Annual Financial
Report 2020
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
Phone: 1300 032 762 (within Australia)
+61 2 8023 5417 (outside Australia)
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 0 2 0
Table of
contents
Section 1
2
3
4
11
Message from our Chair
Message from our Managing Director
Director’s Report
Operating and Financial Report
23
Remuneration Report
Section 2
44
Financial Statements
127
Key Performance Indicators
128 Directors’ Declaration
129
Independent Auditor’s Report
Section 3
137 Additional Information
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1
Message
from the Chair
“Long lasting, effective change cannot happen unless the right foundations are
set, and it’s in times like these where organisations will be called to question
in how they respond to the unknown, with the right strategy, care, capability,
authenticity and grace.”
I would categorise my first year in the role as Bendigo and
Adelaide Bank’s Chair as a year of both challenge and
accomplishment. The events of the past year, with the
devastating impacts of bushfires, floods, prolonged drought and
COVID-19, have forcefully reshaped our understanding of our world
and what matters most, propelling us to consider a different way
to think, act and engage.
While not surprising, it’s encouraging to see the true mettle of
Australians in these times, persevering without reassurance of
what’s to come, rallying to make a difference – big or small –
to those around them, and mostly, taking advantage of every
opportunity to transform and reinvent. It’s inspiring to witness, and
it has made me further reflect on the notion of change, what it
truly means for an organisation to adapt with authenticity and
integrity, and importantly, how this will position our stakeholders
and the Bank for future success.
Long lasting, effective change cannot happen unless the right
foundations are set, and it’s in times like these where organisations
will be called to question in how they respond to the unknown,
with the right strategy, care, capability, authenticity and grace.
In line with our multi-year strategy, announced in 2019 to
respond to economic uncertainty, we continue to transform
our organisation, offering greater functionality and capability,
simplifying and increasing productivity through cost management,
improving the customer experience through sustainable
investment, and telling our story. And while the impacts of these
recent and current significant events heighten ongoing economic
uncertainty, our strategy hasn’t changed. It has instead, further
accelerated the need for transformative change.
For us, doing the right thing goes far beyond any single event or
action, and transcends far beyond any prescribed point in time. For
more than 162 years, our Bank has been an important part of the
Australian landscape, always operating with the understanding
that prosperity for our customers, partners, shareholders and
communities will be the driver for our success - not the other
way around. This is what drives our company. It will continue to
underpin our business as we accelerate our transformational
journey through these unknown and challenging times, and it
has led to consistently strong performance in key national trust
measures, and well ahead of major banks in leading corporate
reputation indices. Trust is our most valuable asset and we will
continue to ensure our operations balance the provision of optimal
outcomes for all. However, like any organisation we sometimes
make mistakes and when we do, we take ownership and action to
make good and remediate any errors. That is what we have done
and will continue to do.
While economic uncertainty remains and the full impact of
COVID-19 is still evolving, the Board has acted prudently in
considering the interests of shareholders and APRA’s industry
guidance on capital management, to defer a final dividend
decision. Ongoing stress testing continues to support the Bank’s
2 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
strong balance sheet and capital position.
Our vision, strategy, values and purpose form the context for our
approach to high standards of corporate governance. These
elements do not operate discretely from quality governance
practices and purpose-led culture. In fact, when considering our
remuneration practices, our approach has long been one that
considers what is the right thing to do to achieve better decision
making for the benefit of all stakeholders, and the outcomes of the
Royal Commission have vindicated our approach. We confidently
continue our work in the best interests of all stakeholders to ensure
their long-term success.
We continue to evolve our position on Climate Change,
recognising its impact on the quality of life and financial position of
our customers and their communities. Addressing Climate Change,
through commitment, learning and action, is the right thing to do.
This year, the Board and Executive were pleased to adopt its
Climate Change Policy Statement and Action Plan. We stand by
our customers, communities, shareholders and all stakeholders
with ambitions to improve environmental outcomes for all,
while considering our impact, mitigating our risk, and improving
prospects and climate resilience for all stakeholders.
While many things are changing, many remain the same. Our
commitment to feeding into prosperity is omnipresent, and this
year we proudly celebrate with almost 1,000 tertiary students
and their communities in providing more than $9.3 million in
educational support since 2007 through one of Australia’s largest
privately funded and best targeted regional scholarship initiatives.
This is complemented by the more than $250 million returned to
communities since 1998 through the Community Bank model for
community-led strengthening initiatives.
We continue to embrace a diverse and inclusive workforce, a
core component of our organisation that is critical in achieving
our objective of creating a community where employees want to
work, where they feel valued and a sense of belonging. To ensure
we better define our culture and understand how to better align
it to our growth ambitions, we completed a culture review this
financial year. The review outlined our cultural traits, the priority
initiatives we must drive for positive change, and the critical few
behaviours we must further embed to ensure our people continue
to prosper and contribute in our organisational quest to be
Australia’s bank of choice.
It’s a pleasure and an honour to lead a Bank that has a vision and
purpose so deeply entrenched in history, so alive and relevant
today and so ambitious for what tomorrow may bring. It’s this
focus on helping all stakeholders succeed for which we will
continue to be revered as Australia’s better big bank.
Jacqueline Hey
Chair, Bendigo and Adelaide Bank
Message from the
Managing Director
“While we support our stakeholders to improve their financial wellbeing, we know
the fabric of our organisation has come to the fore during these times. We have
been tested in ways we couldn’t have imagined, and the results prove that who
we are today is who we have always been.”
It’s been a year like no other. Some say it will be remembered
for its adversity and challenges, in dealing with what is known
and braving the uncertainties of what is to come. I say it will
also be remembered for how people, communities, government
and business have collaborated, responded and adapted,
demonstrating the strength of humankind and the innovation,
resilience and a unique ‘can do’ Australian attitude.
Bushfires, floods, prolonged drought and COVID-19 have caused
significant social and economic upheaval, and their full impacts
are still largely unknown and changing. As an essential service, our
Bank had to mobilise our teams rapidly and in different ways to
respond to COVID-19. We kept the vast majority of our branches
open, redeployed employee resources into critical call centre
and mortgage help teams to assist with increased enquiry and
asked our corporate employees to work safely from home. I am
immensely proud of the care and consideration they have shown
everyone. Their ability to adapt is a testament to the culture that is
fostered at the Bank, and I thank them all.
Our operating environment continues to challenge us, and our full
year result was overshadowed by COVID-19, continuing record
low interest rates and increasing costs to support strategy
execution. Our full year earnings were down 27.4 percent year on
year. We delivered total income of $1.61 billion, up 0.9 percent on
the prior corresponding period, while sustaining market leading
trust ratings, above system lending, strong residential growth and
strengthening our balance sheet. We will continue to observe how
COVID-19 is changing the world and consider how we can use this
experience to shape the future of work and continuously improve
as consistent leaders in customer experience.
As much as we’ve achieved in the last year, we recognise there
is more to do and that we must constantly evolve to meet our
customers’ needs, exploring new ways to operate, new innovations
and new opportunities to benefit our stakeholders.
There’s never been a better time for our Bank to show Australians
just exactly who we are. Our organisation has spent more than
162 years shaping and refining our business in line with our purpose
and values, which keep us focused on our reason for being.
Launched in 2019, our multi-year strategy to reduce complexity,
invest in capability and tell our story was designed to reshape our
business for the future and to deliver on our vision in an uncertain
economic environment. This has not changed.
But we are changed - as individuals, as a community and an
economy. We are in a place we haven’t been before, and the
reality of ongoing economic uncertainty is real and significant.
Meanwhile, we have long been on a transformation journey
to improve our customer offering and manage costs, all while
balancing the needs of our stakeholders. The current environment
has further accelerated this need to transform.
productivity by driving down costs, and sustainably investing in new
capabilities, particularly in customer experience and digitisation.
These changes will impact our operations, but they will also improve
how we engage customers which ultimately benefits everyone.
Our proposition is like no other and we understand the privileged
role we play in society – never has this been more crucial. While
we support our stakeholders to improve their financial wellbeing,
we know the fabric of our organisation has come to the fore
during these times. We have been tested in ways we couldn’t have
imagined, and the results prove that who we are today is who we
have always been.
Our deep connection to our customers has proven to be even
more critical. For us, it’s about engaging customers in a manner
you would expect for yourself and having the integrity to deliver on
your promises. It’s having the capability to help customers make
the best possible decisions for their financial future and to achieve
success, despite adverse situations. Our connection is evidenced
through a Net Promoter Score 35.6 points higher than the average
of the major banks.
Our commitment to Australian communities is unwavering. To feed
into prosperity, not off it, is no small task. It takes trust, built over
time. We’re proud our actions have been noticed, as we continue
to be recognised in the top 10 most trusted brands in Australia,
according to Roy Morgan. We’re equally as proud to celebrate
more than $250 million being returned to communities through the
Community Bank model, enriching communities for the long-term.
Our history of partnering to innovate has always been important
to us. From launching the first Visa debit and credit cards, to
developing innovative models that transform how we do things
– such as the Community Bank model and Australia’s first digital
bank, Up. We innovate, adapt and evolve for tomorrow. Where
we aim to further innovate and differentiate through our strategy
– in digital – is equally important in this new environment and our
history puts us in good stead.
As Australia’s second oldest deposit taking institution, we
have demonstrated capability and ability to adapt over time.
We will continue to act with integrity and with customers and
communities at the centre of our decision making.
These factors distinctively set us apart and its evident they have
become even more important in this new environment. As we all
navigate this changing environment, we are fully committed to taking
advantage of the new opportunities that come with such change.
With a clear vision to be Australia’s bank of choice, we’re on a
transformation journey. We’ll continue to invest and evolve our
business for the benefit of all stakeholders, and we stand with all
Australians in our resolve to support everyone connected with our
Bank to respond and thrive.
We must make lasting changes so we can continue to feed
into customer and community prosperity. This means increasing
Marnie Baker
Managing Director, Bendigo and Adelaide Bank
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 3
Directors’ Report
The Directors of Bendigo and Adelaide Bank Limited present their report together with the financial report of
Bendigo and Adelaide Bank Limited (the “Bank”) and its controlled entities (the “Group”) for the year ended
30 June 2020.
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:
Jacqueline Hey,
Chair, Independent
BCom, Graduate
Certificate in
Management, GAICD,
54 years
Marnie Baker,
Managing Director,
non-independent
BBus, ASA, MAICD and
SFFin, 52 years
Term of office: Jacqueline joined the Board
on 5 July 2011 and was appointed Chair on
29 October 2019.
Skills, experience and expertise: Jacqueline
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. Jacqueline
worked with Ericsson for more than 20 years
in leadership roles in Australia, Sweden, the
UK and the Middle East.
Board committees: Member of Governance &
HR and Technology
Group and joint venture directorships: Nil
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.
Term of office: Marnie was appointed
Managing Director and Chief Executive
Officer commencing 2 July 2018.
Skills, experience and expertise: Marnie has
more than 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 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.
Board committees: Marnie is not a formal
member of any Board committees however
she has a standing invitation to attend
meetings of each Board committee.
Group and joint venture directorships: Nil
Other director and memberships (including
directorships of other listed companies for
the previous three years): Deputy Chair of
the Australian Banking Association Council,
Member of the Business Council of Australia,
Mastercard (Asia Pacific) Advisory Board,
La Trobe University’s Bendigo Regional
Advisory Board.
4 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Directors’ information continued
Vicki Carter,
Independent
BA (Social Sciences),
Dip Mgt, Certificate in
Executive Coaching,
GAICD, 56 years
David Foster,
Independent
B.AppSci, MBA, GAICD,
SFFin, 51 years
Term of office: Vicki joined the Board on
4 September 2018.
Skills, experience and expertise: Vicki has
more than 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. 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. Vicki has
also held various senior leadership roles at
MLC, ING and Prudential.
Board committees: Chair of Technology and
member of Governance & HR and Credit
Group and joint venture directorships: Nil
Other director and memberships (including
directorships of other listed companies for
the previous three years): Employee of Telstra
Corporation Limited (ASX listed, period:
August 2015 to present)
Term of office: David joined the Board on
4 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: Chair of Credit and
member of Risk
Group and joint venture directorships: Nil.
Other director and memberships (including
directorships of other listed companies for
the previous three years): Chair, Motorcycle
Holdings Limited (ASX Listed, period: 2015 to
present), Director, G8 Education Limited (ASX
listed, period: 2016 to present), Genworth
Mortgage Insurance Australia Limited, Youi
Holdings Pty Ltd, Peak Services Pty Ltd,
Former Director, Thorn Group Limited (ASX
Listed, period: 2014 to October 2019),
Member of the University of the Sunshine
Coast Council.
Jan Harris,
Independent
BEc (Hons), 61 years
Term of office: Jan joined the Board on
2 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: Nil
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 and Member,
Australian Office of Financial Management
Audit Committee.
Jim Hazel,
Independent
Term of office: Jim joined the Board on
1 March 2010.
BEc, SFFin, FAICD, 69 years
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: 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): Chair, Ingenia
Communities Group Limited (ASX listed,
period: March 2012 to present), Director,
Adelaide Football Club Limited, Coopers
Brewery Limited, Former Director, Centrex
Metals Limited (ASX listed, period: July 2010 to
September 2019), Chair of the Adelaide Festival
Centre Trust, Pro Chancellor 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 0 2 0 5
Directors’ information continued
Robert Hubbard,
Independent
BA (Hons) Accy, FCA,
61 years
David Matthews,
Independent
Dip BIT, GAICD, 62 years
Tony Robinson,
Independent
BCom, ASA, MBA
(Melb), 62 years
Robert Johanson,
Former Chair, Independent
BA, LLM, MBA (Harvard),
69 years
Term of office: Rob joined the Board on
2 April 2013.
Board committees: Chair of Audit and
member of Risk and Technology
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.
Group and joint venture directorships: Nil
Other director and memberships (including
directorships of other listed companies for the
previous three years): Chair, Orocobre Limited
(ASX and TSX listed, period: November 2012
to present), Chair, Healius Limited (ASX listed,
period: December 2014 to present), Director,
L&R Foundation Pty Ltd.
Term of office: David joined the Board on
1 March 2010.
Skills, experience and expertise: David
operates a farm and an agricultural 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, Audit
and Governance & HR
Group and joint venture directorships: Member
of the Community Bank National Council
and Chair of the Agribusiness Advisory
Committee
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, Rupanyup/Minyip
Finance Group Limited.
Term of office: Tony joined the Board on
24 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 Technology
Group and joint venture directorships: Tony
ceased as a Director of Sandhurst Trustees
Limited in July 2019.
Other director and memberships (including
directorships of other listed companies for the
previous three years): Chair, Pacific Current
Group Limited (ASX listed, period: August 2015
to present), Director, PSC Insurance Group
Limited (ASX listed, period: September 2015
to present), River Capital Pty Ltd, Former
Director, Longtable Group Limited (ASX listed,
period: November 2015 to November 2019).
Term of office: Robert was a director of the
Bank for 31 years and he retired from the
Board on 29 October 2019.
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 more than 35 years’ experience in
providing corporate advice on capital market
transactions to a wide range of public and
private companies.
Board committees: Robert was a member of
Governance & HR and Technology
Group and joint venture directorships: Nil
Other director and memberships (including
directorships of other listed companies for the
previous three years): Chair, Australia India
Institute, Director, Robert Salzer Foundation
Limited, NeuClone Pty Limited, Grant Samuel
Group Pty Limited, Melbourne Business
School.
6 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Principal activities
Dividends
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
and rural lending, deposit-taking, payments services, wealth
management and superannuation, treasury and foreign
exchange services.
On 1 July 2019 the Group completed the sale of its specialist
self-managed superannuation fund business located in Geelong
West to LBWFP Pty Ltd.
On 1 August 2019 the Group completed the sale of its financial
planning business, Bendigo Financial Planning, to Bridges
Financial Services Group Pty Ltd.
There have been no other significant changes in the nature of
the Group’s principal activities during the financial year.
Impact of COVID-19
Over the financial year, the impact of the COVID-19 pandemic
has resulted in unprecedented circumstances that have affected
us all. Our operating result was impacted by COVID-19 and
details are contained in the Operating and Financial Review
section and in the Financial Report. All of the Group’s lending
portfolios continue to be monitored closely and we remain
committed to supporting our customers and communities while
we adapt to the ongoing changes in this challenging operating
environment.
Operating results
The Group’s statutory profit after tax for the financial year
ended 30 June 2020 decreased by 48.8% to $192.8 million (FY19
$376.8 million). This was impacted by:
•
Increased credit expenses in the second half of the financial
year due to the recognition of an overlay of $127.7 million
($89.4 million after tax) for the potential future impacts from
COVID-19.
• Software impairment charges of $121.9 million ($85.5 million
after tax) following a review of the Group’s software
intangible assets.
• Software accelerated amortisation charges of $19.0 million
($13.2 million after tax) following an increase to the Group’s
capitalisation threshold.
•
Increased staff costs to support strategic and organisational
change initiatives and to enhance risk and compliance
capabilities.
• Accelerated investment in technology totalling $52.4 million
($36.7 million after tax), with this investment focused on
customer experience, digital, simplification, automation and
compliance and regulatory change.
Further information on the Group’s operating results for the
financial year are contained in the Operating and Financial
Review section of this report.
The Directors announced on 17 August 2020 that whilst
economic uncertainty remains and the full impact of COVID-19
is still evolving, the Board has acted prudently in considering
the interests of shareholders and APRA’s industry guidance on
capital management, to defer a final dividend decision.
The following fully franked dividends were paid by the Bank
during the year on fully paid ordinary shares:
• A final dividend for the 2019 financial year of 35.0 cents per
share, paid on 30 September 2019 (amount paid: $169.5 million);
and
• An interim dividend for the 2020 financial year of 31.0 cents per
share, paid on 31 March 2020 (amount paid: $150.8 million).
Further details on dividends provided for or paid during the 2020
financial year on the Bank’s ordinary and preference shares are
provided at Note 7 Dividends of the Financial Report.
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 performance, priorities and prospects, is presented in
the Operating and Financial Review section of this report.
State of affairs
Significant changes in the state of affairs of the Group during
the financial year included:
• Changes in the principal activities of the Group as outlined
above.
• The recognition of credit expenses for the potential future
impacts of COVID-19.
• Participation in the Reserve Bank of Australia’s (RBA) Term
Funding Facility (TFF) scheme, a three-year facility with a fixed
interest rate of 0.25% per annum. The scheme, announced
on 19 March 2020, was established to provide Authorised
Deposit-taking Institutions (ADIs) with access to long-term
funding to reinforce the benefits to the economy of a lower
RBA cash rate and to encourage ADIs to support businesses.
There were changes made to the composition of the Board and
the Executive Team during the financial year, specifically:
• Robert Johanson retired from the Board and his role as Chair
on 29 October 2019. Jacqueline Hey commenced as Chair of
the Board at the conclusion of the Annual General Meeting on
29 October 2019.
• David Foster commenced as Non-Executive Director on 4
September 2019.
• Stella Thredgold ceased as Executive Technology and
Business Enablement effective 1 November 2019 and departed
on 19 December 2019.
• Ryan Brosnahan commenced as Chief Transformation Officer
on 4 November 2019.
Further information on events and matters that affected the
Group’s state of affairs is presented in the Chair’s and Managing
Director’s Messages and in the Operating and Financial Review
section of this report.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 7
Events after reporting date
The Directors are not aware of any other matter or circumstance
which arose since the end of the financial year to the date of this
report that has significantly affected or may significantly affect
the operations of the Group, the results of those operations, or
the state of affairs of the Group in subsequent financial years.
The Victorian lockdown announced by the Victorian Premier
in July 2020 was based on events that had occurred prior to
30 June 2020. The impacts associated with a second wave
of COVID-19 and further lockdowns were considered in the
determination of key assumptions and judgements for 30 June
2020. Given that the COVID-19 pandemic is constantly evolving,
the situation is being closely monitored.
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 Chair’s and Managing Director’s Messages and in
the Operating and Financial Review section of this report.
Rounding of amounts
In accordance with ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191, amounts in the Directors’
Report and Financial Report have been rounded to the nearest
million Australian dollars unless otherwise indicated.
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
Jacqueline Hey
Marnie Baker
Vicki Carter
David Foster
Jan Harris
Jim Hazel
Robert Hubbard
David Matthews
Tony Robinson
Robert Johanson
A
30
30
30
25
30
30
30
30
30
6
B
30
29
29
25
28
30
29
30
28
6
A = Number eligible to attend
B = Number attended
Directors’ interests in Equity
A
B
A
B
8
6
8
8
2
8
6
8
8
2
7
7
7
7
7
6
7
7
A
4
7
8
8
8
B
4
7
7
8
8
A
6
6
4
6
2
B
6
6
4
6
1
A
4
4
4
2
2
B
4
4
4
2
2
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
Jacqueline Hey
Marnie Baker
Vicki Carter
David Foster
Jan Harris
Jim Hazel
Robert Hubbard
David Matthews
Tony Robinson
Ordinary
Shares No.
Preference
Shares No.
Performance
Rights No.
Sandhurst
Common Fund $ 1
42,106
658,532
13,225
5,023
8,000
37,992
26,498
37,297
43,140
250
600
-
-
-
-
-
-
-
7,049 2
100,000
-
-
4,622 2
-
7,704 2
-
-
-
43,748
-
-
-
-
-
-
-
1 Being a relevant interest in a managed investment scheme made available by Sandhurst Trustees Limited, a subsidiary of the Bank.
2 Performance rights have been issued under the BEN Omnibus Plan Rules for the FY2021 Non-Executive Directors Fee Share Plan. Each participant has
elected to sacrifice a portion of the base fee, to which a number of performance rights has been allocated by dividing the fee sacrifice amount by the
five day volume weighted average share price prior to the allocation date of 24 August 2020. The performance rights vest in two equal tranches after 6
and 12 months. Upon vesting, the converted shares must be retained for the duration of their service as a Director or for up to 15 years, whichever occurs
earlier, and will form part of the fulfilment of the Minimum Shareholding Policy introduced from FY2021.
8 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Share Options and Rights
Indemnification of Officers
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 and the BEN Omnibus Equity
Plan (“Plans”). 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
320,009 rights (2019: 303,687). This included 178,088 rights
granted to key management personnel.
As at the date of this report there are 697,685 rights that are
exercisable or may become exercisable at a future date under
the Plans. The last date for the exercise of the rights ranges
between 30 June 2021 and 30 June 2023.
During or since the end of the financial year 59,550 rights vested
(2019: 333,645) 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 2020 to the date of this report, 212,616 rights
have lapsed.
Further details of Key Management Personnel equity holdings
during the financial year are detailed in the 2020 Remuneration
Report.
Corporate Governance
An overview of the Bank’s corporate governance structures
and practices is presented in the 2020 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 Principles and Recommendations (4th edition)
during the 2020 financial year.
Environmental Regulation
The Bank endeavours to conduct its operations in a manner
that minimises its impact on the environment. Information on the
Bank’s environmental performance including its Climate Change
Policy Statement and focus areas to manage its environmental
impact are provided in the 2020 Annual Review which is
available from the Bank’s website.
The Bank’s operations are not subject to any significant
environmental regulations under either Commonwealth or
State legislation. However, the Board believes that the Bank
has adequate systems in place for the management of its
environmental requirements and is not aware of any breach
of any environmental requirement. The Bank 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 Bank does measure and monitor its greenhouse
gas emissions and has voluntarily reported these emissions since
2011 to the Carbon Disclosure Project.
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.
Company Secretary
Ms Carmen Lunderstedt (BCom, GradCertFinPlan, FGIA, FCIS)
was appointed as Company Secretary of the Bank on 14
October 2019. Ms Lunderstedt is a Chartered Secretary with
more than eighteen years’ experience in governance, risk and
compliance, with ten of these years in banking and financial
services.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 9
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 the financial
report of Bendigo and Adelaide Bank Limited
for the financial year ended 30 June 2020, 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
3 September 2020
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 for the year ended 30 June
2020.
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 2019.
To support the declaration, formal risk management and
financial statement due diligence and verification processes,
including attestations from senior management, were
undertaken. This assurance is provided every 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.
Non-audit Services
The Board Audit Committee has assessed the independence of
the Group’s external auditor, Ernst & Young, for the year ended
30 June 2020. The assessment was conducted in accordance
with the Group’s External 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 2020.
Non-audit services are those services paid or payable to
Ernst & Young 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.
The Board Audit Committee has reviewed the nature and scope
of the above non-audit services provided by Ernst & Young. 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. The Board Audit
Committee has confirmed that the provision of those services is
consistent with the Group’s External 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.
Details of the fees paid or payable to Ernst & Young for audit,
review, assurance and non-audit services provided during the
year are contained in Note 37 Auditors’ remuneration of the
Financial Report.
10 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Operating and
Financial Review
Our Business
Bendigo and Adelaide Bank is Australia’s fifth largest retail bank.
We provide a full suite of consumer banking, business banking
and associated financial services to more than 1.88 million
customers across Australia. We do this through an extensive
branch and mobile banking network, through our banking apps
and other electronic banking capability.
This year, COVID-19 has had significant impacts on all of us.
The Bank is fully committed to supporting customers and
communities through this unique time, with measures designed
to provide relief from COVID-19, as restrictions change and
the economy recovers. We have contacted our business and
agribusiness customers individually to understand the impact
on their operations and to inform them of the support available
and more than 20,000 of the Bank’s personal and business
accounts have accepted dedicated support to help them
combat the economic impacts of COVID-19. In response, the
Bank has introduced a range of assistance measures to ensure
short and long term support for affected business, consumer
and agribusiness customers, including deferral of payments and
interest rate reductions.
We have redeployed about 200 employees from our branch
network to meet customer demand in our Mortgage Help and
Call Connection teams, as well as adding resources to our
Financial Assist Support Team to support vulnerable customers.
Our Brands
Our brands represent the diversity of our business. Together, they
share a common purpose - to help our customers, partners and
communities succeed.
Our Service
Our service extends to every corner of Australia and includes
retail banking, third party lending, business and agribusiness
banking, margin lending, wealth, investments, fund management,
superannuation and insurance.
Our Reach
Our reach comprises joint ventures, philanthropy, and specialist
services such as banking for not-for-profit organisations, wealth
release products for senior Australians, and a network of mutual
financial institutions to release capital and service members.
Our Impact
Our impact is substantial and our reputation enviable. As
Australia’s fifth biggest retail bank and a top 100 ASX listed
company, we continue to set the example of how banking should
be: progressive, sustainable, shared and trusted.
707
Points of presence
5,900+
Employees
(Excluding Community
Bank employees)
750,000+
eBanking customers
$250 million
Community Contributions
(via the Community Bank
network since 1998)
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 1
Our Strategy
Our vision is to be Australia’s bank of choice. This is a bold ambition. We believe we’re the right
choice for Australians because of our deep commitment to doing good. It’s part of our DNA and
it’s what sets us apart.
With more than 162 years’ experience in providing financial services, Bendigo and Adelaide Bank has remained true to
its fundamental purpose of helping customers and communities succeed by securing prosperous futures. We believe our
business will only be successful when we can share in the success created by our stakeholders.
While the fundamental purpose of our business may not have changed, the current operating environment has
continued to be disrupted by the COVID-19 pandemic, especially in relation to economic and health impacts, how
consumers behave, what they expect, new technologies, and regulatory requirements.
We continue to be ambitious in growing our market share delivering 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 as we strive to be Australia’s bank of choice.
Vision
Value
Proposition
Australia’s bank of choice
Trusted and Authentic
Relevant Solutions
Easy to do business with
Purpose
To feed into the prosperity of our customers and communities
Imperatives
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 unnecessary 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.
Outcomes
Be market leader in customer advocacy and customer and employee experience
Grow customer reach and market share
Drive our financial performance
Our business divisions
Our business is centred on three customer divisions:
1. Consumer
The Business division also includes Delphi Bank, Community
Sector Banking and our Portfolio Funding business.
The Consumer division is 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.
2. Business
The Business division is focused on servicing our Bendigo
Bank business customers, particularly small and medium
businesses who are seeking a relationship banking experience.
3. Agribusiness
The Agribusiness division 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.
12 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Tic:Toc uses artificial intelligence technology to deliver
significant efficiencies in home loan assessment compared to
traditional processes. Since launch, $4 billion of applications
have been processed through Tic:Toc (bendigobank.com.au/
homeloans).
4. We launched a Group-wide culture review to better define
our current culture and understand how to better align it to
our growth ambitions. Since closing the review in 2019, we
learned we have key cultural traits, priority initiatives to drive
change, and critical few behaviours to further embed into
everything we do. We launched our findings to employees in
March 2020, supported by an ongoing learning and internal
communications campaign that includes learning resources,
videos and online collateral and stories.
Customers increasingly want personalised solutions, which are
accessible anytime and anywhere. This has become increasingly
more important as we navigate our business through COVID-19,
ensuring we find ways to support customers and their immediate
needs. We are reshaping our business to deliver what our
customers demand including:
1.
Investing in additional mobile relationship managers across all
three of our business segments.
2. Implementing digital signature capability during COVID-19 to
automate document signatures and improve time to lend to
customers and staff.
3. Developing capability and processes to identify customers via
video.
4. Increasing automation of our lending processes.
We also continue to focus on investment in our risk and
compliance activities and capabilities, which help support our
business.
Tell our Story
We will continue to 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 2020 financial year, we were
recognised as:
1. 9th most trusted brand in Australia, according to the Roy
Morgan All Brand Net Trust Score Survey1.
2. Australian Banking Brand and Trust Review: 1st in Trust,
according to Australian 2019 RepTrak® results2.
Reduce Complexity
We are reducing complexity in our business to make it easier
for customers to do business with us, while also reducing our
cost base. We continue to review the business for opportunities
to simplify our operating model, reduce risk and deliver cost
savings. Among other things, during the last twelve months we
have:
1. Assumed 100 percent ownership of Community Sector
Banking which is now being integrated into our operating
model.
2. Launched the new Bendigo Complete Home Loan product –
with optional 100 percent offset on all fixed and variable loans
– consolidating 95 products into one and improving customer
simplicity and flexibility.
3. Progressed optimisation of our branch network and had a net
reduction of 17 branches during the year.
4. Identified more than 400 applications for rationalisation to
remove duplication, reduce risk and increase stability and
support, and reduced technology applications by 12 percent.
5. Restructured our Marketing and Technology divisions.
During the financial year, the Group incurred $10.8 million
redundancy costs as we transition our workforce, ensuring that
we have the right skills and capabilities to deliver on our strategy.
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 to suit our customers’ evolving needs. During
the financial year we invested in innovative technologies and
leveraged key strategic partnerships to offer our customers, and
potential customers, more choice and a better digital experience:
1. As we further grow in core markets, we continue to apply
spending flexibility to our accelerated investment program
to align with revenue growth. Our future investments will
focus on removing cost and complexity and creating a
seamless banking experience for tomorrow’s customers. The
investments will focus on initiatives such as core banking
simplification, Open Banking, cloud, application simplification,
customer journey digitisation and the appointment of Boston
Consulting Group as we continue to reshape our workforce to
align with customer and growth needs.
2. Up – Australia’s first mobile-only digital bank – is designed,
developed, and delivered through our collaboration with the
fintech, Ferocia. Since launching in October 2018, Up is now
the highest rated banking app in Australia with more than
250,000 customers (50% aged 16-25) and customers continue
to grow via the in-app customer referral program.
3. Our partnership with Australian fintech Tic:Toc – the world’s
first fully digital home loan platform – gives our customers
access to our own instant home loan, Bendigo Express.
1 Roy Morgan Risk Monitor (May 2020)
2 Glow Australian Banking Brand and Trust Index (Q3 2020)
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 3
Our Business
performance
This year we announced an after-tax statutory profit of
$192.8 million for the 12 months ending 30 June 2020.
Cash earnings was $301.7 million, a 27.4%
decrease from the prior financial year, and cash
earnings per share was down 29.8% to 59.7 cents.
Our full year earnings have been impacted by
COVID-19, continuing record low interest rates
and investment costs to support the execution of
our strategy. Despite all of this, and the prevailing
uncertainty around Australia’s economic outlook,
we delivered total income of $1,614.2 million, up
0.9% from last year, whilst sustaining market
leading trust ratings, above system lending
growth and continued strengthening of our
balance sheet.
We continued our strong customer growth, with
our total number of customers increasing 9.9% to
a record of 1.88 million customers.
We saw strong growth of $3.8 billion in residential
lending, underpinned by our strategy and driven
by our investment in lending distribution and
processing capacity. Growth of $3.9 billion in
call deposits was also strong, facilitating active
management of more expensive term deposit
funding.
Whilst economic uncertainty remains and the full
impact of COVID-19 is still evolving, the Board
has acted prudently to defer a final dividend
decision.
We continue to build new capability and
sustainably accelerate our investment in digital
and customer experience, delivering above
system lending and consistent customer
growth. These results underline the validity
of our strategy and transformation agenda
and illustrate the agility of our employees and
business to adapt quickly to this year’s disruptive
events for our customers and their communities.
