Annual
Financial
Report
2017
Annual Financial Report 2017 A
Table of
contents
Section 1
Directors’ Report
Operating and Financial Report
Remuneration Report
Section 2
Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Section 3
Additional Information
2
11
25
48
120
121
129
Annual Financial Report 2017 1
Contact us
Bendigo and Adelaide Bank Limited
ABN 11 068 049 178
Registered head office
The Bendigo Centre
22-44 Bath Lane
Bendigo VIC Australia 3550
Telephone: 1300 236 344
+61 3 5445 0666 (if calling from overseas)
Shareholder enquiries
Share Registry
1800 646 042
Email: share.registry@bendigoadelaide.com.au
Becoming an eShareholder
Want to reduce paper and recieve this document electronically?
You can become an eShareholder simply by registering your
mobile number and email address at www.bendigoadelaide.com.
au. As an eShareholder you will have ready access to important
dates, current shareholder publications and the Company’s
latest announcements.
Front cover – The front cover image was captured at the “Be the Change”
filming. Photographed at the Clifton Hill/North Fitzroy Community Bank® branch,
“Be the Change” shows that our customers create change every day. A change
for good. A change for better. And this change has a real and positive impact on
people and communities right across Australia.
B Annual Financial Report 2017
Directors’
Report
The Directors of Bendigo and Adelaide Bank Limited (the “Bank”) present their
report together with the financial report of the Bank and the Consolidated
Entity (the “Group”) for the year ended 30 June 2017.
Directors’ information
The names and details of the Directors in office during the financial year and as at the date of this report are as follows.
Robert Johanson
Chair, Independent
BA, LLM (Melb), MBA
(Harvard), 66 years
Mike Hirst
Managing Director,
non independent
BCom (Melb), SFFin,
MAICD, 59 years
Term of office: Robert has been a Director
of the Bank for 29 years. He was appointed
Chairman in 2006.
Group and joint venture directorships:
Rural Bank Limited and Homesafe Solutions
Pty Limited (Chair)
Skills, experience and expertise: Robert has
experience in banking and financial services
and expertise in corporate strategy, capital
management, risk management and mergers
and acquisitions. He has over 35 years’
experience in providing corporate advice on
capital market transactions to a wide range
of public and private companies.
Board committees: Governance & HR
and Technology & Change
Term of office: Mike was appointed as
Managing Director and Chief Executive
Officer of the Bank in 2009.
Skills, experience and expertise: Mike
joined the Group in 2001. Mike has
extensive experience in banking, treasury,
funds management and financial markets,
including previous senior executive and
management positions with Colonial Limited,
Chase AMP Bank Limited and Westpac
Banking Corporation.
Board committees: Mike has a standing
invitation to attend meetings of all Board
committees. He is not a member of these
Board committees.
Other director and memberships (including
directorships of other listed companies for
the previous three years):
Chairman, Australia India Institute and MBD
Energy Limited
Director, Robert Salzer Foundation Limited,
NeuClone Limited and Grant Samuel Group
Pty Limited.
Group and joint venture directorships:
Rural Bank Limited
Other director and memberships (including
directorships of other listed companies for
the previous three years):
Member, Business Council of Australia and
Financial Sector Advisory Council
Deputy Chairman, Australian Bankers’
Association Council
Acting Chairman, Racing Victoria Limited
Member, MasterCard (Asia Pacific)
Advisory Board.
Directors’ information continued
Jan Harris
Independent
BEc (Hons), 58 years
Jim Hazel
Independent
BEc, SFFin, FAICD,
66 years
Jacqueline Hey,
Independent
BCom (Melb),
Graduate Certificate
in Management
(Southern
Cross
University),
GAICD,
51 years
Robert Hubbard,
Independent
BA (Hons) Accy, FCA,
58 years
Term of office: Jan joined the Board in
February 2016.
Group and joint venture directorships:
Rural Bank Limited
Skills, experience and expertise: Jan has
had a distinguished career in the Australian
public service with broad experience in
public and regulatory policy development,
economics and governance. Jan has had
senior roles in the Department of the
Treasury and the Department of the Prime
Minister and Cabinet, including as Deputy
Secretary of the Treasury.
Board committees: Member of Risk
and Audit
Other director and memberships (including
directorships of other listed companies for
the previous three years):
External Member, Audit and Risk Committee
of the Australian Security Intelligence
Organisation
Member (part-time), International Air
Services Commission.
Term of office: Jim joined the Board in
March 2010.
Skills, experience and expertise: Jim is a
professional public company Director who
has had an extensive career in banking and
finance, including in the regional banking
industry.
Board committees: Chair of Risk and
member of Credit and Technology & Change
Group and joint venture directorships: Rural
Bank Limited
Other director and memberships (including
directorships of other listed companies for
the previous three years):
Chairman, Ingenia Communities Group
Limited (ASX listed, period: June 2012
to present)
Director, Centrex Metals Limited (ASX
listed, period: 2010 to present), Impedimed
Limited (ASX listed, period: 2007 to March
2016), Adelaide Football Club Limited,
Coopers Brewery Limited and Council
Member of the University of South Australia.
Term of office: Jacquie joined the Board in
July 2011.
Group and joint venture directorships:
Rural Bank Limited
Skills, experience and expertise: Jacquie
has experience in information technology,
telecommunications and marketing,
including as CEO/Managing Director of
Ericsson in the UK and in Australia. Jacquie
worked with Ericsson for more than 20 years
in leadership roles in Australia, Sweden, the
UK and the Middle East.
Board committees: Chair of Technology &
Change and member of Governance & HR
and Credit
Other director and memberships (including
directorships of other listed companies for
the previous three years):
Director, Qantas Airways Limited (ASX listed,
period: August 2013 to present), Australian
Foundation Investment Company Limited
(ASX listed, period: July 2013 to present),
AGL Energy Limited (ASX listed, period:
March 2016 to present) Cricket Australia
and Melbourne Business School.
Term of office: Rob joined the Board in
April 2013.
Group and joint venture directorships:
Rural Bank Limited
Skills, experience and expertise:
Rob is an accountant based in
Queensland. He was a partner of
PricewaterhouseCoopers for 22 years
practising in the areas of corporate advice
and audit. Rob is now a professional Non-
executive Director.
Board committees: Chair of Audit and
member of Risk
Other director and memberships (including
directorships of other listed companies for
the previous three years):
Chairman, Orocobre Limited (ASX and TSX
listed, period: November 2012 to present)
and Central Petroleum Limited (ASX listed,
period: December 2013 to present).
Director, Primary Health Care Limited (ASX
listed, period: December 2014 to present).
2 Annual Financial Report 2017
Annual Financial Report 2017 3
Directors’ information continued
Principal activities
State of affairs
David Matthews
Independent
Dip BIT, GAICD,
59 years
Deb Radford
Independent
BEc, Graduate Diploma
Finance & Investment,
61 years
Tony Robinson
Independent
BCom (Melb), ASA, MBA
(Melb), 59 years
Term of office: David joined the Board in
March 2010.
Skills, experience and expertise: David
operates a farm and grain export business
based in the Wimmera region of Victoria
and is involved in a number of agricultural
industry bodies. David also chaired the first
Community Bank® company in Rupanyup
and Minyip.
Board committees: Member of Credit
and Audit
Group and joint venture directorships:
Rural Bank Limited and Member of the
Community Bank® National Council.
Other director and memberships (including
directorships of other listed companies for
the previous three years):
Director, Pulse Australia, Australian Grain
Technologies, Rupanyup/Minyip Finance
Group Limited.
Term of office: Deb joined the Board in
February 2006.
Group and joint venture directorships:
Rural Bank Limited
Skills, experience and expertise: Deb has
over 25 years’ experience in the banking
industry with both international and local
banks. Deb also worked in the Victorian
State Treasury, and ran her own consulting
business advising the government on
commercial transactions.
Board committees: Chair of Credit and
member of Technology & Change and
Governance & HR
Term of office: Tony joined the Board in
April 2006.
Skills, experience and expertise: Tony
has many years’ experience in financial
services, particularly wealth management
and insurance. Tony’s previous roles include
CEO of Centrepoint Alliance Limited, IOOF
Holdings Limited and OAMPS Limited.
Board committees: Chair of Governance &
HR and member of Risk and Audit
Group and joint venture directorships:
Rural Bank Limited and Sandhurst
Trustees Limited
Other director and memberships (including
directorships of other listed companies for
the previous three years):
Director, SMS Management & Technology
Limited (ASX listed, period: September 2013
to November 2016)
Council Member of La Trobe University.
Other director and memberships (including
directorships of other listed companies for
the previous three years):
Chairman, TasFoods Limited (ASX listed,
period: June 2014 to present) and Primary
Opinion Limited (ASX listed, period:
November 2015 to present).
Director, Pacific Current Group Limited (ASX
listed, period: August 2015 to present), and
PSC Insurance Group Limited (ASX listed,
period: September 2015 to present), and
Investors Mutual Limited.
The principal activities of the Group during the financial year
were the provision of a broad range of banking and other
financial services including residential, business, rural and
consumer lending, deposit-taking, payments services, wealth
management and superannuation, treasury and foreign
exchange services. There was no significant change in the
nature of the activities during the year.
In the opinion of the Directors there have been no significant
changes in the state of affairs of the Group during the financial
year. Information on events and matters that affected the
Group’s state of affairs is presented in the Operating and
Financial Review section of this report.
After balance date events
Operating results
Information on the Group’s operating results for the financial
year are contained in the Operating and Financial Review
section of this report.
Dividends
The Directors announced on 14 August 2017 a fully franked
final dividend of 34 cents per fully paid ordinary share.
The final dividend is payable on 29 September 2017. The
proposed payment is expected to amount to $158.4 million.
The following fully franked dividends were paid by the Bank
during the year on fully paid ordinary shares:
• A final dividend for the 2016 financial year of 34 cents per
share, paid on 30 September 2016 (amount paid: $155.1
million); and
• An interim dividend for the 2017 financial year of 34 cents
per share, paid on 31 March 2017 (amount paid: $156.3
million).
Further details on the dividends provided for or paid during
the 2017 financial year on the Bank’s ordinary and preference
shares are provided at Note 7 Dividends of the Financial
Statements.
Review of operations
An analysis of the Group’s operations for the financial year
and the results of those operations, including the financial
position, business priorities and prospects, is presented in the
Operating and Financial Review section of this report.
The Bank declared a final dividend of 34 cents per ordinary
share on 14 August 2017.
The Directors are not aware of any other matter or
circumstance which arose since the end of the financial year
to the date of this report that has significantly affected or may
significantly affect the operations of the Group, the results
of those operations, or the state of affairs of the Group in
subsequent financial years.
Future developments
Disclosure of information relating to major developments in
the operations of the Group and the expected results of those
operations in future financial years, which, in the opinion of
the Directors, will not unreasonably prejudice the interests of
the Group, is included in the Operating and Financial Review
section of this report.
Rounding of amounts
Pursuant to Australian Securities & Investments Commission
Class Order 98/100 (as amended) and pursuant to section
341 (1) of the Corporations Act 2001, the amounts in this
report, unless otherwise indicated, have been rounded to the
nearest million dollars. The Bank is an entity to which the
Class Order applies.
4 Annual Financial Report 2017
Annual Financial Report 2017 5
Meetings of Directors
Directors’ interests continued
Environmental Regulation
Information on Board and committee meeting attendance for the year is presented in the following table:
Director
Board
Audit
Committee
Credit
Committee
Risk
Committee
Governance
& HR
Committee
Technology &
Change
Committee
Meetings during the year
Robert Johanson
Jan Harris
Jim Hazel
Jacquie Hey
Mike Hirst
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
A
17
17
17
17
17
17
17
17
17
B
16
17
16
16
17
17
17
16
17
A
8
8
8
8
B
8
8
8
8
A
6
6
6
6
B
5
6
6
6
A
6
6
6
6
B
6
5
6
6
A
4
4
4
4
B
4
4
3
4
A
5
5
5
B
5
4
5
5
5
A = Number eligible to attend B = Number attended
Directors’ interests in Equity
The relevant interest of each Director in shares in the Bank and in units of registered schemes made available by a related body
corporate at the date of this report are as follows:
Director
Robert Johanson
Mike Hirst 1
Jan Harris
Jim Hazel
Jacquie Hey
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
Ordinary
Shares No.
218,169
715,689
1,000
26,128
11,378
11,775
30,959
1,900
33,140
Preference
Shares No.
Performance
Rights No.
Sandhurst Cash
Common Fund ($) 2
-
-
-
-
250
-
-
3,190
-
-
76,219
-
-
-
-
-
-
-
476
-
-
-
-
-
-
-
-
1 Ordinary shares includes 50,000 shares issued under the Bendigo Employee Share Ownership Plan and deferred shares issued under
the Employee Salary Sacrifice, Deferred Share and Performance Share Plan.
2 Being a relevant interest in a managed investment scheme made available by Sandhurst Trustees Limited, a subsidiary of the Bank.
The Directors have disclosed interests in organisations not
related to the Group and accordingly are regarded as having
an interest in any contract or proposed contract that may be
made between the Bank and any of the specified external
organisations.
Share Options and Rights
There were no options over unissued ordinary shares at the
start of the financial year and no options to acquire ordinary
shares in the Bank were issued during or since the end of the
financial year.
Performance rights (“rights”) to ordinary shares in the Bank
are issued by the Bank under the Employee Salary Sacrifice,
Deferred Share and Performance Share Plan (“Plan”). Each
right represents an entitlement to one fully paid ordinary share
in the Bank, subject to certain conditions.
During or since the end of the financial year the Bank granted
378,759 rights (2016: 175,373). This included 215,700
rights granted to key management personnel. There have been
no grants of rights to Non-executive Directors.
As at the date of this report there are 704,773 rights that are
exercisable or may become exercisable at a future date under
the Plan. The last date for the exercise of the rights ranges
between 30 June 2018 and 30 June 2020.
During or since the end of the financial year no rights vested
(2016: nil) and no new fully paid ordinary shares have been
issued by the Bank during or since the end of the financial
year as a result of rights being exercised.
For the period 1 July 2017 to the date of this report, no rights
have lapsed.
Further details of Key Management Personnel equity
holdings during the financial year are detailed in the 2017
Remuneration Report.
Corporate Governance
An overview of the Bank’s corporate governance structures
and practices is presented in the 2017 Corporate Governance
Statement available from the Bank’s website at
www.bendigoadelaide.com.au/public/corporate_governance/
The Bank confirms it has followed the ASX Corporate
Governance Council’s Principles and Recommendations (3rd
edition) during the 2017 financial year.
The Group endeavours to conduct its operations in a manner
that minimises its impact on the environment. Information
on the Group’s environmental performance and activities to
manage the Group’s environmental impact are provided in
the 2017 Annual Review which is available from the Group’s
website.
The Group’s operations are not subject to any significant
environmental regulations under either Commonwealth or
State legislation. However, the Board believes that the Group
has adequate systems in place for the management of its
environmental requirements and is not aware of any breach of
any environmental requirement.
The Group is not subject to the Federal Government’s
National Greenhouse and Energy Reporting (NGER) Scheme
which requires controlling corporations to report annually on
greenhouse gas emissions, energy production and energy
consumption, if they exceed certain threshold levels. Whilst
not required to report under the Scheme, the Group does
measure and monitor its greenhouse gas emissions and has
voluntarily reported these emissions since 2011 to the Carbon
Disclosure Project.
Indemnification of Officers
The Bank’s Constitution provides that the Bank is to indemnify,
to the extent permitted by law, each officer of the Bank
against liabilities (including costs, charges, losses, damages,
expenses, penalties and liabilities of any kind including, in
particular, legal costs incurred in defending any proceedings
or appearing before any court, tribunal, government authority
or other body) incurred by an officer in or arising out of the
conduct of the business of the Bank or arising out of the
discharge of the officer’s duties.
As provided under the Bank’s Constitution, the Bank has
entered into deeds providing for indemnity, insurance and
access to documents for each of its Directors. The Bank has
also entered into deeds providing for indemnity and insurance
for each Executive Committee member and the Company
Secretary as well as deeds providing for indemnity, insurance
and access to documents for each Director of a subsidiary.
The deeds require the Bank to indemnify, to the extent
permitted by law, the officers for all liabilities (including costs,
charges, losses, damages, expenses, penalties and liabilities
of any kind) incurred in their capacity as an officer of the
relevant company.
6 Annual Financial Report 2017
Annual Financial Report 2017 7
Indemnification of Auditor
To the extent permitted by law and professional regulations,
the Bank has agreed to indemnify its auditors, Ernst & Young,
as part of the terms of its audit engagement agreement
against all claims by third parties and resulting liabilities,
losses, damages, costs and expenses (including reasonable
external legal costs) arising from the audit engagement
including any negligent, wrongful or wilful act or omission by
the Bank. The indemnity does not apply to any loss resulting
from Ernst & Young’s negligent, wrongful or wilful acts or
omissions. No payment has been made under this indemnity
to Ernst & Young during or since the financial year end.
Insurance of Directors and Officers
During or since the financial year end, the Bank has paid
premiums to insure certain officers of the Bank and its related
bodies corporate. The officers of the Bank covered by the
insurance policy include the Directors, the Company Secretary
and Directors and Company Secretaries of controlled
entities who are not Directors or Company Secretaries of the
Bank. The policy also covers officers who accept external
directorships as part of their responsibilities with the Bank.
The insurance does not provide cover for the external
auditor of the Bank or related bodies corporate of the Bank.
Disclosure of the nature of the liability and the amount of
the premium is prohibited by the confidentiality clause of the
contract of insurance.
Company Secretary
William Conlan, LL.B (Melb), GradDip Applied Finance and
Investment
Mr Conlan was appointed as Company Secretary of the Bank
in 2011, having worked with the Bank for almost 10 years in
strategy, capital management and compliance. Mr Conlan is
a practising lawyer and prior to commencing employment with
the Bank, worked as a lawyer in Melbourne.
Declaration by Chief Executive Officer
and Chief Financial Officer
The Managing Director and Chief Financial Officer have
provided the required declarations to the Board in accordance
with section 295A of the Corporations Act 2001 and
recommendation 4.2 of the ASX Corporate Governance
Principles and Recommendations in relation to the financial
records and financial statements.
The Managing Director and Chief Financial Officer also
provided declarations to the Board, consistent with the
declarations under section 295A of the Corporations Act 2001
and recommendation 4.2 of the ASX Corporate Governance
Principles and Recommendations, in relation to the financial
statements for the half year ended 31 December 2016.
To support the declaration, a formal risk management and
financial statement due diligence and verification process,
including attestations from senior management, is conducted.
This assurance is provided each six months in conjunction
with the Bank’s half year and full year financial reporting
obligations. The statements are made on the basis that they
provide a reasonable but not absolute level of assurance and
do not imply a guarantee against adverse circumstances that
may arise in future periods.
Auditor Independence
and Non-audit Services
The Audit Committee has conducted an assessment of the
independence of the external auditor for the year ended 30
June 2017.
The assessment was conducted on the basis of the Bank’s
audit independence policy and the requirements of the
Corporations Act 2001. The assessment included a review of
non-audit services provided by the auditor and an assessment
of the independence declaration issued by the external auditor
for the year ended 30 June 2017. A copy of the auditor’s
independence declaration is presented at the end of this
section.
Non-Audit Services
Non-audit services are those services paid or payable to the
Group’s external auditor, Ernst & Young (Australia), which do
not relate to Group statutory audit engagements.
In its capacity as the Group’s external auditor, Ernst & Young
is periodically engaged to provide assurance services to the
Group in accordance with Australian Auditing Standards.
All assignments are subject to engagement letters in
accordance with Australian Auditing Standards. They include
audit services required for regulatory and prudential purposes
and the amounts shown are GST exclusive.
The Audit Committee has reviewed the nature and scope
of the above non-audit services provided by the external
auditor. In doing so, the Audit Committee has confirmed that
the provision of those services is consistent with the audit
independence policy and compatible with the general standard
of independence for auditors imposed by the Corporations Act
2001. This confirmation was provided to, and accepted by, the
full Board.
This assessment was made on the basis that the non-audit
services performed did not represent the performance
of management functions or the making of management
decisions, nor were the dollar amounts of the non-audit
fees considered sufficient to impair the external auditor’s
independence.
Details of all non-audit services for the year ended 30 June
2017:
(a) Assurance related fees (Regulatory)
Service Category
Fees $
Entity
AFSL audits, APS 310 and
APS 910 audits
238,741
Bendigo and
Adelaide Bank
Limited
AFSL audit, APS 310 and
APS 910 audits
83,875
Rural Bank
Limited
Euro Medium Term Note
Program
Sub-total: Audit related
fees (Regulatory)
30,906
353,522
Bendigo and
Adelaide Bank
Limited
(b) Audit related fees (Non-regulatory)
In its capacity as the Group’s external auditor, Ernst & Young is
periodically engaged to provide assurance and related services
not required by statute or regulation but are reasonably related
to the performance of the audit or review of the Group’s
financial statements which are traditionally performed by the
external auditor. The amounts shown are GST exclusive.
Service Category
Fees $
Entity
Bendigo and
Adelaide Bank
Limited
Bendigo and
Adelaide Bank
Limited
Bendigo and
Adelaide Bank
Limited
Securitisation
Trusts
Alliance Bank Revenue
Share Model
Subordinated Note
Issuance
Basel II advanced
accreditation program
20,400
13,260
29,600
Securitisation Trusts
169,805
Sub-total:
Assurance related fees
(Non-regulatory)
Total: non-assurance
services
233,065
586,587
8 Annual Financial Report 2017
Annual Financial Report 2017 9
Operating
and Financial
Report
Business overview
The Group provides a broad range of banking and other
financial services primarily to retail customers and small to
medium sized businesses throughout Australia.
Our vision is to be Australia’s most customer connected bank
and our point of difference is our focus on the success of our
customers, people, partners and communities.
Our main business activity is raising funds through customer
deposits and wholesale funding markets and lending those
funds to our customers. The major lending activities are
residential lending, commercial and business lending and
consumer finance, which includes personal loans, credit cards
and overdrafts.
Our main revenue sources are:
• Net interest income which is represented by the interest
earned from our lending activities and liquidity portfolio, less
interest paid on deposits and other funding sources; and
• Fee and commission revenue from the provision of banking,
investment, insurance and superannuation services.
Our business activities are structured and managed under the
following three customer-facing divisions:
Local Connection
Local Connection incorporates retail banking (including
Community Bank® and Delphi Bank®), business banking and
financial markets. The services are available from our national
branch and agency network, business bankers, call centres,
on-line and phone banking services and ATM network.
Partner Connection
Partner Connection incorporates our Third Party Banking,
Wealth and Leveraged businesses.
Third Party Banking provides commercial, residential and
consumer finance through intermediaries including mortgage
managers and brokers. It also includes our Portfolio Funding
business which provides funding to finance companies.
Wealth is the provider of superannuation, investment and
financial planning services through our subsidiaries, Sandhurst
Trustees Limited and Bendigo Financial Planning Limited.
Leveraged is our margin lending business. The services are
provided by our subsidiary, Leveraged Equities Limited through
its team of business development and relationship managers.
The Partner Connection segment also includes Alliance Bank
and Homesafe.
Agribusiness Division
The division is an amalgamation of our Rural Bank and Rural
Finance businesses. This division provides specialist financial
products and services to primary producers and agribusiness
participants through a national network of outlets and
agribusiness lending specialists mainly based in rural and
regional centres.
Performance overview
Highlights
Statutory profit
ã 3.4% to $429.6 million
Statutory earnings per share ã 0.6% to 90.9 cents
Cash earnings
Cash earnings per share
Common Equity Tier 1
ratio of 8.27%
ã by 4.2% to $418.3 million
ã 1.2% to 88.5 cents
ã 30 basis points compared to
December 2016
The year in review
We were pleased to announce a strong profit result for the
year. The after tax statutory profit was $429.6 million which
represents an increase of 3.4 percent on the prior year’s result
of $415.6 million. The statutory earnings per ordinary share
was 90.9 cents (FY2016: 90.4 cents).
The Bank declared a final fully franked dividend of 34 cents
per share, taking the full-year dividend to 68 cents per share
(FY2016: 68 cents). The statutory return on average ordinary
equity was 8.32 percent and the return on average tangible
equity was 11.61 percent.
This was again a very challenging year given the high level of
competition and pressure on interest margins. Despite this, we
saw good levels of activity which translated into above system
growth, which is a testament to our vision to be Australia’s
most customer connected bank.
All our major businesses experienced good levels of activity
with our housing, business and rural portfolios all recording
increases in lending volumes for the year. Total assets grew by
$2.8 billion and total liabilities increased by $2.5 billion over
10 Annual Financial Report 2017
Annual Financial Report 2017 11
the year. The liability growth was mainly in the retail at-call and
term deposit portfolios.
We saw strong housing lending growth from the Local
Connection Division of 7.7 percent and a solid contribution
through our Third Party channels, although new prudential caps
on investor and interest-only lending curtailed growth in the
second half. Net interest margin improved 8 basis points over
the second half, with an exit margin of 2.34 percent.
Credit quality is sound with loan arrears performance generally
flat year on year. Although the industry is experiencing
historically low levels, there was an increase in bad and
doubtful debt charges for the year.
Our ability to attract retail deposits is a real strength of
our business, providing flexibility for executing on growth
opportunities. The growth in retail deposits meant that 80.2
percent of our total funding base was provided by our retail
customers as at year end.
Our focus on efficiency and continuous improvement has
also been a key contributor to the result. Expenses remained
flat year on year, and our cost to income ratio improved to
56.1 percent, as productivity gains flow from our investments
in technology and making it easier for our customers to do
business with us.
Our capital position is extremely strong, particularly given the
relatively low level of risk in the balance sheet. Importantly,
our ability to organically generate capital is expected to
enable us to achieve APRA’s new unquestionably strong
capital benchmarks well within the required timeframe without
needing to raise additional capital, aside from dividend
reinvestments. This benchmark is explained in the Capital
Adequacy section of this report.
Our progress towards Advanced Accreditation is continuing,
although further announcements from APRA on asset risk
weightings, which are expected later this year, will better
inform this decision.
Regardless, the significant investment we have made to date
has vastly improved our risk management capability and is an
important step in ensuring we can operate on a level playing
field with the major banks.
Investing for the future by developing the skills and knowledge
of our staff and delivering innovative and customer focused
solutions has again been a key focus for the business. This
includes new technologies and digital solutions to meet our
customers’ ever changing needs.
The result is a positive reflection on our unique and valued
proposition, which is resonating with all of our stakeholders.
Customer connection is central to our strategy, and our
customers are our greatest advocates. Our proposition for
customers has driven the highest levels of trust and advocacy
in the industry. We’re number one in the Customer Experience
Index across all industries, our corporate reputation is the
highest of all Australian retail banks, and out of all banks’
customers, our customers are most likely to recommend us to
others, according to Roy Morgan research.
Our proposition for communities also remains strong. Our
Community Bank® model is delivering tangible benefits for
many communities and our business, with 9 percent balance
sheet growth this year. Approximately $16.6 million was
returned directly to local communities in the last financial year,
and the impact of this funding will support the sustainability of
hundreds of Australian communities for the long-term.
The current operating environment is extremely competitive,
and we expect this to continue. This means we will need to
maintain our focus on achieving our vision to be Australia’s
most customer connected bank, and take greater advantage of
the opportunities ahead of us. Our customer focus, high trust
ratings and customer advocacy provide a great platform for
business growth. Paired with our strong funding and balance
sheet position, we are well placed to generate sustainable
returns for our stakeholders.
Financial performance ratios
Earnings per ordinary share (statutory basis)
Earning per ordinary share (cash basis)
Dividend per share - fully franked
Cost to income ratio
Net interest margin before profit share arrangements
Net interest margin after profit share arrangements
Jun 17
Half
Dec 16
Half
cents
cents
46.3
45.0
34.0
%
55.7
2.26
1.89
44.6
43.5
34.0
%
56.4
2.18
1.83
Total
cents
90.9
88.5
68.0
%
56.1
2.22
1.86
Jun 16
Half
Dec 15
Half
Total
Jun 16 to
Jun 17
cents
cents
cents
cps change
44.8
44.9
34.0
%
58.2
2.24
1.89
45.6
42.4
34.0
%
57.9
2.23
1.90
90.4
87.3
68.0
0.5
1.2
-
%
% change
58.1
2.23
1.89
3.4
(0.4)
(1.6)
Cash earnings result
The cash earnings result for the year was $418.3 million, which
represents a 4.2 percent improvement on the previous year’s result
of $401.4 million. The cash earnings per ordinary share was 88.5
cents which is a 1.2 percent increase on the previous year.
The cash basis return on average ordinary equity was 8.10 percent
and the return on average tangible equity was 11.61 percent.
On a cash earnings basis, net interest income increased by $47.7
million to $1,232.0 million. Net interest margin (before profit share
arrangements) decreased by 1 basis point to 2.22 percent across
the year. The movement broadly reflected strong competition and
cash rate reductions, offset by increases in lending rates.
Our average interest earning assets for the year grew by $3.6
billion or 5.8 percent, which drove the improvement in net interest
income, and other revenue grew by $6.8 million or 2.2 percent due
to stronger trading income from our liquidity holdings.
Our operating expenses were held relatively flat with a slight
increase of $2.0 million (0.2 percent). Salary costs were flat and
an increase in software amortisation was offset by reductions in
marketing costs and other product and service delivery costs.
The bad and doubtful debt expense increased by 62.8 percent on
the previous year. This was mainly due to specific provisioning for a
small number of business exposures and an increase in bad and
doubtful debt charges for the Great Southern portfolio.
A reconciliation between the statutory profit and cash earnings
result for the year is provided at Note 5 Segment results in the
2017 Financial Report.
Analysis of
financial performance
Full year ending
Six months ending
Jun 17
Jun 16
Change
Jun 17
Dec 16
Change
Financial result summary
Full year ending
Six months ending
Jun 17
Jun 16
Change
Jun 17
Dec 16
Change
$m
$m
$m
%
$m
$m
$m
%
Income
$m
$m
$m
%
$m
$m
$m
%
Net interest income
1,232.0
1,184.3
47.7
Homesafe funding costs - unrealised
(15.8)
(15.6)
(0.2)
4.0
1.3
Specific items - interest expense
(2.6)
(4.6)
2.0
(43.5)
627.3
604.7
22.6
3.7
(8.5)
(1.1)
(7.3)
(1.5)
(1.2)
16.4
0.4
(26.7)
Profit before tax
628.3
606.9
21.4
3.5
323.6
304.7
18.9
6.2
Total net interest income including specific items
1,213.6
1,164.1
49.5
4.3
617.7
595.9
21.8
3.7
Specific items before tax
(49.1)
(52.5)
3.4
(6.5)
(23.9)
(25.2)
1.3
(5.2)
Profit before tax and specific items
579.2
554.4
24.8
4.5
299.7
279.5
20.2
7.2
Profit after tax attributable to Owners
of the Company
429.6
415.6
14.0
3.4
220.6
209.0
11.6
5.6
Specific items after tax
(34.8)
(34.9)
0.1
(0.3)
(16.7)
(18.1)
1.4
(7.7)
Other specific items after tax
11.1
7.0
4.1
58.6
Amortisation of acquired intangibles after tax
12.4
13.7
(1.3)
(9.5)
4.9
6.0
6.2
(1.3)
(21.0)
6.4
(0.4)
(6.3)
Cash earnings after tax
418.3
401.4
16.9
4.2
214.8
203.5
11.3
5.6
Other income
Fee income
Commissions
Foreign exchange income
Trading book revaluation income
Other
Total other income
Specific other income items
160.0
161.9
(1.9)
(1.2)
79.8
80.2
(0.4)
(0.5)
72.7
18.0
19.8
39.2
68.9
3.8
5.5
37.6
35.1
2.5
7.1
20.9
(2.9)
(13.9)
8.9
10.9
122.5
8.9
7.2
9.1
(0.2)
(2.2)
12.6
(5.4)
(42.9)
42.3
(3.1)
(7.3)
15.9
23.3
(7.4)
(31.8)
309.7
302.9
6.8
2.2
149.4
160.3
(10.9)
(6.8)
Homesafe Trust - revaluation income
90.4
79.7
10.7
13.4
44.0
46.4
(2.4)
(5.2)
Other - non interest income
(4.2)
7.9
(12.1)
(153.2)
3.1
(7.3)
10.4 (142.5)
Total income including specific items
1,609.5
1,554.6
54.9
3.5
814.2
795.3
18.9
2.4
12 Annual Financial Report 2017
Annual Financial Report 2017 13
Net interest income
The increase in net interest income was mainly driven by
growth in average interest earning assets. This was offset to
some degree by a one basis point decrease in the net interest
margin year on year.
Our average interest earning assets increased by $3.6 billion
or 5.8 percent on the prior year which was mainly due to a
$3.12 billion increase in the residential lending portfolio and a
$433.6 million increase across the commercial, business and
rural portfolios.
Our margin performance over the year is a story of two
halves. During the first half of the year our net interest margin
declined due to cash rate reductions in May and August 2016
and heightened competition, causing lending rates to decline.
The margin was also adversely impacted by holding additional
liquidity in the lead up to the acquisition of the Keystart
portfolio. As a result, our net interest margin declined by six
basis points for the first half.
During the second half, our net interest margin recovered as
interest rate increases on mortgages, particularly interest only
and investor mortgage loans, became effective.
Operating expenses
Full year ending
Six months ending
Jun 17
Jun 16
Change
Jun 17
Dec 16
Change
$m
$m
$m
%
$m
$m
$m
%
Bad and doubtful debt charges and loan
impairment provisions
Full year ending
Six months ending
Jun 17
Jun 16
Change
Jun 17
Dec 16
Change
Bad and doubtful debts expense
$m
$m
$m
%
$m
$m
$m
%
Bad debts written off
20.5
4.4
16.1
365.9
12.5
8.0
4.5
56.3
Provision doubtful debts - expense
71.4
52.5
18.9
36.0
33.0
38.4
(5.4)
(14.1)
Total bad and doubtful expense
91.9
56.9
35.0
61.5
45.5
46.4
(0.9)
(1.9)
Less: Bad debts recovered
(20.1)
(12.8)
(7.3)
57.0
(13.5)
(6.6)
(6.9)
104.5
Bad and doubtful debts net of recoveries
71.8
44.1
27.7
62.8
32.0
39.8
(7.8)
(19.6)
As at
Jun 17
As at
Jun 16
Change
As at
Jun 17
As at
Dec 16
Change
-
237.3
243.2
(5.9)
(2.4)
Provisions and reserves
$m
$m
$m
%
$m
$m
$m
%
Staff and related costs
Occupancy costs
Information technology costs
480.5
480.3
92.0
91.6
71.6
70.2
0.2
0.4
1.4
0.4
2.0
46.1
45.9
0.2
0.4
35.3
36.3
Amortisation of acquired intangibles
17.7
19.5
(1.8)
(9.2)
8.6
Amortisation of software intangibles
Property, plant and equipment costs
Fees and commissions
Communications, postage and stationery
Advertising and promotion
20.8
15.4
11.7
11.3
33.6
33.6
33.0
33.8
28.3
31.1
5.4
0.4
-
(0.8)
(2.8)
9.1
9.0
5.9
35.1
11.8
3.5
5.8
-
16.7
16.9
15.9
17.1
(2.4)
(9.0)
(1.0)
(0.5)
(2.8)
(5.5)
2.8
31.1
(0.1)
(0.2)
(1.2)
(1.7)
(1.2)
(7.0)
14.8
13.5
1.3
9.6
Other product and services delivery costs
33.0
37.4
(4.4)
(11.8)
16.0
17.0
(1.0)
(5.9)
Other administration expenses
Total operating expenses
68.5
64.5
890.7
888.7
4.0
2.0
6.2
36.7
31.8
4.9
15.4
0.2
445.0
445.7
(0.7)
(0.2)
Specific items
18.7
14.9
3.8
25.5
13.6
5.1
8.5
166.7
Total expenses including specific items
909.4
903.6
5.8
0.6
458.6
450.8
7.8
1.7
In a period where revenue growth has been challenging, the
business has carefully managed the cost base and continued
to drive savings and operational efficiencies. Operating
expenses were kept relatively flat year on year. This combined
with our income growth resulted in the cost to income ratio
improving to 56.1 percent.
The main movement in operating expenses for the year
related to software amortisation. The increase is mainly due
to completing a number of our significant technology related
investments. The increase in other administration expenses
was mainly due to additional legal costs associated with the
Great Southern portfolio.
Staff expenses were flat compared to the previous year.
The additional costs associated with this year’s bonus pool
allocation and the employee share grant to general staff were
offset by operational efficiencies and savings. This includes a
reduction of 118 full time equivalent staff over the year.
Provision for doubtful debts - specific
89.5
125.3
(35.8)
(28.6)
89.5
111.1
(21.6)
(19.4)
Provision for doubtful debts - collective
General reserve for credit losses
52.7
53.4
140.3
146.9
(0.7)
(6.6)
(1.3)
52.7
51.9
0.8
1.5
(4.5)
140.3
140.3
-
-
Total provisions and reserve for doubtful debts
282.5
325.6
(43.1)
(13.2)
282.5
303.3
(20.8)
(6.9)
As at
Jun 17
As at
Jun 16
Change
As at
Jun 17
As at
Dec 16
Change
Ratios
%
%
%
%
%
Bad and doubtful debts net
of recoveries to gross loans
Total provision/reserve
for doubtful debts to gross loans
Collective provision and GRCL
to risk-weighted assets
0.12
0.08
0.04
0.11
0.13
0.46
0.57
(0.11)
0.46
0.50
0.51
0.55
(0.04)
0.51
0.50
%
(0.03)
(0.04)
0.01
The increase in bad and doubtful debt charges was
disappointing, however the level of bad and doubtful debts are
still low by industry standards.
There was a significant reduction in the provisions and reserve
for bad and doubtful debts for the year, which decreased from
$325.6 million to $282.5 million. This movement mainly
relates to a decrease in specific provisions as a result of the
finalisation of a number of large, longstanding exposures in
the rural and business lending portfolios that were provided
for in previous financial years. The movement also reflects the
finalisation of exposures in the Great Southern portfolio that
were provided for in previous years.
The small decrease in the collective provision mainly reflects
reductions for the Great Southern loan portfolio of $2.6 million
and the rural portfolios of $2.4 million. These movements
reflect the ongoing amortisation of the Great Southern
portfolio and a reduction in defaulted loans in the rural
portfolio. As a percentage of the overall portfolio, the collective
provision for the Great Southern portfolio increased over
the period. The above-mentioned reductions were offset by
additional provisioning for certain commercial exposures and
to reflect emerging stress in the Western Australian housing
market.
The year-end collective provision for the Great Southern
portfolio was $16.5 million. When combined with the specific
provision of $11.9 million, the total provisioning for the Great
Southern portfolio represent 23.6 percent of gross loans
outstanding at year end. We also started to see significant bad
debt recoveries which exceeded $20 million for the year.
