Annual
Financial
Report
2 0 1 9
A N N UA L F I N A N C I A L R E P O R T 2 01 9 A
Contact us
Bendigo and Adelaide Bank Limited
ABN 11 068 049 178
Registered head office
The Bendigo Centre
Bendigo VIC Australia 3550
Telephone: 1300 236 344
+61 3 5445 0666 (if calling from overseas)
Shareholder enquiries
Share Registry
1300 032 762
Email: BEN@boardroomlimited.com.au
B A N N UA L F I N A N C I A L R E P O R T 2 01 9
Table of
contents
S E C T I O N 1
Message from our Chair
Message from our Managing Director
Directors’ Report
Operating and Financial Report
Remuneration Report
S E C T I O N 2
Financial Statements
Key Performance Indicators
Directors’ Declaration
Independent Auditor’s Report
S E C T I O N 3
Additional Information
2
3
4
12
24
45
124
125
126
134
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1
Message from
Our Chair
“ W E H A V E S P E N T M U C H O F T H E PA S T
Y E A R , L E D B Y O U R N E W M A N A G I N G
D I R E C T O R , R E A S S E S S I N G H O W W E N E E D
T O B E O R G A N I S E D A N D E Q U I P P E D S O W E
C A N D E L I V E R O N O U R V I S I O N O F B E I N G
A U S T R A L I A’ S B A N K O F C H O I C E .”
2018-19 was a challenging year for the banking industry
and for Bendigo and Adelaide Bank.
Total cash earnings in 2018-19 were $415.7 million, and
cash earnings per share were 85 cents. Earnings were
impacted by difficult market conditions and additional
redundancy and remediation costs. Dividends totalled 70
cents per share, the same as last year.
Two issues have dominated your bank and our industry
this year.
First are the issues brought to a head by the Royal
Commission into Misconduct in the Financial Services
Industry. These are issues that in many ways are
unresolved implications of the Global Financial Crisis
of 2008 and of the regulatory and industry responses
to it. That Crisis was caused by a reckless disregard
of financial risk in lending and investment by many
participants in the financial system around the world,
including banks. Many governments were required
to support and bail out their institutions to protect
depositors. But to prevent an economic recession
occurring, or at least to reduce the impact of any
slowdown, governments and central banks pushed cheap
credit into the economy to stimulate economic activity.
In Australia we largely avoided the worst impacts of
the 2008 Crisis on depositors and markets, but we
ended up with a different sort of crisis a decade later.
Many borrowers and investors were induced to buy
and invest in inappropriate products and many bankers
were rewarded for getting them to do it. Governance
and supervisory processes, which had served us so
well during the 2008 Crisis, turned out to be ineffective.
Bank boards, management and regulators have all
been required to reflect and reform and many have not
survived. It has been an extraordinary and for many a
shameful period in the industry.
At Bendigo and Adelaide Bank, we too have thought
deeply about our role and conduct. While we avoided
much of the criticism and fall out from the Royal
Commission, indeed we were complimented on how our
executive remuneration system is structured, we know
that we must constantly hold ourselves accountable
to the highest standards. I hope that as you read this
report, you get a sense of that.
The second big issue facing your Bank and the industry
is how we change and adapt to the new digital world.
We have spent much of the past year, led by our new
managing director, reassessing how we need to be
2 A N N UA L F I N A N C I A L R E P O R T 2 01 9
organised and equipped
so we can deliver on our
vision of being Australia’s
bank of choice.
Robert Johanson
- B O A R D C H A I R
Customers are choosing
to deal with us remotely.
Our customer interactions and relationships are
intermediated most often by the internet and the mobile
phone, not by face-to-face conversations, though the
ability to do that when needed is highly valued. We all
expect immediate and seamless access and functionality
whenever we choose, and wherever we are. Everything
needs to be reassessed - the role of branches, the
usefulness of old data systems and ways of working.
So, a major reengineering of the way we work together
and connect with customers is underway. This will affect
every part of the business and every relationship. The
old way of working and its cost are simply unsustainable.
This continues and accelerates the work we have been
doing for some years now, as we radically improved
our risk management systems and capacity, and as we
developed new products and processes with partners
like Up - Australia’s first next-gen digital bank - with
Ferocia and with IBM and TCS, and for Tic:Toc and
Homesafe. There is still a lot to do.
This is my final Chairman’s report to you and last year as
a director. The business of the Bendigo Building Society
that I joined as a director in 1988 is worlds apart in
scale, reach and impact to the business described in
this Annual Report. And the financial services industry
in which it operates and the social economy it serves
have changed profoundly too, in almost every way for the
better.
Yet many important things stay the same. The first
Bendigo Building Society was established by that group
of about 100 people at Abbotts Hotel in 1858 for the
same reasons customers and partners choose to bank
and partner with us today; to improve their lives and
enhance their prosperity. Our job is to enhance their
prosperity and to let them fulfil their purposes. If they can
do that, then we will prosper too.
Thank you all for your support and encouragement over
the past 32 years. It has been an honour to work with
you all.
Message from Our Managing Director
“ W E A R E F O C U S S E D O N R E S H A P I N G O U R B U S I N E S S F O R T H E F U T U R E B Y R E D U C I N G
C O M P L E X I T Y, I N V E S T I N G I N O U R C A PA B I L I T Y A N D T E L L I N G O U R S T O R Y.”
The 2019 financial year, my first in the role of
Managing Director of Bendigo and Adelaide Bank,
was a challenging year for the industry and a year of
change. In a year dominated by the Financial Services
Royal Commission, we have championed our vision to
be Australia’s bank of choice by pursuing a strategy
focused on serving our customers and communities.
Australians expect their financial institutions to deliver
on their promises. And so they should. However,
customer preferences are also changing, and
Australians expect to engage with their bank on their
terms.
We are focussed on reshaping our business for
the future by reducing complexity, investing in
our capability and telling our story - particularly in
customer experience and digitisation. This approach
helped produce many highlights throughout the year,
including:
• A four-fold increase in net new customers, taking
us to a new milestone of more than 1.7 million
customers choosing to bank with us
• A net promoter score increase to 28.6 percent
•
The launch of Up, Australia’s first and largest
next-gen digital bank, which grew to over 100,000
customers in its first eight months
The Bank’s adoption of Tic:Toc’s instant home
loan technology for its own product - the first
lender anywhere to do so
•
• A top ten ranking in Roy Morgan’s most trusted
Australian brands survey1
• A seven-place jump to eleventh in corporate
reputation rankings according to the Reputation
Institute2
• Seven Mozo People’s Choice Awards3 and
first place in Forrester’s Australian Customer
Experience Index, for the fourth year running
A willingness to invest and be discipled in the
execution of our strategy, whilst balancing the needs
of all our stakeholders, has enabled these milestones,
as well as many others.
We know consumers are looking for an alternative; an
organisation they can trust to put their interests first,
and I believe we are well-placed to be that for them.
We live by our purpose to feed into prosperity and, as
a result, we have cultivated strong, mutually beneficial
relationships with our customers and communities,
and this has set us apart from our competitors.
However, as technology and innovation continues
to rapidly advance, customers’ expectations are
changing. In response, we are continually investing
in new technologies that improve our customers’
experience.
1 Roy Morgan All Brand Net Trust Score Survey
2 Australia 2019 RepTrak®
3 Mozo People’s Choice Awards 2019 Results
Our ambition for the future is to grow market share
by staying true to our strategy and continuing to feed
into customer and community prosperity. The better
connected we are with our customers and the better
service we provide, the more they will choose to do
business with us.
Being based in the communities in which we serve
provides great insight into what customers and
communities are seeking from their bank. These close
connections are not something we take for granted.
In the first half of the financial year we celebrated
160 years since the Bank’s inception and saw
profit contributions from our 321 Community Bank®
partners exceed $200 million.
We will maintain our commitment to always excel
in customer service, offer a seamless customer
experience, advocate for our customers and support
their communities.
To maintain this, we must have adaptive people and
a strong, agile culture. We must also build on our
track record of innovation - be it through technology
or our proud partnership models.
The strength of our business will stand us in good
stead as we reshape it to be more adaptive to the
future needs and aspirations of our customers.
At this year’s Annual General Meeting, we will say
farewell to Robert Johanson. A director of the Bank
for more than three decades and Chair for the
past 13 years, Robert has given so much to our
organisation and I thank
him for his contribution
and wish him a well-
deserved retirement.
I would also like to
formally welcome Jacquie
Hey, Robert’s successor
as Chair. Jacquie
possesses a wide breadth
of business experience
and knowledge of our
Bank and the industry, and
I look forward to working
closely with her.
Finally, I offer my thanks
to all our customers, staff,
partners, communities
and shareholders for their
support. I look forward to
another successful year.
Marnie Baker
- M A N A G I N G D I R E C T O R
A N N UA L F I N A N C I A L R E P O R T 2 01 9 3
Directors’
Report
T H E D I R E C T O R S O F B E N D I G O A N D A D E L A I D E B A N K L I M I T E D P R E S E N T T H E I R R E P O R T T O G E T H E R W I T H T H E
F I N A N C I A L R E P O R T O F B E N D I G O A N D A D E L A I D E B A N K L I M I T E D ( T H E “ B A N K ” ) A N D T H E C O N S O L I D A T E D E N T I T Y
( T H E “ G R O U P ” ) F O R T H E Y E A R E N D E D 3 0 J U N E 2 0 1 9 .
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, MBA
(Harvard), 68 years
Marnie Baker
Managing Director,
Non-independent
BCom, CPA, MAICD
and SFFin, 51 years
Term of office: Robert has been a Director
of the Bank for 31 years. He was appointed
Chairman in 2006.
Group and joint venture directorships:
Rural Bank Limited (ceased 1 June 2019)
and Homesafe Solutions Pty Limited (Chair)
Other director and memberships
(including directorships of other listed
companies for the previous three years):
Chairman, Australia India Institute
Director, Robert Salzer Foundation Limited,
NeuClone Pty Limited, Melbourne Business
School and Grant Samuel Group Pty Limited.
Board committees: Marnie is not a member
of any Board committees.
Group and joint venture directorships:
Rural Bank Limited (ceased 1 June 2019)
Other director and memberships
(including directorships of other listed
companies for the previous three years):
Member of the Australian Bankers
Association Council, Business Council of
Australia and Mastercard (Asia Pacific)
Advisory Board.
Skills, experience and expertise:
Robert has experience in banking and
financial services and expertise in
corporate strategy, capital management,
finance and 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: Member of Governance
& HR and Technology
Term of office: Marnie was appointed
Managing Director and Chief Executive
Officer commencing 2 July 2018.
Skills, experience and expertise:
Marnie has 30 years of experience in the
banking and financial services sector. This
includes experience in retail and wholesale
banking, treasury and financial markets
(including securitisation), trustee services
and funds management. She has been a
member of the executive team for nearly
two decades and held senior leadership
positions including Chief Customer Officer,
Executive Customer Voice, Executive Banking
and Wealth and Chief General Manager
Products and Solutions. Her experience also
includes senior roles in treasury, capital
markets, technology, digital banking and
payment systems.
4 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Directors’ information continued
Vicki Carter
Independent
BA (Social Sciences),
Dip Mgt, Certificate in
Executive Coaching,
GAICD, 55 years
David Foster
Independent
B.AppSci, MBA, SFFin,
FAIM, GAICD, 50 years
Jan Harris
Independent
BEc (Hons), 60 years
Jim Hazel
Independent
BEc, SFFin, FAICD,
68 years
Term of office: Vicki joined the Board on 4
September 2018.
Vicki has also held various senior leadership
roles at MLC, ING and Prudential.
Skills, experience and expertise:
Vicki has over 30 years’ experience in
the financial services sector including
retail banking and more recently in
technology and telecommunications. Vicki
is currently employed as Executive Director,
Transformation at Telstra Corp Limited. Prior
to this Vicki held a number of executive
roles at NAB including Executive General
Manager - Retail Bank, Executive General
Manager - Business Operations and General
Manager - People and Organisational
Development.
Board committees: Member of Credit,
Technology and Governance & HR.
Group and joint venture directorships:
Rural Bank Limited (ceased 1 June 2019)
Other director and memberships
(including directorships of other listed
companies for the previous three years):
Nil
Term of office: David joined the Board in
September 2019.
Skills, experience and expertise: David is
an experienced non-executive director. He
holds several directorships across a range
of listed and government organisations.
David’s earlier executive career spanning
25 years was primarily in financial services
with Westpac and Suncorp, including CEO of
Suncorp Bank.
Board committees:
Member of Credit and Risk
Group and joint venture directorships:
Nil.
Other director and memberships (including
directorships of other listed companies for
the previous three years):
Director, G8 Education Limited (ASX
listed, period: 2016 to present), Genworth
Mortgage Insurance Australia Limited,
Chairman, Motorcycle Holdings Australia
Limited (ASX listed, period: 2015 to
present), Thorn Group Limited (ASX listed,
period: 2014 to present) and Council
Member of the University of the
Sunshine Coast.
Formerly a director of Kina Securities
Limited (ASX listed, period: 2015 to 2018).
Term of office: Jan joined the Board in
February 2016.
Board committees:
Chair of Risk and member of Audit
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.
Group and joint venture directorships:
Rural Bank Limited (ceased 1 June 2019)
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, Australian Office of
Financial Management Audit Committee.
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, finance and risk management,
including in the regional banking industry.
Board committees:
Chair of Credit and member of Risk
Group and joint venture directorships:
Rural Bank Limited (ceased 1 June 2019)
Other director and memberships
(including directorships of other listed
companies for the previous three years):
Chairman, Ingenia Communities Group
Limited (ASX listed, period: March 2012 to
present)
Director, Centrex Metals Limited (ASX listed,
period: July 2010 to present), Adelaide
Football Club Limited, Coopers Brewery
Limited, Trustee for Adelaide Festival Centre
Trust and Council Member of the University
of South Australia.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 5
Directors’ information continued
Jacqueline Hey,
Independent
BCom, Graduate
Certificate in
Management, GAICD,
53 years
Robert Hubbard,
Independent
BA (Hons) Accy, FCA,
60 years
David Matthews,
Independent
Dip BIT, GAICD,
61 years
Deb Radford,
Independent
BEc, Graduate Diploma
Finance & Investment,
63 years
Term of office: Jacquie joined the Board in
July 2011.
Group and joint venture directorships:
Rural Bank Limited (ceased 1 June 2019)
Skills, experience and expertise:
Jacquie has experience in information
technology, telecommunications, finance,
risk management and marketing, including
as CEO/Managing Director of Ericsson in
the UK/Ireland and in Australia/NZ. 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 and
member of Governance & HR and Risk
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), AGL Energy
Limited (ASX listed, period, March 2016 to
present), Cricket Australia and Member of
Brighton Grammar School Council.
Former Director, Australian Foundation
Investment Company Limited (ASX listed,
period: July 2013 to January 2019).
Term of office: Rob joined the Board in April
2013.
Group and joint venture directorships:
Rural Bank Limited (ceased 1 June 2019)
Skills, experience and expertise:
Rob is an accountant with finance, audit
and risk management experience and is
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 and Technology
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),
Chairman, Healius Limited (ASX listed,
period: December 2014 to present) and
former Director, Central Petroleum Limited
(ASX listed, period: December 2013 to May
2018).
Term of office: David joined the Board in
March 2010.
Skills, experience and expertise:
David operates a farm and an agri. import/
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 (ceased 1 June 2019)
and Member of the Community Bank®
National Council
Other director and memberships
(including directorships of other listed
companies for the previous three years):
Director, Australian Grain Technologies Pty
Limited, Farm Trade Australia Pty Limited
and Rupanyup/Minyip Finance Group
Limited.
Term of office: Deb joined the Board in
February 2006 and retired from the Board
on 30 October 2018.
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: previously Chair of
Credit and Member of Technology and
Governance & HR
Group and joint venture directorships: Rural
Bank Limited (ceased 30 October 2018)
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.
6 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Tony Robinson,
Independent
BCom, ASA, MBA (Melb),
61 years
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 Audit and Credit
Group and joint venture directorships:
Rural Bank Limited (ceased 1 June 2019)
and Sandhurst Trustees Limited (ceased 23
July 2019)
Other director and memberships
(including directorships of other listed
companies for the previous three years):
Chairman, Longtable Group Limited (ASX
listed, period: November 2015 to present),
Pacific Current Group Limited (ASX listed,
period: August 2015 to present).
Director, PSC Insurance Group Limited (ASX
listed, period: September 2015 to present)
and former Director, Tasfoods Limited (ASX
listed, period: June 2014 to March 2018).
Principal activities
The principal activities of the Group during the financial year
were the provision of a broad range of banking and other
financial services including consumer, residential, business,
rural and commercial lending, deposit-taking, payments
services, wealth management and superannuation, treasury and
foreign exchange services. There were no significant changes in
the nature of the activities during the year.
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 12 August 2019 a fully franked
final dividend of 35 cents per fully paid ordinary share. The
final dividend is payable on 30 September 2019. The proposed
payment is expected to amount to $169.6 million.
The following fully franked dividends were paid by the Bank during
the year on fully paid ordinary shares:
•
A final dividend for the 2018 financial year of 35 cents per
share, paid on 28 September 2018 (amount paid: $166.0
million); and
An interim dividend for the 2019 financial year of 35 cents per
share, paid on 29 March 2019 (amount paid: $168.7 million).
•
Further details on dividends provided for or paid during the 2019
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.
State of affairs
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 Chairman’s and Managing
Director’s Messages and the Operating Financial Review section
of this report.
The Directors note that on 31 May 2019, the Rural Bank Limited
ADI licence was returned to APRA, resulting in all assets and
liability of Rural Bank Limited being transferred to Bendigo and
Adelaide Bank Limited.
After balance date events
On 1 July 2019 the Group completed the sale of its specialist
self-managed superannuation fund business located in Geelong
West pursuant to an Asset Purchase Agreement with LBWFP Pty
Ltd. The Group also entered into an Asset Purchase Agreement
to sell its financial planning business, Bendigo Financial Planning
Pty Ltd, to Bridges Financial Services Group Pty Limited with an
effective date of 1 August 2019. This agreement saw Bridges
Financial Services Group Pty Limited assume the provision of
financial planning services to existing Bendigo Financial Planning
Pty Ltd customers and also saw the commencement of an
ongoing referral arrangement. As at 30 June 2019, both of these
businesses were recorded as held-for-sale.
On 28 August 2019 the Bank issued $500 million of 5-year
wholesale funding, being split between $300 million of floating
rate notes and $200 million of fixed rate notes, settling on 6
September 2019.
On 3 September 2019, ASIC initiated legal proceedings against
the Bank in relation to the application of the unfair contract
terms legislation. The proceedings relate to a version of its
small business loan contracts under each of its Delphi Bank
and Rural Bank brands in place between 2016 and June 2019.
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 Chairman’s and Managing Director’s Messages
and the Operating and Financial Review section of this report.
Rounding of amounts
The Bank is a company of a kind referred to in ASIC
Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191 and in accordance with that Instrument,
amounts in this report have been rounded to the nearest
million dollars, unless otherwise stated.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 7
Meetings of Directors
Information on Board and committee meeting attendance for the year is presented in the following table:
Director
Board
Audit
Credit
Risk
Governance
& HR
Technology
Committees
Meetings during the year
Robert Johanson
Marnie Baker
Vicki Carter
Jan Harris
Jim Hazel
Jacquie Hey
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
A
17
17
14
17
17
17
17
17
9
17
B
17
17
12
17
15
16
16
15
7
15
A
B
7
7
7
7
7
7
7
6
A
7
9
2
9
2
7
B
A
B
6
8
2
9
2
6
8
8
7
8
1
8
8
7
7
1
A
6
4
6
2
6
B
5
4
6
1
6
A
5
4
1
5
4
2
B
5
4
1
5
4
2
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
Marnie Baker
Vicki Carter
David Foster
Jan Harris
Jim Hazel
Jacquie Hey
Robert Hubbard
David Matthews
Tony Robinson
Ordinary
Shares No.
244,539
605,957
504
500
2,000
29,036
26,237
17,815
34,490
33,140
Preference
Shares No.
Performance
Rights No.
Sandhurst
Common Fund $ 1
-
600
-
-
-
-
250
-
-
-
-
72,768
485
43,311
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 Being a relevant interest in a managed investment scheme made available by Sandhurst Trustees Limited, a subsidiary of the Bank.
8 A N N UA L F I N A N C I A L R E P O R T 2 01 9
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
303,687 rights (2018: 309,349). This included 170,590
rights granted to key management personnel.
As at the date of this report there are 649,842 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 2020 and 30 June 2022.
During or since the end of the financial year 333,645 rights
vested (2018: 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 2019 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 2019
Remuneration Report.
Corporate Governance
An overview of the Bank’s corporate governance structures
and practices is presented in the 2019 Corporate Governance
Statement available from the Bank’s website at
www.bendigoadelaide.com.au/public/
corporate_governance/index.asp
The Bank confirms it has followed the ASX Corporate
Governance Council’s Principles and Recommendations (3rd
edition) during the 2019 financial year.
Environmental Regulation
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 2019 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.
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 9
Details of all non-audit services for the year ended 30 June
2019:
(a) Assurance related fees (Regulatory)
Service Category
Fees $
Entity
AFSL audit and APS
310 audit
265,300
Bendigo and Adelaide
Bank Limited
Accounting advice to
APRA for debt issuance
15,000
Bendigo and Adelaide
Bank Limited
EMTN Comfort Letter
31,000
Bendigo and Adelaide
Bank Limited
Sub-total: Audit related
fees (Regulatory)
311,300
(b) Assurance 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
Community Bank
expense review
Alliance Bank revenue
share calculation review
AAB9 Financial
Instruments
95,000
17,680
244,000
ESG reporting roadmap
advisory services
67,500
Royal Commission
5,665
Securitisation Trusts
43,600
Google Cloud Platform
(GCP) assurance report
Portfolio Funding agreed
upon procedures
Sub-total: Audit related
fees (Non-regulatory)
95,000
250,000
818,445
Bendigo and
Adelaide Bank
Limited
Bendigo and
Adelaide Bank
Limited
Bendigo and
Adelaide Bank
Limited
Bendigo and
Adelaide Bank
Limited
Bendigo and
Adelaide Bank
Limited
Securitisation
Trusts
Bendigo and
Adelaide Bank
Limited
Bendigo and
Adelaide Bank
Limited
Company Secretary and General Counsel
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 has
been a practising lawyer for almost 20 years.
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 2018.
To support the declaration, formal risk management and financial
statement due diligence and verification processes, including
attestations from senior management, are 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
2019.
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 2019. 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.
10 A N N UA L F I N A N C I A L R E P O R T 2 01 9
(c) Other services
All other fees, including taxation services and other
advice are incurred under the audit committee's pre-
approval policies and procedures, having regard to the
auditor’s independence requirements of applicable laws,
rules and regulations, and assessment that each of
the non-audit services provided would not impair the
independence of Ernst & Young. The amounts shown are
GST exclusive.
Service Category
Fees $
Entity
Financial Crimes
Review
257,500
Bendigo and Adelaide
Bank Limited
Other services
5,600
Bendigo and Adelaide
Bank Limited
Sub-total: Other fees
263,100
Total:
non-audit services
1,392,845
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.
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Auditor’s Independence
Declaration to the
Directors of Bendigo and
Adelaide Bank Limited
As lead auditor for the audit of Bendigo and
Adelaide Bank Limited for the financial year
ended 30 June 2019, I declare to the best of my
knowledge and belief, there have been:
a)
no contraventions of the auditor
independence requirements of the
Corporations Act 2001 in relation to the
audit; and
b) no contraventions of any applicable code
of professional conduct in relation to the
audit.
This declaration is in respect of Bendigo and
Adelaide Bank Limited and the entities it
controlled during the financial year.
Ernst & Young
Graeme McKenzie
Partner
Melbourne
6 September 2019
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 1
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 1
Operating
and Financial
Review
Our business
Bendigo and Adelaide Bank is Australia’s fifth largest
retail bank. We provide banking and financial products and
services to more than 1.7 million customers throughout
Australia. Our key products and services include; residential
and consumer lending, business lending, agri-business
lending, deposit-taking, payments services, wealth
management, superannuation and foreign exchange
services.
As detailed below, our network comprises 747 physical
points of presence throughout Australia including branches,
agency outlets and customer service centres. These points
of presence comprise company owned sites and those
owned and operated by our Community Bank® franchises
and Alliance Bank partners. In addition to our physical
points of presence, we also have over 688,000 electronic
banking customers.
The brands that support our 1.7 million customers and
make up our diverse business are grouped into operating
brands, product issuer brands, joint ventures, subsidiaries
and other. These brands share a common purpose; to feed
into the prosperity of our customers and communities.
168
B E N D I G O
B A N K
B R A N C H E S
632
A T M S
324
100+
C O M M U N I T Y
B A N K ®
B R A N C H E S
B E N D I G O B A N K M O B I L E
A N D B U S I N E S S
D E V E L O P M E N T M A N A G E R S
21
A L L I A N C E
B A N K ®
B R A N C H E S
188
R U R A L B A N K
R E L A T I O N S H I P
M A N A G E R S
15
10,000+
D E L P H I B A N K
B R A N C H E S
M O R T G A G E
B R O K E R S
215
4
R U R A L B A N K
P O I N T S O F
P R E S E N C E
P R I V A T E
F R A N C H I S E
B R A N C H E S
688,795
E B A N K I N G
C U S T O M E R S
12 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Our business divisions
Our business is centred on three customer focused
divisions:
• Consumer: focused on engaging with and servicing
consumer customers and includes our branch
network (including Community Banks® and Alliance
Partners), mobile relationship managers, third party
banking channels, wealth services, Homesafe, call
centres and customer support functions including
processing centres.
• Business: focused on servicing business customers,
particularly small and medium businesses who
are seeking a relationship banking experience,
and includes Portfolio Funding, Delphi Bank, and
Community Sector Banking.
• Agribusiness: includes services provided to
agribusiness customers through our Rural Bank
brand, with a focus on providing exceptional financial
services, knowledge and leadership for Australian
farmers to grow.
Our Strategy
O V E R T H E L A S T 1 6 1 Y E A R S , T H E F U N D A M E N T A L
P U R P O S E O F O U R B U S I N E S S H A S N O T
C H A N G E D. O U R P U R P O S E I S T O H E L P
C U S T O M E R S A N D T H E I R C O M M U N I T I E S S E C U R E
P R O S P E R O U S F U T U R E S . I F W E C A N H E L P T H E M
D O T H A T, T H E N W E T O O W I L L P R O S P E R .
We put our customers and our communities at the
very centre of our business, so we can develop and
deliver solutions to enhance their economic and
social wellbeing.
While the fundamental purpose of our business may
not have changed, there are great changes occurring
in Bendigo and Adelaide Bank’s markets - particularly
in consumer expectations and behaviour, technology,
and regulatory requirements.
We must ensure we deliver better outcomes,
more easily for staff, customers, partners and
shareholders.
Our strategy is underpinned by our unique heritage
and a recognition that our technology and operating
capabilities need to continually adapt to an ever-
changing business landscape.
We are taking advantage of a unique opportunity in
our history by seizing the moment to drive substantial
growth as we strive to be Australia’s bank of choice.
Our ambition is to grow market share to deliver value
for all stakeholders by reducing complexity, investing
in capability and telling our story.
The essence of what we do will not change but the
means by which we do it, will continue to evolve.
V I S I O N
V A L U E
P R O P O S I T I O N
Australia’s bank of choice
T R U S T E D A N D A U T H E N T I C
R E L E V A N T S O L U T I O N S
E A S Y T O D O B U S I N E S S W I T H
P U R P O S E
To feed into the prosperity of our customers and communities
I M P E R A T I V E S
Reduce complexity
Reduce complexity in our business
to make it easier for customers to do
business with us and staff to enable
this; whilst taking unneccessary cost
out of the business.
Invest in capability
Invest in the areas and capabilities
that will future proof our business
and make a difference to our
customers’ experience.
Tell our story
Tell our story so more Australians know
who we are, what we stand for and why
being a customer of our bank matters.
O U T C O M E S
Medium-term reduction in cost base
Seamless customer experience
Sustainable growth
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 3
Our Strategy
Our strategy is underpinned by three imperatives: reducing
complexity; investing in capability; and telling our story, in
order to best position us to deliver a seamless customer
experience, a medium-term reduction in our cost base and
continued sustainable growth.
• We are testing new concept stores, and building a better
customer experience. The first of these concept stores, the
‘smart’ new look Norwood branch in South Australia has
exceeded expectations with a 64% increase in foot traffic
and a significant uplift in business.
Reducing complexity
We are reducing complexity in our business to make it easier
for customers to do business with us, and for our people to
enable this, while at the same time reducing our cost base.
In the 2019 financial year we reviewed our organisational
structure and undertook a cultural review to ensure we have
the capabilities to continue to execute our strategy. During the
financial year, the Group incurred $11.9m in redundancy costs
as we transition our workforce, ensuring that we have the right
skills and capabilities to deliver on our strategy.
We continue to review the business for opportunities to
simplify our operating model, reduce risk and deliver cost
savings. Amongst other things, during the last twelve months
we have:
•
Entered into an agreement to divest our financial planning
business, Bendigo Financial Planning, which was completed
in August 2019.
• Rural Bank Limited handed back its banking license and
now operates as a division of the Group, continuing to offer
specialised services and products to rural and regional
Australia.
• We progressed optimisation of our branch network and over
the year we closed six branches and fifteen agency outlets.
Our Community Bank®partners opened four new Customer
Service Centres.
Invest in capability
We’re investing in capabilities that will future proof our
business and make a difference to the experience that our
customers have with us.
We are adopting new technologies to become more efficient
and suit our customers’ evolving needs. During the financial
year 2019 we invested in innovative technologies and
leveraged key strategic partnerships to offer our customers,
and potential customers, more choice and a better digital
experience including:
• Up, Australia’s first next-gen digital bank, which was
designed, developed and delivered through a collaboration
between the Bank and fintech Ferocia. Up launched in
October 2018 and has exceeded initial expectations,
attracting over 100,000 customers since its launch.
• We leveraged our existing relationship with Australian
fintech, Tic:Toc, to launch Bendigo Express, a digital home
loan application and assessment process.
Customers increasingly want personalised solutions, which
are accessible anytime and anywhere. We are reshaping our
business to deliver what our customers demand including:
•
Investing in additional mobile relationship managers across
all three of our business segments (consumer, business
and agribusiness).
We also continue to focus on investment in our risk and
compliance activities and capabilities, which help support our
business.
Tell our story
Tell our story, so more Australians know who we are, what we
stand for and why being a customer of our bank matters.
During the 2019 financial year we were recognised with the
following:
• Number 1 for Customer Experience in Australia for the
fourth year running1
• Ranked Top 2 bank for customer satisfaction2
• 9th most trusted brand in Australia3
Our Customers
We continue to focus on the everyday needs of our customers.
With our renewed strategy we have had success in enhancing
customer experience, and growing both our customer base and
balance sheet in key segments.
Significant growth in net new customers during the year
resulted in a 7.2% increase in customers to more than 1.7
million. This included more than 100,000 new millennial
customers. An increase of customers in this younger
demographic is an important step in us achieving our
sustainable long-term growth. We also had strong growth in
customers in our business and agribusiness segments with
5% growth in small to medium business customers and 11%
growth in family corporate farm customers.
Our Partners
Partnerships are a key pillar of our strategy. Strategic
relationships and partnering allow us to extend our reach,
widen our capabilities and improve customer experience.
Over the last twelve months, our partnerships have strengthened
through new and expanded relationships including:
• Rural Bank and Elders entered into a nine-year exclusive
agreement, continuing a successful partnership that has
supported agricultural growth for two decades. As part of
the new arrangement, 87 Elders financial services staff
transitioned to the Group, continuing to focus on the
customer experience.
• We announced a new partnership with Swinburne University to
•
•
open a Community Bank®, which will reinvest banking profits
into projects, programs and people at Swinburne.
In May 2019, we announced an expansion of our existing
partnership with Connective Home Loans with the creation of
a new white label loan offering, Connect Select Home Loans.
In July 2019, we announced with CPA Australia a strategic
relationship that will provide CPA Australia’s members with
access to a range of our customised finance and banking
solutions.
1 Forrester’s Australian Customer Experience Index (December 2018)
2 Roy Morgan’s ‘Customer Satisfaction report on Consumer Banking in Australia’ (May 2019 & December 2018)
3 Roy Morgan Net Trust Score (October 2018)
14 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Our Business Performance
T H I S Y E A R , W E A N N O U N C E D A N
A F T E R - T A X S T A T U T O R Y P R O F I T O F $ 3 7 6 . 8
M I L L I O N F O R T H E 1 2 M O N T H S E N D I N G
3 0 J U N E 2 0 1 9 .
We announced a fully franked final dividend of 35
cents per share, taking the full year fully franked
dividends to 70 cents per share continuing
our history of rewarding shareholders with high
yielding and long-term returns.
Cash earnings was $415.7 million, a 6.6%
decrease on the prior financial year.
Cash earnings per share was 85 cents, a
reduction of 7.7% from the 2018 financial year.
Financial year 2019 earnings were impacted
by remediation and redundancy costs. Despite
an environment of low growth, low interest
rates, political uncertainty, subdued consumer
confidence and increasing competition, we
delivered total income of $1.6 billion which was
in line with the prior year.
Lending grew overall, with upticks in residential,
agribusiness and small and medium business
lending. Our capital position further strengthened
with Common Equity Tier 1 up 30 bps to 8.92
percent, reflecting a stable balance sheet
and the continuing movement to lower risk
exposures.
We also delivered significant customer growth,
with net new customers up by almost two-thirds
for the full year, taking us to a new milestone of
more than 1.7 million customers choosing our
Bank. Our continued customer focus resulted
in our net promoter score increasing to 24.821
which is more than 30 points higher than the
average of the major banks.
We have laid solid foundations and achieved
early success. We will accelerate our strategy
as we continue to look to the future for our
customers and for all our stakeholders as we
drive our multi-year journey to become Australia’s
bank of choice.
C A S H E A R N I N G S ( $ M )
N E T P R O F I T A F T E R T A X ( $ M )
C O S T T O I N C O M E ( % )
F Y1 9
F Y1 8
F Y17
F Y16
F Y1 5
4 1 5 .7
4 4 5 . 1
41 8 . 3
4 0 1 . 4
4 0 2 . 8
F Y1 9
F Y1 8
F Y17
F Y16
F Y1 5
376 . 8
4 3 4 . 5
4 2 9 . 6
41 5 . 6
4 2 3 . 9
F Y1 9
F Y1 8
F Y17
F Y16
F Y1 5
5 9. 2
5 5 .6
5 6 . 1
5 8 . 1
5 6 . 8
C A S H E A R N I N G S P E R S H A R E ( C )
D I V I D E N D P E R S H A R E ( C )
C A S H B A S I S R E T U R N
O N T A N G I B L E E Q U I T Y ( % )
F Y1 9
F Y1 8
F Y17
F Y16
F Y1 5
8 5 .0
9 2 . 1
8 8 . 5
8 7. 3
8 8 . 6
F Y1 9
F Y1 8
F Y17
F Y16
F Y1 5
70
70
6 8
6 8
6 6
F Y1 9
F Y1 8
F Y17
F Y16
F Y1 5
10 .73
1 1 . 5 2
1 1 . 6 1
1 1 . 8 3
1 2 . 37
1 Roy Morgan Single Source (Australia), rolling 6-month comparisons as at June 2018 and June 2019 NPS of those with any financial relationship with the bank.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 5
Statutory net profit and cash earnings
Our statutory net profit decreased 13.3% to $376.8 million for the 2019 financial
year (FY18: $434.5 million).