CASH EARNINGS ($M)
NET PROFIT AFTER TAX ($M)
COST TO INCOME (%) 1
FY20
FY19
FY18
FY17
FY16
3 0 1 . 7
4 1 5 . 7
4 4 5 . 1
4 1 8 . 3
4 0 1 . 4
FY20
FY19
F Y 1 8
FY17
FY16
1 9 2 . 8
3 76 . 8
4 3 4 . 5
4 2 9. 6
4 1 5 . 6
FY20
FY19
FY18
FY17
FY16
6 2 . 7
5 9. 2
5 5 . 6
5 6 . 1
5 8 . 1
CASH EARNINGS PER SHARE (C)
DIVIDEND PER SHARE (C)
RETURN ON TANGIBLE EQUITY (%) 1
FY20
FY19
FY18
FY17
FY16
3 1 . 0 2
5 9. 7
8 5 . 0
9 2 . 1
8 8 . 5
8 7. 3
FY20
FY19
FY18
FY17
FY16
70
70
6 8
6 8
FY20
FY19
FY18
FY17
FY16
7. 4 2
1 0 . 73
1 1 . 5 2
1 1 . 61
1 1 . 8 3
1 Calculated using cash earnings
2 The Board has deferred a final dividend decision, with the 31.0 cents reflecting the interim dividend paid.
14 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Earnings after tax
STATUTORY EARNINGS (AFTER TAX)
CASH EARNINGS (AFTER TAX)
$192.8m
FY19 $376.8m
$301.7m
FY19 $415.7m
Statutory profit after income tax decreased 48.8% to $192.8
million (FY19: $376.8 million) and cash earnings after tax
decreased 27.4% to $301.7 million (FY19: $415.7 million).
Both statutory profit after tax and cash earnings after tax were
impacted by:
•
•
Increased credit expenses in the second half of the financial
year due to the recognition of an overlay of $127.7 million
($89.4 million after tax) for the potential future impacts from
COVID-19.
Increased staff costs to support strategic and organisational
change initiatives and to enhance risk and compliance
capabilities.
• Accelerated investment in technology totalling $52.4 million
($36.7 million after tax), with this investment focused on
customer experience, digital, simplification, and compliance
and regulatory change.
Statutory net profit was also impacted by the recognition of
software impairments and software accelerated amortisation
charges. Impairment charges of $121.9 million ($85.5 million after
tax) were recorded following a review of our software intangible
assets. Regulatory and compliance-related software assets
with no measurable, tangible benefits were impaired, and going
forward, will be expensed as incurred. A review of our software
capitalisation policy was completed, and the capitalisation
threshold was raised. This resulted in accelerated amortisation
charges of $19.0 million ($13.2 million after tax).
Cash earnings is the measure of our financial performance
preferred by management. It is calculated by excluding specific
items of revenue and expenditure that are not representative of
the ongoing financial performance, such as items that are non-
recurring. Refer below for a reconciliation of statutory net profit to
cash earnings.
Income
INCOME (CASH BASIS)
NET INTEREST MARGIN
$1,614.2m
FY19 $1,599.5m
2.33%
FY19 2.36%
Net interest income (cash basis) increased by 2.9% to $1,346.4
million (FY19: $1,308.0 million). Net interest margin (before revenue
share arrangements) decreased from the prior year to 2.33%
(FY19: 2.36%), however, this contraction in net interest margin was
offset by an increase in lending activity.
the year following the sale of the Bendigo Financial Planning
business in June 2019 (FY19: $11.1 million). During the second
half of the financial year, fee income, commissions, and foreign
exchange income decreased by approximately $8.8 million (pre-
tax) due to COVID-19.
Other operating income (cash basis) decreased by 8.1% to
$267.8 million (FY19: $291.5 million). The decline in fee income was
driven by the competitive environment and changes in customer
behaviour, partially offset by increased fees associated with the
asset growth. There was a decline in commission income during
Net interest margin represents the return on average interest
earning assets less the costs of funding these assets. Net interest
margin (before revenue share arrangement) is calculated excluding
any revenue share arrangements with partners.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 5
Operating expenses
OPERATING EXPENSES (CASH BASIS)
COST TO INCOME RATIO
$1,021.5m
FY19 $954.5m
62.7%
FY19 59.2%
Operating expenses (cash basis) increased by 7.0% to $1,021.5
million (FY19: $954.5 million) mainly due to an increase in staff costs
and consultancy fees. Staff costs have increased to support
Consumer residential lending growth and Agribusiness initiatives,
greater investment in risk and compliance capabilities, and
organisational change initiatives. The increase in consultancy fees
was driven by accelerated investment in technology totalling $52.4
million, one third of which related to regulatory projects.
Operating expenses included $9.5 million of COVID-19 related
expenses, $1.9 million of direct costs and $7.6 million of additional
staff costs.
Credit expense and provisions
Remediation costs of $7.4 million (FY19: $16.7 million) were
recorded during the year. These remediation costs relate to
products not operating in accordance with terms and conditions
or not in compliance with the Code of Banking Practice 2013. To
30 June 2020, the Group had made $6.7 million of remediation
payments to customers, mainly to Bendigo Financial Planning
customers for the “no fee for service” remediation.
The cost to income ratio increased to 62.7% (FY19: 59.2%).
CREDIT EXPENSES
TOTAL PROVISIONS
IMPAIRED LOANS
$168.5m
FY19 $50.3m
$428.2m
FY19 $362.8m
$240.5m
FY19 $310.9m
There was a large increase in credit expenses during the year,
with total credit expenses recognised being $168.5 million (FY19:
$50.3 million). This increase was largely attributable to the
recognition of an overlay of $127.7 million in the second half of the
financial year for the potential future impacts of COVID-19. The
overlay recognised consists of three components, being:
• A significant change to the base case economic outlook
given COVID-19 impacts. This includes lower GDP, higher
unemployment, and a reduction in residential and commercial
property prices.
• A shift in the weightings of the scenarios used in the
calculation of the provision towards an increase in the
downside economic scenarios.
• An overlay specific to business and consumer portfolios
reflecting further potential COVID-19 impacts.
The total of provisions and general reserve for credit losses
increased during the year by 18.0% to $428.2 million (FY19: $362.8
million). The provision coverage ratio significantly increased to
178.0% (FY19: 116.7%), driven by the increase in the COVID-19
collective provision overlay and a reduction in impaired assets.
The impaired loan balance decreased 22.6% to $240.5 million
(FY19: $310.9 million) following the resolution of a number of larger
longstanding loans in the second half of the financial year.
Provision coverage is calculated as total provisions and reserves
for credit losses divided by total impaired assets.
Dividends
DIVIDENDS
31.0c 1
FY19 70.0c
Whilst economic uncertainty remains and the full impact of COVID-19 is still evolving,
the Board has acted prudently in considering the interests of shareholders and APRA’s
industry guidance on capital management, to defer a final dividend decision. Ongoing
stress testing continues to support the Bank’s strong balance sheet and capital
position.
1 The decision on the payment of a final dividend for FY20 has been deferred by the Board.
16 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Divisional performance
Consumer
CASH EARNINGS (AFTER TAX)
$404.8m
FY19 $384.7m
The Consumer division focuses on engaging with
and servicing our consumer customers and includes
the branch network (including Community Banks and
Alliance Banks), mobile relationship managers, third
party banking channels, wealth services, Homesafe,
and customer support functions.
Business
CASH EARNINGS (AFTER TAX)
$136.3m
FY19 $150.1m
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.
Agribusiness
CASH EARNINGS (AFTER TAX)
$70.6m
FY19 $60.4m
The Agribusiness division includes all banking
services provided to agribusiness, rural and regional
Australian communities through our Rural Bank
brand, with a focus on the family corporate segment
of Australian farm businesses.
Corporate
CASH EARNINGS (AFTER TAX)
($310.0m)
FY19 ($179.5m)
Cash earnings increased to $404.8 million (FY19: $384.7 million), with the key
drivers of this result including:
•
Improvement in net interest income following strong growth of $3.1 billion
in the residential mortgage portfolio after an investment in lending
distribution and processing capacity.
• $3.9 billion of growth in call deposits.
• A decline in other income with changing customer behaviour, competitive
dynamics, the impact of COVID-19, and the sale of Bendigo Financial
Planning in June 2019.
• A decline in operating expenses through active cost management and the
sale of Bendigo Financial Planning.
• Lower credit expenses due to lower credit risk, with the COVID-19 overlay
being held within the Corporate segment.
Cash earnings decreased to $136.3 million (FY19: $150.1 million), with the key
drivers for this performance being:
• Lower net interest income was a result of a contraction in the lending
portfolio in the first half of the financial year, a modest reduction in asset
margins and a lower contribution from business deposit channels. The
Business asset portfolio grew in the second half of the financial year,
representing the first half of growth since FY17.
• Other income was impacted by COVID-19, which materially impacted
activity levels. Most significantly, this resulted in lower foreign exchange
activity through reduced international travel.
• Operating expenses increased due to higher staff costs with investment
in risk and support roles and the consolidation of the Community Sector
Banking business.
• Credit expenses increased mainly due to the finalisation of longstanding
impaired assets.
Cash earnings increased to $70.6 million (FY19: $60.4 million), due to the following:
• Growth in the loan book despite a challenging year for Australian agriculture
from the ongoing multi-year drought and the Black Summer bushfires. This
loan book growth combined with strong margin management contributed to
the improvement in net interest income.
• Other income increased mainly due to higher revenue from Government
Services.
• Lower operating expenses reflect the full year benefits of the new distribution
agreement with Elders, and business simplification following the hand back of
Rural Bank’s stand-alone ADI.
• Offset by an increase in credit expenses due to the return to long-term
average after one-off collective provision benefits in FY19, and moderate
increases in specific provisions relating to customers impacted by the
drought.
Cash earnings decreased to ($310.0m) (FY19: ($179.5m)) mainly due to:
•
Increased credit expenses due to the recognition of the overlay for the
potential future impacts from COVID-19 which totalled $127.7 million ($89.4
million after tax).
•
Increased staff costs to enhance risk and compliance capabilities.
• Accelerated investment in technology totalling $52.4 million ($36.7 million
Corporate includes the results of the Group’s support
functions including treasury, technology, property
services, strategy, finance, risk, compliance, legal,
human resources, and investor relations.
after tax).
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 7
Capital
COMMON EQUITY TIER 1 RATIO
TOTAL CAPITAL RATIO
RETURN ON TANGIBLE EQUITY 1
9.25%
FY19 8.92%
13.61%
FY19 13.14%
7.42%
FY19 10.73%
The Bank has a strong capital position with a Common Equity
Tier 1 (CET1) ratio of 9.25% (FY19: 8.92%), which is above APRA’s
‘unquestionably strong’ benchmark target for standardised
banks. Our continued strong capital position reflects a well-
managed balance sheet and in-depth risk management. The
Institutional Placement completed in February 2020 totalling
$250.0 million and the Share Purchase Plan in March 2020
totalling $44.8 million, supported our CET1 capital position.
The Bank is regulated by APRA due to 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 is on the standardised approach for calculating its
regulatory capital requirements under Basel II and targets a CET1
ratio in the range of 9.0% to 9.5%. This target will be reassessed
following the finalisation of APRA’s review of the capital
adequacy framework.
The Group’s return on tangible equity declined to 7.42% (FY19:
10.73%) as a result of the reduction in cash earnings after tax.
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
LIQUIDITY COVERAGE RATIO
NET STABLE FUNDING RATIO
134.1%
FY19 128.1%
114.7%
FY19 112.4%
The Bank’s principal source of funding is its stable retail deposit
base, with customer deposits representing 75.2% (FY19: 75.0%)
of the Bank’s total deposits. The Bank’s retail deposits are
traditional term and savings deposits and transaction accounts,
sourced predominantly through the retail network.
Wholesale funding activities support the core retail deposit
funding strategy and provide additional diversification and
benefits from longer term borrowings. Wholesale deposits were
maintained at 19.6% (FY19: 19.6%) during the year. Securitisation
funding comprises 5.2% (FY19: 5.4%).
Our funding position continues to be a strength for the
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 the financial year was
134.1% (FY19: 128.1%). The LCR was maintained within internal
targets throughout the year and always exceeded the minimum
prudential requirement of 100%.
The increase in LCR during the year is attributed to the growth
in deposits as well as the Term Funding Facility introduced by
the Reserve Bank of Australia as part of the COVID-19 stimulus
package to promote lending to businesses.
The Net Stable Funding Ratio (NSFR) for the financial year was
114.7% (FY19: 112.4%), exceeding the regulatory minimum of 100%.
Customer deposits represents the sum of interest bearing, non-
interest bearing and term deposits from retail and corporate
customers.
The Liquidity Coverage Ratio represents the proportion of
high-quality liquid assets held by the Bank to meet short-term
obligations. The LCRs quoted above represent the average daily
LCRs over the respective 12-month periods.
The Net Stable Funding Ratio measures the extent to which
long-term assets are covered by stable sources of funding. The
NSFRs quoted above represent the average daily NSFRs over the
respective 12-month periods.
1 Calculated using cash earnings.
18 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Lending
GROSS LOAN BALANCES BY PURPOSE
Residential
$46.9b
FY19 $43.1b
Consumer
$2.0b
FY19 $2.2b
Margin Loans
$1.3b
FY19 $1.6b
Business
$15.0b
FY19 $15.3b
Total gross loans increased 5.1% during the financial year to $65,321.7
million (FY19: $62,140.8 million), which was above system lending
growth.
Growth in the Agribusiness loan book of 1.3%3 was achieved
despite a challenging year for Australian agriculture from the
ongoing multi-year drought and the Black Summer bushfires.
Residential lending grew 8.9% or $3.8 billion during the financial year,
underpinned by our strategy and driven by our investment in lending
distribution and processing capacity. We saw increased refinancing
activity as customers moved to our Bank and we continued to
transform our service proposition and ability to meet demand.
Business lending was down 6.7%3 from the prior year, but growth
was evidenced in the second half of the financial year, which
included growth from the Commercial Property Lending portfolio
following its rebalancing to within targeted risk appetite settings.
Reconciliation statutory net profit to cash earnings
Statutory Profit after tax
Fair value adjustments
Homesafe unrealised adjustments
Revaluation of economic hedges
Loss on sale of business
Impairment charge
Software impairment
Software accelerated amortisation
Operating expenses 1
Amortisation of acquired intangibles
Cash earnings after tax (sub-total) 2
Homesafe net realised income after tax
Cash earnings after tax
FY20
($m)
192.8
0.1
(16.4)
2.2
-
2.8
85.5
19.0
2.5
2.2
290.7
11.0
301.7
FY19
($m)
376.8
0.3
29.5
(7.4)
1.6
-
0.5
-
1.9
2.6
405.8
9.9
415.7
1 Operating expenses include integration, legal and compensation costs, and restructuring costs.
2 Cash earnings after tax (sub-total) is equal to cash earnings before Homesafe realised income.
Fair value adjustments are recorded in relation to the loans
acquired through the acquisition of the business activities of
Rural Finance. Upon acquisition the fair value adjustments were
calculated and are now being amortised over the life of the
underlying transactions.
Homesafe unrealised adjustments represent unrealised funding
costs (calculated as the interest expense incurred to fund existing
contracts during the year) and valuation movements of the
investment properties held.
Revaluation of economic hedges reflects movements from
changes in the fair value of economic hedges. These movements
represent timing differences that will reverse through earnings in
the future.
Bendigo Telco Ltd was recorded and an impairment of our joint
venture investment in Community Sector Enterprise Pty Ltd was
also recorded upon acquisition of the remaining 50% of the entity.
Software impairment represents impairments recorded in relation
to our software assets. During the year a review of our software
intangible assets and projects was completed and impairments
were recorded where the benefits associated with the assets
were substantially lower than originally anticipated and for
regulatory and compliance assets and projects where there were
no tangible benefits.
Software accelerated amortisation represents charges recorded
in relation to the Group’s software intangible assets following an
increase to the Group’s capitalisation threshold from 1 July 2019.
Loss on sale of business represents the loss realised due to the
sale of the Bendigo Financial Planning business, calculated as sale
proceeds less costs of disposal.
Impairment charge reflects impairments recorded of our equity
investments. During the year an impairment of our investment in
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.
3 APRA Monthly Banking Statistics June 2020. Growth rate based on a
12-month period (30/06/19 – 30/06/20).
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 9
Risk Management Framework, Material Risks, Business Risks and Uncertainties
Risk Management Framework
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.
The Group has in place a Group Risk Management Framework,
approved by the Board, which forms part of the detailed
description of the Risk Management Strategy for the Group.
The Group Risk Management Framework (Summary) in
combination with the following individual Risk Management
Frameworks, details the Group’s management approach for each
of its material risks:
• Group Credit Risk Management Framework;
• Group Operational Risk Management Framework;
• Group Interest Rate Risk Management Framework;
• Group Traded Market Risk Management Framework;
• Group Liquidity Risk Management Framework; and
• Strategic and Other Risks - incorporated in the Group Risk
Management Framework (Summary).
Further information on our risk management framework,
governance and appetite is presented in the 2020 Corporate
Governance Statement.
Material Risks
Our business is exposed to a broad range of financial and non-
financial risks.
The COVID-19 pandemic has resulted in a changing operating
environment and risk landscape with the community facing
unprecedented challenges which has required both a health
and economic response. Government and banks have worked
together to support Australians. The economy has severely
contracted, and the economic uncertainty and disruption has
required decisive and collaborative action by the Group. The
Group has seen increases in risk across the organisation, including
Credit Risk, Operational Risk, and Financial Crime. In managing
these risks, our commitment to supporting our customers,
communities and employees remain at our core.
The Group has responded by implementing a number of measures
to aid the monitoring and management of these increased risks.
Board and Management have had ongoing oversight and are
actively managing the situation. The Group introduced additional
governance processes established based on the escalating stress.
The ongoing uncertainty created by the COVID-19 pandemic
will continue to pose a risk to the Group in the future. The Group
continues to actively monitor the operating environment, risk
landscape and challenges presented by the evolving conditions.
This includes reviewing the effectiveness and adequacy of the
measures to monitor and manage the increased risks to ensure
they are adapted to the changing conditions. Ongoing stress
testing and reassessment of the economic outlook will continue
and assist in the ongoing management of our balance sheet
strength, capital position and provisioning levels.
Financial
The Group has identified the following material financial risks:
- Credit Risk;
- Market Risk (Traded & Non-Traded); and
- Liquidity Risk
These material risks each have an individual risk management
framework, and are supported by an established network of
systems, policies, standards and procedures which are overseen by
the Board and Board Committees, with support from Management
committees and our independent risk management functions.
These risks are considered within the Group’s Risk Appetite
Statement, with both Primary and Secondary Appetite Settings.
The definition and management of these risks are outlined in
further detail in Note 20 to the 2020 Annual Financial Report.
Non-Financial
The Group has identified the following material non-financial risks:
Strategic Risk
There is a risk that adverse business decisions, ineffective or
inappropriate business plans or a failure to respond to changes
in the operating environment will impact our ability to deliver our
strategy and business objectives.
The Group has an integrated strategic planning process to
ensure alignment between the Group’s Strategy and risk
management process. The Group sets strategic imperatives and
outcomes which are documented in a three-year rolling strategic
plan, that is approved by the Board. Performance against
strategy is reviewed on an ongoing basis.
The Group also regularly examines new initiatives and market
opportunities, including acquisitions and disposals, with a
view to growing shareholder value. The Group 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 an adverse effect on our business.
Operational Risk
Operational risk is defined as the risk of impact on objectives
or the risk of loss resulting from inadequate or failed internal
processes, people and systems or from external events.
Operational Risk is managed via a comprehensive risk
management framework, and is supported by an established
network of systems, policies, standards and procedures which
are overseen by the Board and Board Committees, with
support from Management Committees and our independent
risk management functions. Operational Risk is considered
within the Group’s Risk Appetite Statement, with both Primary
and Secondary Appetite Settings. Operational risk may lead
to a range of potential impacts including: financial, regulatory,
reputational, customer, business disruption and people.
Reputational damage 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. Reputational damage
and the velocity of this impact is elevated through the rising use
of social media.
An operational risk event may also result in an adverse outcome
for customers that 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 Group to incur significant remediation costs (which
may include compensation payments to customers, legal fees
and costs associated with correcting the underlying issue).
The Group has identified the following key risks encapsulated
within the scope and definition of Operational Risk:
20 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Conduct Risk
Conduct Risk is the risk of delivering unfair customer outcomes
or market integrity resulting from deliberately or unintentionally
acting unfairly, inappropriately or unethically. Poor conduct
is a cause of Operational Risk. The business is exposed to
both intentional and unintentional misconduct risks. Intentional
misconduct risk examples include internal fraud and rogue sales
staff. Unintentional misconduct risk example include risks that
can arise from the design, sale and distribution of products
and services including unsatisfactory, erroneous or unsuitable
advice, disclosure flaws and errors in related documentation. It
can also include mis-selling of products to customers that are
not aligned to the customer’s 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 a dedicated Conduct Risk Management
Framework incorporating a set of Good Conduct Principles and
by promoting an appropriate organisational culture.
Compliance Risk
The Group’s operations are highly regulated. A failure to comply
with the laws, regulations, licence conditions, codes, principles
and industry standards applicable to our operations could result
in financial losses and/or a range of actions against the Group
including fines, penalties, sanctions being imposed by regulatory
authorities, the exercise of discretionary powers by regulatory
authorities or other compensatory action by affected persons.
Technology & Data Risk
The risk of security and data breaches, cyber-attacks and
unauthorised access to our systems and data continues to
increase. This reflects the growing sophistication of technology
and how it is embedded and used by the Group, coupled with
the complexity, sophistication and evolving nature of technology
related threats, vulnerability and risks. Furthermore, data risks are
also increasing, particularly with how data is acquired, validated,
stored, protected and processed.
Technology Risk is defined by the Group as the governance,
people, process or technology risks which result in loss
or negative impact to the confidentiality, availability and/
or integrity of the Group’s IT environment or parts of the IT
environment, including infrastructure, systems, applications and
data. 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 information security threats and risks, the
complete or partial failure of information technology or data
centre infrastructure and using internal or third-party information
technology systems that do not adequately support the
requirements of the business.
Data is an essential asset which supports the achievement of
the Group’s business objectives. The range of data assets the
Group must manage is extensive and includes commercially
sensitive information about the business conducted by the
Group, and also includes personal and sensitive information
collected by the Group and maintained on behalf of its
customers, partners and employees. Data Risks could adversely
affect the Group and result in failure to meet these objectives,
including regulatory and legal requirements. Data Risks
encompass the risk of loss, theft and disclosure of data resulting
from inadequate or failed internal processes, people and systems
or from external events impacting on data.
The Group actively scans the internal and external environment
to identify and monitor for current, evolving and emerging
technology, security and data related threats and vulnerabilities,
as well as other digital devices used to transmit and
communicate data and conduct financial transactions.
Vendor failure or non-performance risk
The Group sources a number of key services from external suppliers
and service providers. The failure of a key service provider, or
the inability of a key service provider to meet their contractual
obligations, including key service standards, could disrupt our
operations and ability to comply with regulatory requirements.
The business must identify their significant sourcing arrangements
and dependencies and conduct an annual risk assessment in
accordance with the Group’s Sourcing policy. In addition, as per
significant sourcing arrangements, a materiality assessment is
mandatory for all outsourcing arrangements (and Offshoring) as
per the Outsourcing Policy. Outsourcing of business activities to
Third Parties requires the responsible Executive to put in place a
regular system for monitoring performance, risk and compliance
commensurate with the materiality, complexity and risk
associated with each specific arrangement.
Legal Risk
Legal risk includes, but is not limited to, exposure to fines, penalties
or punitive damages resulting from supervisory actions, as well
as ordinary damages in civil litigation, related legal costs and
private settlements. 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.
Financial Crime Risk
The Group is exposed to the risk of financial crime, including
both internal and external fraud. 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.
Other Non-Financial Risks include:
Contagion Risk
The possibility that problems arising in other Group members
may compromise the financial and operational position of the
ADI. This may include related entities, incorporating subsidiaries,
partnerships, Community Bank and our Alliance Bank network.
The Board oversees the business activities conducted by
subsidiary entities and is cognisant of specific legal and regulatory
requirements applicable to subsidiary business activities. The
Board approved Related Entity Policy sets out the key risks that
may arise from dealings between Bendigo and Adelaide Bank
and its subsidiary entities and the associated policies and limits
designed to manage those risks.
Specifically, we have Community Bank branches operating in
all States and Territories, along with our Alliance Bank network.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 2 1
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.
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.
The material Financial and Non-Financial Risks the Group is
exposed to have been outlined in the Material Risks above.
The Directors have adopted policies and procedures to control
exposures to, and limit the extent of, these risks. In addition,
the Group has an independent internal audit function that
oversees all functions across the Group. 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
and pandemics. 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. The Group’s
Economic Outlook Committee is responsible for the approval of
forecast macroeconomic scenarios.
Geopolitical risks
The Group may be significantly affected by geopolitical risks
which may impact our ability to deliver our strategy and
business objectives. Geopolitical risks arise due to differing
global political agendas which may result in international trade
wars and a general loss of business confidence. The global
economy may then experience a slowdown which reduces
global demand for Australian exports.
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 an 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 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 Group 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 Group.
Capital base
The capital base is critical to the management of our businesses
and our ability to access funding. We are required to maintain a
level of capital by APRA and other key stakeholders to support
our business operations and risk appetite. There can be no
certainty that additional capital required in the future will be
available or able to be raised on acceptable terms.
22 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Remuneration Report
Contents
Section 1: Organisational context
Section 6: Non-executive Director remuneration
Section 2: Overview of remuneration outcomes
Section 7:
Remuneration governance
Section 3: Key Management Personnel
Section 8: KMP statutory remuneration,
equity and loan tables
Section 4: Remuneration framework
Section 5:
Linking remuneration to performance
This Remuneration Report is for the financial year ended 30 June 2020. The Report has been prepared
in accordance with section 300A of the Corporations Act 2001 and the Corporations Regulations 2001
and has been audited. The Remuneration Report sets out our remuneration framework, the remuneration
arrangements applicable to the Key Management Personnel (KMP), and the link between performance and
remuneration outcomes for the year.
Section 1: Organisational context
It has been a challenging year for our customers, the
communities in which they live, and for our people. Bushfires,
floods, prolonged drought, and COVID-19 has caused significant
impacts. COVID-19 has required the Bank to respond and
mobilise our teams rapidly and in different ways. We kept the
vast majority of our branches open, redeployed employee
resources into critical call centre and mortgage help teams
to assist with increased enquiries and asked our corporate
employees to work safely from home. Our people have
adapted and responded to our customers with empathy and
professionalism.
However, our full year results were impacted by COVID-19,
record low interest rates and investment costs to required to
support our strategy. This means that no cash incentives were
paid to executives or staff for the FY2020 performance year.
The long-term incentive grant made to the management KMP,
including the Management Director, in FY2018 was tested, and
the tranches with a relative Total Shareholder Return measure
did not vest. However, the Bank has continued to build our
customer advocacy advantage over our peers, which resulted in
performance rights with a ‘Customer Hurdle’ vesting.
As flagged in the FY2019 Remuneration Report, the Bank
conducted a comprehensive review of our approach to
executive remuneration during the year. The review considered
the effectiveness of the current arrangements, how to best
support our strategic and cultural ambitions, and the evolving
regulatory requirements.
The review has resulted in a significant change to the way
in which we structure executive remuneration for the FY2021
performance year. The changes are designed to support the
acceleration of the delivery of our strategy and ensure long term
alignment with shareholders outcomes. Further detail on the new
framework can be found in section 4 and the Notice of Meeting.
What has not changed is our belief that a clear purpose-driven
culture and a responsible remuneration model are essential to
achieving positive customer and community outcomes and long
term shareholder returns.
In addition to the introduction of a new executive remuneration
framework, the Board Chair has reduced her fees by 5% from
the start of the FY2021. This change was made in light of the
reduction of our share price, and the economic impact on our
customers and shareholders.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 2 3
Section 2: Overview of remuneration outcomes
Bendigo and Adelaide Bank announced full year cash earnings down
27.4 percent year on year. Excluding the COVID-19 collective provision
overlay and other direct impacts, earnings were down 2.8 percent.
But despite all this, we delivered total income of $1.61 billion, up 0.9
percent on last year, whilst sustaining market leading trust ratings,
above system lending growth and continued strengthening of our
balance sheet.
Remuneration
component
Remuneration
outcomes
Earnings for the year have been impacted by the prevailing
uncertainty around Australia’s economic outlook, as we negotiate
the first economic recession in nearly thirty years, continuing record
low interest rates and investment costs to support the execution of
our strategy. In this context, the below remuneration arrangements
were approved during the year.
Fixed base
remuneration
There were no changes to the fixed remuneration for the Managing Director or other executive KMP during
the year.
Grants of deferred shares were made to the other executives in accordance with their target remuneration
mix.
Deferred base
remuneration
The Managing Director did not receive a grant of deferred shares during the year. As approved by
shareholders at the 2018 AGM, a grant of 200,000 deferred shares was made in 2018 and 50,000 of these
deferred shares considered part of the Managing Director’s remuneration for the year ending 30 June 2020.
The vesting criteria for the deferred base pay grants made in 2018 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 any other executive.
The Managing Director received a grant of performance rights in accordance with the terms approved by
shareholders at the 2019 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 four-year performance period in total.
Long-term
incentive (LTI)
The long-term incentive grant made in FY2018 to executives, including the current Managing Director, was
tested at the end of the 2020 year.
The relative TSR performance measure for performance rights granted fell below the median of the peer
group. As a result, the sleeves of the grants that were linked to the relative TSR were forfeited.
The sleeve of grant that was linked to the Customer Hurdle vested in full. This was in recognition of the Bank’s
NPS being 28.6 points above the industry average for performance period finishing 30 June 2020.
The results of performance right testing are provided at Section 5 of this report.
Non-executive
director fees
There was no change in the annual fee payment for non-executive directors for the 2020 year, and the non-
executive directors continue to contribute $5,000 each to the Bank’s scholarship program. The aggregate
non-executive director fees paid for the year was $1.975 million which represents 79.0 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 2021 financial year.
24 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
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
Jacqueline Hey
Chair – commenced in role 29 October 2019
Vicki Carter
David Foster
Jan Harris
Jim Hazel
Rob Hubbard
David Matthews
Tony Robinson
Robert Johanson
Executives
Marnie Baker
Ryan Brosnahan
Taso Corolis
Travis Crouch
Richard Fennell
Non-executive Director
Non-executive Director – commenced 4 September 2019
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Chair – ceased 29 October 2019
Full Year
Full Year
Part Year
Full Year
Full Year
Full Year
Full Year
Full Year
Part Year
Managing Director & Chief Executive Officer
Full Year
Chief Transformation Officer – commenced 4 November 2019
Part Year
Chief Risk Officer
Chief Financial Officer
Executive, Consumer Banking
Full Year
Full Year
Full Year
Alexandra Gartmann
Executive, Rural Bank, Partnerships, Public and Corporate Affairs
Full Year
Bruce Speirs
Stella Thredgold
Executive, Business Banking
Executive, Business Enablement – ceased 1 November 2019
Full Year
Part Year
Ms Thredgold ceased as KMP on 1 November 2019, coinciding with the commencement of Chief Transformation Officer.
Ms Thredgold ceased employment with the Bank on 19 December 2019.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 2 5
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.
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 undertaking all performance
4.2 Remuneration components, approach and mix
The Executive remuneration arrangements are summarised below:
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.
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.
Annual grants of deferred
shares.
Cash, or a combination of cash
and deferred equity.
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.
Deferred shares (fully paid
ordinary shares) issued at no
cost and beneficially owned by
the executives from grant date.
The maximum STI opportunity
is set for individual executives
at the start of the year and is a
fixed dollar amount.
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.
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 the 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
and relative Total Shareholder
Return (TSR) performance
measures, risk and service
condition.
Performance measures are
tested over four years for all
Executives.
Vesting is also subject to
continued employment and
risk adjustment. There is no
retesting.
26 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
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.
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
LTI
Awarded
as Cash
Awarded
as Equity
M Baker
R Fennell
Managing Director
Consumer Banking
Other executives (average)
43%
50%
60%
21%
12%
11%
10%
12%
11%
5%
6%
0%
21%
20%
18%
53%
62%
71%
47%
38%
29%
Managing Director
Executive Consumer Banking
Other Executive
Deferred
STI
Cash
STI
LTI
5%
21%
43+
Deferred
base
43%
10%
21%
LTI
LTI
20%
Fixed
base
Deferred
STI
21 50+
Deferred
base
Cash
STI
50%
12%
12%
6%
Fixed
base
18%
Cash
STI
20 60+
Deferred
base
60%
11%
11%
Fixed
base
Remuneration settings FY2020
The total base remuneration, including the deferred base
pay, for executives sits between the market median and 75th
percentile, while the portion of incentive-based pay (STI and LTI)
is conservative and considerably below other listed companies in
Australia. This results in the total of fixed and variable remuneration
being below the median of peer groups of similar companies. The
reward mix reflects our belief that executive remuneration structures
should not be leveraged to variable remuneration.