14 Annual Financial Report 2017
Annual Financial Report 2017 15
Analysis of financial position
Financial position metrics
$m
$m
Jun 17
Half
Dec 16
Half
Total
$m
Jun 16
Half
Dec 15
Half
$m
$m
Total
$m
Jun 16 to Jun 17
$m
%:
Ordinary equity
Retail deposits
5,321.3
5,206.4
5,321.3
5,037.6
4,941.6
5,037.6
283.7
50,743.2
50,579.9
50,743.2
48,445.3
45,776.0
48,445.3
2,297.9
Funds under management
5,322.5
4,979.7
5,322.5
4,684.1
4,517.7
4,684.1
638.4
Loans under management
61,740.2
60,865.2
61,740.2
58,227.6
56,353.3
58,227.6
3,512.6
5.6
4.7
13.6
6.0
Loan portfolio
Jun 17
Half
Dec 16
Half
$m
$m
Total
$m
Jun 16
Half
Dec 15
Half
$m
$m
Total
$m
Jun 16 to Jun 17
$m
%
New loan approvals
8,330.7
11,724.9
20,055.6
8,844.7
8,187.9
17,032.6
3,023.0
Residential
Non-residential
5,419.3
8,710.5
14,129.8
5,588.3
5,263.9
10,852.2
3,277.6
2,911.4
3,014.4
5,925.8
3,256.4
2,924.0
6,180.4
(254.6)
17.7
30.2
(4.1)
As at
Jun 17
As at
Jun 16
Change
As at
Jun 17
As at
Dec 16
Change
$m
$m
$m
%
$m
$m
$m
%:
Gross loan balance - by purpose
Residential
Consumer
Margin lending
Commercial
41,261.7
38,100.0
3,161.7
8.3
41,261.7 40,789.2
472.5
2,571.4
2,693.9
(122.5)
(4.5)
2,571.4
2,593.7
(22.3)
1,726.1
1,742.4
(16.3)
(0.9)
1,726.1
1,665.7
60.4
15,368.8
14,935.2
433.6
2.9
15,368.8
15,053.2
315.6
Total gross loan balance
60,928.0
57,471.5
3,456.5
6.0
60,928.0
60,101.8
826.2
Loans under management
(gross balance)
On-balance sheet
60,928.0
57,471.5
3,456.5
6.0
60,928.0
60,101.8
826.2
812.1
756.1
56.0
7.4
812.1
763.4
48.7
1.2
(0.9)
3.6
2.1
1.4
1.4
6.4
61,740.1
58,227.6
3,512.5
6.0
61,740.1
60,865.2
874.9
1.4
Off-balance sheet loans
under management
Total Group loans
under management
Loans under management represent the gross balance of loans held and managed by the Group categorised as follows:
• On-balance sheet loans are the gross balance of loans and factoring receivables held by the consolidated Group.
• Off-balance sheet loans under management represent the gross balance of off-balance sheet loans managed by wholly-owned
subsidiaries of Bendigo and Adelaide Bank Limited.
The gross loan portfolio increased over the year by $3.5
billion or 6.0 percent. This includes the $1.35 billion Keystart
residential mortgage portfolio acquired in the first half of the
year. The lending growth has been predominately funded by
strong growth in customer deposits.
Competition for new lending was again challenging due to
pricing competition in the market, particularly in the first half.
Housing loan growth of 8.7 percent compares favourably to
system growth of 6.8 percent and our commercial lending
portfolio grew by 3.5 percent which was below system growth
of 6.4 percent.
Residential loan approvals for the year amounted to $14.1
billion, representing a 30.2 percent increase on the previous
year. Non-residential loan approvals reduced slightly for the
year to $5.9 billion, representing a 4.1 percent decrease on
the previous year.
Our home loan customers have continued to make principal
repayments ahead of schedule. Approximately 45 percent of
our home loan borrowers are ahead of their minimum loan
repayments, and 29 percent are three or more repayments
ahead of schedule.
The loan portfolio remains very well secured. In total,
98.4 percent of the portfolio is secured, with 97.9 percent
secured by mortgages or listed securities. The average loan
to valuation ratio at origination for the residential mortgage
portfolio is 61 percent and 62 percent of the portfolio is
secured by owner-occupied residences.
Asset quality
Impaired loans
Full-performing
Part-performing
Non-performing
As at
Jun 17
As at
Jun 16
Change
As at
Jun 17
As at
Dec 16
Change
$m
$m
$m
%
$m
$m
$m
%
0.3
33.5
1.2
65.4
201.6
237.1
(0.9)
(31.9)
(35.5)
(75.0)
(48.8)
(15.0)
0.3
33.5
1.0
35.9
(0.7)
(2.4)
201.6
217.8
(16.2)
(70.0)
(6.7)
(7.4)
2.6
(6.0)
Restructured loans
47.2
46.5
0.7
1.5
47.2
46.0
1.2
Total impaired assets
282.6
350.2
(67.6)
(19.3)
282.6
300.7
(18.1)
Less: specific impairment provisions
(88.5)
(124.4)
35.9
(28.9)
(88.5)
(110.2)
21.7
(19.7)
Net impaired assets
194.1
225.8
(31.7)
(14.0)
194.1
190.5
3.6
1.9
Portfolio facilities - past due 90
days, not well secured
5.8
4.8
1.0
Less: specific impairment provisions
(1.0)
(0.9)
(0.1)
20.8
11.1
5.8
4.9
0.9
(1.0)
(0.9)
(0.1)
18.4
11.1
Net portfolio facilities
4.8
3.9
0.9
23.1
4.8
4.0
0.8
20.0
Past due 90 days
$m
$m
$m
%
$m
$m
$m
%
Well secured (excluding
commercial arrangement loans)
431.6
396.9
34.7
8.7
431.6
431.1
0.5
0.1
Great Southern portfolio
79.0
157.9
(78.9)
(50.0)
79.0
103.2
(24.2)
(23.4)
Ratios
Total impaired loans to gross loans
Total impaired loans to total assets
Net impaired loans to gross loans
Provision coverage
%
0.46
0.40
0.32
100.0
%
0.61
0.51
0.39
93.0
%
(0.15)
(0.11)
(0.07)
7.0
%
0.46
0.40
0.32
%
0.50
0.42
0.32
100.0
100.9
%
(0.04)
(0.02)
0.00
(0.9)
Total impaired assets decreased by $67.6 million (19.3
percent) to $282.6 million. As mentioned earlier, the decrease
reflects the finalisation of a number of large, longstanding
exposures for which loss provisions were raised in prior years.
and other lending portfolios ($11.1 million). In contrast, the
arrears for the rural and Delphi portfolios were below the
previous financial year by $31.2 million and $16.1 million
respectively.
As at year end the loan provisioning and reserves coverage
was sitting at 100 percent of total impaired assets.
The 90+ day arrears increased by $34.7 million for the year.
The movement is mainly represented by increases for the
residential ($40.4 million), business lending ($34.1 million)
However, on an absolute basis, our arrears as a percentage
of the lending portfolio remain low and compare favourably
with available industry data. The following table summarises
the arrears trend for our major lending portfolios, which have
largely remained flat over the period.
Portfolio
Residential
Business
Rural
Consumer
As at Jun 15
As at Dec 15
As at Jun 16
As at Dec 16
As at Jun 17
Arrears Percentage (%)
0.55
1.38
1.59
1.22
0.49
1.39
1.97
1.17
0.54
1.15
2.33
1.38
0.56
1.34
2.14
1.42
0.59
1.16
1.70
1.52
Great Southern past due 90 days has reduced by $78.9 million or 50 percent for the year. This decrease is in line with the
overall run-off in the portfolio.
16 Annual Financial Report 2017
Annual Financial Report 2017 17
Deposits and managed funds
As at
Jun 17
As at
Jun 16
Change
As at
Jun 17
As at
Dec 16
Change
$m
$m
$m
%
$m
$m
$m
%
Deposits and funds
under management
Deposits
Securitisation
Managed funds
Total deposits and funds
under management
Deposits dissection
Retail
Wholesale
Securitisation
Total deposits
Deposits dissection - %
Retail
Wholesale
Securitisation
Total deposits
Managed funds dissection
58,772.3
57,054.7
1,717.6
3.0
58,772.3
59,228.5
(456.2)
4,480.2
3,822.5
657.7
17.2
4,480.2
3,855.7
624.5
5,322.5
4,684.1
638.4
13.6
5,322.5
4,979.7
342.8
(0.8)
16.2
6.9
68,575.0
65,561.3
3,013.7
4.6
68,575.0
68,063.9
511.1
0.8
50,743.1
48,445.3
2,297.8
4.7
50,743.2
50,579.9
163.3
8,029.2
8,609.4
(580.2)
(6.7)
8,029.2
8,648.6
(619.4)
4,480.2
3,822.5
657.7
17.2
4,480.2
3,855.7
624.5
0.3
(7.2)
16.2
63,252.5
60,877.2
2,375.3
3.9
63,252.6
63,084.2
168.4
0.3
80.2%
12.7%
7.1%
79.6%
14.1%
6.3%
100.0%
100.0%
80.2%
12.7%
7.1%
80.2%
13.7%
6.1%
100.0%
100.0%
Assets under management
2,152.1
2,060.7
91.4
4.4
2,152.1
2,054.9
97.2
Other managed funds
3,170.4
2,623.4
547.0
20.9
3,170.4
2,924.8
245.6
Total managed funds
5,322.5
4,684.1
638.4
13.6
5,322.5
4,979.7
342.8
4.7
8.4
6.9
Funding and liquidity
Our ability to attract retail deposits is one of our core
strengths. Retail deposit growth for the year comprised a $1.2
billion increase in at-call retail deposits and a $1.1 billion
increase in retail term deposits.
Retail deposit funding, as a percentage of total funding,
increased from 79.6 percent to 80.2 percent over the year.
Wholesale funding activities managed by Group Treasury
support the core retail deposit funding strategy and provide
additional diversification and benefits from longer term
borrowings.
Group Treasury aims to maintain a stable and prudent
maturity profile by regular benchmark issuances in markets
that are sustainable and viably priced. Whilst the majority of
our wholesale funding is sourced from the domestic financial
markets, we recognise that at times additional diversity can be
achieved by issuances in overseas markets and currencies.
Securitisation also forms an important part of our funding and
capital strategy and we will continue to monitor this market and
participate where investor appetite and pricing is appropriate.
The Group manages liquidity holdings in line with the Board
approved funding strategy and funding plan, ensuring adequate
levels of High Quality Liquid Assets (HQLA), other liquid assets
and diversified sources of funding. In meeting our liquidity
requirement the Group maintains a Committed Liquidity Facility
provided by the Reserve Bank of Australia.
The Group also has a significant amount of contingent liquidity
in the form of internal securitisation whereby the collateral
can be presented to the Reserve Bank of Australia for cash in
extraordinary circumstances such as systemic liquidity issues.
The Net Stable Funding Ratio (NSFR) reporting requirement
comes into effect on 1 January 2018 and will apply to
institutions that are also subject to the LCR requirements.
The NSFR is designed to strengthen the funding and liquidity
resilience of applicable financial institutions by encouraging
the institutions to fund their activities using more stable
sources of funding on an ongoing basis.
As at 30 June 2017 our Liquidity Coverage Ratio (LCR) stood
at 122 percent. The LCR was maintained within internal
targets throughout the year and exceeded the minimum
prudential requirement at all times. The indicative NSFR was
approximately 110 percent at year end which exceeds the 100
percent prudential requirement.
Capital adequacy
The Bank maintains a conservative and prudent capital base
that adequately supports our business, allows the business
to grow as well as providing an effective and efficient capital
buffer to protect depositors and investors.
Our capital management strategy also plans for changes in
business conditions, including economic cycles, regulatory and
legislative change and potential acquisition opportunities. The
capital base is also structured to ensure that minimum capital
standards are always met, whilst providing flexibility to enable
management to pursue its business objectives.
The Bank maintained a strong capital position with the capital
levels being above APRA minimum requirements at all times
throughout the financial year. The Bank improved its capital
position with the Common Equity Tier 1 (CET1) ratio increasing
over the year from 8.09 percent to 8.27 percent at 30 June
2017. The Tier 1 and Total Capital ratios were 10.49 percent
and 12.46 percent respectively at year end.
Assets and Capital
As at
Jun 17
As at
Jun 16
Change
As at
Jun 17
As at
Dec 16
Change
Group assets
Capital adequacy
$m
$m
$m
%
$m
$m
$m
%
71,415.5
68,572.7
2,842.8
4.1
71,415.5
70,948.5
467.0
0.7
Total regulatory capital
4,743.4
4,455.6
287.8
6.5
4,743.4
4,674.6
68.8
Risk-weighted assets
38,062.3
36,485.5
1,576.8
4.3
38,062.3
38,312.1
(249.8)
1.5
(0.7)
Risk-weighted capital adequacy
Tier 1
Tier 2
Common Equity Tier 1
%
%
12.46
10.49
1.97
8.27
12.21
10.40
1.81
8.09
%
0.25
0.09
0.16
0.18
%
2.0
0.9
8.8
2.2
%
%
%
%
12.46
10.49
1.97
8.27
12.20
10.17
2.03
7.97
0.26
0.32
(0.06)
0.30
2.1
3.1
(3.0)
3.8
The following are the more significant capital initiatives
undertaken during the year:
a. On 31 October 2016 the Bank allotted 5,769,074
ordinary shares pursuant to a Share Purchase Plan, which
allowed eligible existing shareholders of the Bank to
purchase up to $7,500 of new fully paid ordinary shares.
The shares were issued at $10.75 raising $62 million of
new capital. The capital raised under the Share Purchase
Plan was used to acquire the Keystart loan portfolio.
b. During the year we successfully completed three
issuances of residential mortgage backed securities
totalling $1.95 billion under the Torrens Series
securitisation program. The transactions received strong
support from the market and provided us with funding and
capital benefits.
c. Shareholder participation in the dividend reinvestment
plan and bonus share scheme for the year contributed an
additional $94.2 million of capital.
d. A grant of shares was made to eligible employees on
10 March 2017 under the terms of the Employee Share
Grant Scheme. The grant involved an allocation of
204,686 new fully paid ordinary shares at an issue price
of $11.94, contributing $2.4 million of additional capital.
APRA recently released an Information Paper that outlines
its assessment of the additional capital required for the
Australian banking sector to have capital ratios that are
considered ‘unquestionably strong’. The Information Paper
provides details of the quantum and timing of capital
increases that will be required on average for Australian ADIs
to achieve unquestionably strong capital ratios.
For the Bank, and other standardised ADIs, APRA has
concluded that an increase in CET1 capital of approximately
50 basis points would be required to produce capital
standards for standardised ADIs that are consistent with the
concept of ‘unquestionably strong’. APRA’s expectation is for
ADIs to meet these new capital benchmarks by no later
than 2020.
With our Common Equity Tier 1 up 30 basis points to 8.27%
from December, we are confident that we will be able to meet
the new ‘unquestionably strong’ requirements within the
required timeframe, given what we currently know.
APRA has advised that it will be announcing changes to the
risk weightings on assets, most likely before the end of the
year. This will impact on both standardised and advanced
banks and may impact on our decision to become accredited
as an advanced bank, although we believe APRA will still
wish to provide an incentive in the frameworks for banks to
move from the standardised to advanced approach to risk
management.
18 Annual Financial Report 2017
Annual Financial Report 2017 19
Segment performance
Operating segments
Local
connection
Partner
connection
Agribusiness
Total
operating
segments
Central
functions
$m
$m
$m
$m
$m
Total
$m
765.0
178.5
943.5
282.9
186.5
469.4
165.7
1,213.6
-
1,213.6
8.4
373.4
174.1
1,587.0
22.5
22.5
395.9
1,609.5
(630.1)
(189.6)
(32.0)
(35.6)
(78.8)
(4.2)
(898.5)
(71.8)
(10.9)
(909.4)
-
(71.8)
281.4
244.2
91.1
616.7
11.6
628.3
(89.0)
192.4
0.5
-
4.6
(77.2)
167.0
(44.7)
11.1
3.1
(28.8)
(195.0)
62.3
421.7
(3.7)
7.9
(198.7)
429.6
3.7
-
4.7
(40.5)
5.7
(34.8)
11.1
12.4
-
-
11.1
12.4
Net interest income
Other income
Total segment income
Operating expenses
Credit expenses
Segment result
(before tax expense)
Tax expense
Segment result (statutory basis)
Cash basis adjustments:
Specific income & expense items
Other specific items
Amortisation of intangibles
Segment result (cash basis)
197.5
136.5
70.7
404.7
13.6
418.3
Local Connection
The cash basis contribution from our largest business
segment, Local Connection, increased slightly from $197.1
million to $197.5 million.
The division continues to lead the industry in customer
experience and satisfaction ratings, which is driven by a strong
focus on meeting customer needs and delivering high levels
of service.
Net interest income increased by $23.2 million following
strong residential loan growth and active margin management.
In an extremely competitive environment, we continue to have
a disciplined approach to pricing and leveraging the strength of
our customer value proposition.
Other income decreased by $10.8 million, with lower fee and
foreign exchange income the main drivers. As we respond to
the changing expectations of our customers, we have reduced
some of the fees we charge.
Operating expenses decreased by $4.5 million mainly due to
lower allocated costs, partially offset by higher amortisation
charges. This is the result of a continued focus on efficiency
and productivity in the business, with the emphasis on
implementing sustainable improvements.
The result was impacted by a $14.4 million increase in credit
expenses, which was mainly due to write-offs for a small
number of larger exposures in the business lending portfolio.
Partner Connection
The cash basis contribution from the Partner Connection
division increased from $124.9 million to $136.5 million.
Net interest income increased by $24.1 million due to growth
in the lending portfolio (including in particular the Keystart
acquisition) and a stronger net interest margin due to loan
repricing during the year.
Other income increased by $5.9 million following a stronger
contribution from commission income. Operating expenses
decreased by $4.7 million, mainly due to a reduction in salary
and wage costs, offset to a degree by additional legal fees
relating to the Great Southern portfolio.
Credit expenses increased by $18.7 million mainly due to the
Great Southern loan portfolio, with higher write-offs partially
offset by reductions in both collective and specific provisions.
The Third Party Mortgage business performed well, improving
its earnings contribution from the prior year. Portfolio growth
was achieved through both the Mortgage Broker and Mortgage
Manager partners. New lending volumes were lower in the
second half following the introduction of new regulatory lending
limits.
The Wealth business increased its contribution for the year.
The market leading Bendigo Smart Start Super product grew
strongly again this year and now represents in excess of $1.0
billion in funds under management.
The Leveraged margin lending business maintained its
contribution year on year. This was achieved in a market where
demand is subdued. The business continues to be recognised
for its market leading customer service.
Agribusiness
The cash basis contribution from our Agribusiness segment
increased from $68.1 million to $70.6 million for the financial
year. This was achieved in a market dominated by high levels
of competition. Lending activity was solid with the business
achieving loan settlements well above the annual target.
Total income was relatively flat for the year. The interest margin
came under pressure during the year and this will be a key
area of focus for the new financial year. Operating expenses
were flat compared to the previous year and credit expenses
improved by $5.4 million.
Overall the business performed well and returned to a more
normalised credit performance with previously reported
defaulting exposures now finalised. The revenue performance
was in line with expectations.
Credit ratings
The Bank’s credit ratings at the date of this report are:
Short Term
Long Term
Outlook
Date last affirmed
Standard & Poor’s
Fitch Ratings
Moody’s
A-2
F2
P-2
BBB+
A-
A3
Stable
Stable
Stable
22 May 2017
4 November 2016
20 June 2017
On 22 May 2017, Standard & Poor’s (S&P) informed the Bank
that it had reduced its stand-alone ratings of 23 financial
institutions in Australia due to concerns about the economic
conditions in Australia, primarily the level of growth in private
sector debt and residential property prices. S&P noted that it
believed the conditions will unwind in an orderly fashion. The
Bank’s long term credit rating was downgraded by one-notch to
BBB+/Stable. The short-term rating was unchanged.
On 20 June 2017, Moody’s informed the Bank it had
downgraded the Baseline Credit Assessments, long-term
ratings and Counterparty Risk Assessments of 12 Australian
banks and their affiliates. This reflected elevated risks in
the household sector which heightened the sensitivity of the
bank’s credit profiles to an adverse shock. The Bank’s long
term credit rating was downgraded by one-notch to A3/Stable
and the short term rating was downgraded by one-notch to P-2.
On 4 November 2016, Fitch Ratings affirmed the Bank’s long
term rating at ‘A-‘ and affirmed the short term rating of ‘F2’
and its support rating of ‘3’, and the Bank’s viability rating of
‘A-‘. The outlook remains stable.
Business developments
Advanced Accreditation
Achieving advanced accreditation represents one of the most
significant projects undertaken by the organisation. It has
involved the development and implementation of new and
contemporary risk management techniques and models,
upgrades to our technology capability including business
systems and platforms, policy improvements and staff training.
Achieving advanced accreditation is about improving the way
we do business. Importantly this is an initiative that we, as an
organisation, decided to pursue. The key benefits of achieving
the advanced accreditation include:
a.
Improving our banking systems and processes, and
consequently the customers’ experience;
b. Enhancing our business and risk management processes
and practices;
c. Strengthening our market profile amongst shareholders,
ratings agencies and regulators;
d. Lifting our market competitiveness; and
e. Allowing us to operate a more capital efficient business
which will ultimately benefit our customers, communities
and shareholders.
This investment is now largely complete and in day-to-day use
across our various business divisions and providing us with
greater insights into our customers and the risks we manage.
In particular, these investments have provided us with a
stronger insight into the risks within our portfolios and how we
price for that risk.
As discussed above, the changes to ‘unquestionably strong’
announced by APRA in July 2017 and the expected changes
to risk weights late in this year, may impact on our decision
to become an advanced bank. Whilst we will not be able to
ascertain the impact of these regulatory changes until they
are announced in full, we believe APRA will wish to provide
an incentive in the frameworks for banks to move from
standardised to advanced status.
Customer connected
Customers are looking for more control over their banking
requirements as new technologies reshape the business
environment. Digital applications, mobile platforms and online
services are rapidly changing customer expectations and
the way they access their banking services. It is vital that we
transform our business to remain competitive as customers
look for new and innovative ways to access our services. In the
coming year, we will continue to develop strategies, platforms,
tools and innovative capabilities to deliver the services sought
by our customers.
During the year we released more leading edge customer-
focused technologies and digital solutions to improve the
20 Annual Financial Report 2017
Annual Financial Report 2017 21
customer experience and make it easier for customers to
do business with us. Much of this development is being
undertaken by partnering with technology companies rather
than through developing the new technologies ourselves.
Looking forward
We are well positioned to continue to grow profitably given our
market positioning, long history of trusted service, our sound
balance sheet and our investments in systems and digital
technologies now coming on stream.
Customer behaviour and insight drives our business planning
and we will continue to respond to changing customer
behaviour and expectations.
We expect households to continue to pay down debt in the
low interest rate environment, and credit for housing investors
is expected to continue to be rationed in response to recent
macro-prudential regulatory interventions.
Our conservative funding base and strong balance sheet
provides us with good capacity to manage these pressures and
grow our business. It also puts us in a solid position to benefit
from market opportunities as well as improvements in market
confidence and the broader operating environment. We are
confident our customer-focused banking model will continue to
be relevant and underpin our growth and performance.
Environmental factors
The Group and its customers are based and operate
businesses in a diverse range of domestic geographical
locations. A significant environmental change or external event
(such as a fire, storm, drought or flood) has the potential
to disrupt business activities, impact on our operations,
damage property and affect the value of assets held in
affected locations and our ability to recover amounts owing
to us. Through our agribusiness division we also have a large
exposure to the domestic rural sector. The performance of
this sector is impacted by national weather patterns and
commodity price movements which in-turn may impact our
overall earnings performance.
Market Competition
The markets in which we operate are highly competitive
and may become even more so. Factors that contribute
to competition include mergers and acquisitions, changes
in customer behaviour, entry of new participants, the
development of new sales methods and regulatory change.
Increasing competition could potentially lead to reduced
business volumes and revenue, a compression in our
net interest margins as well as additional costs to retain
market share. The Group is also dependent on its ability to
offer products and services that match changing customer
preferences.
Risk management framework,
business uncertainties
and significant business risks
The Board is responsible for the risk management strategy
which includes approving the risk management framework
and risk appetite within which the business is expected to
operate. Information on our risk management framework and
approach to managing risk is presented in the 2017 Corporate
Governance Statement and Note 29 to the 2017 Annual
Financial Report.
Risk dependencies and uncertainties
The Group’s business activities are subject to a number
of dependencies and uncertainties which could adversely
impact the achievement of business strategies and earnings
performance. The timing and extent of these uncertainties
is difficult to predict and managing their impact is, to a
reasonable degree, outside our control. A summary of the key
dependencies and uncertainties is presented below.
Dependence on prevailing macro-economic
and financial market conditions
The business is highly dependent on the general state of
domestic and global economies and financial markets. Our
performance can be significantly impacted by economic and
political events, both domestic and international, as well
as by natural disasters. This includes the level of economic
activity and demand for financial services by our customers.
In particular, lending is dependent on customer and investor
confidence, the overall state of the economy including
employment levels, the residential lending market and the
prevailing interest rate environment.
A weakening in the Australian real estate market
Residential, commercial and rural lending, together with
property finance, constitute important businesses to us. A
significant slowdown in Australian property markets, including
a decrease in Australian property valuations, could decrease
the amount of new lending the Bank is able to write and/or
increase the amount of credit losses from existing loans,
as well as impact the valuation of the Homesafe portfolio.
Changes in monetary policy
The Reserve Bank of Australia (RBA) sets official interest
rates so as to affect the demand for money and credit in
Australia. The cash rate influences other interest rates in the
economy which then affects the level of economic activity.
Movements in the cash rate impact our cost of funds for
lending and investing and the return earned on these loans
and investments which can impact our net interest margin.
Changes in monetary policy can also affect the behaviour of
borrowers and depositors, such as potentially increasing the
risk that borrowers may fail to repay their loans, or repay their
loans in advance, and in the case of depositors, potentially
increasing the risk that they may seek returns in other asset
classes.
Regulatory Change
As a financial institution, we are subject to a range of laws,
regulations, policies, standards and industry codes. In
particular, our banking and wealth management activities are
subject to extensive regulation including in relation to liquidity,
capital, solvency, provisioning and licensing conditions.
Changes to laws, regulations, codes or policies could affect
the Bank in substantial and unpredictable ways including the
need to significantly increase our investment in staff, systems
and procedures to comply with the regulatory requirements.
Credit Ratings
External credit ratings have a significant impact on both
our access to, and the cost of, capital and wholesale
funding. Credit ratings may be withdrawn, made subject
to qualifications, revised, or suspended by a credit rating
agency at any time. Also, the methodologies by which they
are determined may be revised. A downgrade or potential
downgrade to our rating may reduce access to capital and
wholesale debt markets, potentially leading to an increase
in funding costs, as well as affecting the willingness of
counterparties to transact with the Bank.
Capital Base
The capital base is critical to the management of our businesses
and our ability to access funding. We are required to maintain a
level of capital by APRA and other key stakeholders to support our
business operations and risk appetite. There can be no certainty
that additional capital required in the future will be available or
able to be raised on acceptable terms.
Business risks
There are a number of significant business risks that we
manage including credit risk, interest rate risk in the banking
book, traded market risk, liquidity risk, operational risk and
strategic risk. To manage these risks we have established
a framework of systems, policies and procedures which are
overseen by our independent risk management functions as
well as senior management committees, Board committees
and the Board.
Credit Risk
Credit risk is the risk of loss of principal and/or interest
resulting from a borrower failing to meet a scheduled
repayment or otherwise failing to repay a loan. The majority of
our credit risk exposure arises from general lending activities
and the funding, trading and risk management activities of
Group Treasury.
Non-Traded Market Risk
(Interest Rate Risk in the Banking Book (IRRBB))
IRRBB is the risk of loss in earnings or in the economic value
in the banking book as a consequence of movements in
interest rates. Non-traded market risk arises predominantly
from the Group’s general lending activities as well as balance
sheet funding activities.
Traded Market Risk
Traded Market Risk is defined as the risk of loss owing to
changes in the general level of market prices or interest
rates from trading positions in interest rates, equities,
foreign exchange and commodities. Traded Market Risk
arises from positions held in the Trading Book. The Group
operates a Trading Book as an integral part of its liquidity risk
management function and the portfolio consists of securities
held for trading and liquidity purposes.
Liquidity Risk
Liquidity Risk is inherent in all banking operations due to the
timing mismatch between cash inflows and cash outflows.
Liquidity Risk is defined as the risk that the Group is unable to
meet its payment obligations as they fall due, including repaying
depositors or maturing wholesale debt, or that the Group has
insufficient capacity to fund increases in assets. The principal
objective is to ensure that all cash flow commitments are met
in a timely manner while at the same time continuing to meet
minimum liquidity and prudential requirements.
Operational Risk
Operational risk is defined as the risk of an adverse impact
on our objectives or the risk of loss resulting from inadequate
or failed internal processes, activities and systems or from
external events. Operational risk can directly impact our
reputation and result in financial losses which could adversely
affect our financial performance and/or financial condition.
Strategic Risk
There is a risk that adverse business decisions, ineffective
or inappropriate business plans or a failure to respond to
changes in the operating environment will impact our ability to
deliver our strategy and business objectives. The Bank also
regularly examines new initiatives and market opportunities,
including acquisitions and disposals, with a view to growing
shareholder value.
Compliance Risk
The Group’s operations are highly regulated. A failure to
comply with the laws, regulations, licence conditions, codes,
principles and industry standards applicable to our operations
could result in a range of actions against the Group including
sanctions being imposed by regulatory authorities, the
exercise of discretionary powers by regulatory authorities or
compensatory action by affected persons.
Fraud Risk
The Group is exposed to the risk of fraud, both internal and
external. Financial crime is an inherent risk within financial
services, given the ability for employees and external parties
to obtain advantage for themselves or others. An inherent
risk also exists due to systems and internal controls failing to
prevent or detect all instances of fraud. We have established
robust techniques and capabilities to detect and prevent fraud.
All actual or alleged fraud is investigated under the authority of
our financial crimes unit.
Risk of disruption of information technology systems
or failure to successfully implement new technology
Most of our daily operations are highly dependent on
information technology and there is a risk that these systems
or technologies might fail or not be available. The exposure
to systems risks includes the complete or partial failure of
information technology or data centre infrastructure and using
internal or third-party information technology systems that do
not adequately support the requirements of the business.
Data and Information Security Risk
The risk of security breaches, external attacks and
unauthorised access to our systems continues to increase
with the growing sophistication of fraud and other criminal
activities. We are conscious that threats to information
security are continuously evolving due to the increasing use of
the internet and other digital devices to communicate data and
conduct financial transactions.
Vendor failure or non-performance risk
The Group sources a number of key services from external
suppliers and service providers. The failure of a key service
provider, or the inability of a key service provider to meet their
contractual obligations, including key service standards, could
disrupt our operations and ability to comply with regulatory
requirements.
22 Annual Financial Report 2017
Annual Financial Report 2017 23
Litigation risk
From time to time, the Group may be subject to material
litigation, regulatory actions, legal or arbitration proceedings
and other contingent liabilities which, if they crystallise, may
adversely affect the Group’s results. There is a risk that these
contingent liabilities may be larger than anticipated or that
additional litigation or other contingent liabilities may arise.
Reputation Risk
Reputation risk is defined as the risk of potential loss to the
Group due to damage to the Group’s reputation. Reputation
risk may arise as a result of an external event, our own
actions, or the actions of a partner, and adversely affect
perceptions about us held by the public including customers,
shareholders, investors, regulators or rating agencies.
Remuneration
Report
Contagion Risk
The Group includes a number of subsidiaries that are trading
entities and holders of Australian Financial Services Licences
and/or Australian Credit Licences. Dealings and exposures
between the Bank and its subsidiaries principally arise from
the provision of administrative, corporate, distribution and
general banking services. The majority of subsidiary resourcing
and infrastructure is provided by the Bank’s centralised back
office functions. Other dealings arise from the provision of
funding and equity contributions.
Partner Risk
We have Community Bank® branches operating in all States
and Territories, along with our Alliance Bank network. The
branches are operated by companies that have entered into
franchise and management agreements with the Bank to
manage and operate a Community Bank® or Alliance Bank
branch. We carefully assess and monitor the progress of the
franchisees but there can be no guarantee of the success of a
Community Bank® or Alliance Bank branch. Whilst this network
continues to mature, there are still risks that may develop over
time.
Conduct Risk
The business is exposed to risks relating to product flaws,
processing errors and mis-selling. These risks can arise from
product design or disclosure flaws or errors in transaction
processing. It can also include mis-selling of products to our
customers in a manner that is not aligned to the customer’s
risk appetite, needs or objectives.
Contents
Section 1
Overview of remuneration outcomes
Section 2
Remuneration framework
Section 3
Remuneration arrangements FY2017
Section 4
Linking remuneration to performance
Section 5
Non-executive Director remuneration
Section 6
Remuneration governance
Section 7
KMP remuneration, equity and loan tables
This Remuneration Report is for the financial year ended 30 June 2017. The Report has been prepared in accordance with
section 300A of the Corporations Act 2001 and the Corporations Regulations 2001 and has been audited. The Remuneration
Report sets out our remuneration framework, the remuneration arrangements applicable to the Key Management Personnel
(KMP), and the link between performance and remuneration outcomes for the year.
Section 1: Overview of
remuneration outcomes
The Bank was pleased to announce a positive earnings result
with the statutory profit improving by 3.4 percent on the prior
year in spite of a fiercely competitive operating environment
and continued pressure on growth and net interest margin.
The result reflected the Bank’s continued focus on customer
outcomes, solid lending growth and a disciplined approach to
cost management. In this context the following remuneration
arrangements and outcomes were approved for the year:
• Executive remuneration was reviewed in September 2016.
Aside from one member of the Executive, there were no
increases to Executive remuneration. Ms Gartmann’s
remuneration was increased to bring it more in line with
market. The Executives all received partial STI awards for
FY17. More detail on the STI payments to Executives is
provided in sections 4.2.2 and 7.
• Shareholders approved grants of deferred shares and
performance rights to the Managing Director at the 2016
Annual General Meeting. The grants for the 2017 financial
year were made during the year in accordance with the
terms outlined in the Notice of Meeting.
24 Annual Financial Report 2017
Annual Financial Report 2017 25
• The Board approved a grant of deferred base pay, awarded
in shares, to Senior Executives (as part of the Senior
Executives’ base pay), with a deferral period ending 30 June
2018. More detail on the deferred share grant is provided in
sections 4.2.2 and 7.
• There were no increases to the annual fee payment for Non-
executive Directors and the Board resolved to discontinue
the fees to Rural Bank directors. More detail on the fees
paid to Non-executive directors is provided in sections 5
and 7.
• Senior Executives also received a grant of performance
rights. More detail on the performance right grant is
provided in sections 4.2.2 and 7.
• The Board decided to vest the full amount of deferred base
and deferred STI equity grants made in 2015 as the vesting
criteria were satisfied.
• The TSR performance measure for the grant of performance
rights to Senior Executives in 2013 was not satisfied and as
a result the rights lapsed.
In addition to the matters set out above, the Bank changed
the methodology for calculating cash earnings by excluding the
unrealised income and/or losses and related funding costs of
the Homesafe investment. A full description of the change, and
the impact of the change on KMP remuneration arrangements,
is set out at section 4.2.1 of the Remuneration Report.
Key Management Personnel
KMPs are the persons with authority and responsibility for planning, directing and controlling the activities of the Group. The KMP
for the financial year comprise the Directors and Senior Executives listed below. For the purposes of this report, references to
‘Executive’ means the Managing Director and the Senior Executives.
Name
Directors
Position
Term as KMP
Robert Johanson
Chairman
Mike Hirst
Jan Harris
Jim Hazel
Jacqueline Hey
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
Senior Executives
Marnie Baker
Richard Fennell
Managing Director & Chief Executive Officer
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Chief Customer Officer (CCO)
Corporate and Chief Financial Officer (CFO)
Alexandra Gartmann
Chief Executive Officer, Rural Bank
Robert Musgrove
Engagement Innovation
Tim Piper
Bruce Speirs
Chief Risk Officer (CRO)
Partner Connection
Stella Thredgold
Business Enablement
Alexandra Tullio
Andrew Watts
Local Connection
Customer Service Improvement
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Full Year
Section 2:
Remuneration framework
2.1 Remuneration structure
The remuneration framework is designed to support the
achievement of our strategic objectives and ensure remuneration
outcomes are aligned with sustainable financial performance
and growth in shareholder value. The framework is documented
in our remuneration policy which was reviewed during the year.
There were no material changes to the policy. Our remuneration
framework is based on the following principles:
• Simplicity – The link between performance, value created
and reward should be clear and the framework easy for
all employees to understand so that it effectively attracts,
retains and motivates the talent the organisation needs to
deliver long term sustainable success;
considerations made in making reward decisions and fairly
undertaking all performance and reward processes to support
the objective of fair remuneration, including gender pay equity;
• Alignment with values – Remuneration should reinforce
the corporate values of teamwork, integrity, performance,
engagement, leadership and passion. Individual reward
outcomes are first dependent on the success of the Bank,
Division and team;
• Appropriate risk behaviour – Remuneration should
encourage innovation and risk taking that supports the
achievement of superior long term results for shareholders
and customers and supports the risk management
framework of the Bank; and
• Supports good customer outcomes – Reward structures
and practices will be designed to minimise the risk of
incentivising behaviours that may lead to poor customer
outcomes.
• Transparency and procedural fairness – The Bank commits to
providing employees with visibility wherever possible of the
The following table summarises our Executive remuneration
model:
Fixed
Variable
Total Target Reward
Base Renumeration
Short Term Incentive (STI)
Long Term Incentive (LTI)
Fixed Base - Cash
Deferred Base - Equity
Cash & Equity
Equity
• Base salary and
• Annual grants of deferred
• Cash, or a combination of cash
• Grants of performance rights
superannuation contributions.
• Together with deferred base, is
set by reference to the role and
responsibilities, market data,
internal relativities and the
Group’s performance outlook.
• Recognises an individual’s
experience, skills,
competencies and value.
shares.
and deferred equity.
(“rights”).
• Deferred shares (fully paid
ordinary shares) issued at no
cost and beneficially owned
from grant date.
• Subject to continued
employment (“service
condition”) over the two-year
deferral period.
• Subject to financial
performance and risk
adjustment.
• Shares held on trust for two
years by Plan Trustee.
• STI maximum opportunity is set
for each Executive at the start
of the year.
• Each right represents an
entitlement to one ordinary
share.
• The STI maximum opportunity
• Maximum number of ordinary
is a fixed dollar amount.
• STI payments are capped at
100% of the STI maximum
opportunity.
• Awards are subject to Group
and individual performance and
passing risk, compliance and
values gateways.
• If award exceeds $50,000, one
third of the award is deferred
into equity (deferred shares),
issued on substantially the
same terms as deferred base
remuneration.
shares that can be acquired is
equal to the number of rights
granted.
• Rights are granted at no cost
and have no exercise price.
• Vesting is subject to Cash EPS,
Customer Advocacy and TSR
performance measures, and a
service condition.
• Performance measures tested
over 4 years for Managing
Director and 3 years for Senior
Executives.
• There is no retesting.
26 Annual Financial Report 2017
Annual Financial Report 2017 27
2.2 Remuneration approach
Executive remuneration is structured to balance the focus between the achievement of short term business objectives and
sustainable growth in shareholder value and the financial soundness of the organisation.
The total target reward for Executives is set by the Board at the start of each year. The arrangements are reviewed by the
Governance & HR Committee to ensure the mix and amount of remuneration continues to be fair and appropriate with incentive
components linked to performance measures that support the business objectives and shareholder outcomes. The following
chart sets out the target remuneration mix for the year. The mix of actual remuneration awarded will vary depending on
performance outcomes.
25%
40%
Managing Director25+
25%
7%
3%
50%
20%
CFO and CCO20+
12%
10%
8%
8%
55%
15%
Other Executives15+
12%
10%
60%
20%
CRO20+
10%
7%
Fixed base
3%
Deferred base
STI cash
STI deferred
LTI
As shown in the above chart, Executive remuneration includes the following components of equity-based remuneration:
• deferred base pay;
• deferred STI; and
• LTI.
The equity-based arrangements are designed to build the Executives’ personal exposure to the Bank’s share price performance
and further align their interests with shareholders. The following chart sets out the approximate targeted mix of cash and equity
for the year.
50%
Managing Director50+
50%
40%
CFO and CCO40+
60%
30%
Other Executives30+
70%
35%
CRO35+
65%
Cash remuneration
Equity remuneration
The total base remuneration (i.e. fixed base and deferred
base) for each of the Executives continues to sit at around
the market median, but the proportion of incentive-based pay,
particularly STI, is relatively low when compared to other listed
entities in Australia, especially in the banking sector.
We are aware that this approach is different to the principles
promoted by some governance advisers that have a preference
for a higher variable component. Our remuneration structure
reflects the Board’s long-held view that remuneration which is
highly leveraged towards short-term performance can create
a disconnect between the individual’s interests and the
long-term interests of shareholders and other stakeholders,
including increasing the risk of poor culture within an
organisation.