Cash earnings of $415.7 million were recorded for the financial year, a decrease of
6.6% from the prior year (FY18: $445.1 million).
Statutory net profit was impacted by a decline of $79.5 million (before tax) in
statutory contribution from our Homesafe portfolio revaluations. During the 2019
financial year, losses relating to the Homesafe portfolio were $24.1 million (before
tax) compared to a gain of $55.4 million (before tax) in the prior year.
Both statutory net profit and cash earnings were impacted by redundancy costs of
$11.9 million (before tax) (FY18: $2.3 million (before tax)) and remediation costs of
$16.7 million (before tax) (FY18: $0.5 million (before tax)).
Statutory net profit
($’m)
FY19
376.8
Cash earnings
($’m)
FY19
415.7
13.3%
FY18
434.5
6.6%
FY18
445.1
Cash earnings is a measure used across the banking industry to measure the maintainable level of earnings by excluding specific items
of revenue and expenditure that are not representative of ongoing financial performance, such as non-recurring items. The cash earnings
measure enables comparison with the financial performance of other banking and financial services institutions. The cash earnings
adjustments are not subject to audit or review by the external auditor
Income (excluding specific items)
Total income (excluding specific items) declined by 0.3% from the prior year. Key
drivers of this performance were:
• Maintenance of Net Interest Margin (before revenue share arrangements) of
•
2.36%.
An increase of 5% in other income resulting from:
•
Improved foreign exchange income due to the launch of a new foreign
exchange retail prepaid travel card and an increase in foreign exchange
activity with our consumer and business customers.
A significant increase in trading book income to $12.2 million
(FY18: $0.8 million).
•
Income (ex specific items)
0.3%
FY19
FY18
($’m)
1,599.5
1,604.8
Net interest margin
(before revenue share arrangements)
(%)
FY19
2.36
FY18
2.36
Net interest margin is a performance measure that is calculated as net interest income (excluding fair value adjustments) expressed as a
percentage of average interest earning assets. Net interest margin (before revenue share arrangement) is calculated prior to any share of
revenue with partners.
Operating expenses
Total operating expenses increased 5.4%. This included costs associated with
remediation and redundancies:
• Redundancy costs of $11.9 million (FY18: $2.3 million) as we focus on the
skills and roles required to meet the needs of our customers in order to deliver
on our strategy.
• Remediation expenses of $16.7 million (FY18: $0.5 million) relating to
remediation programs for products and advice. This included products not
operating in accordance with terms and conditions and where there was
insufficient documentation to demonstrate advice services had been provided.
Underlying operating expenses, which exclude remediation and redundancies,
increased by 2.6% driven by:
•
Increase in staff costs due to:
•
As part of the new arrangement with Elders, 87 financial services staff
transitioned to the Group.
Investment in additional Group Risk and People & Culture resources.
Annual salary increase.
•
•
• Higher corporate insurance premiums and insurance costs associated with new
credit card products.
The cost to income ratio increased to 59.2% for the financial year (FY18: 55.6%). The
adjusted cost to income ratio (which excludes redundancy and remediation costs),
was 57.4% (FY18: 55.4%).
16 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Operating expenses
($’m)
FY19
958.2
Cost to income ratio
(%)
FY19
59.2%
5.4%
FY18
909.1
6.5%
FY18
55.6%
Adjusted cost to income ratio
3.6%
(%)
FY19
57.4%
FY18
55.4%
Credit expense and provisions
Total credit expenses (net of recoveries) decreased 28.8% to $50.3 million (FY18:
$70.6 million) and credit expenses to gross loans fell to 0.08% (FY18: 0.011%).
The total provisions and reserves for doubtful debts increased by 17.9% to $362.8
million (FY18: $307.8 million). On 1 July 2018, the Group adopted AASB9 Financial
Instruments, which resulted in an increase in the collective provision of $134.3
million and a decrease in the General Reserve for Credit Losses of $82.9 million.
Overall total impaired loans for the Group decreased by 7.4%, driven by commercial
exposures being finalised through property settlements and loan balances being
paid down. All core portfolios remain well secured and portfolio performance remains
sound. The provision coverage ratio of 116.7% is up from 91.7% from the prior year.
Provision coverage is calculated as total provisions and reserves for doubtful debts -
divided by total impaired assets.
Total credit expense
(net of recoveries)
($’m)
FY19
50.3
28.8%
FY18
70.6
Total provision and reserves
for doubtful debts
17.9%
($’m)
Impaired loans
($’m)
FY19
362.8
FY19
310.9
FY18
307.8
7.4%
FY18
335.8
Dividends
The Board declared a final fully franked
dividend of 35 cents per share, taking the
total fully franked dividend for the year to 70
cents per share (FY18: 70 cents per share).
The Bank has in place a Dividend
Reinvestment Plan and a Bonus Share
Scheme. The Dividend Reinvestment Plan
provides shareholders with the opportunity
of converting their entitlement to a dividend
into new shares. 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.
Divisional performance
D I V I D E N D S ( C P S )
30
30
31
33
30
33
34
34
35
35
28
30
30
30
31
33
34
34
35
35
F Y10
F Y1 1
F Y1 2
F Y1 3
F Y14
F Y1 5
F Y16
F Y17
F Y1 8
F Y1 9
I N T E R I M D I V I D E N D
F I N A L D I V I D E N D
Following the organisational structure changes in August 2018 the Group now has three operating segments: Consumer, Business and
Agribusiness.
Consumer
The Consumer division is focused on engaging with and servicing consumer customers
and includes our branch network (including Community Banks® and Alliance Banks),
mobile relationship managers, third party banking channels, Wealth services, Homesafe,
and customer support functions including call and processing centres.
Cash earnings
($’m)
FY19
271.7
45.3m
FY18
317.0
While cash earnings decreased by 14.3% to $271.7 million (FY18: $317.0 million) and
underlying earnings, which excludes remediation and redundancy costs, decreased by
9.1% to $289.2 million (FY18: $318.2 million). The division achieved solid growth in
mortgages of $1.3 billion and deposits of $1.2 billion. Net interest income remained
flat despite lending net interest margin compression, reflecting sound management of
margin. The key drivers for this underlying earnings performance were:
•
Increased operating expenses largely due to increased software amortisation,
and an increase in allocated support costs.
A reduction in other income due to lower fee income.
•
A N N UA L F I N A N C I A L R E P O R T 2 01 9 17
Business
The Business division is focused on servicing business customers, particularly small
and medium businesses who are seeking a relationship banking experience, and
includes Portfolio Funding, Delphi Bank and Community Sector Banking and Great
Southern.
Cash earnings
($’m)
FY19
62.8
0.6m
FY18
62.2
Cash earnings increased by 1.0% to $62.8 million (FY18: $62.2 million) and
underlying earnings, which excludes remediation and redundancy costs, increased
by 3.2% to $64.9 million (FY18: $62.9 million). The key drivers for this performance
were:
•
Lower credit expenses with a reduction in the collective provision in line with the
lower commercial property lending portfolio.
An improvement in other income driven by growth in foreign exchange
transaction activity.
•
Agribusiness
Cash earnings
The Agribusiness division includes all banking services provided to agribusiness,
rural and regional Australian communities through our Rural Bank brand, with a focus
on family corporate segment of Australian farm businesses.
($’m)
FY19
68.6
1.1m
FY18
69.7
Common equity tier 1 ratio
30 bps
(%)
FY19
8.92
FY18
8.62
Total capital ratio
29 bps
(%)
FY19
13.14
FY18
12.85
Cash earnings decreased by 1.6% to $68.6 million (FY18: $69.7 million) and
underlying earnings, which excludes remediation and redundancy costs, decreased
by 1.1% to $69.0 million (FY18: $69.8 million). The strategic focus on reducing
complexity and costs in our business led to the return of the Rural Bank banking
licence and execution of a new distribution agreement with Elders during the financial
year.
Capital
The Bank is regulated by APRA given its status as an Authorised Deposit-taking
Institution (“ADI”). APRA is the prudential regulator of the Australian financial services
industry which includes ADIs. APRA’s Prudential Standards aim to ensure that ADIs
remain adequately capitalised to support the risks associated with their activities
and to generally protect Australian depositors.
The Bank calculates its regulatory capital requirements using the standardised
approach under Basel II, but is continuing to undertake a project to become
accredited by APRA to use the advanced Internal Ratings-based ("IRB") approach.
The Bank maintained a strong capital position with its capital levels being above
APRA minimum requirements at all times throughout the financial year. The Bank’s
Common Equity Tier 1 position continues to be a strength, up 30 basis points to
8.92% (FY18: 8.62%). Key drivers of this performance included the benefit of organic
capital generation reflecting a stable balance sheet, and continual movement to
lower risk weighted exposures.
Following are the more significant capital initiatives undertaken during the year:
•
An issuance of Residential Mortgage Backed Securities totalling $1 billion under
the Torrens securitisation program.
• Shareholder participation in the dividend reinvestment plan for the year
•
contributed an additional $46.0 million to share capital.
The Bank successfully issued $275 million of Tier 2 subordinated debt in
November 2018, ahead of the repayment of $300 million of Tier 2 subordinated
debt in January 2019.
Looking forward, APRA’s expectation is for ADIs to meet new capital benchmarks that
are consistent with the concept of an ‘unquestionably strong’ banking sector by no
later than 1 January 2020. For the Bank, and other standardised ADIs, the increase
for Common Equity Tier 1 capital is approximately 50 basis points. With the Bank’s
Common Equity Tier 1 ratio up 30 basis points, the Bank is already well positioned
with respect to this.
18 A N N UA L F I N A N C I A L R E P O R T 2 01 9
The Bank is also undertaking a detailed assessment of APRA’s consultation package (released in June 2019) relating to changes
to both IRB and standardised credit risk weights. Whilst these risk weights are yet to be finalised, APRA has announced that it does
not expect that the changes will necessitate increased capital requirements for ADIs beyond what is required under ‘unquestionably
strong’ – although this could vary between ADIs.
APRA measures regulatory capital using three regulatory measures, being Common Equity Tier 1 Capital, Tier 1 Capital and Total
Capital.
Common Equity Tier 1 Capital comprises the highest quality components of capital that consists of paid-up share capital, retained profits
and certain reserves, less the deduction of certain intangible assets, capitalised expenses and software, and investments and retained
profits in insurance and funds management subsidiaries that are not consolidated for capital adequacy purposes and certain other
adjustments.
Funding and liquidity
Deposit break down
Retail
Wholesale
Securitisation
Total deposits
The Bank’s principal source of funding is its retail deposit base. The Bank’s retail
deposits are traditional term and savings deposits and transaction accounts, sourced
predominantly through the retail network. Retail deposits provide a stable source of
funding and the business is committed to maintaining a strong retail deposit base.
Securitisation has also formed an important part of the Group’s funding and capital
management strategies and during the year we successfully completed a $1 billion
securitisation issuance which provided both funding and capital benefits. We will
continue to monitor this market and participate where appropriate.
Wholesale funding activities support the core retail deposit funding strategy and
provide diversification and benefits with longer term borrowings.
Our funding position continues to be a strength for our organisation. It provides
flexibility to fund asset growth through our retail customer base as well as being able
to access demand from wholesale markets to senior unsecured or securitisation
transactions.
Our Liquidity Coverage Ratio ("LCR") for financial year was 128.1%. The LCR was
maintained within internal targets throughout the year and exceeded the minimum
prudential requirement at all times.
From 1 January 2018 the Bank has also been required to maintain a Net Stable
Funding Ratio ("NSFR"), which is designed to encourage longer-term funding
resilience, of at least 100%. The NSFR for the 2019 financial year was 112.4% which
exceeds the 100% prudential requirement.
FY19
($m)
FY18
($m)
Change
(%)
52,301.2
50,614.5
8,265.4
3,464.4
8,915.0
3,544.8
64,031.0
63,074.3
3.3
(7.3)
(2.3)
1.5
Retail deposit funding ratio
(%)
FY19
81.7
FY18
80.2
Liquidity coverage ratio1
(%)
FY19
128.1
FY18
126.2
Net stable funding ratio2,3
(%)
FY19
112.4
1 Represents average daily LCR over respective 12 monthly period.
2 Represents average end of month NSFR over respective 12 month period.
3 No prior period comparable for NSFR as the ratio calculation commenced from 1 January 2018.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 9
Lending
Gross loans by purpose
Residential
Consumer
Margin lending
Business
Total gross loans
FY19
($m)
FY18
($m)
Change
(%)
43,592.9
42,365.9
2,342.2
1,528.6
2,559.8
1,694.7
14,646.7
15,173.1
62,110.4
61,793.5
2.9
(8.5)
(9.8)
(3.5)
0.5
Total gross loans increased 0.5% across the financial year to $62,110.4 million. Notwithstanding a challenging and competitive
environment our gross residential loans increased by 2.9%. Our residential lending growth in the second half of 4.3%1 was particularly
strong and above banking system growth. The key drivers of this performance included:
• New lending activity as a result of the investment in additional mobile relationship managers in our retail network.
• Renewed investment in our third party distribution resources and processing capacity.
•
Focus on customer retention which has resulted in higher levels of retention leading to a reduction in the level of discharges.
The decrease in gross business loans is due to the continued reduction in commercial property portfolio, particularly land development
and construction. This was offset by growth in our small business lending agribusiness portfolios.
Reconciliation statutory net profit to cash earnings
Statutory Profit after tax
Fair value adjustments
Homesafe unrealised adjustments
Hedging revaluation
Loss on sale of business
Integration costs
Impairment charge
Operating expenses, includes legal, litigation and compensation costs
Amortisation of acquired intangibles
Cash earnings after tax (sub total)
Homesafe net realised income after tax
Cash earnings after tax
Reconciliation items relate to:
FY19
($m)
FY18
($m)
$376.8
$434.5
$0.3
$29.5
($7.4)
$1.6
$0.5
$0.5
$1.4
$2.6
$405.8
$9.9
$415.7
$0.8
($26.8)
($1.2)
$1.2
$5.3
$0.4
$13.8
$5.8
$433.8
$11.3
$445.1
Fair value adjustments: the acquisition of the business activities of Rural Finance resulted in the recognition of fair value adjustments
on the loans acquired. These fair value adjustments are amortised over the life of the underlying transactions.
Homesafe unrealised: adjustment represents revaluation income, being the valuation movements of the investment property held, and
unrealised funding costs being interest expense incurred on existing contracts during the year.
Hedging revaluation: represents unrealised gains from changes in the fair value of economic hedges. These movements represent
timing differences that will reverse through earnings in the future.
Loss on sale of business: loss on sale of Bendigo Financial Planning business (FY18: loss on sale of Telco business)
Integration costs: costs incurred to integrate Elders employees as a result of the new distribution agreement between Rural Bank and
Elders (FY18: costs associated with the integration of Alliance Bank and Rural Finance)
Impairment charge: an impairment of software due to discontinued use (FY18: impairment of an equity investment)
Operating expenses, includes legal, litigation and compensation costs: legal costs associated with Royal Commission and
compensation related Bendigo Financial Planning.
Homesafe net realised income after tax: represents funds received on completion being the difference between the cash received
on completion less the initial funds advanced and realised funding costs representing accumulated interest expense on completed
contracts since initiation.
1 Source: APRA Monthly Banking Statistics June 2019. Data is annualised growth rate based on a 6 month period (31/12/18-30/6/19) for Bendigo and Adelaide Bank
Limited
20 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Risk Management Framework and significant business risks
The Board is responsible for the risk management strategy
which includes establishing and overseeing 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 2019 Corporate Governance Statement and
Note 22 to the 2019 Annual Financial Report.
Business risks and uncertainties
The financial prospects of any company are sensitive to the
underlying characteristics of its business and the nature
and extent of the commercial risks to which the company
is exposed. There are a number of risks faced by the Bank,
including those which encompass a broad range of economic
and commercial risks. The most common risks that the Bank
actively manages are credit risk, liquidity risk, market risk
(including interest rate and currency risk) and operational risk.
The Directors have adopted policies and procedures to
control exposures to, and limit the extent of, these risks. In
addition, the Bank has an independent internal audit function
that oversees all functions across the Bank. Whilst there
are inherent limitations in any risk management control
system, including control breakdowns and system failures, the
development and maintenance of effective control systems
should provide a solid foundation for risk management. A
summary of the more significant uncertainties and risks is
presented below.
Dependence on prevailing macro-economic and financial market
conditions
The business is highly dependent on the general state of
the domestic economy and global 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.
Climate change and other environmental factors
The Group and its customers and external suppliers are
based in and operate across a diverse range of geographical
locations. A significant environmental change, such as climate
change including increases in temperatures, sea levels
and the frequency and severity of adverse climate events,
or external event (such as a fire, storm, drought or flood)
has the potential to disrupt business activities, impact on
our operations, damage property, impact on our customers
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. These effects whether acute or chronic in nature,
may directly impact us, and our customers, and may have an
adverse impact on financial performance (including through an
increase in defaults in credit exposures).
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 meet changing customer
preferences.
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 standards 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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 21
Capital Base
Strategic Risk
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 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 business risks that we manage
including credit risk, market risk, liquidity risk and operational
risk. To manage these risks we have established a framework
of systems, policies, standards and procedures which are
overseen by the Board, with support from senior management
committees and our independent risk management functions.
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. The Bank actively scans the environment
to identify emerging risks and assesses the adequacy of the
Group’s risk framework to monitor and manage.
The Group seeks to maintain an engaged workforce with
appropriate culture, conduct and capability to execute
the strategy. Failure to recruit and retain key executives,
employees and Directors may have adverse affects on our
business.
Credit Risk
Compliance 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.
Market Risk
Market risk comprises Traded Market Risk and 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 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. It arises from positions held in
the Trading Book which consists of securities held for both
trading and liquidity purposes.
Liquidity Risk
Liquidity Risk is defined as the inability to access funds, both
anticipated and unforeseen, which may lead to the Group
being unable to meet its obligations in an orderly manner
as they arise or forgoing investment opportunities. Liquidity
Risk is inherent in all banking operations due to the timing
mismatch between cash inflows and cash outflows.
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. An
operational risk event could result in an adverse outcome for
customers which the Group would need to remediate.
Where this occurs, activities are instigated to ensure affected
parties are remediated in a timely and fair manner. These
events could require the Bank to incur significant remediation
costs (which may include compensation payments to
customers and costs associated with correcting the underlying
issue).
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. Financial crime
also represents a sub component of compliance risk and
covers risks including AML/CTF, Anti bribery and corruption
and sanctions. We have established robust techniques and
capabilities to detect and prevent fraud and comply with
legislation. All actual or alleged fraud is investigated under the
authority of our financial crimes unit.
Data and Information Security Risk
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.
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.
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
22 A N N UA L F I N A N C I A L R E P O R T 2 01 9
risk appetite, needs or objectives. Conduct risk may also arise
where there has been a failure to adequately provide a product
or services that we had agreed to provide a customer. The
Group seeks to minimise conduct risk through maintaining an
appropriate organisational culture.
Reputation Risk
Reputation risk is defined per the Operational Risk
Management Framework 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. Reputation risk is
heightened through the rising use of social media and can
give rise to other risks such as legal risks and regulatory risks
associated with failing to meet community expectations.
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.
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 2 3
Remuneration
Report
C O N T E N T S
Section 1
Organisational and industry context
Section 6
Non-executive Director remuneration
Section 2
Overview of remuneration outcomes
Section 7
Remuneration governance
Section 3
Key Management Personnel
Section 4
Remuneration framework
Section 5
Linking remuneration to performance
Section 8
KMP statutory remuneration,
equity and loan tables.
T H I S R E M U N E R A T I O N R E P O R T I S F O R T H E F I N A N C I A L Y E A R E N D E D 3 0 J U N E 2 0 1 9 . T H E R E P O R T H A S B E E N
P R E PA R E D I N A C C O R D A N C E W I T H S E C T I O N 3 0 0 A O F T H E C O R P O R A T I O N S A C T 2 0 0 1 A N D T H E C O R P O R A T I O N S
R E G U L A T I O N S 2 0 0 1 A N D H A S B E E N A U D I T E D. T H E R E M U N E R A T I O N R E P O R T S E T S O U T O U R R E M U N E R A T I O N
F R A M E W O R K , T H E R E M U N E R A T I O N A R R A N G E M E N T S A P P L I C A B L E T O T H E K E Y M A N A G E M E N T P E R S O N N E L ( K M P ) ,
A N D T H E L I N K B E T W E E N P E R F O R M A N C E A N D R E M U N E R A T I O N O U T C O M E S F O R T H E Y E A R .
Section 1: Organisational and industry context
Bendigo and Adelaide Bank’s strategy is to be Australia’s
bank of choice and our purpose is to focus on the success of
customers, people, partners and communities, and balance
their needs in any decision we make. We strongly believe a
clear purpose-driven culture and a responsible remuneration
model are essential to achieving positive customer and
community outcomes.
We have a long-held view that remuneration structures
which are leveraged towards short-term and individually
focussed performance are incompatible with our strategy
and risk poor culture and behaviour. Therefore, the Bank
has historically limited the proportion of incentive-based pay,
which has supported our long-term outlook for customers and
shareholders.
However, like other organisations in the finance sectors
we must remain vigilant that our remuneration framework
supports behaviours that lead to customer and shareholder
outcomes with effective risk management of the business.
During the year modest changes were made to the
remuneration structure for FY19 and FY20 and the
remuneration governance process. Several executives
received increases in fixed remuneration over the year. This
was due to changes in roles and organisational structure that
resulted in increases in accountabilities and responsibilities
24 A N N UA L F I N A N C I A L R E P O R T 2 01 9
of the individual executives. These increases also reflect that
historically the Bank’s executives have had low base salaries
compared to external benchmarks, with these adjustments
bringing their fixed remuneration to market competitive rates.
In order to meet the deferral requirements under BEAR, the
total deferral period for the FY20 executive long-term incentive
plan will be 4 years. Further, in August 2019 a joint meeting of
the Governance & HR, Risk and Audit Committees was held to
ensure all risks, including non-financial risks, were considered
as part of the remuneration setting process.
The Bank will build on this work in FY20 and conduct a
complete review of the executive remuneration framework
taking into consideration the final requirements of APRA’s
Prudential Standard CPS 511. As the Bank evolves to meet
the changing needs of our customers and the communities
that they live and work in, there is a need to make sure the
remuneration framework supports our objectives and unique
culture. We will consult with stakeholders on this process
when appropriate.
Section 2: Overview of remuneration outcomes
Bendigo and Adelaide Bank announced a solid earnings result
in an environment of low growth, political uncertainty, subdued
consumer confidence and increasing competition. Annual cash
earnings after tax were $415.7 million, down 6.6 percent on
the previous year and statutory net profit was $376.8 million,
down 13.3 percent on the previous year.
Remuneration
component
Remuneration
outcomes
Earnings for the year were impacted by remediation and
redundancy costs and unrealised losses relating to Homesafe
due to the decline in property valuations in Melbourne and
Sydney. In this context the below remuneration arrangements
were approved during the year.
Fixed base
remuneration
The Managing Director’s remuneration arrangements for the year were announced to the market on 26 March 2018.
The fixed base remuneration for other executives was reviewed during the year following the changes in organisational
structure and role accountabilities. Remuneration adjustments were aligned with these changes.
Deferred base
remuneration
The Managing Director received a grant of deferred shares in accordance with the terms approved by shareholders at
the 2018 AGM.
Grants of deferred shares were also made to the other executives in accordance with their target remuneration mix.
The vesting criteria for the deferred base pay grants made in 2017 were satisfied and the Board approved the vesting
of the shares without adjustment.
Details of the vested shares are provided at Section 5 of this report.
Short-term
incentive (STI)
The Bank did not achieve the threshold level of cash earnings required to establish a bonus pool. Therefore, no
short-term incentives were paid to the Managing Director nor to other executives.
Long-term
incentive (LTI)
The Managing Director received a grant of performance rights in accordance with the terms approved by shareholders
at the 2018 AGM. The grant is subject to a four-year performance period.
Performance right grants were made to other executives in accordance with their remuneration mix. The grants are
subject to a three-year performance period.
The relative TSR performance measure for performance rights granted to other executives in FY16 was above the
median of the peer group, and as a result 65% of the rights vested and the remaining 35% were forfeited.
The two sleeves of the FY17 grant that were linked to the relative TSR partially vested. The Bank’s relative TSR was
60th percentile of the peer group, which resulted in a corresponding vesting rate of 75.9%. Subsequently, the remaining
24.1% of performance rights were forfeited.
The sleeve of the FY17 grant that was linked to NPS vested in full. This was in recognition of the Bank’s NPS being
29.1 points above the industry average for performance period finishing 30 June 2019.
The results of performance right testing are provided at Section 5 of this report.
Non-executive
director fees
The annual fee payment for non-executive directors was increased by 2.0 percent for the 2019 year. The aggregate
non-executive director fees paid for the year was $2.003 million which represents 80.1 percent of the $2.5 million
fee cap approved by shareholders. No additional fees were paid to the non-executive directors for their committee
memberships.
The annual base fee has not been increased for the 2020 financial year.
Grants of deferred shares were also made to the other executives in accordance with their target remuneration mix.
The vesting criteria for the deferred base pay grants made in 2017 were satisfied and the Board approved the vesting
of the shares without adjustment.
Details of the vested shares are provided at Section 5 of this report.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 25
Section 3: 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 Executives listed below.
Name
Position
Term as KMP
Non-executive directors
Robert Johanson
Chairman
Vicki Carter
Jan Harris
Jim Hazel
Jacqueline Hey
Robert Hubbard
David Matthews
Deb Radford
Tony Robinson
Executives
Marnie Baker
Taso Corolis
Travis Crouch
Non-executive Director – commenced 4 September 2018
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director – ceased 30 October 2018
Non-executive Director
Managing Director & Chief Executive Officer
Chief Risk Officer
Chief Financial Officer – commenced as KMP 10 August 2018
Richard Fennell
Consumer Banking (formerly Chief Financial Officer)
Alexandra Gartmann
Chief Executive Officer, Rural Bank
Full Year
Part Year
Full Year
Full Year
Full Year
Full Year
Full Year
Part Year
Full Year
Full Year
Full Year
Part Year
Full Year
Full Year
Part Year
Full Year
Full Year
Robert Musgrove
Bruce Speirs
Stella Thredgold
Andrew Twaits
Engagement Innovation – ceased as KMP 9 August 2018
Business Banking (formally Partner Connect)
Business Enablement
Customer and Partner Engagement – ceased as KMP 30 June 2019
Full Year
On 10 August 2018 the Managing Director announced changes to the executive structure and team. The changes were effective
immediately. Mr Musgrove’s change in role as the Executive, Corporate and Public Affairs was effective from this announcement and
therefore as this new role is not considered KMP, Mr Musgrove ceased as KMP on 9 August 2018.
Section 4: Remuneration framework
4.1 Remuneration principles
The remuneration framework is designed to support the
achievement of our financial and business objectives and
ensure remuneration outcomes are aligned with long term
customer outcomes, sustainable financial performance, growth in
shareholder value and the interests of other stakeholders.
The framework is documented in our remuneration policy which
was reviewed during the year.
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;
• Transparency and procedural fairness – The Bank commits to
providing employees with visibility wherever possible of the
considerations made in making reward decisions and fairly
26 A N N UA L F I N A N C I A L R E P O R T 2 01 9
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 within the parameters of the Bank’s risk
management framework; 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.
4.2 Remuneration components, approach and mix
The Executive remuneration arrangements are summarised below:
Fixed
Variable
Total Reward Framework
Base Remuneration
Short Term Incentive (STI)
Long Term Incentive (LTI)
Fixed Base - Cash
Deferred Base - Equity
Cash & Equity
Equity
Comprise base salary and
superannuation contributions.
Together with deferred base, is
set by reference to the size and
complexity of role and individual
responsibilities.
Amount is determined in the
context of the external market
including comparable roles in the
banking sector and companies of
a similar size and complexity, and
the performance outlook.
Recognises an individual’s
experience, skills, competencies
and value.
Annual grants of deferred shares.
Deferred shares (fully paid
ordinary shares) issued at no
cost and beneficially owned by the
executives from grant date.
Executives do not receive cash
if they decide not to accept the
grant offer, unless the Board
decides otherwise.
Grants are subject to continued
employment (“service condition”)
over the deferral period.
Subject to risk adjustment at
Board discretion.
Shares are held in a trust for the
deferral period.
Cash, or a combination of cash
and deferred equity.
The maximum STI opportunity is
set for individual executives at the
start of the year.
The maximum STI opportunity is a
fixed dollar amount.
STI awards are capped at 100%
of target with no opportunity to
increase the payments for ‘above
target’ performance.
Awards are subject to Group
and individual performance and
passing risk, compliance and
values gateways.
If award exceeds $100,000,
one third is deferred into equity
(deferred shares), issued on
substantially the same terms as
deferred base remuneration.
Annual grants of Performance
rights. Each right represents an
entitlement to one ordinary share
in the Bank.
Rights are granted at no cost and
have no exercise price.
Vesting is subject to Customer
Advocacy and TSR performance
measures, and service condition.
Performance measures are tested
over four years for the Managing
Director and three years for other
Executives.
Vesting is also subject to
continued employment and risk
adjustment. There is no retesting.
For FY2020, the plan for all
participants will vest after four
years.
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 total
target reward continues to be fair and balances the interests of
stakeholders.
The mix includes up to three equity components designed to
build executives’ personal exposure to the Bank’s share price
performance with a link to risk management outcomes. The STI
component links a modest percentage of remuneration to annual
performance and is typically set substantially below industry
relativities. This reflects our long-held view that remuneration
which is highly leveraged towards short-term performance can
create a disconnect between executive reward and longer-
term shareholder interests, customer outcomes and broader
community and regulatory expectations.
The Managing Director’s remuneration mix includes a sizeable
deferred equity component that is subject to risk and conduct
adjustment at the discretion of the Board. The mix includes a
relatively small proportion of variable remuneration linked to
annual performance and a larger proportion linked to longer term
performance including shareholder outcomes. This structure
recognises the unique role of the Managing Director in driving
the strategic direction and delivering longer-term sustainable
improvement in shareholder value.
In relation to other executives, the changes to base fixed pay
for some resulted in a larger weighting to fixed remuneration.
This is due the Bank’s approach of setting maximum bonuses
as set fixed dollar amounts, therefore the increases in fixed
remuneration did not lead to increases in variable remuneration.
The proportion and mix of reward components between cash
and equity represent a moderate and meaningful percentage of
equity-based remuneration linked to shareholder interests. The
maximum STI opportunity is limited to 20 percent of the total mix.
The below table sets out the target remuneration mix, and
split between cash and equity, for each executive. The actual
remuneration mix will vary depending on performance outcomes.
The percentages also represent the maximum opportunity for
each component.
KMP
Position
Fixed
base
Deferred
Base
Cash
STI
Deferred
STI
M Baker
R Fennell
Managing Director
Consumer Banking
Other executives (average)
45%
50%
55%
20%
12%
11%
10%
12%
14%
5%
6%
-
LTI
20%
20%
18%
Awarded
as Cash
Awarded
as Equity
55%
62%
69%
45%
38%
31%
A N N UA L F I N A N C I A L R E P O R T 2 01 9 27
M A N A G I N G D I R E C T O R
E X E C U T I V E C O N S U M E R B A N K I N G
O T H E R E X E C U T I V E
Deferred STI
5%
Cash STI
10%
LTI
20%
Fixed base
45%
45+
Deferred base
20%
LTI
20%
Deferred STI
6%
20 50+
Deferred base
12%
Fixed base
50%
Cash STI
12%
LTI
18%
Deferred STI
0%
20 55+
Deferred base
11%
Fixed base
55%
Cash STI
14%
Remuneration settings FY2019
The total base remuneration for Executives continues to sit at
around the market median and includes components directly
linked to shareholder interests and the organisation’s risk profile.
The portion of incentive-based pay (STI and LTI) is conservative
and considerably below other listed companies in Australia.
The Managing Director’s STI component was set at $400,000
for the year. The Managing Director’s annual remuneration
consists of 50,000 deferred shares and 50,000 performance
rights. Each grant had a face value of $539,000 based on the
volume weighted average closing price of the shares traded
on the ASX for the five days prior to 1 July 2018. As approved
by shareholders at the 2018 AGM, on 19 December 2018,
the Managing Director was granted 200,000 deferred shares.
This represents four years of deferred base pay, and the grant
consists of four equal tranches of 50,000 deferred shares, with
deferral periods of 2, 3, 4 and 5 years respectively. This was done
to align the Managing Director’s remuneration with the change in
share price from the date of her appointment.
The fixed remuneration for other executives was reviewed to
reflect the changes in roles and organisational structure that
resulted in increases in accountabilities and responsibilities
of the individual executives. Remuneration adjustments were
aligned with these changes. Several executives also received
small increases to their deferred base remuneration component.
These adjustments bring their remuneration closer to market
competitive rates.
In most cases the STI components remained unchanged. There
were two instances where the STI components were reduced
to align with the target remuneration mix. The LTI components
were increased in line with the target remuneration mix and the
deferral requirements for variable reward under the Banking
Executive Accountability Regime. Overall, the total incentive
offering of the Bank is modest compared to similar organisations,
and therefore the total remuneration available to executives (fixed
remuneration plus incentives) is lower.
4.3 Remuneration components, terms and policies
Fixed base remuneration
Short term incentive (STI)
Fixed base comprises cash salary, salary sacrifice and
employer superannuation contributions.
Deferred base
Deferred base is represented by annual grants of deferred
shares that are held in trust for a two-year deferral period.
Deferred shares are fully paid ordinary shares granted at no
cost and are beneficially owned by the recipient 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 will not vest
and are forfeited, unless the Board decides otherwise.
The annual incentive component is designed to provide an
appropriate level of reward for the achievement of annual
financial targets and business objectives and is set based on
the executive’s responsibilities and target remuneration mix.
The performance measures for the Managing Director’s STI
component are set by the Board on recommendation from the
Governance & HR Committee and focus on the achievement
of the targeted annual financial performance, a range of
medium-term financial and non-financial targets as well as
risk management outcomes. The performance measures for
other executives are set by the Managing Director on a similar
basis including the individual’s responsibilities and expected
contribution at a divisional and individual level.
The remuneration value of deferred share grants is determined
by the individual’s targeted remuneration mix. The number of
deferred shares allocated is calculated by dividing the face
value of the deferred base 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.
An annual STI component will only be awarded if an annual
bonus pool is established. The annual bonus pool is
dependent upon the organisation achieving a minimum annual
result which is approved by the Board at the start of the year.
If the minimum level of cash earnings is not achieved, a bonus
pool will not be established and no STI awards will be made.