The Managing Director’s STI component was set at $400,000
for the year. The Managing Director’s annual equity remuneration
consists of 50,000 deferred shares and 50,000 performance rights.
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.
There were no changes to fixed remuneration for executive
KMP during the FY2020 year. A number of executives received
increases during the FY2019 year to reflect changes in roles and
organisational structure changes that resulted in increases in
accountabilities and responsibilities. The impact of these prior year
increases can be seen in the remuneration tables in sections 6 and 8.
The STI opportunities and LTI opportunities remained the same
for FY2020. 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.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 2 7
21
+
10
+
5
+
12
+
12
+
6
+
11
+
11
+
18
4.3 Remuneration components, terms and policies
Fixed base remuneration
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 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.
Short term incentive (STI)
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. For the FY2020 year it was agreed that
all executives, including the Managing Director, would have joint
performance targets.
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. 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 availability 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 and other executives’ performance
is considered after year end at a combined meeting of the
Governance & HR, Risk and Audit Committees. The Board Chair
and Governance and HR Committee Chair provide input on the
Managing Director’s performance, and the Managing Director
provides an assessment of the other executives. Notwithstanding
that for the 2020 financial year the executives had joint objectives
for the STI, the Committees can use their discretion to make any
upward or downward adjustment 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.
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, with the first sleeve linked to a ‘Customer Hurdle’
and the second sleeve linked to the relative TSR measure.
To meet the remuneration requirements under BEAR (Banking
Executive Accountability Regime) the vesting period for the Senior
Executive grant was extended to four years. This was achieved by
splitting into two sets, the first set has a 3-year performance period,
with a 1-year further service condition. The second set has 4-year
performance period and service condition.
28 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
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 relative TSR measure
Performance period
Managing Director
Customer Hurdle performance
01.07.2019 to 30.06.2023
Relative TSR performance
01.07.2019 to 30.06.2023
01.07.2019 to 30.06.2023
Senior Executives 3-year grant
Customer Hurdle performance
01.07.2019 to 30.06.2022
Relative TSR performance
01.07.2019 to 30.06.2022
01.07.2019 to 30.06.2023
Senior Executives 4-year grant
Customer Hurdle performance
01.07.2019 to 30.06.2023
Relative TSR performance
01.07.2019 to 30.06.2023
01.07.2019 to 30.06.2023
First sleeve- customer hurdle
Vesting schedule
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.
Second sleeve- relative TSR hurdle
The relative 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 relative 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
relative TSR measure is independently calculated.
The performance rights will vest subject to the Bank’s relative TSR
performance in accordance with the below vesting schedule.
The following vesting schedule applies to the relative TSR testing
for the second sleeve.
Company's relative
TSR ranking
Percentage of performance
rights that vest
At or below the
50th percentile
At 50.1th percentile
Between the 50.1th
and 75th percentiles
0%
60%
Straight-line vesting:
• starting at 60%; and
•
reaching 100% at the
75th percentile.
Above the 75th percentile
100%
Common equity grant terms
Deferred share and performance rights grants have been previously
been made in accordance with the rules of the Bank’s Employee
Salary Sacrifice, Deferred Share and Performance Right Plan. For
the FY2020 executive LTI grant the Board approved a new set of
rules, the BEN Omnibus Equity Plan. The terms of the two set of
plan rules are similar, with the key difference being the BEN Omnibus
Equity Plan provides for grants to be settled in equity or cash at
the Board’s discretion. This was included to provide the Board with
greater flexibility in settling equity incentive grants. Future grants will
be made under the new set of BEN Omnibus Equity Plan rules.
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.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 2 9
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 Reward Framework
During FY2020 the Governance and HR Committee reviewed
the Bank’s approach to executive remuneration. The Bank’s
approach to executive remuneration has been generally
well received by shareholders and has supported the Bank’s
collective and risk-focused culture. However, as the Bank’s
strategy evolves and it faces regulatory and market changes,
there is also a need for the remuneration framework to change
to support this.
In reviewing the executive remuneration framework, the key
objectives were to:
1. Closely align the framework with the Bank’s strategic
imperatives to drive performance in areas that will create
sustainable long term shareholder value - the Bank has a
significant transformation agenda that will requires the Bank
to reduce its cost base, while continuing to grow our market
Fixed
remuneration
share and maintaining our customer advocacy advantage.
2. Create a framework that supports the Bank’s culture of
sharing in collective success – outcomes under the framework
are directly linked with the shareholder experience so that
executives are encouraged to think and act like owners.
3. Address evolving regulatory change – to support the Bank’s
existing strong risk culture and provide for longer deferrals and
clawback in line with the Banking Executive Accountability
Regime (BEAR) and APRA’s evolving requirements.
To meet these objectives, under the new framework for FY2021,
executives will not participate in the Company’s short-term incentive
program and variable reward will consist entirely of long term equity
grants, made up of two components vesting over 4 years:
1. Loan Funded Share Plan: Equity incentive plan, tested against
2 year performance measures linked to delivery of the
strategy, subject to restriction and a risk gateway at the end
of year 4.
2. Performance Rights Long Term Incentive: a traditional 4 year
performance rights plan, measured against relative total
shareholder return.
The new framework will see the current deferred base pay grants
incorporated into fixed base pay. Under the BEAR remuneration
requirements deferred base pay is considered variable
remuneration, and subject to additional restrictions. This has
changed the grants from their original intent, which was to align a
portion of an executives fixed remuneration with the shareholder.
Therefore, the Bank has chosen to implement the loan funded share
plan to create the alignment with shareholders.
The transition to the new framework is being done in a way to
ensure there is no material change in executives' overall incentive
opportunities, which remain modest compared to our peers. The
new framework is consistent with the Bank’s long held view that
remuneration structures which are weighted towards short-term
and individually focussed performance are incompatible with our
strategy and may encourage risk, poor culture and behaviour.
By removing the cash short-term incentive, the new executive
framework is focussed on long term, sustainable, shareholder
returns.
The new framework, and the timing of grants and vesting is
summarised below:
Vesting date
2-year performance period
2-year vesting period
2-years+
Loan funded
share plan
Three separate tranches:
• Cost To Income
• Market Growth
• Customer Advocacy
Vesting period with risk
assessment at end of 2-years
2 additional years
to pay off the loan
Long term
incentive
Relative Total Shareholder Return
4 year performance period
FY21
FY22
FY23
FY24
FY25
FY26
30 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
A comparison of the old framework to the new framework is provided below.
Feature
From (Old Framework)
To (New Framework)
Remuneration
Components
Fixed Reward
• Fixed Base Pay (Cash)
• Deferred Base Pay (Shares)
Variable Reward
• STI
• LTI Performance Rights
Incentive Quantum
STI
Capped at maximum $ value
LTI Performance Rights
Allocated at maximum $ value
Fixed Reward
• Fixed Base Pay (Cash)
Incorporates the Deferred Base Pay Shares
component value
Variable Reward
Incentive opportunity set with reference to:
• Loan Share Plan
• LTI Performance Rights
New maximum incentives based on:
Loan Funded Share Plan
100% of STI maximum value
+ 50% Old LTI maximum value
LTI Performance Rights
50% Old LTI maximum value
Duration to access
reward post grant
STI
1 year + 2 year deferral as Shares if over
$100,000
Loan Funded Share Plan
4 years with additional 2 years
to settle
LTI Performance Rights
4 years
LTI Performance Rights
4 years
Performance Hurdles
STI
Scorecard of financial and non-financial
measures with Risk Gateway
LTI Performance Rights
Customer Advocacy (Relative NPS) 35%
Relative TSR (65%)
Loan Funded Share Plan
Cost to Income ratio – 50% weighting
Customer Advocacy (Relative NPS) – 25% weighting
Market Growth – 25% weighting
LTI Performance Rights
Relative TSR
Performance Period
STI
1 year
LTI Performance Rights
MD
4 years
Exec
3 years + 1 year Holding Lock (50%)
4 years (50%)
Loan Funded Share Plan
2 years + 2 years restriction period
LTI Performance Rights
4 years
Risk Assessment & Risk
Behaviour Gateway
Applies to all reward components
Applies to all reward components
We have tested our approach with stakeholders, and we are
confident that it will support the execution of our strategy in
way that is consistent our customer focused culture. The FY2021
Remuneration Report will provide a detailed explanation of the
framework and the impact on individual executives.
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.
To support this process going forward the Bank has introduced a
Malus and Clawback policy for FY2021.
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 all cash and equity variable
remuneration 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
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.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 3 1
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
2020
192.8
38.1
301.7
59.7
31.0 1
$11.51
$7.01
2019
376.8
77.1
415.7
85.0
70.0
$10.75
$11.58
2018
434.5
89.9
445.1
92.1
70.0
$11.08
$10.84
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
Total shareholder return
-36.40%
14.20%
4.20%
22.50%
-16.20%
Relative TSR Performance (percentile) 2
NPS compared to industry average
Average STI received as a % of maximum
opportunity
Percentage of executive LTI which vested
23rd
+29.2
0%
30%
60th
+28.3
0%
83%
41st
+28.1
41st
+30.7
63%
55.40%
0%
0%
28th
+28.6
0%
0%
1 Whilst economic uncertainty remains and the impact of COVID-19 is still evolving, the Board has acted prudently to defer a final dividend decision
2 The relative TSR performance (percentile) is included in line with the TSR performance hurdles period for the grant tested in that year
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 100% 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 underperformed on 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 not met.
Risk Adjusted Return on Capital
(RAROC)
The RAROC did not exceed the targeted performance.
Managing Director & Executive STI award
For FY2020, the STI component for all executives was measured against shared outcomes and risk gateways. Risk and compliance and
values-based behaviour represent a gateway for the STI payments.
32 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
The impact of COVID-19 had a significant impact on the Bank’s financial performance. 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 and other executives.
The following are the joint performance measures for the STI component, and the level of achievement as assessed by the Board.
Outcomes
Measures
Performance
Seamless
Experience
Efficiency
Growth
Customer NPS
Employee Experience
Return on Tangible Equity
Cost to Income
Lending Asset Growth
Market Share (Portfolio)
Strategic projects
Build momentum for the transformation strategy through developing the three-year road
map and embedding the operating rhythm
Risk and
Compliance
The level of risk associated with the Group’s performance is within the Group’s risk appetite
An effective risk culture is promoted and there is evidence of enhanced risk practice
across the organisation
All short-term incentives were forfeited for FY2020.
Executive
STI maximum
opportunity1
STI payment
Paid as cash
Deferred 2
STI payment as %
of STI maximum
opportunity
% of STI Award
forfeited
M Baker
R Brosnahan3
T Corolis
T Crouch
R Fennell
A Gartmann
B Speirs
S Thredgold3
$400,000
$100,000
$100,000
$100,000
$250,000
$100,000
$100,000
$100,000
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
$ -
n/a
n/a
n/a
$ -
n/a
n/a
n/a
0%
0%
0%
0%
0%
0%
0%
0%
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 FY2020.
3 The full STI maximum opportunity for FY2020 is shown for Mr Brosnahan and Ms Thredgold.
Deferred base outcomes
LTI outcomes
The deferred base pay and deferred STI grants made to executive
KMP on 17 December 2018 were scheduled to be tested with 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.
Senior Executive LTI grant was tested at 30 June 2020, the LTI
grant that was made to executives in 2018. The LTI grant made to
executives in 2018 had a 3-year performance period for the TSR
and Customer Hurdle (NPS).
The results for the 2018 LTI grant are summarised below.
Grant
Hurdle
Weighting
Grant Date
Test Date
Outcome
Vested 2020
Lapsed 2020
2018 LTI
Senior Executives
TSR
NPS
70%
30%
12.12.17
12.12.17
30.06.20
23rd Percentile
30.06.20
+28.6
0%
100%
100%
0%
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 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
2020
Lapsed
2020
Remaining
2019 LTI
Senior Executives
2019 LTI
Managing Director
2020 LTI
Senior Executives
17.12.18
30.06.21
19.12.18
30.06.22
17.12.19
30.06.22
17.12.19
30.06.23
2020 LTI
Managing Director
17.12.19
30.06.23
Not yet
tested
Not yet
tested
Not yet
tested
Not yet
tested
Not yet
tested
30.06.21
30.06.22
30.06.22
30.06.23
30.06.23
Not yet
tested
Not yet
tested
Not yet
tested
Not yet
tested
Not yet
tested
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
100%
100%
100%
100%
100%
Executive remuneration paid and vested
The following table is a voluntary, non-statutory summary of the remuneration paid or which vested to the executives for the 2020 and 2019
financial years. Not all amounts have been prepared in accordance with Australian Accounting Standards and this 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
2020
$1,222,535
$376,788
2019
$1,241,149
$168,732
R Brosnahan 6
2020
$468,377
-
T Corolis
T Crouch
R Fennell
A Gartmann
B Speirs
S Thredgold 7
2020
$594,322
$65,025
2019
$489,498
$105,459
2020
$538,304
$65,025
2019
$383,206
-
2020
$761,510
$107,295
2019
$713,841
$168,732
2020
$541,768
$52,021
2019
$362,759
$73,823
2020
$515,371
$65,025
2019
$405,602
$73,823
2020
$137,895
$52,021
2019
$374,686
$84,360
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$32,421
$41,144
$47,878
$1,679,622
$409,492
$1,860,517
-
-
-
-
-
$36,017
$51,427
-
$28,727
$81,882
$9,569
$51,612
$47,878
$468,377
$688,074
$676,839
$612,898
$434,818
$952,700
$409,492
$1,343,492
-
$19,151
$20,566
$151,675
-
$25,708
$25,355
$41,144
$19,151
$163,788
$19,151
$163,788
$612,940
$608,823
$599,547
$668,921
$234,422
$663,978
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 19 December 2018 for Ms Baker and 17 December 2018 for other executives and which completed
the two-year deferral period and vested. The grant made for the 2020 financial year will be tested in a future period and has therefore been excluded from the table.
3 The cash component of the 2020 STI is nil.
4. STI awards were made for the FY2018 and accordingly deferred STI grants were awarded which would have been tested at 30 June 2020.
5. The prior years’ LTI amounts represent the grant made on 12 December 2017 for all participants except Mr Corolis, whose grant was made on 24 April 2018. These
grants partially met their respective performance measures and accordingly partially vested with the remainder of the grant 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 Brosnahan commenced as KMP on 4 November 2019.
7. Ms Thredgold ceased being a KMP on 1 November 2019 and subsequently ceased employment on 19 December 2019. Ms Thredgold received a redundancy payment
of $809,733 under the terms of the Bank's previous redundancy policy which is only applicable to salaried employees who where employed prior to 1 January 2003.
34 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
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 Chair receives a higher base fee in recognition of the additional
time commitment and responsibilities.
No increase was awarded to the base fee for Non-executive
Directors for the year. The base fee in effect for FY2020 was:
a. $201,780 for Directors (inclusive of company superannuation
contributions); and
b. $504,450 for the Chair (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, which ceased on 22 July 2019,
and the Community Bank® National Council.
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.
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 Chair. For FY2021, the Chair has elected to reduce her fees by
5%.
In addition, from FY2021 the Board has introduced a minimum
shareholding requirement of 1x base fees for all Non-executive
Directors. Directors will have 5-years from the introduction of the
policy to meet the shareholding requirements. A fee sacrifice plan
has been introduced, and further details will be disclosed in the
FY2021 Remuneration Report.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 3 5
Non-executive Director remuneration details
The following payments were made to Non-executive Directors in the 2020 and 2019 financial years.
Non-executive
Director
J Hey (Chair) 7
2020
2019
2020
V Carter
2019 (part year)
D Foster 6
2020 (part year)
J Harris
J Hazel
R Hubbard
D Matthews 4
T Robinson 5
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
R Johanson
(Chair - retired) 7
Aggregate totals
2020 (part year)
2019
2020
2019
Short-term benefits
Fees 1
$386,413
$182,663
$184,274
$152,380
$151,963
$184,274
$182,663
$184,274
$182,663
$193,027
$182,663
$192,755
$191,609
$186,476
$222,586
$157,456
$478,544
$1,820,912
$1,775,771
Non-monetary
benefits 2
-
-
-
-
-
-
-
-
-
-
-
$5,674
$5,674
-
-
$1,575
$4,550
$7,249
$10,224
Post-employment
benefits
Superannuation
contributions 3
$19,911
$18,787
$17,506
$14,476
$14,436
$17,506
$18,787
$17,506
$18,787
$8,753
$18,787
$18,851
$20,064
$17,715
$20,531
$15,108
$20,531
Total
$406,324
$201,450
$201,780
$166,856
$166,399
$201,780
$201,450
$201,780
$201,450
$201,780
$201,450
$217,280
$217,347
$204,191
$243,117
$174,139
$503,625
$147,292
$150,750
$1,975,453
$1,936,745
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. Mr Hubbard elected for a superannuation guarantee contribution exemption for the period of 1 January 2020 to
30 June 2020.
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 $2,461 inclusive of company superannuation as a Director of Sandhurst Trustees Limited and ceased to be a Director of
Sandhurst Trustees Limited on 22 July 2019.
6 Mr Foster was appointed as a Non-executive Director on 4 September 2019.
7 Mr Johanson retired as Chair on 29 October 2019 and Ms Hey was appointed Chair on 29 October 2019.
36 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Non-executive Director equity holdings
The details of shareholdings in the Bank held by Non-executive Directors (including their close family members or any entity they, or their
close family members, control, jointly control or significantly influence) are set out below.
Number at the start of year
Net Change 1
Number at end of year 2
Name
Ordinary
shares
Preference
shares
Ordinary
shares
Preference
shares
Ordinary
shares
Preference
shares
21,437
250
Non-executive Directors
J Hey
V Carter
D Foster
J Harris
J Hazel
R Hubbard
D Matthews
T Robinson
504
-
2,000
29,036
17,815
34,490
33,140
R Johanson 3
282,185
13,169
12,721
2,733
6,000
8,956
8,683
2,807
10,000
(30,959)
-
-
-
-
-
-
-
-
-
34,606
13,225
2,733
8,000
37,992
26,498
37,297
43,140
251,226
250
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 No equity instruments were granted as compensation to Non-executive Directors during the reporting period.
2 None of the shares are held nominally.
3 Mr Johanson's equity holdings are reported up to 29 October 2019.
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 (Chair)
b) Jacqueline Hey
c) Vicki Carter
d) David Matthews
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 http//
www.bendigoadelaide.com.au/public/corporate_governance/.
The Committee’s remuneration responsibilities include conducting
regular reviews of, and making recommendations to the Board
on, the remuneration strategy and policy taking into account the
Group’s objectives, risk profile, shareholder interests, regulatory
requirements and market developments. The Committee is also
responsible for making recommendations to the Board on:
a) the remuneration arrangements for executives, including the
terms on which performance-based remuneration will be
provided;
b) the performance-based remuneration outcomes for the
executives; and
c) the annual bonus pool.
The Committee makes recommendations to the Board on
the exercise of the Board’s discretion to adjust incentive and
performance-based remuneration to reflect the outcomes of
business activities and the risks relating to those activities.
The Committee is also responsible for recommending to the
Board the remuneration matters specified by the Australian
Prudential Regulation Authority under Prudential Standard CPS 510
Governance relating to other designated responsible persons, risk
and financial control personnel and material risk takers.
The Committee may consult a professional adviser or expert, at the
cost of the Bank, if the Committee considers it necessary to carry
out its duties and responsibilities. During FY2020, the Governance
and Human Resources Committee engaged KPMG to provide
support as part of the Bank’s review of the executive remuneration
framework. KPMG provided market practice, remuneration data,
trends and assistance with other ad-hoc tax and legal matters.
KPMG did not provide any remuneration recommendations as
defined in the Corporations Act 2001 (Cth) to the Committee during
FY2020.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 3 7
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-
monetary 3
Superan-
nuation
benefits 4
Other
long-term
benefits 5
Termination
Payments
Share-based
payments 6
Performance
rights 7
Deferred
shares 8
Total
Perfor-
mance
related 9
Executive
M Baker
2020
2019
R Brosnahan 10
2020
(part year)
T Corolis
2020
2019
T Crouch
2020
2019
(part year)
R Fennell
2020
2019
A Gartmann
2020
2019
B Speirs
2020
2019
S Thredgold 11
2020
(part year)
$1,214,846
$1,184,923
$433,567
$559,741
$457,980
$481,833
$350,493
$682,955
$662,786
$512,721
$336,404
$475,752
$369,084
$124,898
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$14,962
$16,038
$21,003 ($28,276)
$19,657
$20,531
$14,143
$13,732
$6,935
-
-
$21,003
$20,531
$13,579
$10,987
$30,488
$21,003
$4,981
$18,784
$19,031
($5,103)
$40,615
$36,989
$21,003
$20,531
$16,937
($6,466)
-
-
$21,003
$20,531
$8,044
$5,824
$6,550
$6,500
$21,003
$20,531
$12,067
$9,487
-
-
-
-
-
-
-
-
-
-
-
-
-
$189,669
$231,531
$759,667 $2,171,871
$810,461 $2,283,141
9%
12%
$34,949
$34,132
$537,458
7%
$73,337
$77,885
$90,483
$94,446
$758,143
$661,829
$58,795
$90,483
$687,583
$51,996
$42,577
$477,778
$137,891
$210,125
$175,786 $1,075,187
$215,373 $1,139,338
$66,563
$89,860
$80,921
$85,409
$689,252
$538,028
$66,563
$91,839
$90,483
$97,540
$672,418
$594,981
10%
12%
9%
11%
13%
23%
10%
19%
10%
18%
2%
22%
$1,923
$11,074
-
$809,733
$21,536
$56,901 $1,026,065
2019
2020
2019
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 FY2020. Refer also to footnote 8 below for
$586,125
$119,599
$649,304 $1,378,857
$7,617,977
$845,075 $1,465,405 $6,281,220
$20,550 ($17,259)
$34,267
$17,127
$108,681 $150,822
$83,311 $142,236
$366,396
$4,486,313
$3,728,066
-
$809,733
-
$91,839
$5,000
-
-
-
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 remuneration and are paid up to the statutory maximum contributions base.
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 2018, 2019 and 2020
financial years. The comparative amount represents the final amortised fair value allocation for the previous performance right grant made in the 2016, 2017, 2018 and
2019 financial years. The current year amounts for other executives represent the amortised fair value allocation for the 2018, 2019 and 2020 performance right grants.
The comparative amounts represent the amortised fair value allocation for the 2016, 2017, 2018 and 2019 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 2020 financial year represent the amortised fair value
of the deferred STI grants for the 2018 financial year. There was no deferred STI grant for the 2020 financial year. The deferred STI amounts for the comparative
period represent the amortised fair value of the deferred STI grant made for the 2017 and 2018 financial years.
b. The fair value of the deferred base pay grants amortised over a two-year deferral period. The deferred base pay amounts for the 2020 financial year comprise the
amortised fair value of the deferred base pay grants made in the 2019 and 2020 financial years. The comparative amounts represent the amortised fair value of
the deferred base pay grants made in the 2018 and 2019 financial years.
9 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).
10 Mr Brosnahan commenced as KMP on 4 November 2019.
11 Ms Thredgold ceased being a KMP on 1 November 2019 and subsequently ceased employment with the Bank on 19 December 2019. The termination payment
represents a redundancy payment under the terms of the Bank's previous redundancy policy which is only applicable to salaried employees who where employed
prior to 1 January 2003.
38 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
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
$
Performance Rights
Deferred Shares STI
17.12.2017
17.12.2018
Deferred Shares Base Pay
19.12.2018
M Baker 8
Deferred Shares Base Pay
08.04.2019
-
-
-
-
-
-
-
-
Deferred Shares Base Pay
03.10.2019
Deferred Shares Base Pay
03.04.2020
4,775
7,733
54,435
49,337
Performance Rights
17.12.2019
50,000
228,075
Deferred Shares Base Pay
17.12.2019
R Brosnahan
Performance Rights
Performance Rights -
Transformation
17.12.2019
8,628
13,805
85,331
60,904
17.12.2019
17,256
131,318
T Corolis
T Crouch
Performance Rights
24.04.2018
Deferred Shares Base Pay
17.12.2018
Deferred Shares Base Pay
17.12.2019
Performance Rights
Performance Rights
17.12.2019
12.12.2017
Deferred Shares Base Pay
17.12.2018
Deferred Shares Base Pay
17.12.2019
Performance Rights
Performance Rights
Deferred Shares STI
17.12.2019
12.12.2017
17.12.2018
R Fennell
Deferred Shares Base Pay
17.12.2018
-
-
-
-
8,628
13,805
85,331
60,904
-
-
-
-
8,628
13,805
85,331
60,904
-
-
-
-
-
-
Deferred Shares Base Pay
17.12.2019
14,236
140,794
Performance Rights
Performance Rights
17.12.2019
12.12.2017
A Gartmann
Deferred Shares Base Pay
17.12.2018
Deferred Shares Base Pay
17.12.2019
B Speirs
S Thredgold
Performance Rights
Performance Rights
17.12.2019
12.12.2017
Deferred Shares Base Pay
17.12.2018
Deferred Shares Base Pay
17.12.2019
Performance Rights
Performance Rights
Deferred Shares STI
17.12.2019
12.12.2017
17.12.2018
Deferred Shares Base Pay
17.12.2018
Performance Rights
17.12.2018
24,158
106,583
-
-
-
-
8,628
12,942
85,331
57,096
-
-
-
-
8,628
12,942
85,331
57,096
-
-
-
-
-
-
-
-
-
-
2,732
7,421
-
-
2,732
9,276
-
-
2,732
3,617
7,421
-
Prior
years’
awards
vested 3
Units
Prior
years’
awards
vested 4,7
$
Forfeit-
ed /
Lapsed
2,6
Units
Forfeit-
ed /
Lapsed
5, 6
$
68,915
15,938
92,599
6,830
4,625
47,684
50,000
518,000
1,362
1,194
1,934
13,252
13,612
12,339
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,098
9,276
-
-
1,365
9,276
-
-
6,830
5,138
52,973
15,306
157,805
-
-
-
-
-
-
41,349
9,562
34,574
95,636
-
-
-
-
-
-
-
-
13,773
3,188
18,522
95,636
-
-
-
-
-
-
-
-
68,915
15,938
92,600
-
-
-
-
-
-
-
-
27,566
6,375
37,043
76,511
-
-
-
-
-
-
-
-
27,566
6,375
37,043
95,636
-
-
-
-
-
-
-
-
27,566
6,375
37,043
37,291
76,511
-
-
-
-
-
13,914
92,257
1. The grants to executives in FY2020 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 FY2020 was 30% for the FY2018 LTI Plan where the first sleeve vested at 100% when measured on NPS
performance and the remaining two sleeves lapsed when measured on relative TSR performance. The percentage of base pay deferred share grants made in prior
years that vested during FY2020 was 100%. The percentage of the deferred STI share grants made in prior years that vested during FY2020 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
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 3 9
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, continued service and risk assessment 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 and BEN Omnibus Equity Plan. There is no current market buy-back scheme in place.
a. Total number of ordinary shares purchased during the financial year: 78,944 ordinary shares (FY2019: 308,214 ordinary shares); and
b. Average price per ordinary share at which the securities were purchased: $9.72 per security (FY2019: $10.20 per security).
8. Ms Baker was granted 200,000 of deferred base pay shares in 2019 in four tranches of 50,000, each with a varying deferral period with the first tranche vesting in
2020. The dividends received on these grants were reinvested into ordinary shares and allocated in 4 tranches alongside each of the original tranches. The dividend
reinvested deferred base pay shares allocated to the first trance on 08.04.2019, 03.10,2019 and 03.04.2020 therefore also vest in 2020. Note the full allocation of 5,447
dividend reinvestment shares on 08.04.2019 has been restated in the opening balance of Deferred Shares in table 8.3 below.
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
Granted
during the
year
Vested or
released
Lapsed or
expired
Net change
other
Number at
end of year
1, 2
Deferred shares
210,072
12,508
(59,115)
M Baker 3
Ordinary shares
448,278
Preference shares
800
-
-
65,945
-
-
-
-
Performance rights
72,768
50,000
(6,830)
(15,938)
Deferred shares
R Brosnahan 4
Ordinary shares
Performance rights
Deferred shares
T Corolis
Ordinary shares
Performance rights
Deferred shares
T Crouch
Ordinary shares
Performance rights
-
-
-
9,276
28,722
28,502
9,276
8,193
9,478
8,628
-
31,061
8,628
-
13,805
8,628
-
13,805
-
-
-
(9,276)
13,374
(4,098)
(9,276)
10,641
(1,365)
Deferred shares
20,444
14,236
(20,444)
R Fennell
Ordinary shares
157,486
-
27,274
-
-
-
-
-
(9,562)
-
-
(3,188)
-
-
Performance rights
48,742
24,158
(6,830)
(15,938)
Deferred shares
A Gartmann
Ordinary shares
Performance rights
Deferred shares
B Speirs
Ordinary shares
Performance rights
Deferred shares
S Thredgold 4
Ordinary shares
Performance rights
7,421
32,513
23,021
9,276
22,739
23,021
11,038
40,997
23,021
8,628
-
12,942
8,628
-
12,942
-
-
-
(7,421)
10,153
(2,732)
(9,276)
12,008
(2,732)
(11,038)
13,770
-
-
(6,375)
-
-
(6,375)
-
-
-
163,465
38,233
552,456
-
-
-
-
-
-
1,800
-
-
754
-
-
(103,797)
-
-
-
-
-
(22,743)
-
-
800
100,000
8,628
-
31,061
8,628
43,896
28,647
8,628
19,588
18,730
14,236
80,963
50,132
8,628
42,666
26,856
8,628
12,004
26,856
-
(16,015)
38,752
(2,732)
(20,289)
-
-
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 Deferred shares for Ms Baker at the start of the year and granted during the year include deferred shares allocated via dividend reinvestment in 2019
and 2020.
4 Table contains full FY2020 data for Ms Thredgold and Mr Brosnahan.
40 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
8.4 Equity plan valuation inputs
Performance rights
The assumptions underlying the fair value of current performance right grants are as follows.
Terms & Conditions for each Grant
Equity Instrument
Grant date
Fair
value 1
Share
price $
Exer-
cise
price
Risk
free
interest
rate
Divi-
dend
yield
Ex-
pected
volatility
Expect-
ed life
Perfor-
mance
period end
/ expiry
date 2
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
Performance Rights - Sleeve 1
17.12.2019
$7.61
$9.89
Performance Rights - Sleeve 2
17.12.2019
$7.61
$9.89
Performance Rights - Sleeve 3
17.12.2019
$2.46
$9.89
Performance Rights - Sleeve 4
17.12.2019
$2.92
$9.89
Performance Rights – Sleeve 1 (MD)
17.12.2019
$7.61
$9.89
Performance Rights – Sleeve 2 (MD)
17.12.2019
$2.92
$9.89
Performance Rights -
Transformation
17.12.2019
$7.61
$9.89
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2.10%
5.75%
20%
4 years
30.06.2020
2.10%
5.75%
20%
4 years
30.06.2020
2.10%
5.75%
20%
4 years
30.06.2020
1.97%
5.75% 22.50% 3 years
30.06.2020
1.97%
5.75% 22.50% 3 years
30.06.2020
1.97%
5.75% 22.50% 3 years
30.06.2020
2.09% 5.75% 22.50% 4 years
30.06.2021
2.09% 5.75% 22.50% 4 years
30.06.2021
2.09% 5.75% 22.50% 4 years
30.06.2021
2.28%
6.42% 24.70% 3 years
30.06.2020
2.28%
6.42% 24.70% 3 years
30.06.2020
2.28%
6.42% 24.70% 3 years
30.06.2020
1.89%
6.73% 23.40% 3 years
30.06.2021
1.89%
6.73% 23.40% 3 years
30.06.2021
1.99%
6.73% 23.40% 4 years
30.06.2022
1.99%
6.73% 23.40% 4 years
30.06.2022
0.88%
7.08%
21.23% 4 years
30.06.2022
0.88%
7.08%
21.23% 4 years
30.06.2023
0.88%
7.08%
21.23% 4 years
30.06.2022
0.88%
7.08%
21.23% 4 years
30.06.2023
0.88%
7.08%
21.23% 4 years
30.06.2023
0.88%
7.08%
21.23% 4 years
30.06.2023
0.88%
7.08%
21.23% 4 years
30.06.2023
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.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 4 1
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 STI
17.12.2018
Deferred Shares Base Pay
17.12.2018
Deferred Shares Base Pay
19.12.2018
Deferred Shares Base Pay
17.12.2019
$10.31
$10.31
$10.36
$9.89
$10.37
$10.37
$10.40
$9.89
30.06.2020
30.06.2020
30.06.2020
30.06.2020
30.06.2020
30.06.2020
30.06.2021
30.06.2021
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.
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
What notice must be provided by the
Bank to end the contract without
cause? 1
Between 6 and 12 months’ notice. No notice period
required if material change in duties or responsibilities.