In addition, the recent public and regulatory scrutiny on
conduct and culture within certain Australian banks has also
led to renewed concerns about leverage in banking executive
pay. This concern was supported by the recommendations
from the independent retail banking remuneration review
commissioned by the Australian Bankers’ Association (“the
Sedgwick Review”) which observed that the maximum variable
reward should be low relative to fixed pay.
In our view, the Executive’s remuneration arrangements strike an
appropriate balance between community expectations and the
alignment of Executive remuneration with shareholder outcomes.
In line with the above approach, the Managing Director’s base
remuneration includes a higher equity component, deferred
over two years. The Managing Director’s variable remuneration
includes a relatively small percentage linked to annual
performance (STI) and a larger, but still moderate, percentage
linked to longer term shareholder outcomes (deferred base and
LTI). The Board has chosen to structure the Managing Director’s
remuneration in this way to recognise the Managing Director’s
unique role in delivering long-term sustainable improvement in
business performance and shareholder returns.
Compared to the Managing Director, the remuneration
structure for Senior Executives has a higher percentage
of fixed base pay (cash) with a more moderate, but still
significant, percentage of variable and equity remuneration
that is subject to the achievement of financial and non-
financial performance measures and risk outcomes. As shown
in the charts above, the actual mix between Executives varies
to reflect the particular nature of an Executive’s role, whilst
promoting a focus on sustainable, longer-term improvement in
shareholder value.
The remuneration value of deferred share grants is determined
on the basis of the Executive’s targeted remuneration mix. The
number of deferred shares granted is calculated by dividing
the deferred component by the volume weighted average
closing price of the Bank’s shares for the last five trading days
of the financial year prior to the year of grant. For the purposes
of the grant made during the year the volume weighted average
closing price was $9.32. The shares are typically acquired
on-market and there were no changes this year to the terms or
conditions of deferred share grants.
Since 2013, Executive pay increases have been broadly in line
with overall staff salary increases. The average annual cost of
Executive remuneration, based on statutory disclosures, has
increased by an average of 1.7 percent per annum.
The following chart compares the movement in cash earnings per
share, using the new methodology explained at section 4.2.1,
against the movement in Executive remuneration (including
variable remuneration) for the past five financial years.
Cash EPS and Executive Remuneration
0
0
0
’
$
900
800
700
600
90
85
80
75
s
t
n
e
C
2013 2014 2015 2016 2017
Cash EPS (cents)
Average total annual reward ($m)
2.3 Remuneration components,
terms and policies
Base remuneration
Executive base remuneration comprises both fixed base and
deferred base components.
In setting base remuneration the Board considers the nature
and complexity of the role and the skills and experience
needed to successfully fulfil the role. Base remuneration is
also determined in context of the external market including
comparable roles in the banking sector and other companies
of a similar size and complexity.
• Fixed base
Fixed base comprises cash salary and employer
superannuation contributions.
• Deferred base
Deferred base is represented by annual grants of deferred
shares that are held on trust for a two-year deferral period.
The grants are designed to provide an additional retention
incentive for the Executives which is linked to shareholder
interests. Deferred shares are fully paid ordinary shares
granted at no cost and are beneficially owned by the
Executive from grant date. The grants are subject to a two-
year service condition and risk adjustment at the discretion
of the Board. If the service condition is not met the deferred
shares do not vest and are forfeited.
Short Term Incentive (STI)
Executive remuneration includes an annual incentive
component. The incentive is designed to provide an
appropriate level of reward for the achievement of annual
financial targets and business objectives.
The STI maximum opportunity for each Executive is decided
by the Board at the start of the year taking into account the
Executive’s responsibilities and target remuneration mix. The
STI maximum opportunity is a fixed dollar amount which is, for
the reasons already explained, positioned at relatively modest
levels.
The performance measures for the Managing Director’s STI
are set by the Board on recommendation from the Governance
& HR Committee and focus on the achievement of a range of
medium term targets and risk management outcomes. The
performance for each of the Senior Executive’s STI are set by
the Managing Director and focus on the Senior Executive’s
responsibilities and expected contribution to annual
performance and business objectives. The STI performance
measures are presented at section 3.
Annual STI awards are driven by the size of the bonus pool
established by the Board to fund bonus payments. The
parameters for establishing a bonus pool are approved by the
Board at the start of the year and require a minimum level of
cash earnings performance. The amount of the bonus pool
will increase with cash earnings performance above a hurdle,
subject to the achievement of key financial and risk management
hurdles set by the Board, and is capped at 110 percent of the
cash earnings target set at the start of the year. The Board also
applies a discretionary overlay to take into account the underlying
quality of the result and shareholder outcomes.
The Board decides the amount of the bonus pool after
financial year-end, on recommendation from the Governance
& HR Committee. If a bonus pool is not established, no STI
awards are made. If a bonus pool is established, but the size
of the pool is less than the maximum potential pool, the STI
maximum opportunity for each Executive is proportionately
adjusted downwards to reduce their STI opportunity.
The Governance & HR Committee assesses the Managing
Director’s performance shortly after year end and applies any
upward or downward adjustment based on the achievement of
the measures set for the Managing Director to determine the
STI award for recommendation to the Board. This approach
was chosen to enable unforeseen developments to be
factored into the assessment and ensure any necessary risk
and compliance adjustments occur at the Board’s discretion.
The Managing Director assesses each of the Senior
Executive’s performance shortly after financial year-end based
on the achievement of the individual’s financial and non-
financial measures set at the start of the year.
28 Annual Financial Report 2017
Annual Financial Report 2017 29
50
60
65
70
8
+
12
+
10
+
50
8
+
12
+
10
+
55
3
+
7
+
10
+
60
3
+
7
+
25
+
40
The Managing Director then applies any upward or downward
adjustment to determine the proposed STI awards for
recommendation to the Governance & HR Committee and
Board. The Board considers the Managing Director is best
placed to assess the performance and overall contribution of
the Senior Executives.
STI deferral
If an STI award exceeds $50,000, one third of the award is
deferred into equity as grants of deferred shares. The deferred
shares are fully paid ordinary shares acquired on-market
and held by the Plan Trustee for a two-year deferral period
commencing from the end of the financial year for which the
STI was granted. They are also subject to a two-year service
condition and risk adjustment at the discretion of the Board. If
the service condition is not met the deferred shares do not vest
and are forfeited. The number of deferred shares granted is
calculated by dividing the value of the deferred STI component
by the volume weighted average closing price of the Bank’s
shares for the last five trading days ending on the grant date.
No STI deferred shares were granted during the year as no STI
awards were made in respect to the 2016 financial year.
Executives may be invited to participate in annual grants of
performance rights. The rights are granted at no cost, have no
exercise price and each right represents an entitlement to one
ordinary share.
The remuneration value of LTI grants is also determined on
the basis of the Executive’s targeted remuneration mix and
the number of performance rights granted is determined by
dividing the value of the LTI component by the volume weighted
average closing price of the Bank’s shares for the last five
trading days of the financial year prior to the year of the grant.
For the purposes of the grant made during the year the volume
weighted average closing price was $9.32.
The following changes were made for the performance rights
granted in FY17:
• a new “Customer Hurdle” was introduced;
• a new vesting approach was adopted; and
• the performance period for Senior Executives (i.e. not
including the Managing Director) was reduced from four
years to three years.
Each of these changes is discussed in more detail below.
Long Term Incentive (LTI)
LTI is equity based remuneration that is subject to long-term
performance and service conditions. At the Board’s discretion,
The FY17 performance right grants were made using a
three ‘sleeve’ approach. An overview of the grant design is
presented in the below table.
First Sleeve
Second Sleeve
Third Sleeve
Service Condition
Allocation and Measures
(all grants)
Performance period:
Managing Director
Performance period:
Senior Executives
30% of performance
rights granted
Subject to a
‘Customer Hurdle’
Customer Hurdle
performance period:
1.7.16 to 30.6.20
Customer Hurdle
performance period:
1.7.16 to 30.6.19
35% of performance
rights granted
Subject to EPS and TSR
measures
EPS performance period:
1.7.16 to 30.6.17
TSR performance period:
1.7.16 to 30.6.20
EPS performance period:
1.7.16 to 30.6.17
TSR performance period:
1.7.16 to 30.6.19
35% of performance
rights granted
Subject to TSR measure
TSR performance period:
1.7.16 to 30.6.20
01.7.16 to
30.6.20
TSR performance period:
1.7.16 to 30.6.19
01.7.16 to
30.6.19
First Sleeve- Customer Hurdle
To satisfy the Customer Hurdle, the Bank’s net promotor score
(NPS) performance over the performance period (measured
using a 6 month rolling average) must be 20 basis points
greater than the median performance of a peer group of
Australian banks. The performance rights subject to the
Customer Hurdle are also subject to a service condition as well
as Board discretions described below. If the Customer Hurdle
is met, all the rights under this sleeve will vest. If the Customer
Hurdle is not met, the rights will not vest and will lapse.
NPS was chosen as it represents a global industry standard
used to measure customer advocacy. Customers are asked
to rate their likelihood of recommending a particular financial
institution to their family and friends, on a 10 point scale. NPS
is calculated by subtracting the proportion of detractors (those
rating between 1 and 6) from the proportion of promoters
(those rating between 9 and 10), resulting in an overall NPS
score. The underlying data is sourced from Roy Morgan
Research, who survey around 50,000 consumers annually.
The equity grants to the Managing Director for FY17, including the
LTI grant with the new Customer Hurdle, was considered by the
Bank’s shareholders at the Bank’s Annual General Meeting for
2016, with more than 82 percent voting in favour of the proposal.
Notwithstanding this strong support for the equity grants from
the Bank’s shareholders, some governance commentators have
expressed concern about the introduction of the Customer
Hurdle on the basis that, in their view, NPS - a measure of
good customer outcomes - does not necessarily drive a better
shareholder outcome. We believe the introduction of a Customer
Hurdle for 30% of the LTI value acts as an appropriate incentive
for the Bank’s executives for two main reasons:
• the Customer Hurdle directly links a part of their total
remuneration to the Bank’s vision to be Australia’s most
customer-connected Bank, which we believe is a key part of
building long term value for shareholders; and
• the Customer Hurdle addresses some governance
commentators’ concerns about the utility of TSR as the sole
determinant for an LTI award. It is worth noting, however,
that the Board is still committed to TSR for 70% of the LTI.
It is also worth noting that the introduction of a hurdle directly
linked to good customer outcomes is a consistent response
to the increased public concern about conduct and culture
concerns in the Australian banking sector.
Second Sleeve - EPS and TSR Hurdle
For the rights to vest the Bank’s cash EPS performance for
the EPS performance period must be equal to or better than
the cash EPS performance for the financial year before the
EPS performance period. If the EPS performance measure
is not met, the rights will not vest and will lapse. If the EPS
performance measure is met, the performance rights will vest
subject to the Bank’s TSR performance in accordance with the
below vesting schedule.
The EPS hurdle was chosen because EPS is an important
and well understood indicator of financial performance and
capital efficiency. Also, as the performance rights are issued
annually, 35 percent of the LTI component is conditional upon
an improved cash EPS performance year-on-year.
The TSR hurdle measures the Bank’s shareholder return
performance relative to the TSR performance of other ASX 100
companies (excluding property trusts and resources stocks)
using the ASX 100 Accumulation Index. This comparator group
was chosen as it is frequently used in the market and requires
the Bank to outperform the majority of companies in the peer
group before the KMP receive any value from the grant.
The TSR measure was chosen as it is a widely used and
understood means of measuring performance linked to
shareholder value. The TSR measure is independently
calculated by an external provider.
Third Sleeve- TSR Hurdle
The performance rights will vest subject to the Bank’s TSR
performance in accordance with the below vesting schedule.
Vesting Schedule
The following vesting schedule applies to both the TSR testing
in the second sleeve and the third sleeve.
TSR performance
against peer Group
Percentage of performance rights
that vest
At or below the 50%
0%
At 50.1%
60%
Between the
50.1% and 75%
Straight-line vesting:
• starting at 60%; and
• reaching 100% at the
75th percentile.
Above the 75th
percentile
100%
As the table above shows, vesting of performance rights
commences at 60% for performance above the median of the
comparator group and reaches 100% at the 75th percentile.
The vesting schedule has been structured in this way to reflect
the fact that the value of our LTI plans for Executives does not
represent a significant part of remuneration.
The performance period for the Senior Executives’ LTI is three
years, and four years for the Managing Director’s LTI. The Board
decided in 2016 to reduce the performance period for Senior
Executives’ LTI to three years (from four years) following a review
of the current practices of a peer group of companies and the
guidelines published by the main governance advisory firms.
The performance rights are also subject to a service condition.
If the service condition is not met, the performance rights will
not vest irrespective of the outcome of the testing for the three
sleeves, unless the Board exercises its discretion otherwise.
In relation to the Managing Director, if his employment with
the Bank ends prior to July 2019, the Board may exercise a
discretion to shorten the Customer Hurdle performance period,
the TSR performance period and the service condition to a
period of three years.
There is no retesting. For each sleeve, if the hurdle is not met
the performance rights lapse. If performance rights vest, the
Board will instruct the Plan Trustee to subscribe for or acquire
the required number of ordinary shares.
Legacy grants (Senior Executives)
Current grants of performance rights were made to Senior
Executives during the 2014, 2015 and 2016 financial years.
The main distinction between the grant terms and the current
year’s grant are outlined below. The Managing Director’s
previous performance right grant concluded at 30 June 2016.
These “legacy” grants have a four year performance period
consisting of a twelve month initial performance period for
cash EPS testing followed by a three year performance period
for relative TSR testing. The grants are also subject to a four
year continued service condition. The TSR hurdle measures
the Bank’s shareholder return performance relative to the TSR
performance of other companies in the ASX 100 Accumulation
Index (excluding property trusts and resources stocks).
The number of performance rights that vest and convert into
ordinary shares at the end of the applicable performance
period is determined as follows:
a. EPS hurdle: The grant is reduced by 50 percent if the
Bank’s cash earnings per share for the applicable
financial year is less than the cash earnings per share for
the previous financial year.
b. TSR hurdle: The TSR performance period is three years.
Vesting of the performance rights (as adjusted for the EPS
performance outcome) will be conditional on achieving the
following TSR performance against the peer group:
Company’s relative
TSR ranking
Percentage of performance
rights that vest
TSR below 50th percentile
Nil
TSR between 50th percentile and
75th percentile
65%
TSR above 75th percentile
100%
There is no retesting and any rights that do not vest will lapse.
There have been no changes to terms or performance measures
of the performance right grants made in previous years.
30 Annual Financial Report 2017
Annual Financial Report 2017 31
Common equity grant terms
All deferred share and performance right grants are made
in accordance with the rules of the Bank’s Employee Salary
Sacrifice, Deferred Share and Performance Share Plan
(“Plan”).
Executives are entitled to vote and to receive any dividend,
bonus issue, return of capital or other distribution made in
respect of deferred shares during the deferral period. They
are not entitled to deal in the deferred shares until they vest
and the Board may treat deferred shares as forfeited before
vesting.
The performance rights do not carry any dividend or voting
rights or the right to participate in the issue of new shares,
such as a bonus share issue. The Executives are prohibited
from dealing in the performance rights.
If an Executive ends their employment with the Bank or were
to act fraudulently, dishonestly or, in the Board’s opinion, in
breach of his or her legal duties before the conditions have
been met, the deferred shares or performance rights will be
forfeited on the Executive’s last day of employment, unless
exceptional circumstances apply and the Board decides to
vest some or all of the shares or rights.
If an Executive’s employment ends because of death, disability,
redundancy, or any other reason approved by the Board, the
deferred shares or performance rights will continue to be
held as if the executive’s employment has not ended, and the
service condition will be treated as waived, unless the Board
decides otherwise. If the Board does decide otherwise, it may
determine that some or all of the shares or rights are forfeited,
which would occur on the last day of employment.
The Board has discretion under the Plan rules to vest all or
a specified number of deferred shares or performance rights
if there is a takeover, compromise, scheme of arrangement
or merger. Matters the Board may take into account include
the Group’s pro-rata performance against the performance
conditions and the individual’s performance.
Under the rules of the Plan the Board has discretion to satisfy
deferred share grants and vested performance right grants by
either issuing new shares or acquiring shares on-market.
Risk adjustment
The Board may adjust the number of deferred shares
and performance rights that vest to take into account
any unforeseen or unexpected circumstances and risk
developments. The Board has absolute discretion to adjust
variable remuneration (Deferred base pay, Deferred STI and
LTI) to reflect the following:
a. The outcomes of business activities;
b. The risks related to the business activities taking into
account, where relevant, the cost of the associated
capital; and
Section 3:
Remuneration arrangements FY2017
Managing Director
The Managing Director’s fixed base remuneration remained unchanged at $1,379,000 per annum.
There was also no change to the Managing Director’s STI component of $400,000 which has remained unchanged since the 2012
financial year. The Board set the following financial and non-financial performance measures for the year.
c. The time necessary for the outcome of those business
Criteria
Measure
Assessment
activities to be reliably measured.
This includes adjusting performance-based components
of remuneration downwards, to zero if appropriate. On an
annual basis the Governance & HR Committee reviews the
appropriateness of releasing deferred equity components taking
into account the Group’s performance outlook and any other
matter that might impact the financial soundness of the Group.
Hedging
Executives and their closely related parties may not enter
into a transaction designed to remove the at-risk element of
equity based pay before it has vested, or while it is subject
to a trading restriction. These restrictions are in the Bank’s
Trading Policy and Remuneration Policy. The Bank treats
compliance with these policies as important. At the end of
each financial year each Executive is required to confirm that
they have complied with these restrictions. If an Executive
breaches either of these restrictions the Executive forfeits all
variable remuneration in the form of equity that is subject to
the prohibition at the time of the breach.
Margin loan facility restriction
The Bank’s Trading Policy also prohibits KMPs from using
the Bank’s securities as collateral in any margin loan
arrangements.
1. Risk
a.
b.
The level of risk associated with the Group’s performance was within
the Group’s risk appetite; and
The measure was met
An effective risk culture is promoted with evidence of enhanced risk practice
across the organisation.
The measure was met
2. Medium
term targets
3. Strategic
projects
a. Shareholder Targets: focusing on improved and sustainable shareholder value;
The measure was met
b. Customer Targets: focusing on customer satisfaction, advocacy rankings and growth
in the customer base and products per customer ratio;
The measure was
substantially met
c.
d.
e.
a.
b.
c.
Financial Targets: focusing on improving economic performance including balance
sheet and earnings growth;
The measure was met
Partner Targets: focusing on the performance of the partner network including
community and partner satisfaction rankings; and
The measure was met
People Targets: focusing on employee engagement, diversity and inclusion and
organisational effectiveness.
The measure was met
The progress made during the year towards achieving Basel II advanced
accreditation.
Increasing the depth and capability of leadership at all levels within the
organisation; and
The measure was
substantially met
The measure was
substantially met
The progress made in identifying and progressing new growth opportunities that
align with the Group’s Purpose.
The measure was met
4. Public
representation
The Group continues to be represented effectively to government (state and federal)
and in industry and public forums.
The measure was met
The Managing Director’s grants of 76,219 deferred shares and 76,219 performance rights was made on 16 December 2016 on the
terms described at Section 2.3. Each of the grants had a face value of $746,184 based on the Bank’s closing share price on 1 July
2016 of $9.79 and achieving 100 percent vesting. Details of the grants are presented at Section 7.
Senior Executives
Senior Executive base remuneration remained unchanged
except for one individual who received a 5% increase. The
monetary value of the Senior Executive deferred base
grants were also unchanged. Details of the share grants are
presented at Section 7.
Senior Executive STI components were unchanged and are
presented in Section 7 (Table 4). The STI components were
subject to the achievement of financial and non-financial
performance based on the following:
a. Group financial and strategic performance goals including
achievement of targeted statutory and cash earnings
performance;
b. Business unit/divisional performance; and
c.
Individual performance, including alignment with the
Group’s corporate values and code of conduct.
Risk and compliance requirements represent a gateway for
STI payments. If the individual, team or Group does not meet
or only partially meets risk and compliance requirements or
the individual does not demonstrate behaviour in-line with the
corporate values, no award or a reduced award will be made.
Senior Executive LTI components were unchanged with
the exception of one individual who received a moderate
increase to align with internal relativities. The annual grant of
performance rights was made in accordance with the terms
described at Section 2.3. Further details on the performance
right grants are presented at Section 7.
32 Annual Financial Report 2017
Annual Financial Report 2017 33
Section 4:
Linking remuneration to performance
4.1 Overview of company performance
The Group produced a sound operating result in what has again been a challenging and highly competitive environment. The following
table provides an overview of the key performance indicators on a year-on-year basis for the past five years. The remuneration
outcomes for the year were in line with the Group’s performance and progress made in respect to longer term business priorities.
Company performance measure
Financial year ending
Statutory net profit after tax ($m)
Statutory earnings per share (cents)
Cash earnings ($m) 1
Cash earnings per share (cents) 1
Dividends paid and payable (cents per share)
Share price at start of financial year
Share price at end of financial year
Total shareholder return
2017
429.6
90.9
418.3
88.5
68.0
$9.60
$11.08
22.5%
2016
415.6
90.4
401.4
87.3
68.0
$12.26
$9.60
(16.2%)
2015
423.9
92.5
402.8
88.6
66.0
$12.20
$12.26
5.9%
2014
372.3
87.7
359.5
85.9
64.0
$10.07
$12.20
28%
2013
352.3
84.9
341.8
83.9
61.0
$7.41
$10.07
44%
1 The cash earnings and cash earnings per share amounts for the prior years have been recalculated using the new methodology,
announced to the market on 5 June 2017, which excludes the unrealised gains/losses and associated funding costs from the Homesafe
investment. More detail on the change in accounting treatment for the Homesafe portfolio is provided in Section 4.2.1.
4.2 Remuneration outcomes
4.2.1 Change to treatment of Homesafe
income in cash earnings
Homesafe is a product funded by the Bank whereby mature-
aged homeowners can sell a percentage of the future sale
value of their home in return for an upfront lump sum. From
the establishment of Homesafe in 2005, the value of the
Bank’s investment in Homesafe contracts has grown to a
current value of more than $666 million.
Under the applicable accounting standard, movements in the
value of the Homesafe portfolio are recorded in the profit and
loss statement. These amounts include both realised gains/
losses (i.e. cash proceeds when the property is eventually sold)
and unrealised gains/losses (i.e. mark-to-market movements in
the value of the underlying properties) on the portfolio.
Whilst the profit contribution from Homesafe has been a
significant part of the Bank’s total net profit after tax in
recent years, the feedback from the investment community
indicated that they did not fully value the contribution from
the Homesafe portfolio because a considerable proportion
was derived from non-cash movements in the value of the
underlying properties (i.e. unrealised gains).
properties from initial funding until the property is sold. The
change will provide more transparency around the amount
of realised income received by the Bank and should reduce
volatility in the Bank’s cash earnings. This approach is also
broadly consistent with the regulatory capital treatment of the
Homesafe investment.
The change became effective for the Bank’s earnings for
the financial year ended 30 June 2017, with previous years’
earnings re-stated on a pro forma basis. The statutory
reporting figures are unaffected by this change.
As mentioned earlier, the parameters for the establishment
of the bonus pool are set at the start of each financial year,
based on a minimum level of cash earnings performance.
The parameters for the establishment of a bonus pool for
FY17 were approved by the Board in July 2016 and based
on the ‘old’ cash earnings formula that included unrealised
gains/losses from the Homesafe portfolio. This is because
the change to the cash earnings calculation described above
was not under consideration at the time. Accordingly, for the
purposes of calculating the amount of this year’s bonus pool,
the Board used the ‘old’ cash earnings formula.
In June 2017 the Bank decided to modify its formula for
calculating cash earnings by excluding the unrealised gains/
losses generated through the valuation movements of the
portfolio, as well as the associated funding costs. Any
realised gains will continue to be reflected in cash earnings,
representing the profit from the movement in the value of
The “second sleeve” of performance rights granted to
Executives in 2016 includes a requirement that, for the rights
to vest, the Bank’s cash EPS performance for FY17 must
have been equal to or better than the cash EPS performance
for FY16. The Board considered both the ‘old’ cash earnings
formula and ‘new’ cash earnings formula for both FY16 and
FY17, and under both scenarios the EPS hurdle was satisfied.
On this basis, the Board resolved to carry forward the “second
sleeve” of performance rights granted to Executives in 2016
for TSR testing in accordance with its terms.
All of the other current Executive equity grants are not directly
affected by the change to the cash earnings calculation.
The board has specifically considered the impact of the
change on KMP remuneration outcomes and is satisfied the
KMP have not benefitted from the change.
4.2.2 Current year outcomes
Deferred base - The deferred base pay and deferred STI grants
made in 2015 were scheduled to be tested and having regard to
the financial soundness of the organisation it was decided by the
Board to vest the deferred shares. Details on the vested deferred
shares are presented at Section 7.
STI - The measures used to determine the bonus pool allocation
are broadly the annual cash earnings performance overlaid with
key performance metrics and risk management outcomes. For
the reasons described in section 4.2.1, the ‘old’ formula for
calculating cash earnings was used to calculate the bonus pool.
Following are the bonus pool measures and outcomes for the
financial year:
Primary Measure
Performance Outcomes
Achieve 95% of target
cash earnings
(threshold hurdle)
The Group achieved the cash earnings threshold hurdle.
Secondary Measures
Risk and Performance Outcomes
Cash earnings
per share
The Group outperformed the cash earnings per share hurdle. Cash earning per share improved on the previous
year’s performance using both the ‘old’ and the ‘new’ methodologies.
Return on Equity
(cash basis)
Return on Tangible Equity
(cash basis)
Common Equity Tier 1
Equity
The return on equity ratio for the year was 8.1 percent. This exceeded the targeted performance.
The return on tangible equity ratio for the year was 11.6 percent. This exceeded the targeted performance.
The Common Equity Tier 1 ratio at year end was 8.27 percent. This was above the targeted performance.
Cost to Income Ratio
The cost to income ratio for the year was 56.1 percent. This was in line with the targeted performance.
Liquidity Coverage Ratio
The liquidity coverage ratio was maintained in accordance with approved internal and regulatory limits during the
year. This met the targeted performance.
Risk Weight Assets / Total
Assets
The risk weighted asset to total asset ratio at year end was 53.3 percent. This was in line with the targeted
performance.
The Group performed soundly overall and recorded continued
improvement in most key financial performance measures.
The Board determined that the criteria for establishing a
performance bonus pool had been met and a bonus pool
was established for the year. The bonus pool represented 60
percent of the maximum capped amount.
The performance assessments for individual Executives
were completed for the year in accordance with the process
described at section 2.3 and STI awards have been made in
line with those assessments.
The Board assessed the performance of the Managing
Director. Based on the size of the bonus pool, the Managing
Director was awarded an STI payment of $240,000 for the
year. The Board assessed that the Managing Director had
achieved his performance goals and decided not to make any
further adjustment to the STI award.
Accordingly, the actual STI payment represents 60% of the STI
maximum opportunity which corresponds with the proportion
of the maximum bonus pool established for STI and bonus
payments.
The Managing Director assessed the performance of the
Senior Executives and determined the proposed STI awards
for consideration by the Governance and HR Committee and
Board. On average the actual STI payments represent 55.4%
percent of the STI maximum opportunity which is consistent
with the size of the bonus pool established by the Board.
There were no adjustments to individual STI awards for the risk
or compliance conditions.
34 Annual Financial Report 2017
Annual Financial Report 2017 35
The following chart shows the correlation
between the annual improvement in the
Group’s cash earnings (calculated using
the ‘old’ cash earnings methodology and
average STI award (as a percentage of the
STI maximum opportunity) over the past
five years.
LTI - The measures used to determine
the vesting of prior and current year’s
performance rights are a combination of the
Group’s EPS, TSR and NPS performance.
The below table summarises the current LTI
performance right grants and performance
testing outcomes for the year:
t
n
e
c
r
e
P
15
10
5
0
70
60
50
40
30
20
10
0
t
n
e
c
r
e
P
2013
2014
2015
2016
2017
Cash earnings increase (Left hand side)
Average STI payment (as a % maximum STI) (Right hand side)
Grant
Grant
Date
NPS Test
Date
EPS Test
Date
EPS Test
Met
TSR Test
Date
TSR Test
Met
NPS Test
Met
Vested for
2017
Lapsed
for 2017
Remaining
2014 LTI
Senior
Executives
2015 LTI
Senior
Executives
2016 LTI
Senior
Executives
2017 LTI
Senior
Executives
2017 LTI
Managing
Director
17.12.13
n/a
30.06.14
Met
30.06.17
10.12.14
n/a
30.06.15
Met
30.06.18
17.12.15
n/a
30.06.16
Met
30.06.19
Test not
met
Not yet
tested
Not yet
tested
n/a
0%
100%
0%
n/a
0%
0%
100%
n/a
0%
0%
100%
16.12.16
30.06.19
30.06.17
Met
30.06.19
Not yet
tested
Not yet
tested
0%
0%
100%
16.12.16
30.06.20
30.06.17
Met
30.06.20
Not yet
tested
Not yet
tested
0%
0%
100%
The LTI grant made to Senior Executives in 2014 reached the end
of the four year performance period and was tested against the
TSR performance measure. The relative TSR performance was
rated below the median of the peer group, and the measure was
not met. In accordance with the vesting framework none of the
performance rights vested. The grants made to Senior Executives
in 2015 and 2016 will be tested in future periods.
As mentioned above, in relation to the 2017 LTI grants, the EPS
performance hurdle relating to the second sleeve was tested
using both the ‘old’ and the ‘new’ cash earnings methodologies,
and was met under both scenarios. Accordingly 100 percent
of the performance rights have been carried forward for testing
over the three year (Senior Executives) and four year (Managing
Director) TSR performance periods. The first and third sleeves will
also be tested in future periods.
The Board considers the remuneration outcomes to be consistent
with shareholder outcomes.
The Executive remuneration disclosures presented at Table 3 of
this report indicate that the value of the share based payments
to the Managing Director decreased significantly year on year.
These figures are driven by the accounting rules for valuing and
amortising share-based payments which can be misleading.
The actual share-based payment grants to the Managing Director
have been maintained at the same level since his appointment to
the role in 2009, being annual grants of 76,219 deferred shares
and 76,219 performance rights. The movement in the accounting
values is due to differences in the amortisation periods and fair
value of the more recent grants, being the grants made in 2016
and 2017.
Section 5:
Non-executive Director remuneration
The remuneration of Non-executive Directors is based on the
following principles and arrangements. There is no direct link
between Non-executive Director fees and the annual results of
the Group. Non-executive Directors do not receive bonuses or
incentive payments, nor receive any equity-based pay.
Shareholders approved an aggregate fee pool for Non-
executive Directors of $2,500,000 at the 2011 Annual
General Meeting. This fee pool covers payments (including
superannuation) for the main Board and payments to the
Bank’s Non-executive Directors appointed to subsidiary boards
and the Community Bank® National Council.
Non-executive Directors receive a fixed annual fee inclusive
of superannuation contributions at 9.5 percent. In relation to
the superannuation contributions, Non-executive Directors can
elect to receive amounts above the maximum contributions
limit as cash or additional superannuation contributions. The
Chairman receives a higher base fee in recognition of the
additional time commitment and responsibilities.
The base fee for Non-executive Directors remained unchanged
for the year. The current base fee which has been in effect
from 1 September 2015 is:
a. $193,000 for Directors (inclusive of company
superannuation contributions); and
b. $482,500 for the Chairman (inclusive of company
superannuation contributions).
No additional fees are paid for serving on Board Committees.
The Governance & HR Committee (the “Committee”)
recommends to the Board the remuneration policy and
remuneration for Non-executive Directors. The base fee
is reviewed annually by the Committee and the following
considerations are taken into account in setting the base fee:
Additional fees were paid to Non-executive Directors appointed
to the Boards of subsidiary companies Sandhurst Trustees,
Rural Bank and the Community Bank® National Council. During
the year the Board decided to cease the payment of fees for the
Rural Bank Board effective 1 September 2016.
a. The scope of responsibilities of Non-executive Directors
and time commitments. This includes consideration of
significant changes to the Group’s operations and industry
developments which impact Director responsibilities at
the Board and committee level.
A review of the Non-executive Director fees has also been
completed since the end of the financial year. The Board has
approved a 2.5 percent increase to the annual base fee taking the
annual fee amount to $197,825 effective from 1 August 2017.
b. Fees paid by peer companies and companies of similar
market capitalisation and complexity, including survey
data and peer analysis to understand the level of Director
fees paid in the market, particularly in the banking and
finance sector.
The Directors contribute $5,000 each to the Bank’s
scholarship program. The program was established to
assist disadvantaged students meet tertiary education
accommodation and direct study costs. The contributions are
deducted from base fee payments.
Section 6:
Remuneration governance
The Committee provides assistance to the Board in relation to
the Group’s remuneration arrangements. The Board makes all
final decisions in relation to those arrangements. The current
members of the Committee are all independent Non-executive
Directors:
a. Tony Robinson (Chairman)
b.
Jacquie Hey
c. Robert Johanson
d. Deb Radford
The Committee has responsibility for providing input into
the Group’s risk management framework in relation to
remuneration risk, in particular, recommending to the Board
the remuneration arrangements for the Executives.
A summary of the Committee’s remuneration responsibilities is
presented below and the Committee Charter is available from
the Corporate Governance section of the Bank’s website at
www.bendigoadelaide.com.au/public/corporate_governance/.
The Committee’s remuneration responsibilities include
conducting regular reviews of, and making recommendations
to the Board on the remuneration strategy and policy
taking into account the Group’s objectives, risk profile,
shareholder interests, regulatory requirements and market
developments. The Committee is also responsible for making
recommendations to the Board on:
a.
the remuneration arrangements for executives, including
the terms on which performance-based remuneration will
be provided;
the performance-based remuneration outcomes for the
executives; and
the annual bonus pool.
b.
c.
The Committee makes recommendations to the Board on
the exercise of the Board’s discretion to adjust incentive and
performance-based remuneration to reflect the outcomes of
business activities and the risks relating to those activities.
The Committee is also responsible for recommending to the
Board the remuneration matters specified by the Australian
Prudential Regulation Authority under Prudential Standard
CPS 510 Governance relating to other designated responsible
persons, risk and financial control personnel and material risk
takers.
The Committee may consult a professional adviser or expert, at
the cost of the Bank, if the Committee considers it necessary
to carry out its duties and responsibilities. No remuneration
recommendations were obtained from external consultants in
relation to any of the KMP during the reporting period.
36 Annual Financial Report 2017
Annual Financial Report 2017 37
Section 7:
KMP remuneration, equity and loan tables
Table 1: Non-executive Director remuneration
The following payments were made to Non-executive Directors in the 2017 and 2016 financial years.
Non-executive
Director
R Johanson (Chairman) 4
Short-term benefits
Post-employment benefits
Fees 1
Non-monetary benefits 2
Superannuation contributions 3
$458,334
$534,686
$176,689
$72,939
$176,689
$256,279
$176,689
$175,911
$176,689
$175,925
$184,488
$260,135
$176,689
$175,903
$233,384
$266,809
$4,550
$4,550
-
-
-
-
-
-
-
-
$5,674
$5,674
-
-
-
-
$19,616
$19,308
$16,311
$6,376
$16,311
$24,338
$16,311
$16,706
$16,311
$16,692
$18,338
$19,308
$16,311
$16,714
$19,616
$19,308
Total
$482,500
$558,544
$193,000
$79,315
$193,000
$280,617
$193,000
$192,617
$193,000
$192,617
$208,500
$285,117
$193,000
$192,617
$253,000
$286,117
2017
2016
J Harris 5
2017
2016
J Hazel 6
2017
2016
J Hey
2017
2016
R Hubbard
2017
2016
D Matthews 7
2017
2016
D Radford
2017
2016
T Robinson 8
2017
2016
Aggregate totals
2017
2016
$1,759,651
$1,918,587
$10,224
$10,224
$139,125
$138,750
$1,909,000
$2,067,561
1 Fee amounts include the $5,000 Director contribution to the Board scholarship program.
2 Represents fee sacrifice component of the base Director fee paid as superannuation.
3 Represents company superannuation contributions.
4 The comparative fee amount for Mr Johanson includes the fee paid by Rural Bank Limited of $77,000 inclusive of company superannuation.
5 Ms Jan Harris was appointed to the Board on 2 February 2016.
6 The comparative fee amount for Mr Hazel includes the fee paid by Rural Bank Limited of $88,000 inclusive of company superannuation.
7 The fees paid to Mr Matthews include $15,500 inclusive of company superannuation as a member of the Community Bank® National Council.
The comparative amount includes a fee of $77,000 inclusive of company superannuation as a Director of Rural Bank Limited.
8 The fees paid to Mr Robinson include a fee of $60,000 inclusive of company superannuation as a Director of Sandhurst Trustees Limited (FY2016: $93,500).
Table 2: Non-executive Director equity holdings
The details of shareholdings in the Bank held by Non-executive Directors (including their close family members or any entity they, or
their close family members, control, jointly control or significantly influence) are set out below.
Number at the start of year
Net Change 1
Number at end of year 2
Name
Ordinary shares
Preference shares
Ordinary shares
Preference shares
Ordinary shares
Preference shares
Non-executive Directors
R Johanson
241,300
J Harris
J Hazel
J Hey
R Hubbard
D Matthews
D Radford
T Robinson
1,000
24,172
10,013
10,387
28,361
1,900
23,192
-
-
-
250
-
-
3,190
-
14,515
-
1,956
1,365
1,388
2,598
-
9,948
-
-
-
-
-
-
-
-
255,815
1,000
26,128
11,378
11,775
30,959
1,900
33,140
-
-
-
250
-
-
3,190
-
1 No equity instruments were granted as compensation to Non-executive Directors during the reporting period.
2 None of the shares are held nominally.
Table 3: Executive remuneration
The statutory executive remuneration disclosures are set out in the table below. The following remuneration disclosures have been
prepared in accordance with the Corporations Act 2001 and Australian Accounting Standards.
Short-term employee benefits
Cash Salary
1
Cash
bonuses
(STI) 2
Non-
monetary
benefits 3
Superan-
nuation
benefits 4
Other
long-term
benefits 5
Termination
Share-based payments 6
Perfor-
mance
rights 7
Deferred
shares 8
Total
Perfor-
mance
related
11
Execu-
tive
M Hirst
2017
$1,395,084
$160,000
$520
$19,616
($8,096)
- $150,559
$488,945
$2,206,628
2016
$1,365,435
-
$7,015
$19,308 ($14,256)
- $358,737
$996,058
$2,732,297
M Baker
2017
2016
R Fennell
2017
2016
$545,945
$80,000
$16,038
$19,652 ($15,144)
- $146,572
$184,624
$977,687
$549,882
-
$12,174
$19,308
$8,625
-
$95,032
$186,633
$871,654
$570,558
$100,000
$4,500
$19,616
$14,527
- $149,364
$187,385
$1,045,950
$589,920
-
$4,500
$19,308
($3,113)
$97,824
$195,646
$904,085
15%
15%
24%
15%
25%
15%
A Gartmann 10
2017
2016
$306,332
$40,000
$720
$19,616
$4,759
$194,964
-
-
$13,238
$3,131
R Musgrove
$295,489
$40,000
$24,252
$29,722 ($13,788)
$300,549
-
$18,288
$29,722
($4,400)
2017
2016
T Piper
-
-
-
-
-
$37,572
$69,426
$478,425
16%
$7,916
$30,000
$249,249
3%
$59,185
$69,426
$504,286
20%
$29,530
$70,975
$444,664
9%
2017
$523,845
$40,000
$15,250
$19,616
$13,991
- $118,372
$144,647
$875,721
18%
38 Annual Financial Report 2017
Annual Financial Report 2017 39
Execu-
tive
Short-term employee benefits
Cash Salary
1
Cash
bonuses
(STI) 2
Non-
monetary
benefits 3
Superan-
nuation
benefits 4
Other
long-term
benefits 5
Termination
2016
$533,849
-
$15,770
$19,308
$14,245
B Speirs 9
2017
2016
$322,931
$50,000
$6,500
$19,652
$8,495
$247,020
-
$4,902
$14,560
$10,934
S Thredgold
2017
2016
A Tullio
2017
2016
A Watts
2017
2016
$347,509
$80,000
$5,000
$19,652
($6,817)
$340,995
-
$5,000
$19,308 ($15,209)
$340,228
$50,000
$18,939
$19,616
$5,923
$346,635
-
$15,329
$19,308
$31,255
$363,348
$33,333
$31,828
$19,616
$6,840
$403,506
-
$17,558
$19,308
($7,604)
Former Key Management Personnel
D Bice 9
-
-
-
-
-
-
-
-
-
Share-based payments 6
Perfor-
mance
rights 7
Deferred
shares 8
Total
Perfor-
mance
related
11
$76,012
$140,593
$799,777
11%
$50,764
$69,426
$527,768
19%
$15,918
$22,623
$315,957
5%
$61,978
$69,426
$576,748
$43,624
$75,724
$469,442
25%
12%
$59,185
$89,327
$583,218
20%
$29,530
$84,304
$526,361
9%
Table 4: Executive STI payments
The following short-term incentives were awarded to executives for FY2017.