The bonus pool will increase with cash earnings performance
above the threshold performance level, subject to the
achievement of key financial and risk adjustment measures.
28 A N N UA L F I N A N C I A L R E P O R T 2 01 9
20
+
10
+
5
+
12
+
12
+
6
+
11
+
14
+
20
55+
The bonus pool is capped when our achieved results reach 110
percent of the cash earnings target. The Board also applies a
discretionary overlay to take into account the underlying quality
of the result and shareholder outcomes.
The Board decides the bonus pool available after financial
year-end, on recommendation from the Governance & HR
Committee. If the pool is less than the maximum potential
pool, the maximum STI opportunity for each executive is
proportionately adjusted downwards. This reflects the executive
committee’s collective responsibility for the annual financial
performance.
The Managing Director’s performance is assessed after year
end at a combined meeting of the Governance & HR, Risk and
Audit Committees. Any upward or downward adjustment based
on the achievement of the measures, and the achievement
of accountabilities, is applied to determine recommendation
for the STI award 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 the performance of the
other executives shortly after financial year-end based on the
achievement of the individual’s financial and non-financial
measures, and consideration of how they have achieved their
accountabilities. The combined meeting of the Governance &
HR, Risk and Audit Committees then reviews the Managing
Director’s recommendations based on the observed
performance and contribution for the other executives and
makes any appropriate adjustment to ensure the awards reflect
performance at an organisational, divisional and individual
level for recommendation to the Board. The Board considers
the Managing Director is best placed to assess the individual
performance and overall contribution of the other executives.
STI deferral
Starting from the 2018 financial year, if an STI award exceeds
$100,000 one third of the award is deferred into equity as
grants of deferred shares. The deferred shares are typically
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.
If the service condition is not met the deferred shares do not
vest and are forfeited, unless the Board decides otherwise.
The number of deferred shares is calculated by dividing the
face value of the deferred STI component by the volume
weighted average closing price of the Bank’s shares for the
five trading days prior to the grant date.
Long term incentive (LTI)
At the Board’s discretion, 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 the grants is determined by the
individual’s targeted remuneration mix and the number of
rights granted is determined by dividing the face value of the
LTI 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.
The performance right grants made during the year used a
two ‘sleeve’ approach. An overview of the grant design is
presented below:
First Sleeve
Second Sleeve
Service Condition
Allocation and Measures
(all grants)
35% of performance
rights granted
Subject to a ‘Customer Hurdle’
65% of performance
rights granted
Subject to TSR measure
Performance period:
Managing Director
Performance period:
Senior Executives
Customer Hurdle performance
period: 1.7.18 to 30.6.22
TSR performance period:
1.7.18 to 30.6.22
1.7.18 to 30.6.22
Customer Hurdle performance
period: 1.7.18 to 30.6.21
TSR performance period:
1.7.18 to 30.6.21
1.7.18 to 30.6.21
First sleeve - customer hurdle
Second sleeve - TSR hurdle
To satisfy the Customer Hurdle, the Bank’s net promoter
score (NPS) over the performance period (measured using a
six-month rolling average) must be 20 points greater than the
average performance of a peer group of Australian banks. 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 lapse.
NPS was chosen as it represents a global industry standard
used to measure customer advocacy. The NPS hurdle is directly
linked to good customer outcomes and is a consistent response
to public concern about conduct and culture concerns in the
Australian banking sector.
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, in the absence of a sufficient number of
comparable institutions, as it is frequently used in the market
and requires the Bank to outperform the majority of companies
in the peer group before the individuals receive any value from
the grants.
The TSR measure was chosen as it is aligned with shareholder
interests and represents a widely used and understood means
of measuring performance linked to shareholder value. The TSR
measure is independently calculated.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 2 9
11
+
14
+
20
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 the TSR testing for
both the second sleeve and the third sleeve.
Company's relative
TSR ranking
Percentage of performance
rights that vest
At or below the 50th percentile 0%
At 50.1th percentile
60%
Between the 50.1th
and 75th percentiles
Straight-line vesting:
• starting at 60%; and
• reaching 100% at the
75th percentile.
Above the 75th percentile
100%
Prior year grants
Grants of rights were made to executives (including the current
Managing Director) for the 2016 financial year were on different
terms to the grants made in the 2017 and 2018 financial years.
The main distinction between the terms of these grants are as
follows.
The 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 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. There is no
retesting and any rights that do not vest will lapse.
Company’s relative
TSR ranking
Percentage of performance
rights that vest
TSR below 50th percentile
TSR between 50th
and 75th percentiles
Nil
65%
TSR above 75th percentile
100%
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 Right Plan (“Plan”).
30 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Deferred shares are beneficially owned by the executive from
grant date and the executive is entitled to vote, receive notices
issued to ordinary shareholders and receive dividends during
the deferral period. The recipients are not entitled to deal in
the deferred shares until they vest, and the Board may treat
deferred shares as forfeited before vesting.
Performance rights do not carry any dividend or other
shareholder rights such as voting. The executives are
prohibited from dealing in the performance rights until they
have been advised that the performance rights have vested.
If an executive ends their employment or their employment
ends because of an act which constitutes serious misconduct,
the deferred shares or performance rights will be forfeited on
the executive’s last day of employment unless, in the case of
resignation, exceptional circumstances apply, and the Board
decides to vest some or all 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. The
shares are typically acquired on-market.
Review of LTI plan
The Board completed a review of the LTI plan during the
year to ensure the plan design remains contemporary and
acts as an effective incentive for executives. In particular, to
ensure the grants reward executives for delivering shareholder
returns which are in line with, and ahead of, broader market
performance over the longer term.
As result of the review it was decided to restructure of the
grants to remove the EPS gateway hurdle as set out below. This
structure applied to the grants made in the 2019 financial year.
Previous grant structure:
• Sleeve 1 – 30% of grant subject to NPS hurdle
• Sleeve 2 – 35% of grant subject to EPS in year 1 and
if passed, then test against relative TSR (TSR against
ASX 100 peer group excluding resource companies and
property trusts)
• Sleeve 3 – 35% of grant subject to relative TSR (peer
group as for Sleeve 2)
Revised grant structure:
• Sleeve 1 – 35% of grant subject to NPS hurdle over 3 years
• Sleeve 2 – 65% of grant subject to relative TSR (against
ASX 100 peer group excluding resource companies and
property trusts)
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
c) The time necessary for the outcome of those business
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, risk
profile and any other matter that might impact the reputation
or financial soundness of the Group.
Hedging and margin loan restrictions
The remuneration policy mandates that 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. The restriction is contained in the Remuneration
Policy. The Bank treats compliance with the requirement as
important and at the end of each year requires the individuals
to confirm they have complied with the restriction. If the
restriction is breached the individual will forfeit all equity-based
remuneration that is subject to the prohibition at the time of
the breach.
The Bank’s Trading Policy also prohibits KMPs from using
the Bank’s securities as collateral in any margin loan
arrangements.
Section 5: Linking remuneration to performance
5.1 Overview of company performance
The following table provides an overview of the key performance indicators for the past five years.
Company performance measure
Financial year ending
Statutory net profit after tax ($m)
Statutory earnings per share (cents)
Cash earnings ($m)
Cash earnings per share (cents)
Dividends paid and payable (cents per share)
Share price at start of financial year
Share price at end of financial year
Total shareholder return
Relative TSR Performance (percentile) 1
NPS compared to industry average
Average STI received as a % of maximum opportunity
Percentage of executive LTI which vested
2019
376.8
77.1
415.7
85.0
70.0
$10.75
$11.58
14.2%
60th 3
+28.3
0%
83%
2018
434.5
89.9
445.1
92.1
70.0
$11.08
$10.84
4.2%
41st
+28.1
63%
0%
2017
429.6
90.9
418.3
88.5
68.0
2016
415.6
90.4
401.4
87.3
68.0
$9.60
$12.26
$11.08
$9.60
22.5%
(16.2%)
41st
+30.7
55.4%
0%
28th
+28.6
0%
0%
2015
423.9
92.5
402.8
88.6
66.0
$12.20
$12.26
5.9%
- 2
+27.7
33.7%
0%
1 The relative TSR performance (percentile) is included in line with the TSR performance hurdle period for the grant tested in that year.
2 The measure was not obtained as no performance right grants were due to be tested.
3 Depicts the relative TSR result for the FY2016 and FY2017 LTI plan that were tested for 30.06.2019. These plans have the same
performance period and peer group for the relative TSR component.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 31
5.2 Remuneration outcomes
STI outcomes - Bonus pool allocation
Following are the bonus pool measures and outcomes for the financial year. The Board determined that the criteria to establish a
performance bonus pool had not been met and no bonus pool was established.
Primary Measure
Performance Outcomes
Achieve 95% of target cash earnings
(threshold hurdle)
The cash earnings threshold was not achieved.
Secondary Measures
Risk and Performance Outcomes
Cash earnings per share
The Group underperformed on the cash earnings per share target.
Return on Equity (cash basis)
The ROE did not exceed targeted performance.
Return on Tangible Equity (cash basis)
The ROTE did not exceed the targeted performance.
Common Equity Tier 1 Equity
The CET1 ratio was above targeted performance.
Cost to Income Ratio
The cost to income ratio was below the targeted performance.
Liquidity Coverage Ratio (LCR)
The LCR was maintained within approved internal and regulatory limits for the year.
Risk Weight Assets / Total Assets
The risk weighted asset measure was exceeded.
Risk Adjusted Return on Capital (RAROC)
The RAROC did not exceed the targeted performance.
Managing Director’s STI award
Following are the performance measures for Managing Director’s STI component, and the level of achievement as assessed by the
Board. However, the Bank did not achieve the threshold level of cash earnings required to establish a bonus pool. Therefore, no short-
term incentives were paid to the Managing Director.
Criteria
Measure
1. Risk and
compliance
a.
b.
The level of risk associated with the Group’s performance is within the Board approved risk appetite;
and
An effective risk culture is promoted and there is evidence of enhanced risk practice across the
organisation.
2. Medium term
targets
3. Strategic
focus areas
Significant progress is made towards achieving the following medium-term targets:
a.
b.
Improved and sustainable shareholder value;
Improved customer satisfaction, advocacy rankings and growth in the customer base and products per
customer ratio;
Improved economic performance including balance sheet and earnings growth;
Improved performance of the partner network including community and partner satisfaction rankings;
and
c.
d.
e. Maintained strong employee engagement, improved organisational effectiveness and progress towards
diversity and inclusion objectives.
a. Develop a refreshed strategic plan and create alignment of people and objectives across the Group
b. Create clarity in the market of our brand(s) and point of difference;
c. Successfully launch the new Digital Bank;
d.
e.
Progress made in identifying and progressing new growth opportunities that satisfy our Purpose;
Progress made during the period towards achieving Basel II advanced accreditation; continued
maturation of our risk management framework
Progress made towards reducing complexity in our business model and operations
Increased depth and capability in leadership at all levels within the organisation, including building a
strong talent pipeline for succession into senior roles;
f.
g.
Assessment
Target met
Partially met
Material
progress was
made towards
the key
initiatives
h. Material progress in building a performance, growth and agile culture; and
i.
Establish a high performing and collaborative Executive team and successfully maintain engagement
while implementing BEAR.
4. Public
representation
The Group continues to be represented effectively to government (state and federal) and in industry and
public forums.
Target met
32 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Other executive STI awards
The STI components for the other executives were subject to
the achievement of financial and non-financial performance
objectives:
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.
Risk and compliance and values-based behaviour represent a
gateway for the 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.
As mentioned above, the Bank did not achieve the threshold
level of cash earnings required to establish a bonus pool.
Therefore, no individual STI awards were made to the
executives for FY2019.
All short-term incentives were forfeited for FY2019.
Executive
M Baker
T Corolis
T Crouch
R Fennell
A Gartmann
R Musgrove 3
B Speirs
S Thredgold
A Twaits
STI maximum
opportunity1
STI payment
Paid as cash
Deferred 2
STI payment as %
of STI maximum
opportunity
% of STI Award
forfeited
$400,000
$100,000
$100,000
$250,000
$100,000
$100,000
$100,000
$100,000
$100,000
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
n/a
n/a
$ -
n/a
n/a
n/a
n/a
n/a
0%
0%
0%
0%
0%
0%
0%
0%
0%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1 The STI is subject to a financial gateway and 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 $100,000 threshold set by the Board are subject to deferral for two years into shares in the Bank. There
will be no allocation of deferred shares for the deferred STI components for FY2019.
3 The full STI maximum opportunity for FY2019 is shown for Mr Musgrove.
Deferred base outcomes
The deferred base pay and deferred STI grants made on 12
December 2017 were scheduled to be tested and having
regard to the financial soundness and risk profile of the
organisation, it was decided by the Board to vest the deferred
shares. The number of deferred shares granted to each
executive are presented in the table headed ‘Executive equity
instrument grants’ at Section 8.
LTI outcomes
Two separate Senior Executive LTI grants were tested at 30
June 2019, the LTI grants that were made to executives in
2016 and in 2017. As described in section 4.3 the 2016
LTI grant had a 4-year performance period, with the first year
tested against EPS growth and the following 3 years tested
against TSR. The LTI grants made to executives in 2017
had a 3-year performance period for the TSR and Customer
Hurdle (NPS). This resulted in the two grants having the same
TSR performance period, from 1 July 2016 to 30 June 2019.
However, as described in section 4.3 they have different TSR
vesting schedules.
The results for the 2016 and 2017 LTI grants are summarised
below.
Grant
Hurdle
Weighting
Grant Date
Test Date
Outcome
Vested 2019
Lapsed 2019
2016 LTI Senior
Executives
2017 LTI
Senior Executives
TSR¹
TSR1
NPS
100%
17.12.15
30.06.19
60th Percentile
65%
35%
70%
30%
16.12.16
30.06.19
60th Percentile
75.9%
24.1%
16.12.16
30.06.19
+29.1 above
Industry
100%
0%
1 A portion of the TSR rights had an EPS hurdle. As previously disclosed, EPS hurdle for the 2016 grant which was tested on 30.06.16 and was met,
and the EPS hurdle for the 2017 grant was tested on 30.06.17 and was met.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 3 3
The following table summarises all current LTI performance right grants.
Grant
Grant Date
NPS Test
Date
NPS Test
Met
TSR Test
Date
TSR Test
Met
Vested
2019
Lapsed
2019
Remaining
2016 LTI
Senior Executives
2017 LTI
Senior Executives
2018 LTI
Senior Executives
2019 LTI
Senior Executives
2019 LTI
Managing Director
17.12.15
n/a
n/a
30.06.19
16.12.16
30.06.19
Yes
30.06.19
12.12.17
30.06.20
17.12.18
30.06.21
19.12.18
30.06.22
Not yet
tested
Not yet
tested
Not yet
tested
30.06.20
30.06.21
30.06.22
Yes
Yes
Not yet
tested
Not yet
tested
Not yet
tested
65%
83%
0%
0%
0%
35%
17%
0%
0%
0%
0%
0%
100%
100%
100%
Executive remuneration paid and vested (unaudited)
The following table is a voluntary non-statutory summary of
the remuneration paid or which vested to the executives for
the 2019 and 2018 financial years. The information differs to
the statutory remuneration disclosures presented at Section
8 which has been prepared in accordance with Australian
Accounting Standards.
The disclosures include prior year equity grants that vested to
individual executives. The value for the vested grants has been
calculated by multiplying the number of equity instruments by
the closing share price at the end of the deferral or performance
period.
Name
Fixed Base1
Prior years’
deferred
base vested2
Cash STI3
Prior years’
deferred STI
vested4
Prior years’
deferred LTI
vested5
Total
remuneration
realised
M Baker
T Corolis6
T Crouch6
R Fennell
A Gartmann
R Musgrove7
B Speirs
S Thredgold
A Twaits6, 7
2019
$1,241,149
$168,732
$0
$41,144
$409,492
$1,860,517
2018
2019
2018
2019
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
$565,360
$174,459
$93,750
$489,498
$105,459
$187,465
$383,206
-
-
$713,841
$168,732
$0
$62,500
$0
$0
-
-
-
-
$51,427
$620,432
$174,459
$104,167
-
-
$81,882
-
$51,612
$409,492
-
$362,759
$329,374
$41,373
$327,758
$405,602
$385,735
$374,686
$379,559
$430,523
$181,364
$73,823
$69,777
$63,273
$69,777
$73,823
$69,777
$84,360
$69,777
-
-
$0
$80,000
$0
$50,000
$0
$84,375
$0
$73,333
$0
$62,500
$20,566
$151,675
-
-
-
-
$163,788
-
$25,708
$163,788
-
-
$41,144
$163,788
-
-
-
-
-
-
$833,569
$676,840
$249,965
$434,818
$1,343,492
$899,058
$608,823
$479,151
$268,434
$447,535
$668,920
$539,887
$663,978
$522,669
$430,523
$243,864
1 Fixed base includes cash salary, non-monetary benefits, superannuation and movements in accrued annual and long service leave consistent with
the statutory remuneration table presented at Section 8.
2 The prior years deferred base amounts represent the grant made on 12 December 2017 which completed the two-year deferral period and vested.
The grant made for the 2019 financial year will be tested in a future period and has therefore been excluded from the table.
3 The cash component of the 2019 STI is nil.
4 STI awards were made for the FY2017 and accordingly deferred STI grants were awarded which would have been tested at 30 June 2019.
5 The prior years’ LTI amounts represent the grants made on 17 December 2015 and 16 December 2016. The 17 December 2015 grant partially
met their respective performance measures and accordingly partially vested with the remainder of the grant forfeited. The 16 December 2016
grant partially met their respective performance measures and accordingly vested in part with the remainder of the grant being forfeited. The LTI
grants made in subsequent financial years will be tested in future periods and have therefore been excluded from the table.
6 Mr Corolis and Mr Twaits commenced as KMP on 31 January 2018. Mr Crouch commenced as a KMP on 10 August 2018.
7 Mr Twaits resigned and ceased being a KMP on 30 June 2019. Mr Musgrove ceased being a KMP on 9 August 2018.
34 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Section 6: 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 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.
The Governance & HR Committee (the “Committee”)
recommends to the Board the remuneration arrangements 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:
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 workloads and
responsibilities at the Board and committee level.
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.
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. The Chairman receives a higher base fee in recognition of
the additional time commitment and responsibilities.
The base fee for Non-executive Directors increased by 2.0
percent for the year. The base fee in effect from August 2018 for
the remainder of FY2019 was:
a) $201,780 for Directors (inclusive of company
superannuation contributions); and
b. $504,450 for the Chairman (inclusive of company
superannuation contributions).
No additional fees are paid for serving on Board Committees.
Additional fees were paid to Non-executive Directors appointed
to the Boards of Sandhurst Trustees and the Community Bank®
National Council.
A review of the Non-executive Director fees has also been
completed since the end of the financial year. The Board has
decided to not increase the annual base fee for the Directors nor
the Chairman.
The Directors contribute $5,000 each to the Bank’s scholarship
program. The program was established to assist disadvantaged
students from regional areas meet tertiary education
accommodation and direct study costs. The contributions are
deducted from base fee payments.
Non-executive Director remuneration details
The following payments were made to Non-executive Directors in the 2019 and 2018 financial years.
Non-executive
Director
R Johanson (Chairman)
2019
2018
V Carter
Short-term benefits
Post-employment benefits
Fees 1
Non-monetary benefits 2
Superannuation contributions 3
$478,544
$469,033
$4,550
$4,550
$20,531
$20,049
Total
$503,625
$493,632
2019 (part year)6
$152,380
J Harris
2019
2018
J Hazel
2019
2018
J Hey
2019
2018
R Hubbard
2019
2018
D Matthews4
2019
2018
$182,663
$180,739
$182,663
$180,739
$182,663
$180,739
$182,663
$180,739
$191,609
$189,636
-
-
-
-
-
-
-
-
-
$5,674
$5,674
$14,476
$166,857
$18,787
$16,715
$18,787
$16,715
$18,787
$16,715
$18,787
$16,715
$20,064
$17,644
$201,450
$197,454
$201,450
$197,454
$201,450
$197,454
$201,450
$197,454
$217,347
$212,954
A N N UA L F I N A N C I A L R E P O R T 2 01 9 3 5
Non-executive
Director
D Radford6
2019 (part year)
2018
T Robinson5
2019
2018
Aggregate totals
2019
2018
Short-term benefits
Post-employment benefits
Fees 1
Non-monetary benefits 2
Superannuation contributions 3
$60,677
$180,739
$222,586
$237,405
$1,836,447
$1,799,769
-
-
-
-
$10,224
$10,224
$6,254
$16,715
$20,531
$20,049
$157,007
$141,317
Total
$66,930
$197,454
$243,117
$257,454
$2,003,678
$1,951,310
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 fees paid to Mr Matthews include $15,500 inclusive of company superannuation as a member of the Community Bank® National Council.
5 The fees paid to Mr Robinson include a fee of $41,667 inclusive of company superannuation as a Director of Sandhurst Trustees Limited. This
reflects the reduction in fee from $60,000 to $40,000 from 1 August 2018.
6 Ms Carter commenced as a director on 4 September 2018 and Ms Radford ceased as a director on 30 October 2018.
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.
Name
Number at the start of year
Net Change 1
Number at end of year 2
Ordinary shares
Preference shares
Ordinary shares
Preference shares
Ordinary shares
Preference shares
Non-executive Directors
R Johanson
268,325
V Carter
J Harris
J Hazel
J Hey
R Hubbard
D Matthews
D Radford
T Robinson
504
1,000
27,470
15,199
16,655
32,244
1,900
33,140
-
-
-
-
250
-
-
3,190
-
13,860
-
1,000
1,566
6,238
1,160
2,246
-
-
-
-
-
-
-
-
-
-
-
282,185
504
2,000
29,036
21,437
17,815
34,490
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.
36 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Section 7: Remuneration governance
The Governance & HR Committee assists 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.
c. Robert Johanson
d. Vicki Carter
Jacqueline Hey
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/
index.asp.
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’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
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.
Section 8: KMP statutory remuneration, equity and loan tables
8.1 Senior Executive statutory remuneration details
The following table sets out the statutory executive remuneration disclosures which have been prepared in accordance with the
Corporations Act 2001 and Australian Accounting Standards.
Short-term employee benefits
Cash
Salary 1
STI 2
Non-
mone-
tary 3
Superan-
nuation
bene-
fits 4
Other
long-term
benefits 5
Termina-
tion Pay-
ments
Share-based payments 6
Performance
rights 7
Deferred
shares 8
Total
Perfor-
mance
related
11
$1,184,923
$0 $16,038 $20,531 $19,657
$576,079 $140,625 $17,043 $20,049 ($47,811)
$457,980
$0
- $20,531 $10,987
2018 (part year)9
$177,016
$62,500
-
$7,224
$3,225
T Crouch
2019 (part year)9
$350,493
$0 $18,784 $19,031 ($5,103)
R Fennell
2019
2018
A Gartmann
2019
2018
$662,786
$0 $36,989 $20,531 ($6,466)
$586,197 $156,250 $34,020 $20,049 ($19,834)
$336,404
$0
- $20,531
$5,824
$303,641
$80,000
$111 $20,049
$5,573
-
-
-
-
-
-
-
-
-
$231,531 $810,461 $2,283,141
$180,863 $203,423 $1,090,271
$77,885
$94,446
$661,829
$21,129
$19,428
$290,522
12%
31%
12%
29%
$51,996
$42,577
$477,779
11%
$210,125 $215,373 $1,139,340
$180,863 $208,560 $1,166,105
$89,860
$85,409
$538,028
$59,108
$86,580
$555,062
23%
31%
19%
18%
A N N UA L F I N A N C I A L R E P O R T 2 01 9 37
Executive
M Baker
2019
2018
T Corolis
2019
16%
23%
18%
26%
22%
31%
0%
28%
Short-term employee benefits
Cash
Salary 1
STI 2
Non-
mone-
tary 3
Superan-
nuation
bene-
fits 4
Other
long-term
benefits 5
Termina-
tion Pay-
ments
Share-based payments 6
Performance
rights 7
Deferred
shares 8
Total
Perfor-
mance
related
11
Executive
R Musgrove
2019 (part year)10
$35,869
$0
$2,794
$3,315
($605)
$276,402
$50,000 $41,520 $30,865 ($21,029)
$369,084
$0
$6,500 $20,531
$9,487
$350,229
$84,375
$6,500 $20,049
$8,957
$366,396
$0
$5,000 $20,550 ($17,259)
$357,794 $110,000
$5,000 $20,049 ($3,284)
-
-
-
-
-
-
$8,941
$6,608
$56,922
$72,345
$71,036
$521,139
$91,839
$97,540
$594,981
$66,715
$89,149
$625,974
$91,839 $119,599
$586,124
$72,345 $102,124
$664,028
2018
B Speirs
2019
2018
S Thredgold
2019
2018
A Twaits
2019
$414,299
$0
- $21,357 ($5,134) $15,862
2018 (part year)10
$171,035
$62,500
-
$8,275
$2,054
-
$7,803
-
-
$446,384
$251,667
2019
2018
$4,178,234
$0
$86,105 $166,910
$11,389 $15,862
$854,018 $1,472,013
$6,784,529
$4,924,977 $996,250 $135,608 $199,017 ($27,090)
$0
$1,052,377 $1,838,173
$9,119,312
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 respective financial year. No STI was awarded in FY2019. 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 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 contribution 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 Section 8.4.
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 current year amount for Marnie Baker represents the amortised fair value allocation for the performance right grants
made during the 2016, 2017, 2018 and 2019 financial years. The comparative amount represents the final amortised fair value allocation for
the previous performance right grant made in the 2015, 2016, 2017 and 2018 financial years. The current year amounts for other executives
represent the amortised fair value allocation for the 2016, 2017, 2018 and 2019 performance right grants. The comparative amounts represent
the amortised fair value allocation for the 2015, 2016, 2017 and 2018 performance right grants.
8 The amounts included in the deferred share column comprise:
a. The fair value of deferred STI is amortised over a two-year deferral period. The deferred STI amounts for the 2019 financial year represent the
amortised fair value of the deferred STI grants for the 2017 and 2018 financial years. There was no deferred STI grant for the 2019 financial year.
The deferred STI amounts for the comparative period represent the amortised fair value of the deferred STI grant made for the 2017 financial year.
b. The fair value of the deferred base pay grants amortised over a two-year deferral period. The deferred base pay amounts for the 2019 financial
year comprise the amortised fair value of the deferred base pay grants made in the 2018 and 2019 financial years. The comparative amounts
represent the amortised fair value of the deferred base pay grants made in the 2017 and 2018 financial years.
9 Mr Crouch commenced as a KMP on 10 August 2018 and Mr Corolis and Mr Twaits commenced as a KMP on 31 January 2018.
10 Mr Twaits resigned and ceased being a KMP on 30 June 2019. Mr Musgrove ceased being a KMP on 9 August 2018.
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).
38 A N N UA L F I N A N C I A L R E P O R T 2 01 9
8.2 Executive equity instrument grants
The following table sets out the number and value of deferred share and performance right grants to executives for the year. It also
includes details of grants made in prior years that vested or were forfeited or lapsed. The remuneration amounts presented in the
below table have been calculated using the fair value of the equity instruments
Executive
Equity Instrument
Grant Date
Granted 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
$
Performance Rights
16.12.2016
-
-
4,457
36,963
907
7,518
Performance Rights
Performance Rights
Deferred Shares STI
17.12.2015
16.12.2016
12.12.2017
M Baker
Deferred Shares Base Pay
12.12.2017
-
-
-
-
-
-
-
-
Deferred Shares STI
17.12.2018
4,625
47,684
Deferred Shares Base Pay
19.12.2018
200,000 2,072,000
Performance Rights
19.12.2018
50,000
315,250
Performance Rights
Performance Rights
17.12.2015
16.12.2016
T Corolis
Deferred Shares Base Pay
24.04.2018
-
-
-
-
-
-
Deferred Shares Base Pay
17.12.2018
9,276
95,636
Performance Rights
17.12.2018
14,842
98,411
T Crouch
Performance Rights
17.12.2018
14,842
98,411
Deferred Shares Base Pay
17.12.2018
9,276
95,636
Performance Rights
Performance Rights
Deferred Shares STI
17.12.2015
16.12.2016
12.12.2017
R Fennell
Deferred Shares Base Pay
12.12.2017
-
-
-
-
-
-
-
-
Deferred Shares STI
17.12.2018
5,138
52,973
Deferred Shares Base Pay
17.12.2018
15,306
157,805
Performance Rights
17.12.2018
25,974
172,221
Performance Rights
Performance Rights
Deferred Shares STI
17.12.2015
16.12.2016
12.12.2017
Deferred Shares Base Pay
12.12.2017
A Gartmann
-
-
-
-
-
-
-
-
Deferred Shares Base Pay
17.12.2018
7,421
76,511
Performance Rights
17.12.2018
13,914
92,257
Performance Rights
R Musgrove
Performance Rights
17.12.2015
16.12.2016
Deferred Shares Base Pay
12.12.2017
Performance Rights
Performance Rights
Deferred Shares STI
17.12.2015
16.12.2016
12.12.2017
Deferred Shares Base Pay
12.12.2017
B Speirs
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Deferred Shares Base Pay
17.12.2018
9,276
95,636
Performance Rights
17.12.2018
13,914
92,257
13,072
64,318
7,040
34,633
22,290
184,837
4,534
37,591
3,553
41,108
14,571
168,586
12,862
1,408
36,963
93,256
-
-
907
-
-
-
-
-
-
-
-
-
-
-
13,072
64,318
7,040
34,633
22,290
184,837
4,534
37,591
4,441
51,383
14,571
168,586
-
-
-
-
-
-
-
-
-
-
6,926
7,518
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,582
2,253
11,083
73,930
1,814
15,036
20,548
73,759
-
-
-
-
-
-
-
-
-
-
25,727
2,816
13,854
73,930
1,814
15,036
63,218
-
-
25,727
2,816
13,854
73,930
1,814
15,036
25,685
73,759
-
-
-
-
-
-
-
-
-
-
-
-
-
2,614
4,457
9,107
-
-
-
-
-
4,183
8,915
1,776
6,375
-
-
5,229
8,915
5,464
5,229
8,915
2,220
6,375
-
-
A N N UA L F I N A N C I A L R E P O R T 2 01 9 3 9
Executive
Equity Instrument
Grant Date
Granted 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
$
Performance Rights
Performance Rights
Deferred Shares STI
17.12.2015
16.12.2016
12.12.2017
S Thredgold
Deferred Shares Base Pay
12.12.2017
-
-
-
-
-
-
-
-
5,229
8,915
3,553
7,285
Deferred Shares STI
17.12.2018
3,617
37,291
Deferred Shares Base Pay
17.12.2018
7,421
76,511
Performance Rights
17.12.2018
13,914
92,257
Performance Rights
24.04.2018
-
-
A Twaits
Deferred Shares Base Pay
17.12.2018
6,493
66,943
Performance Rights
17.12.2018
13,914
13,914
-
-
-
-
-
-
25,727
2,816
13,854
73,930
1,814
15,036
41,108
84,287
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,107
43,629
6,493
66,943
13,914
92,257
1 The grants to executives in FY2019 constituted 100% of the grants available for the year and were made on the terms described at Section 3.
2 The value of the performance right grants and deferred share grants is the fair value (refer Section 8.4). 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. As the actual value that may be derived by the executives is
dependent upon the Bank’s share price at the time the 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 in FY2019 was 83.1% for the FY2017 LTI Plan where the first sleeve vested at 100% when
measured on NPS performance and the remaining two sleeves vesting at 75.9% when measured on relative TSR performance. The percentage of
performance rights that vested in the FY2016 LTI plan was 65% as the TSR measure was met. The percentage of base pay deferred share grants
made in prior years that vested during FY2019 was 100%. The percentage of the deferred STI share grants made in prior years that vested during
FY2019 was 100%.
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 Section 8.4. As each deferred share represents one ordinary share in the Bank, the number of ordinary shares that will
vest is the same as the number of deferred shares that were granted.
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. If performance rights do not
vest at the end of the performance period, they are forfeited and 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: 308,214 ordinary shares (FY2018: 171,439 ordinary shares); and
b Average price per ordinary share at which the securities were purchased: $10.20 per security (FY2018: $11.25 per security).
40 A N N UA L F I N A N C I A L R E P O R T 2 01 9
8.3 Movements in Senior Executive equity holdings
The details of equity holdings 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.
Executive
Equity
Instrument1
Number at
start of year
M Baker
Deferred shares
Ordinary shares
Preference shares
Performance rights
Deferred shares
T Corolis
Ordinary shares
Performance rights
Deferred shares
T Crouch
Ordinary shares
Performance rights
Deferred shares
R Fennell
Ordinary shares
Performance rights
Deferred shares
A Gartmann
Ordinary shares
Performance rights
Deferred shares
R Musgrove3
Ordinary shares
Performance rights
Deferred shares
B Speirs
Ordinary shares
Performance rights
Deferred shares
S Thredgold
Ordinary shares
Performance rights
Deferred shares
A Twaits
Ordinary shares
Performance rights
18,124
353,379
800
69,704
9,107
11,730
23,046
-
3,730
-
19,012
103,004
69,704
8,151
11,264
26,272
5,464
36,342
27,881
8,595
6,437
27,881
10,838
26,015
27,881
-
1,810
9,107
Granted
during the
year
204,625
-
-
50,000
9,276
-
14,842
9,276
-
14,842
20,444
-
25,974
7,421
-
13,914
5,565
-
9,276
9,276
-
13,914
11,038
-
13,914
6,493
-
13,914
Vested or
released
Lapsed or
expired
Net change
other
Number at
end of year 1, 2
(18,124)
53,486
-
-
-
-
(35,362)
(11,574)
(9,107)
16,178
(7,071)
-
4,457
(4,457)
(19,012)
54,374
(35,362)
(8,151)
21,249
-
(2,315)
-
(907)
-
(11,574)
-
-
(13,098)
(4,067)
(5,464)
19,608
-
(14,144)
(4,630)
(8,595)
22,739
(14,144)
(10,838)
24,982
(14,144)
-
-
-
-
(4,630)
-
(4,630)
(6,493)
(23,021)
-
41,413
204,625
448,278
-
-
-
814
-
-
6
-
-
108
-
-
-
-
-
(2,850)
-
-
(6,437)
-
-
(10,000)
-
-
-
800
72,768
9,276
28,722
28,502
9,276
8,193
9,478
20,444
157,486
48,742
7,421
32,513
23,021
5,565
53,100
18,383
9,276
22,739
23,021
11,038
40,997
23,021
-
1,810
-
1 None of the equity holdings are held nominally.
2 None of the deferred shares or performance rights held at year end had vested and were exercisable.
3 Table contains full FY2019 data for Mr Musgrove.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 41
8.4 Equity plan valuation inputs
Performance rights
The assumptions underlying the fair value of current performance right grants are as follows.