All executives
6 months’ notice or payment in lieu.2
M Baker, T Corolis, T Crouch,
R Brosnahan
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 in 2019 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.
42 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
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
start of
year 1
Interest
charged 3
Interest not
charged
Write-off
Balance at
end of year
Number at
year end
$’000
$’000
$’000
$’000
$’000
Non-executive Directors
2020
Executives
2020
7,504
4,884
Total Directors and
Executives
2020
12,388
266
129
395
-
-
-
-
-
-
7,282
4,854
12,136
8
7
15
Details of KMP (including their related parties) with an aggregate of loans above $100,000 in the reporting period are as follows:
2020
Non-executive Directors
R Johanson 4
D Matthews
T Robinson
Executives
M Baker
R Fennell
A Gartmann
S Thredgold 4
Balance at
start of year 1
Interest
charged 3
Interest not
charged
Write-off
Balance at
end of year
Highest owing
in period 2
$’000
$’000
$’000
$’000
$’000
$’000
1,944
4,234
1,305
920
1,852
1,434
672
28
194
44
50
37
40
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,941
4,031
1,303
1,300
1,537
1,359
653
1,997
4,418
-
30
1,942
1,434
674
1 Opening balances have been restated for Ms Baker, Mr Fennell and Mr Johanson to include additional accounts.
2 Represents aggregate highest indebtedness of the KMP during the financial year. All other items in this table relate to the KMP and their related parties.
3 Interest charged may include the impact of interest off-set facility
4 Part year data represented for Ms Thredgold to 1 November 2019 and for Mr Johanson to 29 October 2019.
This Directors’ Report is signed in accordance with a resolution of the Board of Directors.
Jacqueline Hey
Chair
3 September 2020
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 0 2 0 4 3
Financial Statements
Primary Statements
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in equity
Cash flow statement
20 Risk management
Funding and Capital Management
21 Share capital
22 Retained earnings and reserves
Basis of Preparation
24 Capital management
23 Standby arrangements and uncommitted credit facilities
1 Corporate information
2 Summary of significant accounting policies
Results for the Year
3 Profit
4
Income tax expense
5 Segment results
6 Earnings per ordinary share
7 Dividends
Financial Instruments
8 Cash and cash equivalents
9 Loans and other receivables
10
Impairment of loans and advances
11 Financial assets at fair value through profit or loss
12 Financial assets at amortised cost
13 Financial assets at fair value
through other comprehensive income
14 Deposits and notes payable
15 Preference shares
16 Subordinated debt
17 Securitisation and transferred assets
18 Derivative financial instruments
19 Financial instruments
44 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
44 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Other Assets and Liabilities
25 Investment property
26 Goodwill and other intangible assets
27 Other assets
28 Other payables
29 Provisions
Other Disclosure Matters
30 Cash flow statement reconciliation
31 Subsidiaries and other controlled entities
32 Related party disclosures
33 Involvement with unconsolidated entities
34 Fiduciary activities
35 Share based payment plans
36 Commitments and contingencies
37 Remuneration of Auditor
38 Leases
39 Business combinations
40 Events after balance sheet date
Directors’ declaration
Independent Audit Report
Financial highlights
Additional information
Primary Statements
Income statement
For the year ended 30 June 2020
Net interest income
Interest income
Interest expense
Total net interest income
Other revenue
Fees
Commissions and management fees
Other income
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 attributable to owners of the parent
Earnings per share (cents)
Basic
Diluted
Group
2020 1
$m
2019
$m
Bank
2020 1
$m
2019
$m
Note
2,270.2
(936.4)
2,643.3
(1,353.7)
2,208.4
(862.4)
2,348.4
(1,174.4)
1,333.8
1,289.6
1,346.0
1,174.0
155.5
56.6
88.5
300.6
163.8
73.5
40.6
277.9
144.5
15.8
169.0
329.3
149.2
19.3
367.3
535.8
1,634.4
1,567.5
1,675.3
1,709.8
(173.3)
4.8
(168.5)
(567.1)
(36.3)
(117.7)
(20.3)
(438.4)
(54.6)
4.3
(50.3)
(170.9)
3.1
(167.8)
(518.5)
(91.3)
(48.1)
(31.1)
(276.2)
(547.8)
(36.0)
(115.7)
(7.2)
(455.8)
(1,179.8)
(965.2)
(1,162.5)
286.1
(93.3)
192.8
552.0
(175.2)
376.8
345.0
(82.2)
262.8
(50.3)
2.5
(47.8)
(463.7)
(90.5)
(45.1)
(7.4)
(249.6)
(856.3)
805.7
(161.4)
644.3
38.1
35.2
77.1
69.7
3
3
3
3
4
6
6
1 The Group applied AASB 16 Leases from 1 July 2019. 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 0 2 0 4 5
2019
$m
644.3
-
18.1
-
19.5
Statement of comprehensive income
For the year ended 30 June 2020
Profit for the year
Note
Group
2020 1
$m
192.8
2019
$m
376.8
Bank
2020 1
$m
262.8
Items which may be reclassified subsequently to profit or loss:
Revaluation (loss)/gain on debt investments at fair value
through other comprehensive income
Revaluation gain/(loss) on debt securities at fair value
through other comprehensive income with recycling
Transfer from asset revaluation reserve to income
Net (loss)/gain on cash flow hedges taken to equity
Tax effect on items taken directly to
or transferred from equity
22
22
22
22
22
(0.3)
0.2
-
1.4
0.1
(20.3)
5.7
-
(45.6)
-
(20.3)
(0.3)
19.5
(5.8)
19.8
(11.3)
Total items that may be reclassified to profit or loss
(13.4)
13.6
(46.1)
26.3
Items which will not be reclassified subsequently to profit or loss:
Revaluation loss on land and buildings
Actuarial loss on superannuation defined benefits plan
Tax effect on items taken directly to
or transferred from equity
22
22
Total items that will not be reclassified to profit or loss
(0.7)
(1.3)
0.8
(1.2)
-
(0.1)
-
(0.1)
-
(1.3)
0.4
(0.9)
-
(0.1)
-
(0.1)
Total comprehensive income for the year
178.2
390.3
215.8
670.5
Total comprehensive income for the year attributable to:
Owners of the Company
178.2
390.3
215.8
670.5
1 The Group applied AASB 16 Leases from 1 July 2019. Prior periods have 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 0 2 0
Balance sheet
As at 30 June 2020
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)
Current tax asset
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
Other payables
Preference shares
Subordinated debt
Total Liabilities
Net Assets
Equity
Share capital
Reserves
Retained earnings
Total Equity
Group
2020 1
$m
Note
2019
$m
1,072.0
270.6
5,836.9
293.1
Bank
2020 1
$m
826.0
137.0
5,411.1
135.0
2019
$m
880.2
270.6
5,836.9
143.8
55.7
13,225.4
6,133.1
-
150.6
17.6
106.4
-
150.7
1,189.6
137.0
5,411.1
325.3
819.6
17.6
106.4
64,980.4
61,822.2
64,476.8
60,972.2
5.4
-
252.3
88.3
779.8
1,564.6
331.5
9.3
-
63.1
5.3
734.5
1,685.6
436.4
5.4
134.5
251.4
183.1
-
8.3
587.4
60.4
81.9
-
1,490.7
1,399.5
1,593.2
1,395.5
76,008.9
72,435.3
87,799.9
78,114.2
145.1
420.6
145.1
420.6
64,182.6
60,596.9
64,180.0
60,601.4
3,503.5
100.2
3,464.4
135.0
-
-
-
114.4
603.4
890.2
671.3
-
-
6.4
119.6
493.0
886.4
681.4
-
100.2
561.7
23.1
135.0
786.7
15,158.0
8,754.2
-
114.4
579.8
890.2
671.3
6.4
118.0
462.1
886.4
681.4
70,210.7
66,803.7
82,400.7
72,875.3
5,798.2
5,631.6
5,399.2
5,238.9
4,905.0
4,570.5
4,905.0
4,570.5
87.3
805.9
73.8
987.3
66.6
427.6
105.5
562.9
5,798.2
5,631.6
5,399.2
5,238.9
8
8
11
12
13
4
18
9
4
25
26
27
8
14
14
18
4
29
28
15
16
21
22
22
1 The Group applied AASB 16 Leases from 1 July 2019. 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 0 2 0 4 7
Statement of changes in equity
For the year ended 30 June 2020
At 1 July 2019
Opening balance
Impact of adoption of new accounting standards 3
Rural Bank consolidation 4
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Shares issued
Share issue expenses
Movement in Executive Share plans
Reduction in employee share ownership plan (ESOP)
Movement in general reserve for credit losses (GRCL)
Movement in operational risk reserve
Share based payment
Transfer from asset revaluation reserve
Equity dividends
At 30 June 2020
Group
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
issued
capital 1
$m
Retained
earnings 2
$m
Reserves 2
$m
Total
equity
$m
4,575.9
(5.4)
-
-
-
-
337.7
(3.0)
(1.3)
-
-
-
-
-
-
-
-
-
-
-
-
-
1.1
-
-
-
-
-
987.3
(24.7)
(20.4)
73.8
5,631.6
-
(24.7)
20.4
-
192.8
(0.9)
-
(13.7)
191.9
(13.7)
192.8
(14.6)
178.2
-
-
-
-
(9.3)
(0.4)
1.0
0.8
(320.3)
-
-
-
-
9.3
0.4
(2.1)
(0.8)
-
337.7
(3.0)
(1.3)
1.1
-
-
(1.1)
-
(320.3)
4,909.3
(4.3)
805.9
87.3
5,798.2
1 Refer to Note 21 for further details.
2 Refer to Note 22 for further details.
3 The Group applied AASB 16 Leases from 1 July 2019. Prior periods have not been restated.
4 Relates to Rural Bank consolidation adjustments.
For the year ended 30 June 2019
At 1 July 2018
Opening balance
Impact of adoption of new accounting standards 3
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)
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
capital 1
$m
Retained
earnings 2
$m
Reserves 2
$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
(334.7)
-
13.6
13.6
-
-
19.9
0.6
1.4
-
376.8
13.5
390.3
46.0
1.2
-
-
2.4
(334.7)
4,575.9
(5.4)
987.3
73.8
5,631.6
1 Refer to Note 21 for further details.
2 Refer to Note 22 for further details.
3 The Group applied AASB 9 Financial Instruments from 1 July 2018. Further information can be found in the Group's 2019 Annual Financial Report.
48 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Statement of changes in equity (continued)
For the year ended 30 June 2020
At 1 July 2019
Opening balance
Impact of adoption of new accounting standards 3
Rural Bank consolidation 4
Comprehensive income
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners
Shares issued
Share issue expenses
Movement in Executive Share plans
Reduction in employee share ownership plan (ESOP)
Movement in general reserve for credit losses (GRCL)
Share based payment
Equity dividends
At 30 June 2020
Bank
Attributable to owners of Bendigo and Adelaide Bank Limited
Issued
ordinary
capital
$m
Other
issued
capital 1
$m
Retained
earnings 2
$m
Reserves 2
$m
Total
equity
$m
4,575.9
(5.4)
-
-
-
-
-
337.7
(3.0)
(1.3)
-
-
-
-
-
-
-
-
-
-
-
-
1.1
-
-
-
562.9
(24.7)
(43.9)
105.5
5,238.9
-
-
(24.7)
(43.9)
262.8
(0.9)
-
(46.1)
261.9
(46.1)
262.8
(47.0)
215.8
-
-
-
-
(9.3)
1.0
(320.3)
-
-
-
-
9.3
(2.1)
-
337.7
(3.0)
(1.3)
1.1
-
(1.1)
(320.3)
4,909.3
(4.3)
427.6
66.6
5,399.2
1 Refer to Note 21 for further details.
2 Refer to Note 22 for further details.
3 The Group applied AASB 16 Leases from 1 July 2019. Prior periods have not been restated.
4 Relates to Rural Bank consolidation adjustments.
For the year ended 30 June 2019
At 1 July 2018
Opening balance
Impact of adoption of new accounting standards 3
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)
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
capital 1
$m
Retained
earnings 2
$m
Reserves 2
$m
Total
equity
$m
4,529.9
(6.6)
-
-
-
-
46.0
-
-
-
-
-
-
-
-
-
-
1.2
-
-
-
-
282.1
(12.0)
122.2
4,927.6
(66.0)
(78.0)
644.3
(0.1)
644.2
-
-
(19.9)
2.2
1.0
(334.7)
-
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)
4,575.9
(5.4)
562.9
105.5
5,238.9
1 Refer to Note 21 for further details.
2 Refer to Note 22 for further details.
3 The Group applied AASB 9 Financial Instruments from 1 July 2018. Further information can be found in the Group's 2019 Annual Financial Report.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 4 9
Cash flow statement
For the year ended 30 June 2020
Cash flows from operating activities
Group
2020
$m
2019
$m
Bank
2020
$m
2019
$m
Note
Interest and other items of a similar nature received
2,323.5
2,646.2
2,218.9
2,325.6
Interest and other costs of finance paid 1
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
(1,005.9)
(1,361.4)
(928.4)
(1,167.5)
257.0
280.4
212.3
(963.9)
(1,000.1)
(1,036.8)
1.6
0.9
1.3
(183.0)
(205.9)
(175.7)
228.3
(753.3)
300.6
(207.3)
429.3
360.1
291.6
726.4
Net (increase)/decrease in balance of loans and other receivables
Net increase in balance of investment securities
(3,319.9)
(384.0)
(337.6)
(773.2)
2,991.1
(3,518.7)
(6,671.0)
(2,043.4)
Increase/(decrease) in operating liabilities
Net increase in balance of deposits
Net increase/(decrease) in balance of notes payable
Net cash flows from operating activities
30
Cash flows related to investing activities
Cash paid for purchases of property, plant and equipment
Cash proceeds from sale of property, plant and equipment
Cash paid for purchases of investment property
Cash proceeds from sale of investment property
Cash paid for purchases of intangible assets
Cash paid for purchases of equity investments
Cash proceeds from sale of equity investments
Cash proceeds from return of capital/dividend
from JV partners
Net cash flows used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary/convertible preference shares
Proceeds from issue of subordinated debt holders
Repayment of subordinated debt
Dividends paid
Repayment of lease liabilities 2
Repayment of ESOP shares
Payment of share issue costs
3,585.7
1,037.1
3,578.5
5,072.5
39.1
350.2
(27.0)
4.2
(59.3)
50.0
(7.4)
(4.5)
0.1
4.4
(80.4)
206.0
(12.6)
0.8
(67.0)
44.1
(3.6)
(0.3)
-
2.0
(23.1)
167.1
(26.8)
0.5
-
-
(2.0)
(4.5)
-
4.6
23.1
259.9
(12.6)
0.6
-
-
-
(0.3)
-
2.0
(39.5)
(36.6)
(28.2)
(10.3)
294.8
-
(10.5)
(277.4)
(54.9)
1.1
(4.3)
-
294.8
272.2
(300.0)
(288.7)
-
1.2
-
-
(10.5)
(277.4)
(54.9)
1.1
(4.3)
-
282.2
(300.0)
(288.7)
-
1.2
-
Net cash flows used in financing activities
(51.2)
(315.3)
(51.2)
(305.3)
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of period
259.5
922.0
(145.9)
1,067.9
Cash and cash equivalents at the end of period
8
1,181.5
922.0
87.7
730.2
817.9
(55.7)
785.9
730.2
1 Includes cash outflows relating to the interest component of lease payments in accordance with AASB 16 Leases, which was adopted by the
Group from 1 July 2019. Comparative information has not been restated.
2 Represents cash outflows relating to the principal component of lease liabilities recorded in accordance with AASB 16 Leases, which was
adopted by the Group from 1 July 2019. Comparative information has not been restated.
50 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Basis of preparation
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 details new accounting standards, amendments and interpretations,
and whether they are effective in 2020 or later years. We explain how these changes are expected to impact the
financial position and performance of the Group.
1 Corporate information
The financial report of Bendigo and Adelaide Bank Limited ('the
Bank') and its controlled entities ('the Group') for the year ended
30 June 2020 was authorised for issue in accordance with a
resolution of the directors on 3 September 2020.
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 registered office of the company is:
The Bendigo Centre, 22 – 44 Bath Lane Bendigo, Victoria
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.
•
•
•
•
•
Basis of measurement
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
Debt and equity instruments measured at fair value through
other comprehensive income (FVOCI)
•
•
Significant accounting judgements,
estimates and assumptions
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.
The rapid development of the COVID-19 pandemic during 2020
has had severe consequences for communities worldwide. The
global economic disruption and financial market volatility caused
by the COVID-19 pandemic has created uncertainty about future
economic and market conditions. While measures have been
put in place by governments, regulators and the central banks
to mitigate the impacts of COVID-19 on the economy, there is
still uncertainty as to whether these measures will be sufficient.
In preparing the financial statements for the year ended 30 June
2020, the Group has considered the impact of COVID-19 on
critical judgements, estimates and assumptions.
More information on these judgements, estimates and
assumptions have been included in the following notes:
Note 10 Impairment of loans and advances
•
Note 18 Derivative financial instruments
•
Note 19 Financial instruments
•
Note 25 Investment property
•
Note 26 Goodwill and other intangible assets
•
Note 38 Leases
•
Events subsequent to reporting date
With consideration to AASB 110 Events after the Reporting
Date, the Group has assessed whether the Melbourne and
Victorian lockdown announced by the Victorian Premier on 7
July 2020 constitutes a subsequent event. While it was a new
decision made after 30 June 2020, it was based on events
that had occurred prior to 30 June 2020. In the calculation
of the collectively assessed provision as at 30 June 2020, the
Group considered the possibility of a second wave of COVID-19
and further lockdowns in the range of scenarios used, hence
no adjustments were required. The Group regularly reviews
the forward-looking information and scenarios given that the
COVID-19 situation is constantly evolving.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 5 1
2 Summary of significant accounting policies (continued)
Changes in accounting policies
AASB 16 Leases
The Group applied AASB 16 Leases from 1 July 2019. Prior to the
adoption of AASB 16, non-cancellable operating lease payments
were not recognised as liabilities but were recognised as rental
expenses over the lease term on a straight line basis.
The Group applied AASB 16 using the modified retrospective
approach, under which comparative information is not restated
and the cumulative effect of initially applying AASB 16 is
recognised as an adjustment to the opening balance of retained
earnings as at 1 July 2019.
Definition of a lease
On initial application of AASB 16, the Group elected to apply the
practical expedient to grandfather the assessment of which
transactions are leases. Contracts entered into before 1 July 2019
that had previously been identified as leases under AASB 117
Leases and Interpretation 4 Determining whether an Arrangement
contains a Lease, were not reassessed by the Group but were
considered to also be leases under AASB 16. The definition of a
lease under AASB 16 has been applied only to contracts entered
into or changed on or after 1 July 2019.
The Group as a lessee
As a lessee the Group leases many assets including property, IT
equipment and ATMs. The Group previously classified leases as
operating or finance leases based on an assessment of whether
the lease transferred significantly all the risks and rewards
incidental to the ownership of the underlying asset to the Group.
On transition to AASB 16, right-of-use assets (ROUA) and leases
liabilities have been recorded for most of the Group’s leases,
however, the Group applied the following practical expedients to
leases previously classified as operating leases under AASB 117.
The Group:
•
has not recognised ROUAs and liabilities for leases with
lease term ending within 12 months of 1 July 2019;
has not recognised ROUAs and liabilities for leases of low
value assets;
has measured the ROUAs using their carrying amount as if
AASB 16 had been applied since the lease commencement
date but discounted using the Group’s incremental
borrowing rate at 1 July 2019;
excluded initial direct costs from the measurement of the
ROUA at 1 July 2019;
has recognised its lease liabilities by discounting the
remaining lease payments as at 1 July 2019 using the
incremental borrowing rate for each portfolio of leases with
reasonably similar characteristics; and
used hindsight when determining the lease term where the
contract contains options to extend or terminate the lease.
•
•
•
•
•
There were no onerous lease contracts that would have required
an adjustment to the ROUAs at the date of initial application.
The Group as a lessor
The Group is not required to make any adjustments on transition
to AASB 16 for leases in which it acts as the lessor, except for
sub-leases. The Group sub-leases some of its properties. Under
AASB 117, the head lease and the sub-lease contracts were
classified as operating leases.
52 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
On transition to AASB 16, the Group recognised a ROUA in relation
to the head lease. The Group has assessed the classification of
the sub-lease contracts with reference to the ROUA rather than
the underlying asset, concluding that they are also operating
leases under AASB 16. The Group has applied AASB 15 Revenue
from Contracts with Customers to allocate consideration in the
contract to each lease and non-lease component.
Impact on transition
On transition to AASB 16, the Group recognised ROUAs and
lease liabilities on the Balance Sheet, with an adjustment being
made to the opening balance of retained earnings as at 1 July
2019. The impact on transition is summarised below:
Right-of-use assets
Deferred tax asset
Other assets
Lease liabilities
Provisions
Retained earnings
As at 1 July 2019
$m
226.9
9.9
(0.4)
(266.1)
5.0
24.7
The recognised ROUAs relate to the following types of assets:
Right-of-use assets – Properties
Right-of-use assets – IT Equipment
Right-of-use assets – ATMs
Total right-of-use assets
As at 1 July 2019
$m
202.4
18.7
5.8
226.9
When measuring lease liabilities for leases that were classified as
operating leases, the Group discounted lease payments using its
incremental borrowing rate at 1 July 2019. The weighted-average
rate applied was 2.9%.
An explanation of the differences between the operating lease
commitments previously disclosed in the Group’s 2019 Annual
Financial Report and the lease liabilities recognised in the
Balance Sheet as at 1 July 2019 is as follows:
Operating lease commitments disclosed
as at 30 June 2019
Less: Leases with less than 12 months of lease
term at transition
Less: Low-value leases
Less: Discounting effect using incremental
borrowing rate
Less: Amounts included in commitments but
excluded in AASB 16 1
Add: Extension options which are reasonably
certain to be exercised
Add: Adjustment relating to changes in the index
or rate affecting variable payments
Lease liabilities recognised as at 1 July 2019
$m
362.2
(2.0)
(21.4)
(22.5)
(47.5)
6.8
(9.5)
266.1
1 Examples of amounts included in commitments but excluded from AASB
16 calculations include GST and operational expenditure.
2 Summary of significant accounting policies (continued)
Changes in accounting policies (continued)
AASB 16 Leases (continued)
Leases accounting policy
The accounting policy applied by the Group to leases from 1
July 2019 is described below. At the inception of a contract, the
Group makes an assessment as to whether the contract is a
lease or contains a lease. A contract is, or contains, a lease if
the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration.
The Group has elected not to recognise ROUAs and lease
liabilities for leases of low-value assets and short-term leases
(leases that have lease terms of 12 months or less). The Group
recognises the lease payments associated with these leases as
an expense on a straight-line basis over the lease term.
1. As a lessee
At the commencement or on modification of a contract that
contains a lease component, the Group recognises a ROUA and
a lease liability. The ROUA is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for
any lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate of
costs to dismantle and remove the underlying asset or to restore
the underlying asset or the site on which it is located, less any
lease incentives received. ROUAs are included in the balance of
Property, plant and equipment in the Balance Sheet.
The ROUA is subsequently depreciated using the straight-line
method from the commencement date to the earlier of the end
of the useful life of the ROUA or the end of the lease term. In
addition, the ROUA is periodically reduced by impairment losses, if
any, and adjusted for certain remeasurements of the lease liability.
The Group will assess, at each reporting date, whether there is
an indication that a ROUA may be impaired. If any indication
exists, the Group will estimate the recoverable amount of the
ROUA, and if the carrying amount of the ROUA exceeds its
recoverable amount, the ROUA will be considered impaired
and written down to its recoverable amount. At each reporting
date an assessment will be made to determine whether there
is an indication that previously recognised impairment losses
in relation to ROUAs no longer exist or have decreased. If such
indication exists, the Group will estimate the ROUA’s recoverable
amount. A previously recognised impairment loss will be
reversed only if there has been a change in the assumptions
used to determine the asset’s recoverable amount since the
last impairment loss was recognised. The reversal will be limited
so that the carrying amount of the ROUA does not exceed its
recoverable amount, nor exceed the carrying amount that would
have been determined, net of depreciation, had no impairment
loss been recognised for the asset in prior years. Such a reversal
will be recognised in the Income Statement unless the asset
is carried at a revalued amount, in which case, the reversal is
treated as a revaluation increase.
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the Group’s incremental
borrowing rate. Generally, the Group uses its incremental
borrowing rate as the discount rate. Lease liabilities are included
in the balance of Other payables in the Balance Sheet.
The Group determines its incremental borrowing rate through
reference to internal cost of funds rates and makes certain
adjustments to reflect the terms of the lease and type of the
asset leased.
•
•
•
Lease payments included in the measurement of the lease
liability comprise the following:
•
fixed payments (including in-substance fixed payments), less
any lease incentives received;
variable lease payments that are based on an index or
a rate, initially measured using the index or rate as at the
commencement date;
amounts expected to be payable under residual value
guarantees; and
the exercise price under a purchase option that the Group
is reasonably certain to exercise, lease payments in an
optional renewal period if the Group is reasonably certain
to exercise an extension option, and penalties for early
termination of a lease unless the Group is reasonably
certain not to terminate early.
For contracts that contain both lease and non-lease
components, the Group allocates the consideration to each
lease component on the basis of the relative stand-alone price
of the lease and the non-lease component. For property leases,
the Group has elected not to separate non-lease components
and account for the lease and non-lease components as a
single lease component.
The lease liability is measured at amortised cost using the
effective interest method. It is remeasured when there is a
change in future lease payments arising from a change in an
index or rate, if there is a change in the Group’s estimate of
the amount expected to be payable under a residual value
guarantee, if the Group changes its assessment of whether it will
exercise a purchase, extension or termination option or if there
is a revised in-substance fixed lease payment. When the lease
liability is remeasured in this way, a corresponding adjustment is
made to the carrying amount of the ROUA or is recorded in the
Income Statement if the carrying amount of the ROUA has been
reduced to zero. Lease liability is included in the balance of Other
payables in the Balance Sheet.
In the Cash Flow Statement, the principal component of lease
payments is considered to be a financing activity and the
interest component is captured in net cash flows from operating
activities as an interest payment.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 5 3
2 Summary of significant accounting policies (continued)
The Group’s hedging derivatives portfolio of interest rate swaps
is exposed to the Bank Bill Swap Rate (BBSW). The project
established to monitor the developments of regulators and to
assess the impact of the introduction of alternative risk-free
rates is continuing. This program of works includes assessing and
implementing necessary changes to ensure the introduction of
the new risk-free rate is incorporated into the Group's internal
processes and systems including pricing, risk management,
documentation and hedge arrangements.
The Group's hedging relationships are predominately affected
by the BBSW. Given the Group expects that BBSW will continue
to exist as a benchmark rate going forward, it does not foresee
an impact on its fair value or cash flow hedges.
Recently issued or amended standards
not yet effective
Amendments to References to Conceptual Framework
in IFRS Standards
In June 2019 the AASB issued a revised Conceptual Framework
for Financial Reporting. The new Framework includes updated
definitions and criteria for the recognition and derecognition of
assets and liabilities. Additionally, it introduces new concepts
on measurement, including factors to consider when selecting
a measurement basis. The revised Conceptual Framework will
apply to the Group from 1 July 2020 and is not expected to have
a material impact on the Group.
The following amendments to existing standards are not
expected to result in significant changes to the Group’s
accounting policies:
•
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];
2019-1 Amendments to Australian Accounting Standards –
Reference to the Conceptual Framework;
AASB 17 Insurance Contracts;
Classification of liabilities as current or non-current
(Amendments to AASB 101);
COVID-19 Related Rent Concessions
(Amendments to AASB 16);
Onerous Contracts - Cost of Fulfilling a Contract
(Amendments to AASB 137);
Annual Improvements to IFRS Standards 2018-2020;
Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to AASB 16); and
Reference to the Conceptual Framework (Amendments to
AASB 3).
•
•
•
•
•
•
•
•
•
Changes in accounting policies (continued)
AASB 16 Leases (continued)
Leases accounting policy (continued)
2. As a lessor
When the Group acts as a lessor, it determines at lease inception
whether each lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment
of whether the lease transfers substantially all of the risks and
rewards incidental to ownership of the underlying asset. If this
is the case, then the lease is a finance lease; if not, then it is an
operating lease. As part of this assessment, the Group considers
certain indicators such as whether the lease is for the major part
of the economic life of the asset.
When the sub-lease is assessed as a finance lease, the Group
derecognises the ROUA relating to the head lease that is
transfers to the sub-lessee and recognises the net investment
in the sub-lease as a receivable. Any difference between the
ROUA derecognised and the net investment in the sub-lease is
recognised in the Income Statement.
The lease liability relating to the head lease is retained in the
Balance Sheet, representing the lease payments owed to the
head lessor.
When the sub-lease is assessed as an operating lease, the
Group recognises lease income from the sub-lease in the Income
Statement on straight-line basis over the lease term and the
ROUA relating to the head lease is not derecognised.
When the Group is an intermediate lessor, it accounts for its
interests in the head lease and the sub-lease separately. It
assesses the lease classification of a sub-lease with reference to
the ROUA arising from the head lease, rather than the underlying
asset. For contracts which contain lease and non-lease
components, the Group allocates the consideration based on a
relative stand-alone selling price basis.
Interest Rate Benchmark Reform
(Amendments to IFRS 9, IAS 39 and IFRS 7)
The Group early adopted AASB 2019-3 Amendments to
Australian Accounting Standards - Interest Rate Benchmark
Reform, issued by the AASB in October 2019. The standard
includes a number of reliefs that apply to all hedging
relationships directly affected by interest rate benchmark reform.
A hedging relationship is affected if interest rate benchmark
reform gives rise to uncertainties about the timing and/or amount
of benchmark-based cash flows of the hedged item or the
hedging instrument.
The reliefs apply during the period before the replacement of
an existing interest rate benchmark with an alternative risk-free
rate. The reliefs cease to apply once certain conditions are met.
54 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Results for the year
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 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
Lease liability - interest expense
Preference shares
Subordinated debt
Total interest expense
Total net interest income
Other revenue
Fee income
Assets
Group
2020 1
$m
2019
$m
Bank
2020 1
$m
Note
0.5
58.5
1.0
1.1
11.5
2,197.6
2,270.2
(668.8)
(125.9)
-
(73.8)
(4.0)
(7.4)
(29.4)
(27.1)
1.2
94.0
4.7
12.0
13.4
2,518.0
2,643.3
(965.7)
(208.9)
(4.1)
(94.4)
(7.8)
-
(35.7)
(37.1)
(936.4)
1,333.8
(1,353.7)
1,289.6
0.4
58.5
148.8
1.1
11.5
1,988.1
2,208.4
(668.7)
(125.9)
-
0.1
(4.0)
(7.4)
(29.4)
(27.1)
(862.4)
1,346.0
2019
$m
1.2
95.3
166.3
0.6
13.4
2,071.6
2,348.4
(894.3)
(196.1)
(4.1)
(0.1)
(7.5)
-
(35.7)
(36.6)
(1,174.4)
1,174.0
Liabilities and other products
Trustee, management and other services
Total fee income
Commissions and management fees
Revenue from contracts with customers
Other income
Foreign exchange income
Factoring products income
Trading book income
Homesafe revaluation gain/(loss)
25
Dividend income
Other
Total other income
Total other revenue
76.0
76.1
3.4
77.4
83.2
3.2
67.8
76.0
0.7
68.8
79.8
0.6
155.5
163.8
144.5
149.2
56.6
73.5
15.8
19.3
212.1
237.3
160.3
168.5
22.6
1.4
11.2
36.0
1.3
16.0
88.5
22.4
1.7
12.2
(24.1)
0.6
27.8
40.6
300.6
277.9
22.6
1.4
11.2
-
120.5
13.3
169.0
329.3
22.4
1.7
12.4
-
300.6
30.2
367.3
535.8
1 The Group applied AASB 16 Leases from 1 July 2019. 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 0 2 0 5 5
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 (i.e. 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.
The Group adopted AASB 16 Leases on 1 July 2019. Consequently,
where the Group acts as a lessee, and a lease liability has been
recognised, the interest expense associated with the lease
liability is recognised as an interest expense.
Note
10
Expenses
Credit expenses
Individually assessed provision
Collectively assessed provision
Bad debts written off
Bad debts recovered
Total credit expenses
Operating expenses
Staff and related costs
Salaries, wages and incentives
Superannuation contributions
Other staff related costs
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 2
Depreciation of property, plant and equipment 3
Total amortisation and depreciation costs
Fees and commission expense
Other operating expenses
Communications, postage and stationery
Computer systems and software costs
Advertising and promotion
Other product and services delivery costs
Other expenses 4
Total other operating expenses
Total other expenses
Trading book income represents the fair value adjustments for
financial assets measured at FVTPL.
Commissions and management fees are earned by the Group
from a diverse range of financial services provided to customers.
Fees, commissions and management fees are 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 25
for further information.