The short term incentives forfeited are also set out in the table below.
Executive
M Hirst
M Baker
R Fennell
A Gartmann
R Musgrove
T Piper
B Speirs
S Thredgold
A Tullio
A Watts
STI maximum
opportunity 1
STI payment
Paid as cash
Deferred into shares 2
STI payment as % of STI
maximum opportunity
% of STI Award
forfeited
$400,000
$200,000
$250,000
$70,000
$100,000
$100,000
$125,000
$200,000
$100,000
$180,000
$160,000
$ 80,000
$100,000
$40,000
$40,000
$40,000
$50,000
$80,000
$50,000
$33,333
$80,000
$40,000
$50,000
$20,000
-
-
$25,000
$40,000
$25,000
$16,667
60%
60%
60%
86%
40%
40%
60%
60%
60%
28%
40%
40%
40%
14%
60%
60%
40%
40%
40%
72%
$61,978
$67,015
$583,958
$49,275
$74,638
$556,681
18%
13%
1 The STI award is subject to the achievement of financial and non-financial measures. Accordingly, the minimum potential STI award is nil.
2 One-third of STI awards that exceed the $50,000 threshold set by the Board are subject to deferral for two years into shares in the Bank.
The allocation of deferred shares for the 2017 deferred STI components is expected to be made in October 2017.
2016
$316,894
-
$12,071
$14,507 ($69,393)
$774,377
$32,778
$64,598
$1,145,832
12%
J Billington 10
Table 5: All equity plans – equity valuation inputs
The following tables summarise the valuation inputs for current equity instruments issued by the Bank.
a. Deferred Shares
2016
$110,706
-
-
$24,506
-
$412,778
$16,575
$53,518
$618,083
15%
Terms & Conditions for each Grant
2017
$5,011,269
$673,333 $123,547
$206,374
$10,690
- $895,529 $1,439,647
$8,360,389
2016
$5,300,355
-
$112,607
$231,689 ($45,785) $1,187,155 $852,751 $1,995,310
$9,634,082
¹ Cash salary amounts include the net movement in the Executive’s annual leave accrual for the year.
2 These amounts represent STI cash awards to Executives for the financial year. The cash component is expected to be paid in October 2017. Refer
also to footnote 8 below for discussion on the deferral of STI components.
3 “Non-monetary” relates to sacrifice components of Executive salary such as motor vehicle costs.
4 Represents company superannuation contributions made on behalf of executives. Company superannuation contributions form part of the
executive’s fixed base remuneration and are paid up to the statutory maximum contributions base. Mr Musgrove also receives an additional company
contributions as part of an arrangement with former members of a defined benefit fund that was amalgamated with an accumulation fund in 1994.
5 The amounts disclosed relate to movements in long service leave accruals.
6 In accordance with the requirements of Australian Accounting Standards, remuneration includes a proportion of the fair value of equity
compensation granted or outstanding during the year. The fair value of equity instruments is calculated as at the grant date and is progressively
allocated over the vesting period. The amount included as remuneration is not related to or indicative of the benefit (if any) that individual
executives may ultimately realise should the equity instruments vest. The fair value of performance rights as at the grant date has been
calculated under AASB 2 Share-based Payments applying a Black-Scholes-Merton valuation method incorporating a Monte Carlo simulation option
pricing model to estimate the probability of achieving the Total Shareholder Return hurdle and the number of performance rights that vest. The
assumptions underpinning these valuations are set out in Table 5.
7 The amounts included in the performance rights column represent the fair value of performance right grants to Executives amortised over the
applicable vesting period. The Managing Director’s current year amount represents the amortised fair value allocation for the performance
right grant made during the 2017 financial year. The comparative amount represents the final amortised fair value allocation for the previous
performance right grant that completed on 30 June 2016. The Senior Executives current year amounts represent the amortised fair value
allocation for the 2014, 2015, 2016 and 2017 performance right grants. The comparative amounts represent the amortised fair value allocation
for the 2013, 2014, 2015 and 2016 performance right grants.
8 The amounts included in the deferred share column comprise:
• The fair value of deferred STI components amortised over a two-year deferral period. The deferred STI component for the 2015 financial year is
amortised over 2016 and 2017 financial years. There was no deferred STI component for the 2016 financial year.
• The fair value of the deferred base pay grants amortised over a two-year deferral period. The deferred base pay grant made during the 2016
financial year is amortised over the 2016 and 2017 financial years and the deferred base pay grant made during the 2017 financial year is
amortised over the 2017 and 2018 financial years. The comparative figure includes the fair value of the deferred base pay grant made in the 2015
financial year amortised over the 2015 and 2016 financial years.
9 Mr Dennis Bice ceased as a KMP on 31 March 2016 and Mr Bruce Speirs commenced as a KMP on 29 September 2015. The remuneration
amounts for these KMP (except for the termination payment to Mr Bice) are presented on a pro-rata basis.
10 Mr John Billington ceased as a KMP on 29 September 2015 and Ms Alex Gartmann commenced as a KMP on 26 October 2015.
11 The performance related percentage comprises cash bonus (STI) payments, the amortised fair value of performance right grants and the
amortised fair value of deferred STI components (which form part of the amount disclosed under the ‘Deferred shares’ column).
Equity Instrument
Grant date
Issue price / Fair
value 1
Share price at grant
date
Restriction period
end / test date
Vest / Expiry
date
Deferred Shares STI 2
12.10.2015
Deferred Shares Base Pay
17.12.2015
Deferred Shares Base Pay
16.12.2016
$10.02
$12.43
$12.25
$10.36
$11.24
$12.25
30.06.2017
30.06.2017
30.06.2017
30.06.2017
30.06.2018
30.06.2018
1 The fair value of deferred share grants (for STI deferral and deferred base pay) is calculated using the volume weighted average closing price of
the Bank’s shares for the five day period ending on the grant date.
2 The Managing Director’s deferred STI grant was made on 30 September 2015.
b. Performance rights
Equity Instrument
Grant date
Fair
value 1
Share
price $
Terms & Conditions for each Grant
Exer-
cise
price
Risk
free
interest
rate
Dividend
yield
Expected
volatility
Expected
life
Performance
period end /
expiry date 2
Performance Rights
Performance Rights
Performance Rights
17.12.2013
$4.45
$10.98
10.12.2014
$5.53
$12.62
17.12.2015
$4.92
$11.24
Performance Rights – Sleeve 1
16.12.2016 $10.63 $12.25
Performance Rights – Sleeve 2
16.12.2016
$7.29
$12.25
Performance Rights – Sleeve 3
16.12.2016
$7.29
$12.25
Performance Rights – Sleeve 1 (MD) 16.12.2016 $10.05 $12.25
Performance Rights – Sleeve 2 (MD) 16.12.2016
$6.98
$12.25
Performance Rights – Sleeve 3 (MD) 16.12.2016
$6.98
$12.25
-
-
-
-
-
-
-
-
-
2.91%
7.50%
2.31%
6.00%
2.18%
6.00%
1.93%
5.75%
1.93%
5.75%
1.93%
5.75%
2.10%
5.75%
2.10%
5.75%
2.10%
5.75%
22%
18%
20%
20%
20%
20%
20%
20%
20%
4 years
30.06.2017
4 years
30.06.2018
4 years
30.06.2019
3 years
30.06.2019
3 years
30.06.2019
3 years
30.06.2019
4 years
30.06.2020
4 years
30.06.2020
4 years
30.06.2020
1 The fair value is calculated as at grant date in accordance with AASB 2 Share-based Payments using an independent valuation.
2 The Board will test the performance condition as soon as practical after year end. Any performance rights that do not vest will lapse at 5.00pm on
the date the Board makes its decision on what performance rights vest or lapse.
40 Annual Financial Report 2017
Annual Financial Report 2017 41
Table 6: All equity plans – number of instruments
The table below sets out the number and value of deferred shares and performance rights granted to Executives by the Bank
during FY2017. It also includes details of grants made in prior years that vested or were forfeited or lapsed during the year.
Executive
Equity Instrument
Grant Date
Grants 1
Units
Granted 2
$
Prior years’
awards
vested 3
Units
Prior years’
awards
vested 4,7
$
Forfeited
/ Lapsed
2,6
Units
Forfeited
/Lapsed
5, 6
$
-
-
-
-
-
-
-
-
-
-
17,570
$78,187
-
-
-
-
-
-
-
-
20,080
$89,356
-
-
-
-
-
-
-
-
-
-
-
-
Deferred Shares STI
30.09.2015
-
-
4,412
$44,208
M Hirst
Performance Rights
16.12.2016
76,219 $602,203
Deferred Shares Base Pay
16.12.2016
76,219 $933,683
Deferred Shares STI
12.10.2015
Deferred Shares Base Pay
17.12.2015
M Baker
Performance Rights
17.12.2013
-
-
-
-
-
-
Deferred Shares Base Pay
16.12.2016
16,094 $197,152
Performance Rights
16.12.2016
26,824 $222,428
Deferred Shares STI
12.10.2015
Deferred Shares Base Pay
17.12.2015
R Fennell
Performance Rights
17.12.2013
-
-
-
-
-
-
Deferred Shares Base Pay
16.12.2016
16,094 $197,152
Performance Rights
16.12.2016
26,824 $222,428
-
-
-
-
2,206
$22,104
12,067
$149,993
-
-
-
-
-
-
2,757
$27,625
12,067
$149,993
-
-
-
-
-
-
Deferred Shares Base Pay
17.12.2015
-
-
4,827
$60,000
A Gartmann
Deferred Shares Base Pay
16.12.2016
6,437
$78,853
Performance Rights
16.12.2016
10,729
$88,966
R Musgrove
Deferred Shares Base Pay
17.12.2015
Performance Rights
17.12.2013
-
-
-
-
Deferred Shares Base Pay
16.12.2016
6,437
$78,853
Performance Rights
16.12.2016
10,729
$88,966
T Piper
B Speirs
Deferred Shares Base Pay
17.12.2015
Performance Rights
17.12.2013
-
-
-
-
Deferred Shares Base Pay
16.12.2016
13,412 $164,297
Performance Rights
16.12.2016
21,459 $177,935
Deferred Shares Base Pay
17.12.2015
Performance Rights
17.12.2013
-
-
-
-
Deferred Shares Base Pay
16.12.2016
6,437
$78,853
Performance Rights
16.12.2016
10,729
$88,966
S Thredgold
Deferred Shares Base Pay
17.12.2015
Performance Rights
17.12.2013
-
-
-
-
Deferred Shares Base Pay
16.12.2016
6,437
$78,853
Performance Rights
16.12.2016
10,729
$88,966
-
-
-
-
4,827
$60,000
-
-
-
-
-
-
10,056
$124,996
-
-
-
-
-
-
4,827
$60,000
-
-
-
-
-
-
4,827
$60,000
-
-
-
-
-
-
10,040
$44,678
-
-
-
-
Table 6: All equity plans – number of instruments continued
Executive
Equity Instrument
Grant Date
Grants 1
Units
Granted 2
$
Prior years’
awards
vested 3
Units
Prior years’
awards
vested 4,7
$
Forfeited
/ Lapsed
2,6
Units
Forfeited
/Lapsed
5, 6
$
Deferred Shares STI
12.10.2015
Deferred Shares Base Pay
17.12.2015
A Tullio
Performance Rights
17.12.2013
-
-
-
-
-
-
Deferred Shares Base Pay
16.12.2016
7,510
$91,998
Performance Rights
16.12.2016
10,729
$88,966
Deferred Shares STI
12.10.2015
Deferred Shares Base Pay
17.12.2015
A Watts
Performance Rights
17.12.2013
-
-
-
-
-
-
Deferred Shares Base Pay
16.12.2016
5,364
$65,709
Performance Rights
16.12.2016
10,729
$88,966
1,663
$16,663
5,631
$69,993
-
-
-
-
-
-
-
-
-
-
1,829
$18,327
4,022
$49,993
7,530
$33,509
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,040
$44,678
-
-
-
-
1 The grants to Executives in FY2017 constituted 100% of the grants available for the year and were made on the terms described at Section 2. The
number of base pay deferred shares and performance rights allocated to executives is calculated by dividing the remuneration value by the volume
weighted average closing price of the Bank’s shares for the last five trading days of the financial year prior to year of the grant. The number of STI
deferred shares allocated to Executives is calculated by dividing the deferred STI remuneration value by the volume weighted average closing price
of the Bank’s shares for the five trading days ending on the grant date.
2 The value of the performance right grants and deferred share grants is the fair value (refer Table 5). The minimum total value of the grants, if
the applicable performance and service conditions are not met, is nil. The future value of the rights is dependent on the achievement of the
performance hurdles and the share price at the time the performance rights vest. An estimate of the maximum possible total value in future
financial years is the fair value shown above.
3 The percentage of performance rights that vested during the year was nil as the TSR measure for these performance rights was either not met or
will be tested over future periods. The percentage of base pay deferred share grants and STI deferred share grants made in FY2016 that vested
during the year was 100%. The percentage of the deferred share base pay grant made in FY2017 that vested during the year was nil as the grant
will be tested in a future period.
4 The value of vested deferred shares is measured using the fair values applicable to the grant of deferred shares that vested. The applicable fair
values are presented at Table 5. As each deferred share represents one ordinary share in the Bank, the number of ordinary shares that will be
allocated is the same as the number of vested deferred shares.
7,530
$33,509
5 The value of each instrument on the date it lapses or is forfeited is calculated using the fair value of the instrument. Performance rights and
deferred shares lapse where the applicable performance and service conditions are not satisfied.
6 The performance rights vest subject to performance and continued service over the applicable performance period. The exercise price for the
performance rights and deferred shares is nil. If performance rights do not vest at the end of the performance period, they lapse.
7 The Bank acquired the following securities on-market for the purpose of, and to satisfy the entitlements of holders of rights to acquire securities
granted under, the Bank’s Employee Salary Sacrifice, Deferred Share and Performance Share Plan:
a. Total number of ordinary shares purchased during the financial year: 163,659 ordinary shares (FY2016: 108,733 ordinary shares); and
b. Average price per ordinary share at which the securities were purchased: $12.25 per security (FY2016: $10.42 per security).
-
-
-
-
-
-
15,060
$67,017
-
-
-
-
-
-
5,020
$22,339
-
-
-
-
-
-
42 Annual Financial Report 2017
Annual Financial Report 2017 43
Table 8: Executive employment agreements
The remuneration and other terms of employment for executives are contained in formal employment contracts.
The material terms of the executive contracts at the date of this report are set out below.
Issue
Description
Applies to
What is the duration of the contracts?
Fixed term to June 2016, subject to the termination provisions
summarised below, and then on-going until notice is given by
either party.
Managing Director
On-going until notice is given by either party.
Other Executives
What notice must be provided by a
Executive to end the contract without
cause?
Up to 12 months’ notice. No notice period required if material
change in duties or responsibilities.
All Executives
What notice must be provided by the
Bank to end the contract without cause? 1 12 months’ notice or payment in lieu.
What payments must be made by the
Bank for ending the contract without
cause? 1
Payment of gross salary in lieu of period of notice (including
payment of accrued / unused leave entitlements calculated to end
of relevant notice period).
What are notice and payment
requirements if the Bank ends the
contract for cause?
Termination for cause does not require a notice period. Payment of
pro-rata gross salary and benefits (including payment of accrued /
unused leave entitlements) is required to date of termination.
All Executives
All Executives
All Executives
Are there any post-employment restraints?
12 month non-competition and non-solicitation (employees,
customers and suppliers) restriction.
Managing Director
12 month non-solicitation (employees, customers and suppliers)
restriction.
Other Executives
1 In certain circumstances, such as a substantial diminution of responsibility, the Bank may be deemed to have ended the employment of an
executive and will be liable to pay a termination benefit as outlined at the row titled “What payments must be made by the Bank for ending the
contract without cause”.
Table 7: Movements in Executive equity holdings
The details of shareholdings in the Bank held by Executives (including their close family members or any entity they, or their close
family members, control, jointly control or significantly influence) are set out below. The ordinary share amounts include shares issued
under the Employee Share Ownership Plan made under conditions disclosed in the 2017 Annual Financial Report at Note 35.
Performance rights and deferred shares are granted as equity compensation under the Employee Salary Sacrifice, Deferred
Share and Performance Share Plan (“Plan”) to Executives as LTI, Deferred Base and Deferred STI remuneration components.
Executive
Equity Instrument
Number at
start of year
Number
granted
during the
year as
remuneration
Number Received
on exercise or ex-
ercised / released
during the year
Number
Lapsed /
expired
during
the year
Net change
other
Number at
end of year
1, 2
Deferred shares
4,412
76,219
M Hirst
Ordinary shares
698,384
-
Performance rights
-
76,219
Deferred shares
14,273
16,094
M Baker
Ordinary shares
287,905
Preference shares
800
-
-
Performance rights
58,040
26,824
Deferred shares
R Fennell
Ordinary shares
Performance rights
14,824
89,038
60,550
16,094
-
26,824
Deferred shares
4,827
6,437
A Gartmann
Ordinary shares
-
-
Performance rights
6,436
10,729
Deferred shares
R Musgrove
Ordinary shares
Performance rights
Deferred shares
T Piper
Ordinary shares
Performance rights
Deferred shares
B Speirs
Ordinary shares
4,827
29,378
23,718
10,056
48,502
47,436
4,827
995
6,437
-
10,729
13,412
-
21,459
6,437
-
(4,412)
4,412
-
(14,273)
14,273
-
-
(14,824)
14,824
-
-
-
-
-
-
(17,570)
-
-
-
(20,080)
(4,827)
4,827
-
(4,827)
4,827
-
-
-
-
-
-
(7,530)
(10,056)
10,056
-
-
-
(15,060)
(4,827)
4,827
-
-
Performance rights
17,136
10,729
-
(5,020)
Deferred shares
S Thredgold
Ordinary shares
Performance rights
Deferred shares
A Tullio
Ordinary shares
4,827
26,751
26,228
7,294
6,573
6,437
-
10,729
7,510
-
(4,827)
4,827
-
-
-
(10,040)
(7,294)
7,294
-
-
Performance rights
23,718
10,729
-
(7,530)
Deferred shares
A Watts
Ordinary shares
Performance rights
5,851
74,666
26,228
5,364
-
10,729
(5,851)
5,851
-
-
-
(10,040)
-
-
76,219
(63,326)
639,470
-
-
76,219
16,094
17,362
319,540
-
-
-
(17,000)
-
-
-
-
-
(2,000)
-
-
(6,000)
-
-
(995)
-
-
-
-
-
(6,502)
-
-
(28,497)
800
67,294
16,094
86,862
67,294
6,437
4,827
17,165
6,437
32,205
26,917
13,412
52,558
53,835
6,437
4,827
22,845
6,437
31,578
26,917
7,510
7,365
26,917
5,364
52,020
26,917
1 None of the equity holdings are held nominally.
2 None of the deferred shares or performance rights had vested and were exercisable at year-end.
44 Annual Financial Report 2017
Annual Financial Report 2017 45
This Directors’ Report is signed in accordance with a resolution of the Board of Directors.
Robert Johanson
Chairman
5 September 2017
Mike Hirst
Managing Director
5 September 2017
Table 9: Non-executive Director and executive loans
Details of aggregate of loans to KMP and their related parties are as follows:
Balance at
beginning of year 1
Interest
charged
Interest not
charged
Write-off
Balance at end
of year
Number at
year end
$’000
$’000
$’000
$’000
$’000
Non-executive Directors
2017
3,486
211
Executives
2017
4,183
147
Total Directors and Executives
2017
7,669
358
-
-
-
-
-
-
6,589
3,867
5
7
10,456
12
Details of KMP (including their related parties) with an aggregate of loans above $100,000 in the reporting period are as follows:
Balance at
beginning of year
Interest
charged
Interest not
charged
Write-off
Balance at end
of year
Highest owing
in period 2
$’000
$’000
$’000
$’000
$’000
$’000
2017
Non-executive Directors
J Hey
R Johanson
D Matthews
T Robinson
Executives
M Hirst
R Fennell
R Musgrove
T Piper
S Thredgold
A Tullio
A Watts
-
1,110
1,351
1,004
87
539
375
495
977
784
897
16
58
97
40
8
29
17
24
29
30
6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29
1,227
4,313
1,000
993
566
334
485
745
694
-
3,504
1,277
4,418
1,004
928
566
376
495
977
789
901
1 The balances exclude loans provided to Executives under the Employee Share Ownership Plan. The Corporations Regulations do not require the
disclosure of these loans. The balances have also been amended to exclude loans provided to Mr Bice and Mr Billington who ceased as KMP
during the previous financial year.
2 Represents aggregate highest indebtedness of the KMP during the financial year. All other items in this table relate to the KMP and their related
parties.
Terms and conditions of Non-executive Director and Executive loans
The loans to Non-executive Directors and Executives occur within a normal employee, customer or supplier relationship on terms and
conditions no more favourable than those that it is reasonable to expect the Bank would have adopted if dealing at arms-length with an
unrelated person.
46 Annual Financial Report 2017
Annual Financial Report 2017 47
Financial Statements
Primary statements
Primary Statements
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in equity
Cash flow statement
Basis of Preparation
Treasury and Investments
18
19
20
21
22
23
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Derivative financial instruments
Financial instruments
Investment property
Income statement
for the year ended 30 June 2017
Net interest income
Interest income
Interest expense
Group
Bank
Note
2017
$m
2016
$m
2017
$m
2016
$m
2,618.7
2,682.9
2,298.3
2,337.4
(1,405.1)
(1,518.8)
(1,214.5)
(1,305.2)
Total net interest income
3
1,213.6
1,164.1
1,083.8
1,032.2
Earnings per ordinary share
Other Disclosure Matters
Corporate information
Operating Assets and Liabilities
Summary of significant accounting policies
Results for the Year
Profit
Income tax expense
Segment results
Dividends
Loans and other receivables
Impairment of loans and advances
Funding and Capital Management
1
2
3
4
5
6
7
Lending
8
9
10
11
12
13
14
15
16
17
Deposits and notes payable
Convertible preference shares
Subordinated debt
Securitisation and transferred assets
Standby arrangements & uncommitted credit facilities
Capital management
Share capital
Directors’ declaration
Independent Audit Report
Retained earnings and reserves
Additional information
24
25
26
27
28
Cash flow statement reconciliation
Cash and cash equivalents
Goodwill and other intangible assets
Other assets
Other payables
29
30
31
32
33
34
35
36
37
38
39
Risk management
Subsidiaries and other controlled entities
Related party disclosures
Involvement with unconsolidated entities
Fiduciary activities
Provisions
Share based payment plans
Property, plant and equipment
Commitments and contingencies
Auditors’ remuneration
Events after balance sheet date
Other revenue
Fees
Commissions
Other
Total other revenue
Total income
Expenses
Bad and doubtful debts
Bad and doubtful debts recovered
Total bad and doubtful debts
Operating expenses
Staff and related costs
Occupancy costs
Amortisation and depreciation costs
Fees and commissions
Other
Total other expenses
Profit before income tax expense
Income tax expense
Net profit for the year
Earnings per share (cents)
Basic
Diluted
160.0
72.7
163.2
395.9
161.9
68.9
159.7
390.5
144.9
146.3
21.4
71.3
18.5
79.0
237.6
243.8
1,609.5
1,554.6
1,321.4
1,276.0
(91.9)
20.1
(71.8)
(56.9)
12.8
(44.1)
(68.5)
6.0
(62.5)
(48.4)
10.1
(38.3)
(480.5)
(480.3)
(428.7)
(419.9)
(92.0)
(50.2)
(33.6)
(91.6)
(46.2)
(33.6)
(91.2)
(39.2)
(7.8)
(89.8)
(34.4)
(8.1)
(253.1)
(251.9)
(231.6)
(239.0)
(909.4)
(903.6)
(798.5)
(791.2)
628.3
606.9
460.4
446.5
(198.7)
(191.3)
(148.0)
(143.4)
429.6
415.6
312.4
303.1
90.9
82.9
90.4
81.3
3
3
3
4
6
6
48 Annual Financial Report 2017
Annual Financial Report 2017 48
Annual Financial Report 2017 49
Statement of comprehensive income
for the year ended 30 June 2017
Profit for the year
Items which may be reclassified subsequently
to the profit & loss:
Net loss on available for sale - equity investments
Net gain/(loss) on cash flow hedges taken to equity
Net unrealised gain/(loss) on available for sale
- debt securities
Transfer to loss/(income) on sale of available for sale assets
Tax effect on items taken directly to or transferred from equity
Total items that may be reclassified to profit & loss
Items which will not be reclassified subsequently
to the profit & loss:
Actuarial loss/(gain) on superannuation defined benefits plan
Revaluation of land and buildings
Tax effect on items taken directly to equity
Total items that will not be reclassified to profit & loss
Note
17
17
17
17
17
17
17
17
Group
Bank
2017
$m
429.6
(1.6)
45.6
0.9
0.3
(13.6)
31.6
0.3
0.3
(0.2)
0.4
2016
$m
415.6
(0.1)
(2.0)
(3.3)
1.1
1.3
(3.0)
(1.4)
-
0.4
(1.0)
2017
$m
312.4
(1.7)
44.3
62.4
0.3
(31.6)
73.7
0.3
0.1
(0.1)
0.3
2016
$m
303.1
-
(3.3)
(99.3)
1.1
30.5
(71.0)
(1.4)
-
0.4
(1.0)
Total comprehensive income for the year
461.6
411.6
386.4
231.1
Total comprehensive income for the year attributable to:
Owners of the Company
461.6
411.6
386.4
231.1
Balance sheet
as at 30 June 2017
Assets
Cash and cash equivalents
Due from other financial institutions
Amounts receivable from controlled entities
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Derivatives
Net loans and other receivables
Investments accounted for using the equity method
Shares in controlled entities
Property, plant & equipment
Deferred tax assets
Investment property
Goodwill and other intangible assets
Other assets
Total Assets
Liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Loans payable to securitisation trusts
Income tax payable
Provisions
Deferred tax liabilities
Other payables
Convertible preference shares
Subordinated debt
Total Liabilities
Net Assets
Equity
Share capital
Reserves
Retained earnings
Total Equity
Group
Bank
Note
2017
$m
2016
$m
2017
$m
885.2
270.7
1,072.3
5,657.9
5,243.7
65.8
181.8
2016
$m
933.0
221.8
1,160.1
6,369.4
6,941.1
62.7
290.3
1,059.6
1,060.0
270.3
221.9
-
-
5,657.6
6,369.1
286.6
378.7
77.7
353.5
382.8
79.0
60,776.6
57,256.8
55,611.4
52,280.6
8.5
-
77.8
110.8
666.3
4.1
-
90.7
131.8
573.4
7.5
570.2
73.0
108.0
3.9
569.8
86.0
132.6
-
-
1,663.8
1,634.7
1,567.4
1,528.7
381.2
414.9
439.8
420.2
71,415.5
68,572.7
71,754.7
71,000.2
328.4
294.8
328.0
287.1
58,772.3
57,054.7
55,235.1
53,786.3
4,480.2
3,822.5
111.8
503.5
77.6
502.2
110.7
59.0
-
21.5
130.8
126.6
532.3
830.1
708.7
-
8,472.2
9,437.3
34.5
116.7
114.7
499.9
824.4
583.4
21.5
127.2
65.9
582.1
830.1
698.7
34.5
112.6
104.1
654.9
824.4
573.4
65,989.9
63,457.4
66,941.9
66,427.5
5,425.6
5,115.3
4,812.8
4,572.7
4,448.7
4,288.2
4,448.7
4,288.2
112.3
864.6
87.9
739.2
110.1
254.0
43.7
240.8
5,425.6
5,115.3
4,812.8
4,572.7
25
25
18
19
20
21
8
36
4
23
26
27
25
10
10
21
4
34
4
28
11
12
16
17
17
50 Annual Financial Report 2017
Annual Financial Report 2017 51
Statement of changes in equity
for the year ended 30 June 2017
At 1 July 2016
Opening balance b/fwd
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Shares issued
Share issue expenses
Reduction in employee share ownership plan (ESOP) shares
Movement in general reserve for credit losses (GRCL)
Share based payment
Equity dividends
At 30 June 2017
1 Refer to note 16 Share capital for further details
2 Refer to note 17 Retained earnings and reserves for further details
Group
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
issued
capital1
$m
Retained
earnings
$m
Reserves2
$m
Total
equity
$m
4,298.4
(10.2)
739.2
87.9
5,115.3
-
-
-
158.6
(0.3)
-
-
-
-
-
-
-
-
-
2.2
-
-
-
429.6
0.2
429.8
-
-
-
6.6
0.4
-
31.8
31.8
-
-
-
(6.6)
(0.8)
429.6
32.0
461.6
158.6
(0.3)
2.2
-
(0.4)
(311.4)
-
(311.4)
4,456.7
(8.0)
864.6
112.3
5,425.6
Statement of changes
in equity (continued)
for the year ended 30 June 2017
At 1 July 2016
Opening balance b/fwd
Transfer from de-registered subsidiary company
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Shares issued
Share issue expenses
Reduction in employee share ownership plan (ESOP) shares
Movement in general reserve for credit losses (GRCL)
Share based payment
Equity dividends
At 30 June 2017
1 Refer to note 16 Share capital for further details
2 Refer to note 17 Retained earnings and reserves for further details
Bank
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
issued
capital1
$m
Retained
earnings
$m
Reserves2
$m
Total
equity
$m
4,298.4
(10.2)
240.8
43.7
4,572.7
-
-
-
-
158.6
(0.3)
-
-
-
-
-
-
-
-
-
-
2.2
-
-
-
5.0
312.4
0.2
312.6
-
-
-
6.6
0.4
-
-
73.8
73.8
-
-
-
(6.6)
(0.8)
5.0
312.4
74.0
386.4
158.6
(0.3)
2.2
-
(0.4)
(311.4)
-
(311.4)
4,456.7
(8.0)
254.0
110.1
4,812.8
for the year ended 30 June 2016
Group
for the year ended 30 June 2016
Bank
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
issued
capital1
$m
Retained
earnings
$m
Reserves2
$m
Total
equity
$m
4,235.4
(11.8)
623.1
95.0
4,941.7
-
-
-
63.0
-
-
-
-
-
-
-
-
-
1.6
-
-
415.6
(1.0)
414.6
-
(1.2)
-
3.5
-
415.6
(3.0)
(3.0)
(4.0)
411.6
-
-
-
(4.1)
63.0
(1.2)
1.6
(0.6)
(300.8)
-
(300.8)
4,298.4
(10.2)
739.2
87.9
5,115.3
At 1 July 2015
Opening balance b/fwd
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Shares issued
Prior years' restatement
Reduction in employee share ownership plan (ESOP) shares
Share based payment
Equity dividends
At 30 June 2016
1 Refer to note 16 Share capital for further details
2 Refer to note 17 Retained earnings and reserves for further details
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
issued
capital1
$m
Retained
earnings
$m
Reserves2
$m
Total
equity
$m
4,235.4
(11.8)
236.7
118.8
4,579.1
-
-
-
-
63.0
-
-
-
-
-
-
-
-
-
-
1.6
-
-
0.5
303.1
(1.0)
-
-
(71.0)
0.5
303.1
(72.0)
302.1
(71.0)
231.1
-
(1.2)
-
3.5
-
-
-
(4.1)
63.0
(1.2)
1.6
(0.6)
(300.8)
-
(300.8)
4,298.4
(10.2)
240.8
43.7
4,572.7
At 1 July 2015
Opening balance b/fwd
De-registered subsidiary company
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Shares issued
Prior years’ restatement
Reduction in employee share ownership plan (ESOP) shares
Share based payment
Equity dividends
At 30 June 2016
1 Refer to note 16 Share capital for further details
2 Refer to note 17 Retained earnings and reserves for further details
52 Annual Financial Report 2017
Annual Financial Report 2017 53
Group
Bank
Basis of preparation
Cash flow statement
for the year ended 30 June 2017
Note
2017
$m
2016
$m
2017
$m
2016
$m
Cash flows from operating activities
Interest and other items of a similar nature received
2,656.0
2,724.0
2,376.3
2,274.9
Interest and other costs of finance paid
(1,417.8)
(1,578.1)
(1,225.0)
(1,352.5)
Receipts from customers (excluding effective interest)
Payments to suppliers and employees
Dividends received
Income taxes paid
311.3
305.9
(842.0)
(1,051.3)
2.0
2.1
242.7
(755.6)
1.7
250.5
(939.4)
1.8
(192.7)
(155.2)
(155.4)
(138.2)
Cash flows from operating activities before changes in
operating assets and liabilities
516.8
247.4
484.7
97.1
(Increase)/decrease in operating assets
Net increase in balance of loans and other receivables
(3,611.7)
(1,778.9)
(3,370.6)
(1,559.7)
Net decrease/(increase) in balance of investment securities
775.8
(650.9)
2,396.8
(1,721.4)
Increase/(decrease) in operating liabilities
Net increase in balance of retail deposits
583.0
3,339.5
404.0
2,834.4
Net increase/(decrease) in balance of wholesale deposits
1,134.7
209.8
1,044.8
Net increase/(decrease) in balance of notes payable
657.7
(1,103.4)
(963.8)
Net cash flows from operating activities
24
56.3
263.5
(4.1)
Cash flows related to investing activities
Cash paid for purchases of property, plant and equipment
Cash proceeds from sale of property, plant and equipment
Cash paid for purchases of investment property
Cash proceeds from sale of investment property
Cash paid for purchases of intangible assets
Cash paid for purchases of equity investments
Cash proceeds from sale of equity investments
(10.4)
1.8
(50.2)
47.7
(1.3)
(4.4)
0.5
(14.5)
1.0
(49.4)
37.7
-
(2.1)
-
(9.9)
1.7
-
-
-
(2.4)
0.5
122.4
466.8
239.6
(14.1)
0.8
-
-
-
(5.6)
-
Net cash flows used in investing activities
(16.3)
(27.3)
(10.1)
(18.9)
Cash flows from financing activities
Proceeds from issue of shares
Proceeds/(payments to) from subordinated debt holders
Dividends paid
Repayment of ESOP shares
Payment of share issue costs
64.4
125.3
(217.2)
2.2
(0.3)
-
(9.2)
(237.8)
1.6
(0.6)
64.4
125.3
(217.2)
2.2
(0.3)
-
(0.3)
(237.8)
1.6
(0.6)
Net cash flows used in investing activities
(25.6)
(246.0)
(25.6)
(237.1)
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of period
14.4
987.1
Cash and cash equivalents at the end of period
25
1,001.5
(9.8)
996.9
987.1
(39.8)
867.7
827.9
(16.4)
884.1
867.7
This section describes the Group’s significant accounting policies that relate to the financial statements and notes of the
accounts. If an accounting policy relates to a particular note, the applicable policy is contained within the relevant note.
This section also shows new accounting standards, amendments and interpretations, and whether they are effective in 2017 or
later years. We explain how these changes are expected to impact the financial position and performance of the Group.
1 Corporate information
The financial report of Bendigo and Adelaide Bank Limited (the
Bank) and its controlled entities (the Group) for the year ended
30 June 2017 was authorised for issue in accordance with a
resolution of the directors on 5 September 2017.
Bendigo and Adelaide Bank Limited is a company limited by
shares incorporated in Australia whose shares are publicly
traded on the Australian Securities Exchange.
The domicile of the company is Australia.
The registered office of the company is:
The Bendigo Centre, 22 – 44 Bath Lane Bendigo, Victoria
2 Summary of significant
accounting policies
Basis of preparation
Bendigo and Adelaide Bank Limited is a prescribed corporation
in terms of the Corporations Act 2001. Financial reports
prepared in compliance with the Banking Act are deemed to
comply with the accounts provisions of the Corporations Act
2001.
The financial report is a general purpose financial report
which has been prepared in accordance with the Banking
Act, Australian Accounting Standards, Corporations Act 2001
and the requirements of law so far as they are applicable to
Australian banking corporations, including the application of
ASIC Class Order 10/654 allowing the disclosure of parent
entity financial statements due to Australian Financial Services
Licensing obligations.
The financial report has been prepared in accordance with
the historical cost convention, except for certain assets and
liabilities where the application of fair value measurement is
required or allowed by relevant accounting standards.
The amounts contained in the financial statements have been
rounded off under the option available to the Company under
ASIC Class Order 98/0100. The Company is an entity to which
the Class Order applies. The Class Order allows for rounding
to the nearest one hundred thousand dollars ($00,000).
Compliance with IFRS
The financial report complies with Australian Accounting
Standards and International Financial Reporting Standards
(IFRS).
Significant accounting policies
The Group’s significant accounting policies that relate to a
specific note are summarised within that note. Accounting
policies that affect the financial statements as a whole are set
out below.
Significant judgements and estimates
In the process of applying the Group’s accounting policies,
management has made a number of judgements, apart from
those involving estimations, which have significant effect on
the amounts recognised in the financial statements. These
judgements and estimates that affect the financial statements
are within the relevant note.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of Bendigo and Adelaide Bank Limited and all
of its controlled entities (‘the Group’). Interests in joint
arrangements and associates are equity accounted and are
not part of the consolidated Group.
A controlled entity is any entity (including special purpose
entities) over which Bendigo and Adelaide Bank Limited has
the power to govern, directly or indirectly, decision-making in
relation to financial and operating policies, so as to obtain
benefits from their activities. The existence and effect of
potential voting rights that are currently exercisable or
convertible are considered when assessing whether the Group
controls another entity.
Controlled entities prepare financial reports for consolidation
in accordance with Group accounting policies. Adjustments are
made to bring into line any dissimilar accounting policies that
may exist. The financial statements of controlled entities are
prepared for the same reporting period as the parent company.
All inter-company balances and transactions between entities
in the Group have been eliminated on consolidation. Where
a controlled entity has been sold or acquired during the year
its operating results have been included to the date control
ceased or from the date control was obtained.
Comparatives
Where necessary, comparatives have been reclassified and
repositioned for consistency with current year disclosures.
Foreign currency transactions and balances
Both the functional and presentation currency of Bendigo
and Adelaide Bank Limited and each of its subsidiaries is
Australian dollars (AUD). Transactions in foreign currencies are
initially recorded in the functional currency at the exchange
rates ruling on the date of the transaction.
54 Annual Financial Report 2017
Annual Financial Report 2017 55
2 Summary of significant accounting policies (continued)
Results for the year
All amounts are expressed in Australian currency and all
references to “$” are to Australian dollars unless otherwise
stated. Amounts receivable and payable in foreign currencies
at balance date are converted at the rates of exchange ruling
at that date. Exchange differences relating to amounts payable
and receivable in foreign currencies are brought to account
as exchange gains or losses in the income statement in the
financial year in which the exchange rates change.
AASB 16 Leases introduces a requirement to recognise
assets and liabilities for all leases with a term of more than
12 months unless the underlying asset is of low value.
