923)
15,853
Bank
2019
$
17,431
-
17,431
Included within cash at bank and on hand are balances relating to ATM bailment and cash in transit arrangements
with ATM Co Pty Ltd and Tuff Enterprises Pty Ltd, both of which were placed into liquidation in August 2019.
The liquidator has not identified the location of the Company’s cash totalling approximately $2,923,000. The
Company has lodged a claim with its insurer for the missing cash, and provided relevant documentary evidence,
in conjunction with the insurer’s appointed forensic specialists. The Company has recognised a provision against
the cash. In addition, a receivable for the estimated insurance recovery has been recognised (refer note 4.4.1)
as at the reporting date.
As set out in note 7.9, subsequent to the reporting date the Company received partial indemnification from the
insurer in respect of $1,197,750 of the claim. Further information was requested by the insurer regarding the
balance of the claim of approximately $1,725,250. This information has been provided to the insurer and police,
and the balance is subject to finalisation by the insurer. In the event that part or all of the remaining balance
of the claim is denied, the receivable will be impaired in subsequent periods.
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
Operating profit/(loss) after income tax
Non-cash items
Depreciation and amortisation
Change in fair value of NPV asset
Change in fair value of NPV liability
Impairment of financial assets
Leave provisions
Share-based payments
Gain on sale of financial assets
Gain on sale of property, plant and equipment
Insurance recovery
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
41
Consolidated
2019
$
2020
$
2020
$
Bank
2019
$
5,324
3,614
(2,274)
(1,843)
2,333
(117,836)
112,539
3,557
183
405
(1,062)
(78)
(2,898)
(69,400)
6,903
58,665
1,467
-
1,623
-
(2,587)
(16)
(877)
972
(68,529)
62,534
19
183
292
-
-
-
(43,699)
(46,692)
91,903
1,002
667
805
(7)
(3,170)
(183)
(289)
421
-
-
3,507
(156)
405
(1,062)
(78)
(2,898)
(68,216)
6,903
58,665
(178)
587
-
-
226
156
(3,992)
288
-
-
19
91
265
-
-
-
(46,069)
(46,692)
91,903
(2,665)
(1,099)
-
(7)
119
(91)
(5,781)
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
- 1 year to 5 years
Investment securities
- Not longer than 3 months
- 3 months to 1 year
- 1 year to 5 years
- More than 5 years
Consolidated
2019
$
2020
$
33,335
37,996
142
93
71,566
19,500
6,215
7,620
33,335
11,115
-
19,715
7,166
37,996
32,344
45,890
142
162
78,538
32,344
-
-
32,344
-
13,766
22,088
10,036
45,890
2020
$
33,335
37,996
142
-
71,473
19,500
6,215
7,620
33,335
11,115
-
19,715
7,166
37,996
Bank
2019
$
32,344
45,890
142
-
78,376
32,344
-
-
32,344
-
13,766
22,088
10,036
45,890
(a) Investment securities are investments in debt securities comprising floating rate notes issued by other banks,
and bonds issued by Commonwealth and state-governments, initially recognised at fair value and subsequently
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 7.7. 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
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.
42
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.
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
2020
$
122,021
223,770
345,791
Consolidated
2019
$
55,517
231,609
287,126
122,021
100,816
103,694
19,260
345,791
55,517
105,249
121,082
5,278
287,126
2020
$
122,021
223,770
345,791
122,021
100,816
103,694
19,260
345,791
Bank
2019
$
55,517
231,609
287,126
55,517
105,249
121,082
5,278
287,126
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.
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
Sub-lease finance lease receivable
Insurance receivable
Prepayments
Other debtors
Less provision for impairment
Total commissions and other receivables
Consolidated
2019
$
2020
$
387,197
16,551
1,121
2,898
1,564
3,372
(83)
412,620
269,361
12,826
-
-
955
2,343
-
285,485
2020
$
-
-
-
2,898
974
2,770
(83)
6,559
Bank
2019
$
-
-
-
-
403
2,976
-
3,379
43
NOTES TO THE FINANCIAL REPORT
4. LIQUIDITY AND FUNDING
4.4 Receivables and payables (continued)
4.4.2 Commissions and other payables
In thousands of AUD
Net present value of future trail commission
payable
Accrued commission payable
Lease liability – refer to note 8.2
Trade creditors and accrued expenses
Total commissions and other payables
Consolidated
2019
$
2020
$
342,954
15,300
4,646
2,736
365,636
230,415
11,652
-
3,158
245,225
2020
$
-
-
671
1,114
1,785
Bank
2019
$
-
-
1,035
1,035
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
2020
Between 3.5% and 6.5%
Between 5% and 95%
3.7 to 3.9 years
3.0 to 4.4 years
3.9 years
2019
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 amortised 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.