Group
2020 1
$m
(56.4)
(106.2)
(10.7)
4.8
(168.5)
(481.0)
(50.1)
(36.0)
(567.1)
(5.5)
(7.8)
(23.0)
(36.3)
(3.2)
(50.1)
(64.4)
(117.7)
(20.3)
(35.8)
(70.9)
(31.6)
(24.3)
(275.8)
(438.4)
2019
$m
(70.1)
25.5
(10.0)
4.3
(50.3)
(445.2)
(40.8)
(32.5)
(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)
Bank
2020 1
$m
(56.3)
(106.3)
(8.3)
3.1
2019
$m
(69.2)
21.5
(2.6)
2.5
(167.8)
(47.8)
(464.4)
(48.5)
(34.9)
(547.8)
(5.5)
(7.8)
(22.7)
(36.0)
(1.8)
(49.6)
(64.3)
(115.7)
(7.2)
(38.0)
(67.9)
(30.9)
(24.3)
(294.7)
(455.8)
(398.2)
(36.5)
(29.0)
(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)
1 The Group applied AASB 16 Leases from 1 July 2019. Prior periods have not been restated.
2 FY20 includes software accelerated amortisation expenses (Group: $19.0m and Bank: $18.5m).
3 FY20 includes depreciation of ROUAs.
4 FY20 includes software impairment charges (Group: $121.9m and Bank: $121.9m).
56 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
(1,179.8)
(965.2)
(1,162.5)
3 Profit (continued)
Recognition and measurement
Operating expenses are recognised as the relevant service is
rendered, or once a liability is incurred.
Credit expenses are measured as the difference between the
carrying amount and the value of the estimated future cash
flows, discounted at the financial instruments original effective
interest rate. Refer to Note 10 for more information on the
impairment of loans and advances.
Staff and related costs
Wage and salary costs are recognised over the period in which
the employees provide the service. Refer to Note 29 for more
information relating to staff provisions.
Incentive payments are recognised to the extent that the Group
has a present obligation. Refer to Note 35 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
Includes operating lease expenses relating to low value assets
and short-term leases (leases that have lease terms of 12 months
or less). Prior to the adoption of AASB 16 on 1 July 2019 operating
lease payments were recognised as an expense on a straight
line basis over the lease term.
Amortisation
Refer to Note 26 for information on the amortisation of
intangibles.
Depreciation
Following the adoption of AASB 16 on 1 July 2019, expenses
associated with operating leases are shown as depreciation
of the Right-of-Use-Assets (ROUA). Comparatives have not
been restated. Refer to Note 38 for further information on the
depreciation of leased assets.
Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the
amount of GST except:
•
where the GST incurred on a purchase of goods and
services is not recoverable from the taxation authority, in
which case the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense item as
applicable; and
receivables and payables are stated with the amount of
GST included.
•
The net amount of GST recoverable from or payable to
the taxation authority is included as part of receivables or
payables in the Balance Sheet. Cash flows are included
in the cash flow statement on a gross basis. The GST
component of cash flows arising from investing and financing
activities, which are recoverable from or payable to the
taxation authority, are classified as operating cash flows.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 5 7
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
2020
$m
2019
$m
Bank
2020
$m
2019
$m
(163.1)
(168.0)
(157.5)
(144.5)
1.0
2.5
(1.4)
67.7
1.1
5.9
(4.2)
(10.0)
1.0
2.6
(1.6)
73.3
1.1
7.0
(5.2)
(19.8)
Income tax expense reported in the Income Statement
(93.3)
(175.2)
(82.2)
(161.4)
Statement of changes in equity
Deferred income tax related to items charged or credited
directly in equity
Net gain on cash flow hedges
6.1
(5.8)
Net gain on financial assets fair value through other
comprehensive income (FVOCI)
Net gain on revaluation of land and buildings
Actuarial gain on superannuation defined benefits plan
Income tax charged or credited in equity
(0.2)
0.2
0.4
6.5
6.1
13.7
-
0.4
(5.8)
(5.5)
-
-
-
-
-
(5.8)
20.2
(11.3)
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
286.1
552.0
345.0
805.7
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
Under provision in prior years
Tax credits and adjustments
(85.8)
(165.6)
(103.5)
(241.7)
1.1
1.0
1.8
1.1
1.0
1.0
1.8
1.1
Expenditure not allowable for income tax purposes
(11.3)
(12.3)
(18.4)
(11.7)
Other non assessable income
Tax effect of tax credits and adjustments
Dividends received
Other
0.2
(0.3)
-
1.8
0.9
(0.3)
-
(0.8)
0.2
(0.3)
35.8
2.0
0.1
(0.3)
90.0
(0.7)
Income tax expense reported in the Income Statement
(93.3)
(175.2)
(82.2)
(161.4)
Deferred income tax
Deferred income tax at 30 June relates to the following:
Deferred income tax at 30 June relates to the following:
Gross deferred tax assets
Derivatives
Employee benefits
Provisions
Lease liability
Property, plant and equipment
Other
Gross deferred tax assets
Set-off of deferred tax assets and deferred tax liabilities
Net deferred tax assets
58 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Group
Bank
2020
$m
35.0
29.4
106.5
66.4
-
14.6
251.9
(163.6)
88.3
2019
$m
41.4
28.7
91.9
-
22.0
8.6
192.6
(187.3)
5.3
2020
$m
35.0
29.5
107.0
66.3
-
19.1
256.9
(73.8)
183.1
2019
$m
41.4
28.3
93.4
-
21.9
4.6
189.6
(107.7)
81.9
4 Income tax expense (continued)
Deferred income tax (continued)
Gross deferred tax liabilities
Net gain on financial assets fair value through other
comprehensive income (FVOCI)
Deferred expenses
Derivatives
Intangible assets
Investment property
Property, plant and equipment
Other
Gross deferred tax liability
Group
Bank
2020
$m
0.6
-
31.7
1.6
88.3
32.6
8.8
2019
$m
0.2
1.4
45.1
36.6
84.6
-
19.4
163.6
187.3
2020
$m
-
-
31.7
0.8
-
32.5
8.8
73.8
2019
$m
7.2
1.4
45.1
35.3
-
-
18.7
107.7
Set-off of deferred tax assets and deferred tax liabilities
(163.6)
(187.3)
(73.8)
(107.7)
Net deferred tax liabilities
Income tax payable/(current tax asset)
Income tax payable/(current tax asset)
Tax (refundable)/payable attributable to members of the
tax consolidated group
-
-
-
-
(17.6)
(17.6)
6.4
6.4
(17.6)
(17.6)
6.4
6.4
At 30 June 2020, there is no unrecognised deferred income
tax liability (2019: 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.
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.
Tax consolidation
Bendigo and Adelaide Bank Limited and its 100% owned
subsidiaries form the tax consolidated Group. Members of the
Group entered into a tax sharing agreement to allocate income
tax liabilities to the wholly-owned subsidiaries should the head
entity default on its tax payment obligations.
At the balance date, the possibility of default is remote. The
head entity of the tax consolidated Group is Bendigo and
Adelaide Bank Limited.
Members of the tax consolidated Group have entered into a tax
funding agreement. The tax funding agreement provides for the
allocation of current taxes to members of the tax consolidated
Group on a group allocation method based on a notional
stand alone calculation, while deferred taxes are calculated by
members of the tax consolidated Group in accordance with
AASB 112 Income Taxes.
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.
Deferred taxes
The Group has adopted the Balance Sheet liability method
of tax effect accounting, which focuses on the tax effects of
transactions and other events that affect amounts recognised in
either the Balance Sheet or a tax-based Balance Sheet.
Deferred tax assets and liabilities are recognised for temporary
differences, except where the deferred tax asset/liability arises
from the initial recognition of an asset or liability in a transaction
that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit or loss.
For amounts directly recognised in equity, the associated current
and deferred tax balances 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.
The carrying amount of deferred income tax assets is reviewed
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 5 9
5 Segment results
Segment reporting
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.
The Group has the following reportable segments: Consumer,
Business and Agribusiness.
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, Community
Sector Banking and Great Southern.
Agribusiness
Agribusiness includes all banking services provided to
agribusiness, rural and regional Australian communities through
Rural Bank.
Corporate
Corporate includes the results of the Group’s support functions
including treasury, technology, property services, strategy,
finance, risk, compliance, legal, human resources, and investor
relations.
Accounting policies and inter-segment transactions
Measurement of segmental assets, liabilities, income and
expenses is in accordance with the Group's accounting policies.
Segment results are determined by including all revenue and
expenses associated with each business. Transactions between
business segments are conducted at arm's length, and are
eliminated on consolidation.
Segment net interest income is recognised based on an internally
set funds transfer pricing policy, based on pre-determined market
rates of return on the assets and liabilities of the segment.
Major customers
Revenues from no individual customer amount to greater than
10% of the Group's revenue.
Geographic Information
The allocation of revenue and assets is based on the geographic
location of the customer. The Group operates in all Australian
states and territories, providing banking and other financial
services.
For the year ended 30 June 2020
For the year ended 30 June 2020
Operating segments
Consumer
Business Agribusiness
Total
operating
segments Corporate 1
Net interest income
Other income
Total segment income
Operating expenses
Credit (expenses)/income
$m
856.3
224.8
1,081.1
(482.4)
3.9
$m
288.1
42.5
330.6
(97.9)
(35.0)
$m
155.3
18.3
$m
1,299.7
285.6
$m
34.1
15.0
Total
$m
1,333.8
300.6
173.6
1,585.3
49.1
1,634.4
(63.6)
(6.1)
(643.9)
(37.2)
(535.9)
(131.3)
(1,179.8)
(168.5)
Segment result (before tax expense)
602.6
197.7
103.9
904.2
(618.1)
286.1
Tax (expense)/income
Segment result (statutory basis)
Cash basis adjustments:
(196.5)
406.1
(64.5)
133.2
(33.9)
(294.9)
201.6
70.0
609.3
(416.5)
Specific income and expense items (after tax)
Homesafe net realised income (after tax)
Amortisation of acquired intangibles (after tax)
(12.3)
11.0
-
3.0
-
0.1
0.1
-
0.5
(9.2)
11.0
0.6
104.9
-
1.6
(93.3)
192.8
95.7
11.0
2.2
Segment result (cash basis)
404.8
136.3
70.6
611.7
(310.0)
301.7
1 The COVID-19 overlay of $127.7m has been included in the Corporate segment results.
60 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
5 Segment results (continued)
For the year ended 30 June 2019
For the year ended 30 June 2019
Operating segments
Consumer
Business Agribusiness
Total
operating
segments Corporate
Net interest income
Other income
Total segment income
Operating expenses
Credit expenses
$m
826.3
188.7
1,015.0
(494.9)
(18.7)
$m
295.8
45.3
341.1
(88.7)
(32.5)
Segment result (before tax expense)
501.4
219.9
$m
135.9
15.2
$m
1,258.0
249.2
$m
31.6
28.7
Total
$m
1,289.6
277.9
151.1
1,507.2
60.3
1,567.5
(66.8)
2.5
86.8
(650.4)
(48.7)
(314.8)
(1.6)
(965.2)
(50.3)
808.1
(256.1)
552.0
Tax (expense)/income
Segment result (statutory basis)
Cash basis adjustments:
(159.1)
342.3
(69.8)
150.1
(27.6)
(256.5)
81.3
(175.2)
59.2
551.6
(174.8)
376.8
Specific income and expense items (after tax)
Homesafe net realised income (after tax)
Amortisation of acquired intangibles (after tax)
32.1
9.9
0.4
-
-
-
0.8
-
0.4
32.9
9.9
0.8
(6.5)
-
1.8
26.4
9.9
2.6
Segment result (cash basis)
384.7
150.1
60.4
595.2
(179.5)
415.7
Reportable segment assets
Reportable segment assets
and liabilities
and liabilities
For the year ended 30 June 2020
Reportable segment assets
Reportable segment liabilities
For the year ended 30 June 2019
Reportable segment assets
Reportable segment liabilities
Operating segments
Consumer
Business Agribusiness
Total
operating
segments Corporate
$m
$m
$m
$m
$m
Total
$m
45,884.6
13,348.8
6,073.5
65,306.9
10,702.0
76,008.9
41,281.0
11,503.7
3,107.8
55,892.5
10,814.7
66,707.2
42,705.0
13,446.4
5,997.5
62,148.9
10,286.4
72,435.3
37,750.6
12,118.2
3,863.0
53,731.8
9,607.5
63,339.3
Total assets for operating segments
Total assets
Total liabilities for operating segments
Notes payable and Term Funding Facility 1
Total liabilities
1 Refer to Note 14 for further details.
As at
June 2020
$m
As at
June 2019
$m
76,008.9
72,435.3
76,008.9
72,435.3
66,707.2
63,339.3
3,503.5
3,464.4
70,210.7
66,803.7
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 61
6 Earnings per ordinary share
Basic
Diluted
Cash basis
Group
2020
2019
Cents per share Cents per share
38.1
35.2
59.7
77.1
69.7
85.0
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 (losses)/gains on economic hedges
Homesafe revaluation gain/(loss)
Total specific other income items
Items included in operating expenses
Compensation costs
Impairment charge
Integration costs
Legal costs
Loss on sale of Bendigo Financial Planning business
Restructuring provision
Software accelerated amortisation
Software impairment
Total specific operating expense items
Total specific items attributable to the Group
Other specific items
Homesafe revaluation gain - realised
Homesafe funding costs - realised
Homesafe net realised income
62 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
$m
192.8
192.8
192.8
20.6
213.4
192.8
2.2
95.7
11.0
301.7
(0.1)
(8.8)
(8.9)
(2.2)
25.2
23.0
-
(2.8)
-
(2.1)
-
(6.2)
(13.2)
(85.5)
$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)
(0.5)
(0.5)
(0.9)
(1.6)
-
-
-
(109.8)
(4.0)
(95.7)
(26.4)
(17.0)
6.0
(11.0)
(15.0)
5.1
(9.9)
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
2020
2019
No. of shares
No. of shares
505,527,450
489,004,317
894,188
1,294,474
98,959,710
86,317,579
605,381,348
576,616,370
Dilutive
2020
Yes
Yes
No
2019
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 judgements,
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 0 2 0 6 3
7 Dividends
Ordinary shares (ASX:BEN)
Group
Bank
Dividends
paid
Date
paid
Cents
per
share
Total
amount
Date
paid
Cents
per
share
Total
amount
Date
paid
Cents
per
share
Total
amount
Date
paid
Cents
per
share
Total
amount
¢
$m
¢
$m
¢
$m
¢
$m
June 2019 final dividend
June 2018 final dividend
June 2019 final dividend
June 2018 final dividend
Sept 2019
35.0
169.5
Sept 2018
35.0
166.0
Sept 2019
35.0 169.5 Sept 2018
35.0 166.0
December 2019
interim dividend
December 2018
interim dividend
December 2019
interim dividend
December 2018
interim dividend
Mar 2020
31.0
150.8 Mar 2019
35.0
168.7 Mar 2020
31.0 150.8 Mar 2019
35.0 168.7
66.0 320.3
70.0 334.7
66.0 320.3
70.0 334.7
All dividends paid were fully franked at 30% either from existing franking credits or from franking credits arising from payment of
income tax provided for in the financial statements.
June 2020 Final Dividend - Decision Deferred
Whilst economic uncertainty remains and the full impact of COVID-19 is still evolving, the Board has acted prudently in considering
the interests of shareholders and APRA’s industry guidance on capital management, to defer a final dividend decision. Ongoing stress
testing continues to support the Bank’s strong balance sheet and capital position.
The Board will continue to monitor the economic conditions in order to review dividend options.
Preference shares
Group
Bank
2020
2019
2020
2019
Date
paid
Cents
per
share
Total
amount
Date
paid
Cents
per
share
Total
amount
Date
paid
Cents
per
share
Total
amount
Date
paid
Cents
per
share
Total
amount
¢
$m
¢
$m
¢
$m
¢
$m
Convertible preference shares (CPS2) (recorded as debt instruments) (ASX:BENPE)
Nov 2019 164.71
4.8
Nov 2018 186.49
5.4
Nov 2019 164.71
4.8 Nov 2018 186.49
May 2020 144.57
4.2 May 2019 185.02
5.4 May 2020 144.57
4.2 May 2019 185.02
5.4
5.4
309.28
9.0
371.51
10.8
309.28
9.0
371.51
10.8
Convertible preference shares (CPS3) (recorded as debt instruments) (ASX:BENPF)
Dec 2019 184.60
5.2 Dec 2018 218.71
6.2 Dec 2019 184.60
5.2 Dec 2018 218.71
June 2020 174.03
4.9 June 2019 215.91
6.1 June 2020 174.03
4.9 June 2019 215.91
6.2
6.1
358.63
10.1
434.62
12.3
358.63
10.1
434.62
12.3
Converting preference shares (CPS4) (recorded as debt instruments) (ASX:BENPG)
Sept 2019 89.91
2.9 Sept 2018 102.60
3.3 Sept 2019 89.91
2.9 Sept 2018 102.60
Dec 2019 83.43
2.7 Dec 2018 99.07
3.2 Dec 2019 83.43
2.7 Dec 2018 99.07
Mar 2020 81.08
2.6 Mar 2019 99.24
3.2 Mar 2020 81.08
2.6 Mar 2019 99.24
June 2020 78.78
2.5 June 2019 99.11
3.2 June 2020 78.78
2.5 June 2019 99.11
3.3
3.2
3.2
3.2
333.20
10.7
400.02
12.9
333.20
10.7
400.02
12.9
64 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
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 2020
June 2019
$m
499.0
(17.6)
$m
463.0
6.4
(0.6)
(73.5)
480.8
395.9
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 2020
June 2019
June 2020
June 2019
$m
277.4
42.9
320.3
$m
288.7
46.0
334.7
$m
277.4
42.9
320.3
$m
288.7
46.0
334.7
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 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 Stock Exchange over the seven
trading days commencing two trading days following the record
date for determining entitlements. Shares issued under this Plan
rank equally with all other ordinary shares. Given the Board’s
decision to defer the final dividend for the year ended 30 June
2020, decisions relating to the Dividend Reinvestment Plan have
also been deferred and will be reviewed in line with dividend
options.
The Bonus Share Scheme provides shareholders with the
opportunity to elect to receive a number of bonus shares issued
for no consideration instead of receiving a dividend. The issue
price of the share is equal to the volume weighted average
share price of Bendigo and Adelaide Bank shares traded on
the Australian Stock Exchange over the seven trading days
commencing two trading days following the record date for
determining entitlements. Shares issued under this Plan rank
equally with all other ordinary shares. Given the Board’s decision
to defer the final dividend for the year ended 30 June 2020,
decisions relating to the Bonus Share Scheme have also been
deferred and will be reviewed in line with dividend options.
The last date for the receipt of an election notice for
participation in either the Dividend Reinvestment Plan or the
Bonus Share Scheme for the 2020 final dividend is the trading
day following the record date for determining entitlements.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 6 5
Financial Instruments
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 cash flow 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 cash flows 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 the Income Statement.
Classification of financial assets
Subsequent to initial 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).
•
•
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. Non-traded equity instruments have been
designated at FVOCI with no subsequent reclassification to the
Income Statement. All other assets are measured at FVTPL.
66 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
8 Cash and cash equivalents
Notes and coins
Cash at bank
Reverse repurchase agreements
Investments at call
Total cash and cash equivalents
Group
Bank
2020
$m
129.7
960.0
99.9
-
2019
$m
138.4
653.6
200.0
80.0
2020
$m
129.8
596.3
99.9
-
1,189.6
1,072.0
826.0
2019
$m
138.3
461.9
200.0
80.0
880.2
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
$m
1,189.6
137.0
(145.1)
$m
1,072.0
270.6
(420.6)
$m
826.0
137.0
$m
880.2
270.6
(145.1)
(420.6)
1,181.5
922.0
817.9
730.2
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 0 2 0 67
9 Loans and other receivables
Overdrafts
Credit cards
Term loans
Margin lending
Lease receivables
Factoring receivables
Other
Gross loans and other receivables
Individually assessed provision
Collectively assessed provision
Unearned income
Total provisions and unearned income
Deferred costs paid
Net loans and other receivables
Maturity analysis 1
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
Gross loans and other receivables
Note
Group
2020
$m
2019
$m
Bank
2020
$m
2019
$m
1,985.8
2,420.6
1,985.2
2,420.0
307.2
350.6
307.2
350.6
60,911.2
57,002.7
61,703.1
57,716.6
1,294.9
1,559.0
626.2
33.3
163.1
609.6
63.9
134.4
-
625.2
33.3
163.1
-
603.7
63.9
134.4
65,321.7
62,140.8
64,817.1
61,289.2
10
10
(78.4)
(263.2)
(81.1)
(128.5)
(157.0)
(97.2)
(78.2)
(262.4)
(81.0)
(128.2)
(156.1)
(96.7)
(422.7)
(382.7)
(421.6)
(381.0)
81.4
64.1
81.3
64.0
64,980.4
61,822.2
64,476.8
60,972.2
5,053.1
1,121.7
2,094.5
10,652.7
5,739.0
1,228.1
2,030.4
9,186.0
4,552.1
1,120.7
2,094.5
10,652.7
4,895.9
1,226.3
2,030.2
9,184.3
46,399.7
43,957.3
46,397.1
43,952.5
65,321.7
62,140.8
64,817.1
61,289.2
1 Balances exclude individually assessed and collectively assessed provisions, unearned revenue, and deferred costs and are categorised by
the contracted maturity date of each.
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.
Some of the Group's customers have been provided with
COVID-19 support measures which allow for the deferral of loan
payments during the deferral period. These packages have
been offered to customers to provide short-term cash flow
support. During the deferral period, interest has been capitalised.
It is expected that the loan balance along with the capitalised
interest will be repaid in full.
68 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
10 Impairment of loans and advances
Summary of impaired financial assets
Impaired loans
Loans - without provisions
Loans - with provisions
Restructured loans
Less: individually assessed provisions
Net impaired loans
Group
2020
$m
52.4
187.1
1.0
2019
$m
85.5
222.1
3.3
Bank
2020
$m
52.4
187.0
1.0
2019
$m
85.5
220.8
3.3
(77.5)
(127.6)
(77.3)
(127.3)
163.0
183.3
163.1
182.3
Net impaired loans % of net loans and other receivables
0.25%
0.29%
0.25%
0.30%
Portfolio facilities - past due 90 days, not well secured
Less: individually assessed provisions
Net portfolio facilities
Loans past due 90 days
4.9
(0.9)
4.0
4.6
(0.9)
3.7
4.9
(0.9)
4.0
4.6
(0.9)
3.7
Accruing loans past due 90 days, with adequate security balance
Net fair value of properties acquired through the enforcement of security
399.2
96.4
458.9
60.7
399.2
94.7
458.9
60.7
Recognition and measurement
A facility is classified as impaired regardless of whether it is
90 days or more past due (arrears) when there is doubt as to
whether the full amounts due (interest and principal) will be
achieved in a timely manner. This is the case even if the full
extent of the loss cannot be clearly determined.
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.
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.
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.
Group
Stage 1
Stage 2
Stage 3
Stage 3
Collective
provision
12 month
ECL
Lifetime
ECL
Collectively
assessed -
Lifetime ECL
Individually
assessed -
Lifetime ECL
General
reserve for
credit losses
Movements in provisions and reserve
$m
$m
$m
$m
$m
$m
Total
$m
Balance as at 30 June 2019
-
28.3
84.5
44.2
128.5
77.3
362.8
Transfers during the period to:
Stage 1
Stage 2
Stage 3
Transfer from collectively assessed to
individually assessed provisions
New/increased provisions
Write-back of provisions no longer
required
Change in balances
Bad debts written off
previously provided for 1
Total provision for doubtful debts
as at 30 June 2020
-
-
-
-
-
-
-
-
-
0.7
(0.7)
(17.3)
18.3
(6.6)
(6.2)
(0.1)
(1.2)
-
(1.0)
12.8
(6.5)
-
-
-
7.8
-
-
-
-
-
-
-
-
11.6
131.4
1.0
48.6
20.6
213.2
(5.2)
(8.3)
(3.4)
17.5
(17.4)
(13.2)
-
-
-
(16.9)
(11.3)
(24.4)
-
-
-
(106.5)
-
(106.5)
28.9
200.4
33.9
78.4
86.6
428.2
1 The reduction in the individually assessed provision is mainly due to the resolution of a number of larger longstanding loans in the second half of the financial year.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 6 9
1 AASB 9 has been adopted on 1 July 2018; Refer to June 2019 Annual Financial Report for further details.
10 Impairment of loans
and advances (continued)
Group
Movements in provisions and reserve
Balance as at 30 June 2018
Restated for adoption of new
accounting standards 1
Transfer from retained earnings
Transfers during the period to:
Stage 1
Stage 2
Stage 3
Transfer from collectively assessed to individually
assessed provisions
New/increased provisions
Write-back of provisions no longer required
Change in balances
Bad debts written off previously provided for
Total provision for doubtful debts as at 30 June 2019
Bank
Balance as at 30 June 2019
Transfers during the period to:
Stage 1
Stage 2
Stage 3
Transfer from collectively assessed to individually
assessed provisions
New/increased provisions
Write-back of provisions no longer required
Change in balances
Bad debts written off previously provided for
Total provision for doubtful debts as at 30 June 2020
Balance as at 30 June 2018
Restated for adoption of new
accounting standards 1
Transfer from retained earnings
Transfers during the period to:
Stage 1
Stage 2
Stage 3
Transfer from collectively assessed to individually
assessed provisions
New/increased provisions
Write-back of provisions no longer required
Change in balances
Bad debts written off previously provided for
Balances from transfer of business
Stage 1 Stage 2
Collective
provision
$m 1
12
month
ECL
$m
48.2
-
Life-
time
ECL
$m
-
Stage 3
Collectively
assessed -
Lifetime
ECL
$m
Stage 3
Individually
assessed -
Lifetime
ECL
$m
General
reserve
for credit
losses
$m 1
Total
$m
-
119.3
140.3
307.8
(48.2)
33.1
79.0
70.4
-
-
-
2.9
(2.8)
(29.1)
31.5
(9.9)
(15.7)
(0.1)
(0.6)
6.6
(6.4)
31.2
-
4.5
(4.4)
(7.0)
-
(0.1)
(2.4)
25.6
(1.3)
1.1
(7.3)
(41.8)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2.0
68.1
-
-
(60.9)
(82.9)
51.4
19.9
19.9
-
-
-
-
-
-
-
-
-
-
-
-
80.3
(18.1)
(17.6)
(60.9)
28.3
84.5
44.2
128.5
77.3
362.8
$m
$m
$m
$m
$m
$m
$m
-
27.5
84.6
44.0
128.2
77.3
361.6
-
-
-
-
-
-
-
-
-
0.7
(0.7)
(17.3)
18.3
(6.6)
(6.2)
(0.1)
(1.2)
11.7
131.4
(5.2)
(8.3)
17.5
-
(17.4)
-
-
(1.0)
12.8
(6.5)
1.0
(3.4)
-
-
-
7.8
-
-
-
-
-
-
-
-
48.5
20.6
213.2
-
-
(16.9)
(13.2)
-
-
(106.3)
(11.3)
(24.4)
- (106.3)
28.2
200.5
33.7
78.2
86.6
427.2
$m 1
45.7
$m
-
$m
-
$m
-
$m
$m 1
$m
105.4
121.7
272.8
(45.7)
30.9
68.0
59.2
-
-
-
-
-
-
-
-
-
2.0
(0.1)
(2.4)
25.6
(1.3)
5.2
67.2
(7.3)
(41.8)
-
6.9
-
-
(60.2)
13.8
(66.0)
46.4
19.9
19.9
-
-
-
-
-
-
-
-
-
-
-
83.4
(18.1)
(17.6)
-
1.7
(60.2)
35.0
-
2.9
(2.8)
- (29.1)
31.5
-
-
-
-
-
-
-
(9.9)
(15.7)
(0.1)
(0.6)
5.9
(6.4)
31.2
-
2.1
5.1
(4.4)
(7.0)
-
10.5
Total provision for doubtful debts as at 30 June 2019
-
27.5
84.6
44.0
128.2
77.3
361.6
1 AASB 9 has been adopted on 1 July 2018; Refer to June 2019 Annual Financial Report for further details.
70 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
10 Impairment of loans and advances (continued)
Summary of provisions and reserve
Individually assessed provision
Opening balance
Bad debts written off previously provided for
Charged to Income Statement
Balances from transfer of business
Closing balance
Collectively assessed provision
Opening balance
Restatement for adoption of new accounting standards 1
Charged/(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
Group
2020
$m
128.5
(106.5)
56.4
-
78.4
157.0
-
106.2
-
2019
$m
119.3
(60.9)
70.1
-
128.5
48.2
134.3
(25.5)
-
Bank
2020
$m
128.2
(106.3)
56.3
-
78.2
156.1
-
106.3
-
263.2
157.0
262.4
77.3
-
9.3
-
86.6
427.2
77.3
-
9.3
-
86.6
428.2
0.12%
0.66%
0.92%
140.3
(82.9)
19.9
-
77.3
362.8
0.21%
0.58%
0.63%
2019
$m
105.4
(60.2)
69.2
13.8
128.2
45.7
112.4
(21.5)
19.5
156.1
121.7
(66.0)
19.9
1.7
77.3
361.6
Provision coverage 2
178.05%
116.69%
1 AASB 9 has been adopted on 1 July 2018; Refer to June 2019 Annual Financial Report for further details.
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:
•
•
• Off-Balance Sheet loan commitments; and
•
Amortised cost financial assets;
Debt securities at FVOCI;
Financial guarantee contracts.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 7 1
10 Impairment of loans and advances (continued)
Recognition and measurement (continued)
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.
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 and 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.
72 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
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,
particularly during periods of economic uncertainty. In assessing
the forward-looking information, the Group has considered the
potential impacts of the COVID-19 pandemic and the mitigation
measures put in place by governments, regulators and the
Reserve Bank of Australia. The Group's expectations of future
events have been based on a range of plausible scenarios
and are believed to be reasonable and supportable. Under the
circumstances, however, it is recognised that uncertainty still
exists and actual results may differ from these estimates.
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.
The Group has recorded a total overlay of $148.3 million for the
potential impacts from the COVID-19 pandemic. $127.7 million
of this overlay has been added to the collectively assessed
provision and $20.6 million to the general reserve for credit
losses. This overlay consists of three components, being:
A significant change to the base case economic outlook
given COVID-19 impacts. This includes lower GDP, higher
unemployment, and a reduction in residential and commercial
property prices.
10 Impairment of loans and advances (continued)
Recognition and measurement (continued)
Macroeconomic factors (continued)
•
A shift in the weightings of the scenarios used in the
calculation of the provision towards an increase in the
downside economic scenarios.
•
An overlay specific to business and consumer portfolios
reflecting further potential COVID-19 impacts.
As the COVID-19 impacts evolve, this overlay will be reduced and
the impacts will be reflected in the modelled outcome.
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 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.
The assessment and determination of forward-looking
assumptions in the current environment is challenging given the
inherent uncertainties surrounding COVID-19. The Group has not
assumed a sharp recovery in the adopted economic outlook, but
rather a slower recovery with probabilities biased to the
downside scenario.
The Group’s base case economic forecast scenario used to in
the calculation of the collectively assessed provision as at 30
June 2020, reflects a sharp deterioration in economic conditions
in the second half of the 2020 calendar year, with a gradual
improvement by December 2022. Unemployment, under the base
case scenario, peaks at 10.0% in third quarter of the 2020 calendar
year and slowly improves thereafter. Gross Domestic Product is
expected to contract by 9.5% in third quarter of the 2020 calendar
year, with positive growth commencing from mid-2021. House
prices are expected to fall 11.5% by June 2021, and are expected to
recover to current levels by September 2023. Commercial property
prices are expected to fall 20.0% by June 2021, and remain at low
levels for at least the next five years.
The Group’s significant deterioration scenario assumes
unemployment peaks at 12.5% in September 2020, and shows
slight improvement before again peaking to 14.5% in September
2022. Gross Domestic Product is expected to contract by 13.5%
in March 2021 and substantially recover by March 2022,
before a second-wave leads to negative Gross Domestic
Product in 2022/2023. House prices are expected to fall by 20.0%
and commercial property prices fall 32.0% by December 2022.
The table below illustrates the weightings applied to the
forecast scenarios for the purpose of calculation the collective.
Base scenario
Mild improvement
Mild deterioration
Significant deterioration
Weightings
50%
15%
30%
5%
The table below discloses the collectively assessed provision
outcomes assuming a 100% weighting is applied to the relevant
scenario, all other assumptions held constant.
100% Mild improvement
100% Base scenario
100% Mild deterioration
100% Significant deterioration
1 These outcomes exclude the GRCL.
Scenario
Outcomes
($m) 1
207.0
232.2
307.7
475.1
Assessment of significant increase in credit risk (SIR)
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.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 7 3
10 Impairment of loans and advances (continued)
Recognition and measurement (continued)
Assessment of significant increase in credit risk (SIR) (continued)
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 i.e. a two notch downgrade in the internal rating since
origination will trigger a transfer to Stage 2.