This standard is effective for the 30 June 2020 financial
statements. This change will mainly impact the properties
that the Group currently accounts for as operating leases.
The potential effects of adoption of the standard are currently
being assessed.
The following amendments to existing standards are not
expected to result in significant changes to the Group’s
accounting policies:
• 2016-1 Amendments to Australian Accounting Standards
– Recognition of Deferred Tax Assets for Unrealised Losses
[AASB 12];
• 2016-2 Amendments to Australian Accounting Standards –
Disclosure Initiative: Amendments to AASB 107;
• 2016-5 Amendments to Australian Accounting Standards
– Classification and Measurement of Share-based Payment
Transactions [AASB 2];
• 2017-1 Amendments to Australian Accounting Standards
– Transfers of Investment Property, Annual Improvements
2014-2016 Cycle and Other Amendments [AASB 1, AASB 12,
AASB 128 and AASB 140]; and
• 2017-2 Amendments to Australian Accounting Standards –
Further Annual Improvements 2014-2016 Cycle [AASB 12
and AASB 5].
Changes in accounting policies
The accounting policies are consistent with those applied in
the previous financial year.
Compliance with IFRS
Recently issued or amended standards not yet effective
Australian Accounting Standards that have recently been
issued or amended but are not yet effective have not been
adopted for the annual reporting period ended 30 June 2017.
AASB 9 Financial Instruments introduces changes to the
classification and measurement of financial assets and
financial liabilities, impairment of financial assets and new
rules for hedge accounting. This standard is mandatory
for the 30 June 2019 financial statements. The Group has
an established AASB 9 program involving finance and risk
functions across the Group. The program is in the process
of developing and testing required models and assessing
the impacts of the standard, and as such is not yet able to
reasonably estimate the impact on its financial statements.
AASB 15 Revenue from contracts with customers establishes
principles for reporting information about the nature, amount,
timing and uncertainty of revenue and cashflows arising from
customer contracts. This standard is effective for the 30 June
2019 financial statements. The Group doesn’t expect that
a significant portion of the Group’s revenue will be impacted
by this standard and is currently in the process of assessing
the impacts and as such is not yet in a position to reliably
estimate the impact to the financial statements.
This section outlines the results and performance of the Group in more detail. Further analysis has been provided for the
following key areas: revenue and expenses, income tax, segment results, earnings per share and dividends.
3 Profit
Net interest income
Interest income
Cash and cash equivalents
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Loans and other receivables
Total interest income
Interest expense
Deposits
Retail
Wholesale - domestic
Wholesale - offshore
Other borrowings
Notes payable
Convertible preference shares
Subordinated debt
Total interest expense
Total net interest income
Other revenue
Fees
Assets
Liabilities & other products
Trustee, management & other services
Total fees
Commissions
Wealth solutions
Total commissions
Other
Foreign exchange income
Factoring products income
Trading book revaluation income
Homesafe income
Other
Total other income
Group
Bank
2017
$m
2.1
127.5
4.5
9.6
2016
$m
3.1
133.4
12.3
9.8
2017
$m
2.0
127.5
170.3
0.8
2016
$m
2.9
133.4
183.4
0.6
2,475.0
2,524.3
1,997.7
2,017.1
2,618.7
2,682.9
2,298.3
2,337.4
(1,027.5)
(1,113.1)
(181.7)
(10.1)
(117.0)
(36.0)
(32.8)
(191.2)
(10.3)
(134.4)
(37.7)
(32.1)
(946.4)
(182.1)
(10.1)
(7.7)
(36.0)
(32.2)
(1,027.0)
(191.5)
(10.3)
(7.4)
(37.7)
(31.3)
(1,405.1)
(1,518.8)
(1,214.5)
(1,305.2)
1,213.6
1,164.1
1,083.8
1,032.2
80.4
75.9
3.7
71.4
86.5
4.0
70.6
73.9
0.4
61.7
84.0
0.6
160.0
161.9
144.9
146.3
72.7
72.7
18.0
6.4
19.8
90.4
28.6
68.9
68.9
20.9
7.5
8.9
79.7
42.7
163.2
159.7
21.4
21.4
18.0
6.4
19.8
-
27.1
71.3
18.5
18.5
20.9
7.5
8.9
-
41.7
79.0
56 Annual Financial Report 2017
Annual Financial Report 2017 57
3 Profit (continued)
Recognition and measurement
Operating expenses are recognised as the relevant service is
rendered, or once a liability is incurred.
Bad and doubtful debts are measured as the difference
between the carrying amount and the value of the estimated
future cash flows, discounted at the financial instruments
original effective interest rate. Refer to Note 9 Impairment of
loans and advances for more information on loan impairment.
Staff and related costs
Wage and salary costs are recognised over the period in
which the employees provide the service. Refer to Note 34
Provisions for more information relating to staff provisions.
Incentive payments are recognised to the extent that the Group
has a present obligation over the period that the employees
are required to work to qualify for the scheme. Refer to Note
35 Share based payment plans for further information on
share based payments.
Super contributions are made to an employee accumulation
fund and expensed when they become payable. The Group
also operates a defined benefits scheme, the membership of
which is now closed.
Occupancy costs
Operating lease payments are recognised as an expense on a
straight line basis over the lease term.
Depreciation and amortisation - refer to Note 36 Property,
plant and equipment for further information on depreciation
and Note 26 Goodwill and other intangibles for amortisation
on intangibles.
Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the
amount of GST except:
• where the GST incurred on a purchase of goods and
services is not recoverable from the taxation authority, in
which case the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense item as
applicable; and
• receivables and payables are stated with the amount of GST
included.
The net amount of GST recoverable from or payable to
the taxation authority is included as part of receivables or
payables in the balance sheet. Cash flows are included in the
cash flow statement on a gross basis. The GST component of
cash flows arising from investing and financing activities, which
are recoverable from or payable to the taxation authority, are
classified as operating cash flows.
3 Profit (continued)
Recognition and measurement
Revenue is recognised at the fair value of the consideration
received or receivable, and meets the criteria below:
• it is probable that the economic benefits will flow to the
entity and
• the revenue can be reliably measured.
Interest income and expense are calculated on an accruals
basis using the effective interest method. The effective
interest method, is the interest rate that exactly discounts
estimated future cash receipts through, the expected life of
the financial instrument.
Loan origination and application fees are recognised as
components of the calculation of the effective interest method,
and affect the interest recognised, in relation to the originated
loans. The average life of originated loans is reviewed annually,
to ensure the amortisation methodology for loan origination
fees is appropriate.
Dividend income is recognised by the Group when the right to
receive payment is established.
Fees and commissions charged for services provided or
received by the Group are recognised as they are provided.
Homesafe income are the gains or losses arising from
changes in the fair value of investment property and are
recognised in the year in which they arise.
Expenses
Bad and doubtful debts
Specific provision
Collective provision
Bad debts written off
Bad debts recovered
Total bad and doubtful debts
Operating expenses
Staff and related costs
Salaries, wages and incentives
Superannuation contributions
Payroll tax
Other
Total staff and related costs
Occupancy costs
Operating lease rentals
Depreciation of leasehold improvements
Other
Total occupancy costs
Amortisation and depreciation
Amortisation of acquired intangibles
Amortisation of software intangibles
Depreciation of property, plant & equipment
Total amortisation and depreciation costs
Fees and commissions
Other operating expenses
Communications, postage and stationery
Computer systems and software costs
Advertising and promotion
Other product and services delivery costs
Other expenses
Total other operating expenses
Group
Bank
2017
$m
(72.1)
0.7
(20.5)
20.1
(71.8)
2016
$m
2017
$m
2016
$m
(58.1)
(64.6)
(47.9)
5.6
(4.4)
12.8
0.4
(4.3)
6.0
3.4
(4.0)
10.2
(44.1)
(62.5)
(38.3)
(411.8)
(410.1)
(367.6)
(358.6)
(37.4)
(26.4)
(4.9)
(37.4)
(27.4)
(5.4)
(33.3)
(23.3)
(4.5)
(32.7)
(23.8)
(4.8)
(480.5)
(480.3)
(428.7)
(419.9)
(57.2)
(10.1)
(24.7)
(92.0)
(17.7)
(20.8)
(11.7)
(50.2)
(33.6)
(33.0)
(71.6)
(28.3)
(33.0)
(87.2)
(56.9)
(10.5)
(24.2)
(91.6)
(19.5)
(15.4)
(11.3)
(46.2)
(33.6)
(33.8)
(70.2)
(31.1)
(37.4)
(79.4)
(57.0)
(10.0)
(24.2)
(91.2)
(8.5)
(19.4)
(11.3)
(39.2)
(7.8)
(33.0)
(68.2)
(25.5)
(32.8)
(72.1)
(55.9)
(10.4)
(23.5)
(89.8)
(9.2)
(14.3)
(10.9)
(34.4)
(8.1)
(33.6)
(66.0)
(29.3)
(37.2)
(72.9)
(253.1)
(251.9)
(231.6)
(239.0)
58 Annual Financial Report 2017
Annual Financial Report 2017 59
4 Income tax expense
Major components of income tax expense are:
Income statement
Current income tax
Current income tax charge
Franking credits
Adjustments in respect of current income tax of previous years
Deferred income tax
De-recognition of temporary differences
Adjustments in respect of deferred income tax of previous years
Relating to origination and reversal of temporary differences
Group
2017
$m
2016
$m
Bank
2017
$m
2016
$m
(182.3)
(181.0)
(195.6)
(128.1)
1.2
1.5
(0.1)
(1.8)
(17.2)
0.8
8.6
(1.9)
(5.4)
(12.4)
1.2
1.5
(0.1)
(1.7)
46.7
0.8
8.6
(1.9)
(5.4)
(17.4)
Income tax expense reported in the income statement
(198.7)
(191.3)
(148.0)
(143.4)
Statement of changes in equity
Deferred income tax related to items charged
or credited directly in equity
Net (gain)/loss on cash flow hedge
Net loss/(gain) on available for sale investments
Net gain on revaluation of land and buildings
Actuarial (gain)/loss on superannuation defined benefits plan
Income tax charged or credited in equity
(13.7)
0.1
(0.1)
(0.1)
(13.8)
0.6
0.7
-
0.4
1.7
(13.3)
(18.3)
-
(0.1)
(31.7)
1.0
29.5
-
0.4
30.9
A reconciliation between tax expense and the product of accounting profit before income tax
multiplied by the Group’s applicable income tax rate is as follows:
Accounting profit before income tax
628.3
606.9
460.4
446.5
The income tax expense comprises amounts set aside as:
Provision attributable to current year at statutory rate, being:
Prima facie tax on accounting profit before tax
(188.5)
(182.1)
(138.1)
(133.9)
Under/(over) provision in prior years
Tax credits and adjustments
Expenditure not allowable for income tax purposes
Other non assessable income
Tax effect of tax credits and adjustments
De-recognition of temporary differences
Other
(0.3)
1.2
(11.6)
1.1
(0.4)
(0.1)
(0.1)
3.2
0.8
(11.6)
0.2
(0.2)
(1.9)
0.3
(0.2)
1.2
(11.1)
1.0
(0.4)
(0.1)
(0.3)
3.2
0.8
(11.6)
-
(0.2)
(1.9)
0.2
Income tax expense reported in the income statement
(198.7)
(191.3)
(148.0)
(143.4)
Deferred income tax
Deferred income tax at 30 June relates to the following:
Group
Bank
2017
2016
2017
2016
Gross deferred tax liabilities
Available for sale financial assets
Deferred expenses
Derivatives
Intangible assets on acquisition
Investment property
Other
60 Annual Financial Report 2017
$m
0.2
2.4
11.0
5.1
88.7
19.2
$m
0.2
1.6
17.5
10.4
68.8
16.2
126.6
114.7
$m
(0.6)
2.4
42.3
3.4
-
18.4
65.9
$m
0.1
1.6
80.9
5.8
-
15.7
104.1
4 Income tax expense (continued)
Deferred income tax (continued)
Gross deferred tax assets
Derivatives
Employee benefits
Available for sale financial assets
Provisions
Other
Tax payable attributable to members of
the tax consolidated group
Group
Bank
2017
2016
2017
2016
$m
15.4
32.6
-
48.2
14.6
$m
32.0
28.9
-
60.5
10.4
$m
21.0
31.6
-
44.8
10.6
$m
31.7
27.7
19.1
47.9
6.2
110.8
131.8
108.0
132.6
21.5
21.5
34.5
34.5
21.5
21.5
34.5
34.5
At 30 June 2017, there is no unrecognised deferred income
tax liability (2016: Nil) for taxes that would be payable on the
unremitted earnings of certain Group’s subsidiaries or joint
ventures, as the Group has no liability for additional taxation
should such amounts be remitted.
Recognition and measurement
The carrying amount of deferred income tax assets is reviewed
at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profit will
be available to allow all or part of the deferred income tax
asset to be utilised. Unrecognised deferred tax balances
are reviewed annually to determine whether they should be
recognised.
Current taxes
The income tax for the period is the tax payable on the current
period's taxable income based on the national income tax
rate, adjusted for changes in deferred tax assets and liabilities
and unused tax losses.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset
is realised or the liability is settled, based on tax rates (and
tax laws) that have been enacted or substantively enacted at
the balance sheet date.
Deferred taxes
The Group has adopted the balance sheet liability method
of tax effect accounting, which focuses on the tax effects of
transactions and other events that affect amounts recognised
in either the balance sheet or a tax-based balance sheet.
Deferred tax assets and liabilities are recognised for
temporary differences, except where the deferred tax asset/
liability arises from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting profit
nor taxable profit or loss.
Current and deferred tax balances attributable to amounts
recognised directly in equity are also recognised directly in
equity.
Deferred income tax assets are recognised for all deductible
temporary differences, carry-forward of unused tax credits
and unused tax losses, to the extent that it is probable that
taxable profit will be available against which the deductible
temporary differences, and the carry-forward of unused tax
credits and unused tax losses can be utilised.
Tax consolidation
Bendigo and Adelaide Bank Limited and its 100% owned
subsidiaries form the tax consolidated Group. Members of the
Group entered into a tax sharing agreement to allocate income
tax liabilities to the wholly-owned subsidiaries should the head
entity default on its tax payment obligations. At the balance
date, the possibility of default is remote. The head entity of
the tax consolidated Group is Bendigo and Adelaide Bank
Limited.
Members of the tax consolidated Group have entered into a
tax funding agreement. The tax funding agreement provides
for the allocation of current taxes to members of the tax
consolidated Group on a group allocation method based
on a notional stand alone calculation, while deferred taxes
are calculated by members of the tax consolidated Group in
accordance with AASB 112 Income Taxes.
Annual Financial Report 2017 61
5 Segment results
An operating segment is a component of the Group that
engages in business activities from which it may earn
revenues and incur expenses. These operating results are
regularly reviewed by the Managing Director, to make decisions
about the resourcing for each segment, and to assess its
performance.
The operating segments are identified according to the nature
of the products and services they provide. All reporting
segments represent an individual strategic business unit.
Each unit offers a different method of delivery, and/or different
products and services.
Segment assets and liabilities reflect the value of loans and
deposits directly managed by each operating segment. All
other assets and liabilities of the Group are managed centrally.
Segment reporting is consistent with the internal reporting
provided to the Managing Director, and the executive
management team.
Changes to the internal organisational structure of the Group,
can cause the Group’s operating segment results to change.
Where this occurs, the corresponding segment information for
the previous financial year is restated.
Types of products and services
Local connection
Contains all local distribution channels, including branch
& community banking, business banking, Delphi Bank and
financial markets.
Partner connection
Contains all partner distribution channels, including mortgage
brokers, mortgage managers, mortgage originators, Alliance
Partners, Homesafe, Leveraged, portfolio funding, financial
planning, wealth management, responsible entity activities,
other trustee services and custodial services. The partner
connection segment is a combination of the third party and
wealth cash generating units.
Agribusiness
Includes the provision of banking services to agribusinesses in
rural and regional Australia. Rural Bank and Rural Finance are
included within the agribusiness segment.
Central functions
Functions not relating directly to a reportable operating
segment.
Accounting policies and inter-segment transactions
Measurement of segmental assets, liabilities, income and
expenses is in accordance with the Group’s accounting
policies. Segment results are determined by including all
revenue and expenses associated with each business.
Transactions between business segments are conducted at
arm’s length, and are eliminated on consolidation.
Segment net interest income is recognised based on an
internally set funds transfer pricing policy, based on pre-
determined market rates of return on the assets and liabilities
of the segment.
Major customers
Revenues from no individual customer amount to greater than
10% of the Group’s revenue.
Geographic Information
The allocation of revenue and assets is based on the
geographic location of the customer. The Group operates in all
Australian states and territories, providing banking and other
financial services.
For the year ended 30 June 2017
Net interest income
Other income
Total segment income
Operating expenses
Credit expenses
Segment result (before tax expense)
Tax expense
Segment result (statutory basis)
Cash basis adjustments:
Specific income & expense items
Other specific items
Amortisation of intangibles
Operating segments
Local
connection
Partner
connection
Agri-
business
Total
operating
segments
Central
functions
Total
$m
$m
765.0
178.5
943.5
$m
282.9
186.5
469.4
$m
$m
$m
165.7
1,213.6
-
1,213.6
8.4
373.4
174.1
1,587.0
22.5
22.5
395.9
1,609.5
(630.1)
(189.6)
(78.8)
(898.5)
(10.9)
(909.4)
(32.0)
281.4
(89.0)
192.4
0.5
-
4.6
(35.6)
244.2
(77.2)
167.0
(44.7)
11.1
3.1
(4.2)
91.1
(28.8)
62.3
3.7
-
4.7
(71.8)
616.7
(195.0)
421.7
(40.5)
11.1
12.4
-
11.6
(3.7)
7.9
(71.8)
628.3
(198.7)
429.6
5.7
(34.8)
-
-
11.1
12.4
5 Segment results (continued)
For the year ended 30 June 2016
Net interest income
Other income
Total segment income
Operating expenses
Credit expenses
Segment result (before tax expense)
Tax expense
Segment result (statutory basis)
Cash basis adjustments:
Specific income & expense items
Other specific items
Amortisation of intangibles
Operating segments
Local
connection
Partner
connection
Agri-
business
Total
operating
segments
Central
functions
$m
741.8
189.3
931.1
$m
259.0
166.0
425.0
$m
$m
$m
163.3
1,164.1
-
1,164.1
Total
$m
8.7
364.0
172.0
1,528.1
(634.7)
(191.6)
(77.3)
(903.6)
(17.6)
278.8
(87.3)
191.5
1.1
-
4.5
(16.9)
216.5
(67.6)
148.9
(35.5)
7.0
4.5
(9.6)
85.1
(26.6)
58.5
4.9
-
4.7
(44.1)
580.4
(181.5)
398.9
(29.5)
7.0
13.7
26.5
26.5
-
-
26.5
(9.8)
16.7
390.5
1,554.6
(903.6)
(44.1)
606.9
(191.3)
415.6
(5.4)
(34.9)
-
-
7.0
13.7
Segment result (cash basis)
197.1
124.9
68.1
390.1
11.3
401.4
Reportable segment assets
and liabilities
For the year ended 30 June 2017
Operating segments
Local
connection
Partner
connection
Agri-
business
Total
operating
segments
Central
functions
$m
$m
$m
$m
$m
Total
$m
Reportable segment assets
33,453.6
21,522.8
6,265.9
61,242.3
10,173.2
71,415.5
Reportable segment liabilities
42,849.6
5,598.0
3,873.4
52,321.0
9,188.7
61,509.7
For the year ended 30 June 2016
Reportable segment assets
31,728.3
19,873.4
5,964.0
57,565.7
11,007.0
68,572.7
Reportable segment liabilities
40,924.0
5,418.9
3,592.6
49,935.5
9,699.4
59,634.9
Total assets for operating segments
Total assets
Total liabilities for operating segments
Notes payable
Total liabilities
As at
June 2017
As at
June 2016
71,415.5
68,572.7
71,415.5
68,572.7
61,509.7
59,634.9
4,480.2
3,822.5
65,989.9
63,457.4
Segment result (cash basis)
197.5
136.5
70.7
404.7
13.6
418.3
62 Annual Financial Report 2017
Annual Financial Report 2017 63
6 Earnings per ordinary share
Group
2017
2016
6 Earnings per ordinary share (continued)
Cents per share
Cents per share
Weighted average number of ordinary shares
Weighted average number of ordinary shares (basic)
Effect of dilution - executive performance rights
Effect of dilution - convertible preference shares
Weighted average number of ordinary shares (diluted)
Potentially dilutive instruments
The following instruments are potentially dilutive during the reporting period:
Convertible preference shares
Executive performance rights
Subordinated Note (with non viability clause)
Group
2017
2016
No. of shares
No. of shares
472,415,559
459,536,374
841,381
1,054,939
75,639,421
83,071,324
548,896,361
543,662,637
Dilutive
2017
2016
Yes
Yes
No
Yes
Yes
No
Recognition and measurement
Basic EPS is calculated as net profit after tax, adjusted for
distributions on preference shares and step up preference
shares, divided by the weighted average number of ordinary
shares.
Diluted EPS is calculated as net profit after tax, adjusted
for distributions for preference, step up and convertible
preference shares, add back dividends on dilutive preference
shares, divided by the weighted average number of ordinary
shares, and potential dilutive ordinary shares.
Cash basis EPS is calculated as net profit after tax, adjusted
for after tax intangibles amortisation (except intangible
software amortisation), after tax specific income and expense
items, other specific items (Homesafe net realised income)
and distributions for preference shares and step up preference
shares, divided by the weighted average number of ordinary
shares.
Executive performance rights - classification of securities
Executive performance rights are treated as dilutive from the
date of issue and remain dilutive, so long as the performance
conditions are satisfied. In the event of a performance
condition not being satisfied, the number of dilutive rights
would be reduced to the number that would have been issued
if the end of the period was the end of the contingency period.
Significant accounting judgments,
estimates and assumptions
Cash earnings
Cash earnings is a non-IFRS financial measure. It is
considered by management to be a key indicator of the
underlying performance of the core business activities of the
Group. The basis for determining cash earnings is the net
profit after tax, adjusted for specific items after tax, acquired
intangibles amortisation after tax, and distributions for
preference share/step up preference shares.
Specific items
Specific items are those items that are deemed to be outside
of the Group’s core activities and hence these items are
not considered to be representative of the Group’s ongoing
financial performance.
Basic
Diluted
Cash basis
90.9
82.9
88.5
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:
Reconciliation of earnings used in the calculation of earnings per ordinary share
Net profit after tax
Total basic earnings
Earnings used in calculating basic earnings per ordinary share
Add back: dividends accrued and/or paid on dilutive convertible preference shares
Total diluted earnings
Earnings used in calculating basic earnings per ordinary share
Add back: amortisation of acquired intangibles (after tax)
Add back: specific income and expense items (after tax)
Add back: other specific items (after tax)
Total cash earnings
Specific income and expense items after tax comprise:
Items included in interest income
Fair value adjustments - interest expense
Homesafe funding costs - unrealised
Total specific net interest income items
Items included in non interest income
Hedge ineffectiveness
Profit on sale of Estates business
Homesafe Trust - revaluation income
Total specific non interest income items
Items included in operating expenses
Integration costs
Impairment reversal/(charge)
Litigation costs
$m
429.6
429.6
429.6
25.2
454.8
429.6
12.4
(34.8)
11.1
418.3
(1.8)
(11.1)
(12.9)
(5.6)
2.7
63.3
60.4
(9.2)
1.0
(4.4)
90.4
81.3
87.3
$m
415.6
415.6
415.6
26.4
442.0
415.6
13.7
(34.9)
7.0
401.4
(3.2)
(10.9)
(14.1)
5.5
-
55.8
61.3
(7.8)
(2.1)
(1.0)
Total specific operating expense items
(12.6)
(10.9)
Items included in income tax expense
Tax impacts relating to prior year impairment losses
Total specific income tax expense
Total specific items attributable to the Group
Other specific items
Homesafe revaluation gain - realised
Homesafe funding costs - realised
Total other specific items attributable to the Group
(0.1)
(0.1)
(1.4)
(1.4)
34.8
34.9
16.8
(5.7)
11.1
11.6
(4.6)
7.0
64 Annual Financial Report 2017
Annual Financial Report 2017 65
7 Dividends
Dividends paid or proposed
Group
Bank
2017
2016
2017
2016
Ordinary
shares
(ASX:BEN)
Date paid
Cents per
share ¢
Total
amount
$m Date paid
Cents per
share ¢
Total
amount
$m Date paid
Cents per
share ¢
Total
amount
$m Date paid
Cents per
share ¢
Total
amount
$m
Dividends paid during the year:
Interim dividend Mar 2017
34.0 156.3 Mar 2016
34.0 153.6 Mar 2017
34.0 156.3 Mar 2016
34.0 153.6
Final dividend Sept 2016
34.0 155.1 Sept 2015
33.0 147.2 Sept 2016
34.0 155.1 Sept 2015
33.0 147.2
68.0 311.4
67.0 300.8
68.0 311.4
67.0 300.8
Dividends proposed since the reporting date, but not recognised as a liability:
Final dividend Sept 2017
34.0 158.4
Sept 2017
34.0 158.4
All dividends paid were fully franked at 30% (2016: 30%). Proposed dividends will be fully franked at 30% (2016: 30%) out of ex-
isting franking credits or out of franking credits arising from payment of income tax provided for in the financial statements for the
year ended 30 June 2017.
7 Dividends (continued)
Dividend franking account
Group
2017
$m
2016
$m
Balance of franking account as at the end of the financial year
392.7
345.1
Franking credits that will arise from the payment of income tax
provided for in the financial report
18.8
34.5
Impact of dividends proposed or declared before the financial report
was authorised for issue but not recognised as a distribution of
equity holders during the period
Closing balance
(68.7)
342.8
(67.6)
312.0
Dividends paid
Dividends paid by cash or satisfied by the issue of shares under the dividend reinvestment plan during the year were as follows:
Paid in cash 1
Satisfied by issue of shares 2
Group
Bank
2017
$m
217.2
94.2
311.4
2016
$m
237.8
63.0
300.8
2017
$m
217.2
94.2
311.4
2016
$m
237.8
63.0
300.8
Group
Bank
2017
2016
2017
2016
1 Refers to cash paid to shareholders who did not elect to participate in the dividend reinvestment plan.
2 Includes share issued to participating shareholders under the dividend reinvestment plan.
Date paid
Cents per
share ¢
Total
amount
$m Date paid
Cents per
share ¢
Total
amount
$m Date paid
Cents per
share ¢
Total
amount
$m Date paid
Centsper
share ¢
Total
amount
$m
Convertible preference shares (recorded as debt instruments) (ASX:BENPD)
Dividends paid during the year:
Dec 2016
249.56
6.7 Dec 2015 253.52
6.8 Dec 2016
249.56
6.7 Dec 2015 253.52
Jun 2017
244.33
6.6
Jun 2016 261.46
7.0
Jun 2017
244.33
6.6
Jun 2016 261.46
6.8
7.0
493.89 13.3
514.98
13.8
493.89
13.3
514.98
13.8
Convertible preference shares (CPS2) (recorded as debt instruments) (ASX:BENPE)
Dividends paid during the year:
Nov 2016
187.73
5.5 Nov 2015 189.53
5.5 Nov 2016
187.73
5.5 Nov 2015 189.53
May 2017
180.85
5.3 May 2016 194.42
5.7 May 2017
180.85
5.3 May 2016 194.42
5.5
5.7
368.58 10.8
383.95
11.2
368.58 10.8
383.95
11.2
Convertible preference shares (CPS3) (recorded as debt instruments) (ASX:BENPF)
Dividends paid during the year:
Dec 2016
215.84
6.1 Dec 2015 219.82
6.2 Dec 2016
215.84
6.1 Dec 2015 219.82
Jun 2017
209.42
5.9
Jun 2016 226.72
6.4
Jun 2017
209.42
5.9
Jun 2016 226.72
6.2
6.4
425.26 12.0
446.54
12.6
425.26 12.0
446.54
12.6
Dividend Reinvestment Plan
The Dividend Reinvestment Plan provides shareholders with
the opportunity of converting their entitlement from a dividend
into new shares. The issue price of the shares is equal to the
volume weighted average share price of Bendigo and Adelaide
Bank shares traded on the Australian Securities Exchange over
the seven trading days commencing 8 September 2017 at a
discount of 1.5%. Shares issued under this Plan rank equally
with all other ordinary shares.
Bonus Share Scheme
The Bonus Share Scheme provides shareholders with the
opportunity to elect to receive a number of bonus shares
issued for no consideration instead of receiving a dividend.
The issue price of the shares is equal to the volume weighted
average share price of Bendigo and Adelaide Bank shares
traded on the Australian Securities Exchange over the seven
trading days commencing 8 September 2017 at a discount of
1.5%. Shares issued under this scheme rank equally with all
other ordinary shares.
The last date for the receipt of an election notice for
participation in either the Dividend Reinvestment Plan or
Bonus Share Scheme for the 2017 final dividend was 7
September 2017.
66 Annual Financial Report 2017
Annual Financial Report 2017 67
Lending
9 Impairment of loans and advances
Group
Bank
In this section the focus is on the lending assets of the Group. Further information is provided on the loans and other
receivables, and impairment relating to these financial assets.
Summary of impaired financial assets
8 Loans and other receivables
Loans and other receivables - investments
Note
Overdrafts
Credit cards
Term loans
Margin lending
Lease receivables
Factoring receivables
Other
Group
Bank
2017
$m
76.6
2016
$m
197.7
2017
$m
92.2
2016
$m
197.7
3,125.0
3,600.6
3,114.4
3,590.3
339.8
288.4
339.8
288.4
54,901.0
50,937.5
51,528.2
47,713.3
1,726.1
1,742.4
549.2
91.1
119.2
487.9
99.3
117.6
-
438.0
91.1
119.2
-
396.3
99.3
117.6
Gross loans and other receivables
60,928.0
57,471.4
55,722.9
52,402.9
Specific provision
Collective provision
Unearned income
9
9
(89.5)
(52.7)
(79.3)
(125.3)
(53.4)
(106.5)
(75.8)
(49.0)
(52.6)
(87.0)
(49.4)
(53.2)
Total provisions and unearned income
(221.5)
(285.2)
(177.4)
(189.6)
Deferred costs paid
70.1
70.6
65.9
67.3
Net loans and other receivables
60,776.6
57,256.8
55,611.4
52,280.6
Maturity analysis1
At call / overdrafts
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Longer than 5 years
5,875.8
1,918.5
2,085.9
9,086.0
7,952.1
1,307.1
2,075.7
7,488.5
4,709.5
1,008.3
1,737.7
6,587.2
6,007.0
991.6
1,704.2
5,283.4
41,961.8
38,648.0
41,680.2
38,416.7
1 Balances exclude specific and collective provisions, unearned revenue, and deferred costs and are categorised by the contracted maturity date
of each loan facility.
Recognition and measurement
Loans and receivables are measured at amortised cost using
the effective interest method. The effective interest method
calculation includes the contractual terms of the loan, together
with all fees, transaction costs and other premiums or
discounts.
origination or securitisation of loan portfolios. These costs are
amortised through the income statement over the average life
of the loans in these portfolios.
All loans are subject to continuous management review, to
assess whether there is any objective evidence that any loan
or group of loans is impaired.
Loans with renegotiated terms are accounted for in the same
manner taking account of any change to the terms of the loan.
Deferred costs include costs associated with the acquisition,
Unearned income on the Group’s personal lending and leasing
portfolios is brought to account over the life of the contracts
on an actuarial basis.
Impaired loans
Loans - without provisions
Loans - with provisions
Restructured loans
Less: specific provisions
Net impaired loans
2017
$m
79.7
155.7
47.2
(88.5)
194.1
2016
$m
68.7
235.0
46.5
(124.4)
225.8
2017
$m
28.7
134.4
42.1
(74.8)
2016
$m
19.9
148.7
43.1
(86.1)
130.4
125.6
Net impaired loans % of net loans and other receivables
0.32%
0.39%
0.23%
0.24%
Portfolio facilities - past due 90 days, not well secured
Less: specific provisions
Net portfolio facilities
Loans past due 90 days
5.8
(1.0)
4.8
4.8
(0.9)
3.9
5.0
(1.0)
4.0
4.4
(0.9)
3.5
Accruing loans past due 90 days, with adequate security balance
519.0
574.4
439.6
462.9
Net fair value of properties acquired
through the enforcement of security
75.2
78.2
69.6
73.4
Summary of provisions
Specific provision
Opening balance
Released to income statement
Impaired debts written off applied to specific provision
Closing balance
Collective provision
Opening balance
Released to income statement
Closing balance
Opening balance
Released to equity
Closing balance
Total provisions and reserve
Group
2017
$m
125.3
72.1
(107.9)
89.5
53.4
(0.7)
52.7
146.9
(6.6)
140.3
282.5
2016
$m
116.8
58.1
(49.6)
125.3
59.0
(5.6)
53.4
146.9
-
146.9
325.6
Bank
2017
$m
87.0
64.6
(75.8)
75.8
49.4
(0.4)
49.0
128.3
(6.6)
121.7
246.5
2016
$m
79.3
47.9
(40.2)
87.0
52.8
(3.4)
49.4
128.3
-
128.3
264.7
Ratios
Specific provision as % of gross loans
Total provisions and reserves as % of gross loans
Collective provision and general reserve for credit losses as a % of
risk-weighted assets
Provision coverage 1
0.15%
0.46%
0.51%
100.00%
0.22%
0.57%
0.55%
93.00%
1 Provision coverage is calculated as total provisions and reserve divided by total gross impaired assets.
60,928.0
57,471.4
55,722.9
52,402.9
General reserve for credit losses (GRCL)
68 Annual Financial Report 2017
Annual Financial Report 2017 69
9 Impairment of loans and advances (continued)
Funding and capital management
Recognition and measurement
A facility is classified as impaired regardless of whether it is
90 days or more past due (arrears) when there is doubt as to
whether the full amounts due (interest and principal) will be
achieved in a timely manner. This is the case even if the full
extent of the loss cannot be clearly determined.
Losses for impaired loans are recognised when there is
objective evidence that impairment of a loan, or portfolio of
loans, has occurred. Impairment losses that are calculated on
individual loans, or on groups of loans assessed collectively
are recorded in the income statement.
Impairment losses are calculated by discounting the expected
future cash flows of a loan, which includes expected future
receipts of contractual interest, at the loan’s original effective
interest rate, and comparing the resultant present value with
the loan’s current carrying amount.
Restructured loans
Restructured loans are facilities in which the original
contractual terms have been modified for reasons related to
the financial difficulties of the customer. Restructuring may
consist of reduction of interest, principal or other payments
legally due, or an extension in maturity.
Specific provision
A specific provision is recognised for all impaired loans when
there is reasonable doubt over the collectability of principal
and interest, in accordance with the loan agreement. All bad
debts are written off against the specific provision in the
period in which they are classified as not recoverable.
The provision is determined by specific identification or by
estimation of expected losses in relation to loan portfolios,
where specific identification is impractical, based on historical
impairment experience for these portfolios. These portfolios
include unsecured credit cards, overdrawn accounts and
personal loans, where provisions are calculated based on
historical loss experience.
Collective provision
Individual loans which are not subject to specific provisioning
are grouped together according to their risk characteristics,
and are then assessed for impairment. This assessment is
based on historical loss data and available information for
assets with similar credit risk characteristics (eg by industry
sector, loan grade or product). Adjustments to the collective
provision are recognised in the income statement.
General reserve for credit losses
The Australian Prudential Regulation Authority (APRA)
requires that banks maintain a general reserve for credit
losses to cover risks inherent in loan portfolios. In certain
circumstances the collective provision can be included in this
assessment.
Movements in the general reserve for credit losses are
recognised as an appropriation from retained earnings.
This section covers the funding and capital structure of the Group. Further information is provided for the following key areas:
Deposits and note payables, convertible preference shares, subordinated debt, securitisation, share capital, retained earnings
and reserves. The Group’s capital management objectives are outlined in this section.
10 Deposits and notes payable
Retail
At call
Term
Financial Markets
Total retail deposits
Wholesale
Domestic
Offshore
Total wholesale deposits
Total deposits
Deposits by geographic location
Victoria
New South Wales
Australian Capital Territory
Queensland
South Australia/Northern Territory
Western Australia
Tasmania
Overseas
Total deposits
Total notes payable
Group
Bank
2017
$m
2016
$m
2017
$m
2016
$m
23,100.6
22,045.4
21,595.1
20,161.8
20,441.3
19,499.5
19,884.2
19,499.5
7,201.2
6,900.4
5,727.9
5,516.9
50,743.1
48,445.3
47,207.2
45,178.2
7,446.8
8,179.2
7,445.5
8,177.9
582.4
430.2
582.4
430.2
8,029.2
8,609.4
8,027.9
8,608.1
58,772.3
57,054.7
55,235.1
53,786.3
25,724.7
24,127.4
25,032.9
23,411.8
15,252.4
15,450.9
13,963.3
14,328.7
1,288.8
5,425.8
5,940.5
3,552.9
1,080.9
506.3
1,458.0
5,139.5
5,569.7
3,564.2
1,105.9
639.1
1,242.1
5,088.7
5,286.9
3,124.0
994.3
502.9
1,350.5
4,831.9
5,021.2
3,188.5
1,018.6
635.1
58,772.3
57,054.7
55,235.1
53,786.3
4,480.2
3,822.5
503.5
502.2
Recognition and measurement
Deposits
All deposits are initially recognised at cost, being the fair value
of the consideration received net of issue costs. Subsequent
to initial recognition, interest-bearing borrowings are measured
at amortised cost using the effective interest method.
Amortised cost includes any issue costs and any discount or
premium on settlement.
For liabilities carried at amortised cost, gains and losses are
recognised in the income statement when the liabilities are
de-recognised.
Notes payable
The Group conducts an asset securitisation program through
which it packages and sells asset-backed securities to
investors. Notes payable are predominately interest-bearing
financial instruments issued through these securitisation
programs. The notes are initially recognised at fair value
less directly attributable transaction costs and subsequently
measured at amortised cost, using the effective interest
method. Interest is recognised in the income statement.
70 Annual Financial Report 2017
Annual Financial Report 2017 71
12 Subordinated debt
Group
Bank
2017
$m
2016
$m
2017
$m
2016
$m
Subordinated debt
708.7
583.4
698.7
573.4
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
-
-
260.6
448.1
708.7
-
-
260.7
322.7
583.4
-
-
250.6
448.1
698.7
-
-
250.7
322.7
573.4
Recognition and measurement
These instruments are classified as debt within the balance
sheet and the interest expense is recorded in the income
statement.
Subordinated debt instruments are initially recognised at cost,
being the fair value of the consideration received, less charges
associated with the issue of the instrument.
They are subsequently measured at amortised cost using the
effective interest method.
Amortised cost is calculated by taking into account any
discount or premium on acquisition over the period to maturity.
Gains and losses are recognised in profit or loss when the
liabilities are derecognised.
11 Convertible preference shares
CPS (ASX Code:BENPD)
Nov 12: 2,688,703 fully paid
$100 Convertible preference shares
Unamortised issue costs
CPS2 (ASX Code:BENPE)
Oct 14: 2,921,188 fully paid
$100 Convertible preference shares
Unamortised issue costs
CPS3 (ASX Code:BENPF)
June 15: 2,822,108 fully paid
$100 Convertible preference shares
Unamortised issue costs
Group
Bank
2017
$m
2016
$m
2017
$m
2016
$m
268.9
268.9
268.9
268.9
(0.7)
268.2
(3.1)
265.8
(0.7)
268.2
(3.1)
265.8
292.1
292.1
292.1
292.1
(5.9)
286.2
(7.6)
284.5
(5.9)
286.2
(7.6)
284.5
282.2
282.2
282.2
282.2
(6.5)
275.7
(8.1)
274.1
(6.5)
275.7
(8.1)
274.1
Total convertible preference shares
830.1
824.4
830.1
824.4
Nature of shares
Convertible preference shares are long term in nature, are
perpetual and hence do not have a fixed maturity date.