44
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. 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. The Group’s
risk management framework includes a dedicated risk function, various risk committees, risk appetite statements and
limits and attestation processes.
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 non-executive directors of the Company.
It assists the Board in the development of the risk strategy, managing and monitoring relevant risk decisions including
policies and limits.
Chief Executive Officer & Executive Management
The Chief Executive Officer 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, 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.
45
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 (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.
-
46
NOTES TO THE FINANCIAL REPORT
5. RISK AND CAPITAL MANAGEMENT
5.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.2 Interest rate risk in the banking book (continued)
In thousands of AUD
2020
Financial assets
Cash and cash on hand
Due from other financial institutions
Investment securities
Loans and advances
Commission and other receivables
Sub-lease finance lease receivable
Other financial assets
Total financial assets
Financial liabilities
Deposits
Lease liabilities
Commission and other payables
Total financial liabilities
Net financial assets/(liabilities)
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)
Weighted
average
effective
interest rate (%)
-
0.82
0.77
3.74
-
5.00
-
1.30
5.00
-
0.15
1.70
1.98
4.81
-
-
2.23
-
Floating
interest
rate
-
-
-
269,573
-
-
-
269,573
122,021
-
-
122,021
147,552
Consolidated
Fixed interest rate
Non-interest
1 year
or less
-
33,335
37,996
6,568
-
-
-
77,899
204,948
-
-
204,948
1 year
or more
-
-
-
7,420
-
1,121
-
8,541
18,822
4,646
-
23,468
(127,049)
(14,927)
bearing
18,122
-
-
-
411,499
-
235
429,856
-
-
360,990
360,990
68,866
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
8,039
-
-
-
285,485
304
293,828
2,644
245,225
247,869
45,959
47
Amount per
Statement of
Financial
Position
18,122
33,335
37,996
283,565
411,499
1,121
235
785,869
345,791
4,646
360,990
711,427
74,442
19,381
32,344
45,890
214,164
285,485
304
597,568
287,126
245,225
532,351
65,217
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)
In thousands of AUD
2020
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
Lease liabilities
Creditors and other payables
Total financial liabilities
Net financial assets/(liabilities)
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)
Weighted
average
effective
interest rate (%)
-
0.82
0.77
3.74
-
-
1.30
5.00
-
Floating
interest
rate
-
-
-
270,763
-
-
270,763
122,022
-
-
122,022
148,741
Bank
Fixed interest rate
Non-interest
1 year
or less
-
33,335
37,996
6,568
-
-
77,899
204,948
-
-
204,948
1 year
or more
-
-
-
7,420
-
-
7,420
18,822
671
-
19,493
bearing
15,853
-
-
-
6,559
142
22,554
-
-
1,114
1,114
(127,049)
(12,073)
21,440
0.15
1.70
1.98
4.81
-
-
2.23
-
-
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
8,039
-
-
-
-
142
8,181
2,644
-
1,035
3,679
Amount per
Statement of
Financial
Position
15,853
33,335
37,996
284,751
6,559
142
378,636
345,791
671
1,114
347,576
31,059
17,431
32,344
45,890
216,535
-
142
312,342
287,126
-
1,035
288,161
146,986
(166,555)
39,248
4,502
24,181
48
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 +/- 25 basis points
(2019: +/- 50 basis points) from the year-end rates, with all other variables held constant.
Judgement of reasonably possible
movements(amounts in thousands of
AUD):
25 basis points increase (2019: 50bps)
25 basis points decrease (2019: 50bps)
Consolidated
higher (lower)
Bank
higher (lower)
2020
88
(88)
2019
339
(339)
2020
88
(88)
2019
339
(339)
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.
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% (2019: +/- 10%) from
the year-end rates, with all other variables held constant.
Judgement of reasonably possible
movements (amounts in thousands of
AUD):
10% increase (2019:10%)
10% decrease (2019: 10%)
Consolidated
Impact on equity
Bank
Impact on equity
2020
16
(16)
2019
21
(21)
2020
10
(10)
2019
10
(10)
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 7.8. 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
49
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 2020, the Group has repossessed one residential property with a fair value of $280,000 (2019:
nil).
Concentrations of credit risk – Banking activities
The Group 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
2020
$
127,889
135,558
18,796
723
130
469
283,565
Consolidated
2019
$
111,732
78,297
22,377
1,105
208
445
214,164
2020
$
127,889
135,558
19,982
723
130
469
284,751
Bank
2019
$
111,732
78,297
24,748
1,105
208
445
216,535
As at 30 June 2020 there were no borrowers (2019: one) who individually have facilities which represent 10% or more of
the regulatory capital base.