Equity Instrument
Terms & Conditions for each Grant
Grant date
Fair
value 1
Share
price $
Exer-
cise
price
Risk
free
interest
rate
Dividend
yield
Expected
volatility
Expected
life
Performance
period end /
expiry date 2
Performance Rights
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
Performance Rights – Sleeve 1
12.12.2017
$10.09 $11.64
Performance Rights – Sleeve 2
12.12.2017
$5.81 $11.64
Performance Rights – Sleeve 3
12.12.2017
$5.81 $11.64
Performance Rights – Sleeve 1 (MD) 12.12.2017
$9.54 $11.64
Performance Rights – Sleeve 2 (MD) 12.12.2017
$5.70 $11.64
Performance Rights – Sleeve 3 (MD) 12.12.2017
$5.70 $11.64
Performance Rights – Sleeve 1
24.04.2018
$9.06 $10.59
Performance Rights – Sleeve 2
24.04.2018
$2.96 $10.59
Performance Rights – Sleeve 3
24.04.2018
$2.96 $10.59
Performance Rights – Sleeve 1
17.12.2018
$8.60 $10.37
Performance Rights – Sleeve 2
17.12.2018
$5.57 $10.37
Performance Rights – Sleeve 1 (MD) 19.12.2018
$8.06 $10.40
Performance Rights – Sleeve 2 (MD) 19.12.2018
$5.36 $10.40
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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%
20%
20%
20%
20%
20%
20%
20%
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
1.97%
5.75%
22.5%
3 years
30.06.2020
1.97%
5.75%
22.5%
3 years
30.06.2020
1.97%
5.75%
22.5%
3 years
30.06.2020
2.09%
5.75%
22.5%
4 years
30.06.2021
2.09%
5.75%
22.5%
4 years
30.06.2021
2.09%
5.75%
22.5%
4 years
30.06.2021
2.28%
6.42%
24.7%
3 years
30.06.2020
2.28%
6.42%
24.7%
3 years
30.06.2020
2.28%
6.42%
24.7%
3 years
30.06.2020
1.89%
6.73%
23.4%
3 years
30.06.2021
1.89%
6.73%
23.4%
3 years
30.06.2021
1.99%
6.73%
23.4%
4 years
30.06.2022
1.99%
6.73%
23.4%
4 years
30.06.2022
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.
Deferred Shares
The assumptions underlying the fair value of current deferred share grants are as follows.
Equity Instrument
Grant date
Issue price / Fair
value 1
Share price at grant
date
Restriction period
end / test date
Vest / Expiry
date
Terms & Conditions for each Grant
Deferred Shares Base Pay
12.12.2017
Deferred Shares STI
12.12.2017
Deferred Shares Base Pay
24.04.2018
Deferred Shares STI
17.12.2018
Deferred Shares Base Pay
17.12.2018
Deferred Shares Base Pay
19.12.2018
$11.57
$11.57
$10.24
$10.31
$10.31
$10.36
$11.64
$11.64
$10.59
$10.37
$10.37
$10.40
30.06.2019
30.06.2019
30.06.2019
30.06.2019
30.06.2019
30.06.2019
30.06.2020
30.06.2020
30.06.2020
30.06.2020
30.06.2020
30.06.2020
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.
42 A N N UA L F I N A N C I A L R E P O R T 2 01 9
8.5 Senior Executive employment terms
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?
On-going until notice is given by either party.
All Executives
What notice must be provided by a
Executive to end the contract without
cause? 2
Between 6 and 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
6 months’ notice or payment in lieu.2
M Baker, T Corolis, T Crouch
and A Twaits
12 months’ notice or payment in lieu.
All other Executives
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
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 material 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”.
2 A review of the executive employment contract was completed during the year having regard to market practice. Changes to the contract included
reducing the relevant notice period from 12 months to 6 months. The 12-month notice period for existing KMP’s has been grandfathered.
8.6 KMP loans and other transactions
Details on the aggregate loans provided to KMP and their related parties are as follows. The loans 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.
Balance at
beginning of
year
Interest
charged 2
Interest not
charged
Write-off
Balance at
end of year
Number at
year end
$’000
$’000
$’000
$’000
$’000
Non-executive Directors
2019
5,982
Executives
2019
6,006
Total Directors and
Executives
2019
11,988
402
149
551
-
-
-
-
-
-
6,955
5,794
12,749
8
7
15
A N N UA L F I N A N C I A L R E P O R T 2 01 9 4 3
Details of KMP (including their related parties) with an aggregate of loans above $100,000 in the reporting period are as follows:
2019
Non-executive Directors
R Johanson
D Matthews
T Robinson
Executives
R Fennell
A Gartmann
R Musgrove3
S Thredgold
A Twaits
Balance at
beginning of year
Interest
charged 2
Interest not
charged
Write-off
Balance at end
of year
Highest owing
in period 1
$’000
$’000
$’000
$’000
$’000
$’000
714
4,247
1,001
1,419
1,506
1,005
709
1,324
119
223
59
30
55
5
11
48
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,395
4,234
1,305
1,227
1,434
995
672
1,388
2,798
4,297
-
1,897
1,506
1,010
718
1,374
1 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.
2 Interest charged may include the impact of interest off-set facility
3 Mr Musgrove ceased as KMP 9 August 2018. Data included for time as KMP only, therefore closing balance is at 9 August 2018.
This Directors’ Report is signed in accordance with a resolution of the Board of Directors.
Robert Johanson
Chairman
6 September 2019
Marnie Baker
Managing Director
44 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Financial Statements
P R I M A R Y S T A T E M E N T S
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in equity
Cash flow statement
B A S I S O F P R E PA R A T I O N
1
2
Corporate information
Summary of significant accounting policies
R E S U L T S F O R T H E Y E A R
3
4
5
6
7
Profit
Income tax expense
Segment results
Earnings per ordinary share
Dividends
F I N A N C I A L I N S T R U M E N T S
Cash and cash equivalents
Loans and other receivables
Impairment of loans and advances
Financial assets at fair value
through profit or loss
Financial assets available for sale
Financial assets held for maturity
Financial assets at amortised cost
Financial assets at fair value
through other comprehensive income
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Derivative financial instruments
Financial instruments
Risk management
F U N D I N G A N D C A P I T A L M A N A G E M E N T
23
24
25
26
Share capital
Retained earnings and reserves
Standby arrangements & uncommitted credit facilities
Capital management
O T H E R A S S E T S A N D L I A B I L I T I E S
27
28
29
30
31
Investment property
Goodwill and other intangible assets
Other assets
Other payables
Provisions
O T H E R D I S C L O S U R E M A T T E R S
32
33
34
35
36
37
38
39
40
Cash flow statement reconciliation
Subsidiaries and other controlled entities
Related party disclosures
Involvement with unconsolidated entities
Fiduciary activities
Share based payment plans
Commitments and contingencies
Auditors’ remuneration
Events after balance sheet date
Deposits and notes payable
Directors’ declaration
Preference shares
Subordinated debt
Independent Audit Report
Financial highlights
Securitisation and transferred assets
Additional information
A N N UA L F I N A N C I A L R E P O R T 2 01 9 4 5
A N N UA L F I N A N C I A L R E P O R T 2 01 9 4 5
P R I M A R Y S T A T E M E N T S
Income statement
For the year ended 30 June 2019
Group
20191
$m
2018
$m
Bank
20191
$m
2018
$m
Note
Net interest income
Interest income
Interest expense
2,639.5
2,659.6
2,344.6
2,327.6
(1,353.7)
(1,354.4)
(1,174.4)
(1,149.9)
Total net interest income
3
1,285.8
1,305.2
1,170.2
1,177.7
Other revenue
Fees
Commissions
Other revenue
Total other revenue
Total income
Expenses
Credit expenses
Bad and doubtful debts recovered
Total credit expenses
Operating expenses
Staff and related costs
Occupancy costs
Amortisation and depreciation costs
Fees and commissions
Other operating expenses
Total other expenses
Profit before income tax expense
Income tax expense
Net profit for the year
Earnings per share (cents)
Basic
Diluted
163.8
73.5
44.4
281.7
167.9
71.7
98.7
338.3
149.2
19.3
371.1
539.6
152.7
18.4
47.8
218.9
1,567.5
1,643.5
1,709.8
1,396.6
(54.6)
4.3
(50.3)
(78.9)
8.3
(70.6)
(50.3)
2.5
(47.8)
(72.5)
6.4
(66.1)
(518.5)
(497.3)
(463.7)
(446.4)
(90.5)
(45.1)
(7.4)
(249.6)
(856.3)
805.7
(161.4)
644.3
(90.1)
(42.5)
(8.2)
(230.7)
(817.9)
512.6
(162.9)
349.7
(91.3)
(48.1)
(31.1)
(276.2)
(965.2)
552.0
(175.2)
376.8
(91.0)
(47.7)
(35.2)
(267.2)
(938.4)
634.5
(200.0)
434.5
77.1
69.7
89.9
81.2
3
3
3
4
6
6
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
46 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Statement of comprehensive income
For the year ended 30 June 2019
Profit for the year
Items which may be reclassified subsequently to profit or loss:
Net gain on available for sale - equity investments
Net unrealised (loss)/gain on available for sale
- debt securities
Revaluation gain on debt instruments at fair value through
other comprehensive income
Transfer from asset revaluation reserve to income
Net gain on cash flow hedges taken to equity
Tax effect on items taken directly to or transferred from equity
Total items that may be reclassified to profit or loss
Note
24
24
24
24
24
24
Items which will not be reclassified subsequently to profit or loss:
Actuarial (loss)/gain on superannuation defined benefits plan
Tax effect on items taken directly to or transferred from equity
24
24
Total items that will not be reclassified to profit or loss
Group
20191
$m
376.8
2018
$m
434.5
Bank
20191
$m
644.3
-
-
0.2
(0.3)
19.5
(5.8)
13.6
(0.1)
-
(0.1)
0.2
(0.1)
-
-
10.9
(3.3)
7.7
0.4
(0.1)
0.3
-
-
18.1
-
19.5
(11.3)
26.3
(0.1)
-
(0.1)
2018
$m
349.7
-
7.9
-
-
10.0
(5.4)
12.5
0.4
(0.1)
0.3
Total comprehensive income for the year
390.3
442.5
670.5
362.5
Total comprehensive income for the year attributable to:
Owners of the Company
390.3
442.5
670.5
362.5
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 47
Balance sheet
As at 30 June 2019
Assets
Cash and cash equivalents
Due from other financial institutions
Amounts receivable from controlled entities
Financial assets fair value through profit or loss (FVTPL)
Financial assets available for sale
Financial assets held to maturity
Financial assets - amortised cost
Financial assets fair value through other comprehensive
income (FVOCI)
Derivatives
Net loans and other receivables
Investments accounted for using the equity method
Shares in controlled entities
Property, plant and 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
Amounts payable to controlled entities
Loans payable to securitisation trusts
Income tax payable
Provisions
Deferred tax liabilities
Other payables
Preference shares
Subordinated debt
Total Liabilities
Net Assets
Equity
Share capital
Reserves
Retained earnings
Total Equity
Group
20191
$m
2018
$m
Note
Bank
20191
$m
880.2
270.6
-
2018
$m
836.8
295.8
21.1
4,499.5
5,490.6
49.5
-
-
1,072.0
270.6
1,137.4
283.0
-
-
5,836.9
4,499.5
5,836.9
-
-
293.1
55.7
150.6
469.0
413.2
-
-
-
-
143.8
6,133.1
29.7
150.7
220.2
61,791.8
61,601.8
60,972.2
56,148.7
9.3
-
63.1
170.6
734.5
1,685.6
436.5
8.9
-
69.9
117.0
735.7
1,650.0
424.7
8.3
587.4
60.4
167.7
-
7.8
585.2
65.8
112.4
-
1,593.2
1,395.5
1,558.3
1,481.1
72,570.3
71,439.8
78,200.0
71,372.8
420.6
352.5
420.6
346.7
60,566.6
59,529.5
60,601.4
55,528.9
3,464.4
135.0
3,544.8
34.8
-
-
6.4
119.6
165.3
493.0
886.4
681.4
-
-
51.5
136.6
130.9
448.8
880.9
709.2
23.1
135.0
787.4
-
54.1
-
8,754.2
8,097.9
6.4
118.0
85.8
462.1
886.4
681.4
51.5
132.1
90.3
563.6
880.9
699.2
66,938.7
65,819.5
72,961.8
66,445.2
5,631.6
5,620.3
5,238.2
4,927.6
4,570.5
4,523.3
4,570.5
4,523.3
73.8
987.3
121.1
975.9
105.5
562.2
122.2
282.1
5,631.6
5,620.3
5,238.2
4,927.6
8
8
11
12
13
14
15
20
9
4
27
28
29
8
16
16
20
4
31
4
30
17
18
23
24
24
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
48 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Statement of changes in equity
For the year ended 30 June 2019
At 1 July 2018
Opening balance
Impact of adoption of new accounting standards3
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
Reduction in employee share ownership plan (ESOP) shares
Movement in general reserve for credit losses (GRCL)
Movement in operational risk reserve
Share based payment
Equity dividends
At 30 June 2019
Group
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
issued
capital1
$m
Retained
earnings2
$m
Reserves2
$m
Total
equity
$m
4,529.9
(6.6)
-
-
-
-
46.0
-
-
-
-
-
-
-
-
-
-
1.2
-
-
-
-
975.9
(11.1)
121.1
5,620.3
(82.8)
(93.9)
376.8
(0.1)
376.7
-
-
(19.9)
(0.6)
1.0
-
13.6
13.6
-
-
19.9
0.6
1.4
376.8
13.5
390.3
46.0
1.2
-
-
2.4
(334.7)
-
(334.7)
4,575.9
(5.4)
987.3
73.8
5,631.6
1 Refer to Note 23 for further details.
2 Refer to Note 24 for further details.
3 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
For the year ended 30 June 2018
At 1 July 2017
Opening balance
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
Reduction in employee share ownership plan (ESOP) shares
Movement in operational risk reserve
Share based payment
Transfer from asset revaluation reserve
Equity dividends
At 30 June 2018
1 Refer to Note 23 for further details.
2 Refer to Note 24 for further details.
Group
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
issued
capital1
$m
Retained
earnings2
$m
Reserves2
$m
Total
equity
$m
4,456.7
(8.0)
864.6
112.3
5,425.6
-
-
-
73.2
-
-
-
-
-
-
-
-
-
1.4
-
-
-
-
434.5
0.3
434.8
-
-
(1.5)
2.6
0.4
-
7.7
7.7
-
-
1.4
0.1
(0.4)
434.5
8.0
442.5
73.2
1.4
(0.1)
2.7
-
(325.0)
-
(325.0)
4,529.9
(6.6)
975.9
121.1
5,620.3
A N N UA L F I N A N C I A L R E P O R T 2 01 9 4 9
Statement of changes in equity (continued)
For the year ended 30 June 2019
At 1 July 2018
Opening balance
Impact of adoption of new accounting standards3
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
Reduction in employee share ownership plan (ESOP) shares
Movement in general reserve for credit losses (GRCL)
Balances from transfer of business
Share based payment
Equity dividends
At 30 June 2019
Bank
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
issued
capital1
$m
Retained
earnings2
$m
Reserves2
$m
Total
equity
$m
4,529.9
(6.6)
-
-
-
-
46.0
-
-
-
-
-
-
-
-
-
-
1.2
-
-
-
-
282.1
(12.7)
644.3
(0.1)
644.2
-
-
(19.9)
2.2
1.0
122.2
4,927.6
(66.0)
(78.7)
-
26.3
26.3
-
-
19.9
1.7
1.4
644.3
26.2
670.5
46.0
1.2
-
3.9
2.4
(334.7)
-
(334.7)
4,575.9
(5.4)
562.2
105.5
5,238.2
1 Refer to Note 23 for further details.
2 Refer to Note 24 for further details.
3 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
For the year ended 30 June 2018
At 1 July 2017
Opening balance
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
Reduction in employee share ownership plan (ESOP) shares
Share based payment
Transfer from asset revaluation reserve
Equity dividends
At 30 June 2018
1 Refer to Note 23 for further details.
2 Refer to Note 24 for further details.
50 A N N UA L F I N A N C I A L R E P O R T 2 01 9
Bank
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
issued
capital1
$m
Retained
earnings2
$m
Reserves2
$m
Total
equity
$m
4,456.7
(8.0)
254.0
110.1
4,812.8
-
-
-
73.2
-
-
-
-
-
-
-
-
1.4
-
-
-
349.7
0.3
350.0
-
-
2.6
0.5
-
12.5
12.5
-
-
0.1
(0.5)
349.7
12.8
362.5
73.2
1.4
2.7
-
(325.0)
-
(325.0)
4,529.9
(6.6)
282.1
122.2
4,927.6
Cash flow statement
For the year ended 30 June 2019
Cash flows from operating activities
Group
20191
$m
2018
$m
Bank
20191
$m
2018
$m
Note
Interest and other items of a similar nature received
2,646.2
2,661.9
2,325.6
2,294.4
Interest and other costs of finance paid
(1,361.4)
(1,379.9)
(1,167.5)
(1,173.4)
Receipts from customers (excluding effective interest)
Payments to suppliers and employees
Dividends received
Income taxes paid
Cash flows from operating activities before changes in
operating assets and liabilities
(Increase)/decrease in operating assets
Net increase in balance of loans and other receivables
Net (increase)/decrease in balance of investment securities
Increase/(decrease) in operating liabilities
280.4
(1,000.1)
0.9
284.8
(998.4)
1.3
(205.9)
(175.2)
228.3
232.5
(753.3)
(1,023.9)
300.6
(207.3)
1.0
(192.9)
360.1
394.5
726.4
137.7
(337.6)
(773.2)
(904.1)
(3,518.7)
1,039.4
(2,043.4)
(549.8)
865.3
Net increase/(decrease) in balance of deposits
1,037.1
235.4
5,072.5
(209.8)
Net (decrease)/increase in balance of notes payable
Net cash flows from operating activities
32
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 return of capital/
dividend from JV partners
(80.4)
206.0
(12.6)
0.8
(67.0)
44.1
(3.6)
(0.3)
2.0
(413.6)
351.6
(15.4)
1.3
(59.0)
45.0
(2.9)
(0.1)
2.0
23.1
259.9
(12.6)
0.6
-
-
-
(0.3)
2.0
-
243.4
(14.6)
1.3
-
-
(2.9)
(15.0)
2.0
Net cash flows used in investing activities
(36.6)
(29.1)
(10.3)
(29.2)
Cash flows from financing activities
Proceeds from issue of ordinary/convertible preference shares
Proceeds from issue of subordinated debt holders
Repayment of subordinated debt
Dividends paid
Repayment of ESOP shares
Payment of share issue costs
-
272.2
(300.0)
(288.7)
1.2
-
55.8
0.5
-
(251.8)
1.4
(6.5)
-
282.2
(300.0)
(288.7)
1.2
-
55.8
0.5
-
(251.8)
1.4
(6.5)
Net cash flows used in financing activities
(315.3)
(200.6)
(305.3)
(200.6)
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of period
Cash and cash equivalents at the end of period
(145.9)
1,067.9
121.9
946.0
922.0
1,067.9
8
25
(55.7)
785.9
730.2
13.6
772.3
785.9
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 51
B A S I S O F P R E PA R A T I O N
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 2019 or later
years. We explain how these changes are expected to impact the financial position and performance of the Group.
1 Corporate information
Basis of measurement
The financial report of Bendigo and Adelaide Bank Limited
('the Bank') and its controlled entities ('the Group') for
the year ended 30 June 2019 was authorised for issue in
accordance with a resolution of the directors on 6 September
2019.
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 Bendigo and Adelaide Bank Limited is
Australia.
The consolidated financial statements have been prepared on
a historical cost basis except for the following material items
that are measured at fair value in the Balance Sheet:
•
Financial assets and liabilities at fair value through profit
or loss (FVTPL)
• Derivative financial instruments
•
Available-for-sale investment securities (applicable prior to
1 July 2018)
• Debt and equity instruments measured at fair value
through other comprehensive income (FVOCI) (effective 1
July 2018)
The registered office of the company is:
The Bendigo Centre, 22 – 44 Bath Lane Bendigo, Victoria
Significant accounting judgements,
estimates and assumptions
2 Summary of significant accounting policies
Basis of preparation
The financial report of Bendigo and Adelaide Bank Limited:
•
•
is a general purpose financial report;
has been prepared in accordance with Australian
Accounting Standards and interpretations issued by
the Australian Accounting Standards Board (AASB) and
International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board
(IASB);
has been prepared in accordance with the requirements
of the Corporations Act 2001;
has been prepared in accordance with the requirements
for an authorised deposit-taking institution under the
Banking Act 1959 (as amended);
has been presented in Australian dollars, which is the
functional presentation currency of the Bank and each of
its subsidiaries, with all values rounded to the nearest
hundred thousand dollar ($'00,000) in accordance with
ASIC Corporations (rounding in Financial/Directors'
Reports) instrument 2016-191, unless otherwise stated;
includes foreign currency transactions that are translated
into the functional currency using exchange rates at the
date of the transaction;
•
•
•
•
• where necessary, presents reclassified comparatives for
consistency with current year disclosures.
52 A N N UA L F I N A N C I A L R E P O R T 2 01 9
In preparing these consolidated financial statements,
management has made judgements, estimates and
assumptions that affect the application of the Group’s
accounting policies and the reported amounts of assets,
liabilities, revenues, expenses and the accompanying
disclosures, as well as the disclosure of contingent liabilities.
Uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to
the carrying amount of assets or liabilities in future periods.
Estimates and underlying assumptions are reviewed on an
ongoing basis.
Critical accounting judgements, estimates and assumptions
are detailed within the relevant note.
Changes in accounting policies
In these financial statements, the Bank has applied, for the
first time, AASB 9 Financial Instruments and the consequential
amendments to AASB 7 Financial Instruments: Disclosures, and
AASB 15 Revenue from Contracts with Customers. The nature
and effect of the key changes as a result of the adoption of
these new accounting standards has been described below.
AASB 9 Financial Instruments
From 1 July 2018, the Group adopted AASB 9, which
replaced AASB 139 Financial Instruments: Recognition and
Measurement, and addresses classification and measurement,
impairment and hedge accounting. As permitted by the
transition provisions of AASB 9, the Group elected not to
restate comparative period results, therefore, the comparative
information is reported under AASB 139 and is not
comparable with the information presented for the current
year.
2 Summary of significant accounting policies (continued)
AASB 9 Financial Instruments (continued)
Adjustments to carrying amounts of financial assets and
liabilities at the date of initial application were recognised
directly in retained earnings as of 1 July 2018 and are
disclosed below.
(a) Classification and measurement
Upon initial recognition, all financial assets are measured at
fair value. Subsequent measurement is determined through
consideration of the business model for managing the financial
assets and the contractual cash flow characteristics of the
instrument. There are four measurement classifications under
AASB 9, being:
•
•
amortised cost;
fair value through other comprehensive income (FVOCI)
with recycling;
fair value through other comprehensive income (FVOCI)
without recycling; and
fair value through profit or loss (FVTPL).
•
•
Debt instruments held within a business model where the
objective is to collect contractual cashflows which are solely
payments of principal and interest (SPPI) are measured at
amortised cost. Debt instruments are measured at FVOCI
when they are held within a business model where the
objective is to both collect contractual cashflows of SPPI
and sell the financial assets. While changes in the fair value
of these instruments are recognised directly in equity, upon
disposal, the cumulative gain or loss is recycled from equity to
profit or loss. If debt instruments are held within a business
model with the objective of selling financial assets, they are
measured at FVTPL. Debt instruments are also measured at
FVTPL when the contractual cashflows are not SPPI or when
they are designated at FVTPL.
Equity instruments are measured at FVTPL, unless the asset
is not held for trading and an irrevocable election to designate
the asset as FVOCI is made. This election is made on an
instrument-by-instrument basis. Equity instruments at FVOCI
are measured at fair value with unrealised gains and losses
recorded through other comprehensive income. Dividend
income is recognised through profit or loss. Upon disposal of
the instrument, the cumulative gain or loss recorded through
other comprehensive income is not recycled to profit or loss.
The accounting for financial liabilities remains essentially
the same as it was under AASB 139, except that changes
in the fair value of liabilities designated at FVTPL arising
from an entity’s own credit risk must be recorded in other
comprehensive income with no subsequent reclassification
to profit or loss. The Group measures financial liabilities at
amortised cost if they are not held for trading, otherwise they
are measured at FVTPL.
The Group’s accounting policies applied to financial assets and
liabilities are explained in Notes 9, 11, 14, 15 and 16.
(b) Impairment
The adoption of AASB 9 has fundamentally changed the
Group's accounting for impairment losses for financial assets
by replacing AASB 139's incurred loss approach with a
forward-looking expected credit loss (ECL) approach. AASB 9
requires the Group to recognise a provision for ECLs for all
debt instruments held at amortised cost or FVOCI, together
with loan commitments and financial guarantees that are not
measured at FVTPL.
Further details of the Group's impairment policy are disclosed
in Note 10.
(c) Hedge accounting
The Group applied hedge accounting prospectively. At the
date of initial application all of the Group's existing hedging
relationships were eligible to be treated as continuing hedging
relationships. As AASB 9 does not change the general
principles of how an entity accounts for effective hedges, the
application of AASB 9 did not have a significant impact to the
Group.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 5 3
2 Summary of significant accounting policies (continued)
(d) Transition to AASB 9 disclosures
The transition disclosures set out the impact of adopting AASB 9 on the Group's financial position and retained earnings.
The following table summarises the impact on classification and measurement of the Group's financial assets and financial
liabilities on 1 July 2018:
Balance Sheet category
Original measure-
ment category under
AASB 139
New measurement
category under
AASB 9
As at 1 July 2018
Carrying amount
per AASB 139
per AASB 9
Group
$m
Bank
$m
Group
$m
Bank
$m
Financial assets
Cash and cash equivalents
Amortised cost
Amortised cost
1,137.4
836.8
1,137.4
Due from other financial institutions
Amortised cost
Amortised cost
283.0
295.8
283.0
836.8
295.8
Financial assets held for trading
Fair value through
profit or loss
Fair value through
profit or loss
4,499.5
4,499.5
4,499.5
4,499.5
Financial assets available
for sale (debt)
Fair value through
reserves
Fair value through
other comprehensive
income (with
recycling) 1
202.7
5,387.0
202.8
5,387.0
Financial assets available
for sale (debt) 3
Fair value through
reserves
Amortised cost
238.6
84.8
238.6
84.8
Financial assets available
for sale (equity)
Fair value through
reserves
Financial assets available for sale
(equity)
Fair value through
reserves
Financial assets held to maturity
Amortised cost
Fair value through
other comprehensive
income (no recycling)2
Fair value through
other comprehensive
income (with
recycling) 1
Fair value through
other comprehensive
income (with
recycling) 1
18.8
18.8
18.8
18.8
8.9
-
8.9
-
358.4
0.5
358.4
0.5
Financial assets held to maturity
Amortised cost
Amortised cost
54.8
49.0
54.8
49.0
Net loans and other receivables
Amortised cost
Amortised cost
61,601.8 56,148.7 61,467.5 56,036.3
Financial liabilities
Due to other financial institutions
Amortised cost
Amortised cost
352.5
346.7
352.5
346.7
Deposits
Notes payable
Preference shares
Subordinated debt
Amortised cost
Amortised cost
59,529.5 55,528.9 59,529.5 55,528.9
Amortised cost
Amortised cost
3,544.8
-
3,544.8
Amortised cost
Amortised cost
Amortised cost
Amortised cost
880.9
709.2
880.9
699.2
880.9
709.2
-
880.9
699.2
1 FVOCI with subsequent recycling of realised gains or losses permitted on derecognition.
2 FVOCI with no subsequent recycling of realised gains or losses permitted on derecognition.
3 At 30 June 2019, the carrying value of these instruments is a reasonable approximation of fair value.
54 A N N UA L F I N A N C I A L R E P O R T 2 01 9
2 Summary of significant accounting policies (continued)
(d) Transition to AASB 9 disclosures (continued)
The following table is a reconciliation of the carrying amount in the Balance Sheet from AASB 139 to AASB 9 as at 1 July 2018:
AASB 139
carrying
amount as at
30 June 2018
Re-
classification
Re-
measurement
Group
Financial assets available for sale
Financial assets held to maturity
Financial assets FVOCI (with recycling)
Financial assets FVOCI (without recycling)
Financial assets at amortised cost
Net loans and receivables
Impact on deferred tax assets
Impact on reserves
Impact on retained earnings
Bank
Financial assets available for sale
Financial assets held to maturity
Financial assets FVOCI (with recycling)
Financial assets FVOCI (without recycling)
Financial assets at amortised cost
Net loans and receivables
Impact on deferred tax assets
Impact on reserves
Impact on retained earnings
$m
469.0
413.2
-
-
-
61,601.8
117.0
(121.1)
(975.9)
$m
$m
(469.0)
(413.2)
570.0
18.8
293.4
-
-
-
-
$m
5,490.6
(5,490.6)
49.5
-
-
-
56,148.7
112.4
(122.2)
(282.1)
(49.5)
5,387.6
18.8
133.9
-
-
-
-
AASB 9
carrying
amount as at
1 July 2018
$m
-
-
570.1
18.8
293.4
$m
-
-
0.1
-
-
(134.3)
61,467.5
40.3
82.8
11.1
$m
-
-
-
-
-
157.3
(38.3)
(964.8)
$m
-
-
5,387.6
18.8
133.9
(112.4)
56,036.3
33.7
66.0
12.7
146.1
(56.2)
(269.4)
The following table is a reconciliation of the closing impairment allowance in accordance with AASB 139 to the opening
impairment allowance determined in accordance with AASB 9 as at 1 July 2018. Changes to the impairment allowance under
AASB 9 are due to a remeasurement of impairment using the expected credit loss requirements.
Group
Collective provision 1
General reserve for credit losses
Bank
Collective provision 1
General reserve for credit losses
AASB 139
carrying
amount as at
30 June 2018
Re-
classification
Re-
measurement
AASB 9
carrying
amount as at
1 July 2018
$m
48.2
140.3
$m
45.7
121.7
$m
-
-
$m
-
-
$m
134.3
(82.9)
$m
112.4
(66.0)
$m
182.5
57.4
$m
158.1
55.7
1 Subsequent to initial disclosures provided in the Annual Financial Report for 30 June 2018, an adjustment of $21.5m was made to the carrying
amount of the collective provision under AASB 9 for Great Southern as at 1 July 2018.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 5 5
2 Summary of significant accounting policies (continued)
The following amendments to existing standards are not
expected to result in significant changes to the Group’s
accounting policies:
• 2017-6 Amendments to Australian Accounting Standards –
Prepayment Features with Negative Compensation
[AASB 9];
• 2017-7 Amendments to Australian Accounting Standards –
Long-term Interests in Associates and Joint Ventures
[AASB 128];
• 2018-1 Amendments to Australian Accounting Standards
– Annual Improvements 2015-2017 Cycle [AASB 11, AASB
112 and AASB 123];
• 2018-2 Amendments to Australian Accounting Standards -
•
Plan amendment, Curtailment or Settlement;
AASB Interpretation 23, and relevant amending standards.
Uncertainty over Income Tax Treatments;
• 2018-6 Amendments to Australian Accounting Standards –
Definition of a Business [AASB 3];
• 2018-7 Amendments to Australian Accounting Standards –
Definition of Material [AASB 101 and AAS 108];
• Conceptual Framework for Financial Reporting;
• 2019-1 Amendments to Australian Accounting Standards –
Reference to the Conceptual Framework; and
AASB 17 Insurance Contracts.
•
AASB 15 Revenue from Contracts with Customers
AASB 15 redefines the principles for recognising revenue
and is applicable to all contracts with customers other than
contracts within the scope of other standards including
interest and fee income integral to financial instruments which
is within the scope of AASB 9.
AASB 15 establishes a five-step model to account for
revenue arising from contracts with customers and requires
that revenue be recognised at an amount that reflects the
consideration to which an entity expects to be entitled in
exchange for transferring goods or services to a customer.
The Group adopted AASB 15 from 1 July 2018. Many of the
Group’s revenue streams (e.g., interest income, gains and
losses on financial instruments) are outside the scope of
AASB 15 and, therefore, accounting for those streams did
not change as a result of the adoption the new standard. The
Group’s revenue streams that are within the scope of AASB 15
relate to fee and commission income disclosed in Note 3.
Recently issued or amended standards not yet effective
AASB 16 Leases replaces AASB 117 Leases and is effective
for annual reporting periods beginning on or after 1 January
2019, hence the Group will adopt the standard from 1
July 2019. The new standard requires all leases to be
recognised on-Balance Sheet, except for leases with a term
of less than 12 months and leases of low-value assets.
Under the requirements of the new standard, a lessee is
required to recognise a right-of-use asset representing its
right to use the underlying leased asset along with a lease
liability representing its obligation to make lease payments.
The Group can choose either a full retrospective or a
modified retrospective transition approach with the standard
providing practical options and exemptions to ease the
costs of transition. Lessor accounting remains substantially
unchanged.
The Group has performed a detailed impact assessment of
AASB 16 and will apply the modified retrospective approach
as permitted by the standard. The Group will calculate the
right-of-use asset at the date of initial application as if AASB
16 had been applied from the lease commencement using
the incremental borrowing rate at the date of transition,
being 1 July 2019. The lease liability will be measured at an
amount equal to the outstanding lease payments at the date
of initial application, considering extension and termination
options, discounted at the Group’s incremental borrowing rate
in the economic environment of the lease. The capitalised
right-of-use asset will mainly consist of property, namely
the head office buildings and the retail branches. The right-
of-use asset will total approximately $230 million and the
lease liability $270 million. The difference between these
two amounts,subsequent to relevant tax adjustments, will be
posted as a retained earnings adjustment. CET 1 capital is
expected to decrease by 15 bps, as a result of the increase
in the risk-weighted assets (treated as 100% risk-weighted,
consistent with the nature of the underlying asset).
56 A N N UA L F I N A N C I A L R E P O R T 2 01 9
R E S U L T S F O R T H E Y E A R
This section outlines the 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
Interest income
Effective interest income
Cash and cash equivalents
Assets held for trading
Assets held to maturity
Assets available for sale
Assets held at FVTPL
Assets held at FVOCI
Assets held at amortised cost
Reverse repurchase agreements
Loans and other receivables
Total interest income
Interest expense
Deposits
Retail
Wholesale - domestic
Wholesale - offshore
Other borrowings
Notes payable
Repurchase agreements
Preference shares
Subordinated debt
Total interest expense
Total net interest income
Other revenue
Fee income
Assets
Liabilities & other products
Trustee, management & other services
Total fee income
Commission income
Group
20191
$m
2018
$m
Bank
20191
$m
2018
$m
Note
1.2
-
-
-
95.3
14.1
1.3
13.4
2,514.2
2,639.5
(975.5)
(199.1)
(4.1)
(94.4)
(7.8)
(35.7)
(37.1)
1.1
122.6
9.6
4.9
-
-
-
0.2
2,521.2
2,659.6
(951.7)
(191.8)
(10.5)
(122.4)
(7.9)
(34.9)
(35.2)
1.2
-
-
-
95.3
166.3
0.6
13.4
2,067.8
2,344.6
(891.3)
(199.1)
(4.1)
(0.1)
(7.5)
(35.7)
(36.6)
0.9
122.6
1.3
150.0
-
-
-
0.2
2,052.6
2,327.6
(870.6)
(191.8)
(10.5)
-
(7.5)
(34.9)
(34.6)
(1,353.7)
(1,354.4)
(1,174.4)
(1,149.9)
1,285.8
1,305.2
1,170.2
1,177.7
77.4
83.2
3.2
163.8
73.5
79.8
85.1
3.0
167.9
71.7
68.8
79.8
0.6
149.2
19.3
69.8
82.3
0.6
152.7
18.4
Revenue from contracts with customers
237.3
239.6
168.5
171.1
Other
Foreign exchange income
Factoring products income
Trading book income
Homesafe revaluation (loss)/gain
27
Dividend income
Other
Total other income
Total other revenue
22.4
5.4
12.2
(24.1)
0.6
27.9
44.4
18.8
5.9
0.8
55.4
1.0
16.8
98.7
281.7
338.3
22.4
5.4
12.4
-
300.6
30.3
371.1
539.6
18.8
5.9
0.9
-
1.0
21.2
47.8
218.9
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 57
3 Profit (continued)
Recognition and measurement
Interest income or expense on financial instruments that
are recognised at amortised cost or fair value through other
comprehensive income are measured using the effective
interest rate method.