However the shares may be redeemed at the discretion of
the Bank for a price per share on the redemption date. Any
preference shares not already converted will be converted
into ordinary shares on the mandatory conversion date
specified in the issue’s prospectus located at http://www.
bendigoadelaide.com.au/public/shareholders/prospectus.asp
If the Bank is unable to pay a dividend because of insufficient
profits, the dividend is non-cumulative. The convertible
preference shares rank ahead of the ordinary shares in the
event of liquidation. Under certain circumstances ranking may
be affected resulting in shares being converted or written off.
In accordance with Australian Prudential Regulation Authority’s
Basel III capital adequacy framework, these convertible
preference shares form part of the Bank’s Additional Tier 1
capital.
Recognition and measurement
These instruments are classified as debt within the balance
sheet and dividends to the holders are treated as interest
expense in the income statement.
Convertible preference shares are initially recognised at
cost, being the fair value of the consideration received, less
charges associated with the issue of the instrument. They are
subsequently measured at amortised cost using the effective
interest method.
The shares carry a dividend which will be determined semi-
annually and payable half yearly in arrears. The dividend rate
will be the floating Bank Bill Rate plus the initial fixed margin,
adjusted for franking credits.
72 Annual Financial Report 2017
Annual Financial Report 2017 73
13 Securitisation and transferred assets
Repurchase agreements
Securitisation
Group
Carrying amount of transferred assets ¹
Carrying amount of associated liabilities 2
Fair value of transferred assets
Fair value of associated liabilities
Net Position
Bank
Carrying amount of transferred assets
Carrying amount of associated liabilities 3
Fair value of transferred assets
Fair value of associated liabilities
Net Position
2017
$m
521.8
521.8
2016
$m
520.3
520.3
2017
$m
3,902.1
3,934.5
3,896.4
3,946.9
2016
$m
3,149.1
3,296.3
3,130.9
3,285.1
(50.4)
(154.2)
Repurchase agreements
Securitisation
2017
$m
503.5
503.5
2016
$m
502.2
502.2
2017
$m
8,134.5
8,397.5
8,113.5
8,407.1
2016
$m
8,989.9
9,430.6
8,952.5
9,354.9
(293.5)
(402.4)
1 Represents the carrying value of the loans transferred to the trust.
2 Securitisation liabilities of the Group include RMBS notes issued by the SPE’s and held by external parties.
3 Securitisation liabilities of the Bank include borrowings from SPE’s including the SPE’s that issue internally held notes for repurchase with central banks,
recognised on transfer of residential mortgages by the Bank.
Securitisation programs
The Group uses special purpose entities (SPE’s) to securitise
customer loans and advances that it has originated, in order
to source funding, and/or capital efficiency purposes. The
loans are transferred by the Group to the SPE’s, which in turn
issue debt to investors. This transfer does not give rise to de-
recognition of those financial assets for the Group. The Group
holds income and capital units in the trusts which entitle the
Group to any residual income of the SPE after all payments
to investors and costs of the program have been met. Trust
investors have no recourse against the Group, if cash flows
from the securitised loans are inadequate to service the
trust obligations. Liabilities associated with the SPE’s are
accounted for on an amortised basis using the effective
interest method.
Repurchase agreements
Securities sold under agreement to repurchase, are retained
on the balance sheet when the majority of the risks and
rewards of ownership remain with the Group. The counterparty
liability is included separately on the balance sheet when cash
consideration is received.
Consolidation
SPE’s are consolidated by the Group where the Group has
the power to govern directly or indirectly decision making in
relation to financial and operational policies, and receives the
majority of the residual income or is exposed to the majority of
the residual risks associated with the SPE’s.
The Group enters into interest rate swaps and liquidity
facilities with the trusts, which are all at arm’s length to the
SPE’s.
Securitised and sold loans
The Bank securitised loans totalling $1,939.4 million (2016:
$2,876.4 million) during the financial year. The Group invests
in some of its own securitisation programs by holding A and
B class notes equivalent to $4,960.1 million as at 30 June
2017 (2016: $6,617.7 million).
14 Standby arrangements
and uncommitted credit facilities
Amount available:
Offshore borrowing facility
Domestic note program
Amount utilised:
Offshore borrowing facility
Domestic note program
Amount not utilised:
Offshore borrowing facility
Domestic note program
Group
Bank
2017
$m
2016
$m
2017
$m
2016
$m
10,866.2
10,988.1
10,866.2
10,988.1
6,000.0
6,000.0
5,000.0
5,000.0
583.2
426.3
583.2
426.3
3,416.4
3,987.9
3,405.0
3,976.5
10,283.0
10,348.1
10,283.0
10,348.1
2,583.6
2,012.1
1,595.0
1,023.5
Nature and purpose
The Group utilises debt facilities which include both domestic
and offshore and both short and long term arrangements.
The domestic funding facilities include floating rate notes.
The notes are unsubordinated and unsecured. The coupon
payable on the notes are both fixed and floating. The floating
rate notes are issued at BBSW plus a margin with coupon
payments made quarterly.
The offshore funding facilities include Euro medium term
notes and Euro commercial paper. The Euro commercial
paper programmes are utilised to satisfy short term funding
requirements. They represent unsubordinated and unsecured
obligations.
The funding is issued in both Australian and foreign
denominations. The instruments may be issued at a discount,
or bear interest on a fixed or floating rate basis.
Recognition and measurement
Funding instruments that are issued in currencies other than
AUD are accounted for at amortised cost. These transactions
are restated to AUD equivalents each month with adjustments
taken directly to income. Funding instruments that have been
utilised appear in Note 10 Deposits and notes payable.
15 Capital management
Bendigo and Adelaide Bank Limited’s key capital management
objectives are to:
• Maintain a sufficient level of capital above the regulatory
minimum to provide a buffer against loss arising from
unanticipated events, and allow the Group to continue as a
going concern;
• Optimise the level and use of capital resources to
must be held by all authorised deposit-taking institutions.
Accordingly, Bendigo and Adelaide Bank Limited is required
to maintain a minimum prudential capital ratio at both Level
1 and Level 2 as determined by APRA. As part of the Group’s
capital management process, the Board considers the Group’s
strategy, financial performance objectives, credit ratings and
other factors relating to the efficient management of capital
in setting target ratios of capital above the regulatory required
levels. These processes are formalised within the Group’s
Internal Capital Adequacy Assessment Process (ICAAP).
enhance shareholder value through maximising financial
performance; and
Regulatory capital is divided into Common Equity Tier 1, Tier 1
and Tier 2 capital.
• Ensure that capital management is closely aligned with the
Group’s business and strategic objectives.
The Group manages capital adequacy according to the
framework provided by the Australian Prudential Regulation
Authority (APRA) Standards.
Capital adequacy is measured at two levels:
• Level 1 includes Bendigo and Adelaide Bank Limited and
certain controlled entities that meet the APRA definition of
extended licensed entities; and
• Level 2 consists of the consolidated Group, excluding
non-controlled subsidiaries and subsidiaries involved in
insurance, funds management, non-financial operations and
special purpose vehicles.
APRA determines minimum prudential capital ratios (eligible
capital as a percentage of total risk-weighted assets) that
Common Equity Tier 1 capital primarily consists of
shareholders equity less goodwill and other prescribed
adjustments.
Tier 1 capital is comprised of Common Equity Tier 1 plus other
highly ranked capital instruments acceptable to APRA.
Tier 2 capital is comprised primarily of subordinated debt
instruments acceptable to APRA.
Total capital is the aggregate of Tier 1 and Tier 2 capital.
The Group has adopted the Standardised Approach to credit
risk, operational risk and market risk, which requires the
Group to determine capital requirements based on standards
set by APRA. The Group has satisfied the minimum capital
requirements at Levels 1 and 2 throughout the 2016/17
financial year.
74 Annual Financial Report 2017
Annual Financial Report 2017 75
16 Share capital
Issued and paid up capital
Group
Bank
2017
$m
2016
$m
2017
$m
2016
$m
Ordinary shares (ASX Code: BEN) fully paid - 479,206,464 (2016:
463,762,656)
4,456.7
4,298.4
4,456.7
4,298.4
Employee Share Ownership Plan
(8.0)
(10.2)
(8.0)
(10.2)
4,448.7
4,288.2
4,448.7
4,288.2
Movements in ordinary shares on issue
Opening balance 1 July - 463,762,656 (2016: 456,566,225)
4,298.4
4,235.4
4,298.4
4,235.4
Shares issued under:
Bonus share scheme - 436,024 @ 11.46 , 253,203 @ $10.04
(2016: 330,292 @ $10.64; 267,943 @ $9.05)
-
-
-
-
Dividend reinvestment plan - 4,212,626 @ $11.46;
4,568,195 @ $10.04
(2016: 2,031,453 @ $10.64; 4,566,743 @ $9.05)
Share purchase plan - 5,769,074 @ $10.75 (2016: Nil)
Employee share plan - 204,686 @ $11.94 (2016: Nil)
Share issue costs
94.2
62.0
2.4
(0.3)
63.0
-
-
-
94.2
62.0
2.4
(0.3)
63.0
-
-
-
Closing balance 30 June - 479,206,464 (2016: 463,762,656)
4,456.7
4,298.4
4,456.7
4,298.4
Movements in Employee Share Ownership Plan
Opening balance
Reduction in Employee Share Ownership Plan
Closing balance
(10.2)
2.2
(8.0)
(11.8)
1.6
(10.2)
(10.2)
2.2
(8.0)
(11.8)
1.6
(10.2)
Total issued and paid up capital
4,448.7
4,288.2
4,448.7
4,288.2
Nature of issued capital
Ordinary shares (ASX code: BEN)
Ordinary shares are fully-paid and have no par value. They
carry one vote per share and the right to dividends.
Recognition and measurement
Ordinary shares, preference shares and step up preference
shares are classified as equity. Issued ordinary capital,
preference and step up preference shares are recognised at
the fair value of the consideration received net of transaction
costs (net of any tax benefit). Dividends are recognised as a
distribution from equity in the year that they are declared.
Employee Share Ownership Plan is the value of loans
outstanding in relation to shares issued to employees under
this plan and effectively represents the unpaid portion of the
issued shares.
17 Retained earning and reserves
Retained earnings
Movements
Opening balance
Profit for the year
Share based payment
Prior year restatement
Movements in general reserve for credit losses
Dividends
Deregistration of subsidiary company
Defined benefits actuarial adjustment
Tax effect of defined benefits actuarial adjustment
Closing balance
Reserves
Movements
Employee benefits reserve
Opening balance
Net decrease in reserve
Closing balance
Asset revaluation reserve - property
Opening balance
Net revaluation increments
Tax effect of net revaluation increments
Closing balance
Asset revaluation reserve - available for sale equity securities
Opening balance
Revaluation decrements
Tax effect of revaluation decrements
Closing balance
Asset revaluation reserve - available for sale debt securities
Opening balance
Net unrealised gain/(loss)
Transfer to income on sale of available for sale assets
Tax effect of net unrealised gains/(losses)
Closing balance
Operational risk reserve
Opening balance
Closing balance
Cash flow hedge reserve
Opening balance
Changes due to mark to market
Tax effect of changes due to mark to market
Closing balance
Group
Bank
2017
$m
739.2
429.6
0.4
-
6.6
2016
$m
623.1
415.6
3.5
(1.2)
-
2017
$m
240.8
312.4
0.4
-
6.6
2016
$m
236.7
303.1
3.5
(1.2)
-
(311.4)
(300.8)
(311.4)
(300.8)
-
0.3
(0.1)
864.6
-
(1.4)
0.4
739.2
5.0
0.3
(0.1)
254.0
0.5
(1.4)
0.4
240.8
10.3
(0.8)
9.5
1.3
0.3
(0.1)
1.5
1.5
(1.6)
0.5
0.4
(0.9)
0.9
0.3
(0.4)
(0.1)
1.8
1.8
14.4
(4.1)
10.3
1.3
-
-
1.3
1.6
(0.1)
-
1.5
0.6
(3.3)
1.1
0.7
(0.9)
1.8
1.8
(52.6)
45.6
(13.7)
(20.7)
(51.2)
(2.0)
0.6
(52.6)
10.3
(0.8)
9.5
0.4
0.1
-
0.5
1.2
(1.7)
0.5
-
(45.4)
62.4
0.3
(18.8)
(1.5)
-
-
(51.1)
44.3
(13.3)
(20.1)
14.4
(4.1)
10.3
0.4
-
-
0.4
1.2
-
-
1.2
23.3
(99.3)
1.1
29.5
(45.4)
-
-
(48.8)
(3.3)
1.0
(51.1)
76 Annual Financial Report 2017
Annual Financial Report 2017 77
17 Retained earning and reserves (continued)
Treasury and investments
Reserves (continued)
Movements (continued)
General reserve for credit losses (GRCL)
Opening balance
Increase/(decrease) in GRCL
Closing balance
Acquisition reserve
Opening balance
Closing balance
Total reserves
Group
2017
$m
146.9
(6.6)
140.3
2016
$m
146.9
-
146.9
Bank
2017
$m
128.3
(6.6)
121.7
(20.4)
(20.4)
(20.4)
(20.4)
-
-
2016
$m
128.3
-
128.3
-
-
112.3
87.9
110.1
43.7
Nature and purpose of reserves
Employee benefits reserve
The reserve records the value of equities issued to non-
executive employees under the Employee Share Ownership
Plan and the value of deferred shares and rights granted to
Executive employees under the Employee Salary Sacrifice,
Deferred Share and Performance Share Plan. Further details
regarding these employee equity plans are disclosed within
Note 35 Share based payment plans.
Asset revaluation reserve - property
The reserve records revaluation adjustments on the Group’s
property assets.
Asset revaluation reserve - available for sale - equity
investments and debt securities
The reserve records fair value changes on available for sale
assets.
Operational risk reserve
The reserve is required to meet Sandhurst Trustees Limited
licence requirements.
Cash flow hedge reserve
The reserve records the portion of gain or loss on the
derivatives that are determined to be in an effective cash flow
hedge relationship.
General reserve for credit losses
APRA Prudential standard, APS 220 Credit Quality, requires a
reserve to be held to recognise estimated future credit losses
which may arise over the life of the Group’s lending portfolio.
Acquisition reserve
The reserve records the difference between the carrying value
of the non-controlling interest and the consideration paid to
acquire the remaining interest of the non-controlling interest.
This section covers the financial instruments held by the Group including: financial instruments, derivatives, investments
accounted for using the equity method (joint arrangements and associates) and investment property. This section outlines how
the fair value of financial instruments is determined and the associated methodology.
Classification of financial instruments
Financial instruments are classified into one of five categories,
which determine the accounting treatment.
The classification depends on the purpose for which the
instruments were acquired. Designation is re-evaluated
at each financial year end, but there are restrictions on
reclassifying to other categories.
The classifications are:
• Loans and receivables (refer Lending Section)
• Held for trading
• Available for sale
• Held to maturity
• Non-trading liabilities (refer Treasury and Funding Section)
18 Financial assets held for trading
Discount securities
Floating rate notes
Government securities
Total financial assets held for trading
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
Recognition and measurement
Financial instruments are classified as held for trading if
they are acquired for the purpose of selling or repurchasing
in the near term. These financial instruments are measured
at fair value with gains and losses recognised in the income
statement. Fair value measurement is outlined in Note 22
Financial instruments.
Group
2017
$m
2016
$m
Bank
2017
$m
2016
$m
2,126.0
3,377.2
2,126.3
3,377.5
232.3
3,299.3
5,657.6
-
2,991.9
6,369.1
232.3
3,299.3
5,657.9
-
2,991.9
6,369.4
2,092.7
496.7
2,398.2
670.0
1,685.5
2,091.3
2,592.3
-
2,092.7
496.7
2,398.2
670.3
1,685.5
2,091.3
2,592.6
-
5,657.6
6,369.1
5,657.9
6,369.4
78 Annual Financial Report 2017
Annual Financial Report 2017 79
19 Financial assets available for sale
Group
Bank
20 Financial assets held to maturity
Group
Bank
Debt securities
Negotiable certificates of deposit
Mortgage backed securities
Security deposits
Securitisation notes
Liquidity collateral
2017
$m
151.1
60.6
24.9
-
18.0
2016
$m
118.7
144.7
24.8
2017
$m
-
60.6
24.9
2016
$m
-
144.7
24.8
-
4,957.9
6,554.0
34.9
177.1
194.0
Total financial assets available for sale - debt
254.6
323.1
5,220.5
6,917.5
Equity investments
Listed share investments
Unlisted share investments
Total financial assets available for sale - equity
0.1
31.9
32.0
2.4
28.0
30.4
0.1
23.1
23.2
2.3
21.3
23.6
Total financial assets available for sale
286.6
353.5
5,243.7
6,941.1
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
Non-maturing
35.0
127.2
49.4
18.1
56.9
118.7
34.5
135.1
34.9
30.3
-
11.2
49.4
-
34.5
135.1
5,135.0
6,748.0
48.1
23.5
286.6
353.5
5,243.7
6,941.1
Recognised gains/(losses) before tax:
Gain/(loss) recognised directly in equity
Amount removed from equity and recognised in (profit)/loss
0.9
0.3
(3.3)
1.1
62.4
0.3
(99.3)
1.1
Recognition and measurement
Available for sale investments are non-derivative financial
assets that are designated as available for sale or are not
categorised into any of the categories under AASB 139
Financial Instruments: Recognition and Measurement.
Available for sale investments are measured at fair value with
gains and losses recorded in a reserve within equity. Upon
disposal or impairment, the accumulated gains or losses
recorded in equity are transferred to the income statement.
Fair value measurement is outlined in Note 22 Financial
instruments.
Negotiable certificates of deposit
Floating rate notes
Other Deposits
Total financial assets held to maturity
Maturity analysis
Not longer than 3 months
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
2017
$m
185.0
122.5
71.1
378.6
195.5
107.9
67.9
7.4
378.7
2016
$m
193.1
120.2
69.5
382.8
204.5
86.0
84.7
7.6
382.8
2017
$m
-
-
65.8
65.8
63.7
-
-
2.1
65.8
2016
$m
-
-
62.6
62.6
60.6
-
1.3
0.8
62.7
Classification and measurement
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity where
the Group has the positive intention and ability to hold to maturity.
Investments that are held to maturity are measured at amortised cost using the effective interest method. Any discount or
premium on acquisition is taken over the period to maturity.
Gains and losses are recognised in the income statement when the investments are sold or impaired.
80 Annual Financial Report 2017
Annual Financial Report 2017 81
21 Derivative financial instruments
21 Derivative financial instruments (continued)
Group 2017
Group 2016
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
$m
$m
$m
$m
$m
$m
$m
$m
Included in derivatives category
Derivatives held for trading
Futures
Interest rate swaps
Foreign exchange
contracts
3,334.7
20,305.0
39.9
16.0
-
39.9
3,474.5
(17.1)
(1.1)
16,842.4
19.6
29.4
-
(22.0)
79.4
0.6
(0.4)
0.2
130.4
0.7
(0.5)
23,719.1
56.5
(17.5)
39.0
20,447.3
49.7
(22.5)
Derivatives held as fair value hedges
Interest rate swaps
Cross currency swaps
13.9
156.8
170.7
-
16.3
16.3
(0.9)
-
(0.9)
(0.9)
16.3
15.4
15.5
156.8
172.3
-
22.8
22.8
(1.6)
-
(1.6)
19.6
7.4
0.2
27.2
(1.6)
22.8
21.2
Derivatives held as cash flow hedges
Interest rate swaps
14,734.0
14,734.0
4.9
4.9
(40.6)
(40.6)
(35.7)
19,475.2
(35.7)
19,475.2
6.5
6.5
(87.7)
(87.7)
(81.2)
(81.2)
Total derivatives
38,623.8
77.7
(59.0)
18.7
40,094.8
79.0
(111.8)
(32.8)
As at 30 June hedged cash flows are expected to occur and
affect the income statement as follows:
Forecast net cash outflows
(42.2)
(22.5)
(8.2)
(421.8)
(150.2)
(214.8)
(23.0)
(1.7)
(11.3)
(0.2)
(28.3)
(0.1)
Group
2017
Forecast cash inflows
Forecast cash outflows
Forecast net cash outflows
2016
Forecast cash inflows
Forecast cash outflows
Bank
2017
Forecast cash inflows
Forecast cash outflows
Forecast net cash outflows
2016
Forecast cash inflows
Forecast cash outflows
Within 1
year
$m
1 to 2
years
$m
2 to 3
years
$m
3 to 4
years
$m
388.1
229.5
33.9
16.8
(425.7)
(244.8)
(37.6)
(15.3)
(39.5)
(5.6)
(18.5)
(1.7)
4 to 5
years
Greater than
5 years
$m
7.5
(8.0)
(0.5)
$m
21.4
(21.1)
0.3
379.6
127.7
206.6
21.3
11.1
28.2
359.3
227.7
33.2
16.6
(396.1)
(242.6)
(36.8)
(14.9)
(38.5)
(5.3)
(18.2)
(1.6)
7.5
(8.0)
(0.5)
21.4
(21.1)
0.3
369.3
125.0
206.2
21.3
11.1
28.2
(409.6)
(147.0)
(214.3)
(23.0)
(1.7)
(11.3)
(0.2)
(28.3)
(0.1)
Bank 2017
Bank 2016
Forecast net cash outflows
(40.3)
(22.0)
(8.1)
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
$m
$m
$m
$m
$m
$m
$m
$m
Included in derivatives category
Derivatives held for trading
Net gains /(losses) arising from hedge ineffectiveness
$m
$m
$m
$m
Group
Bank
2017
2016
2017
2016
Futures
Interest rate swaps
Foreign exchange
contracts
3,334.7
29,943.0
39.9
120.2
-
39.9
3,474.5
(36.7)
83.5
25,995.5
19.6
240.8
-
(23.3)
19.6
217.5
Gains/ (losses) arising from fair value hedges
Gains/(losses) on hedging instruments
Gains/(losses) on the hedged items attributable to the hedged risk
79.4
0.6
(0.4)
0.2
130.4
0.7
(0.5)
0.2
33,357.1
160.7
(37.1)
123.6
29,600.4
261.1
(23.8)
237.3
Gains on cash flow hedges
Gains on cash flow hedges
Derivatives held as fair value hedges
Interest rate swaps
Cross currency swaps
13.9
156.8
170.7
-
16.3
16.3
(0.9)
-
(0.9)
(0.9)
16.3
15.4
15.4
156.8
172.2
-
22.8
22.8
(1.6)
-
(1.6)
(1.6)
22.8
21.2
Derivatives held as cash flow hedges
Interest rate swaps
13,402.1
13,402.1
4.8
4.8
(39.6)
(39.6)
(34.8)
18,876.1
(34.8)
18,876.1
6.4
6.4
(85.3)
(85.3)
(78.9)
(78.9)
Total derivatives
46,929.9
181.8
(77.6)
104.2
48,648.7
290.3
(110.7)
179.6
82 Annual Financial Report 2017
Gains on hedges, (not in a hedge accounting relationship)
Gains on hedges
Nature and purpose
The Group uses derivative financial instruments primarily to
manage risk, including interest rate risk and foreign currency
rate risk. Note 29 Risk management outlines the risk
management framework that the Group applies.
(5.9)
3.8
(1.7)
4.0
(5.9)
3.8
(1.7)
4.0
-
-
-
-
(6.0)
(8.1)
5.6
7.9
(6.0)
(8.1)
5.6
7.9
Recognition and measurement
Derivative financial instruments are initially recognised at fair
value on the date on which a derivative contract is entered
into and are subsequently remeasured on a monthly basis.
Any gains and losses arising from a change in fair value of the
derivative, except for those that qualify as cash flow hedges,
are taken directly to the income statement. All derivatives
are classified as Level 2 Investments and the valuation
methodology is outlined in Note 22 Financial instruments.
Annual Financial Report 2017 83
21 Derivative financial instruments (continued)
21 Derivative financial instruments (continued)
Recognition and measurement (continued)
Offsetting financial assets and financial liabilities (continued)
Bank
Amounts subject to enforceable master netting or similar agreements
Amounts of recognised financial assets/liabilities
reported on the balance sheet
Related amounts not set-off on the balance sheet
Financial collateral (received)/pledged
Net amount
Financial assets/liabilities not subject to enforceable master netting
or similar agreements
Total financial assets/liabilities recognised on the balance sheet
Derivative
assets
Derivative
liabilities
Derivative
assets
Derivative
liabilities
2017
$m
$m
2016
$m
$m
141.5
77.4
270.2
110.5
(8.8)
132.7
40.3
181.8
(50.3)
27.1
0.2
77.6
(17.1)
253.1
20.1
290.3
(91.2)
19.3
0.2
110.7
For the purpose of this disclosure, financial collateral not set off on the balance sheet have been capped by relevant
netting agreements so as not to exceed the net amounts of financial assets/(liabilities) reported on the balance sheet (ie
overcollateralisation, where it exists, is not reflected in the tables).
Hedge accounting
A hedge relationship is established whereby a hedging
instrument (derivative) is identified as offsetting changes
in the fair value or cash flows of a hedged item (asset or
liability). The Group formally designates and documents the
hedge relationship, including the risk management strategy for
undertaking the hedge. This includes the identification of the
hedge instrument, hedge item, the nature of the risk and how
effectiveness will be tested. Testing is completed on a monthly
basis both retrospectively and prospectively.
Derivatives that meet the hedge accounting criteria are able
to be accounted for as either a fair value hedge or a cashflow
hedge.
Cashflow hedges
Cashflow hedges consist principally of interest rate swaps
that are used to protect against exposures to movements in
future interest cash flows on assets and liabilities which bear
interest at variable rates.
The effective portion of changes in the fair value of derivatives
that are designated and qualify as cash flow hedges are
recognised in equity in the cash flow hedge reserve. The
gain or loss relating to the ineffective portion is recognised
immediately in the income statement. Amounts in the cash
flow hedge reserve are recognised in the income statement
in the periods when the hedged item is recognised in profit or
loss.
Fair value hedges
Fair value hedges principally consist of interest rate swaps and
cross currency swaps that are used to protect against changes
in the fair value of fixed rate long term financial instruments
due to movements in interest rates and exchange rates.
Changes in the fair value of derivatives that are designated
and qualify as fair value hedging instruments are recorded in
the income statement, along with changes in the fair value
of the hedged item. If a hedge relationship no longer meets
the criteria for hedge accounting, then hedge accounting is
discontinued. The cumulative adjustment to the hedge item is
amortised to the income statement over the remaining period
until maturity.
Offsetting financial assets and financial liabilities
The Group presents its derivative assets and liabilities on a
gross basis.
Derivative financial instruments entered into by the Group are
subject to International Swaps and Derivatives Association
(ISDA) master netting agreements and other similar master
netting arrangements. These arrangements do not meet the
criteria for offsetting in the balance sheet. This is because
they create for the parties to the agreement a right of set-off,
of recognised amounts that are only enforceable following
an event of default, insolvency or bankruptcy of the Group, or
the counterparties, or following other predetermined events.
In addition, the Group and its counterparties do not intend to
settle on a net basis or to realise the assets and settle the
liabilities simultaneously.
The following table sets out the effect of netting arrangements
on derivative financial assets and derivative financial liabilities
if they were to be applied:
Group
Derivative
assets
Derivative
liabilities
Derivative
assets
Derivative
liabilities
2017
$m
$m
2016
$m
$m
Amounts subject to enforceable master netting or similar agreements
Amounts of recognised financial assets/liabilities
reported on the balance sheet
Related amounts not set-off on the balance sheet
Financial collateral (received)/pledged
Net amount
Financial assets/liabilities not subject to enforceable master netting
or similar agreements
Total financial assets/liabilities recognised on the balance sheet
37.4
58.8
58.9
111.6
(8.8)
28.6
40.3
77.7
(50.3)
8.5
0.2
59.0
(17.1)
41.8
20.1
79.0
(91.2)
20.4
0.2
111.8
84 Annual Financial Report 2017
Annual Financial Report 2017 85
22 Financial instruments
22 Financial instruments (continued)
All financial instruments are initially recognised at fair value on the date of initial recognition depending on the classification of
the asset and liability. Details of these classifications are included in the introduction to this section (Treasury and Investments).
a) Measurement basis of financial assets and liabilities
The following table details the carrying amount of the financial assets and liabilities by classification on the balance sheet.
Group
2017
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale
Loans and other receivables
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
2016
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale
Loans and other receivables
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
Held at
fair value
At fair value
through profit
and loss
At fair value
through
reserves
Held at
amortised cost
Derivatives
Held for
trading
Available
for sale
Loans and
receivables
Other financial
instruments
Total
$m
$m
$m
$m
$m
$m
-
-
-
-
-
-
77.7
77.7
-
-
-
59.0
-
-
59.0
-
-
-
-
-
-
79.0
79.0
-
-
-
111.8
-
-
111.8
-
-
-
5,657.6
-
-
-
-
-
-
-
286.6
-
-
-
-
-
-
-
60,776.6
-
1,059.6
1,059.6
270.3
378.7
-
-
-
-
270.3
378.7
5,657.6
286.6
60,776.6
77.7
5,657.6
286.6
60,776.6
1,708.6
68,507.1
-
-
-
-
-
-
-
-
-
-
6,369.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
353.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
57,256.8
-
328.4
328.4
58,772.3
58,772.3
4,480.2
4,480.2
-
830.1
708.7
59.0
830.1
708.7
65,119.7
65,178.7
1,060.0
1,060.0
221.9
382.8
-
-
-
-
221.9
382.8
6,369.1
353.5
57,256.8
79.0
6,369.1
353.5
57,256.8
1,664.7
65,723.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
294.8
294.8
57,054.7
57,054.7
3,822.5
3,822.5
-
824.4
583.4
111.8
824.4
583.4
62,579.8
62,691.6
Bank
2017
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale
Loans and other receivables
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
2016
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Financial assets held for trading
Financial assets available for sale
Loans and other receivables
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
Total financial liabilities
Held at
fair value
At fair value
through profit
and loss
At fair value
through
reserves
Held at
amortised cost
Derivatives
Held for
trading
Available
for sale
Loans and
receivables
Other financial
instruments
Total
$m
$m
$m
$m
$m
$m
-
-
-
-
-
-
181.8
181.8
-
-
-
77.6
-
-
77.6
-
-
-
-
-
-
290.3
290.3
-
-
-
110.7
-
-
110.7
-
-
-
5,657.9
-
-
-
-
-
-
-
5,243.7
-
-
-
-
-
-
-
55,611.4
-
885.2
270.7
65.8
885.2
270.7
65.8
-
-
-
-
5,657.9
5,243.7
55,611.4
181.8
5,657.9
5,243.7
55,611.4
1,221.7
67,916.5
-
-
-
-
-
-
-
-
-
-
6,369.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,941.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
52,280.6
-
328.0
328.0
55,235.1
55,235.1
503.5
503.5
-
830.1
698.7
77.6
830.1
698.7
57,595.4
57,673.0
933.0
221.8
62.7
933.0
221.8
62.7
-
-
-
-
6,369.4
6,941.1
52,280.6
290.3
6,369.4
6,941.1
52,280.6
1,217.5
67,098.9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
287.1
287.1
53,786.3
53,786.3
502.2
-
824.4
573.4
502.2
110.7
824.4
573.4
55,973.4
56,084.1
86 Annual Financial Report 2017
Annual Financial Report 2017 87
22 Financial instruments (continued)
b) Fair value measurement
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 have been calculated using
unadjusted quoted market prices in active markets for
identical instruments. A quoted market 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.
Valuation of financial assets and liabilities
Various valuation techniques are used to measure the fair
value of financial instruments. The technique adopted is
dependent upon the inputs available.
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 defined below:
• Level 1 - Quoted market prices
The fair value is determined using unadjusted quoted prices
in active markets for identical assets or liabilities.
• Level 2 - Valuation technique using observable inputs
The fair value is determined using models whose inputs are
observable in an active market.
• Level 3 - Valuation technique using significant unobservable
inputs. The fair value is calculated using significant inputs
that are not based on observable market data.
Financial assets and liabilities carried at fair value
The table below details financial instruments carried at fair
value, by balance sheet classification and hierarchy level:
Level 1
Level 2
Level 3
Total
fair value
Total
carrying value
22 Financial instruments (continued)
Valuation methodology
Financial instruments - debt securities
Each month, independent valuations are determined by the
middle office department of the Group’s Finance and Treasury
division.
This involves an analysis of independently sourced data that
is deemed most representative of the market. From this
independent data which is made available by other financial
institutions, market average valuations are calculated, and the
value of debt securities are updated.
Financial instruments - equity investments
• Level 1 - Listed investments relates to equities held that are
on listed exchanges.
• Level 2 - Unlisted investments are equity holdings in
unlisted managed investment schemes. For managed
scheme investments the most recent prices provided by the
fund manager are used.
• Level 3 - Unlisted investments are equity holdings in small
unlisted entities. Given there are no quoted market prices
and fair value cannot be reliably measured, investments are
held at cost less impairment.
Derivatives
Where the Group’s derivative assets and liabilities are not
traded on an exchange, they are valued using valuation
methodologies, including discounted cash flow and option
pricing models as appropriate. The most significant inputs into
the valuations are interest rate yields which are developed
from publicly quoted rates.
Movements in level 3 portfolio
The following table provides a reconciliation from the beginning
balances to the ending balances for financial instruments
which are classified as level 3:
Group
2017
Financial assets
Financial assets held for trading
Financial assets available for sale
Derivatives
Financial liabilities
Derivatives
2016
Financial assets
Financial assets held for trading
Financial assets available for sale
Derivatives
Financial liabilities
Derivatives
Bank
2017
Financial assets
Financial assets held for trading
Financial assets available for sale
Derivatives
Financial liabilities
Derivatives
2016
Financial assets
Financial assets held for trading
Financial assets available for sale
Derivatives
Financial liabilities
Derivatives
$m
-
0.1
-
-
-
2.4
-
-
$m
-
0.1
-
-
-
2.4
-
-
$m
$m
$m
$m
Group
Bank
Financial assets - equity investments
2017
2016
2017
2016
5,657.6
263.5
77.7
59.0
6,369.1
329.9
79.0
111.8
-
23.0
-
-
-
21.2
-
-
5,657.6
5,657.6
286.6
77.7
286.6
77.7
59.0
59.0
6,369.1
6,369.1
353.5
79.0
353.5
79.0
111.8
111.8
$m
$m
$m
$m
5,657.9
5,220.6
181.8
77.6
6,369.4
6,917.5
290.3
110.7
-
23.0
-
-
-
21.2
-
-
5,657.9
5,243.7
181.8
5,657.9
5,243.7
181.8
77.6
77.6
6,369.4
6,941.1
290.3
6,369.4
6,941.1
290.3
110.7
110.7
Opening balance
Impairment charge
Purchases
Sales
Closing balance
$m
21.2
(0.3)
2.4
(0.3)
23.0
$m
22.2
(1.6)
0.6
-
21.2
$m
21.2
(0.3)
2.4
(0.3)
23.0
$m
22.2
(1.6)
0.6
-
21.2
Financial assets and liabilities carried at amortised cost
Valuation hierarchy
The table below details financial instruments carried at amortised cost, by balance sheet classification and hierarchy level:
Group
2017
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
Financial liabilities
Level 1
Level 2
Level 3
Total
fair value
Total carrying
amount
$m
$m
$m
$m
$m
1,059.6
270.3
-
-
-
-
378.7
-
-
-
1,059.6
1,059.6
270.3
378.7
270.3
378.7
-
60,880.0
60,880.0
60,776.6
Due to other financial institutions
328.4
-
Deposits
Notes payable
Convertible preference shares
Subordinated debt
-
-
58,840.3
4,492.2
838.0
-
-
701.9
-
-
-
-
-
328.4
328.4
58,840.3
58,772.3
4,492.2
4,480.2
838.0
701.9
830.1
708.7
Transfers between levels are deemed to have occurred at the beginning of the reporting period in which instruments are transferred.
There were no transfers between levels during the year for the Group or Bank.
88 Annual Financial Report 2017
Annual Financial Report 2017 89
22 Financial instruments (continued)
Valuation methodology
Cash and cash equivalents,
due from/to other financial institutions
The carrying value for these assets and liabilities are a
reasonable approximation of fair value.
Financial instruments - held to maturity
The fair values of financial assets held to maturity are
measured at amortised cost which approximates their fair
value given they are predominantly short-term in nature or
have interest rates which reprice frequently.
Loans and other receivables
The carrying value of loans and other receivables is net of
specific and collective provisions. For variable rate loans,
excluding impaired loans, the carrying amount is a reasonable
estimate of fair value.
The fair value for fixed loans is calculated by utilising
discounted cash flow models, based on the maturity of the
loans. The discount rates used represent the rate the market
is willing to offer at arms-length for customers of similar credit
quality. The net fair value of impaired loans is calculated by
discounting expected cash flows using these rates.
Deposits
The carrying value of deposits at call is considered to
represent fair value given they are short term in nature. The
fair value for all term deposits is calculated using a discounted
cash flow model applying market rates, or current rates for
deposits of similar maturities.
Notes payable
The fair value for all notes payable is calculated using a
discounted cash flow model applying independent market
rates and margins for similar financial instruments.
Convertible preference shares
The fair value for convertible preference shares is based on
quoted market rates for the issue concerned as at 30 June.
Subordinated debt
The fair value of subordinated debt is calculated based on
quoted market prices. For those debt issues where quoted
market prices were not available, a discounted cash flow
model using a yield curve appropriate to the remaining
maturity of the instrument is used.
22 Financial instruments (continued)
Financial assets and liabilities carried at amortised cost (continued)
Valuation hierarchy (continued)
Group
2016
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
Financial liabilities
Level 1
Level 2
Level 3
Total
fair value
Total carrying
amount
$m
$m
$m
$m
$m
1,060.0
221.9
-
-
-
-
382.8
-
-
-
1,060.0
1,060.0
221.9
382.8
221.9
382.8
-
57,450.4
57,450.4
57,256.8
Due to other financial institutions
294.8
-
Deposits
Notes payable
Convertible preference shares
Subordinated debt
Bank
2017
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Convertible preference shares
Subordinated debt
2016
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held to maturity
Loans and other receivables
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Convertible preference shares
Subordinated debt
-
55,701.9
55,701.9
55,611.4
-
-
-
-
-
-
-
-
294.8
294.8
57,121.8
57,054.7
3,810.9
3,822.5
799.1
576.1
824.4
583.4
885.2
270.7
65.8
885.2
270.7
65.8
-
-
-
-
-
-
-
-
328.0
328.0
55,295.5
55,235.1
503.5
838.0
691.9
933.0
221.8
62.7
503.5
830.1
698.7
933.0
221.8
62.7
-
-
57,121.8
3,810.9
799.1
-
-
576.1
885.2
270.7
-
-
-
-
65.8
328.0
-
-
-
838.0
55,295.5
503.5
-
-
691.9
933.0
221.8
-
-
-
-
62.7
-
52,458.1
52,458.1
52,280.6
287.1
-
-
-
799.1
53,848.1
502.2
-
-
566.1
-
-
-
-
-
287.1
287.1
53,848.1
53,786.3
502.2
799.1
566.1
502.2
824.4
573.4
Transfers between levels are deemed to have occurred at the beginning of the reporting period in which instruments are
transferred. There were no significant transfers between levels during the year for the Group or Bank.
90 Annual Financial Report 2017
Annual Financial Report 2017 91
23 Investment property
Operating assets and liabilities
Investment property values reflect the Group’s investment in residential real estate through the Homesafe Trust. The
investments represent shared equity interest alongside the original homeowners in Sydney and Melbourne residential
properties.
This section outlines the operating assets and liabilities of the Group and associated information. Included in this section is
information on the following: cash flow statement reconciliation, cash & cash equivalents, goodwill, other assets and other
payables.
Opening balance
Additions
Disposals
Homesafe income
Total investment property
Group
2017
$m
573.4
50.2
(47.7)
90.4
666.3
2016
$m
482.0
49.4
(37.7)
79.7
573.4
Bank
2017
$m
-
-
-
-
-
2016
$m
-
-
-
-
-
Recognition and measurement
Investment properties are measured initially at cost, including transaction costs and then stated at fair value. Gains or losses arising
from changes in the fair values of investment properties are recognised in the income statement in the year in which they arise.