While the deferral of loan payments by customers would
normally be treated as an indication of a SIR, the deferral
arrangements granted to the Group's customers in relation
to COVID-19 support packages have not, in isolation, been
treated as an indication of a SIR. This is consistent with APRA
guidance. Other information available to the Group in relation
to the COVID-19 deferral arrangements has been assessed for
evidence of a SIR.
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.
Presentation of allowance for credit losses in the Balance Sheet
•
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.
74 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
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 when a financial
asset is more than 90 days past due, unless reasonable and
supportable information demonstrates that a more lagging
default criterion is appropriate. Impairment is recognised when
it is determined that all principal and interest amounts which are
due are unlikely to actually be fully recovered.
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.
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.
10 Impairment of loans and advances (continued)
Recognition and measurement (continued)
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.
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.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 7 5
11 Financial assets at fair value
through profit or loss
Discount securities
Floating rate notes
Government securities
Group
Bank
2020
$m
996.7
170.0
4,244.4
2019
$m
1,424.3
452.8
3,959.8
2020
$m
996.7
170.0
4,244.4
2019
$m
1,424.3
452.8
3,959.8
Total financial assets at fair value through profit or loss
5,411.1
5,836.9
5,411.1
5,836.9
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
$m
733.7
1,767.7
2,320.6
589.1
$m
1,432.3
1,669.7
1,673.5
1,061.4
$m
733.7
1,767.7
2,320.6
589.1
$m
1,432.3
1,669.7
1,673.5
1,061.4
5,411.1
5,836.9
5,411.1
5,836.9
Recognition and measurement
Financial assets at fair value through profit or loss
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 19.
12 Financial assets at amortised cost
Group
Bank
2020
$m
289.3
6.8
29.2
325.3
$m
325.3
325.3
2019
$m
246.7
6.3
40.1
293.1
$m
293.1
293.1
2020
$m
105.7
0.1
29.2
135.0
$m
135.0
135.0
2019
$m
103.6
0.1
40.1
143.8
$m
143.8
143.8
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.
Collateral and security deposits
Other deposits
Bonds
Total financial assets at amortised cost
Maturity analysis
Over 5 years
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.
•
76 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
13 Financial assets at fair value through other
comprehensive income
Debt securities - with recycling
Mortgage backed securities
Floating rate notes
Government securities
Semi-government securities
Securitisation notes
Other debt securities
Group
Bank
2020
$m
17.0
253.1
266.8
249.9
-
0.5
2019
$m
27.0
-
-
-
-
2020
$m
17.0
253.1
266.8
249.9
2019
$m
27.0
-
-
-
12,414.5
6,086.5
0.5
0.5
0.5
Total debt securities - with recycling
787.3
27.5
13,201.8
6,114.0
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
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 the Income Statement.
8.7
8.7
0.1
23.5
23.6
9.1
9.1
0.1
19.0
19.1
-
-
0.1
23.5
23.6
-
-
0.1
19.0
19.1
819.6
55.7
13,225.4
6,133.1
$m
150.6
383.6
253.1
-
32.3
819.6
$m
1.8
4.5
20.7
0.5
28.2
55.7
$m
150.6
383.6
253.1
$m
1.8
4.5
20.7
12,414.5
6,087.0
23.6
19.1
13,225.4
6,133.1
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 Income Statement, including upon disposal.
Dividend income is recognised in the Income Statement 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 0 2 0 7 7
Financial liabilities
Classification and measurement of financial liabilities
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 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
2020
$m
2019
$m
Bank
2020
$m
2019
$m
29,526.0
24,194.9
29,523.4
24,199.4
21,383.2
23,848.6
21,383.2
23,848.6
50,909.2
48,043.5
50,906.6
48,048.0
13,273.4
12,553.4
13,273.4
12,553.4
64,182.6
60,596.9
64,180.0
60,601.4
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.
14 Deposits and notes payable
Deposits
Customer
At call
Term
Total customer deposits
Wholesale
Domestic
Total deposits
78 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
14 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
2020
$m
2019
$m
Bank
2020
$m
2019
$m
28,847.0
27,916.5
28,875.8
27,925.0
16,491.6
14,190.5
16,478.1
14,199.2
6,282.1
5,660.2
4,040.5
1,097.2
1,271.4
492.6
5,915.1
5,460.1
3,996.9
1,667.3
1,159.1
291.4
6,274.5
5,656.8
4,035.4
1,096.3
1,270.9
492.2
5,909.7
5,457.8
3,993.2
1,666.7
1,158.7
291.1
64,182.6
60,596.9
64,180.0
60,601.4
Total notes payable and Term Funding Facility
3,503.5
3,464.4
-
23.1
Recognition and measurement
Deposits
All deposits are initially recognised at cost, being the fair value
of the consideration received net of issue costs. Subsequent to
initial recognition, interest-bearing borrowings are measured at
amortised cost using the effective interest method. Amortised
cost includes any issue costs and any discount or premium on
settlement.
For liabilities carried at amortised cost, gains and losses are
recognised in the Income Statement when the liabilities are de-
recognised.
Reclassification
A review of the Group's deposits has been completed which
has resulted in a change to the way deposits are dissected.
Customer deposits now represent the sum of interest bearing,
non-interest bearing and term deposits from retail and corporate
customers. Comparative balances have been restated.
Notes payable and Term Funding Facility
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.
On 19 March 2020, the Reserve Bank of Australia announced
the establishment of the Term Funding Facility (TFF), a three-
year facility with a fixed interest rate of 0.25% per annum. The
TFF was established to provide ADIs with access to long-term
funding to reinforce the benefits to the economy of a lower RBA
cash rate and to encourage ADIs to support businesses. The
TFF is collateralised by residential mortgage backed securities
issued by the Group.
Funding received via the TFF is initially recognised at fair value
and subsequently measured at amortised cost using the
effective interest rate method.
As at 30 June 2020, the Group's TFF draw downs totalled $725.0
million. The Group has a total initial entitlement of $1.8 billion.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 7 9
15 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)
December 2017: 3,216,145 fully paid $100
Converting preference shares
Unamortised issue costs
Total preference shares
Nature of shares
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.
16 Subordinated debt
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
80 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Group
2020
$m
292.1
(0.6)
291.5
282.2
(1.4)
280.8
321.6
(3.7)
317.9
890.2
2019
$m
292.1
(2.0)
290.1
282.2
(2.8)
279.4
321.6
(4.7)
316.9
886.4
Bank
2020
$m
292.1
(0.6)
291.5
282.2
(1.4)
280.8
321.6
(3.7)
317.9
890.2
2019
$m
292.1
(2.0)
290.1
282.2
(2.8)
279.4
321.6
(4.7)
316.9
886.4
Recognition and measurement
These instruments are classified as debt within the Balance
Sheet and dividends to the holders are treated as interest
expense in the Income Statement.
Preference shares are initially recognised at fair value 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.
Group
2020
$m
2019
$m
Bank
2020
$m
2019
$m
671.3
681.4
671.3
681.4
$m
-
250.4
420.9
671.3
$m
10.0
250.5
420.9
681.4
$m
-
250.4
420.9
671.3
$m
10.0
250.5
420.9
681.4
16 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 fair
value 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 the Income Statement when the
liabilities are derecognised.
17 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
2020
$m
1,976.9
1,976.9
2019
$m
500.6
500.6
2020
$m
3,488.2
3,503.5
3,478.4
3,494.5
2019
$m
3,343.2
3,440.5
3,338.6
3,454.2
(16.1)
(115.6)
Repurchase agreements
Securitisation
2020
$m
1,976.9
1,976.9
2019
$m
500.6
500.6
2020
$m
15,158.0
15,595.9
15,111.7
15,563.0
2019
$m
8,754.2
9,092.8
8,742.1
9,127.6
(451.3)
(385.5)
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
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.
Consolidation
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 $8,847.3 million (2019: $1,416.1
million) during the financial year. The Group invests in some of
its own securitisation programs by holding A and B class notes
equivalent to $12,437.8 million as at 30 June 2020 (2019: $6,062.5
million).
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 8 1
Other financial instrument disclosures
18 Derivative financial instruments
The Group uses derivative financial instruments primarily to
manage risk, including interest rate risk and foreign currency rate
risk. Note 20 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. Derivative financial
instruments are valued in accordance with Level 2 of the fair
value hierarchy, as outlined in Note 19.
The gains or losses resulting from changes in fair values of
trading derivatives are included in the Income Statement in
Other income.
Changes in the fair value of non-trading derivatives that do
not qualify for hedge accounting are recorded in the Income
Statement in Other income.
Changes in the fair value of derivatives that qualify for hedge
accounting are recorded in the Income Statement in Other
income for fair value hedges and are recorded in the Statement
of Comprehensive Income in Other comprehensive income for
cash flow hedges.
Fair value hedges principally consist of interest rate 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.
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 Group has assessed the impact of COVID-19 on its
derivative financial instruments, specifically, whether they
continue to meet the criteria for hedge accounting. As there
is still a high probability of the hedged forecast transactions
occurring, no hedge ineffectiveness has arisen.
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 2020
Group 2019
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
Interest rate swaps
Foreign exchange
contracts
2,862.5
10,415.1
-
-
-
4,988.0
-
-
25.1
(10.0)
15.1
29,194.6
37.6
(25.7)
101.9
0.7
(0.6)
0.1
181.9
0.4
(0.8)
-
11.9
(0.4)
13,379.5
25.8
(10.6)
15.2
34,364.5
38.0
(26.5)
11.5
Derivatives held as fair value hedges
Interest rate swaps
1.3
1.3
-
-
(0.2)
(0.2)
(0.2)
(0.2)
4.2
4.2
-
-
(0.3)
(0.3)
(0.3)
(0.3)
Derivatives held as cash flow hedges
Interest rate swaps
34,120.6
34,120.6
80.6
80.6
(89.4)
(89.4)
(8.8)
79,211.8
112.6
(108.2)
(8.8)
79,211.8
112.6
(108.2)
4.4
4.4
Total derivatives
47,501.4
106.4
(100.2)
6.2 113,580.5
150.6
(135.0)
15.6
82 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
18 Derivative financial instruments (continued)
Bank 2020
Bank 2019
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
Notional
amount
Fair value
assets
Fair value
liabilities
Net fair
value
Derivative category
Derivatives held for trading
$m
$m
$m
$m
$m
$m
$m
$m
Futures
2,862.5
-
-
-
4,988.0
-
-
Interest rate swaps
10,415.1
25.1
(10.0)
15.1
29,196.9
37.7
(25.7)
Foreign exchange
contracts
101.9
0.7
(0.6)
0.1
181.0
0.4
(0.8)
-
12.0
(0.4)
13,379.5
25.8
(10.6)
15.2
34,365.9
38.1
(26.5)
11.6
Derivatives held as fair value hedges
Interest rate swaps
1.3
1.3
-
-
(0.2)
(0.2)
(0.2)
(0.2)
4.2
4.2
-
-
(0.3)
(0.3)
(0.3)
(0.3)
Derivatives held as cash flow hedges
Interest rate swaps
34,120.6
34,120.6
80.6
80.6
(89.4)
(89.4)
(8.8)
79,211.8
112.6
(108.2)
(8.8)
79,211.8
112.6
(108.2)
4.4
4.4
Total derivatives
47,501.4
106.4
(100.2)
6.2 113,581.9
150.7
(135.0)
15.7
As at 30 June 2020 hedged cash flows are expected to occur and affect the Income Statement as follows:
Group
2020
Forecast cash inflows
Forecast cash outflows
Within 1 year
$m
159.2
(147.6)
1 to 2
years
$m
40.4
(47.9)
2 to 3
years
$m
22.1
(22.3)
Forecast net cash inflows/(outflows)
11.6
(7.5)
(0.2)
3 to 4
years
$m
14.0
(12.7)
1.3
2019
Forecast cash inflows
Forecast cash outflows
783.0
(711.2)
107.8
(60.7)
35.4
(29.3)
16.3
(12.3)
Forecast net cash inflows/(outflows)
71.8
47.1
6.1
4.0
Bank
2020
Forecast cash inflows
Forecast cash outflows
159.2
(147.6)
40.4
(47.9)
22.1
(22.3)
Forecast net cash inflows/(outflows)
11.6
(7.5)
(0.2)
14.0
(12.7)
1.3
2019
Forecast cash inflows
Forecast cash outflows
783.1
(711.2)
107.8
(60.7)
35.4
(29.3)
16.3
(12.3)
Forecast net cash inflows/(outflows)
71.9
47.1
6.1
4.0
4 to 5
years
Greater
than 5 years
$m
$m
6.2
(5.1)
1.1
8.4
(5.4)
3.0
6.2
(5.1)
1.1
8.4
(5.4)
3.0
4.5
(4.5)
-
10.5
(10.5)
-
4.5
(4.5)
-
10.5
(10.5)
-
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 8 3
18 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
2020
2019
2020
2019
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 from economic
derivatives that are not in a hedge relationship
(Losses)/gains on derivatives
-
-
(16.0)
16.4
-
-
(16.0)
16.4
(3.2)
(3.2)
10.1
10.5
(3.2)
(3.2)
9.3
9.7
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
Maturity
Less than
1 month
1 to 3
months
3 to 12
months
1 to 5
years
$m
Over 5
years
$m
Total
$m
Notional principal
Average fixed rate (%)
3,825.0
4,650.0
6,850.0
7,935.6
-
23,260.6
2.48%
1.96%
2.04%
0.95%
84 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
18 Derivative financial instruments (continued)
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
Amounts subject to enforceable master netting
or similar agreements
Amounts of recognised financial assets/(liabilities)
reported on the Balance Sheet
Related amounts not set-off on the Balance Sheet
Financial collateral (received)/pledged
Net amount
Financial assets/(liabilities) not subject to enforceable
master netting or similar agreements
Total financial assets/(liabilities) recognised
on the Balance Sheet
Amounts subject to enforceable master netting
or similar agreements
Amounts of recognised financial assets/(liabilities)
reported on the Balance Sheet
Related amounts not set-off on the Balance Sheet
Financial collateral (received)/pledged
Net amount
Financial assets/(liabilities) not subject to enforceable master
netting or similar agreements
Total financial assets/(liabilities) recognised
on the Balance Sheet
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
2020
$m
$m
2019
$m
$m
102.0
(100.2)
144.7
(135.0)
(49.5)
52.6
69.7
(104.8)
117.4
(30.5)
39.9
(17.6)
4.4
-
5.9
-
106.4
(100.2)
150.6
(135.0)
$m
Bank
$m
$m
$m
102.0
(100.2)
144.8
(135.0)
(49.5)
52.6
69.7
(104.8)
(30.5)
40.0
117.4
(17.6)
4.4
-
5.9
-
106.4
(100.2)
150.7
(135.0)
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 (i.e. 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 0 2 0 8 5
19 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
-
-
-
-
-
-
106.4
-
-
5,411.1
-
-
-
-
-
-
-
-
819.6
-
-
-
-
-
-
-
64,980.4
-
1,189.6
1,189.6
137.0
137.0
-
5,411.1
325.3
325.3
-
-
-
819.6
64,980.4
106.4
106.4
5,411.1
819.6
64,980.4
1,651.9
72,969.4
-
-
-
100.2
-
-
100.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
145.1
145.1
64,182.6
64,182.6
3,503.5
3,503.5
-
890.2
671.3
100.2
890.2
671.3
69,392.7
69,492.9
$m
$m
$m
$m
$m
$m
-
-
-
-
-
-
150.6
-
-
5,836.9
-
-
-
-
-
-
-
-
55.7
-
-
-
-
-
-
-
61,822.2
-
1,072.0
1,072.0
270.6
270.6
-
5,836.9
293.1
293.1
-
-
-
55.7
61,822.2
150.6
150.6
5,836.9
55.7
61,822.2
1,635.7
69,501.1
-
-
-
135.0
-
-
135.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
420.6
420.6
60,596.9
60,596.9
3,464.4
3,464.4
-
886.4
681.4
135.0
886.4
681.4
66,049.7
66,184.7
Group
2020
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
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Preference shares
Subordinated debt
Total financial liabilities
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
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Preference shares
Subordinated debt
Total financial liabilities
86 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
19 Financial instruments (continued)
a) Measurement basis of financial assets and liabilities (continued)
Bank
2020
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
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
Preference shares
Subordinated debt
Total financial liabilities
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
Derivatives
Total financial assets
Financial liabilities
Due to other financial institutions
Deposits
Notes payable
Derivatives
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
-
-
-
-
-
-
106.4
-
-
5,411.1
-
-
-
-
-
-
-
-
13,225.4
-
-
-
-
-
-
-
64,476.8
-
826.0
137.0
826.0
137.0
-
5,411.1
135.0
135.0
-
-
-
13,225.4
64,476.8
106.4
106.4
5,411.1
13,225.4
64,476.8
1,098.0
84,317.7
-
-
-
100.2
-
-
100.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
145.1
145.1
64,180.0
64,180.0
-
-
890.2
671.3
-
100.2
890.2
671.3
65,886.6
65,986.8
$m
$m
$m
$m
$m
$m
-
-
-
-
-
-
150.7
-
-
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
150.7
5,836.9
6,133.1
60,972.2
1,294.6
74,387.5
-
-
-
135.0
-
-
135.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 8 7
19 Financial instruments (continued)
b) Fair value measurement
active markets for identical assets or liabilities.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
Level 2 - Valuation technique using observable inputs
The fair value is determined using models whose inputs are
observable in an active market.
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
Level 3 - Valuation technique using significant unobservable inputs
The fair value is calculated using significant inputs that are not
based on observable market data.
Economic and market disruptions that have occurred as a
result of COVID-19 mean that some valuations are subject to
increased measurement uncertainty. For Level 1 instruments the
market price at measurement date provides the most reliable
evidence of fair value. For Level 2 instruments the quoted price at
the measurement date continues to be the most reliable input,
with most of the Group's financial instruments falling within this
fair value category. For instruments that fall within Level 3 of the
fair value hierarchy, the Group has ensured the use of inputs and
assumptions that are most reflective of the market conditions at
the measurement date.
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
2020
Financial assets
Financial assets FVTPL
Financial assets FVOCI
Derivatives
Financial liabilities
Derivatives
2019
Financial assets
Financial assets FVTPL
Financial assets FVOCI
Derivatives
Financial liabilities
Derivatives
Bank
2020
Financial assets
Financial assets FVTPL
Financial assets FVOCI
Derivatives
Financial liabilities
Derivatives
2019
Financial assets
Financial assets FVTPL
Financial assets FVOCI
Derivatives
Financial liabilities
Derivatives
Level 1
Level 2
Level 3
Total
fair value
Total
carrying value
$m
-
0.1
-
$m
$m
$m
$m
5,411.1
796.0
106.4
-
23.5
-
5,411.1
819.6
106.4
5,411.1
819.6
106.4
-
100.2
-
100.2
100.2
-
0.1
-
5,836.9
36.6
150.6
-
19.0
-
4,499.5
469.0
29.7
5,836.9
55.7
150.6
-
135.0
-
34.8
135.0
$m
-
0.1
-
$m
$m
$m
$m
5,411.1
13,201.8
106.4
-
23.5
-
5,411.1
13,225.4
106.4
5,411.1
13,225.4
106.4
-
100.2
-
100.2
100.2
-
0.1
-
5,836.9
6,114.0
150.7
-
19.0
-
5,836.9
6,133.1
150.7
5,836.9
6,133.1
150.7
-
135.0
-
135.0
135.0
Transfers between levels are deemed to have occurred at the beginning of the reporting period in which instruments are transferred.
There were no transfers between levels during the year for the Group or Bank.
88 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
19 Financial instruments (continued)
Valuation methodology
Financial instruments - debt securities
Each month, independent valuations are determined by the Group's
Financial Risk & Modelling function. 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 funds. For managed fund investments the
most recent prices provided by the fund manager are used.
Level 3 - Unlisted investments are equity holdings in small
unlisted entities. Given there are no quoted market prices and no
observable inputs, assumptions reflective of market conditions at
the measurement date are used to approximate fair value.
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:
Financial assets - equity investments
Opening balance
Impairment charge
Purchases
Transfers out
Closing balance
Group
Bank
2020
$m
19.0
-
4.5
-
23.5
2019
$m
18.7
-
0.3
-
19.0
2020
$m
19.0
-
4.5
-
23.5
2019
$m
18.7
-
0.3
-
19.0
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
2020
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
1,059.9
137.0
325.3
-
-
-
1,059.9
1,059.9
137.0
325.3
137.0
325.3
-
65,145.4
65,145.4
64,980.4
-
-
-
-
-
-
-
145.1
64,285.9
3,494.2
885.7
-
-
666.6
-
-
-
-
-
145.1
145.1
64,285.9
64,182.6
3,494.2
3,503.5
885.7
666.6
890.2
671.3
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 8 9
19 Financial instruments (continued)
Financial assets and liabilities carried at amortised cost (continued)
Valuation hierarchy (continued)
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
Bank
2020
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
2019
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
Level 1
Level 2
Level 3
Total
fair value
Total carrying
amount
$m
$m
$m
$m
$m
933.6
270.6
293.1
-
-
-
933.6
270.6
293.1
933.6
270.6
293.1
-
61,876.2
61,876.2
61,822.2
420.6
60,693.5
3,476.7
915.6
-
-
678.2
-
-
-
-
-
420.6
60,693.5
3,476.7
915.6
678.2
420.6
60,596.9
3,464.4
886.4
681.4
$m
$m
$m
$m
$m
696.2
137.0
135.0
-
-
-
696.2
137.0
135.0
696.2
137.0
135.0
-
64,641.8
64,641.8
64,476.8
-
890.2
671.3
$m
741.9
270.6
143.8
145.1
145.1
64,283.3
64,180.0
145.1
64,283.3
-
-
666.6
-
-
-
-
-
-
885.7
666.6
$m
$m
$m
741.9
270.6
143.8
-
-
-
741.9
270.6
143.8
-
61,026.2
61,026.2
60,972.2
420.6
60,698.0
23.1
-
678.2
-
-
-
-
-
420.6
420.6
60,698.0
60,601.4
23.1
915.6
678.2
23.1
886.4
681.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
885.7
-
$m
-
-
-
-
-
-
-
915.6
-
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.
90 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
19 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.
Net loans and other receivables
The carrying value of loans and other receivables is net of
individually assessed and collectively assessed provisions.
For variable rate loans, excluding impaired loans, the carrying
amount is a reasonable estimate of fair value.
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.
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.
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.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 9 1
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 which is defined as the risk of loss of
principal, interest and/or fees and charges resulting from a
borrower failing to meet a scheduled repayment or otherwise
failing to repay a loan.
The Group is also exposed to Counter-party Credit (derivatives)
Risk arising from the funding activities of Group Treasury and
the use of derivative contracts. It is the risk that a counterparty
may default before the final settlement of the transaction’s cash
flows.
At an operational level, business unit managers are responsible
for managing Credit Risks accepted in their business and for
maximising risk adjusted returns from their portfolios within the
approved Credit Risk Management Framework, Risk Appetite
and policies. Senior officers in business units are authorised
to approve Credit Risk exposures for customers. The largest
and most complicated exposures are approved by the most
experienced credit officers. The Credit Risk Management
function is responsible for establishing policies, monitoring trends
impacting credit quality, setting credit limits and authorising
delegated lending authorities and where required approving
credit exposures. Financial Risk & Modelling is responsible for
monitoring Treasury counterparty credit limits in line with the
Group’s Counterparty Credit Limit Framework. The Group utilises
models to support the management of Credit Risk. Governance
of Risk Models is overseen by the Risk Models Committee
and models are approved by the Group’s Management Credit
Committee (MCC).
The Board has set a risk appetite for the maximum amount
of Credit Risk that it is willing to take, based on a percentage
of the Group’s capital that has been allocated to Credit Risk.
The Board Credit Committee (BCC) has articulated additional
secondary risk appetite settings that support this primary
risk appetite setting through a number of selected Credit Risk
measures. Credit Risk appetite is reviewed and endorsed by the
MCC and ultimately approved by the BCC and Board.
The Group maintains a Credit Risk Management Framework
and supporting policies to ensure and facilitate effective
management of Credit Risk and maintains acceptable asset
quality. Stress testing is also undertaken on key portfolios to
support prudent management of Credit Risks.
Regular reporting provides confirmation of the effectiveness
of processes and highlights any trends or deterioration which
require attention. This enables portfolio monitoring by all levels of
management and the Board. Regular reporting is provided to the
Group’s MCC, Rural Bank Management Credit Committee (RB
MCC) and the BCC.
20 Risk management
Nature of risk
Our business is exposed to a broad range of financial and non-
financial risks. The Group has identified the following material
financial risks that have the potential to adversely impact its
financial performance and financial position:
•
• Market Risk (Traded & Non-Traded); and
•
Liquidity Risk
Credit Risk;
Non-Financial Risks, including Operational Risk, are outlined in the
Risk Management Framework, Material Risks Business Risks and
Uncertainties section of the 2020 Annual Financial Report. The
Board is ultimately responsible for the management of risk which
is achieved by establishing, reviewing and overseeing the Group's
Risk Management 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 Board Committees; Board Risk
Committee and Board Credit Committee and Management
Committees; Asset and Liability Management Committee
(ALMAC) and Operational Risk Committee. 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 Board
committee charters are available on our website.
Financial risk management
The Group's exposure to financial risks are considered significant
given financial instruments held by the Group constitute the core
contributors of financial performance and position. An overview
of the Group's key financial risks is presented below.
COVID-19 risks
The current operating environment has been disrupted by the
COVID-19 pandemic, having a significant impact to the economy,
consumer behaviour and regulatory requirements. Changes
to the Group's external and internal operating environments
may impact one or more of the Group's material financial risks.
The Group has taken action to address risks associated with
COVID-19, including:
•
introducing a range of assistance measures to ensure short
and long term support for affected customers, including
deferral of payments and interest rate reductions;
contacting each of the Group's business and agribusiness
customers to understand the impact to their operations and
inform them of the support available;
implementing measures to protect and support the Group's
staff, including the transition to remote working;
redeploying staff to areas of high customer demand;
recognising the COVID-19 overlay in the collectively
assessed provision; and
continually monitoring the Group's lending portfolios.
•
•
•
•
•
As the COVID-19 pandemic evolves, the Group is actively
monitoring the situation and will respond accordingly.
92 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
20 Risk management (continued)
Credit risk (continued)
Maximum exposure to credit risk
The table below presents the maximum exposure to credit risk arising from Balance Sheet and off-Balance Sheet financial instruments.
The exposure is shown gross before taking into account any master netting, collateral agreements or other credit enhancements.
Group
Gross maximum exposure
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
30 June 2020
Stage 1
Stage 2
Stage 3
$m
1,059.9
137.0
5,411.1
325.3
819.6
226.2
106.4
$m
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$m
1,059.9
137.0
5,411.1
325.3
819.6
226.2
106.4
Gross loans and other receivables
57,428.0
6,794.5
1,099.2
65,321.7
Contingent liabilities
Commitments
65,513.5
6,794.5
1,099.2
73,407.2
254.7
5,583.5
5,838.2
-
-
-
-
-
-
254.7
5,583.5
5,838.2
Total credit risk exposure
71,351.7
6,794.5
1,099.2
79,245.4
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
30 June 2019
$m
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$m
933.6
270.6
5,836.9
293.1
55.7
316.5
150.6
$m
933.6
270.6
5,836.9
293.1
55.7
316.5
150.6
Gross loans and other receivables
53,670.1
7,287.9
1,182.8
62,140.8
Contingent liabilities
Commitments
61,527.1
7,287.9
1,182.8
69,997.8
238.0
5,468.5
5,706.5
-
-
-
-
-
-
238.0
5,468.5
5,706.5
Total credit risk exposure
67,233.6
7,287.9
1,182.8
75,704.3
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 9 3
20 Risk management (continued)
Credit risk (continued)
Maximum exposure to credit risk (continued)
Bank
Gross maximum exposure
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
Shares in controlled entities
Gross loans and other receivables
Contingent liabilities
Commitments
30 June 2020
Stage 1
Stage 2
Stage 3
$m
696.2
137.0
5,411.1
135.0
13,225.4
1,297.3
106.4
134.5
$m
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$m
696.2
137.0
5,411.1
135.0
13,225.4
1,297.3
106.4
134.5
56,923.4
6,794.5
1,099.2
64,817.1
78,066.3
6,794.5
1,099.2
85,960.0
254.7
5,583.5
5,838.2
-
-
-
-
-
-
254.7
5,583.5
5,838.2
Total credit risk exposure
83,904.5
6,794.5
1,099.2
91,798.2
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
Shares in controlled entities
Gross loans and other receivables
Contingent liabilities
Commitments
30 June 2019
$m
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$m
741.9
270.6
5,836.9
143.8
6,133.1
1,290.5
150.7
587.4
$m
741.9
270.6
5,836.9
143.8
6,133.1
1,290.5
150.7
587.4
52,818.5
7,287.9
1,182.8
61,289.2
67,973.4
7,287.9
1,182.8
76,444.1
238.0
5,468.5
5,706.5
-
-
-
-
-
-
238.0
5,468.5
5,706.5
Total credit risk exposure
73,679.9
7,287.9
1,182.8
82,150.6
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.
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.
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,
94 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
20 Risk management (continued)
Credit risk (continued)
Concentration of 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 2020 was $339.0 million (2019: $617.0 million) before
taking account collateral or other credit enhancements and
$339.0 million (2019: $617.0 million) net of such protection.
Geographic concentration
Victoria
New South Wales
Australian Capital Territory
Queensland
South Australia/Northern Territory
Western Australia
Tasmania
Overseas/other
Total credit risk exposure
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
2020
$m
2019
$m
Bank
2020
$m
32,282.8
19,496.7
1,037.8
31,847.3
16,896.5
948.2
33,259.6
31,616.8
1,011.7
10,733.3
10,126.8
10,502.9
7,099.1
6,803.2
1,576.4
216.1
7,231.0
7,018.3
1,516.7
119.5
6,995.5
6,647.5
1,561.0
203.2
2019
$m
33,069.2
22,467.8
916.9
9,840.0
7,423.9
6,832.9
1,494.7
105.2
79,245.4
75,704.3
91,798.2
82,150.6
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
2020
$m
605.9
193.3
6,751.9
173.9
1,719.0
264.7
136.2
2,439.1
8,130.8
872.7
123.6
723.9
2019
$m
623.1
206.0
6,652.6
174.1
2,010.2
293.7
161.7
2,028.7
7,843.2
952.3
132.3
777.9
1,294.9
1,559.0
137.1
142.6
577.7
708.8
233.2
157.0
357.0
571.5
767.9
312.1
2020
$m
605.9
193.3
6,749.3
173.9
1,716.0
264.7
136.2
2019
$m
623.1
206.0
6,649.4
174.1
2,005.2
293.7
161.7
2,438.1
2,022.8
21,233.2
15,157.3
872.7
123.6
723.9
-
137.1
131.6
577.7
708.8
233.2
952.3
132.3
777.9
-
157.0
366.8
571.5
767.9
311.6
4,370.7
4,646.3
4,370.7
4,646.3
47,877.4
43,534.4
48,640.3
44,230.4
958.8
486.4
322.8
1,049.0
533.9
360.4
958.8
486.4
322.8
1,049.0
533.9
360.4
79,245.4
75,704.3
91,798.2
82,150.6
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 9 5
20 Risk management (continued)
Credit risk (continued)
Credit quality
The table below discloses the effect of movements in the gross carrying value of loans and other receivables, other financial assets
held at amortised cost and financial guarantees issued by the Group on behalf of customers, to the different stages of the ECL model:
Stage 1
Stage 2
Stage 3
Stage 3
Group
Gross carrying amount as at 1 July 2019
New financial assets originated or purchased
Collectively
assessed
provisions
$m
$m
55,530.2
7,287.9
15,270.6
400.3
$m
901.3
166.7
Financial assets derecognised or repaid
(8,698.0)
(1,537.6)
(384.0)
Individually
assessed
provisions
$m
Total
$m
281.5
64,000.9
-
-
-
-
-
15,837.6
(10,619.6)
-
-
-
(68.9)
(1,884.0)
$m
$m
309.7
63,737.3
-
-
-
-
-
11,300.6
(10,223.5)
-
-
-
(75.5)
(739.4)
Stage 1
Stage 2
Stage 3
Change in balances
Transfer from collectively assessed to
individually assessed provisions
Amounts written off against provisions
2,242.5
(2,183.2)
(59.3)
(3,229.5)
3,375.7
(146.2)
(245.6)
(1,512.2)
(294.7)
(219.3)
540.3
(83.6)
(23.4)
(34.6)
(68.7)
126.7
-
-
-
-
(106.6)
(106.6)
Gross carrying amount as at 30 June 2020
59,334.6
6,794.5
866.5
232.7
67,228.3
Gross carrying amount as at 1 July 2018
New financial assets originated or purchased
$m
$m
56,221.5
6,397.7
10,936.5
334.4
$m
808.4
29.7
Financial assets derecognised or repaid
(8,995.8)
(1,000.9)
(226.8)
Stage 1
Stage 2
Stage 3
Change in balances
Transfer from collectively assessed to
individually assessed provisions
Amounts written off against provisions
2,304.4
(2,231.3)
(73.1)
(4,396.8)
4,519.3
(122.5)
(287.1)
(204.4)
(283.4)
(399.3)
570.5
(60.2)
(34.5)
(48.6)
(24.7)
107.8
-
-
-
-
(60.5)
(60.5)
Gross carrying amount as at 30 June 2019
55,543.8
7,287.9
901.3
281.5
64,014.5
96 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
20 Risk management (continued)
Credit risk (continued)
Credit quality (continued)
The table below discloses information about the credit quality of financial assets measured at amortised cost without taking into
account collateral or other credit enhancement. Unless specifically indicated, the amounts in the table represent gross carrying
amounts.