Historically, the Bank has been exposed to geographical concentration risk by lending predominately to customers in
Western Australia. Since the completion of the merger with Finsure in 2018, 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 graph below demonstrates the progress the Bank has made in the last 2 years in achieving this:
50
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)
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
2019
$
2020
$
1,359
164
964
2,487
-
-
877
542
575
1,994
-
-
2020
$
1,359
164
964
2,487
-
-
Bank
2019
$
877
542
575
1,994
-
-
281,078
283,565
212,170
214,164
282,264
284,751
214,541
216,535
The table above represents customers who were in arrears prior to the onset of COVID-19. The Company has
agreed to vary repayment arrangements following the onset of the COVID-19 pandemic for certain customers. The
table set out below summarises these arrangements as at 30 June 2020 (2019:nil).
In thousands of AUD
Loans subject to temporary modification due to
financial difficulty:
3 month interest only repayments
6 month interest only repayments
2 to 4 month repayment deferral
5 to 7 month repayment deferral
Residential
mortgages
$
13,042
24
1,145
5,365
6,508
SME loans
Total
$
911
-
264
-
647
$
13,953
24
1,409
5,395
7,155
These represent a small proportion of BNK’s customer base, and BNK has active engagement with these
customers to assess and determine ongoing arrangements once the agreed deferral period becomes due to expire.
The ECL provision includes COVID-19 overlays to reflect the enhanced risk profile of the current economic
environment.
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:
Type of credit exposure
Deposits with banks and
short-term securities
Investment securities
Residential loans
Personal loans
Overdrafts
Term loans
Percentage of exposure that
is subject to collateral
requirements
2020
2019
Principal type of collateral held
Marketable securities
Marketable securities
Residential property
Residential property and/or motor vehicles
Residential property
Commercial and/or residential property,
floating charges over business assets
-
-
100
84
90
100
-
-
100
85
90
100
51
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)
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
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
* Or equivalent rating by other rating agencies
Consolidated
2019
$
2020
$
-
23,835
-
9,500
33,335
-
26,344
2,000
4,000
32,344
Consolidated
2019
$
2020
$
37,996
-
37,996
45,890
-
45,890
Consolidated
2019
$
2020
$
246,576
37,054
32,814
87,304
403,748
173,914
26,579
24,414
59,623
284,530
2020
$
23,835
-
9,500
33,335
2020
$
37,996
-
37,996
2020
$
2,898
-
-
3,661
6,559
Bank
2019
$
-
26,344
2,000
4,000
32,344
Bank
2019
$
45,890
-
45,890
Bank
2019
$
-
-
-
3,379
3,379
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-.
52
NOTES TO THE FINANCIAL REPORT
5.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.4
Credit risk (continued)
Accounting policy - Recognition and measurement
As set out in note 3.2, loans are considered to be in default when they reach 90 days past due. An assessment is
then made to determine whether loans are classified as impaired or past due.
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.
,
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.
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.
53
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.5
Liquidity risk (continued)
The Group’s policy is to apply a minimum level of 13% (2019: 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% (2019: 13%); the Board has determined a target liquidity trading range of 14% - 19%
in normal market situations. Since the impact of COVID-19 became prevalent in early calendar year 2020, the Board
recommended the Group hold higher levels of liquidity above this range. 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 2020 there were no deposits greater than 10% of total liabilities
(2019: 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
5.1.6 Operational risk
Consolidated
2019
$
90,321
397,411
22.7%
2020
$
90,197
348,719
25.9%
2020
$
87,177
331,771
26.2%
Bank
2019
$
87,625
328,807
26.6%
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.
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. These were enhanced significantly prior to the closure of the
branches during the period
- 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
54
NOTES TO THE FINANCIAL REPORT
5. FINANCIAL RISK AND CAPITAL MANAGEMENT
5.1 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
5.1.6 Operational risk
The Group experienced a significant operational risk event in the year ended 30 June 2020 in relation to its ATM
bailment business (refer to note 4.1.1 for further details). As a result, the Group has now exited this line of business.
Resources for lending, operations and aggregation processes are reviewed regularly and significant investment has
occurred in the current year in people and processes to enhance the operational risk management framework.
Following the onset of COVID-19, work from home practices were implemented across the Group in order to protect
our people from the risk of the disease. Security of data and restriction of access to IT systems was a key area of
focus to ensure the businesses of the Group could continue to function and service customers and brokers
effectively, without increasing risk of data breaches. This was a controlled and managed process with oversight by
the Board. Staff in certain locations have commenced a return to office process on a staged basis.
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 liabilities 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:
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.