Valuation methodology
Subsequent to initial recognition, fair value is determined by discounting the expected future cash flows of the portfolio, taking
into account the restrictions on the ability to realise the investment property due to contractual obligations.
Assumptions used in the modelling of future cashflows are sourced from market indices of property values (Residex) and long
term growth/discount rates appropriate to residential property and historical experience of contracts that have been closed out.
The discounted cash flow model is prepared on a monthly basis. Inputs that form part of the discounted cash flow model include
rates of property appreciation, discount rates, selling costs, mortality rates and future CPI increases.
Fair value measurement
There are different levels of fair value measurement. When fair value is calculated using inputs that are not based on observable
market data, then assets will be considered as Level 3 fair value. Investment property has been categorised as a Level 3 fair
value based on the inputs outlined above.
Sensitivity of Level 3 fair value measurements to reasonably possible alternative assumptions
Valuation technique
Significant
unobservable inputs
Range of estimates
(weighted -average)
for unobservable input
Fair value measurement
sensitivity to
unobservable inputs
Discounted cash flow
Rates of property
appreciation - long term
growth rate 6%
$m1
666.3
5% - 7%
Significant increases in
these inputs would result
in higher fair values.
Effect of reasonably
possible alternative
assumptions
Favourable
change
Unfavourable
change
$m
$m
83.7
(43.6)
Discount rates - 7.75% 666.3
6.75% - 8.75%
Significant increases in
these inputs would result
in lower fair values.
84.4
(43.2)
1 This includes a fair value adjustment of $28.2m which reflects an assumed 3% increase in property prices for the next 18 months before returning to a
long term growth rate of 6%.
Where valuation techniques use non-observable inputs that are significant to a fair value measurement in its entirety, changing
these inputs will change the resultant fair value measurement.
The most significant inputs impacting the carrying value of the investment property are the long term growth rates and the discount
rates. There are interdependencies between a number of the assumptions made which mean that no single factor is likely to move
independent of others, however the sensitivities disclosed above assume all other assumptions remain unchanged.
24 Cash flow statement
reconciliation
Profit after tax
Non-cash items
Bad debts expense
Amortisation
Depreciation (including leasehold improvements)
Revaluation increments
Share of net (profit)/loss from joint arrangements and associates
Impairment write down
Fair value acquisition adjustments
Hedge gains/(losses) in relation to ineffectiveness
Changes in assets and liabilities
Increase/(decrease) in tax provision
Increase/(decrease) in deferred tax assets & liabilities
(Increase)/decrease in derivatives
Decrease in accrued interest
Decrease in accrued employee entitlements
(Increase)/decrease in other accruals, receivables and provisions
Cash flows from operating activities before changes in
operating assets and liabilities
Net (Increase)/decrease in operating assets
Group
2017
$m
2016
$m
Bank
2017
$m
2016
$m
429.6
415.6
312.4
303.1
91.9
38.5
21.8
(88.1)
(1.1)
(0.8)
7.9
8.1
(13.0)
32.9
(51.5)
(1.2)
12.4
29.4
56.9
34.9
21.8
(65.2)
0.1
2.3
5.1
(7.9)
16.3
17.5
(11.4)
(42.5)
0.3
68.5
27.9
21.3
(22.4)
(1.3)
(1.5)
4.1
8.1
46.0
(13.6)
75.4
(1.5)
13.1
48.5
23.5
21.3
33.5
0.1
2.3
5.1
(7.9)
(17.7)
(6.8)
(85.3)
(35.7)
0.6
(196.4)
(51.8)
(187.5)
516.8
247.4
484.7
97.1
Net increase of loans to other entities
(3,611.7)
(1,778.9)
(3,370.6)
(1,559.7)
Net (increase)/decrease of investment securities
775.8
(650.9)
2,396.8
(1,721.4)
Net Increase/(decrease) in operating liabilities
Net increase in balance of retail deposits
583.0
3,339.5
404.0
2,834.4
Net increase in balance of wholesale deposits
Net increase/(decrease) in balance of notes payable
1,134.7
209.8
657.7
(1,103.4)
1,044.8
(963.8)
Net cash flows from operating activities
56.3
263.5
(4.1)
122.4
466.8
239.6
Cash flows presented on a net basis
Cash flows arising from the following activities are presented on a net basis in the cash flow statement: Loans and other
receivables, investment securities, retail deposits and wholesale deposits.
92 Annual Financial Report 2017
Annual Financial Report 2017 93
25 Cash and cash equivalents
Group
Bank
26 Goodwill and other intangible assets
Notes and coins and cash at bank
Cash at bank
Investments at call
2017
$m
177.6
731.4
150.6
2016
$m
178.8
653.3
227.9
Total cash and cash equivalents
1,059.6
1,060.0
Reconciliation of cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents includes:
2017
$m
177.6
594.1
113.5
885.2
2016
$m
178.7
546.4
207.9
933.0
Group
Carrying amount as at 1 July 2016
Additions
Amortisation charge
Impairment charge
Goodwill
$m
1,442.3
-
-
-
$m
148.8
68.0
(20.8)
-
Computer
software
Core
deposits
Customer
relationship
Other
acquired
intangibles1
Trustee
licence
Cash and cash equivalents
Due from other financial institutions
Due to other financial institutions
1,059.6
1,060.0
270.3
(328.4)
221.9
(294.8)
885.2
270.7
933.0
221.8
(328.0)
(287.1)
1,001.5
987.1
827.9
867.7
Recognition and measurement
Cash and cash equivalents include cash on hand, deposits held at call with banks, bank overdrafts and other short term
investments that have an original maturity of three months or less. Cash at bank earns interest at variable rates based on daily
bank and short term deposit rates. Interest is recognised in the income statement using the effective interest method.
$m
11.6
-
(8.4)
-
3.2
20.0
-
(8.4)
-
11.6
9.2
-
(6.5)
2.7
15.6
-
(6.4)
9.2
$m
9.9
-
(5.5)
-
4.4
16.2
-
(6.3)
-
9.9
1.5
-
(0.5)
1.0
2.8
-
(1.3)
1.5
$m
13.7
-
(3.8)
(0.4)
9.5
18.9
0.2
(4.8)
(0.6)
13.7
9.0
-
(1.5)
7.5
10.5
-
(1.5)
9.0
Total
$m
1,634.7
68.0
(38.5)
(0.4)
$m
8.4
-
-
-
8.4
1,663.8
8.4
1,580.5
-
-
-
89.7
(34.9)
(0.6)
8.4
1,634.7
-
-
-
-
-
-
-
-
1,528.7
66.6
(27.9)
1,567.4
1,464.6
87.6
(23.5)
1,528.7
Computer software includes both purchased and internally
generated software. The cost of internally generated software
comprises all directly attributable costs necessary to create,
produce and prepare the software to be capable of operating
in the manner intended by management. Costs incurred in the
ongoing maintenance of software are expensed as incurred.
Gains or losses arising from the disposal of an intangible
asset are measured as the difference between the sale
proceeds and the carrying amount of the asset and are
included in the income statement in the year of disposal.
A summary of the policies applied to the Group’s intangible
assets (excluding goodwill) are as follows:
Closing balance as at 30 June 2017
1,442.3
196.0
Carrying amount as at 1 July 2015
1,442.3
Additions
Amortisation charge
Impairment of goodwill
-
-
-
74.7
89.5
(15.4)
-
Closing balance as at 30 June 2016
1,442.3
148.8
Bank
Carrying amount as at 1 July 2016
1,362.8
Additions
Amortisation charge
-
-
Closing balance as at 30 June 2017
1,362.8
Carrying amount as at 1 July 2015
1,362.8
Additions
Amortisation charge
-
-
Closing balance as at 30 June 2016
1,362.8
146.2
66.6
(19.4)
193.4
72.9
87.6
(14.3)
146.2
1 These assets include customer lists, management rights and trade names.
Recognition and measurement
Intangible assets (other than goodwill)
Intangible assets acquired separately are measured at
cost on initial recognition. Intangible assets acquired in a
business combination are measured at fair value at the date
of acquisition.
Following initial recognition, intangible assets are carried at
cost less accumulated amortisation and impairment losses.
Intangible assets with a finite life are amortised over a straight
line basis over their useful life and tested at least annually
for impairment or when there is an indicator that impairment
may exist. Intangible assets with indefinite lives are tested
for impairment in the same way as goodwill. The amortisation
period and method are reviewed at each financial year end for
all intangible assets.
94 Annual Financial Report 2017
Annual Financial Report 2017 95
Useful lives
Method used
Trustee Licence
Computer software/
development costs
Intangible assets acquired
in a business combination
Indefinite
Finite
Finite
Not amortised or
revalued
Straight line over
2.5 to 10 years
Straight line over
life of asset (2 - 15yrs)
Internally generated/acquired
Acquired
Internally generated or acquired
Acquired
Impairment test/recoverable
amount testing
Annually and when an indicator
of impairment exists
Annually and when an indicator
of impairment exists
Annually and when an indicator
of impairment exists
26 Goodwill and other intangible assets (continued)
27 Other assets
Recognition and measurement
Goodwill
Goodwill acquired in a business combination is initially
measured at cost. Cost is measured as the cost of the
business combination minus the net fair value of the acquired
identifiable assets, liabilities and contingent liabilities.
Following initial recognition goodwill is measured at cost less
accumulated impairment losses.
Key assumptions used in value in use calculations
In determining value in use the estimated future (pre-tax) cash
flows are discounted to their present value using a discount
rate. The estimated future cash flows are obtained from the
Group’s forecast which is developed annually and approved by
management and the board. Growth rates are applied to the
approved forecast data to extrapolate for a further four years.
Goodwill is allocated to cash generating units (CGU) for the
purposes of impairment testing, which is undertaken at
the lowest level at which Goodwill is monitored for internal
management purposes. Impairment testing is performed
at least annually, or whenever there is an indication of
impairment, by comparing the recoverable amount of a CGU
with its carrying amount. The carrying amount of a CGU is
based on its assets, liabilities and allocated goodwill. The
recoverable amount of a CGU is the higher of its fair value less
cost to sell and its value in use. If the recoverable amount is
less than the carrying value, an impairment loss is charged to
the income statement.
At the date of disposal of a business, attributable goodwill is
measured on the basis of the value of the operation disposed
of and the portion of the CGU retained.
Goodwill has been allocated to the following CGUs:
Local connection
Partner connection
Wealth
Agribusiness
2017
$m
677.5
464.4
209.7
90.7
2016
$m
677.5
464.4
209.7
90.7
The discount rate used is based on the weighted average
cost of capital for each CGU and reflects current market
assessments of the risks specific to the CGU for which future
estimates of cash flows have not been adjusted.
A terminal growth rate of 3.0% is representative of long term
growth rates, including inflation, in Australia. It is used to
extrapolate cash flows beyond the forecast period for each
CGU.
The table below contains discount rates used in the
calculation of the recoverable amount for each CGU:
Local connection
Partner connection
Wealth
Agribusiness
Discount rate
10.17%
10.47%
10.77%
11.07%
Sensitivity analysis
Whilst there was no impairment in any of the CGUs, changes
in the key assumptions would affect the recoverable amount
of the CGUs. The table below discloses the possible changes
to key assumptions which would result in impairment first
becoming evident:
1,442.3
1,442.3
Increase/(decrease) in key assumptions
Other income growth rate
Discount rate
Wealth
(1.28%)
0.67%
The sensitivities above assume that the specific assumption
moves in isolation, while all other assumptions are held
constant.
Accrued income
Prepayments
Sundry debtors
Accrued interest
Deferred expenditure
Total other assets
Group
Bank
2017
$m
34.5
30.6
102.8
157.0
56.3
381.2
2016
$m
39.0
22.6
113.2
158.8
81.3
414.9
2017
$m
30.5
30.1
194.5
129.0
55.7
439.8
2016
$m
33.9
22.8
152.7
129.9
80.9
420.2
Recognition and measurement
Prepayments and sundry debtors
Prepayments and sundry debtors are recognised initially at
fair value and then subsequently measured at amortised cost
using the effective interest method. Collectability of sundry
debtors is reviewed on an ongoing basis. Debts that are known
to be uncollectable are written off when identified.
Accrued interest
Accrued interest is interest that has been recognised as
income on an accrual basis using the effective interest
method, but is yet to be charged to the loan or receivable.
Deferred expenditure
Deferred expenditure relating to projects is capitalised to
the Balance Sheet when it is probable the future economic
benefits attributable to the asset will flow to the Group. The
cost model is applied which requires the asset to be carried at
cost less any impairment losses. When the project has been
completed these items are transferred to capitalised software
(refer to Note 27 Goodwill and other intangible assets for
further information). The carrying value of deferred expenditure
is reviewed for impairment annually when the asset is not
yet available for use, or more frequently when an indicator of
impairment arises.
28 Other payables
Accrued expenses and outstanding claims
Accrued interest
Prepaid interest
Total other payables
Recognition and measurement
Sundry creditors and accrued expenses
Sundry creditors and accrued expenses are carried at
amortised cost, which is the fair value of the consideration to
be paid in the future for goods and services received. Sundry
creditors are generally settled within 30 days.
Accrued interest
Accrued interest is the interest that is recognised as an
expense in the income statement but has yet to be paid to the
customers liability account. Interest is recognised using the
effective interest method.
Group
Bank
2017
$m
310.9
196.3
25.1
532.3
2016
$m
275.6
199.2
25.1
499.9
2017
$m
396.4
185.7
-
2016
$m
466.8
188.1
-
582.1
654.9
Prepaid interest
Prepaid interest is the interest received from customers in
advance. This interest is recognised as income in the income
statement using the effective interest method.
96 Annual Financial Report 2017
Annual Financial Report 2017 97
Other disclosure matters
29 Risk management (continued)
The following section outlines all other disclosure matters including: risk management, business combinations, subsidiaries and
controlled entities, related party disclosures, provisions, commitments and contingencies and other required disclosures.
Credit risk (continued)
The maximum credit exposure to any client or counterparty as
at 30 June 2017 was $939.2 million (2016: $1,107.0 million)
before taking account collateral or other credit enhancements
and $939.2 million (2016: $1,107.0 million) net of such
protection.
The risk management note outlines the key financial risks that the Group manages.
29 Risk management
Nature of risk
The Group is exposed to a range of risks which have the
potential to adversely impact its financial performance and
financial position. The Group actively manages those risks it
assesses to be material including key financial risks (i.e. credit
risk, liquidity risk and market risk) and operational risks.
Financial risk management
The Group’s exposure to financial risks are considered
significant given financial instruments held by the Group
constitute the core contributors of financial performance and
position. An overview of the Group’s key financial risks is
presented below.
The Board is ultimately responsible for the management of risk
which is achieved by establishing, reviewing and overseeing
the Group’s Risk Management Framework (the framework)
including its risk profile, risk appetite and risk strategy. The
framework provides a high level description of the material risks
faced by the Group together with the policies and procedures
implemented to measure, monitor and manage those risks.
The Board’s role is supported by committees namely the Asset
and Liability Management Committee (ALMAC), Management
and Board Credit committees, Operational Risk committee and
the Board Risk committee who monitor adherence to policies,
limits and procedures.
Further details regarding the Group’s material risks including our
strategic approach to their management is contained within the
Directors’ Report and the Corporate Governance statement.
Our committee charters are available on our website.
Gross maximum exposure
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivatives
Shares in controlled entities
Amounts receivable from controlled entities
Gross loans and other receivables
Contingent liabilities
Commitments
Credit risk
Credit risk is risk of the Group suffering a financial loss if any
of its customers or counterparties fail to fulfil their contractual
obligations.
The Group is predominantly exposed to credit risk as a result
of its lending activities as well as counterparty exposures
arising from the funding activities of Group Treasury and the
use of derivative contracts.
The table below presents the maximum exposure to credit
risk arising from balance sheet and off-balance sheet financial
instruments. The exposure is shown gross before taking into
account any master netting, collateral agreements or other
credit enhancements.
Group
Bank
2017
$m
882.0
270.3
2016
$m
881.2
221.9
5,657.6
6,369.1
286.6
378.7
259.8
77.7
-
-
353.5
382.8
272.0
79.0
-
-
2017
$m
707.6
270.7
5,657.9
5,243.7
65.8
323.5
181.8
570.2
2016
$m
754.3
221.8
6,369.4
6,941.1
62.7
282.6
290.3
569.8
1,072.3
1,160.1
60,928.0
57,471.4
55,722.9
52,402.9
68,740.7
66,030.9
69,816.4
69,055.0
253.8
6,206.7
6,460.5
237.3
7,000.2
7,237.5
249.1
5,677.3
5,926.4
232.4
6,561.4
6,793.8
Total credit risk exposure
75,201.2
73,268.4
75,742.8
75,848.8
Where financial instruments are recorded at fair value the
amounts shown above represent the current credit risk
exposure but not the maximum risk exposure that could arise
in the future as a result of changes in values.
For financial assets recognised on the balance sheet, the
maximum exposure to credit risk equals their carrying amount.
98 Annual Financial Report 2017
For contingent liabilities including financial guarantees granted,
it is the maximum amount that the Group would have to pay
if the guarantees were called upon. For loan commitments
and other credit-related commitments, it is generally the full
amount of the committed facilities.
Concentrations of the maximum exposure to credit risk
Concentration risk is managed by client or counterparty,
by geographical region and by industry sector. The Group
implements certain exposure and concentration limits in order
to mitigate the risk.
Geographic - based on the location of the counterparty or
customer. The table below presents the maximum exposure to
credit risk categorised by geographical region. The exposures
are shown gross before taking into account any collateral held
or other credit enhancements.
Geographic concentration
Victoria
New South Wales
Queensland
South Australia/Northern Territory
Western Australia
Australian Capital Territory
Tasmania
Overseas
Group
2017
$m
2016
$m
Bank
2017
$m
2016
$m
30,311.4
30,435.1
30,355.8
30,690.8
14,529.8
14,018.4
18,105.5
20,040.4
9,273.8
7,713.7
7,545.5
3,946.5
1,500.6
379.9
9,310.8
7,436.1
6,923.9
2,609.2
1,667.7
867.2
8,322.7
7,148.7
6,194.6
3,939.3
1,317.2
359.0
8,526.1
7,029.0
5,400.8
2,576.3
1,295.7
289.7
Total credit risk exposure
75,201.2
73,268.4
75,742.8
75,848.8
Industry Sector - is based on the industry in which the customer or counterparty are engaged.
The table below presents the maximum exposure to credit risk categorised by industry sector.
The exposures are shown gross before taking into account any collateral held or other credit enhancements.
Industry concentration
Accommodation and food services
Administrative and support services
Agriculture, forestry and fishing
Arts and recreation services
Construction
Education and training
Electricity, gas, water and waste services
Financial and insurance services
Financial services
Health care and social assistance
Information media and telecommunications
Manufacturing
Margin lending
Mining
Other
Other services
Professional, scientific and technical services
Public administration and safety
Rental, hiring and real estate services
Residential/consumer
Retail trade
Transport, postal and warehousing
Wholesale trade
Total credit risk exposure
Group
Bank
2017
$m
710.3
252.2
2016
$m
766.0
272.4
2017
$m
708.8
252.2
2016
$m
764.4
272.4
6,538.1
6,496.8
2,625.0
2,800.2
219.5
219.0
219.4
218.9
2,706.7
2,631.3
2,676.4
2,583.5
357.7
169.4
1,121.0
7,849.4
980.5
157.4
863.6
366.6
185.5
1,155.9
8,561.4
914.4
168.0
905.9
1,726.1
1,742.4
176.1
305.2
645.2
852.1
403.4
193.1
317.5
655.9
893.5
456.0
357.7
169.4
366.6
185.5
1,120.1
1,154.6
14,136.4
16,686.2
980.5
157.4
858.0
-
176.0
277.8
644.9
851.9
402.3
914.4
168.0
901.0
-
192.9
243.0
655.6
893.1
455.5
5,526.5
5,285.9
5,514.8
5,269.4
41,414.7
38,760.8
41,393.6
38,807.8
1,206.3
1,245.2
1,202.1
1,244.9
603.7
416.1
651.6
423.3
602.1
416.0
647.8
423.1
75,201.2
73,268.4
75,742.8
75,848.8
Annual Financial Report 2017 99
29 Risk management (continued)
29 Risk management (continued)
Credit quality
The credit quality of financial assets is managed by the Group using internal credit ratings. The table below presents the credit
quality of financial assets, based on the Group’s credit rating system and are gross of any impairment allowances.
Neither past due or impaired
High
grade
$m
882.0
270.3
5,657.6
254.6
378.7
-
77.7
4,361.3
Standard
grade
Sub-
standard
grade
$m
$m
-
-
-
-
-
-
-
10,449.5
-
-
-
-
-
-
-
1,430.3
Unrated
Consumer
loans 1
Past
due or
impaired
Total
$m
-
-
-
32.0
-
259.8
-
669.6
$m
$m
$m
-
-
-
-
-
-
-
41,599.7
-
-
-
-
-
-
-
2,417.6
882.0
270.3
5,657.6
286.6
378.7
259.8
77.7
60,928.0
11,882.2
10,449.5
1,430.3
961.4
41,599.7
2,417.6
68,740.7
881.2
221.9
6,369.1
323.1
382.8
-
79.0
3,996.6
-
-
-
-
-
-
-
9,865.4
-
-
-
-
-
-
-
1,427.4
-
-
-
30.4
-
272.0
-
748.0
-
-
-
-
-
-
-
39,016.8
-
-
-
-
-
-
-
2,417.2
881.2
221.9
6,369.1
353.5
382.8
272.0
79.0
57,471.4
12,253.7
9,865.4
1,427.4
1,050.4
39,016.8
2,417.2
66,030.9
Group
2017
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivatives
Loans and other receivables
2016
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivatives
Loans and other receivables
Bank
2017
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivatives
Loans and other receivables
Amounts receivable from controlled entities
Shares in controlled entities
707.6
270.7
5,657.9
5,220.5
65.8
-
181.8
537.3
-
-
-
-
-
-
-
-
-
8,909.8
-
-
-
-
-
-
-
-
-
1,292.6
-
-
-
-
-
23.2
-
323.5
-
660.6
1,072.3
570.2
-
-
-
-
-
-
-
42,157.9
-
-
-
-
-
-
-
-
-
2,164.7
-
-
707.6
270.7
5,657.9
5,243.7
65.8
323.5
181.8
55,722.9
1,072.3
570.2
12,641.6
8,909.8
1,292.6
2,649.8
42,157.9
2,164.7
69,816.4
2016
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivatives
Loans and other receivables
Amounts receivable from controlled entities
Shares in controlled entities
754.3
221.8
6,369.4
6,917.5
62.7
-
290.3
480.5
-
-
-
-
-
-
-
-
-
8,363.7
-
-
-
-
-
-
-
-
-
1,245.4
-
-
-
-
-
23.6
-
282.6
-
741.5
1,160.1
569.8
-
-
-
-
-
-
-
39,522.8
-
-
-
-
-
-
-
-
-
2,049.0
-
-
754.3
221.8
6,369.4
6,941.1
62.7
282.6
290.3
52,402.9
1,160.1
569.8
15,096.5
8,363.7
1,245.4
2,777.6
39,522.8
2,049.0
69,055.0
1 Consumer loans are predominantly mortgage secured residential loans not rated on an individual basis.
100 Annual Financial Report 2017
Credit Quality (continued)
The credit ratings range from high grade where there is a very high likelihood of the asset being recovered in full to sub-standard
grade where there is concern over the obligor’s ability to make payments when due.
Credit risk stress testing is regularly performed to assess the likelihood of loan default, to examine the financial strength of
borrowers and counterparties including their ability to meet commitments under changing scenarios and to assess the exposure
and extent of loss should default actually occur.
Ageing
The following table presents the ageing analysis of past due but not impaired loans and other receivables.
Loans and receivables which are 90 or more days past due are not classified as impaired assets where the estimated net
realisable value of the collateral/security is sufficient to cover the repayment of all principal and interest amounts due.
The exposures are shown net after taking into account any collateral held or other credit enhancements.
Less than
30 days
31 to
60 days
61 to
90 days
More than
91 days
$m
$m
$m
$m
Total
$m
Fair value of
collateral
$m
Group
Bank
2017
2016
2017
2016
1,254.4
1,131.2
1,218.7
1,076.3
257.0
246.3
211.8
196.6
109.3
111.3
516.1
578.2
2,136.8
2,067.0
6,052.4
5,959.6
91.4
94.4
436.7
466.6
1,958.6
1,833.9
5,025.6
4,647.3
Liquidity risk
Liquidity risk is defined as the risk that the Group is unable to meet its payment obligations as they fall due. The principal
objectives are to ensure that all cash flow commitments are met in a timely manner and prudential requirements are satisfied.
As at January 2015, the Group commenced measurement and reporting of liquidity under the revised APRA Prudential Standard
APS210, using the scenario based Liquidity Coverage Ratio (LCR). This new regime requires the Group to maintain a ratio of High
Quality Liquid Assets (HQLA) to cover defined projected cash outflows over a 30 day period.
The Group continues to manage the liquidity holdings in line with the Board approved funding strategy and funding plan, ensuring
adequate levels of HQLA, other liquid assets and diversified sources of funding. In meeting our liquidity requirement the Group
makes use of the Reserve Bank of Australia provided Committed Liquidity Facility.
The Group also maintains a significant amount of contingent liquidity in the form of internal securitisation whereby the collateral
can be presented to the Reserve Bank of Australia for cash in extraordinary circumstances such as systemic liquidity issues.
Liquidity risk is managed in line with the Board approved Risk Appetite, Framework and Policy. The framework incorporates limits,
monitoring and escalation processes to ensure sufficient liquidity is maintained.
The Group has established a set of early warning indicators to support the liquidity risk management process, in particular, to
alert management of emerging or increased risk or vulnerability in its liquidity position. The liquidity risk management framework
is also supported by liquidity standards and policies which are regularly reviewed and updated to reflect prevailing market
conditions, changes in operational requirements and regulatory obligations.
Annual Financial Report 2017 101
29 Risk management (continued)
Analysis of financial liabilities by remaining contractual maturities
The table below analyses the Group’s financial liabilities into relevant maturity periods based on the remaining period at the
reporting date to the contractual maturity date. The amounts disclosed in the table represent all cash flows, on an undiscounted
basis, including all future coupon payments, both principal and interest, and therefore may not reconcile with the amounts
disclosed on the balance sheet.
For foreign exchange derivatives and cross currency interest rate swaps, the amounts disclosed are the gross contractual cash
flows to be paid.
For interest rate swaps, the cash flows are the net amounts to be paid, and have been estimated using forward interest rates
applicable at the reporting date.
Group
2017
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
Convertible preference shares
Subordinated debt
At call
Not longer
than 3
months
3 to 12
months
1 to 5
years
Longer than
5 years
Total
$m
$m
$m
$m
$m
$m
328.4
22,612.9
5.0
-
593.4
-
-
-
16,603.1
522.8
13.5
-
-
8.3
-
15,451.0
411.4
26.6
-
35.0
25.6
-
4,300.8
1,271.3
21.0
-
375.7
374.7
-
0.7
2,269.7
0.1
-
578.8
495.7
328.4
58,968.5
4,480.2
61.2
593.4
989.5
904.3
Total financial liabilities
23,539.7
17,147.7
15,949.6
6,343.5
3,345.0
66,325.5
Contingent liabilities
Commitments
Total contingent liabilities and commitments
253.8
6,206.7
6,460.5
-
21.2
21.2
-
63.6
63.6
-
222.1
222.1
-
101.7
253.8
6,615.3
101.7
6,869.1
2016
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
Convertible preference shares
Subordinated debt
294.8
20,919.9
36.0
-
765.7
-
-
-
17,453.1
557.3
17.5
-
-
7.7
-
15,222.2
3.5
33.1
-
36.6
23.9
-
3,636.5
2,450.3
42.6
-
405.5
379.3
-
14.6
775.9
9.9
-
599.5
363.7
294.8
57,246.3
3,823.0
103.1
765.7
1,041.6
774.6
Total financial liabilities
22,016.4
18,035.6
15,319.3
6,914.2
1,763.6
64,049.1
Contingent liabilities
Commitments
Total contingent liabilities and commitments
237.3
7,000.2
7,237.5
-
19.4
19.4
-
58.1
58.1
-
246.0
246.0
-
159.9
237.3
7,483.6
159.9
7,720.9
29 Risk management (continued)
Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities (continued)
Bank
2017
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
Loans payable to securitisation trusts
Convertible preference shares
Subordinated debt
At call
Not longer
than 3
months
3 to 12
months
1 to 5
years
Longer than
5 years
Total
$m
$m
$m
$m
$m
$m
328.0
22,175.8
-
-
589.6
-
-
-
-
15,198.8
503.5
13.2
-
-
-
8.3
-
13,853.3
-
26.0
-
-
35.0
25.6
-
4,192.1
-
20.4
-
-
375.7
364.7
-
0.7
-
0.1
-
8,472.2
578.8
495.7
328.0
55,420.7
503.5
59.7
589.6
8,472.2
989.5
894.3
Total financial liabilities
23,093.4
15,723.8
13,939.9
4,952.9
9,547.5
67,257.5
Contingent liabilities
Commitments
Total contingent liabilities and commitments
249.1
5,677.3
5,926.4
-
21.2
21.2
-
63.6
63.6
-
222.1
222.1
-
101.7
249.1
6,085.9
101.7
6,335.0
2016
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
Loans payable to securitisation trusts
Convertible preference shares
Subordinated debt
287.1
20,572.2
-
-
898.8
-
-
-
-
15,978.5
502.2
17.0
-
-
-
7.5
-
13,801.7
-
31.7
-
-
36.6
23.4
-
3,599.7
-
42.1
-
-
405.5
366.8
-
14.6
-
9.9
-
9,437.3
599.5
363.7
287.1
53,966.7
502.2
100.7
898.8
9,437.3
1,041.6
761.4
Total financial liabilities
21,758.1
16,505.2
13,893.4
4,414.1
10,425.0
66,995.8
Contingent liabilities
Commitments
Total contingent liabilities and commitments
232.4
6,561.4
6,793.8
-
19.3
19.3
-
57.9
57.9
-
245.8
245.8
-
159.9
232.4
7,044.3
159.9
7,276.7
Market risk (including interest rate and currency risk)
Market risk is the risk that changes in market rates and prices including: interest rates, foreign currency exchange rates, equity
prices, will affect the Group’s financial performance and financial position. Market risk is referred to as either traded or non-
traded risk.
Traded market risk primarily represents interest rate risk in the trading book which operates as an integral part of the liquidity
risk management function. The trading book portfolio consists of securities held for trading and liquidity purposes. This risk is
represented by the potential adverse impact to net interest income (NII) and other income resulting from positions held in traded
interest rate securities such as government bonds and traded interest rate swaps.
Non-traded market risk primarily represents interest rate risk in the banking book (IRRBB). This risk is represented by the
potential adverse impact to NII resulting from a mismatch between the maturity and repricing dates of its assets and liabilities
that arises in the normal course of its business activities. The banking book activities that give rise to market risk include
general lending activities, balance sheet funding and capital management.
The Group currently uses both a static and dynamic approach to model the effect of interest rate movements on NII and market
value of equity (MVE). The primary interest rate monitoring tools used are simulation models and gap analysis. The interest rate
simulation model is a dynamic technique that allows the performance of risk management strategies to be tested under a variety
of rate environments over a range of timeframes extending out to five years. The results of this testing are then compared to the
risk appetite limits for NII.
102 Annual Financial Report 2017
Annual Financial Report 2017 103
29 Risk management (continued)
29 Risk management (continued)
Interest Rate risk (continued)
Fixed interest rate repricing
Interest Rate risk (continued)
Fixed interest rate repricing
Group
2017
Assets
Cash & cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Loans & other receivables
Derivatives
Floating
interest
rate
Less
than 3
months
Between
3 and 6
months
Between
6 and 12
months
Between
1 and 5
years
After
5 years
Non-
interest
earning/
bearing
Total
carrying
value per
Balance
sheet
Weighted
average
effective
interest
rate
$m
$m
$m
$m
$m
$m
$m
$m
%
-
882.0
-
-
- 2,065.4
95.4
-
208.9
71.8
-
-
-
-
- 2,451.4
-
-
-
-
39,390.5 7,911.0 2,227.9 3,831.5 7,374.0
-
-
-
481.4
115.9
98.0
-
-
-
-
-
-
659.0
-
-
41.7
-
177.6 1,059.6
270.3
270.3
0.4 5,657.6
254.6
43.3
-
378.7
- 60,776.6
77.7
77.7
Total financial assets
40,344.3 10,280.7 2,923.2 3,831.5 9,825.4
700.7
569.3 68,475.1
Liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
-
-
-
-
-
17,871.4 19,881.8 9,793.0 7,292.0 3,933.4
-
-
-
-
551.6 3,928.6
-
-
708.7
-
-
830.1
-
-
-
-
-
-
-
-
Total financial liabilities
18,423.0 24,519.1 10,623.1 7,292.0 3,933.4
2016
Assets
Cash & cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Loans & other receivables
Derivatives
18.1
18.0
698.7
-
-
-
- 1,795.0 2,090.1
-
-
89.0
25.3
108.7
36.2
-
-
- 2,484.0
-
-
-
-
35,652.1 8,141.0 1,313.1 2,634.3 9,475.7
-
322.7
268.5
-
-
-
-
Total financial assets
36,376.1 10,545.2 3,510.3 2,670.5 12,068.4
Liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Convertible preference shares
Subordinated debt
-
-
-
-
-
20,415.9 20,316.9 9,185.1 5,445.7 1,689.7
-
-
-
-
519.6 3,302.9
-
-
583.4
-
-
824.4
-
-
-
-
-
-
-
-
Total financial liabilities
20,935.5 24,203.2 10,009.5 5,445.7 1,689.7
-
0.7
-
-
-
-
0.7
-
-
-
-
-
40.6
-
40.6
-
1.4
-
-
-
-
1.4
328.4
328.4
- 58,772.3
- 4,480.2
59.0
830.1
708.7
59.0
-
-
387.4 65,178.7
180.3 1,060.0
221.9
221.9
- 6,369.1
323.1
0.4
-
382.8
- 57,256.8
79.0
79.0
481.6 65,692.7
294.8
294.8
- 57,054.7
- 3,822.5
111.8
824.4
583.4
111.8
-
-
406.6 62,691.6
1.48
-
2.04
2.12
2.17
4.81
1.64
-
1.97
2.72
1.80
5.02
4.91
1.40
-
1.94
2.29
2.86
5.02
-
-
2.28
2.91
-
5.26
5.34
Bank
2017
Assets
Cash & cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Loans & other receivables
Derivatives
Floating
interest
rate
Less
than 3
months
Between
3 and 6
months
Between
6 and 12
months
Between
1 and 5
years
After
5 years
Non-
interest
earning/
bearing
Total
carrying
value per
Balance
sheet
Weighted
average
effective
interest
rate
$m
$m
$m
$m
$m
$m
$m
$m
%
-
707.6
-
-
- 2,066.1
- 5,220.5
-
-
-
-
-
- 2,451.4
-
-
-
-
41,152.1 2,770.9 1,899.3 3,156.4 6,592.4
-
-
-
481.4
-
-
65.8
-
-
-
-
-
-
659.0
-
-
40.3
-
177.6
270.7
885.2
270.7
- 5,657.9
- 5,220.5
-
65.8
- 55,611.4
181.8
181.8
1.49
-
2.04
2.58
1.54
4.77
-
Total financial assets
41,925.5 10,057.5 2,380.7 3,156.4 9,043.8
699.3
630.1 67,893.3
Liabilities
Due to other financial institutions
Deposits
Notes payable
Loans payable
- securitisation trusts
Derivatives
Convertible preference shares
Subordinated debt
-
-
17,415.3 18,632.1 8,991.7 6,441.8 3,754.2
-
503.5
-
-
-
-
-
-
6,106.7
236.9
361.9
591.5 1,175.2
-
-
-
-
-
698.7
-
830.1
-
-
-
-
-
-
-
Total financial liabilities
24,025.5 19,567.7 10,183.7 7,033.3 4,929.4
2016
Assets
Cash & cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets available for sale
Financial assets held to maturity
Loans & other receivables
Derivatives
572.4
18.1
18.1
-
-
-
- 1,685.1 2,090.1
-
-
36.2
108.7
-
-
- 2,594.2
-
-
-
-
31,046.8 8,031.9 1,313.9 2,362.6 9,473.1
-
217.8 6,699.7
62.7
-
-
-
-
-
Total financial assets
31,837.0 16,497.5 3,422.1 2,398.8 12,176.0
-
-
-
-
-
-
-
-
-
-
-
-
-
52.3
-
52.3
328.0
328.0
- 55,235.1
503.5
-
-
1.95
2.31
- 8,472.2
4.8
77.6
-
-
77.6
830.1
698.7
405.6 66,145.2
179.5
221.8
933.0
221.8
- 6,369.4
- 6,917.5
-
62.7
- 52,280.6
290.3
290.3
691.6 67,075.3
-
5.02
4.91
1.70
-
2.02
3.10
3.75
4.87
-
Liabilities
Due to other financial institutions
Deposits
Notes payable
Loans payable
- securitisation trusts
Derivatives
Convertible preference shares
Subordinated debt
-
-
18,945.2 19,798.0 8,506.7 4,739.8 1,795.2
-
502.2
-
-
-
-
-
-
7,252.0
143.3
171.9
327.5 1,542.6
-
-
-
-
-
573.4
-
824.4
-
-
-
-
-
-
-
-
1.4
-
287.1
287.1
- 53,786.3
502.2
-
-
2.28
-
-
-
-
-
- 9,437.3
5.02
110.7
-
-
110.7
824.4
573.4
-
4.26
5.35
Total financial liabilities
26,699.4 20,514.7 9,503.0 5,067.3 3,337.8
1.4
397.8 65,521.4
104 Annual Financial Report 2017
Annual Financial Report 2017 105
29 Risk management (continued)
30 Subsidiaries and other controlled entities
Interest Rate risk (continued)
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, on
the Group’s income statement and equity.
Subsidiaries
The following table presents the material subsidiaries of the Group. A subsidiary has been considered to be material if it has more than
0.5% of the total Group assets.
The sensitivity of the income statement is the effect of assumed changes in interest rates on the net interest for one year, based on the
floating rate financial assets and financial liabilities held at 30 June 2017, including the effect of hedging instruments. The sensitivity of
equity is calculated by revaluing fixed rate available for sale financial assets (including the effect of any associated hedges), and swaps des-
ignated as cash flow hedges, at 30 June 2017 for the effects of the assumed changes in interest rates. The sensitivity of equity is analysed
by the maturity of the asset or swap, with sensitivity based on the assumption that there are parallel shifts in the yield curve.
+100 basis
points
-100 basis
points
+100 basis
points
-100 basis
points
Group
Net interest income
Ineffectiveness in derivatives
Income tax effect at 30%
Effect on profit
Effect on profit (per above)
Cash flow hedge reserve
Income tax effect on reserves at 30%
Effect on equity
Bank
Net interest income
Ineffectiveness in derivatives
Income tax effect at 30%
Effect on profit
Effect on profit (per above)
Cash flow hedge reserve
Income tax effect on reserves at 30%
Effect on equity
2017
$m
53.1
(64.0)
3.3
(7.6)
(7.6)
3.8
(1.1)
(4.9)
47.0
(60.1)
3.9
(9.2)
(9.2)
12.0
(3.6)
(0.8)
2017
$m
(64.8)
64.0
0.2
(0.6)
(0.6)
(3.8)
1.1
(3.3)
(58.1)
60.1
(0.6)
1.4
1.4
(12.0)
3.6
(7.0)
2016
$m
34.1
(33.1)
(0.3)
0.7
0.7
(24.2)
7.3
(16.2)
24.9
(33.1)
2.5
(5.7)
(5.7)
(23.2)
7.0
(21.9)
2016
$m
(38.1)
33.1
1.5
(3.5)
(3.5)
24.2
(7.3)
13.4
(29.2)
33.1
(1.2)
2.7
2.7
23.2
(7.0)
18.9
Chief entity and Ultimate parent
Bendigo and Adelaide Bank Limited
Principal activities
Banking
Other entities
Homesafe Trust
Leveraged Equities Ltd
Rural Bank Ltd
Principal activities
Homesafe product financier
Margin lending
Banking
All entities are 100% owned and incorporated in Australia.