Group
Neither past due or impaired
> High grade
> Standard grade
> Sub-standard grade
> Unrated
> Consumer loans
Past due or impaired
Stage 1
Stage 2
Stage 3
Stage 3
Collectively
assessed
provisions
Individually
assessed
provisions
$m
$m
$m
$m
Total
$m
8,767.2
-
9,607.2
1,095.5
624.2
7,183.3
896.7
148.6
-
0.7
3.7
1.7
44,793.8
3,685.2
601.7
788.0
40.3
812.5
-
-
-
0.2
1.2
8,767.2
10,703.4
1,524.6
7,333.8
48,520.5
193.7
2,395.9
Gross carrying amount as at 30 June 2020
71,577.4
6,614.0
858.9
195.1
79,245.4
Neither past due or impaired
> High grade
> Standard grade
> Sub-standard grade
> Unrated
> Consumer loans
Past due or impaired
$m
$m
$m
$m
$m
8,207.3
-
9,567.1
1,402.7
779.6
7,733.2
827.1
193.0
-
-
-
-
40,685.2
4,136.9
119.5
880.4
0.3
937.9
-
-
-
-
8,207.3
10,969.8
1,606.7
7,926.2
44,822.4
234.1
2,171.9
Gross carrying amount as at 30 June 2019
67,091.9
7,440.1
938.2
234.1
75,704.3
Bank
Neither past due or impaired
> High grade
> Standard grade
> Sub-standard grade
> Unrated
> Consumer loans
Past due or impaired
$m
$m
$m
$m
$m
19,646.1
-
9,286.6
1,095.5
624.2
8,386.2
896.7
148.6
-
0.7
3.7
1.7
45,586.9
3,685.2
601.7
788.0
40.3
812.5
-
-
-
0.2
1.2
19,646.1
10,382.8
1,524.6
8,536.7
49,313.6
192.3
2,394.5
Gross carrying amount as at 30 June 2020
84,131.7
6,614.0
858.9
193.7
91,798.3
Neither past due or impaired
> High grade
> Standard grade
> Sub-standard grade
> Unrated
> Consumer loans
Past due or impaired
$m
$m
$m
$m
$m
12,720.4
-
9,232.7
1,402.7
779.6
9,291.4
827.1
193.0
-
-
-
-
41,395.7
4,136.9
119.5
880.4
0.3
937.9
-
-
-
-
-
12,720.4
10,635.4
1,606.7
9,484.4
45,532.9
232.8
2,170.6
Gross carrying amount as at 30 June 2019
73,539.3
7,440.1
938.2
232.8
82,150.4
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 9 7
20 Risk management (continued)
Credit risk (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.
Group
Bank
Less than
30 days
$m
832.3
1,675.5
31 to
60 days
$m
268.5
377.2
832.3
1,675.5
268.5
377.2
2020
2019
2020
2019
61 to
90 days
More than
91 days
$m
$m
Total
$m
Fair value of
collateral
$m
179.2
215.8
179.2
215.8
589.3
1,869.3
4,805.9
721.1
2,989.6
8,841.2
589.3
1,869.3
4,805.9
721.1
2,989.6
8,841.2
Climate change risk
Climate change risk includes the physical risks which cause
direct damage to assets or property as a result of rising global
temperatures, as well as transition risks which arise from the
transition to a low-carbon economy. The Group is predominantly
exposed to climate change risk through our lending activities
whilst noting there is also exposure through our supply chains
and built assets such as branches and offices. The Group will
further enhance the understanding of exposure to climate
change risk in the process of executing the Group's climate
change action plan over the next three years.
Liquidity risk
Liquidity Risk is defined as the risk that the Group is unable to
meet its payment obligations as they fall due. The principal
objectives are to ensure that all cash flow commitments are met
in a timely manner and prudential requirements are satisfied. In
accordance with APS210, APRA Prudential Standard the Group
manages a portfolio of High Quality Liquid Assets (HQLA) and
Alternative Liquidity Assets (ALA) to cover defined projected net
cash outflows over a 30 day period, using the scenario based
Liquidity Coverage Ratio (LCR). APRA requires LCR ADIs to
maintain a minimum 100% LCR. The Group monitors the stability
and composition of funding, including the calculation of the Net
Stable Funding Ratio (NSFR), which APRA also requires LCR ADIs
to maintain at a minimum of 100%.
At an operational level, Liquidity Risk is managed by Group
Treasury, which is responsible for ensuring compliance with
policy in executing its daily operations for managing cash inflows
and outflows to meet the Group’s obligations as and when
they fall due. The Financial Risk & Modelling function provides
independent oversight of liquidity risk practices, calculation of
LCR and NSFR and preparing liquidity stress tests/scenarios.
The Group continues to manage the liquidity holdings in line with
the Board approved Funding Strategy, ensuring adequate levels
of HQLA, ALA and diversified sources of funding. In meeting our
liquidity requirement the Group makes use of the Reserve Bank
of Australia (RBA) provided Committed Liquidity Facility (CLF),
and more recently has been provided with a funding allowance
under the RBA Term Funding Facility (TFF). Both the CLF and
the undrawn balance of the TFF contribute to the Group's LCR
calculated position.
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 and Framework. The Group Liquidity Risk Management
Framework is also supported by the Group Liquidity Risk
Management Policy and Standard, which are regularly reviewed
and updated to reflect prevailing market conditions, changes in
operational requirements and regulatory obligations.
The Group has established a trigger framework to support
the Liquidity Risk management process, in particular, to alert
management of emerging or increased risk or vulnerability in
its liquidity position. This framework incorporates limits, early
warning indicators, triggers, monitoring and escalation processes
to ensure sufficient liquidity is maintained.
The Group undertakes scenario analysis to examine liquidity
under both “business as usual” and stressed scenarios. In
addition, the Group’s Contingency Funding Plan outlines
the specific actions to deal with a liquidity related event.
Regular reporting is provided to the Group’s Asset & Liability
Management Committee (ALMAC) and the Board Risk
Committee (BRC).
98 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
20 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
2020
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
Preference shares
Subordinated debt
Total financial liabilities
Contingent liabilities
Commitments
Total contingent liabilities and commitments
2019
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
Preference shares
Subordinated debt
Total financial liabilities
Contingent liabilities
Commitments
Total contingent liabilities and commitments
Bank
2020
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
Loans payable to securitisation trusts
Preference shares
Subordinated debt
Total financial liabilities
Contingent liabilities
Commitments
Total contingent liabilities and commitments
At call
$m
145.1
Not longer
than 3
months
3 to 12
months
1 to 5
years
$m
-
$m
-
$m
-
31,842.4
17,565.9
11,296.5
3,582.5
Longer
than 5
years
Total
$m
$m
-
145.1
1.2 64,288.5
-
-
276.2
-
-
105.6
22.6
18.0
2.2
7.4
42.0
50.1
20.8
21.7
264.8
574.9
2,781.0
3,503.5
53.5
162.6
630.9
48.5
2.8
20.0
325.5
482.0
129.0
497.6
980.3
802.7
32,263.7
17,721.7
11,695.9
5,052.9
3,612.5
70,346.7
254.7
5,583.5
5,838.2
$m
420.6
-
-
-
$m
-
-
-
-
$m
-
-
-
-
$m
-
25,138.6
16,263.5
15,772.8
3,593.0
-
-
-
254.7
5,583.5
5,838.2
$m
$m
-
420.6
0.2 60,768.1
23.1
-
321.8
-
-
75.4
19.7
-
3.3
7.6
-
736.8
2,628.3
3,463.6
69.2
-
29.9
282.7
29.9
-
677.7
137.8
4.3
-
356.5
483.9
123.1
321.8
1,067.4
912.0
25,904.1 16,369.5
16,154.6
5,175.2
3,473.2 67,076.6
238.0
5,468.5
5,706.5
$m
145.1
-
20.5
20.5
$m
-
-
61.4
61.4
$m
-
-
183.3
183.3
-
238.0
97.0
5,830.7
97.0
6,068.7
$m
-
$m
$m
-
145.1
31,839.8
17,565.9
11,296.5
3,582.5
1.2
64,285.9
-
-
253.2
-
-
-
-
22.6
18.0
-
-
7.4
-
50.1
20.7
-
21.7
264.8
-
53.5
162.2
-
2.8
20.0
-
129.0
474.1
-
15,158.0
15,158.0
630.9
48.5
325.5
482.0
978.1
802.7
32,238.1
17,613.9
11,653.8
4,477.6
15,989.5
81,972.9
254.7
5,583.5
5,838.2
-
-
-
-
-
-
-
-
-
-
-
-
254.7
5,583.5
5,838.2
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 9 9
20 Risk management (continued)
Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities (continued)
Bank
2019
Due to other financial institutions
Deposits
Notes payable
Derivatives - net settled
Other payables
Loans payable to securitisation trusts
Preference shares
Subordinated debt
Total financial liabilities
Contingent liabilities
Commitments
Total contingent liabilities and commitments
At call
$m
420.6
Not longer
than 3
months
3 to 12
months
1 to 5
years
Longer
than 5
years
Total
$m
-
$m
-
$m
-
$m
-
$m
420.6
25,143.1
16,263.5
15,772.8
3,593.0
0.2
60,772.6
23.1
-
-
-
-
19.7
69.2
29.9
324.1
-
-
-
-
-
-
-
-
29.9
7.6
282.7
-
4.3
-
23.1
123.1
324.1
8,754.2
8,754.2
-
-
677.7
137.8
356.5
1,064.1
483.9
912.0
25,910.9 16,290.8
16,154.6
4,438.4
9,599.1 72,393.8
238.0
5,468.5
5,706.5
-
19.9
19.9
-
59.7
59.7
-
180.0
180.0
-
238.0
97.0
5,825.1
97.0
6,063.1
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).
Traded Market Risk is defined as the risk of loss owing to
changes in the general level of market prices or interest rates. It
arises from positions in interest rate instruments, equities, foreign
exchange and commodities. Traded Market Risk arises from
positions held in the Trading Book which consists of securities
held for both trading and liquidity purposes. 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.
Non-traded market risk primarily represents 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.
At an operational level, market risk is primarily managed by
Group Treasury, which is responsible for ensuring that the Group’s
exposures are in compliance with market risk limits. Group
Treasury monitors significant developments in market structure
and pricing as part of their established market risk management
process. The Financial Risk & Modelling function provides
independent oversight of market risk practices and owns the
IRRBB model.
The Board has set a risk appetite for the maximum amount of
traded market risk and interest rate risk (IRR) that it is willing to
take, based on a percentage of the Group’s capital that has
been allocated to traded market risk and IRRBB. The Board Risk
Committee (BRC) has set additional secondary risk appetite
settings that support this primary risk appetite setting. Traded
market risk and IRRBB risk appetite and limits are reviewed
and endorsed by the Group’s Asset & Liability Management
Committee (ALMAC) and are ultimately approved by the BRC
and 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. Traded Market Risk is managed in
line with the Risk Appetite Statement, Board approved Group
Traded Market Risk Management Framework and is supported
by the Group Trading Book Policy. Market risk for the Trading
Book portfolio is managed and monitored against market
sensitivity limits as well as exposure limits. ALMAC provides
endorsement and approvals for the positioning of the Trading
Book taking into account current interest rate movements,
market credit conditions and Liquidity Coverage Ratio (LCR)
considerations.
Foreign currency trading (which forms part of the Trading Book)
is governed by a series of limits and its primary function is for
the purpose of providing the Group’s customers with access
to foreign exchange markets. Foreign exchange activities are
limited and are governed by conservative spot and forward limits
approved by BRC.
100 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
20 Risk management (continued)
Market risk (including interest rate and currency risk) (continued)
Interest Rate Risk (IRR) is the risk that earnings (Net Interest
Income - NII) and/or Economic Value - EV) of the Group may
be adversely affected by movements in interest rates in current
or future periods. The Group’s approach to IRR management
focuses on the prudent management of IRR inherent in the
Balance Sheet, whilst balancing NII and EV within the Risk
Appetite, limits and tolerances set by the Board. The aim is
to manage the Group’s exposure to movements in interest
rates and reduce volatility in current and future earnings.
ALMAC provides endorsements and approvals relating to IRR
management, taking into account current market conditions,
forecast interest rate movements and balance sheet forecasts.
IRRBB is managed in line with the Risk Appetite Statement,
Board approved Group Interest Rate Risk Management
Framework, and is supported by the Group Interest Rate Risk
in the Banking Book Policy and Standard. For IRRBB, the Group
considers the following risks:
•
•
Repricing Risk
Yield Curve Risk
VaR
Economic Value (EV) Sensitivity
•
•
•
Basis Risk
Optionality Risk
Net Interest Income (NII) Risk
The Group utilises Value at Risk (VaR) as a key measure of
IRRBB. VaR measures the potential loss in the value of an asset
or portfolio to a 99% confidence level over a 12 month timeframe
due to interest rate changes.
The Group also models a variety of scenarios to analyse the
Group’s exposure to IRRBB and project the potential impact.
This includes scenarios that would potentially have an extreme/
catastrophic impact on earnings. Modelling, scenario analysis
and methodologies are continuing to be actively developed.
Regular reporting is provided to ALMAC and the BRC for both
traded and non-traded market risk.
The following table outlines the key measure for Traded Market
Risk. EV Sensitivity is based on the impact of a 50bp parallel
movement in rates.
Exposure at
year end
Average
during the
year
Exposure at
year end
Average
during the
year
30 June 2020
30 June 2019
$m
(3.5)
$m
(4.3)
$m
(4.7)
$m
(3.6)
The following table outlines the key measures for Non-Traded Market Risk (IRRBB). EV and NII Sensitivity are based on a static
representation of the Balance Sheet and the impact of instantaneous 200bp parallel and non-parallel shifts in rates.
VaR
VaR
Economic Value (EV) Sensitivity
Net Interest Income (NII) Sensitivity
Exposure at
year end
Average
during the
year
Exposure at
year end
Average
during the
year
30 June 2020
30 June 2019
$m
20.9
(102.4)
(49.5)
$m
16.5
(52.4)
(51.3)
$m
25.0
(67.3)
(55.2)
$m
22.8
(45.2)
(52.8)
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 0 1
20 Risk management (continued)
Market risk (including interest rate and currency risk) (continued)
Interest Rate risk
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.
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.
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 2020, including the effect of hedging instruments. The
sensitivity of equity is calculated by revaluing fixed rate financial
assets (including the effect of any associated hedges), and
swaps designated as cash flow hedges, at 30 June 2020 for the
Taking into account the fact that the official cash rate in
Australia was 0.25% as at 30 June 2020, the table below
represents the change to the Group's profit for the relevant
financial year from a 25 basis point parallel rate shock. Where a
25 basis point parallel rate shock would result in an interest rate
which is below zero, the interest rate has been assumed to be
zero, that is, no negative interest rates have been used.
+25 basis
points
-25 basis
points
+25 basis
points
-25 basis
points
Group
Net interest income
Revaluation (losses)/gains 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
Revaluation (losses)/gains 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
2020
$m
7.7
(6.1)
(0.5)
1.1
1.1
(29.7)
8.9
(19.7)
2020
$m
(12.8)
3.2
2.9
(6.7)
(6.7)
29.7
(8.9)
14.1
7.7
(12.8)
(6.1)
(0.5)
1.1
1.1
(29.7)
8.9
(19.7)
3.2
2.9
(6.7)
(6.7)
29.7
(8.9)
14.1
2019
$m
2.1
(5.8)
1.1
(2.6)
(2.6)
(63.3)
19.0
(46.9)
2.1
(5.8)
1.1
(2.6)
(2.6)
(63.3)
19.0
(46.9)
2019
$m
(2.1)
5.8
(1.1)
2.6
2.6
63.3
(19.0)
46.9
(2.1)
5.8
(1.1)
2.6
2.6
63.3
(19.0)
46.9
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 principal of
102 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
foreign currency denominated borrowings under these programs
was AUD $nil (2019: AUD $nil) with all borrowings fully hedged by
cross currency swaps and foreign exchange swaps.
Retail and business banking FX transactions are managed by
the Group's Financial Markets unit, with resulting risk constrained
by Board approved spot and forward limits. Adherence to limits
is independently monitored by the Financial Risk & Modelling
function.
Funding and Capital Management
21 Share capital
Issued and paid up capital
Ordinary shares (ASX Code: BEN) fully paid -
530,779,195 (2019: 491,575,157)
Group
2020
$m
2019
$m
Bank
2020
$m
2019
$m
4,909.3
4,575.9
4,909.3
4,575.9
Employee Share Ownership Plan
(4.3)
(5.4)
(4.3)
(5.4)
4,905.0
4,570.5
4,905.0
4,570.5
Movements in ordinary shares on issue
Opening balance 1 July 2019 - 491,575,157 (2019: 486,418,481)
4,575.9
4,529.9
4,575.9
4,529.9
Shares issued under:
Bonus share scheme - 230,071 @ $11.14, 355,270 @ $6.40
(2019: 399,626 @ $10.74, 246,366 @ $9.75)
-
-
-
-
Dividend reinvestment plan - 2,037,832 @ $11.14, 3,154,051 @ $6.40
(2019: 2,151,250 @ $10.74, 2,359,434 @ $9.75)
Institutional placement - 26,766,596 (2019: Nil)
Share purchase plan - 6,660,218 (2019: Nil)
Share issue costs
Executive performance rights
42.9
250.0
44.8
(3.0)
(1.3)
46.0
-
-
-
-
42.9
250.0
44.8
(3.0)
(1.3)
46.0
-
-
-
-
Closing balance 30 June 2020 - 530,779,195 (2019: 491,575,157)
4,909.3
4,575.9
4,909.3
4,575.9
Movements in Employee Share Ownership Plan
Opening balance
Reduction in Employee Share Ownership Plan
Closing balance
(5.4)
1.1
(4.3)
(6.6)
1.2
(5.4)
(5.4)
1.1
(4.3)
(6.6)
1.2
(5.4)
Total issued and paid up capital
4,905.0
4,570.5
4,905.0
4,570.5
Nature of issued capital
Recognition and measurement
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.
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 0 2 0 1 0 3
22 Retained earnings and reserves
Group
Bank
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
Relates to Rural Bank consolidation adjustments
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 (decrease)/increase in reserve
Closing balance
Asset revaluation reserve - property
Opening balance
Transfer asset revaluation reserve to retained earnings
Net revaluation increments
Tax effect of net revaluation increments
Closing balance
Revaluation reserve - FVOCI (without recycling)
Opening balance
Impact of adoption of new accounting standards 2
Restated opening balance
Transfer from asset revaluation reserve to income
Net unrealised gains/(losses)
Tax effect of revaluations
Closing balance
Revaluation reserve - FVOCI (with recycling)
Opening balance
Impact of adoption of new accounting standards 2
Restated opening balance
Transfer from asset revaluation reserve to income
Net unrealised (losses)/gains
Tax effect of revaluations
Closing balance
104 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
2020 1
$m
987.3
(24.7)
962.6
192.8
1.0
(0.4)
(9.3)
(20.4)
0.8
2019
$m
975.9
(11.1)
964.8
376.8
1.0
(0.6)
(19.9)
-
-
2020 1
$m
562.9
(24.7)
538.2
2019
$m
282.1
(12.0)
270.1
262.8
644.3
1.0
-
(9.3)
(43.9)
-
1.0
-
(19.9)
2.2
-
(320.3)
(334.7)
(320.3)
(334.7)
(1.3)
0.4
(0.1)
-
(1.3)
0.4
(0.1)
-
805.9
987.3
427.6
562.9
$m
11.0
(2.1)
8.9
$m
1.1
(0.8)
(0.7)
0.4
-
$m
-
-
-
0.1
1.4
(0.5)
1.0
$m
0.4
-
0.4
-
(0.3)
0.1
0.2
$m
9.6
1.4
11.0
$m
1.1
-
-
-
1.1
$m
-
-
-
-
-
-
-
$m
-
0.5
0.5
(0.3)
0.2
-
0.4
$m
11.0
(2.1)
8.9
$m
-
-
-
-
-
$m
16.6
-
16.6
-
(45.6)
13.7
(15.3)
$m
-
-
-
-
-
-
-
$m
9.6
1.4
11.0
$m
-
-
-
-
-
$m
-
4.0
4.0
-
18.1
(5.5)
16.6
$m
-
-
-
-
-
-
-
22 Retained earnings and reserves (continued)
Reserve movements (continued)
Operational risk reserve
Opening balance
Movement operational risk reserve
Closing balance
Cash flow hedge reserve
Opening balance
Mark-to-market movements
Tax effect of mark-to-market movements
Closing balance
General reserve for credit losses (GRCL)
Opening balance
Impact of adoption of new accounting standards 2
Restated opening balance
Relates to Rural Bank consolidation adjustments
Increase in GRCL
Closing balance
Acquisition reserve
Opening balance
Relates to Rural Bank consolidation adjustments
Closing balance
Total reserves
Group
2020 1
$m
3.8
0.4
4.2
$m
0.6
(20.3)
6.1
(13.6)
$m
77.3
-
77.3
-
9.3
86.6
$m
(20.4)
20.4
2019
$m
3.2
0.6
3.8
$m
(13.1)
19.5
(5.8)
0.6
$m
140.3
(82.9)
57.4
-
19.9
77.3
$m
(20.4)
-
-
(20.4)
Bank
2020 1
$m
-
-
-
$m
0.6
(20.3)
6.1
(13.6)
$m
77.3
-
77.3
-
9.3
86.6
$m
-
-
-
2019
$m
-
-
-
$m
(13.1)
19.5
(5.8)
0.6
$m
121.7
(66.0)
55.7
1.7
19.9
77.3
$m
-
-
-
87.3
73.8
66.6
105.5
1 The Group applied AASB 16 Leases from 1 July 2019. Prior periods have not been restated.
2 The Group applied AASB 9 Financial Instruments from 1 July 2018. Further information can be found in the Group's 2019 Annual Financial Report.
Nature and purpose of reserves
Employee benefits reserve
The reserve records the value of equities issued to non-executive
employees under the Employee Share Ownership Plan and
the value of deferred shares and rights granted to Executive
employees under the Employee Salary Sacrifice, Deferred Share
and Performance Share Plan.
Further details regarding these employee equity plans are
disclosed within Note 35.
Asset revaluation reserve - property
The reserve records revaluation adjustments to the Group's
property assets.
Revaluation reserve - FVOCI (without recycling)
The reserve records fair value changes in relation to equity
investments held at FVOCI.
Revaluation reserve - FVOCI (with recycling)
The reserve records fair value changes in assets classified as
debt securities.
Operational risk reserve
The reserve is required to meet Sandhurst Trustees Limited
licence requirements.
Cash flow hedge reserve
The reserve records mark-to-market movements in relation to
derivatives that are determined to be in an effective cash flow
hedge relationship.
General reserve for credit losses
APRA Prudential standard, APS 220 Credit Quality, requires a
reserve to be held to recognise estimated future credit losses
which may arise over the life of the Group's lending portfolio.
Acquisition reserve
The reserve records the difference between the carrying value of
the non-controlling interest and the consideration paid to acquire
the remaining interest of the non-controlling interest.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 0 5
23 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
2020
$m
2019
$m
Bank
2020
$m
2019
$m
11,657.6
11,409.0
11,657.6
11,409.0
7,500.0
7,500.0
7,500.0
7,500.0
-
-
-
-
3,935.0
3,845.0
3,935.0
3,845.0
11,657.6
11,409.0
11,657.6
11,409.0
3,565.0
3,655.0
3,565.0
3,655.0
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 are accounted for at
amortised cost. Transactions that are in currencies other
than AUD are restated to AUD equivalents each month with
adjustments taken directly to income. Funding instruments that
have been utilised appear in Note 14.
24 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. Accordingly, Bendigo
and Adelaide Bank Limited is required to maintain a minimum
106 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
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.
Other Assets and Liabilities
25 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 gain/(loss)
Total investment property
Recognition and measurement
Group
2020
$m
734.5
59.3
(50.0)
36.0
779.8
2019
$m
735.7
67.0
(44.1)
(24.1)
734.5
Bank
2020
$m
-
-
-
-
-
2019
$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.
The Group acknowledges that the expiration of government
stimulus packages and loan deferral arrangements have the
potential to negatively impact the recovery of the Australian
economy and property markets. The Group has revised the
assumptions upon which the Homesafe valuation is calculated
to ensure consistency with the Group’s forecasts for the
property market as determined by the Economic Outlook
Committee, taking into account the specific characteristics of
the portfolio. The Group has applied a discount rate of 5.75%
and property appreciation rates of -4.0% for the first year, 3.0%
for the second year, and 4.0% per annum thereafter.
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
Effect of reasonably
possible alternative assumptions
Favourable
change
Unfavourable
change
Discounted
cash flow
Rates of property
appreciation - long term
growth rate 4%
$779.8m
3% - 5%
Discount rates - 5.75% $779.8m
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.
$72.6m
($63.0m)
$90.3m
($76.8m)
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 0 2 0 1 0 7
26 Goodwill and other intangible assets
Group
Goodwill
Software
Customer
relationship
Other acquired
intangibles1
Trustee
licence
Carrying amount as at 1 July 2019
Additions
Impairment charge
Accelerated amortisation charge 2
Amortisation charge
Closing balance as at 30 June 2020
Carrying amount as at 1 July 2018
Additions
Impairment charge
Write off on disposal
Amortisation charge
$m
1,440.3
-
-
-
-
1,440.3
$m
1,442.3
-
-
(2.0)
-
Closing balance as at 30 June 2019
1,440.3
$m
228.1
40.2
(113.4)
(19.0)
(31.1)
104.8
$m
190.4
72.2
(0.7)
-
(33.8)
228.1
Bank
$m
$m
Carrying amount as at 1 July 2019
Additions
Impairment charge
Accelerated amortisation charge 2
Amortisation charge
1,360.8
16.7
-
-
-
Closing balance as at 30 June 2020
1,377.5
227.6
40.1
(113.4)
(18.5)
(31.1)
104.7
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
72.0
0.6
(0.7)
-
(33.2)
227.6
$m
1.1
5.5
-
-
(1.1)
5.5
$m
2.2
-
-
-
(1.1)
1.1
$m
0.2
5.5
-
-
(0.5)
5.2
0.5
-
-
-
-
(0.3)
0.2
$m
7.7
-
-
-
(2.1)
5.6
$m
6.7
3.6
-
-
(2.6)
7.7
$m
4.6
-
-
-
(1.3)
3.3
6.1
-
-
-
-
(1.5)
4.6
Total
$m
1,685.6
45.7
(113.4)
(19.0)
(34.3)
1,564.6
$m
1,650.0
75.8
(0.7)
(2.0)
(37.5)
$m
8.4
-
-
-
-
8.4
$m
8.4
-
-
-
-
8.4
1,685.6
$m
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
1,593.2
62.3
(113.4)
(18.5)
(32.9)
1,490.7
1,558.3
72.0
0.6
(0.7)
(2.0)
(35.0)
1,593.2
1 These assets include customer lists, management rights and trade names.
2 In the 2020 financial year, the Group made a change to the application of the Software Capitalisation Policy by increasing the capitalisation threshold. The
impact of this change was an accelerated amortisation charge of $19.0m (Group) and $18.5m (Bank) recognised as amortisation of software intangibles.
Recognition and measurement
Intangible assets (other than goodwill)
Intangible assets acquired separately are measured at cost
on initial recognition. Intangible assets acquired in a business
combination are measured at fair value at the date of acquisition.
Following initial recognition, intangible assets are carried at cost
less accumulated amortisation and impairment losses. Intangible
assets with a finite life are amortised over 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.
108 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Software includes both purchased and internally generated
software. The cost of internally generated software comprises
all directly attributable costs necessary to create, produce
and prepare the software to be capable of operating in the
manner intended by management. Costs incurred in the ongoing
maintenance of software are expensed as incurred.
Gains or losses arising from the disposal of an intangible asset
are measured as the difference between the sale proceeds and
the carrying amount of the asset and are included in the Income
Statement in the year of disposal.
26 Goodwill and other intangible assets (continued)
Intangible assets (other than goodwill) (continued)
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.
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 consideration paid for the
business minus the fair value of the identifiable net assets
acquired. Following initial recognition, goodwill is measured at
cost less accumulated impairment losses. Where a business
is divested, goodwill attributable to sale is measured on the
basis of the relative value of the operation disposed of and the
portion of the CGU retained.
Impairment of goodwill
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, and 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.
The Group has three CGUs which are aligned to the Group's
segments, namely; Consumer, Business and Agribusiness.
Key assumptions and estimates
Cash flows
The recoverable amount of each CGU is determined using a
value in use calculation. In determining value in use, the estimated
future (pre-tax) cash flows for each CGU are discounted to
their present value using a post-tax discount rate. The basis
for estimated future cash flows is the Group's target which is
developed annually and approved by management and the
Board. Growth rates are applied to the approved target to
extrapolate for a further four years.
A terminal growth rate is applied to extrapolate cash flows
beyond the initial five year period for each CGU.
In determining the assumptions and cash flow forecasts to be
used in the value in use calculation, consideration has been given
to the potential impacts of COVID-19. Management has made
a number of assumptions in estimating the impact of COVID-19
on the Group's future financial results, including the timing of
any recovery period, noting that economic uncertainty remains.
The assumptions made have been based on reasonable and
supportable information as at 30 June 2020. Specifically,
management has:
•
Verified the appropriateness of the target for the financial
year ended 30 June 2021 as the basis for the future cash
flows.
Determined income growth rates based on past
performance, established divisional strategies, and
management's expectations of future conditions having
regard to the potential future impacts of COVID-19.
Assumed expense growth consistent with the Group's
focus on reducing the cost-to-income ratio.
Assumed that credit expenses grow in line with assets.
While COVID-19 has the potential to impact credit
expenses, the calculation is not materially sensitive to
changes in credit expenses.
Stressed key assumptions, being asset growth, net interest
margin and credit expenses, for possible upside and
downside scenarios for the purpose of understanding the
impacts to the value in use calculation.
Used a terminal growth rate of 2.5% (June 2019: 2.5%), as a
representation of long-term growth rates, including inflation,
in Australia.
Excluded any impacts from future restructurings or
improvement activities, hence expected future cost-
savings as a result of the Group's accelerated technology
investment have not been taken into account.
•
•
•
•
•
•
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 0 9
26 Goodwill and other intangible assets (continued)
Key assumptions and estimates (continued)
Post-tax discount rate
The post-tax discount rate used is based on the weighted
average cost of capital for each CGU and reflects current
market assessments of the risks specific to the CGU for which
future estimates of cash flows have not been adjusted. At 30
June 2020, management revised the post-tax discount rate
to consider longer-term average risk free rates and betas.
In addition, management has included a risk premium in the
post-tax discount rate to reflect the inherent uncertainties in
forecasting cash flows in the current environment.
The table below contains the carrying value of goodwill and
other indefinite useful life intangible assets for each CGU,
together with the post-tax discount rates used in the calculation
of the recoverable amount.
Goodwill
Other intangible assets 1
Post-tax discount rate
Consumer
Business
Agribusiness
2020
$m
2019
$m
1,197.6
1,197.6
152.1
90.6
152.1
90.6
2020
$m
8.4
-
-
2019
$m
8.4
-
-
1 Refers to intangible assets with an indefinite useful life.
2020
$m
10.33%
10.33%
10.63%
2019
$m
9.66%
9.66%
9.96%
Management has determined that there is no impairment of
goodwill for the year ended 30 June 2020. The value in use
calculation results have been compared against both internal
and external valuations prepared using various approaches to
calculate the Group's fair value less cost to sell. Management is
satisfied that the value in use calculation results are appropriate
and acknowledge that COVID-19 has posed significant
problems for the valuation of businesses.
The measurement of the CGUs recoverable amounts is most
sensitive to changes in net interest income and expenses.
As a result, if the Group experiences a significant reduction in
asset growth or net interest margin, or a significant increase
in expenses, this may impact the assessment of the Group's
goodwill balances. Management has considered reasonably
possible changes in key assumptions in the calculation and
results.
The table below provides movements of the key assumptions
that would result in an impairment. These sensitivities assume
the specific assumption moves in isolation, with all other
assumptions held constant.