55
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)
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
Lease liability
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
Lease liability
Creditors and other payables
Total financial liabilities
Consolidated
Fair value
Carrying amount
2020
$
2019
$
2020
$
2019
$
19,381
12,826
32,344
46,545
225,830
2,343
304
18,122
16,551
33,335
37,996
283,561
8,872
235
339,573 398,672
19,381
12,826
32,344
45,890
214,323
2,343
304
327,411
287,126
11,652
-
3,158
287,126
11,652
-
3,158
301,936 368,473 301,936
345,791
15,300
4,646
2,736
Bank
17,431
32,344
46,545
15,853
33,335
37,996
225,830 285,206
6,560
142
325,268 379,092
2,976
142
17,431
32,344
45,890
216,891
2,976
142
315,674
287,126
-
1,035
345,791
671
1,114
288,161 347,576
287,126
-
1,035
288,161
18,122
16,551
33,335
37,948
287,637
8,872
235
402,700
345,791
15,300
4,646
2,736
368,473
15,853
33,335
37,948
289,282
6,560
142
383,120
345,791
671
1,114
347,576
56
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.
57
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 (2019: 17.0%).
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
2020
2019
31,278
446
31,724
25,317
446
25,763
Bank
2020
$
30,082
446
30,528
2019
$
26,395
446
26,841
149,519
21.22%
126,579
20.35%
147,532
20.69%
125,849
21.33%
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
2020
$
106,270
2019
$
99,188
Number of
shares
82,415,399
11,700,000
-
155,000
-
94,270,399
-
94,270,399
2020
$
99,188
7,020
-
62
-
106,270
(2,754)
103,516
Number of
shares
25,907,066
15,385,000
40,750,000
373,333
-
82,415,399
-
82,415,399
2019
$
24,080
20,002
52,975
301
1,830
99,188
(2,620)
96,568
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.
58
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
Bank
2020
$
-
-
-
2019
$
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
2020
$
2,621
40
93
2,754
2019
$
1,631
1,277
(287)
2,621
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.
5.2.5 Treasury shares reserve
Balance at the beginning of the year
Acquired during the year to fulfil the exercise of
performance rights
Balance at the end of the year
Bank
2020
$
-
(103)
(103)
2019
$
-
-
-
Pursuant to the BNK Equity Incentive Plan, the Company may issue new shares or acquire shares on market to
allocate to staff upon exercising performance rights as set out in note 7.4.2. At 30 June 2020, the Company does
not hold any treasury shares.
Accounting policy - Recognition and measurement
When shares recognised as equity are repurchased, the amount of the consideration paid, which includes directly
attributable costs, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares
and are presented in the treasury shares reserve. When treasury reserve shares are sold or reissued subsequently,
the amount received is recognised as an increase equity and the resulting surplus or deficit is retained within the
reserve.
59
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
2020
$
2019
$
5,324
3,614
2020
2019
86,727,399
88,274,386
70,324,932
71,558,495
6.14
6.03
5.14
5.05
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 2020
(2019: 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% (2019: 30%)
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% (2019: 30%)
2020
$
2019
$
2,542
2,540
-
2
-
2
2,544
2,542
60
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
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
Wikibroker 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
Aggregation
Wholesale
Wholesale
Wholesale
Wholesale
Wholesale
Wholesale
N/A - Dormant
Bank
2020
$
61,925
2019
$
61,925
Ownership
2020
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
60%
100%
100%
100%
100%
100%
100%
100%
2019
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
60%
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.
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.
61
NOTES TO THE FINANCIAL REPORT
6.1.2 Deed of Cross Guarantee
Pursuant to ASIC Corporations (Wholly owned Companies) Instrument 2016/785 the wholly-owned subsidiaries listed below are relieved from the
Corporations Act 2001 requirements for preparation, audit and lodgment of financial reports and Directors’ reports:
Finsure Holding Pty Ltd
Finsure Finance & Insurance Pty Ltd
Beagle Finance Pty Ltd
It is a condition of the Instrument that the subsidiaries agreeing to guarantee each other’s’ liabilities (“the Closed Group”) enter into a Deed of Cross
Guarantee. The Company, as an APRA regulated ADI is prevented from guaranteeing its subsidiaries liabilities, and therefore isn’t a party to the Deed
of Cross Guarantee. The effect of the Deed is that each entity listed above guarantees to each creditor payment in full of any debt in the event of a
winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up of a subsidiary party to the Deed occurs
under other provisions of the Act, the remaining subsidiary/(ies) will only be liable in the event that after six months any creditor has not been paid in
full.