The effective interest rate is the rate that exactly discounts
estimated future cash receipts or payments through the
expected life of the financial instrument or, when appropriate,
a shorter period, to the gross carrying amount of the financial
instrument. Calculation of the effective interest rate takes
into account fees receivable (ie origination and application
fees) or payable that are an integral part of the instrument's
yield, premiums or discounts on acquisition or issue, early
redemption fees and transaction costs. All contractual terms
of a financial instrument are considered when estimating
future cash flows.
Trading book income represents the fair value adjustments for
financial assets measured at FVTPL.
Other fees and commissions are earned by the Group from
a diverse range of financial services provided to customers.
Fee and commission income is recognised at an amount that
reflects the consideration to which the Group expects to be
entitled in exchange for providing the services.
The performance obligations, as well as the timing of their
satisfaction, are identified, and determined, at the inception of
the contract.
When the Group provides a service to its customers,
consideration is invoiced and generally due immediately upon
satisfaction of a service provided at a point in time or over the
contract period for a service provided over time.
Dividend income is recognised by the Group when the right to
receive a payment is established.
Homesafe revaluation gain/(loss) reflects the gains or losses
arising from changes in the fair value of investment property
and are recognised in the year in which they arise. Refer to
Note 27 for further information.
Expenses
Credit expenses
Specific provision
Collective provision
Bad debts written off
Bad debts recovered
Total credit expenses
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 expense
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
Total other expenses
Group
20191
$m
(70.1)
25.5
(10.0)
4.3
(50.3)
Note
10
(445.2)
(40.8)
(27.9)
(4.6)
(518.5)
(57.2)
(8.4)
(25.7)
(91.3)
(3.7)
(33.8)
(10.6)
(48.1)
(31.1)
(37.2)
(74.9)
(29.5)
(31.0)
(103.6)
(276.2)
(965.2)
2018
$m
(79.8)
4.5
(3.6)
8.3
(70.6)
(427.1)
(39.5)
(25.8)
(4.9)
(497.3)
(55.8)
(8.9)
(26.3)
(91.0)
(8.2)
(28.0)
(11.5)
(47.7)
(35.2)
(36.4)
(70.2)
(28.0)
(30.2)
(102.4)
(267.2)
(938.4)
Bank
20191
$m
(69.2)
21.5
(2.6)
2.5
(47.8)
(398.2)
(36.5)
(24.8)
(4.2)
(463.7)
(57.0)
(8.3)
(25.2)
(90.5)
(1.8)
(33.2)
(10.1)
(45.1)
(7.4)
(39.7)
(69.8)
(27.2)
(30.9)
(82.0)
(249.6)
(856.3)
2018
$m
(74.1)
3.3
(1.7)
6.4
(66.1)
(383.7)
(35.5)
(23.0)
(4.2)
(446.4)
(55.6)
(8.7)
(25.8)
(90.1)
(4.6)
(26.9)
(11.0)
(42.5)
(8.2)
(38.8)
(64.3)
(25.5)
(30.0)
(72.1)
(230.7)
(817.9)
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
58 A N N UA L F I N A N C I A L R E P O R T 2 01 9
3 Profit (continued)
Recognition and measurement
Amortisation
Operating expenses are recognised as the relevant service is
rendered, or once a liability is incurred.
Refer to Note 28 for information on the amortisation of
intangibles.
Credit expenses are measured as the difference between
the carrying amount and the value of the estimated future
cash flows, discounted at the financial instrument's original
effective interest rate. Refer to Note 10 for more information
on loan impairment.
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
Staff and related costs
Wage and salary costs are recognised over the period in which
the employees provide the service. Refer to Note 31 for more
information relating to staff provisions.
•
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.
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
37 for further information on share based payments.
Superannuation 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.
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 5 9
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
Adjustments in respect of deferred income tax of previous years
Relating to origination and reversal of temporary differences
Group
2019
$m
2018
$m
Bank
2019
$m
2018
$m
(168.0)
(217.6)
(144.5)
(161.0)
1.1
5.9
(4.2)
(10.0)
1.2
11.3
(10.0)
15.1
1.1
7.0
(5.2)
(19.8)
1.2
11.4
(10.1)
(4.4)
Income tax expense reported in the Income Statement
(175.2)
(200.0)
(161.4)
(162.9)
Statement of changes in equity
Deferred income tax related to items charged
or credited directly in equity
Net gain on cash flow hedge
Net gain on available for sale investments
Net gain on financial assets (FVOCI)
Actuarial gain on superannuation defined benefits plan
Income tax charged or credited in equity
(5.8)
(3.3)
-
-
-
(5.8)
-
-
(0.1)
(3.4)
(5.8)
-
(5.5)
-
(11.3)
(3.0)
(2.4)
-
(0.1)
(5.5)
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
552.0
634.5
805.7
512.6
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
(165.6)
(190.3)
(241.7)
(153.8)
Under provision in prior years
Tax credits and adjustments
1.8
1.1
1.3
1.2
1.8
1.1
1.3
1.2
Expenditure not allowable for income tax purposes
(12.3)
(11.3)
(11.7)
(10.8)
Other non assessable income
Tax effect of tax credits and adjustments
Dividends received
Other
0.9
(0.3)
-
(0.8)
0.1
(0.4)
-
(0.6)
0.1
(0.3)
90.0
(0.7)
0.2
(0.4)
-
(0.6)
Income tax expense reported in the Income Statement
(175.2)
(200.0)
(161.4)
(162.9)
Deferred income tax
Deferred income tax at 30 June relates to the following:
Gross deferred tax liabilities
Available for sale financial assets
Net gain on financial assets (FVOCI)
Deferred expenses
Derivatives
Intangible assets on acquisition
Investment property
Other
60 A N N UA L F I N A N C I A L R E P O R T 2 01 9
-
0.2
1.4
45.1
2.5
84.6
31.5
165.3
0.2
-
4.2
8.6
2.7
98.2
17.0
130.9
-
7.2
1.4
45.1
1.2
-
30.9
85.8
1.7
-
4.2
65.7
2.0
-
16.7
90.3
4 Income tax expense (continued)
Deferred income tax (continued)
Gross deferred tax assets
Derivatives
Employee benefits
Provisions
Other
Income tax payable
Tax payable attributable to members
of the tax consolidated group
Group
Bank
2019
$m
41.4
28.7
91.9
8.6
2018
$m
9.5
33.2
57.1
17.2
2019
$m
41.4
28.3
93.4
4.6
2018
$m
15.3
32.2
53.8
11.1
170.6
117.0
167.7
112.4
6.4
6.4
51.5
51.5
6.4
6.4
51.5
51.5
At 30 June 2019, there is no unrecognised deferred income
tax liability (2018: Nil) for taxes that would be payable on the
unremitted earnings of certain subsidiaries or joint ventures of
the Group, as the Group has no liability for additional taxation
should such amounts be remitted.
Recognition and measurement
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.
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.
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
Tax consolidation
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.
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 61
5 Segment results
An operating segment is a component of the Group that
engages in business activities from which it earns revenues and
incurs expenses.
Segment reporting reflects the information that is used by
the Managing Director for the purposes of resource allocation
and performance assessment, hence it is consistent with the
internal reporting provided to the Managing Director and the
Executive Team.
Following the announcement and implementation of the
organisational restructure effective from 10 August 2018,
the Group's reportable segments have been amended. The
Group now has the following reportable segments: Consumer,
Business and Agribusiness. Segment comparatives reflect
any organisational changes that have occurred since the prior
reporting period.
Consumer
Consumer focuses on engaging with and servicing consumer
customers and includes the branch network (including
Community Banks and Alliance Banks), mobile relationship
managers, third party banking channels, wealth services,
Homesafe, call centres, and consumer support functions such
as the processing centres.
Business
Business focuses on servicing business customers and
includes Business Banking, Portfolio Funding, Delphi Bank,
and Community Sector Banking.
Agribusiness
Agribusiness includes all banking services provided to
agribusiness, rural and regional Australian communities through
Rural Bank.
Central functions
The 'Corporate' category includes all functions that are not
directly related 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.
For the year ended 30 June 2019
Operating segments
Consumer
Business Agribusiness
Total
operating
segments
Central
functions
Total
$m
$m
$m
$m
162.9
1,285.8
-
1,285.8
15.2
252.6
178.1
1,538.4
29.1
29.1
281.7
1,567.5
(82.0)
(964.0)
(1.2)
(965.2)
2.6
98.7
(50.3)
524.1
(31.3)
(166.4)
67.4
357.7
0.8
-
0.4
32.9
9.9
2.6
-
27.9
(8.8)
19.1
(6.5)
-
-
(50.3)
552.0
(175.2)
376.8
26.4
9.9
2.6
68.6
403.1
12.6
415.7
Net interest income
Other income
Total segment income
Operating expenses
Credit (expenses)/income
Segment result (before tax expense)
Tax expense
Segment result (statutory basis)
Cash basis adjustments:
Specific income & expense items (after tax)
Homesafe net realised income (after tax)
Amortisation of acquired intangibles (after tax)
Segment result (cash basis)
$m
798.9
198.7
997.6
(642.4)
(19.2)
336.0
(106.7)
229.3
32.1
9.9
0.4
271.7
$m
324.0
38.7
362.7
(239.6)
(33.7)
89.4
(28.4)
61.0
-
-
1.8
62.8
62 A N N UA L F I N A N C I A L R E P O R T 2 01 9
5 Segment results (continued)
For the year ended 30 June 2018
Operating segments
Consumer
Business Agribusiness
Total
operating
segments
Central
functions
Net interest income
Other income
Total segment income
Operating expenses
Credit expenses
Segment result (before tax expense)
Tax (expense)/income
Segment result (statutory basis)
Cash basis adjustments:
Specific income & expense items (after tax)
Homesafe net realised income (after tax)
Amortisation of acquired intangibles (after tax)
$m
800.5
284.6
1,085.1
(610.4)
(17.7)
457.0
(143.8)
313.2
(10.3)
11.3
2.8
$m
339.7
35.9
375.6
(237.9)
(50.1)
87.6
(27.6)
60.0
0.4
-
1.8
$m
$m
165.0
1,305.2
8.6
329.1
173.6
1,634.3
$m
-
9.2
9.2
Total
$m
1,305.2
338.3
1,643.5
(76.0)
(924.3)
(14.1)
(938.4)
(2.8)
94.8
(70.6)
639.4
-
(4.9)
(70.6)
634.5
(29.8)
(201.2)
1.2
(200.0)
65.0
438.2
(3.7)
434.5
3.5
-
1.2
(6.4)
11.3
5.8
(0.1)
-
-
(6.5)
11.3
5.8
Segment result (cash basis)
317.0
62.2
69.7
448.9
(3.8)
445.1
Reportable segment assets
and liabilities
For the year ended 30 June 2019
Operating segments
Consumer
Business Agribusiness2
Total
operating
segments
Central
functions
$m
$m
$m
$m
$m
Total
$m
Reportable segment assets
44,447.9
11,573.1
5,997.5
62,018.5
10,551.8
72,570.3
Reportable segment liabilities
35,575.2
14,263.0
3,863.0
53,701.2
9,773.1
63,474.3
For the year ended 30 June 2018
Reportable segment assets
43,114.3
12,695.7
6,542.3
62,352.3
9,087.5
71,439.8
Reportable segment liabilities
34,380.4
13,684.9
4,235.5
52,300.8
9,973.9
62,274.7
Total assets for operating segments
Total assets
Total liabilities for operating segments
Notes payable1
Total liabilities
As at
June 2019
$m
As at
June 2018
$m
72,570.3
71,439.8
72,570.3
71,439.8
63,474.3
62,274.7
3,464.4
3,544.8
66,938.7
65,819.5
1 Refer to Note 16 for further details.
2 On 31 May 2019, the Rural Bank ADI licence was returned to APRA. As a result, all the assets and liabilities of Rural Bank were transferred to
Bendigo and Adelaide Bank Limited, including their treasury assets and liabilities. As these assets and liabilities now form part of the Group
treasury portfolio they are included in the Central Functions segment whereas previously they formed part of the Agribusiness segment. Given this
transfer occurred as a result of the return of the ADI licence prior periods have not been restated.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 6 3
6 Earnings per ordinary share
Basic
Diluted
Cash basis
Group
2019
2018
Cents per share
Cents per share
77.1
69.7
85.0
89.9
81.2
92.1
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share (EPS) 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 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: Homesafe net realised income (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
Revaluation gains on economic hedges
Homesafe revaluation (loss)/gain
Total specific non interest income items
Items included in operating expenses
Integration costs
Loss on sale of Telco business
Loss on sale of Bendigo Financial Planning business
Impairment charge
Compensation costs
Legal costs
Litigation costs
Total specific operating expense items
$m
376.8
376.8
376.8
25.0
401.8
376.8
2.6
26.4
9.9
415.7
(0.3)
(12.6)
(12.9)
7.4
(16.9)
(9.5)
(0.5)
-
(1.6)
(0.5)
(0.5)
(0.9)
-
(4.0)
$m
434.5
434.5
434.5
24.4
458.9
434.5
5.8
(6.5)
11.3
445.1
(0.8)
(12.0)
(12.8)
1.2
38.8
40.0
(5.3)
(1.2)
-
(0.4)
(0.9)
(1.1)
(11.8)
(20.7)
Total specific items attributable to the Group
(26.4)
6.5
Homesafe realised income
Homesafe revaluation gain - realised
Homesafe funding costs - realised
Homesafe net realised income
64 A N N UA L F I N A N C I A L R E P O R T 2 01 9
15.0
(5.1)
9.9
16.6
(5.3)
11.3
6 Earnings per ordinary share (continued)
Weighted average number of ordinary shares
Weighted average number of ordinary shares (basic)
Effect of dilution - executive performance rights
Effect of dilution - preference shares
Weighted average number of ordinary shares (diluted)
Potentially dilutive instruments
The following instruments are potentially dilutive during the reporting period:
Preference shares
Executive performance rights
Subordinated Note (with non viability clause)
Group
2019
2018
No. of shares
No. of shares
489,004,317
483,352,983
1,294,474
1,202,975
86,317,579
80,399,710
576,616,370
564,955,668
Dilutive
2019
2018
Yes
Yes
No
Yes
Yes
No
Recognition and measurement
Basic EPS is calculated as net profit after tax, divided by the
weighted average number of ordinary shares.
Diluted EPS is calculated as net profit after tax, 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 amortisation on acquired intangibles, specific income and
expense items and Homesafe net realised income, divided by
the weighted average number of ordinary shares.
All adjustments are net of tax.
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 an unaudited, 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 net profit
after tax, adjusted for specific items, amortisation on acquired
intangibles and Homesafe net realised income.
All adjustments are net of tax.
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 6 5
7 Dividends
Ordinary shares (ASX:BEN)
Group
Bank
Date
paid
Cents
per
share
Total
amount
Date
paid
Cents
per
share
Total
amount
Date
paid
Cents
per
share
Total
amount
Date
paid
Dividends paid
¢
$m
¢
$m
¢
$m
Cents
per
share
Total
amount
¢
$m
June 2018 final dividend
June 2017 final dividend
June 2018 final dividend
June 2017 final dividend
Sept 2018
35.0 166.0 Sept 2017
34.0 159.9 Sept 2018
35.0 166.0 Sept 2017
34.0 159.9
December 2018 final dividend December 2017 final dividend December 2018 final dividend December 2017 final dividend
Mar 2019
35.0 168.7 Mar 2018
35.0 165.1 Mar 2019
35.0 168.7 Mar 2018
35.0 165.1
70.0 334.7
69.0 325.0
70.0 334.7
69.0 325.0
Dividends proposed
June 2019 final dividend
June 2019 final dividend
Sept 2019
35.0 169.6
Sept 2019
35.0 169.6
Dividends proposed since the reporting date have not been recognised as a liability.
All dividends paid were fully franked at 30% (2018: 30%). Proposed dividends will be fully franked at 30% (2018: 30%) out of existing 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 2019.
Group
Bank
2019
2018
2019
2018
Date
paid
Cents
per
share
Total
amount
Date
paid
Cents
per
share
Total
amount
Date
paid
Cents
per
share
Total
amount
Date
paid
¢
$m
¢
$m
¢
$m
Cents
per
share
Total
amount
¢
$m
Convertible preference shares (recorded as debt instruments) (ASX:BENPD) 1
Dec 2017 240.41
6.5
Dec 2017 240.41
6.5
Convertible preference shares (CPS2) (recorded as debt instruments) (ASX:BENPE)
Nov 2018 186.49
5.4 Nov 2017 178.91
5.2 Nov 2018 186.49
5.4 Nov 2017 178.91
May 2019 185.02
5.4 May 2018 177.73
5.2 May 2019 185.02
5.4 May 2018 177.73
5.2
5.2
371.51 10.8
356.64
10.4
371.51 10.8
356.64
10.4
Convertible preference shares (CPS3) (recorded as debt instruments) (ASX:BENPF)
Dec 2018 218.71
6.2 Dec 2017 205.31
5.8 Dec 2018 218.71
6.2 Dec 2017 205.31
June 2019 215.91
6.1 June 2018 207.68
5.9 June 2019 215.91
6.1
June 2018 207.68
5.8
5.9
434.62 12.3
412.99
11.7
434.62 12.3
412.99
11.7
Converting preference shares (CPS4) (recorded as debt instruments) (ASX:BENPG) 2
Sept 2018 102.60
3.3 Mar 2018
95.10
3.1 Sept 2018 102.60
3.3 Mar 2018
95.10
Dec 2018 99.07
3.2
Jun 2018 100.13
3.2 Dec 2018
99.07
Mar 2019 99.24
June 2019 99.11
3.2
3.2
Mar 2019
99.24
June 2019
99.11
Jun 2018 100.13
3.2
3.2
3.2
3.1
3.2
400.02 12.9
195.23
6.3
400.02 12.9
195.23
6.3
1 Convertible preference shares (CPS, ASX:BENPD) were redeemed in December 2017.
2 Converting preference shares (CPS 4, ASX:BENPG) were issued in December 2017. First dividend payment was made in March 2018.
66 A N N UA L F I N A N C I A L R E P O R T 2 01 9
7 Dividends (continued)
Dividend franking account
Balance of franking account as at the end of the financial year
Franking credits that will arise from the payment of income tax
provided for in the financial report
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
Group
June 2019
June 2018
$m
463.0
6.4
$m
415.7
51.5
(73.5)
(72.1)
395.9
394.4
Ordinary Share 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
June 2019
June 2018
June 2019
June 2018
$m
288.7
46.0
334.7
$m
251.8
73.2
325.0
$m
288.7
46.0
334.7
$m
251.8
73.2
325.0
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.
Dividend Reinvestment Plan
Bonus Share Scheme
The Dividend Reinvestment Plan provides shareholders with
the opportunity of converting all or part of their entitlement to
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 5
September 2019. Shares issued under this Plan rank equally
with all other ordinary shares.
The Bonus Share Scheme provides shareholders with the
opportunity to elect to receive 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 5 September 2019. 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 2019 final dividend is 4
September 2019.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 67
F I N A N C I A L I N S T R U M E N T S
This section covers the financial instruments held by the Group including: loans and advances, derivatives and deposits and
notes payable. This section outlines how the fair value of financial instruments is determined and the associated methodology.
Business Model Assessment
The Group determines its business model at the level that
best reflects how it manages groups of financial assets to
achieve its business objectives. While judgement is used in
determining the business model, consideration is given to
relevant, objective evidence including:
•
•
The business purpose of the portfolio;
The risks that affect the performance and the way those
risks are managed;
The basis on which the performance of the portfolio is
evaluated; and
The frequency and significance of sales activity.
•
•
If cash flows after initial recognition are realised in a way
that is different from the Group’s original expectations, the
Group does not change the classification of the remaining
financial assets held in that business model, but incorporates
such information when assessing newly originated or newly
purchased financial assets going forward.
The SPPI Test
The Group assesses financial assets to evaluate if their
contractual cashflow are comprised of solely payment of
principal and interest (the SPPI test).
‘Principal’ for the purpose of this test is defined as the fair
value of the financial asset at initial recognition and may
change over the life of the financial asset (for example, if there
are repayments of principal or amortisation of the premium/
discount). “Interest” for the purpose of this test is defined as
the consideration for the time value of money and credit risk,
which are the most significant elements of interest within a
lending arrangement. Principal amounts include repayments
of lending and financing arrangements, and interest primarily
relates to basic lending returns, including compensation for
credit risk and the time value of money associated with the
principal amount outstanding. In contrast, contractual terms
that introduce a more than de minimis exposure to risks or
volatility in the contractual cash flows that are unrelated to
a basic lending arrangement do not give rise to contractual
cashflows that are solely payments of principal and interest on
the amount outstanding.
Initial recognition and measurement
Financial assets and liabilities are initially recognised on the
date on which the Group becomes a party to the contractual
provisions of the instrument, or, in the case of loans and
advances, when funds are transferred to the customers'
account.
At initial recognition, the Group measures a financial
instrument at its fair value plus or minus transaction costs
that are incremental and directly attributable to the acquisition
or issue of the financial instrument, such as fees and
commissions.
Transaction costs of financial instruments carried at FVTPL are
expensed in profit or loss.
Classification of financial assets
Subsequent to initially recognition, the measurement of
the Group’s financial assets is dependent on the business
model in which it is managed and the contractual cash flow
characteristics. There are four measurement classifications,
being:
•
•
amortised cost;
fair value through other comprehensive income (FVOCI)
with recycling;
fair value through other comprehensive income (FVOCI)
without recycling and
fair value through profit or loss (FVTPL).
•
•
From 1 July 2018, the Group measures financial assets at
amortised cost if the financial asset is held within a business
model with the objective to hold financial assets in order to
collect contractual cash flows, and the contractual terms of
the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest (SPPI) on the
principal amount outstanding, unless the financial asset has
been designated as FVTPL. The details of these conditions are
outlined below.
Financial assets with contractual terms that meet the SPPI
test and that are held within a business model where the
objective is to both collect contractual cashflows and sell the
financial assets are measured at FVOCI, with subsequent
reclassification to the Income Statement unless the financial
asset has been designated as FVTPL.
All other assets are measured at FVTPL.
Prior to 1 July 2018, the Group classified its financial assets
as loans and other receivables (at amortised cost), FVTPL,
available for sale, or held to maturity (at amortised cost).
68 A N N UA L F I N A N C I A L R E P O R T 2 01 9
8 Cash and cash equivalents
Group
Bank
Notes and coins
Cash at bank
Reverse repurchase agreements
Investments at call
Total cash and cash equivalents
2019
$m
135.8
656.2
200.0
80.0
2018
$m
154.1
766.8
100.0
116.5
1,072.0
1,137.4
2019
$m
135.7
464.5
200.0
80.0
880.2
2018
$m
154.1
466.2
100.0
116.5
836.8
Reconciliation of cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents includes:
Cash and cash equivalents
Due from other financial institutions
Due to other financial institutions
Recognition and measurement
1,072.0
1,137.4
270.6
(420.6)
283.0
(352.5)
880.2
270.6
836.8
295.8
(420.6)
(346.7)
922.0
1,067.9
730.2
785.9
Cash and cash equivalents include notes and coins on hand, unrestricted balances held with other financial institutions, reverse
repurchase agreements and highly liquid financial assets with original maturities of three months or less and are subject to an
insignificant risk of changes in their fair value.
These assets are generally used by the Group in managing its short term commitments. Cash and cash equivalents are carried
at amortised cost in the Balance Sheet.
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 6 9
9 Loans and other receivables
Overdrafts
Credit cards
Term loans
Margin lending
Lease receivables
Factoring receivables
Other
Note
Group
20191
$m
2018
$m
Bank
20191
$m
2018
$m
2,420.6
2,732.7
2,420.0
2,726.1
350.6
346.0
350.6
346.0
57,002.7
56,216.1
57,716.6
52,536.9
1,528.6
1,694.7
609.6
63.9
134.4
597.4
63.0
143.6
-
603.7
63.9
134.4
-
484.2
63.0
143.6
Gross loans and other receivables
62,110.4
61,793.5
61,289.2
56,299.8
Specific provision
Collective provision
Unearned income
Total provisions and unearned income
Deferred costs paid
Net loans and other receivables
Maturity analysis2
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
10
10
(128.5)
(157.0)
(97.2)
(382.7)
(119.3)
(48.2)
(88.1)
(128.2)
(156.1)
(96.7)
(105.4)
(45.7)
(59.3)
(255.6)
(381.0)
(210.4)
64.1
63.9
64.0
59.3
61,791.8
61,601.8
60,972.2
56,148.7
5,708.6
1,228.1
2,030.4
9,186.0
6,445.8
1,298.6
2,255.7
8,737.8
4,895.9
1,226.3
2,030.2
9,184.3
4,454.4
1,204.2
1,852.1
6,026.5
43,957.3
43,055.6
43,952.5
42,762.6
Gross loans and other receivables
62,110.4
61,793.5
61,289.2
56,299.8
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
2 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 other receivables are debt instruments recognised
initially at fair value, which represents the cash advanced to
the borrower plus direct and incremental transaction costs on
settlement date, when funding is advanced to the customer.
Loans are subsequently measured in accordance with the
Group’s Classification of financial assets policy. Most loans are
carried at amortised cost, which represents the gross carrying
amount less allowances for credit losses. Interest on loans is
recognised using the effective interest method. The estimated
future cash flows used in the calculation of the effective
interest rate include those determined by the contractual term
of the asset, and includes all fees, transaction costs and all
other premiums or discounts.
For loans carried at amortised cost, impairment losses are
recognised in accordance with the three-stage impairment
model outlined in Note 10.
Finance leases, where the Group acts as lessor, are included in
loans and other receivables. Finance leases are those where
substantially all the risks and rewards of the lease asset
have been transferred to the lessee. Lease receivables are
recognised at an amount equal to the net investment in the
lease.
Deferred costs include costs associated with the acquisition,
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. For further details regarding
impairment refer to Note 10.
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.
70 A N N UA L F I N A N C I A L R E P O R T 2 01 9
10 Impairment of loans and advances
Summary of impaired financial assets
Impaired loans
Loans - without provisions
Loans - with provisions
Restructured loans
Less: specific provisions
Net impaired loans
Group
20191
$m
85.5
222.1
3.3
(127.6)
183.3
2018
$m
70.9
260.9
4.0
(118.3)
217.5
Bank
20191
$m
85.5
220.9
3.3
(127.4)
182.3
2018
$m
18.5
233.4
-
(104.4)
147.5
Net impaired loans % of net loans and other receivables
0.30%
0.35%
0.30%
0.26%
Portfolio facilities - past due 90 days, not well secured
Less: specific provisions
Net portfolio facilities
Loans past due 90 days
Accruing loans past due 90 days, with adequate security balance
Net fair value of properties acquired through the enforcement of security
4.6
(0.9)
3.7
458.9
60.7
4.8
(1.0)
3.8
493.0
84.7
4.6
(0.9)
3.7
458.9
60.7
Group
Movements in provisions and reserves
Balance as at 30 June 2018
Collective
provision 1
$m
48.2
Collective
provision
lifetime
ECL not
credit
impaired
Collective
provision
lifetime
ECL credit
impaired
Specific
provision
lifetime
ECL
credit
impaired
General
reserve
for credit
losses 1
Collective
provision
12-mth
ECL
$m
-
$m
-
$m
$m
$m
-
119.3
140.3
307.8
Restated for adoption of new accounting standards 1
(48.2)
33.1
79.0
70.4
4.8
(1.0)
3.8
387.8
83.4
Total
$m
Transfer from retained earnings
Changes due to financial assets recognised in the
opening balance that have:
Transferred to 12-month ECL
Transferred to lifetime ECL not credit impaired
Transfer to lifetime ECL credit impaired - collective
provision
Charge to Income Statement
Bad debts written off previously provided for
Total provision for doubtful debts as at 30 June 2019
Bank
Movements in provisions and reserves
Balance as at 30 June 2018
-
-
-
-
-
-
-
Transfer from retained earnings
Changes due to financial assets recognised in the
opening balance that have:
Transferred to 12-month ECL
Transferred to lifetime ECL not credit impaired
Transfer to lifetime ECL credit impaired - collective
provision
Charge to Income Statement
Bad debts written off previously provided for
Balances from transfer of business
Total provision for doubtful debts as at 30 June 2019
-
-
-
-
-
-
-
-
-
-
-
2.9
(29.1)
(2.8)
31.5
(0.1)
(2.4)
(9.9)
(15.7)
25.6
31.3
(7.5)
(49.3)
70.1
-
-
-
(60.9)
28.3
84.5
44.2
128.5
77.3
362.8
-
-
-
2.9
(29.1)
(2.8)
31.5
(0.1)
(2.4)
(9.9)
(15.7)
25.6
30.6
(6.9)
(45.2)
69.2
-
2.1
27.5
-
10.5
84.6
-
(60.2)
6.9
13.8
1.7
35.0
44.0
128.2
77.3
361.6
-
-
-
-
-
-
-
-
-
-
(82.9)
51.4
19.9
19.9
-
-
-
-
-
-
-
-
44.6
(60.9)
(66.0)
46.4
19.9
19.9
-
-
-
-
-
-
-
-
47.7
(60.2)
Restated for adoption of new accounting standards 1
(45.7)
30.9
68.0
59.2
$m
45.7
$m
-
$m
-
$m
$m
$m
$m
-
105.4
121.7
272.8
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 71
10 Impairment of loans and advances (continued)
Group
Bank
Summary of provisions and reserve
Specific provision
Opening balance
Bad debts written off previously provided for
Charged to Income Statement
Balances from transfer of business
Closing balance
Collective provision
Opening balance
Restatement for adoption of new accounting standards 1
Transfer to/(from) 12-month ECL
Transfer to/(from) lifetime ECL (not credit impaired)
Transfer to/(from) lifetime ECL (credit impaired)
Released to Income Statement
Balances from transfer of business
Closing balance
General reserve for credit losses (GRCL)
Opening balance
Restatement for adoption of new accounting standards 1
Increase in GRCL
Balances from transfer of business
Closing balance
Total provisions and reserve
Ratios
Specific provision to gross loans
Total provisions and GRCL to gross loans
Collective provision and GRCL to risk-weighted assets
20191
$m
105.4
(60.2)
69.2
13.8
128.2
45.7
112.4
(36.1)
13.0
23.1
(21.5)
19.5
156.1
121.7
(66.0)
19.9
1.7
77.3
361.6
2018
$m
75.8
(44.6)
74.2
-
105.4
49.0
-
-
-
-
(3.3)
-
45.7
121.7
-
-
-
121.7
272.8
20191
$m
119.3
(60.9)
70.1
-
2018
$m
89.5
(50.0)
79.8
-
128.5
119.3
48.2
134.3
(36.1)
13.0
23.1
(25.5)
-
157.0
140.3
(82.9)
19.9
-
77.3
362.8
0.21%
0.58%
0.63%
52.7
-
-
-
-
(4.5)
-
48.2
140.3
-
-
-
140.3
307.8
0.19%
0.50%
0.49%
Provision coverage 2
116.69%
91.66%
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
2 Provision coverage is calculated as total provisions and reserve divided by total gross impaired assets.
Recognition and measurement
Scope
The Group applies a three-stage approach to measure
the allowance for expected credit losses for the following
categories of financial assets that are not measured at FVTPL:
•
• Debt securities at FVOCI;
• Off-Balance Sheet loan commitments; and
•
Amortised cost financial assets;
Financial guarantee contracts.
Expected credit loss impairment model
The Group's allowance for credit losses calculations
are outputs of models with a number of underlying
assumptions regarding the choice of variable inputs and their
interdependencies. The expected credit loss impairment model
reflects the present value of all cash shortfalls related to
default events either (i) over the following twelve months or (ii)
over the expected life of a financial asset depending on credit
deterioration from inception.
The allowance for credit losses reflects an unbiased,
probability-weighted outcome which considers multiple
scenarios based on reasonable and supportable forecasts.
72 A N N UA L F I N A N C I A L R E P O R T 2 01 9
10 Impairment of loans and advances (continued)
Expected credit loss impairment model (continued)
This impairment model measures credit loss allowances
using a three-stage approach based on the extent of credit
deterioration since origination:
• Stage 1 – Where there has not been a significant
increase in credit risk (SIR) since initial recognition of a
financial asset, an amount equal to 12 months expected
credit loss is recorded. The expected credit loss is
computed using a probability of default occurring over
the next 12 months. For those assets with a remaining
maturity of less than 12 months, a probability of default
corresponding to remaining term to maturity is used.
• Stage 2 – When a financial asset experiences a SIR
subsequent to origination but is not considered to
be in default, it is included in Stage 2. This requires
the computation of expected credit loss based on the
probability of default over the remaining estimated life of
the financial asset.
• Stage 3 – Financial assets that are considered to be in
default are included in this stage. Similar to Stage 2, the
allowance for credit losses captures the lifetime expected
credit losses.
Interest income is recognised on gross carrying amounts for
financial assets in Stage 1 and Stage 2, and gross carrying
value net of provisions for financial assets in Stage 3.
Financial assets in Stage 1 and Stage 2 are assessed for
impairment collectively, whilst those in Stage 3 are subjected
to either collective or individual impairment assessment. The
Group uses the following collective provisioning models for the
purpose of calculating expected credit loss:
• Retail lending: residential mortgages model, personal
loans model, credit cards model, retail small and medium
enterprise (SME) model;
• Non-retail lending: corporate model, commercial real
estate model, agribusiness model.
Measurement of expected credit loss
The probability of default (PD), exposure at default (EAD), and
loss given default (LGD) inputs used to estimate expected
credit losses are modelled based on macroeconomic variables
that are most closely related with credit losses in the relevant
portfolio.
Details of these statistical parameters/inputs are as follows:
• PD – The probability of default is an estimate of the
likelihood of default over a given time horizon. A default
may only happen at a certain time over the remaining
estimated life, if the facility has not been previously
derecognised and is still in the portfolio.