Consumer
Business
Agribusiness
Post-tax
discount rate
bps
+40
+322
+831
Growth rates
NII
bps
-67
-408
-943
Expenses
bps
+103
+657
+1362
110 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
27 Other assets
Accrued income
Prepayments
Sundry debtors
Accrued interest
Deferred expenditure
Total other assets
Group
Bank
2020
$m
27.8
40.4
91.0
135.2
37.1
331.5
2019
$m
38.7
30.6
153.4
163.1
50.6
2020
$m
24.8
40.3
2019
$m
23.9
30.5
1,193.2
1,148.0
104.1
37.1
142.5
50.6
436.4
1,399.5
1,395.5
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.
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.
Accrued interest
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.
When the project has been completed these items are
transferred to software intangible assets. Refer to Note 26 for
further information.
The carrying value of deferred expenditure is reviewed for
impairment every six months when the asset is not yet available
for use, or more frequently when an indicator of impairment arises.
28 Other payables
Lease liability
Accrued expenses and outstanding claims
Accrued interest
Prepaid interest
Total other payables
Recognition and measurement
Group
Bank
2020
$m
221.4
260.0
105.9
16.1
603.4
2019
$m
-
299.3
171.3
22.4
493.0
2020
$m
220.9
253.0
105.9
-
2019
$m
-
290.8
171.3
-
579.8
462.1
Lease liability
The Group adopted AASB 16 on 1 July 2019. The standard
requires that a lease liability is recorded on the Balance Sheet at
the inception of a lease contract.
Accrued expenses
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.
The lease liability is initially measured at the present value of the
lease payments that have not been paid at the commencement
date, discounted using the Group’s incremental borrowing rate.
The lease liability is subsequently measured at amortised cost
using the effective interest method.
It is remeasured when there is a lease modification that is not
accounted for as a separate lease, there is a change in future
lease payments arising from a change in an index or rate, if there
is a change in the Group’s estimate of the amount expected
to be payable under a residual value guarantee, or if the Group
changes its assessment of whether it will exercise a purchase,
extension or termination option.
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.
Prepaid interest
Prepaid interest is the interest received from customers in
advance. This interest is recognised in the Income Statement
using the effective interest rate method.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 1 1
29 Provisions
Employee entitlements
Make Good Provision
Property rent
Other 1
Closing balance
Group
Bank
2020
$m
98.2
13.5
-
2.7
2019
$m
95.7
-
19.0
4.9
2020
$m
98.2
13.5
-
2.7
2019
$m
94.2
-
19.0
4.8
114.4
119.6
114.4
118.0
1 Other provisions comprise various other provisions including reward programs and dividends.
Movements in provisions (excluding employee entitlements)
Group
Opening balance
Additional provision recognised
Impact of adoption of new
accounting standard 1
Amounts utilised
during the year
Closing balance
Bank
Opening balance
Additional provision recognised
Impact of adoption of new
accounting standard 1
Amounts utilised
during the year
Closing balance
Property Rent
Make Good Provision
Other
Total
2020
$m
19.0
-
(19.0)
2019
$m
19.8
0.7
-
2020
$m
14.4
0.1
-
-
-
(1.5)
(1.0)
19.0
13.5
2020
$m
19.0
-
(19.0)
2019
$m
19.8
0.7
-
2020
$m
14.4
0.1
-
-
-
(1.5)
(1.0)
19.0
13.5
2019
$m
-
-
-
-
-
2019
$m
-
-
-
-
-
2020
$m
4.9
2019
$m
6.3
320.5
333.7
2020
$m
23.9
320.5
2019
$m
26.1
334.4
-
-
(19.0)
-
(322.7)
(335.1)
(322.7)
(336.6)
2.7
4.9
2.7
23.9
2020
$m
4.8
2019
$m
5.1
320.5
332.9
2020
$m
23.8
320.5
2019
$m
24.9
333.6
-
-
(19.0)
-
(322.6)
(333.2)
(322.6)
(334.7)
2.7
4.8
2.7
23.8
1 The Group applied AASB 16 Leases from 1 July 2019. Prior periods have not been restated.
Employee benefits
The table below shows the individual balances for employee benefits:
Group
Bank
2020
$m
36.8
54.9
6.5
98.2
2019
$m
31.5
57.5
6.7
95.7
2020
$m
36.8
54.9
6.5
98.2
2019
$m
30.9
56.6
6.7
94.2
Annual leave
Long service leave
Sick leave bonus
Closing balance
112 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
29 Provisions (continued)
Recognition and measurement
Employee Entitlements
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 has been derecognised
upon adoption of AASB 16 Leases.
Make Good Provision
The Group adopted AASB 16 on 1 July 2019. The Standard
requires a provision be recorded on the Balance Sheet upon
initial recognition of a lease contract to which the Group acts as
a lessee. The provision is to recognise on the Balance Sheet the
estimated cost of removing leasehold improvements.
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.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 1 3
Other Disclosure Matters
30 Cash flow statement reconciliation
Profit after tax
Non-cash items
Credit expenses
Amortisation
Depreciation (including leasehold improvements) 1
Revaluation increment/(decrement)
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 in tax provision
Decrease in deferred tax assets and liabilities
Decrease/(increase) in derivatives
Decrease in accrued interest
Decrease/(increase) in accrued employee entitlements
Decrease/(increase) in other accruals, receivables and provisions
Cash flows from operating activities before changes
in operating assets and liabilities
Net increase in operating assets
Net (increase)/decrease of loans to other entities
Net increase of investment securities
Net increase in operating liabilities
Net increase in balance of deposits
Net increase/(decrease) in balance of notes payable
Net cash flows from operating activities
Group
2020
$m
2019
$m
Bank
2020
$m
2019
$m
192.8
376.8
262.8
644.3
173.3
53.3
72.2
7.9
3.3
(1.6)
(1.6)
2.8
7.0
3.2
(6.4)
(83.0)
9.4
(43.8)
2.5
38.0
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)
170.9
51.4
72.1
19.4
3.3
(1.6)
50.3
35.0
18.4
(34.1)
3.5
(2.5)
(120.5)
(300.6)
2.8
7.0
3.2
(6.4)
(101.2)
9.5
(27.0)
4.0
(58.1)
2.7
7.1
(9.7)
(45.1)
(59.8)
150.4
(26.9)
(13.0)
306.4
429.3
360.1
291.6
726.4
(3,319.9)
(384.0)
(337.6)
(773.2)
2,991.0
(3,518.7)
(6,671.0)
(2,043.4)
3,585.7
1,037.1
3,578.6
5,072.5
39.1
350.2
(80.4)
206.0
(23.1)
167.1
23.1
259.9
1 Includes depreciation of ROUAs recognised on 1 July 2019 following the adoption of AASB 16. Comparatives have not been restated.
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.
114 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
31 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.
•
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 1
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
cash flows 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.
Principal activities
Banking
Principal activities
Homesafe product financier
Margin lending
Group
Bank
2020
$m
-
-
2019
$m
-
-
2020
$m
134.5
134.5
2019
$m
587.4
587.4
1 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. In the first half of the 2020 financial year, a final dividend was paid by Rural Bank and the share capital returned.
Significant restrictions
Special Purpose Entities (SPE's)
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.
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 17.
Entity
Principal activities
Torrens Series 2008-1 Trust
Securitisation
Torrens Series 2008-4 Trust
Securitisation
Torrens Series 2019-1 Trust
Securitisation
Torrens Series 2019-2 Trust
Securitisation
Torrens Series 2017-3 Trust
Securitisation
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 1 5
A summary of material transactions excluding dividends
between the Group and joint arrangements and associates
during the period were:
Commissions and fees paid to joint
arrangements and associates
Supplies and services provided to
joint arrangements and associates
Amount owing from/(to) joint
arrangements and associates
2020
$m
2019
$m
32.8
40.1
5.6
9.4
3.8
1.0
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.
Key management personnel
Key management personnel (KMP) are those persons with
authority and responsibility for planning, directing and controlling
the activities of the Group, directly or indirectly.
The Group's KMP are those members of the Bendigo and
Adelaide Bank Group Executive Committee together with its
Non-executive Directors.
Further details relating to KMP are located in the Remuneration
Report.
The table below details, on an aggregated basis, KMP
compensation:
30 June
2020
30 June
2019
$'000's
$'000's
6,307.2
6,100.8
Salaries and other
short-term benefits
Post-employment benefits
298.1
334.1
Other long term benefits
Termination benefits
41.5
809.7
11.4
15.9
Share based payments
2,028.2
2,326.0
Total
9,484.7
8,788.2
32 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
2020
$m
2019
$m
435.1
6.6
315.2
194.3
(47.5)
(72.7)
-
306.9
Net amount owing to subsidiaries
702.8
435.1
Bendigo and Adelaide Bank provides funding and guarantee
facilities to several subsidiary companies. These facilities are
provided on normal commercial terms and conditions.
Subsidiary
Facility
Sandhurst
Trustees Limited
Guarantee
Limit
Dividends paid by the subsidiaries
Drawn/
issued at
30 June
2020
$m
-
2019
$m
Limit
$m
0.5
2020
$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 supplies
procured and fees charged in relation to the provision of banking,
administrative and corporate services. These revenue and
expense items are included in the Group's Income Statement.
The transactions are conducted on the same terms as other
third party transactions.
116 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Rural Bank Limited
119.2
300.0
Compensation
32 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 2020
30 June 2019
No.
No.
1,465,883
1,493,266
1,050
282,282
4,240
246,936
1,749,215
1,744,442
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 2020
30 June 2019
$'000's
12,387.6
12,136.2
394.7
-
$'000's
11,987.8
12,749.0
550.7
-
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.
33 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
•
These vehicles are financed through the issue of notes to
investors.
investment opportunities for the Group.
•
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
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 1 7
33 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:
Managed
investment
funds
2020
Cash and cash equivalents
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.
$m
0.1
-
8.7
-
8.8
-
8.8
Securitisation
vehicles
Managed
investment
funds
Securitisation
vehicles
2020
$m
-
29.2
17.1
1,385.2
1,431.5
262.8
1,694.3
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
Maximum exposure to loss
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
2020
$m
0.1
2020
$m
0.1
2019
$m
0.1
2019
$m
0.1
1,431.5
1,694.3
966.0
1,211.4
8.7
8.7
9.1
9.1
1,440.3
1,703.1
975.2
1,220.6
Significant restrictions
There are no significant restrictions imposed by any
unconsolidated structured entity on the Group's ability to access
or use its assets or settle its liabilities.
Recognition and measurement
A structured entity is an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity.
Involvement with structured entities varies and includes debt
financing of these entities as well as other relationships.
A review is undertaken to determine the involvement the Group
has and whether the involvement with these entities results in
significant influence, joint control or control over the structured
entity. The structured entities over which control can be
exercised are consolidated. These entities are outlined in Note 31.
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.
Securitisation vehicles
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 unconsolidated 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.
118 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
33 Involvement with unconsolidated entities (continued)
Recognition and measurement (continued)
Community Banks
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
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.
34 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
Recognition and measurement
Group
2020
$m
6,161.7
2,472.3
3,689.4
2019
$m
6,748.7
2,536.7
4,055.5
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.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 1 9
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. The shares under this Plan
were released on 10 March 2020.
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.
35 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 the current financial
year 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; and
risk conditions.
•
•
•
The previous performance right grants are subject to the
following performance conditions:
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.
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
120 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
35 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 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
2020
No. 1
2019
No. 1
2020
No. 1
2019
No. 1
2020
No. 1
2019
No. 1
2020
2020
2019
2019
No. 2 WAEP ($)
No. WAEP ($)
649,842 833,725 301,721 171,439 167,079 183,426
949,734
5.72 1,464,830
4.49
300,634 303,687
91,452 308,214
(212,616)
(153,925)
-
(6,493)
-
-
-
-
-
-
-
-
-
-
-
-
(59,550)
(333,645)
(141,802)
(171,439)
(167,079)
(16,347)
(134,560)
4.96 (515,096)
0.85
678,310 649,842 251,371 301,721
- 167,079
815,174
5.31
949,734
5.72
-
-
-
-
-
-
-
-
-
-
Outstanding
at beginning
of year
Granted
Forfeited/
lapsed
Vested/
exercised
Outstanding at
year end
Exercisable at
year end
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 2020 is represented by 815,174 (2019: 949,734) ordinary shares with a market value of $5,714,370 (2019: $10,997,919),
exercisable upon repayment of the employee loan.
Recognition and measurement
The cost of the employee services received in respect of shares or rights granted is recognised in the Income Statement over the
period the employee provides the services, generally the period between the grant date and the vesting date of the shares or rights.
The overall cost of the award is calculated using the number of shares or rights expected to vest and the fair value of the shares or
rights at the grant date.
Fair value methodology
The fair value of shares or rights granted under the various Plans takes into account the terms and conditions upon which the shares
or rights were granted.
Performance rights - The fair value is determined using a Black Scholes Merton valuation method incorporating a Monte Carlo
Simulation option pricing model taking into account the terms and conditions upon which the rights were granted.
The following inputs are used in the models:
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of performance rights (years)
Exercise price ($)
Managing Director
Other executives
17 Dec 2019
17 Dec 2019
7.08%
21.23%
0.88%
4 years
nil
7.08%
21.23%
0.88%
4 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.
Deferred shares - The fair value is measured as at the date of the grant using the volume weighted average closing price of the
Company's shares traded on the ASX for five trading days ending on the grant date.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 2 1
36 Commitments and contingencies
a) Commitments
The following are outstanding expenditure and credit related commitments as at 30 June 2020. Except where specified, all
commitments are payable within one year.
Credit related commitments
Group
2020
$m
2019
$m
Bank
2020
$m
2019
$m
Gross loans approved, but not advanced to borrowers
1,579.0
1,481.1
1,579.0
1,481.1
Credit limits granted to clients for overdrafts and credit cards 1
Total amount of facilities provided
Amount undrawn at balance date
7,215.9
7,590.8
7,215.9
7,590.8
4,004.5
3,987.4
4,004.5
3,987.4
1 Normal commercial restrictions apply as to use and withdrawal of the facilities.
b) Contingent liabilities
Guarantees
$m
$m
$m
$m
The economic entity has issued guarantees on behalf of clients
253.3
236.5
253.3
236.5
Other
Documentary letters of credit and performance
related obligations
1.4
1.5
1.4
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.
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.
c) Contingent assets
As at 30 June 2020, the economic entity does not have any
contingent assets.
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. The
Group has no provisions raised for any current legal proceedings.
122 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
37 Remuneration of Auditor
The Group's external auditor is Ernst & Young (EY). In addition to the audit and review of the Group's financial reports, EY has provided
other services throughout the year.
Group
2020
$
2019
$
Bank
2020
$
2019
$
Fees to Ernst & Young (Australia) 1
Category 1 - Fees to the group auditor for audit and review of
financial statements
1,913,300
1,635,658
1,906,300
1,402,288
Category 2 - Audit related services
51,700
51,000
51,700
51,000
Category 3 - Other assurance services
Consolidated entities
Non-consolidated entities
Category 4 - Non-audit (other) related fees
Consolidated entities
Non-consolidated entities
843,620
1,078,745
843,620
1,001,145
352,060
339,080
-
263,100
8,000
-
-
-
-
-
263,100
-
Total fees to Ernst & Young (Australia)
3,168,680
3,367,583
2,801,620
2,717,533
1.
Fees exclude goods and services tax (GST).
Following the 2019 Parliamentary Joint Committee and Financial Services' Inquiry into the Regulation of Auditing in Australia, a
recommendation was made to adopt a consistent disclosure of audit and non-audit fees. As a result, the Group has restated the
comparative period balances and disclosed audit and non-audit fees in the following categories:
Category 1 - Fees to the Group's auditor for auditing the statutory financial report of the Parent covering the Group, and for auditing
the statutory financial report of any controlled entities.
Category 2 - Fees for assurance services that are required by legislation to be provided by the auditor. These services include
assurance of the Group’s compliance with Australian Financial Services Licensing requirements.
Category 3 - Fees for other assurance and agreed-upon-procedures services under other legislation or contractual arrangements
where there is discretion as to whether the service is provided by the auditor or another firm. These services include regulatory
compliance reviews, agreed-upon procedures, comfort letters, assurance of the Group's sustainability reporting, systems assurance
and controls reviews. This category also includes assurance services provided to non-consolidated trusts of which a Group entity is
trustee, manager, or responsible entity, and the non-consolidated Group superannuation fund.
Category 4 - Fees for other services (e.g. tax compliance in 2020 and financial crimes review in 2019).
The Group processes in place to maintain the independence of the external auditor, including the nature of expenditure on non-audit
services. EY also has specific internal processes in place to ensure auditor independence.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 2 3
38 Leases
Recognition and measurement
A. Leases as lessee
(Effective as of 1 July 2019)
AASB 16 Leases was amended in June 2020 to provide lessees with a practical expedient that relieves a lessee from assessing
whether a COVID-19-related lease modifications. The Group has not received any COVID-19-related rent concessions, hence does
not need to apply this practical expedient.
As a lessee the Group leases many assets including property, IT equipment, and ATMs.
The Group records right-of-use assets (ROUA) and lease liabilities for most of its lease contracts, with the exception of short-term
and/or leases of low-value whereby lease payments are expensed on a straight-line basis over the lease term.
(i) Right-of-use assets relate to leased branch and office premises that are included in the balance of property, plant and equipment
in the Balance Sheet.
Properties
IT Equipment
$m
202.4
(44.9)
3.9
5.6
167.0
$m
18.7
(6.4)
-
0.7
13.0
Balance as at 1 July 2019
Depreciation charge
Additions
Remeasurements
Balance as at 30 June 2020
(ii) Amounts recognised in the Income Statement
Depreciation charge of Right-of-use assets
Buildings
Equipment
Other
Total depreciation expense ROUA
Interest on lease liabilities
Expenses relating to short-term leases
Expenses relating to leases of low-value assets, excluding short-term leases of low value assets
(iii) Amounts recognised in statement of cash flows
Total cash outflow for leases
(Effective prior to 1 July 2019)
Other
$m
5.8
(2.6)
-
-
3.2
Group
2020
$m
44.9
6.4
2.6
53.9
7.3
1.0
-
Group
2020
$m
54.9
Leases for which the Group acted as the lessee were previously classified as operating leases under AASB 117. As a result non-
cancellable lease payments were not being recognised as liabilities but were recognised as rental expenses over the lease term on a
straight-line basis.
Lease expense
Contingent lease expense
124 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Group
2019
$m
57.2
362.2
38 Leases (continued)
Recognition and measurement (continued)
Operating lease commitments (as lessee)
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years
Total
B. Leases as lessor
(Effective as of 1 July 2019)
Group
2019
$m
81.8
183.4
97.0
362.2
Bank
2019
$m
79.6
180.0
97.0
356.6
The Group sub-leases some of its properties. As of 1 July 2019, the Group accounts for its interests in the head lease and the sub-
lease separately and assesses the lease classification of a sub-lease with reference to the ROUA arising from the head lease, rather
than the underlying asset. The Group has defined the sub-leases to be operating leases and as a consequence recognises lease
income from the sub-lease in the Income Statement on a straight line basis over the lease term.
Rental income recognised by the Group during the year ended 30 June 2020 was $3.8m (FY19: $3.8m).
The practical expedient in AASB 16 Leases does not extend to the lessor. The Group, as lessor, has provided various sub-tenants with
COVID-19 rental concessions. As the rental income relating to these operating leases is recognised as it is due from the tenant, where
COVID-19 rental concessions have been provided, no rental income has been recognised by the Group.
The following table sets out the maturity analysis of lease payments, showing the
undiscounted lease payments to be received after the reporting date.
Less than one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
Total
(Effective prior to 1 July 2019)
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2019
are outlined in the table below:
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years
Total
Group
2020
$m
4.6
4.7
4.3
3.9
3.8
1.4
Bank
2020
$m
4.6
4.7
4.3
3.9
3.8
1.4
22.7
22.7
Group
2019
$m
3.5
9.4
3.0
Bank
2019
$m
3.5
9.4
3.0
15.9
15.9
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 2 5
39 Business combinations
Acquisitions in the 2020 financial year
Community Sector Enterprises Pty Ltd
Community Sector Enterprises Pty Ltd is the parent entity of Community Sector Banking, an entity specialising in banking services for
not-for-profit and community organisations.
On 2 March 2020, Bendigo and Adelaide Bank Limited acquired the remaining 50% ownership held by Community 21, a not-for-profit
consortium, for $5.5 million. The fair value of net assets acquired was $5.5 million (including the fair value of intangible assets acquired).
No goodwill or gain on bargain purchase was recognised.
Recognition and measurement
The Group accounts for a business combination using the acquisition accounting method when control is transferred. The
consideration transferred for the acquisition is measured at fair value, including contingent consideration, given at the date of
exchange. The acquired identifiable net assets are generally measured at fair value. Goodwill will be recorded on the Balance Sheet
where the purchase price exceeds the value of the identifiable net assets. Any gain on a bargain purchase is recognised in the
Income Statement immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity.
40 Events after balance sheet date
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 subsequently significantly affect the operations of the Group, the results of those operations, or the state of affairs
of the Group in financial periods.
126 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Key performance indicators
The following table provides a summary of the last five years key metrics.
Bendigo and Adelaide Bank Group
Five year history
For the year ended 30 June
Some of the key indicators in the table below are
non-IFRS measures and are unaudited.
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
Individually assessed provisions
Net impaired loans
Net impaired loans % of gross loans
Individually assessed provision for impairment
Individually assessed provision % of gross loans
Collectively assessed provision
General reserve for credit losses (GRCL) (general provision)
Collectively assessed provision and GRCL
as a % of risk-weighted assets
2020
2019 1
2018
2017
2016
1,333.8
1,289.6
1,305.2
1,213.6
1,164.1
168.5
192.8
301.7
50.3
376.8
415.7
70.6
434.5
445.1
71.8
429.6
418.3
44.1
415.6
401.4
76,008.9
72,435.3
71,439.8
71,415.5
68,572.7
64,980.4
61,822.2
61,601.8
60,776.6
57,256.8
5,798.2
5,631.6
5,620.3
5,425.6
5,115.3
67,686.1
64,061.3
63,074.3
63,252.5
60,877.2
38,215.2
37,483.1
38,256.4
38,062.3
36,485.5
2.34
9.25
2.02
7.98
38.1
59.7
31.0
Decision
deferred
31.0
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
7.42
0.42
5.36
3.43
10.73
11.52
11.61
11.83
0.61
7.55
6.84
0.65
8.23
8.03
0.61
8.10
8.32
0.62
8.17
8.46
4,776
15.9
4,540
16.0
4,426
16.1
4,413
16.2
4,531
15.1
240.5
(77.5)
163.0
0.25
78.4
0.12
263.2
86.6
310.9
(127.6)
335.8
(118.3)
183.3
217.5
282.6
(88.5)
194.1
350.2
(124.4)
225.8
0.29
128.5
0.21
157.0
77.3
0.35
119.3
0.19
48.2
0.32
89.5
0.15
52.7
0.39
125.3
0.22
53.4
140.3
140.3
146.9
0.92
0.63
0.49
0.56
0.55
($m)
($m)
($m)
($m)
($m)
($m)
($m)
($m)
($m)
(%)
(%)
(%)
($)
(¢)
(¢)
(¢)
(¢)
(¢)
(%)
(%)
(%)
(%)
(FTE)
($m)
($m)
($m)
(%)
($m)
(%)
($m)
($m)
(%)
1
The Group applied AASB 9 Financial Instruments from 1 July 2018. Further information can be found in the Group's 2019 Annual Financial Report.
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 2 7
Directors’ Declaration
In accordance with a resolution of the directors of Bendigo and Adelaide Bank Limited, we state that:
In the opinion of the directors:
a)
the financial statements and notes of the Company and the Bendigo and Adelaide Bank Group are in accordance with
the Corporations Act 2001, including:
(i) giving a true and fair view of the Company's and the Bendigo and Adelaide Bank Group’s financial position as at 30
June 2020 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and
Corporations Regulations 2001; and
b)
c)
d)
the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2;
and
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable;
this declaration has been made after receiving the declarations required to be made to the directors in accordance with
section 295A of the Corporations Act 2001 for the financial year ending 30 June 2020.
On behalf of the Board
Jacqueline Hey
Chair
3 September 2020
Marnie Baker
Managing Director
128 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 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 0 2 0
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 3 1
132 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 3 3
134 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 3 5
136 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Additional information
1 Material differences
There are no material differences between the information supplied in this report and the information in the preliminary final report
supplied by Bendigo and Adelaide Bank Limited (“the Company”) to the Australian Securities Exchange on 17 August 2020.
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 the Company are as detailed in the 2020 Corporate Governance Statement. For
further details, please refer to our website at https://www.bendigoadelaide.com.au/corporate_governance/index.asp.
4 Substantial shareholders
The following parties and their associates have notified the Company that they have a substantial relevant interest in the ordinary
shares of the Company, effective as at 7 August 2020:
Substantial holder
Number or ordinary shares held
% of total shares issued*
Date of last notice
BlackRock Group
Vanguard Group
40,528,336
30,269,146
7.63%
6.048%
28/7/20
25/3/20
* As at the date of the substantial shareholder's last notice lodged with the ASX.
5. Distribution of shareholders
Range of Securities as at 7 August 2020 in the following categories:
Category
1 - 1,000
1,001 - 5,000
Fully Paid
Ordinary
Shares
%
Fully Paid
Employee
Shares
%
Convertible
Preference
Shares 2
%
Convertible
Preference
Shares 3
%
Convertible
Preference
Shares 4
%
42,359 3.24%
914 52.44%
3,851 43.20%
4,651 49.63%
5,503 46.76%
40,070 18.95%
225 43.49%
375 24.99%
341 24.45%
377 23.47%
5,001 - 10,000
10,056 13.44%
3 2.20%
28 6.62%
16 3.71%
27
5.92%
10,001 -
100,000
100,001
and over
Number of
Holders
Securities on
Issue
5,930 22.76%
1 1.87%
17 14.08%
14 13.33%
25 17.71%
124 41.62%
-
-
2 11.11%
2 8.88%
1 6.14%
98,539
1,143
4,273
5,024
5,933
529,979,078
800,117
2,921,188
2,822,108
3,216,145
6 Marketable parcel
Based on a closing price of $6.67 on 7 August 2020 the number of holders with less than a marketable parcel of the Company's main
class of securities (Ordinary Shares), as at 7 August 2020 was 7,140.
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 (namely BENAK, BENAA and BENAB securities).
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 3 7
Additional information (continued)
8 Major shareholders
Names of the 20 largest holders of Fully Paid Ordinary Shares in the Company, including the number of shares each holds and the
percentage of capital that number represents, as at 7 August 2020 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
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES
AMP LIFE LIMITED
CARLTON HOTEL LIMITED
NAVIGATOR AUSTRALIA LTD
NEALE EDWARDS PTY LTD
NETWEALTH INVESTMENTS LIMITED
DIESEL COOLING PTY LTD
DYNAMIC SUPPLIES INVESTMENTS PTY LTD
LEESVILLE EQUITY PTY LTD
NATIONAL NOMINEES LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
TERMZ PTY LTD
Number of shares % of shares
89,508,463
47,970,144
25,875,224
14,812,598
5,508,479
3,871,855
1,916,349
1,601,791
1,399,752
1,241,963
1,117,147
788,416
765,731
715,893
700,000
700,000
681,688
593,299
548,850
500,000
16.89%
9.05%
4.88%
2.79%
1.04%
0.73%
0.36%
0.30%
0.26%
0.23%
0.21%
0.15%
0.14%
0.14%
0.13%
0.13%
0.13%
0.11%
0.10%
0.09%
200,817,642
37.86%
Equity Trustees Limited, trustee for the Bendigo and Adelaide Bank Employee Share Plan and the Employee Share Grant Scheme,
held a combined total of 800,117 unquoted shares. These shares have not been included in the above table, but are included in the
total of issued ordinary share capital.
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
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
BNP PARIBAS NOMS PTY LTD
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
BNP PARIBAS NOMINEES PTY LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
MERCHANT FOUNDATION PTY LTD
SANDHURST TRUSTEES LTD
TGB HOLDINGS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
NETWEALTH INVESTMENTS LIMITED
BNP PARIBAS NOMINEES PTY LTD
JOHN E GILL TRADING PTY LTD
THE TRUST COMPANY (AUSTRALIA) LIMITED
NATIONAL NOMINEES LIMITED
MUTUAL TRUST PTY LTD
AVANTEOS INVESTMENTS LIMITED <3311559 HANSPETER A/C>
NAVIGATOR AUSTRALIA LTD
MRS MAXINE FRANCES ELLIS
TRISTAR METALS PTY LTD
208,396
116,143
46,442
45,376
43,852
33,978
28,998
27,909
26,610
25,279
22,352
20,948
16,579
14,670
13,947
11,945
11,362
10,983
10,100
10,000
7.13%
3.98%
1.59%
1.55%
1.50%
1.16%
0.99%
0.96%
0.91%
0.87%
0.77%
0.72%
0.57%
0.50%
0.48%
0.41%
0.39%
0.38%
0.35%
0.34%
745,869
25.55%
138 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Additional information (continued)
8 Major shareholders (continued)
Names of the 20 largest holders of 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 7 August 2020 are:
Fully paid Convertible Preference Shares 3 (CPS3)
Rank Name
Number of shares % of shares
1
2
3
4
5
6
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
NAVIGATOR AUSTRALIA LTD
TRUSTEES OF CHURCH PROPERTY FOR THE DIOCESE OF NEWCASTLE
NETWEALTH INVESTMENTS LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMS PTY LTD
BERNE NO 132 NOMINEES PTY LTD <684168 A/C>
BNP PARIBAS NOMINEES PTY LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
7
8
9
10 MUTUAL TRUST PTY LTD
11
12
13
14 G C F INVESTMENTS PTY LTD
NATIONAL NOMINEES LIMITED
15
16 CITICORP NOMINEES PTY LIMITED
17
18
19
20 MS JILLIAN ROSEMARY BROADBENT
TGB HOLDINGS PTY LTD
INVIA CUSTODIAN PTY LIMITED
NETWEALTH INVESTMENTS LIMITED
132,067
118,457
93,418
37,566
28,609
28,200
25,123
23,269
23,265
20,629
20,058
18,265
18,107
15,000
13,048
11,679
9,800
9,230
7,700
7,417
4.68%
4.20%
3.31%
1.33%
1.01%
1.00%
0.89%
0.82%
0.82%
0.73%
0.71%
0.65%
0.64%
0.53%
0.46%
0.41%
0.35%
0.33%
0.27%
0.26%
660,907
23.40%
Names of the 20 largest holders of Convertible Preference Shares 4, including the number of shares each holds and the percentage
of Convertible Preference Share 4 capital that number represents, as at 7 August 2020 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
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMINEES PTY LTD
NAVIGATOR AUSTRALIA LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
NETWEALTH INVESTMENTS LIMITED
SOUTH BAY NOMINEES PTY LTD
PCI PTY LTD
SOUTH HONG NOMINEES PTY LTD
INVIA CUSTODIAN PTY LIMITED
NULIS NOMINEES (AUSTRALIA) LIMITED
NETWEALTH INVESTMENTS LIMITED
NAVIGATOR AUSTRALIA LTD
CORP OF THE TSTEES OF THE ROMAN CATH ARC
TRUSTEES OF CHURCH PROPERTY FOR THE DIOCESE OF NEWCASTLE
197,469
66,522
53,232
52,186
30,644
30,582
29,602
26,507
25,393
25,349
21,704
18,000
17,715
17,000
16,110
15,066
14,392
14,352
14,000
13,605
6.14%
2.07%
1.66%
1.62%
0.95%
0.95%
0.92%
0.82%
0.79%
0.79%
0.67%
0.56%
0.55%
0.53%
0.50%
0.47%
0.45%
0.45%
0.44%
0.42%
699,430
21.75%
A N N UA L F I N A N C I A L R E P O R T 2 0 2 0 1 3 9
Additional information (continued)
9 Voting rights
Under the Company's Constitution, each person who is a voting Shareholder and who is present at a general meeting of the
Company 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.
With respect to each person that is a holder of preference shares under the Company's Constitution each holder is not entitled to
vote at any general meeting of the Company except:
a) on any resolution during a period in which a dividend or part of a dividend remains unpaid
b) on any resolution:
•
•
•
•
to reduce the share capital of the Company (other than a resolution to approve a redemption of the holder's class
of preference shares)
that affects rights attached to the holder's class of preference shares
to wind up the Company
for the disposal of the whole of the property, business and undertaking of the Company
c) on a resolution to approve the terms of a buy-back agreement (other than a resolution to approve a redemption of the
holder's class of preference shares)
d) during a winding-up of the Company, in which case a holder will have the same rights as to manner of attendance and
voting as a holder of ordinary shares with one vote per preference share.
140 A N N UA L F I N A N C I A L R E P O R T 2 0 2 0
Australia’s Bank of Choice
Annual Financial Report 2020
Bendigo and Adelaide Bank Limited.
ABN 11 068 049 178