A consolidated statement of comprehensive income and consolidated statement of financial position, comprising the three entities party to the Deed,
after eliminating all transactions between parties to the Deed of Cross Guarantee for the year ended 30 June 2020 is set out as follows:
Income Statement for the Closed Group
Statement of Financial Position for the Closed Group
In thousands of AUD
Commission income
Commission expense
Net commission income
Interest income
Interest expense
Net interest income/(expense)
Other income
Total net revenue
Operating expenses
Profit before income tax from continuing operations
Income tax expense
Net profit after tax
Items that will be reclassified to profit and loss
Revaluation of financial assets
Total comprehensive income for the period, net of tax
2020
$
279,046
(265,228)
13,818
166
(439)
(273)
8,596
22,141
(12,150)
9,991
(2,901)
7,090
(97)
6,993
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Property, plant and equipment
Goodwill and other intangibles
Total assets
Liabilities
Trade and other payables
Provisions
Deferred tax liabilities
Total Liabilities
Net assets
Share capital
Reserves
Retained earnings
Total equity
62
2020
$
1,164
377,542
11,702
2,232
3,502
396,142
355,128
702
3,592
359,422
36,720
8,950
(84)
27,854
36,720
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
Right of use assets
Accumulated depreciation
Consolidated
2019
$
520
(14)
506
2020
$
-
-
-
1,131
(851)
280
44
(20)
24
676
(453)
223
4,191
(910)
3,281
1,343
(1,019)
324
88
(31)
57
749
(439)
310
-
-
-
Total property, plant and equipment
3,808
1,197
2020
$
-
-
-
48
(19)
29
44
(20)
24
283
(196)
87
761
(157)
604
744
Bank
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:
Please try to fit highlighted items below into a single row thanks
In thousands of AUD
Opening written down value at 1
July 2019
Additions
Disposals
Depreciation
Closing written down value at 30
June 2020
In thousands of AUD
Opening written down value at 1
July 2019
Additions
Disposals
Depreciation
Closing written down value at 30
June 2020
Computer
equip &
IT hardware
$
310
25
(36)
(76)
223
Total
$
4,568
867
(568)
(1,059)
3,808
Computer
equip &
IT hardware
$
Total
$
119
1,496
25
(5)
(52)
87
28
(537)
(243)
744
Consolidated
Motor
vehicles
$
57
-
(23)
(10)
24
Bank
Motor
vehicles
$
57
-
(23)
(10)
24
Freehold
Land &
Buildings
$
506
Right
of Use
Asset
$
3,371
Office
Equip &
L/H imp
$
324
-
(499)
(7)
-
820
-
(910)
3,281
22
(10)
(56)
280
Freehold
Land &
Buildings
$
Right
of Use
Asset
$
Office
Equip &
L/H imp
$
506
761
-
(499)
(7)
-
-
-
(157)
604
53
3
(10)
(17)
29
63
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.
During the year ended 30 June 2020, the Company closed its Kalgoorlie and Esperance branches. Sale of the
Kalgoorlie building was completed on 30 June 2020 and the Esperance lease expires 28 August 2020.
The Group has adopted AASB 16 Leases with effect from 1 July 2019 utilising the modified retrospective approach.
Refer to note 8.2 for further details.
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.
Right of use assets
The Group has recognised right of use assets relating to its leases pursuant to AASB 16 Leases. Refer to note 8.2
for details.
64
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
Right of use assets
Motor vehicles
Computer equipment and programs
Depreciation rate
Method of Depreciation
15-33%
20-33%
12.5%
20-50%
Straight-line
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 profit or loss.
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
2019
$
19,172
2020
$
19,172
2020
$
-
Bank
2019
$
-
16,557
16,527
162
132
14,254
(2,780)
11,474
4,075
(1,668)
2,407
10,691
(1,832)
8,859
4,075
(1,415)
2,660
5,085
(438)
4,647
3,274
(302)
2,972
-
-
-
-
-
-
Total goodwill and other intangibles
49,610
47,218
4,809
3,104
Reconciliation of intangible assets
In thousands of AUD
Goodwill
Opening balance at 1 July 2019
Additions
Amortisation
Closing balance at 30 June 2020
19,172
-
-
19,172
16,527
30
-
16,557
65
Consolidated
Software
Broker
relationships
Total
Brand
names &
trademarks
$
$
8,859
3,564
(949)
11,474
$
2,660
-
(253)
2,407
$
47,218
3,594
(1,202)
49,610
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 2019
Additions
Amortisation
Closing balance at 30 June 2020
-
-
-
-
Accounting policy - recognition and measurement
Brand
names &
trademarks
$
132
30
-
162
Bank
Software
$
2,972
3,564
(136)
4,647
Broker
relationships
Total
$
-
-
-
-
$
3,104
1,841
(136)
4,809
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
2020
$
12,000
1,000
6,172
19,172
2019
$
12,000
1,000
6,172
19,172
66
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
2020
11%
2.5%
11-42%
2019
12-14%
2.5%
5-38%
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, including the potential impacts of COVID-19.
No impairment loss has been recognised for any CGU at 30 June 2020.
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)
Average budgeted revenue growth
Aggregation Wholesale
0.7%
(1.3%)
11.5%
(11.4%)
Banking
1.8%
(4.1%)
7.3 Provisions
In thousands of AUD
Note
Provision for annual leave
Provision for long service leave
Total provisions
Consolidated
2019
$
973
319
1,292
2020
$
992
316
1,308
2020
$
216
3
219
Bank
2019
$
275
99
374
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.