• EAD – The exposure at default is an estimate of the
exposure at a future default date, taking into account
expected changes in the exposure after the reporting
date, including repayments of principal and interest,
whether scheduled by contract or otherwise, expected
drawdowns on committed facilities, and accrued interest
from missed payments.
LGD – The loss given default is an estimate of the loss
arising in the case where a default occurs at a given time.
It is based on the difference between the contractual
cash flows due and those that the lender would expect to
•
receive, including from the realisation of any collateral.
It is usually expressed as a percentage of the EAD.
Forward-looking information
The estimation of expected credit losses for each stage and
the assessment of significant increases in credit risk consider
information about past events and current conditions as well
as reasonable and supportable forecasts of future events
and economic conditions. The estimation and application of
forward-looking information may require significant judgement.
Macroeconomic factors
In its models, the Group relies on a broad range of forward-
looking economic information as inputs, such as: GDP
growth, unemployment rates, central-bank interest rates,
and house-price indices. The inputs and models used for
calculating expected credit losses may not always capture
all characteristics of the market at the date of the financial
statements. To reflect this, qualitative adjustments or overlays
may be made as temporary adjustments using expert credit
judgement.
The Group’s Economic Outlook Committee is responsible for
reviewing and approving the methodology, and any judgements
and assumptions. Forecast economic scenarios and the
associated probability weights are discussed and approved by
the Economic Outlook Committee, along with any management
overlays or adjustments required to account for expected risks
that have not been considered in the modelling process. At
each reporting period any key areas of judgement are reported
to the Group’s Board Audit Committee.
Multiple forward-looking scenarios
The Group determines its allowance for credit losses using
three probability-weighted forward-looking scenarios. The Group
considers both internal and external sources of information
and data in order to achieve an unbiased projections and
forecasts. The Group prepares the scenarios using forecasts
generated by Interest Rate Risk in the Banking Book
(IRRBB) team. The forecasts are created using internal and
external models which are modified by IRRBB as necessary
to formulate a ‘base case’ view of the most probable
future direction of relevant economic variables as well as a
representative range of other possible forecast scenarios.
The process involves the development of two additional
economic scenarios and consideration of the relative
probabilities of each outcome.
The ‘base case’ represents the most likely outcome and is
aligned with information used by the Group for other purposes
such as strategic planning and budgeting. The other scenarios
represent more optimistic and more pessimistic outcomes.
The Group has identified and documented key drivers of
credit risk and credit losses for each portfolio of financial
instruments and, using an analysis of historical data, has
estimated relationships between macroeconomic variables,
credit risk, and credit losses.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 73
10 Impairment of loans and advances (continued)
Assessment of significant increase in credit risk (SIR)
Presentation of allowance for credit losses in the Balance Sheet
At each reporting date, the Group assesses whether there has
been a significant increase in credit risk for exposures since
initial recognition by comparing the risk of default occurring
over the remaining expected life from the reporting date and
the date of initial recognition. The assessment considers
borrower-specific quantitative and qualitative information
without consideration of collateral, and the impact of
forward-looking macroeconomic factors.
The common assessments for SIR on retail and non-retail
portfolios include macroeconomic outlook, management
judgement, and delinquency and monitoring. Forward-
looking macroeconomic factors are a key component of the
macroeconomic outlook. The importance and relevance of
each specific macroeconomic factor depends on the type of
product, characteristics of the financial instruments and the
borrower and the geographical region. Quantitative models may
not always be able to capture all reasonable and supportable
information that may indicate a significant increase in credit
risk. Qualitative factors may be assessed to supplement the
gap. Examples of situations include changes in adjudication
criteria for a particular group of borrowers; changes in
portfolio composition; and natural disasters impacting certain
portfolios. With regards to delinquency and monitoring, there
is a rebuttable presumption that the credit risk of the financial
instrument has increased since initial recognition when
contractual payments are more than 30 days overdue.
Retail portfolio – For retail exposures, a significant increase
in credit risk cannot be assessed using forward looking
information at an individual account level. Therefore, the
assessment must be done at the portfolio level. Portfolio
movement thresholds exist for each PD model by product
which considers the proportionate change in PD as well as
the absolute change in PD.
For retail portfolios, a 50 basis point increase in PDs
combined with a doubling of the PD since origination will
result in a loan transitioning to Stage 2. The thresholds used
for PD migration are reviewed and assessed at least annually,
unless there is a significant change in credit risk management
practices in which case the review is brought forward.
Non-retail portfolio – The Group uses an internal rating system
for its non-retail exposures. All non-retail exposures have a
rating assigned that reflects the probability of default of the
borrower. Both borrower specific and non-borrower specific (i.e.
macroeconomic) forward looking information is considered
and reflected in the rating. Significant increase in credit risk is
evaluated based on the movement of the exposures between
ratings ie a two notch downgrade in the internal rating since
origination will trigger a transfer to Stage 2.
Expected life
When measuring expected credit loss, the Group considers the
maximum contractual period over which the Group is exposed to
credit risk. All contractual terms are considered when determining
the expected life, including prepayment, and extension and
rollover options. For certain revolving credit facilities, such as
credit cards, the expected life is estimated based on the period
over which the Group is exposed to credit risk and how the credit
losses are mitigated by management actions.
•
Financial assets measured at amortised cost: as a
deduction from the gross carrying amount of the financial
assets;
• Debt instruments measured at fair value through other
comprehensive income: no allowance is recognised in the
Balance Sheet because the carrying value of these assets
is their fair value. However, the allowance determined
is presented in the accumulated other comprehensive
income;
• Off-Balance Sheet credit risks include undrawn lending
commitments, letters of credit and letters of guarantee:
as a provision in other liabilities.
Definition of default
The definition of default used in measuring ECL is aligned to
the definition used for internal credit risk management and
regulatory purposes.
The Group considers a financial instrument to be in default
as a result of one or more loss events that occurred after the
date of initial recognition of the instrument and the loss event
has a negative impact on the estimated future cash flows of
the instrument that can be reliably estimated. This includes
events that indicate:
•
•
•
significant financial difficulty of the borrower;
default or delinquency in interest or principal payments;
high probability of the borrower entering a phase of
bankruptcy or a financial reorganisation;
• measurable decrease in the estimated future cash flows
from the loan or the underlying assets that back the loan.
The Group considers that default has occurred and classifies
the financial asset as impaired when it is more than 90 days
past due, unless reasonable and supportable information
demonstrates that a more lagging default criterion is
appropriate.
Write-off policy
The Group writes off an impaired financial asset (and the
related impairment allowance), either partially or in full, when
there is no realistic prospect of recovery. Where financial
assets are secured, write-off is generally after receipt of any
proceeds from the realisation of security. In circumstances
where the net realisable value of any collateral has been
determined and there is no reasonable expectation of further
recovery, write-off may be earlier. In subsequent periods, any
recoveries of amounts previously written off are credited to the
provision for credit losses in the Income Statement.
Modified financial assets
If the terms of a financial asset are modified or an existing
financial asset is replaced with a new one, an assessment
is made to determine if the existing financial asset should
be derecognised. Where a modification does not result in
derecognition, the date of origination continues to be used to
determine SIR. Where a modification results in derecognition,
the new financial asset is recognised at its fair value on the
modification date. The modification date is also the date of
origination for this new asset.
74 A N N UA L F I N A N C I A L R E P O R T 2 01 9
10 Impairment of loans and advances (continued)
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 unrecoverable.
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.
Modified financial assets (continued)
The Group may modify the contractual terms of loans for either
commercial or credit reasons. The terms of a loan in good
standing may be modified for commercial reasons to provide
competitive pricing to borrowers. Loans are also modified for
credit reasons where the contractual terms are modified to
grant a concession to a borrower that may be experiencing
financial difficulty.
For all financial assets modifications of the contractual terms
may result in derecognition of the original asset when the
changes to the terms of the loans are considered substantial.
These terms include interest rate, authorised amount, term, or
type of underlying collateral. The original loan is derecognised
and the new loan is recognised at its fair value. The difference
between the carrying value of the derecognised asset and
the fair value of the new asset is recognised in the Income
Statement.
For all loans, performing and credit-impaired, where the
modification of terms did not result in the derecognition of
the loan, the gross carrying amount of the modified loan is
recalculated based on the present value of the modified cash
flows discounted at the original effective interest rate and any
gain or loss from the modification is recorded in the provision
for credit losses line in the Income Statement.
Purchased loans
All purchased loans are initially measured at fair value on
the date of acquisition. As a result no allowance for credit
losses would be recorded in the Balance Sheet on the date
of acquisition. Purchased loans may fit into either of the two
categories: Performing loans or Purchased Credit Impaired
(PCI) loans.
Purchased performing loans follow the same accounting as
originated performing loans and are reflected in Stage 1 on
the date of the acquisition. They will be subject to a 12-month
allowance for credit losses which is recorded as a provision
for credit losses in the Income Statement. The fair value
adjustment set up for these loans on the date of acquisition is
amortised into interest income over the life of these loans.
PCI loans are reflected in Stage 3 and are always subject
to lifetime allowance for credit losses. Any changes in the
expected cash flows since the date of acquisition are recorded
as a charge/recovery in the provision for credit losses in
the Income Statement at the end of all reporting periods
subsequent to the date of acquisition.
Recognition and measurement (prior to 1 July 2018)
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 75
11 Financial assets at fair value
through profit or loss
Discount securities
Floating rate notes
Government securities
Group
20191
$m
2018
$m
Bank
20191
$m
2018
$m
1,424.3
1,347.5
1,424.3
1,347.5
452.8
709.5
452.8
709.5
3,959.8
2,442.5
3,959.8
2,442.5
Total financial assets at fair value through profit or loss
5,836.9
4,499.5
5,836.9
4,499.5
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
1,432.3
1,669.7
1,673.5
1,061.4
1,768.3
545.8
1,798.4
387.0
1,432.3
1,669.7
1,673.5
1,061.4
1,768.3
545.8
1,798.4
387.0
5,836.9
4,499.5
5,836.9
4,499.5
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
Recognition and measurement
Financial instruments held for trading
(effective prior to 1 July 2018)
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 recorded in the
Balance Sheet at fair value with revaluation gains or losses
being recognised in the Income Statement.
Financial assets at fair value through profit or loss
(effective as of 1 July 2018)
Financial assets that do not meet the criteria for amortised
cost or fair value through other comprehensive income are
measured at fair value through profit or loss.
In addition, on initial recognition, the Group may irrevocably
designate a financial asset that otherwise meets the
requirements to be measured at amortised cost or at fair
value through other comprehensive income as at fair value
through profit or loss if doing so eliminates or significantly
reduces an accounting mismatch that would otherwise arise.
These financial instruments are recorded in the Balance Sheet
at fair value with revaluation gains or losses being recognised
in the Income Statement.
Interest earned is accrued in interest income using the
effective interest rate method, taking into account any
discount or premium and qualifying transaction costs being an
integral part of the instrument.
Fair value measurement is outlined in Note 21.
76 A N N UA L F I N A N C I A L R E P O R T 2 01 9
12 Financial assets available for sale
Group
20191
$m
Debt securities
Negotiable certificates of deposit
Mortgage backed securities
Security deposits
Securitisation notes
Liquidity collateral
Total financial assets available for sale - debt
Equity investments
Listed share investments
Unlisted share investments
Total financial assets available for sale - equity
Total financial assets available for sale
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2018
$m
159.5
43.2
67.0
-
171.6
441.3
0.1
27.6
27.7
469.0
119.8
51.2
31.7
171.6
94.7
469.0
Bank
20191
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2018
$m
-
43.2
67.0
5,343.9
17.7
5,471.8
0.1
18.7
18.8
5,490.6
-
11.5
31.7
5,361.7
85.7
5,490.6
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
Classification and measurement (effective prior to 1 July 2018)
Due to the introduction of AASB 9 the available for sale
financial asset category was removed as of 1 July 2018 hence
this policy is only applicable for the period ended 30 June
2018.
Available for sale investments are non-derivative assets and
comprise both debt and equity instruments.
Equity investments classified as available for sale are those
which are neither classified as held for trading nor designated
at fair value through profit or loss.
Debt securities in this category are intended to be held for
an indefinite period of time and may be sold in response to
needs for liquidity or in response to changes in the market
conditions.
After initial measurement, available for sale financial
investments are subsequently measured at fair value.
Unrealised gains and losses are recognised directly in equity
within other comprehensive income in the available for sale
reserve.
Upon disposal or impairment, the accumulated gains or
losses recorded in the reserve are transferred to the Income
Statement.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 77
13 Financial assets held to maturity
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
Group
20191
$m
-
-
-
-
-
-
-
-
-
2018
$m
209.5
148.4
55.3
413.2
112.8
170.9
123.2
6.3
413.2
Bank
20191
$m
-
-
-
-
-
-
-
-
-
2018
$m
-
-
49.5
49.5
49.0
-
-
0.5
49.5
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
Classification and measurement (effective prior to 1 July 2018)
Due to the introduction of AASB 9 the held to maturity financial
asset category was removed as of 1 July 2018 hence this
policy is only applicable for the period ended 30 June 2018.
Held to maturity investments are non-derivative financial
assets with fixed or determinable payments and fixed maturity
that the Group has the positive intent and ability to hold to
maturity, and which are not designated as at fair value through
profit or loss or as available for sale.
Subsequent to initial recognition, held to maturity investments
are measured at amortised cost using the effective interest
method less any impairment losses. Amortised cost is
calculated by taking into account any discount or premium on
acquisition and fees that are an integral part of the effective
interest rate. The losses arising from impairment of such
investments are recognised in the Income Statement.
14 Financial assets at amortised cost
Group
Bank
Collateral and security deposits
Other deposits
Bonds
Total financial assets at amortised cost
Maturity analysis
Over 5 years
20191
$m
246.7
6.3
40.1
293.1
293.1
293.1
2018
$m
-
-
-
-
-
-
20191
$m
103.6
0.1
40.1
143.8
143.8
143.8
2018
$m
-
-
-
-
-
-
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
Classification and measurement
A financial asset is measured at amortised cost only if both of
the following conditions are met:
•
the asset is held within a business model whose
objective is to hold assets in order to collect contractual
cash flows; and
the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments
of principal and interest on the principal amount
outstanding.
•
78 A N N UA L F I N A N C I A L R E P O R T 2 01 9
The carrying amount of these assets is adjusted by any
expected credit loss allowance recognised and measured as
described in Note 10.
Interest income from these financial assets is included in
interest income using the effective interest rate method.
15 Financial assets at fair value through
other comprehensive income
Group
20191
$m
2018
$m
Bank
20191
$m
2018
$m
Debt securities - with recycling
Mortgage backed securities
Securitisation notes
Other debt securities
Total debt securities - with recycling
Debt investments - with recycling
Unlisted share investments
Total debt investments - with recycling
Equity investments - without recycling
Listed share investments
Unlisted share investments
Total equity investments - without recycling
Total financial assets at fair value
through other comprehensive income
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
27.0
-
0.5
27.5
9.1
9.1
0.1
19.0
19.1
55.7
1.8
4.5
20.7
0.5
28.2
55.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27.0
6,086.5
0.5
6,114.0
-
-
0.1
19.0
19.1
6,133.1
1.8
4.5
20.7
6,087.0
19.1
6,133.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
Recognition and measurement
A financial asset will be measured at fair value through other
comprehensive income if:
•
the Group's intent is to hold the asset in order to collect
contractual cash flows and/or to sell the asset; and
the cash flows solely represent principal and interest.
•
These assets are initially recognised at fair value including
directly attributable transaction costs. Subsequent
measurement is at fair value with any revaluation gains or
losses being included in other comprehensive income. Upon
disposal, the cumulative gain or loss previously recognised in
other comprehensive income is transferred to profit or loss.
Equity instruments
The Group has irrevocably elected to measure all equity
investments that are not held for trading at fair value through
other comprehensive income.
Subsequent changes to the fair value are recognised in other
comprehensive income and are not transferred to the profit or
loss, including upon disposal.
Dividend income is recognised in profit or loss unless the
dividend represents a recovery of part of the cost of the
investment.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 79
Financial liabilities
Classification and measurement of financial liabilities
Financial liabilities designated at FVTPL
Financial liabilities are classified into one of the following
measurement categories:
Fair value through profit or loss (FVTPL);
•
•
Amortised cost; or
• Designated at FVTPL.
Financial liabilities classified in this category are those that
have been designated by the Group upon initial recognition,
and once designated, the designation is irrevocable. The
FVTPL designation is available only for those financial liabilities
for which a reliable estimate of fair value can be obtained.
Financial liabilities are designated at FVTPL when one of the
following criteria is met:
•
The designation eliminates or significantly reduces an
accounting mismatch which would otherwise arise; or
A group of financial liabilities are managed and their
performance is evaluated on a fair value basis, in
accordance with a documented risk management
strategy; or
The financial liability contains one or more embedded
derivatives which significantly modify the cash flows
otherwise required.
•
•
Financial liabilities designated at FVTPL are recorded in the
Balance Sheet at fair value. Any changes in fair value are
recognised in non-interest income in the Income Statement,
except for changes in fair value arising from changes in
the Group's own credit risk which are recognised in other
comprehensive income. Changes in fair value due to changes
in the Group’s own credit risk are not subsequently reclassified
to the Income Statement upon derecognition/extinguishment
of the liabilities.
Group
2019
$m
2018
$m
Bank
2019
$m
2018
$m
24,064.2
24,050.7
24,097.6
22,372.2
22,117.4
20,066.9
22,117.4
19,390.9
6,119.6
6,496.9
6,120.9
4,868.7
52,301.2
50,614.5
52,335.9
46,631.8
8,265.4
8,696.7
8,265.5
8,678.8
-
218.3
-
218.3
8,265.4
8,915.0
8,265.5
8,897.1
60,566.6
59,529.5
60,601.4
55,528.9
Financial liabilities measured at FVTPL
Financial liabilities measured at FVTPL are held principally
for the purpose of repurchasing in the near term, or form
part of a portfolio of identified financial instruments that are
managed together and for which there is evidence of a recent
actual pattern of short term profit-taking. Financial liabilities
are recognised on a trade date basis and are accounted for at
fair value, with changes in fair value and any gains or losses
recognised in the Income Statement as part of the non-
interest income. Transaction costs are expensed as incurred.
Financial liabilities measured at amortised cost
Deposits, subordinated notes and debentures are accounted
for at amortised cost. Interest on deposits, calculated using
the effective interest rate method, is recognised as interest
expense. Interest on subordinated notes and debentures,
including capitalised transaction costs, is recognised using the
effective interest rate method as interest expense.
16 Deposits and notes payable
Deposits
Retail
At call
Term
Financial Markets
Total retail deposits
Wholesale
Domestic
Offshore
Total wholesale deposits
Total deposits
80 A N N UA L F I N A N C I A L R E P O R T 2 01 9
16 Deposits and notes payable (continued)
Deposits
Deposits by geographic location
Victoria
New South Wales
Queensland
South Australia/Northern Territory
Western Australia
Australian Capital Territory
Tasmania
Overseas
Total deposits
Group
2019
$m
2018
$m
Bank
2019
$m
2018
$m
27,908.4
26,478.3
27,925.0
25,499.0
14,181.0
15,191.3
14,199.2
13,867.6
5,909.7
5,457.8
3,993.2
1,666.7
1,158.7
291.1
5,449.1
5,361.6
3,696.0
1,790.4
1,179.6
383.2
5,909.7
5,457.8
3,993.2
1,666.7
1,158.7
291.1
5,028.8
4,777.2
3,218.0
1,728.0
1,029.1
381.2
60,566.6
59,529.5
60,601.4
55,528.9
Total notes payable
3,464.4
3,544.8
23.1
-
Recognition and measurement
Deposits
Notes payable
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.
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 81
17 Preference shares
CPS2 (ASX Code:BENPE)
Oct 2014: 2,921,188 fully paid $100
Convertible preference shares
Unamortised issue costs
CPS3 (ASX Code:BENPF)
June 2015: 2,822,108 fully paid $100
Convertible preference shares
Unamortised issue costs
CPS4 (ASX Code:BENPB)1
December 2017: 3,216,145 fully paid $100
Converting preference shares
Unamortised issue costs
Total preference shares
Group
2019
$m
292.1
(2.0)
290.1
282.2
(2.8)
279.4
321.6
(4.7)
316.9
886.4
2018
$m
292.1
(4.1)
288.0
282.2
(4.9)
277.3
321.6
(6.0)
315.6
880.9
Bank
2019
$m
292.1
(2.0)
290.1
282.2
(2.8)
279.4
321.6
(4.7)
316.9
886.4
2018
$m
292.1
(4.1)
288.0
282.2
(4.9)
277.3
321.6
(6.0)
315.6
880.9
1 Converting preference shares (CPS 4, ASX:BENPG) were issued in December 2017 and as such the first dividend payment occurred in March 2018.
Nature of shares
Recognition and measurement
Preference shares are long term in nature and are perpetual,
hence they do not have a fixed maturity date. The shares
may be redeemed at the discretion of the Group 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 Group is unable to pay a dividend because of insufficient
profits, the dividend is non-cumulative. The 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 preference shares
form part of the Group's Additional Tier 1 capital.
These instruments are classified as debt within the Balance
Sheet and dividends to the holders are treated as interest
expense in the Income Statement.
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 rate 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.
18 Subordinated debt
Group
Bank
Subordinated debt
Maturity analysis
Longer than 3 and not longer than 12 months
Longer than 1 and not longer than 5 years
Over 5 years
82 A N N UA L F I N A N C I A L R E P O R T 2 01 9
2019
$m
681.4
10.0
250.5
420.9
681.4
2018
$m
709.2
-
563.1
146.1
709.2
2019
$m
681.4
10.0
250.5
420.9
681.4
2018
$m
699.2
-
553.1
146.1
699.2
18 Subordinated debt (continued)
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 rate 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.
19 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
2019
$m
500.6
500.6
2018
$m
523.1
523.1
2019
$m
3,343.2
3,440.5
3,338.6
3,454.2
2018
$m
3,493.2
3,521.3
3,488.0
3,537.9
(115.6)
(49.9)
Repurchase agreements
Securitisation
2019
$m
500.6
500.6
2018
$m
505.1
505.1
2019
$m
8,754.2
9,092.8
8,742.1
9,127.6
2018
$m
8,097.9
8,390.5
8,086.8
8,410.2
(385.5)
(323.4)
1 Represents the carrying value of the loans transferred to the trust.
2 Securitisation liabilities of the Group include RMBS notes issued by the SPEs and held by external parties.
3 Securitisation liabilities of the Bank include borrowings from SPEs including the SPEs that issue internally held notes for repurchase with central banks,
recognised on transfer of residential mortgages by the Bank.
Securitisation programs
Consolidation
The Group uses special purpose entities (SPEs) to securitise
customer loans and advances that it has originated, in order
to source funding, and/or for 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 the 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 entity 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 rate 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.
SPEs 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 SPEs.
The Group enters into interest rate swaps and liquidity
facilities with the trusts which are all at arm's length to the
SPEs.
Securitised and sold loans
The Group securitised loans totalling $1,416.1 million (2018:
$746.6 million) during the financial year. The Group invests
in some of its own securitisation programs by holding A and
B class notes equivalent to $6,062.5 million as at 30 June
2019 (2018: $5,338.2 million).
A N N UA L F I N A N C I A L R E P O R T 2 01 9 8 3
20 Derivative financial instruments
The Group uses derivative financial instruments primarily to
manage risk, including interest rate risk and foreign currency
rate risk. Note 22 outlines the risk management framework
that the Group applies.
Derivative instruments are contracts whose value is derived
from interest rates, foreign exchange rates, commodities,
equity prices or other financial variables. Most derivative
instruments can be characterised as interest rate contracts,
foreign exchange contracts, commodity contracts, equity
contracts or credit contracts. Derivative instruments are either
exchange-traded contracts or negotiated over-the-counter
contracts. Negotiated over-the-counter contracts include
swaps, forwards and options.
The Group enters into these derivative contracts for trading
purposes, as well as to manage its risk exposures (i.e., to
manage the Group's non-trading interest rate, foreign currency
and other exposures). Trading activities are undertaken to
meet the needs of the Group's customers, as well as for
the Group’s own account to generate income from trading
operations.
All derivatives are recorded at fair value in the Balance Sheet.
The determination of the fair value of derivatives includes
consideration of credit risk, estimated funding costs and
ongoing direct costs over the life of the instruments.
Inception gains or losses on derivatives are only recognised
where the valuation is dependent only on observable market
data, otherwise, they are deferred and amortised over the life
of the related contract, or until the valuation inputs become
observable.
All derivatives are classified as Level 2 Investments and the
valuation methodology is outlined in Note 21.
The gains and losses resulting from changes in fair values of
trading derivatives are included in non-interest income – other
revenue in the Income Statement.
Changes in the fair value of non-trading derivatives that do
not qualify for hedge accounting are recorded in the Income
Statement in non-interest income – other revenue.
Changes in the fair value of derivatives that qualify for hedge
accounting are recorded as non-interest income – other
revenue in the Income Statement for fair value hedges
and other comprehensive income in the Statement of
Comprehensive Income for cash flow hedges.
The following table describes the fair values and notional
values of derivatives held for trading purposes and for risk
management purposes by type of instrument:
Group 2019
Group 2018
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
Derivative category
Derivatives held for trading
Futures
4,988.0
-
-
-
2,128.5
-
-
Interest rate swaps
29,194.6
37.6
(25.7)
11.9
24,923.6
11.9
(10.1)
Foreign exchange
contracts
181.9
0.4
(0.8)
(0.4)
71.8
0.5
(0.3)
34,364.5
38.0
(26.5)
11.5
27,123.9
12.4
(10.4)
Derivatives held as fair value hedges
Interest rate swaps
Cross currency swaps
4.2
-
4.2
-
-
-
(0.3)
-
(0.3)
(0.3)
-
(0.3)
7.1
156.8
163.9
-
15.2
15.2
(0.5)
-
(0.5)
-
1.8
0.2
2.0
(0.5)
15.2
14.7
Derivatives held as cash flow hedges
Interest rate swaps
79,211.8
112.6
(108.2)
4.4
20,828.4
79,211.8
112.6
(108.2)
4.4
20,828.4
2.1
2.1
(23.9)
(23.9)
(21.8)
(21.8)
Total derivatives
113,580.5
150.6
(135.0)
15.6
48,116.2
29.7
(34.8)
(5.1)
84 A N N UA L F I N A N C I A L R E P O R T 2 01 9
20 Derivative financial instruments (continued)
Bank 2019
Bank 2018
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
Derivative category
$m
$m
$m
$m
$m
$m
$m
$m
Derivatives held for trading
Futures
4,988.0
-
-
-
2,128.5
-
-
-
Interest rate swaps
29,196.9
37.7
(25.7)
12.0
37,209.2
202.4
(29.4)
173.0
Foreign exchange
contracts
181.9
0.4
(0.8)
(0.4)
71.8
0.5
(0.3)
0.2
34,366.8
38.1
(26.5)
11.6
39,409.5
202.9
(29.7)
173.2
Derivatives held as fair value hedges
Interest rate swaps
Cross currency swaps
4.2
-
4.2
-
-
-
(0.3)
-
(0.3)
(0.3)
-
(0.3)
7.1
156.8
163.9
-
15.2
15.2
(0.5)
-
(0.5)
(0.5)
15.2
14.7
Derivatives held as cash flow hedges
Interest rate swaps
79,211.8
112.6
(108.2)
4.4
20,781.9
79,211.8
112.6
(108.2)
4.4
20,781.9
2.1
2.1
(23.9)
(23.9)
(21.8)
(21.8)
Total derivatives
113,582.8
150.7
(135.0)
15.7
60,355.3
220.2
(54.1)
166.1
As at 30 June 2019 hedged cash flows are expected to occur and affect the Income Statement as follows:
Group
2019
Forecast cash inflows
Forecast cash outflows
Forecast net cash inflows
2018
Forecast cash inflows
Forecast cash outflows
Bank
2019
Forecast cash inflows
Forecast cash outflows
Forecast net cash inflows
2018
Forecast cash inflows
Forecast cash outflows
Forecast net cash inflows/(outflows)
(6.9)
(4.7)
Forecast net cash inflows/(outflows)
(6.1)
(4.6)
Within 1
year
$m
783.0
(711.2)
71.8
1 to 2
years
$m
107.8
(60.7)
47.1
2 to 3
years
$m
35.4
(29.3)
6.1
3 to 4
years
$m
16.3
(12.3)
4.0
571.6
100.9
33.9
14.3
(578.5)
(105.6)
(35.4)
(1.5)
(14.7)
(0.4)
783.1
(711.2)
71.9
107.8
(60.7)
47.1
35.4
(29.3)
6.1
16.3
(12.3)
4.0
594.5
102.5
33.9
14.3
(600.6)
(107.1)
(35.4)
(1.5)
(14.7)
(0.4)
4 to 5
years
Greater than
5 years
$m
$m
8.4
(5.4)
3.0
9.4
(8.7)
0.7
8.4
(5.4)
3.0
9.4
(8.7)
0.7
10.5
(10.5)
-
16.7
(16.7)
-
10.5
(10.5)
-
16.7
(16.7)
-
A N N UA L F I N A N C I A L R E P O R T 2 01 9 8 5
20 Derivative financial instruments (continued)
Ineffectiveness of hedge relationships
Due to the ineffective portion of designated hedges, the following amounts were recognised in non-interest income – other revenue:
Revaluation gains /(losses) arising from economic hedges
$m
$m
$m
$m
Group
Bank
2019
2018
2019
2018
Revaluation gains /(losses) arising from fair value hedges
Losses on hedging instruments
Gains on the hedged items attributable to the hedged risk
Revaluation gains /(losses) arising on economic derivatives
that are not in a hedge relationship
Gains on derivatives
(16.0)
16.4
(0.7)
0.9
(16.0)
16.4
(0.7)
0.9
10.1
10.5
1.5
1.7
9.3
9.7
2.1
2.3
Average price/rate of hedged instruments
The following table sets out the maturity profile and average price/rate of the hedging instruments used in the Group's non-dynamic
hedging strategies:
Cash flow hedges - interest rate swaps
$m
$m
$m
Less than
1 month
1 to 3
months
3 to 12
months
Maturity
1 to 5
years
$m
Over 5
years
$m
Total
$m
Notional principal
Average fixed rate (%)
5,050.0
7,200.0
55,976.0
10,985.8
-
79,211.8
1.71%
1.81%
1.63%
1.60%
Recognition and measurement (policy prior to 1 July 2018)
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 21.
Hedge accounting
There is an economic relationship between the hedged item and
the hedging instrument as the terms of the interest rate swap
match the terms of the fixed rate loan (i.e., notional amount,
maturity, payment and reset dates). The Group has established a
hedge ratio of 1:1 for the hedging relationships as the underlying
risk of the interest rate swap is identical to the hedged risk
component.
To test the hedge effectiveness, the Group uses the hypothetical
derivative method and compares the changes in the fair value of
the hedging instrument against the changes in fair value of the
hedged item attributable to the hedged risk.
The hedge ineffectiveness can arise from:
• Different interest rate curve applied to discount the hedged
item and hedging instrument;
• Differences in timing of cash flows of the hedged item and
•
hedging instrument;
The counterparties’ credit risk differently impacting the fair
value movements of the hedging instrument and hedged
item.
Derivatives that meet the hedge accounting criteria are able to be
accounted for as either a fair value hedge or a cash flow hedge.
86 A N N UA L F I N A N C I A L R E P O R T 2 01 9
20 Derivative financial instruments (continued)
Recognition and measurement (continued)
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.
Cash flow hedges
Cash flow 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 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
Amounts in the cash flow hedge reserve are recognised in the
Income Statement in the periods when the hedged item is
recognised in the profit or loss.
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
the right of set-off is only enforceable by the parties to
the agreement 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
2019
$m
$m
2018
$m
$m
144.7
(135.0)
27.5
(34.2)
(104.8)
39.9
117.4
(17.6)
(10.7)
16.8
32.6
(1.6)
5.9
-
2.2
(0.6)
Total financial assets/(liabilities) recognised on the Balance Sheet
150.6
(135.0)
29.7
(34.8)
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
$m
Bank
$m
$m
$m
144.8
(135.0)
218.0
(53.5)
(104.8)
40.0
117.4
(17.6)
(10.7)
207.3
32.6
(20.9)
5.9
-
2.2
(0.6)
Total financial assets/liabilities recognised on the balance sheet
150.7
(135.0)
220.2
(54.1)
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 over-collateralisation, where it exists, is not reflected in the tables).
A N N UA L F I N A N C I A L R E P O R T 2 01 9 87
21 Financial instruments
All financial instruments are initially recognised at fair value on the date of initial recognition depending on the classification of
the asset and liability.
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.