Investments in controlled entities
At cost
Group
Bank
2017
$m
-
-
2016
$m
-
-
2017
$m
570.2
570.2
2016
$m
569.8
569.8
Significant restrictions
The Group does not have any significant restrictions on its ability to access or use its assets and settle its liabilities other than those
resulting from the supervisory frameworks within which banking subsidiaries operate. The supervisory framework requires banking
subsidiaries to keep certain levels of regulatory capital and liquid assets, limit their exposure to other parts of the Group and comply with
other ratios. The carrying amounts of banking subsidiaries’ assets and liabilities are $4.5 billion and $3.8 billion, respectively (2016: $4.2
billion and $3.6 billion, respectively).
Recognition and measurement
The Group classify all entities where it owns 100% of the shares and in which it controls as subsidiaries. The basis of consolidation is
presented in Note 2 Summary of significant accounting policies. Investments in subsidiaries are stated at cost.
Special Purpose Vehicles (SPE’s)
The following table presents a list of the material SPE’s. A SPE has been considered to be material where the assets are more than 0.5% of
total group assets. For further information relating to SPE’s refer to Note 13 Securitisation and transferred assets.
The movements in profit are due to higher/lower interest costs from variable rate debt and cash balances. The movement in equity is also
affected by the increase/decrease in the fair value of derivative instruments designated as cash flow hedges, where these derivatives are
deemed effective.
Entity
Principal activities
Entity
Principal activities
Leveraged Equities 2009 Trust
Securitisation
Torrens Trust 2016-1 Trust
Securitisation
Torrens Series 2008-1 Trust
Securitisation
Torrens Trust 2017-1 Trust
Securitisation
This analysis reflects a scenario where no management actions are taken to counter movements in rates.
Torrens Series 2008-4 Trust
Securitisation
Torrens Trust 2017-2 Trust
Securitisation
Foreign currency risk
The Group does not have any significant exposure to foreign currency risk, as all borrowings through the Company’s Euro Medium Term Note
program (EMTN) and Euro Commercial Paper program (ECP) are fully hedged. At balance date the principal of foreign currency denominated
borrowings under these programs was AUD $583.2 million (2016: AUD $426.3 million) with all borrowings fully hedged by cross currency
swaps, and foreign exchange swaps. Retail and business banking FX transactions are managed by the Group’s Financial Markets unit, with
resulting risk constrained by Board approved spot and forward limits. Adherence to limits is independently monitored by the Middle Office
function.
The Group conducts discretionary interest rate and foreign exchange trading. This trading forms part of the trading book activity within the
liquidity management function. The trading book positions include approved financial instruments, both physical and derivative.
106 Annual Financial Report 2017
Annual Financial Report 2017 107
31 Related party disclosures
Subsidiary transactions
Transactions undertaken with subsidiaries are eliminated in the Group’s financial reports. Transactions between the parent and the
subsidiary are funded through intercompany loans with no fixed repayment date and are repayable upon demand.
A summary of material transactions excluding dividends between
the Bank and its subsidiaries during the period were:
Opening balance at beginning of financial year
Net receipts and fees received from subsidiaries
Supplies, fixed assets and services charged to subsidiaries
Net amount owing from subsidiaries
Bendigo and Adelaide Bank provides funding and guarantee facilities to several subsidiary
companies. These facilities are provided on normal commercial terms and conditions.
Subsidiary
Sandhurst Trustees Limited
Facility
Guarantee
Other related party transactions
2017
$m
(71.8)
131.8
(109.2)
(49.2)
2016
$m
(164.8)
223.0
(130.0)
(71.8)
Limit
$m
0.5
Drawn/issued
at 30 June
2017
$m
-
Joint arrangement entities and associates
Bendigo and Adelaide Bank Limited has investments in joint arrangement entities and associates which are investments accounted for using
the equity method.
Transactions entered into with these related entities principally include commissions received and paid, services and supplies procured and
fees charged in relation to the provision of banking, administrative and corporate services. These revenue and expense items are included in
the Group’s income statement. The transactions are conducted on the same terms as other third party transactions.
A summary of material transactions excluding dividends between the Bank
and joint arrangements and associates during the period were:
Commissions and fees paid to joint arrangements and associates
Supplies and services provided to joint arrangements and associates
Amount owing from joint arrangements and associates
2017
2016
$m
31.7
8.8
(1.1)
$m
20.2
12.1
(0.8)
Bendigo and Adelaide Bank Limited provides loans, guarantees and/or overdraft facilities to joint arrangements and associates. The loans
have agreed repayment terms which vary according to the nature of the facility. These loans are included in the net amount owing from joint
arrangements and associates in the above table.
Other related party transactions
Key management personnel
Key management personnel (KMP) are those persons with authority and responsibility for planning, directing and controlling the activities of
the Group, directly or indirectly.
The Group’s KMP are those members of the Bendigo and Adelaide Bank Group Executive Committee together with its Non-executive
Directors. Further details relating to KMP are located in the Remuneration Report.
31 Related party disclosures (continued)
Other related party transactions (continued)
Key management personnel (continued)
The table below details, on an aggregated basis, KMP compensation:
Compensation
Salaries and other short term benefits
Post-employment benefits
Other long term benefits
Termination benefits
Share based payments
Total
The table below details, on an aggregate basis, KMP equity holdings. The holdings comprise
ordinary shares, preference shares, performance shares and deferred shares:
Equity holdings
Ordinary shares (includes deferred shares)
Preference shares
Performance shares
Closing balance
The table below details, on an aggregated basis, loan balances outstanding at the end of the
year between the Group and its KMP:
Loans 1,2,3
Loans outstanding at the beginning of the year 2
Loans outstanding at the end of the year
Interest paid or payable
Interest not charged
30 June 2017
30 June 2016
$'000's
$'000's
7,578.0
7,341.8
345.5
10.6
-
2,335.2
370.4
(45.8)
1,187.2
2,848.1
10,269.3
11,701.7
30 June 2017
30 June 2016
No.
No.
1,763,788
1,817,262
4,240
4,240
412,320
315,718
2,180,348
2,137,220
30 June 2017
30 June 2016
$'000's
7,668.6
10,455.7
358.0
-
$'000's
7,056.7
8,762.2
374.3
-
1. The balance of loans outstanding includes the provision of a guarantee to the value of $20,000 which was provided to a KMP in the ordinary course of
the Group’s business and on an arm’s length basis.
2. The balance of loans outstanding exclude the value of loans provided to Executives under the Employee Share Ownership Plan.
3. The balance of loans outstanding relate to KMP who were in the office at the start of the year.
Loans to directors and senior executives are made in the ordinary course of the Group’s business and on an arm’s length basis.
The loans are processed and approved in accordance with the Bank’s standard lending terms and conditions.
32 Involvement with unconsolidated structured entities
The table below describes the types of structured entities that the Group does not consolidate but in which it holds an interest.
Type of structured entity
Nature and purpose
Interest held by the Group
Securitisation vehicles -
for loans and advances
originated by third parties
To generate:
• external funding for third parties; and
• investment opportunities for the Group.
These vehicles are financed through the issue of notes to investors.
• Investments in notes
issued by the vehicles
Managed investment funds
To generate:
• a range of investment opportunities for external investors; and
• fees from managing assets on behalf of third party investors for the Group.
• Investment in units
issued by the funds
• Management fees
108 Annual Financial Report 2017
Annual Financial Report 2017 109
32 Involvement with unconsolidated structured entities (continued)
33 Fiduciary activities
Risks associated with unconsolidated structured entities
The following table summarises the carrying values recognised
in the balance sheet in relation to unconsolidated structured
entities:
Balance sheet
Cash and cash equivalents
Loans and other receivables
Financial assets available for sale
Maximum exposure to loss
Loans and other receivables, the maximum exposure to loss is
the current carrying value of these interests representing the
amortised cost at reporting date.
The maximum loss exposure for the interest rate swaps is
expected to be immaterial but unquantifiable as these swaps
pay a floating rate of interest which is uncapped.
Cash and cash equivalents
Senior notes
Investment
Interest rate swap
2017
$m
0.1
76.5
8.8
85.4
2016
$m
0.1
197.4
6.7
204.2
The following table summarises the Group’s maximum
exposure to loss from its involvement at 30 June 2017 and
2016 with structured entities.
Carrying
amount
Maximum
loss exposure
Carrying
amount
Maximum
loss exposure
2017
$m
0.1
76.5
8.8
-
2017
2016
2016
$m
0.1
$m
0.1
$m
0.1
76.5
197.4
197.4
8.8
**
6.7
-
6.7
**
** Maximum loss exposure is not disclosed as it is expected to be immaterial and is not quantifiable.
Significant restrictions
There are no significant restrictions imposed by any
unconsolidated structured entity on the Group’s ability to
access or use its assets or settle its liabilities.
Recognition and measurement
A structured entity is an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity. Involvement with structured entities
varies and includes debt financing of these entities as well
as other relationships. A review is undertaken to determine
the involvement the Group has and whether the involvement
with these entities results in significant influence, joint control
or control over the structured entity. The structured entities
over which control can be exercised are consolidated. These
entities are outlined in Note 30 Subsidiaries and other
controlled entities.
The Group has no contractual arrangements that would require
it to provide financial or other support to a consolidated or
unconsolidated entity. The Group has not previously provided
financial support, and has no intention to provide such support
to these entities.
Managed Investment funds
Sandhurst Trustees Limited (STL), a subsidiary of the Group,
acts as a responsible entity for certain managed investment
funds. The decision-making rights of the fund are restricted to
the Product Disclosure Statements. The fees received by STL
are not variable, are commensurate with the services provided
and are consistent with similar funds in the market. Where
STL holds investments in the funds, the Group assessed
the Bank’s power over the relevant activities of the entity
and the significance of its exposure to variable returns to
determine whether the Managed Investment Fund should be
consolidated.
Community Banks
Community Banks are not consolidated by the Group as the
Group does not have power to govern decision making in those
companies, and while the Group’s returns are variable they
are calculated as a percentage of the gross margin. In some
cases the Group holds shares in Community Bank branches
and has representation on the Board. These shares are
held as investments accounted for using the equity method.
Consolidation of a Community Bank Branch would occur when
the Group has power to affect returns through the majority
representation on the Board.
Alliance partners
Alliance partners are not consolidated by the Group as the
Group does not have power to govern decision making, and
while the Group’s returns are variable they are calculated
as a percentage of the gross margin. The Group has no
representation on the Board of these entities.
The Group conducts investment management and other
fiduciary activities as responsible entity, trustee, custodian
or manager for a number of funds and trusts, including
superannuation, unit trusts and mortgage pools.
The amounts of the funds concerned are:
Group
2017
$m
5,393.9
2,152.1
3,170.4
2016
$m
4,868.5
2,060.7
2,623.4
Funds under trusteeship
Assets under management
Funds under management
34 Provisions
Employee entitlements
Property rent
Other 1
Closing balance
Recognition and measurement
The assets and liabilities of these trusts and funds are not
included in the consolidated financial statements as the Group
does not have direct or indirect control of the trusts and funds.
Commissions and fees earned in respect of the activities are
included in the income statement of the Group.
As an obligation arises under each type of duty, the amount of
funds has been included where that duty arises.
This may lead to the same funds being shown more than once
where the Group acts in more than one capacity in relation
to those funds (e.g. manager and trustee). Where controlled
entities, as trustees, custodian or manager incur liabilities
in the normal course of their duties, a right of indemnity
exists against the assets of the applicable trusts. As these
assets are sufficient to cover liabilities, and it is therefore not
probable that the Group will be required to settle them, the
liabilities are not included in the financial statements.
Group
Bank
2017
$m
108.9
15.4
6.5
2016
$m
96.4
14.1
6.2
2017
$m
105.3
15.4
6.5
2016
$m
92.3
14.1
6.2
130.8
116.7
127.2
112.6
1 Other provisions comprise various other provisions including reward programs and dividends.
Movements in provisions (excluding employee entitlements)
Property Rent
Other
Total
2017
2016
2017
2016
Group
Opening balance
Additional provision recognised
Amounts utilised during the year
Closing balance
Bank
Opening balance
Additional provision recognised
Amounts utilised during the year
Closing balance
$m
14.1
2.6
(1.3)
15.4
14.1
2.6
(1.3)
15.4
$m
12.7
2.6
(1.2)
14.1
12.7
2.6
(1.2)
14.1
$m
6.2
316.2
(315.9)
$m
5.9
303.1
(302.8)
2017
$m
20.3
318.8
2016
$m
18.6
305.7
(317.2)
(304.0)
6.5
6.2
21.9
20.3
6.2
316.2
5.9
303.1
20.3
318.8
18.6
305.7
(315.9)
(302.8)
(317.2)
(304.0)
6.5
6.2
21.9
20.3
110 Annual Financial Report 2017
Annual Financial Report 2017 111
34 Provisions (continued)
Recognition and measurement
Employee benefits
The table below shows the individual balances for
employee benefits:
Annual leave
Other employee payments
Long service leave
Sick leave bonus
Closing balance
Group
Bank
2017
2016
2017
2016
$m
29.8
12.0
59.8
7.3
108.9
$m
27.8
1.2
59.9
7.5
96.4
$m
28.6
12.0
57.4
7.3
105.3
$m
25.9
1.2
57.8
7.4
92.3
Annual leave and long service leave are measured as the
present value of expected future payments for the services
provided by employees up to the reporting date. The provision
is measured at the amounts that are expected to be paid
when the liabilities are settled. Expected future payments are
discounted using corporate bond rates.
Annual leave is accrued on the basis of full pro-rata
entitlement and amounts are estimated to apply when the
leave is paid. It is anticipated that annual leave will be paid in
the ensuing twelve months.
Long service leave has been assessed at full pro-rata
entitlement in respect of all employees with more than one
year’s service. The assessment considers the likely number of
employees that will ultimately be entitled to long service leave,
estimated future salary rates and on-costs.
Sick leave bonus provides an entitlement dependent on an
employee’s years of service and unused sick leave and is paid
on termination.
Other employee payments include short term incentives and
are expected to be paid in the ensuing twelve months.
Property rent
The provision for property rent is to recognise the difference
between actual property rent paid and the property rent
expense recognised in the income statement. The lease
expense is recognised on a straight line basis over the period
of the lease. The provision is expected to be utilised over the
period of the respective leases, typically a period between
three and ten years. However, it is expected that a balance will
continue as old leases expire and are replaced by new leases.
Other
The provision for dividends represents the residual carried
forward balance in relation to ordinary shareholders that
participate in the dividend reinvestment plan. It is expected
that the current balance will be utilised within a twelve month
period. However, an ongoing balance will continue unless all
outstanding balances are paid to shareholders upon ceasing
participation in the dividend reinvestment plan. The provision
also includes accrued dividends relating to preference shares.
The provision of rewards program is to recognise the liability
to customers in relation to points earned by them under the
program. Reward points expire after three years. The balance
will be utilised or forfeited during that period.
Recognition and measurement
Provisions are recognised when the Group has a legal,
equitable or constructive obligation to make a future sacrifice
of economic benefits to other entities as a result of past
transactions or other past events, and it is probable that a
future sacrifice of economic benefits will be required and a
reliable estimate can be made of the amount of the obligation.
If the effect of the time value of money is material, provisions
are determined by discounting the expected cash flows at a
pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific
to the liability.
Where discounting is used the increase in the provision due to
the passage of time is recognised as a finance cost.
A provision for dividend is not recognised as a liability unless
the dividend is declared, determined or publicly recommended
on or before the reporting date.
35 Share based payment plans
If the service condition is satisfied, the deferred shares will
vest subject to any risk conditions.
The number of shares awarded as part of the plan are
calculated by dividing the deferred remuneration value by
the volume weighted average closing price of the Company’s
shares for the last five trading days of the financial year prior
to the year of grant. The Participants are entitled to vote
and to receive any dividend, bonus issue, return of capital or
distribution made in respect of shares they are allocated on
vesting and exercise of their deferred shares.
Employee Share Grant Scheme (ESGS)
The Company has established a share based incentive plan
for full time and permanent part time employees of the Group
(excluding Directors and Senior Executives).
The shares will be held in trust for a period of three years after
which time they will be transferred to the employee. During
the restricted period employees will be entitled to receive
dividends and to vote at general meetings.
Employee Share Plan
The Company established a loan based limited recourse
Employee Share plan in 2006. The Plan is only available to full
time and part time employees of the Group (excluding Senior
Executives and the Managing Director).
The Plan provides employees with a limited recourse interest
free loan for the sole purpose of acquiring fully paid ordinary
shares in the Company. The shares must be paid for by the
employee with cash dividends after personal income tax
being applied to repay the loans. Employees cannot exercise,
dispose or transfer the shares until the loan has been fully
repaid.
The first issue to staff under this Plan was completed in
September 2006 with a further grant made in December
2007. There have been no further issues under this Plan.
Employee Share Ownership Plan (discontinued)
In 2006 the Company discontinued the existing loan based
Employee Share Ownership Plan that was open to all
employees of the Group.
Refer to the June 2015 annual financial report or prior years
for more detailed information regarding this Plan.
The Group provides benefits to employees by offering share
based compensation whereby employees render services in
exchange for shares or rights over shares.
These share based incentive plans form an integral part of the
Group’s remuneration framework with the objective of aligning
the interests of executives and general employees to the
interests of shareholders.
Further detailed information including terms and conditions
associated with each plan is included in the Remuneration
Report.
Details of current plans
Performance rights
The Plan provides for grants of performance rights to
the Managing Director, Senior Executives and key senior
management (the Participants) as determined by the Board.
Participants are invited to receive grants of performance rights
that are subject to performance conditions set by the Board.
The performance right grant made during FY2017 is subject to
the following performance conditions:
• a ‘customer hurdle’ that requires the Bank’s Net Promoter
Score over the performance period to be 20 points greater
than the median performance of the peer group.
• Cash earnings per share must be equal to or exceed the
previous year’s, followed by a total shareholder return (TSR)
performance hurdle; and
• continuing service with the Group.
The previous performance right grants are subject to the
following performance conditions:
• increase in cash earnings per share from previous
financial year, followed by a total shareholder return (TSR)
performance hurdle; and
• continuing service with the Group.
The number of performance rights granted to Participants is
determined by dividing the remuneration value of the proposed
grant by the volume weighted average closing price of the
Company’s shares for the last five trading days of the financial
year prior to the year of grant.
Deferred shares
Under the Plan, Participants are granted deferred shares
as part of their base remuneration and short term incentive
payments. The deferred shares are beneficially owned by the
Participant from the grant date and are held on trust for a two
year period.
The deferred shares are fully-paid ordinary shares in the
Company and are granted subject to certain Board imposed
conditions being satisfied:
• two year continued service condition; and
• risk conditions
112 Annual Financial Report 2017
Annual Financial Report 2017 113
35 Share based payment plans (continued)
36 Property, plant and equipment
Freehold
land
Freehold
buildings
Leasehold
improvements
Office equipment
& vehicles1
Summary of details under the various plans
The following table details the number (No.) and movements in the various plans during the year. The rights and shares are
granted at no cost and have no exercise price.
Performance rights
Deferred shares
Share Grant Scheme
Employee Share Plan
2017
2016
2017
2016
2017
2016
2017
2017
2016
2016
No. 1
No. 1
No. 1
No. 1
No. 1
No. 1
No. 2 WAEP ($)
No. WAEP ($)
Outstanding at
beginning of year
454,024
662,051
94,186
263,877
228,038
246,018 1,858,178
5.45
1,994,420
5.93
Granted
378,759
175,373
163,659
94,186
204,686
Forfeited/lapsed
(128,010)
(383,400)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(94,186) (263,877)
(233,200)
(17,980)
(264,901)
4.62
(136,242)
5.11
704,773
454,024
163,659
94,186
199,524
228,038 1,593,277
5.03
1,858,178
5.45
Vested/
exercised
Outstanding at
year end
Exercisable at
year end
Group
Carrying amount as at 1 July 2016
Additions
Disposals
Revaluations
Depreciation expense
Closing balance as at 30 June 2017
Carrying amount as at 1 July 2015
Additions
Disposals
Depreciation expense
Closing balance as at 30 June 2016
$m
1.3
-
-
0.4
-
1.7
1.3
-
-
-
1.3
$m
1.6
-
-
(0.1)
-
1.5
1.7
-
-
(0.1)
1.6
-
-
-
-
-
-
-
-
-
-
Bank
Carrying amount as at 1 July 2016
0.3
0.4
1. Closing balance of deferred shares and performance rights are exercisable upon meeting the required conditions and until 30 June 2018 and 30 June
2020 respectively.
2. The outstanding balance as at 30 June 2017 is represented by 1,593,277 (2016: 1,858,178) ordinary shares with a market value of $17,653,509
(2016: $17,838,509), exercisable upon repayment of the employee loan.
Recognition and measurement
The cost of the employee services received in respect of shares or rights granted is recognised in the income statement over
the period the employee provides the services, generally the period between the grant date and the vesting date of the shares or
rights. The overall cost of the award is calculated using the number of shares or rights expected to vest and the fair value of the
shares or rights at the grant date.
Fair value methodology
The fair value of shares or rights granted under the various Plans takes into account the terms and conditions upon which the
shares or rights were granted.
Performance rights - The fair value is determined using a Black Scholes Merton valuation method incorporating a Monte Carlo
Simulation option pricing model taking into account the terms and conditions upon which the rights were granted.
The following inputs are used in the models:
Managing Director
Other executives
Additions
Disposals
Revaluations
Depreciation expense
Closing balance as at 30 June 2017
Carrying amount as at 1 July 2015
Additions
Disposals
Depreciation expense
-
-
0.1
-
0.4
0.3
-
-
-
-
-
-
-
0.4
0.4
-
-
-
Closing balance as at 30 June 2016
0.3
0.4
1.
Includes office equipment, funriture and fittings.
Total
$m
90.7
10.4
(1.8)
0.3
$m
33.7
7.3
(0.9)
-
(11.7)
(21.8)
28.4
77.8
34.4
11.2
(0.6)
98.8
14.7
(1.0)
(11.3)
(21.8)
33.7
90.7
32.0
6.8
(0.8)
-
86.0
9.9
(1.7)
0.1
(11.3)
(21.3)
26.7
73.0
32.7
10.7
(0.5)
93.8
14.3
(0.8)
(10.9)
(21.3)
32.0
86.0
$m
54.1
3.1
(0.9)
-
(10.1)
46.2
61.4
3.5
(0.4)
(10.4)
54.1
53.3
3.1
(0.9)
-
(10.0)
45.5
60.4
3.6
(0.3)
(10.4)
53.3
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of performance rights (years)
Exercise price ($)
2017
5.75%
20.00%
2.10%
4
Nil
2017
5.75%
20.00%
1.93%
3
Nil
If land and buildings were measured using the cost
model the carrying amounts would be as follows:
Land
Buildings
Accumulated depreciation and impairment
Net carrying amount
Group
Bank
2017
2016
2017
2016
$m
0.4
0.6
(0.4)
0.6
$m
0.4
0.6
(0.4)
0.6
$m
0.1
0.1
(0.1)
0.1
$m
0.1
0.1
(0.1)
0.1
The expected life of the performance rights are based on historical data, and are not necessarily indicative of exercise patterns
that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which
may also not necessarily be the actual outcome. No other features of shares granted were incorporated into the measurement of
fair value. The fair value is determined by an independent valuation.
Deferred shares - The fair value is measured as at the date of the grant using the volume weighted average closing price of the
Company’s shares traded on the ASX for five trading days ending on the grant date.
114 Annual Financial Report 2017
Annual Financial Report 2017 115
36 Property, plant and equipment (continued)
37 Commitments and contingencies
Recognition and measurement
Cost and valuation
Plant and equipment is measured at cost less accumulated
depreciation and/or impairment. Land is measured at
fair value and buildings are measured at fair value less
accumulated depreciation.
All assets having limited useful lives, except land, are
depreciated from the date of acquisition using the straight line
method over their estimated useful lives as follows:
The residual value, the useful life and the depreciation method
applied to an asset are reviewed at least annually. Where
an asset’s carrying value is assessed to be more than the
recoverable amount, an impairment loss is recognised.
Revaluations
Following initial recognition at cost, land and buildings are
carried at a revalued amount which is the fair value at the
date of the revaluation less any subsequent accumulated
depreciation on buildings and accumulated impairment losses.
Asset category
Freehold buildings
Leasehold improvements
Plant & equipment
Furniture, fixtures and fittings
2017
40
10-12
4-10
4-5
2016
40
10-12
4-10
4-5
Motor vehicles
5
5
Derecognition
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected
to arise from the continued use of the asset. Any gain or loss
arising on derecognition of the asset is included in the income
statement in the year the item is derecognised.
a) Commitments
The following are outstanding expenditure and credit related commitments as at 30 June 2017. Except where specified, all
commitments are payable within one year.
Operating lease commitments (as lessee)
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years
Operating lease commitments (as lessor)
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years
Credit related commitments
Group
Bank
2017
$m
81.1
208.4
91.2
380.7
3.7
13.7
10.5
27.9
2016
$m
72.9
232.3
159.9
465.1
4.5
15.4
13.7
33.6
2017
$m
81.1
208.4
91.2
380.7
3.7
13.7
10.5
27.9
2016
$m
72.7
232.1
159.9
464.7
4.5
15.4
13.7
33.6
Gross loans approved, but not advanced to borrowers
2,001.1
2,243.3
1,935.4
2,195.9
Credit limits granted to clients for overdrafts and credit cards 1
Total amount of facilities provided
Amount undrawn at balance date
10,110.3
10,959.8
4,205.6
4,756.9
9,047.4
3,741.9
9,960.1
4,365.5
1. Normal commercial restrictions apply as to use and withdrawal of the facilities.
Recognition and measurement
Operating leases
An operating lease is a lease where substantially all of the risks and rewards of the leased assets remain with the lessor.
The Group has entered into commercial property leases and commercial leases on certain motor vehicles and items of office
equipment. The leases have various terms and some property leases include optional renewal periods in the contracts. There
are no restrictions placed upon the lessee by entering these leases. Payments made under operating leases are recognised
in the income statement on a straight line basis over the term of the lease. Lease incentives received are recognised as an
integral part of the lease expense, over the term of the lease.
The Group has entered into commercial property leases on the Group’s surplus office space. These non-cancellable leases have
various terms. All leases have a clause to enable upward revision of the rental charge on a regular basis according to prevailing
market conditions. Rentals received are recognised in the income statement on a straight line basis over the lease term.
Future minimum rentals payable and receivable under non-cancellable operating leases as at 30 June 2017 are outlined in the
table above.
116 Annual Financial Report 2017
Annual Financial Report 2017 117
37 Commitments and contingencies (continued)
38 Auditors’ remuneration
b) Contingent liabilities and contingent assets
Contingent liabilities
Guarantees
Group
2017
$m
2016
$m
Bank
2017
$m
2016
$m
The economic entity has issued guarantees on behalf of clients
251.6
234.7
247.2
230.1
Other
Documentary letters of credit & performance related obligations
2.2
2.6
1.9
2.3
As the probability and value of guarantees, letters of credit and performance related obligations that may be called on is
unpredictable, it is not practical to state the timing of any potential payment.
Recognition and measurement
Financial guarantees
Bank guarantees have been issued by the Bank on behalf of customers whereby the Bank is required to make specified
payments to reimburse the holders for a loss they may incur because the customer fails to make a payment.
Contingent liabilities are not recognised on the balance sheet. The contractual term of the guarantee matches the underlying
obligations to which it relates. The fair value of financial guarantee contracts has been assessed using a probability weighted
discounted cash flow approach. The guarantees issued by the Bank are fully secured and the bank has never incurred a loss in
relation to the financial guarantees it has provided.
Legal claims
The Group is engaged in a range of litigation and court proceedings at any point in time. However, no current proceedings or
claims are expected to have a material effect on the business, financial condition or operating results of the Group. For all
litigation exposures where loss is probable and can be reliably estimated an appropriate provision is made. The Group has no
provisions raised for any current legal proceedings.
Contingent assets
As at 30 June 2017, the economic entity does not have any contingent assets.
Group
2017
$
2016
$
Bank
2017
$
2016
$
Total fees paid or due and payable to Ernst & Young (Australia) 1
Audit and review of financial statements 2
1,919,667
1,907,192
1,602,269
1,499,158
Audit related fees
Regulatory 3
Non-regulatory 4
Total audit related fees
353,522
233,065
340,902
443,782
321,260
63,260
259,888
295,800
586,587
784,684
384,520
555,688
Total remuneration of Ernst & Young (Australia)
2,506,254
2,691,876
1,986,789
2,054,846
1. Fees exclude goods and services tax.
2. Audit and review of financial statements includes payments for the audit of the financial statements of the Group and Bank, including controlled entities
that are required to prepare financial statements.
3. Audit related fees (Regulatory) consist of fees for services required by statute or regulation that are reasonably related to the performance of the audit of
the Group’s financial statements and are traditionally performed by the external auditor. These services include assurance of the Group’s compliance with
APRA and Australian Financial Services Licensing reporting and compliance requirements.
4. Audit related fees (Non-regulatory) consist of fees for assurance and related services not required by statute or regulation but are reasonably related to
the performance of the audit or review of the Group’s financial statements which are traditionally performed by the external auditor. These services include
assurance of funding and capital raising and data and model validation for Basel II advanced accreditation.
39 Events after balance sheet date
No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly
affect the operations of the economic entity, the results of those operations, or the state of affairs of the economic entity in
subsequent financial years.
118 Annual Financial Report 2017
Annual Financial Report 2017 119
Directors’ Declaration
In accordance with a resolution of the directors of Bendigo and Adelaide Bank Limited, we state that:
In the opinion of the directors:
a.
the financial statements and notes of the Company and the Bendigo and Adelaide Bank Group are in accordance with the
Corporations Act 2001, including:
i.
ii.
giving a true and fair view of the Company’s and the Bendigo and Adelaide Bank Group’s financial position as at 30
June 2017 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and Corporations
Regulations 2001; and
b.
the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2; and
c.
d.
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable;
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 ending 30 June 2017.
On behalf of the Board
Robert Johanson
Chairman
5 September 2017
Mike Hirst
Managing Director
5 September 2017
120 Annual Financial Report 2017
Annual Financial Report 2017 121
122 Annual Financial Report 2017
Annual Financial Report 2017 123
124 Annual Financial Report 2017
Annual Financial Report 2017 125
126 Annual Financial Report 2017
Annual Financial Report 2017 127
Additional information
1 Material differences
There are no material differences between the information supplied in this report and the information in the preliminary final
report supplied by Bendigo and Adelaide Bank Limited to the Australian Securities Exchange on 14 August 2017.
2 Audit Committee
As at the date of the Directors’ Report the Group had an Audit Committee of the Board of Directors.
3 Corporate governance practices
The corporate governance practices adopted by Bendigo and Adelaide Bank Limited are as detailed in the Corporate Governance
statement. Please refer to www.bendigoadelaide.com.au/public/corporate_governance for further details.
4 Substantial shareholders
As at 16 August 2017 there was one substantial shareholder in Bendigo and Adelaide Bank Limited as detailed in substantial
holdings notices given to the Company - BlackRock Group.
5 Distribution of shareholders
Range of Securities as at 16 August 2017 in the following categories:
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Fully paid
ordinary
shares
36,087
38,836
8,689
4,757
106
Fully paid
Employee
shares
Convertible
Preference
shares
Convertible
Preference
shares 2
Convertible
Preference
shares 3
4,549
496
15
4
-
4,879
293
30
13
-
4,659
415
31
12
-
5,219
372
13
14
-
Number of Holders
88,475
5,064
5,215
5,117
5,618
Securities on Issue
477,436,022
1,770,442
2,688,703
2,921,188
2,822,108
6 Marketable parcel
Based on a closing price of $12.49 on 16 August 2017 the number of holders with less than a marketable parcel of the
company’s main class of securities (Ordinary Shares), as at 16 August 2017 was 3,373.
7 Unquoted securities
The number of unquoted equity securities that are on issue and the number of holders of those securities are shown in the
above table under the heading of Fully Paid Employee shares.
128 Annual Financial Report 2017
Annual Financial Report 2017 129
Additional information (continued)
8 Major shareholders
Additional information (continued)
8 Major shareholders (continued)
Names of the 20 largest holders of Fully Paid Ordinary shares, including the number of shares each holds and the percentage of
capital that number represents as at 16 August 2017 are:
Names of the 20 largest holders of Bendigo and Adelaide Convertible Preference shares, including the number of shares each
holds and the percentage of convertible preference share capital that number represents as at 16 August 2017 are:
Fully paid ordinary shares
Rank Name
Number of securities
% of securities
Rank Name
Number of securities
% of securities
Fully paid Convertible Preference Shares (CPS)
1
2
3
4
5
6
7
8
9
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
MILTON CORPORATION LIMITED
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
10 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
11 BAINPRO NOMINEES PTY LIMITED
12 CARLTON HOTEL LIMITED
13 NAVIGATOR AUSTRALIA LTD
14
AMP LIFE LIMITED
15 DIESEL COOLING PTY LTD
16
LEESVILLE EQUITY PTY LTD
17 NULIS NOMINEES (AUSTRALIA) LIMITED
18 NATIONAL NOMINEES LIMITED
19
20
YARABIE ESTATES PTY LTD
TERMZ PTY LTD
91,244,775
37,567,758
27,401,922
12,406,666
5,709,708
4,114,701
3,666,385
2,172,870
1,806,073
1,443,488
1,334,114
1,117,147
953,464
870,225
700,000
679,455
616,998
533,193
510,000
500,000
19.04%
7.84%
5.72%
2.59%
1.19%
0.86%
0.77%
0.45%
0.38%
0.30%
0.28%
0.23%
0.20%
0.18%
0.15%
0.14%
0.13%
0.11%
0.11%
0.10%
1
2
3
4
5
6
7
8
9
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMS PTY LTD
J P MORGAN NOMINEES AUSTRALIA LIMITED
IOOF INVESTMENT MANAGEMENT LIMITED
SANDHURST TRUSTEES LTD
PCI PTY LTD
BALMORAL FINANCIAL INVESTMENTS PTY LTD
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
WORONORA GENERAL CEMETERY & CREMATORIUM
10 SOUTH HONG NOMINEES PTY LTD
11 NATIONAL NOMINEES LIMITED
12 RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
13 G E MALLAN INVESTMENTS PTY LTD
14 WALMSLEY DEVELOPMENTS PTY LTD
15 BAPTIST FINANCIAL SERVICES AUSTRALIA LIMITED
16 MARENTO PTY LTD
17
TRISTAR METALS PTY LTD
18 SUNTECA (WA) PTY LTD
19 NETWEALTH INVESTMENTS LIMITED
20 NAVIGATOR AUSTRALIA LTD
98,601
69,575
67,347
39,453
19,083
17,715
16,203
15,830
15,000
14,000
12,538
11,000
10,300
10,000
10,000
10,000
10,000
10,000
9,697
9,448
3.67%
2.59%
2.50%
1.47%
0.71%
0.66%
0.60%
0.59%
0.56%
0.52%
0.47%
0.41%
0.38%
0.37%
0.37%
0.37%
0.37%
0.37%
0.36%
0.35%
195,348,942
40.77%
475,790
17.70%
BBS Nominees Pty Ltd, trustee for the Bendigo and Adelaide Employee Share Plan and Pacific Custodians Pty Limited, trustee for
the Employee Share Grant Scheme, held a combined total of 1,770,442 unquoted shares as at the date of this report.
These shares have not been included in the above table, but are included in total of issued ordinary share capital.
130 Annual Financial Report 2017
Annual Financial Report 2017 131
Additional information (continued)
8 Major shareholders (continued)
Additional information (continued)
8 Major shareholders (continued)
Names of the 20 largest holders of Bendigo and Adelaide Convertible Preference shares 2, including the number of shares each
holds and the percentage of convertible preference share 2 capital that number represents as at 16 August 2017 are:
Names of the 20 largest holders of Bendigo and Adelaide Convertible Preference shares 3, including the number of shares each
holds and the percentage of convertible preference share 3 capital that number represents as at 16 August 2017 are:
Fully paid Convertible Preference Shares 2 (CPS2)
Fully paid Convertible Preference Shares 3 (CPS3)
Rank Name
Number of securities
% of securities
Rank Name
Number of securities
% of securities
1
2
3
4
5
6
7
8
9
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
BNP PARIBAS NOMS PTY LTD
NATIONAL NOMINEES LIMITED
TGB HOLDINGS PTY LTD
J P MORGAN NOMINEES AUSTRALIA LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
JOHN E GILL TRADING PTY LTD
CITICORP NOMINEES PTY LIMITED
10
JGW INVESTMENTS PTY LTD
11 UNIVERSITY OF TASMANIA
12
13
THE TRUST COMPANY (AUSTRALIA) LIMITED
INVIA CUSTODIAN PTY LIMITED
14 C ROBERTSON PTY LTD
15
TRISTAR METALS PTY LTD
16 WINCHELADA PTY LIMITED
17
18
IOOF INVESTMENT MANAGEMENT LIMITED
PUPGALL PTY LTD
19 NAVIGATOR AUSTRALIA LTD
20 NULIS NOMINEES (AUSTRALIA) LIMITED
93,268
57,782
51,213
31,777
26,610
22,811
21,667
17,130
16,826
15,725
14,685
11,500
10,000
10,000
10,000
10,000
9,856
8,560
8,280
7,598
3.19%
1.98%
1.75%
1.09%
0.91%
0.78%
0.74%
0.59%
0.58%
0.54%
0.50%
0.39%
0.34%
0.34%
0.34%
0.34%
0.34%
0.29%
0.28%
0.26%
1
2
3
4
5
6
7
8
9
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
NAVIGATOR AUSTRALIA LTD
GAEA GROUP PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
J P MORGAN NOMINEES AUSTRALIA LIMITED
BNP PARIBAS NOMS PTY LTD
NULIS NOMINEES (AUSTRALIA) LIMITED
NETWEALTH INVESTMENTS LIMITED
10 G C F INVESTMENTS PTY LTD
11 SANDHURST TRUSTEES LTD
12 NATIONAL NOMINEES LIMITED
13
JGW INVESTMENTS PTY LTD
14 SOUTH LAKE PTY LTD
15 BRIPAT MANAGEMENT PTY LTD
16 BAPTIST FINANCIAL SERVICES AUSTRALIA LIMITED
17 NARRA HOLDINGS PTY LTD
18
TGB HOLDINGS PTY LTD
19 WINCHELADA PTY LIMITED
20
JDB SERVICES PTY LTD
90,985
54,438
47,761
37,906
28,342
26,712
25,475
25,427
19,349
15,000
11,781
11,653
10,260
10,100
10,000
10,000
10,000
9,800
8,012
7,800
3.22%
1.93%
1.69%
1.34%
1.00%
0.95%
0.90%
0.90%
0.69%
0.53%
0.42%
0.41%
0.36%
0.36%
0.35%
0.35%
0.35%
0.35%
0.28%
0.28%
455,288
15.59%
470,801
16.68%
9. Voting rights
Under the Bank’s Constitution, each person who is a voting Shareholder and who is present at a general meeting of the Bank
in person or by proxy, attorney or official representative is entitled to one vote on a show of hands or, on a poll, one vote for each
fully paid ordinary share held.
In the case of an equality of votes the Chairman has, on both a show of hands and at a poll, a casting vote in addition to the
vote to which the Chairman may be entitled as a shareholder, proxy, attorney or duly appointed representative of a shareholder.
132 Annual Financial Report 2017
Annual Financial Report 2017 133
Bendigo and Adelaide Bank Limited. ABN 11 068 049 178
134 Annual Financial Report 2017