67
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
Termination benefits
2020
$
2019
$
3,136
218
182
212
3,748
2,011
102
611
-
2,724
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 continuation of the BNK Equity Incentive Plan or (“the Plan”) at the 2019
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 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, and the remainder were exercised on 5 August 2020. On 5 December 2019, Mr Ellis exercised
125,000 of his performance rights;
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’). Vesting of these performance
rights was approved by the Board in September 2018, and 150,000 have been exercised to date.
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. As this condition has been met, these
performance rights have vested subsequent to balance date.
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 2019, 1 July 2020 and 1 July 2021. For the first
tranche that vested on 1 July 2019, 133,332 have been exercised.
On 5 December 2019, 250,000 performance rights were awarded to five employees in recognition of their
performance for the year ended 30 June 2019 (‘FY19 Bonus”). One third of these performance rights vest on 30
September 2020, 30 September 2021 and 30 September 2022 subject to the approval of the Remuneration
Committee and continued service.
68
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 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 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 2020 in relation to the BNKEIP performance rights was
$128,168 (2019: $309,884).
b) 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 2020 in relation to these performance rights was
$88,439 (2019: $88,681).
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 2020 in relation to these performance rights was
$54,177 (2019:$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 2020 in relation to these performance
rights was $135,947 (2019:$131,192.)
f)
The fair value of the FY19 Bonus performance rights of $145,000 was determined with reference to the share price
on the grant date of $0.58. 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 2020 in relation to these performance
rights was $58,390.
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 2020 in relation to these shares was $2,337 (2019: $2,331) and these shares have now vested.
69
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.
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 interest paid/payable on deposits to KMP
Total value of loans to KMP at reporting date
Total interest received/receivable from on loans from KMP
7.4.4 Transactions with other related parties
2020
$
4,442
2019
$
44,322
109
492,354
36,386
1,171
-
-
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 Jon Denovan - Dentons
Mr Denovan was elected as a non-executive director in September 2019. Currently, Mr Denovan is a Partner with the
national legal firm, Dentons for which payments for legal services have been made on normal commercial terms. Services
include corporate advice, lending document reviews, license compliance services and loan settlements.
Legal service paid/payable during the year to Dentons
Amounts (owing)/payable at balance date
2020
$
131,060
491
70
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.4.6 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
7.5
Auditor’s remuneration
Auditors of the Group – KPMG
In AUD
Audit and review of the financial statements
Regulatory audit services
Total audit and assurance services
Accounting and tax opinions
Other advisory services
Total advisory and other services
Total amounts paid/payable to KPMG
2020
$
446,325
2019
$
635,101
-
79,824
263,933
194,495
2020
$
291,270
109,000
400,270
50,000
-
50,000
2019
$
267,000
89,000
356,000
-
7,000
7,000
450,270
363,000
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.
71
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.6
Standby borrowing facilities
The Company has an overdraft facility of $1,200,000 (2019: $1,200,000) with CUSCAL Ltd which is secured by a cash
deposit. As at 30 June 2020, the entire facility was unused (2019: $nil).
7.7
Material service contracts
The Group 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.
7.8
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 month
Due later than one month and not later than three months
Due later than three months and not later than one year
Due more than one year but less than five years
Due more than five years
2020
$
-
2019
$
-
701
14,765
498
15,964
6,187
9,052
538
15,777
92
187
860
2,765
-
3,904
120
243
1,050
4,224
-
5,637
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.
72
NOTES TO THE FINANCIAL REPORT
7. OTHER NOTES
7.9
Events subsequent to balance date
On 14 July 2020 the Company received partial indemnification from the insurer in respect of $1,197,750 of the ATM
fraud claim.
On 7 August 2020, the Company announced the appointment of Mr. Brett Morgan as Chief Executive Officer of
the Banking and Wholesale divisions with Mr. John Kolenda to assume the position of Chief Executive Officer of
the Aggregation divisions.
On 28 August 2020, the Company issued 450,000, performance rights to certain executives and employees.
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.
73
NOTES TO THE FINANCIAL REPORT
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 16 Leases
A. Adoption of AASB 16 Leases
The Group leases a number of branch and office premises. The leases typically run for a period of up to 5 years, and
include fixed increases in lease payments or are referenced to CPI. Previously, these leases were classified as
operating leases under AASB 117.
The Group has applied AASB 16 using the modified retrospective approach and therefore the comparative information
has not been restated and continues to be reported under AASB 117. In implementing AASB 16, the Group has elected
to recognise the right-of-use asset equal to the lease liability, adjusted for lease balances previously recognised on
the Group’s balance sheet as at transition date. Lease liabilities were determined by applying a weighted average
incremental borrowing rate of 5.2%.