Fair value through
profit or loss
Fair value
through other
comprehensive
income
Amortised cost
Total
Derivatives
Financial
assets
Financial assets
Loans and
receivables
Other financial
instruments
$m
$m
$m
$m
$m
$m
-
-
-
-
-
-
150.6
150.6
-
-
-
135.0
-
-
135.0
-
-
5,836.9
-
-
-
-
-
-
-
-
55.7
-
-
-
-
-
-
-
61,791.8
-
1,072.0
1,072.0
270.6
270.6
-
5,836.9
293.1
293.1
-
-
-
55.7
61,791.8
150.6
5,836.9
55.7
61,791.8
1,635.7
69,470.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
420.6
420.6
60,566.6
60,566.6
3,464.4
3,464.4
-
886.4
681.4
135.0
886.4
681.4
66,019.4
66,154.4
Fair value through
profit or loss
Fair value through
reserves
Amortised cost
Derivatives
$m
-
-
-
-
-
-
29.7
29.7
-
-
-
34.8
-
-
34.8
Held for
trading
$m
-
-
4,499.5
-
-
-
-
Available for sale
Loans and
receivables
Other financial
instruments
Total
$m
$m
$m
$m
-
-
-
-
469.0
-
-
-
-
-
-
-
61,601.8
-
1,137.4
1,137.4
283.0
283.0
-
4,499.5
413.2
-
-
-
413.2
469.0
61,601.8
29.7
4,499.5
469.0
61,601.8
1,833.6
68,433.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
352.5
352.5
59,529.5
59,529.5
3,544.8
3,544.8
-
880.9
709.2
34.8
880.9
709.2
65,016.9
65,051.7
Group
2019
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets fair value
through profit or loss (FVTPL)
Financial assets - amortised cost
Financial assets fair value through other
comprehensive income (FVOCI)
Net loans and other receivables
Derivative assets
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivative liabilities
Preference shares
Subordinated debt
Total financial liabilities
2018
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets held to maturity
Financial assets available for sale
Loans and other receivables
Derivative assets
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivative liabilities
Preference shares
Subordinated debt
Total financial liabilities
88 A N N UA L F I N A N C I A L R E P O R T 2 01 9
21 Financial instruments (continued)
a) Measurement basis of financial assets and liabilities (continued)
Bank
2019
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets fair value
through profit or loss (FVTPL)
Financial assets - amortised cost
Financial assets fair value through other
comprehensive income (FVOCI)
Net loans and other receivables
Derivative assets
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivative liabilities
Preference shares
Subordinated debt
Total financial liabilities
2018
Financial assets
Cash and cash equivalents
Due from other financial institutions
Financial assets held for trading
Financial assets held to maturity
Financial assets available for sale
Loans and other receivables
Derivative assets
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivative liabilities
Preference shares
Subordinated debt
Total financial liabilities
Fair value through
profit or loss
Fair value
through other
comprehensive
income
Amortised cost
Total
Derivatives
Financial
assets
Financial assets
Loans and
receivables
Other financial
instruments
$m
$m
$m
$m
$m
$m
-
-
-
-
-
-
150.7
150.7
-
-
-
135.0
-
-
135.0
-
-
5,836.9
-
-
-
-
-
-
-
-
6,133.1
-
-
-
-
-
-
-
60,972.2
-
880.2
270.6
880.2
270.6
-
5,836.9
143.8
143.8
-
-
-
6,133.1
60,972.2
150.7
5,836.9
6,133.1
60,972.2
1,294.6
74,387.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
420.6
420.6
60,601.4
60,601.4
23.1
-
886.4
681.4
23.1
135.0
886.4
681.4
62,612.9
62,747.9
Fair value through
profit or loss
Fair value through
reserves
Amortised cost
Derivatives
$m
-
-
-
-
-
-
220.2
220.2
-
-
-
54.1
-
-
54.1
Held for
trading
$m
-
-
4,499.5
-
-
-
-
Available for sale
Loans and
receivables
Other financial
instruments
Total
$m
$m
$m
$m
-
-
-
-
5,490.6
-
-
-
-
-
-
-
56,148.7
-
836.8
295.8
836.8
295.8
-
4,499.5
49.5
49.5
-
-
-
5,490.6
56,148.7
220.2
4,499.5
5,490.6
56,148.7
1,182.1
67,541.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
346.7
346.7
55,528.9
55,528.9
-
-
880.9
699.2
-
54.1
880.9
699.2
57,455.7
57,509.8
A N N UA L F I N A N C I A L R E P O R T 2 01 9 8 9
21 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:
Group
2019
Financial assets
Financial assets FVTPL
Financial assets FVOCI
Derivative assets
Financial liabilities
Derivative liabilities
2018
Financial assets
Financial assets held for trading
Financial assets available for sale
Derivative assets
Financial liabilities
Derivative liabilities
Bank
2019
Financial assets
Financial assets FVTPL
Financial assets FVOCI
Derivative assets
Financial liabilities
Derivative liabilities
2018
Financial assets
Financial assets held for trading
Financial assets available for sale
Derivative assets
Financial liabilities
Derivatives
Level 1
Level 2
Level 3
Total
fair value
Total
carrying value
$m
-
0.1
-
-
-
0.1
-
-
$m
-
0.1
-
-
-
0.1
-
-
$m
$m
$m
$m
5,836.9
36.6
150.6
135.0
4,499.5
450.3
29.7
34.8
-
19.0
-
-
-
18.6
-
-
5,836.9
5,836.9
55.7
150.6
55.7
150.6
135.0
135.0
4,499.5
4,499.5
469.0
29.7
469.0
29.7
34.8
34.8
$m
$m
$m
$m
5,836.9
6,114.0
150.7
135.0
4,499.5
5,471.9
220.2
54.1
-
19.0
-
-
-
18.6
-
-
5,836.9
6,133.1
150.7
5,836.9
6,133.1
150.7
135.0
135.0
4,499.5
5,490.6
220.2
4,499.5
5,490.6
220.2
54.1
54.1
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.
90 A N N UA L F I N A N C I A L R E P O R T 2 01 9
21 Financial instruments (continued)
Valuation methodology
Financial instruments - debt securities
Each month, independent valuations are determined by the
middle office department of the Group's Risk Management
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.
Financial assets - equity investments
Opening balance
Impairment charge
Purchases/revaluations
Transfers out
Closing balance
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
Bank
2019
$m
18.7
-
0.3
-
19.0
2018
$m
23.0
(0.4)
0.1
(4.0)
18.7
2019
$m
18.7
-
0.3
-
19.0
2018
$m
23.0
(0.4)
0.1
(4.0)
18.7
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
2019
Financial assets
Cash and cash equivalents 1
Due from other financial institutions
Financial assets - amortised cost
Net loans and other receivables
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Preference shares
Subordinated debt
1 Cash and cash equivalents excludes the balance of Notes and Coins.
Level 1
Level 2
Level 3
Total
fair value
Total carrying
amount
$m
$m
$m
$m
$m
936.2
270.6
293.1
-
-
-
936.2
270.6
293.1
936.2
270.6
293.1
-
61,845.8
61,845.8
61,791.8
-
-
-
-
-
-
-
420.6
60,663.2
3,476.7
915.6
-
-
678.2
-
-
-
-
-
420.6
420.6
60,663.2
60,566.6
3,476.7
3,464.4
915.6
678.2
886.4
681.4
A N N UA L F I N A N C I A L R E P O R T 2 01 9 91
21 Financial instruments (continued)
Financial assets and liabilities carried at amortised cost (continued)
Valuation hierarchy (continued)
Group
2018
Financial assets
Cash and cash equivalents 1
Due from other financial institutions
Financial assets held to maturity
Net loans and other receivables
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Preference shares
Subordinated debt
Bank
2019
Financial assets
Cash and cash equivalents 1
Due from other financial institutions
Financial assets - amortised cost
Net loans and other receivables
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Preference shares
Subordinated debt
2018
Financial assets
Cash and cash equivalents 1
Due from other financial institutions
Financial assets held to maturity
Net loans and other receivables
Financial liabilities
Due to other financial institutions
Deposits
Preference shares
Subordinated debt
Level 1
Level 2
Level 3
Total
fair value
Total carrying
amount
$m
$m
$m
$m
$m
983.3
283.0
413.2
-
-
-
983.3
283.0
413.2
983.3
283.0
413.2
-
61,664.6
61,664.6
61,601.8
352.5
59,594.9
3,560.1
882.2
-
-
704.2
744.5
270.6
143.8
-
-
-
-
-
-
-
-
352.5
59,594.9
3,560.1
882.2
704.2
352.5
59,529.5
3,544.8
880.9
709.2
744.5
270.6
143.8
744.5
270.6
143.8
-
61,026.2
61,026.2
60,972.2
420.6
60,698.0
23.1
-
678.2
682.7
295.8
49.5
-
-
-
-
-
-
-
-
420.6
420.6
60,698.0
60,601.4
23.1
915.6
678.2
682.7
295.8
49.5
23.1
886.4
681.4
682.7
295.8
49.5
-
56,207.7
56,207.7
56,148.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
915.6
-
-
-
-
-
-
-
346.7
55,586.2
882.2
-
-
694.2
-
-
-
-
346.7
346.7
55,586.2
55,528.9
882.2
694.2
880.9
699.2
1 Cash and cash equivalents excludes the balance of Notes and Coins.
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.
92 A N N UA L F I N A N C I A L R E P O R T 2 01 9
21 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 assets - amortised cost
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.
Financial instruments - held to maturity
(effective prior to 1 July 2018)
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.
Net 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 arm's 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.
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. using a yield curve appropriate to the
remaining maturity of the instrument is used.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 9 3
22 Risk management
Nature of risk
Financial risk management
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.
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.
Credit risk
Credit risk is the 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.
Gross maximum exposure
Cash and cash equivalents
Due from other financial institutions
Group
Bank
2019
$m
936.2
270.6
2018
$m
983.3
283.0
2019
$m
744.5
270.6
Financial assets fair value through profit or loss (FVTPL)
5,836.9
4,499.5
5,836.9
Financial assets available for sale
Financial assets held to maturity
Financial assets - amortised cost
Financial assets fair value through other comprehensive income (FVOCI)
Other assets
Derivative assets
Shares in controlled entities
Amounts receivable from controlled entities
Gross loans and other receivables
Contingent liabilities
Commitments
-
-
293.1
55.7
316.5
150.6
-
-
469.0
413.2
-
-
282.9
29.7
-
-
-
-
143.8
6,133.1
1,290.5
150.7
587.4
-
62,110.4
61,793.5
61,289.2
56,299.8
69,970.0
68,754.1
76,446.7
69,487.4
238.0
247.1
238.0
239.8
5,468.5
6,122.8
5,468.5
5,623.4
5,706.5
6,369.9
5,706.5
5,863.2
2018
$m
682.7
295.8
4,499.5
5,490.6
49.5
-
-
1,343.0
220.2
585.2
21.1
Total credit risk exposure
75,676.5
75,124.0
82,153.2
75,350.6
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.
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.
94 A N N UA L F I N A N C I A L R E P O R T 2 01 9
22 Risk management (continued)
Credit risk (continued)
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.
The maximum credit exposure to any client or counterparty as
at 30 June 2019 was $617.0 million (2018: $830.5 million)
before taking account collateral or other credit enhancements
Geographic concentration
Victoria
New South Wales
Australian Capital Territory
Queensland
South Australia/Northern Territory
Western Australia
Tasmania
Overseas/other
and $617.0 million (2018: $830.5 million) net of such
protection.
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.
Group
2019
$m
2018
$m
Bank
2019
$m
2018
$m
31,841.8
31,106.0
33,071.8
30,781.3
16,886.9
16,306.1
22,467.8
20,124.5
947.6
10,121.5
7,228.6
7,014.6
1,516.3
119.2
1,760.0
9,265.8
7,242.7
7,573.4
1,566.6
303.4
916.9
9,840.0
7,423.9
6,832.9
1,494.7
105.2
1,731.1
8,259.0
6,632.6
6,194.0
1,360.2
267.9
Total credit risk exposure
75,676.5
75,124.0
82,153.2
75,350.6
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
2019
$m
624.6
206.0
2018
$m
652.5
237.1
2019
$m
624.6
206.0
2018
$m
651.0
237.1
6,652.6
6,724.7
6,649.4
2,415.3
174.5
198.1
174.5
198.0
2,012.4
2,432.1
2,007.4
2,400.6
293.8
161.7
1,401.4
7,845.8
953.2
133.5
779.7
319.5
162.2
1,200.8
6,970.4
988.8
147.6
829.0
1,528.6
1,694.7
157.3
357.7
572.4
767.9
312.6
159.1
358.1
616.2
814.0
355.1
293.8
161.7
319.5
162.2
1,395.5
1,200.1
15,159.9
13,238.0
953.2
133.5
779.7
-
157.3
367.5
572.4
767.9
312.1
988.8
147.6
827.8
-
159.1
317.3
615.9
813.9
354.7
4,649.4
5,145.8
4,649.4
5,138.7
44,145.5
43,025.8
44,841.5
43,079.5
1,049.8
1,129.6
1,049.8
1,129.5
535.7
360.4
576.7
386.1
535.7
360.4
570.1
385.9
75,676.5
75,124.0
82,153.2
75,350.6
A N N UA L F I N A N C I A L R E P O R T 2 01 9 9 5
22 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.
Group
2019
Cash and cash equivalents
Due from other financial institutions
Financial assets fair value
through profit or loss (FVTPL)
Financial assets - amortised cost
Financial assets fair value through
other comprehensive income (FVOCI)
Other assets
Derivative assets
Loans and other receivables
2018
Cash and cash equivalents
Due from other financial institutions
Financial assets fair value
through profit or loss (FVTPL)
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivative assets
Loans and other receivables
Bank
2019
Cash and cash equivalents
Due from other financial institutions
Financial assets fair value
through profit or loss (FVTPL)
Financial assets - amortised cost
Financial assets fair value through
other comprehensive income (FVOCI)
Other assets
Derivatives
Loans and other receivables
Shares in controlled entities
2018
Cash and cash equivalents
Due from other financial institutions
Financial assets fair value through profit
or loss (FVTPL)
Financial assets available for sale
Financial assets held to maturity
Other assets
Derivative assets
Loans and other receivables
Amounts receivable from controlled entities
Shares in controlled entities
Neither past due or impaired
High
grade
Standard
grade
Sub-
standard
grade
Unrated
Consumer
loans 1
Past
due or
impaired
$m
936.2
270.6
5,836.9
293.1
55.7
$m
$m
$m
$m
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$m
936.2
270.6
5,836.9
293.1
55.7
-
150.6
5,301.7
-
-
7,507.8
-
-
806.1
316.5
-
2,179.9
-
-
43,015.5
-
-
3,299.4
316.5
150.6
62,110.4
12,844.8
7,507.8
806.1
2,496.4
43,015.5
3,299.4
69,970.0
983.3
283.0
4,499.5
441.3
413.2
-
29.7
5,110.9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,888.4
-
-
-
-
1,061.9
27.7
-
282.9
-
1,560.4
-
-
-
-
41,692.8
-
-
-
-
3,479.1
983.3
283.0
4,499.5
469.0
413.2
282.9
29.7
61,793.5
11,760.9
8,888.4
1,061.9
1,871.0
41,692.8
3,479.1
68,754.1
744.5
270.6
5,836.9
143.8
6,133.1
-
150.7
3,895.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
744.5
270.6
5,836.9
143.8
6,133.1
-
-
7,385.5
-
-
-
806.1
-
1,290.5
-
2,179.9
587.4
-
-
43,723.0
-
-
-
3,299.3
-
1,290.5
150.7
61,289.2
587.4
17,175.0
7,385.5
806.1
4,057.8
43,723.0
3,299.3
76,446.7
682.7
295.8
4,499.5
5,471.8
49.5
-
220.2
888.8
-
-
-
-
-
-
-
-
-
7,401.3
-
-
-
-
-
-
-
-
-
961.6
-
-
-
-
-
-
-
-
-
-
-
18.8
-
1,343.0
-
1,535.6
21.1
585.2
-
-
-
-
42,323.1
-
-
-
-
-
-
3,189.4
-
-
682.7
295.8
4,499.5
5,490.6
49.5
1,343.0
220.2
56,299.8
21.1
585.2
12,108.3
7,401.3
961.6
3,503.7
42,323.1
3,189.4
69,487.4
1 Consumer loans are predominantly mortgage secured residential loans not rated on an individual basis.
96 A N N UA L F I N A N C I A L R E P O R T 2 01 9
22 Risk management (continued)
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
1,675.5
1,821.9
377.2
384.0
215.8
233.9
721.1
703.5
2,989.6
3,143.3
8,841.2
8,855.9
1,675.5
1,761.9
377.2
355.4
215.8
219.4
721.1
599.2
2,989.6
2,935.9
8,841.2
7,582.6
Group
Bank
Liquidity risk
2019
2018
2019
2018
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.
In accordance with APS210, APRA Prudential Standard the Group needs to maintain a ratio of High Quality Liquid Assets (HQLA)
to cover defined projected cash outflows over a 30 day period, using the scenario based Liquidity Coverage Ratio (LCR).
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 97
22 Risk management (continued)
Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities
The table below categorises 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
2019
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
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
420.6
25,108.2
23.1
-
493.0
-
-
-
16,263.5
75.4
19.7
-
3.3
7.6
-
15,772.8
-
69.2
-
29.9
282.7
-
3,593.0
736.8
29.9
-
677.7
137.8
-
0.2
2,628.3
4.3
-
356.5
483.9
420.6
60,737.7
3,463.6
123.1
493.0
1,067.4
912.0
Total financial liabilities
26,044.9
16,369.5
16,154.6
5,175.2
3,473.2
67,217.4
Contingent liabilities
Commitments
Total contingent liabilities and commitments
238.0
5,468.5
5,706.5
-
20.5
20.5
-
61.4
61.4
-
183.3
183.3
-
97.0
238.0
5,830.7
97.0
6,068.7
2018
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
Preference shares
Subordinated debt
352.5
23,574.5
4.8
-
536.0
-
-
-
16,075.5
279.1
9.5
-
-
9.4
-
16,166.9
213.2
11.2
-
36.4
27.7
-
3,956.9
720.7
9.6
-
705.6
367.5
-
1.6
2,329.4
0.2
-
355.2
478.4
352.5
59,775.4
3,547.2
30.5
536.0
1,097.2
883.0
Total financial liabilities
24,467.8
16,373.5
16,455.4
5,760.3
3,164.8
66,221.8
Contingent liabilities
Commitments
Total contingent liabilities and commitments
247.1
6,122.8
6,369.9
-
18.9
18.9
-
56.7
56.7
-
191.7
191.7
-
72.4
247.1
6,462.5
72.4
6,709.6
Bank
2019
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
Loans payable to securitisation trusts
Preference shares
Subordinated debt
420.6
25,143.1
23.1
-
462.2
-
-
-
-
16,263.5
-
19.7
-
-
-
7.6
-
15,772.8
-
69.2
-
-
29.9
282.7
-
3,593.0
-
29.9
-
-
677.7
137.8
-
0.2
-
4.3
-
8,754.2
356.5
483.9
420.6
60,772.6
23.1
123.1
462.2
8,754.2
1,064.1
912.0
Total financial liabilities
26,049.0
16,290.8
16,154.6
4,438.4
9,599.1
72,531.9
Contingent liabilities
Commitments
Total contingent liabilities and commitments
238.0
5,468.5
5,706.5
-
19.9
19.9
-
59.7
59.7
-
180.0
180.0
-
97.0
238.0
5,825.1
97.0
6,063.1
98 A N N UA L F I N A N C I A L R E P O R T 2 01 9
22 Risk management (continued)
Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities (continued)
Bank
2018
Due to other financial institutions
Deposits
Derivatives - net settled
Other payables
Loans payable to securitisation trusts
Preference shares
Subordinated debt
At call
$m
346.7
Not longer
than 3
months
3 to 12
months
1 to 5
years
Longer than
5 years
Total
$m
-
$m
-
$m
-
$m
-
$m
346.7
22,921.3
14,654.5
14,319.5
3,801.7
1.6
55,698.6
-
9.5
11.0
9.6
0.2
30.3
616.6
-
-
-
-
-
-
9.2
-
-
36.4
27.2
-
-
-
616.6
8,097.9
8,097.9
705.6
356.9
355.2
1,097.2
478.4
871.7
Total financial liabilities
23,884.6
14,673.2
14,394.1
4,873.8
8,933.3
66,759.0
Contingent liabilities
Commitments
Total contingent liabilities and commitments
239.8
5,623.4
5,863.2
-
18.9
18.9
-
56.6
56.6
-
191.5
191.5
-
239.8
72.4
5,962.8
72.4
6,202.6
Market risk (including interest rate and currency risk)
Market risk is the risk that changes in market variables such as interest rates, foreign exchange rates and equity prices will
impact the Group’s fair value or future cash flows of financial instruments. The Group classifies its exposures to market risk as
either traded (the Trading Book) or non-traded (the Banking Book), with each of these portfolios being managed separately.
At an operational level, market risk is primarily managed by the Group’s treasury department, which is responsible for ensuring
that the Group’s exposures are in compliance with market risk limits. The treasury department monitors significant developments
in market structure and pricing as part of their establishedmarket risk management process. Market risk limits are set and
continuously reviewed by ALMAC and are ultimately approved by the Board.
The Trading Book portfolio consists of securities held for trading and liquidity purposes and is an integral part of the liquidity risk
management function.
Market risk for the Trading Book portfolio is managed and monitored against market sensitivity limits as well as exposure limits.
Non-traded market risk primarily represents interest rate risk in the Banking Book (IRRBB). The Group’s primary business model
is to collect deposits, and use these funds to provide loans and other funding products and debt instruments to its customers.
Interest rate risk is the impact that changes in interest rates could have on margins. Interest risk arises from the mismatch of
interest payable on liabilities and the interest earned on assets.
The profile of the Banking Book is such that:
•
Interest on deposits is primarily either floating or their maturities are so short term that their behaviour is similar to floating
rate instruments.
Interest rates payable on issued debt are primarily fixed.
The loan portfolio is a mixture of fixed and floating rates instruments.
•
•
IRRBB is monitored using various interest rate shock scenarios, including sensitivity of profit or loss and equity, with limits
established that are consistent with the Group’s risk appetite. Hedging activities, both at a micro and portfolio level, are
undertaken to ensure that exposures are kept within these limits. Positions are monitored on a daily basis by the Group’s
treasury department.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 9 9
22 Risk management (continued)
Market risk (including interest rate and currency risk) (continued)
Group
2019
Assets
Fixed interest rate repricing
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
%
Cash and cash equivalents
500.5
199.9
Due from other financial institutions
-
-
-
-
-
-
-
-
-
-
371.6 1,072.0
1.48
270.6
270.6
-
Financial assets fair value through
profit or loss (FVTPL)
- 1,820.8 1,349.3
199.1 1,243.0
932.5
292.2 5,836.9
2.58
Financial assets - amortised cost
54.6
40.0
Financial assets fair value through
other comprehensive income (FVOCI)
9.1
27.6
-
-
-
-
-
-
-
-
198.5
293.1
2.84
19.0
55.7
2.30
Loans and other receivables
43,242.6 6,626.6 1,711.3 3,157.4 7,030.7
23.2
- 61,791.8
4.65
Derivative assets
-
-
-
-
-
-
150.6
150.6
Total financial assets
43,806.8 8,714.9 3,060.6 3,356.5 8,273.7
955.7 1,302.5 69,470.7
Liabilities
Due to other financial institutions
-
-
-
-
-
-
420.6
420.6
Deposits
Notes payable
Derivatives
Preference shares
Subordinated debt
19,732.1 19,295.3 10,772.9 6,597.9 4,168.3
0.1
- 60,566.6
- 3,464.1
-
-
-
318.2
568.2
681.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.3 3,464.4
135.0
135.0
-
886.4
0.3
681.4
-
-
1.70
2.69
-
3.98
4.10
Total financial liabilities
19,732.1 23,758.7 11,341.1 6,597.9 4,168.3
0.1
556.2 66,154.4
2018
Assets
Cash and cash equivalents
983.3
Due from other financial institutions
-
-
-
-
-
-
-
-
-
-
-
154.1 1,137.4
0.97
283.0
283.0
Financial assets held for trading
- 2,396.3
149.0
- 1,595.2
289.1
69.9 4,499.5
Financial assets available for sale
53.7
162.3
39.6
Financial assets held to maturity
5.8
211.4
145.2
-
-
-
-
-
-
213.4
469.0
50.8
413.2
Loans and other receivables
43,342.9 7,287.2 1,497.0 2,797.5 6,639.7
37.5
- 61,601.8
Derivative assets
-
-
-
-
-
-
29.7
29.7
Total financial assets
44,385.7 10,057.2 1,830.8 2,797.5 8,234.9
326.6
800.9 68,433.6
Liabilities
Due to other financial institutions
-
-
-
-
-
-
352.5
352.5
Deposits
Notes payable
Derivatives
Preference shares
Subordinated debt
18,809.6 19,197.6 9,888.1 7,549.4 4,083.2
1.6
- 3,544.8
-
-
-
316.2
564.7
706.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 59,529.5
- 3,544.8
34.8
34.8
-
880.9
3.1
709.2
Total financial liabilities
18,809.6 23,764.7 10,452.8 7,549.4 4,083.2
1.6
390.4 65,051.7
100 A N N UA L F I N A N C I A L R E P O R T 2 01 9
-
2.17
1.06
2.29
4.52
-
-
1.91
3.36
-
5.85
5.21
22 Risk management (continued)
Market risk (including interest rate and currency risk) (continued)
Bank
2019
Assets
Fixed interest rate repricing
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
%
Cash and cash equivalents
309.9
199.9
Due from other financial institutions
-
-
-
-
-
-
-
-
-
-
370.4
880.2
1.48
270.6
270.6
-
Financial assets fair value through
profit or loss (FVTPL)
- 1,820.8 1,349.3
199.1 1,243.0
932.5
292.2 5,836.9
2.58
Financial assets - amortised cost
65.0
40.0
Financial assets fair value through
other comprehensive income (FVOCI)
- 6,114.0
-
-
-
-
-
-
-
-
38.8
143.8
2.84
19.1 6,133.1
2.30
Loans and other receivables
35,722.6 15,249.8 1,387.8 2,551.5 6,037.0
23.5
- 60,972.2
4.65
Derivative assets
-
-
-
-
-
-
150.7
150.7
Total financial assets
36,097.5 23,424.5 2,737.1 2,750.6 7,280.0
956.0 1,141.8 74,387.5
Liabilities
Due to other financial institutions
-
-
-
-
-
-
420.6
420.6
Deposits
Notes payable
Loans payable
- securitisation trusts
Derivatives
Preference shares
Subordinated debt
19,766.6 19,295.4 10,773.0 6,598.0 4,168.3
0.1
- 60,601.4
-
22.8
-
-
-
6,596.5
224.9
294.8
460.0 1,178.0
-
-
-
-
-
318.2
568.2
681.1
-
-
-
-
-
-
-
-
-
-
-
-
0.3
23.1
- 8,754.2
4.65
135.0
135.0
-
886.4
0.3
681.4
-
3.98
4.10
Total financial liabilities
26,363.1 20,542.4 11,636.0 7,058.0 5,346.3
0.1
556.2 71,502.1
2018
Assets
Cash and cash equivalents
Due from other financial institutions
682.7
-
-
-
-
-
-
-
-
-
-
-
154.1
836.8
1.14
295.8
295.8
-
Financial assets held for trading
69.9 2,396.3
149.0
- 1,595.2
289.1
Financial assets available for sale
5,428.7
Financial assets held to maturity
49.0
43.1
0.5
-
-
-
-
-
-
-
-
Loans and other receivables
36,289.4 7,488.6 1,688.7 3,094.1 7,552.8
35.1
- 4,499.5
- 5,471.8
-
49.5
- 56,148.7
2.17
1.73
3.50
4.64
Derivative assets
-
-
-
-
-
-
220.2
220.2
Total financial assets
42,519.7 9,928.5 1,837.7 3,094.1 9,148.0
324.2
670.1 67,522.3
Liabilities
Due to other financial institutions
-
-
-
-
-
-
346.7
346.7
-
-
Deposits
18,456.5 17,724.3 9,044.5 6,463.0 3,839.0
1.6
Loans payable - securitisation trusts
6,010.1
239.7
244.7
406.5 1,196.9
Derivatives
Preference shares
Subordinated debt
-
-
-
706.1
3.1
696.1
-
-
-
-
-
-
-
-
-
-
-
-
-
- 55,528.9
- 8,097.9
1.88
4.64
54.1
54.1
-
-
-
706.1
699.2
5.85
5.21
Total financial liabilities
24,469.7 19,366.2 9,289.2 6,869.5 5,035.9
1.6
400.8 65,432.9
A N N UA L F I N A N C I A L R E P O R T 2 01 9 101
-
-
1.70
2.69
22 Risk management (continued)
Market risk (including interest rate and currency 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.
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 2019, including the effect of hedging in-
struments. The sensitivity of equity is calculated by revaluing fixed rate financial assets (including the effect of any associat-
ed hedges), and swaps designated as cash flow hedges, at 30 June 2019 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
Revaluation gains/ (losses) arising on economic
hedges that are not in a hedge relationship
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
2019
$m
8.5
(23.1)
4.4
(10.2)
(10.2)
(253.4)
76.0
(187.6)
2019
$m
(30.8)
23.1
2.3
(5.4)
(5.4)
253.4
(76.0)
172.0
2018
$m
55.4
(49.4)
(1.8)
4.2
4.2
(58.2)
17.5
(36.5)
2018
$m
(68.7)
49.4
5.8
(13.5)
(13.5)
58.2
(17.5)
27.2
8.5
(30.8)
45.8
(58.3)
Revaluation gains/ (losses) arising on economic
hedges that are not in a hedge relationship
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
(23.1)
4.4
(10.2)
(10.2)
(253.4)
76.0
(187.6)
23.1
2.3
(5.4)
(5.4)
253.4
(76.0)
172.0
(48.7)
0.9
(2.0)
(2.0)
(58.7)
17.6
(43.1)
48.7
2.9
(6.7)
(6.7)
58.7
(17.6)
34.4
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.This analysis reflects a scenario where no management actions are taken to
counter movements in rates.
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 princi-
pal of foreign currency denominated borrowings under these programs was AUD $nil (2018: AUD $216.2m) with all borrow-
ings 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.
102 A N N UA L F I N A N C I A L R E P O R T 2 01 9
F U N D I N G A N D C A P I T A L M A N A G E M E N T
23 Share capital
Issued and paid up capital
Ordinary shares (ASX Code: BEN) fully paid - 491,575,157
(2018: 486,418,481)
Group
2019
$m
2018
$m
Bank
2019
$m
2018
$m
4,575.9
4,529.9
4,575.9
4,529.9
Employee Share Ownership Plan
(5.4)
(6.6)
(5.4)
(6.6)
4,570.5
4,523.3
4,570.5
4,523.3
Movements in ordinary shares on issue
Opening balance 1 July - 486,418,481 (2018: 479,206,464)
4,529.9
4,456.7
4,529.9
4,456.7
Shares issued under:
Bonus share scheme - 399,626 @ $10.74, 246,366 @ $9.75
(2018: 266,098 @ $11.39, 396,330 @ $10.70)
-
-
-
-
Dividend reinvestment plan - 2,151,250 @ $10.74,
2,359,434 @ $9.75
(2018: 4,390,045 @ $11.39; 2,159,544 @ $10.70)
46.0
73.2
46.0
73.2
Closing balance 30 June - 491,575,157 (2018: 486,418,481)
4,575.9
4,529.9
4,575.9
4,529.9
Movements in Employee Share Ownership Plan
Opening balance
Reduction in Employee Share Ownership Plan
Closing balance
(6.6)
1.2
(5.4)
(8.0)
1.4
(6.6)
(6.6)
1.2
(5.4)
(8.0)
1.4
(6.6)
Total issued and paid up capital
4,570.5
4,523.3
4,570.5
4,523.3
Nature of issued capital
Ordinary shares (ASX code: BEN)
The Group does not have authorised capital. Ordinary shares
are fully-paid and have no par value. Each ordinary share
entitles the holder to one vote, either in person or by proxy, at
a shareholder meeting. Ordinary shares entitle the holder to
participate in dividends and, in the event of the Group winding
up, to a share of the proceeds in proportion to the number of
and amounts paid on the shares held.
Recognition and measurement
Ordinary shares are classified as equity. Issued ordinary
capital is 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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 10 3
24 Retained earnings and reserves
Retained earnings
Movements
Opening balance
Impact of adoption of new accounting standards 1
Restated opening balance
Profit for the year
Share based payment
Operational risk reserve
Movements in general reserve for credit losses
Balances from transfer of business
Transfer from asset revaluation reserve
Dividends
Defined benefits actuarial adjustment
Tax effect of defined benefits actuarial adjustment
Closing balance
Reserve movements
Employee benefits reserve
Opening balance
Net increase in reserve
Closing balance
Asset revaluation reserve - property
Opening balance
Transfer asset revaluation reserve to retained earnings
Tax effect of movement in asset revaluation reserve
Closing balance
Asset revaluation reserve - available for sale equity securities
Opening balance
Impact of adoption of new accounting standards 1
Revaluation increments
Tax effect of revaluation increments
Closing balance
Asset revaluation reserve - available for sale debt securities
Opening balance
Impact of adoption of new accounting standards 1
Net unrealised gains/(losses)
Tax effect of net unrealised gains/(losses)
Closing balance
Asset revaluation reserve - FVOCI - with recycling
Opening balance
Impact of adoption of new accounting standards 1
Restated opening balance
Transfer from asset revaluation reserve to income
Net unrealised gains
Tax effect of revaluation gains
Closing balance
Group
Bank
20191
$m
975.9
(11.1)
964.8
376.8
1.0
(0.6)
(19.9)
-
-
(334.7)
(0.1)
-
987.3
9.6
1.4
11.0
1.1
-
-
1.1
0.5
(0.5)
-
-
-
(0.1)
0.1
-
-
-
-
0.5
0.5
(0.3)
0.2
-
0.4
2018
$m
864.6
-
864.6
434.5
2.6
(1.5)
-
-
0.4
(325.0)
0.4
(0.1)
975.9
9.5
0.1
9.6
1.5
(0.6)
0.2
1.1
0.4
-
0.2
(0.1)
0.5
(0.1)
-
(0.1)
0.1
(0.1)
-
-
-
-
-
-
-
20191
$m
282.1
(12.7)
269.4
644.3
1.0
-
(19.9)
2.2
-
(334.7)
(0.1)
-
562.2
9.6
1.4
11.0
-
-
-
-
-
-
-
-
-
4.0
(4.0)
-
-
-
-
4.0
4.0
-
18.1
(5.5)
16.6
2018
$m
254.0
-
254.0
349.7
2.6
-
-
-
0.5
(325.0)
0.4
(0.1)
282.1
9.5
0.1
9.6
0.5
(0.6)
0.1
-
-
-
-
-
-
(1.5)
-
7.9
(2.4)
4.0
-
-
-
-
-
-
-
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
104 A N N UA L F I N A N C I A L R E P O R T 2 01 9
24 Retained earnings and reserves (continued)
Reserve movements (continued)
Operational risk reserve
Opening balance
Movement operational risk reserve
Operational risk event applied to reserve
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
General reserve for credit losses (GRCL)
Opening balance
Impact of adoption of new accounting standards 1
Restated opening balance
Balances from transfer of business
Increase in GRCL
Closing balance
Acquisition reserve
Opening balance
Closing balance
Total reserves
Group
20191
$m
3.2
0.6
-
3.8
(13.1)
19.5
(5.8)
0.6
140.3
(82.9)
57.4
-
19.9
77.3
(20.4)
(20.4)
2018
$m
1.8
1.5
(0.1)
3.2
(20.7)
10.9
(3.3)
(13.1)
140.3
-
140.3
-
-
140.3
(20.4)
(20.4)
Bank
20191
$m
2018
$m
-
-
-
-
(13.1)
19.5
(5.8)
0.6
121.7
(66.0)
55.7
1.7
19.9
77.3
-
-
-
-
-
-
(20.1)
10.0
(3.0)
(13.1)
121.7
-
121.7
-
-
121.7
-
-
73.8
121.1
105.5
122.2
1 AASB 9 has been adopted on 1 July 2018; comparative information has not been restated.
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 37.
Asset revaluation reserve - property
The reserve records revaluation adjustments to the Group's
property 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.
Asset revaluation reserve - available for sale
- equity investments and debt securities
Acquisition reserve
The reserve records fair value changes on available for sale
assets.
Asset revaluation reserve - FVOCI with recycling
The reserve records fair value changes in assets classified as
debt securities and unlisted share investments.
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 10 5
25 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
Nature and purpose
Group
2019
$m
2018
$m
Bank
2019
$m
2018
$m
11,409.0
10,825.4
11,409.0
10,825.4
7,500.0
8,500.0
7,500.0
7,500.0
-
216.2
-
216.2
3,845.0
3,795.0
3,845.0
3,785.0
11,409.0
10,609.2
11,409.0
10,609.2
3,655.0
4,705.0
3,655.0
3,715.0
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 16.
26 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
enhance shareholder value through maximising financial
performance; and
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
must be held by all authorised deposit-taking institutions.
106 A N N UA L F I N A N C I A L R E P O R T 2 01 9
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).
Regulatory capital is divided into Common Equity Tier 1, Tier 1
and Tier 2 capital.
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 current financial year.