Information about leases for which the Group is a lessee is presented below.
i. Right-of-use assets
Right-of-use assets relate to leased branch and office premises that are presented within property, plant and
equipment.
IN THOUSANDS OF AUD
Consol
Bank
Balance recognised at 1 July 2019 upon adoption of AASB 16
New leases entered into during the period
Depreciation charge for the period
Balance at 30 June 2020
$
3,371
820
(910)
3,281
$
761
-
(157)
604
74
NOTES TO THE FINANCIAL REPORT
8. ACCOUNTING POLICIES AND NEW STANDARDS
8.2.1 AASB 16 Leases (continued)
ii. Operating leases – comparative period
At 30 June 2019, the future minimum lease payments under non-cancellable operating leases were payable as
follows.
IN THOUSANDS OF AUD
30 June 2019
Due not later than one year
Due later than one year and not later than five years
Greater than five years
$
1,373
4,358
107
5,838
The lease liability recognised at transitional date is materially consistent to the lease commitments disclosed in
the 30 June 2019 financial report, when remeasured on a discounted basis. Differences arise due to the
exclusion of leases expiring within 12 months of the transitional date.
IN THOUSANDS OF AUD
Operating lease commitments at 30 June 2019 as disclosed in the Group’s
consolidated financial statements
Discounted using the incremental borrowing rate at 1 July 2019
Recognition exemption for leases with less than 12 months of term remaining at
transition date
Lease liabilities recognised at 1 July 2019
$
5,838
5,211
(194)
5,017
iii. Sub-lease finance lease receivable
The Group sub-leases portions of excess office space to third parties in its capacity as lessor.
Leases under AASB 16
IN THOUSANDS OF AUD
Balance recognised at 1 July 2019 upon adoption of AASB 16
Repayments
Balance at 30 June 2020
Consol
Bank
$
1,410
(289)
1,121
$
-
-
-
75
NOTES TO THE FINANCIAL REPORT
8. ACCOUNTING POLICIES AND NEW STANDARDS
8.2.1 AASB 16 Leases (continued)
Finance lease receivables
The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments
to be received after the reporting date.
Gross investment in finance leases, receivable
IN THOUSANDS OF AUD
Less than one year
Between one and two years
Between two and three years
Between three and four years
Unearned finance income
Net investment in finance leases
iv. Lease liability
30 June 2020
$
368
414
398
67
1,247
(126)
1,121
The Group has recognised lease liabilities based on the modified retrospective approach as of 1 July 2019 in
relation to its branch and office leases. A reconciliation of the lease liability at 30 June 2020 is set out below.
IN THOUSANDS OF AUD
Balance recognised at 1 July 2019 upon adoption of AASB 16
New lease entered into during the period
Repayments
Balance at 30 June 2020
Consol
$
5,017
820
(1,191)
4,646
Bank
$
779
-
(108)
671
Lease liabilities are payable as follows.
IN THOUSANDS OF AUD
Less than one year
Between one and five years
Consol ($)
Bank ($)
Interest
Future
minimum
lease
payments
Present
value of
lease
payments
Future
minimum
lease
payments
Interest
1,509
3,582
5,091
210
235
445
1,299
3,347
4,646
161
594
755
31
53
84
Present
value of
lease
payments
130
541
671
Accounting policy - recognition and measurement
The Group has applied AASB 16 using the modified retrospective approach and therefore the comparative
information has not been restated and continues to be reported under AASB 117 in accordance with the accounting
policies contained in the Group’s 30 June 2019 Annual Financial Report.
76
NOTES TO THE FINANCIAL REPORT
8. ACCOUNTING POLICIES AND NEW STANDARDS
8.2.1 AASB 16 Leases (continued)
Policy applicable from 1 July 2019
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or
contains a lease if the contact conveys the right to control the use of an identified asset for a period of time in
exchange for consideration. To assess whether a contract conveys the right to control the use of an identified
asset, the Group uses the definition of a lease in AASB 16. This policy is applied to contracts entered into (or
changed) on or after 1 July 2019.
Group acting as a lessee
At commencement or on modification of a contract that contains a lease component, the Group allocates
consideration in the contract to each lease component on the basis of its relative stand-alone price.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-
use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any
lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate
of costs to dismantle and remove any improvements made to branches or office premises.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date
to the end of the lease term. In addition, the right-of-use asset is periodically reduced by impairment losses, if
any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the lease
commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily
determined, the Group’s incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise the following:
Fixed payments, including in-substance fixed payments; or
Variable lease payments that depend on an index or a rate, initially measured using the index or rate as
at the commencement date.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there
is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s
assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-
substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment
is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of
the right-of-use asset has been reduced to zero.
The Group presents right-of-use assets within ‘property, plant and equipment’ and lease liabilities in ‘other
liabilities’ in the Consolidated Statement of Financial Position.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets and
short-term leases. The Group recognises the lease payments associated with these leases as an expense on a
straight-line basis over the lease term.
Group acting as a lessor
At inception or on modification of a contact that contains a lease component, the Group allocates the
consideration in the contract to each lease component on the basis of their relative stand-alone selling prices.
When the Group acts as lessor, it determines at lease inception whether the lease is a finance lease or an operating
lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially
all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, the lease is a
finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain
indicators such as whether the lease is for the major part of the economic life of the asset.
77
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 2020 are in accordance with the Corporations Act 2001, including:
i. Giving a true and fair view of its financial position as at 30 June 2020 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 1.2(b) 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 2020.
On behalf of the Board
Jon Sutton
Director
28 August 2020
78
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
2020 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
2020
• 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.
79
Key Audit Matters
The Key Audit Matters we identified for both the
Group and Company are:
• Loans and Advances - Provision for credit losses
The additional Key Audit Matters we identified for the
Group are:
• 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 $0.7m – 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 amortized cost is a key
audit matter due to the significance of loans
and advance 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 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.
We used judgement to assess the ECL
model’s application of the requirements in
AASB 9 Financial Instruments. This includes
the assumptions made by the Group and
Company in determining what represents a
significant increase in credit risk, the method
used to calculate the probability of default and
loss given default based on the staging
criteria required and judgement around the
impact of COVID-19 on forward-looking
information.
We involved credit specialists to supplement
our senior audit team members in assessing
this key audit matter.
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 determine probability of default to the
underlying core banking system; and
- Management’s review and approval of the ECL
model and key assumptions used.
• Assessed the methodology in the ECL model, including
relevant adjustments for COVID-19, against the
requirements in the accounting standards and our
understanding of industry practice;
• Tested the integrity of the ECL model, including the
accuracy of the underlying calculations;
• 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, including those in COVID-
19 deferral programs, 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.
80
Carrying Value of Goodwill and other intangible assets $49.6million – 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 given the extent of judgement
involved and the financial significance of the
Goodwill and other identifiable intangible
assets recognised. We focused 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, COVID-19
impacts, emerging regulatory changes and
industry developments making them
judgemental in nature.
The Group’s modelling is sensitive to small
changes in the discount rates and terminal
value growth rates used.
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 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
goodwill for impairment 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 reasonableness 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 including the impacts of COVID-19 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.
81
Net Present Value of future trail commission receivable $387.2million and payable $343.0million –
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 $387 million and
trail commission payable of $343 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.
82
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.
83
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 2020, 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 21 of the Directors’ report for the year
ended 30 June 2020.
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
28 August 2020
KPM_INI_01
PAR_SIG_01
PAR_NAM_01
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
84
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 28 August 2020.
(a)
Distribution of equity securities
Spread of
holdings
1 -
1,000
1,001 - 5,000
10,000
5,001 -
10,001 -
100,000
100,001+
TOTAL
Number
of
holders
84
1,550
80
244
89
1,846
Number of
units
Percentage of
total issued
capital
48,314
3,753,031
668,795
9,465,271
81,101,655
82,415,399
0.051
3.949
0.704
9.960
85.337
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
JOHN KOLENDA
SF LEGACY INVESTMENTS LIMITED
CALVIN NG
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
RESIMAC LIMITED
AOYIN GROUP LIMITED
CARPE DIEM ASSET MANAGEMENT PTY LTD
RTL GROUP INVESTMENTS PTY LTD
NOAH JAMES INVESTMENTS PTY LTD
KOLEET PTY LTD
INVIA CUSTODIAN PTY LTD
FIRSTMAC LIMITED
CITICORP NOMINEES PTY LTD
MR WAYNE HOSKING + MISS BERNADETTE
WILLIAMS
SAVOT 1 PTY LTD
16
SIMON BEDNAR & JENNIFER BEDNAR
17
18
19
20
VANVAL INVESTMENTS PTY LTD
SIMON LYONS & JENNIFER LYONS
PYRAMID CAPITAL
K M K SUPER HOLDINGS PTY LTD
TOTAL
13,302,952
9,200,000
7,674,747
5,219,881
4,468,902
2,629,996
2,430,190
2,000,000
1,989,252
1,841,144
1,784,021
1,769,416
1,698,420
1,440,000
1,394,605
1,153,333
1,153,333
1,089,667
775,000
745,000
14.00
9.68
8.07
5.49
4.70
2.77
2.56
2.104
2.09
1.94
1.88
1.86
1.79
1.52
1.47
1.21
1.21
1.15
0.82
0.78
63,759,869
67.09
85