O T H E R A S S E T S A N D L I A B I L I T I E S
27 Investment property
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 home owners in Sydney and Melbourne residential properties.
Opening balance
Additions
Disposals
Homesafe revaluation (loss)/gain
Total investment property
Recognition and measurement
Group
2019
$m
735.7
67.0
(44.1)
(24.1)
734.5
2018
$m
666.3
59.0
(45.0)
55.4
735.7
Bank
2019
$m
2018
$m
-
-
-
-
-
-
-
-
-
-
Investment properties are measured initially at cost, including transaction costs and are 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 inputs
Fair value measurement
sensitivity to
unobservable inputs
Discounted cash flow
Rates of property
appreciation - long term
growth rate 4%
734.5
3% - 5%
$m
Discount rates - 5.75%
734.5
4.75% - 6.75%
Significant increases in
these inputs would result
in higher fair values.
Significant increases in
these inputs would result
in lower fair values.
Effect of reasonably
possible alternative
assumptions
Favourable
change
Unfavourable
change
$m
$m
68.9
(59.7)
85.8
(72.9)
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 107
28 Goodwill and other intangible assets
Group
Goodwill
Software
Deposits
Customer
relationship
Other
acquired
intangibles1
Carrying amount as at 1 July 2018
Additions
Impairment charge
Write off on disposal
Amortisation charge
$m
1,442.3
-
-
(2.0)
-
Closing balance as at 30 June 2019
1,440.3
Carrying amount as at 1 July 2017
1,442.3
Additions
Amortisation charge
-
-
Closing balance as at 30 June 2018
1,442.3
Bank
$m
190.4
72.2
(0.7)
-
(33.8)
228.1
196.0
22.4
(28.0)
190.4
Carrying amount as at 1 July 2018
1,362.8
188.9
Additions
Transfers
Impairment charge
Write off on disposal
Amortisation charge
-
-
-
(2.0)
-
Closing balance as at 30 June 2019
1,360.8
Carrying amount as at 1 July 2017
1,362.8
Additions
Amortisation charge
-
-
Closing balance as at 30 June 2018
1,362.8
72.0
0.6
(0.7)
-
(33.2)
227.6
193.4
22.4
(26.9)
188.9
1 These assets include customer lists, management rights and trade names
Recognition and measurement
Intangible assets (other than goodwill)
$m
-
-
-
-
-
-
3.2
-
(3.2)
-
-
-
-
-
-
-
-
2.7
-
(2.7)
-
$m
2.2
-
-
-
$m
6.7
3.6
-
-
(1.1)
(2.6)
1.1
4.4
-
(2.2)
2.2
7.7
9.5
-
(2.8)
6.7
0.5
6.1
-
-
-
-
-
-
-
-
(0.3)
(1.5)
0.2
1.0
-
(0.5)
0.5
4.6
7.5
-
(1.4)
6.1
Trustee
licence
$m
8.4
-
-
-
-
8.4
8.4
-
-
Total
$m
1,650.0
75.8
(0.7)
(2.0)
(37.5)
1,685.6
1,663.8
22.4
(36.2)
8.4
1,650.0
-
-
-
-
-
-
-
-
-
-
-
1,558.3
72.6
(13.1)
(0.7)
(2.0)
(35.0)
1,593.2
1,567.4
22.4
(31.5)
1,558.3
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.
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.
Intangible assets with a finite life are amortised over their
useful life on a straight line basis or in line with the expected
benefit realisation and are 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.
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
108 A N N UA L F I N A N C I A L R E P O R T 2 01 9
In completing the impairment tests for the Group’s intangibles,
management is required to make judgements, estimates
and assumptions that affect the recoverable amount of the
asset. Management based its judgements, estimates and
assumptions on information available when the financial
statements were prepared. Changes to these judgements,
estimates and assumptions may occur in the future which
are beyond the control of the Group. Such changes will be
reflected in the assumptions when they occur.
28 Goodwill and other intangible assets (continued)
A summary of the policies applied to the Group's intangible assets (excluding goodwill) are as follows:
Useful lives
Method used
Trustee Licence
Software/
development costs
Intangible assets acquired
in a business combination
Indefinite
Finite
Finite
Not amortised or
revalued
Straight line or in line with
expected benefit realisation 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
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.
Goodwill is allocated to cash generating units (CGUs) 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.
Following the announcement and implementation of the
organisational restructure effective from 10 August 2018, the
Group's CGUs have changed.
Goodwill and other intangible assets with indefinite useful life
have been allocated to the following CGUs:
Consumer
Business
Agribusiness
Total Goodwill and
other intangibles
2019
2018
Goodwill
Other intangibles1
Goodwill
Other intangibles1
$m
1,197.6
152.1
90.6
1,440.3
$m
8.4
-
-
8.4
Local connection
Partner connection
Wealth
Agribusiness
Total Goodwill and
other intangibles
$m
677.5
464.4
209.7
90.7
1,442.3
$m
-
-
8.4
-
8.4
1 Refers to intangibles with an indefinite useful life.
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.
assessments of the risks specific to the CGU for which future
estimates of cash flows have not been adjusted.
A terminal growth rate of 2.5% (June 2018: 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 discount rate used is based on the weighted average
cost of capital for each CGU and reflects current market
The table below contains discount rates used in the
calculation of the recoverable amount for each CGU:
Consumer
Business
Agribusiness
Discount rate
2019
9.66%
9.66%
9.96%
Local connection
Partner connection
Wealth
Agribusiness
Discount rate
2018
10.17%
10.47%
10.77%
11.07%
A N N UA L F I N A N C I A L R E P O R T 2 01 9 10 9
29 Other assets
Accrued income
Prepayments
Sundry debtors
Accrued interest
Deferred expenditure
Total other assets
Group
2019
$m
38.8
30.6
153.4
163.1
50.6
436.5
2018
$m
28.1
33.0
116.2
166.7
80.7
424.7
Bank
2019
$m
23.9
30.5
2018
$m
25.3
32.2
1,148.0
1,229.0
142.5
50.6
114.0
80.6
1,395.5
1,481.1
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 rate 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
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 28 for further information.
Accrued interest is interest that has been recognised as income
on an accrual basis using the effective interest rate method, but
is yet to be charged to the loan or receivable.
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.
30 Other payables
Accrued expenses and outstanding claims
Accrued interest
Prepaid interest
Total other payables
Recognition and measurement
Group
Bank
2019
$m
299.3
171.3
22.4
493.0
2018
$m
244.0
180.3
24.5
448.8
2019
$m
290.8
171.3
-
2018
$m
394.0
169.6
-
462.1
563.6
Sundry creditors and accrued expenses
Prepaid interest
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.
Prepaid interest is the interest received from customers in
advance. This interest is recognised in the Income Statement
using the effective interest rate method.
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 rate method.
110 A N N UA L F I N A N C I A L R E P O R T 2 01 9
31 Provisions
Employee entitlements
Property rent
Other 1
Closing balance
Group
Bank
2019
$m
95.7
19.0
4.9
119.6
2018
$m
110.5
19.8
6.3
136.6
2019
$m
94.2
19.0
4.8
118.0
1 Other provisions comprise various other provisions including reward programs and dividends.
Movements in provisions (excluding employee entitlements)
Property Rent
Other
Total
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
Employee benefits
2019
$m
19.8
0.7
(1.5)
19.0
19.8
0.7
(1.5)
19.0
2018
$m
15.4
7.2
(2.8)
19.8
15.4
7.2
(2.8)
19.8
The table below shows the individual balances for employee benefits:
Annual leave
Other employee payments
Long service leave
Sick leave bonus
Closing balance
2018
$m
107.2
19.8
5.1
132.1
2018
$m
21.9
334.7
(330.5)
26.1
21.9
333.5
2019
$m
6.3
333.7
(335.1)
4.9
5.1
332.9
2018
$m
6.5
327.5
(327.7)
6.3
6.5
326.3
2019
$m
26.1
334.4
(336.6)
23.9
24.9
333.6
(333.2)
(327.7)
(334.7)
(330.5)
4.8
5.1
23.8
24.9
Group
Bank
2019
$m
31.5
-
57.5
6.7
95.7
2018
$m
31.3
12.3
59.8
7.1
110.5
2019
$m
30.9
-
56.6
6.7
94.2
2018
$m
30.4
12.3
57.5
7.0
107.2
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 1 1
31 Provisions (continued)
Recognition and measurement
Annual leave and long service leave provisions 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 of 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 balance of this provision will be derecognised
upon adoption of AASB 16 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.
112 A N N UA L F I N A N C I A L R E P O R T 2 01 9
O T H E R D I S C L O S U R E M A T T E R S
32 Cash flow statement reconciliation
Profit after tax
Non-cash items
Credit expenses
Amortisation
Depreciation (including leasehold improvements)
Revaluation increments
Equity settled transactions
Share of net profit from joint arrangements and associates
Dividends received
Impairment write down
Fair value acquisition adjustments
Revaluation gains on derivatives
Changes in assets and liabilities
(Decrease)/increase in tax provision
(Decrease)/increase in deferred tax assets & liabilities
(Increase)/decrease in derivatives
Decrease in accrued interest
(Increase)/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
Net (increase)/decrease of loans to other entities
Net (increase)/decrease of investment securities
Net Increase/(decrease) in operating liabilities
Group
2019
$m
376.8
54.6
37.5
19.0
11.9
4.0
(2.5)
(0.9)
2.7
7.1
(10.5)
(45.1)
(19.2)
(20.7)
(7.5)
(14.8)
(32.3)
2018
$m
434.5
78.9
36.2
20.4
(27.5)
3.7
(2.3)
(1.3)
0.4
7.8
(1.7)
30.0
(1.9)
(16.1)
(26.4)
1.7
(141.9)
Bank
2019
$m
644.3
50.3
35.0
18.4
(34.1)
3.5
(2.5)
(300.6)
2.7
7.1
(9.7)
(45.1)
(59.8)
150.4
(26.9)
(13.0)
306.4
2018
$m
349.7
72.5
31.5
19.7
3.4
3.5
(2.4)
(1.0)
0.4
7.8
(2.3)
(45.7)
19.9
(101.7)
(22.1)
1.9
(197.4)
360.1
394.5
726.4
137.7
(337.6)
(773.2)
(904.1)
(3,518.7)
1,039.4
(2,043.4)
(549.8)
865.3
Net increase/(decrease) in balance of deposits
1,037.1
235.4
5,072.5
(209.8)
Net (decrease)/increase in balance of notes payable
Net cash flows from operating activities
(80.4)
206.0
(413.6)
351.6
23.1
259.9
-
243.4
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 1 3
33 Subsidiaries and other controlled entities
Subsidiaries
Bendigo and Adelaide Bank Limited consolidates a subsidiary (including structure entities) when it controls it. Control is
achieved when the Bank is exposed, or has rights, to variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity.
When assessing whether the Bank has power over an entity, and therefore, control over the variability of its returns,
consideration is given to all relevant facts and circumstances, including:
•
•
•
voting rights currently exercisable;
the purpose and design of the entity;
the relevant activities and how decisions about those activities are made and whether the Bank can direct those
activities;
contractual arrangements such as call rights, put rights and liquidation rights.
•
Subsidiaries prepare financial reports for consolidation in accordance with the Group's accounting policies. When necessary,
adjustments are made to bring their accounting policies in line with the Group's accounting policies.
All inter-group assets, liabilities, equity, income, expenses and cashflows relating to transactions between members of the
Group have been eliminated in full 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.
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.
Chief entity and Ultimate parent
Bendigo and Adelaide Bank Limited
Other entities
Homesafe Trust
Leveraged Equities Ltd
All entities are 100% owned and incorporated in Australia.
Investments in controlled entities
At cost
Significant restrictions
Principal activities
Banking
Principal activities
Homesafe product financier
Margin lending
Group
Bank
2019
$m
-
-
2018
$m
-
-
2019
$m
587.4
587.4
2018
$m
585.2
585.2
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.
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. Investments in subsidiaries are stated at cost.
Special Purpose Entities (SPE's)
The following table presents a list of the material SPEs. 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 SPEs refer to Note 19.
Entity
Principal activities
Entity
Principal activities
Leveraged Equities 2009 Trust Securitisation
Torrens Trust 2019-1 Trust
Securitisation
Torrens Series 2008-1 Trust
Securitisation
Torrens Trust 2017-1 Trust
Securitisation
Torrens Series 2008-4 Trust
Securitisation
Torrens Trust 2017-3 Trust
Securitisation
114 A N N UA L F I N A N C I A L R E P O R T 2 01 9
34 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
Transfer of net assets from Rural Bank
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
Dividends paid by the subsidiaries
Rural Bank Limited
Limit
Drawn/issued at 30 June 2019
2019
$m
6.6
194.3
(72.7)
306.9
435.1
Limit
$m
0.5
2019
$m
300.0
2018
$m
(49.2)
162.3
(106.5)
-
6.6
Drawn/issued
at 30 June
2019
$m
-
2018
$m
-
Other related party transactions
Joint arrangement entities and associates
Bendigo and Adelaide Bank Limited has investments in joint arrangement entities and associates which are accounted for
using the equity method. The investments are initially recorded at cost, and are subsequently adjusted by the Group's share
of the entity's profit or loss. Dividends received reduce the carrying value of the investment.
Transactions entered into with these related entities principally include commissions received and paid, services and sup-
plies 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 Group and joint arrangements and associates during
the period were:
2019
2018
Commissions and fees paid to joint arrangements and associates
Supplies and services provided to joint arrangements and associates
Amount owing from/(to) joint arrangements and associates
$m
40.1
9.4
1.0
$m
35.5
8.3
(2.1)
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, including Non-executive Directors. Further details relating to KMP are located
in the Remuneration Report.
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
30 June 2019
30 June 2018
$'000's
6,100.8
334.1
11.4
15.9
2,326.0
8,788.2
$'000's
8,066.0
340.3
(27.1)
-
2,890.6
11,269.8
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 1 5
34 Related party disclosures (continued)
Other related party transactions (continued)
Key management personnel (continued)
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
30 June 2019
30 June 2018
No.
No.
1,493,266
1,826,703
4,240
4,240
246,936
509,011
1,744,442
2,339,954
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 2019
30 June 2018
$'000's
$'000's
11,987.8
10,456.1
12,749.0
12,174.4
550.7
496.1
-
-
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 excludes 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 office at the start of, or appointed during, the financial 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.
35 Involvement with unconsolidated 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
116 A N N UA L F I N A N C I A L R E P O R T 2 01 9
35 Involvement with unconsolidated entities (continued)
Risks associated with unconsolidated structured entities
The following table summarises the carrying values recognised in
the Balance Sheet in relation to unconsolidated structured entities:
Cash and cash equivalents
Financial assets available for sale
Financial assets - amortised cost
Financial assets fair value through other comprehensive income
Loans and other receivables
Total on-balance sheet exposures
Total off-balance sheet exposures 1
Total maximum exposure to loss
1 Relates to undrawn funding limits.
Maximum exposure to loss
Managed
investment
funds
Securitisation
vehicles
Managed
investment
funds
Securitisation
vehicles
2019
$m
0.1
-
-
9.1
-
9.2
-
9.2
2019
$m
-
-
40.0
27.0
899.0
966.0
245.4
1,211.4
2018
$m
0.1
8.9
-
-
-
9.0
-
9.0
2018
$m
-
43.1
-
-
715.5
758.6
-
758.6
For loans and other receivables, the maximum exposure to loss is the current carrying value of these interests representing the
amortised cost at reporting date, in addition to any undrawn funding limits.
The following table summarises the Group's maximum exposure to loss from its involvement with unconsolidated structured
entities.
Cash and cash equivalents
Senior notes
Investment
Carrying
amount
Maximum loss
exposure
Carrying
amount
Maximum loss
exposure
2019
$m
0.1
2019
$m
0.1
966.0
1,211.4
9.1
9.1
975.2
1,220.6
2018
$m
0.1
758.6
8.9
767.6
2018
$m
0.1
758.6
8.9
767.6
Significant restrictions
Securitisation vehicles
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 33.
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.
The Group has exposure to a number of securitisation vehicles
through Residential Mortgage Backed Securities (RMBS).
Securitisations involve transferring assets into an entity
that sells interests to investors through the issue of debt or
equity notes. The notes are secured by the underlying assets
transferred to the vehicles, and generally hold a number of
levels of subordination, with the residual income paid to the
most subordinated investor. The Group does not hold any
mezzanine notes in the unconcolidated structured entities it
invests in, and does not receive any residual income. The Group
does not act as the primary trust manager or servicer of any of
its unconsolidated structured 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, an assessment of the
Group's power over the relevant activities of the Fund and the
significance of its exposure to variable returns is completed to
determine whether the Fund should be consolidated.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 17
35 Involvement with unconsolidated entities (continued)
Community Banks
Alliance partners
Community Banks are not consolidated by the Group as the
Group does not have power to govern decision making.
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 and are
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 are not consolidated by the Group as the
Group does not have power to govern decision making. 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.
36 Fiduciary activities
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:
Funds under trusteeship
Assets under management
Funds under management
Group
2019
$m
6,748.7
2,536.7
4,212.0
2018
$m
5,924.6
2,200.0
3,633.2
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.
118 A N N UA L F I N A N C I A L R E P O R T 2 01 9
37 Share based payment plans
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 FY2019 is subject to
the following performance conditions:
•
a 'customer hurdle' that requires the Bank's Net Promoter
Score over the performance period to be better than the
performance of a peer group of Australian banks.
a total shareholder return (TSR) performance hurdle;
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.
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 performance rights.
•
and
•
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
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 1 9
37 Share based payment plans (continued)
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.
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 share are
granted at no cost and have no exercise price.
Performance rights
Deferred shares
Share Grant Scheme
Employee Share Plan
2019
No. 1
2018
No. 1
2019
No. 1
2018
No. 1
2019
No. 1
2018
No. 1
2019
2019
2018
2018
No. 2 WAEP ($)
No. WAEP ($)
Outstanding at
beginning of year
833,725
688,585
171,439
163,659
183,426
199,524 1,464,830
4.49
1,593,277
5.03
Granted
303,687
309,349
308,214
175,309
Forfeited/lapsed
(153,925)
(164,209)
(6,493)
(3,870)
-
-
-
-
-
-
-
-
-
-
-
-
Vested/
exercised
Outstanding at
year end
Exercisable at
year end
(333,645)
- (171,439)
(163,659)
(16,347)
(16,098)
(515,096)
0.85
(128,447)
4.90
649,842
833,725
301,721
171,439
167,079
183,426
949,734
5.72
1,464,830
4.49
-
-
-
-
-
-
-
-
-
-
1. Closing balance of deferred shares and performance rights are exercisable upon meeting the required conditions and until 30 June 2019 and 30 June
2021 respectively.
2. The outstanding balance as at 30 June 2019 is represented by 949,734 (2018: 1,464,830) ordinary shares with a market value of $10,997,919 (2018:
$15,878,757), exercisable upon repayment of the employee loan.
Recognition and measurement
The cost of the employee services received in respect of shares or rights granted is recognised in the Income Statement over
the period the employee provides the services, generally the period between the grant date and the vesting date of the shares or
rights. The overall cost of the award is calculated using the number of shares or rights expected to vest and the fair value of the
shares or rights at the grant date.
Fair value methodology
The fair value of shares or rights granted under the various Plans takes into account the terms and conditions upon which the
shares or rights were granted. The fair value of the performance rights is determined using a Black Scholes Merton valuation
method incorporating a Monte Carlo Simulation option pricing model taking into account the terms and conditions upon which
the rights were granted.
The following inputs are used in the models:
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of performance rights (years)
Exercise price ($)
Managing Director
Other executives
19 Dec 2018
17 Dec 2018
6.73%
23.39%
1.99%
4 years
nil
6.73%
23.39%
1.89%
3 years
nil
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.
The fair value of deferred shares are 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.
120 A N N UA L F I N A N C I A L R E P O R T 2 01 9
38 Commitments and contingencies
a) Commitments
The following are outstanding expenditure and credit related commitments as at 30 June 2019. Except where specified, all
commitments are payable within one year.
Group
Bank
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
2019
$m
81.8
183.3
97.0
362.1
3.5
9.4
3.0
15.9
2018
$m
71.6
177.6
65.3
314.5
4.0
14.1
7.1
25.2
2019
$m
79.6
180.0
97.0
356.6
3.5
9.4
3.0
15.9
2018
$m
71.5
177.4
65.3
314.2
4.0
14.1
7.1
25.2
Gross loans approved, but not advanced to borrowers
1,481.1
2,106.4
1,481.1
2,061.0
Credit limits granted to clients for overdrafts and credit cards 1
Total amount of facilities provided
Amount undrawn at balance date
7,590.8
3,987.4
9,181.7
4,016.4
7,590.8
3,987.4
8,068.9
3,562.4
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 2019 are outlined in the
table above.
(b) Contingent liabilities and contingent assets
Contingent liabilities
Guarantees
Group
2019
$m
2018
$m
Bank
2019
$m
2018
$m
The economic entity has issued guarantees on behalf of clients
236.5
245.4
236.5
238.3
Other
Documentary letters of credit & performance related obligations
1.5
1.7
1.5
1.5
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 21
38 Commitments and contingencies (continued)
(b) Contingent liabilities and contingent assets (continued)
Recognition and measurement
Financial guarantees
Bank guarantees have been issued by the Group on behalf of
customers whereby the Group 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.
39 Auditors’ remuneration
The Group has no provisions raised for any current legal
proceedings.
Remediation and compensation claims
The Group undertakes ongoing compliance activities, including
review of products, advice, conduct and services provided to
customers, as well as interest, fees and premiums charged.
Some of these investigations and reviews have resulted in
remediation programs and where required the Group consults
with the respective regulator on the proposed remediation
action. There is a risk that where a breach has occurred,
regulators may also impose fines and/or sanctions.
Provisions are recognised when it is probable an outflow will
be required to address a past event and where a reliable
estimate is available.
There remains a contingent liability with respect to these
matters, however the aggregate potential liability of the above
matters cannot be reliably estimated.
Contingent assets
As at 30 June 2019, the economic entity does not have any
contingent assets.
Group
2019
$
2018
$
Bank
2019
$
2018
$
Total fees paid or due and payable to Ernst & Young (Australia) 1
Audit and review of financial statements 2
1,635,658
1,680,870
1,402,288
1,330,730
Audit related fees
Regulatory 3
Non-regulatory 4
Total audit related fees
Other services 5
Total other fees
311,300
818,445
737,487
364,900
277,300
774,845
707,050
299,500
1,129,745
1,102,387
1,052,145
1,006,550
263,100
263,100
-
-
263,100
263,100
-
-
Total remuneration of Ernst & Young (Australia)
3,028,503
2,783,257
2,717,533
2,337,280
1.
2.
3.
4.
5.
Fees exclude goods and services tax.
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.
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.
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.
All other fees, including taxation services and other advice are incurred under the audit committee's pre-approval policies and procedures, having
regard to the auditor’s independence requirements of applicable laws, rules and regulations, and assessment that each of the non-audit services
provided would not impair the independence of Ernst & Young.
122 A N N UA L F I N A N C I A L R E P O R T 2 01 9
40 Events after balance sheet date
On 1 July 2019 the Group completed the sale of its specialist self-managed superannuation fund business located in Geelong
West pursuant to an Asset Purchase Agreement with LBWFP Pty Ltd. The Group also entered into an Asset Purchase Agreement
to sell its financial planning business, Bendigo Financial Planning Pty Ltd, to Bridges Financial Services Group Pty Limited with
an effective date of 1 August 2019. This agreement saw Bridges Financial Services Group Pty Limited assume the provision
of financial planning services to existing Bendigo Financial Planning Pty Ltd customers and also saw the commencement of an
ongoing referral arrangement. As at 30 June 2019, both of these business were recorded as held-for-sale.
On 28 August 2019 the Bank issued $500 million of 5-year wholesale funding, being split between $300 million of floating rate
notes and $200 million of fixed rate notes, settling on 6 September 2019.
On 3 September 2019, ASIC initiated legal proceedings against the Bank in relation to the application of the unfair contract
terms legislation. The proceedings relate to a version of its small business loan contracts under each of its Delphi Bank and
Rural Bank brands in place between 2016 and June 2019.
No other matters or circumstances have arisen since the end of the financial year to the date of this report which 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 periods.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 2 3
K E Y P E R F O R M A N C E I N D I C A T O R S
The following tables provide a summary of the last five years key metrics.
Bendigo and Adelaide Bank Group
Five year history
For the year ended 30 June
Financial Performance
Net interest income
Credit expenses
Profit after income tax attributable to Owners of the Company
Cash earnings after income tax
Financial Position
Total assets
Net loans and other receivables
Total equity
Deposits and notes payable
Risk weighted assets
Additional tier 1 capital ratio
Common equity tier 1 capital ratio
Tier 2 capital ratio
Share information (per ordinary share)
Net tangible assets
Earnings (statutory basis)
Earnings (cash basis)
Dividends - fully franked
Interim
Final
Total
Shareholder ratios
Return on average tangible equity (cash basis)
Return on average assets (cash basis)
Return on average ordinary equity (cash basis)
Return on average ordinary equity after tax (statutory basis)
Key Trading Indicators
Number of staff (excluding Community Banks)
Assets per staff member
Asset Quality
Impaired loans
Specific provisions
Net impaired loans
Net impaired loans % of gross loans
Specific provision for impairment
Specific provision % of gross loans
Collective provision
General reserve for credit losses (GRCL) (general provision)
Collective provision & GRCL as a % of risk-weighted assets
20191
2018
2017
2016
20152
1,285.8
1,305.2
1,213.6
1,164.1
1,177.6
50.3
376.8
415.7
70.6
434.5
445.1
71.8
429.6
418.3
44.1
415.6
401.4
68.3
423.9
402.8
72,570.3
71,439.8
71,415.5
68,572.7
66,028.8
61,791.8
61,601.8
60,776.6
57,256.8
55,531.6
5,631.6
5,620.3
5,425.6
5,115.3
4,941.7
64,031.0
63,074.3
63,252.5
60,877.2
58,431.2
($m)
($m)
($m)
($m)
($m)
($m)
($m)
($m)
($m)
37,483.1
38,256.4
38,062.3
36,485.5
34,712.9
(%)
(%)
(%)
($)
(¢)
(¢)
(¢)
(¢)
(¢)
(%)
(%)
(%)
(%)
(FTE)
($m)
($m)
($m)
(%)
($m)
(%)
($m)
($m)
(%)
2.39
8.92
1.83
8.03
77.1
85.0
35.0
35.0
70.0
2.34
8.62
1.89
8.16
89.9
92.1
35.0
35.0
70.0
2.22
8.27
1.97
7.85
90.9
88.5
34.0
34.0
68.0
2.31
8.09
1.81
7.51
90.4
87.3
34.0
34.0
68.0
2.43
8.17
1.97
7.36
92.5
88.6
33.0
33.0
66.0
10.73
11.52
11.61
11.83
12.37
0.61
7.55
6.84
0.65
8.23
8.03
4,540
16.0
4,426
16.1
310.9
335.8
(127.6)
(118.3)
183.3
217.5
0.30
128.5
0.21
157.0
77.30
0.63
0.35
119.3
0.19
48.2
140.3
0.49
0.61
8.10
8.32
4,413
16.2
282.6
(88.5)
194.1
0.32
89.5
0.15
52.7
140.3
0.56
0.62
8.17
8.46
0.61
8.47
8.84
4,531
15.1
4,628
14.3
350.2
325.6
(124.4)
(116.1)
225.8
209.5
0.39
125.3
0.22
53.4
146.9
0.55
0.38
116.8
0.21
59.0
146.9
0.59
1 June 2019 results have been prepared in accordance with AASB 9; prior periods have not been restated.
2 Figures for 2015 includes Rural Finance from 1 July 2014.
124 A N N UA L F I N A N C I A L R E P O R T 2 01 9
D I R E C T O R S ’ D E C L A R A T I O N
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 2019 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;
b.
the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2;
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; and
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 2019.
On behalf of the Board
Robert Johanson
Chairman
6 September 2019
Marnie Baker
Managing Director
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 25
126 A N N UA L F I N A N C I A L R E P O R T 2 01 9
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 27
128 A N N UA L F I N A N C I A L R E P O R T 2 01 9
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 2 9
130 A N N UA L F I N A N C I A L R E P O R T 2 01 9
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 31
132 A N N UA L F I N A N C I A L R E P O R T 2 01 9
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 3 3
A D D I T I O N A L I N F O R M A T I O N
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 12 August 2019.
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 14 August 2019 there were two substantial shareholders in Bendigo and Adelaide Bank Limited as detailed in substantial
holdings notices given to the Company - BlackRock Group and Vanguard Group.
5 Distribution of shareholders
Range of Securities as at 14 August 2019 in the following categories:
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Number of Holders
Fully Paid
Ordinary
Shares
Fully Paid
Employee
Shares
Convertible
Preference
Shares 2
Convertible
Preference
Shares 3
Converting
Preference
Shares 4
35,474
37,561
8,759
5,025
107
3,878
273
5
1
-
4,195
426
30
16
1
4,818
373
15
13
2
5,757
397
29
21
1
86,926
4,157
4,668
5,221
6,205
Securities on Issue
490,509,146
1,066,011
2,921,188
2,822,108
3,216,145
6 Marketable parcel
Based on a closing price of $10.80 on 14 August 2019 the number of holders with less than a marketable parcel of the
Company's main class of securities (Ordinary Shares), as at 14 August 2019 was 3,731.
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.
134 A N N UA L F I N A N C I A L R E P O R T 2 01 9
A D D I T I O N A L I N F O R M A T I O N ( C O N T I N U E D )
8 Major shareholders
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 14 August 2019 are:
Fully paid ordinary shares
Rank
Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY 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
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
AMP LIFE LIMITED
WOODROSS NOMINEES PTY LTD
CARLTON HOTEL LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NAVIGATOR AUSTRALIA LTD
NATIONAL NOMINEES LIMITED
DIESEL COOLING PTY LTD
LEESVILLE EQUITY PTY LTD
NULIS NOMINEES (AUSTRALIA) LIMITED
YARABIE ESTATES PTY LTD
Number of shares
% of shares
93,081,405
38,848,705
32,602,196
10,152,203
5,709,708
4,135,572
3,219,182
2,583,452
2,233,723
1,914,690
1,211,274
1,140,850
1,117,147
796,382
779,112
765,837
700,000
679,455
570,838
510,000
202,751,731
18.94%
7.90%
6.63%
2.07%
1.16%
0.84%
0.65%
0.53%
0.45%
0.39%
0.25%
0.23%
0.23%
0.16%
0.16%
0.16%
0.14%
0.14%
0.12%
0.10%
41.25%
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 1,066,011 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.
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 14 August 2019 are:
Fully paid Convertible Preference Shares 2 (CPS2)
Rank
Name
Number of shares
% of shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMS PTY LTD
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
MERCHANT FOUNDATION PTY LTD
TGB HOLDINGS PTY LTD
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
JOHN E GILL TRADING PTY LTD
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
THE TRUST COMPANY (AUSTRALIA) LIMITED
AVANTEOS INVESTMENTS LIMITED <3311559 HANSPETER A/C>
MRS MAXINE FRANCES ELLIS
CITICORP NOMINEES PTY LIMITED
BAO TONG PTY LTD
TRISTAR METALS PTY LTD
GORDON MERCHANT NO 2 PTY LTD
NULIS NOMINEES (AUSTRALIA) LIMITED
143,051
49,978
42,332
34,230
28,998
26,610
24,298
22,312
19,329
16,579
15,887
15,379
14,670
11,362
10,100
10,067
10,040
10,000
9,900
9,336
524,458
4.90%
1.71%
1.45%
1.17%
0.99%
0.91%
0.83%
0.76%
0.66%
0.57%
0.54%
0.53%
0.50%
0.39%
0.35%
0.34%
0.34%
0.34%
0.34%
0.32%
17.95%
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 3 5
A D D I T I O N A L I N F O R M A T I O N ( C O N T I N U E D )
8 Major shareholders (continued)
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 14 August 2019 are:
Fully paid Convertible Preference Shares 3 (CPS3)
Rank Name
Number of shares
% of shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
GAEA GROUP PTY LTD
NAVIGATOR AUSTRALIA LTD
TRUSTEES OF CHURCH PROPERTY FOR THE DIOCESE OF NEWCASTLE
NULIS NOMINEES (AUSTRALIA) LIMITED
NETWEALTH INVESTMENTS LIMITED
BNP PARIBAS NOMS PTY LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
G C F INVESTMENTS PTY LTD
ALWOOD PTY LTD
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
TGB HOLDINGS PTY LTD
INVIA CUSTODIAN PTY LIMITED
JDB SERVICES PTY LTD
BARDAVIS PTY LIMITED
ZW 2 PTY LTD
127,147
103,119
37,906
31,140
28,200
23,914
23,887
23,265
17,221
16,556
16,401
15,000
13,284
12,705
11,694
9,800
9,230
7,800
7,325
6,745
4.51%
3.65%
1.34%
1.10%
1.00%
0.85%
0.85%
0.82%
0.61%
0.59%
0.58%
0.53%
0.47%
0.45%
0.41%
0.35%
0.33%
0.28%
0.26%
0.24%
542,339
19.22%
Names of the 20 largest holders of Bendigo and Adelaide Converting Preference shares 4, including the number of shares each
holds and the percentage of converting preference share 4 capital that number represents as at 14 August 2019 are:
Fully paid Converting Preference Shares 4 (CPS4)
Rank
Name
Number of shares
% of shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
NETWEALTH INVESTMENTS LIMITED
NAVIGATOR AUSTRALIA LTD
BNP PARIBAS NOMINEES PTY LTD
PCI PTY LTD
NETWEALTH INVESTMENTS LIMITED
SOUTH BAY NOMINEES PTY LTD
SOUTH HONG NOMINEES PTY LTD
TRUSTEES OF CHURCH PROPERTY FOR THE DIOCESE OF NEWCASTLE
NAVIGATOR AUSTRALIA LTD
THE WYATT BENEVOLENT INSTITUTION INC
NULIS NOMINEES (AUSTRALIA) LIMITED
SKYPLAZA INVESTMENTS PTY LTD
INVIA CUSTODIAN PTY LIMITED
136 A N N UA L F I N A N C I A L R E P O R T 2 01 9
139,901
70,325
51,639
33,455
32,410
28,018
26,770
23,292
22,809
22,448
17,715
17,473
17,000
15,000
13,605
13,310
12,400
11,567
11,476
11,270
4.35%
2.19%
1.61%
1.04%
1.01%
0.87%
0.83%
0.72%
0.71%
0.70%
0.55%
0.54%
0.53%
0.47%
0.42%
0.41%
0.39%
0.36%
0.36%
0.35%
591,883
18.40%
A D D I T I O N A L I N F O R M A T I O N ( C O N T I N U E D )
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.
A N N UA L F I N A N C I A L R E P O R T 2 01 9 1 37
A U S T R A L I A’ S B A N K O F C H O I C E
Corporate Governance 2019
Bendigo and Adelaide Bank Limited.
ABN 11 068 049 178
138 A N N UA L F I N A N C I A L R E P O R T 2 01 9